-----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, G+QQuV4afisSLuX0VFH+h3YqLk+y4nKR7Cx982Yliz/HigiNdmu5jWcO0n14jnhR KnCO9cHiJqVcQpvuGE+LUw== 0001039962-97-000011.txt : 19971106 0001039962-97-000011.hdr.sgml : 19971106 ACCESSION NUMBER: 0001039962-97-000011 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19971105 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMECOR CORP CENTRAL INDEX KEY: 0001039962 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 680324628 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-06966 FILM NUMBER: 97708232 BUSINESS ADDRESS: STREET 1: 100-105 PROFESSIONAL CENTER DR CITY: ROHNERT PARK STATE: CA ZIP: 94928-2137 BUSINESS PHONE: 7075853036 MAIL ADDRESS: STREET 1: 100-105 PROFESSIONAL DR CITY: ROHNERT PARK STATE: CA ZIP: 94928 SB-2/A 1 PRE-EFFECTIVE AMENDMENT #2 As filed with the Securities and Exchange Commission on October 31, 1997 Registration No. 333-06966 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 IMMECOR CORPORATION (Name of small business issuer in its charter) California 1115 68-0324628 (State or jurisdiction of incorporation or (Primary Standard Industrial (I.R.S. Employer organization) Classification Code Number) Identification No.) 100 Professional Center Drive Rohnert Park, California 94928-2137 (707) 585-3036 (Address and telephone number of principal executive offices and principal place of business) Heinot H. Hintereder, President & Chief Executive Officer Immecor Corporation 100 Professional Center Drive Rohnert Park, California 94928-2137 (707) 585-3036 (Name, address and telephone number of agent for service) Copies to: Kenneth M. Christison, ESQ 601 Glenwood Avenue Mill Valley, CA 94941 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE Title of each Proposed maximum Proposed maximum Amount of class of securities Amount to be offering price aggregate offering registration fee to be registered registered per share price Common Stock, without par value 750,000 $5.25 $3,937,500 $1,478
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 shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. If any of the securities 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/ IMMECOR CORPORATION Cross-reference Sheet Showing Location in Prospectus: PART I - INFORMATION REQUIRED IN PROSPECTUS Form SB-2 Item Number and Caption Caption in Prospectus 1. Front of Registration Statement Outside Front Cover of Prospectus ......Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus ................Inside Front Cover Page of Prospectus 3. Summary Information and Risk Factors ..... Prospectus Summary; Risk Factors 4. Use of Proceeds .......................................... Use of Proceeds 5. Determination of Offering Price ........ Plan of Distribution - Determination of Offering Price 6. Dilution ..................................................... Dilution 7. Selling Security Holders ............................. Not Applicable 8. Plan of Distribution ..................................Plan of Distribution 9. Legal Proceedings ............................ Business - Legal Proceedings & Litigation 10. Directors, Executive Officers, Promoters and Control Persons ................................ Management 11. Security Ownership of Certain Beneficial Owners and Management ....................... Principal Shareowners 12. Description of Securities ......................Description of Common Stock 13. Interest of Named Experts and Counsel ..... Not Applicable 14. Disclosure of Commission Position on Indemnification for Securities Act ....... Management - Indemnification of Officers and Directors 15. Organization within Last Five Years .......... Not Applicable 16. Description of Business ..................Prospectus Summary; Risk Factors; Selected Financial Data; Business; Certain Transactions 17. Management's Discussion and Analysis or Plan of Operation ..........Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property ...................Business - Properties/Facilities 19. Certain Relationships and Related Transactions ..........................Certain Transactions 20. Market for Common Equity and Related Stockholder Matters ..........Risk Factors; Dividend Policy; Description of Common Stock; Shares Eligible for Future Resale 21. Executive Compensation ............................Executive Compensation 22. Financial Statements .......................Index to Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ................................ Not Applicable IMMECOR CORPORATION 750,000 SHARES COMMON STOCK All of the 750,000 shares of common stock are being sold directly by IMMECOR Corporation ("Immecor" or the "Company"). Prior to this offering, there has been no public market for the Company's common stock; therefore, the public offering price has been determined by the Company. The Pacific Stock Exchange has confirmed the eligibility of the shares for listing, pending the number of shares sold within twelve months azfter the effective date of this Prospectus, and the receipt of the required documentation. If less than the required number of shares is sold, an order matching service will be established for persons wishing to buy or sell shares. See "Plan of Distribution." This offering is being made directly by the Company for not more than 750,000 shares (the "maximum" amount). There is no minimum number of shares to be sold in this offering and all funds received will go immediately to the Company. See "Use of Proceeds." This offering will be terminated upon the earlier of: the sale of the maximum amount, twelve months after the date of this Prospectus or the date on which the Company decides to close the offering. A minimum purchase of 100 shares is required. The Company reserves the right to reject any Share Purchase Agreement in full or in part. See "Plan of Distribution." The common stock offered hereby involves a high degree of risk. See "Risk Factors." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE 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.
Underwriting Price to Discounts and Proceeds to Public Commissions (1) Company (2) Per Share $5.25 None $5.25 Total Maximum (750,000 shares) $3,937,500 None $3,937,500
(1) The shares are being sold directly by the Company through its executive officers, who will be registered as sales representatives, where required, and who will not receive any commission. See "Plan of Distribution". (2) Before deducting estimated expenses of $195,000 payable by the Company, including registration fees, escrow agent fees, costs of printing, copying and postage and other offering costs, in addition to legal and ac- counting fees. The date of this Prospectus is October 31, 1997 No 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 and representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof. This Prospectus is available in an electronic format, upon appropriate request from a resident of those states in which this offering may lawfully be made. The Company will transmit promptly, without charge, a paper copy of this Prospectus to any such resident upon receipt of a request. TABLE OF CONTENTS Page Reference Data .............................. 02 Prospectus Summary .......................... 03 Risk Factors ................................ 05 Use of Proceeds ............................. 08 Dividend Policy ............................ 08 Capitalization .............................. 09 Dilution .................................... 10 Management's Discussion & Analysis of Financial Condition & Results of Operations .. 11 Business ..................................... 14 Management .................................. 18 Executive Compensation ...................... 19 Principal Shareowners ....................... 20 Certain Transactions ........................ 20 Description of Common Stock ................. 20 Shares Eligible for Future Resale ........... 21 Plan of Distribution ........................ 21 Legal Matters ............................... 21 Experts ...................................... 21 Additional Information ....................... 22 Index to Financial Statements ............... F1 Until January 30, 1998 (90 days after the date of this Prospectus) all dealers effecting transactions in the registered securities, whether or not participating in this 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 and with respect to their unsold allotments or subscriptions. REFERENCE DATA As a result of this Offering, the Company will become subject to the informational filing requirements of the Securities Exchange Act of 1934, (the "Exchange Act") for at least one fiscal year and as of the end of the fiscal year may be required to register under the Exchange Act and continue to file required annual and quarterly reports. The Company intends to furnish its shareholders with annual reports containing financial statements audited by an independent public accounting firm after the end of its fiscal year. The Company's fiscal year ends on December 31. The Company will send shareholders quarterly reports with unaudited financial information for the first three quarters of each fiscal year. The Company was incorporated in the State of California on January 14, 1994. The Company's corporate offices are located at 100 Professional Center Drive, Rohnert Park, California 94928. The Company's telephone number is (707) 585-3036. The Company's facsimile number is (707) 585-6838. The Company's email address is immecor@immecor.com, and the Company's world wide web home page is http//www.immecor.com. - 2 - PROSPECTUS SUMMARY The following summary is qualified in its entirety and should be read in conjunction with the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus gives retroactive effect to a one for five reverse stock split of the Company's outstanding common stock prior to this offering. See "Shares Eligible for Future Resale." The Company Immecor Corporation ("Immecor") designs, assembles, and markets high-quality fault-tolerant specialty computers used in automated wafer defect inspection systems for the semiconductor industry, high performance file servers and workstations for networks, intra and internet file servers, and personal computers, all based on Intel Pentium Pro (P6) processors and configured to meet customer specifications. Immecor uses single, dual, and quad versions of the processor, all of which are Microsoft Windows NT, Novell, Banyan, and Token Ring compatible. Immecor also markets other brand-name personal computers and accessories. The Company also provides related services to its customers, including integration and staging services, configuration control, upgrading existing systems and warranty support. The Company markets its products through its own sales staff to large corporations, small businesses, local state and federal agencies and individual end-users. See "Business" and "Products". The Company objective is to become a recognized leader in the specialty computer for the computer aided manufacture and defect review station market place within the semiconductor industry. Immecor Corporation is located in Rohnert Park, California. Rohnert Park is located in Sonoma County, approximately 50 miles north of San Francisco. Proposed Development The Company's development goals for 1997-1998 are to (i) further capitalize the Company through this offering, (ii) obtain strategic partners, (iii) lower production costs through vendor and strategic partner relationships and increased sales volume, (iv) increase distribution of personal computers through companies that already have computer distribution channels to chain stores and large government and corporate end users and (v) continue to build the Company's management team. The Offering Common Stock Offered by the Company ... 750,000 shares (Maximum) Common Stock Outstanding Prior to the Offering .... 2,421,000 shares 1 Use of Proceeds ................................. Proceeds from the sale of the shares will be used to fund expansion and marketing, and general working capital. Note 1: There will be 1,921,000 shares outstanding in the event the Company's action for rescission of the issuance of 500,000 shares related to a previous reorganization agreement is successful. See "Legal Proceedings and Litigation". - 3 - Summary Financial Data The summary financial data for the years ended December 31, 1995, and 1996 have been derived from the Financial Statements and Notes to Financial Statements, audited by L. V. Dorn II, independent auditor, whose report thereon is also included. The summary financial data for the nine months ended September 30, 1996 and 1997 have been derived from unaudited interim financial statements of the Company contained elsewhere herein and reflect, in Management's opinion, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Results of operations for any interim period are not necessarily indicative of results to be expected for the full fiscal year. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto included elsewhere in this Prospectus.
Years ended Nine Months ended December 31, September 30, -1995- -1996- -1996- -1997- (unaudited) Statements of Income Data: Revenue .......................................................... $2,010,094 $3,591,382 $2,827,988 $3,858,002 Cost of goods sold ................................................ 1,763,856 3,137,320 2,403,922 2,892,064 --------- --------- --------- --------- Gross profit (loss) ...................................... 246,238 454,062 424,066 965,938 Operating costs and expenses: Selling, general and administrative expenses 318,510 435,253 329,302 494,467 Depreciation 4,017 9,408 5,422 10,454 Insurance proceeds - (65,244) (65,244) - ------- ------- ------- Total operating costs and expenses 322,527 379,417 269,500 504,921 ------- ------- ------- ------- Operating income(loss) .................................. (76,289) 74,645 154,566 461,017 Other income: Interest income ......................................... 78 722 203 3,239 Interest expense ........................................ (770) (3,786) (2,264) (1,731) ---- ------ ------ ------ Income (loss) before for taxes .......................... (76,981) 71,581 152,505 462,525 Income taxes ..................................................... (16,100) 18,800 52,300 186,500 ------- ------ ------ ------ Net income (loss) ...................................... $ (60,881) $ 52,781 $ 100,205 $ 276,025
December 31, September 30, 1996 1997 (unaudited) Balance Sheet Data: Working capital ............................................... $ 210,580 $ 455,588 Total assets .................................................. 647,802 1,164,843 Long term obligations ......................................... 0 13,639 Stockholders' equity .......................................... 268,788 554,803
- 4 - RISK FACTORS An investment in the shares being offered by this Prospectus involves a high degree of risk and should only be made by persons who can afford to risk their entire investment. Prospective investors should consider carefully the following risk factors, in addition to other information concerning the Company and its business contained in this Prospectus, before purchasing shares. The Company has a limited operating history. At the effective date of this offering, the Company had an operating history of approximately three years and nine months. During such period, the Company has experienced sustained growth in its business but there is no assurance that such growth will continue. If the Company's growth is sustained, additional technical support and assistance facilities will be needed. The share offering price was set by the Company. Prior to this self-underwritten offering, there has not been any public market for the Company's common stock; therefore, the initial offering price for the shares was determined by the Company. Among factors considered in determining the public offering price were the Company's results of operations, its current financial condition and dependence upon the offering proceeds, its future prospects, the state of the markets for its products, the experience of management, the state of the economy in general and the demand for similar securities considered comparable to the shares offered by the Company. See "Plan of Distribution - Determination of Offering Price." Dependence upon offering proceeds. The Company will depend upon proceeds of the offering to expand it's business and marketing activities and for general working capital purposes. Because the offering is self-underwritten, there is no assurance that any or all of the shares offered will be sold. Investors will experience immediate dilution of book value per share. Purchasers of shares in this offering will realize immediate substantial dilution per share in the net tangible book value from the initial public offering price. The per share dilution will be $4.63 if 250,000 shares are sold, $4.23 if 500,000 shares are sold, and $3.90 if all 750,000 shares offered are sold. See "Dilution." A public trading market for the shares may not develop. Prior to this offering, there has not been any public market for the Company's Common Stock and there can be no assurance that a public market will develop or be sustained. The Pacific Stock Exchange has confirmed the eligibility of the shares for listing, pending the number of shares sold within twelve months after the effective date of the Prospectus, and receipt of the required documentation. If less than the required number of shares is sold and approval for listing should be denied, an order matching service will be established for persons wishing to buy or sell shares. However, there is currently no agreement between the Company and a registered securities broker-dealer. See "Plan of Distribution." The share price may vary after this offering. The price of the shares, after the completion of this offering, may vary due to general economic conditions and forecasts, the general business condition of the Company, the release of the Company's financial reports and sales of shares outstanding prior to this offering. Sales of existing shares could adversely affect the market price. Sales of shares outstanding prior to this offering may adversely affect the market price of the shares after this offering. All of the shares of common stock outstanding prior to this offering are "restricted securities" and therefore may not be sold in a public distribution except in compliance with the registration requirements of the Federal Securities Act of 1933 (the "Securities Act") or an applicable exemption under the Securities Act, including an exemption pursuant to Rule 144 of the General Rules and Regulations under the Securities Act. Upon completion of this offering, up to 66,000 of the presently issued and outstanding shares owned by 14 non-affiliated shareholders are eligible for resale under exemption pursuant to Rule 144. See "Shares Eligible for Future Resale". Penny Stock Regulation. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00, except: (1) an equity security listed on NASDAQ; or (2) an equity security of any issuer that has (i) net tangible assets of at least $2,000,000, if it has been in continuous operation for three years; (ii) net tangible assets of at least $5,000,000, if it has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the - 5 - preceeding three years. If the Company's Common Stock falls below the price of $5.00 per share, trading in the stock would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such rule, broker-dealers recommending 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. Unless anexception is available, the regulations require the delivery, prior to any transaction involving penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with it. If the Company's common stock were to become subject to the regulations applicable to penny stocks, the market liquidity for the common stock would be severely affected, limiting the ability of broker-dealers and the ability of purchasers in this offering to sell their common stock in the secondary market. There is no assurance that trading in the common stock will not be subject to these or other regulations that would adversely affect the market for such securities. No minimum amount set for this offering. Because there is no required minimum amount of shares to be sold in this offering, all proceeds received will go directly to the Company, to be used as described in "Use of Proceeds". If only a minimum amount were sold, the result could be that all the proceeds were used to pay expenses of this offering. No dividends are intended. It is the Company's intention to retain any earnings for use in its business and pay no dividends on its common stock. See "Dividend Policy". Voting control will remain with current management. Immediately prior to this offering, the Company's management beneficially owned 66.08% of the Company's common stock. After the completion of this offering, if the maximum is sold, management will own 50.46% and will effectively be able to control the Company. See "Principal Shareholders." Cumulative voting for directors. With limited exceptions not presently applicable to the Company, P708 of the California Corporation Code provides that every shareholder may cumulate the shareholder's votes at any election of directors 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 the shareholder's shares are normally entitled, or may distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. The most immediate effect of this provision is to enable one or more minority shareholders to cumulate their votes in order to obtain representation on the board of directors. The current Board of Directors has the ability to issue "blank check" preferred stock. The Company's Certificate of Incorporation authorizes the issuance of 20,000,000 shares of "blank check" Preferred Stock with such designations, rights and preferences as may be determined from time to time by its Board of Directors. Accordingly, the Company's Board of Directors is empowered, without further approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. The Company has no current plans to issue any shares of Preferred Stock; however, in the event of issuance, the Preferred Stock could used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. See "Description of Securities". Loss of key personnel could interrupt progress. The Company's business depends to a large extent on the services of Jason C. Lai (Vice President, Sales and Marketing) and Nhon K. Tran (Vice President, Engineering). Both are principal stockholders and helped develop the Company to its present position. Further progress is dependent upon their continued commitment. The Company maintains a one million dollar key-person life insurance policy on Nhon K. Tran and an employment contract with Jason C. Lai that either party may renew or cancel as circumstances may require at the end of each anniversary date (see "Management - Employment Agreements". Present customer base consists of major customers only. The Company's present business is based on a small number of relatively large transactions. The majority of the Company's total sales in 1995, 1996, and during the first nine months of 1997 were made to large corporate customers, one of which integrates the Company's core product into its own. These sales are not subject to long term contracts, but rather depend upon the quality of the Company's products and ability (i) to comply with these customer's technical specifications and (ii) to provide the funds necessary to finance the purchase of the materials needed for the assembly of the product and to extend credit terms of 30 to 60 days net. In the recent past the Company has had difficulty in attracting new corporate customers because of capital requirements and limitations in its cash flow. For sales to new customers the Company currently requires cash on delivery or substantial down payments at order time, a tactic that benefits the Company's cash flow requirements but prevents the Company from expanding its business and increasing sales volume and profits. Despite these problems, the Company is - 6 - currently expanding its customer base to lessen the effect of having a small number of major customers only, the loss of anyone of which would adversely affect the Company's business (see "Management Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements - Note 7"). Fluctuations in cost of computer components. The Company purchases the various components used in the assembly of its computers from domestic and foreign manufacturers and distributors. Supply and prices can be affected by multiple factors, such as under- or over- supply, or the introduction of new technology, making components and inventories based on older technologies obsolete. The Company's management practices "just-in-time" inventory controls and believes that it will be able to assess and to react to price fluctuation indicators based upon its past experience in this market. Uncertain market. Although the Company believes that the products and services which it has developed and which it is currently developing will be commercially marketable, there can be no assurance that such products and services will be commercially accepted by those companies and individuals which the Company believes presently constitute the market. The Company intends to develop new computer products for semiconductor manufacturing processes and the emerging wireless communications technology and to seek new markets for such products in addition to the existing markets, but there can be no assurance that such developmental and marketing efforts will be successful. Competition consists of large business entities. The Company conducts in-depth research on the potential market for the products it develops, prior to actual production and sales by introducing pilots to existing customers; however, there can be no assurance that any of the Company's products will be able to compete on a technological or cost basis with other similar products which may be available before or after the time the Company's products are introduced into the market. Large business entities with greater financial strength and greater technical production capacity than the Company are proactive competitors in the computer products field and especially in the semiconductor wafer fabrication and the emerging wireless communications technology segments of the overall market. These business entities may develop systems and/or products which are competitive with, or superior to, the Company's products, or which can be marketed more effectively. Planned management of growth may create risk. The Company plans and will make acquisitions of other companies in the future and may use a portion of the net proceeds received by the Company from this Offering to pay for legal and accounting expenses associated with due diligence to do so. Significant uncertainties accompany any acquisition plans. The actual acquisition of another company and its integration, include, without limitation, the possibility of understated incurred, but not yet reported, costs and contingent liabilities. Due to such uncertainties, any acquisition could have an adverse effect on the Company. Also, as the so-called "Information Super Highway" develops over the next few years, so will competition for acquisitions of emerging promising high-technology companies intensify. There can be no assurance that the Company will be successful in completing acquisitions in the future. The Company's future results will be affected by its ability to acquire technology companies with new products or significant annual sales volumes complementing the Company's business strategy, and by its ability to manage its anticipated growth. Additional capital may not be available for the Company to carry out its plans. The proceeds of this offering are intended to achieve certain objectives. See "Use of Proceeds." More capital may be required for those purposes than the Company will have. See "Capitalization." Changes in the Company's objectives, to take advantage of opportunities or to meet competitive challenges, may require additional capital. Raising additional funds through issuance of equity securities will result in dilution to existing shareholders. Debt financing would require interest expense and principal repayments, reducing the Company's net cash flow and earnings potential. If required funding cannot be secured, the Company may be forced to limit growth. See "Business Strategy," "Capitalization" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources." - 7 - USE OF PROCEEDS The Company has no minimum amount of shares to be sold in this offering. The net proceeds available to the Company from the sale of the shares in this offering are estimated to be approximately $1,117,500 if 250,000 shares are sold, $2,430,000 if 500,000 shares are sold and $3,742,500 if 750,000 shares are sold. The Company expects to use the net proceeds for the purposes outlined below. If the Company raises less than the maximum amount of this offering, it intends to prioritize expenditures as follows: first use funds from the offering for working capital and corporate needs, second increase sales and assembly capacity, third improve existing products and develop new products and fourth pursue strategic acquisitions to enhance the Company's position in its industry.
250,000 500,000 750,000 Shares Shares Shares 1. Increase of assembly capacity $ 200,000 17.9% $ 300,000 12.3% $ 500,000 13.4% 2. Increase demonstration equipment and wholesale inventory 300,000 26.8% 600,000 24.7% 900,000 24.0% 3. New product development 200,000 17.9% 250,000 10.3% 500,000 13.4% 4. Working Capital and General Corporate Purposes 417,500 37.4% 1,280,000 52.7% 1,842,500 49.2% ------- ---- --------- ---- --------- ---- Total net proceeds $ 1,117,500 100.0% $ 2,430,000 100.0% $ 3,742,500 100.0% ------------ ----- ----------- ----- ----------- -----
None of the net proceeds of this offering will be used to pay existing debt as the Company is virtually debt-free. Management does not anticipate changes in the proposed allocation of estimated net proceeds of this offering but reserves the right to make changes, if management believes those changes are in the best interests of the Company. DIVIDEND POLICY The Company has not declared or paid dividends since its inception, presently intends to retain any earnings to facilitate growth and does not anticipate paying cash dividends in the foreseeable future. The Company's future lending agreements may also prohibit the payment of dividends. - 8 - CAPITALIZATION The following table sets forth the actual capitalization of the Company on September 30, 1997 and also an adjusted capitalization of the Company as of September 30, 1997, to reflect sale of 250,000 shares, 500,000 shares, and the maximum 750,000 shares offered hereby at the public offering price of $5.25 per share and the application of the estimated net proceeds. The Company has no minimum amount of shares to be sold in this offering:
September 30, As Adjusted September 30, -1997- -1997- 250,000 500,000 750,000 Actual Shares Sold Shares Sold Shares Sold Short-term debt: Notes payable: $ 61,221 $ 61,221 $ 61,221 $ 61,221 Advances from Stockholders: $ 1,261 $ 1,261 $ 1,261 $ 1,261 Total short-term debt: $ 62,482 $ 62,482 $ 62,482 $ 62,482 Long-term debt: Total long-term debt, less current maturities: $ 13,639 $ 13,639 $ 13,639 $ 13,639 Shareholders' equity: Common Stock, no par value, 50,000,000 shares authorized 2,421,000, 2,671,000, 2,921,000, and 3,171,000 shares outstanding, respectively: $ 320,500 $1,438,000 $2,750,500 $4,063,000 Preferred Stock, no par value, 20,000,000 shares authorized none outstanding - - - - Retained earnings (deficit): $ 224,303 $ 224,303 $ 224,300 $ 224,303 Total shareholders' equity: $ 544,803 $1,662,303 $2,974,803 $4,287,303 Total capitalization $ 620,924 $1,738,424 $3,050,924 $4,363,424 Note 1: There will be 1,921,000 shares outstanding as of September 30, 1997 in the event the Company's action for rescission of the issuance of 500,000 shares related to a previous reorganization agreement is successful. See "Legal Proceedings and Litigation".
- 9 - DILUTION On September 30, 1997 the Company had a net tangible book value of $383,522, or $0.16 per share. The Net tangible book value per share is equal to the Company's total tangible assets, less its total liabilities and divided by its total number of shares of common stock outstanding. After giving effect to the sale of shares being offered, at the public offering price of $5.25 per share, and the application of the estimated net proceeds, the pro forma net tangible book value of the Company as of June 30, 1997, would have been $4,169,127 or $1.31 per share if 750,000 shares (maximum) were sold, $2,856,627 or $0.98 per share if 500,000 shares were sold and $1,544,127 or $0.58 per share if $250,000 shares were sold. The following table illustrates the per share dilution in net tangible book value per share to new investors:
250,000 500,000 750,000 Shares Shares Shares Public Offering price per share $5.25 $5.25 $5.25 Net tangible book value per share on September 30, 1997 $0.20 $0.20 $0.20 Increase in net tangible book value per share attributable to new investors $0.42 $0.82 $1.15 Pro forma net tangible book value per share as of Sept. 30, 1997, after this offering $0.62 $1.02 $1.35 Net tangible book value dilution per share to new investors $4.63 $4.23 $3.90
The following table sets forth on a pro forma basis as of September 30, 1997 the difference between existing shareowners and new investors purchasing shares in this offering, with respect to the number of shares purchased, the total consideration paid and the average price paid per share, at the maximum of 750,000 shares, at 500,000 shares and at 250,000 shares:
Average Price Shares Purchased Total Consideration Per Number Percent Amount Percent Share 250,000 Shares Sold Existing Shareholders 2,421,000 90.64% $ 320,500 19.63% $0.13 New Investors 250,000 9.36 1,312,500 80.37 5.25 Total 2,671,000 100.00% $ 1,633,000 100.00% 500,000 Shares Sold Existing Shareholders 2,421,000 82.88% $ 320,500 10.88% $ 0.13 New Investors 500,000 17.12 2,625,000 89.12 5.25 Total 2,921,000 100.00% $ 2,945,500 100.00% 750,000 Shares Sold Existing Shareholders 2,421,000 76.35% $ 320,500 7.53% $ 0.13 New Investors 750,000 23.65 3,937,500 92.47 5.25 Total 3,171,000 100.00% $ 4,258,000 100.00%
NOTE: The information and calculations disclosed regarding dilution do not consider the changes that would result subject to the outcome of a pending law suit. See "Legal Proceedings and Litigation". - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Financial Statements and Notes thereto, "Capitalization" and "Selected Financial Data" appearing elsewhere in this Prospectus. Operating Data presented in this discussion are unaudited. Overview The Company designs and assembles highly specialized computer systems used in semiconductor manufacturing processes in addition to personal computers customized to specifications by business and individual users. The necessary components are purchased from domestic and foreign manufacturers and distributors. The Company markets the finished product through its own sales force. The sales force is divided into Corporate and Retail. Corporate solicits requests for proposals from manufacturers in need of specialty computers for various computer aided manufacturing processes in quantity, installs the prototypes at the customers site for various customer related evaluation processes that include hardware components and operating and application software changes until the computer system conforms to the customers specifications and expectations so that letters of compliance from the various domestic and international safety standard agencies can be obtained, if the computer becomes part of a product to be sold outside the United States. This process may consume several weeks and even months. During the process the personnel involved becomes a team and develops understanding about the technical problems encountered, and when the process is completed the customer's satisfaction is guaranteed and the Company's profit margin is not diminished by excessive after sale service calls and employee technical expertise is enhanced. These sales are made on a credit basis with net 15, 30, 45, and 60 day terms, depending upon the size of the sale, past payment experience, and other Company credit policy criteria. Retail advertises various personal computer systems in local newspapers and displays these computer systems in the Company's showroom, where customers can test the various systems and can decide upon the features they want. These sales are made on a 25% down payment policy with the remainder due before delivery. Currently assembly, 72-hour burn-in and testing consumes approximately four days with delivery occurring on the fifth day. Delivery and installation of the personal computer at the end users site is free of charge within a 25 mile radius of the Company's facilities. Outside this radius a $25.00 delivery and installation charge is billed. Net sales are net of product returns. When a product built to customer specifications is returned, the Company charges a 15% restocking fee. The Company grants all its customers a thirty (30) day money back guarantee on all computer systems that do not perform to customer specifications. All personal computers carry a one year free labor warranty covered by the Company, and a one to three year limited warranty on hardware components covered by the respective manufacturers, with free on-site service during the first thirty days following purchase. In conjunction with personal computer sales, the Company sells one, two, and three year service contracts providing depot or on-site maintenance. The Company earns a modest commission by selling these service contracts for a major service provider. In addition, the Company provides regular computer upgrade services to individuals and businesses at its maintenance facility. Corporate customers may employ Company technicians on a temporary basis. The Company's cost of sales consists of the purchase price of the various computer components going into the product, production labor and related production overhead expenses, and after sale service calls. The Company intends to negotiate component purchasing contracts directly with manufacturers rather than with vendors as soon as large scale assembly becomes possible in order to take advantage of manufacturers discounts. The Company has no contractual relationship with any of its vendors. The Company's growth strategy is to increase net sales by augmenting its marketing and sales force, by increased advertising in technical publications specific to the Company's specialty computers, and by increasing distribution of personal computers through retail and wholesale organizations. The Company will make the development of specialty computers for computer aided manufacturing (CAM) and automated defect classification (ADC) for the semiconductor industry its core business. The Company plans to acquire technology companies with new products under development or with significant annual sales volumes complementing the Company's business strategy. - 11 - Financial Condition and Results of Operations: The following table sets forth, as a percentage of net sales, certain items included in the Company's Statements of Income and Retained Earnings (see Financial Statements and Notes thereto elsewhere in this Prospectus) for the periods indicated:
Years Ended Nine Months Ended December 31, September 30, -1995- -1996- -1996- -1997- Statements of Income Data: Net sales......................................... 100.00% 100.00% 100.00% 100.00% Cost of sales .................................. 87.75 87.36 85.00 74.96 Gross profit ..................................... 12.25 12.64 15.00 25.04 Depreciation and amortization .................... 0.20 0.26 0.19 0.27 Selling, general and administrative expenses ..... 0.00 (1.82) (2.30) 0.00 Total operating costs and expenses ............... 16.05 10.56 9.53 13.09 Operating income (loss) .......................... (3.80) 2.08 5.47 11.95 Interest income (loss) ........................... 0.00 0.02 0.01 0.08 Interest expense.................................. (0.04) (0.11) (0.08) (0.04) Income (loss) before income taxes................. (3.83) 1.99 5.39 11.99 Income Tax ...................................... (0.80) 0.52 1.85 4.83 Net income (loss) ................................ (3.03) 1.47 3.54 7.16
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995 Net sales. Net Sales increased by $1,581,288 or 78.67% from $2,010,094 in 1995 to $3,591,382 in 1996. Sales to major customers who accounted for over 10% of the Company's sales in 1995 decreased from $1,473,097 in 1995 to $1,413,168 in 1996. Gross profit. Gross Profit increased, as a percentage of net sales, from 12.25% in 1995 to 12.64% in 1996, in a market characterized by heavy price competition. Downward pressure on component prices also contributed to this improvement. Selling, general and administrative expenses. Selling, general and administrative expenses decreased significantly as a percentage of net sales from 15.85% in 1995 to 12.12% in 1996. This decrease in expenses as a percentage of net sales was primarily due to increased sales volume and improvements in operating efficiency. Flood insurance proceeds. Flood insurance proceeds of $65,244 in 1996 is fully described in Note 8 of the Financial Statements included elsewhere in this Prospectus. Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September 30, 1997 Net sales. Net Sales increased by $1,030,014 or 36.42% from $2,827,968 for the nine months ended September 30, 1996 (the "1996 period") to $3,858,002 for the nine months ended September 30, 1997 (the "1997 period"). The net sales increase resulted primarily from increased demand from major customers responsible for the majority of the Company's sales for each period and fluctuations from period to period are primarily influenced by this constraint (see Note 7 to Financial Statements). Sales to these corporate customers for high-end specialty computers have continued to increase steadily since the Company has been able to meet strict shipping deadlines and to maintain high quality control standards. Firm orders on the books of the Company for the remainder of 1997 indicate that this trend will continue. Nevertheless, the loss of any one of these major customers would have a material adverse effect on the Company's financial position and results of operations. Gross profit. As a percentage of net sales, gross profit increased from 15.00% in the 1996 period to 25.04% in the 1997 period because of higher gross profit margins realized for high-end customized specialty computers. Selling, general and administrative expenses. Selling, general and administrative expenses increased as a percentage of net sales from 11.64% in the 1996 period to 12.82% in the 1997 period. The increase in expenses as a percentage of net sales was primarily due to hiring of additional employees, increased compensation levels for employees and higher occupancy cost offset by increased sales volume. - 12 - Liquidity and Capital Resources On September 30, 1997 and December 31, 1996, the Company had a working capital of $455,588 and $210,580, respectively. The increase in working capital was primarily due to improved profitability offset by offering costs and repayments of notes and shareholder advances. The Company had net cash provided by operating activities of $5,235 in 1996 and net cash used by operating activities of $225,034 in 1995. Net cash provided by operating activities was $57,595 in the nine months ended September 30, 1997, and $55,418 for the same period of 1996. The increase in net cash provided by operating activities from 1995 to 1996 consisting primarily of a net income of $52,781 in 1996 versus a net loss of $60,881 in 1995, and no additional provisions for losses or accounts receivable in 1996 and decrease in deferred taxes in 1996 compared with 1995. The increase in net cash provided by operating activities for the nine months ended September 30, 1997 compared with the nine months ended September 30, 1996 consisted primarily of increased profitability and higher accounts payable in 1997, offset by higher accounts receivable and additional offering costs in 1997. The Company had net cash provided by financing activities of $64,688 in 1996 compared to $167,491 in 1995. This decrease was primarily due to the collection in 1995 of promissory notes in the amount of $170,000 on sale of common stock purchased by two related parties in December of 1994 which did not reoccur in 1996, and which was partially offset by additions to notes payable and shareholder advances in 1996 less offering costs which occurred in 1996. Net cash used by financing activities was $48,649 for the nine months ended September 30, 1997, compared to net cash provided by financing activities of $30,162 for the nine months ended September 30, 1996. The primary reason for the change was increases in notes payable and shareholder advances in 1996 compared with significant repayments of notes payable and shareholder advances in 1997. In addition, additional offering costs were paid during the nine months ended September 30, 1997 and not during the nine months ended September 30, 1996. The Company's primary capital needs are to fund anticipated working capital and general corporate purposes to further its growth strategy, which includes increasing its net sales, increasing its marketing and sales force, increasing distribution channels, introducing new products, and the continuing improvement of existing product lines. The Company believes that the net proceeds from this offering, which in the worst scenario might be zero because the offering is self-underwritten, together with the Company's $250,000 line of credit, the terms of which are described in Note 4 of the Financial Statements elsewhere in this Prospectus, the approximately $500,000 credit extended to the Company by its vendors, and the funds that may be generated from operations, will be sufficient to fund the Company's anticipated working capital and general corporate purposes requirements of approximately $417,500 for a 12 month period (see "Use of Proceeds"). Federal and state net operating losses carryforward The Company has available for carryforward for federal income tax purposes of approximately $63,900 at December 31, 1996 and approximately $44,900 for state income tax purposes. These carryforwards expire as described in Note 9 to Financial Statements included elsewhere in this Prospectus.. Recent Accounting Pronouncements During October of 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which established a fair value-based method of accounting for stock-based compensation plans. The Company currently has no stock-based compensation plans but plans to adopt SFAS No. 123 in the future. Inflation The Company practices just-in-time inventory purchases to prevent losses from industry-wide component price reductions. As such the Company does not foresee any material inflationary trends for its components. - 13 - BUSINESS Company History The Company was founded and incorporated on July 9, 1993 under the laws of the State of Delaware. The original purpose of the Company was to develop a business entity which would comprise the full spectrum of computerized technologies and assorted services. The original founders' strategy was to acquire and to consolidate a number of established computer related businesses in order to reach a combined substantial annual sales volume and to use expected profits to develop marketable products. In December of 1993 the original founders decided to simplify their business plan, to retain the Company's original name and to incorporate a new Company in the State of California on January 14, 1994. Through a tax free exchange of common stock the two companies were merged immediately thereafter. In order to expand its expertise and business operations into the computer networking area, on March 1, 1994, the Company entered into a Plan of Reorganization and Merger (the "Merger Agreement") with Advanced Network Communications, Inc. ("ANC"), a company which claimed to have extensive experience, expertise, ongoing business, and good will in computer networking. Pursuant to the Merger Agreement, the Company issued a total of 500,000 shares of its common stock (as adjusted) in equal amounts to James Chu ("Chu"), Fred Pao ("Pao"), and Grace Lee ("Lee") in exchange for all of the issued and outstanding shares of capital stock of ANC. The Company subsequently learned that a number of the material representations on which it relied in executing the Merger Agreement were false and that other material facts about ANC were not disclosed prior to the consummation of the Merger Agreement. The Company also learned that Chu, Pao, and Lee conspired to obtain and use positions as officers and directors of the Company for their own benefit and to the detriment of the Company, including the making of unauthorized payments of Company funds to Lee, Pao, and other individuals and companies (see also "Legal Proceedings and Litigation"). In order to grow more rapidly the Company attempted additional acquisitions of two medium sized computer retailers. Due diligence revealed unacceptable debt ratios and negotiations were halted. Industry Background During the last decade, the PC industry has grown rapidly as increased functionality combined with lower pricing have made personal computers valuable and affordable tools for business and personal use. Recent advances in the technology, including the development of high-speed read-write CD-ROM drives, high-speed data transmission hardware, multimedia, graphics and animation, have increased the potential market dramatically. This trend has been further augmented by the introduction of faster microprocessors and the introduction of high performance chipsets with higher clock speeds such as the Power PC architecture, new caching techniques and low power consumption features. While the corporate market has become somewhat saturated with workstations for word processing, data lookup and data formatting, new major opportunities present themselves, from work-at-home to inverse multiplexing, from videoconferencing and audio broadcasting to remote disaster recovery and worldwide networking, with some of these features and activities beginning to be integrated into the Internet, with wireless communications technologies, and with many associated opportunity niches ready to go mainstream. Specialty computers that must meet sophisticated user written software and advanced technologies requirements are beginning to play a larger role in these developing business services markets. Another major market segment is developing on the Internet and in home/education systems. This market segment offers major opportunity now with new software releases and new hardware (particularly multimedia packages and CD-ROM technology) and is no longer limited to the computer-adept buyer, but is being driven by the emergence of a younger generation of computer-literate juveniles and young adults. In addition, many older machines are no longer adequate to deal with state-of-the-art software, and many existing computer owners will be upgrading their equipment over the next few years. As much as 40 to 50% of 1997 sales and sales over the next five years will be replacements of existing equipment. A very high number of the currently installed computer user base consists of older 486 and lower version PC's. Industry Growth Pattern Observations There are three different growth patterns employed by the Company's competitors, which are followed by most computer manufacturing and computer sales organizations. Each has its own set of risks and rewards: The Innovator Model: This model requires significant capital and strong commitment to R&D and innovation, and can only be followed by the largest players. Several large manufacturers follow this pattern. Retooling of large centralized assembly plants with complementing parts inventories and staffing retraining requirements, together with significant capital outlay are associated with this model whenever existing technology changes. These models are also technology bound, are - 14 - marketed at runs of 100,000 or more copies at predetermined profit margins that require hardware components to be manufactured inexpensively and en masse for that model alone, making integration of new technologies that come along nearly impossible or very expensive. The Customer Access Model: This model requires focus on the ability to aggregate and configure computer products to meet specific but average needs. Midsize computer manufacturers follow this pattern, either by association with larger manufacturers and assemblers or by maintaining their own sizable facilities with challenges similar to the Innovator Model, with the exception that integration of later technologies is possible giving these models a longer life span. The Technology Manager Model: This model targets customer areas where higher margin specialty software and advanced technologies meet specific application requirements. The assembly of these models require up-to-date knowledge of the customer's technological needs and matching expertise of the supplier in the selection of technology and software available or forthcoming, an approach that represents high-risk proprietary resources and financial in- vestments up-front by the partners to such projects but also a high-return pattern if large volume sales, between 50 and 500 copies, materialize. Market Observations The Innovator Model is always exclusively marketed in large quantities to small and large businesses with low computing power workstations for word processing, data lookup and data formatting via office product chains and other distributors "moving boxes" without providing satisfactory after-sale customer services. This model is also sold to individual end users with no need for special usage computing power and who are able to depreciate cost in a very short time. This model is relatively high priced ranging from $2,000 to $3,000 because of certain featured innovations, and at the end of its cycle is sold at discounted prices while the newer model becomes available. The Customer Access Model is marketed to end users with specific but average needs. Almost all independent computer equipment dealers who assemble their own customized computers or who have them build by small computer assembly houses sell this model for business and home use. Integration of later technologies, so called "upgrades" is possible giving dealers repeat sales not only for hardware components but also for software upgrades and troubleshooting services. This model is more realistically priced ranging between $999 to $2,500 (depending upon configuration) because it must compete in the market with the Innovator model and because it must afford upgradeability and hold its value longer. In most cases, after-sale customer services are adequate. The Technology Manager Model is marketed to users with specific needs in all areas of scientific research and in specific areas, e. g., architecture, construction, materials design, product development and computer aided manufacturing. This market requires financial commitment to superior up-front customer service including on-site technical support and the provision of equipment for evaluation and demonstration purposes. Once the quality of the product has been proven and satisfactory customer relationship has been established, this market is highly profitable if the quality of the product is maintained even though newer technologies might have to be integrated at a later time. Depending upon configuration, this models price ranges from $10,000 to $35,000 and up. Company Strategy The Company's strategic plan encompasses three areas of endeavor: 1) design and develop products for emerging technology improvements in the integrated circuit manufacturing process, 2) increase retail sales of high-end computers and at the same time begin entry into the wholesale market, and 3) make acquisitions of technology companies that fit or complement the Company's own corporate profile and efforts to enter the fibre optics and wireless communications market segments. Retail and Wholesale Market The Company has chosen the Customer Access Model for its retail and wholesale business strategy. The Company is totally committed to customer satisfaction and currently provides this model at a high value, low cost, almost commodity like prices, with the largest degree of current and future technical customizing possible to the consumer. Only nationally known brand name components are used in its assembly. Assembly line improvements and the increase in working capital accomplished with this offering will result in even higher quality and lower prices with better profit margins for both retail and wholesale operations. The Company currently assembles this model at its own facilities and as sales volume increases will assemble at small independently owned companies capable of following the Company's requirements as to technological advances and price changes rapidly at competitive cost and acceptable profit margins to the Company. These companies would be required to be responsible for their own risk management and product development and could become candidates for acquisition if they complement the Company's business plans. - 15 - Corporate Market The Company has chosen the Technology Manager Model for its corporate customers that utilize the model in various configurations for their computer aided manufacturing efforts. The most promising opportunity for the Company is its recent break-in into computer aided manufacture of automatic reticle, photomask defect inspection, wafer level defect inspection, line width and registration systems with customer proprietary software integrated to a level that supports wafer yield management. To truly manage yield, the collected data must be stored, analyzed, interpreted, and then shared among the fab areas it affects. Currently the Company's machines utilized in this process are pre-assembled at the Company's facilities, installed and tested at the customers site. In the future many of the necessary pretests will be accomplished at the Company's facilities when the planned mini-environment designed to provide adequate conditions for highly sensitive photo-optical and mechanical equipment has been completed. Company management understands that the number one industry requirement namely that computer suppliers provide cost effective products that are based on extendible technology. Cost of ownership and the ability to satisfy customer delivery requirements are critical ingredients in the selection process for advanced computer equipment. It is the intention of the Company to make this business area its core business, to train its essential employees in all facets of the involved mechanical engineering and associated software development tasks and to make every effort to broaden its presence and to increase sales substantially in this market by participating in the long-term challenge for semiconductor manufacturers towards transition from 8-inch wafers and 0.5 micron to 12-inch wafers and "sub 0.2-micron" line geometrics. Major Customers The Company's present business is dependent upon three major customers. Sales to these three customers individually accounted for 46% of the Company's total sales during the nine months ended September 30, 1997. Sales to the largest of the three major customers accounted for 63% of the Company's total sales during the nine months ended September 30, 1997. The loss of any one of these three major customers would have a material adverse affect on the Company's financial position and results of operations. In the recent past the Company has had difficulty in attracting new corporate customers because of capital requirements and limitations in its cash flow. In order to improve its customer base and to extent trading terms to potential new clients the Company applied for and in July of 1997 the Company received approval for a $250,000 line of credit to finance short-term working capital needs. A major supplier of the Company increased the Company's trading credit to $300,000. Since its improved financial position the Company added one large corporate customer and one of smaller size. The Company has allocated 10% of its current working capital to its efforts to attract new corporate customers and plans to maintain this allocation throughout of 1998. Upon succesful completion of this effort, the Company may increase its efforts accordingly. Sales Force The Company's retail sales force consists of three full-time salaried employees who utilize printed advertisements in local newspapers, radio announcement by local radio stations, television advertisements in specific areas, a showroom at the Company's headquarters, and various brochures, pamphlets and other printed materials. Depending upon the funds raised with this offering, the Company will augment its retail sales force accordingly. The Company's corporate sales force consists of two full-time salaried employees who make contact with potential corporate customers. Upon contact the sales staff is supported by one or two technical employees and if necessary by the Company's CFO if financial arrangements need to be negotiated. Depending upon the funds raised with this offering, the Company will augment its corporate sales force accordingly. Products The Company purchases from various sources computer components which are protected by various basic patents owned by others and which are produced by licensed domestic and foreign manufacturers under their own trademarks in the United States or abroad. The Company does not own any patents or trademarks that protect such components and the cost for research and development of these components are born by the patent holders and the various manufacturers. The Company at this time is not involved in R&D for new components. The cost of design and development of various computer configurations the Company uses in its marketing efforts are minimal and have no material impact upon the cost of doing business. The Company uses these components to design and assemble Pentium based personal computers configured for use by individuals, high-end personal computers configured for use by small business, medium and large network servers with associated workstations for general networks, and specialty computers designed and configured to customer specifications at negotiated prices depending upon configurations. The Company also sells computer components, computers, file servers, printers and scanners assembled by Compaq, Digital Equipment, Epson, Hewlett Packard, IBM, MicroSoft, NEC, Novell, Toshiba, 3COM, and others. The names of the companies listed are also trademarks. The markets for the Company are individuals, small, medium and large merchants, local government agencies, school districts, colleges and universities, and large corporations. Computer Associated Business Services The Company will continue to extend efforts in the area of wireless data communications services in the northern part of California. This effort will consist mostly of information gathering of what is being done in this market to enhance the Company's expertise in this area and to position it for the future alignment with or the acquisition of a wireless services provider with a plant and customer base. The cost for this effort is included in the amount allocated for New Product Development and is estimated to be minimal and will be funded with income from operations or from the proceeds of this offering if sufficient funds are raised. If insufficient funds are raised the Company will abandon this venture. - 16 - Research and Products under Development The market serviced by the Company is characterized by rapid technological change. Accordingly, the Company's product and process development programs are devoted to the development of new computer configurations, including new generations of products for existing markets, enhancements and extensions of existing products engineering for specific customers. The Company believes that its future success will depend, in part, upon its ability to successfully introduce and market new and enhanced products and processes which satisfy a broad range of customer needs and achieve market acceptance. Future Acquisitions The Company's basic acquisition strategy is to first concentrate on small companies involved in distribution, and then to complement its operations by acquisitions through the entire spectrum of small companies involved in computer related services, i.e., motherboard assembly, parts construction, software development, maintenance services, environmental services, and in research and development of new computer products. In this respect, the Company has entered into preliminary discussions with Advanced Vision Technologies, Inc. ("AVT"), a California corporation, organized to develop, produce, and market vision technology hardware and software for multimedia computers capable of converging with common television sets and also capable of providing high-resolution video conferencing via the Internet. While no formal agreement has been consummated, in the event results of the Company's evaluation of the performance of ATV's products are satisfactory, the Company and ATV intend to negotiate mutually agreeable terms and conditions for the Company's acquisition of AVT. Competition There are many company's with unlimited financial resources designing, manufacturing, assembling, distributing and selling personal and specialty computers with large research and development budgets and for the Company to successfully compete in the market it has chosen it must constantly provide lower pricing for high-end computer configurations and faster service response times than available from competitors. Company Location and Facilities The Company's corporate headquarters are located at 100~105 Professional Center Drive, Western Business Park, Rohnert Park, California, where the Company maintains 6,000 square feet of office, showroom and assembly space. The Company intends to expand into 4,000 additional square feet of available space in the same building to accommodate a second assembly area for increased production, a research and testing facility for the Company's fibre optic and wireless data transmission switching development efforts, and if sufficient funds are raised, the Company plans to replace the recently established mini environment with a clean-room designed to provide adequate conditions for highly sensitive equipment as per industry standards. The cost for the expansion plans are included in the cost indicated for "Increase of Assembly Capacity" and New "Product Development" in "Use of Proceeds". Employees As of September 30, 1997 the Company had 11 full time and 4 part time employees. The Company hires temporary employees for nontechnical projects. Legal Proceedings and Litigation After execution of the Merger Agreement with ANC described in "Business", above, the Company learned that a number of the material representations made by ANC in order to induce the Company to enter into that agreement were false; the Company further learned that Chu, Pao, and Lee had conspired to use and had used their positions as officers and directors of the Company to make unauthorized payments of Company funds to Lee, Pao, and another individual and to take other actions for their own benefit which were detrimental to the best interests of the Company. As a result, on September 11, 1996, the Company filed a lawsuit in the Superior Court of California, Santa Clara County, Case Number CV760682, against Chu, Pao, and Lee seeking rescission of the issuance of 500,000 shares of the Company's common stock, return of Company funds in the approximate amount of $98,000, recovery of punitive damages in the amount of $250,000, and for other appropriate relief. While the Company intends to vigorously pursue its claim against Chu, Pao, and Lee, it is unlikely that the action will come to trial before mid-1998 and there can be no assurance as to the outcome of the litigation. Although the Company is the Plaintiff and does not incur the risk of an adverse judgment, the litigation costs of the action are material to any individual interim period or fiscal year and will be material to the outstanding share balance. The Company's counsel has estimated the litigation cost to be less than $10,000 but there is no assurance as to what the real cost could amount to. See also "Note 6 of Financial Statements". - 17 - Qualified Small Business Stock IRS Code Section 1202(a) in the 1993 Federal Tax Law (the "Omnibus Budget Reconciliation Act of 1933") which became effective in August 1993, provides as follows: A none corporate taxpayer can exclude 50% of any gain from the sale or exchange of qualified small business stock held for more than five years. Gain eligible for the 50% exclusion may not exceed the greater of $10,000,000 or 10 times the taxpayer's basis in the stock. The remaining gain is capital gain, taxed at the maximum rate. The stock must have been issued after August 10, 1993, and acquired by the taxpayer at its original issue (directly or through an underwriter) in exchange for money or property, or as compensation for services provided to the corporation. A "qualified small business" is a domestic C corporation with aggregate gross assets that do not exceed $50,000,000 as of the date of Issuance. All corporations that are members of the same parent-subsidiary controlled group are treated as one corporation in determining whether the small business requirements have been met. At least 80 percent, by value, of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses. The performance of services in the fields of law, engineering, architecture, etc., is not qualified trade or business, nor are the hospitality, farming, insurance, financing or mineral extraction industries. However, a Specialized Small Business Investment Company, licensed under section 301(d) of the Small Business Investment Act of 1958, will meet the active business test. The Internal Revenue Service has not yet issued Regulations or other interpretations of this law, and it is uncertain how this new tax provision will apply to the Company and to investors in its common stock, and because qualifying for the benefits of the tax provision will depend in part on future events about which the Company can provide no assurances, the Company makes no representations as to the availability of the benefits of this provision to prospective purchasers of its common stock. The Company intends to submit reports to the Internal Revenue Service and to the Company's shareholders as may be required under the law for use of this exclusion. Potential investors are advised to consult their own tax counsel for further details. MANAGEMENT Executive Officers, Significant Employees and Directors The executive officers, significant employees and directors of the Company are as follows: Name Age Position Heinot H. Hintereder 66 President & CEO, Director Jason C. Lai 30 Vice President, Sales & Marketing, Director Keith W. Racuya 52 Secretary, Director Richard C. Thiede 60 Treasurer, Director Nhon K. Tran 34 Vice President, Engineering, Director Heinot H. Hintereder is cofounder of the Company. Was the Founder and served as President and CEO of Immecor Corporation of Delaware until its acquisition by the Company. Served 5 years as Manager of the Financial & Corporate Support Unit, Fireman's Fund Insurance Companies until retirement in 1992. For 25 years held various other managerial and supervisory positions at Firemans Fund. President, Founder, and CEO of Biblionics Corporation, a software development company. Founder, Partner, and General Manager of W. Koehler K.G., a German trading company. In all, Mr. Hintereder has 35 years experience in large business systems design, selection of computer equipment and system configuration. Mr. Hintereder was educated in Germany and holds the German equivalent of a Masters degree in Business Administration. Jason C. Lai is cofounder of the Company. Served as Vice President Sales & Marketing of Immecor Corporation of Delaware until its acquisition by the Company in 1994. Before joining the Company Mr. Lai served 3 years as Sales and Marketing Executive for Comrex Systemation from 1991 to 1993. Before 1991 Mr. Lai was an independent distributor for Apple computers. Mr. Lai has 10 years experience in the computer business. - 18 - Keith W. Racuya is a local businessman for the last 4 years. Mr. Racuya previously served as large scale computer equipment planner for Fireman's Fund Insurance Companies until retirement in 1994 after 30 years of service, all in computer related capacities. Richard C. Thiede served as executive in the Systems Department of Firemans Fund Insurance Companies where he was responsible for the development and implementation of several large corporate computer systems. He also served as Director of M.I.S. Administration for the same company from which he retired in 1991 after 25 years of service. Mr. Thiede was director of finance and administration for the Sea Ranch Association for 4 years and in 1995 became an independent computer consultant. Mr. Thiede combines 30 years of experience in the field of computer system design and computer financing. Mr. Thiede holds a B.S. degree in Finance from Lehigh University. Nhon K. Tran is a major investor in the Company. Before joining the Company in July of 1995 as Vice President, Engineering, Mr. Tran served 10 years with Parker Hannifin Corporation in the field of computer driven robotic motion control products, five years of which he served as Associate Engineer for new product development. Mr. Tran received part of his education in Vietnam. Executive Compensation The following table sets forth, for the twelve-month period ending December 31, 1996, certain compensation paid by the Company, including salary, bonuses and certain other compensation, to its executive officers.
Summary Twelve Months Ending December 31, 1996 Compensation Table: Compensation All Other Name and Principal Position Salary Bonus Compensation Heinot H. Hintereder, Chief Executive Officer $ 34,834.00 $ - 0 - $ - 0 - Jason C. Lai, Vice President, Sales & Marketing $ 46,620.00 $ 65,000 $ - 0 - Nhon K. Tran, Vice President, Engineering $ 43,020.00 $ - 0 - $ - 0 -
Employment Agreements On April 16, 1997, the Company entered into a one (1) year employment agreement with Jason C. Lai ("Lai") the Company's Vice President of sales and marketing. The agreement is renewable for successive one year terms with the consent of both parties. The Company may terminate the agreement for cause at any time and Lai may terminate the agreement at any time by giving written notice to the Company. For a period of one year after its expiration or its termination by the Company for cause, the agreement prohibits Lai from selling any products then being marketed by the Company to its three major customers.This provision may not be enforceable in whole or in part, subject to California court determination. As consideration for performance of specified duties, the Company will pay Lai a base annual salary of $100,000 and, in months in which gross sales exceed $250,000, a monthly cash bonus ranging from 0.5% to 1.5% of the Company's gross sales. There are no other employment agreements between the Company and any of its employees. Number of Directors, Term of Office and Compensation All Directors hold office until the next annual meeting of shareholders of the Company or until their successors have been elected and qualified. Unsalaried board members receive $100 for their service on the Board and for expenses they incur to attend meetings. Indemnification of Officers and Directors The Company's By-Laws provide that the liability of the directors for monetary damages shall be limited to the fullest extent permissible under California law. Insofar as indemnification for liabilities arising under the federal securities laws may be permitted to directors, officers controlling persons of the Company pursuant to that provision, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. - 19 - PRINCIPAL SHAREHOLDERS The following table sets forth certain information known to the Company regarding the beneficial ownership of the Company's Common Stock immediately prior to this offering, and as adjusted to reflect the sales of the shares offered hereby, for (i) each director and executive officers of the Company, (ii) each shareholder known by the Company to own beneficially 5% or more of the outstanding shares of its common stock and (iii) all directors and officers as a group for each class of capital stock of the Company.
As of September 30, 1997 Directors Shares Percentage of Common Shares Outstanding Officers Beneficially Before Offering Maximum Sold and 5% Shareowners Owned ( 2,421,000 shares) ( 3,171,000 shares) Jason C. Lai 337,500 13.94 10.64 Heinot H. Hintereder 887,300 36.65 27.99 Nhon K. Tran 375,000 15.49 11.83 Officers & Directors as a Group 1,599,800 66.08 50.46 James Chu * 166,666 6.88 5.26 Fred Pao * 166,667 6.88 5.26 Grace Lee * 166,667 6.88 5.26 Other Stockholders 321,200 13.28 10.12 * The issuance of these shares may be rescinded subject to the outcome of a pending law suit. See "Legal Proceedings and Litigation".
CERTAIN TRANSACTIONS Since its inception, from time to time, certain executive officers, directors and shareholders have provided short-term funds to the Company in order to finance medium to large purchases of computer components. All of these funds have been repaid by the Company with the exception of one demand note in the amount of $7,303. See "Notes to Financial Statements". DESCRIPTION OF COMMON STOCK The Company's authorized capital stock consists of 50,000,000 shares of Common Stock, no-par value. Immediately prior to this offering, there were 2,421,000 shares of Common Stock outstanding and held by 33 shareholders. Owners of Common Stock are entitled to one vote per share in all matters to be voted on by shareholders, except that, upon giving the legally required notice, shareholders may cumulate their votes in the election of directors. Subject to the rights of holders of outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the Company, the Common Stock shareholders are entitled to share ratably in all assets remaining which are available for distribution to them after payment of all liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Common Stock shareholders, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are, and the shares of Common Stock offered by this Prospectus, when issued for the consideration set forth in this Prospectus, will be fully paid and nonassessable. Registration Rights There are no agreements between current shareholders and the Company with respect to registration of Company shares under the Securities Act. Transfer Agent and Registrar The Company has appointed US Stock Transfer Company as its transfer agent and registrar for the Company's Common Stock. DESCRIPTION OF PREFERRED STOCK The Company's Restated Certificate of Incorporation provides for the issuance of 20,000,000 shares of Preferred Stock, no-par value. No preferred shares are presently outstanding and the Company has no plans, arrangement, commitments or understandings to issue any preferred stock. - 20 - The Board of Directors has the authority to issue up to 20,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any further vote or action by the shareholders. The issuance of Preferred Stock may have the effect of delaying or preventing a change in control of the Company without further action by the shareholders. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. Because the terms of the Preferred Stock may be fixed by the Board of Directors without Stockholder action, Preferred Stock could be issued quickly with terms calculated to defeat a proposed takeover of the Company, or to make the removal of current or future management of the Company more difficult. The Management of the Company is not aware of any threatened transaction to obtain control of the Company. SHARES ELIGIBLE FOR FUTURE RESALE Upon completion of this offering, the Company will have 3,171,000 shares of common stock outstanding if the maximum amount is sold. The shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act ("Rule 144") described below. Sales of outstanding shares to residents of certain states or jurisdictions may only be effected pursuant to a registration in or applicable exemption from the registration provision of the securities laws of such states or jurisdictions. The outstanding shares of common stock, which are held of record by shareholders prior to this offering are "restricted securities" and may not be sold in a public distribution except in compliance with the registration requirements of the Securities Act or an applicable exemption under the Securities Act, including an exemption pursuant to Rule 144 which, effective April 30, 1997, permits the resale of limited amounts of these restricted securities after a one-year holding period (including the holding period of any prior owner except an affiliate of the Company) and Rule 144(k) provides that persons who are not deemed to be "affiliate" and who have beneficially owned shares for at least two years are entitled to sell their shares at any time under Rule 144 without regard to the limitations described above. Sales of substantial amounts of shares in the public market could adversely affect the prevailing market prices and could impair the Company's future ability to raise capital through an offering of its equity securities. Upon completion of this offering, up to 66,000 of the presently issued and outstanding shares owned by 14 non-affiliated shareholders are eligible for immediate resale under exemption pursuant to Rule 144. The Company's common stock is not listed or quoted on any organized exchange or other trading market, nor has the Company applied for a formal listing or quotation. There can be no assurances that a market will develop or be sustained. The post-offering fair value of the Company's common stock, whether or not any secondary trading market develops, is variable and may be impacted by the business and financial condition of the Company, as well as factors beyond the Company's control. The price may also vary due to economic conditions and forecasts and general conditions in the computer industry. PLAN OF DISTRIBUTION The Company proposes to offer and sell the shares directly to members of the public residing in selected states. Announcements of this offering, in the form prescribed by Rule 134 of the Securities Act, will be communicated to selected persons. A copy of this Prospectus will be delivered to those who request it, together with the Share Purchasing Agreement. All shares will be sold at the public offering price of $5.25 per share and a minimum purchase of 100 shares is required. The Company reserves the right to reject any subscription or share purchase agreement in full or in part. The Company will effect offers and sales of shares through printed copies of this Prospectus delivered by mail and upon request electronically by e-mail. Any voice or other communications will be conducted through its executive officers, Messrs. Jason C. Lai, Heinot H. Hintereder and Nhon Tran. Under Rule 3a4-1 of the Exchange Act, none of these employees of the Company will be deemed a "broker", as defined in the Exchange Act, solely by reason of participation in this offering, because (i) none is subject to any of the statutory disqualifications set forth in Section 3(a)(39) of the Exchange Act; (ii) in connection with the sale of the shares hereby offered, none will receive, directly or indirectly, any commissions or other remuneration based either directly or indirectly on transactions in securities; (iii) none is an associated person (partner, officer, director or employee) of a broker or dealer; and (iv) each meets all of the following conditions: (a) primarily perform substantial duties for the issuer otherwise than in connection with transactions in securities; (b) was not a broker or dealer, or as an associated person of a broker or dealer, within the preceding 12 months; and (c) will not participate in selling an offering of securities for any issuer more than once every 12 months. The Company has no plans, proposals, arrangements or understandings with any potential sales agent with respect to participating in the distribution of the Company's securities. The Company's registration statement will be amended to identify the persons involved if any such participation develops in the future. - 21 - Prior to this offering there has been no market for the common stock of the Company, and there can be no assurances that a market will develop or be sustained. Accordingly, the public offering price has been determined by the Company's Board of Directors. Among factors considered in determining the public offering price were the Company's results of operation, the Company's current financial condition, its future prospects, the state of the markets for its products, the experience of management and the economics of the industry segment in general. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon by Kenneth M. Christison, Attorney at Law, 601 Glenwood Avenue, Mill Valley, California 94941. EXPERTS The Financial Statements of the Company as of and for the years ending December 31, 1995, and December 31, 1996 and for the nine months ended September 30, 1997, have been included herein and in the Registration Statement in reliance on the report of L. V. Dorn II, independent certified public accountant, appearing elsewhere herein, and upon the authority of said firm as an expert in accounting and auditing. ADDITIONAL INFORMATION A Registration Statement on Form SB-2, including amendments thereto, relating to the shares offered hereby has been filed with the Securities and Exchange Commission, Office of Small Business Policy, Washington, D.C.. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the shares offered hereby, reference is made to such Registration Statement, exhibits and schedules. The Registration Statement may be viewed at the Security Exchange Commission's website at www.sec.gov via Edgar on-line. A copy of the Registration Statement may also be inspected by anyone without charge at the Commission's principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the Northeast Regional Office located at 7 World Trade Center, 13th Floor, New York, New York, 10048, and the Midwest Regional Office located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and copies of all or any part thereof may be obtained from the Public Reference Branch of the Commission upon the payment of certain fees prescribed by the Commission. - 22 - IMMECOR CORPORATION INDEX TO FINANCIAL STATEMENTS
Page Report of Independent Accountant F-2 to F-3 Financial Statements Balance Sheets F-4 Statements of Income F-5 Statements of Cash Flows F-6 Statements of Shareholders' Equity F-7 Notes to Financial Statements F-8 to F-14
F-1 REPORT OF INDEPENDENT ACCOUNTANT Immecor Corporation Rohnert Park, California I have audited the accompanying balance sheets of Immecor Corporation (the Company) as of December 31, 1995 and 1996, and the related statements of income, cash flows and shareholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements present fairly, in all material respects, the financial position of Immecor Corporation as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1996, in conformity with generally accepted accounting principles. /s/ L.V. Dorn II Certified Public Accountant Fort Bragg, California May 15, 1997 F-2 REPORT OF INDEPENDENT ACCOUNTANT I have reviewed the accompanying balance sheet of Immecor Corporation as of September 30, 1997 and the related statements of income, cash flows, and shareholders' equity for the nine months ended September 30, 1996 and 1997 in accordance with Statement on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of management of Immecor Corporation. A review consists principally of inquires of organization personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. According, I do not express such an opinion. Based upon my review, I am not aware of any material modifications that should be made to the accompanying financial statements as of September 30, 1997 and for the nine months ended September 30, 1996 and 1997 in order for them to be in conformity with generally accepted accounting principles. /s/ L.V. Dorn II Certified Public Accountant Fort Bragg, California October 14, 1997 F-3 Immecor Corporation Balance Sheets
ASSETS December 31 September 30, -1995- -1996- -1997- (unaudited) Current assets: Cash $ 6,358 $ 54,677 $ 31,731 Accounts receivable (net of allowance for doubtful accounts of $ 10,000, $ 10,000 and $ 20,000) 311,981 380,357 647,600 Inventories (Note 2) 142,667 129,421 359,791 Notes receivable 4,500 5,765 5,283 Income taxes receivable 4,266 - - Prepaid expenses and other current assets 3,050 4,550 10,550 Deferred income taxes 32,834 14,834 7,034 ------ ------ ----- Total current assets 505,656 589,604 1,061,989 Equipment and improvements, net (Note 3) 32,525 41,960 53,036 Offering costs - 16,238 49,818 ------ ------ Total assets $ 538,181 $ 647,802 $ 1,164,843 -------------- ------------- ----------- LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities: Notes payable (Note 4) $ - $ 29,606 $ 61,221 Accounts payable 296,448 254,374 327,111 Accrued liabilities 11,943 30,671 38,908 Advances from shareholders (Note 5) 10,259 61,579 1,261 Customer deposits 3,534 2,794 - Income taxes - - 177,900 ------- Total current liabilities 322,184 379,024 606,401 Long-term debt: Notes payable (Note 4) - - 13,639 Total long-term debt - - 13,639 Total liabilities 322,184 379,024 620,040 Commitments and Contingencies (Note 6) Shareholders' equity: Common stock, no par value, 50,000,000 shares authorized; 2,421,000 shares issued and outstanding 320,500 320,500 320,500 Preferred stock, no par value, 20,000,000 shares authorized; no shares issued and outstanding - - - Retained earnings (deficit) ( 104,503) ( 51,722) 224,303 - ------- - ------ ------- Total shareholders' equity 215,997 268,778 554,803 ------- ------- ------- Total liabilities and shareholders' equity $ 538,181 $ 647,802 $ 1,164,843 --------------- ----------- ----------- See accompanying notes to financial statements
F4 Immecor Corporation Statements of Income
Year ended Nine months ended December 31, September 30, -1995- -1996- -1996- -1997- (unaudited) Net sales (Note 7) $ 2,010,094 $ 3,591,382 $ 2,827,988 $ 3,858,002 Cost of sales 1,763,856 3,137,320 2,403,922 2,892,064 --------- --------- --------- --------- Gross profit 246,238 454,062 424,066 965,938 Operating costs and expenses: Selling, general and administrative expenses 318,510 435,253 329,302 494,467 Depreciation 4,017 9,408 5,442 10,454 Flood insurance proceeds (Note 8) - (65,244) (65,244) - -------- ------- ------- ------ Total operating costs and expenses 322,527 379,417 269,500 504,921 ------- ------- ------- ------- Operating income (loss) (76,289) 74,645 154,566 461,017 Interest income 78 722 203 3,239 Interest expense (770) (3,786) (2,163) (1,731) ---- ------ ------ ------ Income (loss) before income taxes (76,981) 71,581 152,505 462,525 Income taxes (Note 9) (16,100) 18,800 52,300 186,500 - ------- ------ ------ ------- Net income (loss) $ (60,881) $ 52,781 $ 100,205 $ 276,025 -------------- ------------- ----------- ----------- Net income (loss) per share $ (.025) $ .022 $ .041 $ .114 Weighted average shares outstanding 2,421,000 2,421,000 2,421,000 2,421,000 --------- --------- --------- ---------
See accompanying notes to financial statements F5 Immecor Corporation Statements of Cash Flows
Year ended Nine months ended December 31, September 30, -1995- -1996- -1996- -1997- (unaudited) Operating Activities: Net income (loss) $ (60,881) $ 52,781 $ 100,205 $ 276,025 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 4,017 9,408 5,442 10,454 Provision for losses on accounts receivable (46,000) - - 10,000 Deferred income taxes (12,634) 18,000 29,834 7,800 Gain on disposal of equipment - 2,761 1,314 10,367 Changes in: Accounts and notes receivable (182,486) (69,641) (308) (276,761) Inventories (98,279) 13,246 36,216 (230,370) Income taxes (11,373) 4,266 25,932 177,900 Prepaid expenses and all other 4,914 (1,500) - (6,000) Accounts payable 204,101 (42,074) (156,515) 72,737 Accrued liabilities and customer deposits (26,413) 17,988 13,318 5,443 ------- ------ ------ ----- Net cash (used) provided by operating activities (225,034) 5,235 55,438 57,595 -------- ----- ------ ------ Investing Activities: Purchase of equipment (19,342) (21,604) (20,211) (31,897) Other - - - - Net cash used by investing activities (19,342) (21,604) (20,211) (31,897) ------- ------- ------- ------- Financing Activities: Collection of notes receivable arising from sale of common stock 170,000 - - - Additions to notes payable - 29,606 15,000 74,860 Offering costs - (16,238) - (33,580) Principal payments on notes payable - - - (29,606) Shareholder advances (2,559) 51,320 15,162 (60,318) ------ ------ ------ ------- Net cash (used) provided by financing activities 167,441 64,688 30,162 (48,644) ------- ------ ------ ------- Increase (decrease) in cash (76,935) 48,319 65,389 (22,946) Cash balance, beginning of period 83,293 6,358 6,358 54,677 ------ ----- ----- ------ Cash balance, end of period $ 6,358 $ 54,677 $ 71,747 $ 31,731 ------------ ------------- ----------- ----------- Supplemental Disclosure of Cash flow Information: Cash paid during the year for: Interest $ 770 $ 2,086 $ 1,014 $ 1,741 ------------- -------------- ----------- ------------ Income taxes $ 7,907 $ 800 $ 800 $ 800 ------------ -------------- ----------- ------------
See accompanying notes to financial statements F6 Immecor Corporation Statements of Shareholders' Equity
Number of Retained Outstanding Common Earnings Shares Stock (Deficit) Total Balance, December 31, 1994 2,421,000 $ 150,500 $ (43,622) $ 106,878 Year ended December 31, 1995: Collection of note receivable arising from sale of common stock 170,000 - 170,000 Net loss - (60,881) (60,881) ------- ------- Balance, December 31, 1995 2,421,000 320,500 (104,503) 215,997 Year ended December 31, 1996: Net income - 52,781 52,781 ------ ------ Balance, December 31, 1996 2,421,000 320,500 (51,722) 268,778 Nine months ended September 30, 1997(unaudited): Net income - 276,025 276,025 Balance, September 30, 1997(unaudited) 2,421,000 $ 320,500 $ 224,303 $ 544,803 --------- ------------ ----------- -----------
See accompanying notes to financial statements F7 Immecor Corporation Notes to Financial Statements Years ended December 31, 1995 and 1996 Nine months ended September 30, 1996 and 1997(unaudited) Note 1: Summary of Significant Accounting Policies Basis of presentation: Immecor Corporation has prepared the financial statements on an accrual basis of accounting and in accordance with generally accepted accounting principles. The financial statements and notes thereto are the responsibility of the Company's management. During 1996 and 1997 the Company had a division which operated under the name of Computer 2000 and its results of operations for 1996 and 1997(unaudited) and financial position as of December 31, 1996 and September 30, 1997(unaudited) are included in the accompanying financial statements. Description of business: The company designs and assembles specialized computer systems used in semiconductor manufacturing processes in addition to personal computers customized to specifications by business and individual users. The necessary components are purchased from domestic and foreign manufacturers and distributors. The Company markets the finished product through its own sales force. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Equipment and improvements: Equipment and improvements are carried at cost less accumulated depreciation. Depreciation is provided on the straight-line method over estimated useful lives generally ranging from five to seven years. Expenditures for major renewals that extend useful lives of equipment and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. For income tax purposes, depreciation is computed using the accelerated depreciation methods. Advertising: The Company expenses costs of advertising the first time the advertising takes place. Income taxes: The Company has adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Accordingly, the Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for temporary differences between the financial basis and the tax basis of the company's assets and liabilities. Earnings per share: Earnings per share amounts are based on the weighted average number of common stock shares outstanding during the periods adjusted retroactively to reflect a one for five reverse stock split approved by the Company's shareholders on May 14, 1997. There were no common stock equivalents to be considered. Note 2: Inventories:
Inventories consist of the following: December 31, September 30, -1995- -1996- -1997- (unaudited) Purchased parts $ 111,247 $ 104,124 $ 233,271 Finished systems 31,420 25,297 126,520 ------ ------ ------- $ 142,667 $ 129,421 $ 359,791 ------------ ---------- -----------
F8 Immecor Corporation Notes to Financial Statements Years ended December 31, 1995 and 1996 Nine months ended September 30, 1996 and 1997(unaudited) Note 3: Equipment and Improvements:
Equipment and improvements consist of the following: December 31, September 30, -1995- -1996- - -1997- (unaudited) Equipment and furniture $ 39,060 $ 49,497 $ 50,222 Transportation equipment 4,330 12,243 24,814 ----- ------ ------ 43,390 61,740 75,036 Less accumulated depreciation 10,865 19,780 22,000 ------ ------ ------ $ 32,525 $ 41,960 $ 53,036
Note 4: Notes Payable
Notes payable consist of the following: December 31, September 30, -1995- -1996- -1997- (unaudited) Note payable to Jerry Liu with interest at 12% due in January 1997 $ - $ 15,000 $ - Note payable to Thu Tran with interest at 18% due on demand - 14,606 - ------ Line of credit with Westamerica with interest at 4% over prime rate (12.50% at September 30, 1997) with a maturity date of May 31, 1998. Additional terms of the line of credit are described below. - - 57,546 Note payable to GMAC, secured by transportation equipment, payable in monthly installments of $ 433 including interest of 10.50% through September 2001. - - 17,314 ------ $ - $ 29,606 $ 74,860 Less notes payable due within one year - 29,606 61,221 ------ ------ Total long-term debt - - 13,639 ------
The Company received approval on July 9, 1997 for a $ 250,000 line of credit to finance short-term working capital needs. The line of credit bears interest at 4.0% over prime rate with a maturity date of May 31, 1998. Advances under the line of credit can not exceed 80% of eligible accounts receivable and is secured by a security interest in all accounts receivable, inventory and equipment. The line of credit is also personally guaranteed by the Company's major shareholder. Maturities of long-term debt are as follows for the twelve months ended September 30, 1997 (unaudited): 1998 $ 3,673 1999 4,080 2000 4,530 2001 5,029 ---- ----- $ 17,314 ---------
F9 Immecor Corporation Notes to Financial Statements Years ended December 31, 1995 and 1996 Nine months ended September 30, 1996 and 1997(unaudited) Note 5: Advances from Shareholders The Company receives advances from some of the corporate officers who are also major shareholders to meet working capital requirements. These advances are generally repaid within 30 to 60 days. Note 6: Commitments and Contingencies Long-Term Lease The Company leases its corporate headquarters under a non-cancelable operating lease which expires in February 1998. The Company is also obligated to pay the lessor its pro-rata share of utilities for the building on a monthly basis. Minimum future rental payments under the lease agreement as of December 31, 1996 are as follows: 1997 $ 50,367 1998 8,726 ------------ $ 59,093 Rental expense under the above lease was $ 26,921 in 1995 and $ 37,983 in 1996 and $ 26,883 and $ 39,389 for the nine months ended September 30, 1996 and 1997, respectively (unaudited). Litigation The Company filed a lawsuit in 1996 against three former shareholders who were formerly officers and directors of the Company seeking recession of the issuance of 500,000 shares of the Company's common stock in the acquisition of Advanced Network Communication, Inc. in 1994. In addition, the Company is seeking the return of funds it believes were embezzled and taken through fraud during 1994 by the three defendants. The Company and its legal counsel are rigorously pressing this litigation but the case has not been set for trial. It is unlikely that the trial will commence before the spring of 1998 and there is no assurance of the outcome of the litigation. All legal expenses relating to this case have not been significant to date and have been expensed as incurred on the accompanying financial statements. Note 7: Sales to Major Customers A material part of the Company's business is dependent upon sales to major customers, the loss of which would have a material adverse effect on the Company's financial position and results of operations. Three customers individually accounted for over 10% of the Company's 1995 sales. Sales to these three customers aggregated over 73% of total sales in 1995. Two customers individually accounted for over 10% of the Company's 1996 sales. Sales to these two customers aggregated over 38% of total sales in 1996. Three customers individually accounted for over 10% of the Company's sales during the nine months ended September 30, 1996 (unaudited). Sales to these three customers aggregated over 46% of total sales during the nine months ended September 30, 1996 (unaudited). One customer accounted for over 10% of the Company's sales during the nine months ended September 30, 1997 (unaudited). Sales to this customer aggregated over 63% of total sales during the nine months ended September 30, 1997 (unaudited). The Company is attempting to expand its customer base to lessen the effect of having major customers. Note 8: Insurance Proceeds On February 4, 1996, the Company incurred major rain damage to its corporate offices and production facilities due to leaks in the roof which caused an interruption of its operations. The loss was covered by insurance as follows: Inventory replacement $ 77,392 Business interruption 38,821 Equipment replacement 6,550 Miscellaneous cost reimbursement 24,383 ------------ 147,146 Less deductible 250 -------------- Proceeds from insurance company 146,896 Amounts allocated to inventory, equipment and repairs 81,652 ------------ Insurance proceeds per statement of income $ 65,244 -----------
F10 Immecor Corporation Notes to Financial Statements Years ended December 31, 1995 and 1996 Nine months ended September 30, 1996 and 1997(unaudited) Note 9: Income Taxes
A reconciliation of the statutory federal income tax rate with the Company's effective tax rate is as follows for the periods ended: December 31, September 30, -1995- -1996- -1996- -1997- (unaudited) Statutory rate for income from $ 100,000 to $ 335,000 (39.0) % 39.0 % 39.0 % 39.0 % Reductions due to income under $ 100,000 20.3 (20.7) (9.2) (5.0) State income taxes, net of federal income tax benefit (7.5) 7.7 5.7 6.1 Non-deductible costs 1.0 1.0 - - Other 4.3 (.7) (1.2) .2 --- --- ---- -- Effective tax rate (20.9) % 26.3 % 34.3 % 40.3 % ----- ---- ---- ----
The provision (credit) for income taxes consists of the following for the periods ended: December 31, September 30, -1995- -1996- -1996- -1997- (unaudited) Currently payable (receivable): Federal $ ( 4,266) $ - $ 16,850 $ 138,800 State 800 800 5,616 39,900 Deferred liability (benefit) (12,634) 18,000 32,834 12,334 ------- ------ ------ ------ (16,100) 18,800 $ 29,834 $ 186,500 ------- ------ --------- ----------
Deferred income taxes (benefits) reflect the tax effect of temporary differences between the amounts of assets and liabilities for financial reporting and amounts as measured for tax purposes. The tax effect of temporary differences and carryforwards that cause significant portions of deferred tax assets and liabilities are as follows for the periods ended:
December 31, September 30, -1995- -1996- -1996--1997- (unaudited) Depreciation $ 77 $ ( 255) $ (200) $ (200) Inventory and accounts receivable allowances (12,591) 18,375 25,534 (8,650) Tax loss carryforward - - - 16,504 Other, net (120) (120) (100) 150 ---- ---- ---- --- $ (12,634) $ 18,000 $ 29,834 $7,800 --------- -------- --------- ------
The Company has net operating losses for income purposes which can be used to offset future taxable income. Federal losses total approximately $ 63,900 at December 31, 1996 and expire $ 17,200 in 2010 and $ 46,700 in 2011. State losses total approximately $ 44,900 at December 31, 1996 and expire $ 21,700 in 2000 and $ 23,200 in 2001. F11 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers Section xx of Article of the Registrant's By-laws provides that it may indemnify any director, officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317 of the California Corporations Code. In any event, the Registrant shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the Registrant would have the power to indemnify such persons against the liability insured against. Insofar as indemnification for liabilities arising under the Securities Act, indemnification may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing section. The Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Item 25. Other Expenses of Issuance and Distribution Expenses of the Registrant in connection with the issuance and sitribution of the securities being registered are estimated as follows, assuming the Maximum offering amount is sold: Securities and Exchange Commission filing fee .................... $ 1,478 Blue sky filing fees ............................................. 5,500 Accountant's fees and expenses ..................................... 30,000 Legal fees and expenses ...................................... 42,375 Printing ...................................................... 50,000 Marketing expenses .............................................. 25,000 Postage ...................................................... 16,000 Transfer Agent's fees .......................................... 5,000 Miscellaneous ..................................................... 19,647 ------ Total ........................................................ $ 195,000 =============
The Registrant will bear all expenses shown above. Item 26. Recent Sales of Unregistered Securities (a) The following information is given for all securities that Immecor Corporation (the "Company") sold within the past three years without registering the securities under the Securities Act in reliance on exemption from registration under P 3 (a) (11). Date Title Amount (1) 1/14/94 Common Stock 1,000,000 (2) 2/1/94 Common Stock 500,000 (3) 3/1/94 Common Stock 500,000 (4)12/31/94 Common Stock 421,000 (b) No underwriters were used in connection with any of the issuances of shares. The class of persons to whom the Company issued shares was those persons known to the (1) Founders (2) Founders 3) Directors, Business associates (4) Employees, Directors, private investors (c) No underwriters were used in connection with any of the issuances of shares or options so there were no underwriting discounts or commissions. The transactions and the types and amounts of consideration received by the Company were: (1) $25,000 (2) $25,000 (3) ANC common stock valued at $60,000. See "Legal Proceedings and Litigation." (4) $210,500 Item 27. Exhibits The exhibits listed below are filed as part of this Registration Statement pursuant to item 601 of Regulation S-B. Exhibit Number Description Articles of Incorporation Amendment to Articles of Incorporation filed March 7, 1994 By-laws Financial Data Schedule Form of Common Stock Certificate Opinion and consent of counsel with respect to the legality of the shares being registered Consent of L. V. Dorn II, Certified Public Accountant Consent of Kenneth M. Christison, Attorney at Law (Reference is made to Exhibit 5) Power of Attorney Employment contract with Jason C. Lai Lease of Registrants facilities and Amendments to Lease Agreement Share Purchase Agreement Item 28. Undertakings (a) The Registrant hereby undertakes that it will: (1) 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(xxx) of the Securities 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 (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act 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. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (e) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. SIGNATURES In accordance with the requirements of the Securities Act of 1993, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2, and authorized this Pre-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, in the City of Rohnert Park, State of California, on October 20, 1997. (Registrant) By /s/ By /s/ Heinot H. Hintereder, President & CEO Richard C. Thiede,Chief Financial Officer Each person whose signature appears below appoints Heinot H. Hintereder, Jason C. Lai, Keith W. Racuya, Richard C. Thiede and Nhon K. Tran or any of them, his or her attorney-in-fact, with full power of substitution and resubstitution, to sign any and all amendments (including post-efective amendments) to this Registration Statement on Form SB-2 of Immecor Corporation, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this Pre-Effective Amendment to the Registration Statement was signed by the following persons in the capacities and on the dates stated. Signatures Title Date /s/ President & Chief Executive Officer October 20, 1997 Heinot H. Hintereder Director /s/ Vice President, Sales & Marketing October 20, 1997 Jason C. Lai Director /s/ Secretary and Director October 20, 1997 Keith W. Racuya /s/ Treasurer & Chief Financial Officer October 20, 1997 Richard C. Thiede Director /s/ Vice President, Engineering October 20, 1997 Nhon K. Tran Director EXHIBIT INDEX Item 27. Exhibits The exhibits listed below are filed as part of this Registration Statement pursuant to item 601 of Regulation S-B. Page Exhibit Number Number Description Articles of Incorporation Amendment to Articles of Incorporation filed March 7, 1994 By-laws Financial Data Schedule Form of Common Stock Certificate Opinion and consent of counsel with respect to the legality of the shares being registered Employment contract with Jason C. Lai Lease of Registrants facilities Consent of L. V. Dorn II, Certified Public Accountant Consent of Kenneth M. Christison, Attorney at Law (Reference is made to Exhibit 5) Power of Attorney Share Purchase Agreement EX-3.(I) 2 ARTICLES OF INCORPORATION State of California Office of the Secretary of State Corporation Division 1832187 I, March Fong Eu, Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the corporate record on file in this office, of which it purports to be a copy, and that same is full, true and correct. In witness whereof, I execute this certificate and affix the Great Seal of the State of California this January 21, 1994. March Fong Eu, Secretary of State The Great Seal of the State of California Articles of Incorporation of Immecor Corporation 1832187 Endorsed Filed In the office of the Secretary of State of the State of California January 14, 1994 /s/ March Fong Eu, Secretary of State Name One: The name of this corporation is IMMECOR CORPORATION Purpose Two: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State 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. Agent for Service: Three: The name and address in the State of California of the corporation's agent for service of process are: Kenneth M. Christison 164 Almonte Boulevard Mill Valley, California 94941 Authorized Shares Four: The total number of shares which the corporation is authorized to issue is 50,000,000, all of the same class, designated "Common Stock". Kenneth M. Christison The undersigned declares that he has executed these Articles of Incorporation and that this instrument is his act and deed. Kenneth M. Christison CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF IMMECOR CORPORATION Heinot H. Hintereder and Daniel Schoep certify that: 1. They are the President and Secretary, respectively, of Immecor Corporation, a California corporation. 2. The following amendment to the articles of incorporation of the corporation has been duly approved by the board of directors of the corporation: Artivle Four of the articles of incorporation is amended to read in its entirety as follows: Four: (a) The corporation is authorized to issue two classes of shares to be designated respectively "Common" and "Preferred" shares which may be issued in one or more series, the rights, preferences, and designations of which series may be fixed by resolution of the Board of Directors. The number of authorized Common shares is 50,000,000 and the number of authorized Preferred shares is 20,000,000. On amendment of this Article Four to read as set forth above, each oustanding share of capital stock is reclassified and changed into one Common share. (b) The Preferred shares may be issued in one or more series and the Board of Directors shall have the authority to fix, by resolution, the rights, preferences, and designations of the various series. 3. The amendment was duly approved by the required vote of shareholders in accordance with |902 of the California Corporation Code. The total number of outstanding shares to vote with respect to the amendment was 10,000,000, the favorable vote of a majority of such shares is required to approve the amendment, and the number of such shares voting in favor of the amendment equaled or exceeded the required vote. 4. The amendment shall become effective on the date of the filing of this certificate of amendment with the Office of the Secretary of State. Heinot H. Hintereder, President Daniel Schoep, Secretary EX-3.(II) 3 BY-LAWS BY-LAWS OF IMMECOR CORPORATION ARTICLE I Offices Section 1. Principal Office. The principal executive office in the State of California for the transaction of the business of the corporation (called the principal office) is fixed and located at: 100 Professional Center Drive Rohnert Park, CA 94928 The Board of Directors shall have the authority from time to time to change the principal office from one location to another within the State as it deems appropriate. Section 2. Other Offices. One or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. ARTICLE II Meetings of Shareholders Section 3. Place of Meetings. Meetings of the shareholders shall be held at any place within or outside the State of California that may be designated either by the Board of Directors in accordance with these By-Laws, or by the written consent of all persons entitled to vote at the meeting, given either before, during or after the meeting and filed with the Secretary of the corporation. If no such designation is made, the meetings shall be held at the principal office of the corporation designated in Section 1 of these By-Laws. Section 4. Annual Meetings. The annual meeting of the shareholders shall be held on the second Thursday in March each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 10:00 A.M., at which time the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting. If the annual meeting of shareholders shall not be held on the date above specified, the Board of Directors shall cause such a meeting to be held as soon thereafter as convenient, and any business transacted or election held at such meeting shall be as valid as if transacted or held at an annual meeting on the date above specified. Section 5. Special Meetings. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Board of Directors, Chairman of the Board, the President, or by holders of shares entitled to cast not less than 10 percent of the votes at the meeting. Section 6. Notice of Shareholders' Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 (or, if sent by third class mail, 30) or more than 60 days before the date of the meeting to each shareholder entitled to vote at the meeting. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of Section 601(f) of the Corporations Code, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. - 1 - Notice of shareholders' meeting shall be given either personally or by first class mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The 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. If any notice addressed to the shareholder at the address of such shareholder appearing on 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 to the shareholder at such address, all future notices 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 office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Upon request in writing to the Chairman of the Board, President, Vice President or Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to 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 35 nor more than 60 days after the receipt of the request. Section 7. Quorum. The presence at any meeting, in person or by proxy, of the persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by persons voting more than 25 percent of the voting shares. Section 8. Adjourned Meeting. Any annual or special shareholders' meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. Waiver of Consent by Shareholders. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had a meeting been duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before, during, 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 a 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 such a meeting is not a waiver of any right to object to the consideration of matters required by Section 6 of these By-Laws or Section 601(f) of the Corporations Code to be included in the notice but not so included, 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, except as provided in Section 601(f) of the Corporations Code. - 2 - Section 10. Action Without Meeting. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than a 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, except that unanimous written consent shall be required for election of directors to non-vacant positions. Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by the Corporations Code. Any shareholder giving a written consent, or the shareholder's proxy holder, or a transferee of the shares or a personal representative or proxy holder of the shareholder, 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. Section 11. Voting Rights; Cumulative Voting. Only 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 fixed by the Board of Directors as provided in Section 40 for the determination of shareholders of record shall be entitled to notice of and to vote at such meeting of shareholders. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action by the Board has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Except as provided in the next following sentence and except as may be otherwise provided in the Articles of Incorporation, each shareholder entitled to vote shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders. In the election of directors, each such shareholder complying with the following paragraph may 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 the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes in favor of any candidate or candidates unless the name(s) of such candidate(s) has(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 the shareholder's votes. If any one shareholder has given such notice, such fact shall be announced to all shareholders and proxies present, who may then cumulate their votes for candidates in nomination. In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, shall be deemed elected. Voting may be by voice or ballot, provided that, upon the demand of any shareholder made at the meeting and before the voting begins, any election of directors must be by ballot. Section 12. Proxies. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. All proxies must be in writing and must be signed by the shareholder confirming the proxy or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof, unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the Corporations Code. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy - 3 - executed by the person executing the prior proxy and presented to the meeting, or, as to any meeting, by attendance at such meeting and voting in person by the person executing the proxy. 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. Section 13. Inspectors of Election. In advance of any meeting of shareholders the Board 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 meeting of shareholders may, and on the request of any shareholder or a 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 appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. 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. The inspectors of elections 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 thereof, and take such actions as may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III Directors; Management Section 14. Powers. Subject to any provisions of the Articles of Incorporation, By-Laws, and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law. Section 15. Number and Qualification of Directors. The authorized number of directors shall be not less than Five (5) nor more than thirteen (13) unless and until changed by an amendment to this Section 15 adopted by the shareholders pursuant to Section 49. The exact number of directors within said range shall be fixed by an amendment to this Section 15 adopted by the Board of Directors; and unless and until so amended, the exact number of directors is hereby fixed at five (5). A reduction in the authorized number of directors shall not remove any director prior to the expiration of such director's term of office. Directors need not be shareholders of the corporation. Section 16. Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected at such meeting, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 17, begin immediately after their election and shall continue until their respective successors are elected and qualified; except as otherwise provided herein, such term shall be for a period of no less than one year. Section 17. Removal of Directors. Unless otherwise specifically provided herein, a director may be removed from office: (a) by the Board of Directors if he is declared of unsound mind by the order of court or convicted of a felony; (b) without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; howver, unless the entire Board is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, -4- would be sufficient to elect such director if voted cumulatively with all authorized shares voting, or, if such action is taken by written consent, all shares entitled to vote were voted, and the entire num- ber of directors authorized at the time of the director's most recent election were then being elected; or (c) by the Superior Court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, in case of any fraudulent or dishonest act or gross abuse of authority or discretion with reference to the corpo- ration. (d) By the Chairperson of the Board if the director remains absent from three (3) consecutive board meetings. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. Section 18. Vacancies. A vacancy or vacancies on the Board of Directors shall exist on the death, resignation, or removal of any director, or if the authorized number of directors is increased or the shareholders fail to elect the full authorized number of directors. Except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the remaining directors, although less than a quorum, or by a sole remaining director, and each director elected in this manner shall hold office until a successor is elected at an annual or special shareholders' meeting. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote, except for a vote to fill a vacancy created by removal, which requires the unanimous consent of the outstanding shares entitled to vote. Any director may resign, effective as of the date of notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors of the corporation. If such notice is not in writing, it shall be effective on the date given only if confirmed by a writing received within a reasonable time of such non-written notice. Section 19. Place of Meetings. Regular and special meetings of the Board of Directors shall be held at any place within or outside the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by a majority of the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation's principal office. Section 20. Annual Meetings. Immediately following each annual shareholders' meeting, the Board of Directors shall hold an annual meeting to organize, elect officers, and transact other business. Notice of this meeting shall not be required. Section 21. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held on the second Tuesday in November of each year, at the hour of 10:00 A.M., provided, however, if this day falls on a legal holiday, the meeting shall be held at the same time on the next succeeding day that is a full business day. Notice of these regular meetings shall not be required. Section 22. Special Meetings. Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two directors. -5- Special meetings of the Board shall be held upon four days' notice by mail or by 48 hours' notice delivered personally or by telephone or telegraph. If notice is by telephone, it shall be complete when the person calling the meeting believes in good faith that the notified person has heard and acknowledged the notice. If the notice is by mail or telegraph, it shall be complete when deposited in the United States mail or delivered to the telegraph office at the place where the corporation's principal office is located, charges prepaid, and addressed to the notified person at such person's address as it appears on the corporate records or, if it is not on these records or is not readily ascertainable, at the place where the regular Board meeting is held. Section 23. Quorum. A majority of the authorized number of directors, but in no event less than three (3), shall constitute a quorum for the transaction of busines; except, however, to adjourn a meeting at which a quorum is present, the vote of a majority of the directors present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these By-Laws. 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 a majority of the required quorum for such meeting. Section 24. Contents of Notice and Waiver of Notice. Neither the business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. 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, either before or after the meeting, or who attends the meeting without protesting the lack of notice to said director, either prior thereto or at its commencement. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 25. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Section 26. Notice and Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than 24 hours, such notice shall be given prior to the adjourned meeting, to the directors who were not present at the time of the adjournment. Section 27. Telephone Participation. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting. Section 28. Action without Meeting. The Board of Directors may take any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board, individually or collectively, consent in writing to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board. Such action by written consent shall have the same effect as an unanimous vote of directors. Section 29. Fees and Compensation. Directors and members of committees shall receive neither compensation for their services nor reimbursement for their expenses, unless such payments are fixed by resolution of the Board. -6- ARTICLE IV Officers Section 30. Officers. The officers of the corporation shall be a President/ Chief Executive Officer, a Chief Operating Officer, a Secretary, and a Treasurer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and any other officer who may be appointed under Section 32 of these By-Laws. Any two or more offices, except those of President/CEO and Secretary, may be held by the same person. Section 31. Election. The officers of the corporation, except those appointed under Section 32 of these By-Laws, shall be chosen annually by the Board of Directors, and shall serve at the pleasure of the Board of Directors, subject to any rights conferred under a contract of employment. No such contract shall bind the corporation unless approved in advance by the Board of Directors. Section 32. Subordinate officers. The Board of Directors may appoint, and may authorize the President/CEO to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the By-Laws or by the Board of Directors. Section 33. Removal and Resignation. Any officer may be removed with or without cause, either by the Board of Directors at any regular or special meeting or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board of Directors, the President/CEO or the Secretary of the Corporation. An officer's resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. This paragraph shall not operate to diminish the rights of the corporation under any contract of employment. Section 34. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to the office. Section 35. Chairman of the Board. The Board of Directors may, in its discretion, elect a Chairman of the Board who shall preside at all meetings of the directors and shareholders at which he is present and shall exercise and perform any other powers and duties assigned to him by the Board or prescribed by the By-Laws. Section 36. President/Chief Executive Officer. Subject to any supervisory powers that may be given by the Board of Directors or the By-Laws to the Chairman of the Board, the President/Chief Executive Officer shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation's business and officers. He shall preside as chairman at all meetings of the shareholders and directors not presided over by the Chairman of the Board. He shall be ex officio member of all standing committees, shall have the general powers and duties of management usually vested in a corporation's president; shall have any other powers and duties that are prescribed by the Board of Directors or the By-Laws; and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors. Section 36. President/Chief Executive Officer. Subject to any supervisory powers that may be given by the Board of Directors or the By-Laws to the Chair- -7- man of the Board, the President/Chief Executive Officer shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation's business and officers. He shall preside as chairman at all meetings of the shareholders and directors not presided over by the Chairman of the Board. He shall be ex officio member of all standing committees, shall have the general powers and duties of management usually vested in a corporation's president; shall have any other powers and duties that are prescribed by the Board of Directors or the By-Laws; and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors. Section 37. Chief Operating Officer. The Chief Operating Officer shall, subject to the control of the President/Chief Executive officer, have responsibility for the specific supervision, direction, and over the day to day activities of the corporation's officers and employees. He shall have any other powers and duties that are prescribed by the Board of Directors, the By-Laws, or the President/Chief Executive Officer. Section 38. Vice Presidents. If the President/CEO is absent or is unable or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions on, the President/CEO. Each Vice President shall have any other powers and perform any other duties that are prescribed for him by the Board of Directors or the By-Laws. Section 39. Secretary. The Secretary shall keep or cause to be kept, and be available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held; whether it was authorized; the notice given; the names of those present or represented at shareholders' meetings; and the proceedings of the meetings. A similar minute book shall be kept for any committees, if required by the Board. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the shareholders' names and addresses, the number and classes of sharesheld by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all directors' and shareholders' meetings required to be given under these By-Laws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or the By-Laws. Section 40. Treasurer. The Treasurer shall be the corporation's chief financial officer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of the account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. He shall disburse the corporation's funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his transactions as Treasurer and of the corporation's financial condition; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or By-Laws. If required by the Board of Directors, the Treasurer shall give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of his office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in his possession or under his control on his death, resignation, retirement, or removal from office. -8- ARTICLE V General Corporate Matters Section 41. Record Date and Closing of Stockbooks. The Board of Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders' meeting; to receive any dividend, distribution, or allotment of rights; or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. The record date shall not, however, be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any share on the books of the corporation after the record date. 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 fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days. Section 42. Corporate Books and Inspection by Shareholders and Directors. Books and records of account and minutes of the proceedings of the shareholders, Board, and committees of the Board, shall be kept available for inspection at the principal office. A record of the shareholders and the number and class of shares held by each, shall be kept available for inspection at the principal office or at the office of the corporation's transfer agent or registrar. A shareholder or shareholders holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon five business days' prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), 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 record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. Inspection and copying may be made in person or by agent or attorney. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kinds and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be in person or by agent or attorney and includes the right to copy and make extracts. Section 43. Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or other orders for payment of money, notes, and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors. Section 44. Corporate Contracts and Instruments; How Executed. Except as otherwise provided in the By-Laws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances. Section 45. Stock Certificates. One or more certificates for shares of the corporation's capital stock shall be issued to each shareholder for -9- any of his shares that are fully paid up. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by the Chairman of the Board, President/CEO, or a Vice President and the Secretary, Treasurer, or an Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures. Section 46. Lost Certificates. No new share certificate that replaces an old one shall be issued unless the old one is surrendered and cancelled at the same time; provided, however, that if any share certificate is lost, stolen, mutilated, or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including a reasonable arrangement for indemnification of the corporation, that the Board may specify. Section 47. Reports to Shareholders. The requirement for the annual report to shareholders referred to in Section 1501(a) of the California Corporations Code is hereby expressly waived so long as there are less than 100 holders of record of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as they consider appropriate or as otherwise required by law. In the event the corporation has 100 or more holders of its shares, an annual report complying with Section 1501(a) and, when applicable, Section 1501(b) of the Corporations Code shall be sent to the shareholders not later than 120 days after the close of the fiscal year and at least fifteen (15) days prior to the annual meeting of shareholders to be held during the next fiscal year. 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 30 days thereafter the financial statements referred to in Section 1501(a) for such year. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of a corporation may make a written request to the corporation for an income statement of the corporation for the three-month sixmonth, or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the statements referred to in Section 1501(a) of the Corporations Code for the last fiscal year. The statement shall be delivered or mailed to the shareholder making the request within 30 days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. The income statements and balance sheets referred to 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 such financial statements were prepared without audit from the books and records of the corporation. Section 48. Indemnity of Officers and Directors. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in the best interest of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interest of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent of the corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and with such care including reasonable -10- inquiry, as an ordinarily prudent person in a like position would use under similar circumstances; except that no indemnification shall be made: (1) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation during the performance of such person's duty to the corporation, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reason- ably entitled to indemnity for the expenses such court shall determine; (2) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or (3) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. Any indemnification under this Section 47 shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct by: (1) A majority vote of a quorum consisting of directors who are not parties to such proceeding; or (2) Approval of the shareholders by the affirmative 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 shareholders as provided in Section 10, with the shares owned by the person to be indemnified not being entitled to vote thereon. Upon written request of an agent seeking indemnification under this Section, the Board by majority vote shall promptly make a determination in good faith as to whether the applicable standard of conduct has been met. If a positive determination is made, indemnification shall be authorized forthwith if the directors approving the determination include a majority of a quorum of directors not parties to the proceeding, otherwise the question of authorization by the shareholders shall be put to a shareholder vote no later than the date of the next annual meeting and said question shall be included in any management proxy solicitation for or prior to said meeting. Expenses incurred in defending any proceeding shall be advanced by the corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Section. For the purposes of this Section, "agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent, of another 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 which was predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification. ARTICLE VI Amendments Section 49. Amendment by Shareholders. By-Laws may be adopted, amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote; provided, however, that an amendment to Section 15 reducing the number of directors on a fixed-number board or the minimum number of directors on a variable-number board 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 16-2/3 percent of the outstanding shares entitled to vote. -11- Section 50. Amendment by Directors. Subject to the right of shareholders under the preceding Section 49, By-Laws, may be adopted, amended, or repealed by the Board of Directors, except that only the shareholders can adopt a by-law or amendment thereto which specifies or changes the number of directors on a fixed-number Board, or the minimum or maximum number of directors on a variable-number Board, or which changes from a fixed-number Board to a variable-number Board or vice versa. ARTICLE VII Committees of the Board Section 51. Committees of the Board. 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 and with such authority and organization as the Board may from time to time determine. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. 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 requires the vote of a majority of the authorized number of directors, and any such committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board, except with respect to: (1) The approval of any action for which shareholder approval is also required. (2) The filling of vacancies on the Board or in any committee. (3) The fixing of compensation of the directors for serving on the Board or on any committee. (4) The amendment or repeal of By-Laws or the adoption of By-Laws. (5) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable. (6) A distribution to the shareholders of the corporation as defined in Section 166 of the Corporations Code, except at a rate or in a periodic amount or within a price range determined by the Board. (7) The appointment of other committees of the Board or the members thereof. The Board shall designate a chairman for each committee who shall have the sole power to call any committee meeting other than a meeting set by the Board. Except as otherwise established by the Board, Article III of these By-Laws shall apply to committees of the Board and action by such committees. January 14, 1996 /s/ Kenneth Y. Wong, Secretary -12- EX-27 4 FDS --
5 0001039962 IMMECOR CORPORATION 1 1 YEAR 9-MOS DEC-31-1996 DEC-31-1997 JAN-1-1997 JAN-1-1997 DEC-31-1996 SEP-30-1997 1 1 54677 31731 0 0 390357 667600 10000 20000 129421 359791 589604 1061989 61740 75036 19780 22000 647802 1164843 379024 606401 0 0 0 0 0 0 320500 320500 (51722) 224303 647802 1164843 3591382 3858002 3591382 3858002 3137320 2892064 3581981 3396985 (65244) 0 0 10000 3786 1731 71581 462525 18800 186500 52781 276025 0 0 0 0 0 0 52781 276025 .022 .114 .022 .114
EX-99.B4 5 FORM OF STOCK CERTIFICATE Number Shares Immecor Corporation Incorporated under the laws of the State of California See Reverse for Statements relating to Rights, Preferences, Privileges, if any. This Certifies that CUSIP 452518 10 3 - -------- is the owner of --------- Fully paid and nonassessable Shares of Common Stock of Immecor Corporation transferable only on the books of the Corporation by the holder hereof in person or by Attorney, upon surrender of this Certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Secretary President A statement of the rights, preferences, privileges and restrictions to or imposed upon the respective classes or series of shares and upon the holders thereof as established, from time to time, by the Articles of Incorporation of the Corporation and by any certificate of determination, and the number of shares constituting each class and series and the designations thereof, may be obtained by the holder hereof upon written request and without charge from the Secretary of the Corporation at its corporate headquarters. The following abbreviations,when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ..............................Custodian ................(Cust).............(Minor) TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship under Uniform Gifts to Minors Act ..........................................(State). and not as tenants in common UNIF TRF MIN ACT--...........................Custodian (until age ....) (Cust).................under Uniform Transfers (minor) to Minors Act............(State). Additional abbreviations may also be used though not in the above list. For Value Received, _____ hereby sell, assign and transfer unto Please insert Social Security or other Identifying Number of Assignee - ---------------------------------------------------------------------- Please Print or Typewrite Name and Address, including Zip Code, of Assignee - ---------------------------------------------------------------------- _________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ---------------------------------------------------------------------- Attorney to transfer the said Stock on the books of the within named Corporation with full power of substitution in the premises. Dated ______________ 19_____ Signed __________________________ Signed __________________________ NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. Signatures Guaranteed By ______________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATION AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17ad-15. EX-5 6 OPINION OF COUNSEL KENNETH M. CHRISTISON ATTORNEY AT LAW 601 GLENWOOD AVENUE MILL VALLEY, CA 94941 May 5, 1997 BOARD OF DIRECTORS IMMECOR CORPORATION 100 Professional Center Drive Rohnert Park, CA 94928-2137 Reference: Corporate Records of Immecor Corporation, a California Corporation Dear Directors: You have requested my opinion as to the legality of the securities being registered by Immecor Corporation (the Company) under the Securities Act of 1933, as amended (the Act), by filing a registration statement on Form SB-2, relating to the offering of up to 750,000 shares of its common stock (the Shares), as described in the registration statement. Attached to your request for my opinion are the Company's filed Articles of Incorporation, approved By-laws, signed resolutions of the Board of Directors of the Company concerning the offering, the registration statement, and such other corporate documents as I consider necessary or appropriate to the rendering of this opinion. I have reviewed and considered all of these documents. Upon the basis of such examination, it is my opinion that, when the registration becomes effective under the Act, and when the Shares are duly issued and delivered to the purchasers against payments of the consideration therefor, the Shares will, upon sale and transfer, be legally issued, fully paid and non-assessable. I hereby consent to the filing of this opinion as an exhibit to the offering statement. Sincerely, KENNETH M. CHRISTISON, Esq. Voice: 415-389-0661 Fax: 415-389-6960 EX-99.B11 7 CONSENT OF INDEPENDENT ACCOUNTANT CONSENT OF INDEPENDENT ACCOUNTANT I hereby consent to the reference to me under the captions "Financial Statements" and "Experts" in the Prospectus constituting part of the Registration Statement on Form SB-2 of Immecor Corporation of my report dated May 14, 1997. L.V. Dorn II Certified Public Accountant Fort Bragg, California May 15, 1997 EX-99.B9 8 EMPLOYMENT CONTRACT, JASON C. LAI EMPLOYMENT AGREEMENT FOR JASON C. LAI This Employment Agreement (the "Agreement") is made as of April 16, 1997, by and between Immecor Corporation, a California corporation, located at 100-105 Professional Center Drive, Rohnert Park, California 94928, hereinafter referred to as "Immecor" or the "Employer", and Jason C. Lai, whose address is 5625 Mireille Drive, San Hose, California 95118, hereinafter referred to as "Lai" or the "Employee". In consideration of the mutual promises made herein, Immecor and Lai agree as follows: ARTICLE 1. TERM OF EMPLOYMENT Section 1.01. Specified Term. The Immecor hereby employs Lai and Lai hereby accepts employment with Immecor for a period of one (1) year, beginning on April 16, 1997. Section 1.02. Earlier Termination. This Agreement may be terminated earlier only as hereinafter provided. ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE. Section 2.01. Title and Description of Duties. Lai shall serve as Vice President of Sales and Marketing of Immecor Corporation. In that capacity, Lai shall do and perform all services, acts, or things necessary or advisable to fulfill the duties of that position. Lai shall ay all times be subject to the direction of the President, and to the policies established by the Board of Directors of Immecor. The duties of Lai may be modified from time to time by the mutual consent of Immecor and Lai without resulting in a rescission of this Agreement. The mutual written consent of Immecor and Lai shall constitute execution of that modification. Section 2.02. Trade Secrets. (a) The parties acknowledge and agree that during the terms of this Agreement and in the course of the discharge of his duties hereunder, Lai shall have access to and become acquainted with information concerning the operation of Immecor, including without limitation, financial, personnel, sales, planning, and other information that is owned by Immecor and regularly used in the operation of Immecor's business and that this information constitutes Immecor's trade secrets. (b) Lai agrees that he shall not disclose any such trade secrets, directly or indirectly, to any other person or use them in any way, except as is required in the course of his employment with Immecor. (c) Lai further agrees that all files, records, documents, equipment, and similar items relating to Immecor's business, whether prepared by lai or others, are and shall remain exclusively the property of Immecor and that they shall be removed from the premises of Immecor only with the express prior consent of Immecor. (d) However, in the event that Immecor breaches any of its agreements or contracts with Lai, including any of the provisions of this Agreement, Lai's obligations under this Section shall terminate and he shall not be restricted in his use or disclosure of any information or knowledge that Immecor may consider or claim to be a trade secret. 1 ARTICLE 3. OBLIGATIONS OF EMPLOYER. Section 3.01. General Description. Immecor shall provide Lai with the compensation, incentives, benefits, and business expense reimbursement specified elsewhere in this Agreement. Section 3.02. Office and Staff. Immecor shall provide Lai with office equipment, supplies, and other facilities and services suitable to Lai's position and adequate for the performance of his duties. Section 3.03. Indemnification of Losses of Employee. Immecor shall indemnify Lai for all losses sustained by Lai in direct consequence of the performance or discharge of his duties on Immecor's behalf. ARTICLE 4. OBLIGATIONS OF EMPLOYER. Section 4.01. Initial Bonus. Upon execution of this Agreement, Immecor shall pay to Lai the sum of Three Thousand Dollars ($3,000.00) as a signing bonus which shall be paid in addition to all other compensation described in this Agreement. Section 4.02. Annual Salary. As compensation for the services to be rendered by Lai hereunder, Immecor shall pay Lai an annual base salary in the amount of One Hundred Thousand Dollars ($100,000.00). Such salary shall be payable in equal semi-monthly installments of Four Thousand One Hundred Sixty-six Dollars ($4,166.67) on the fifteenth (15th) and final days of each month during the period of employment, prorated for any partial employment period. Section 4.03. Salary Continuation during Disability. If Lai becomes physically disabled so that he is unable to perform the duties prescribed herein, Immecor agrees to pay Lai fifty percent (50%) of Lai's annual salary, payable in the same manner as provided for the payment of salary herein, for the remainder of the employment term provided herein. Section 4.04. Tax Withholding. Immecor shall have the right to deduct or withhold from the compensation due to Lai hereunder any and all sums required for federal income and Social Security taxes and all state or local taxes now applicable or that may be enacted and become applicable in the future. ARTICLE 4. EMPLOYEE BONUS. Section 5.01. Cash Bonus Based on Sales. (a) In any month in which the total gross sales of Immecor, as defined below, exceed Two Hundred Fifty Thousand Dollars ($250,000.00) but are less than Three Hundred Fifty Thousand Dollars ($350,000.00), Lai shall receive a cash bonus equal to one-half percent (0.5%) of total gross sales. (b) In any month in which the total gross sales of Immecor, as defined below, exceed Three Hundred Fifty Thousand Dollars ($350,000.00) but are less than Four Hundred Fifty Thousand Dollars ($450,000.000), Lai shall receive a cash bonus equal to one percent (1.0%) of total gross sales. 2 (b) In any month in which the total gross sales of Immecor, as defined below, exceed Three Hundred Fifty Thousand Dollars ($350,000.00) but are less than Four Hundred Fifty Thousand Dollars ($450,000.000), Lai shall receive a cash bonus equal to one percent (1.0%) of total gross sales. (c) In any month in which the total gross sales of Immecor, as defined below, exceed Four Hundred Fifty Thousand Dollars ($450,000.00), Lai shall receive a cash bonus equal to one and one half percent (1.5%) of total gross sales. Section 5.02. Payment of Cash Bonus. This bonus shall be earned based on sales made each month by Immecor and shall be paid to Lai within fifteen (15) days after full payment has been received by Immecor for sales to which the bonus applies, and shall be in addition to any other compensation to which he is entitled hereunder. Section 5.03. Determination of Gross Sales. For the purposes of this Article, the total gross sales of Immecor shall be determined on a calendar monthly basis, and shall include for each month all sales booked by Immecor in the calendar month on a regular and consistent basis, without setoff and whether or not actual payment has been received for such sales. For the purpose of this bonus, each calendar month shall be treated as a separate month, and the bonus determined for any one calendar month shall not be affected by the determination of any bonus payable in any other month. ARTICLE 6. EMPLOYEE BENEFITS. Section 6.01. Annual Vacation. Lai shall be entitled to three weeks vacation time each year with full pay. Lai may be absent from his employment for vacation at such times as Immecor and Lai shall mutually agree from time to time. If Lai is unable for any reason to take the total amount of authorized vacation time during any year, at Lai's election he may either accrue that time and add it to vacation time for any following year or he may receive a cash payment in an amount equal to the amount of annual salary attributable to that unused vacation. Section 6.02. Illness. Lai shall be entitled to fifteen (15) days per year as sick leave with full pay. Sick leave may be accumulated without limit as to the number of days, but any unused sick leave shall not be paid to Lai upon termination of employment. Section 6.03. Group Life Insurance. Immecor agrees to include Lai under Immecor's group term life insurance coverage in an amount commensurate with the coverage provided to other employees in Lai's annual salary range if Lai is medically acceptable as determined by the insurance carrier. Section 6.04. Group Medical Insurance. Immecor agrees to include Lai under Immecor's group medical insurance coverage. Section 6.05. Other Benefits. Immecor agrees to provide to Lai the same or substantially similar employee benefits that are from time to time provided to the other employees of Immecor. 3 ARTICLE 7. BUSINESS EXPENSES Section 7.01. Business Expense. Immecor shall promptly reimburse Lai for all reasonable business expenses incurred by Lai in promoting the business of Immecor, including expenditures for entertainment, gifts, and travel upon approval by Immecor. Section 7.02. No Repayment by Employee of Disallowed Business Expenses. In the event that any expenses paid for Lai or any reimbursement of expenses paid to Lai shall, on audit or other examination of Immecor's income tax returns, be determined not to be allowable deductions from Immecor's gross income, Lai shall not be required to repay to Immecor any amount of such disallowed expenses provided they have been approved by Immecor. ARTICLE 8. TERMINATION OF EMPLOYMENT Section 8.01. Termination by Employer Only For Cause. Immecor shall have the right to terminate this Agreement for cause only if Lai (i) wilfully breaches or habitually neglects the duties which he is required to perform under the terms of this Agreement, or (ii) commits acts of fraud, gross misrepresentations, or other acts of moral turpitude which prevent the performance of his duties hereunder. Section 8.02. Termination by Employee. Lai may terminate this Agreement and all of his obligations hereunder at any time upon written notice to Immecor. Section 8.03. Termination Upon Death of Employee. This Agreement shall be terminated upon the death of Lai. Section 8.04. Effect of Merger, Transfer of Assets, or Dissolution. This Agreement shall not be terminated by any voluntary or involuntary dissolution of Immecor resulting from either a merger or consolidation in which Immecor is not the consolidated or surviving corporation, or a transfer of all or substantially all of the assets of Immecor. Section 8.05. Effect on Compensation. In the event that this Agreement is terminated prior to the completion of the term of employment specified herein, Lai shall be entitled to the compensation earned by and vested in him prior to the date of termination as provided for in this Agreement, computed pro rate up to and including that date. ARTICLE 9. COVENANT NOT TO COMPETE ON TERMINATION Section 9.01. Covenant Not To Compete. Except as provided in Section 9.04 , upon the expiration of the term of this Agreement, or upon termination of this Agreement for cause by Immecor and for one (1) year after such termination, Lai agrees not to sell any products (which at the time of termination are then being marketed by Immecor) to the following three customers of Immecor: KLA Instruments, Advanced Fibre Communications, and Compumotor. Section 9.021. Deferred Compensation For Covenant. As compensation for this covenant, un- 4 less Lai is terminated for cause, Immecor shall pay to Lai the sum of One Hundred Thousand Dollars ($100,000.00), payable in monthly installments of Eight Thousand Three Hundred Thirty-three and 33/100 Dollars ($8,333,33) on the first day of each month after termination of employment. Section 9.03. Breach Of This Article by Either Party. In the event that Lai breaches the covenant under this Article, or Immecor fails to make any payment of deferred compensation under this Article, then the sole remedy of either party for such breach shall be the complete release of any further obligations of both parties under this Article. That is, if Lai breaches the covenant hereunder, Immecor's sole remedy shall be to cease making additional installment payments of deferred compensation (but Immecor shall not be entitled to any reimbursement of such payments made prior to the breach); and if Immecor breaches the agreement to make deferred compensation payments, then Lai's sole remedy shall be his complete release from the covenant and his release from any restrictions under Section 2.02 above. Section 9.04. Voluntary Termination. In the event that Lai voluntarily terminates this Agreement, without cause, prior to the end of the initial employment term, then Lai agrees that the Covenant Not to Compete under Section 9.01 above shall apply but only until the end of the initial employment term under Section 1.01 above and only with respect to the following three customers of Immecor: KLA Instruments, Advanced Fibre Communications, and Compumotor. In that event, Immecor shall not be obligated to pay any deferred compensation to Lai under Section 9.02 above and except to the three above named companies, Lai shall be released from any restrictions under Section 2.02 above. ARTICLE 10. GENERAL PROVISIONS Section 10.01. Notices. Any notices to be given by either party to the other shall be in writing and may be transmitted either by personal delivery or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but each party may change this address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of two (2) days after the date of mailing. Section 10.02. Attorneys' Fees and Costs. If any proceedings or legal action is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to actual attorneys' fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. This provision shall be construed as applicable to the entire contract. Section 10.03. Modifications. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. Section 10.04. Effect of Waiver. The failure of either party to insist on strict compliance with any of the terms, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of that term, covenant, or condition, nor shall any waiver or relinquishment of any right or 5 power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. Section 10.05. Partial Invalidity. If any provision in this Agreement is held by a court or competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way. Section 10.06. Law Governing Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Venue for any action brought with respect to this Agreement or for any other purposes hereunder shall be Santa Clara County. Section 10.07. Sums Due Deceased Employee. If Lai dies prior to the expiration of the term of his employment, any sums that may be due to him from Immecor under this Agreement as of the date of death shall be paid to Lai's executors, administrators, heirs, personal representatives, successors, and assigns. EMPLOYER Immecor Corporation a California corporation 100-105 Professional Center Drive, Rohnert Park, California 94928 /s/ By: Heinot H. Hintereder, President EMPLOYEE /s/ Jason C. Lai 6 EX-99.B9 9 LEASE OF SPACE WESTERN BUSINESS PARK STANDARD OFFICE LEASE - MODIFIED GROSS1. Parties. This Lease, dated, for reference purposes only, December 13, 1994, is made by and between WESTERN BUSINESS PARK ASSOCIATES (herein called "Lessor") and Immecor Corporation (herein called "Lessee"). 2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Sonoma, State of California, commonly known as 100 Professional Center Dr., Ste 105 Rohnert Park, California and described as Office suite of approximately 2691 Sg. Ft.. Said real property including the land and all improvements therein, is herein called "the Premises". 3. Term. 3.1 Term. The term of this Lease shall be for 3 Years commencing on February 1, 1995 and ending on January 31, 1998 unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. Lessee to occupy space as of 12/15/94 for purposes of work on Tenant Improvements. Rent to begin as 4. Rent. specified in ~4. 4.1 Base Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $See Addendum, in advance, on the 1st day of each month of the term hereof. Lessee shall pay Lessor upon the execution hereof $1883.70 as rent for the period February 1, 1995 thru February 28, 1995. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other --1-- places as Lessor may designate in writing. 4.2 Escalation of Base Rent. The base annual rent and the monthly installments to be paid hereunder shall be adjusted upward during any lease term, with a minimum annual increase of 4.0%'and a maximum annual increase of 7.0%, by a percentage equal to the percentage increase' if any, in the Consumer Price Index for the San Francisco Oakland metropolitan Area, All Items, 1967 Base = 100, (CPI) issued by the Bureau of Labor Statistics. the base CPI figure for computing any such increase (in excess of the 4.0% minimum increase) shall be the figure published in the Current Labor statistic section of the Monthly Labor Review for the quarter year in which the payment of the base rental commenced hereunder. The escalator CPI figure shall be the last figure so published prior to the lapse of twelve (12) months of the lease term. Any increase in the base rental found to be due because of such increase shall apply to the ensuing months of the lease term subject to like adjustment at twelve (12) month intervals thereafter. If publication of the CPI shall be discontinued, the parties hereto shall substitute any official index published by the U.S. Bureau of Labor Statistics, or successor or similar government agency, as may then be in existence and shall be most nearly equivalent thereto. If the parties shall be unable to agree upon a successor index, the parties shall refer the choice of a successor index to arbitration in accordance with the rules of the American Arbitration Association then in effect. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $3,932.15 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee if any, of Lessee's interest hereunder) at the expiration of the term hereof and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for --2-- General Office Use, Computer Sales, Furniture Sale or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense comply promptly with all applicable statutes, ordinances rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof regulating the use by Lessee of the Premises, Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any --3-- representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs and Alterations. 7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2, and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense shall keep in good order, condition and repair all exterior surfaces of the Premises, all Lessor installed plumbing, heating, air conditioning, ventilating, electrical and lighting equipment within the Premises, and all landscaping, driveways, parking lots, fences, and non-Lessee specific signing located in the Premises. Lessor shall not however be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations. (a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the interior surfaces of the demised premises, including, without limiting the generality of the foregoing, all interior walls, ceilings, floor coverings, fixtures, windows, doors, plate glass, and skylights, located within the Premises, and shall surrender same at the expiration of the term hereof in as good condition as received, normal wear and tear excepted. However, Lessee shall not have the responsibility to replace any exterior building glass unless the breaking thereof is due to an action of the Lessee, Lessee's employees, invitees, and/or customers. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, and plumbing on the premises in good - --4-- operating condition.7.3 Alterations and Additions.(a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or utility installations in, on or about the Premises, except for nonstructural alterations not exceeding $2,500 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or utility installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at, or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. --5-- (d) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and any other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $5oo,ooo per occurrence. 8.3 Property Insurance. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. 8.4 Payment of Premium Increase. (a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount, of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result, of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" - --6-- shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $$2947. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2. (b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or further satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. (c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part. 8.5 Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. 8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any --7-- activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair, is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is SO% or more of the fair market value of such building as a whole immediately prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. --8-- 9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs 9.4, 9.5 and 9.6, if at anytime during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3 Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall -9- continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 9~/95. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the - -10- term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessor shall pay for all water and trash removal supplied to the Premises, together with any taxes thereon. Lessee shall pay, in addition to the rent described herein, its proportional share of the gas, heat, light, and power utilities supplied to the premises, together with any taxes thereon. Terms of payment shall be as described in paragraph 10.1 above. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. Lessee shall not voluntarily -11- or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises By Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that -12- Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Paragraph 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 Remedies. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to -13- enforce all of Lessor rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 13.5 Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the -14- obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (a) Upon execution of this Lease by both parties, Lessor shall pay to Sommers, Oates and Associates, licensed real estate broker(s), a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $ $2760.00, for brokerage -15- services rendered by said broker(s) to Lessor in this transaction. (b) Lessor further agrees that if Lessee exercises any Option as defined in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to an Option granted to Lessee under this Lease, or if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or if said broker(s) are the procuring cause of any other lease or sale entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, then as to any of said transactions, Lessor shall pay said broker(s) a fee in accordance with the schedule of Lessor in effect at the time of execution of this Lease, or in accordance with any separate agreement between Lessor and said broker. (c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker shall be a third party beneficiary of the provisions of this Paragraph 15. 16. Estoppel Certificate. (a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used -16- only for the purposes herein set forth.17. Lessor's Liability. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence. 21. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail. and if given Personally or by mail, shall be deemed. -17- sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California. 30. Subordination. (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such -18- subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fees. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon. Lessor shall allow Lessee one identification sign for Lessee's business upon Lessee's door or -19- an adjacent wall or window panel, with the letters of said sign to be of the same size and general type style as used for other Lessees in the Premises. Further, Lessor shall provide a directory listing for Lessee in the building directory if said building directory exists. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises. 39.2 Options Personal. Each Option granted to Lessee in this Lease is personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee are not assignable separate and apart from this Lease. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1 (b) or 13.1(c)and continuing -20- until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid. or (iii) at any time after an event or default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a) (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1 (b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1 (c), whether or not the defaults are cured. 39.5 Option To Renew. Upon the expiration of the initial lease term, Lessee shall have the option to renew this lease for 0 additional period(s) of 0 months each upon the same terms and conditions herein set forth at a rental mutually agreeable to Lessor and Lessee, subject to the following limitations on increases in the monthly rental. The base monthly rental for each option period shall not exceed () percent of the monthly rental for the final month of the previous lease term. Said option shall be exercised by delivery of a written election at least one hundred twenty (120) days prior to the expiration of the then current lease term, and shall terminate if no agreement on rental for the extended term is reached within sixty (60) days after such election is delivered. 40. Multiple Tenant Building. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this lease by Lessee. -21- 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. Easements. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Addendum. Attached hereto is an addendum or addenda containing paragraphs A through A which constitutes a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. -22- IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. The Parties hereto have executed this Lease at the Place on the dates specified immediately adjacent to their respective signatures. Executed at Rohnert Park, California on_______________________ By: Western Business Park Associates 100 Professional Center Drive, Suite 100 Rohnert Park California 94928 By_______________________________ Executed at ______________________ On________________________________ By________________________________ Address___________________________ -23- ADDENDUM A RENTAL PAYMENT SCHEDULE SUITE 105-100 PROFESSIONAL CENTER DRIVE, ROHNERT PARK PERIOD OF TIME RENT DUE PER MONTH1st 6 months $1883.70 2nd 6 months 2152.80 3rd 6 months 2421.90 4th 6 months 2691.00 5th 6 months 2960.10 6th 6 months 3229.20 DATE________________ IMMECOR INC. BY: DATE________________ WESTERN BUSINESS PARK ASSOC. BY: LEASE MODIFICATION The office lease dated December 13, 1994, by and between WESTERN BUSINESS PARK ASSOCIATES, Lessor, and IMMECOR CORPORATION, Lessee, is hereby modified as follows: 1. Effective with the rent due June 1, 1995, the leased area is increased by the area of those offices identified as Suites 105-A and 105-C, and the base monthly rent shall be $2,173.15. 2. Effective with the rent due August 1, 1995, the leased area is increased by the area of that office identified as Suite 105-D, and the base monthly rent shall be increased to $2,738.35. This base monthly rent includes the $.10 per square foot increase (effective on each six month anniversary) on the original 2,691 square feet as provided for in the original lease. All other terms and conditions of the original lease shall remain in force. Dated _____________ Western Business Park Associates By: ________________ General Partner Dated: ___________ IMMECOR CORPORATION By:__________________ LEASE MODIFICATION The office lease dated December 13, 1994, by and between WESTERN BUSINESS PARK ASSOCIATES, Lessor, and IMMECOR CORPORATION, Lessee, is hereby modified as follows: 1. Effective with the rent due February 1, 1996, the leased area is increased by the area of that office identified as Suite 105-B, being 371 sq. ft. more or less. The monthly rent for this additional area shall be calculated at $ .70 per sq. ft. 2. Also effective with the rent due February, the total monthly rent due shall be increased to $ 3349. This includes the $ .10 per square foot increase effective on each six months anniversary as provided for in the original lease. All other terms and conditions of the original lease shall remain in force. Dated: _________________ Western Business Park Associates By:________________ General Partner Dated:__________________ IMMECOR CORRORATION By:___________________ LEASE MODIFICATION The office lease dated December 13, 1994, by and between WESTERN BUSINESS PARK ASSOCIATES, Lessor, and IMMECOR CORPORATION, Lessee, is hereby modified as follows: 1. Effective with the rent due August 1, 1996, the total monthly rent due shall be increased by $351 from $ 3349 to $3,700. This represents the $ .10 per square foot increase effective on each six months anniversary as provided for in the original lease. All other terms and conditions of the original lease shall remain in force. Dated: _________________ Western Business Park Associates By:________________ General Partner Dated:__________________ IMMECOR CORRORATION By:___________________ WESTERN BUSINESS PARK ASSOCIATES 100 Professional Center Drive, Suite 100 Rohnert Park, California 94928 707 585-3131 LEASE MODIFICATION The office lease dated December 13, 1994, by and between WESTERN BUSINESS PARK ASSOCIATES, Lessor, and IMMECOR CORPORATION, Lessee, is hereby modified as follows: 1. Effective with the rent due April 1, 1997, the leased area is increased by the area of that of office identified as Suite 104, and the monthly rent is increased by $ 663.00. All other terms and conditions of the original lease shall remain in force. Dated: _________________ Western Business Park Associates By:________________ General Partner Dated:__________________ IMMECOR CORRORATION By:___________________ EX-99 10 SHARE PURCHASE AGREEMENT IMMECOR SHARE PURCHASE AGREEMENT California Residents: If your purchase is for more than $2,500 you will need to sign the representation at the bottom of this Share Purchase Agreement! o: Immecor Corporation 100~105 Professional Center Drive Rohnert Park, CA 94928 (707) 585-3036 I have received and had an opportunity to read the Prospectus by which the shares are offered. I represent that I am purchasing for investment. Signature: ___________________________________________________________ Date: _____________ Enclosed is payment for ____________ shares (minimum 100) at $5.25 per share, totaling $ _____________ Register the shares in the following name(s) and amount(s): Name(s): ____________________________________________ Number of shares: ________________ As (check one): / / Individual / / Joint Tenants / / Trust / / Tenants in Common / / Corporation / / Other ___________________ For the person(s) who will be registered shareowner(s): Mailing Address: _____________________________________________________________ City, State & Zip Code: ________________________________________________________ Telephone Numbers: Business: ( )____________________ Home: ( )______________________ Social Security or Taxpayer ID Number: _________________________________________ (Please attach any special mailing instructions other than those shown above.) No Share Purchase Agreement Is Effective Until Acceptance (You will be mailed a signed and numbered copy of this agreement to retain for your records.) Share Purchase Agreement accepted by Immecor Corporation: - ----------------------------------------- ---------------------------- Heinot H. Hintereder, President & CEO Date [If your purchase is for more than $2,500:] I (we) have at least the following minimum income and net worth (You may include income and net worth for both spouses. "Net worth" includes individual retirement plans and other assets, valued at not more than fair market value, and excludes home, home furnishings and automobiles): A minimum net worth of at least $75,000 and minimum gross income of $50,000 during the current tax year; or, in the alternative, a minimum net worth of $150,000. In either case, the amount of this investment does not exceed 10 percent of my (our) net worth. - ----------------------------------------- ---------------------------- Signature Date -----END PRIVACY-ENHANCED MESSAGE-----