SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment no. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ISONICS CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date filed:
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<PAGE>
ISONICS CORPORATION
20 Great Oaks Boulevard
San Jose, California 95119
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 6, 1998
TO THE SHAREHOLDERS OF ISONICS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
ISONICS CORPORATION, a California corporation (the "Company"), will be held on
Tuesday, October 6, 1998 at 10:00 a.m., local time, at the offices of the
Company, located at 20 Great Oaks Boulevard, San Jose, California 95119 for the
following purposes:
1. To elect five directors to serve for the ensuing year and
until their successors are elected.
2. To approve the Company's 1998 Employee Stock Purchase Plan.
3. To ratify the selection of Grant Thornton LLP as independent
auditors of the Company for its fiscal year ending April 30,
1999.
4. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on August 18,
1998, as the record date for the determination of shareholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
PAUL J. CATUNA
Secretary
San Jose, California
September 9, 1998
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ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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<PAGE>
ISONICS CORPORATION
20 Great Oaks Boulevard
San Jose, California 95119
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
October 6, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Isonics Corporation, a California corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held on October 6, 1998, at 10:00 a.m.,
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the offices of the Company
located at 20 Great Oaks Boulevard, San Jose, California 95119. The Company
intends to mail this proxy statement and accompanying proxy card on or about
September 4, 1998, to all shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other employees of the Company.
No additional compensation will be paid to directors, officers or other
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
August 18, 1998 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on August 18, 1998 the Company had outstanding and
entitled to vote 6,071,980 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting. With respect to the election of directors, shareholders may exercise
cumulative voting rights. Under cumulative voting, each holder of Common Stock
will be entitled to five votes for each share held. Each shareholder may give
one candidate, who has been nominated prior to voting, all the votes such
shareholder is entitled to cast or may distribute such votes among as many such
candidates as such shareholder chooses. (However, no shareholder will be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and at least one shareholder has given notice at
the meeting, prior to the voting, of his or her intention to cumulate votes).
Unless the proxyholders are otherwise instructed, shareholders, by means of the
accompanying proxy, will grant the proxyholders discretionary authority to
cumulate votes.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
towards a quorum but are not counted for any purpose in determining whether a
matter is approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 20
Great Oaks Boulevard, San Jose, California 95119, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
1.
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company
not later than May 27, 1999 in order to be included in the proxy statement and
proxy relating to that Annual Meeting. In addition, pursuant to recent changes
to the proxy rules, unless a shareholder who wishes to bring a matter before the
shareholders at the Company's 1999 Annual Meeting of Shareholders notifies the
Company of such matter prior to July 21, 1999, management will have
discretionary authority to vote all shares for which it has proxies in
opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently
authorized in the Company's Bylaws. Each director to be elected will hold office
until the next annual meeting of shareholders and until his or her successor is
elected and has qualified, or until such director's earlier death, resignation
or removal. Each nominee listed below is currently a director of the Company.
Larry J. Wells was appointed as a director by the Board in September 1996 to
fill a vacancy created when the Board increased the authorized size of the Board
to four members. Richard Parker was appointed as a director by the Board in
August 1998 to fill a vacancy created when the Board increased the authorized
size of the Board to five members. Each of the remaining three nominees below
were elected by the shareholders.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the five nominees named below,
subject to the discretionary power to cumulate votes. In the event that any
nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve. The five candidates receiving the highest number of
affirmative votes cast at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set
forth below:
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
James E. Alexander 49 President, Chief Executive Officer and
Chairman of the Board of Directors
Boris Rubizhevsky 47 Senior Vice President, Vice Chairman and
Director
Lindsay A. Gardner 45 Director
Larry J. Wells 52 Director
Richard Parker 54 Director
James E. Alexander is a founder of the Company and has served as its
President, Chief Executive Officer and a director since its inception. Mr.
Alexander has worked full-time for the Company since January 1994. From June
1972 to December 1993, he worked in a variety of technology positions at General
Electric Company ("GE") in the aircraft engine and nuclear power businesses,
where his last position was Manager of Technology Programs. Mr. Alexander
received his bachelors degree in Metallurgical Engineering from the University
of Cincinnati and performed graduate work in materials science there. He earned
a masters degree in Business Administration from Santa Clara University.
Boris Rubizhevsky is a founder of the Company and has been a Senior
Vice President and a director of the Company since inception and became Vice
Chairman in March 1997. From November 1996 through December 1994, Mr.
Rubizhevsky owned and operated SAR Marketing, a consulting firm providing
business advice and services to large multinational corporations. From June 1977
to May 1986, Mr. Rubizhevsky worked at GE as Business Development
2.
<PAGE>
Manager in various international locations. He received his bachelors degree in
Engineering from the Stevens Institute of Technology.
Lindsay A. Gardner was elected a director of the Company in September
1993. Ms. Gardner has served from 1991 through the present as President of LG
Associates, a US-based management consulting firm providing materials management
expertise to foreign company affiliates of US companies in developing countries.
During her tenure at LG Associates, Ms. Gardner resided in Moscow, Russia from
September 1991 to January 1994 when she moved to Beijing, China, where she
currently resides. From 1977 to 1991, Ms. Gardner worked for GE in a variety of
management and functional positions including international marketing, quality
assurance and materials. Ms. Gardner received her bachelors degree in
International Economics from The George Washington University Elliott School of
International Affairs, and earned a masters in Business Administration from the
University of Louisville.
Larry J. Wells was elected a director of the Company in September 1996.
Mr. Wells is the founder of Sundance Venture Partners, L.P. ("Sundance"), a
venture capital fund, and is the chairman of the entity that acts as the manager
of Sundance. From 1983 to 1987, Mr. Wells served as Vice President of Citicorp
Venture Capital and then became Senior Vice President of Inco Venture Capital.
From May 1969 to June 1983, Mr. Wells was the founder and President of Creative
Strategies International, a market research consulting firm specializing in
emerging markets. Mr. Wells is a director of Identix, Inc., Atlanta Technology
Group, Cellegy Pharmaceuticals, Gateway Data Sciences and Telegen Corporation,
as well as several privately held companies. Mr. Wells received his bachelors
degree in Economics and earned a masters degree in Business Administration from
Stanford University.
Richard Parker has served as a director of the Company since August
1998. Mr. Parker is presently Vice-President of Distribution Sales for Cypress
Semiconductor and has held that position since December 1997. Previously, Mr.
Parker was Director of Sales for Cypress from April 1984 to December 1997. Prior
to joining Cypress, he held various sales and marketing management positions at
Fairchild Semiconductor from 1973 to 1984. He received a bachelors degree in
education from the University of North Dakota.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended April 30, 1998 the Board of Directors held
four meetings. The Board has an Audit Committee, a Compensation Committee and an
Acquisition Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Mr. Wells and Ms. Gardner. It did not meet during such
fiscal year.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Mr. Wells and Ms. Gardner. It met one time during such fiscal year.
The Acquisition Committee oversaw and reviewed the due diligence
process with respect to the acquisition of International Process Research
Corporation and authorized certain officers to execute and deliver documents in
connection therewith. The Acquisition Committee was composed of three directors:
Messrs. Alexander, Rubizhevsky and Wells. It met two times during such fiscal
year.
During the fiscal year ended April 30, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he or she served, held during the period for which he or she was a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") was adopted by the Board of Directors in August 1998.
Shareholders are requested in this Proposal 2 to approve the Employee
Stock Purchase Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and voting at the meeting will
be
3.
<PAGE>
required to approve the Employee Stock Purchase Plan. For purposes of this vote
abstentions and broker non-votes will not be counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Employee Stock Purchase Plan are outlined
below.
PURPOSE
The purpose of the Employee Stock Purchase Plan is to give employees of
the Company and any parent or subsidiary of the Company ("affiliate") designated
by the Board an opportunity to purchase Common Stock of the Company through
payroll deductions. The Employee Stock Purchase Plan assists the Company in (i)
securing the services of new employees, (ii) retaining the services of existing
employees, and (iii) providing incentives for such persons to exert maximum
efforts for the success of the Company and its affiliates. The rights to
purchase Common Stock granted under the Employee Stock Purchase Plan ("Rights")
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Board, which administers Employee Stock Purchase Plan, has the
final power to construe and interpret the Employee Stock Purchase Plan and the
Rights granted under it. Subject to the provisions of the Employee Stock
Purchase Plan, the Board determines when and how Rights will be granted. It also
determines the provisions of each offering of such Rights (which need not be
identical) and whether employees of an affiliate may participate in the Employee
Stock Purchase Plan. The Board may delegate administration of the Employee Stock
Purchase Plan to a committee of two or more Board members. The Board also may
abolish any such committee at any time and revest the administration of the
Employee Stock Purchase Plan in itself. As used herein with respect to the
Employee Stock Purchase Plan, the "Board" refers to such committee as well as to
the Board of Directors itself.
OFFERINGS
The Employee Stock Purchase Plan is implemented by offerings of Rights
to all eligible employees from time to time by the Board. Such offerings may not
be more than 27 months long and may contain multiple purchase periods.
Currently, offerings are generally 24 months long, divided into four shorter
six-month purchase periods. As of August 21, 1998, no shares of the Company's
Common Stock had been purchased under the Employee Stock Purchase Plan.
STOCK SUBJECT TO EMPLOYEE STOCK PURCHASE PLAN
An aggregate of 200,000 shares of Common Stock is authorized for
issuance under the Employee Stock Purchase Plan. If Rights expire, lapse or
otherwise terminate without being exercised, the shares of Common Stock not
purchased under such Rights will again become available for issuance under the
Employee Stock Purchase Plan.
ELIGIBILITY
An employee may not participate in the Employee Stock Purchase Plan if
he or she would own, directly or indirectly, stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
an affiliate. This includes any stock that the employee may purchase under the
Rights received for the offering or other options. An employee may participate
in an offering if he or she otherwise meets the eligibility requirements set
forth in the offering as of the first day of the offering (the "offering date").
Such eligibility requirements may include being continuously employed by the
Company or a designated affiliate for the time period determined by the Board,
which period must be less than two years,. If, during the course of an ongoing
offering, an employee first satisfies the eligibility requirements for the
offering, the Board may provide that such employee also may participate in that
offering.
Currently, to participate in an offering an employee must be
customarily employed at least 20 hours per week and five months per calendar
year on the offering date. In addition, the employee must be an employee of the
Company or a United States affiliate for at least three months as of the
offering date. (However, for the initial offering employees of the Company's
United States affiliate will be given credit for their employment with the
affiliate prior to its affiliation with the Company.) An employee who first
becomes eligible to participate in the Employee Stock Purchase Plan during
4.
<PAGE>
the course of an offering may enroll in the next purchase period. For such
employees, the first day of that purchase period will be the "offering date" for
such employee. The offering for such employee will begin on that offering date
but will end coincident with the end of the ongoing offering.
As of August 21, 1998, 33 employees were eligible to participate in the
Employee Stock Purchase Plan.
PARTICIPATION IN THE PLAN
An eligible employee enrolls in the Employee Stock Purchase Plan by
delivering to the Company, within the time period set forth in the offering, an
agreement authorizing payroll deductions. Payroll deductions may be 15% (or such
lower percentage as the Board determines for a particular offering) of the
employee's earnings during the offering. In lieu of a percentage of earnings,
the Board may designate a maximum dollar amount to be withheld from earnings.
Currently, payroll deductions may be 1% to 15% of earnings during a purchase
period.
PURCHASE PRICE
The purchase price of shares sold in an offering may not be less than
the lower of (i) 85% of the fair market value of a share of Common Stock on the
offering date, or (ii) 85% of the fair market value of a share of Common Stock
on the purchase date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the purchase period. A participant may increase, reduce, or commence
payroll deductions after the beginning of any purchase period only as provided
for in the offering. Currently, a participant may increase or decrease payroll
deductions only once during a purchase period. However, a participant may
increase or decrease his or her payroll deductions prior to the beginning of a
new purchase period or a new offering, to be effective at the beginning of such
new purchase period or new offering.
All payroll deductions made for a participant are credited to his or
her account under the Employee Stock Purchase Plan and deposited with the
general funds of the Company. A participant may make additional payments into
such account only if specifically provided for in the offering and only if the
participant has not had the maximum allowable amount withheld during the
offering. Currently, additional payments are not allowed.
PURCHASE OF STOCK
By executing an agreement to participate in an offering, an employee is
entitled to purchase shares under the Employee Stock Purchase Plan. In
connection with offerings made under the Employee Stock Purchase Plan, the Board
may specify a maximum number of shares an employee may purchase and the maximum
aggregate number of shares that may be purchased by all participants. If the
aggregate number of shares to be purchased upon exercise of Rights granted in
the offering were to exceed the maximum aggregate number, the Board would make a
pro rata allocation of shares available in a uniform and equitable manner. Under
the Code, no employee may purchase more than $25,000 worth of stock (determined
at the fair market value of the shares at the time the employee's Rights are
granted) under all employee stock purchase plans of the Company in any calendar
year. Unless the employee's participation is discontinued, his or her Right is
exercised automatically at the end of the purchase period at the applicable
price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Employee Stock Purchase Plan is required
to sign an agreement authorizing payroll deductions, the participant may
withdraw from a given offering by delivering to the Company a notice of
withdrawal, which will terminate his or her payroll deductions. Such withdrawal
may be elected at any time set by the Board prior to the end of the applicable
purchase period. Currently, withdrawal may be elected no later than 10 days
prior to a purchase date.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest unless otherwise specified in the offering, and such employee's
interest in the offering will be automatically terminated. Currently, no
interest is paid on accumulated payroll deductions. An employee's withdrawal
from an offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Employee Stock Purchase Plan.
5.
<PAGE>
TERMINATION OF EMPLOYMENT OR ELIGIBILITY
Rights granted pursuant to an offering terminate immediately upon the
cessation of an employee's employment or eligibility for any reason. Thereafter,
the Company will distribute to the employee any accumulated payroll deductions
(reduced to the extent such deductions were used to acquire stock for the
employee), without interest unless the terms of the offering provide otherwise.
RESTRICTIONS ON TRANSFER
Rights granted under the Employee Stock Purchase Plan are not
transferable and may be exercised only by the person to whom such Rights are
granted. However, if an employee dies, he or she may designate a beneficiary to
receive any shares and/or cash remaining in the employee's account.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Employee Stock Purchase Plan at
any time. Unless terminated earlier, the Employee Stock Purchase Plan will
terminate when all of the shares subject to the Employee Stock Purchase Plan's
reserve, as increased and/or adjusted from time to time, have been issued.
The Board may amend the Employee Stock Purchase Plan at any time. The
shareholders must approve any amendment within 12 months of its adoption if the
amendment requires shareholder approval under Section 423 of the Code, the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, or the requirements of an applicable stock exchange.
Rights granted before amendment or termination of the Employee Stock
Purchase Plan would not be altered or impaired by any amendment or termination
of the Employee Stock Purchase Plan without the consent of the person to whom
such Rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
If there is a dissolution, liquidation or specified type of merger of
the Company, then the Board will determine what the consequences will be as to
outstanding Rights. It may allow a surviving corporation to assume outstanding
Rights or to substitute similar Rights for those outstanding under the Employee
Stock Purchase Plan. Alternatively, the Board may determine that the
participants' Rights will continue in full force and effect, or it may decide
that the participants' accumulated payroll deductions will be used to purchase
Common Stock immediately prior to such transaction and the participants' Rights
under the ongoing offering will terminate thereafter.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Employee Stock Purchase Plan are intended to
qualify for favorable federal income tax treatment associated with rights
granted under an employee stock purchase plan that qualifies under the
provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of
shares as if such amounts were actually received. No other income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the purchased stock is sold (or otherwise disposed of) two years or
more after the offering date and one year or more after the stock is transferred
to the participant, then there is a "qualifying disposition." In this case, the
amount of the ordinary income the participant will recognize will be equal to
the lesser of (i) the excess of the fair market value of the stock at the time
of such qualifying disposition over the purchase price or (ii) the excess of the
fair market value of the stock as of the offering date over the purchase price
(determined as of the offering date). Any further gain or any loss will be taxed
as a long-term capital gain or loss. Capital gains currently are generally
subject to lower tax rates than ordinary income. The maximum capital gains rate
for federal income tax purposes is 20% for long-term capital gain while the
maximum ordinary rate is effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above (a "disqualifying disposition"), then the
excess of the fair market value of the stock on the purchase date over the
purchase price will be treated as ordinary income at the time of such
disposition. (The Company also may be required in the future
6.
<PAGE>
to withhold income taxes relating to such ordinary income from other payments
made to the participant.) The balance of any gain will be treated as capital
gain. Even if the stock is later disposed of for less than its fair market value
on the purchase date, the same amount of ordinary income is attributed to the
participant. Therefore, the participant will recognize a capital loss equal to
the difference between the sales price and the fair market value of the stock on
the purchase date. Any capital gain or loss will be long-term or short-term
depending on whether the stock has been held for more than one year.
There are no federal income tax consequences to the Company by reason
of the grant or exercise of Rights (i.e., purchase of stock) under the Employee
Stock Purchase Plan. The Company currently is entitled to a deduction to the
extent amounts are taxed as ordinary income to a participant by reason of a
disposition before the expiration of the holding periods described above
(subject to the requirement of reasonableness and a tax reporting obligation).
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Grant Thorton LLP as the Company's
independent auditors for the fiscal year ending April 30, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. Grant Thornton LLP has
audited the Company's financial statements since April 1994. Representatives of
Grant Thorton LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Shareholder ratification of the selection of Grant Thorton LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Grant Thorton LLP
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the Annual Meeting will be
required to ratify the selection of Grant Thorton LLP. For purposes of this vote
abstentions and broker non-votes will not be counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
7.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of July 31, 1998, by: (i) each
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<CAPTION>
Beneficial Ownership (1)
-------------------------------------
Beneficial Owner Number of Shares Percent of Total
- ---------------- ---------------- ----------------
<S> <C> <C>
James E. Alexander (2) 2,155,763 35.5
Boris Rubizhevsky (3) 1,919,202 31.6
Jacques Delente (4) 355,401 5.9
Metallurgy International, Inc. 353,982 5.8
5906 McIntyre Street
Golden, CO 80403
Lindsay Gardner (5) 293,784 4.8
Paul J. Catuna (6) 258,227 4.3
Daniel J. Grady (7) 207,340 3.4
Larry Wells (8) 30,000 *
All executive officers and directors as a group (7 persons)(9) 5,573,669 91.8
<FN>
- -----------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors
and principal shareholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission ("SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws
where applicable, the Company believes that each of the shareholders
named in this table has sole voting and investment power with respect
to the shares indicated as beneficially owned. Applicable percentages
are based on 6,071,980 shares of Common Stock outstanding on July 31,
1998, adjusted as required by rules promulgated by the SEC.
(2) Includes (i) 60,472 shares of Common Stock subject to a repurchase
right in favor of the Company, and (ii) warrants exercisable for 91,002
shares of Common Stock issued in connection with a private placement
(the "Placement") of 12% unconvertible promissory notes and warrants to
purchase Common Stock of the Company held by the brother-in-law,
mother-in-law and father-in-law of Mr. Alexander.
(3) Includes (i) 60,472 shares of Common Stock subject to a repurchase
right in favor of the Company, and (ii) 91,730 shares of Common Stock
held by Mr. Rubizhevsky's wife, and (iii) warrants exercisable for
91,002 shares of Common Stock issued in connection with the Placement
held by the mother, father, mother-in-law and father-in-law of Mr.
Rubizhevsky.
(4) Includes (i) 118,895 shares of Common Stock subject to a repurchase
right in favor of the Company, and (ii) warrants exercisable for
122,853 shares of Common Stock issued in connection with the Placement.
(5) Includes (i) warrants exercisable for 91,001 shares of Common Stock
issued in connection with the Placement, and (ii) 30,000 shares of
Common Stock subject to stock options exercisable within 60 days of
July 31, 1998.
(6) Represents 258,227 shares of Common Stock subject to stock options
exercisable within 60 days of July 31, 1998.
8.
<PAGE>
(7) Represents 207,340 shares of Common Stock subject to stock options
exercisable within 60 days of July 31, 1998.
(8) Represents 30,000 shares of Common Stock subject to stock options
exercisable within 60 days of July 31, 1998.
(9) Includes (i) 120,944 shares of Common Stock subject to a repurchase
right in favor of the Company, (ii) 525,567 shares of Common Stock
subject to stock options exercisable within 60 days of July 31, 1998,
(iii) warrants exercisable for 395,858 shares of Common Stock issued in
connection with the Placement, and (iv) 91,730 shares of Common Stock
held by Mr. Rubizhevsky's wife.
</FN>
</TABLE>
ADDITIONAL INFORMATION
MANAGEMENT
Executive officers are elected annually by the Board and serve at the
discretion of the Board. Set forth below is information regarding executive
officers of the Company who are not directors.
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
Daniel J. Grady 44 Vice President, Medical, Research and
Diagnostics
Paul J. Catuna 34 Vice President, Finance, Chief Financial
Officer and Secretary
Daniel J. Grady joined the Company as Vice President, Medical, Research
and Diagnostics in October 1995. From March 1994 through September 1995, Dr.
Grady was Vice President of Research and Development at Sopha Medical Systems.
From April 1991 until March 1994, he served as Marketing Manager, Nuclear Energy
for GE. From May 1988 through March 1991, Dr. Grady served as Software
Engineering Manager, Nuclear Medicine for GE in England. From October 1984
through May 1988, he served as Clinical Applications Manager for GE Nuclear
Medicine. Between June 1981 and October 1984, he served as the Engineering
Analysis Section Head for TRW. Dr. Grady received his bachelors and masters
degrees, and Ph.D. in Nuclear Engineering from the University of Michigan.
Paul Catuna joined the Company in July 1996 as Chief Financial Officer.
From January 1994 to July 1996, Mr. Catuna was employed at Deloitte & Touche
LLP, an international accounting and consulting firm, where he most recently
served as an audit senior manager. From January 1988 to January 1994, Mr. Catuna
worked for Grant Thornton LLP, an international accounting and consulting firm,
where he most recently served as an audit manager. Mr. Catuna received his
bachelors degree in Business Administration-Accounting from California State
University Fresno, and is a certified public accountant.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent (10%) shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended April 30, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
9.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors of the Company do not receive
cash compensation for their services as directors but are reimbursed for their
reasonable expenses incurred in connection with attendance at meetings of the
Board, in accordance with Company policy. Directors are eligible to participate
in the 1996 Executives Equity Incentive Plan (the "Executives Plan") and the
1996 Equity Incentive Plan (the "Incentive Plan").
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended April 30, 1997 and
1998, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at April 30, 1998 (the "Named Executive Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------- ----------
Securities
Other Annual Underlying
Salary Bonus Compensation Options
Name and Principal Position Year ($) ($) ($)(1) (#)
- --------------------------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
James E. Alexander 1997 $174,000 $ -- $ -- --
President and Chief Executive Officer 1998 $204,870 $ -- $60,553(2) --
Boris Rubizhevsky 1997 $147,000 $ -- $ -- --
Senior Vice President 1998 $176,975 $ -- $25,946(3) --
Daniel J. Grady 1997 $107,000 $ -- $ -- --
Vice President, Medical, Research and 1998 $125,603 $ -- $ -- --
Diagnostics
Paul J. Catuna 1997 $ 58,208 $ -- $ -- 138,227
Vice President, Finance, Chief Financial 1998 $116,394 $ -- $ -- 120,000
Officer and Secretary
<FN>
(1) Excludes other compensation, the aggregate amount of which does not exceed the lesser of $50,000 or
10% of such Named Executive Officers' annual compensation.
(2) Represents $33,000 paid for forgiveness of a loan made by the Company and $27,553 for interest and
taxes payable as a result of a loan. See Certain Transactions.
(3) Represents $25,946 paid for interest and taxes payable as a result of a loan. See Certain
Transactions.
</FN>
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its
Executives Plan and Incentive Plan and has options outstanding under its 1996
Stock Option Plan (the "Option Plan," and collectively the "Plans"). As of July
31, 1998, options to purchase a total of 55,000 shares, 80,000 shares and
764,809 shares, respectively, were outstanding under the Executives Plan,
Incentive Plan and Option Plan; and options to purchase 475,000 shares, 52,500
shares and 0 shares, respectively, remained available for grant thereunder.
<TABLE>
The following tables show for the fiscal year ended April 30, 1998,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
--------------------------------------------
% of Total Options
Number of Securities Granted to Exercise or
Underlying Options Employees in Fiscal Base Price Expiration
Name Granted (#)(1) Year (%)(2) ($/Sh) Date
- -------------------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Paul J. Catuna 120,000 31.4 $6.38 9/21/02
<PAGE>
<FN>
(1) Stock options vest the earlier of August 21, 2002 or upon obtaining certain stock performance criteria.
(2) Based on 382,500 options granted in the fiscal year ended April 30, 1998.
</FN>
</TABLE>
<TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Shares Acquired on Value Realized Options at Options at
Name Exercise (#)(1) ($)(1) FY-End (#)(2) FY-End ($)(2)
- -------------------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Daniel J. Grady 0 $ 0 207,340 $ 294,680
Paul Catuna 0 0 258,227 156,453
<FN>
(1) Represents the difference between the deemed fair market value of the Common Stock on the date of exercise and the
exercise price.
(2) Based on the average bid and asked prices of the Common Stock at fiscal year end (April 30, 1998) of $2.00 per share
less the exercise price payable for such shares.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In September 1997, the Company entered into employment agreements with
James E. Alexander and Boris Rubizhevsky. The agreements have a term of four
years and provide for annual salaries of $200,000 and $180,000, respectively.
Either the Company or the officer may terminate the agreement at any time upon
notice to the other party. Under the agreements, the officer is entitled to
receive incentive compensation up to 50% of the officer's annual salary, as
approved by the Company pursuant to such executive compensation plan as the
Company may approve. The agreements provide that upon a termination of
employment other than for cause (as defined in the agreements), the officer is
entitled to severance compensation of 18 months of his salary, paid at the same
time as salary payments, 25% of the officer's annual prevailing salary, paid
upon termination, and in addition all outstanding stock options held by the
officer will be accelerated and will become exercisable in full and the
Company's right of repurchase will terminate with respect to such shares. The
agreements provide for similar accelerated vesting of outstanding stock options,
upon a change in control of the Company.
The Company has also entered into employment agreements with Daniel J.
Grady and Paul J. Catuna. The agreements have an indefinite term and provide for
at-will employment, terminable at any time by either party. The agreements
provide for a rate of annual compensation, which the Company will review
annually. Under the agreements, Messrs. Grady and Catuna are entitled to
participate in the Company's standard plans and policies. The agreements also
include customary confidentiality and invention assignment provisions.
CERTAIN TRANSACTIONS
There has not been, nor is there currently proposed, any transaction or
series of similar transactions to which the Company was or is to be a party in
which the amount involved exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of the Common Stock, or any member of the
immediate family of any such person had or will have a direct or indirect
material interest other than compensation arrangements described in "Executive
Compensation" and as described below.
In connection with a private placement conducted in fiscal 1997 (the
"Placement"), 12% unconvertible promissory notes (the "Placement Notes") in an
aggregate principal amount of $395,000 were issued to Lindsay Gardner, a
director of the Company, one employee of the Company and four affiliates of
directors or officers of the Company at a discount totaling approximately
$41,000 and otherwise on the same terms as the other investors. In addition,
DayStar Partners, an entity of which Larry J. Wells, a director of the Company,
was an affiliate, acquired $225,000 principal amount of Placement Notes and
warrants issued in the Placement (the "Placement Warrants") to acquire
approximately 99,393 shares of Common Stock on the same terms as other
investors, and the Company entered into a consulting agreement with Larry Wells
Co., Inc., another entity of which Mr. Wells is an affiliate, pursuant to which
the Company paid the entity $85,000 in fiscal 1997 and $27,500 in fiscal 1998.
Pursuant to the consulting agreement, that entity advised the Company concerning
the Placement and following completion of the Placement has consulted with the
Company as requested concerning financial matters and acquisition opportunities.
On July 23, 1997, the terms of the Placement Notes were amended.
Effective August 1, 1997, interest became payable monthly at 15% per annum. In
connection with the amendment of the notes, the Company issued warrants to the
noteholders to purchase a total of 450,000 shares of Common Stock, exercisable
for a period of four years, at $5.80 per share. Of these, warrants to acquire
196,815 shares were issued to Lindsay Gardner, one employee of the Company and
four affiliates of directors or officers of the Company. DayStar Partners
received 72,464 of the warrants issued in connection with the amendment. On July
31, 1997, two employees purchased $200,000 of Placement Notes that were
previously issued to unrelated third parties. On September 30, 1997, the
outstanding balance of the Placement Notes was repaid from the proceeds of the
Company's initial public offering of its Common Stock.
11.
<PAGE>
In September 1996, in part in order to allow the Company to establish a
pool of shares available for future awards pursuant to the Plans in amounts that
comply with the guidelines established by certain state blue sky authorities,
Mr. Alexander and Mr. Rubizhevsky exercised stock options to acquire 259,175 and
259,175 shares, respectively, of Common Stock at an exercise price of $0.64 per
share. Messrs. Alexander and Rubizhevsky each recieved a loan from the Company
in the principal amount of $165,000 for payment of the exercise price of the
stock options. The purchased shares are pledged as collateral for the loans
pursuant to a pledge agreement. The loans bear interest at an annual rate equal
to the minimum applicable federal rate, and interest is payable annually.
Principal and accrued but unpaid interest is due five years from the date of the
note. For each optionee, until the note has been paid in full, upon any sale of
such option shares by the optionee a portion of the sales proceeds equal to the
exercise price per share of the shares sold will be used to pay amounts owed
under the note. In addition, the Company has agreed to loan to such officers,
pursuant to a five-year note with interest at the minimum applicable federal
rate, an amount equal to the federal and state tax liability incurred by them as
a result of exercising such options, and to pay compensation to such officers
equal to the amount of interest payable under the loans and the amount of taxes
payable as a result of such compensation. During fiscal 1998, the Company loaned
Mr. Alexander and Mr. Rubizhevsky $66,000 and $57,000, respectively, the amount
equal to the federal and state tax liability incurred as a result of exercising
such options. During fiscal 1998, the Company recognized $1,500 of interest
income on each of the loans for the tax liability and $11,000 on each of the
loans for the exercise of the options and paid Mr. Alexander and Mr. Rubizhevsky
additional compensation of $27,553 and $25,946, respectively. The after tax cash
proceeds from the compensation were used to repay interest on the notes totaling
$15,000 and $15,000, respectively.
During fiscal 1998, a loan and interest due from Mr. Alexander totaling
$25,000 and $8,000, respectively, was forgiven by the Board of Directors.
The Company is also a party to several employment and consulting
agreements.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party be
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under California law and the Company's
Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
PAUL J. CATUNA
Secretary
September 9, 1998
12.
<PAGE>
APPENDIX A
ISONICS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS AUGUST, 1998
APPROVED BY SHAREHOLDERS ____________
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of the
Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of such
Employees, to secure and retain the services of new Employees and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subparagraph 3(c) of the Plan.
(e) "Company" means Isonics Corporation, a California corporation.
(f) "Director" means a member of the Board.
(g) "Eligible Employee" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "Employee"means any person, including Officers and Directors, employed
by the Company or an Affiliate of the Company. Neither service as a Director nor
payment of a director's fee shall be sufficient to constitute "employment" by
the Company or the Affiliate.
-1-
<PAGE>
(i) "Employee Stock Purchase Plan" means a plan that grants rights intended
to be options issued under an "employee stock purchase plan," as that term is
defined in Section 423(b) of the Code.
(j) "Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of the security shall be the closing sales price (rounded
up where necessary to the nearest whole cent) for such security (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the relevant security
of the Company) on the trading day prior to the relevant determination date, as
reported in The Wall Street Journal or such other source as the Board deems
reliable.
(l) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(m) "Offering" means the grant of Rights to purchase Shares under the Plan
to Eligible Employees.
(n) "Offering Date" means a date selected by the Board for an Offering to
commence.
(o) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(p) "Participant" means an Eligible Employee who holds an outstanding Right
granted pursuant to the Plan or, if applicable, such other person who holds an
outstanding Right granted under the Plan.
(q) "Plan" means this 1998 Employee Stock Purchase Plan.
-2-
<PAGE>
(r) "Purchase Date" means one or more dates established by the Board during
an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "Right" means an option to purchase Shares granted pursuant to the
Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "Securities Act" means the United States Securities Act of 1933, as
amended.
(v) "Share" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of the
Board composed of two (2) or more members, all of the members of which Committee
may be, in the discretion of the Board, Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee of two
(2) or more Outside Directors any of the administrative powers the
-3-
<PAGE>
Committee is authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee or such a subcommittee), subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate Two Hundred Thousand (200,000)
Shares. If any Right granted under the Plan shall for any reason terminate
without having been exercised, the Shares not purchased under such Right shall
again become available for the Plan.
(b) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the Board may
designated as provided in subparagraph 3(b), to Employees of an Affiliate.
Except as provided in subparagraph 6(b), an Employee shall not be eligible to be
granted Rights under the Plan unless, on the Offering Date, such Employee has
been in the employ of the Company or the
-4-
<PAGE>
Affiliate, as the case may be, for such continuous period preceding such grant
as the Board may require, but in no event shall the required period of
continuous employment be equal to or greater than two (2) years.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if such
Rights, together with any other Rights granted under all Employee Stock Purchase
Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employee's rights to purchase Shares of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of the fair market value of such Shares (determined
at the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted the Right to purchase up to the number of
Shares purchasable either:
-5-
<PAGE>
(i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an Offering
on which Rights granted under the Plan shall be exercised and purchases of
Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial
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institution designated by the Company. To the extent provided in the Offering, a
Participant may reduce (including to zero) or increase such payroll deductions.
To the extent provided in the Offering, a Participant may begin such payroll
deductions after the beginning of the Offering. A Participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the Participant has not already had the maximum
permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the Offering by
a Participant, the Company shall distribute to such Participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire Shares for the terminated Employee) under the Offering, without
interest unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be
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issued upon the exercise of Rights granted under the Plan unless specifically
provided for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount, if
any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement and such
compliance, except that the Purchase Date shall not be delayed more than twelve
(12) months and the Purchase Date shall in no event be more than twenty-seven
(27) months from the Offering Date. If, on the Purchase Date of any Offering
hereunder, as delayed to the maximum extent permissible, the Plan is not
registered and in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance
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and sale of Shares under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Shares upon exercise of such Rights
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
12. RIGHTS AS A SHAREHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject to
any Right, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Shareholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
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14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, shareholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires shareholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such Rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or Rights granted under the Plan comply with the requirements of
Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is to
receive any Shares and/or cash, if any, from the Participant's account under the
Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
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(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.
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APPENDIX B
ISONICS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 6, 1998
The undersigned hereby appoints James E. Alexander and Paul J. Catuna
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Isonics Corporation which
the undersigned may be entitled to vote at the Annual Meeting of Shareholders of
Isonics Corporation to be held at the offices of the Company, located at 20
Great Oaks Boulevard, San Jose, California, on Tuesday, October 6, 1998, at
10:00 a.m., local time, and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect five directors to hold office until the 1999 Annual Meeting
of Shareholders.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote for all
below below. nominiees listed below.
(except as marked to the
contrary below)
Nominees: James E. Alexander, Boris Rubizhevsky, Lindsay A. Gardner, Larry J.
Wells, Richard Parker
To withhold authority to vote for any nominee(s), write such nominee(s)' name(s)
below:
________________________________________________________________________________
________________________________________________________________________________
(Continued and to be signed on other side)
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
PROPOSAL 2: To approve the Company's 1998 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To ratify the selection of Grant Thornton LLP as independent
accountants of the Company for its fiscal year ending April 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED__________________________ _____________________________________________
_____________________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
