-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZSon0Yvfj7Zmm6J+VyMZhy2sU6EwKbirqKGVtL5Xqq0h9QIsLt8XdfTxz5F/669 z7u3JsUN55elbb35DjUxTw== 0000892569-98-001885.txt : 19980630 0000892569-98-001885.hdr.sgml : 19980630 ACCESSION NUMBER: 0000892569-98-001885 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUMINEX LIGHTING INC CENTRAL INDEX KEY: 0001039640 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-58025 FILM NUMBER: 98656946 BUSINESS ADDRESS: STREET 1: 13710 RAMONA AVENUE CITY: CHINO STATE: CA ZIP: 91710 MAIL ADDRESS: STREET 1: 13710 RAMONA AVENUE CITY: CHINO STATE: CA ZIP: 91710 SB-2 1 FORM SB-2 AS FILED ON JUNE 26, 1998 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998 REGISTRATION NO. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ LUMINEX LIGHTING, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) CALIFORNIA 3648 95-4467158 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) 13710 RAMONA AVENUE 13710 RAMONA AVENUE CHINO, CA 91710 CHINO, CA 91710 PHONE: (909) 591-5653 PHONE: (909) 591-5653 FACSIMILE: (909) 591-0643 FACSIMILE: (909) 591-0643 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL (ADDRESS OF PRINCIPAL PLACE OF BUSINESS) EXECUTIVE OFFICE)
PETER J. WILKE 9777 WILSHIRE BOULEVARD, SUITE 600 BEVERLY HILLS, CA 90212 PHONE: (310) 461-4967 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) COPIES TO: LAWRENCE W. HORWITZ, ESQ. LAWRENCE NUSBAUM, ESQ. HORWITZ & BEAM GUSRAE, KAPLAN & BRUNO TWO VENTURE PLAZA, SUITE 350 120 WALL STREET IRVINE, CA 92618 NEW YORK, NY 10005 PHONE: (714) 453-0300 PHONE: (212) 269-1400 FACSIMILE: (714) 453-9416 FACSIMILE: (212) 809-5449
------------------------ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC. As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933 (the "Act"), please check the following box and list the Act registration number of the earlier effective registration statement for the same offering. [ ] --------------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Act, check the following box and list the Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------- If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] CALCULATION OF REGISTRATION FEE ================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM NUMBER OF SHARES OFFERING PRICE AGGREGATE OR WARRANTS PER SHARE OFFERING TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED TO BE REGISTERED OR WARRANT(1) PRICE(1)(2) - ------------------------------------------------------------------------------------------------------------------ Shares of Common Stock, no par value ("Common Stock")............................................. 500,000 $5.50 $2,750,000 - ------------------------------------------------------------------------------------------------------------------ Warrants to Purchase Shares of Common Stock.......... 500,000 $0.10 $ 50,000 - ------------------------------------------------------------------------------------------------------------------ Common Stock(3)...................................... 500,000 $6.00 $3,000,000 - ------------------------------------------------------------------------------------------------------------------ Underwriter Warrants(4).............................. 1 -- $ 10 - ------------------------------------------------------------------------------------------------------------------ Common Stock, Issuable Upon Exercise of Underwriter Warrants(5)........................................ 50,000 $6.60 $ 330,000 - ------------------------------------------------------------------------------------------------------------------ Warrants Issuable Upon Exercise of Underwriter Warrants(6)........................................ 50,000 $0.12 $ 6,000 - ------------------------------------------------------------------------------------------------------------------ Common Stock Issuable Upon Exercise of Warrants underlying Underwriter Warrants(7)................. 50,000 $6.60 $ 330,000 - ------------------------------------------------------------------------------------------------------------------ Common Stock, no par value, issued in connection with bridge financing(8)................................ 506,500 $6.60 $2,785,750 - ------------------------------------------------------------------------------------------------------------------ Common Stock, underlying warrants issued in connection with bridge financing(9)................ 500,000 $0.80 $ 400,000 - ------------------------------------------------------------------------------------------------------------------ Common Stock, no par value, underlying options issued pursuant to Employee Stock Option Plan(10)......... 500,000 $0.01 $ 5,000 - ------------------------------------------------------------------------------------------------------------------ Total................................................ 2,756,500 $9,656,760 ==================================================================================================================
- ---------------------------------------------------------------------------- AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE - ---------------------------------------------------------------------------- Shares of Common Stock, no par value ("Common Stock")............................................. $ 811.25 - ---------------------------------------------------------------------------- Warrants to Purchase Shares of Common Stock.......... $ 14.75 - ---------------------------------------------------------------------------- Common Stock(3)...................................... $ 885.00 - ---------------------------------------------------------------------------- Underwriter Warrants(4).............................. -- - ---------------------------------------------------------------------------- Common Stock, Issuable Upon Exercise of Underwriter Warrants(5)........................................ $ 97.35 - ---------------------------------------------------------------------------- Warrants Issuable Upon Exercise of Underwriter Warrants(6)........................................ $ 1.77 - ---------------------------------------------------------------------------- Common Stock Issuable Upon Exercise of Warrants underlying Underwriter Warrants(7)................. $ 97.35 - ---------------------------------------------------------------------------- Common Stock, no par value, issued in connection with bridge financing(8)................................ $ 821.80 - ---------------------------------------------------------------------------- Common Stock, underlying warrants issued in connection with bridge financing(9)................ $ 118.00 - ---------------------------------------------------------------------------- Common Stock, no par value, underlying options issued pursuant to Employee Stock Option Plan(10)......... $ 1.48 - ---------------------------------------------------------------------------- Total................................................ $2,848.75 ============================================================================
(Footnotes on next page) ================================================================================ 2 - --------------- (1) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457. (2) The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission (the "Commission"), acting pursuant to said Section 8(a), may determine. (3) Represents Common Stock reserved for issuance upon exercise of Warrants. (4) Warrants issuable to Platinum Equities, Inc., the Underwriter ("Underwriter Warrants") to purchase up to 50,000 Shares of Common Stock and up to 50,000 Warrants. (5) Represents Common Stock issuable upon exercise of the Underwriter Warrants. Pursuant to Rule 416 promulgated under the Securities Act of 1933, this Registration Statement also covers any additional common shares which may become issuable by reason of the antidilution provisions of the Underwriter Warrants. (6) Represents Warrants issuable upon exercise of Underwriter Warrants. Pursuant to Rule 416 promulgated under the Securities Act of 1933, this Registration Statement also covers any additional Common Shares which may become issuable by reason of the antidilution provisions of the Underwriter Warrants. (7) Represents Common Stock issuable upon exercise of Warrants included in Underwriter Warrants. (8) Represents Common Stock issued in connection with bridge financing to the Company. (9) Represents Common Stock issuable upon exercise of Warrants (the "Bridge Warrants") issued in connection with bridge financing to the Company. Pursuant to Rule 416 of the Act, this Registration Statement also covers any additional common shares which may become issuable by reason of the antidilution provisions of the Bridge Warrants. Registration fee calculated to Rule 457(g)(1). (10) Registration fee calculated pursuant to Rule 457(h)(1). 3 LUMINEX LIGHTING, INC. CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATIONS S-B SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
FORM SB-2 ITEM NUMBER AND CAPTION PROSPECTUS --------------------------------- ---------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus Cover..................................... Facing Page of Registration Statement: Outside Front Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus............................. Available Information; Incorporation of Certain Documents by Reference; Table of Contents 3. Summary Information; Risk Factors......... Prospectus Summary; Risk Factors 4. Use of Use of Proceeds.................... Prospectus Summary; Business of the Company; Proceeds 5. Determination of Offering Price........... Risk Factors; Underwriting 6. Dilution.................................. Dilution 7. Selling Security Holders.................. Selling Shareholders 8. Plan of Distribution...................... Underwriting 9. Legal Proceedings......................... Not Applicable 10. Directors, Executive Officers, Promoters and Control Persons....................... Management and Principal Shareholders 11. Security Ownership of Certain Beneficial Owners and Management..................... Management and Principal Shareholders 12. Description of Securities to be Registered................................ Description of Securities 13. Interests of Named Experts and Counsel.... Not Applicable 14. Disclosure of Commission Position on Indemnification for Act Liabilities....... Indemnification of Directors and Officers 15. Organization Within Last Five Years....... Business of the Company 16. Description of Business................... Business of the Company 17. Management's Discussion and Analysis of Plan of Operation......................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property................... Business of the Company (Properties) 19. Certain Relationships and Related Transactions.............................. Certain Transactions 20. Market for Common Equity and Related Stockholder Matters....................... Risk Factors; Underwriting 21. Executive Compensation.................... Total Executive Compensation 22. Consolidated Financial Statements......... Consolidated Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure................................ Not Applicable
4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 29, 1998 LUMINEX LIGHTING, INC. UP TO 500,000 SHARES OF COMMON STOCK AND 500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS MINIMUM OFFERING: 250,000 SHARES AND 250,000 WARRANTS Luminex Lighting, Inc., a California corporation ("the Company"), hereby offers for sale: (i) a minimum (the "Minimum Offering") of 250,000 Shares of Common Stock, no par value (the "Common Stock" or the "Shares") and 250,000 Redeemable Common Stock Purchase Warrants (the "Warrants"); and (ii) a maximum (the "Maximum Offering") of 500,000 Shares of Common Stock and 500,000 Warrants. The Common Stock and the Warrants offered hereby (sometimes referred to as the "Securities") will be separately tradeable immediately upon issuance and may be purchased separately. The Common Stock and Warrants are being offered through Platinum Equities, Inc. (the "Underwriter") at the public offering prices set forth below. Each Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $6.00, subject to adjustment, during the five year period commencing on the date of this Prospectus (the "Effective Date"). The Warrants are redeemable, in whole or in part, by the Company at a price of $0.10 per Warrant, commencing one year after the Effective Date (or earlier with the consent of the Underwriter), upon notice of not less than 30 days, provided that the closing bid price (as defined) of the Common Stock for a period of 20 consecutive trading days ending on the third day prior to the day on which notice of redemption is given shall have been at least $7.50 per share, subject to adjustment. See "Description of Securities" and "Underwriting." (Continued on next page) THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS OR HER ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION." ALL PAYMENTS FOR THE SECURITIES OFFERED HEREBY SHALL BE MADE BY CHECK PAYABLE TO "AMERICAN STOCK TRANSFER & TRUST COMPANY AS ESCROW AGENT FOR LUMINEX LIGHTING, INC." THE UNDERWRITER WILL NOT BE MAKING A MARKET IN THE SECURITIES OFFERED HEREBY. THE ABSENCE OF SUCH ACTIVITY BY THE UNDERWRITER MAY HAVE A MATERIAL ADVERSE AFFECT ON THE LIQUIDITY OF THE SECURITIES OFFERED HEREBY, WHICH COULD MAKE IT MORE DIFFICULT FOR THE INVESTORS HEREIN TO SELL AND/OR PURCHASE SUCH SECURITIES. SEE "RISK FACTORS" AND "UNDERWRITING."
======================================================================================================================== UNDERWRITING PROCEEDS TO ISSUER OR PRICE TO PUBLIC COMMISSIONS(1) OTHER PERSONS(2)(3) - ------------------------------------------------------------------------------------------------------------------------ Per Share................................................... $ 5.50 $ 0.55 $ 4.95 - ------------------------------------------------------------------------------------------------------------------------ Per Warrant................................................. $ 0.10 $ 0.01 $ 0.09 - ------------------------------------------------------------------------------------------------------------------------ Minimum Offering(3) (250,000 Shares and 250,000 Warrants)... $1,400,000 $140,000 $1,260,000 - ------------------------------------------------------------------------------------------------------------------------ Maximum Offering (500,000 Shares and 500,000 Warrants)...... $2,800,000 $280,000 $2,520,000 ========================================================================================================================
(1) Does not include additional compensation to the Underwriter in the form of: (i) a non-accountable expense allowance equal to 3% of the gross proceeds of the offering; (ii) warrants to purchase up to 50,000 shares of Common Stock of the Company and up to 50,000 Warrants at exercise prices equal to 120% of the respective public offering prices of the Common Stock and Warrants, to the extent of 10% of the number of Securities actually sold herein (the "Underwriter's Warrants"). The Company has agreed to indemnify the Underwriter against, or contribute to losses arising from, certain liabilities, including liabilities under the Act. See "Underwriting." (2) Before deduction of estimated expenses of $194,000 payable by the Company, in the event the Maximum Offering is sold, including the Underwriter's 3% non-accountable expense allowance. See "Underwriting." (3) There is no assurance that all or any of the Securities offered hereunder will be sold. If the Company fails to receive subscriptions for the Minimum Offering within 120 days from the Effective Date (or 150 days if extended by the Company), the Offering will be terminated and any subscription payments received will be promptly refunded within five days to subscribers, without any deduction therefrom or any interest thereon. If subscriptions for at least the Minimum Offering are received within such period, funds will not be returned to investors and the Company may continue the Offering until such period expires or subscriptions for the Maximum Offering have been received, whichever comes first. The investment funds shall be held in an escrow account with American Stock Transfer & Trust Company as Escrow Agent for up to 150 days. During this time, investors cannot demand the return of their investments. If the Company does not meet the required minimum number of Securities to be sold (250,000 Shares and 250,000 Warrants), the investors will be refunded their investment in full without interest. Affiliates may purchase Securities in the Offering and no limits have been imposed in this regard, but no one has made any commitment to purchase any portion of the Offering in order to reach the minimum. ------------------------ PLATINUM EQUITIES, INC. THE DATE OF THIS PROSPECTUS IS JUNE 29, 1998 5 (Continued from cover page) Additionally, 506,500 Shares of Common Stock (the "Private Placement Stock") and 500,000 Shares of Common Stock underlying warrants (the "Private Placement Warrants") (collectively, the "Private Placement Securities") of the Company are being registered herein and will be sold from time to time by the shareholders described herein (the "Selling Shareholders") in transactions in the national over-the-counter market or otherwise at prices prevailing at the time of sale. The Selling Shareholders have agreed not to sell, assign, pledge, hypothecate, or otherwise dispose of any of the Private Placement Stock, as well as the Shares of Common Stock underlying the Private Placement Warrants, for a period of 12 months from the final closing of the Offering ("Closing Date") without the prior written consent of the Underwriter. The Company will not receive any of the proceeds from the sale of any Private Placement Securities by the Selling Shareholders. All expenses incurred in registering the Private Placement Securities are being borne by the Company, but all selling and other expenses incurred by the Selling Shareholders will be borne by the Selling Shareholders. See "Selling Shareholders." The Private Placement Securities offered by the Selling Shareholders have been acquired by the Selling Shareholders from the Company in private transactions and are "restricted securities" under the Act, prior to their sale hereunder. This Prospectus has been prepared for the purpose of registering the Private Placement Securities under the Act to allow for future resales by the Selling Shareholders to the public without restriction. To the knowledge of the Company, the Selling Shareholders have made no arrangement with any brokerage firm for the sale of the Private Placement Securities. The Selling Shareholders may be deemed to be "underwriters" within the meaning of the Act. Any commissions received by a broker or dealer in connection with resales of the Private Placement Securities may be deemed to be underwriting commissions or discounts under the Act. See "Plan of Distribution." Prior to this Offering, there has been no public market for the Company's securities. The public offering prices of the Common Stock and the Warrants, and the exercise price and other terms of the Warrants, have been determined by negotiation between the Company and the Underwriter, and are not necessarily related to the Company's asset value, net worth, results of operations, or other established criteria of value. Although it is anticipated that the Common Stock and Warrants will be traded in the over-the-counter market on the OTC Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the "OTC Bulletin Board") under the symbols "LUMX" and "LUMXW," respectively, there can be no assurance that such a market will develop after the completion of this Offering. The Securities are being sold by the Company and offered by the Underwriter on a "best efforts, minimum/ maximum" basis, subject to prior sale, when, as and if accepted by the Underwriter, and subject to certain conditions. The Underwriter reserves the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that the certificates representing the Securities will be ready for delivery at the offices of Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, NY 10005, within ten business days after the date of each closing (the "Closing Date") of the Offering. The Company intends to furnish its shareholders with annual reports containing audited financial statements of the Company, after the end of each fiscal year, and make available such other periodic reports as the Company may deem appropriate or as may be required by law. 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to, and should be read in conjunction with, the more detailed information and the Financial Statements (including the notes thereto) appearing elsewhere in this Prospectus and as part of the Registration Statement and Exhibits attached thereto. Unless otherwise specifically referenced, all references to dollar amounts refer to United States dollars. Each prospective investor is urged to read this Prospectus in its entirety. The Company would like to caution readers regarding certain forward-looking statements in the Prospectus and the Registration Statement of which this Prospectus is a part. Statements that are based on management's projections, estimates, and assumptions are forward-looking statements. The words "believe," "expect," "anticipate," and similar expressions generally identify forward-looking statements. While the Company believes in the veracity of all statements made herein, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, and competitive uncertainties and contingencies. Many of these uncertainties and contingencies can affect the Company's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Some of the factors that could cause actual results or future events to differ materially include the Company's inability to find suitable acquisition candidates on terms commercially reasonable to the Company, interruption or cancellation of existing sources of supply, the pricing of and demand for distributed products and the presence of competitors with greater financial resources. Please see "Risk Factors" for a description of some, but not all, of these uncertainties and contingencies. THE COMPANY Luminex Lighting, Inc. (the "Company") distributes quality, energy saving, fluorescent lighting fixtures. The Company designs, tools, tests, assembles, and packages readily available lighting component parts into a finished product, ready for distribution and sale. The Company has expanded its customer base across the United States and is seeking to expand into emerging global markets. The Company believes it is currently one of the largest distributors of cost efficient energy saving fluorescent lighting fixtures. The Company has been in operation for over four years and has experienced substantial growth within the lighting industry. The Company has built a strong customer base, including General Electric Lighting ("GE") and Lamps Plus. The Company's niche in the light fixture market is maintained through cost efficiency and quality in its products. The Company has accumulated strength in the purchasing of raw materials. Due to the increased volume of material that the Company purchases, it is able to obtain an advantage when negotiating with its suppliers. Its competitive edge is based upon low cost purchasing along with low overhead expenses, resulting in quality products at a lower price. The Company believes it is competitive in all aspects of its operations. These factors, combined with experienced management and employees, provide the Company with added value within the industry. The Company is seeking to capture a significant market share in the lighting industry. Opportunities are evident not only in the United States, but around the world as well. The Company's intent is to target such territories as Canada, Mexico, South America, and Puerto Rico. The Company plans on retaining a National Sales Manager and sales representatives familiar with these markets. As of the date hereof, the Company had 3,306,500 Shares of Common Stock issued and outstanding and warrants to purchase 500,000 Shares of Common Stock at an exercise price of $0.80 per share issued and outstanding. The Company will have 3,556,500 Shares of Common Stock outstanding if the Minimum Offering is sold and 3,806,500 Shares of Common Stock outstanding if the Maximum Offering is sold, without giving effect to the exercise of any warrants. Assuming exercise of all warrants, including the Warrants, the Company will have 4,306,500 Shares of Common Stock outstanding immediately after the Offering if the Minimum Offering is sold and 4,806,500 Shares of Common Stock if the Maximum Offering is sold. The 1 7 Company also has 500,000 Shares of Common Stock reserved for issuance under its stock option plan, of which no options have been issued. During the year ended December 31, 1997, the Company had revenues of $5,852,969 from the sale of its products. The Company's net income from operations for the year ended December 31, 1997 was $123,097. Continued development of the Company's products and successful implementation of the Company's marketing plan are necessary for the Company to generate substantial operating revenues. The Company was incorporated under the laws of the State of California on January 21, 1994. The address of the Company's principal executive offices is: 13710 Ramona Avenue, Chino, California, 91710. The Company's telephone number is (909) 591-5653. The Company also has a branch office located at 258 Main Street, Suite 111, Milford, Massachusetts, 01757. 2 8 THE OFFERING SECURITIES OFFERED BY THE COMPANY.................. A minimum of 250,000 Shares of Common Stock and 250,000 Warrants and a maximum of 500,000 Shares of Common Stock and 500,000 Warrants. Warrants may be purchased separately from the Common Stock. Each Warrant entitles the holder thereof to purchase one share of the Company's Common Stock at an exercise price of $6.00, subject to adjustment, during the five year period commencing on the Effective Date. The Warrants may be redeemed by the Company, commencing one year after the Effective Date (or earlier with the consent of the Underwriter), upon notice of not less than 30 days, provided that the closing bid price of the Common Stock for a period of 20 consecutive trading days ending on the third day prior to the day on which notice of redemption is given shall have been at least $7.50 per share, subject to adjustment. See "Description of Securities." OFFERING PRICE COMMON STOCK............. $5.50 per Share. WARRANTS................. $0.10 per Warrant. SECURITIES OFFERED BY SELLING SHAREHOLDERS..... 506,500 Shares of Common Stock and 500,000 Shares of Common Stock underlying warrants. COMMON STOCK OUTSTANDING... 3,306,500 shares as of the date hereof; 3,556,500 shares if the Minimum Offering is sold; 3,806,500 shares if the Maximum Offering is sold. WARRANTS AND OPTIONS OUTSTANDING.............. The Company has 500,000 warrants outstanding as of the date hereof, and will have an additional 250,000 Warrants outstanding if the Minimum Offering is sold and an additional 500,000 Warrants outstanding if the Maximum Offering is sold. See "Description of Securities." The Company has 500,000 shares of Common Stock reserved for issuance under its stock option plan, of which no options have been issued to date. See "Management -- Employment and Related Agreements." PROPOSED OTC/BB SYMBOL(1) COMMON STOCK............. LUMX. WARRANTS................. LUMXW. USE OF PROCEEDS............ The Company intends to apply the net proceeds of this Offering primarily for research and development, sales and marketing, facility expansion, acquisition of employees, and working capital. See "Use of Proceeds." RISK FACTORS............... The securities offered hereby are speculative, involve a high degree of risk and immediate substantial dilution, and should not be purchased by anyone who cannot afford the loss of his or her entire investment. See "Risk Factors" and "Dilution." - --------------- (1) Pursuant to the restriction letter (the "Restriction Letter") between the Underwriter and the National Association of Securities Dealers, Inc. ("NASD"), the Underwriter is prohibited from making a market in securities listed on the OTC Bulletin Board. As a result, the Underwriter will not make a market in the Securities offered hereby. The Underwriter's inability to make such a market may have a material adverse effect on the liquidity of the Securities offered hereby, which could make it more difficult for investors in this Offering to purchase or sell such Securities. See "Underwriting." 3 9 SELECTED FINANCIAL DATA The following table presents selected historical financial data for the Company derived from the Company's Financial Statements. The historical financial data are qualified in their entirety by reference to, and should be read in conjunction with, the Financial Statements and notes thereto of the Company, which are incorporated by reference into this Prospectus. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ---------------------------- ------------------------ 1998 1997 1997 1996 ------------ ------------ ---------- ---------- (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) STATEMENT OF OPERATIONS DATA: Revenue................................... $1,705,803 $1,289,515 $5,852,969 $3,056,532 Net income (loss)......................... $ 11,425 $ (44,127) $ 123,097 $ (113,196) Net income (loss) per share............... $ 0.01 $ (0.02) $ 0.04 $ (0.04) Weighted average number of shares......... 3,326,500 2,800,000 3,326,500 2,800,000
MARCH 31, 1998 DECEMBER 31, 1997 ----------------------------- ---------------------------- ACTUAL AS ADJUSTED(1) ACTUAL AS ADJUSTED(1) ----------- -------------- ---------- -------------- (UNAUDITED) (AUDITED) BALANCE SHEET DATA: Current assets........................ $1,923,227 $4,249,227 $1,719,795 $4,045,795 Total property and equipment, net..... 294,772 294,772 274,747 274,747 Other assets.......................... 115,323 115,323 91,179 91,179 Total assets.......................... 2,333,322 4,659,322 2,085,721 4,411,721 Total current liabilities............. 1,963,741 1,963,741 1,700,156 1,700,156 Accumulated deficit................... (175,589) (175,589) (187,014) (187,014) Stockholder's equity.................. 268,333 2,594,333 266,908 2,592,908
- --------------- (1) Adjusted to give effect to the application of the estimated net proceeds from the Maximum Offering. See "Use of Proceeds" and "Capitalization." 4 10 RISK FACTORS An investment in the Securities offered in this Prospectus involves a high degree of risk and therefore, is speculative in nature, and should only be made by persons who can afford the loss of their entire investment. Accordingly, prospective investors should consider carefully the following factors, in addition to the other information concerning the Company and its business contained in this Prospectus, before purchasing the Securities offered hereby. Limited Operating History. The Company began operations in January 1994, and first shipped its product in October 1994. While the Company is generating revenues, net income was not generated on an annual basis until 1997. (See "History of Operating Losses.") The Company's success is dependent upon the successful development and marketing of its products, as to which there is no assurance. Unanticipated problems, expenses, and delays are frequently encountered in establishing a new business and marketing and developing products. These include, but are not limited to, competition, the need to develop customer support capabilities and market expertise, setbacks in product development, market acceptance, sales, and marketing. The failure of the Company to meet any of these conditions would have a materially adverse effect upon the Company and may force the Company to reduce or curtail operations. No assurance can be given that the Company can or will ever operate profitably. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "The Company -- Marketing" and "-- Competition." Reliance on One Customer for Approximately 95% of Revenues. Approximately 95% of the Company's current revenues are derived from sales of its products to GE. The Company is currently attempting to expand its customer base within the United States and Canada. However, any negative change in the Company's relationship with GE could have a material adverse impact on the Company's business, financial condition, and results of operations. Moreover, no assurance can be given that the Company will be able to expand its customer base or to maintain its relationship with GE. History of Operating Losses. While the Company had net income of $123,097 for the year ended December 31, 1997, for the year ended December 31, 1996, the Company incurred a net loss of $113,196. In addition, the Company had an accumulated deficit of $187,014 at December 31, 1997 and an accumulated deficit of $310,111 at December 31, 1996. The Company must continue to increase its current rate of sales in order to continue to be profitable and to achieve retained earnings. There can be no assurance that the Company will maintain profitability or that its revenue growth can be sustained in the future. See Financial Statements. Future Capital Needs Could Result in Dilution to Investors; Additional Financing Could be Unavailable or Have Unfavorable Terms. The Company's future capital requirements will depend on many factors, including cash flow from operations, progress in its research and development, competing market developments, and the Company's ability to market its products successfully. Although the Company currently has no specific plans or arrangements for financing other than this Offering and no commitments for future financing, to the extent that the funds generated by this Offering are insufficient to fund the Company's activities, it may be necessary to raise additional funds through equity or debt financings. Any equity financings could result in dilution to the Company's then-existing shareholders. Sources of debt financing may result in higher interest expense. Any financing, if available, may be on terms unfavorable to the Company. If adequate funds are not obtained, the Company may be required to reduce or curtail operations. The Company anticipates that its existing capital resources, together with the net proceeds of this Offering, even if only the Minimum Offering is sold, will be adequate to satisfy its operating expenses and capital requirements for at least 12 months after the Offering. However, such estimates may prove to be inaccurate. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business of the Company" and Financial Statements. Economic Conditions and Consumer Spending. The Company's results may be adversely affected by unfavorable local, regional or national economic conditions affecting disposable consumer income. There can be no assurance that consumer spending will not decline in response to economic conditions, thereby adversely affecting the Company's growth, net sales, and profitability. 5 11 Unpredictable Product Acceptance; Lack of Distribution Agreements. There can be no assurance that the Company's marketing and/or sales strategies will be effective and that consumers will buy the Company's products. The failure of the Company to broaden its markets would have a material adverse effect upon the Company's operations and prospects. Market acceptance of the Company's products will depend in part upon the ability of the Company to demonstrate the advantages of its products over competing products. In addition, the Company's sales strategy for its products contemplates sales to markets yet to be established. Also, the Company currently has no distribution agreements for any of its products. See "Business of the Company -- Marketing" and "-- Competition." Competition. The Company will be competing with other established businesses that market similar products. Many of these companies have greater capital, marketing and other resources than the Company. There can be no assurance that these or other entities will not develop new or enhanced products that have greater market acceptance than any that may be marketed by the Company. There can be no assurance that the Company will successfully differentiate itself from its competitors or that the market will consider the Company's products to be superior to or more appealing than those of its competitors. Market entry by any significant competitor may have an adverse effect on the Company's sales and profitability. See "Business of the Company -- Competition." Difficulty of Planned Expansion; Management of Growth. The Company has expanded its operations rapidly, and it plans to continue to further expand its level of operations in all areas following the Offering. The Company's operating results will be adversely affected if net sales do not increase sufficiently to compensate for the increase in operating expenses caused by this expansion. In addition, the Company's planned expansion of operations may cause significant strain on the Company's management, technical, financial, and other resources. To manage its growth effectively, the Company must continue to improve and expand its existing resources and management information systems and must attract, train, and motivate qualified managers and employees. There can be no assurance, however, that the Company will successfully be able to achieve these goals. If the Company is unable to manage growth effectively, its operating results will be adversely affected. Dependence Upon Key Personnel. The Company's success depends, to a significant extent, upon a number of key employees. The loss of services of one or more of these employees could have a material adverse effect on the business of the Company. The Company believes that its future success will also depend in part upon its ability to attract, retain, and motivate qualified personnel, and consequently has entered into employment agreements with certain key officers. Competition for such personnel is intense. There can be no assurance that the Company will be successful in attracting and retaining such personnel. The Company does not have "key person" life insurance on any of its key employees. See "Management." No Outside Directors. The Company's Board of Directors presently consists of three (3) directors: Wasif Siddiqui, President, Chief Executive Officer, and Chief Financial Officer; Tasneem Siddiqui, his wife, Executive Vice President and Secretary; and Asra Rasheed, their daughter, Vice President of Corporate Planning. Therefore, the Company's Board of Directors has no outside directors and insiders can presently control the policies, actions, and decisions of the Company. While the Company plans on adding one independent director upon completion of this Offering, the inside directors will still constitute a majority of the directors. See "Management -- Directors and Executive Officers." Related Party Transactions and Potential Conflicts. During the past two years, the Company has taken loans drawn on personal lines of credit of Asra Rasheed, Vice President of Corporate Planning and a Director and Shareholder of the Company. The interest rate at December 31, 1997 was 12.57%. The balance of the lines of credit at December 31, 1997 was $6,272. The funds drawn were contributed to the Company for working capital. Subsequent to December 31, 1997, the loans were paid in full and the Company has no plan to take any further loans from this line of credit. Ms. Rasheed received no personal benefit from these transactions. The Company's management believes that the terms of these transactions were no less favorable to the Company than would have been obtained from an unaffiliated third party in similar transactions. Any future transactions with affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties, and will be approved by a majority of the disinterested directors. See "Certain Transactions." 6 12 Lack of Dividends. The Company has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business. See "Dividend Policy." Dilution. Purchasers of Shares of Common Stock in the Offering will experience immediate dilution of $5.11 per share (93%) if the Minimum Offering is sold and dilution of $4.82 per Share (88%) if the Maximum Offering is sold (based on the initial public offering price of $5.50 per share) in the net tangible book value of the shares from the initial public offering price. The shares sold by the Company in the Offering represent 7% of the total Shares of Common Stock outstanding following the Offering if the Minimum Offering is sold or 13% of the total Shares of Common Stock outstanding following the Offering if the Maximum Offering is sold, and represent a cash contribution of 75.6% of the aggregate book value or cash contributions to the Company if the minimum amount is sold or a cash contribution of 86.1% of the aggregate book value or cash contributions to the Company if the maximum amount is sold without giving effect to the exercise of any warrants or options. See "Dilution." Best Efforts Offering: Escrow of Investors' Funds for up to 150 Days. This Offering is being made on a "best efforts, 250,000 Share, 250,000 Warrant minimum" basis. Unless and until 250,000 Shares of Common Stock ($1,925,000) and 250,000 Warrants ($35,000) are sold, the Offering will not close. No assurance can be given that the Underwriter will be able to sell the Minimum Offering. Consequently, investors may tie up their funds for up to 150 days, if the Offering Period is extended. Although the proceeds will be escrowed and will not be subject to loss during the Offering Period, there will be no interest paid on the escrowed funds. Control by Existing Shareholders. Upon completion of this Offering, the Company's existing shareholders will beneficially own approximately 90% of the outstanding Common Stock if the minimum amount is sold or approximately 87% of the outstanding Common Stock if the maximum amount is sold. Of these shares, the Company's officers and directors, together with shareholders who beneficially own more than five percent of the outstanding stock of the Company, will beneficially own approximately 81% of the outstanding Common Stock if the minimum amount is sold or approximately 78% of the outstanding Common Stock if the maximum amount is sold hereunder. Investors purchasing shares pursuant to this Offering will beneficially own approximately 10% of the outstanding Common Stock if the minimum amount is sold or approximately 13% of the outstanding Common Stock if the maximum amount is sold. As a result, all or certain combinations of the Company's existing shareholders, acting in concert, will have the ability to control the Board of Directors and policies of the Company. See "Principal Shareholders" and "Certain Transactions." No Prior Public Market; Possible Volatility of Share Price. No public securities market existed prior to this Offering for the Company's Securities. Although the Company has applied to have the Securities included on the OTC Bulletin Board, there can be no assurance that an active public trading market for such securities will be developed or sustained. Accordingly, purchasers of the Securities may experience substantial difficulty selling such securities. The offering price of the Securities has been determined by negotiations between the Company and the Underwriter and are not necessarily related to the Company's asset value, net worth, or other established criteria of value. Additionally, potential investors should be aware that the securities of the Company have been recently sold in a private offering (the "Private Placement") at a substantial discount to the public offering price herein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company and the Underwriter considered the following factors in pricing the securities issued in the Private Placement at $0.50 per share of Common Stock and $0.10 per warrant versus the initial public offering price: at the time of the Private Placement the Company was not profitable, certain key personnel of the Company were not yet in place, the Company was in the process of structuring its public offering plan, the Company had not yet secured an underwriter for a public offering, and there could be no assurance of a public market for the securities. See "Underwriting." Shares Eligible for Future Sale. Assuming the Maximum Offering is sold (and without giving effect to the exercise of outstanding warrants to purchase 500,000 shares of Common Stock, the Warrants offered hereby, or the Underwriters Warrants), 2,800,000 of the total of 3,806,500 shares of Common Stock outstanding after this Offering will be "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933 (the "Act"). All directors, officers, and holders of any securities of the Company prior 7 13 to the Offering have agreed not to sell any Shares of Common Stock, including Shares of Common Stock issuable upon exercise of options, warrants, or any convertible securities of the Company, for a period of 12 months after the Final Closing Date without the prior written consent of the Underwriter. At the end of that period, these shares will be eligible for sale, subject in the case of restricted securities to the holding period, volume limitations, and other conditions imposed by Rule 144. Ordinarily, under Rule 144, a person holding restricted securities for a period of at least one year may, every three months, sell in ordinary brokerage transactions or in transactions directly with a market maker an amount equal to the greater of one percent of the Company's then-outstanding Common Stock or the average weekly trading volume during the four calendar weeks prior to such sale. Non-affiliates who hold shares for at least two years can sell their shares without any quantity limitations. Future sales of such shares could have an adverse effect on the market price of the Common Stock. See "Description of Securities" and "Underwriting." Risks Relating to Low-Price Stocks. It is anticipated that the Common Stock will initially be traded in the over-the-counter market on the OTC Bulletin Board. As a consequence, an investor could find it difficult to dispose of, or to obtain accurate quotations as to the price of, the Common Stock. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks. The SEC regulations generally define a penny stock to be any equity security that has a market price or exercise price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on Nasdaq and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000 if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000 during such issuer's last three years of operations. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Furthermore, in connection with any transaction in a penny stock, brokers must also provide investors with current bid and offer quotations therefor, the compensation of the broker and its salesperson in connection therewith and monthly accounts statements showing the market value of each penny stock in the investor's account. In addition, if the Common Stock is not quoted on Nasdaq, and the Company does not have $2,000,000 in net tangible assets, trading in the Common Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") for non-Nasdaq and non-exchange listed securities. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities also are exempt from this rule if the market price is at least $5.00 per share. As of the date of this Prospectus, the Company believes that, by reason of the $5.50 offering price of the Common Stock, that such security will be outside the definitional scope of a penny stock. In the event the Company's Common Stock were subsequently to become characterized as a penny stock, the market liquidity for such securities could be adversely affected. In such an event, the regulations on penny stocks could limit the ability of broker/dealers to sell the Common Stock, and thus the ability of purchasers of the Common Stock to sell such securities in the secondary market would be adversely affected. Requirements of Current Prospectus and State Blue Sky Registration in Connection with the Exercise of the Warrants. The Warrants offered hereby are not exercisable unless, at the time of exercise: (i) there is a current prospectus relating to the Common Stock issuable upon the exercise of the Warrants under an effective registration statement filed with the Commission; and (ii) such Common Stock is then qualified for sale or exempt therefrom under applicable state securities laws in the jurisdictions in which the various holders of Warrants reside. There can be no assurance, however, that the Company will be successful in maintaining a current registration statement. After a registration statement becomes effective, it may require updating by the filing of a post-effective amendment. A post-effective amendment is required: (i) any time after nine months subsequent to the effective date when any information contained in the prospectus is over sixteen months old; (ii) when facts or events have occurred which represent a fundamental change in the information contained in the registration statement; or (iii) when any material change occurs in the information relating to the plan of distribution of the securities registered by such registration statement. The Company anticipates that this 8 14 Registration Statement will remain effective for at least nine months following the date of this Prospectus, assuming a post-effective amendment is not filed by the Company. The Warrants will be separately tradeable and separately transferable from the Common Stock offered hereby immediately commencing on the date of this Prospectus. The Company intends to qualify the Warrants and the Shares of Common Stock issuable upon exercise of the Warrants in a limited number of states, although certain exemptions under state securities ("blue sky") laws may permit the Warrants to be transferred to purchasers in states other than those in which the Warrants were initially qualified. The Company will be prevented, however, from issuing Shares of Common Stock upon exercise of the Warrants in those states where exemptions are unavailable and the Company has failed to qualify the Common Stock issuable upon exercise of the Warrants. The Company may decide not to seek, or may not be able to obtain qualification of the issuance of such Common Stock in all of the states in which the holders of the Warrants reside. In such a case, the Warrants of those holders will expire and have a no value if such Warrants cannot be exercised or sold. See "Description of Securities." Limited Experience of Underwriter. Platinum Equities, Inc. (the "Underwriter") has little experience in underwriting public offerings. This Offering is the second public offering being underwritten by the Underwriter. There can be no assurance that the Underwriter's lack of experience will not adversely affect the Offering. Underwriter Will Not Make a Market in the Company's Securities. Pursuant to the terms of the Underwriter's Restriction Letter with the NASD, the Underwriter is prohibited from acting as a "market maker" in securities. As a result thereof, the Underwriter will not make a market in the Securities offered hereby. The Underwriter's inability to make such a market may have a material adverse effect on the liquidity of the Securities offered hereby, which could make it more difficult for investors in this Offering to purchase or sell such securities. See "Underwriting." 9 15 DILUTION Dilution is the difference between the public offering price of $5.50 per share for the Common Stock offered herein, and the net tangible book value per share of the Common Stock immediately after its purchase. The Company's net tangible book value per share is calculated by subtracting the Company's total liabilities from its total assets less any intangible assets, and then dividing by the number of shares then outstanding. The net tangible book value of the Company prior to this Offering, based on March 31, 1998 financial statements, was $268,333 or approximately $0.08 per common share. Prior to selling any shares in this Offering, the Company has 3,306,500 Shares of Common Stock outstanding. If the Maximum Offering is sold, the Company will have 3,806,500 shares outstanding upon completion of the Offering. The post offering pro forma net tangible book value of the Company, which gives effect to receipt of the net proceeds from the Offering and issuance of additional Shares of Common Stock in the Offering, but does not take into consideration the Warrants sold in the Offering nor any other changes in the net tangible book value of the Company after March 31, 1998, will be $2,594,333 or $0.68 per share, approximately. This would result in dilution to investors in this Offering of $4.82 per share or 88% from the public offering price of $5.50 per Share. Net tangible book value per share would increase to the benefit of present shareholders from $0.08 prior to the Offering to $0.68 after the Offering, or an increase of $0.60 per share attributable to the purchase of the Shares by investors in this Offering. If only the Minimum Offering is sold, the Company will have 3,556,500 shares outstanding upon completion of the Offering. The post offering pro forma net tangible book value of the Company will be $1,376,333 or $0.39 per share, approximately. This would result in dilution to investors in this Offering of $5.11 per share or 93% from the public offering price of $5.50 per Share. Net tangible book value per share would increase to the benefit of present shareholders from $0.08 prior to the Offering to $0.39 after the Offering, or an increase of $0.31 per share attributable to the purchase of the Shares by investors in this Offering. The following table sets forth the estimated net tangible book value per share after the Offering and the dilution to persons purchasing Shares based on the foregoing minimum and maximum offering assumptions
MINIMUM(1) MAXIMUM(2) ---------- ---------- Initial public offering price (per share)................... $5.50 $5.50 Net tangible book value per share before the Offering....... $0.08 $0.08 Increase per share attributable to payments by new investors................................................. $0.31 $0.60 Pro forma net tangible book value per share after the Offering.................................................. $0.39 $0.68 Dilution per share to new investors......................... $5.11(93%) $4.82(88%)
The following charts illustrate the pro forma proportionate ownership in the Company upon completion of the Offering under alternative minimum and maximum offering assumptions, of present shareholders and of investors in this Offering, compared to the relative amounts paid and contributed to capital of the Company by present shareholders and by investors in this Offering, assuming no changes in net tangible book value other than those resulting from the Offering.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- --------------------- PRICE MINIMUM OFFERING PERCENT PERCENT PER SHARE ---------------- ------- ------- --------- Existing shareholders.................. 3,306,500 93% $ 443,922(3) 24.4% $0.13 New investors.......................... 250,00 7% 1,375,000(4) 75.6% $5.50 --------- --- ---------- ----- ----- Total............................. 3,556,500 100% 1,818,922 100.0% ========= === ========== =====
10 16
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE -------------------- --------------------- PRICE MAXIMUM OFFERING PERCENT PERCENT PER SHARE ---------------- ------- ------- --------- Existing shareholders.................. 3,306,500 87% $ 443,922(3) 13.9% $0.13 New investors.......................... 500,00 13% $2,750,000(5) 86.1% $5.50 --------- --- ---------- ----- ----- Total............................. 3,806,500 100% $3,193,922 100.0% ========= === ========== =====
- --------------- (1) Assumes $1,108,000 net proceeds from Minimum Offering. (2) Assumes $2,326,000 net proceeds from Maximum Offering. (3) Based on capital contributions from inception to March 31, 1998. (4) Assumes $1,400,000 gross proceeds from Minimum Offering. (5) Assumes $2,800,000 gross proceeds from Maximum Offering. 11 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the Securities offered hereby, after deducting underwriting discounts and commissions, the Underwriter's non-accountable expense allowance, and expenses of this Offering (approximately $110,000) are estimated to be approximately $1,108,000 if the minimum amount is raised hereunder and $2,326,000 if the maximum amount is raised, excluding any proceeds from the sale or exercise of the Warrants.
MINIMUM PERCENT MAXIMUM PERCENT ---------- ------- ---------- ------- Research and development......................... $ 354,560 32% $ 721,000 31% Sales and marketing.............................. 277,000 25% 625,000 27% Facility expansion............................... 177,280 16% 340,000 15% Acquisition of employees, including a national sales manager.................................. 99,720 9% 200,000 9% Working capital.................................. 199,440 18% 440,000 18% ---------- --- ---------- --- Totals................................. $1,108,000 100% $2,326,000 100% ========== === ========== ===
The allocation of net proceeds set forth above represents the Company's current estimates based upon its current plans and upon certain assumptions regarding the progress of development of its products, technological advances and changing competitive conditions, the ongoing evaluation and determination of the commercial potential of the Company's products and the Company's ability to enter into agreements. If any of these factors change, the Company may reallocate some of the net proceeds within or between the above-described categories. The Company believes that the funds generated by this Offering, whether the minimum or maximum offering is sold, together with current resources, will be sufficient to fund working capital and capital requirements for at least 12 months from the date of this Prospectus. Pending their utilization, the net proceeds may be invested temporarily in certificates of deposit, insured savings accounts, short term commercial paper, money market funds, or government securities. The Company does not intend to register under the Investment Company Act of 1940, and therefore, will be limited as to the types of investments which may be temporarily made with the proceeds. DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the future. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business. 12 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1998 and as adjusted to give effect to the sale by the Company of the Minimum Offering and the application of the net proceeds of $1,108,000 therefrom and as adjusted to give effect to the sale by the Company of the Maximum Offering and the application of the net proceeds of $2,326,000 therefrom.
MINIMUM AS MAXIMUM AS MARCH 31, 1998 ADJUSTED ADJUSTED -------------- ---------- ---------- (UNAUDITED) DEBT: Current Liabilities.................................... $1,953,741 $1,953,741 $1,953,741 Notes Payable.......................................... 88,927 88,927 88,927 Capital Leases......................................... 12,321 12,321 12,321 ---------- ---------- ---------- Total debt:.................................... $2,054,989 $2,054,989 $2,054,989 ========== ========== ========== STOCKHOLDERS' EQUITY: Common Stock, no par value, 25,000,000 shares authorized, 3,306,500 shares issued and outstanding, 3,556,500 as adjusted minimum, 3,806,500 as adjusted maximum............................................. $ 417,172 $1,525,172 $2,743,172 Additional paid-in capital............................. 26,750 51,750 76,750 Accumulated deficit.................................... (175,589) (175,589) (175,589) ---------- ---------- ---------- Total stockholders' equity:.................... $ 268,333 $1,411,333 $2,644,333 ========== ========== ==========
13 19 SELECTED FINANCIAL DATA The following selected financial data are qualified by reference to, and should be read in conjunction with, the Financial Statements, related Notes to Financial Statements and Report of Independent Public Accountants, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. The following tables summarize certain selected financial data of the Company for the year ended December 31, 1996 (audited) and the year ended December 31, 1997 (audited). The data has been derived from Financial Statements included elsewhere in this Prospectus that were audited by Stonefield Josephson, Inc., Certified Public Accountants. No dividends have been paid for any of the periods presented.
THREE MONTHS ENDED MARCH 31 YEAR ENDED DECEMBER 31 --------------------------- ------------------------- 1998 1997 1997 1996 ----------- ----------- ---------- ---------- (UNAUDITED) (AUDITED) (UNAUDITED) (AUDITED) STATEMENT OF OPERATIONS DATA: Revenue................................ $1,705,803 $1,289,515 $5,852,969 $3,056,532 Net income (loss)...................... $ 11,425 $ (44,127) $ 123,097 $ (113,196) Net income (loss) per share............ $ 0.01 $ (0.02) $ 0.04 $ (0.04) Weighted average number of shares...... 3,326,500 2,800,000 3,326,500 2,800,000
MARCH 31, 1998 DECEMBER 31, 1997 --------------------------- -------------------------- AS AS ACTUAL ADJUSTED(1) ACTUAL ADJUSTED(1) ----------- ----------- ---------- ----------- (UNAUDITED) (AUDITED) BALANCE SHEET DATA: Current assets......................... $1,923,227 $4,249,227 $1,719,795 $4,045,795 Total property and equipment, net...... 294,772 294,772 274,747 274,747 Other assets........................... 115,323 115,323 91,179 91,179 Total assets........................... 2,333,322 4,659,322 2,085,721 4,411,721 Total current liabilities.............. 1,963,741 1,963,741 1,700,156 1,700,156 Accumulated deficit.................... (175,589) (175,589) (187,014) (187,014) Stockholder's equity................... 268,333 2,594,333 266,908 2,592,908
- --------------- (1) Adjusted to give effect to the application of the estimated net proceeds from the Maximum Offering. See "Use of Proceeds" and "Capitalization." 14 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was incorporated on January 21, 1994 for the purpose of manufacturing and selling fluorescent lighting fixtures for both commercial and residential uses. The Company has experienced significant growth since its inception in 1994. The Company's growth rate has far exceeded its expectations. However, management believes that this growth will continue at a slower rate in 1998. Certain key factors that are necessary in maintaining and exceeding the current growth rates are as follows: - Further expanding the Company's customer base - Successful integration into the emerging global markets - Obtaining greater market share of the commercial lighting industry - Obtaining financing at more favorable terms RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected financial information for the Company:
THREE MONTHS THREE MONTHS ENDED ENDED YEAR ENDED YEAR ENDED MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996 -------------- -------------- ----------------- ----------------- (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) Total revenue....................... $1,705,803 $1,289,515 $5,852,969 $3,056,532 Cost of revenue..................... 1,463,192 1,109,913 4,601,497 2,584,668 Gross profit........................ 242,611 179,602 1,251,472 471,864 General, administrative, and selling expenses.......................... 201,325 191,922 991,164 488,491 Interest expense.................... 29,061 31,007 136,411 95,769 Income (loss) before taxes.......... 12,225 (43,327) 123,897 (112,396) Taxes on income..................... 800 800 800 800 Net income (loss)................... 11,425 (44,127) 123,097 (113,196) Net income (loss) per share......... 0.01 (0.02) 0.04 (0.04)
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED). Revenues. The Company generated revenues of $1,705,803 for the three months ended March 31, 1998 as compared to revenues of $1,289,515 for the three months ended March 31, 1997. The 32% increase in revenues for the three months ended March 31, 1998 is a result of increased shipments to GE and increased sales through the Company's commercial division, Energy Plus. Gross Profit. Gross profit for the three months ended March 31, 1998 was $242,611 (14.2% of sales) compared to $179,602 (13.9% of sales) for the three months ended March 31, 1997. The slight increase in gross profit percentage was a result of purchasing efficiencies for raw materials. The Company has experienced increases in direct labor costs which have offset some of the savings on raw material purchases. General, administrative and selling expenses. General, administrative and selling expenses for the three months ended March 31, 1998 were $201,325 (11.8% of revenues) as compared to $191,922 (14.9% of revenues) for the three months ended March 31, 1997. The total dollar increase of $9,403 is primarily a result of increased facility rental expense. The Company experienced a drop of 3.1% in general and administrative expense as a percent of sales. This was a result of more efficient use of the Company's production facilities. 15 21 Interest expense. Interest expense for the three months ended March 31, 1998 was $29,061 compared to $31,007 for the three months ended March 31, 1997. The reduction in interest expense was a result of the Company's ability to reduce its borrowing costs through a new line of credit entered into in February of 1998. The Company has also reduced outstanding borrowings on its line of credit as a result of improved collection efforts on its Accounts Receivable. Net income (loss). Net income for the three months ended March 31, 1998 was $11,425 compared to a net loss of ($44,127) for the three months ended March 31, 1997. The increase in profitability is a direct result of reduced borrowing costs and improved absorption of the Company's general and administrative costs through increased production facility usage. YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 (AUDITED). Revenues. The Company generated revenues of $5,852,969 for the year ended December 31, 1997 as compared to revenues of $3,056,532 for the year ended December 31, 1996. The 91% increase in revenues for the year ended December 31, 1997 was primarily the result of shipments and increased orders to GE. The Company began shipping product to GE in 1996. Gross Profit. Gross profit for the year ended December 31, 1997 was $1,251,472 (21.4% of sales) compared to $471,864 for the year ended December 31, 1996 (15.4% of sales). The 6% increase in gross profit percentage was primarily a result of increased purchasing and production efficiencies created by the significant increase in material needs and sales volume. General, administrative, and selling expenses. General, administrative, and selling expenses for the year ended December 31, 1997 were $991,164 compared to $488,491 for the year ended December 31, 1996. The increase is primarily the result of increased selling expenses, due to increased sales volume, and increased administrative compensation expense due to additional hirings and officer bonus programs initiated in 1997. Interest expense. Interest expense for the year ended December 31, 1997 was $136,411 compared to $95,769 for the year ended December 31, 1996. The increase of $40,642 is primarily the result of increased average monthly borrowings on the Company's line of credit during 1997. The increased borrowings were required to fund increased inventory expenditures needed to meet the growth in sales volume. Net income (loss). Net income for the year ended December 31, 1997 was $123,097 compared to a net loss of $113,196 for the year ended December 31, 1996. The increase in profitability is directly attributable to greater purchasing and production efficiencies and increased sales volume achieved through shipments made to GE for the year ended December 31, 1997. The Internal Revenue Code of 1986 includes provisions which may limit the net operating loss carry forwards available for use in any given year if certain events occur, specifically a stock ownership change of 50% or more within a three year period. Therefore, upon completion of this Offering, utilization of the Company's net operating loss carry forwards to offset future income may be limited. The Company's net operating loss carry forward as of December 31, 1997 was approximately $145,000. BACKLOG The Company's backlog consists of unfulfilled purchase orders, mainly with GE. These purchase orders are subject to change and can be revised at any time by GE. For the month of December 1997, the Company's backlog was $7,522,000 as compared to $2,022,000 for the month of December 1996. As of June 19, 1998, the Company's backlog was $5,994,254. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has primarily funded its capital requirements through equity infusions, bank loans, and officer loans. 16 22 Initial start-up funding of $50,000 was raised through the sale of 10,000 shares of the Company's Common Stock to its founders in 1994. An additional $113,922 was raised during 1995 through the sale of 2,790,000 shares at a price of $0.04 per share. On April 4, 1997, the Company commenced a private placement (the "Private Placement") of 506,500 shares of Common Stock at a purchase price of $0.50 per share (the "Private Placement Stock") and 500,000 warrants, each warrant to purchase one share of the Company's Common Stock at an exercise price of $0.80 for a term of five years at a purchase price of $0.10 per warrant (the "Private Placement Warrants"). The Private Placement Stock and the Common Stock underlying the Private Placement Warrants are being registered herein. The Private Placement generated net proceeds of approximately $290,000. At March 31, 1998, the Company had outstanding current liabilities of $1,963,741. The Company anticipates satisfying its current liabilities in the ordinary course of business from revenues and accounts receivable. Capital expenditures during the period from inception through March 31, 1998, were $370,496. Over the next 12 months, the Company plans to upgrade its management information system, telecommunications system and office equipment to accommodate anticipated growth plans. In addition, computers and test equipment for product development will be acquired for use in research and development. At March 31, 1998, the Company had $809,369 outstanding in accounts receivables from customers who have been billed. The Company believes that proceeds from this Offering, even if only the Minimum Offering is sold, together with revenues from the Company's operations, and the Company's other resources, will be sufficient to cover working capital requirements for at least 12 months after this Offering. See "Use of Proceeds." The Company may nevertheless require additional financing to support continued expansion of its business, marketing, and development of its existing and future products, and the potential acquisition of other products or technologies. The Company has made no arrangements or commitments for such financing and there can be no assurance that the Company will be able to obtain such financing on satisfactory terms, if at all. If adequate financing is not available or available on satisfactory terms, the Company may be required to delay, scale back or eliminate certain of its marketing programs, research and development activities or expansion plans. To the extent the Company raises additional capital by issuing equity securities, ownership dilution to the investors in this Offering will result. FINANCING The Company's primary source of borrowing was a $1,000,000 maximum line of credit with a financial institution. The line was secured by the Company's accounts receivable and inventory and personal guarantees of certain of the shareholders. $279,955 was outstanding on the line of credit as of December 31, 1997. The line bore interest at a rate of 4% above prime. The line of credit expired in February 1998 and was paid in full. Subsequent to December 31, 1997, the Company entered into a new line of credit with a financial institution for $1,000,000. The line is secured by the Company's accounts receivable and inventory and personal guaranties of certain of the officers. The loan will bear interest at a rate of 3% above prime. The line of credit expires in February 1999. The Company has the option to terminate the line after six months, with no prepayment penalty, subject to certain conditions. The Company will continue to rely on cash flow from operations and borrowings on its replacement line of credit to fund its capital requirements. The Company also finances its business activities using unsecured lines of credit, short-term bank loans, and equipment lease financing. Terms under these various facilities vary depending upon the type of facility used. Management will continue to finance a portion of the capital requirements using these type of facilities to the extent that they are available at terms that are deemed favorable to the Company. The Company does not believe that inflation has had a significant impact on its operations since inception of the Company. 17 23 SEASONALITY The Company's business is subject to seasonable fluctuations, with a slight decrease in sales and revenues occurring during the month of December due to the holidays. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full year. 18 24 BUSINESS OF THE COMPANY GENERAL Luminex Lighting, Inc. (the "Company") distributes quality, energy saving, fluorescent lighting fixtures. The Company designs, tools, tests, assembles, and packages readily available lighting component parts into a finished product, ready for distribution and sale. The Company has expanded its customer base across the United States and is seeking to expand into the direct retail and emerging global markets. The Company believes it is currently one of the largest distributors of cost efficient energy saving fluorescent lighting fixtures. The Company has been in operation for over four years and has experienced substantial growth within the lighting industry. The Company has built a strong customer base, including GE and Lamps Plus. The Company's niche in the light fixture market is maintained through cost efficiency and quality in its products. The Company has accumulated strength in the purchasing of raw materials. Due to the increased volume of material that the Company purchases, it is able to obtain an advantage when negotiating with its suppliers. Its competitive edge is based upon low cost purchasing along with low overhead expenses, resulting in quality products at a lower price. The Company is competitive in all aspects of its operations. These factors, combined with experienced management and employees, provide the Company with added value within the industry. The Company is seeking to capture a significant market share in the lighting industry. Opportunities are evident not only in the United States, but around the world as well. The Company intends to target such territories as Canada, Mexico, South America, and Puerto Rico. The Company plans on retaining a National Sales Manager and sales representatives familiar with these markets. As of the date hereof, the Company had 3,306,500 Shares of Common Stock issued and outstanding and warrants to purchase 500,000 Shares of Common Stock at an exercise price of $0.80 per share issued and outstanding. The Company will have 3,556,500 Shares of Common Stock outstanding if the Minimum Offering is sold and 3,806,500 Shares of Common Stock outstanding if the Maximum Offering is sold, without giving effect to the exercise of any warrants. Assuming exercise of all warrants, including the Warrants, the Company will have 4,306,500 Shares of Common Stock outstanding immediately after the Offering if the Minimum Offering is sold and 4,806,500 Shares of Common Stock if the Maximum Offering is sold. The Company also has 500,000 Shares of Common Stock reserved for issuance under its stock option plan, of which no options have been issued. During the year ended December 31, 1997, the Company had revenues of $5,852,969 from the sale of its products. The Company's net income from operations for the year ended December 31, 1997 was $123,097. Continued development of the Company's products and successful implementation of the Company's marketing plan are necessary for the Company to generate substantial operating revenues. The Company was incorporated under the laws of the State of California on January 21, 1994. The address of the Company's principal executive offices is: 13710 Ramona Avenue, Chino, California, 91710. The Company's telephone number is (909) 591-5653. The Company also has a branch office located at 258 Main Street, Suite 111, Milford, Massachusetts, 01757. OVERVIEW OF THE COMPANY'S MARKETS Based on industry reports and evaluations done by Business Trend Analysis, the residential lighting fixtures market is expected to outperform all other types of lighting markets in 1998. (Energy Information Administration, Office of Energy Markets and End Use; Lighting Research Center, Rensselaer Polytechnic Institute, 1997.) Households in the U.S. contain a total of 523 million lights that are on one or more hours a day -- 282 million of these are on four or more hours a day. (Energy Information Administration, 1993.) 19 25 Based on the 1995 Commercial Buildings Energy Consumption Survey (CBECS), approximately 77% of all commercial buildings are lit by fluorescent lights. Therefore, both the U.S. residential and commercial lighting markets are large and wide-spread. The Company produces its products primarily as an OEM (original equipment manufacturer) for GE, its major customer. The OEM market alone has great potential for further expansion of the Company's products. The OEM market gives the Company the ability to acquire pre-existing national distribution channels. The Company is currently in discussions with various customers in order to expand and generate further revenue through the OEM markets. During 1998, management of the Company plans to enter into the direct retail market by introducing many new products under the Luminex Lighting private label. The Company expects to introduce its product line to markets such as home improvement retail stores; retail outlets such as Kmart, Target, and Wal-Mart; drug stores; and office supply stores. Again, the potential to expand into this market is great and if the Company successfully enters the direct retail market, it will provide the following benefits: establishing its own private label, creating brand recognition, and enabling the Company to acquire extensive national distribution channels. The Company also plans on expanding its Energy Plus division which currently consists of products being sold mainly to the commercial and industrial markets. These products are used for the construction of new homes, buildings, medical centers, and shopping plazas. They are also sold to smaller home improvement and retail lighting outlets. The overall lighting market is wide in scope. The Company has developed various products which represent the scope of products offered by both the commercial and residential lighting industries. BUSINESS STRATEGY Currently, the Company is highly concentrated within the OEM distribution channel. Its primary customer at this time is GE. GE plays a significant role in the generation of revenue for Luminex Lighting. Luminex would like to further diversify its business through entering into the direct retail market and by further expanding its commercial and wholesale distribution division, Energy Plus (see "Sales, Marketing and Distribution"). The Company is currently in the process of structuring and preparing itself for entry into the direct retail market. Direct sale to the retail market provides higher margins, increased profitability, and establishes Company recognition within the lighting industry. The Company has developed many new products to support the market and has created a new image for the Luminex label. In August 1998 Luminex plans to launch its direct retail program. Efforts being made to introduce this program successfully are: - the appointment of a National Sales Manager in order to develop business; - retainment of additional sales representatives across the United State and Canada; - further development of creative lighting fixtures appealing to the consumer; - establishing brand recognition and Company image; - new packaging; - new and creative catalogs appealing to buyers; - increased marketing of product through advertising and specials; - additional investment in product research and development; and - introduction of fluorescent product lines to home centers, hardware chains, drug stores, supermarket chains, and several independent hardware stores. 20 26 Luminex will attend the National Hardware Show in August 1998. The Hardware Show is the largest show within the lighting industry and attracts many buyers. Further, the Company believes that market opportunities exist not only domestically but internationally. Currently, the Company is marketing its products extensively within the United States region. However, due to insufficient amounts of working capital, the Company has not been able to expand and reach its fullest potential in the international market. The Company is seeking to capture a significant market share in the lighting industry. Opportunities are evident not only in the United States, but around the world as well. The Company intends to target such territories as Canada, Mexico, South America, and Puerto Rico. The Company plans on retaining a National Sales Manager and sales representatives familiar with these markets. PRODUCTS The Company has integrated a variety of lighting products into its inventory. Its product lines are highly diversified and guaranteed the highest quality within the lighting industry. The Company provides a five year warranty on all of its products. Luminex produces products that are energy efficient. For example, an 18 watt compact fluorescent light produces the same number of lumens as a 75 watt incandescent. These energy savings are passed on to the consumer. According to research conducted by the United States Chamber of Commerce in 1993, U.S. households used a total of 90.8 billion kWh for electricity for lighting. If households replaced all incandescent bulbs used four or more hours per day with compact fluorescent lights, they could save 31.7 kWh annually, or 35% of all electricity used for residential lighting. In addition to the energy efficient products that Luminex produces, the Company has gone a step further by implementing electronic ballasts into many of their products. CBECS data suggests greater energy savings will occur by replacing existing fluorescent lights with more energy -- efficient equipment such as electronic ballasts, which increase fluorescent efficiency by up to 25%. Following is a brief overview of the various products the Company currently offers and an introduction of the new and innovative products the Company will be adding to its product lines. 1. Ceiling Mount Fixtures are used for commercial and residential purposes where efficient higher light output fixtures can be used in new or existing construction to replace inefficient incandescent fixtures. These fixtures include the cloud series and decorative wraparound series. 2. Decorative Vanity Series fixtures are efficient and attractive in design and provide uniform low glare diffusers. This series is excellent for residential and commercial use such as restrooms or hotels, motels, and health care facilities. These fixtures also save energy. 3. Compact Ceiling Mounts include contemporary fluorescent cloud fixtures and contoured cloud fixtures. These mounts are popular because of their soft lines and shallow appearance. These products are used both in residential and commercial applications. These fixtures feature the latest in long life compact fluorescent and circleline lamps. These fixtures are ideal for small rooms, entrance areas, accent areas, or hallways. 4. Undercabinet Series. Supplying this product to its constantly growing customer base, including GE as the largest purchaser and distributor, the Company is also being asked by other competitors to produce the product for them as other companies are unable to compete with the quality and price the Company offers. The Company's Undercabinet Series has a very low profile, excellent in energy saving, multipurpose use and has now become the most popular item among all the Company's products. 5. Plastic Blacklight Series. At the current time, the Company is producing the plastic Blacklight Series for GE only. However, there is no exclusive contract between the Company and GE. GE then sells this product to many retailers including Spencer Gifts, Target, and other novelty stores, so this popular fixture is constantly in demand. On some days the Company produces more than 10,000 Blacklight fixtures. Recent estimates from GE suggest that Blacklight orders within the next twelve months will be approximately 750,000 units. 21 27 All of the Company's products are 100% tested electrically prior to shipment, are monitored for finish (i.e., the aesthetic appearance free from scratches, dents, etc.) as well as mechanical fit, and are Underwriters Laboratories ("UL"), Canadian Standards Association ("CSA"), and Canadian Underwriters Laboratories ("CUL") approved. The Company believes that these factors, combined with the Company's expert management, strategically place the Company in a position to capture a significant portion of the commercial and residential lighting industry. During the current fiscal year, the Company plans to introduce a minimum of four new fixture series to its present family of products. These products, in addition to the current products being sold, will be marketed to the D14 retail market under the Luminex Lighting label. The various product series currently in the development stage are the following: 1. Decorative Utility Light is an inexpensive, portable utility light which can be used for homes, offices, commercial, and residential purposes. 2. Plastic Series, with similar construction to the Blacklight, will enable consumers to purchase multipurpose lighting fixtures at an economical price. 3. Compact Fluorescent Series leads the market in compact energy efficient products utilizing the latest "state of the art" lamp technology. This series will be offered in a variety of products including ceiling and wall lights. 4. Euro Series. The Euro Single Strip, Euro Twin Light, Euro 15" Strip Light, and Euro Nightlite are included in this series. This inexpensive and affordable product line is characterized by its rounded dimensions and is designed to fit almost anywhere. These lights can be used to brighten up areas such as the kitchen, laundry area, garage, office, and almost anywhere around the home or office. As one of the newer lighting developments by Luminex, the Euro Series has created a great deal of interest in Luminex and its product lines. This series will be marketed extensively through the do it yourself ("DIY")/retail market under the Luminex label. The "do it yourself" market encompasses companies which sell products to the consumer for the consumer to install, such as Home Depot, Home Base, and Orchard Supply Hardware. The expected launch date for this program is August 1998. 5. Circleline. Luminex will be introducing a new line of energy efficient, screw-in fluorescent Circleline adapters. This product easily replaces the 75 watt and 150 watt incandescent lamps with only 22 watts and 30 watts respectively. The 22 watt system consists of a compact and dependable Circleline lamp and magnetic adapter. The 30 watt system utilizes high color rendering lamps with sophisticated and state of the art electronic ballast for quick starting and long life efficient operation. CUSTOMERS The largest customers of the Company for the last two years are as follows: General Electric Company Lamps Plus, Inc. United Electric Supply Company, Inc. The Orman Grubb Company California Commercial Lighting Supply, Inc. All Sale Electric, Inc. Ryall Electric Supply Company COMPETITION The Company faces competition from numerous companies, certain of which are more established, benefit from greater market recognition, and have greater financial, production and marketing resources than the Company. The Company's products compete on the basis of certain factors, including first to market product capabilities, product performance, price, support of industry standard, ease of use, customer support as well as user productivity. 22 28 The lighting industry is large and composed of many companies. Much of the competition that the Company faces is centralized within California. Companies such as American Power Products, Lights of America, Lampi Corporation, and Lamar Lighting manufacture similar lighting fixtures to those sold by the Company. The Undercabinet line in particular is in direct competition with various other manufacturers of similar lines. Such competition may diminish the Company's market share or its ability to gain entry into the market, and may consequently have a material adverse effect on the Company. COMPETITIVE ADVANTAGES Management of the Company believes that the Company has the following advantages over its competition: - The Company is able to purchase material at below market cost thereby enabling the final price of the finished product to be competitive within the industry. - All products assembled by the Company are tested and inspected by the Company's team of Quality Control Specialists thereby resulting in a 100% product satisfaction guarantee to its customers. Customers receive a replacement or full refund on any defective product. - The Company's diverse product lines offer ease of use in both the commercial and residential settings. - The Company is consistently applying the newest technology to its various products. In the lighting industry, technology changes rapidly. The Company has a team of specialists who are able to apply these new innovations to its lighting products giving the Company a competitive edge against the general market. SALES, MARKETING, AND DISTRIBUTION GENERAL The Company is currently marketing its products throughout the United States and Canada. Currently, the Company's revenues are largely based on OEM customers such as GE. Management feels that there are significant opportunities within the OEM market and intends to capitalize and expand its revenue base from this market. Aside from OEM manufacturing, the Company is currently selling its wide range of fluorescent lighting fixtures through various distributors and independent sales representatives. This accounts for approximately 5% of revenues for the Company. The remaining approximately 95% of sales is derived from GE. Distribution takes place through the Company's Chino, California assembly and distribution center. ENERGY PLUS -- A DIVISION OF LUMINEX LIGHTING, INC. Energy Plus, a division of Luminex Lighting, Inc., has been specifically set up to target the commercial and electrical distribution markets. This market includes lighting needs for home and industrial construction, electrical distributors, and electrical wholesalers. Currently, Energy Plus provides the market with several fixtures, including over 93 various options. Products being sold through Energy Plus include all undercabinet series (plastic and metal), flushmounts, sidemounts, various cloud designs, wraparounds, decorative vanity, decorative cloud, all open strip fixtures, industrial use fixtures, enclosed fixtures, and gasket fixtures. Energy Plus recently acquired a new Sales Manager at the end of 1997 and formed a strong team of sales representatives and customer service representatives to support its division. The restructuring of the division has dramatically increased annual sales and has proven that Energy Plus can be competitive within the electrical and commercial markets. During the first quarter of 1998, Energy Plus reached a level of $94,770.37 in sales. The Company believes that there will be continued growth within this division based on increased orders by new and existing customers. 23 29 In order to establish new clients, Energy Plus is continuously searching for sales representatives across the United States and Canada. Currently, Energy Plus retains over 20 sales representatives who mainly cover the Western and Midwestern states. In order to facilitate the forecasted growth for Energy Plus, it will be necessary to expand its customer base through the acquisition of additional sales representatives. The division plans on aggressively expanding its representative base during 1998. Also, it will be necessary to maintain on hand inventory of the products being offered and to ensure rapid turn around time. Energy Plus will continue to stay focused on customer service and quality control enabling the division to further expand competitively. Energy Plus is a significant part of Luminex's business. Due to the direct sale of product to the customer, Energy Plus is able to maintain higher margins than those of Luminex Lighting, Inc. The higher margins attained within this division significantly contribute to the overall profitability of the business. Therefore, Luminex will continue to support the Energy Plus division and continue to acquire the business available in the commercial and electrical wholesale market. Energy Plus has recently launched a new PRODUCT PROMOTION PROGRAM. This program is a tool which will enable the Company to strategically acquire new business through special promotions of products every two months. This form of advertising and marketing will promote additional sales with electrical distributors and will provide the distributors with an incentive to purchase the product that is being promoted that particular month. This program will be aggressively marketed through our in house sales force along with our independent representatives across the United States. LUMINEX-MEXICO Luminex identified an opportunity to reduce costs by manufacturing components in Mexico where direct labor costs are significantly lower than those in the United States. Therefore, in 1998, the Company, in conjunction with Intek-Mexico, began manufacturing certain component parts for its lighting fixtures in order to increase margins. The Company is manufacturing several different types of ballasts for use in its fixtures. It is also manufacturing starter assemblies at the Mexico facility. The Company may also move the assembly of certain lighting fixtures to Mexico later in the year. This move will enable Luminex to realize significant cost savings by assembling certain of its lighting fixtures in Mexico. WEB SITE The Company has established an interactive website which will enable potential and existing clients to access the website and receive information, price quotes, and an opportunity to place orders. This will also allow interaction with international prospects. Again, this website provides additional tools for marketing its products domestically and internationally. The Company's website address is www.luminexlighting.com. EMPLOYEES As of the date of this Prospectus, the Company employed 80 full-time employees and no part-time employees. The Company hires independent contractors on an "as needed" basis only. The Company has no collective bargaining agreements with its employees. The Company believes that its employee relationships are satisfactory. The Company plans on hiring additional part-time sales staff in the immediate future. Long term, the Company will hire additional employees as needed based on its growth rate. In particular, if at least the Minimum Offering is sold, the Company plans on hiring a national sales manager to market the Company's own brand label products in the U.S. and Canadian retail markets. See "Use of Proceeds." PROPERTIES The Company leases a 25,000 square foot warehouse, including office space, in Chino, California which is the Company's headquarters. The lease term expires in October 2000. The lease contains two options to extend the lease term for a period of three years each. The monthly lease payment is $11,250. 24 30 The Company also leases approximately 500 square feet of office space in Milford, Massachusetts. The monthly lease payment is $275 and the lease expires November 30, 1998. LITIGATION On March 11, 1997, the Company was served with a Complaint in the matter of David P. Holmes, Plaintiff ("Plaintiff") vs. Luminex Lighting, Inc., a California corporation; Wasif Siddiqui, an individual; Tasneem Siddiqui, an individual; and Does 1 through 20, inclusive, Defendants ("Defendants"), Superior Court of the State of California for the County of Orange, Case No. 776430. Plaintiff is a former employee of the Company who was terminated. Plaintiff alleged he had an implied employment contract with Defendants such that he would be employed by Defendants so long as his performance was satisfactory, and that Defendants would not discharge him without good and just cause. Plaintiff alleged the following causes of action in his complaint: breach of contract for continued employment; breach of implied contract of continued employment; and breach of implied covenant of good faith and fair dealing. On June 18, 1997, Defendants filed a Cross-Complaint against Plaintiff for misappropriation of trade secrets; interference with a significant business relationships; conversion of trade secrets; and unfair competition. On May 27, 1998, Defendants entered into a settlement agreement with Plaintiff whereby Defendants would pay to Plaintiff the total sum of $105,000 according to the following payment schedule: $25,000 initial lump sum payment and $10,000 per month for eight months. All settlement payments will be made by the Company on behalf of all Defendants. Management of the Company believes that there are no other litigation matters pending or threatened against the Company. 25 31 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and officers of the Company as of the date of this Prospectus are as follows:
NAME AGE POSITION ---- --- -------- Wasif Siddiqui 52 President, Chief Executive Officer, Chief Financial Officer, Director Tasneem Siddiqui 44 Executive Vice President, Secretary, Director Asra Rasheed 25 Vice President of Corporate Planning, Director
The number of directors may be fixed from time to time by the Board of Directors. The Board of Directors presently consists of 3 directors. The Company will add one independent director at the completion of this Offering. This individual has yet to be determined. Each of the Company's directors hold office until their respective successors are elected at the next annual meeting of shareholders. Vacancies in the Board of Directors are filled by a majority vote of the remaining directors or by a shareholder vote called expressly for such purpose. Wasif Siddiqui, President, Chief Executive Officer, Chief Financial Officer, and Director, has over 15 years of experience within the lighting industry. He is one of the original founders of the Company and spent 1993 forming the Company which was incorporated in January 1994. From 1987 through 1993, he was President and Chief Executive Officer of American Power Products, a lighting Company with sales volume that exceeded 35 million dollars. Prior to his term as President of both companies, Mr. Siddiqui specialized in various management positions with three different Fortune 500 companies. His experience in management, along with his expertise in the lighting industry, has brought the Company a strong and committed leader focused on the growth and success of the Company. Mr. Siddiqui earned his Masters Degree in Business Administration from Northrop University, Los Angeles, California. Tasneem Siddiqui, Executive Vice President, Secretary, and Director, brings to the Company insight and experience in financial and manufacturing management. She is an original founder of the Company and spent 1993 forming the Company with Mr. Siddiqui. Ms. Siddiqui was Manager of Finance with American Power Products from 1991 through 1992. Ms. Siddiqui was the owner and operator of National Products, a multi-million dollar artificial plant manufacturing Company, from 1986 through 1991. Through this venture, she gained experience in overseeing production and manufacturing. Ms. Siddiqui is responsible for the daily management and supervision of various departments such as Accounts Payable and Production, of the Company. She has a B.S. Degree in Economics. Asra S. Rasheed, Vice President of Corporate Planning, and Director, brings to the Company expertise in business and financial analysis. She joined the Company in October 1996. She was previously employed at Wells Fargo Bank from August 1991 through September 1996 as a Personal Banking Officer and Customer Service Representative where she gained experience in the sales and financial industry. Ms. Rasheed is responsible for long term forecasting and financial structuring for the Company as well as overseeing day-to-day sales and accounts receivable activity that funnel through the Company. Ms. Rasheed has a B.S. Degree in Finance (with emphasis on Corporate Finance and Investments). Ms. Rasheed is the daughter of Mr. and Mrs. Siddiqui. 26 32 EXECUTIVE COMPENSATION The following officers of the Company receive the following annual cash salaries and other compensation: SUMMARY COMPENSATION TABLE
AWARDS(3) ---------------------------- SECURITIES ANNUAL RESTRICTED UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) STOCK AWARDS(4) OPTIONS --------------------------- ---- --------- -------- --------------- ---------- Wasif Siddiqui 1998 $96,000 $-0- -0- -0- President, Chief Executive Officer, 1997 $96,000 $-0- -0- -0- Chief Financial Officer 1996 $62,000 $-0- -0- -0- Tasneem Siddiqui 1998 $72,000 $-0- -0- -0- Executive Vice President and Secretary 1997 $72,000 $-0- -0- -0- 1996 $36,000 $-0- -0- -0- Asra Rasheed 1998 $39,000 $-0- -0- -0- Vice President of Corporate Planning 1997 $36,000 $-0- -0- -0- 1996 $ 9,000 $-0- -0- -0-
- --------------- (1) The table does not include any amounts for personal benefits extended to officers of the Company, such as the cost of automobiles, life insurance and supplemental medical insurance, because the specific dollar amounts of such personal benefits cannot be ascertained. Management believes that the value of non-cash benefits and compensation distributed to executive officers of the Company individually or as a group during fiscal year 1998 will not exceed the lesser of $50,000 or ten percent of such officers' individual cash compensation or, with respect to the group, $50,000 times the number of persons in the group or ten percent of the group's aggregate cash compensation. (2) Mr. Wasif Siddiqui and Ms. Tasneem Siddiqui have bonus compensation agreements. For fiscal 1998, Mr. Siddiqui shall receive bonus compensation equal to 3% of gross annual sales; such amount is presently not ascertainable. For fiscal 1998, Ms. Siddiqui shall receive bonus compensation up to 1% of gross annual sales in the discretion of the board of directors; such amount is presently not ascertainable. (3) No officers received or will receive any long term incentive plan (LTIP) payouts or other payouts during fiscal 1998. (4) No officers received or will receive any restricted stock awards or options during fiscal 1998. INDEMNIFICATION OF DIRECTORS AND OFFICERS The laws of the State of California and the Company's Bylaws provide for indemnification of the Company's directors for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. The Company has been advised that in the opinion of the Commission, indemnification for liabilities arising under the Act is against public policy as expressed in the Act and is, therefore, unenforceable. EMPLOYMENT AND RELATED AGREEMENTS INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock Option Plan (the "Plan") for its employees and consultants under which a maximum of 500,000 options may be granted to purchase Common Stock of the Company. Two types of options may be granted under the Plan: (1) Incentive Stock Options (also known as Qualified Stock Options) which only may be issued to employees of the Company and whereby the exercise price of the option is not less than the fair market value of the Common Stock on the 27 33 date it was reserved for issuance under the Plan; and (2) Nonstatutory Stock Options which may be issued to either employees or consultants of the Company and whereby the exercise price of the option is less than the fair market value of the Common Stock on the date it was reserved for issuance under the Plan. Grants of options may be made to employees and consultants without regard to any performance measures. Any options issued pursuant to the Plan vest over an 18 month period from the date of the grant per the following schedule: 33% of the options vest on the date which is six months from the date of the grant; 33% of the options vest on the date which is 12 months from the date of the grant; and 34% of the options vest on the date which is 18 months from the date of the grant. Any options issued pursuant to the Plan are nontransferable and subject to forfeiture. As of the date of this Prospectus, the Company had not issued any options under the Plan. EMPLOYMENT AGREEMENTS Effective as of January 1, 1997, the Company entered into an Annual Salary and Bonus Compensation Plan ("Bonus Plan") with Wasif Siddiqui. The term of the Bonus Plan is five years and is renewable subject to Board approval at the expiration of the initial term. This Bonus Plan provides for annual salary compensation of $96,000 per year with a 5% increase every year for a period of five years. The Bonus Plan provides for bonus compensation of 3% of gross annual sales of the Company each fiscal year, provided that the bonus does not create a net loss before taxes for the Company. Effective January 1, 1997, the Company entered into a Bonus Plan with Charles Boulos, an employee. This Bonus Plan provides for a bonus each fiscal year in a range between 0.5% and 1% of gross annual sales of the Company. The actual percentage for the bonus to be determined by the Board of Directors of the Company at the annual meeting, but no less than 0.5% nor more than 1% of gross annual sales. The Bonus Plan contains no other provisions and is subject to amendment or termination at will. Effective as of June 1, 1997, the Company entered into a Bonus Plan with Tasneem Siddiqui. The term of the Bonus Plan is five years and is renewable subject to Board approval at the expiration of the initial term. This Plan provides for annual salary compensation of $72,000 per year with a 5% increase every year for five years thereafter. The Bonus Plan provides for bonus compensation of up to 1% of gross annual sales of the Company each fiscal year, provided that the bonus does not create a net loss before taxes for the Company. 28 34 CERTAIN TRANSACTIONS During the past two years, the Company had taken loans drawn on personal lines of credit of Asra Rasheed, Vice President of Corporate Planning and a Director and Shareholder of the Company. The interest rate at September 30, 1997 was 12.51%. The balance of the lines of credit at December 31, 1997 was $6,272. The funds drawn were contributed to the Company for working capital. Subsequent to December 31, 1997, the loans were paid in full and the Company has no plan to take any further loans from this line of credit. The Company's management believes that the terms of these transactions are no less favorable to the Company than would have been obtained from an unaffiliated third party in similar transactions. All future transactions with affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties, and will be approved by a majority of the disinterested directors. PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock, as of the date hereof and as adjusted to reflect the sale of the Shares offered hereby by (i) each shareholder known by the Company to be the beneficial owner of more than five percent of the outstanding Common Stock, (ii) each director of the Company, (iii) each officer of the Company, and (iv) all directors and officers as a group. Unless otherwise indicated, the address for each shareholder is 13710 Ramona Avenue, Chino, CA 91710.
PERCENTAGE BENEFICIALLY OWNED(1) --------------------------------- AFTER AFTER NUMBER OF BEFORE MINIMUM MAXIMUM NAME SHARES OFFERING OFFERING OFFERING ---- --------- --------- -------- -------- Wasif A. Siddiqui and Tasneem Siddiqui, held jointly......................................... 2,600,000 78.6% 73.1% 68.3% Whittington Investments, Ltd., a corporation(2)... 237,000 7.2% 6.5% 6.2% Suite M2 Charlotte House P.O. Box N4825 Nassau, Bahamas Clearweather Investment, Ltd.(3).................. 210,000 6.4% 5.6% 5.5% 65 Main Street, P.O. Box 3463 Road Town/Tortola British Virgin Islands Asra Rasheed...................................... 200,000 6.0% 5.6% 5.3% Knightrider Investments Limited, a corporation(4).................................. 175,000 5.3% 4.7% 4.6% c/o John King Worldwide Trust Services Limited Charlotte House, Charlotte St. Nassau, Bahamas All officers and directors as a group (3 persons)........................................ 2,800,000 84.7% 78.7% 73.6%
- --------------- * Less than one percent (1) Except as otherwise indicated, the Company believes that the beneficial owners of Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. (2) Includes 115,000 Private Placement Warrants (3) Includes 200,000 Private Placement Warrants (4) Includes 150,000 Private Placement Warrants 29 35 SELLING SHAREHOLDERS The following table sets forth the number of Shares of Common Stock which may be offered for sale from time to time by the Selling Shareholders. The shares offered for sale constitute all of the Shares of Common Stock known to the Company to be beneficially owned by the Selling Shareholders. To the best of management's knowledge, none of the Selling Shareholders has or have any material relationship with the Company, except as otherwise set forth below.
SHARES OF COMMON STOCK NAME OF SELLING SHAREHOLDER OFFERED(1) --------------------------- ------------ Whittington Investments, Ltd................................ 122,000 Whittington Investments, Ltd................................ 115,000(2) Horwitz & Beam, Inc., a California corporation(3)........... 5,000 Horwitz & Beam, Inc., a California corporation(3)........... 25,000(2) Clarence W. Coffey, an individual........................... 20,000 Rockspitz Stiftung.......................................... 9,500 Rockspitz Stiftung.......................................... 5,000(2) Richard Houlihan, an individual............................. 20,000 Stephen Leslie Schneider, an individual..................... 30,000 Joseph T. Doino and Carm M. Doino, JTWROS................... 25,000 Graham Thorogood, an individual............................. 5,000(2) Gregory A. Majka, an individual............................. 10,000 Z.T. Global, Inc., a corporation............................ 20,000 Clearweather Investments.................................... 10,000 Clearweather Investments.................................... 200,000(2) Montague Securities International Ltd., a corporation....... 10,000 Irfan Mustafa, an individual................................ 50,000 Equitrade Securities Corp................................... 10,000 Winthrop Venture Fund, Ltd.................................. 80,000 C.R. Hanson, an individual.................................. 20,000 Knightrider Investments Limited, a corporation.............. 25,000 Knightrider Investments Limited, a corporation.............. 150,000(2) Michael Preston, an individual.............................. 20,000 Steven Lampert, an individual............................... 20,000 --------- Total............................................. 1,006,500 =========
- --------------- (1) All of these Shares are currently restricted under Rule 144 of the 1933 Act. (2) Represents Shares underlying Private Placement Warrants. (3) Legal counsel to the Company. Horwitz & Beam, Inc. acquired the securities in the Private Placement as an investor on April 24, 1997 pursuant to a subscription agreement and the payment of $5,000. PLAN OF DISTRIBUTION The Shares will be offered and sold by the Selling Shareholders for their own accounts. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Shareholders pursuant to this Prospectus. The Company will pay all of the expenses of the registration of the Shares, but shall not pay any commissions, discounts, and fees of underwriters, dealers, or agents. The Selling Shareholders may offer and sell the Shares from time to time in transactions in the over-the-counter market or in negotiated transactions, at market prices prevailing at the time of sale or at negotiated prices. The Selling Shareholders have agreed not to sell, assign, pledge, hypothecate, or otherwise dispose of 30 36 any of the Private Placement Stock, as well as the Shares of Common Stock underlying the Private Placement Warrants, for a period of 12 months from the final closing of the Offering without the prior written consent of the Underwriter. The Selling Shareholders have advised the Company that they have not entered into any agreements, understandings, or arrangements with any underwriters or broker-dealers regarding the distribution of their Shares, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of Shares by the Selling Shareholders. Sales may be made directly or to or through broker-dealers who may received compensation in the for of discounts, concessions, or commissions from the Selling Shareholders or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Shareholders and any broker-dealers acting in connection with the sale of the Shares hereunder may be deemed to be "underwriters" within the meaning of Section 2(11) of the Act, and any commissions received by them and any profit realized by them on the resale of Shares as principals may be deemed underwriting compensation under the Act. Under the Exchange Act and the regulations thereunder, any person engaged in a distribution of the Shares offered by this Prospectus may not simultaneously engage in market making activities with respect to the Common Stock of the Company during the applicable "cooling off" periods prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which provisions may limit the timing of purchases and sales of Common Stock by the Selling Shareholders. Selling Shareholders may also use Rule 144 under the Act to sell the Shares if they meet the criteria and conform to the requirements of such Rule. DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of ten million Shares of Common Stock, no par value. The Company's Transfer Agent is Oxford Transfer & Registrar, 317 S.W. Alder, Suite 1120, Portland, Oregon, 97204. The following summary of certain terms of the Company's securities does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Company's Articles of Incorporation and Bylaws, which are included as exhibits to the Registration Statement of which this Prospectus is a part, and the provisions of applicable law. COMMON STOCK As of the date of this Prospectus, there are 3,306,500 Shares of Common Stock outstanding, and after completion of this Offering, 3,556,500 Shares of Common Stock will be issued and outstanding if the minimum amount hereunder is sold and 3,806,500 Shares of Common Stock if the maximum amount hereunder is sold (without giving effect to the exercise of any warrants). Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. At all elections of directors of the Company, each holder of stock possessing voting power is entitled to as many votes as equal to the number of his or her shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for or any two or more of them, as he or she may see fit (cumulative voting). Subject to preferences that may be applicable to any then outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. Holders of Common Stock have no right to convert their Common Stock into any other securities. The Common Stock has no preemptive or other 31 37 subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding Shares of Common Stock are, and the Common Stock to be outstanding upon completion of this Offering will be, duly authorized, validly issued, fully paid and nonassessable. WARRANTS As of the date of this Prospectus, there are 500,000 warrants outstanding (the "Private Placement Warrants"). These warrants were issued by the Company to private individuals in connection with the Company's Private Placement Bridge Financing commenced on April 4, 1997. The Private Placement Warrants are each exercisable for one share of Common Stock of the Company at $0.80 per share. The term of the Private Placement Warrants is five years from the date of issuance. The Company is also offering hereunder, a minimum of 250,000 warrants and a maximum of 500,000 warrants (the "Warrants"). The Warrants are each exercisable for one share of Common Stock of the Company at $6.00 per share, subject to adjustment. The term of the Warrants is five years from the Effective Date. The exercise price of the Warrants and the number of Shares of Common Stock or other securities and property issuable upon exercise of the Warrants are subject to adjustment in certain circumstances, including stock splits, stock dividends, subdivisions, combinations, reclassification or issuances of stock at a price lower than the current market price. Additionally, an adjustment will be made upon the sale of all or substantially all of the assets of the Company in order to enable the holders of the Warrants to purchase the kind and number of shares of stock or other securities or property (including cash) receivable in such event by a holder of the number of Shares of Common Stock that might otherwise have been purchased upon exercise of the Warrants. The Warrants do not confer upon the holder any voting or any other rights of a shareholder of the Company. Upon notice to the holders of the Warrants, the Company has the right to reduce the exercise or extend the expiration date of the Warrants. Warrants may be exercised upon surrender of the Warrant certificate evidencing those Warrants on or prior to the expiration date (or earlier redemption date) of the Warrants to American Stock Transfer & Trust Company as warrant agent (the "Warrant Agent"), with the form of "Election to Purchase" on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by payment of the full exercise price (in United States funds, by cash or certified bank check payable to the order of the Warrant Agent) for the number of Warrants being exercised. No fractional shares will be issued upon exercise of the Warrants. However, if a holder of a Warrant exercises all Warrants then owned of record by him, the Company will pay to that holder in lieu of the issuance of any fractional share which would otherwise be issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. No Warrant will be exercisable unless at the time of exercise the Company has filed with the Commission a current prospectus covering the issuance of Shares of Common Stock issuable upon exercise of the Warrants and the issuance of shares has been registered or qualified or is deemed to be exempt from registration or qualification under the securities laws of the state of residence of the holder of the Warrant. The Company has undertaken to use its best efforts to maintain a current prospectus relating to the issuance of Shares of Common Stock upon the exercise of the Warrants until the expiration of the Warrants, subject to the terms of the Warrant Agreement. While it is the Company's intention to maintain a current prospectus, there is no assurance that it will be able to do so. The Warrants are redeemable, in whole or in part, by the Company at a price of $0.10 per Warrant, commencing 12 months from the Effective Date (except the Warrants may be redeemed earlier with the Underwriter's express written consent), and prior to their expiration, provided that: (i) prior written notice of not less than 30 days is given to the holders of the Warrants ("Warrantholders"); and (ii) the closing bid price of the Company's Common Stock for the 20 consecutive trading days ending on the third day prior to the date 32 38 on which the notice of redemption is given, shall have exceeded $7.50 per share. The Warrantholders shall have exercise rights until the close of business, the day preceding the date fixed for redemption. If the Minimum Offering is sold, the Company will have a total of 750,000 warrants outstanding. If the Maximum Offering is sold, the Company will have a total of 1,000,000 warrants outstanding. Additionally, the Company has agreed to issue to the Underwriter, upon the closing of this offering, Underwriter's Warrants exercisable to purchase up to 500,000 Shares of Common Stock and/or 50,000 Warrants at an exercise price of $6.60 per Share and $0.12 per Warrant. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have outstanding 3,556,500 shares of Common Stock if the minimum amount is sold hereunder and 3,806,500 shares if the Maximum Offering is sold (without giving effect to the exercise of any warrants). All shares acquired in this Offering, other than shares that may be acquired by "affiliates" of the Company as defined by Rule 144 under the Act, will be freely transferable without restriction or further registration under the Act. All of the 3,306,500 shares outstanding prior to this offering were shares issued by the Company and sold by the Company in private transactions in reliance on an exemption from registration. Accordingly, such shares are "restricted shares" within the meaning of Rule 144 and cannot be resold without registration, except in reliance on Rule 144 or another applicable exemption from registration. All directors, officers, and holders of any securities of the Company prior to the Offering have agreed not to sell any Shares of Common Stock, including Shares of Common Stock issuable upon exercise of options, warrants, or any convertible securities of the Company, for a period of 12 months after the final Closing Date without the prior written consent of the Underwriter. In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated), including any affiliate of the Company, who beneficially owns "restricted shares" for a period of at least one year is entitled to sell within any three-month period, shares equal in number to the greater of (i) 1% of the then outstanding Shares of Common Stock, or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of the required notice of sale with the Commission. The seller also must comply with the notice and manner of sale requirements of Rule 144, and there must be current public information available about the Company. In addition, any person (or persons whose shares are aggregated) who is not, at the time of the sale, nor during the preceding three months, an affiliate of the Company, and who has beneficially owned restricted shares for at least two years, can sell such shares under Rule 144 without regard to notice, manner of sale, public information or the volume limitations described above. The Private Placement Stock and the shares underlying the Private Placement Warrants are being registered herein. Therefore, 506,500 shares of Common Stock and 500,000 shares of Common Stock issuable upon exercise of warrants will be freely tradeable upon the effective date hereof. 33 39 UNDERWRITING Platinum Equities, Inc. (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to act as the exclusive agent for the Company to sell the Securities on a "best efforts 250,000 Shares of Common Stock and 250,000 Warrants minimum ('Minimum Offering'), 500,000 Shares of Common Stock and 500,000 Warrants maximum ('Maximum Offering') basis. The Underwriter has made no commitment to purchase any or all of the Shares of Common Stock or Warrants. It has agreed only to use its best efforts to find purchasers for the Shares of Common Stock and Warrants within a period of 120 days from the date of this Prospectus, subject to an extension for an additional period of 30 days on mutual consent of the Company and the Underwriter. All proceeds from subscriptions will be deposited promptly in a non-interest bearing account with American Stock Transfer & Trust Company as escrow agent (the "Escrow Agent"), pursuant to an escrow agreement between the Company, the Underwriter, and the Escrow Agent. Funds will be transmitted to the Escrow Agent for deposit in the escrow account no later than noon of the business day following receipt. All checks must be made payable to "American Stock Transfer & Trust Company, Escrow Agent -- Luminex Lighting, Inc." In the event the Minimum Offering is not sold within the 120 day initial offering period and the 30 day extension period described above, funds will be refunded promptly to subscribers in full without deduction therefrom or interest thereon. During the 120 day offering period and any extension, no subscriber will be entitled to a refund of any subscription, and no funds will be released from escrow until the Minimum Offering is sold, or the termination of the Offering. There are none, nor will there be, any arrangements between the Company and the Underwriter whereby Shares of Common Stock or Warrants will be reserved to persons associated or affiliated with management of the Company or its affiliated persons, although such persons may purchase Shares of Common Stock or Warrants in order to insure that the Minimum Offering is sold. The Underwriter has advised the Company that it proposes to offer the Securities to the public at the public offering price set forth on the cover page of this Prospectus and that it may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. ("NASD") concessions not in excess of $0.25 per Share of Common Stock and $0.005 per Warrant. The Underwriter is to receive cash commission of 10% of the gross offering. In addition, the Company has agreed to pay to the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of this Offering. The Company has also agreed to pay all expenses in connection with qualifying the Common Stock and Warrants offered hereby for sale under the laws of such states as the Underwriter may designate, including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to sell to the Underwriter for $10, upon the closing of this Offering, Underwriter's Warrants exercisable to purchase up to 50,000 Shares of Common Stock and/or 50,000 Warrants at an exercise price of $6.60 per Share of Common Stock and $0.12 per Warrant. The Underwriter's Warrants may not be sold, transferred, assigned, or hypothecated for one year from the date of this Prospectus, except to the officers or partners of the Underwriter and members of the selling group, and are exercisable during the four-year period commencing one year from the Effective Date (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's shareholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants may be deemed additional underwriting compensation. Subject to certain limitations and exclusions, the Company has agreed, at the request of the holders of a majority of the Underwriter's Warrants to register the Underwriter's Warrants, the underlying Shares of Common Stock and the underlying Warrants under the Act on two occasions (one at the Company's expense and one at the holder's expense) during the Warrant Exercise Term and to include such Underwriter's Warrants, the 34 40 underlying Shares of Common Stock and the underlying Warrants in any appropriate registration statement which is filed by the Company during the five years following the date of this Prospectus. Additionally, the Underwriter has been engaged as the Company's warrant solicitation agent, and pursuant thereto may participate in the solicitation of the exercise of the Warrants. Upon the exercise of the Warrants, commencing one year from the Effective Date, the Company will pay the Underwriter a commission of 7% of the aggregate exercise price of the Warrants exercised. In accordance with the NASD Notice to Members 92 - 98, no fee shall be paid: (i) upon the exercise of warrants where the market price of the underlying Common Stock is lower than the exercise price; (ii) upon the exercise of any Warrants not solicited by the Underwriter; (iii) for the exercise of Warrants held in any discretionary account; or (iv) upon the exercise of Warrants where disclosure of compensation arrangements has not been made and documents have not been provided to customers both as part of the original offering and at the time of exercise. Further, the exercise of any Warrant shall be presumed unsolicited unless the holder of such Warrant states in writing that the transaction was solicited by the Underwriter. Notwithstanding the foregoing, no fees will be paid to the Underwriter or any other NASD members upon exercise of the Warrants within the first twelve months from the Effective Date. The Company has agreed that it will not issue, sell, or agree to issue or sell any other securities (except the shares of Common Stock underlying the Warrants being offered and sold by the Selling Shareholders, the Underwriter's Warrants, or the Company's Stock Option Plan) for a period of 18 months from the Final Closing Date without the prior written consent of the Underwriter. All of the directors, officers, and holders of any securities of the Company prior to the offering have agreed not to sell any shares of Common Stock, including Shares of Common Stock issuable upon exercise of options, Warrants, or any convertible securities of the Company, for a period of 12 months from the Final Closing Date without the prior written consent of the Underwriter. During the three-year period from the Final Closing Date, the Underwriter shall have a right of first refusal to act as underwriter or agent of any and all public or private offerings of securities of the Company by the Company or any secondary offering of the Company's securities by one of its officers, directors, or principal shareholders. Although the Underwriting Agreement will provide that, for a period of three years from the Initial Closing Date, the Underwriter may designate for election one person to the Company's Board of Directors, the Underwriter has advised the Company that it has not selected such individual and has no immediate plans to do so. If the Underwriter elects not to assert such right, then it may designate one person to attend all Board of Directors meetings as an observer. In the event that such an individual is designated, such individual shall receive reimbursement of expenses for attending the meetings of the Board of Directors. The Company has agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Act. To the extent this section may purport to provide exculpation from possible liabilities arising under the Federal securities laws, it is the opinion of the Commission that such indemnification is against public policy and is therefore unenforceable. The foregoing is a summary of the principal terms of the Underwriting Agreement and the Underwriter's Warrants. Reference is made to the copies of the Underwriting Agreement and the Underwriter's Warrants which are filed as exhibits to the Registration Statement of which this Prospectus forms a part. The Underwriter has little experience in underwriting public offerings. This Offering is the second public offering being underwritten by the Underwriter. Prospective purchasers of the Securities offered hereby should consider the Underwriter's lack of experience in being a manager of an underwritten public offering. The Underwriter has informed the Company that it does not expect sales to be made to discretionary accounts to exceed 1% of the Securities offered hereby. Prior to this Offering, there has been no public market for the Common Stock or the Warrants. Accordingly, the Offering and exercise price of such Securities being offered hereby was determined, in large part, by negotiations between the Company and the Underwriters on an arbitrary basis and bear no direct 35 41 relationship to the assets, earnings, or other recognized criterion of value. Factors considered in determining such prices, in addition to prevailing market conditions, include the history and business prospects of the Company, as well as such other factors as were deemed relevant, including an evaluation of management and the general economic climate. The prices should in no event, however, be regarded as an indication of any future market price of the Common Stock or the Warrants. Pursuant to the terms of the Underwriter's Restriction Letter with the NASD, the Underwriter is prohibited from acting as a "market maker" in securities. As a result thereof, the Underwriter will be prohibited from making a market in the Securities offered hereby. The Underwriter's inability to make such a market may materially affect the liquidity of the Securities offered hereby, which could make it more difficult for investors in this Offering to purchase or sell their Securities. The Underwriter, however, may execute buy and sell orders for its customers in the Common Stock offered hereby on an agency basis. See "Risk Factors -- Underwriter Will Not Make a Market in the Company's Securities." LEGAL MATTERS The validity of the securities offered hereby will be passed upon for the Company by Horwitz & Beam, Irvine, California. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Gusrae, Kaplan & Bruno. Horwitz & Beam, Inc., a California corporation, is the owner of 5,000 shares of Private Placement Stock and 25,000 Private Placement Warrants which are being registered for resale herein. Horwitz & Beam, Inc. acquired such securities in the Private Placement as an investor on April 28, 1997 pursuant to a subscription agreement and the payment of $5,000. EXPERTS The Financial Statements of the Company included herein and elsewhere in the registration statement, have been included herein and in the registration statement in reliance on the report of Stonefield Josephson, Inc., Certified Public Accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company is not presently subject to the reporting requirements of the Securities Exchange Act of 1934. The Company has filed with the Commission a Registration Statement on Form SB-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Act") with respect to the Securities offered hereby. This Prospectus, which constitutes a part of the Registration Statement, omits certain information contained in the Registration Statement on file with the Commission pursuant to the Act and the rules and regulations of the Commission thereunder. The Registration Statement, including the exhibits thereto, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of such material may be obtained by mail at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 36 42 LUMINEX LIGHTING, INC. FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 CONTENTS
PAGE ---- FINANCIAL STATEMENTS: Independent Auditors...................................... F-2 Balance Sheets............................................ F-3 Statements of Income (Operations)......................... F-4 Statements of Stockholders' Equity........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7
F-1 43 [STONEFIELD JOSEPHSON, INC. LOGO] INDEPENDENT AUDITORS' REPORT Board of Directors Luminex Lighting, Inc. Chino, California We have audited the accompanying balance sheets of Luminex Lighting, Inc. as of December 31, 1997 and 1996, and the related statements of income (operations), stockholders' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 Luminex Lighting, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Stonefield Josephson, Inc. -------------------------------------- Certified Public Accountants Santa Monica, California March 10, 1998 F-2 44 LUMINEX LIGHTING, INC. BALANCE SHEETS ASSETS
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------------- 1998 1997 1996 ------------ ---------- ---------- (UNAUDITED) CURRENT ASSETS: Cash.................................................... $ 31,567 $ 89,264 $ 665 Cash -- restricted...................................... 17,000 17,000 -- Accounts receivable, net of allowance for bad debts of $11,900 and $10,000, respectively.................... 809,369 389,137 958,584 Prepaid expenses........................................ 1,059,707 6,606 -- Inventory............................................... 5,584 1,217,788 445,893 Due from stockholder.................................... -- -- 16,950 ---------- ---------- ---------- Total current assets............................ 1,923,227 1,719,795 1,422,092 ---------- ---------- ---------- PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization........................................ 294,772 274,747 174,039 ---------- ---------- ---------- OTHER ASSETS: Deferred offering costs................................. 72,332 57,158 -- Deposits................................................ 28,375 17,768 10,118 Other................................................... 14,616 16,253 6,116 ---------- ---------- ---------- Total other assets.............................. 115,323 91,179 16,234 ---------- ---------- ---------- $2,333,322 $2,085,721 $1,612,365 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Lines of credit......................................... $ 632,555 $ 301,199 $ 790,219 Accounts payable and accrued expenses................... 1,258,751 1,321,719 880,524 Loans payable, stockholder.............................. -- 6,272 11,517 Current maturities of long-term debt.................... 56,030 55,767 21,192 Current portion of obligations under capital leases..... 16,405 15,199 7,461 ---------- ---------- ---------- Total current liabilities....................... 1,963,741 1,700,156 1,710,913 ---------- ---------- ---------- NOTES PAYABLE............................................. 88,927 102,761 29,077 ---------- ---------- ---------- CAPITAL LEASES............................................ 12,321 15,896 18,564 ---------- ---------- ---------- STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock, no par value; 10,000,000 shares authorized, 3,326,500 and 2,800,000 shares issued and outstanding at December 31, 1997 and 1996, respectively......................................... 417,172 427,172 163,922 Additional paid-in capital.............................. 26,750 26,750 -- Accumulated deficit..................................... (175,589) (187,014) (310,111) ---------- ---------- ---------- Total stockholders' equity (deficiency)......... 268,333 266,908 (146,189) ---------- ---------- ---------- $2,333,322 $2,085,721 $1,612,365 ========== ========== ==========
See accompanying independent auditors' report and notes to financial statements. F-3 45 LUMINEX LIGHTING, INC. STATEMENTS OF INCOME (OPERATIONS)
THREE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED YEAR ENDED MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996 --------------------- --------------------- -------------------- -------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ----------- ------- ----------- ------- ---------- ------- ---------- ------- (UNAUDITED) (UNAUDITED) Net sales.............. $1,705,803 100.0% $1,289,515 100.0% $5,852,969 100.0% $3,056,532 100.0% Cost of sales.......... 1,463,192 85.8 1,109,913 86.1 4,601,497 78.6 2,584,668 84.6 ---------- ----- ---------- ----- ---------- ----- ---------- ----- Gross profit........... 242,611 14.2 179,602 13.9 1,251,472 21.4 471,864 15.4 Selling, general and administrative expenses............. 201,325 11.8 191,922 14.9 991,164 16.9 488,491 16.0 Interest expense....... 29,061 1.7 31,007 2.4 136,411 2.3 95,769 3.1 ---------- ----- ---------- ----- ---------- ----- ---------- ----- Net income (loss) before income taxes................ 12,225 .7 (43,327) (3.4) 123,897 2.2 (112,396) (3.7) Provision for income taxes................ 800 800 800 800 ---------- ----- ---------- ----- ---------- ----- ---------- ----- Net income (loss)...... $ 11,425 .7% $ (44,127) (3.4)% $ 123,097 2.2% $ (113,196) (3.7)% ========== ===== ========== ===== ========== ===== ========== ===== NET INCOME (LOSS) PER SHARE: Basic................ $ .01 $ (.02) $ .04 $ (.04) ========== ========== ========== ========== Diluted.............. $ .01 $ -- $ .03 $ -- ========== ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................ 3,306,500 2,800,000 3,326,500 2,800,000 ========== ========== ========== ========== Diluted.............. 3,806,500 -- 3,746,500 -- ========== ========== ========== ==========
See accompanying independent auditors' report and notes to financial statements. F-4 46 LUMINEX LIGHTING, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' ---------------------- PAID-IN EQUITY SHARES AMOUNT CAPITAL DEFICIENCY (DEFICIENCY) ---------- -------- ---------- ---------- ------------- Balance at January 1, 1996....... 2,800,000 $163,922 $ $(196,915) $ (32,993) Net loss......................... (113,196) (113,196) ---------- -------- ------- --------- --------- Balance at December 31, 1996..... 2,800,000 163,922 (310,111) (146,189) Issuance of common stock through private offering............... 526,500 263,250 26,750 290,000 Net income....................... 123,097 123,097 ---------- -------- ------- --------- --------- Balance at December 31, 1997..... 3,326,500 427,172 26,750 (187,014) 266,908 Redemption of common stock issued through private offering....... (20,000) (10,000) (10,000) Net income for the three months ended March 31, 1998 (unaudited).................... 11,425 11,425 ---------- -------- ------- --------- --------- Balance at March 31, 1998........ $3,306,500 $417,172 $26,750 $(175,589) $ 268,333 ========== ======== ======= ========= =========
See accompanying independent auditors' report and notes to financial statements. F-5 47 LUMINEX LIGHTING, INC. STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED YEARS ENDED MARCH 31, DECEMBER 31, -------------------------- ---------------------- 1998 1997 1997 1996 ----------- ----------- --------- --------- (UNAUDITED) (UNAUDITED) CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income (loss).................................. $ 11,425 $ (44,127) $ 123,097 $(113,196) --------- --------- --------- --------- ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Depreciation and amortization...................... 9,582 10,300 46,269 16,894 Allowance for bad debt............................. -- -- 1,900 -- CHANGES IN ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ASSETS: Accounts receivable................................ (420,232) (144,658) 570,045 (889,097) Prepaid expenses................................... 1,022 (800) (6,606) -- Inventory.......................................... 158,081 (71,741) (771,894) (338,556) Deposits........................................... (10,607) -- (7,651) (3,918) Other assets....................................... 1,637 (10,001) (10,425) 759 INCREASE (DECREASE) IN LIABILITIES -- accounts payable and accrued expenses.............. (218,214) 126,143 483,797 702,049 --------- --------- --------- --------- Total adjustments............................... (478,731) (90,757) 305,435 (511,869) --------- --------- --------- --------- Net cash provided by (used for) operating activities.................................... (467,306) (134,884) 428,532 (625,065) --------- --------- --------- --------- CASH FLOWS USED FOR INVESTING ACTIVITIES -- purchase of property, plant and equipment.......... (29,607) (20,012) (136,697) (106,359) --------- --------- --------- --------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds (payments) on line of credit.............. 331,356 232,358 (489,020) 716,101 Principal (payments) proceeds on loan payable, stockholder..................................... (6,272) (3,814) (5,245) 11,517 Proceeds from note payable......................... -- -- 166,082 -- Principal payments proceeds on notes payable....... (13,571) (701) (57,822) 2,749 Principal payments on lease obligations............ (2,369) (1,731) 5,069 (6,645) Issuance of common stock and warrants, net......... -- -- 290,000 -- Deferred offering costs............................ (15,174) -- (57,158) -- Loan fees.......................................... -- -- (12,450) -- Decrease (increase) in due from stockholder........ -- (4,185) 16,950 (16,950) --------- --------- --------- --------- Net cash provided by (used for) financing activities.................................... 293,970 221,927 (143,594) 706,772 --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH...................... (202,943) 67,031 148,241 (24,652) --------- --------- --------- --------- Cash, beginning of year.............................. 106,264 (41,977) (41,977) (17,325) --------- --------- --------- --------- Cash, end of year.................................... $ (96,679) $ 25,054 $ 106,264 $ (41,977) ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid...................................... $ 29,061 $ 31,007 $ 136,411 $ 73,752 ========= ========= ========= ========= Income taxes paid.................................. $ 800 $ 800 $ 800 $ 800 ========= ========= ========= ========= SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Capital lease obligation incurred for use of equipment....................................... $ 14,115 $ 32,670 Automobile acquired in exchange for a note payable......................................... 11,978 --
See accompanying independent auditors' report and notes to financial statements. F-6 48 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 (1) GENERAL: Luminex Lighting, Inc. ("the Company") was incorporated under the laws of the State of California on January 21, 1994. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ACTIVITY: The Company assembles a diversified product line of energy saving fluorescent fixtures. 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE: Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which were held for trading purposes), approximate carrying values of such amounts. CASH: Equivalents For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. Concentration The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any such losses in such accounts. NET INCOME (LOSS) PER SHARE: The Company has adopted Statement of Financial Accounting Standard No. 128, Earnings per Share ("SFAS No. 128"), which is effective for annual and interim financial statements issued for periods ending after December 15, 1997. SFAS No. 128 was issued to simplify the standards for calculating earnings per share ("EPS") previously in APB No. 15, Earnings Per Share. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. The new rules also require dual presentation of basic and diluted EPS on the face of the statement of operations. Common equivalent shares, consisting of outstanding stock warrants, are not included for 1996, since they are anti-dilutive. STOCK OPTION PLANS: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for the employee stock options, See accompanying independent auditors' report. F-7 49 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) rather than adopt the alternative fair value accounting provided under The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". INCOME TAXES: Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF: On January 1, 1996, the Company adopted the provision of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity. INVENTORY: Inventory, consisting principally of raw materials, is valued at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost and are depreciated over their estimated useful lives, generally five to seven years, by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. For assets included as capital leases, amortization is based upon the lease term and is included with depreciation expense. REVENUE RECOGNITION: Sales of fluorescent fixtures are recorded when a shipment is made. CONCENTRATION: For the years ended December 31, 1997 and 1996, the Company's largest customer accounted for approximately 90% of total revenue for each year. Included in accounts receivable from this customer is approximately $284,000 and $860,000, for the years ended December 31, 1997 and 1996, respectively. See accompanying independent auditors' report. F-8 50 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Included in accounts payable and accrued expenses is approximately $475,000 due to two suppliers and $297,000 due to one supplier at December 31, 1997 and 1996, respectively. Total purchases amounted to approximately $2,150,000 and $840,000 for the years ended December 31, 1997 and 1996, respectively. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The accompanying unaudited condensed financial statements for the interim periods ended March 31, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Regulation SB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. (3) CASH -- RESTRICTED: At December 31, 1997, $17,000 of cash was pledged as collateral for letters of credit related to inventory purchases and is classified as restricted cash on the balance sheet. There are no outstanding letters of credit at year-end. (4) PROPERTY AND EQUIPMENT: A summary is as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Machinery and equipment............................ $255,362 $173,456 Furniture and office equipment................... 53,176 30,808 Leasehold improvements........................... 20,445 -- Automobile....................................... 11,978 -- -------- -------- 340,961 204,264 Less accumulated depreciation.................... 66,214 30,225 -------- -------- $274,747 $174,039 ======== ========
Depreciation and amortization expense for the years ended December 31, 1997 and 1996 amounted to $46,269 and $16,894, respectively. (5) DEFERRED OFFERING COSTS: The Company is in the registration process of a proposed public offering. Deferred stock offering costs of $57,158 will be charged against the proceeds of the proposed public offering when, and if, it becomes effective. See accompanying independent auditors' report. F-9 51 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES: A summary is as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Accounts payable, trade and non-trade.............. $1,161,148 $819,381 Accrued bonus, officer-stockholder (Note 11)....... 123,511 -- Accrued bonus, other (Note 11)..................... 17,000 18,501 Accrued salaries................................... 14,037 -- Accrued interest................................... 6,023 -- Bank overdraft..................................... -- 42,642 ---------- -------- $1,321,719 $880,524 ========== ========
(7) LINES OF CREDIT: The Company has a $25,000 revolving line of credit with a bank. Interest is due monthly on the outstanding balance at a rate of 3% above the bank's reference rate. Currently, the line of credit incurs interest at the annual rate of 11.5%. $21,244 and $23,588 was drawn on the line at December 31, 1997 and 1996, respectively. The Company has a $1,000,000 maximum line of credit with a financial institution. Interest is due monthly on the outstanding balance at a rate of 4% above the reference rate. Currently, the line of credit incurs interest at the annual rate of 12.5%. The term of the line expired on February 7, 1998 (see Note 17). The line is primarily secured by the Company's accounts receivable and inventory. The financial institution will make advances on the line of 80% of eligible accounts receivable and 25% of inventory. The borrowing is personally guaranteed by the majority stockholders. $279,955 and $766,631 was drawn on the line at December 31, 1997 and 1996, respectively. The line was paid in full by the Company upon termination. See accompanying independent auditors' report. F-10 52 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (8) LONG-TERM DEBT: A summary is as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Note payable, bank, secured by inventory and accounts receivable, monthly payments of $1,298 including interest at the bank's prime rate plus 2%. The borrowing is personally guaranteed by the majority stockholders............................ $ -- $36,703 Note payable, bank, secured by inventory and accounts receivable, monthly payments of $4,946 including interest at bank's prime rate plus 2.5%, due October 15, 2000. The borrowing is personally guaranteed by the majority stockholders..................................... 142,613 -- Note payable, secured by equipment, monthly payments of $850 including interest at 24.0%, due on July 1, 1998.................................. 5,168 13,566 Note payable, secured by automobile, monthly payments of $524 including interest at 11.8%, due on November 30, 1999............................. 10,747 -- -------- ------- 158,528 50,269 Less current maturities.......................... 55,767 21,192 -------- ------- $102,761 $29,077 ======== =======
Aggregate principal payment requirements are as follows as of December 31, 1997: Year ending December 31, 1998...................................................... $ 55,767 1999...................................................... 56,229 2000...................................................... 46,532 -------- $158,528 ========
(9) LOANS PAYABLE, STOCKHOLDER: The Company is making payments for loans drawn on personal lines of credit of a stockholder. The interest rate at December 31, 1997 was 12.57%. The balance of the lines of credit at December 31, 1997 and 1996 was $6,272 and $11,517, respectively. The funds drawn were contributed to the Company for working capital. See accompanying independent auditors' report. F-11 53 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (10) CAPITAL LEASES: Obligations under capital leases represents the present value of future net minimum lease payments under agreements with a cost of $46,786 and $32,671 and accumulated depreciation of $7,326 and $1,639 as of December 31, 1997 and 1996, respectively. Depreciation expense for these assets is included in the amounts indicated in Note 4. The following is a schedule by years of future minimum lease payments required under capital leases together with the present value of the net minimum lease payments as of December 31, 1997: Year ending December 31, 1998...................................................... $15,199 1999...................................................... 13,768 2000...................................................... 9,607 2001...................................................... 1,018 ------- Total minimum lease payments................................ 39,592 Less amounts representing interest.......................... 8,497 ------- Present value of net minimum lease payments................. 31,095 Less current portion........................................ 15,199 ------- $15,896 =======
(11) BONUS COMPENSATION PLANS: The Company's Board of Directors approved an Executive Salary and Bonus Compensation Plan (the "Plan") with an officer-stockholder of the Company, effective January 1, 1997. The Plan specifies that the officer-stockholder receive an annual salary of $96,000 per annum, with an annual increase of 5.0%. The Plan also specifies that a bonus equal to 3.0% of annual gross sales be paid within ninety (90) days of year end. Accordingly, approximately $123,000 has been accrued, which represents the unpaid portion at December 31, 1997 (Note 6). The Company's Board of Directors approved a Bonus Compensation Plan with an employee of the Company effective January 1, 1997. The employee shall receive bonus compensation in a range between 0.5% and 1.0% of gross annual sales. The bonus compensation shall be paid within ninety (90) days of year end. Accordingly, $17,000 has been accrued, which represents the unpaid portion at December 31, 1997 (Note 6). See accompanying independent auditors' report. F-12 54 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (12) INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN: On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock Option Plan (the "Plan") for its employees and consultants under which a maximum of 500,000 options may be granted to purchase common stock of the Company. Two types of options may be granted under the Plan: (1) Incentive Stock Options (also know as Qualified Stock Options) which may only be issued to employees of the Company and whereby the exercise price of the option is not less than the fair market value of the common stock on the date it was reserved for issuance under the Plan; and (2) Nonstatutory Stock Options which may be issued to either employees or consultants of the Company and whereby the exercise price of the option is less than the fair market value of the common stock on the date it was reserved for issuance under the plan. Grants of options may be made to employees and consultants without regard to any performance measures. All options issued pursuant to the Plan vest over an 18 month period from the date of the grant per the following schedule: 33% of the options vest on the date which is six months from the date of the grant; 33% of the options vest on the date which is 12 months from the date of the grant; and 34% of the options vest on the date which is 18 months from the date of the grant. All options issued pursuant to the Plan are nontransferable and subject to forfeiture. As of December 31, 1997, the Company had not issued any options pursuant to the Plan. (13) PRIVATE PLACEMENT: On April 4, 1997, the Company commenced a private placement (the "Private Placement") of 526,500 shares of the Company's common stock at a purchase price of $0.50 per share (the "Private Placement Stock") and 500,000 warrants, each warrant to purchase one share of the Company's common stock at an exercise price of $0.80 for a term of five years at a purchase price of $0.10 per warrant (the "Private Placement Warrants"). The Private Placement was exempt from the registration provisions of the Act by virtue of Section 4(2) of the Act, as transactions by an issuer not involving any public offering. The securities issued pursuant to the Private Placement were restricted securities as defined in Rule 144. The offering generated gross proceeds of $313,250. (14) INCOME TAXES: The components of the net deferred tax asset are as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Net operating loss (carryforward).......................... $ 65,376 $ 118,308 Valuation allowance........................................ (65,376) (118,308) -------- --------- Net deferred tax asset........................... $ -- $ -- ======== =========
The Company has a federal net operating loss carryforward of $148,012 and $271,109 for the years ended December 31, 1997 and 1996, respectively, which will expire in 2011. The Company also has a state net operating loss carryforward of $167,246 and $290,343, for the years ended December 31, 1997 and 1996, respectively, which will expire in 2002. The provision (benefit) for income taxes consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Current.................................................... $800 $800 Deferred................................................... $ -- $ --
See accompanying independent auditors' report. F-13 55 LUMINEX LIGHTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1997 AND 1996 (15) COMMITMENTS: The following is a schedule by years of future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of December 31, 1997: Year ending December 31, 1998.................................................... $148,299 1999.................................................... 148,299 2000.................................................... 119,799 2001.................................................... 1,109 -------- $417,506 ========
Rent expense amounted to $101,012 and $59,711 for the years ended December 31, 1997 and 1996, respectively. (16) CONTINGENCIES: The Company is a defendant in a civil action. The Company intends to vigorously defend this action which it considers groundless. The ultimate resolution of this matter is not ascertainable at this time. In the opinion of management, this matter will not have a material effect upon the financial position of the Company. (17) SUBSEQUENT EVENT: In February 1998, the Company obtained two promissory demand notes for principal up to $850,000 and $150,000 with First Community Financial Corporation ("FCFC"). The notes are collateralized by the Company's inventory and accounts receivable and incur interest at an annual rate of Bank One's prime rate plus 3%. The unpaid outstanding balances are due in full in February 1999 and January 2000, respectively. See accompanying independent auditors' report. F-14 56 ================================================================================ NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE ORDINARY SHARES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 5 Dilution.............................. 10 Use of Proceeds....................... 12 Dividend Policy....................... 12 Capitalization........................ 13 Selected Financial Data............... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business of the Company............... 19 Management............................ 26 Employment and Related Agreements..... 27 Certain Transactions.................. 29 Principal Shareholders................ 29 Selling Shareholders.................. 30 Plan of Distribution.................. 30 Description of Securities............. 31 Shares Eligible for Future Sale....... 33 Underwriting.......................... 34 Legal Matters......................... 36 Experts............................... 36 Additional Information................ 36 Index to Financial Statements......... F-1
UNTIL , (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ UP TO 500,000 SHARES OF COMMON STOCK AND 500,000 WARRANTS TO PURCHASE ONE SHARE OF COMMON STOCK FOR $6.00 MINIMUM OFFERING: 250,000 SHARES OF COMMON STOCK AND 250,000 WARRANTS $5.50 PER SHARE $0.10 PER WARRANT LUMINEX LIGHTING, INC. ------------------------ PROSPECTUS ------------------------ PLATINUM EQUITIES, INC. JUNE 29, 1998 ================================================================================ 57 LUMINEX LIGHTING, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The California Corporation Law and the Company's Certificate of Incorporation and Bylaws authorize indemnification of a director, officer, employee or agent of the Company against expenses incurred by him or her in connection with any action, suit, or proceeding to which such person is named a party by reason of having acted or served in such capacity, except for liabilities arising from such person's own misconduct or negligence in performance of duty. In addition, even a director, officer, employee or agent of the Company who was found liable for misconduct or negligence in the performance of duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC Registration Fee...................................... $ 2,849 NASD Fee.................................................. 1,466 Accounting Fees and Expenses.............................. 10,000 Legal Fees and Expenses................................... 50,000 Printing Expenses......................................... 10,000 Blue Sky Fees and Expenses................................ 35,000 Underwriters' Non-accountable Expense Allowance........... 84,000 Miscellaneous............................................. 685 -------- Total........................................... $194,000 ========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES On December 31, 1995, the Company issued 2,600,000 shares of its Common Stock, jointly to Wasif A. Siddiqui and Tasneem Siddiqui, in consideration of past services rendered for the Company. This transaction was exempt from the registration provisions of the Act by virtue of Section 4(2) of the Act, as transactions by an issuer not involving any public offering. The securities issued pursuant to this transaction were restricted securities as defined in Rule 144. Also on December 31, 1995, the Company issued 200,000 shares of its Common Stock to Asra Rasheed to entice Ms. Rasheed to begin working with the Company. This transaction was exempt from the registration provisions of the Act by virtue of Section 4(2) of the Act, as transactions by an issuer not involving any public offering. The securities issued pursuant to this transaction were restricted securities as defined in Rule 144. On April 4, 1997, the Company commenced a private placement (the "Private Placement") of 506,500 shares of the Company's common stock at a purchase price of $0.50 (the "Private Placement Stock") and 500,000 warrants, each warrant to purchase one share of the Company's common stock at an exercise price of $0.80 for a term of five years at a purchase price of $0.10 (the "Private Placement Warrants"). The Private Placement was exempt from the registration provisions of the Act by virtue of Section 4(2) of the Act, as transactions by an issuer not involving any public offering. The securities issued pursuant to the Private Placement were restricted securities as defined in Rule 144. The Private Placement Stock and the Common Stock underlying the Private Placement Warrants are being registered herein. The offering generated net proceeds of approximately $290,000. All investors in the II-1 58 Private Placement were accredited investors as that term is defined in Rule 501 of Regulation D adopted under the Securities Act of 1933. ITEM 27. EXHIBITS
EXHIBITS -------- 1.1 Form of Underwriting Agreement 1.2 Form of Underwriter's Warrant 1.3 Selected Dealers Agreement (form) 3.1 Articles of Incorporation of Luminex Lighting, Inc., a California corporation, dated January 21, 1994 3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a California corporation, dated September 5, 1997 3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994 3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc., dated October 15, 1995 4.1 Lock-Up Agreement (form) 4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc. 4.3 Form of Warrant Agreement and Warrant Certificate 4.4 Subscription Agreement 5 Opinion of Horwitz & Beam 10.1 Lease Agreement, Chino, California, dated June 26, 1997 10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus Compensation Plan for Wasif Siddiqui, dated June 30, 1996 10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles Boulos, dated December 15, 1996 10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock Option Plan, dated May 5, 1997 10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan for Tasneem Siddiqui, dated August 19, 1997 10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996 23.1 Consent of Stonefield Josephson, Inc., Certified Public Accountants 23.2 Consent of Horwitz & Beam (included in their opinion set forth in Exhibit 5 hereto) 24 Power of Attorney (see signature page)
ITEM 28. UNDERTAKINGS The undersigned registrant hereby undertakes to: (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) File, during any period in which it offers or sells securities, a post effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and II-2 59 (iii) Include any additional or changed material information on the plan of distribution. For determining liability under the Securities, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. II-3 60 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Chino, State of California on June 25, 1998. LUMINEX LIGHTING, INC. By: /s/ WASIF SIDDIQUI ------------------------------------ Wasif Siddiqui President, Chief Executive Officer, Chief Financial Officer, Director POWER OF ATTORNEY Each person whose signature appears appoints Wasif Siddiqui and Tasneem Siddiqui, in the alternative, as his agents and attorneys-in-fact, with full power of substitution to execute for him and in his name, in any and all capacities, all amendments (including post-effective amendments) to this Registration Statement to which this power of attorney is attached. In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WASIF SIDDIQUI President, Chief Executive June 25, 1998 - ----------------------------------------------------- Officer, Chief Financial Officer, Wasif Siddiqui Director /s/ TASNEEM SIDDIQUI Executive Vice President, June 25, 1998 - ----------------------------------------------------- Secretary, Director Tasneem Siddiqui /s/ ASRA RASHEED Vice President of Corporate June 25, 1998 - ----------------------------------------------------- Planning, Director Asra Rasheed
II-4 61 EXHIBIT INDEX
EXHIBIT NUMBER NAME OF EXHIBIT - ------- --------------- 1.1 Form of Underwriting Agreement 1.2 Form of Underwriter's Warrant 1.3 Selected Dealers Agreement (form) 3.1 Articles of Incorporation of Luminex Lighting, Inc., a California corporation, dated January 21, 1994 3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a California corporation, dated September 5, 1997 3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994 3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc., dated October 15, 1995 4.1 Lock-Up Agreement (form) 4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc. 4.3 Form of Warrant Agreement and Warrant Certificate 4.4 Subscription Agreement 5 Opinion of Horwitz & Beam 10.1 Lease Agreement, Chino, California, dated June 26, 1997 10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus Compensation Plan for Wasif Siddiqui, dated June 30, 1996 10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles Boulos, dated December 15, 1996 10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock Option Plan, dated May 5, 1997 10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan for Tasneem Siddiqui, dated August 19, 1997 10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996 23.1 Consent of Stonefield Josephson, Inc., Certified Public Accountants 23.2 Consent of Horwitz & Beam (included in their opinion set forth in Exhibit 5 hereto) 24 Power of Attorney (see signature page)
EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 UNDERWRITING AGREEMENT (FORM) 2 LUMINEX LIGHTING, INC. 500,000 Shares of Common Stock and 500,000 Redeemable Common Stock Purchase Warrants UNDERWRITING AGREEMENT _____________ ___, 1998 Platinum Equities, Inc. 80 Pine Street, 32nd Floor New York, New York 10005 Dear Sirs: LUMINEX LIGHTING, INC., a California corporation (the "Company") hereby confirms the agreement made with respect to the retention of Platinum Equities, Inc. (the "Underwriter") as the exclusive agent of the Company to publicly offer and sell, pursuant to the terms of this Underwriting Agreement (the "Agreement"), an aggregate of 500,000 shares ("Shares") of Common Stock, no par value per share (the "Common Stock"), and 500,000 redeemable Common Stock purchase warrants (the "Warrants," and collectively with the Common Stock, the "Securities") of the Company on a "best efforts, minimum 250,000 Shares and 250,000 Warrants ("Minimum Offering"), maximum 500,000 Shares and 500,000 Warrants ("Maximum Offering")" basis. The offering of the Securities contemplated hereby may sometimes be referred to as the "Offering." 1. Description of the Securities. (a) The Warrants. Each Warrant shall entitle the holder to purchase one share of Common Stock at an exercise price of $6.00, subject to adjustment. The Warrants are exercisable at any time during the five year-period commencing on the effective date of the Registration Statement, as defined in Paragraph 2(a) herein (the "Effective Date"), subject to prior redemption by the Company. The Shares of Common Stock issuable upon the exercise of the Warrants are hereinafter referred to as the "Warrant Shares." The Warrants will be redeemable at a price of $0.10 per Warrant, commencing twelve (12) months after the Effective Date, or earlier with the prior written consent of the Underwriter, upon at least 30 days prior written notice provided that the closing bid price of the Common Stock (or closing sales price if listed on an exchange or on a reporting system that provides last sales prices) for twenty (20) consecutive trading days ending on the third day prior to the date on which notice of redemption is given, shall exceed $7.50 per share, subject to the right of the holder to exercise his purchase rights thereunder until redemption. (b) Underwriter's Warrants. On the Closing Date, the Company will sell to the Underwriter, for $10, a warrant to purchase one share of Common Stock and one Warrant for each ten Shares of Common Stock and ten Warrants sold in this Offering (a maximum of 50,000 Shares of Common Stock and 50,000 Warrants) at a price equal to $6.60 per share of Common Stock and $.12 per Warrant (the "Warrants," and collectively with the Securities underlying the Underwriter's Warrants, the "Underwriter's Securities"). The Warrants underlying the Underwriter's Warrants shall be exercisable at a price of $6.00 per Warrant. The Underwriter's Warrants shall be non-transferable (other than to (i) officers of the Underwriter, and (ii) members of the selling group and their officers or partners) for a period of 12 months following the Effective Date. Thereafter, they are transferable for a period of four years. If the Warrants underlying the Underwriter's Warrants are 3 not exercised during their term, they shall, by their terms, automatically expire. The Underwriter's Securities shall be registered for sale to the public and shall be included in the Registration Statement filed in connection with the Offering. 2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriter that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission"), a registration statement on Form SB-2 (File No. 333-__), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Securities under the Securities Act of 1933 (the "Act"). The Company will file further amendments to said registration statement in the form to be delivered to you and will not, before the registration statement becomes effective, file any other amendment thereto to which you shall have objected in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, exhibits and all other documents filed as a part thereof or incorporated therein), is hereinafter called the "Registration Statement", and the prospectus, in the form filed with the Commission pursuant to Rule 424(b) of the General Rules and Regulations of the Commission under the Act (the "Regulations") or, if no such filing is made, the definitive prospectus used in the Offering, is hereinafter called the "Prospectus". The Company has delivered to you copies of each Preliminary Prospectus as filed with the Commission and has consented to the use of such copies for purposes permitted by the Act. (b) The Commission has not issued any orders preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed in all material respects with the requirements of the Act and has not included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, subject to the provisions set forth below and except as such untrue statement or omission has been cured in the a subsequent preliminary prospectus or in the final prospectus. (c) When the Registration Statement becomes effective under the Act and at all times subsequent thereto including the Closing Dates (hereinafter defined) and for such longer periods as in the opinion of counsel for the Underwriter, a Prospectus is required to be delivered in connection with the sale of the Securities by the Underwriter, the Registration Statement and Prospectus, and any amendment thereof or supplement thereto, will contain all material statements which are required to be stated therein in accordance with the Act and the Regulations, and will in all material respects conform to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company by you, for use in connection with the preparation of the Registration Statement or Prospectus, or in any amendment thereof or supplement thereto. It is understood that (i) the statements set forth under the heading "Underwriting" in the Prospectus with respect to the amounts of the selling concession; (ii) the information in the Risk Factor entitled "Inexperienced Underwriter;" (iii) the identity of counsel to the Underwriter under the heading "Legal Matters"; and (iv) the information concerning the NASD affiliation of the Underwriter constitute for purposes of this Section the only information furnished in writing by or on behalf of the Underwriter for inclusion in the Registration Statement and Prospectus, as the case may be. (d) The Company is, and at each Closing Date will be, a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Company is duly qualified or licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, except those jurisdictions in which the failure to so qualify would not have a material adverse effect. The Company has all requisite corporate powers and authority, and, except as set forth in the Registration Statement, the Company and its employees have all material and necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and 2 4 bodies to own or lease its properties and conduct its businesses as described in the Prospectus, and the Company is doing business and has been doing business during the period described in the Registration Statement in compliance with all such material authorizations, approvals, orders, licenses, certificates and permits and all material federal, state and local laws, rules and regulations concerning the businesses in which the Company is engaged. The disclosures in the Registration Statement concerning the effects of federal, state and local regulation on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact. The Company has all corporate power and authority to enter into this Agreement and carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained or will have been obtained prior to the dates of the closings (the "Closing Dates") of the Offering. (e) This Agreement has been duly and validly authorized and executed by the Company. The Securities (including the Common Stock and the Warrants), the Warrant Shares, the Underwriter's Warrants to be issued and sold by the Company pursuant to this Agreement, the Securities issuable upon exercise of the Underwriter's Warrants and payment therefor, and the Common Stock and Warrant Shares underlying such Underwriter's Warrants, have been duly authorized (and, in the case of the Common Stock and the Warrant Shares, have been duly reserved for issuance) and, when issued and paid for in accordance with this Agreement (and, in the case of the Warrant Shares, upon exercise of the Warrants and payment to the Company of the exercise price therefor), the Common Stock and Warrant Shares will be validly issued, fully paid and non-assessable; the Common Stock, Warrants, Warrant Shares, Underwriter's Warrants and Underwriter's Warrant Shares are not and will not be subject to the preemptive rights of any shareholder of the Company and conform and at all times up to and including their issuance will conform in all material respects to all statements with regard thereto contained in the Registration Statement and Prospectus; and all corporate action required to be taken for the authorization, issuance and sale of the Common Stock, Warrants, Warrant Shares and Underwriter's Warrants has been taken, and this Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, to issue and sell, upon exercise in accordance with the terms thereof, the number and kind of securities called for thereby. (f) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, the Articles of Incorporation, as amended, or Bylaws of the Company or of any evidence of indebtedness, lease, contract or other agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound, or under any applicable law, rule, regulation, judgment, order or decree of any government, professional advisory body, administrative agency or court, domestic or foreign, having jurisdiction over the Company or its properties, or result in the creation or imposition of any lien, charge or encumbrance upon any of the properties or assets of the Company; and no consent, approval, authorization or order of any court or governmental or other regulatory agency or body is required for the consummation by the Company of the transactions on its part herein contemplated, except such as may be required under the Act or under state securities or blue sky laws, except where a breach, violation or failure to obtain such consent would not have a material adverse effect upon the business or operation of the Company. (g) Subsequent to the date hereof, and prior to the Closing Dates the Company will not issue or acquire any equity securities except that the Company may make short-term investments as contemplated in the "Use of Proceeds" section of the Prospectus. Except as described in the Registration Statement, the Company does not have, and at the Closing Dates will not have, outstanding any options to purchase or rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell shares of its Preferred Stock, Common Stock or any such options, warrants, convertible securities or obligations. (h) The financial statements and notes thereto included in the Registration Statement and the Prospectus fairly present the financial position and the results of operations of the Company at the respective dates and for the respective periods to which they apply; and such financial statements have been prepared in conformity with generally accepted accounting principles, consistently applied throughout the periods involved. (i) Except as set forth in the Registration Statement, the Company is not, and at the Closing Dates will not be, in violation or breach of, or default in, the due performance and observance of any term, covenant or condition 3 5 of any indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the property or assets of the Company is subject, which violations, breaches, default or defaults, singularly or in the aggregate, would have a material adverse effect on the Company. The Company has not and will not have taken any action in material violation of the provisions of the Articles of Incorporation, as amended, or the Bylaws of the Company or any statute or any order, rule or regulation of any court or regulatory authority or governmental body having jurisdiction over or application to the Company, its business or properties. (j) The Company has, and at the Closing Dates will have, good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances, claims, security interests, restrictions and defects of any material nature whatsoever, except such as are described or referred to in the Prospectus and liens for taxes not yet due and payable. All of the material leases and subleases under which the Company is the lessor or sublessor of properties or assets or under which the Company holds properties or assets as lessee as described in the Prospectus are, and will on the Closing Dates be, in full force and effect, and except as described in the Prospectus, the Company is not and will not be in default in respect to any of the terms or provisions of any of such leases or subleases (which would have a material adverse effect on the business, business prospects or operations of the Company), and no claim has been asserted by anyone adverse to rights of the Company as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company to continue possession of the leased or subleased premises or assets under any such lease or sublease except as described or referred to in the Prospectus, and the Company owns or leases all such properties as are necessary to its operations as now conducted and, except as otherwise stated in the Prospectus, as proposed to be conducted set forth in the Prospectus (which would have a material adverse effect on the business, business prospects or operations of the Company). (k) The authorized, issued and outstanding capital stock of the Company as of December 31, 1997 and as of the date of the Prospectus is as set forth in the Prospectus under "Capitalization"; the shares of issued and outstanding capital stock of the Company set forth thereunder have been duly authorized, validly issued and are fully paid and non-assessable; except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation into, any shares of capital stock of the Company have been granted or entered into by the Company; and the Common Stock, the Warrants and all such options and warrants conform in all material respects, to all statements relating thereto contained in the Registration Statement and Prospectus. (l) Except as described in the Prospectus, the Company does not own or control any capital stock or securities of, or have any proprietary interest in, or otherwise participate in any other corporation, partnership, joint venture, firm, association or business organization; provided, however, that this provision shall not be applicable to the investment, if any, of the net proceeds from the sale of the Securities sold by the Company in certificates of deposits, savings deposits, short-term obligations of the United States Government, money market instruments or other short-term investments. (m) Stonefield Josephson, Inc., who have given their reports on certain financial statements filed and to be filed with the Commission as a part of the Registration Statement, which are incorporated in the Prospectus, are with respect to the Company, independent public accountants as required by the Act and the Rules and Regulations. (n) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, the Company has not (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) entered into any transaction other than in the ordinary course of business; or (iii) declared or paid any dividend or made any other distribution on or in respect to its capital stock. (o) There is no litigation or governmental proceeding pending or to the knowledge of the Company threatened against, or involving the properties or business of the Company which might materially adversely affect the 4 6 value, assets or the operation of the properties or the business of the Company, except as referred to in the Prospectus. Further, except as referred to in the Prospectus, there are no pending actions, suits or proceedings related to environmental matters or related to discrimination on the basis of age, sex, religion or race, nor is the Company charged with or, to its knowledge, under investigation with respect to any violation of any statutes or regulations of any regulatory authority having jurisdiction over its business or operations, and no labor disturbances by the employees of the Company exist or, to the knowledge of the Company, have been threatened. (p) The Company has, and at each Closing Date will have, filed all necessary federal, state and foreign income and franchise tax returns or has requested extensions thereof (except in any case where the failure to so file would not have a material adverse effect on the Company), and has paid all taxes which it believes in good faith were required to be paid by it except for any such tax that currently is being contested in good faith or as described in the Prospectus. (q) The Company has not at any time (i) made any contribution to any candidate for political office, or failed to disclose fully any such contribution, in violation of law, or (ii) made any payment to any state, federal, foreign governmental or professional regulatory agency, officer or official or other person charged with similar public, quasi-public or professional regulatory duties, other than payments or contributions required or allowed by applicable law. (r) Except as set forth in the Registration Statement, to the knowledge of the Company, neither the Company nor any of officer, director, employee or agent of the Company has made any payment or transfer of any funds or assets of the Company or conferred any personal benefit by use of the Company's assets or received any funds, assets or personal benefit in violation of any law, rule or regulation, which is required to be stated in the Registration Statement or necessary to make the statements therein not misleading. (s) On the Closing Date all transfer or other taxes, if any (other than income tax) which are required to be paid, and are due and payable, in connection with the sale and transfer of the Securities by the Company to the Underwriter will have been fully paid or provided for by the Company as the case may be, and all laws imposing such taxes will have been fully complied with in all material respects. (t) There are no contracts or other documents of the Company which are of a character required to be described in the Registration Statement or Prospectus or filed as exhibits to the Registration Statement which have not been so described or filed. (u) The Company will apply the net proceeds from the sale of the Securities sold by it for the purposes and in the manner set forth in the Registration Statement and Prospectus under the heading "Use of Proceeds." (v) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (1) transactions are executed in accordance with management's general or specified authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management's general or specific authorizations; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) Except as set forth in the Prospectus, no holder of any securities of the Company has the right to require registration of any securities because of the filing or effectiveness of the Registration Statement. (x) To the Company's knowledge, there are no claims for services in the nature of a finder's origination fee with respect to the sale of the Securities hereunder, except as set forth in the Prospectus. (y) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by this Agreement to be delivered to Underwriter was, when made, or as of the Closing Date or as of the Option Closing Date will be materially inaccurate, untrue or incorrect. 5 7 3. Covenants of the Company. The Company covenants and agrees that: (a) It will deliver to the Underwriter, without charge, two conformed copies of each Registration Statement and of each amendment or supplement thereto, including all financial statements and exhibits. (b) The Company has delivered to the Underwriter, and each of the Selected Dealers (as hereinafter defined) without charge, as many copies as have been requested of each Preliminary Prospectus heretofore filed with the Commission in accordance with and pursuant to the Commission's Rule 430 under the Act and will deliver to the Underwriter and to others whose names and addresses are furnished by the Underwriter or a Selected Dealer, without charge, on the Effective Date, and thereafter from time to time during such reasonable period as you may request if, in the opinion of counsel for the Underwriter, the Prospectus is required by law to be delivered in connection with sales by the Underwriter or a dealer, as many copies of the Prospectus (and, in the event of any amendment of or supplement to the Prospectus, of such amended or supplemented Prospectus) as the Underwriter may request for the purposes contemplated by the Act. The Company will take all necessary actions to furnish to whomever directed by the Underwriter, when and as requested by the Underwriter, all necessary documents, exhibits, information, applications, instruments and papers as may be reasonably required or, in the opinion of counsel to the Underwriter desirable, in order to permit or facilitate the sale of the Securities. (c) The Company has authorized the Underwriter to use, and make available for use by prospective dealers, the Preliminary Prospectus, and authorizes the Underwriter, all dealers selected by you in connection with the distribution of the Securities (the "Selected Dealers") to be purchased by the Underwriter and all dealers to whom any of such Securities may be sold by the Underwriter or by any Selected Dealer, to use the Prospectus, as from time to time amended or supplemented, in connection with the sale of the Securities in accordance with the applicable provisions of the Act, the applicable Regulations and applicable state law, until completion of the distribution of the Securities and for such longer period as you may request if the Prospectus is required under the Act, the applicable Regulations or applicable state law to be delivered in connection with sales of the Securities by the Underwriter or the Selected Dealers. (d) The Company will use its best efforts to cause the Registration Statement to become effective and will notify the Underwriter immediately, and confirm the notice in writing: (i) when the Registration Statement or any post-effective amendment thereto becomes effective; (ii) of the issuance by the Commission of any stop order or of the initiation, or to the best of the Company's knowledge, the threatening, of any proceedings for that purpose; (iii) the suspension of the qualification of the Securities and the Underwriter's Warrants, or underlying securities, for offering or sale in any jurisdiction or of the initiating, or to the best of the Company's knowledge the threatening, of any proceeding for that purpose; and (iv) of the receipt of any comments from the Commission. If the Commission shall enter a stop order at any time, the Company will make every reasonable effort to obtain the lifting of such order at the earliest possible moment. (e) During the time when a prospectus is required to be delivered under the Act, the Company will comply with all requirements imposed upon it by the Act and the Securities Exchange Act of 1934 (the "Exchange Act"), as now and hereafter amended and by the Regulations, as from time to time in force, as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus. If at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Underwriter, the Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act and will furnish to you copies thereof. (f) The Company will endeavor in good faith, in cooperation with you, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws or blue 6 8 sky laws of such jurisdictions as you may reasonably designate. In each jurisdiction where such qualification shall be effected, the Company will, unless you agree that such action is not at the time necessary or advisable, file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction. (g) The Company will make generally available to its security holders, as soon as practicable, but in no event later than the first day of the fifteenth full calendar month following the Effective Date of the Registration Statement, an earnings statement of the Company, which will be in reasonable detail but which need not be audited, covering a period of at least twelve months beginning after the Effective Date of the Registration Statement, which earnings statements shall satisfy the requirements of Section 11(a) of the Act and the Regulations as then in effect. The Company may discharge this obligation in accordance with Rule 158 of the Regulations. (h) During the period of five years commencing on the Effective Date of the Registration Statement, the Company will furnish to its stockholders an annual report (including financial statements audited by its independent public accountants), in reasonable detail, and, at its expense, furnish each of the Underwriters (i) within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its consolidated subsidiaries and a separate balance sheet of each subsidiary of the Company the accounts of which are not included in such consolidated balance sheet as of the end of such fiscal year, and consolidated statements of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries and separate statements of operations, stockholders' equity and cash flows of each of the subsidiaries of the Company the accounts of which are not included in such consolidated statements, for the fiscal year then ended all in reasonable detail and all certified by independent accountants (within the meaning of the Act and the Regulations), (ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, similar balance sheets as of the end of such fiscal quarter and similar statements of operations, stockholders' equity and cash flows for the fiscal quarter then ended, all in reasonable detail, and subject to year end adjustment, all certified by the Company's principal financial officer or the Company's principal accounting officer as having been prepared in accordance with generally accepted accounting principles applied on a consistent basis, (iii) as soon as available, each report furnished to or filed with the Commission or any securities exchange and each report and financial statement furnished to the Company's shareholders generally and (iv) as soon as available, such other material as the Underwriter may from time to time reasonably request regarding the financial condition and operations of the Company. (i) For a period of eighteen months from the Effective Date, the Company, at its expense, shall cause its regularly engaged independent certified public accountants to review (but not audit), the Company's financial statements for each of the first three quarters prior to the announcement of quarterly financial information, the filing of the Company's 10-Q quarterly report and the mailing of quarterly financial information to stockholders. (j) Prior to the Closing Dates, the Company will not issue, directly or indirectly, without your prior written consent and that of counsel for the Underwriter, any press release or other public announcement or hold any press conference with respect to the Company or its activities with respect to this Offering. (k) The Company will deliver to you prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date of the Registration Statement and will not file any such amendment or supplement to which you shall reasonably object after being furnished such copy. (l) The Company will apply the net proceeds from the Offering received by it in the manner set forth under "Use of Proceeds" in the Prospectus. (m) Counsel for the Company, the Company's accountants, and the officers and directors of the Company will, respectively, furnish the opinions, the letters and the certificates referred to in subsections of Paragraph 10 hereof, and, in the event that the Company shall file any amendment to the Registration Statement relating to the offering of the Securities or any amendment or supplement to the Prospectus relating to the offering of the Securities subsequent to the Effective Date of the Registration Statement, such counsel, such accountants, such officers and directors, respectively, will, at the time of such filing or at such subsequent time as you shall specify, so long as securities being registered by such amendment or supplement are being underwritten by the Underwriter, furnish to you such opinions, 7 9 letters and certificates, each dated the date of its delivery, of the same nature as the opinions, the letters and the certificates referred to in said Paragraph 10, as you may reasonably request, or, if any such opinion or letter or certificate cannot be furnished by reason of the fact that such counsel or such accountants or any such officer or director believes that the same would be inaccurate, such counsel or such accountants or such officer or director will furnish an accurate opinion or letter or certificate with respect to the same subject matter. (n) The Company will comply with all of the provisions of any undertakings contained in the Registration Statement in all material respects. (o) The Company will reserve and keep available for issuance that maximum number of its authorized but unissued Shares of Common Stock which are issuable upon exercise of the Warrants and issuable upon exercise of the Underwriter's Warrants (including the underlying securities) outstanding from time to time. (p) Following the Effective Date and from time to time thereafter, so long as the Warrants are outstanding, the Company will timely prepare and file at its sole cost and expense one or more post-effective amendments to the Registration Statement or a new registration statement as required by law as will permit Warrant holders to be furnished with a current prospectus in the event Warrants are exercised, and to use its best efforts and due diligence to have same be declared effective. The Company will deliver a draft of each such post-effective amendment or new registration statement to the Underwriter at least ten days prior to the filing of such post-effective amendment or registration statement. (q) Following the Effective Date and from time to time thereafter so long as any of the Warrants remain outstanding, the Company will timely deliver and supply to its warrant agent sufficient copies of the Company's current Prospectus, as will enable such Warrant Agent to deliver a copy of such Prospectus to any Warrant or other holder where such Prospectus delivery is by law required to be made. (r) So long as any of the Warrants remain outstanding, the Company shall continue to employ the services of a firm of independent certified public accountants reasonably acceptable to the Underwriter in connection with the preparation of the financial statements to be included in any registration statement to be filed by the Company hereunder, or any amendment or supplement thereto (it being understood that Stonefield Josephson, Inc. is acceptable to the Underwriter). During the same period, the Company shall employ the services of a law firm(s) acceptable to the Underwriter in connection with all legal work of the Company, including the preparation of a registration statement to be filed by the Company hereunder, or any amendment or supplement thereto. (s) So long as any of the Warrants remain outstanding, the Company shall continue to appoint a Warrant Agent for the Warrants, who shall be reasonably acceptable to the Underwriter. (t) The Company agrees that it will, upon the Effective Date, for a period of no less than three (3) years, engage a designee of the Underwriter as an advisor (the "Advisor") to its Board of Directors where such Advisor shall attend meetings of the Board, receive all notices and other correspondence and communications sent by the Company to members of its Board of Directors and shall be entitled to receive compensation therefor equal to the entitlement of all non-employee directors. Such Advisor shall also be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings including, but not limited to, food, lodging, and transportation. The Company further agrees that during said three (3) year period, it shall schedule no less than four (4) formal and "in person" meetings of its Board of Directors in each such year and thirty (30) days advance notice of such meetings shall be given to the Advisor. Further, during such three (3) year period, the Company shall give notice to the Underwriter with respect to any proposed acquisitions, mergers, reorganizations or other similar transactions. In lieu of the Underwriter's right to designate an Advisor, the Underwriter shall have the right during such three-year period, in its sole discretion, to designate one person for election as a Director of the Company and the Company will utilize its best efforts to obtain the election of such person who shall be entitled to receive the same compensation, expense reimbursements and other benefits set forth above. 8 10 The Company agrees to indemnify and hold the Underwriter and such Advisor or Director harmless against any and all claims, actions, damages, costs and expenses, and judgments arising solely out of the attendance and participation of your designee at any such meeting described herein. In the event the Company maintains a liability insurance policy affording coverage for the acts of its of officers and directors, it agrees, if possible, to include the Underwriter's designee as an insured under such policy. (u) The Company's Common Stock and Warrants shall be listed on the OTC Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the "OTC Bulletin Board") not later than the final Closing Date. Immediately following the final Closing Date, the Company will make all filings required, including registration under the Exchange Act, and will use its best efforts to obtain the listing of the Common Stock and Warrants on the Nasdaq Small Cap Market ("Nasdaq") and maintain such listing (unless the Company is acquired) for at least five years from the date of this Agreement. (v) The Company will apply for listing in Standard and Poors Corporation Reports or Moodys OTC Guide and shall use its best efforts to have the Company included in such publications for at least five years from the final Closing Date. (w) Within thirty (30) days following the final Closing Date, the Company's accountants shall prepare an audited balance sheet as of the month ending subsequent to such final Closing Date. (x) For a period of twelve (12) months from the Effective Date, no officer, director or holder of any securities of the Company prior to the Offering will, directly or indirectly, offer, sell (including any short sale), grant any option for the sale of, acquire any option to dispose of, or otherwise dispose of any Shares of Common Stock, including Shares of Common Stock issuable upon exercise of options, warrants or any convertible securities of the Company, without the prior written consent of the Underwriter, other than as set forth in the Registration Statement. In order to enforce this covenant, the Company shall impose stop-transfer instructions with respect to the securities owned by every stockholder prior to the Offering until the end of such period (subject to any exceptions to such limitation on transferability set forth in the Registration Statement). If necessary to comply with any applicable Blue-sky Law, the shares held by such stockholders will be escrowed with counsel for the Company or otherwise as required. (y) Except for the issuance of shares of capital stock by the Company in connection with a dividend, recapitalization, reorganization or similar transactions or as result of the exercise of warrants or options disclosed in or issued or granted pursuant to plans disclosed in the Registration Statement, the Company shall not, for a period of eighteen (18) months following the Final Closing Date, directly or indirectly, offer, sell, issue or transfer any shares of its capital stock, or any security exchangeable or exercisable for, or convertible into, shares of the capital stock or register any of its capital stock (under any form of registration statement, including Form S-8), without the prior written consent of the Underwriter. Options granted pursuant to plans must be exercisable at the fair market value on the date of grant. (z) During the three-year period from the Final Closing Date, the Underwriter shall have a right of first refusal to act as underwriter or agent of any and all public or private offerings of the securities of the Company, or any successor to or subsidiary of the Company or any other entity in which the Company has an equity interest (collectively referred to herein as the "Company"), by the Company or any secondary offering of the Company's securities by any of its officers, directors and 5% or greater stockholders ("Principal Stockholders"). The Company has caused such Principal Stockholders to deliver to the Underwriter on or before the date of this Agreement, an agreement to this effect, as it relates to any proposed secondary offering by such Principal Stockholders, in form and substance satisfactory to the Underwriter and to counsel for the Underwriter. (aa) The Company will use its best efforts to obtain, as soon after the first Closing Date as is reasonably possible, liability insurance covering its officers and directors. (bb) The Company agrees that any conflict of interest arising between a member of the Company's Board of Directors and the Company in connection with such Director's dealing with, or obligations to, the Company, shall be resolved by a vote of the majority of the independent members of the Board of Directors. 9 11 (cc) The Company agrees that, if it deems necessary, in its sole discretion, it will employ the services of a financial public relations firm acceptable to the Underwriter for a period of at least twelve months following the Final Closing Date. The Company will acquire the consent of the Underwriter for its selection. 4. Appointment of Agent to Sell the Securities. (a) Subject to the terms and conditions of this Agreement, and upon the basis of the representations, warranties, and agreements herein contained, the Company hereby appoints the Underwriter as its exclusive agent for a period of 120 days from the Effective Date, subject to an extension by mutual agreement of the Company and the Underwriter for an additional period not to exceed 30 days (the "Offering Period"), to sell the Securities, and the Underwriter, on the basis of the representations and warranties of the Company herein, accepts such appointment and agrees to use its best efforts on a "minimum 250,000 Shares and 250,000 Warrants ("Minimum Offering"), maximum 500,000 Shares and 500,000 Warrants ("Maximum Offering")" basis to find purchasers for the Securities. The price at which the Underwriter shall sell the Securities to the public as agent for the Company, shall be $5.50 per share of Common Stock and $.10 per Warrant, less an underwriting discount of ten percent (10%) of the offering price for each security. The Underwriter may allow a concession not exceeding $0.25 per share of Common Stock and $0.005 per Warrant to selected dealers who are members of the National Association of Securities Dealer, Inc. ("NASD"), and to certain foreign dealers, but all such sales by selected dealers shall be made by the Company, acting through the Underwriter as agent, and not for the account of the Underwriter. (b) Provided that the Minimum Offering is sold and paid for, the Company agrees to pay the Underwriter for its expenses a non-accountable expense allowance equal to 3% of the gross proceeds of the offering, subject to the provisions of Paragraph 9 herein. (c) It is a condition of this Agreement that the Underwriter shall use its best efforts to sell the Securities on behalf of the Company, that any and all funds received from such sale, without any deduction therefrom whatsoever, including, but not limited to, any underwriting commission or any dealer concession or otherwise, shall be forthwith deposited into an escrow account with American Stock Transfer & Trust Company as Escrow Agent, pursuant to the terms of an Escrow Agreement entered into by and among the Company, the Underwriter and the Escrow Agent. In the event the Minimum Offering is not sold within the Offering Period, all funds will be promptly refunded to the subscribes in full, without deduction therefrom or interest thereon. Certificates will be issued to purchasers only if the proceeds from the Securities offered hereby are released from escrow to the Company. Until such time as the funds have been released and the certificates delivered to the purchasers thereof, such purchasers, if any, will be deemed subscribers and not stockholders. The funds in escrow will be held for the benefit of those subscribers until released to the Company and will not be subject to creditors of the Company or utilized for the expenses of this Offering. When certificates for the Securities are to be issued in the name of a participating dealer for the benefit of its customer, the Escrow Agent may hold such funds with the dealer reflected as the subscriber. 5. Delivery and Payment. (a) In the event the Minimum Offering is sold during the Offering Period, delivery of the certificates representing the Shares and Warrants against payment therefor shall take place at the offices of Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, New York 10005 (or at such other place as may be designated by agreement between you and the Company), at 10:00 a.m., New York time, on such date after the Offering has been completed as the Underwriter shall designate, on at least three (3) full business days' prior written notice, such time and date of payment and delivery of the Securities being herein called the "Closing Date." After the Minimum Offering is sold, subsequent Closings shall be held at the discretion of the Company and the Underwriter with respect to additional Shares and Warrants up to the Maximum Offering during the Offering Period. (b) The Company will make the certificates for the Shares and Warrants sold hereunder available to the Underwriter for checking at least two full business days prior to a Closing Date at the offices of the Company's transfer agent. The certificates shall be in such names and denominations as you may request, at least two full business days prior to a Closing Date. 10 12 (c) The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Securities by the Company to the Underwriter shall be borne by the Company. The Company will pay and hold the Underwriter, and any subsequent holder of the Securities, harmless from any and all liabilities with respect to or resulting from any failure or delay in paying federal and state stamp taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to the Underwriter of the Securities or any portions thereof. 6. Offering of Securities on Behalf of the Company. It is understood that the Underwriter proposes to offer the Securities to the public solely as agent for the Company, upon the terms and conditions set forth in the Registration Statement. The Underwriter shall commence making such offer as agent for the Company on the Effective Date, or as soon thereafter as the Underwriter deems advisable. 7. Warrant Solicitation Fee. The Company agrees to pay to the Underwriter, commencing one year from the Effective Date, a fee of seven percent (7%) of the aggregate exercise price of the Warrants if: (i) the market price of the Common Stock is greater than the exercise price of the Warrants on the date of exercise; (ii) the exercise of the Warrants are solicited by the Underwriter; (iii) the Warrants are not held in a discretionary account; (iv) the disclosure of compensation arrangements was made both at the time of the Offering and at the time of the exercise of the Warrant; and (v) the solicitation of the Warrant is not in violation of Regulation M promulgated under the Exchange Act. The Company agrees not to solicit the exercise of any Warrants other than through the Underwriter and will not authorize any other dealer to engage in such solicitation without the prior written consent of the Underwriter which will not be unreasonably withheld. The Warrant solicitation fee will not be paid in a non-solicited transaction. No Warrant solicitation by the Underwriter will occur prior to one year from the Effective Date. Additionally, there will be no warrant solicitation by the Underwriter without the prior written authorization of the Company. 8. Representations and Warranties of the Underwriter. The Underwriter represents and warrants to the Company that: (a) The Underwriter is a member in good standing of the National Association of Securities Dealers, Inc., and has complied with all NASD requirements concerning net capital and compensation to be received in connection with the Offering. (b) To the Underwriter's knowledge, there are no claims for services in the nature of a finder's origination fee with respect to the sale of the Securities hereunder to which the Company is, or may become, obligated to pay. 9. Payment of Expenses. (a) Whether or not this Agreement becomes effective or the sale of the Securities by the Company is completed, the Company will pay and bear all costs, fees, taxes and expenses incident to and in connection with: (i) the issuance, offer, sale and delivery of the Securities, including all expenses and fees incident to the preparation, printing, filing and mailing (including the payment of postage with respect to such mailing) of the Registration Statement (including all exhibits thereto), each Preliminary Prospectus, the Prospectus, and amendments and post- effective amendments thereof and supplements thereto, and this Agreement and related documents, Preliminary and Final Blue Sky Memoranda, including the cost of preparing and copying all copies thereof in quantities deemed necessary by the Underwriter; (ii) the costs of preparing and printing all "Tombstone" and other appropriate advertisements; (iii) the printing, engraving, issuance and delivery of the Common Stock, Warrants, Warrant Shares, Underwriter's Warrants and the securities underlying the Underwriter's Warrant, including any transfer or other taxes payable thereon in connection with the original issuance thereof; (iv) the qualification of the Common Stock and Warrants under the state or foreign securities or "Blue Sky" laws selected by the Underwriter and the Company, and disbursements and 11 13 reasonable fees of counsel for the Underwriter in connection therewith (not to exceed $35,000) plus the filing fees for such states; (v) fees of counsel for the Underwriter for the preparation of a secondary trading memorandum ($15,000); (vi) fees and disbursements of counsel and accountants for the Company; (vii) other expenses and disbursements incurred on behalf of the Company (viii) the filing fees payable to the Commission and the National Association of Securities Dealers, Inc. ("NASD"); and (ix) any listing of the Common Stock and Warrants on a securities exchange or on NASDAQ. (b) In addition to the expenses to be paid and borne by the Company referred to in Paragraph 9(a) above, the Company shall reimburse you at each Closing Date for expenses incurred by you in connection with the Offering (for which you need not make any accounting), in the amount of 3% of the price to the public of the Securities sold in the Offering. This 3% non-accountable expense allowance shall cover the fees of your legal counsel, but shall not include any expenses for which the Company is responsible under Paragraph 9(a) above, including the reasonable fees and disbursements of your legal counsel with respect to Blue Sky matters. As of the date hereof, no funds have been advanced by the Company to the Underwriter with respect to such non-accountable expense allowance. (c) In the event that the Company does not or cannot, for any reason whatsoever other than a default by the Underwriters, expeditiously proceed with the Offering, or if any of the representations, warranties or covenants contained in this Agreement are not materially correct or cannot be complied with by the Company, or business prospects or obligations of the Company are adversely affected and the Company does not commence or continue with the Offering at any time or terminates the proposed transaction prior to a Closing Date, the Company shall reimburse the Underwriter on an accountable basis for all out-of-pocket expenses actually incurred in connection with the Underwriting, this Agreement and all of the transactions hereby contemplated, including, without limitation, the Underwriter's legal fees and expenses, less such sums which have already been paid. 10. Conditions of Underwriter's Obligations. The obligations of the Underwriter to consummate the transactions contemplated by this Agreement shall be subject to the continuing accuracy of the representations and warranties of the Company contained herein as of the date hereof and as of the Closing Dates, the accuracy of the statements of the Company and its officers and directors made pursuant to the provisions hereof, and to the performance by the Company of its covenants and agreements hereunder and under each certificate, opinion and document contemplated hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., New York time, on the date following the date of this Agreement, or such later date and time as shall be consented to in writing by you and, on or prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement or the qualification or registration of the Securities under the securities laws of any jurisdiction shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or to your knowledge or the knowledge of the Company, shall be contemplated by the Commission or any such authorities of any jurisdiction and any request on the part of the Commission or any such authorities for additional information shall have been complied with to the reasonable satisfaction of the Commission or such authorities and counsel to the Underwriter and after the date hereof no amendment or supplement shall have been filed to the Registration Statement or Prospectus without your prior consent. (b) The Registration Statement or the Prospectus or any amendment thereof or supplement thereto shall not contain an untrue statement of a fact which is material, or omit to state a fact which is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) Between the time of the execution and delivery of this Agreement and the Closing Date, there shall be no litigation instituted against the Company or any of its officers or directors and between such dates there shall be no proceeding instituted or, to the Company's knowledge, threatened against the Company or any of its officers or directors before or by any federal, state or county commission, regulatory body, administrative agency or other governmental body, domestic or foreign, in which litigation or proceeding an unfavorable ruling, decision or finding 12 14 would have a material adverse effect on the Company or its business, business prospects or properties, or have a material adverse effect on the financial condition or results of operation of the Company. (d) Each of the representations and warranties of the Company contained herein and each certificate and document contemplated under this Agreement to be delivered to you shall be true and correct at the Closing Dates as if made at the Closing Dates, and all covenants and agreements contained herein and in each such certificate and document to be performed on the part of the Company, and all conditions contained herein and in each such certificate and document to be fulfilled or complied with by the Company at or prior to the Closing Dates shall be fulfilled or complied with. (e) At each Closing Date, you shall have received the opinion of Horwitz & Beam, counsel to the Company, dated as of such Closing Date, addressed to the Underwriter and in form and substance satisfactory to counsel to the Underwriter, to the effect that: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with full corporate power and authority, and all licenses, permits, certifications, registrations, approvals, consents and franchises to own or lease and operate its properties and to conduct its business as described in the Registration Statement. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, results of operations, business or properties of the Company; (ii) The Company has full corporate power and authority to execute, deliver and perform the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants and to consummate the transactions contemplated thereby. The execution, delivery and performance of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants by the Company, the consummation by the Company of the transactions therein contemplated and the compliance by the Company with the terms of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants have been duly authorized by all necessary corporate action, and each of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants have been duly executed and delivered by the Company. Each of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants is a valid and binding obligation of the Company, enforceable in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies and except that enforceability of the indemnification provisions and the contribution provisions set forth in the Underwriting Agreement may be limited by the federal securities laws or public policy underlying such laws; (iii) The execution, delivery and performance of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrants by the Company, the consummation by the Company of the transactions therein contemplated and the compliance by the Company with the terms of the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter Warrants do not, and will not, with or without the giving of notice or the lapse of time, or both, (A) result in a violation of the Certificate of Incorporation, as the same may be amended, or Bylaws of the Company or any of its Subsidiaries, (B) to the best of our knowledge, result in a breach of, or conflict with, any terms or provisions of or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, any indenture, mortgage, note, contract, commitment or other material agreement or instrument to which the Company or any of its Subsidiaries are a party or by which the Company or any of its Subsidiaries or any of their properties or assets are or may be bound or affected, except where any of the foregoing would not result in a material adverse effect upon the Company's or any Subsidiaries business or operations; (C) to the best of our knowledge, violate any existing applicable law, rule or regulation or judgment, order or decree known to us of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries or any of their properties or businesses; or (D) to the best of our knowledge, have any effect on any permit, certification, registration, approval, consent, license or 13 15 franchise necessary for the Company or any of its Subsidiaries to own or lease and operate their properties and to conduct their business or the ability of the Company or any of its Subsidiaries to make use thereof; (iv) To the best of our knowledge, no authorization, approval, consent, order, registration, license or permit of any court or governmental agency or body (other than under the Act, the Regulations and applicable state securities or Blue Sky laws) is required for the valid authorization, issuance, sale and delivery of the Securities, the Common Stock, the Warrants, the Warrant Shares, or the Underwriter's Warrants, and the consummation by the Company of the transactions contemplated by the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement or the Underwriter's Warrants; (v) The Registration Statement was declared effective under the Act on _______, 1998; to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending, threatened or contemplated under the Act or applicable state securities laws; (vi) The Registration Statement and the Prospectus, as of the Effective Date (except for the financial statements and other financial data included therein or omitted therefrom, as to which we express no opinion), comply as to form in all material respects with the requirements of the Act and Regulations and the conditions for use of a registration statement on Form SB-2 have been satisfied by the Company; (vii) The description in the Registration Statement and the Prospectus of statutes, regulations, contracts and other documents have been reviewed by us, and, based upon such review, are accurate in all material respects and present fairly the information required to be disclosed, and to the best of our knowledge, there are no material statutes or regulations, or, to the best of our knowledge, material contracts or documents, of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement, which are not so described or filed as required. To the best of our knowledge, none of the material provisions of the contracts or instruments described above violates any existing applicable law, rule or regulation or judgment, order or decree known to us of any United States governmental agency or court having jurisdiction over the Company or any of its assets or businesses; (viii) The outstanding Common Stock and Warrants have been duly authorized and validly issued. The outstanding Common stock is fully paid an nonassessable. To the best of our knowledge, none of the outstanding Common Stock has been issued in violation of the preemptive rights of any stockholder of the Company. None of the holders of the outstanding Common Stock is subject to personal liability solely by reason of being such a holder. The authorized Common Stock conforms to the description thereof contained in the Registration Statement and Prospectus. To the best of our knowledge, except as set forth in the Prospectus, no holders of any of the Company's securities has any rights, "demand," "piggyback" or otherwise, to have such securities registered under the Act; (ix) The issuance and sale of the Securities, the Common Stock, the Warrants, the Warrant Shares and the Underwriter's Warrants have been duly authorized and when issued will be validly issued, fully paid and nonassessable, and the holders thereof will not be subject to personal liability solely by reason of being such holders. Neither the Securities, nor the Common Stock are subject to preemptive rights of any stockholder of the Company. The certificates representing the Securities are in proper legal form; (x) The issuance and sale of the Warrant Shares and the Underwriter's Warrants have been duly authorized and, when paid for, issued and delivered pursuant to the terms of the Warrant Agreement or the Underwriter's Warrants, as the case may be, the Warrants, the Warrant Shares and the Underwriter's Warrants will constitute the valid and binding obligations of the Company, enforceable in accordance with their terms, to issue and sell the Warrants, the Warrant Shares and/or Underwriter's Warrants. All corporate action required to be taken for the authorization, issuance and sale of the securities has been duly, validly and sufficiently taken. The Common Stock and the Warrants have been duly authorized by the Company to be offered in the form of the Securities. The Warrants, the Warrant Shares and the Underwriter Warrants conform to the descriptions thereof contained in the Registration Statement and Prospectus; 14 16 (xi) The Underwriter has acquired good title to the Securities, free and clear of all liens, encumbrances, equities, security interests and claims, provided that the Underwriter are bona fide purchasers as defined in Section8-302 of the Uniform Commercial Code; (xii) To the best of our knowledge, there are no claims, actions, suits, proceedings, arbitrations, investigations or inquiries before any governmental agency, court or tribunal, foreign or domestic, or before any private arbitration tribunal, pending or threatened against the Company or any of its Subsidiaries or involving their properties or businesses, other than as described in the Prospectus, such description being accurate, and other than litigation incident to the kind of business conducted by the Company or any of its Subsidiaries which, individually and in the aggregate, is not material, and, except as otherwise disclosed in the Prospectus and the Registration Statement, the Company and its Subsidiaries have complied with all federal and state laws, statutes and regulations concerning its business; (xiii) We have participated in reviews and discussions in connection with the preparation of the Registration Statement and the Prospectus. Although we are not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement, no facts came to our attention which lead us to believe that (A) the Registration Statement (except as to the financial statements and other financial data contained therein, as to which we express no opinion), on the Effective Date, contained any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or that (B) the Prospectus (except as to the financial statements and other financial data contained therein, as to which we express no opinion) contains any untrue statement or a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (f) On or prior to each Closing Date, counsel for the Underwriter shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review the matters referred to in subparagraphs (e) of this Paragraph 10, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. (g) Prior to each Closing Date: (i) There shall have been no material adverse change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) There shall have been no transaction, outside the ordinary course of business, entered into by the Company from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and Prospectus which is material to the Company, which is either (x) required to be disclosed in the Prospectus or Registration Statement and is not so disclosed, or (y) likely to have material adverse effect on the Company's business or financial condition; (iii) The Company shall not be in default under any material provision of any instrument relating to any outstanding indebtedness, except as described in the Prospectus; (iv) No material amount of the assets of the Company shall have been pledged, mortgaged or otherwise encumbered, except as set forth in the Registration Statement and Prospectus; (v) No action, suit or proceeding, at law or in equity, shall have been pending or to its knowledge threatened against the Company or affecting any of its properties or businesses before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, operations, prospects or financial condition or income of the Company, taken as a whole, except as set forth in the Registration Statement and Prospectus; and 15 17 (vi) No stop order shall have been issued under the Act and no proceedings therefor shall have been initiated or, to the Company's knowledge, threatened by the Commission. (vii) Each of the representations and warranties of the Company contained in this Agreement and in each certificate and document contemplated under this Agreement to be delivered to you was, when originally made and is at the time such certificate is dated, true and correct. (h) Concurrently with the execution and delivery of this Agreement and at each Closing Date, you shall have received a certificate of the Company signed by the Chief Executive Officer of the Company and the principal financial officer of the Company, dated as of the Closing Date, to the effect that the conditions set forth in subparagraph (g) above have been satisfied and that, as of the Closing Date, the representations and warranties of the Company set forth in Paragraph 2 herein and the statements in the Registration Statement and Prospectus were and are true and correct. Any certificate signed by any of officer of the Company and delivered to you or for counsel for the Underwriter shall be deemed a representation and warranty by the Company to the Underwriter as to the statements made therein. (i) At the time this Agreement is executed, and at each Closing Date, you shall have received a letter, addressed to the Underwriter and in form and substance satisfactory in all respects to you and counsel for the Underwriter, from Stonefield Josephson, Inc., dated as of the date of this Agreement and as of each Closing Date. (j) All proceedings taken in connection with the authorization, issuance or sale of the Common Stock, Warrants, Warrant Shares, the Underwriter's Warrants and the Underwriter's Warrant Shares as herein contemplated shall be satisfactory in form and substance to you and to counsel to the Underwriter, and the Underwriter shall have received from such counsel an opinion, dated as each Closing Date with respect to such of these proceedings as you may reasonably require. (k) The Company shall have furnished to you such certificates, additional to those specifically mentioned herein, as you may have reasonably requested in a timely manner as to the accuracy and completeness, at each Closing Date, of any statement in the Registration Statement or the Prospectus, as to the accuracy, at each Closing Date, of the representations and warranties of the Company herein and in each certificate and document contemplated under this Agreement to be delivered to you, as to the performance by the Company of its obligations hereunder and under each such certificate and document or as to the fulfillment of the conditions concurrent and precedent to your obligations hereunder. (l) On each Closing Date there shall have been duly tendered to you for your account the appropriate number of Shares of Common Stock and Warrants constituting the Securities. 11. Indemnification and Contribution. (a) Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter ("controlling person") within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, against any and all losses, liabilities, claims, damages, actions and expenses or liability, joint or several, whatsoever (including but not limited to any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever), joint or several, to which it or such controlling persons may become subject under the Act, the Exchange Act or under any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any Preliminary Prospectus or the Prospectus (as from time to time amended and supplemented); in any post-effective amendment or amendments or any new registration statement and prospectus in which is included the Warrant Shares of the Company issued or issuable upon exercise of the Warrants, or Underwriter' Warrant Shares upon exercise of the Underwriter' Warrants; or in any application or other document or written communication (in this Paragraph 10 collectively called "application") executed by the Company or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares, Underwriter's 16 18 Warrants and Underwriter's Warrant Shares (including the Shares issuable upon exercise of the Warrants underlying the Underwriter's Warrants) under the securities laws thereof or filed with the Commission or any securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), unless such statement or omission was made in reliance upon or in conformity with written information furnished to the Company with respect to the Underwriter by or on behalf of the Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment or supplement thereof, or in application, as the case may be. Notwithstanding the foregoing, the Company shall have no liability under this Paragraph 11(a) if any such untrue statement or omission made in a Preliminary Prospectus, is cured in the Prospectus and the Underwriter failed to deliver to the person or persons alleging the liability upon which indemnification is being sought, at or prior to the written confirmation of such sale, a copy of the Prospectus. This indemnity will be in addition to any liability which the Company may otherwise have. (b) The Underwriter agrees to indemnify and hold harmless the Company and each of the officers and directors of the Company who have signed the Registration Statement and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company to the Underwriter in Paragraph 11(a), but only with respect to any untrue statement or alleged untrue statement of any material fact contained in or any omission or alleged omission to state a material fact required to be stated in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment or supplement thereof or necessary to make the statements therein not misleading or in any application made solely in reliance upon, and in conformity with, written information furnished to the Company by you specifically expressly for use in the preparation of such Preliminary Prospectus, the Registration Statement or Prospectus directly relating to the transactions effected by the Underwriter in connection with this Offering. This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. Notwithstanding the foregoing, the Underwriter shall have no liability under this Paragraph 11(b) if any such untrue statement or omission made in a Preliminary Prospectus is cured in the Prospectus, and the Prospectus is delivered to the person or persons alleging the liability upon which indemnification is being sought. (c) If any action is brought against any indemnified party (the "Indemnitee") in respect of which indemnity may be sought against another party pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the defense of the action, including the employment and fees of counsel (reasonably satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless the employment of such counsel shall have been authorized in writing by the Indemnitor in connection with the defense of such action. If the Indemnitor shall have employed counsel to have charge of the defense or shall previously have assumed the defense of any such action or claim, the Indemnitor shall not thereafter be liable to any Indemnitee in investigating, preparing or defending any such action or claim. Each Indemnitee shall promptly notify the Indemnitor of the commencement of any litigation or proceedings against the Indemnitee in connection with the issue and sale of the Common Stock, Warrants, Warrants Shares, Underwriter's Securities or in connection with the Registration Statement or Prospectus. (d) In order to provide for just and equitable contribution under the Act in any case in which: (i) the Underwriter makes a claim for indemnification pursuant to Paragraph 11 hereof, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the time to appeal has expired or the last right of appeal has been denied) that such indemnification may not be enforced in such case notwithstanding the fact that this Paragraph 11 provides for indemnification of such case; or (ii) contribution under the Act may be required on the part of the Underwriter in circumstances for which indemnification is provided under this Paragraph 11, then, and in each such case, the Company and the Underwriter shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after any contribution from others) in such proportion so that the Underwriter is responsible for the portion represented by dividing the total compensation received by the Underwriter herein by the total purchase price of all Securities sold in the public offering and the Company is responsible for the remaining portion; provided, that in any such case, no person guilty of a fraudulent misrepresentation (within the meaning of 17 19 Section 11 (f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The foregoing contribution agreement shall in no way affect the contribution liabilities of any persons having liability under Section 11 of the Act other than the Company and the Underwriter. As used in this Paragraph 11, the term "Underwriter" includes any officer, director, or other person who controls the Underwriter within the meaning of Section 15 of the Act, and the word "Company" includes any of officer, director or person who controls the Company within the meaning of Section 15 of the Act. If the full amount of the contribution specified in this paragraph is not permitted by law, then the Underwriter and each person who controls the Underwriter shall be entitled to contribution from the Company to the full extent permitted by law. No contribution shall be requested with regard to the settlement of any matter from any party who did not consent to the settlement. (e) Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is made against another party (the "contributing party"), notify the contributing party of the commencement thereof, but the omission so to notify the contributing party will not relieve it from any liability it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or his or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of such contributing party. The indemnification provisions contained in this Paragraph 11 are in addition to any other rights or remedies which either party hereto may have with respect to the other or hereunder. 12. Representations Warranties Agreements to Survive Delivery. The respective indemnity and contribution agreements by the Underwriter and the Company contained in Paragraph 11 hereof, and the covenants, representations and warranties of the Company and the Underwriter set forth in this Agreement, shall remain operative and in full force and effect regardless of (i) any investigation made by the Underwriter or on its behalf or by or on behalf of any person who controls the Underwriter, or by the Company or any controlling person of the Company or any director or any of officer of the Company, (ii) acceptance of any of the Securities and payment therefor, or (iii) any termination of this Agreement, and shall survive the delivery of the Securities and any successor of the Underwriter or the Company, or of any person who controls you or the Company or any other indemnified party, as the case may be, shall be entitled to the benefit of such respective indemnity and contribution agreements. The respective indemnity and contribution agreements by the Underwriter and the Company contained in this Paragraph 12 shall be in addition to any liability which the Underwriter and the Company may otherwise have. 13. Effective Date of This Agreement and Termination Thereof. (a) This Agreement shall become effective at 10:00 A.M., New York time, on the first full business day following the day on which you and the Company receive notification that the Registration Statement became effective. (b) This Agreement may be terminated by the Underwriter by notifying the Company at any time on or before the Closing Date, if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, securities markets; or if trading on the New York Stock Exchange, the American Stock Exchange, or in the over-the-counter market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required on the over-the-counter market by the NASD or NASDAQ or by order of the Commission or any other governmental authority having jurisdiction; or if a moratorium in foreign exchange trading by major international banks or persons has been declared; or if the Company shall have sustained a loss material or substantial to the Company taken 18 20 as a whole by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Securities; or if there shall have been a material adverse change in the conditions of the securities market in general, as in your reasonable judgment would make it inadvisable to proceed with the offering, sale and delivery of the Securities; or if there shall have been a material adverse change in the financial or securities markets, particularly in the over-the-counter market, in the United States having occurred since the date of this Agreement. (c) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Paragraph 12, the Company shall be notified promptly by you by telephone or facsimile, confirmed by letter. (d) If this Agreement shall not become effective by reason of an election of the Underwriter pursuant to this Paragraph 13 or if this Agreement shall not be carried out within the time specified herein by reason of any failure on the part of the Company to perform any undertaking, or to satisfy any condition of this Agreement by it to be performed or satisfied, the sole liability of the Company to the Underwriter, in addition to the obligations assumed by the Company pursuant to Paragraph 8 herein, will be to reimburse the Underwriter for the following: (i) Blue Sky counsel fees and expenses to the extent set forth in Paragraph 9(a)(iv); (ii) Blue Sky filing fees; and (iii) such reasonable out-of-pocket expenses of the Underwriter (including the fees and disbursements of their counsel), to the extent set forth in Paragraph 9(c), in connection with this Agreement and the proposed offering of the Securities, less such amounts already paid. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Paragraph 9 and 11 hereof shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 14. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and, if sent to the Underwriter, shall be mailed, delivered or telegraphed and confirmed to the Underwriter at Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, New York 10005, Attention: John Kenny, with a copy thereof to Lawrence Nusbaum, Esq., Gusrae, Kaplan & Bruno, 120 Wall Street, New York, New York 10005, and, if sent to the Company, shall be mailed, delivered or telegraphed and confirmed to the Company at 13710 Ramona Avenue, Chino, California 91710, Attention: Wasif Siddiqui, President, with a copy thereof to Horwitz & Beam, Two Venture Plaza, Suite 350, Irvine, California 92618, Attention: Lawrence W. Horwitz, Esq. 15. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriter, the Company and the controlling persons, directors and officers referred to in Paragraph 11 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. 16. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York and shall supersede any agreement or understanding, oral or in writing, express or implied, between the Company and you relating to the sale of any of the Securities. 17. Jurisdiction and Venue. The Company agrees that the courts of the State of New York shall have jurisdiction over any litigation arising from this Agreement, and venue shall be proper in the Southern District of New York. 19 21 18. Counterparts. This agreement may be executed in counterparts. If the foregoing correctly sets forth the understanding between the Underwriter and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, LUMINEX LIGHTING, INC. By:__________________________ Wasif Siddiqui, President Accepted as of the date first above written: PLATINUM EQUITIES, INC. By:_________________________ EX-1.2 3 FORM OF UNDERWRITER'S WARRANT 1 EXHIBIT 1.2 UNDERWRITER'S WARRANT (FORM) 2 NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR OF A POST-EFFECTIVE AMENDMENT THERETO UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), COVERING THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT, OR UNTIL THE COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW. UNDERWRITER'S WARRANT TO PURCHASE COMMON STOCK AND/OR REDEEMABLE WARRANTS LUMINEX LIGHTING, INC. (a California corporation) Dated:______________ ___, 1998 3 THIS CERTIFIES THAT Platinum Equities, Inc. (the "Underwriter", and together with its assigns, the "Holder") is entitled to purchase from Luminex Lighting, Inc., a California corporation (the "Company"), for an aggregate price of $10, an option ("Purchase Option"), during the period as hereinafter specified, for up to 50,000 shares of the Company's common stock, no par value per share (the "Common Stock"), and up to 50,000 redeemable Common Stock purchase warrants (the "Warrants," and collectively with the Common Stock, the "Securities"), at a purchase price of $6.60 per share of Common Stock and $.12 per Warrant which Warrant is exercisable at $6.00 per share of Common Stock (the "Exercise Price") (the "Underwriter's Warrant"). This Underwriter's Warrant is issued pursuant to an Underwriting Agreement dated , 1998, between the Company and the Underwriter in connection with a public offering through the Underwriter (the "Public Offering") of 500,000 shares of Common Stock and 500,000 Warrants. 1. Exercise of the Representative's Warrant. (a) The rights represented by this Underwriter's Warrant shall be exercised at the prices and during the periods as follows: (i) During the period from _______ __, 1998 to _______ __, 1999, inclusive, the Holder shall have no right to purchase any Securities hereunder. (ii) Between _______ __, 1999 and _______ __, 2003, inclusive, the Holder shall have the option to purchase shares of Common Stock and Warrants hereunder at a price of $6.60 and $.12, respectively, the purchase price of the Common Stock and the Warrant being 120% of the public offering price for the Securities set forth in the Prospectus forming a part of the registration statement on Form SB-2 (File No. 333-_______) of the Company, as amended (the "Registration Statement"). (iii) After ________ __, 2003, the Holder shall have no right to purchase any Securities hereunder and this Underwriter's Warrant shall expire effective at 5:00 p.m., New York time. (b) The rights represented by this Underwriter's Warrant may be exercised at any time within the period above specified, in whole or in part, by (i) the surrender of this Underwriter's Warrant (with the purchase form at the end hereof properly executed) at the principal executive of office of the Company (or such other of office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); (ii) payment to the Company of the Exercise Price then in effect for the number of shares of Common Stock and Warrants specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any; and (iii) delivery to the Company of a duly executed agreement signed by the person(s) designated in the purchase form to the effect that such person(s) agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c) and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to have been exercised, in whole or in part to the extent specified, immediately prior to the close of business on the date this Underwriter's Warrant is surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 1, and the person or persons in whose name or names the certificates for the Securities shall be issuable upon such exercise shall become the Holder or Holders of record of such Common Stock and Warrants at that time and date. The Common Stock and Warrants so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) business days, after the rights represented by this Underwriter's Warrant shall have been so exercised. 2. Restrictions on Transfer. This Underwriter's Warrant shall not be transferred, sold, assigned, or hypothecated for a period of one year commencing _______ __, 1998, except that it may be transferred to successors of the Holder, and may be assigned in whole or in part to any person who is an of officer of the Underwriter or an officer or partner of any other member of the underwriting syndicate or selling group member during such period; and after such one-year period, such a transfer may occur providing the Underwriter's Warrant is exercised immediately upon transfer, and if not exercised immediately on transfer, the Underwriter's Warrant shall lapse. Any such assignment shall be effected by the Holder by (i) completing and executing the form of assignment at the end hereof and (ii) surrendering this Underwriter's Warrant with such duly completed and executed assignment form for cancellation, accompanied by funds sufficient to 1 4 pay any transfer tax, at the office or agency of the Company referred to in Paragraph 1 hereof, accompanied by a certificate (signed by a duly authorized representative of the Holder), stating that each transferee is a permitted transferee under this Paragraph 2 hereof; whereupon the Company shall issue, in the name or names specified by the Holder (including the Holder) a new Underwriter's Warrant or Underwriter's Warrants of like tenor and representing in the aggregate rights to purchase the same number of Securities as are then purchasable hereunder. 3. Covenants of the Company. (a) The Company covenants and agrees that all Common Stock and Common Stock issuable upon exercise of the Warrants will, upon issuance, be duly and validly issued, fully paid and nonassessable and no personal liability will attach to the holder thereof by reason of being such a holder, other than as set forth herein. (b) The Company covenants and agrees that during the period within which this Underwriter's Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Underwriter's Warrant and the Warrants included therein. (c) The Company covenants and agrees that for so long as the Securities shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Underwriter's Warrant and the Warrants contained therein, to be listed on or quoted by the over-the-counter bulletin board system or on the Nasdaq SmallCap Market. 4. No Rights of Stockholder. This Underwriter's Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Underwriter's Warrant and are not enforceable against the Company except to the extent set forth herein. 5. Registration Rights. (a) The Company shall advise the Holder or its transferee, whether the Holder holds this Underwriter's Warrant or has exercised this Representative's Warrant and holds Common Stock and Warrants, or Common Stock underlying the Warrants (the "Warrant Shares"), by written notice at least 30 days prior to the filing of any post-effective amendment to the Registration Statement or of any new registration statement or post-effective amendment thereto under the Act, covering any securities of the Company, for its own account or for the account of others, and will for a period of four years from _______ __, 1999 upon the request of the Holder, include in any such post-effective amendment or registration statement such information as may be required to permit a public offering of any of the Common Stock or Warrants issuable hereunder, and/or the Warrant Shares (the "Registerable Securities"), provided however that this Section 5(a) is not applicable to any registration statement by the Company on Forms S-4 or S-8 (including any Form S-3 related to such Form S-8) or any other comparable form. The Company shall supply prospectuses in order to facilitate the public sale or other disposition of the Registerable Securities, use its best efforts to register and qualify any of the Registerable Securities for sale in such states as such Holder reasonably designates, provided such qualification is not solely for the purpose of subjecting the Company to jurisdiction in that state or is not unduly burdensome, and do any and all other acts and things which may be necessary to enable such Holder to consummate the public sale of the Registerable Securities, and furnish indemnification in the manner provided in Paragraph 6 hereof. The Holder shall furnish information reasonably requested by the Company in accordance with such post-effective amendments or registration statements, including its intentions with respect thereto, and shall furnish indemnification as set forth in Paragraph 6. The Company shall continue to advise the Holders of the Registerable Securities of its intention to file a registration statement or amendment pursuant to this Paragraph 5(a) until the earlier of (i) , 2003; or (ii) such time as all of the Registerable Securities have been registered and sold under the Act. (b) If any fifty-one (51 %) percent holder (as defined below) shall give notice to the Company at any time during the four (4) year period beginning one (1) year from _______ __, 1998 to the effect that such holder desires to register under the Act any Registerable Securities, under such circumstances that a public distribution (within the meaning of the Act) of any such Registerable Securities will be involved, then the Company will as promptly as 2 5 practicable after receipt of such notice, but not later than thirty (30) days after receipt of such notice, file a post effective amendment to the current Registration Statement or a new registration statement pursuant to the Act to the end that the Registerable Securities may be publicly sold under the Act as promptly as practicable thereafter and the Company will use its best efforts to cause such registration to become and remain effective as provided herein (including the taking of such steps as are necessary to obtain the removal of any stop order); provided, that such fifty-one (51%) percent holder shall furnish the Company with appropriate information in connection therewith as the Company may reasonably request; and provided, further, that the Company shall not be required to file such a post effective amendment or registration statement on more than one occasion at its expense. The Company will maintain such registration statement or post-effective amendment current under the Act for a period of at least six (6) months from the effective date thereof. The Company shall supply prospectuses in order to facilitate the public sale of the Registerable Securities, use its best efforts to register and qualify any of the Registerable Securities for sale in such states as such holder reasonably designates, provided such qualification is not solely for the purpose of subjecting the Company to jurisdiction in that state or is not unduly burdensome, and furnish indemnification in the manner provided in Paragraph 6 hereof. (c) The Holder may, in accordance with Paragraphs 5(a) or (b), at his or its option, and subject to the limitations set forth in Paragraph 1(a) hereof, request the registration of any of the Registerable Securities in a filing made by the Company prior to the acquisition of the Securities upon exercise of this Underwriter's Warrant. The Holder may thereafter exercise the Warrants at any time or from time to time subsequent to the effectiveness under the Act of the registration statement in which the Common Stock underlying the Underwriter's Warrants and Warrants were included. (d) The term "51% holder," as used in this Paragraph 5, shall include any owner or combination of owners of Underwriter's Warrants or Registerable Securities if the aggregate number of Common Shares and Warrant Shares included in and underlying the Underwriter's Warrants and Registerable Securities held of record by it or them, would constitute a majority of the aggregate of such Common Shares and Warrant Shares. (e) The following provisions of this Paragraph 5 shall also be applicable: (i) Within ten (10) days after receiving any notice pursuant to Paragraph 5(b), the Company shall give notice to the other Holders of Underwriter's Warrants or Registerable Securities, advising that the Company is proceeding with such post-effective amendment or registration and offering to include therein the Registerable Securities of such other Holders, provided that they shall furnish the Company with all information in connection therewith as shall be necessary or appropriate and as the Company shall reasonably request in writing. Following the effective date of such post-effective amendment or registration, the Company shall, upon the request of any Holder of Registerable Securities, forthwith supply such number of prospectuses meeting the requirements of the Act, as shall be reasonably requested by such Holder. The Company shall use its best efforts to qualify the Registerable Securities for sale in such states as the 51% holder shall designate, provided such qualification is not solely for the purpose of subjecting the Company to jurisdiction in that state or is not unduly burdensome, at such times as the registration statement is effective under the Act. (ii) The Company shall bear the entire cost and expense of any registration of securities initiated by it under Paragraph 5(a) hereof notwithstanding that the Registerable Securities subject to this Underwriter's Warrant may be included in any such registration. The Company shall also comply with one request for registration made by the 51% holder pursuant to Paragraph 5(b) hereof at the Company's own expense and without charge to any holder of the Registerable Securities, and with one request at the expense of the Holders thereof. Notwithstanding the foregoing, any Holder whose Registerable Securities are included in any such registration statement pursuant to this Paragraph 5 shall, however, bear the fees of any counsel retained by him and any transfer taxes or underwriting discounts or commissions applicable to the Registerable Securities sold by him pursuant thereto and, in the case of a registration pursuant to Paragraph 5(a) hereof, any additional registration fees attributable to the registration of such Holder's Registerable Securities. (iii) If the managing underwriter in any such underwritten offering shall advise the Company that it declines to include a portion or all of the Registerable Securities requested by the Holders to be included in the registration statement, then distribution of all or a specified portion of the Registerable Securities shall be excluded 3 6 from such registration statement (in case of an exclusion as to a portion of such Registerable Securities, such portion to be allocated among such Holders in proportion to the respective numbers of Registerable Securities requested to be registered by each such Holder). In such event the Company shall give the Holder prompt notice of the number of Registerable Securities excluded. Further, in such event the Company shall, within six (6) months of the completion of such subsequent offering, file and use its best efforts to have declared effective, at its sole expense, a registration statement relating to such excluded securities. 6. Indemnification. (a) Whenever pursuant to Paragraph 5, a registration statement relating to any Registerable Securities is filed under the Act, amended or supplemented, the Company will indemnify and hold harmless each Holder of the Registerable Securities covered by such registration statement, amendment or supplement (such holder hereinafter referred to as the "Distributing Holder"), each person, if any, who controls (within the meaning of the Act) the Distributing Holder, and each officer, employee, partner or agent of the Distributing Holder, if the Distributing Holder is a broker or dealer, against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Distributing Holder for any legal or other expenses reasonably incurred by the Distributing Holder, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case (i) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder, any other Distributing Holder or any such underwriter for use in the preparation thereof, and (ii) such losses, claims, damages or liabilities arise out of or are based upon any actual or alleged untrue statement or omission made in or from any preliminary prospectus, but corrected in the final prospectus, as amended or supplemented. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed under the Act, or is amended or supplemented, the Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its of officers who have signed said registration statement and such amendments and supplements thereto, and each person, if any, who controls the Company (within the meaning of the Act) against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent that such untrue statement or alleged untrue statement or omission was made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof; and will reimburse the Company or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Promptly after receipt by an indemnified party under this Paragraph 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Paragraph 6. 4 7 (d) In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Paragraph 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 7. Adjustments of Exercise Price and Number of Securities. (a) The Warrant Price shall be subject to adjustment from time to time as follows: (1) In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Warrant Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Warrant Price in effect immediately prior to such dividend or distribution, by (b) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this clause (i), the following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall he deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. (2) In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Warrant Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination to the nearest one cent. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (3) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price has been adjusted as herein provided, the Company shall: (a) Deliver to the Underwriter a certificate signed by the President or Vice President of the Company and by the Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring all such adjustments occurring during such period and the Warrant Price after each such adjustment. (b) Notwithstanding anything contained herein to the contrary, no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $.05, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to not less than $.05. (c) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such dividend or subdivision, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased in proportion to such increase in outstanding shares. In the event that the number of shares 5 8 of Common Stock outstanding is decreased by a combination of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such combination, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be decreased in proportion to such decrease in the outstanding shares of Common Stock. (d) In case of any reorganization or reclassification of the outstanding Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the holder of each Warrant then outstanding shall thereafter have the right to purchase the kind and amount of shares of Common Stock and/or other securities and property receivable upon such reorganization, reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which the holder of such Warrant shall then be entitled to purchase; such adjustments shall apply with respect to all such changes occurring between the date of this Warrant Agreement and the date of exercise of such Warrant. (e) Subject to the provisions of this Section, in case the Company shall, at any time prior to the exercise of the Warrants, make any distribution of its assets to holders of its Common Stock as a liquidating or a partial liquidating dividend, then the holder of Warrants who exercises his Warrants after the record date for the determination of those holders of Common Stock entitled to such distribution of assets as a liquidating or partial liquidating dividend shall be entitled to receive for the Warrant Price per Warrant, in addition to each share of Common Stock, the amount of such distribution (or, at the option of the Company, a sum equal to the value of any such assets at the time of such distribution as determined by the Board of Directors of the Company in good faith), which would have been payable to such holder had he been the holder of record of the Common Stock receivable upon exercise of his Warrant on the record date for the determination of those entitled to such distribution. (f) In case of the dissolution, liquidation or winding-up of the Company, all rights under the Warrants shall terminate on a date fixed by the Company, such date to be no earlier than ten (10) days prior to the effectiveness of such dissolution, liquidation or winding-up and not later than five (5) days prior to such effectiveness. Notice of such termination of purchase rights shall be given to the last registered holder of the Warrants, as the same shall appear on the books of the Company maintained by the Warrant Agent, by registered mail at least thirty (30) days prior to such termination date. (g) In case the Company shall, at any time prior to the expiration of the Warrants and prior to the exercise thereof, offer to the holders of its Common Stock any rights to subscribe for additional shares of any class of the Company, then the Company shall give written notice thereof to the last registered holder thereof not less than thirty (30) days prior to the date on which the books of the Company are closed or a record date is fixed for the determination of the stockholders entitled to such subscription rights. Such notice shall specify the date as to which the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder thereof to participate in such offer of subscription shall terminate if the Warrant shall not be exercised on or before the date of such closing of the books or such record date. (h) Any adjustment pursuant to the aforesaid provisions shall be made on the basis of the number of shares of Common Stock which the holder thereof would have been entitled to acquire by the exercise of the Warrant immediately prior to the event giving rise to such adjustment. (i) Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon exercise of the Warrants, Warrants previously or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant Agreement. (j) The Company may retain a firm of independent public accountants (who may be any such firm regularly employed by the Company) to make any computation required under this Section, and any 6 9 certificate setting forth such computation signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section. (k) If at any time, as a result of an adjustment made pursuant to paragraph (d) above, the holders of a Warrant or Warrants shall become entitled to purchase any securities other than shares of Common Stock, thereafter the number of such securities so purchasable upon exercise of each Warrant and the Warrant Price for such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in paragraphs (b) and (c). (l) No adjustment to the Warrant Price or to the number of shares of Common Stock purchasable upon the exercise of such Warrants will be made, however under the following circumstances: (i) upon the grant or exercise of any of the options presently outstanding (or options which may hereafter be granted and/or exercised) under the Company's Stock Option Plan for officers, directors and/or employees, consultants and similar situated parties of the Company; or (ii) upon the sale or exercise of the Warrants issued to the public pursuant to the ________ __, 1998 Prospectus; or (iii) upon exercise of this Warrant; or (iv) upon exercise or sale of the Warrants issuable upon exercise of the Underwriter's Warrant; or (v) upon any amendment to or change in the term of any rights or warrants to subscribe for or purchase, or options for the purchase of Common Stock or convertible securities, including, but not limited to, any extension of any expiration date of any such right, warrant or option, any change in any exercise or purchase price provided for in any such right, warrant or option, any extension of any date through which any convertible securities are convertible into or exchangeable for Common Stock or any change in the rate at which any convertible securities are convertible into or exchangeable for Common Stock (other than rights, warrants, options or convertible securities issued or sold after the close of business on the date of the original issue of the Common Stock, (i) for presently outstanding securities, or (ii) for which an adjustment in the Warrant Price then in effect was theretofore made or required to be made, upon issuance or sale thereof). 8. Fractional Shares. (a) The Company shall not be required to issue fractions of shares of Common Shares on the exercise of the Warrants subject to this Underwriter's Warrant. The Company shall not be obligated to issue any fractional share interests or fractional warrant interests upon the exercise of any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of fractional interests, provided, however, that if a holder exercises all the Warrants held of record by such holder, the fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares. (b) The Holder of this Underwriter's Warrant, by acceptance hereof, expressly waives his right to receive any fractional share of Common Stock upon exercise of the Warrants subject to this Underwriter's Warrant. 9. Redemption of Warrants underlying the Underwriter's Warrant. The Warrants underlying the Underwriter's Warrant shall not be subject to redemption by the Company until they have been exercised and the underlying Warrants are outstanding. 7 10 10. Miscellaneous. (a) This Underwriter's Warrant shall be governed by and in accordance with the laws of the State of New York. (b) All notices, requests, consents and other communications hereunder shall be made in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (i) if to a Holder, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, 13710 Ramona Avenue, Chino, CA 91710. (c) The Company and the Underwriter may from time to time supplement or amend this Underwriter's Warrant without the approval of any other Holders in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Underwriter may deem necessary or desirable and which the Company and the Underwriter deem not to adversely affect the interest of the Holders. (d) All the covenants and provisions of this Underwriter's Warrant by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. (e) Nothing in this Underwriter's Warrant shall be construed to give to any person or corporation other than the Company and the Underwriter and any other registered Holder or Holders, any legal or equitable right and that any such right is for the sole and exclusive benefit of the Company and the Underwriter and any other Holder or Holders. (f) This Underwriter's Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, Luminex Lighting, Inc. has caused this Underwriter's Warrant to be signed by its duly authorized officer and dated ____________ __, 1998. LUMINEX LIGHTING, INC. By:___________________________ Wasif Siddiqui, President Its: President 8 11 PURCHASE FORM (To be signed only upon exercise of the Underwriter's Warrant) The undersigned, the Holder of the foregoing Underwriter's Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Underwriter's Warrant for, and to purchase thereunder, ________ shares of Common Stock and/or ___ Warrants of Luminex Lighting, Inc. and herewith makes payment of $______ thereof, and requests that the certificates for Common Stock/or Warrants be issued in the name(s) of, and delivered to ____________ whose address(es) is (are) ___________________________ Dated: __________________ _________________________ _________________________ Address 12 TRANSFER FORM (To be signed only upon transfer of the Underwriter's Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto _______________________ the right to purchase shares of Common Stock and/or Warrants of Luminex Lighting, Inc. represented by the foregoing Underwriter's Warrant to the extent of _____________ shares of Common Stock and/or ____ Warrants, and appoints ______________, attorney to transfer such rights on the books of Luminex Lighting, Inc., with full power of substitution in the premises. Dated:__________________ _________________________ (name of holder) _________________________ Address _________________________ In the presence of: _________________________ _________________________ EX-1.3 4 SELECTED DEALERS AGREEMENT (FORM) 1 EXHIBIT 1.3 SELECTED DEALERS AGREEMENT (FORM) 2 LUMINEX LIGHTING, INC. 500,000 Shares of Common Stock and 500,000 Redeemable Common Stock Purchase Warrants SELECTED DEALERS AGREEMENT _____________ ___, 1998 Dear Sirs: 1. We have agreed to use our best efforts to sell an aggregate of 500,000 shares ("Shares") of common stock, no par value per share (the "Common Stock"), and 500,000 redeemable common stock purchase warrants (the "Warrants") of LUMINEX LIGHTING, INC. (the "Company") (said 500,000 shares of Common Stock and 500,000 Warrants being collectively called the "Securities"), on a "best efforts, minimum 250,000 Shares and 250,000 Warrants, maximum 500,000 Shares and 500,000 Warrants" basis as selling agent for the Company. 2. The Securities are to be offered to the public by the Company through Platinum Equities, Inc. (the "Underwriter") at a price of $5.50 per share of Common Stock and $.10 per Warrant (the "Public Offering Price"), in accordance with the terms of offering thereof set forth in the Prospectus. 3. We are offering, subject to the terms and conditions hereof, a portion of the Securities for sale to certain dealers who are actually engaged in the investment banking or securities business and who are either (i) members in good standing of the National Association of Securities Dealers, Inc. (the "NASD") or (ii) dealers with their principal places of business located outside the United States, its territories and its possessions and not registered as brokers or dealers under the Securities Exchange Act of 1934, as amended (the "1934 Act") who have agreed not to make any sales within the United States, its territories and its possessions or to persons who are nationals thereof or residents therein (such dealers who shall agree to purchase Units hereunder being herein called "Selected Dealers"). The Selected Dealers have agreed to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and, if any such dealer is a foreign dealer and not a member of the NASD, such Selected Dealer also has agreed to comply with the NASD's interpretation with respect to free-riding and withholding, and to comply, as though it were a member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules. The Underwriter may be included among the Selected Dealers. 4. In accordance with the terms of Section 4(a) of the Underwriting Agreement, you shall be paid a Selected Dealers' concession of $0.25 per share for each share of Common Stock and $0.005 per Warrant for each Warrant the subscription for which was obtained by you. Payment will be made promptly after the closing of the sale of the Securities. In the event that the sale of Securities for which you have solicited a subscription shall not occur, whether by reason of the failure of any condition specified herein or in the Underwriting Agreement, rejection of the subscription by the Company or by us, or otherwise, no commission in respect thereof shall be due. Commissions will be payable only with respect to transactions lawful in the jurisdictions where they occur. All subscriptions solicited by you will be subject to acceptance by us and by the Company and we reserve the right in our sole discretion to reject any such subscription, to accept or reject subscriptions in the order of their receipt by the Company or otherwise, and to allot. 5. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the public offering of the Securities. 6. If you desire to act as a Selected Dealer with respect to the Securities, your application should reach us promptly by telephone or telegraph at 80 Pine Street, 32nd Floor, New York, New York 10005, Attention: Syndicate Department, Telephone Number (212) 271-0075. The Securities allotted to you will be confirmed, subject to the terms and conditions of this Agreement. 1 3 7. a Payment for the Securities is to be made at the aggregate Public Offering Price by a certified or official bank check in current New York Clearing House funds, payable to the order of "American Stock Transfer & Trust Company, as Escrow Agent for the benefit of subscribers for Luminex Lighting, Inc.," for the full public offering price of the Securities, without any deduction whatsoever. Such check shall be mailed or delivered to the offices of American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005, and shall be accompanied by appropriate delivery instructions. All such funds shall be held in such escrow account pending sale of 250,000 shares of Common Stock and 250,000 Warrants to be sold on behalf of the Company. Subscription proceeds for the offering shall be transmitted to persons entitled thereto by 12:00 P.M. of the next business day following receipt, pursuant to SEC staff interpretation of Rule 15(c)2-4 under the 1934 Act. In the event that at least 250,000 of shares of Common Stock and 250,000 Warrants are sold and paid for, we shall pay you the Selected Dealers' concession, as set forth in Section 4 herein, due to you within a reasonable period of time after each Closing Date. The certificates representing the shares of Common stock and Warrants sold by you will be delivered, in accordance with your subscribers' delivery instructions, at or within a reasonable period of time after the Closing Date. b In the event that less than 250,000 shares of Common Stock and 250,000 Warrants are sold and paid for, it is understood and agreed that you shall not be entitled to any Selected Dealers' concession, payment or commission whatsoever, regardless of the number of shares of Common Stock and Warrants sold by you on behalf of the Company, and the Escrow Agent shall return to you the full amount received from you and you shall promptly return to your respective subscribers who have paid for the Common Stock and Warrants the full payment received from them without deduction. 8. The Agreement will terminate when we shall have determined that the public offering of the Securities has been completed and upon telegraphic notice to you of such termination, but, if not theretofore terminated, this Agreement will terminate at the close of business on the 120th day after the date hereof; provided, however, that the Company and we shall have the right to extend such provisions for a further 30 day-period, upon notice to you. 9. On becoming a Selected Dealer, and in offering and selling the Securities, you agree to comply with all the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and final prospectuses for securities of an issuer (whether or not the issuer is subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act) and confirm that you have complied and will comply therewith. We hereby confirm that we will make available to you such number of copies of the Prospectus (as amended or supplemented) as you may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act, or the Rules and Regulations thereunder. 10. The privilege of acting as a Selected Dealer with respect to the Securities is extended to you only to the extent that you, as a Selected Dealer, may lawfully sell the Securities to dealers in your state. 11. Upon request, you will be informed as to the states and other jurisdictions in which we have been advised that the Securities have been qualified for sale under the respective securities or blue sky laws of such states and other jurisdictions, but we assume no obligation or responsibility as to the right of any Selected Dealer to sell the Securities in any state or other jurisdiction or as to the eligibility of the Securities for sale therein. We will, if requested, file a Further State Notice in respect of the Securities pursuant to Article 23-A of the General Business Law of the State of New York. 12. No Selected Dealer is authorized to act on the Company's behalf in offering or selling the Securities to the public or otherwise or to furnish any information or make any representation except as contained in the Prospectus. 13. No Selected Dealer is authorized to act as our agent, or otherwise to act on our behalf, in offering or selling the Securities to the public or otherwise, it being understood that you and each other Selected Dealer are acting on behalf of the Company as an independent contractor and are not an agent of ours or empowered to in any way bind or obligate us. 2 4 14. Nothing will constitute the Selected Dealers an association or other separate entity or partners with the Underwriter, or with each other, but you will be responsible for your share of any liability or expense based on any claim to the contrary. We shall not be under any liability for or in respect of value, validity or form of the shares of Common Stock and Warrants, or the delivery of the certificates for the shares of Common Stock and Warrants or the performance by anyone of any agreement on its part, or the qualification of the Securities for sale under the laws of any jurisdiction, or for or in respect of any other matters relating to this Agreement and no obligation on our part shall be implied herefrom. The foregoing provisions shall not be deemed a waiver of any liability imposed under the 1933 Act. 15. Notices to us should be addressed to Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, New York 10005 Attention: Syndicate Department. Notice to you shall be deemed to have been duly given if telegraphed or mailed to you at the address to which this letter is addressed. 16. If you desire to purchase any Securities, please confirm your application by signing and returning to us your confirmation on the duplicate copy of this letter enclosed herewith, even though you may have previously advised us thereof by telephone or telegraph. Our signature hereon may be by facsimile. Very truly yours, PLATINUM EQUITIES, INC. By:________________________________ Authorized Officer 3 5 Platinum Equities, Inc. 80 Pine Street, 32nd Floor New York, New York 10005 We hereby agree to use our best efforts to sell the shares of Common Stock and Warrants of LUMINEX LIGHTING, INC., in accordance with the terms and conditions stated in the foregoing letter. We hereby acknowledge receipt of the Prospectus referred to in the second paragraph thereof relating to said Securities. We further state that in purchasing said Securities we have relied upon said Prospectus and upon no other statement whatsoever, whether written or oral. We confirm that we are a dealer actually engaged in the investment banking or securities business and that we are either (i) a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place of business located outside the United States, its territories and its possessions and not registered as a broker or dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees not to make any sales within the United States, its territories and its possessions or persons who are nationals thereof or residents therein. We hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and if we are a foreign dealer and not a member of the NASD, we also agree to comply with the NASD's interpretation with respect to free-riding and withholding, and to comply, as though we were a member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules. ___________________________________ By:________________________________ Authorized Officer Address:___________________________ ___________________________________ Dated:____________________________ EX-3.1 5 ARTICLES OF INCORPORATION OF LUMINEX LIGHTING, INC 1 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF LUMINEX LIGHTING, INC., A CALIFORNIA CORPORATION DATED JANUARY 21, 1994 2 ARTICLES OF INCORPORATION OF LUMINEX LIGHTING, INC. I The name of this corporation is Luminex Lighting, Inc. II The purpose of this 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. III The name and address in the State of California of this corporation's initial agent for service of process is: PETER J. WILKE 9777 WILSHIRE BOULEVARD, SUITE 600 BEVERLY HILLS, CA 90212 IV This corporation is authorized to issue only one class of shares of stock, designated "common stock"; and the total number of shares which this corporation is authorized to issue is: 10,000,000. V This corporation is a close corporation. The issued shares of all classes of this corporation shall be held of record by not more than 35 persons. VI The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and shareholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limit on such excess indemnification set forth in Section 204 of the California Corporations Code. Dated: January 21, 1994 /s/ PETER J. WILKE ----------------------------------- Peter J. Wilke, Incorporator EX-3.2 6 AMENDED ARTICLES OF INCORPORATION 1 EXHIBIT 3.2 AMENDED ARTICLES OF INCORPORATION OF LUMINEX LIGHTING, INC. DATED SEPTEMBER 5, 1997 2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF LUMINEX LIGHTING, INC., A CALIFORNIA CORPORATION The undersigned President and Secretary of LUMINEX LIGHTING, INC., a California corporation, hereby certify that: 1. Article V of Articles of Incorporation of this Corporation is hereby deleted in its entirety. 2. The foregoing Amendment of the Articles of Incorporation has been duly approved by a unanimous vote of the Board of Directors and the Shareholders. IN WITNESS WHEREOF, the undersigned hereby certifies this Certificate of Amendment of Articles of Incorporation effective as of the 5th day of September, 1997. /s/ Wasif Siddiqui - ------------------------------------- Wasif Siddiqui, President /s/ Tasneem Siddiqui - ------------------------------------- Tasneem Siddiqui, Secretary VERIFICATION Each of the undersigned declares under penalty of perjury that the statements contained in the foregoing certificate are true and correct of his and her own knowledge, and that this declaration was executed on September 5, 1997, at Chino, California. /s/ Wasif Siddiqui - ------------------------------------- Wasif Siddiqui, President /s/ Tasneem Siddiqui - ------------------------------------- Tasneem Siddiqui, Secretary EX-3.3 7 BYLAWS OF LUMINEX LIGHTING, INC 1 EXHIBIT 3.3 BYLAWS OF LUMINEX LIGHTING, INC. DATED JANUARY 22, 1994 2 BYLAWS OF LUMINEX LIGHTING, INC. A CALIFORNIA CORPORATION 3 BYLAWS OF LUMINEX LIGHTING, INC. A CALIFORNIA CORPORATION ARTICLE I Offices Section 1.1 Principal Executive office. The principal executive office of the corporation is hereby fixed and located at: 403 E. Arrow Highway, #308, San Dimas, California 91773. The Board of Directors is hereby granted full power and authority to change said principal executive office from one location to another. Any such change shall be noted on these Bylaws by the Secretary, opposite this Section, or this Section may be amended to state the new location. Section 1.2 Other Offices. Other business offices may at any time be established at any place or places specified by the Board of Directors. ARTICLE II Meetings of Shareholders Section 2.1 Place of Meetings. All 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, specified by the Board of Directors. Section 2.2 Annual Meeting. The annual meeting of the shareholders, after the year 1994, shall be held on the third Tuesday of February or at the time and date in each year fixed by the Board of Directors. At the annual meeting directors shall be elected, reports of the affairs of the corporation shall be considered, and any other business may be transacted that is within the power of the shareholders. Section 2.3 Notice of Annual Meeting. Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined in accordance with Section 605 of the General Corporation Law) on the record date for the meeting, by third-class mail, or by other means of written communication, charges prepaid, addressed to such shareholder at the shareholder's address appearing on the books of the corporation or given by such shareholder 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 1 4 the books of the 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 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 to such shareholder if addressed to the shareholder at 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. All such notices shall be given to each shareholder entitled thereto not less than ten (10) days (or, if sent by third-class mail, thirty (30) days) nor more than sixty (60) days before each annual meeting. 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. Such notice shall specify: (a) the place, the date, and the hour of such meeting; (b) those matters that the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders (but, subject to the provisions of subsection (d) below, any proper matter may be presented at the meeting for such action); (c) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by the Board of Directors for election; (d) the general nature of a proposal, if any, to take action with respect to approval of (i) a contract or other transaction with an interested director, (ii) amendment of the Articles of Incorporation, (iii) a reorganization of the corporation as defined in Section 181 of the General Corporation Law, (iv) voluntary dissolution of the corporation, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and (e) such other matters, if any, as may be expressly required by statute. Section 2.4 Special Meetings. Special meetings of the shareholders for any purpose or purposes whatsoever may be called at any time by the Chairman of the Board (if there be such an officer appointed), by the President, by the Board of Directors, or by one or more shareholders entitled to cast not less than ten percent (10%) of the votes at the meeting. Section 2.5 Notice of Special Meetings. Upon request in writing that a special meeting of shareholders be called for any proper purpose, directed to the Chairman of the Board (if there be such an officer appointed), President, Vice President or Secretary by any person (other than the Board of Directors) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days after the receipt of the request. Except in special cases where other express provision is made by statute, notice of any special meeting of shareholders shall be given in the same manner as for annual meetings of shareholders. In addition to the matters required by Section 2.3(a) and, if applicable, Section 2.3(c) of these Bylaws, notice of any special meeting shall specify the general nature of the business to be transacted, and no other business may be transacted at such meeting. 2 5 Section 2.6 Quorum. The presence in person or by proxy of persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. If a quorum is present, the affirmative vote of a majority of the shares represented and voting at the meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the General Corporation Law or the Articles of Incorporation. Any meeting of shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of the holders of a majority of the shares present in person or represented by proxy thereat and entitled to vote, but in the absence of a quorum no other business may be transacted at such meeting, except that the shareholders present or represented by proxy at a duly called or held meeting, at which a quorum is present, may continue to transact 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 2.7 Adjourned Meeting and Notice. When any shareholders' meeting, either annual or special, is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. 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 thereof at the meeting at which such adjournment is taken. Section 2.8 Record Date. (a) 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 other distribution, or allotment of any rights, or to exercise rights in respect of any other lawful action. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. When a record date is so fixed, only shareholders of record at the close of business 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 the 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 Articles of Incorporation or these Bylaws. (b) If no record date is fixed: (1) 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 preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given. (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. 3 6 Section 2.9 Voting. (a) Except as provided below with respect to cumulative voting and except as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holders of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. (b) Subject to the provisions of Sections 702 through 704 of the General Corporation Law (relating to voting of shares held by a fiduciary, receiver, pledgee, or minor, in the name of a corporation, or in joint ownership), persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date shall be entitled to vote at the meeting of shareholders. 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. Shares of this corporation owned by a corporation more than twenty-five percent (25%) of the voting power of which is owned directly by this corporation, or indirectly through one or more majority owned subsidiaries of this corporation, shall not be entitled to vote on any matter. (c) Subject to the requirements of the next sentence, every shareholder entitled to vote at any election for directors shall have the right to cumulate such shareholder's 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 such shareholder's shares are normally entitled, or to distribute votes on the same principle among as many candidates as such shareholder thinks fit. No shareholder shall be entitled to cumulate votes unless such candidate's name or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting, prior to the voting, of the shareholder's intention to cumulate such shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. The candidates receiving the highest number of affirmative votes of shares entitled to be voted for them, up to the number of directors to be elected by such shares, shall be elected. Votes against a director and votes withheld shall have no legal effect. Section 2.10 Proxies. (a) Every person entitled to vote shares (including voting by written consent) may authorize another person or other persons to act by proxy with respect to such shares. "Proxy" means a written authorization signed by a shareholder or the shareholder's attorney-in-fact giving another person or persons power to vote with respect to the shares of such shareholder. "Signed" for the purpose of this Section means the placing of the shareholder's name on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. Any proxy duly executed is not revoked and continues in full force and effect until (i) a written instrument revoking it is filed with the Secretary of the corporation prior to the vote pursuant thereto, (ii) a subsequent proxy executed by the person executing the prior proxy is presented to the meeting, (iii) the person executing the proxy attends the meeting and votes in person, or (iv) 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 that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Notwithstanding the foregoing sentence, a proxy that states that it is irrevocable, is irrevocable for the period specified therein to the extent permitted by Section 705(e) and (f) of the General Corporation Law. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. (b) As long as no outstanding class of securities of the corporation is registered under Section 12 of the Securities Exchange Act of 1934, or is not exempted from such registration by Section 12(g)(2) of such Act, any form of proxy or written consent distributed to ten (10) or more shareholders of the corporation when outstanding shares of the corporation are held of record by 100 or more persons shall afford an opportunity on the proxy or form of written consent to specify a choice between approval and disapproval of each matter or group of related matters 4 7 intended to be acted upon at the meeting for which the proxy is solicited or by such written consent, other than elections to office, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the shares will be voted in accordance therewith. In any election of directors, any form of proxy in which the directors to be voted upon are named therein as candidates and which is marked by a shareholder "withhold" or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted for the election of a director. Section 2.11 Validation of Defectively Called or Noticed Meetings. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such 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 required by these Bylaws or by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the Articles of Incorporation or these Bylaws, or unless the meeting involves one or more matters specified in Section 2.3(d) of these Bylaws. Section 2.12 Action Without Meeting. (a) Directors may be elected without a meeting by a consent in writing, setting forth the action so taken, signed by all of the persons who would be entitled to vote for the election of directors, provided 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 (other than a vacancy created by removal of a director) by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of directors. Any other action that may be taken at a meeting of the shareholders, may be taken without a meeting, and without prior 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. (b) Unless the consents of all shareholders entitled to vote have been solicited in writing: (1) notice of any proposed shareholder approval of (i) a contract or other transaction with an interested director, (ii) indemnification of an agent of the corporation, (iii) a reorganization of the corporation as defined in Section 181 of the General Corporation Law, 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 (2) prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting 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 provided in Section 2.3 of these Bylaws. (c) 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 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. 5 8 Section 2.13 Inspectors of Election. (a) In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any shareholder or the holder of such shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If inspectors are appointed at a meeting on the request of one or more shareholders or holders of proxies, the majority of shares represented in person or by proxy shall determine whether one inspector or three inspectors are to be appointed. (b) The inspectors of election shall determine 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; receive votes, ballots or consents; hear and determine all challenges and questions in any way arising in connection with the right to vote; count and tabulate all votes or consents; determine when the polls shall close; determine the result; and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. (c) 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 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 of the facts stated therein. ARTICLE III Board of Directors Section 3.1 Powers; Approval of Loans to Officers. (a) Subject to the provisions of the General Corporation Law and any limitations in the Articles of Incorporation relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. (b) The corporation may, upon approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer (whether or not a director) of the corporation or of its parent, or adopt an employee benefit plan authorizing such loans or guaranties provided that: (1) the Board of Directors determines that such a loan, guaranty, or plan may reasonably be expected to benefit the corporation; (2) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in section 605 of the General Corporation Law) on the date of approval by the Board of Directors; (3) the approval by the Board of Directors is by a vote sufficient without counting the vote of any interested director(s); and (4) the loan is otherwise made in compliance with Section 315 of the General Corporation Law. 6 9 Section 3.2 Number and Qualification of Directors. The authorized number of directors shall be two (2) until changed by an amendment of the Articles of Incorporation or these Bylaws amending this Section 3.2 duly adopted by a vote or written consent of holders of a majority of the outstanding shares; provided that if the authorized number of directors is five or more, any proposal to reduce the authorized number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. Section 3.3 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. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 3.4 Vacancies. A vacancy in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, if a director has been declared of unsound mind by order of court or convicted of a felony, if the authorized number of directors is increased, if the incorporator or incorporators have failed to appoint the authorized number of directors in any resolution for appointment of directors upon the initial organization of the corporation, 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. 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 directors present at a meeting at which a quorum is present, or if the number of directors then in office is less than a quorum, (a) by the unanimous written consent of the directors then in office, (b) by the vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice in compliance with these Bylaws, or (c) by a sole remaining director. Each director so elected shall hold office until his or her successor is elected at an annual or a special meeting of the shareholders. 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 all of the holders of the outstanding shares. 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 other than to fill a vacancy created by removal shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal shall require the unanimous written consent of all shares entitled to vote for the election of directors. Any director may resign effective upon giving written notice to the Chairman of the Board (if there be such an officer appointed), 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 resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office. Section 3.5 Time and Place of Meetings. The Board of Directors shall hold a regular meeting immediately after the meeting of shareholders at which it is elected and at the place where such meeting is held, or at such other place as shall be fixed by the Board 7 10 of Directors, for the purpose of organization, election of officers of the corporation and the transaction of other business. Notice of such meeting is hereby dispensed with. Other regular meetings of the Board of Directors shall be held without notice at such times and places as are fixed by the Board of Directors. Special meetings of the Board of Directors may be held at any time whenever called by the Chairman of the Board (if there be such an officer appointed), the President, any Vice-President, the Secretary or any two directors. Except as hereinabove provided in this Section 3.5, all meetings of the Board of Directors may be held at any place within or without the State of California that has been designated by resolution of the Board of Directors as the place for the holding of regular meetings, or by written consent of all directors. In the absence of such designation, meetings of the Board of Directors shall be held at the principal executive office of the corporation. Special meetings of the Board of Directors may be held either at a place so designated or at the principal executive office of the corporation. Section 3.6 Notice of Special Meetings. Notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone, telegraph or mail, charges prepaid, addressed to the director at the 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 at least four (4) days prior to the time of the holding of 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. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meetings. Section 3.7 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 of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members 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. 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 is 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, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 3.8 Action Without a 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 of Directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 3.9 Adjourned Meeting and Notice. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment 8 11 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 the adjournment. Section 3.10 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 of Directors. Section 3.11 Appointment of Executive and Other Committees. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the Board of Directors or in these Bylaws, shall have all the authority of the Board of Directors, except with respect to: (a) The approval of any action for which the General Corporation Law also requires shareholders' approval or approval of the outstanding shares. (b) The filling of vacancies on the Board of Directors or on any committee. (c) The fixing of compensation of the directors for serving on the Board of Directors or on any committee. (d) The amendment or repeal of these Bylaws or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors that by its express terms is not so amendable or repealable. (f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range determined by the Board of Directors. (g) The appointment of other committees of the Board of Directors or the members thereof. The provisions of Sections 3.5 through 3.9 of these Bylaws apply also to committees of the Board of Directors and action by such committees, mutatis mutandis (with the necessary changes having been made in the language thereof). ARTICLE IV Officers Section 4.1 Officers. The officers of the corporation shall consist of the President, the Secretary and the Treasurer, and each of them shall be appointed by the Board of Directors. The corporation may also have a Chairman of the Board, one or more Vice-Presidents, a Controller, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed by the Board of Directors, or with authorization from the Board of Directors by the President. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. Any two or more of such offices may be held by the same person. The Board of Directors shall designate one officer as the chief financial officer of the corporation. In the absence of such designation, the Treasurer shall be the chief financial officer. The Board of Directors may appoint, and may empower the President to appoint, 9 12 such other officers as the business of the corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. All officers of the corporation shall hold office from the date appointed to the date of the next succeeding regular meeting of the Board of Directors following the meeting of shareholders at which the Board of Directors is elected, and until their successors are elected; provided that all officers, as well as any other employee or agent of the corporation, may be removed at any time at the pleasure of the Board of Directors, or, except in the 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, and upon the removal, resignation, death or incapacity of any officer, the Board of Directors or the President, in cases where he or she has been vested by the Board of Directors with power to appoint, may declare such office vacant and fill such vacancy. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. Any officer may resign at any time by giving written notice to the Board of Directors, the President, or 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. The salary and other compensation of the officers shall be fixed from time to time by resolution of or in the manner determined by the Board of Directors. Section 4.2 The Chairman of the Board. The Chairman of the Board (if there be such an officer appointed) shall, when present, preside at all meetings of the Board of Directors and shall perform all the duties commonly incident to that office. The Chairman of the Board shall have authority to execute in the name of the corporation bonds, contracts, deeds, leases and other written instruments to be executed by the corporation (except where by law the signature of the President is required), and shall perform such other duties as the Board of Directors may from time to time determine. Section 4.3 The President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, the President shall be the chief executive officer of the corporation and shall perform all the duties commonly incident to that office. The President shall have authority to execute in the name of the corporation bonds, contracts, deeds, leases and other written instruments to be executed by the corporation. The President shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board or if there is none, at all meetings of the Board of Directors, and shall perform such other duties as the Board of Directors may from time to time determine. Section 4.4 Vice-Presidents. The Vice-Presidents (if there be such officers appointed), in the order of their seniority (unless otherwise established by the Board of Directors), may assume and perform the duties of the President in the absence or disability of the President or whenever the offices of the Chairman of the Board and President are vacant. The Vice Presidents shall have such titles, perform such other duties, and have such other powers as the Board of Directors, the President or these Bylaws may designate from time to time. Section 4.5 The 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 order, a book of minutes of actions taken at all meetings of directors and committees thereof and of shareholders, with the time and place of holding, whether regular 10 13 or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' 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 in a form capable of being converted into written form, 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. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors and committees thereof required by these Bylaws or by law to be given, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time. Section 4.6 The Treasurer. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Treasurer 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 the Treasurer's transactions as Treasurer 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 these Bylaws. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time. Section 4.7 The Controller. The Controller (if there be such an officer appointed) shall be responsible for the establishment and maintenance of accounting and other systems required to control and account for the assets of the corporation and provide safeguards therefor, and to collect information required for management purposes, and shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time. The President may direct any Assistant Controller to assume and perform the duties of the Controller, in the absence or disability of the Controller, and each Assistant Controller shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board (if there be such an officer appointed) or the President may designate from time to time. ARTICLE V Execution of Corporate Instruments, Ratification, and Voting of Stocks Owned by the Corporation Section 5.1 Execution of Corporate Instruments. In its discretion, the Board of Directors may determine the method and designate the signatory officer or officers or other person or persons, to execute any corporate instrument or document, or to sign the corporate name 11 14 without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize to do so. The Board of Directors shall designate an officer who personally, or through his representative, shall vote shares of other corporations standing in the name of this corporation. The authority to vote shares shall include the authority to execute a proxy in the name of the corporation for purposes of voting the shares. Section 5.2 Ratification by Shareholders. In its discretion, the Board of Directors may submit any contract or act for approval or ratification of the shareholders at any annual meeting of shareholders, or at any special meeting of shareholders called for that purpose; and any contract or act that shall be approved or ratified by the holders of a majority of the voting power of the corporation shall be as valid and binding upon the corporation and upon the shareholders thereof as though approved or ratified by each and every shareholder of the corporation, unless a greater vote is required by law for such purpose. Section 5.3 Voting of Stocks Owned by the Corporation. All stock of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized to do so by resolution of the Board of Directors, or in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), the President or any Vice-President, or by any other person authorized to do so by the Chairman of the Board, the President or any Vice President. ARTICLE VI Annual and Other Reports Section 6.1 Reports to Shareholders. The Board of Directors of the corporation shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year, and at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) prior to the annual meeting of shareholders to be held during the next fiscal year. This report shall contain a balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial position for that fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. This report shall also contain such other matters as required by Section 1501(b) of the General Corporation Law, unless the corporation is subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, and is not exempted therefrom under Section 12(g)(2) thereof. As long as the corporation has less than 100 holders of record of its shares (determined as provided in Section 605 of the General Corporation Law), the foregoing requirement of an annual report is hereby waived. If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request within thirty (30) days thereafter the financial statements for such year as required by Section 1501(a) of the General Corporation Law. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the 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 12 15 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, unless such report has been waived under these Bylaws. The statements shall be delivered or mailed 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 the statements, or a copy shall be mailed to the shareholder. The quarterly income statements and balance sheets referred to in this Section shall be 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 the financial statements were prepared without audit from the books and records of the corporation. Section 6.2 Report of Shareholder Vote. For a period of sixty (60) days following the conclusion of an annual, regular, or special meeting of shareholders, the corporation shall, upon written request from a shareholder, forthwith inform the shareholder of the result of any particular vote of shareholders taken at the meeting, including the number of shares voting for, the number of shares voting against, and the number of shares abstaining or withheld from voting. If the matter voted on was the election of directors, the corporation shall report the number of shares (or votes if voted cumulatively) cast for each nominee for director. If more than one class or series of shares voted, the report shall state the appropriate numbers by class and series of shares. Section 6.3 Reports to the Secretary of State. (a) Every year, during the calendar month in which the original articles of incorporation were filed with the California Secretary of State, or during the preceding five calendar months, the corporation shall file a statement with the Secretary of State on the prescribed form, setting forth the authorized number of directors; the names and complete business and residence addresses of all incumbent directors; the names and complete business or resident addresses of the chief executive officer, the secretary, and the chief financial officer; the street address of the corporation's principal executive office or principal business office in this state; a statement of the general type of business constituting the principal business activity of the corporation; and a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Corporations Code of California. (b) Notwithstanding the provisions of paragraph (a) of this section, if there has been no change in the information contained in the corporation's last annual statement on file in the Secretary of State's office, the corporation may, in lieu of filing the annual statement described in paragraph (a) of this section, advise the Secretary of State, on the appropriate form, that no changes in the required information have occurred during the applicable period. ARTICLE VII Shares of Stock 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 (if there be such officers appointed) or the President or a Vice-President and by the chief financial officer or any Assistant Treasurer 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 a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has 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. 13 16 Any such certificate shall also contain such legends or other statements as may be required by Sections 417 and 418 of the General Corporation Law, the Corporate Securities Law of 1968, federal or other state securities laws, and any agreement between the corporation and the issue of the certificate. Certificates for shares may be issued prior to full payment, under such restrictions and for such purposes as the Board of Directors or these Bylaws may provide; provided, however, that the certificate issued to represent any such partly paid shares shall state on the face thereof the total amount of the consideration to be paid therefor, the amount remaining unpaid and the terms of payment. No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time; provided, however, that a new certificate will be issued without the surrender and cancellation of the old certificate if (1) the old certificate is lost, apparently destroyed or wrongfully taken; (2) 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; (3) 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; (4) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the corporation; and (5) the owner satisfies any other reasonable requirement 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 Sections 8104 and 8405 of the California Commercial Code. ARTICLE VIII Inspection of Corporate Records Section 8.1 General Records. The accounting books and records and the minutes of proceedings of the shareholders, the Board of Directors and committees thereof of the corporation and any subsidiary of the 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. Minutes of proceedings of the shareholders, Board, and committees thereof shall be kept in written form. Other books and records shall be kept either in written form or in any other form capable of being converted into written form. 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 or to obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of 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 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. 14 17 Section 8.2 Inspection of Bylaws. The corporation shall keep at 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 shall otherwise provide upon written request of any shareholder if it has no such office in California) the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. ARTICLE IX Indemnification of Officers, Directors, Employees and Agents Section 9.1 Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by statutory and decisional law, as the same exists or may hereafter be interpreted or amended (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereafter "Expenses"). The right to indemnification conferred in this Article shall be a contract right. It is the corporation's intention that these bylaws provide indemnification in excess of that expressly permitted by Section 317 of the California General Corporation Law, as authorized by the corporation's Articles of Incorporation. Section 9.2 Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the California General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon the receipt of a similar undertaking, if required by law, and upon such other terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. 15 18 Section 9.3 Right of Claimant to Bring Suit. If a claim under Section 9.1 or 9.2 of these Bylaws is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 9.4 Provisions Nonexclusive. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Articles, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence. Section 9.5 Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense asserted against or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article, provided that, in cases where the corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the California General Corporation Law, as amended. Section 9.6 Survival of Rights. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such person. Section 9.7 Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 9.8 Effect of Amendment. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. 16 19 Section 9.9 Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 9.10 No Duplication of Payments. The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE X Amendments Section 10.1 Power of Shareholders. New bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation. Section 10.2 Power of Directors. Subject to the right of shareholders as provided in Section 10.1 of this Article X to adopt, amend or repeal these Bylaws, these Bylaws (other than a bylaw or amendment thereof changing the authorized number of directors, or providing for the approval by the Board, acting alone, of a loan or guarantee to any officer or an employee benefit plan providing for the same) may be adopted, amended or repealed by the Board of Directors. ARTICLE XI Definitions Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the General Corporation Law as amended from time to time 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. ARTICLE XII Corporate Seal The corporate seal shall consist of a circular die bearing the name of the corporation, the state in which it was incorporated and the date of its incorporation. If and when authorized by the Board of Directors, a duplicate of the corporate seal may be kept and used by such officer or person as the Board of Directors may designate. 17 20 CERTIFICATE OF SECRETARY The undersigned, Secretary of Luminex Lighting, Inc., a California corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of the corporation with all amendments to date of this Certificate. WITNESS the signature of the undersigned this twenty second day of January, 1994. /s/ TASNEEM SIDDIQUI ------------------------------------ Tasneem Siddiqui, Secretary 18 EX-3.4 8 CERTIFICATE OF AMENDMENT OF BYLAWS 1 EXHIBIT 3.4 CERTIFICATE OF AMENDMENT OF BYLAWS OF LUMINEX LIGHTING, INC. DATED DECEMBER 15, 1995 2 CERTIFICATE OF AMENDMENT OF BYLAWS OF LUMINEX LIGHTING, INC. A CALIFORNIA CORPORATION The undersigned, Secretary of Luminex Lighting, Inc., a California corporation, hereby certifies that the bylaws of the Corporation have been amended by a majority of the outstanding shares entitled to vote, as follows: AMENDMENT Article III, Section 3.2, has been amended to read as follows: The authorized number of directors shall be three (3) until changed by an amendment of the Articles of Incorporation or these Bylaws amending this Section 3.2 duly adopted by a vote or written consent of the holders of a majority of the outstanding shares; provided that if the authorized number of directors is five or more, any proposal to reduce the authorized number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to vote. IN WITNESS WHEREOF, the undersigned hereby certifies this Certificate of Amendment effective as of the fifteenth day of December, 1995. /s/ TASNEEM SIDDIQUI ----------------------------------- Tasneem Siddiqui, Secretary EX-4.1 9 LOCK-UP AGREEMENT (FORM) 1 EXHIBIT 4.1 LOCK-UP AGREEMENT (FORM) 2 LUMINEX LIGHTING, INC. LOCK-UP AGREEMENT ___________________, 1998 Platinum Equities, Inc. 80 Pine Street, 32nd Floor New York, NY 10005 Re: Luminex Lighting, Inc. - Lock-Up Agreement Dear Sirs: The undersigned is an officer, director, and/or securityholder of Luminex Lighting, Inc. (the "Company"). 1. The undersigned represents and warrants to you that the undersigned does not own or have the right or option to acquire any securities of the Company, whether from the Company or any other person, except as set forth below. 2. The undersigned understands that the Company has filed a registration statement (the "Registration Statement") on Form SB-2 with the Securities and Exchange Commission (Registration No. 333-_____) with respect to the sale by the Company of up to 500,000 shares of Common Stock and up to 500,000 Warrants (the "Securities") on a "best efforts" basis. Such Securities and any other securities of the Company sold pursuant to the Registration Statement, either in addition to or in lieu of such Securities, are referred to herein as the "Offered Securities." The undersigned further understands that the Company and Platinum Equities, Inc. (the "Underwriter") intend to enter into an underwriting agreement (the "Underwriting Agreement") in connection with the public offering of the Offered Securities (the "Public Offering"). 3. In order to induce the Company and the Underwriter to enter into the Underwriting Agreement and to proceed with the Public Offering, the undersigned agrees, for the benefit of the Company and the Underwriter, that the undersigned will not, without the prior consent of the Underwriter, during the 12 month period immediately following the final closing of the Public Offering, offer, pledge, sell (which term includes a short sale or sale against the box), contract to sell, grant an option for the sale of, or otherwise transfer or dispose of, directly or indirectly, any securities of the Company, or any securities convertible or exchangeable into the securities of the Company (e.g., warrants, options, convertible notes or convertible preferred stock) ("Derivative Securities"), owned by the undersigned as of the date thereof. The number of shares of Common Stock and Derivative Securities to which this Agreement relates is set forth below. Very truly yours, ___________________________________ By: ___________________________________ Printed name of person/entity ___________________________________ Title if applicable ___________________________________ ___________________________________ ___________________________________ Address 1 EX-4.2 10 SPECIMEN OF COMMON STOCK CERTIFICATE 1 EXHIBIT 4.2 SPECIMEN OF COMMON STOCK CERTIFICATE OF LUMINEX LIGHTING, INC. 2 SPECIMEN LUMINEX LIGHTING, INC. AUTHORIZED: 10,000,000 SHARES COMMON STOCK NO PAR VALUE THIS CERTIFIES THAT ___________________________________________ is the registered holder of __________________________________________________________ Shares of Luminex Lighting, Inc., transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Corporation properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized offers and its Corporate Seal to be hereunder affixed this ___________ day of ______________________ A.D. __________________ _____________________________ _____________________________ Secretary President EX-4.3 11 FORM OF WARRANT AGREEMENT AND WARRANT CERTIFICATE 1 EXHIBIT 4.3 FORM OF WARRANT AGREEMENT AND WARRANT CERTIFICATE 2 LUMINEX LIGHTING, INC. A CALIFORNIA CORPORATION AND AMERICAN STOCK TRANSFER & TRUST COMPANY WARRANT AGENT WARRANT AGREEMENT 3 TABLE OF CONTENTS
Section 1. Appointment of Warrant Agent....................................................... 1 2. Form of Warrant.................................................................... 1 3. Countersignature and Registration.................................................. 2 4. Transfers and Exchanges............................................................ 2 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.......................... 2 6. Payment of Taxes................................................................... 4 7. Mutilated or Missing Warrants...................................................... 5 8. Reservation of Common Stock........................................................ 5 9. Warrant Price: Adjustments......................................................... 6 10. Fractional Interests.............................................................. 10 11. Notices to Warrantholders......................................................... 11 12. Disposition of Proceeds on Exercise of Warrants................................... 12 13. Redemption of Warrants............................................................ 12 14. Merger or Consolidation or Change of Name of Warrant Agent........................ 12 15. Duties of Warrant Agent........................................................... 13 16. Change of Warrant Agent........................................................... 15 17. Identity of Transfer Agent........................................................ 15 18. Notices........................................................................... 15 19. Supplements and Amendments........................................................ 16 20. New York Contract................................................................. 16 21. Benefits of this Agreement........................................................ 16 22. Successors........................................................................ 17
4 WARRANT AGREEMENT, dated as of __________ __, 1998, by and among LUMINEX LIGHTING, INC., a California corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent (hereinafter called the "Warrant Agent"). WHEREAS, the Company proposes to issue and sell, through an initial public offering (the "Offering") by PLATINUM EQUITIES, INC. (the "Underwriter") pursuant to an Underwriting Agreement dated __________ __, 1998, an aggregate of up to 500,000 shares of common stock, no par value per share (the "Common Stock"), and up to 500,000 redeemable Common Stock purchase warrants (the "Warrants") of the Company; and in connection with such Offering the Company has agreed to issue to the Underwriter or its designees an option to purchase up to 50,000 shares of Common Stock and up to 50,000 Warrants (the "Underwriter's Warrant"); WHEREAS, each Warrant will entitle the holder to purchase one share of Common Stock; WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act in connection with the issuance, registration, transfer, exchange and exercise of the Warrants; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as Warrant Agent for the Company in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment. Section 2. Form of Warrant. The text of the Warrants and of the form of election to purchase Common Stock to be printed on the reverse thereof shall be substantially as set forth in Exhibit A attached hereto. Each Warrant shall entitle the registered holder thereof to purchase one share of Common Stock at a purchase price of $6.00, at any time commencing on the effective date of the Offering (the "Effective Date"), and expire five (5) years after the Effective Date. The warrant exercise price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, all as hereinafter provided. The Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future President or Vice President of the Company, and attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrants shall be dated as of the issuance by the Warrant Agent either upon initial issuance or upon transfer or exchange. In the event the aforesaid expiration date of the Warrants falls on a Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on the next succeeding business day. Section 3. Countersignature and Registration. The Warrant Agent shall maintain books for the transfer and registration of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof. The Warrants shall be countersigned manually or by facsimile by the Warrant Agent (or by any successor to the Warrant Agent then acting as warrant agent under this Agreement) and shall not be valid for any purpose unless so countersigned. The Warrants may, however, be so countersigned by the Warrant Agent (or by its successor as Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature or delivery. Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from time to time, any outstanding Warrants upon the books to be maintained by the Warrant Agent for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled 1 5 shall be delivered by the Warrant Agent to the Company from time to time upon request. Warrants may be exchanged at the option of the holder thereof, when surrendered at the office of the Warrant Agent, for another Warrant, or other Warrants of different denominations of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock. Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee. Subject to the provisions of this Agreement, each registered holder of Warrants shall have the right, which may be exercised commencing at the opening of business on the Effective Date, to purchase from the Company (and the Company shall issue and sell to such registered holder of Warrants) the number of fully paid and non-assessable shares of Common Stock specified in such Warrants upon surrender of such Warrants to the Company at the office of the Warrant Agent, with the form of election to purchase on the reverse thereof duly filled in and signed, and upon payment to the Company of the warrant price, determined in accordance with the provisions of Sections 9 and 10 of this Agreement, for the number of shares of Common Stock in respect of which such Warrants are then exercised. Payment of such warrant price shall be made in cash or by certified check or bank draft to the order of the Company. Subject to Section 6, upon such surrender of Warrants and payment of the warrant price, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the registered holder of such Warrants and in such name or names as such registered holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased upon the exercise of such Warrants. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such shares of Common Stock as of the date of the surrender of such Warrants and payment of the warrant price as aforesaid. The rights of purchase represented by the Warrants shall be exercisable, at the election of the registered holders thereof, either as an entirety or from time to time for a portion of the shares specified therein and, in the event that any Warrant is exercised in respect of less than all of the shares of Common Stock specified therein at any time prior to the date of expiration of the Warrants, a new Warrant or Warrants will be issued to the registered holder for the remaining number of shares of Common Stock specified in the Warrant so surrendered, and the Warrant Agent is hereby irrevocably authorized to countersign and to deliver the required new Warrants pursuant to the provisions of this Section and of Section 3 of this Agreement and the Company, whenever requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose. Anything in the foregoing to the contrary notwithstanding, no Warrant will be exercisable unless at the time of exercise the Company has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 (the "Act") covering the shares of Common Stock issuable upon exercise of such Warrant and such registration statement shall have been declared effective, such shares have been so registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of such Warrant. The Company shall use its best efforts to have all shares so registered or qualified on or before the date on which the Warrants become exercisable. (a) If at the time of exercise of any Warrant after twelve (12) months from the Closing Date (i) the market price of the Company's Common Stock is equal to or greater than the then exercise price of the Warrant, (ii) the exercise of the Warrant is solicited by the Underwriter at such time as it is a member of the National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not held in a discretionary account, (iv) disclosure of the compensation arrangement is made in documents provided to the holders of the Warrants, (v) the Underwriter is designated in writing as the soliciting broker and (vi) the solicitation of the exercise of the Warrant is not in violation of Regulation M (as such rule or any successor rule may be in effect as of such time of exercise) promulgated under the Securities Exchange Act of 1934, then the Underwriter soliciting such Warrant shall be entitled to receive from the Company upon exercise of each of the Warrants so exercised a fee of seven percent (7%) of the aggregate price of the Warrants so exercised (the "Exercise Fee"). The procedures for payment of the warrant solicitation fee are set forth in Section 5(b) below. However, there shall be no warrant solicitation by the Underwriter without the prior written authorization of the Company. (b) (1) Within five (5) days of the last day of each month commencing on the Effective Date, the Warrant Agent will notify the Underwriter of each Warrant Certificate which has been properly completed for exercise by holders of Warrants during the last month. The Company and Warrant Agent shall determine, in their sole and absolute discretion, whether a Warrant Certificate has been properly completed. The Warrant Agent will provide the Representative with such information, in connection with the exercise of each Warrant, as the Representative shall reasonably request. 2 6 (2) The Company hereby authorizes and instructs the Warrant Agent to deliver to the soliciting Underwriter the Exercise Fee promptly after receipt by the Warrant Agent from the Company of a check payable to the order of the soliciting Underwriter in the amount of the Exercise Fee. In the event that an Exercise Fee is paid to the Underwriter with respect to a Warrant which the Company or the Warrant Agent determines is not properly completed for exercise or in respect of which the Underwriter is not entitled to an Exercise Fee, the soliciting Underwriter will return such Exercise Fee to the Warrant Agent which shall forthwith return such fee to the Company. The Underwriter and the Company may at any time commencing on the Effective Date, and during business hours, examine the records of the Warrant Agent, including its ledger of original Warrant certificates returned to the Warrant Agent upon exercise of Warrants. Notwithstanding any provision to the contrary, the provisions of paragraph 5(a) and 5(c) may not be modified, amended or deleted without the prior written consent of the Underwriter. Section 6. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Common Stock issuable upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of any certificates of shares of Common Stock in a name other than that of the registered holder of Warrants in respect of which such shares are issued, and in such case neither the Company nor the Warrant Agent shall be required to issue or deliver any certificate for shares of Common Stock or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. Section 7. Mutilated or Missing Warrants. In case any of the Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and the Warrant Agent shall countersign and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company and the Warrant Agent of such loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant, indemnity, if requested, also satisfactory to them. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such reasonable charges as the Company or the Warrant Agent may prescribe. Section 8. Reservation of Common Stock. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and unissued shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the Warrants, and the transfer agent for the shares of Common Stock and every subsequent transfer agent for any shares of the Company's Common Stock issuable upon the exercise of any of the rights of purchase aforesaid are irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares of Common Stock as shall be required for such purpose. The Company agrees that all shares of Common Stock issued upon exercise of the Warrants shall be, at the time of delivery of the certificates of such shares, validly issued and outstanding, fully paid and nonassessable and listed on any national securities exchange upon which the other shares of Common Stock are then listed. So long as any unexpired Warrants remain outstanding, the Company will file such post-effective amendments to the registration statement (Form SB-2, Registration No. 333 - ) (the "Registration Statement") filed pursuant to the Act with respect to the Warrants (or other appropriate registration statements or post-effective amendment or supplements) as may be necessary to permit it to deliver to each person exercising a Warrant, a prospectus meeting the requirements of Section 10(a)(3) of the Act and otherwise complying therewith, and will deliver such prospectus to each such person. To the extent that during any period it is not reasonably likely that the Warrants will be exercised, due to market price or otherwise, the Company need not file such a post-effective amendment during such period. The Company will keep a copy of this Agreement on file with the transfer agent for the shares of Common Stock and with every subsequent transfer agent for any shares of the Company's Common Stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is irrevocably authorized to requisition from time to time from such transfer agent stock certificates required to honor outstanding Warrants. The Company will supply such transfer agent with duly executed stock certificates for that purpose. All Warrants surrendered in the exercise of the rights thereby evidenced shall be cancelled by the Warrant Agent and shall thereafter be delivered to the Company, and such cancelled Warrants shall constitute sufficient evidence of the number of shares of Common Stock which have been issued upon the exercise of such Warrants. Promptly after the date of expiration of the Warrants, the Warrant Agent shall certify to the Company the 3 7 total aggregate amount of Warrants then outstanding, and thereafter no shares of Common Stock shall be subject to reservation in respect of such Warrants which shall have expired. Section 9. Warrant Price: Adjustments. (a) The warrant price at which Common Stock shall be purchasable upon the exercise of the Warrants shall be $6.00 at any time commencing on the Effective Date until five (5) years after the Effective Date, or after adjustment, as provided in this Section, shall be such price as so adjusted (the "Warrant Price"). (b) The Warrant Price shall be subject to adjustment from time to time as follows: (i) In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Warrant Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (A) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Warrant Price in effect immediately prior to such dividend or distribution, by (B) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this clause: (i) The following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. (ii) In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Warrant Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination to the nearest one cent. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price has been adjusted as herein provided, the Company shall: (A) File with the Warrant Agent a certificate signed by the President or Vice President of the Company and by the Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring all such adjustments occurring during such period and the Warrant Price after each such adjustment; and (B) The Warrant Agent shall have no duty with respect to any such certificate filed with it except to keep the same on file and available for inspection by holders of Warrants during reasonable business hours, and the Warrant Agent may conclusively rely upon the latest certificate furnished to it hereunder. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of a Warrant to determine whether any facts exist which may require any adjustment of the Warrant Price, or with respect to the nature or extent of any adjustment of the Warrant Price when made, or with respect to the method employed in making any such adjustment, or with respect to the nature or extent of the property or securities deliverable hereunder. In the absence of a certificate having been furnished, the Warrant Agent may conclusively rely upon the provisions of the Warrants with respect to the Common Stock deliverable upon the exercise of the Warrants and the applicable Warrant Price thereof. 4 8 (C) Notwithstanding anything contained herein to the contrary, no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $.05, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to not less than $.05. (c) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such dividend or subdivision, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased in proportion to such increase in outstanding shares. In the event that the number of shares of Common Stock outstanding is decreased by a combination of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such combination, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be decreased in proportion to such decrease in the outstanding shares of Common Stock. (d) In case of any reorganization or reclassification of the outstanding Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the holder of each Warrant then outstanding shall thereafter have the right to purchase the kind and amount of shares of Common Stock and/or other securities and property receivable upon such reorganization, reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which the holder of such Warrant shall then be entitled to purchase; such adjustments shall apply with respect to all such changes occurring between the date of this Warrant Agreement and the date of exercise of such Warrant. (e) Subject to the provisions of this Section 9, in case the Company shall, at any time prior to the exercise of the Warrants, make any distribution of its assets to holders of its Common Stock as a liquidating or a partial liquidating dividend, then the holder of Warrants who exercises his Warrants after the record date for the determination of those holders of Common Stock entitled to such distribution of assets as a liquidating or partial liquidating dividend shall be entitled to receive for the Warrant Price per Warrant, in addition to each share of Common Stock, the amount of such distribution (or, at the option of the Company, a sum equal to the value of any such assets at the time of such distribution as determined by the Board of Directors of the Company in good faith), which would have been payable to such holder had he been the holder of record of the Common Stock receivable upon exercise of his Warrant on the record date for the determination of those entitled to such distribution. (f) In case of the dissolution, liquidation or winding-up of the Company, all rights under the Warrants shall terminate on a date fixed by the Company, such date to be no earlier than ten (10) days prior to the effectiveness of such dissolution, liquidation or winding-up and not later than five (5) days prior to such effectiveness. Notice of such termination of purchase rights shall be given to the last registered holder of the Warrants, as the same shall appear on the books of the Company maintained by the Warrant Agent, by registered mail at least thirty (30) days prior to such termination date. (g) In case the Company shall, at any time prior to the expiration of the Warrants and prior to the exercise thereof, offer to the holders of its Common Stock any rights to subscribe for additional shares of any class of the Company, then the Company shall give written notice thereof to the last registered holder thereof not less than thirty (30) days prior to the date on which the books of the Company are closed or a record date is fixed for the determination of the stockholders entitled to such subscription rights. Such notice shall specify the date as to which the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder thereof to participate in such offer of subscription shall terminate if the Warrant shall not be exercised on or before the date of such closing of the books or such record date. 5 9 (h) Any adjustment pursuant to the aforesaid provisions shall be made on the basis of the number of shares of Common Stock which the holder thereof would have been entitled to acquire by the exercise of the Warrant immediately prior to the event giving rise to such adjustment. (i) Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon exercise of the Warrants, Warrants previously or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant Agreement. (j) The Company may retain a firm of independent public accountants (who may be any such firm regularly employed by the Company) to make any computation required under this Section, and any certificate setting forth such computation signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section. (k) If at any time, as a result of an adjustment made pursuant to paragraph (d) above, the holders of a Warrant or Warrants shall become entitled to purchase any securities other than shares of Common Stock, thereafter the number of such securities so purchasable upon exercise of each Warrant and the Warrant Price for such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in paragraphs (b) and (c). (l) No adjustment to the Purchase Price of the Warrants or to the number of shares of Common Stock purchasable upon the exercise of such Warrants will be made, however under the following circumstances: (i) upon the grant or exercise of any of the options presently outstanding (or options which may hereafter be granted and/or exercised) under the Company's Stock Option Plan for officers, directors and/or employees, consultants and similar situated parties of the Company; or (ii) upon the sale or exercise of the Warrants; or (iii) upon exercise of the Underwriter's Warrant as otherwise described in the Company's Prospectus dated __________ __, 1998; or (iv) upon exercise or sale of the Warrants issuable upon exercise of the Underwriter's Warrant; or (v) upon any amendment to or change in the term of any rights or warrants to subscribe for or purchase, or options for the purchase of Common Stock or convertible securities, including, but not limited to, any extension of any expiration date of any such right, warrant or option, any change in any exercise or purchase price provided for in any such right, warrant or option, any extension of any date through which any convertible securities are convertible into or exchangeable for Common Stock or any change in the rate at which any convertible securities are convertible into or exchangeable for Common Stock. Section 10. Fractional Interests. The Warrants may only be exercised to purchase full shares of Common Stock and the Company shall not be required to issue fractions of shares of Common Stock on the exercise of Warrants. However, if a Warrantholder exercises all Warrants then owned of record by him and such exercise would result in the issuance of a fractional share, the Company will pay to such Warrantholder, in lieu of the issuance of any fractional share otherwise issuable, an amount of cash based on the market value of the Common Stock of the Company on the last trading day prior to the exercise date. Section 11. Notices to Warrantholders. (a) Upon any adjustment of the Warrant Price and the number of shares of Common Stock issuable upon exercise of a Warrant, then and in each such case, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, 6 10 in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company shall also mail such notice to the holders of the Warrants at their respective addresses appearing in the Warrant register. Failure to give or mail such notice, or any defect therein, shall not affect the validity of the adjustments. (b) In case at any time: (i) the Company shall pay dividends payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; or (ii) the Company shall offer for subscription pro rata to all of the holders of its Common Stock any additional shares of stock of any class or other rights; or (iii) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of substantially all of its assets to another corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then in any one or more of such cases, the Company shall give written notice in the manner set forth in Section 11(a) of the date on which (A) a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up as the case may be. Such notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date in respect thereof. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any of the matters set forth in this Section 1(b). (c) The Company shall cause copies of all financial statements and reports, proxy statements and other documents that are sent to its stockholders to be sent by first-class mail, postage prepaid, on the date of mailing to such stockholders, to each registered holder of Warrants at his address appearing in the Warrant register as of the record date for the determination of the stockholders entitled to such documents. Section 12. Disposition of Proceeds on Exercise of Warrants. (a) The Warrant Agent shall promptly forward to the Company all monies received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of such Warrants. (b) The Warrant Agent shall keep copies of this Agreement available for inspection by holders of Warrants during normal business hours. Section 13. Redemption of Warrants. The Warrants are redeemable by the Company commencing one (1) year after the Effective Date, and prior to their expiration five (5) years after the Effective Date, in whole or in part, on not less than thirty (30) days' prior written notice at a redemption price of $.10 per Warrant at any time; provided that the closing bid price per share on the over-the-counter bulletin board system or Nasdaq SmallCap Market, or the last sale price, if listed on the Nasdaq National Market or a national exchange (the "Market Place"), of the Common Stock for a period of twenty (20) consecutive trading days ending on the third day prior to the date of any redemption notice, exceeds $7.50. Any redemption in part shall be made pro rata to all Warrant holders. The redemption notice shall be mailed to the holders of the Warrants at their respective addresses appearing in the Warrant register. Holders of the Warrants will have exercise rights until the close of business on the date fixed for redemption. The Warrants underlying the Underwriter's Warrant shall not be subject to redemption by the Company until they have been exercised and the underlying Warrants are outstanding. 7 11 Section 14. Merger or Consolidation or Change of Name of Warrant Agent. Any corporation or company which may succeed to the corporate trust business of the Warrant Agent by any merger or consolidation or otherwise shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Warrant Agent under the provisions of Section 16 of this Agreement. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrants shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrants so countersigned. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrants shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrants so countersigned. In all such cases such Warrants shall have the full force provided in the Warrants and in the Agreement. Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Warrants, by their acceptance thereof, shall be bound: (a) The statements of fact and recitals contained herein and in the Warrants shall be taken as statements of the Company, and the Warrant Agent assumes no responsibility for the correctness of any of the same except as such describe the Warrant Agent or action taken or to be taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein expressly provided. (b) The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants in this Agreement or in the Warrants to be complied with by the Company. (c) The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. (d) The Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate or other instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (e) The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent's negligence, willful misconduct or bad faith. (f) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expenses unless the Company or one or more registered holders of Warrants shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred (for which there is no obligation of the Company to do so, except as provided herein) but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the registered holders of the Warrants, as their respective rights and interests may appear. 8 12 (g) The Warrant Agent and any stockholder, director, officer, partner or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (h) The Warrant Agent shall act hereunder solely as agent and its duties shall be determined solely by the provisions hereof. (i) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, and the Warrant Agent shall not be answerable or accountable for any such attorneys, agents or employees or for any loss to the Company, provided reasonable care had been exercised in the selection and continued employment thereof. (j) Any request, direction, election, order or demand of the Company shall be sufficiently evidenced by an instrument signed in the name of the Company by its President or a Vice President or its Secretary or an Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Warrant Agent by a copy thereof certified by the Secretary or an Assistant Secretary of the Company. Section 16. Change of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Agreement by giving to the Company notice in writing, and to the holders of the Warrants notice by mailing such notice to the holders at their respective addresses appearing on the Warrant register, of such resignation, specifying a date when such resignation shall take effect. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company and the like mailing of notice to the holders of the Warrants. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of action, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or after the Company has received such notice from a registered holder of a Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the registered holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be a bank or trust company, in good standing, incorporated under any state or federal law. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibility as if it had been originally named as Warrant Agent without further act or deed and the former Warrant Agent shall deliver and transfer to the successor Warrant Agent all cancelled Warrants, records and property at the time held by it hereunder, and execute and deliver any further assurance or conveyance necessary for the purpose. Failure to file or mail any notice provided for in this Section, however, or any defect therein, shall not affect the validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. Section 17. Identity of Transfer Agent. Forthwith upon the appointment of any transfer agent for the shares of Common Stock or of any subsequent transfer agent for the shares of Common Stock or other shares of the Company's Common Stock issuable upon the exercise of the rights of purchase represented by the Warrants, the Company will file with the Warrant Agent a statement setting forth the name and address of such transfer agent. Section 18. Notices. Any notice pursuant to this Agreement to be given by the Warrant Agent, or by the registered holder of any Warrant to the Company, shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until another is filed in writing by the Company with the Warrant Agent) as follows: Luminex Lighting, Inc. 13710 Ramona Avenue Chino, California 91710 Attention: Wasif Siddiqui, President 9 13 and a copy thereof to: Horwitz & Beam Two Venture Plaza, Suite 350 Irvine, California 92618 Attention: Lawrence W. Horwitz, Esq. Any notice pursuant to this Agreement to be given by the Company or by the registered holder of any Warrant to the Warrant Agent shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company) as follows: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Attention: Mr. George Karfunkel Section 19. Supplements and Amendments. The Company, the Warrant Agent and the Underwriter may from time to time supplement or amend this Agreement in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent and the Representative may deem necessary or desirable and which shall not be inconsistent with the provisions of the Warrants and which shall not adversely affect the interest of the holders of Warrants. Section 20. New York Contract. This Agreement and each Warrant issued hereunder shall be deemed to be a contract made under the laws of the State of New York and shall be construed in accordance with the laws of New York applicable to agreements to be performed wholly within New York. Section 21. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Underwriter, the Company and the Warrant Agent and the registered holders of the Warrants any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the registered holders of the Warrants. Section 22. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company, the Representative or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. LUMINEX LIGHTING, INC. By:____________________________________ Wasif Siddiqui, President AMERICAN STOCK TRANSFER & TRUST COMPANY By:____________________________________ Name: Title: 10 14 EXHIBIT A [Form of Face of Warrant Certificate] No. W Warrants VOID AFTER ________ ___,2003 WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK LUMINEX LIGHTING, INC. THIS CERTIFIES THAT FOR VALUE RECEIVED _________________________________________ ________________________________________________ or registered assigns (the "Registered Holder") is the owner of the number of Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable share of Common Stock, no par value per share ("Common Stock"), of LUMINEX LIGHTING, INC., a California corporation (the "Company"), at any time between the Initial Warrant Exercise Date and the Expiration Date (as hereinafter defined), upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of AMERICAN STOCK TRANSFER & TRUST COMPANY as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.00 (the "Purchase Price") in lawful money of the United States of America in cash or by official bank or certified check made payable to Luminex Lighting, Inc. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement") dated __________ __, 1998, by and between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price or the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modifications or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The term "Initial Warrant Exercise Date" shall mean __________ __, 1998. The term "Expiration Date" shall mean 5:00 p.m. New York time) on __________ __, 2003, or such earlier date as the Warrants shall be redeemed. If such date shall in the State of New York be a holiday or a day on which the banks are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is then effective. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment with any transfer fee in addition to any tax or other governmental charge imposed in connection therewith, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. 15 Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. This Warrant may be redeemed at the option of the Company, at a redemption price of $.10 per Warrant any time after _______, __, 1999, provided the per share Market Price (as defined in the Warrant Agreement) for the securities issuable upon exercise of such Warrant shall exceed $7.50 on each of the twenty (20) consecutive trading days during a period ending on the third day prior to the date on which notice of redemption is given. Notice of redemption shall be given not later than the thirtieth day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after the date fixed for redemption, the Registered Holder shall have no rights with respect to this Warrant except to receive the $.10 per Warrant upon surrender of this Certificate. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. The Company has agreed to pay a fee of 7% of the Purchase Price upon certain conditions as specified in the Warrant Agreement upon the exercise of any Warrants represented hereby. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. LUMINEX LIGHTING, INC. By:________________________________ By:________________________________ Dated:_______________________ [Seal] COUNTERSIGNED: AMERICAN STOCK TRANSFER & TRUST COMPANY as Warrant Agent By:_________________________________________ Authorized Officer A-2 16 [Form of Reverse of Warrant Certificate] NOTICE OF ELECTION TO EXERCISE To Be Executed by the Registered Holder in Order to Exercise Warrants THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise _______________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER and be delivered to: ______________________________________ ______________________________________ ______________________________________ (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. The undersigned represents that the exercise of the Warrants evidenced hereby was solicited by a member of the National Association of Securities Dealers, Inc. ("NASD"), whose name appears in the space below. If not solicited by an NASD member, please write "unsolicited" in the space below. Unless otherwise indicated, it will be assumed that the exercise was solicited by Platinum Equities, Inc. ___________________________________ (Name of NASD Member, if other than Platinum Equities, Inc., or "Unsolicited") ___________________________________ Dated:______________ _________________________________________ ___________________________________ Address ___________________________________ Taxpayer Identification Number ___________________________________ Signature Guaranteed ___________________________________ A-3 17 ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, __________________________________ hereby sells, assigns, and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF TRANSFEREE _________________________________________ _________________________________________ _________________________________________ _________________________________________ (please print or type name and address) __________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:_________________ X__________________________________ Signature Guaranteed ___________________________________ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. EX-4.4 12 SUBSCRIPTION AGREEMENT 1 EXHIBIT 4.4 SUBSCRIPTION AGREEMENT 2 SUBSCRIPTION AGREEMENT LUMINEX LIGHTING, INC. A CALIFORNIA CORPORATION This Subscription Agreement (the "Agreement") is made by and between LUMINEX LIGHTING, INC., a California corporation (the "Company") and the undersigned (the "Subscriber"). 1. Prospectus. Reference is made to that certain Prospectus, dated ________, 1998. Unless otherwise indicated or the context otherwise requires, all terms used in this Agreement shall have the same meaning as in the Prospectus. 2. Subscription. The Subscriber hereby applies for the purchase of the number of shares of common stock, no par value ("Shares") and redeemable Common Stock Purchase Warrants ("Warrants") of the Company set forth below on the terms and conditions described in the Prospectus and in this Agreement. Simultaneously herewith, the Subscriber is delivering to Platinum Equities, Inc. (the "Underwriter") (a) cash, a bank cashier's or certified check or a money order (or, in lieu thereof, such other form of payment as may be acceptable to the Company and the Underwriter), in the amount of $5.50 for each Share and $.10 for each Warrant the purchase of which is subscribed for and (b) this executed Subscription Agreement. Checks in the amount of the total subscription price shall be made payable to "American Stock Transfer & Trust Company as Escrow Agent for Luminex Lighting, Inc." Checks, together with this executed Subscription Agreement must be mailed (or sent via overnight delivery) to: Platinum Equities, Inc. 80 Pine Street, 32nd Floor New York, New York 10005 Attn: John Kenny Telephone No.: (212) 271-0075 The Underwriter will in turn transmit funds, by noon on the next business day from receipt of your check, to American Stock Transfer & Trust Company, as Escrow Agent. If 250,000 Shares and 250,000 Warrants are not sold within 120 days of the date of the Prospectus, which may be extended for an additional 30 days by mutual agreement between the Company and the Underwriter, subscription funds will be returned to the Subscriber without interest or deduction. Subscribers must only subscribe for the number of Shares and Warrants which have been allocated to them by their respective account representative. 3. Representations and Warranties of the Subscriber. The Subscriber represents and warrants that the Subscriber is over the age of 18 years or duly incorporated if a corporation. 4. Number of Shares. Subject to acceptance or rejection in whole or in part by the Company, the Underwriter or the selected dealer, the Subscriber hereby subscribes for Shares and Warrants in accordance with the terms and conditions of the offering set forth in the Prospectus and in this Agreement, as follows: ___ Shares at $5.50 per Share and ___ Warrants at $.10 per Warrant, for an aggregate price of $_____. IN WITNESS WHEREOF, the undersigned has executed this Agreement this _____ day of ______, 1998 at _____________, _________________. (City) (State) ________________________________ ___________________________________ Signature Social Security or Tax I.D. No. ________________________________ ___________________________________ Print or Type Name Street Address ________________________________ ___________________________________ Telephone No. City, State, Zip Code EX-5 13 OPINION OF HORWITZ & BEAN 1 EXHIBIT 5 OPINION OF HORWITZ & BEAM 2 [HORWITZ & BEAM LETTERHEAD] June 17, 1998 Page 8 June 25, 1998 Luminex Lighting, Inc. Ladies and Gentlemen: This office represents Luminex Lighting, Inc., a California corporation (the "Registrant") in connection with the Registrant's Registration Statement on Form SB-2 under the Securities Act of 1933 (the "Registration Statement"), which relates to the issuance and sale of a maximum of 500,000 Shares of Common Stock and 500,000 Warrants (the "Registered Securities") pursuant to an Underwriting Agreement to be dated as of the effective date of the Registration Statement. In connection with our representation, we have examined such documents and undertaken such further inquiry as we consider necessary for rendering the opinion hereinafter set forth. Based upon the foregoing, it is our opinion that the Registered Securities, when sold as set forth in the Registration Statement, will be legally issued, fully paid and nonassessable. We acknowledge that we are referred to under the heading "Legal Matters" in the Prospectus which is a part of the Registration Statement, and we hereby consent to such use of our name in such Registration Statement and to the filing of this opinion as Exhibit 5 to the Registration Statement and with such state regulatory agencies in such states as may require such filing in connection with the registration of the Registered Securities for offer and sale in such states. HORWITZ & BEAM /s/ Horwitz & Beam EX-10.1 14 LEASE AGREEMENT, CHINO, CA., DTD JUNE 26, 1997 1 EXHIBIT 10.1 LEASE AGREEMENT DATED JUNE 26, 1997 2 SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC. INDUSTRIAL REAL ESTATE LEASE (SINGLE-TENANT FACILITY) ARTICLE ONE: BASIC TERMS Section 1.01. DATE OF LEASE: June 26, 1997 Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): MAJESTIC REALTY CO. AND PATRICIAN ASSOCIATES, INC., both California corporations. Address of Landlord: 13191 Crossroads Parkway North, Sixth Floor, City of Industry, CA 91746 Section 1.03. TENANT (INCLUDE LEGAL ENTITY): LUMINEX, INC., a California corporation Address of Tenant: 13710 Ramona Avenue, Chino, California 91710 Section 1.04. PROPERTY: (INCLUDE STREET ADDRESS, APPROXIMATE SQUARE FOOTAGE AND DESCRIPTION): that approximately 25,000 square foot industrial building situated on approximately 1.55 acres of land and more commonly known as 13710 Ramona Avenue, Chino, California as outlined in red and subject to such areas as outlined in yellow as "Common Ingress and Egress" as shown on Exhibit "A" attached hereto and made a part hereof. Section 1.05. LEASE TERM: ________ years ---- months BEGINNING ON October 15, 1997 or such other date as is specified in this Lease, and ENDING ON October 14, 2000. Section 1.06. PERMITTED USES (See Article Five): Only for the manufacturing, warehousing, and distribution of lighting products and associated administrative uses. Section 1.07. TENANT'S GUARANTOR: (If none, so state) Mr. Wasif Siddiqui, an individual Section 1.08. BROKERS: (See Article Fourteen) (If none, so state) Landlord's Broker: Majestic Realty Co. Tenant's Broker: Grubb & Ellis Company Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article Fourteen) $per separate agreement. Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $33,750.00 Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: per Exhibit "A." Section 1.12. RENT AND OTHER CHARGES PAYABLE TO TENANT: (a) BASE RENT: ELEVEN THOUSAND TWO HUNDRED FIFTY AND NO/100 --- Dollars ($11,250.00) per month for the first 36 months, as provided in Section 3.01. (b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes above the "Base Real Property Taxes" (See Section 4.02); (ii) Utilities (See, Section 4.03); (iii) Increased Insurance Premiums above "Base Premiums" (See Section 4.04); (iv) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.07); (v) Maintenance, Repairs and Alterations (See Article Six). Section 1.13. COSTS AND CHARGES PAYABLE BY LANDLORD: (a) Base Real Property Taxes (See Section 4.02); (b) Base Insurance Premiums (See Section 4.04(c)); (c) Maintenance and Repair (See Article Six). Section 1.14. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See Section 9.05) fifty percent (50%) of the Profit (the "Landlord's Share"). A-1 3 Section 1.15. RIDERS: The following Riders are attached to and made a part of this Lease: (If none, so state) Rider pages 1 through 9. Option to Extend Term Lease Rider, Guaranty of Lease and Exhibits "A", "B", "C", "D", "E", and "F". ARTICLE TWO: LEASE TERM Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the Property to Tenant and Tenant leases the Property from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.05 above and shall begin and end on the dates specified in Section 1.05 above, unless the beginning or end of the Lease Term is changed under any provision of this Lease. The "Commencement Date" shall be the date specified in Section 1.05 above for the beginning of the Lease Term, unless advanced or delayed under any provision of this Lease. Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Property to Tenant on the Commencement Date. Landlord's non-delivery of the Property to Tenant on that date shall not affect this Lease or the obligations of Tenant under this Lease except that the Commencement Date shall be delayed until Landlord delivers possession of the Property to Tenant and the Lease Term shall be extended for a period equal to the delay in delivery of possession of the Property to Tenant and the Lease Term shall be necessary to end the Lease Term on the last day of a month. If Landlord does not deliver possession of the Property to Tenant within sixty (60) days after the Commencement Date, Tenant may elect to cancel this Lease by giving written notice to Landlord within ten (10) days after the sixty (60) day period ends. If Tenant gives such notice, the Lease shall be canceled and neither Landlord nor Tenant shall have any further obligations to the other. If Tenant does not give such notice, Tenant's right to cancel the Lease shall expire and the Lease Term shall commence upon the delivery of possession of the Property to Tenant. If delivery of possession of the Property to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to this Lease setting forth the actual Commencement Date and expiration date of the Lease. Failure to execute such amendment shall not affect the actual Commencement Date and expiration date of the Lease. Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to the Commencement Date, Tenant's occupancy of the Property shall be subject to all of the provisions of this Lease. Early occupancy of the Property shall not advance the expiration date of this Lease. Tenant shall pay Base Rent and all other charges specified in this Lease for the early occupancy period. Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord against all damages which Landlord incurs from Tenant's delay in vacating the Property. If Tenant does not vacate the Property upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Base Rent then in effect shall be increased by Twenty-five percent (25%). SEE RIDER SECTION 2.05. ARTICLE THREE: BASE RENT Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease, Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph 1.12(a) above for the first month of the Lease Term. On the first day of the second month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction or prior demand. The Base Rent shall be payable at Landlord's address or at such other place as Landlord may designate in writing. Section 3.02. Intentionally omitted. Section 3.03. SECURITY DEPOSIT; LETTER OF CREDIT; INCREASES. (a) Intentionally Omitted. See Rider Section 3.03. A-2 4 (b) Each time the Base Rent is increased after the initial Lease Term, Tenant shall deposit additional funds with Landlord sufficient to increase the Letter of Credit to an amount which bears the same relationship to the adjusted Base Rent as the initial bore to the initial Base Rent. Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any other termination not resulting from Tenant's default, and after Tenant has vacated the Property in the manner required by this Lease, Landlord shall refund or credit to Tenant (or Tenant's successor) the unused portion of the Security Deposit, any advance rent or other advance payments made by Tenant to Landlord, and any amounts paid for real property taxes and other reserves which apply to any time periods after termination of the Lease. ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than Base Rent are called "Additional Rent." Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due with the next monthly installment of Base Rent. The term "rent" shall mean Base Rent and Additional Rent. Section 4.02. PROPERTY TAXES. (a) REAL PROPERTY TAXES. Landlord shall pay the "Base Real Property Taxes" on the Property during the Lease Term. The Annual Base Real Property Taxes for the Property are Twenty One Thousand One Hundred Forty- Two and 44/100 Dollars ($21,142.44). Tenant shall pay Landlord the amount, if any, by which the real property taxes during the Lease Term exceed the Base Real Property Taxes. Subject to Paragraph 4.02(c), Tenant shall make such payments within fifteen (15) days after receipt of Landlord's statement showing the amount and computation of such increase. Landlord shall reimburse Tenant for any real property taxes paid by Tenant covering any period of time prior to or after the Lease Term. (b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax imposed by any taxing authority against the Property; (ii) any tax on the Landlord's right to receive, or the receipt of, rent or income from the Property or against Landlord's business of leasing the Property; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Property by any governmental agency; (iv) any tax imposed upon this transaction or based upon a re-assessment of the Property due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord's interest in the Property; and (v) any charge or fee replacing any tax previously included within the definition of real property tax. "Real property tax" does not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes. (c) JOINT ASSESSMENT. If the Property is not separately assessed, Landlord shall reasonably determine Tenant's share of the real property tax payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or other reasonably available information. Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. (d) PERSONAL PROPERTY TAXES. (i) Tenant shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall try to have personal property taxed separately from the Property. (ii) If any of Tenant's personal property is taxed with the Property, Tenant shall pay landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes. Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Property. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services and Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. A-3 5 Section 4.04. INSURANCE POLICIES. (a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a policy of commercial general liability insurance (sometimes known as broad form comprehensive general liability insurance) insuring Tenant against liability for bodily injury, property damage (including loss of use of property) and personal injury arising out of the operation, use or occupancy of the Property. Tenant shall name Landlord as an additional insured under such policy. The initial amount of such insurance shall be One Million Dollars ($1,000,000) per occurrence and shall be subject to periodic increase based upon inflation, increased liability awards, recommendation of Landlord's professional insurance advisers and other relevant factors. The liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii) contain cross-liability endorsements; and (iii) insure Landlord against the negligence of Tenant. The amount and coverage of such insurance shall not limit Tenant's liability nor relieve Tenant of any other obligation under this Lease. Landlord may also obtain comprehensive public liability insurance in an amount and with coverage determined by Landlord insuring Landlord against liability arising out of ownership, operation, use or occupancy of the Property. The policy obtained by Landlord shall not be contributory and shall not provide primary insurance. (b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord shall maintain policies of insurance covering loss of or damage to the Property in the full amount of its replacement value. Such policy shall contain an Inflation Guard Endorsement and shall provide protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. Landlord shall have the right to obtain flood and earthquake insurance if required by any lender holding a security interest in the Property. Landlord shall not obtain insurance for Tenant's fixtures or equipment or building improvements installed by Tenant on the Property. During the Lease Term, Landlord shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one year's Base Rent, plus estimated real property taxes and insurance premiums. Tenant shall be liable for payment of any deductible amount under Landlord's or Tenant's insurance policies maintained pursuant to this Section 4.04, in an amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or permit anything to be done which invalidates any such insurance policies. (c) PAYMENT OF PREMIUMS. (i) Landlord shall pay the "Base Premiums" for the insurance policies maintained by Landlord under Paragraph 4.04(b). Base Premiums for the Property are Four Hundred Fifty and no/100 Dollars ($450.00) annually. (ii) Tenant shall pay Landlord the amount, if any, by which the insurance premiums for all policies maintained by Landlord under Paragraph 4.04(b) have increased over the Base Premiums, whether such increases result from the nature of Tenant's occupancy, any act or omission of Tenant, the requirement of any lender referred to in Article Eleven (Protection of Lenders), the increased value of the Property or general rate increases. However, if Landlord substantially increases the amount of insurance carried or the percentage of insured value after the period during which the Base Premiums were calculated, Tenant shall only pay Landlord the amount of increased premiums which would have been charged by the insurance carrier if the amount of insurance or percentage of insured value had not been substantially increased by Landlord. This adjustment in the amount due from Tenant shall be made only once during the Lease Term. Thereafter, Tenant shall be obligated to pay the full amount of any additional increases in the insurance premiums, including increases resulting from any further increases in the amount of insurance or percentage of insured value. Tenant shall pay Landlord the increases over the Base Premiums within fifteen (15) days after receipt by Tenant of a copy of the premium statement or other evidence of the amount due. If the insurance policies maintained by Landlord cover improvements or real property other than the Property, Landlord shall also deliver to Tenant a statement of the amount of the premiums applicable to the Property showing, in reasonable detail, how such amount was computed. If the Lease Term expires before the expiration of the insurance period, Tenant's liability shall be pro rated on an annual basis. A-4 6 (d) GENERAL INSURANCE PROVISIONS. (i) Any Insurance which Tenant is required to maintain under this Lease shall include a provision which requires the insurance carrier to give Landlord not less than thirty (30) days' written notice prior to any cancellation or modification of such coverage. (ii) If Tenant fails to deliver any policy, certificate or renewal to Landlord required under this Lease within the prescribed time period or if any such policy is canceled or modified during the Lease Term without Landlord's consent, Landlord may obtain such insurance, in which case Tenant shall reimburse Landlord for the cost of such insurance within fifteen (15) days after receipt of a statement that indicates the cost of such insurance. (iii) Tenant shall maintain all insurance required under this Lease with companies holding a "General Policy Rating" of A-12 or better, as set forth in the most current issue of "Best Key Rating Guide". Landlord and Tenant acknowledge the insurance markets are rapidly changing and that insurance in the form and amounts described in this Section 4.04 may not be available in the future. Tenant acknowledges that the insurance described in this Section 4.04 is for the primary benefit of Landlord. If at any time during the Lease Term, Tenant is unable to maintain the insurance required under the Lease, Tenant shall nevertheless maintain insurance coverage which is customary and commercially reasonable in the insurance industry for Tenant's type of business, as that coverage may change from time to time. Landlord makes no representation as to the adequacy of such insurance to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such additional property or liability insurance which Tenant deems necessary to protect Landlord and Tenant. (iv) Unless prohibited under any applicable insurance policies maintained, Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, if such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) at the time of such loss or damage. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation. Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the Property. Therefore, if Landlord does not receive any rent payment within ten (10) days after it becomes due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment. Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date of such amount. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law. Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. Tenant is more than ten (10) days late in the payment of rent more than once in any consecutive twelve (12) month period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real property taxes and insurance premiums payable by Tenant under this Lease, together with each payment of Base Rent. Landlord shall hold such payments in a non-interest bearing impound account. If unknown, Landlord shall reasonably estimate the amount of real property taxes and insurance premiums when due. Tenant shall pay any deficiency of funds in the impound account to Landlord upon written request. If Tenant defaults under this Lease, Landlord may apply any funds in the impound account to any obligation then due under this Lease. A-5 7 ARTICLE FIVE: USE OF PROPERTY Section 5.01. PERMITTED USES. Tenant may use the Property only for the Permitted Uses set forth in Section 1.06 above. Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, which annoys or interferes with the rights of other tenants of Landlord, or which constitutes a nuisance or waste. Tenant shall obtain and pay for all permits, including a Certificate of Occupancy, required for Tenant's occupancy of the Property and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Property, including the Occupational Safety and Health Act. Section 5.03. "Intentionally Omitted". SEE RIDER SECTION 5.03. Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the Property without Landlord's prior written consent. Tenant shall not conduct or permit any auctions or sheriff's sales at the Property. Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold Landlord harmless from any and all costs, claims or liability arising from: (a) Tenant's use of the Property (b) the conduct of Tenant's business or anything else done or permitted by Tenant to be done in or about the Property, including any contamination of the Property or any other property resulting from the presence or use of Hazardous Material caused or permitted by Tenant; (c) any breach or default in the performance of Tenant's obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant shall defense Landlord against any such cost, claim or liability at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election. Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord in connection with any such claim. As a material part of the consideration to Landlord, Tenant assumes all risk of damage to property or injury to persons in or about the Property arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except for any claim arising out of Landlord's negligence or willful misconduct. As used in this Section, the term "Tenant" shall include Tenant's employees, agents, contractors and invitees, if applicable. Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the Property at all reasonable times to show the Property to potential buyers, investors or tenants or other parties; to do any other act or to inspect and conduct tests in order to monitor Tenant's compliance with all applicable environmental laws and all laws governing the presence and use of Hazardous Material; or for any other purpose Landlord deems necessary. Landlord shall give Tenant prior notice of such entry, except in the case of an emergency. Landlord may place customary "For Sale" or "For Lease" signs on the Property. Section 5.07. QUIET POSSESSION. If tenant pays the rent and complies with all other terms of this Lease, Tenant may occupy and enjoy the Property for the full Lease Term, subject to the provisions of this Lease. ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its condition as of the execution of the Lease, subject to all recorded matters, laws ordinances, and governmental regulations and orders. Except as provided herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the property or the suitability of the property for Tenant's intended use. Tenant represents and warrants that Tenant has made its own inspection of and inquiry regarding the condition of the Property and is no relying on any representations of Landlord or any Broker with respect thereto. If Landlord or Landlord's Broker has provided a Property Information Sheet or other Disclosure Statement regarding the Property, a copy is attached as an exhibit to the Lease. SEE RIDER SECTION 6.01 Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable fr any damage or injury t the person, business (or any loss of income therefrom), goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers or any other person in or about the Property, whether such damage or injury is caused by or results from (a) fire, steam electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) A-6 8 conditions arising in or about the Property or from other sources or places; or (d) any act or omissions of any other tenant of landlord. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. The provisions of Section 6.02 shall not, however, exempt Landlord from liability for Landlord's gross negligence or willful misconduct. Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of Article Seven (Damage or Destruction) and Article Eight (Condemnation), and except for damage caused by any act or omission of tenant, or tenant's employees, agents, contractors or invitees, Landlord shall keep the foundation roof, skylights, and structural portions of exterior walls of the improvements on the Property in good order, condition and repair. However, Landlord shall not be obligated to maintain or repair windows, doors, plate glass or the surfaces of walls, except to the extent such repairs are due to Landlord's negligent installation. Landlord shall not be obligated to make any repairs under this Section 6.02 until a reasonable time after receipt of a written notice from Tenant of the need for such repairs. Tenant waives the benefit of any present or future law which might give Tenant the right to repair the Property at Landlord's expense or to terminate the Lease because of the condition of the Property. SEE RIDER SECTION 6.03 Section 6.04. TENANT'S OBLIGATIONS. (a) Except as provided in Section 6.03 (Landlord's Obligations), Article Seven (Damage or Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of the Property (including structural, nonstructural, interior, exterior, and landscaped areas, portions, systems and equipment) in good order, condition and repair (including interior repainting and refinishing, as needed). If any portion of the Property or any system or equipment in the Property which Tenant is obligated to repair can't be fully repaired or restored, Tenant shall promptly replace such portion of the Property or system or equipment in the Property, regardless of whether the benefit of such replacement extends beyond the Lease Term; but if the benefit or useful life of such replacement extends beyond the Lease term (as such term may be extended by exercise of any options), the useful life of such replacement shall be prorated over the remaining portion of the Lease Term (as extended), and Tenant shall be liable only for that portion of the cost which is applicable to the Lease Term (as extended). Tenant shall maintain a preventive maintenance contract providing for the regular inspection of maintenance of the heating and air conditioning system by a licensed heating and air conditioning contractor. Landlord shall have the right, upon written notice to Tenant, to undertake the responsibility for preventive maintenance of the heating and air conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's expense, repair any damage to the roof, foundation or structural portions of walls caused by Tenant's acts or omissions. It is the intention of Landlord and Tenant that, at all times during the Lease Term, Tenant shall maintain the Property in an attractive, first-class and fully operative condition. (b) Tenant shall fulfill all of Tenant's obligations under this Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace the Property as required by this Section 6.04, Landlord may, upon ten (10) days' prior notice to Tenant (except that no notice shall be required in the case of an emergency), enter the property and perform such maintenance or repair (including replacement, as needed) on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all costs incurred in performing such maintenance or repair immediately upon demand. Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. (a) Tenant shall not make any alterations, additions, or improvements to the Property without Landlord's prior written consent, except for non-structural alterations which do not exceed twenty-five thousand dollars ($25,000) in cost cumulatively over the Lease Term and which are not visible from the outside of any building of which the Property is part. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any alterations, additions, or improvements constructed in violation of this Paragraph 6.05(a) upon Landlord's written request. All alterations, additions, and improvements shall be done in a good and workmanlike manner, in conformity with all applicable laws and regulations, and by a contractor approved by Landlord. Upon completion of any such work, Tenant shall provide Landlord with "as built" plans, copies of all construction contracts, and proof of payment for all labor and materials upon written request from Landlord to Tenant. (b) Tenant shall pay when due all claims for labor and material furnished to the Property, Tenant shall give Landlord at least twenty (20) days' prior written notice of the commencement of any work on the Property, regardless A-7 9 of whether Landlord's consent to such work is required. Landlord may elect to record and post notices of non- responsibility on the Property. Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the Lease, Tenant shall surrender the Property to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease. However, Tenant shall not be obligated to repair any damage which Landlord is required to repair under Article Seven (Damage or Destruction). In addition, Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) prior to the expiration of the Lease and to restore the Property to its prior condition, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the expiration or earlier termination of material damage to the Property. Tenant shall repair, at Tenant's expense, any damage to the Property caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment (which shall be deemed Landlord's property) without Landlord's prior written consent; any power wiring or power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment, fencing or security gates; or other similar building pertaining equipment and decorations. ARTICLE SEVEN: DAMAGE OR DESTRUCTION Section 7.01. PARTIAL DAMAGE TO PROPERTY. (a) Tenant shall notify Landlord in writing immediately upon the occurrence of any damage to the Property. If the Property is only partially damaged (i.e., less than fifty percent (50%) of the Property is untenantable as a result of such damage or less than fifty percent (50%) of Tenant's operations are materially impaired) and if the proceeds received by Landlord from the insurance policies described in Paragraphs 4.04(b) are sufficient to pay for the necessary repairs, the Lease shall remain in effect and Landlord shall repair the damage as soon as reasonably possible. Landlord may elect (but is not required) to repair any damage to Tenant's fixtures, equipment, or improvements. (b) If the insurance proceeds received by Landlord are not sufficient to pay the entire cost of repair, or if the cause of the damage is not covered by the insurance policies which Landlord maintains under Paragraph 4.04(b), Landlord may elect either to (i) repair the damage as soon as reasonably possible, in which case the Lease shall remain in full force and effect, or (ii) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage whether Landlord elects to repair the damage or terminate the Lease. If landlord elects to repair the damage, Tenant shall pay Landlord the "deductible amount" (if any) under Landlord's insurance policies and, if the damage was due to an act omission of Tenant, or Tenant's employees, agents, contractors or invitees, the difference between the actual cost of repair and any insurance proceeds received by Landlord. If Landlord elects to terminate this Lease, Tenant may elect to continue this Lease in full force and effect, which case Tenant shall repair any damage to the Property and any building in which the Property is located. Tenant shall pay the cost of such repairs, except that upon satisfactory completion of such repairs, Landlord shall deliver to Tenant any insurance proceeds received by Landlord for the damage repaired by Tenant. Tenant shall give Landlord written notice of such election within ten (120) days after receiving Landlord 's termination notice. (c) If the damage to the Property occurs during the last six (6) months of the Lease Term and such damage will require more than thirty (30) days to repair, either Landlord or Tenant may elect to terminate this Lease of the date the damage occurred, regardless of the sufficiency of any insurance proceeds. The party electing to terminate this Lease shall give written notification to the other party of such election within thirty (30) days after Tenant's notice to Landlord of the occurrence of the damage. Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is substantially or totally destroyed by any cause whatsoever (i.e., the damage to the Property is greater than partial damage as described in Section 7.02), and regardless of whether Landlord receives any insurance proceeds, this Lease shall terminate the later of (i) the date the destruction occurred, and (ii) the date Tenant ceases to do business at the Property. Notwithstanding the preceding sentence, if the Property can be rebuilt within six (6) months after the date of destruction, Landlord may elect to rebuild the Property at Landlord 's own expense, in which case this Lease shall remain in full force and effect. Landlord shall notify Tenant of such election within thirty (30) days after Tenant's notice of the occurrence of total or substantial A-8 10 destruction. If Landlord so elects, Landlord shall rebuild the Property at Landlord 's sole expense, except that it the destruction was caused by an act or omission of Tenancy, Tenant shall pay Landlord the difference between eh actual cost of rebuilding and any insurance process received by Landlord . Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed or damaged and Landlord or Tenant repairs or restores the Property pursuant to the provisions of this Article Seven, any rent payable during the period of such damages, repair and/or restoration shall be reduced according to the degree, if any, to which Tenant's use of the Property is impaired. However, the reduction shall not exceed the sum of one year's payment of Base Rent, insurance premiums and real property taxes. Except for such possible reduction in Base Rent, insurance premiums and real property taxes, Tenant shall not be entitled to any compensation, reduction, or reimbursement from Landlord as a result of any damage, destruction, repair or restoration of or to the Property. Section 7.04. WAIVER. Tenant waives the protection of any statute, code or judicial decision which grants a tenant the right to terminate a lease in the event of the substantial or total destruction of the leased property. Tenant agrees that the provisions of Section 7.02 above shall govern the rights and obligations of Landlord and Tenant in the event of substantial or total destruction to the Property. SEE RIDER SECTION 7.05 ARTICLE EIGHT: CONDEMNATION If all or any portion of the Property is taken u under the power of eminent domain or sold under the threat of that power (all of which are called "Condemnation"), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first. If more than twenty percent (20%) of the floor areas of the building in which the Property is located, or which is located on the Property is taken, either Landlord or Tenant may terminate this Lease as of the ate the condemning authority takes title or possession, by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence of such notice, within ten (10) days after the concerning authority takes title or possession). If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as to the portion of the Property not taken, except that the Base Rent and Additional Rent shall be reduced in proportion to the reduction in the floor areas of the Property. Any Condemnation award or payment shall be distributed in the following order: (a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust encumbering the Property, the amount of its interest in the Property; (b) second, to Tenant, only the amount of award specifically designated for loss of or damage to Tenant's trade fixtures or removable personal property; and (c) third, to Landlord the remainder of such award, whether as compensation for reduction the value of the leasehold, the taking of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair any damage to the property caused by the Condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the severance damages received by Landlord are not insufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair at Landlord 's expense. ARTICLE NINE: ASSIGNMENT AND SUBLETTING Section 9.01 LANDLORD'S CONSENT REQUIRED. No portion of the Property or of Tenant's interest in this Lease may be acquired by any other person or entity, whether by sale, assignment, mortgage, sublease, transfer, operation of law, or act of Tenant, without Landlord 's prior written consent, except as provided in Section 9.02 below. Landlord has the right to grant or withhold its consent as provided in Section 9.05 below. Any attempted transfer without consent shall be void and shall constitute a non-curable breach of this Lease. If Tenant is a partnership, any cumulative transfer of more than twenty percent (20%) of the partnership interests shall require Landlord 's consent. If Tenant is a corporation, any change in the ownership of a controlling interest of the voting stock of the corporation shall require Landlord 's consent. Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease the Property, without Landlord 's consent, to any corporation which controls, is controlled by or is under common control of Tenant, or to any corporation resulting from the merger of or consolidation with Tenant ("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of Tenant's obligations under this Lease. Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article Nine, whether with or without Landlord 's consent, shall release Tenant or change Tenant's primary liability to pay the rent and to perform all other A-9 11 obligations of Tenant under this Lease. Landlord's acceptance of rent from any other person is not a waiver of any provision of this Article Nine. Consent to one transfer is not a consent to any subsequent transfer. If Tenant's transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant's transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant's liability under this Lease. Section 9.04 Intentionally omitted. Section 9.05. LANDLORD'S CONSENT. (a) Tenant's request for consent to any transfer described in Section 9.01 shall set forth in writing the details of the papers transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security deposit payable under any proposed assignment or sublease), and any other information Landlord deems relevant, Landlord shall have the right to terminate this Lease or to withhold consent, if reasonable, or to grant consent, based on the following factors: (i) the business of the proposed assignee or subtenant and the proposed use of the property; (ii) the net worth and financial reputation of the proposed assignee or subtenant; (iii) Tenant's compliance with all of its obligations under the Lease; and (iv) such other factors as Landlord may reasonable deem relevant. If Landlord objects to a proposed assignment solely because of the net worth and/or financial reputation of the proposed assigned, Tenant may nonetheless sublease but not assign, all or a portion of the Property to the proposed transferee, but only on the other terms of the proposed transfer. (b) If Tenant assigns or subleases, the following shall apply: (i) Tenant shall pay to Landlord as Additional Rent under the Lease the Landlord's share (stated in Section 1.14) of the Profit (defined below) on such transaction as and when received by Tenant, unless Landlord gives written notice to Tenant and the assignee or subtenant that Landlord's Share shall be paid by the assignee or subtenant to Landlord directly. The "Profit" means (A) all amounts paid to Tenant for such assignment or sublease, including "key" money, monthly rent in excess of the monthly rent payable under the Lease, and all fees and other consideration paid for the assignment or sublease, including fees under any collateral agreements, less (B) cost and expenses directly incurred by Tenant inc connection with the execution and performance of such assignment or sublease for real estate broker's commissions and costs of renovation or construction of tenant improvements required under such assignment or sublease. Tenant is entitled to recover such cost and expenses before Tenant is obligated to pay the Landlord's share to Landlord. The Profit in the case of a sublease of less than all the Property is the rent allocable t the subleased space as a percentage on a square footage basis. (ii) Tenant shall provide Landlord a written statement certifying all amounts to be paid from any assignment or sublease of the Property within thirty (30) days after the transaction documentation is signed, and Landlord may inspect Tenant's books and records to verify the accuracy of such statement. On written request, Tenant shall promptly furnish to Landlord copies of all the transaction documentation, all of which shall be certified by Tenant to be complete, true and correct. Landlord's receipt of Landlord's Share shall not be a consent to any further assignment or subletting. The breach of Tenant's obligation under this Paragraph 9.05(b) shall be a material default of the Lease. (c) If Landlord elects to terminate this Lease pursuant to Section 9.05(a), Landlord may, if it elects, enter into a new lease covering the Property with the intended assignee or sublessee on such terms as Landlord and such person may agree or enter into a new lease covering the Property with any other person; in such event, Tenant shall not be entitled to any portion of the profit, if any, which Landlord may realize on account of such termination and reletting. From and after the date of such termination of this Lease, Tenant shall have no further obligation to Landlord hereunder, except for matters occurring or obligations arising hereunder period to the date of such termination. Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of the Property under this Article Nine, Tenant's surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord under any or all subtenancies. A-10 12 ARTICLE TEN: DEFAULTS; REMEDIES Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant./ Tenant's right to continue in possession of the Property is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions. Section 10.02. DEFAULTS. Tenant shall be in material default under this Lease: (a) If Tenant abandons the Property or if Tenant's vacation of the Property results int he cancellation of any insurance, described in Section 4.04; (b) If Tenant fails to pay rent or any other charge within three (3) days when due; (c) If Tenant fails to perform any of Tenant's non-monetary obligations under this Lease for a period of thirty (30) days after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the thirty (30) day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant's failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and is not in addition to any such requirement. (d) (i) If Tenant makes a general assignment or general arrangement for the benefit for creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as Additional Rent, the excess, if any, of the rent (or any other consideration) paid in connection with such assignment or sublease over the rent payable by Tenant under this Lease. (e) If any guarantor of the Lease revokes or otherwise terminates, or purports to revoke or otherwise terminate any guaranty of all or any portion of Tenant's obligations under the Lease. Unless otherwise expressly provided, no guaranty of the Lease is revocable. Section 10.03. REMEDIES. On the occurrence of any material default by Tenant, Landlord may, at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have: (a) Terminate Tenant's right to possession of the Property by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Property to Landlord. If Tenant shall be served with a demand for the payment of past due rent or any other charge, any payments rendered thereafter to cure any default by Tenant shall be made only by cashier's check. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including (i) the worth at the time of the award of the unpaid Base Rent, Additional Rent and other charges which Landlord had earned at the time of the termination; (ii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Landlord would have earned after termination until the time of the rent. Additional Rent and other charges which Landlord would have earned after termination until the time of the award exceeds the amount of such rental loss that Tenant provers Landlord could have reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional rent and other charges which Tenant would have paid for the balance of the Lease term after the time of award exceeds the amount of such rental loss the Tenant proves Landlord could have reasonably avoided; and (iv) any other, amount necessary to compensate Landlord for all the detriment proximately caused by Tenant;'s failure to perform its obligations under the Lease or which i n the ordinary course of things would be likely to result therefrom, including but no limited to, any costs or expenses Landlord incurs in maintaining or preserving the Property after such default, the cost of recovering possession of the Property, expenses of reletting, including necessary A-11 13 renovation or alteration of the Property. Landlord's reasonable attorney's fees incurred in connection therewith, and any real estate commission paid or payable. As used in subparts (i) and (ii) above, the "worth at the time of the award" is computed by allowing interest on unpaid amounts at the rate of twelve percent (12%) per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the "wroth at the time of the award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant has abandoned the Property, Landlord shall have the option of (i) retaking possession of the Property and recovering from Tenant the amount specified in this Paragraph 10.01(a), or (ii) proceeding under Paragraph 10.03(b). Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant has abandoned the Property. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due; (c) Pursue any other remedy now or hereafter available o Landlord under the laws of judicial decisions of the state in which the Property is located. Section 10.04. Intentionally omitted. Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or provision hereof to the contrary, the Lease shall terminate on the occurrence of any act which affirms the Landlord's intention to terminate the Lease as provided in Section 10.03 hereof, including the filing of an unlawful detainer action against Tenant. On such termination, Landlord's damages for default shall include all costs and fees, including reasonable attorney's fees that Landlord incurs in connection with the filing, commencement, pursuing and/or defending of any action in any bankruptcy court or other court with respect to the Lease; the obtaining of relief from any stay in bankruptcy restraining any action to evict Tenant; or the pursuing of any action with respect to Landlord's right to possession of the Property. All such damages suffered (apart from Base Rent and other rent payable hereunder ) shall constitute successor to Tenant in any bankruptcy or other proceeding. Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or remedy shall not prevent it from exercising any other right or remedy. ARTICLE ELEVEN: PROTECTION OF LENDERS Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Property, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. Tenant shall cooperate with Landlord and any lender which is acquiring a security interest in the Property or the Lease. Tenant shall execute such further documents and assurances as such lender may require in the form attached hereto as Exhibit "B" or such other form as is then required Landlord's lender, provided that Tenant's obligations under this Lease shall not be increased in any material way ( the performance of ministerial acts shall not be deemed material), and Tenant shall not be deprived of its rights under this Lease. Tenant's right to quiet possession of the Property during the Lease Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale. Section 11.02. ATTORNMENT. If Landlord's interest in the Property is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at ta foreclosure sale, Tenant shall attorn to the transferee of or successor to Landlord's interesting the Property and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Property upon the transfer of Landlord's interest. A-12 14 Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or documents. Section 11.04. ESTOPPEL CERTIFICATES. (a) Upon Landlord's written request, Tenant shall execute, acknowledge and deliver to Ll a written statement in the form attached as Exhibit "C" or such other form is then required by Landlord's lender, certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been canceled or terminated; (iii) the lst date of payment of the Base Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why); and (v) such other representations or information with respect to Tenant or the Lease as Landlord may reasonably request or which any prospective purchaser or encumbrancer of the Property may require. Tenant shall deliver such statement to Landlord within ten (10) days after Landlord's request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct. (b) If Tenant does not deliver such statement to Landlord within such ten (10) day period, Landlord and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of the Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been canceled or terminated except as otherwise represented by Landlord; (iii) that not more than one month's Base Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under the Lease. In such event, Tenant shall be estopped from denying the truth of such facts. Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as Landlord reasonably requires to verify the net worth of Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements required by such lender to facilitate the financing or refinancing of the Property. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth in this Lease. ARTICLE TWELVE: LEGAL COSTS Section 12.01 LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach or default under this Lease, such party (the "Defaulting Party") shall reimburse the other party (the "Nondefaulting Party") upon demand for any costs or expenses that the nondefaulting party incurs in connection with any breach or default of the defaulting party under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of ta settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provision of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys' fees and cost. The losing party in such action shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Property by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 o the United States Code as amended. Tenant shall defend Landlord against any such claim or action at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs in any such claim or action. Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection with Tenant's request for Landlord's consent under Article Nine (Assignment and Subletting), or in connection with any other act which Tenant proposes to do and which requires Landlord's consent. A-13 15 ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure or use of the Property or any portion thereof. Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES. (a) As used in this Lease, the term "Landlord" means only the current owner or owners of the fee title to the Property or the leasehold estate under a ground lease of the Property at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under the terms of this Lease. (b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Property whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such non-performance within thirty (30) days after receipt of Tenant's notice. However, if such non-performance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (c) Notwithstanding any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under this Lease is limited to Landlord's interest in the Property, and neither the Landlord nor its partners, shareholders, officers or other principals shall have any personal liability under this Lease. Section 13.03. SEVERABILITY. A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect. Section 13.04. INTERPRETATION. The captions of the Articles or Sections of this Lease are to assist the parties in reading their Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, accts or omissions or Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors, invitees, successors or others using the Property with Tenant's expressed or implied permission. Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is the only agreement between the parties pertaining to the Lease of the Property and on other agreements are effective. All amendments to this Lease shall be in writing and signed by all parties. Any other attempted amendment shall be void. Section 13.06. NOTICES. All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, [postage prepaid. Notices to Tenant shall be delivered to the address specified in Section 1.03 above, except that upon Tenant's taking possession of the Property, the Property shall be Tenant's address for notice purposes. Notices to Landlord shall be delivered to the address specified in Section 1.02 above. All notices shall be effective upon delivery. Either party may change its notice address upon written notice to the other party. Section 13.07. WAIVERS. All waivers must be in writing and signed by the waiving party. Landlord's failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement. A-14 16 Section 13.08. NO RECORDATION. Tenant shall not record this Lease without prior written consent from Landlord. However, either Landlord or Tenant may require that a "Short Form" memoranda of this Lease executed by both parties be recorded. The party requiring such recording shall pay all transfer taxes and recording fees. Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party who legally acquires any right or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant's successor unless the right or interest of Tenant's successor are acquired in accordance with the terms of this Lease. The laws of the state in which the Property is located shall govern this Lease. Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If a Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person or entity signing this Lease for Tenant represents and warrants that he or it is a general partner of the partnership, that he or it has full authority to sign for the partnership and that this Lease binds the partnership and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partner's withdrawal or addition. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership. Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant. Section 13.12. FORCE MAJEURE. If Landlord or Tenant cannot perform any of its obligations due to events beyond it's control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord's control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, shortages or labor or material, government regulation or restriction and weather conditions, but shall not include the obligations imposed with regard to rent or other charges to be paid by Tenant pursuant to this Lease. Section 13.13. EXECUTION OF LEASE. This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. Landlord's delivery of this Lease to Tenant shall not be deemed to be an offer to lease and shall not be binding upon either party until executed and delivered by both parties. Section 13.14. SURVIVAL. All representations and warranties of Landlord and Tenant shall survive the termination of this Lease. ARTICLE FOURTEEN: BROKERS Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered to both Landlord and Tenant, Landlord shall pay a real estate commission to Landlord's Broker named in Section 1.08 above, if any, as provided in the written agreement between Landlord and Landlord's Broker, or the sum stated in Section 1.09 above for services rendered to Landlord by Landlord's Broker in this transaction. Landlord shall pay Landlord's Broker a commission if Tenant exercises any option to extend the Lease Term or to buy the Property, or any similar option or right which Landlord may grant to Tenant, or if Landlord's Broker is the procuring cause of any other lease or sale entered into between Landlord and Tenant covering the Property. Such commission shall be the amount set forth in Landlord's Broker's commission schedule in effect as of the execution of this Lease. If a Tenant's Broker is named in Section 1.08 above, Landlord's Broker shall pay an appropriate portion of its commission to Tenant's Broker if so provided in any agreement between Landlord's Broker and Tenant's Broker. Nothing contained in this Lease shall impose any obligation on Landlord to pay a commission or fee to any party other than Landlord's Broker. Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property, or assigns Landlord's interest in this Lease, the buyer or assignee shall, by accepting such conveyance of the Property or assignment of the Lease, be conclusively deemed to have agreed to make all payments to Landlord's Broker thereafter required by Landlord under this Article Fourteen. Landlord's Broker shall have the right to bring a legal action to enforce or declare rights under A-15 17 this provision. The prevailing party in such action shall be entitled to reasonable attorney's fees to be paid by the losing party. Such attorneys' fees shall be fixed by the court in such action. This Paragraph is included in this Lease for the benefit of Landlord's Broker. Section 14.03. BROKER'S DISCLOSURE OF AGENCY. Landlord's Broker hereby discloses to Landlord and Tenant and Landlord and Tenant hereby consent to Landlord's Broker acting in this transaction as the agent of (check one): [X] Landlord exclusively; or [ ] both Landlord and Tenant. Section 14.04. NO OTHER BROKERS. Tenant represents and warrants to Landlord that the brokers named in Section 1.08 above are the only agents, brokers, finders or other parties with whom Tenant has dealt who are or may be entitled to any commission or fee with respect to this Lease or the Property. ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW A LINE THROUGH THE SPACE BELOW. Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below and have initialed all Riders which are attached to or incorporated by reference in this Lease. "LANDLORD" Signed on August 19 , 1997 MAJESTIC REALTY CO., --------------------- -- a California corporation at City of Industry, CA .By: /s/ ----------------------------------- -------------------------------- By: -------------------------------- PATRICIAN ASSOCIATES, INC., a California corporation By: /s/ Jon Jacobson -------------------------------- By: Jon Jacobson, Vice President Commercial Real Estate "TENANT" Signed on , 19 LUMINEX, INC., a California ------------------- --- corporation at . By: /s/ Wasif Siddiqui -------------------------------- -------------------------------- Its: ------------------------------- ----------------------------------- By: -------------------------------- Its: ------------------------------- IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON WITH A-16 18 EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS. THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL. A-17 19 RIDER TO INDUSTRIAL REAL ESTATE LEASE This Rider ("RIDER") is made and entered into by MAJESTIC REALTY CO. ("Majestic") and PATRICIAN ASSOCIATES, INC. ("Patrician"), both California corporations (collectively, "LANDLORD") and LUMINEX, INC., a California corporation ("TENANT"), and is dated as of the date set forth on Section 1.01 of the Industrial Real Estate Lease between Landlord and Tenant ("LEASE") to which this Rider is attached. The promises, covenants, agreements and declarations made and set forth herein are intended to and shall have the same force and effect as if set forth at length in the body of the Lease. To the extent that the provisions of this Rider are inconsistent with the terms and conditions of the Lease, the terms and conditions of this Rider shall control. SECTION 2.05 TENANT'S ENTRY INTO THE PROPERTY PRIOR TO COMMENCEMENT DATE Tenant shall have the right to access of the Property prior to the Commencement Date for the purpose of installing and/or storing overstandard equipment or fixtures and preparing the Property for Tenant's use; provided that: (i) the previous tenant of the Property's lease has expired and/or terminated, (ii) Tenant and its agents do not interfere with Landlord's work on the Property, (iii) prior to Tenant's entry into the Property, Tenant shall submit a schedule to Landlord for approval, which schedule shall detail the timing and purpose of Tenant's entry and (iv) all of the terms and conditions of this Lease shall apply, other than Tenant's obligation to pay Base Rent, as thought he Commencement Date had occurred (although the Commencement Date shall not actually occur until the occurrence of the same pursuant to the terms of the third sentence of Section 2.01) upon such entry into the Property by Tenant. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Property and against injury to any persons caused by Tenant's actions or anyone's actions who are directly or indirectly employed by the Tenant. Tenant shall assume all risk of loss to Tenant's personal property and fixtures. SECTION 3.03(A) LETTER OF CREDIT A. In General. In lieu of depositing with Landlord a Security Deposit, Tenant shall deliver to Landlord concurrent with Tenant's execution of this Lease, an unconditional, clean, irrevocable letter of credit (the "L-C") in the initial amount of THIRTY-THREE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($33,750.00), which L-C shall be issued by a money-center bank (a bank which accepts deposits, maintains accounts, has a local Los Angeles office which will negotiate a letter of credit; and whose deposits are insured by the FDIC) reasonably acceptable to Landlord, and which L-C shall be in a form and content as set forth in Exhibit F, attached hereto. Tenant shall pay all expenses, points and/or fees incurred by Tenant in obtaining the L-C. B. Application of the L-C. The L-C shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Lease Term. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of rent, or if Tenant fails to renew the L-C at least thirty (30) days before its expiration, Landlord may, but shall not be required to, draw upon all or any portion of the L-C for payment of any rent or any other sum in default, or for the payment of any amount that Landlord may reasonably spend or may become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant's default. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. Any amount of the L-C which is drawn upon by Landlord, but is not used or applied by Landlord, shall be held by Landlord and deemed a security deposit (the "L-C Security Deposit"). If any portion of the L-C is drawn upon, Tenant shall, within five (5) days after written demand therefor, either (i) deposit cash with Landlord (which cash shall be applied by Landlord to the L-C Security Deposit) in an amount sufficient to cause the sum of the L-C Security Deposit and the amount of the remaining L-C to be equivalent to the amount of the L-C then required under this Lease or (ii) reinstate the L-C to the amount then required under this Lease, and if any portion of the L-C Security Deposit is used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord (which cash shall be applied by Landlord to the L-C Security Deposit) in an amount sufficient to restore the L-C Security Deposit to the amount then required under this Lease, and Tenant's failure to do RIDER - Page 1 20 so shall be a default under this Lease. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Property and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the L-C Security Deposit and/or the L-C to the transferee or mortgagee, and in the event of such transfer, Tenant shall look solely to such transferee or mortgagee for the return of the L-C Security Deposit and or the L-C. If the Tenant has not been in default under this Lease, the amount of the L-C shall, on the first (1st) and second (2nd) anniversary of the Lease Commencement Date, be reduced by an amount equal to ELEVEN THOUSAND TWO HUNDRED AND FIFTY AND NO/100 DOLLARS ($11,250.00). If Tenant performs every provision of this Lease, the L-C Security Deposit and/or the L-C, or any balance thereof, shall be returned to Tenant within sixty (60) days following the expiration or termination of the Lease. SECTION 5.03 HAZARDOUS MATERIALS: 5.03.1 DEFINITIONS. A. "Hazardous Material" means any substance, whether solid, liquid or gaseous in nature: (i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law; or (ii) which is or becomes defined as a "hazardous waste", "hazardous substance," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. section 9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. section 1251 et seq.), the Clean Air Act (42 U.S.C. section 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. section 2601 et seq.), and the Occupational Safety and Health Act (29 U.S.C. section 651 et seq.), as these laws have been amended or supplemented; or (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous or is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of California or any political subdivision thereof; or (iv) the presence of which on the Property causes or threatens to cause a nuisance upon the Property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Property; or (v) the presence of which on adjacent properties could constitute a trespass by Tenant; or (vi) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (vii) without limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation; or (viii) without limitation which contains radon gas. B. "Environmental Requirements" means all applicable present and future: (i) statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items (including, but not limited to those pertaining to reporting, licensing, permitting, investigation and remediation), of all Governmental Agencies; and (ii) all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation, all requirements pertaining to emissions, discharges, releases, or threatened releases of Hazardous Materials or chemical substances into the air, surface RIDER - Page 2 21 water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials or chemical substances. C. "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, costs, and expenses (including the expense of investigation and defense of any claim, whether or not such claim is ultimately defeated, or the amount of any good faith settlement or judgment arising from any such claim) of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable (including without limitation reasonable attorneys' fees and disbursements and consultants' fees) any of which are incurred at any time as a result of the existence of Hazardous Material upon, about, or beneath the Property or migrating or threatening to migrate to or from the Property, or the existence of a violation of Environmental Requirements pertaining to the Property and the activities thereon, regardless of whether the existence of such Hazardous Material or the violation of Environmental Requirements arose prior to the present ownership or operation of the Property. Environmental Damages include, without limitation: (i) damages for personal injury, or injury to property or natural resources occurring upon or off of the Property, including, without limitation, lost profits, consequential damages, the cost of demolition and rebuilding of any improvements on real property, interest, penalties and damages arising from claims brought by or on behalf of employees of Tenant (with respect to which Tenant waives any right to raise as a defense against Landlord any immunity to which it may be entitled under any industrial or worker's compensation laws); (ii) fees, costs or expenses incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such Hazardous Materials or violation of such Environmental Requirements, including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any Governmental Agency or reasonably necessary to make full economic use of the Property or any other property in a manner consistent with its current use or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing the provisions of this Lease or collecting any sums due hereunder; (iii) liability to any third person or Governmental Agency to indemnify such person or Governmental Agency for costs expended in connection with the items referenced in subparagraph (ii) above; and (iv) diminution in the fair market value of the Property including without limitation any reduction in fair market rental value or life expectancy of the Property or the improvements located thereon or the restriction on the use of or adverse impact on the marketing of the Property or any portion thereof. D. "Governmental Agency" means all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states, counties, cities and political subdivisions thereof. E. The "Tenant Group" means Tenant, Tenant's successors, assignees, guarantors, officers, directors, agents, employees, invitees, permitees or other parties under the supervision or control of Tenant or entering the Property during the term of this Lease with the permission or knowledge of Tenant other than Landlord or its agents or employees. 5.03.2 PROHIBITIONS. A. Other than normal quantities of general office supplies and except as specified on Exhibit "D" attached hereto, Tenant shall not cause, permit or suffer any Hazardous Material to be brought upon, treated, kept, stored, disposed of, discharged, released, produced, manufactured, generated, refined or used upon, about or beneath the Property by The Tenant Group, or any other person without the prior written consent of Landlord. From time to time during the term of this Lease, Tenant may request Landlord's approval of Tenant's use of other Hazardous Materials, which approval may be withheld in Landlord's sole discretion. Tenant shall, prior to the Commencement Date, provide to Landlord for those Hazardous Materials described on Exhibit "D" (a) a description of handling, storage, use and disposal procedures, and (b) all "community right to know" plans or disclosures and/or emergency response plans which Tenant is required to supply to local governmental agencies pursuant to any Environmental Requirements. RIDER - Page 3 22 B. Tenant shall not cause, permit or suffer the existence or the commission by The Tenant Group, or by any other person, of a violation of any Environmental Requirements upon, about or beneath the Property. C. Tenant shall neither create or suffer to exist, nor permit The Tenant Group to create or suffer to exist any lien, security interest or other charge or encumbrance of any kind with respect to the Property, including without limitation, any lien imposed pursuant to section 107(f) of the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. section 9607(l)) or any similar state statute. D. Tenant shall not install, operate or maintain any above or below grade tank, sump, pit, pond, lagoon or other storage or treatment vessel or device on the property without Landlord's prior written consent. 5.03.3 INDEMNITY. A. Tenant, its successors, assigns and guarantors, agree to indemnify, defend, reimburse and hold harmless: (i) Landlord; and (ii) any other person who acquires all or a portion of the Property in any manner (including purchase at a foreclosure sale) or who becomes entitled to exercise the rights and remedies of Landlord under this Lease; and (iii) the directors, officers, shareholders, employees, partners, agents, contractors, subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees, heirs, devisees, successors, assigns and invitees of such persons, from and against any and all Environmental Damages which exist as a result of the activities or negligence of The Tenant Group or which exist as a result of the breach of any warranty or covenant or the inaccuracy of any representation of Tenant contained in this Lease, or by Tenant's remediation of the Property or failure to meet its remediation obligations contained in this Lease. B. The obligations contained in this Section 5.03 shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent, and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties or other sums due against such indemnified persons. Landlord, at its sole expense, may employ additional counsel of its choice to associate with counsel representing Tenant. C. Landlord shall have the right but not the obligation to join and participate in, and control, if it so elects, any legal proceedings or actions initiated in connection with Tenant's activities. Landlord may also negotiate, defend, approve and appeal any action taken or issued by any applicable governmental authority with regard to contamination of the Property by a Hazardous Material. D. The obligations of Tenant in this paragraph shall survive the expiration or termination of this Lease. E. The obligations of Tenant under this paragraph shall not be affected by any investigation by or on behalf of Landlord, or by any information which Landlord may have or obtain with respect thereto. 5.03.4 OBLIGATION TO REMEDIATE. In addition to the obligation of Tenant to indemnify Landlord pursuant to this Lease, Tenant shall, upon approval and demand of Landlord, at its sole cost and expense and using contractors approved by Landlord, promptly take all actions to remediate the Property which are required by any Governmental Agency, or which are reasonably necessary to mitigate Environmental Damages or to allow full economic use of the Property, which remediation is necessitated from the presence upon, about or beneath the Property, at any time during or upon termination of this Lease, of a Hazardous Material or a violation of Environmental Requirements existing as a result of the activities or negligence of the Tenant Group. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Property, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring or restoration work, whether on or off the Property, RIDER - Page 4 23 which shall be performed in a manner approved by Landlord. Tenant shall take all actions necessary to restore the Property to the condition existing prior to the introduction of Hazardous Material upon, about or beneath the Property, notwithstanding any lesser standard of remediation allowable under applicable law or governmental policies. Notwithstanding the foregoing, Tenant shall have no obligation to remediate the Property if the Environmental Damages are a direct result of the actions of a previous occupant of the Property or a previous or present occupant or owner of any adjoining or neighboring properties. 5.03.5 RIGHT TO INSPECT. Landlord shall have the right in its sole and absolute discretion, but not the duty, to enter and conduct an inspection of the Property, including invasive tests, at any reasonable time to determine whether Tenant is complying with the terms of the Lease, including but not limited to the compliance of the Property and the activities thereon with Environmental Requirements and the existence of Environmental Damages as a result of the condition of the Property or surrounding properties and activities thereon. Landlord shall have the right, but not the duty, to retain any independent professional consultant (the "Consultant") to enter the Property to conduct such an inspection or to review any report prepared by or for Tenant concerning such compliance. The cost of the Consultant shall be paid by Landlord unless such investigation discloses a violation of any Environmental Requirement by The Tenant Group or the existence of a Hazardous Material on the Property or any other property caused by the activities or negligence of The Tenant Group (other than Hazardous Materials used in compliance with all Environmental Requirements and previously approved by Landlord), in which case Tenant shall pay the cost of the Consultant. Tenant hereby grants to Landlord, and the agents, employees, consultants and contractors of Landlord the right to enter the Property and to perform such tests on the Property as are reasonably necessary to conduct such reviews and investigations. Landlord shall use its best efforts to minimize interference with the business of Tenant. 5.03.6 NOTIFICATION. If Tenant shall become aware of or receive notice or other communication concerning any actual, alleged, suspected or threatened violation of Environmental Requirements, or liability of Tenant for Environmental Damages in connection with the Property or past or present activities of any person thereon, including but not limited to notice or other communication concerning any actual or threatened investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, complaint, notice, order, writ, or injunction, relating to same, then Tenant shall deliver to Landlord within ten (10) days of the receipt of such notice or communication by Tenant, a written description of said violation, liability, or actual or threatened event or condition, together with copies of any documents evidencing same. Receipt of such notice shall not be deemed to create any obligation on the part of Landlord to defend or otherwise respond to any such notification. If requested by Landlord, Tenant shall disclose to Landlord the names and amounts of all Hazardous Materials other than general office supplies referred to in Section 5.03.2 of this Rider, which were used, generated, treated, handled, stored or disposed of on the Property or which Tenant intends to use, generate, treat, handle, store or dispose of on the Property, for the year prior to and after such Disclosure Date. The foregoing in no way shall limit the necessity for Tenant obtaining Landlord's consent pursuant to Section 5.03.2 of this Rider. 5.03.7 SURRENDER OF PREMISES. In the ninety (90) days prior to the expiration or termination of the Lease Term, and for up to ninety (90) days after Tenant fully surrenders possession of the Property, Landlord may have an environmental assessment of the Property performed in accordance with Section 5.03.5 of this Rider, at Landlord's sole cost and expense; provided however if the environmental assessment reveals any Environmental Damages, then Tenant, upon demand from Landlord, shall reimburse Landlord for the full cost of the environmental assessment. Tenant shall perform, at its sole cost and expense, any clean-up or remedial work recommended by the Consultant which is necessary to remove, mitigate or remediate any Hazardous Materials and/or contamination of the Property caused by the activities or negligence of The Tenant Group. RIDER - Page 5 24 5.03.8 ASSIGNMENT AND SUBLETTING. In the event the Lease provides that Tenant may assign the Lease or sublet the Property subject to Landlord's consent and/or certain other conditions, and if the proposed assignee's or sublessee's activities in or about the Property involve the use, handling, storage or disposal of any Hazardous Materials other than those used by Tenant and in quantities and processes similar to Tenant's uses in compliance with the Rider, (i) it shall be reasonable for Landlord to withhold its consent to such assignment or sublease in light of the risk of contamination posed by such activities and/or (ii) Landlord may impose an additional condition to such assignment or sublease which requires Tenant to reasonably establish that such assignee's or sublessee's activities pose no materially greater risk of contamination to the Property than do Tenant's permitted activities in view of the (a) quantities, toxicity and other properties of the Hazardous Materials to be used by such assignee or sublessee, (b) the precautions against a release of Hazardous Materials such assignee or sublessee agrees to implement, (c) such assignee's or sublessee's financial condition as it relates to its ability to fund a major clean-up and (d) such assignee's or sublessee's policy and historical record respecting its willingness to respond to the clean up of a release of Hazardous Materials. 5.03.9 SURVIVAL OF HAZARDOUS MATERIALS OBLIGATION. Tenant's breach of any of its covenants or obligations under this Rider shall constitute a material default under the Lease. The obligations of Tenant under this Rider shall survive the expiration or earlier termination of the Lease without any limitation, and shall constitute obligations that are independent and severable from Tenant's covenants and obligations to pay rent under the Lease. ARTICLE SIX: CONDITION OF PROPERTY: SECTION 6.01 EXISTING CONDITIONS Section 6.01 of the Lease is hereby amended by adding the following at the end thereof: "Notwithstanding the foregoing, the improvements on the Property on such date as this Lease is fully executed and delivered (the "Lease Date") shall comply with all applicable covenants and restrictions of record and any building codes, regulations and ordinances in effect upon the Lease Date ("Applicable Laws") whether such codes, regulations and ordinances are federal, state or local. If the improvements on the Property as of the Lease Date do not comply with Applicable Laws, except to the extent such Applicable Laws are required due to Tenant's use of the Property or any alterations made by Tenant, then Landlord shall promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of noncompliance, rectify the same at Landlord's expense. If Tenant fails to give Landlord such written notice of noncompliance within thirty (30) days following the Lease Date, correction of that noncompliance shall be the obligation of Tenant at Tenant's sole cost and expense." SECTION 6.03 LANDLORD'S OBLIGATIONS: Section 6.03 of the Lease is hereby amended by adding the following at the end thereof: "Notwithstanding the foregoing, Landlord shall, at Landlord's expense, repair the existing plumbing, electrical, air conditioning, fire sprinkler\alarm system, heating, loading doors and ventilating systems in the Property, if such are not in good operating condition on the Lease Date, except to the extent such repairs are required due to the negligence or willful misconduct of Tenant; provided, however that Tenant gives Landlord written notice and sets forth with specificity the nature and extent of such repair, within thirty (30) days following the Lease Date." RIDER - Page 6 25 SECTION 7.05 SUBSTANTIAL OR TOTAL DESTRUCTION: Notwithstanding anything to the contrary contained in this Lease, if there is total or substantial destruction to the Property and the repair of which actually takes a period beyond that date which is six (6) months after Tenant's notice of the occurrence of the total or substantial destruction (the "Outside Date"), then Tenant may, at Tenant's option, terminate this Lease by delivering written notice of such termination to Landlord, no later than thirty (30) days after the Outside Date. Notwithstanding anything to the contrary contained in this Lease, if there is total or substantial destruction to the Property, Tenant shall have the right, at any time and from time to time to require Landlord to deliver to Tenant a written notice (the "Contractor Certificate") certifying to both Landlord and Tenant, in the reasonable opinion of Landlord's contractor, the amount of time required to repair or complete the repair of the destruction to the Property. If the contractor in the Contractor Certificate certifies that the repair of the destruction to the Property will take a period in excess of six (6) months from receipt of Tenant's request, then within fifteen (15) days after the delivery of the Contractor Certificate to Tenant, Tenant may, at Tenant's option, terminate this lease by delivering written notice of such termination to Landlord within such fifteen (15) day period. Notwithstanding the foregoing, Tenant shall not have any right to terminate this Lease under this Section 7.05 if the damage to the Property was caused by an act or omission of Tenant. ARTICLE FIFTEEN: LANDSCAPE MAINTENANCE: Notwithstanding the provisions of Sections 6.03 and 6.04, Landlord shall maintain, at Tenant's expense, the landscaping of the Property and, if applicable, the common areas. Such maintenance shall include gardening, tree trimming, replacement or repair of landscaping, landscape irrigation systems and similar items. Such maintenance shall also include sweeping and cleaning of asphalt, concrete or other surfaces on the driveway, parking areas, yard areas, loading areas or other paved or covered surfaces. In connection with Landlord's obligations under this Article, Landlord may enter into a contract with a landscape contractor of Landlord's choice to provide some (but not necessarily all) of the maintenance services listed above. Tenant's monthly cost of such contract, hereinafter referred to as the "Landscape Fee" is currently FOUR HUNDRED NINETY AND NO/100 DOLLARS ($490.00). Landlord shall use its best efforts to maintain competitive contracts and shall promptly notify Tenant of any increase in the Landscape Fee. Tenant agrees to pay monthly to Landlord, as additional rent, the Landscape Fee. Tenant shall make such payment together with Tenant's monthly rental payment, without the necessity of notice from Landlord. It is the understanding of the parties that the Landscape Fee only pertains to routine landscape maintenance on the Property and that Landlord may incur expenses in addition to the Landscape Fee in meeting its obligations set forth above. Tenant shall pay to Landlord, as additional rent, within ten (10) days after demand therefore, the cost of such additional expenses. ARTICLE SIXTEEN REVENUE AND EXPENSE ACCOUNTING Landlord and Tenant agree that, for all purposes (including any determination under Section 467 of the Internal Revenue Code), rental income will accrue to the Landlord and rental expenses will accrue to the Tenant in the amounts and as of the dates rent is payable under the Lease. ARTICLE SEVENTEEN RELOCATION OPTION Landlord hereby grants the Tenant named in Section 1.03 (the "ORIGINAL TENANT") during the initial Lease Term, to substitute for the Property another Landlord owned property, containing not less than one hundred twenty percent (120%) of the rentable square footage of the original Property (the "RELOCATION SPACE"), which Relocation Space thereafter shall be deemed to be the Property demised by this Lease. Notwithstanding the foregoing, such relocation right shall be subordinate to all rights of existing and future tenants of Landlord to lease the Relocation Space (whether or not pursuant to presently existing rights of first offer, expansion options, must-take requirements, renewal, relocation or otherwise, whether or not such rights are pursuant to an express written provision in the lease of any such tenant, and regardless of whether any such lease of the Relocation Space is consummated pursuant to a lease amendment or a new lease) (collectively, the "SUPERIOR RIGHT HOLDER"), with respect to such Relocation Space. Tenant's right of relocation shall be on the terms and conditions set forth in this Article 17. Tenant shall pay the out-of-pocket expenses reasonably incurred by Landlord in connection with such substitution of the Property, and Landlord shall have no RIDER - Page 7 26 liability to Tenant for any loss incurred by Tenant as a result of the interruption of the conduct of Tenant's business or for expenses incurred by Tenant in connection with such relocation. 17.1 Exercise of Option. The option contained in this Article 17 shall be exercised by the Original Tenant, if at all, and only in the following manner: (i) Tenant shall deliver written notice to Landlord (the "RELOCATION NOTICE"), stating that (a) Tenant is interested in exercising its option to relocate pursuant to the terms of this Article 17, (b) Tenant's square footage requirement (which shall not be less than a 30,000 square feet industrial building) and (c) the geographical area to which Tenant desires to relocate (the "TENANT'S REQUIREMENTS") and (ii) within fifteen (15) business days of Landlord's receipt of the Relocation Notice, Landlord shall notify Tenant ("LANDLORD'S LEASE NOTICE") with respect to the availability of any Landlord owned property that meets Tenant's Requirements during the period from the date of Landlord's receipt of the Relocation Notice through the date which is thirty (30) days following the date of Landlord's receipt of the Relocation Notice. The Landlord's Notice shall describe the space so offered to Tenant and shall set forth the economic and noneconomic terms and conditions upon which Landlord is willing to lease such space to Tenant. For purposes hereof, space shall not be considered to be available for lease by Tenant hereunder at any time that Landlord has delivered a lease proposal or a lease document regarding the subject space to a prospective or existing tenant and Landlord and such prospective or existing tenant are participating in ongoing negotiations concerning the lease of such space or if such space is subject to a Superior Right Holder. Within thirty (30) days of Tenant's receipt of Landlord's Lease Notice (the "NEGOTIATION PERIOD"), Landlord and Tenant shall attempt to agree upon mutually acceptable "Relocation Rent," as that term is defined in Section 17.3 of this Lease. If Landlord and Tenant fail to reach agreement within the Negotiation Period, then the relocation option shall be void and of no further force or effect. 17.2 Procedure for Acceptance. Upon the agreement of Landlord and Tenant of the Relocation Rent during the Negotiation Period, Tenant shall exercise its relocation right with respect to the Relocation Space by delivering notice to Landlord of Tenant's irrevocable intention to relocate with respect to all, but not less than all, of any available space as then currently demised ( the "TENANT'S ACCEPTANCE NOTICE"). If Tenant does not timely deliver to Landlord any notice as set forth in this Article 17 or fails to meet the other requirements set forth in this Article 17, then Tenant shall be deemed to have elected not to relocate and Landlord shall be free to lease the space(s) described in the Landlord's Notice to anyone to whom Landlord desires on any terms Landlord desires. 17.3 Relocation Rent. The Base Rent for the Relocation Space payable by Tenant upon the "Relocation Space Commencement Date," as that term is defined in Section 17.5, shall be equal to such rent mutually agreed upon by Landlord and Tenant during the Negotiation Period. Tenant shall also be obligated to pay the Additional Rent for the Relocation Space. The Base Rent and Additional Rent for the Relocation Space shall be known herein collectively as the "RELOCATION RENT". In no event shall Landlord be obligated to provide or consider any tenant improvement or other allowances or concessions in connection with the Relocation Rent for the Relocation Space. 17.4 Construction in The Relocation Space. Tenant shall take the Relocation Space in its "as is" condition, and Landlord shall not be obligated to provide or pay for any improvement work or serviced related to the improvement of the Relocation Space. The construction of improvements in the Relocation Space shall comply with the terms of Section 6.05 of this Lease. 17.5 Amendment to Lease. If Tenant timely exercises Tenant's right to relocate as set forth herein, Landlord and Tenant shall within fifteen (15) days thereafter execute an amendment to this Lease upon the terms and condition set forth in this Article 17. Tenant shall deposit with Landlord, concurrently with Tenant's execution and delivery of the amendment to Landlord, cash in an amount equal to the additional monthly Base Rent, which amount shall be held as part of the Security Deposit. Tenant shall commence payment of the Relocation Rent for the Relocation Space and the term of the lease of the Relocation Space ("RELOCATION TERM") shall commence upon the date of delivery of the Relocation Space to Tenant (the "RELOCATION SPACE COMMENCEMENT DATE"). Notwithstanding the amount of time remaining in the Lease Term, the Relocation Term shall be at least five (5) years. Before the Relocation Space Commencement Date Tenant shall vacate, surrender and deliver exclusive possession of the initial Property to Landlord in accordance with the provisions of this Lease as set forth in Section 6.06 of this Lease. In the event that Tenant retains possession of the initial Property or any part thereof after the Relocation Space Commencement Date, then the provision of Section 2.04 of this Lease shall apply. 17.6 Termination of Relocation Right. The rights contained in this Article 17 shall be personal to the Original Tenant, and may only be exercised by Tenant (and not any assignee, sublessee or other transferee of RIDER - Page 8 27 Tenant's interest in this Lease) if Tenant occupies the entire Property. Tenant shall not have the right to lease the Relocation Space, as provided in this Section 17, if, as of the date of the attempted exercise of any relocation right by Tenant, or as of the scheduled date of delivery of such Relocation Space to Tenant, Tenant is in default under this Lease or Tenant has previously been in default under this Lease on more than three (3) times during the Lease Term. RIDER - Page 9 28 SIOR OPTION TO EXTEND TERM LEASE RIDER This Rider is attached to and made part of that certain Lease (the "Lease") dated June 26, 1997 between Majestic Realty Co. and Patrician ASSOCIATES, Inc., both as California corporations, collectively as Landlord, and Luminex, Inc., a California corporation , as Tenant, covering the Property commonly known as 13710 Ramona Avenue, Chino, California (the "Property"). The terms used herein shall have the same definitions as set forth in the Lease. The provisions of this Rider shall supersede any inconsistent and conflicting provisions of the Lease. A. OPTION(S) TO EXTEND TERM. 1. Landlord hereby grants to Tenant two (2) option(s) (the "Option(s)") to extend the Lease Term for additional term(s) of three (3) years each (the "Extension(s)"), on the same terms and conditions as set forth in the Lease, but at an increased rent as set forth below. Each Option shall be exercised only by written notice delivered to Landlord at least one hundred eighty (180) days before the expiration of the Lease Term or the preceding Extension of the Lease Term, respectively. If Tenant fails to deliver Landlord written notice of the exercise f an Option within the prescribed time period, such Option and any succeeding Options shall lapse, and there shall be no further right to extend the Lease Term. Each Option shall be exercisable by Tenant on the express conditions that (a) at the time of the exercise, and at all times prior to the commencement of such Extension, Tenant shall not be in default under any of the provisions of this Lease and (b) Tenant has not been more than ten (10) days late in the payment of rent more than a total of two (2) times during any twelve (12) month period of the Lease Term and all preceding Extensions. 2. PERSONAL OPTIONS. The Option(s) are personal to the Tenant named in Section 1.03 of the Lease, any Tenant's affiliate described in Section 9.02 of the Lease or any entity which purchases all the stock of Tenant and all or substantially all of Tenant's assets ("Tenant Purchaser"). If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest under the Lease to any entity other than a Tenant Affiliate prior to the exercise of an Option (whether with or without Landlord's consent), such Option and any succeeding Options shall lapse. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease to any entity other than a Tenant Affiliate or Tenant Purchaser after the exercise of an Option but prior to the commencement of the respective Extension (whether with or without Landlord's consent), such Option and any succeeding Options shall lapse and the Lease Term shall expire as if such Option were not exercised. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease in accordance with Article 9 of the Lease after the exercise of an Option and after the commencement of the Extension during which such sublease or transfer occurred and only the succeeding Options shall lapse. B. CALCULATION OF RENT. The Base Rent during the Extension(s) shall be determined by one or a combination of the following methods (INDICATE YOUR CHOICE UPON EXECUTION OF THE LEASE): 1. Intentionally omitted. 2. Fair Rental value Adjustment (Section B(2), below) X 3. Intentionally omitted. 1. COST OF LIVING ADJUSTMENT. Intentionally omitted. 2. FAIR RENTAL VALUE ADJUSTMENT. The Base Rent shall be increased on the first day of the first month(s) of the first and second Extension(s) of the Lease Term (the "Rental Adjustment Date(s)") to the "fair rental value" of the Property, determined in the following manner: (a) Not later than one hundred (100) days prior to any applicable Rental Adjustment Date, Landlord and Tenant shall meet in an effort to negotiate, in good faith, the fair rental value of the Property as of such Rental 29 Adjustment Date. If Landlord and Tenant have not agreed upon the fair rental value of the Property at least ninety (90) days prior to the applicable Rental Adjustment Date, the fair rental value shall be determined by appraisal, as follows: (INDICATE YOUR CHOICE UPON EXECUTION OF THE LEASE): Appraisal by Brokers. X (b) If Landlord and Tenant are not able to agree upon the fair rental value of the Property within the prescribed time period, then Landlord and Tenant shall attempt to agree in good faith upon a single appraiser or broker, as indicated above, not later than seventy-five (75) days prior to the applicable Rental Adjustment Date. If Landlord and Tenant are unable to agree upon a single appraiser/broker within such time period, then Landlord and Tenant shall each appoint one appraiser or broker, as indicated above, not later than sixty-five (65) days prior to the applicable Rental Adjustment Date. Within ten (10) days thereafter, the two appointed appraisers/brokers shall appoint a third appraiser or broker, as indicated above. If either Landlord or Tenant fails to appoint its appraiser/broker within the prescribed time period, the single appraiser/broker appointed shall determine the fair rental value of the Property. If both parties fail to appoint appraisers/brokers within the prescribed time periods, then the first appraiser/ broker thereafter selected by to a party shall determine the fair rental value of the Property. Each party shall bear the cost of its own appraiser or broker and the parties shall share equally the cost of the single or third appraiser or broker, if applicable. If appraisers are used, such appraisers shall have at least five (5) years experience in the appraisal of commercial/industrial real property in the area in which the Property is located and shall be members of professional organizations such as MAI or equivalent. If brokers are used, such brokers shall have at least five (5) years experience in the sales of leasing of commercial/industrial real property in the area in which the Property is located and shall be members of professional organizations such as the Society of Industrial Realtors or equivalent. (c) For the purposes of such appraisal, the term "fair market value" shall mean the price that a ready and willing tenant would pay, as of the applicable Rental Adjustment Date, as monthly rent to a ready and willing Landlord of property comparable to the Property if such property were exposed for lease on the open market for a reasonable period of time and taking into account all of the purposes for which such property may be used. If a single appraiser/broker is chosen, then such appraiser/broker shall determine the fair rental value of the Property. Otherwise, the fair rental value of the Property shall be the arithmetic average of two (2) of the three (3) appraisals which are closest in amount, and the third appraisal shall be disregarded. In no event, however, shall the Base Rent be reduced by reason of such computation. Landlord and Tenant shall instruct the appraiser(s)/broker(s) to complete their determination f the faire rental value not later than thirty (30) days prior to the applicable Rental Adjustment Date. If the fair rental value is not determined prior to the applicable Rental Adjustment Date, then Tenant shall continue to pay to Landlord the Base Rent applicable to the Property immediately prior to such Extension, until the fair rental value is determined. When he fair rental value of the Property is determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall pay to Landlord, within (1) day after receipt of such notice, the difference between the Base Rent actually paid by Tenant to Landlord and the new Base Rent determined hereunder. 3. FIXED ADJUSTMENT. Intentionally omitted. 30 EXHIBIT "B" Record and Return To: Principal Mutual Life Insurance Company c/o The Principal Financial Group 711 High Street Des Moines, Iowa 50392-1360 Attn..: Lisa M. Fiene SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT D - _________________ THIS AGREEMENT, made and entered into as of the ____ day of __________, 19___, by and between PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, with its principal office at 711 High Street Des Moines, Iowa 50392 (hereinafter called "Mortgagee"), PATRICIAN ASSOCIATES, INC., a California corporation and MAJESTIC REALTY CO., a California corporation with principal offices at 711 High Street, Des Moines, Iowa 50392 and 13191 Crossroads Parkway North, Sixth Floor, City of Industry, California 91746-3497, respectively (hereinafter called "Lessor") and ____________________________________, having its principal office at ____________ ___________________________________ (hereinafter called "Lessee"); W I T N E S S E T H: WHEREAS, Lessee has by a written lease dated __________, 19___ as amended by __________________________ and all future amendments and extensions approved by Mortgagee (hereinafter called the "Lease") leased from Lessor all or part of certain real estate and improvements thereon located in the City of __________, California, as more particularly described in Exhibit A attached hereto (the "Demised Premises"); and WHEREAS, Lessor is encumbering the Demised Premises as security for a loan from Mortgagee to Lessor (the "Mortgage"); and [or] WHEREAS, Lessor has previously encumbered the Demised Premises as security for a loan from Lender to Lessor in the form of a Deed of Trust (hereinafter called the "Mortgage"); and WHEREAS, Lessee, Lessor and Mortgagee have agreed to the following with respect to their mutual rights and obligations pursuant to the Lease and the Mortgage; NOW, THEREFORE, for an in consideration of Ten Dollars ($10.00) paid by each party to the other and the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto do hereby covenant and agree as follows: (1) Lessee's interest in the Lease and all rights of Lessee thereunder, including any purchase option, if any, shall be and are hereby declared subject and subordinate to the Mortgage upon the demised Premises and its terms, and term "Mortgage" as used herein shall also include any amendment, supplement, modification, renewal, refinance or replacement thereof. (2) In the event of any foreclosure of the Mortgage or any conveyance in lieu of foreclosure, provided that the Lessee shall not \then be in default beyond any grace period under the Lease and that the Lease shall then be in full force and effect, then Mortgagee shall neither terminate the Lease nor join Lessee in foreclosure proceedings, nor disturb Lessee's possession, and the Lease shall continue in full force and effect as a direct lease between Lessee and Mortgagee. (3) After the receipt by Lessee of notice from Mortgagee of any foreclosure of the Mortgage or any conveyance of the Demised Premises in lieu of foreclosure, Lessee will thereafter attorn to and recognize Mortgagee or any 31 purchaser from Mortgagee at any foreclosure sale or otherwise as its substitute Lessor on the terms and conditions set forth in the Lease. (4) Lessee shall not prepay any of the rents under the Lease more than one month in advance except with the prior written consent of Mortgagee. (5) In no event shall Mortgagee be liable for the return of any security deposit, any act or omission of the Lessor, nor shall Mortgagee be subject to any offsets or deficiencies which Lessee may be entitled to assert against the Lessor as a result of any act or omission of Lessor occurring prior to Mortgagee's obtaining possession of the premises. (6) The Lease may not be amended, altered, or terminated without the prior written consent of Mortgagee. (7) This Agreement and its terms shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assign, including without limitation, any purchaser at any foreclosure sale. (8) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts when taken together shall constitute but one agreement. IN WITNESS WHEREOF, this Agreement has been fully executed under seal on the day and year first above written. PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, Mortgagee By: _________________________________ By: _________________________________ PATRICIAN ASSOCIATES, INC., a California corporation, Lessor By: _________________________________ By: _________________________________ MAJESTIC REALTY CO., a California corporation, Lessor By: _________________________________ By: _________________________________ _____________________________________ Lessee By: _________________________________ By: _________________________________ 32 EXHIBIT "C" ESTOPPEL CERTIFICATE The undersigned, _______________________, does hereby make the following statements: 1. They are the Tenant under a certain Lease dated with _____________________, as Landlord, leasing the Property commonly known as __________________________________, California. 2. The Lease dated ________________________ is in full force and effect and the undersigned is aware of no defaults under the terms and conditions of the Lease and has no offsets against rentals due the Landlord or to become due the Landlord, or, Landlord is in default under the terms and conditions of the Lease as follows: ________________________________________________________________________________ _______________________________________________________________________________. 3. The undersigned accepted possession of the Property on ______________________, the Lease Term began on ____________________________, and ends on ____________________, and the obligation to pay Base Rent begins on ________________________, pursuant to the terms and conditions of the Lease. 4. The total Base Rent to be paid pursuant to the terms of said Lease is not less than $___________ and no Base Rent has been paid more than one month in advance. 5. In the event of a default by the Landlord under any of the terms and conditions of the Lease, the undersigned at the same time notice thereof is given to the Landlord, will notify holder of any first mortgage or deed of trust covering the Property, provided Landlord has provided Tenant the address of such Mortgagee. In the event that the default is not cured by the Landlord with the time provided for under the terms and conditions of the Lease and provided the Mortgagee has given the undersigned written notice of Mortgagee's intention to cure such default, the undersigned will allow the Mortgagee the opportunity and sufficient additional time within which to correct Landlord's default, provided the Mortgagee diligently pursues such cure. ___________________________________ By: _______________________________ Title: ___________________________ Date: _____________________________ 33 EXHIBIT D HAZARDOUS MATERIAL EXHIBIT D - Page 1 34 EXHIBIT E TENANT WORK LETTER This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the Property. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Property, in sequence, as such issues will arise during the actual construction of the Property. All references in this Tenant Work Letter to Articles or Sections of "this Lease" shall mean the relevant portions of Articles 1 through 17 of the Industrial Real Estate Lease (to which this Tenant Work Letter is attached as Exhibit E) and the Rider attached to this Lease, and all references in this Tenant Work Letter to Sections of "this Tenant Work Letter" shall mean the relevant portions of Sections 1 through 5 of this Tenant Work Letter. SECTION 1 DELIVERY OF THE PROPERTY Tenant acknowledges that Tenant has thoroughly examined the Property. Upon the full execution and delivery of this Lease by Landlord and Tenant, Landlord shall deliver the Property and Tenant shall accept the Property from Landlord in its presently existing "as is" condition as of the date of this Lease. SECTION 2 TENANT IMPROVEMENTS 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the "Tenant Improvement Allowance") in the amount of EIGHTY SEVEN THOUSAND NO/100 DOLLARS ($87,000.00) for the costs relating to the initial design and construction of Tenant's improvements, which are permanently affixed to the Property (the "Tenant Improvements"). In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. 2.2 Disbursement of the Tenant Improvement Allowance. 2.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively the "Tenant Improvement Allowance Items"): 2.2.1.1 Payment of the fees of the "Architect" and the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work Letter, which payment shall, notwithstanding anything to the contrary contained in this Tenant Work Letter, not exceed an aggregate amount equal to three percent (3%) of the Tenant Improvement Allowance, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord's consultants in connection with the preparation and review of the "Construction Drawings," as that term is defined in Section 3.1 of this Tenant Work Letter; 2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements; 2.2.1.3 The cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, trash removal costs, parking fees, after-hours utilities usage and contractors' fees and general conditions; 2.2.1.4 The cost of any changes in the base building components of the Property, when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis) or to comply with applicable governmental regulations or building codes (collectively, the "Code"), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith; EXHIBIT E - Page 1 35 2.2.1.5 The cost of any changes to the Construction Drawings or Tenant Improvements required by Code; 2.2.1.6 Sales and use taxes and Title 24 fees; 2.2.1.7 The cost of cable and other telecommunications lines installed as part of the Tenant Improvements, but specifically excluding any costs in connection with the installation of Tenant's telephone service; 2.2.1.8 The cost of warehouse lighting to be installed in the Property in an amount not to exceed FIFTEEN THOUSAND AND NO/100 DOLLARS ($15,000.00); and 2.2.1.9 All other costs approved by or expended by Landlord in connection with the construction of the Tenant Improvements. 2.2.2 Disbursement of Tenant Improvement Allowance. During the construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows. 2.2.2.1 Monthly Disbursements. On or before the occurrence of a uniform date designated by Landlord (the "Submittal Date") for each calendar month during the construction of the Tenant Improvements (or such other date as Landlord may designate), Tenant shall deliver to Landlord: (i) a request for payment of the "Contractor," as that term is defined in Section 4.1 of this Tenant Work Letter, approved by Tenant, in a form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of the Tenant Improvements in the Property, detailing the portion of the work completed and the portion not completed, and demonstrating that the relationship between the cost of the work completed and the cost of the work to be completed complies with the terms of the "Final Costs," as that term is defined in Section 4.2.1 of this Tenant Work Letter; (ii) invoices from all of "Tenant's Agents," as that term is defined in Section 4.2.2.1 of this Tenant Work Letter, for labor rendered and materials delivered to the Property; (iii) executed mechanic's lien releases from all of Tenant's Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code Section 3262(d); and (iv) all other information reasonably requested by Landlord. Tenant's request for payment shall be deemed Tenant's acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant's payment request. On or before the date occurring thirty (30) days after the Submittal Date, and assuming Landlord receives all of the information described in items (i) through (iv), above, Landlord shall deliver a check to Tenant made jointly payable to Contractor and Tenant in payment of the lesser of: (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the "Final Retention"), and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the "Approved Working Drawings," as that term is defined in Section 3.4 below, or due to any substandard work, or for any other reason. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request. 2.2.2.2 Final Retention. Subject to the provisions of this Tenant Work Letter, a check for the Final Retention payable jointly to Tenant and Contractor shall be delivered by Landlord to Tenant following the completion of construction of the Property, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both California Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Property, the curtain wall of the Property, or the structure or exterior appearance of the Property, and (iii) Tenant's completion of the "Tenant's Completion Requirements," as that term is defined in Section 4.3 of this Tenant Work Letter. 2.2.2.3 Other Terms. Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items. All Tenant Improvement Allowance Items for which the Tenant Improvement Allowance has been made available shall be deemed Landlord's property under the terms of Section 6.05 of this Lease. Tenant shall have no claim to any Tenant Improvement Allowance not expended by Tenant within ninety (90) days after the date the construction of the Tenant EXHIBIT E - Page 2 36 Improvements on the Property are completed pursuant to the "Approved Working Drawings," as that term is defined in Section 3.4, with the exception of any punch list items and any such sums shall be the sole property of Landlord. 2.3 Standard Tenant Improvement Package. Landlord has established a Standard Outline of Specifications (the "Specifications"), which Specifications are partially set forth on Schedule 1, attached hereto, for some of the Property standard components to be used in the construction of the Tenant Improvements in the Property (collectively, the "Standard Improvement Package"). The quality of the Tenant Improvements must at a minimum comply with the applicable Specifications, provided that the Tenant Improvements shall comply with certain Specifications as designated by Landlord. Landlord may make changes to the Standard Improvement Package from time to time. Tenant's noncompliance with the Standard Improvement Package shall constitute a material default under this Lease. SECTION 3 CONSTRUCTION DRAWINGS 3.1 Selection of Architect/Construction Drawings. Tenant shall retain an architect (the "Architect") and engineers (the "Engineers"), with at least five (5) years experience and whom shall be approved by Landlord, to prepare the plans and drawings (the "Construction Drawings"). The Engineers shall prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Property. All Construction Drawings shall comply with Landlord's drawing format and specifications and shall be subject to Landlord's approval. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord's review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant's waiver and indemnity set forth in Section 5.05 of this Lease shall specifically apply to the Construction Drawings. 3.2 Final Space Plan. Tenant shall supply Landlord with four (4) copies signed by Tenant of its final space plan for the Property before any architectural working drawings or engineering drawings have been commenced. The final space plan (the "Final Space Plan") shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord shall advise Tenant within three (3) business days after Landlord's receipt of the Final Space Plan for the Property if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require. 3.3 Final Working Drawings. After the Final Space Plan has been approved by Landlord, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Property, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the "Final Working Drawings") and shall submit the same to Landlord for Landlord's approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall advise Tenant within three (3) business days after Landlord's receipt of the Final Working Drawings for the Property if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall immediately revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith. 3.4 Approved Working Drawings. The Final Working Drawings shall be approved by Landlord (the "Approved Working Drawings") prior to the commencement of construction of the Property by Tenant. After approval by Landlord of the Final Working Drawings, Architect shall submit the same to the City in which the Property is located for all applicable building permits. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Property and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or EXHIBIT E - Page 3 37 certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld. SECTION 4 CONSTRUCTION OF THE TENANT IMPROVEMENTS 4.1 Tenant's Selection of Contractors. Tenant shall retain a licensed general contractor with at least five (5) years experience as a licensed general contractor in good standing, and who is bondable (the "Contractor"), as contractor for the construction of the Tenant Improvements, which Contractor shall be approved by Landlord. The Contractor and all subcontractors shall be licensed by the Department of Consumer Affairs Contractors State License Board, State of California. 4.2 Construction of Tenant Improvements by Tenant's Agents. 4.2.1 Construction Contract; Cost Budget. Prior to Tenant's execution of the construction contract and general conditions with Contractor (the "Contract"), Tenant shall submit the Contract to Landlord for its approval, which approval shall not be unreasonably withheld or delayed. The Tenant shall cause the Contract to include a copy of the Specifications. Prior to the commencement of the construction of the Tenant Improvements, and after Tenant has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord with a detailed cost breakdown, by trade, of the final costs to be incurred in connection with the design and construction of the Tenant Improvements (the "Final Costs") and within three (3) business days of receipt, Landlord shall either approve the Final Costs or make reasonable modifications to the calculation of such Final Costs. Prior to the commencement of construction of the Tenant Improvements, Tenant shall supply Landlord with cash in an amount (the "Over-Allowance Amount") equal to the difference between the Final Costs and the Tenant Improvement Allowance. The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any of the then remaining portion of the Tenant Improvement Allowance pursuant to the same procedure as the disbursement of the Tenant Improvement Allowance. In the event that after the Final Costs have been delivered by Landlord to Tenant, the costs relating to the design and construction of the Tenant Improvements shall change, any additional costs in excess of the Final Costs shall be paid by Tenant to Landlord immediately as an addition to the Over-Allowance Amount. 4.2.2 Tenant's Agents. 4.2.2.1 Landlord's General Conditions for Tenant's Agents and Tenant Improvement Work. Tenant, Contractor, and all subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as "Tenant's Agents"), in the construction of the Tenant Improvements, shall comply with the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant and Tenant's Agents shall not, in any way, interfere with, obstruct, or delay, the work of Landlord's base building contractor and subcontractors with respect to the base building or any other work in the Property; (iii) Tenant's Agents shall submit schedules of all work relating to the Tenant's Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant's Agents of any changes which are necessary thereto, and Tenant's Agents shall adhere to such corrected schedule; and (iv) Tenant shall abide by all rules made by Landlord or Landlord's Property manager with respect to any matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements. 4.2.2.2 Indemnity. Tenant's indemnity of Landlord as set forth in Section 5.01 of this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant's non-payment of any amount arising out of the Tenant Improvements and/or Tenant's disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in Section 5.01 of this Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord's performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Property. 4.2.2.3 Requirements of Tenant's Agents. Each of Tenant's Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. EXHIBIT E - Page 4 38 Each of Tenant's Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Lease Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Property and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement. 4.2.2.4 Insurance Requirements. 4.2.2.4.1 General Coverages. All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in Section 4.04 of this Lease, and the policies therefor shall insure Landlord and Tenant, as their interests may appear, as well as the Contractor and subcontractors. 4.2.2.4.2 Special Coverages. Tenant or Contractor shall carry "Builder's All Risk" insurance in an amount approved by Landlord covering the construction of the Tenant Improvements, and such other insurance as Landlord may require, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to Section 4.04 of this Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord. 4.2.2.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractor's equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant's sole cost and expense. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All insurance, except Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.2 of this Tenant Work Letter. 4.2.3 Governmental Compliance. The Tenant Improvements shall comply in all respects with the following: (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications. 4.2.4 Inspection by Landlord. Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that Landlord's failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Tenant Improvements constitute Landlord's approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements, Landlord may, take such action as Landlord deems necessary, at Tenant's expense and without incurring any liability on Landlord's part, to correct any such defect, EXHIBIT E - Page 5 39 deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord's satisfaction. 4.3 Notice of Completion; Copy of Updated Approved Working Drawings Plans. 4.3.1 Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Project is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense. 4.3.2 Tenant shall, at Tenant's sole cost and expense, cause Stewart Title Company to furnish a preliminary title report to Landlord, to verify that no liens have been recorded against the Property with respect to the Tenant Improvements, dated not less than thirty (30) days nor more than forty (40) days after the recordation of the Notice of Completion. If Tenant fails to do so, Landlord may request the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense. 4.3.3 At the conclusion of construction, (i) Tenant shall cause the Contractor (A) to update the Approved Working Drawings through annotated changes, as necessary, to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of Contractor's knowledge that such updated Approved Working Drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such updated Approved Working Drawings, together with any permits or similar documents issued by governmental agencies in connection with the construction of the Tenant Improvements, within ninety (90) days following issuance of a certificate of occupancy for the Property, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Property. Sections 4.3.1, 4.3.2 and 4.3.3 above shall be collectively referred to as "Tenant's Completion Requirements." SECTION 5 MISCELLANEOUS 5.1 Tenant's Representative. Tenant has designated Mr. Wasif Siddiqui as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter. 5.2 Landlord's Representative. Landlord has designated Dennis Daze as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter. 5.3 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references in this Tenant Work Letter to a "number of days" shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord. 5.4 Tenant's Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in Article 10 of this Lease or a default by Tenant under this Tenant Work Letter has occurred at any time on or before the substantial completion of the Property, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Property (in which case, Tenant shall be responsible for any delay in the substantial completion of the Property caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Property caused by such inaction by Landlord). EXHIBIT E - Page 6 40 SCHEDULE 1 TO EXHIBIT E STANDARD OUTLINE OF SPECIFICATIONS FOR MAJESTIC SPECTRUM Required to Perform T. I. Work Under Turn-Key Concept in Industrial Bldgs. Prepare Preliminary Plans (for Landlord's and Tenant's approval). Upon approval of Preliminary Plans - Prepare a guarantee maximum price quotation for contract purpose. Price to include the following: WALLS Adjacent to exterior concrete walls - 3-1/2" metal studs at 24" o.c. with 5/8" drywall and R-11 insulation. Interior walls - 3-1/2" metal studs at 24" o.c. with 5/8" drywall and R-11 insulation in all walls dividing conditioned areas. All drywall surfaces to have machine applied texture finish. CEILINGS Ceiling height in toilet areas 9'-0" - 2' x 4' standard metal T-Bar and lay-in acoustical tile units 5/8" thick. Ceiling height in toilet areas 8'-0" - 5/8" drywall attached to structural metal ceiling joists. DOORS AND FRAMES Prefinished browntone Timely redi-frames and stain grade Oak or Birch doors 3'-0" x 6'-8". Use solid core doors to toilet rooms and warehouse space, balance of doors to be hollow core. PAINTING Drywall surfaces in Office Areas - two (2) coats of flat wall paint; toilet room walls and ceilings- two (2) coats semi-gloss enamel; doors - stain and lacquer. FLOOR COVERING Vinyl composition tile - in all toilet rooms, carpeting ($l2.00/yard glued down - - in all Office Areas, 4: high topset rubber base - on all walls. CERAMIC TILE At urinal only (wall and floor). MARLlTE 1/8" thick 4' high with metal trim on all walls in all toilet rooms. FINISH HARDWARE AND TOILET ROOM ACCESSORIES One (1) tissue dispenser at each W.C. One (1) set of handicap grab bars in each toilet room. One (1) 1/4" glass mirror in metal frame 16" x 24" at each sink. Floor mounted metal toilet partitions in multi-occupant toilet room as required. SCHEDULE 1 TO EXHIBIT E - Page 1 41 SHOWER IMPROVEMENT - REQUIREMENT Shower facilities are required by the City of Chino as part of any new tenant improvement package. ELECTRICAL Lighting - Office Areas: 2'x4' four (4) tube fluorescent recessed fixtures designed to meet Title 24 requirements. Toilet Rooms: 1'x4' or 1'x6' surface mounted fluorescent fixtures with wrap-around lens. Convenience Outlets: Toilet rooms one (1) each. Small Offices: Three (3) average. Large Offices: 10' o.c. around room. Special Outlets for D.F., Copier, H.V.A.C. equipment, etc. - if required. Telephone: 3/4" empty conduit with pull wire for each desk location. Distribution panels, home runs, transformer, etc. - as required for complete job. H.V.A.C. Provide one (1) ton of air conditioning for every 350 sq. ft. of floor area. Use roof mounted package units (Carrier or equal - gas heating and electric cooling) set on wood platforms. Provide all required insulated duct work for proper air supply and return. Install thermostat and properly sized supply and return registers. Entire system shall meet Title 24 requirements. PLUMBING Sawcut, break, remove and haul concrete floor slab for sewer trench. Replace floor slab after sewer installation and trench backfill is properly tested. All plumbing fixtures to be American Standard or Kohler. Install 20-gallon (minimum size) gas fired water heater on platform above toilet rooms. Provide hot and cold water, vent and waste system per applicable codes. Install gas piping and condensate lines for H.V.A.C. equipment. Plumbing work shall meet Title 24 requirements. FIRE SPRINKLER SYSTEM (If Applicable) Install in accordance with County or City Fire Department requirements. Obtain Fire Department and I.S.O. approval. It is preferred that the original fire sprinkler contractor be used for the tenant improvement work. MISCELLANEOUS WORK 1) Provide platform over toilet room with proper guard rails. 2) Provide platform on roof for H.V.A.C. equipment. 3) Provide Bilco or equal roof hatch and access ladders from warehouse floor to toilet room and from toilet room platform to roof hatch. 4) Install sheet metal air conditioning screen and patch roof at H.V.A.C. equipment and roof hatch. PLANS AND ENGINEERING Prepare working drawings for Landlord's and Tenant's approval; assure that roof structure can carry H.V.A.C. equipment load and roof screen. Electrical and mechanical plans to be signed by a licensed Engineer and to include Title 24 calculations. Fire sprinkler plans to be prepared by a qualified fire protection engineer. Assure that roof structure can carry additional piping loads and H.V.A.C. equipment. PERMITS AND FEES 1) Obtain Planning Department approval. 2) Obtain Building Permit. 3) Pay all required Plan Check and Permit fees. SCHEDULE 1 TO EXHIBIT E - Page 2 42 CONSTRUCTION 1) Construct all work in accordance with approved plans (approved by Landlord, Tenant and Building Department). 2) Keep project lien free. 3) Submit proper legal releases with monthly pay requests. POST-CONSTRUCTION REQUIREMENTS (Prior to Retention Payment) 1) Provide Guarantees (General Contractor's and Subcontractor's guarantees). a. One (1) year all trades. b. Roofing two (2) years minimum. c. H.V.A.C. equipment (90 days - free labor and material maintenance and five (5) year compressor warranty on equipment). d. Prepare and submit maintenance contract for H.V.A.C. equipment. 2) Notice of Completion. a. Prepare Notice of Completion for Landlord's signature. b. Obtain Landlord's signature and record with County Recorder. 3) As-Built Drawings and Operating Manuals a. Provide three (3) sets of Instructions/Operating Manuals for all equipment installed, i.e. H.V.A.C. b. Provide as-built drawings for project, i.e. electrical, H.V.A.C. plumbing, fire sprinklers and architectural and structural, if changes were incorporated into the project. MEZZANINE CONSTRUCTION The second floor mezzanine structure shall be engineered to provide for a minimum live load of 100 pounds per square foot as calculated by a licensed structural engineer in the State of California. SCHEDULE 1 TO EXHIBIT E - Page 3 43 EXHIBIT F FORM LETTER OF CREDIT (Letterhead of a money center bank acceptable to the Landlord) ______________, 1997 Majestic Realty Co. and Patrician Associates, Inc. 13191 Crossroads Parkway North, 6th Floor City of Industry, CA 91746 Gentlemen: We hereby establish our Irrevocable Letter of Credit and authorize you to draw on us at sight for the account Majestic Realty Co. and Patrician Associates, Inc., both California corporations, the aggregate amount of THIRTY- THREE THOUSAND SEVEN HUNDRED AND FIFTY DOLLARS AND NO/100 ($33,750.00). Funds under this Letter of Credit are available to the beneficiary hereof as follows: Any or all of the sums hereunder may be drawn down at any time and from time to time from and after the date hereof by a vice president, senior vice president, executive vice president, first vice president or president ("Representative") of Majestic Realty Co. or Patrician Associates, Inc., both California corporations (collectively, "Beneficiary") when accompanied by this Letter of Credit and a written statement signed by a Representative of Beneficiary, certifying that such moneys are due and owing to Beneficiary, and a sight draft executed and endorsed by a Representative of Beneficiary. This Letter of Credit is transferable in its entirety. Should a transfer be desired, such transfer will be subject to the return to us of this advice, together with written instructions. The amount of each draft must be endorsed on the reverse hereof by the negotiating bank. We hereby agree that this Letter of Credit shall be duly honored upon presentation and delivery of the certification specified above. This Letter of Credit shall expire on ___________________. Notwithstanding the above expiration date of this Letter of Credit, the term of this Letter of Credit shall be automatically renewed for successive, additional one (1) year periods unless, at least sixty (60) days prior to any such date of expiration, the undersigned shall give written notice to Beneficiary, by certified mail, return receipt requested and at the address set forth above or at such other address as may be given to the undersigned by Beneficiary, that this Letter of Credit will not be renewed. This Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce Publication 400. Very truly yours, (Name of Issuing Bank) By: ______________________________ EXHIBIT F - Page 1 44 GUARANTY OF LEASE This Guaranty of Lease (the "Guaranty") is attached to and made part of that certain real estate Lease (the "Lease") dated _________________________, between Majestic Realty Co. and Patrician Associates, Inc. , both as California corporations, collectively, as Landlord, and Luminex, Inc., a California corporation , as Tenant, covering the Property commonly known as 13710 Ramona Avenue, Chino, California . The terms used in this Guaranty shall have the same definitions as set forth in the Lease. In order to induce Land-lord to enter into the Lease with Tenant, Mr. Wasif Siddiqui, an individual ("Guarantors"), have agreed to execute and deliver this Guaranty to Landlord. Each Guarantor acknowledges that Landlord would not enter into the Lease if each Guarantor did not execute and deliver this Guaranty to Landlord. 1. GUARANTY. In consideration of the execution of the Lease by Landlord and as a material inducement to Landlord to execute the Lease, each Guarantor hereby irrevocably, unconditionally, jointly and severally guarantees the full, timely and complete (a) payment of all rent and other sums payable by Tenant to Landlord under the Lease, and any amendments or modifications thereto by agreement or course of conduct. The payment of those amounts and performance of those obligations shall be conducted in accordance with all terms, covenants and conditions set forth in the Lease, without deduction, offset or excuse of any nature and without regard to the enforceability or validity of the Lease, or any part thereof, or any disability of Tenant. 2. LANDLORD'S RIGHTS. Landlord may perform any of the following acts at any time during the Lease Term, without notice to or assent of any Guarantor and without in a any way releasing, affecting or impairing any of Guarantor's obligations or liabilities under the Guaranty: (a) alter, modify or amend the Lease by agreement or course of conduct, (b) grant extensions or renewals of the Lease, (c) assign or otherwise transfer its interest in the Lease, the Property, or this Guaranty, (d) consent to any transfer or assignment of Tenant's or any future tenant's interest under the Lease, (e) release one or more Guarantor, or amend or modify this Guaranty with respect to any Guarantor, without releasing or discharging any other Guarantor from any of such Guarantor's obligations or liabilities under this Guaranty, (f) take and hold security from Tenant for the payment of the Lease exchange, enforce, waive and release any such security (g) apply such security and direct the order or manner of sale thereof as Landlord, in its sole discretion, deems appropriate, and (h) foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of Guarantor under this Guaranty, except to the extent the indebtedness has been paid. 3. TENANT'S DEFAULT. This Guaranty is a guaranty of payment and performance, and not of collection. Upon any breach or default by Tenant under the Lease, Landlord may proceed immediately against Tenant and/or any Guarantor to enforce any of Landlord's rights or remedies against Tenant or any Guarantor pursuant to this Guaranty, the Lease, or at law or in equity without notice to or demand upon either Tenant or any Guarantor. This Guaranty shall not be released, modified or affected by any failure or delay by Landlord to enforce any of its rights or remedies under the Lease or this Guaranty, or at law or in equity. 4. GUARANTOR'S WAIVERS. Each Guarantor hereby waives (a) presentment, demand for payment and protest of non-performance under the Lease, (b) notice of any kind including, without limitation, notice of acceptance of this Guaranty, protest, presentment, demand for payment, default, nonpayment, or the creation or incurring of new or additional obligations of Tenant to Landlord, (c) any right to require Landlord to enforce its rights or remedies against Tenant under the Lease, or otherwise, or against any other Guarantor, (d) any right to require Landlord to proceed against any security held from tenant or any other party, (e) any right of subrogation and (f) any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or other right or remedy of Guarantors against Landlord or any such security, whether resulting from an election by Landlord, or otherwise. Any part payment by Tenant or other circumstance which operates to toll any statute of limitations as to Tenant shall operate to toll the statute of limitations as to Guaranty. 5. SEPARATE AND DISTINCT OBLIGATIONS. Each Guarantor acknowledges and agrees that such Guarantor's obligations to Landlord under this Guaranty are separate and distinct from tenant's obligations to Landlord under eh Lease. The occurrence of any of the following events shall not have any effect whatsoever on any Guarantor's obligations to Landlord hereunder, each of which obligations shall continue in full force or effect as though such event had not occurred; (a) the commencement by Tenant of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended or replace, or any other applicable federal or state bankruptcy, insolvency or other similar law (collectively, the "Bankruptcy Laws"), (b) the consent by Tenant to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of Tenant or for any substantial part of its property, (c) any assignment by Tenant for the benefit of creditors, (d) the failure of Tenant generally to pay its 45 debts as such debts become due, (e) the taking of corporate action by Tenant in the furtherance of any of the foregoing; or (f) the entry of a decree or order for relief by a court having jurisdiction in respect of Tenant in any involuntary case under the Bankruptcy Laws, or appointing a receiver, liquidator, assigned, custodian, trustee, sequestrator (or similar official) of Tenant or for any substantial part of its property, or ordering the winding up or liquidation of any of its affairs and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days. The liability of Guarantors under this Guaranty is not and shall not be affected or impaired by any payment made to Landlord under or related to the Lease for which Landlord is required to reimburse Tenant pursuant to any court order or in settlement of any dispute, controversy or litigation in any bankruptcy, reorganization, arrangement, moratorium or other federal or state debtor relief proceeding. If , during any such proceeding, the Lease is assumed by Tenant or any trustee, or thereafter assigned by Tenant or any trustee to a trustee or any such third party's obligations under the Lease. 6. SUBORDINATION. All existing and future advances by Guarantor to Tenant, and all existing and future debts of Tenant to any Guarantor, shall be subordinated to all obligations owed to Landlord under the Lease and this Guaranty. 7. SUCCESSORS AND ASSIGNS. This Guaranty binds each Guarantor's personal representatives, successors and assign. 8. ENCUMBRANCES. If Landlord's interest in the Property or the Lease, or the rents, issues or profits therefrom, are subject to any deed of trust, mortgage or assignment for security, any Guarantor's acquisition of Landlord's interest in the Property or Lease shall not affect any of Guarantor's obligations under this Guaranty. In such event, this Guaranty shall nevertheless continue in full force and effect for the benefit of any mortgagee, beneficiary, trustee or assignee or any purchaser at any sale by judicial foreclosure or under any private power of sale, and their successors and assigns. Any married Guarantor expressly agrees that Landlord has recourse against any Guarantor's separate property for all of such Guarantor's obligations hereunder. 9. GUARANTOR'S DUTY. Guarantors assume the responsibility to remain informed of the financial condition of Tenant, and of all other circumstances bearing upon the risk of Tenant's default, which reasonable inquiry would reveal and agree that Landlord shall have no duty to advise Guarantors of information known to it regarding such condition or any such circumstance. 10. LANDLORD'S RELIANCE. Landlord shall not be required to inquire into the powers of Tenant or the officers, employees, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. 11. INCORPORATION OF CERTAIN LEASE PROVISIONS. Each Guarantor hereby represents and warrants to Landlord that such Guarantor has received a copy of the Lease, has read or had the opportunity to read the Lease, and understands the terms of the Lease. The provisions in the Lease relating to the execution of additional documents, legal proceedings by Landlord against Tenant, severability of the provisions of the Lease, interpretation of the Lease, notices, waivers, the applicable laws which govern the interpretation of the Lease and the authority of the Tenant to execute the Lease are incorporated herein the their entirety by this reference and made a part hereof. Any reference in those provisions to "Tenant" shall mean each Guarantor and any reference in those provisions to the "Lease" shall mean this Guaranty, except that (a) any notice which any Guarantor desires or is required to provide to Landlord shall be effective only if signed by all Guarantors and (b) any notice which Landlord desires or is required to provide to any Guarantor shall be sent to such Guarantor at such Guarantor's address indicted below, or if no address is indicated below, at the address for notices to be sent to Tenant under the Lease. Notwithstanding anything contrary in this Guaranty, if Tenant has not been in default under the Lease more than three (3) times during the initial Lease Term, then the Guarantor, shall be released from liability upon expiration of the initial Lease Term. Signed on , 19 Mr. Wasif Siddiqui, an individual ----------------------- ----- ---------------------------------- By: /s/ WASIF A. SIDDIQUI - ------------------------------------- ------------------------------- Its - ------------------------------------ ------------------------------- Address 46 Signed on , 19 ----------------- ----- -------------------------------- - -------------------------- By: /s/ Tasneem Siddiqui - --------------------------- -------------------------------- Address Its: ------------------------------ THIS PRINTED FORM GUARANTY HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL REALTORS, INC., ITS LEGAL COUNSEL, OR THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS GUARANTY OR OF THIS TRANSACTION. EACH GUARANTOR SHOULD RETAIN LEGAL COUNSEL TO ADVISE SUCH GUARANTOR ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL. EX-10.2 15 LUMINEX LIGHTING, INC BENEFIT PLAN, ANNUAL SALARY 1 EXHIBIT 10.2 LUMINEX LIGHTING, INC. BENEFIT PLAN, ANNUAL SALARY AND BONUS COMPENSATION PLAN FOR WASIF SIDDIQUI, DATED JUNE 30, 1996 2 June 30, 1996 LUMINEX LIGHTING, INC. BENEFIT PLAN ANNUAL SALARY AND BONUS COMPENSATION PLAN This letter sets forth the terms and conditions of the Annual Salary and Bonus Compensation Plan (the "Plan") agreed upon by Mr. Wasif Siddiqui ("Executive") and Luminex Lighting, Inc., a California corporation ("Company"). 1. TERM The term of this Plan (the "Term") is five years and is renewable upon its expiration subject to approval of the Board of Directors of the Company. 2. COMPENSATION As compensation and consideration for all Services provided by Executive during his term, Company agrees to pay to Executive the compensation set forth below. 2.1 ANNUAL SALARY COMPENSATION. Executive shall receive an annual salary in the amount of ninety six thousand Dollars ($96,000.00) per annum. Each 12 months thereafter, Executive's Annual Compensation shall be increased (but never decreased) by five percent (5%). This can, however, be amended at any time hereafter. 2.2 ANNUAL BONUS COMPENSATION. Executive shall receive bonus compensation with respect to each fiscal year equal to three percent (3%) of gross annual sales provided that such bonus compensation does not create a net loss before taxes for the Company. Gross Annual Sales shall be based on the year-end financial statement as prepared by the Company's independent Certified Public Accountants. The bonus compensation payable to the Executive under this paragraph 1.2 shall be paid within (90) days following the end of such fiscal year. 2.3 ADDITIONAL BENEFITS. Additional benefits to Executive to enter into this Agreement, during the Term, Company agrees as follows: 2.3.1 To provide Executive with a car allowance for business purposes of $1,500.00 per month payable to Executive for leasing, maintenance, repair, and insurance of an automobile chosen and leased by Executive ("Automobile Benefits"). 2.3.2 During each year of the Term, to provide Executive a paid vacation of three (3) weeks. Such vacation shall be taken at such time or times during the applicable year. 2.3.3 Executive will be entitled to reimbursement of his customary and documented business expenses, including travel, incurred on behalf of Company. Please confirm agreement to the foregoing by signing below where indicated. Effective as of January 1, 1997. AGREED TO AND ACCEPTED this 1 day of January, 1997 EXECUTIVE: /s/ Wasif Siddiqui -------------------------------- WASIF SIDDIQUI, CEO/President LUMINEX LIGHTING, INC. EX-10.3 16 LUMINEX LIGHTING, INC. BONUS COMPENSATION PLAN 1 EXHIBIT 10.3 LUMINEX LIGHTING, INC. BONUS COMPENSATION PLAN FOR CHARLES BOULOS, DATED DECEMBER 15, 1996 2 December 15, 1996 LUMINEX LIGHTING, INC. BONUS COMPENSATION PLAN This letter sets forth the terms and conditions of the Bonus Compensation Plan agreed upon by Mr. Charles Boulos ("Employee") and Luminex Lighting, Inc., a California corporation ("Company"). 1. COMPENSATION As compensation and consideration for all Services provided by Employee during his term, Company agrees to pay to Employee the compensation set forth below. 1.1 ANNUAL BONUS COMPENSATION. Employee shall receive bonus compensation with respect to each fiscal year in a range between half percent (0.5%) and one percent (1%), not to exceed (1%) of gross annual sales. Actual percentage for bonus compensation will be determined by the Board of Directors at the annual meeting. It shall be no less than 0.5% and no more than 1%. Gross Annual Sales shall be based on the year-end financial statement as prepared by the Company's independent Certified Public Accountants. The bonus compensation payable to Employee under this paragraph 1.1 shall be paid within (90) days following the end of such fiscal year. Please confirm agreement to the foregoing by signing below where indicated. Effective as of January 1, 1997. AGREED TO AND ACCEPTED this 1 day of January, 1997 EMPLOYEE: /s/ Charles Boulos /s/ Wasif Siddiqui ---------------------------- ---------------------------------- CHARLES BOULUS WASIF SIDDIQUI LUMINEX LIGHTING, INC. LUMINEX LIGHTING, INC. EX-10.4 17 LUMINEX LIGHTING, INC. 1997 INCENTIVE PLAN 1 EXHIBIT 10.4 LUMINEX LIGHTING, INC. 1997 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN DATED MAY 5, 1997 2 LUMINEX LIGHTING, INC. 1997 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN 1. Purpose This Incentive and Nonstatutory Stock Option Plan (the "Plan") is intended to further the growth and financial success of LUMINEX LIGHTING, INC., a California corporation (the "Corporation") by providing additional incentives to selected employees of and consultants to the Corporation or parent corporation or subsidiary corporation of the Corporation as those terms are defined in Sections 425(3) and 425(f) of the Internal Revenue Code of 1986, as amended (the "Code") (such parent corporations and subsidiary corporations hereinafter collectively referred to as "Affiliates") so that such employees and consultants may acquire or increase their proprietary interest in the Corporation. Stock options granted under the Plan (hereinafter "Options") may be either "Incentive Stock Options," as defined in Section 422A of the Code and any regulations promulgated under said Section, or "Nonstatutory Options" at the discretion of the Board of Directors of the Corporation (the "Board") and as reflected in the respective written stock option agreements granted pursuant hereto. 2. Administration The Plan shall be administered by the Board of Directors of the Corporation; provided however, that the Board may delegate such administration to a committee of not fewer than three (3) members (the "Committee"), at least two (2) of whom are members of the Board and all of whom are disinterested administrators, as contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"); and provided further, that the foregoing requirement for disinterested administrators shall not apply prior to the date of the first registration of any of the securities of the Corporation under the Securities Act of 1933, as amended. Subject to the provisions of the Plan, the Board and/or the Committee shall have authority to (a) grant, in its discretion, Incentive Stock Options in accordance with Section 422A of the Code or Nonstatutory Options; (b) determine in good faith the fair market value of the stock covered by an Option; (c) determine which eligible persons shall be granted Options and the number of shares to be covered thereby and the term thereof; (d) construe and interpret the Plan; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions, and inconsistencies in the Plan or any Option; (f) consistent with the Plan and with the consent of the optionee, as appropriate, amend any outstanding Option or amend the exercise date or dates thereof; (g) determine the duration and purpose of leaves of absence which may be granted to optionholders without constituting termination of their employment for the purpose of the Plan; and (h) make all other determinations necessary or advisable for the Plan's administration. The interpretation and construction by the Board of any provisions of the Plan or of any Option it shall be conclusive and final. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option. 3. Eligibility The persons who shall be eligible to receive Options shall be key employees of or consultants to the Corporation or any of its Affiliates ("Optionees"). The term consultant shall mean any person who is engaged by the Corporation to render services and is compensated for such services, and any director of the Corporation whether or not compensated for such services; provided that, if the Corporation registers any of its securities pursuant to the Securities Exchange Act of 1934, the term consultant shall thereafter not include directors who are not compensated for their services or are paid only a director fee by the Corporation. (a) Incentive Stock Options. Incentive Stock Options may only be issued to employees of the Corporation or its Affiliates. Incentive Stock Options may be granted to officers, whether or not they are directors, but a director shall not be granted an Incentive Stock Option unless such director is also an employee of the Corporation. Payment of a director fee shall not be sufficient to constitute employment by the Corporation. Any grant of option to an officer or director of the Corporation subsequent to the first registration of any of the securities of the Corporation A-1 3 under Securities Act of 1933, as amended, shall comply with the requirements of Rule 16b-3. An optionee may hold more than one Option. The Corporation shall not grant an Incentive Stock Option under the Plan to any employee if such grant would result in such employee holding the right to exercise for the first time in any one calendar year, under all options granted to such employee under the Plan or any other stock option plan maintained by the Corporation or any Affiliate, with respect to shares of stock having an aggregate fair market value, determined as of the date of the Option is granted, in excess of $100,000. Should it be determined that an Incentive Stock Option granted under the Plan exceeds such maximum for any reason other than a failure in good faith to value the stock subject to such option, the excess portion of such option shall be considered a Nonstatutory Option. If, for any reason, an entire option does not qualify as an Incentive Stock Option by reason of exceeding such maximum, such option shall be considered a Nonstatutory Option. (b) Nonstatutory Option. The provisions of the foregoing Section 3(a) shall not apply to any option designated as a "Non-statutory Stock Option Agreement" or which sets forth the intention of the parties that the option be a Nonstatutory Option. 4. Stock The stock subject to Options shall be the shares of the Corporation's authorized but unissued or reacquired Common Stock (the "Stock"). (a) Number of Shares. Subject to adjustment as provided in Paragraph 5(i) of this Plan, the total number of shares of Stock which may be purchased through exercise of Options granted under this Plan shall not exceed five hundred thousand (500,000) shares. If any Option shall for any reason terminate or expire, any shares allocated thereto but remaining unpurchased upon such expiration or termination shall again be available for the grant of Options with respect thereto under this Plan as though no Option had been granted with respect to such shares. (b) Reservation of Shares. The Corporation shall reserve and keep available at all times during the term of the Plan such number of shares as shall be sufficient to satisfy the requirements of the Plan. If, after reasonable efforts, which efforts shall not include the registration of the Plan or Options under the Securities Act of 1933, the Corporation is unable to obtain authority from any applicable regulatory body, which authorization is deemed necessary by legal counsel for the Corporation for the lawful issuance of shares hereunder, the Corporation shall be relieved of any liability with respect to its failure to issue and sell the shares for which such requisite authority was so deemed necessary unless and until such authority is obtained. 5. Terms and Conditions of Options Options granted hereunder shall be evidenced by agreements between the Corporation and the respective Optionees, in such form and substance as the Board or Committee shall from time to time approve. Such agreements need not be identical, and in each case may include such provisions as the Board or Committee may determine, but all such agreements shall be subject to and limited by the following terms and conditions: (a) Number of Shares: Each Option shall state the number of shares to which it pertains. (b) Option Price: Each Option shall state the Option Price, which shall be determined as follows: (i) Any Option granted to a person who at the time the Option is granted owns (or is deemed to own pursuant to Section 425(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of value of all classes of stock of the Corporation, or of any Affiliate, ("Ten Percent Holder") shall have an Option Price of no less than 110% of the fair market value of the common stock as of the date of grant; and A-2 4 (ii) Incentive Stock Options granted to a person who at the time the Option is granted is not a Ten Percent Holder shall have an Option price of no less than 100% of the fair market value of the common stock as of the date of grant. (iii) Nonstatutory Options granted to a person who at the time the Option is granted is not a Ten Percent Holder shall have an Option Price determined by the Board as of the date of grant. For the purposes of this paragraph 5(b), the fair market value shall be as determined by the Board, in good faith, which determination shall be conclusive and binding; provided however, that if there is a public market for such stock, the fair market value per share shall be the average of the bid and asked prices (or the closing price if such stock is listed on the NASDAQ National Market System) on the date of grant of the Option, or if listed on a stock exchange, the closing price on such exchange on such date of grant. (c) Medium and Time of Payment: To the extent permissible by applicable law, the Option price shall be paid, at the discretion of the Board, at either the time of grant or the time of exercise of the Option (i) in cash or by check, (ii) by delivery of other common stock of the Corporation, provided such tendered stock was not acquired directly or indirectly from the Corporation, or, if acquired from the Corporation, has been held by the Optionee for more than six (6) months, (iii) by the Optionee's promissory note in a form satisfactory to the Corporation and bearing interest at a rate determined by the Board, in its sole discretion, but in no event less than 6% per annum, or (iv) such other form of legal consideration permitted by the California Corporations Code as may be acceptable to the Board. (d) Term and Exercise of Options: Any Option granted to an Employee of the Corporation shall become exercisable over a period of no longer than five (5) years, and no less than twenty percent (20%) of the shares covered thereby shall become exercisable annually. No Option shall be exercisable, in whole or in part, prior to one (1) year from the date it is granted unless the Board shall specifically determine otherwise, as provided herein. In no event shall any Option be exercisable after the expiration of ten (10) years from the date it is granted, and no Incentive Stock Option granted to a Ten Percent Holder shall, by its terms, be exercisable after the expiration of five (5) years from the date of the Option. Unless otherwise specified by the Board or the Committee in the resolution authorizing such option, the date of grant of an Option shall be deemed to be the date upon which the Board or the Committee authorizes the granting of such Option. Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide. During the lifetime of an Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, and no other person shall acquire any rights therein. To the extent not exercised, installments (if more than one) shall accumulate, but shall be exercisable, in whole or in part, only during the period for exercise as stated in the option agreement, whether or not other installments are then exercisable. (e) Termination of Status as Employee or Consultant: If Optionee's status as an employee or consultant shall terminate for any reason other than Optionee's disability or death, then the Optionee (or if the Optionee shall die after such termination, but prior to exercise, Optionee's personal representative or the person entitled to succeed to the Option) shall have the right to exercise the portions of any such termination, in whole or in part, at any time within three (3) months after such termination (or in the event of "termination for good cause" as that term is defined under California Labor Code and case law related thereto, such shorter period as the option agreement may specify, but not less than 30 days) or the remaining term of the Option, whichever is the lesser; provided, however, that with respect to Nonstatutory Options, the Board may specify such longer period, not to exceed six (6) months, for exercise following termination as the Board deems reasonable and appropriate. The Option may be exercised only with respect to installments that the Optionee could have exercised at the date of termination of employment. Nothing contained herein or in any Option granted pursuant hereto shall be construed to affect or restrict in any way the right of the Corporation to terminate the employee of an Optionee with or without cause. (f) Disability of Optionee: If an Optionee dies while employed or engaged as a consultant by the Corporation or an Affiliate, the portion of such Optionee's Option or Options which were exercisable at the date of death may be exercised, in whole or in part, by the estate of the decedent or by a person succeeding to the right to A-3 5 exercise such Option or Options, at any time within (i) a period, as determined by the Board and set forth in the Option, of not less than six (6) months nor more than one (1) year after Optionee's death, which period shall not be less, in the case of a Nonstatutory Option, than the period for exercise following termination, or (ii) during the remaining term of the Option, whichever is the lesser. The Option may be so exercised only with respect to installments exercisable at the time of Optionee's death and not previously exercised by the Optionee. (g) Nontransferability of Option: No Option shall be transferable by the Optionee, except by will or by the laws of descent and distribution. (h) Recapitalization: Subject to any required action by the stockholders, the number of shares of common stock covered by each outstanding Option, and the price per share thereof set forth in each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock of the Corporation resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares affected without receipt of consideration by the Corporation. Subject to any required action by the stockholders, if the Corporation shall be the surviving entity in any merger or consolidation, each outstanding Option thereafter shall pertain to and apply to the securities to which a holder of shares of common stock equal to the shares subject to the Option would have been entitled by reason of such merger or consolidation. A dissolution or liquidation of the Corporation or a merger or consolidation in which the Corporation is not the surviving entity shall cause each outstanding Option to terminate on the effective date of such dissolution, liquidation, merger or consolidation. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, but shall not be obligated to do so, the right for a period commencing thirty (30) days prior to and ending immediately prior to such dissolution, liquidation, merger or consolidation or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options, without regard to the installment provisions of Paragraph 5(d) of this Plan; provided, that any such right granted shall be granted to all Optionees not receiving an offer to substitute on a consistent basis, and provided further, that any such exercise shall be subject to the consummation of such dissolution, liquidation, merger or consolidation. In the event of a change in the common stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares without par value into the same number of shares with a par value, the shares resulting from any such change shall be deemed to be the common stock within the meaning of this Plan. To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided in this Paragraph 5(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock or any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number or price of shares of common stock subject to any Option shall not be affected by, and no adjustment shall be made by reason of, any dissolution, liquidation, merger or consolidation, or any issue by the Corporation of shares of stock of any class or securities convertible into shares of stock of any class. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make any adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets. (i) Rights as a Stockholder: An Optionee shall have no rights as a stockholder with respect to any shares covered by an Option until the date of the issuance of a stock certificate to Optionee for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Paragraph 5(i) hereof. A-4 6 (j) Modification, Acceleration, Extension, and Renewal of Options: Subject to the terms and conditions and within the limitations of the Plan, the Board may modify an Option, or once an Option is exercisable, accelerate the rate at which it may be exercised, and may extend or renew outstanding Options granted under the Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution for such Options, provided such action is permissible under Section 422A of the Code and Section 260.140.41 of the Corporate Securities Rules of the California Corporations Commissioner. Notwithstanding the foregoing provisions of this Paragraph 5(k), however, no modification of an Option shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights or obligations under any Option theretofore granted under the Plan. (k) Investment Intent: Unless and until the issuance and sale of the shares subject to the Plan are registered under the Securities Act of 1933, as amended (the "Act"), each Option under the Plan shall provide that the purchases of stock thereunder shall be for investment purposes and not with a view to, or for resale in connection with, any distribution thereof. Further, unless the issuance and sale of the stock have been registered under the Act, each Option shall provide that no shares shall be purchased upon the exercise of such Option unless and until (i) any then applicable requirements of state and federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Corporation and its counsel, and (ii) if requested to do so by the Corporation, the person exercising the Option shall (i) give written assurances as to knowledge and experience of such person (or a representative employed by such person) in financial and business matters and the ability of such person (or representative) to evaluate the merits and risks of exercising the Option, and (ii) execute and deliver to the Corporation a letter of investment intent, all in such form and substance as the Corporation may require. If shares are issued upon exercise of an Option without registration under the Act, subsequent registration of such shares shall relieve the purchaser thereof of any investment restrictions or representations made upon the exercise of such Options. (l) Exercise Before Exercise Date: At the discretion of the Board, the Option may, but need not, include a provision whereby the Optionee may elect to exercise all or any portion of the Option prior to the stated exercise date of the Option or any installment thereof. Any shares so purchased prior to the stated exercise date shall be subject to repurchase by the Corporation upon termination of Optionee's employment as contemplated by Paragraphs 5(3), 5(f) and 5(g) hereof prior to the exercise date stated in the Option and such other restrictions and conditions as the Board or Committee may deem advisable. (m) Other Provisions: The Option agreements authorized under this Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the Options, as the Board or the Committee shall deem advisable. Shares shall not be issued pursuant to the exercise of an Option, if the exercise of such Option or the issuance of shares thereunder would violate, in the opinion of legal counsel for the Corporation, the provisions of any applicable law or the rules or regulations of any applicable governmental or administrative agency or body, such as the Act, the Securities Exchange Act of 1934, the rules promulgated under the foregoing or the rules and regulations of any exchange upon which the shares of the Corporation are listed. 6. Availability of Information During the term of the Plan and any additional period during which an Option granted pursuant to the Plan shall be exercisable, the Corporation shall make available, not later than one hundred and twenty (120) days following the close of each of its fiscal years, such financial and other information regarding the Corporation as is required by the bylaws of the Corporation and applicable law to be furnished in an annual report to the stockholders of the Corporation. 7. Effectiveness of Plan; Expiration Subject to approval by the stockholders of the Corporation, this Plan shall be deemed effective as of the date it is adopted by the Board. The Plan shall expire on December 31, 1997, but such expiration shall not affect the validity of outstanding Options. A-5 7 8. Amendment and Termination of the Plan The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to Options, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that without the approval of the stockholders of the Corporation, no such revision or amendment shall (i) increase the number of shares subject to the Plan, (ii) decrease the price at which Options may be granted, (iii) materially increase the benefits to Optionees, or (iv) change the class of persons eligible to receive Options under this Plan; provided, however, no such action shall alter or impair the rights and obligations under any Option outstanding as of the date thereof without the written consent of the Optionee thereunder. No Option may be granted while the Plan is suspended or after it is terminated, but the rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan. 9. Indemnification of Board In addition to such other rights or indemnifications as they may have as directors or otherwise, and to the extent allowed by applicable law, the members of the Board and the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any claim, action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken, or failure to act, under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such claim, action, suit or proceeding, except in any case in relation to matters as to which it shall be adjudged in such claim, action, suit or proceeding that such Board member is liable for negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of any such action, suit or Board proceeding the member involved shall offer the Corporation, in writing, the opportunity, at its own expense, to handle and defend the same. 10. Application of Funds The proceeds received by the Corporation from the sale of common stock pursuant to the exercise of Options will be used for general corporate purposes. 11. No Obligation to Exercise Option The granting of an Option shall impose no obligation upon the Optionee to exercise such Option. 12. Notices All notice, requests, demand, and other communications pursuant this Plan shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day following the mailing thereof to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid. * * * * * The foregoing Incentive Stock Option Plan was duly adopted and approved by the Board of Directors on May 5, , 1997, and approved by the shareholders of the Corporation effective May 5, 1997. /s/ TASNEEM SIDDIQUI ---------------------------------- Tasneem Siddiqui, Secretary A-6 EX-10.5 18 LUMINEX LIGHTING, INC. ANNUAL SALARY & BONUS PLAN 1 EXHIBIT 10.5 LUMINEX LIGHTING, INC. ANNUAL SALARY AND BONUS COMPENSATION PLAN FOR TASNEEM SIDDIQUI DATED AUGUST 19, 1997 2 LUMINEX LIGHTING, INC. BENEFIT PLAN ANNUAL SALARY AND BONUS COMPENSATION PLAN This letter sets forth the terms and conditions of the Annual Salary and Bonus Compensation Plan (the "Plan") agreed upon by Ms. Tasneem Siddiqui ("Executive") and Luminex Lighting, Inc., a California corporation ("Company"). 1. TERM The term of this Plan (the "Term") is five years and is renewable upon its expiration subject to approval of the Board of Directors of the Company. 2. COMPENSATION As compensation and consideration for all Services provided by Executive during her term, Company agrees to pay to Executive the compensation set forth below. 2.1 ANNUAL SALARY COMPENSATION. Executive shall receive an annual salary in the amount of seventy two thousand Dollars ($72,000.00) per annum. Each 12 months thereafter, Executive's Annual Compensation shall be increased (but never decreased by five percent (5%). This can, however, be amended any time hereafter. 2.2 ANNUAL BONUS COMPENSATION. Executive shall receive bonus compensation with respect to each fiscal year in an amount up to one percent (1%) of gross annual sales in the discretion of the Board of Directors provided that such bonus compensation does not create a net loss before taxes for the Company. Gross Annual Sales shall be based on the year-end financial statement as prepared by the Company's independent Certified Public Accountants. The Bonus Compensation payable to the Executive under this paragraph 1.2 shall be paid within (90) days following the end of such fiscal year. 2.3 ADDITIONAL BENEFITS. Additional benefits to Executive to enter into this Agreement, during this Term, Company agrees as follows: 2.3.1 To provide Executive with a car allowance for business purposes of $1,500 per month payable to Executive for leasing, maintenance, repair, and insurance of an automobile chosen and leased by Executive ("Automobile Benefits'). 2.3.3 Executive will be entitled to reimbursement of his customary and documented business expenses incurred on behalf of Company. Please confirm agreement to the foregoing by signing below where indicated. Effective as of June 1, 1997. AGREED TO AND ACCEPTED this 19th day of August, 1997 EXECUTIVE: /s/ Tasneem Siddiqui /s/ Wasif Siddiqui --------------------------- ---------------------------------- TASNEEM SIDDIQUI WASIF SIDDIQUI Executive Vice President CEO/President LUMINEX LIGHTING, INC. LUMINEX LIGHTING, INC. EX-10.6 19 LEASE AGREEMENT, MILFORD, MASS. 1 EXHIBIT 10.6 LEASE AGREEMENT, DATED NOVEMBER 19, 1996 2 STANDARD COMMERCIAL LEASE 1. PARTIES Clifford L. Gordon, Trustee of Birchwood Trust, under Declaration of Trust dated October 21, 1986 LESSOR, which expression shall include it's heirs, successors, and assigns where the context so admits, does hereby lease to Chuck Boulos/Luminex Lighting LESSEE, which expression shall include his successors, executors, administrators, and assigns where the context so admits, and the LESSEE hereby leases the following described premises: 2. PREMISES Suite 111, in "as is" condition, together with the right to use in common, with others entitled thereto, the hallways and stairways necessary for access to said leased premises, and lavatories nearest thereto. 3. TERM The term of this lease shall be for one year commencing on December 1, 1996 and ending on November 30, 1997. 4. RENT The LESSEE shall pay to the LESSOR rent at the rate of $3,300 dollars per year, payable in advance in monthly installments of $275. 5. SECURITY Upon the execution of this lease, the LESSEE shall pay to DEPOSIT the LESSOR the amount of $275 refunded to the LESSEE at the end of this lease subject to the LESSEE's satisfactory compliance with the conditions hereof. 6. RENT The lessee shall pay to the lessor as a additional rent one ADJUSTMENT percent of any increase in real estate taxes levies against the land and building, of which the leased premises are a part, over those incurred or levied during the calendar year ending 6/30/97. This increase shall be prorated should this lease terminate before the end of any calendar year. The LESSEE shall make payment within thirty (30) days of written notice from the LESSOR that such operating expenses, or increased taxes, are payable by the LESSOR, LESSEE shall not be responsible for either "rent adjustment" during the first 12 months of this lease. 7. UTILITIES LESSEE shall pay for all LESSEE's heat and air conditioning and utilities. LESSOR agrees to furnish reasonable heat to the hallways, stairways, elevators, and lavatories during normal business hours on regular business days of the heating season of each year, to furnish elevator service and to light passageways and stairways during business hours, and to furnish such cleaning service to the common areas as is customary in similar buildings in said city or town, all subject to interruption due to any accident , to the making of repairs, alterations, or improvements, to labor difficulties, to trouble in obtaining fuel, electricity, service or supplies from the sources from which they are usually obtained for said building, or to any cause beyond the LESSOR's control. 8. USE OF LEASED OF The LESSEE shall use the leased premises only for the PREMISES purpose of his lighting business. 9. COMPLIANCE The LESSEE acknowledges that no trade or occupation shall be WITH LAWS conducted in the leased premises or use made thereof which will be unlawful, improper, noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the city or town in which the premises are situated. 10. INSURANCE The LESSEE shall not permit any use of the leased premises which will make voidable any insurance on the property of which the leased premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from time to time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers. The LESSEE shall on 1 3 demand reimburse the LESSOR, and all other tenants, all extra insurance premiums caused by the LESSEE's use of the premises. 11. MAINTENANCE The LESSEE agrees to maintain the leased premises in the OF PREMISES same condition as they are at the commencement of the term or as they may be put in during the term of this lease, reasonable wear and tear, damage by fire and other casualty only excepted, and whenever necessary, to replace plate glass and other glass therein acknowledging that the leased premises are now in good order and the glass whole. The LESSEE shall not permit the leased premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. LESSEE shall obtain written consent of LESSOR before erecting any sign on the premises. 12. ALTERATIONS- The LESSEE shall not make structural alterations or ADDITIONS additions to the leased premises, but may make non-structural alterations provided the LESSOR consents thereto in writing which consent shall not be unreasonably withheld or delayed. All such allowed alterations shall be at LESSEE's expense and shall be in quality at least equal to the present construction. LESSEE shall not permit any mechanics' liens, or similar liens, to remain upon the leased premises for labor and material furnished to LESSEE or claimed to have been furnished to LESSEE in connection with work of any character performed or claimed to have been performed at the direction of LESSEE and shall cause any such lien to be released of record forthwith without cost to LESSOR. Any alternations or improvements made by the LESSEE shall become the property of the LESSOR at the termination of occupancy as provided herein. 13. ASSIGNMENT The LESSEE shall not assign or sublet the whole or any part SUBLEASING of the leased premises without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding such consent, LESSEE shall remain liable to LESSOR for the payment of all rent and for the full performance of the covenants and conditions of this lease. 14. SUBORDINATION This lease shall be subject and subordinate to any and all mortgages, deeds of trust and other instruments in the nature of a mortgage, now or at any time hereafter, a lien or liens on the property of which the leased premises are a part and the LESSEE shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this lease to said mortgages, deeds of trust or other instruments in the nature of a mortgage. 15. LESSOR'S The LESSOR or agents of the LESSOR may, at reasonable times, ACCESS enter to view the leased premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as LESSOR should elect to do and may show the leased premises to others, and at any time within three (3) months before the expiration of the term, may affix to any suitable part of the leased premises a notice for letting or selling the leased premises or property of which the leased premises are a part and keep the same so affixed without hindrance or molestation. 16. INDEMNIFICATION The LESSEE shall save the LESSOR harmless from all loss and AND LIABILITY damage occasioned by the use or escape of water or by the bursting of pipes, as well as from any claim or damage resulting from neglect in not removing snow and ice from the roof of the building or from the sidewalks bordering upon the premises so leased, or by any nuisance made or suffered on the leased premises, unless such loss is caused by the neglect of the LESSOR. The removal of snow and ice from the sidewalks bordering upon the leased premises shall be the LESSOR's responsibility. 2 4 17. LESSEE'S The LESSEE shall maintain with respect to the leased LIABILITY premises and the property, of which the leased premises are INSURANCE a part, comprehensive public liability insurance in the amount of $250,000/$500,000 with property damage insurance in limits of $50,000.00 in responsible companies qualified to do business in Massachusetts and in good standing therein insuring the LESSOR as well as LESSEE against injury to persons or damage to property as provided. The LESSEE shall deposit with the LESSOR certificates for such insurance at or prior to the commencement of the term, and thereafter within thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be canceled without at least ten (10) days prior written notice to each assured named therein. 18. FIRE, CASUALTY Should a substantial portion of the leased premises, or of EMINENT DOMAIN the property of which they are a part, be substantially damaged by fire or other casualty, or be taken by eminent domain, the LESSOR may elect to terminate this lease. When such fire, casualty, or taking renders the leased premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, and the LESSEE may elect to terminate this lease if: (a) The LESSOR fails to give written notice within thirty (3) days of intention to restore leased premises; or (b) The LESSOR fails to restore the leased premises to a condition substantially suitable for their intended use within ninety (90) days of said fire, casualty, or taking. The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights which the LESSEE may have for damages or injury to the leased premises for any taking by eminent domain, except for damage to the LESSEE's fixtures, property, or equipment. 19. DEFAULT AND In the event that: BANKRUPTCY (a) The LESSEE shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for ten (10) days after written notice thereof; or (b) The LESSEE shall default in the observance or performance of any other of the LESSEE's covenants, agreements, or obligations hereunder and such default shall not be corrected within thirty (30) days after written notice thereof; or (c) The LESSEE shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of LESSEE's property for the benefit of creditors. then the LESSOR shall have the right thereafter, while such default continues, to re-enter and take complete possession of the leased premises, to declare the term of this lease ended, and remove the LESSEE's effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The LESSEE shall indemnify the LESSOR against all loss of rent and other payments which the LESSOR may incur by reason of such termination during the residue of the term. If the LESSEE shall default, after reasonable notice thereof, in the observance or performance of any conditions or covenants on LESSEE's part to be observed or performed under or by virtue of any of the provisions in any article of this lease, the LESSOR, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the LESSEE. If the LESSOR makes any expenditures or incurs any 3 5 obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations insured, with interest at the rate of ten per cent per annum and costs, shall be paid to the LESSOR by the LESSEE as additional rent. 20. NOTICE Any notice from the LESSOR to the LESSEE relating to the leased premises or to the occupancy thereof, shall be deemed duly served, if left at the leased premises addressed to the LESSEE, or, if mailed to the leased premises, registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSEE. Any notice from the LESSEE to the LESSOR relating to the leased premises or to the occupancy thereof, shall be deemed duly served, if mailed to the LESSOR by registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSOR as such address as the LESSOR may from time to time advise in writing. All rent and notices shall be paid and sent to the LESSOR at 10 Birchwood Road, Worcester, MA 01609. (508-755-7329) 21. SURRENDER The Lessee shall at the expiration or other termination of this lease remove all LESSEE's goods and effects from the leased premises, (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the LESSEE either inside or outside the leased premises). LESSEE shall deliver to the LESSOR the leased premises and all keys, locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the leased premises, in the same condition as they were at the commencement of the term, or as they were put in during the term thereof, reasonable wear and tear and damage by fire or other casualty only excepted. In the event of the LESSEE's failure to remove any of LESSEE's property from the premises, LESSOR is hereby authorized, without liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and store any of the property at LESSEE's expense, or to retain same under LESSOR's control or to sell at public or private sale, without notice any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property. 22. OTHER It is also understood and agreed that LESSEE has an option PROVISION to renew this lease for one more year at the same rent. IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunder set their hands and common seals this 19th day of November, 1996. BIRCHWOOD TRUST /s/ Clifford L. Gordon, Trustee ---------------------------------- LESSOR Clifford L. Gordon, Trustee Chuck Boulos/Luminex Lighting /s/ Chuck Boulos ---------------------------------- LESSEE Chuck Boulos 4 EX-23.1 20 CONSENT OF STONEFIELD JOSEPHSON, INC 1 EXHIBIT 23.1 CONSENT OF STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS 2 CONSENT OF STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS The undersigned independent certified public accounting firm hereby consents to the inclusion of its report on the financial statements of Luminex Lighting, Inc. for the year ending December 31, 1996 and year ending December 31, 1997, and to the reference to it as experts in accounting and auditing relating to said financial statements, in the Registration Statement for Luminex Lighting, Inc. /s/ Stonefield Josephson, Inc. - ----------------------------------- STONEFIELD JOSEPHSON, INC. Certified Public Accountants Santa Monica, California Dated: June 24, 1998 -----END PRIVACY-ENHANCED MESSAGE-----