SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 5, 1998
ISONICS CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
001-12531 77-0338561
(Commission File No.) (IRS Employer Identification No.)
4010 Moorpark Avenue, Suite 119
San Jose, California 95117
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 260-0155
1
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This Current Report on Form 8-K contains forward looking statements that involve
risks and uncertainties relating to the acquisition by Isonics Corporation, a
California corporation ("Isonics"), of Chemotrade GmbH, a privately held company
("Chemotrade"), including the risks: inherent in acquiring a company in
Chemotrade's industry (e.g. assumption of known and unknown liabilities); that
the synergies expected to result from the acquisition described below might not
occur as anticipated; and that management's attention might be diverted from
day-to-day business activities. Actual results and developments may differ
materially from those described in this Current Report. For more information
about Isonics and risks relating to investing in Isonics, refer to Isonics' most
recent reports on Form 10-QSB and Registration Statement on Form SB-2, as
amended, Registration No. 333-13289.
Item 2. Acquisition or Disposition of Assets.
On July 21, 1998, Isonics' wholly owned German subsidiary, Des-Dur
Vermogensverwaltungs GmbH, acquired Chemotrade through the acquisition of all of
the outstanding capital stock of Chemotrade from Mr. Helmut Swyen and Mr.
Herbert Hegener (the "Sellers"). The acquisition was accomplished pursuant to a
Sale and Purchase Agreement dated as of May 29, 1998 and amended as of July 15,
1998 (the "Purchase Agreement"). In exchange for all of the outstanding capital
stock of Chemotrade on July 21, 1998, Isonics paid $758,700 in cash, issued
357,730 shares of its Common Stock and issued two notes to the Sellers, one for
$924,000 bearing interest at 2% per month due September 15, 1998, secured by
certain accounts receivable and a second note for $833,000 bearing interest at
10% per annum, due June 1, 1999. The shares of Isonics Common Stock issued in
the acquisition were issued pursuant to Regulation S under the Securities Act of
1933, as amended. Payment of the second note is contingent upon Chemotrade
meeting minimum pretax earnings as defined in the Purchase Agreement during the
sixteen months ending April 30, 1999 and twelve months ending April 30, 2000.
The Sellers will receive additional consideration of $278,000 in cash if minimum
pretax earnings as defined in the Purchase Agreement are met during the twelve
months ending April 30, 2001. The purchase price was arrived at through
arms-length negotiations. The total number of shares of Isonics Common Stock
issued in connection with the acquisition are being held in escrow to secure the
obligations of Chemotrade to indemnify Isonics for any breaches of the
representations and warranties of Chemotrade and to repay any shortfall of
earnings as defined for the periods ending April 30, 1999 and 2000. The
acquisition will be accounted for as a purchase.
In connection with the purchase of Chemotrade, Isonics also acquired seventy
five percent of the outstanding capital stock of Chemotrade GmbH, Leipzig.
Chemotrade is a supplier of stable and radioactive isotopes. Isonics currently
intends to maintain Chemotrade as a wholly-owned subsidiary and for Chemotrade
to continue to conduct its business as historically conducted.
A copy of the press release announcing the signing of the Purchase Agreement is
attached hereto as Exhibit 99.1 and incorporated by reference herein. A copy of
the press release announcing the consummation of the acquisition is attached
hereto as Exhibit 99.2 and incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Registrant believes that it would be impractical to provide
the required financial statements at the time this Report on Form
8-K is filed. The Registrant intends to file such financial
information as an amendment to this Form 8-K within 60 days of the
date hereof.
(b) Pro Forma Financial Information
The Registrant believes that it would be impractical to provide
the required pro forma financial information at the time this
Report on Form 8-K is filed. The Registrant intends to file such
financial information as an amendment to this Form 8-K within 60
days of the date hereof.
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(c) Exhibits.
Exhibit No. Description
----------- -----------
2.1 Sale and Purchase Agreement, dated as of May 29, 1998, between
Isonics Corporation, a California corporation, and Herbert
Hegener and Helmut Swyen. Disclosure Schedule has been omitted as
permitted pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"), but will be furnished
supplementally to the SEC upon request).
2.2 Purchase Agreement, dated as of July 15, 1998, between Isonics
Corporation, a California corporation, and Herbert Hegener and
Helmut Swyen.
99.1 Press release announcing the execution of the Purchase Agreement.
99.2 Press release announcing the consummation of the acquisition.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ISONICS CORPORATION
Dated: August 5, 1998 By: /s/ James Alexander
-------------- --- -------------------
James Alexander
President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Sale and Purchase Agreement, dated as of May 29, 1998, between
Isonics Corporation, a California corporation, and Herbert
Hegener and Helmut Swyen. Disclosure Schedule has been omitted as
permitted pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"), but will be furnished
supplementally to the SEC upon request).
2.2 Purchase Agreement, dated as of July 15, 1998, between Isonics
Corporation, a California corporation, and Herbert Hegener and
Helmut Swyen.
99.1 Press release announcing the execution of the Purchase Agreement.
99.2 Press release announcing the consummation of the acquisition.
Exhibit 2.1
Sale and Purchase Agreement
by and among
Des-Dur Vermogensverwaltungs GmbH, Hallbergmoos
c/o Pollath + Partners
Lilienthalstrasse 7, 85399 Hallbergmoos
("Purchaser")
Isonics Corporation
4010 Moorpark Avenue, Suite 119
San Jose CA 95117, U.S.A.
("Isonics")
and
Herbert Hegener,
Sebastiansweg 20
40231 Dusseldorf
("Seller 1")
Helmut Swyen
Am Oberen Feld 105
40668 Meerbusch
("Seller 2").
ss. 1
Company
1. The following company is registered with the commercial register of the
Lower Court Dusseldorf in section B under number 27949:
Chemotrade Chemiehandelsgesellschaft mbH
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("Chemotrade").
2. Chemotrade has its statutory seat in Dusseldorf.
3. Its fully paid-up registered share capital amounts to DM 300,000 and is
divided into two shares each with a stated value of DM 150,000. The Seller
1 holds one share with a stated value of DM 150,000 and the Seller 2 holds
the other share with a stated value of DM 150,000.
ss. 2
Subsidiaries
1. The following company is registered with the commercial register of the
Lower Court Leipzig in section B number 6778:
Chemotrade Chemiehandelsgesellschaft mbH Leipzig
("Chemotrade Leipzig").
2. Chemotrade Leipzig has its statutory seat in Leipzig.
3. Its fully paid-up registered share capital amounts to DM 50,000 and is
divided into two shares with a stated value of DM 37,500 and DM 12,500,
resp. Chemotrade holds the share with the stated value of DM 37,500 and Dr.
Gerd Asperger, Braunschweiger Strasse 43, 04157 Leipzig, holds the share
with a stated value of DM 12,500.
4. The following company is registered with the commercial register of the
Lower Court Berlin-Charlottenburg in section B under number 46 572:
IUT Institut fur Umwelttechnologie GmbH
("IUT").
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5. IUT has its statutory seat in Berlin and a fully paid-up registered share
capital of DM 100,000. Chemotrade holds a share with a stated value of DM
6,300.
ss. 3
Business
Chemotrade - directly and indirectly through its subsidiary Chemotrade Leipzig -
is engaged in trading with stable and radioactive isotopes, radioactive sources
and transuranium elements. Its subsidiary IUT specializes in isotope technology,
sensor development, plasma and laser technology, technology of radiation
measurement and analytical chemistry (labeling carbon 14, several analytical
services and development of measuring methods and their technical equipment to
determine environmental toxic compounds and of technologies to reduce pollution
in water and air).
ss. 4
Subject-Matter of Sale and Purchase
1. Subject to the terms and conditions hereof, the Seller 1 and the Seller 2
hereby sell to the Purchaser, and the Purchaser hereby purchases from the
Seller 1 and the Seller 2, the shares in the registered share capital of
Chemotrade as set forth in ss. 1 subsection 3 hereof (the "Chemotrade Share
1" and the "Chemotrade Share 2", and jointly the "Chemotrade Shares").
2. The Chemotrade Shares are sold by the Seller 1 and the Seller 2 to the
Purchaser with all rights and obligations to be derived therefrom,
including the right to all profits of Chemotrade realized after January 1,
1998, 0.00 hrs., and all dividend rights as from that point in time. The
Seller 1 and the Seller 2 shall be entitled to a dividend distribution
equal to the aggregate of the annual surplus for the fiscal year 1997
("Jahresuberschuss 1997") and profits brought forward from previous years
("Gewinnvortrag") (the "1997 Dividend Distribution").
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3. The Seller 1 and the Seller 2 hereby sell to the Purchaser, and the
Purchaser hereby purchases from the Seller 1 and the Seller 2, all rights
and claims, if any, of the Seller 1 and the Seller 2 against Chemotrade,
Chemotrade Leipzig, and/or IUT, and in or to tangible and intangible assets
used in the Business, except as expressly set forth otherwise in this
Agreement.
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ss. 5
General Provisions concerning Sale and Purchase
1. In waiving all requirements as to form and notice for the invitation, the
Seller 1 and the Seller 2 hereby convene a
Shareholders' Meeting
of Chemotrade
an unanimously resolve as follows:
We hereby agree to the sale and transfer of the Chemotrade Shares pursuant
to this Agreement.
The Seller 1 and the Seller 2, in their capacity as managing directors of
Chemotrade, do hereby confirm, on behalf of Chemotrade, this consent to the
Purchaser.
2. The Seller 1 and the Seller 2, acting in their capacity as managing
directors of Chemotrade, do hereby agree, on behalf of Chemotrade, to the
sale and transfer of the Chemotrade Shares pursuant to this Agreement.
3. Irrespective of the consent pursuant to subsections 1 and 2 above, each of
the Seller 1 and Seller 2 hereby agrees to all agreements and declarations
made by the other Seller in this Agreement and hereby waives all options,
pre-emptive rights and rights of first refusal as well as all other rights
and claims of any type whatsoever which this Seller may have in respect of
the Chemotrade Shares, rights and claims sold by the other Seller pursuant
to ss. 4 subsection 3 hereof. The Seller 1 and the Seller 2, acting in
their capacity as managing directors of Chemotrade, do hereby declare, on
behalf of Chemotrade, a respective waiver.
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ss. 6
Consummation of the Transactions
1. The transfer of the Chemotrade shares, rights and claims sold pursuant
toss.4 hereof and the payment of the Base Cash Consideration and the Base
In Kind Consideration, each as hereinafter defined, (the "Closing") shall
take place at such time and place as mutually agreed between the parties
hereto, but no later than June 30, 1998 or August 31, 1998, respectively,
if the period for Closing has been extended pursuant to para 3 (c) hereof.
The Chemotrade Shares shall be assigned to the Purchaser subject to the
condition precedent ("aufschiebende Bedingung") that the Base Cash
Consideration and the Base In Kind Consideration have been paid as set
forth inss.9 below. The Seller 1 and the Seller 2 shall instruct the acting
notary to confirm receipt of the Base Cash Consideration and the Base In
Kind Consideration.
2. At the Closing, all parties hereto undertake to enter in proper form into
all agreements, execute all documents, give and accept all declarations and
take all measures which will be necessary in order to consummate, and to
comply fully with the purpose of, this Agreement to the extent to which the
arrangements in this Agreement do not, by their nature, relate to the time
period after the Closing.
3. The Seller 1 and the Seller 2 on the one hand and the Purchaser on the
other shall have the right to rescind this Agreement, if
(a) on the date of the Closing the respective other side has not complied
with its obligations in this Agreement concerning the time until the
Closing to any material degree and does not offer to remedy its failure
to comply in a form which would constitute a satisfactory compliance
with the respective obligations, or
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(b) on the date of Closing the consummation of the transactions agreed
herein by the respective side would constitute a violation of legal or
administrative provisions or instructions, or legal proceedings have
been instituted with the aim to prevent the consummation of the
transactions agreed herein to any material degree, or
(c) the Purchaser did not obtain on or before June 30, 1998 financing of
the Base Cash Consideration as hereinafter defined at reasonable terms
and conditions; provided, however, that such period shall be extended
until August 31, 1998 against payment of a portion of the Installment
Cash Consideration (as defined in ss. 9 subsection 1 below) in an
amount of DM 1,000,000 by the Purchaser to the Seller 1 and the Seller
2 as joint creditors.
4. The Seller 1 and the Seller 2 can exercise their rights pursuant to
subsection 3 hereof only jointly and uniformly.
5. Subject to the proviso in this clause, if either side rescinds this
Agreement pursuant to subsection 3 hereof, all obligations of the parties
hereunder shall terminate without any liability (for performance, damages,
reimbursement of costs or in any other way) of any party to the other
party; provided, however, that the Seller 1 and the Seller 2 shall jointly
and severally ("Gesamtschuldner") repay to the Purchaser one half (i.e. DM
500,000) of the payment received pursuant to subsection 3 (c) above and
shall be entitled to retain DM 500,000 as a break-up fee. If the rescission
is a result of the fact that the other party has intentionally or
negligently not complied with its obligations hereunder, the rescinding
party shall have the right to claim damages from the party in default.
ss. 7
Arrangements for the Period until the Closing
1. The Seller 1 and the Seller 2 hereby undertake jointly and severally
between today and the Closing
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(a) to conduct the Business with the care of a conscientious business man
and only within the normal and ordinary course of business in
accordance with past practice and to agree to all important business
measures, in particular also those which would lead to a change or
amendment to schedules referred to in this Agreement or deviate to any
material degree from past practice, with the Purchaser in advance,
(b) to maintain the present business organization of Chemotrade and
Chemotrade Leipzig, to keep their assets in good working order and
repair, to maintain their existing insurance cover, to use their best
efforts to keep all present employees and workers from giving notice of
termination, to maintain the business relations of Chemotrade and
Chemotrade Leipzig with their suppliers, customers and other business
partners to the best of their ability and to promote the Business in
accordance with past practice as vigorously as possible, and
(c) not to take any measures which would be apt to change the position of
Chemotrade, Chemotrade Leipzig and IUT represented in this Agreement
outside the normal and ordinary course of business, and not to pass any
shareholders' resolutions of Chemotrade or Chemotrade Leipzig and not
to exercise any votes attributable to the IUT shares without the prior
consent of the Purchaser with the exception of the 1997 Dividend
Distribution.
2. The Seller 1 and the Seller 2 shall permit the Purchaser and its
representatives to inform themselves further about the legal and economic
position of Chemotrade, Chemotrade Leipzig and IUT as reasonably requested
by the Purchaser. The Seller 1 and the Seller 2 shall keep the Purchaser
informed about all material business matters and events concerning
Chemotrade, Chemotrade Leipzig and IUT even if they do not require the
approval of the Purchaser pursuant to subsection 1 (a) above.
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3. The Purchaser undertakes to use its best efforts to obtain financing of the
Base Cash Considerations as hereinafter defined at reasonable terms and
conditions.
4. All parties undertake not to take any measures which would put at risk or
render more difficult to consummate any of the arrangements reflected
herein.
5. The parties agree to inform third parties before the Closing of the fact
that the parties have entered into this Agreement and/or of the contents of
this Agreement only in agreement with all other parties and in the form
specifically agreed with them, except and to the extent that there is a
legally binding obligation to inform. This shall also apply to press
releases and other information furnished to an indefinite group of persons.
ss. 8
Withdrawals, Contributions, Indemnification
1. (a) The Seller 1 and the Seller 2 jointly and severally ("Gesamtschuldner")
undertake to pay within two weeks from the Closing to Chemotrade an
aggregate amount equivalent to all withdrawals - with the exception of
the 1997 Dividend Distribution - within the meaning of paragraph (b)
below made by the Seller 1 and the Seller 2 from Chemotrade or
Chemotrade Leipzig between January 1, 1998 and the Closing and not
repaid to, or set off with, Chemotrade or Chemotrade Leipzig in that
period, except for those pursuant to paragraph (c) and subsection 3
hereof. Payments shall be made by bank transfer free of any charges to
an account to be designated by Chemotrade; allocation issues, if any,
among Chemotrade and Chemotrade Leipzig shall be settled amongst these
two companies.
(b) Withdrawals within the meaning of paragraph (a) above are without
limitation all payments in cash or in kind, of any type and on any
legal basis whatsoever, by Chemotrade or Chemotrade Leipzig to the
Seller
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1 or the Seller 2, or to companies which are controlled by the Seller 1
or the Seller 2 or by the Seller 1 and the Seller 2 jointly, or to
persons related to the Seller 1 or the Seller 2 within the meaning of
ss.ss. 15 et seq. of the General Tax Code ("Abgabenordnung").
(c) The Purchaser undertakes to pay within two weeks from the Closing to
the Seller 1 and the Seller 2 jointly and severally ("Gesamtglaubiger")
an aggregate amount equivalent to all contributions of cash and all
other tangible assets, or to have such aggregate amount paid by
Chemotrade or Chemotrade Leipzig, which the Seller 1 or the Seller 2
have made to Chemotrade or Chemotrade Leipzig between January 1, 1998
and the Closing and which Chemotrade or Chemotrade Leipzig have not
repaid to, or set off with, the Seller 1 or the Seller 2 in that
period, except for those pursuant to paragraph (a) above and subsection
3 below. Payment shall in each case be made by bank transfer to a bank
account to be designated by the Seller 1 and the Seller 2.
2. Except as expressly set forth in this Agreement, all legal relations
between the Seller 1 and the Seller 2 on the one hand and Chemotrade,
Chemotrade Leipzig and IUT on the other and all rights and claims of the
Seller 1 and the Seller 2 against Chemotrade, Chemotrade Leipzig or IUT
shall terminate as of the Closing, but with economic effect as of December
31, 1997, and no obligation or liability of any type whatsoever shall arise
for Chemotrade, Chemotrade Leipzig or IUT and/or the Purchaser from such
termination. The Seller 1 and the Seller 2 shall procure that the same
applies to all legal relations between companies controlled by the Seller 1
and/or the Seller 2 and/or persons related to the Seller 1 or the Seller 2
on the one hand and Chemotrade, Chemotrade Leipzig and IUT on the other and
to all rights and claims of companies controlled by the Seller 1 and/or the
Seller 2 and/or persons related to the Seller 1 or the Seller 2 against
Chemotrade, Chemotrade Leipzig and IUT and the Seller 1 and the Seller 2
shall jointly and severally ("Gesamtschuldner"), to the extent necessary,
hold Chemotrade, Chemotrade
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Leipzig, IUT and the Purchaser fully harmless from any such obligation in
good time.
3. (a) Mutual claims of the Seller 1, the Seller 2, companies controlled by
the Seller 1 and/or the Seller 2 and all persons related to the Seller
1 or the Seller 2 on the one hand and Chemotrade, Chemotrade Leipzig
and IUT on the other, which are reflected in the balance sheet of the
respective company as of December 31, 1997 as claims or liabilities,
shall be due to the respective claimant in accordance with their
respective terms, except as expressly set forth otherwise in this
Agreement.
(b) Subsections 1 and 2 above shall not apply to the employment contract
between the Seller 1 and Chemotrade, the consultancy agreement between
the Seller 2 and Chemotrade, the service agreement between HS Consult
GmbH and Chemotrade and to the pension entitlements of the Seller 1 and
the Seller 2 as set forth in ss. 14 below and to the existing
employment agreements of the Seller 1 and the Seller 2 as set forth in
ss. 14 below.
4. Except as set forth in this Agreement, the Seller 1 and the Seller 2
jointly and severally undertake to hold Chemotrade and Chemotrade Leipzig
and the Purchaser fully and in good time harmless from
(a) all obligations and liabilities of the Seller 1, the Seller 2,
companies controlled by the Seller 1 and/or the Seller 2 and persons
related to the Seller 1 or the Seller 2 which may be claimed from
Chemotrade, Chemotrade Leipzig, IUT and/or the Purchaser, and
(b) all liabilities of any type whatsoever accrued or contingent (including
taxes, social security charges, customs and other dues) of Chemotrade
or Chemotrade Leipzig which existed on December 31, 1997 or have arisen
or will arise from acts, omissions or circumstances in the period
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12
until December 31, 1997, to the extent that they are not reflected or
reserved in the financial statements of the respective company as of
December 31, 1997.
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ss. 9
Consideration
1. Subject to the provisions set forth in this Agreement, the aggregate value
of the consideration (the "Total Consideration") for the sale and transfer
of the Chemotrade Shares, rights and claims pursuant to ss. 1 subsection 3
above and for all other obligations assumed by the Seller 1 and the Seller
2 in this Agreement shall be
DM 6,500,000
(in words, six million five hundred thousand Deutsche Mark).
The Total Consideration shall consist of:
(a) a "Base Cash Consideration" in the amount of DM 3,000,000;
(b) a "Base In Kind Consideration" in the amount of DM 1,500,000.
(c) an "Installment Cash Consideration" in the amount of DM 1,500,000; and
(d) a "Contingent Cash Consideration" in the amount of DM 500,000.
2. The Base Cash Consideration shall be due for payment on the Closing plus
interest thereon at the rate of 10% p.a. from July 1, 1998 until the
Closing and shall be payable by the Purchaser at the Purchaser's risk and
expense by wire transfer to one or two bank accounts as designated by the
Seller 1 and the Seller 2.
3. The Base In Kind Consideration shall be a number of common stock of Isonics
Corporation to be determined as follows: DM 1,500,000 divided by the
average of the closing prices of common stock of Isonics Corporation for
the ten
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consecutive trading days immediately preceding the date of signing hereof
and the five consecutive trading days immediately following the date of
signing hereof rounded downwards and the Contingent Cash Consideration
shall be increased by such rounding difference (the "Adjusted Contingent
Cash Consideration"). The Base In Kind Consideration shall be delivered to
the Seller 1 and the Seller 2 on the Closing by transfer of legal title and
release of the common stock to one or two deposit accounts as designated by
the Seller 1 and the Seller 2.
4. The Installment Cash Consideration shall be payable as follows:
(a) Subject to the provisions of subsection 6. below, if Closing is held on
or before June 30, 1998 the Installment Cash Consideration plus
interest thereon at a rate of 10% p.a. from the Closing until the date
of payment of the Installment Cash Consideration shall be payable on or
before June 1, 1999 by bank transfer free of any charges to one or two
bank accounts as designated by the Seller 1 and the Seller 2.
(b) Subject to the provisions of subsection 6. below, if Closing is
postponed until August 31, 1998, a portion of the Installment Cash
Consideration in the amount of DM 1,000,000 shall be due for payment on
June 30, 1998 (see ss. 6 subsection 3 c) and the balance in the amount
of DM 500,000 plus interest thereon at the rate of 10% p.a. from July
1, 1998 until the Closing shall be due for payment on the Closing and
each portion shall be payable by bank transfer free of any charges to
one or two bank accounts as designated by the Seller 1 and the Seller
2.
5. The Adjusted Contingent Cash Consideration plus interest at a rate of 5%
p.a. from the date of Closing shall be payable only if in the fiscal year
ended on April 30, 2001 the aggregate of the EBIT (as defined in ss. 10
below) of Chemotrade and 75% of the EBIT of Chemotrade Leipzig (the
"Consolidated Chemotrade EBIT") is DM 1,000,000 or more.
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If and to the extent the Consolidated Chemotrade EBIT for the fiscal year
ended on April 30, 2001 is less than DM 1,000,000, the Adjusted Contingent
Cash Consideration shall be reduced correspondingly. (Example: If the 2001
Consolidated Chemotrade EBIT amounts to DM 500,000, the Adjusted Contingent
Cash Consideration shall be reduced by 50%.)
6. If for the period from January 1, 1998 through April 30,1999 or for the
fiscal year ended on April 30, 2000, resp., the Consolidated Chemotrade
EBIT is less than DM 1,000,000 the Installment Cash Consideration shall be
adjusted as follows:
(i) If and to the extent the Consolidated Chemotrade EBIT for the
period from January 1, 1998 until April 30,1999 or for the fiscal
year ended on April 30, 2000 falls short vis-a-vis DM 1,000,000 the
Seller 1 and the Seller 2 shall jointly and severally
("Gesamtschuldner") pay the Purchaser DM 0.75 for each DM 1.00 of
such shortfall (or shortfalls).
(ii) Any payment by the Seller 1 and the Seller 2 pursuant to (i)
shall be due within one week of the determination of the
Consolidated Chemotrade EBIT according to ss. 10 and shall be
payable by bank transfer to a bank account as designated by the
Purchaser
7. The payments pursuant to subsection 5 above shall be due within two weeks
after the Consolidated Chemotrade EBIT for the fiscal year ended on April
30, 2001 has been finally determined in accordance with the provisions of
ss. 10 below. The provision in subsection 2 above shall apply to the
Adjusted Contingent Cash Consideration mutatis mutandis.
ss. 10
Consolidated Chemotrade EBIT
1. The Consolidated Chemotrade EBIT within the meaning of paragraph 9
subsection 5 above shall be the consolidated earnings before interest,
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extraordinary charges and tax of Chemotrade and Chemotrade Leipzig as
reflected for the period from January 1, 1998 through April 30, 1999, the
years ended on April 30, 2000, and 2001 according to the classification
format pursuant to section 275 para 3 German Commercial Code ("HGB") in
line 13 ("Ergebnis der gewohnlichen Geschaftstatigkeit") plus interest
expenses and similar charges in line 12 ("Zinsen und ahnliche
Aufwendungen") minus interest income and similar income items in line 10
("Sonstige Zinsen und ahnliche Ertrage") of the 1999, 2000 and 2001
consolidated profit and loss statement of Chemotrade.
2. (a) The Consolidated Chemotrade EBIT shall be determined on the basis of
the financial statements of Chemotrade and Chemotrade Leipzig and the
consolidated financial statements of Chemotrade for the period from
January 1, 1998 through April 30, 1999, the years ended on April 30,
2000, and 2001 and elimination calculations pursuant to paragraphs (b)
to (g) below.
(b) These annual financial statements shall be prepared on the basis of
proper book-keeping and in accordance with accounting, valuation and
depreciation principles generally accepted in the United States of
America ("US GAAP"). All risks, devaluations and losses ascertainable
at the time of the preparation of the respective financial statements
shall be provided for by sufficient depreciations, changes of
evaluation or reserves; pension obligations shall be accrued with the
highest amounts permissable under the income tax laws. For purposes of
determining whether an item constitutes an "extraordinary item" US GAAP
shall be decisive. Together with the financial statements, calculations
shall be prepared in each case which shows the effects upon the
Consolidated Chemotrade EBIT to be eliminated pursuant to paragraphs
(c) to (g) below ("Elimination Statements").
(c) Effects upon the Consolidated Chemotrade EBIT as a consequence of (i) a
write-up in connection with the acquisition or restructuring
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measures implemented after the acquisition of the Chemotrade Shares of
the stated values of the assets of Chemotrade and/or Chemotrade Leipzig
as against the book values of these assets and liabilities carried
forward on a consistent basis, (ii) the inclusion of goodwill, and
(iii) any acquisition and reorganisation costs in the course of the
acquisition of the Chemotrade Shares by the Purchaser or any subsequent
reorganisation of Chemotrade and/or Chemotrade Leipzig shall be
eliminated. In case of a conversion of a corporate entity into a
partnership, the operating results shall be determined as if such
converted entity had remained a corporate entity.
(d) Effects upon the Consolidated Chemotrade EBIT as a consequence of tax
payments and refunds not concerning the period in question as well as
tax audit results shall be eliminated.
(e) Effects upon the Consolidated Chemotrade EBIT as a consequence of (i)
measures of particular importance beyond the normal continuation of the
business of Chemotrade and/or Chemotrade Leipzig and (ii) the
acquisition or disposition of companies and businesses by Chemotrade
and/or Chemotrade Leipzig shall be eliminated to the extent that the
Seller 1 and the Seller 2 (acting jointly) contradict such a measure in
writing vis-a-vis the Purchaser within three months after having
obtained substantiated knowledge in writing. Effects upon the
Consolidated Chemotrade EBIT as a consequence of head office charges,
if any, of the Purchaser and/or its associated companies shall be
eliminated; this shall not apply to supplies, services and payments
under arm's length arrangements of a specific nature even if the
performance of one side or the other within the scope of such
arrangements is determined on a lump sum basis, provided that such
supplies and services are appropriate for a business of the size and
the nature of the Business.
<PAGE>
18
(f) Effects upon the Consolidated Chemotrade EBIT resulting from sets of
facts for which the Purchaser raises claims against against the Seller
1 and the Seller 2 shall be eliminated to the extent to which the
Purchaser and/or Chemotrade or Chemotrade Leipzig receive compensation
therefore from the Seller 1 and the Seller 2.
(g) The Purchaser shall not be prevented by the provisions in this
subsection 2 from conducting and reorganizing Chemotrade and/or
Chemotrade Leipzig in any manner chosen by it. The interests of the
Seller 1 and the Seller 2 are taken into account by the provisions in
this subsection 2. To the extent that measures not addressed in this
subsection 2 and caused by the Purchaser influenced the Consolidated
Chemotrade EBIT in an unacceptable manner, the Purchaser and the Seller
1 and the Seller 2 (the latter acting jointly) shall adjust the
calculation method in a reasonable way which is fair for both sides.
3. (a) Chemotrade and the Purchaser shall prepare the annual financial
statements of Chemotrade and Chemotrade Leipzig and the consolidated
financial statements of Chemotrade as of April 30, 1999 (including the
period from January 1, 1998 until April 30, 1998) to 2001 and the
Elimination Statements as quickly as possible after the respective
fiscal year-end and in any event by June 15 of the following fiscal
year and have them audited by Grant Thornton or a designee of the
Purchaser, to the extent legally required or desired by the Purchaser.
The audit shall in particular be directed towards the adherence to the
accounting principles pursuant to subsections 1 and 2 above. The costs
connected with the preparation and audit, if any, of these financial
statements and Elimination Statements shall be fully reserved for in
the financial statements. The decision about the audit and the auditor
can be taken by the Purchaser on a year-by-year basis.
(b) The Seller 1 and the Seller 2 (acting jointly) shall have the right to
have these financial statements and Elimination Statements audited at
their
<PAGE>
19
cost by an auditor of their choice. The auditor of the Seller 1 and the
Seller 2 can participate in the physical count of the inventories and
in order to exercise his rights shall receive reasonable access to all
books and records and assets of Chemotrade as well as all information
reasonably requested by him.
(c) The Purchaser shall submit the financial statements and Elimination
Statements together with the audit report pursuant to paragraph (a)
above to the Seller 1 and the Seller 2 immediately after completion. If
the Seller 1 and the Seller 2 (acting jointly) do not contradict the
submitted documents within one month after receipt, the results shown
therein shall become final for the parties. If prior to the lapse of
the afore-mentioned one-month period the Seller 1 and the Seller 2
(acting jointly) give instructions to audit the submitted financial
statements and Elimination Statements pursuant to paragraph (b) above
and inform the Purchaser thereof within such period, the term for the
contradiction for the Seller 1 and the Seller 2 shall extend by two
months from the lapse of the original contradiction term.
(d) To the extent that the Seller 1 and the Seller 2 (acting jointly)
contradict results shown in the submitted documents within the
afore-mentioned periods and furnish reasons for the contradiction and
the parties do not agree upon the points under dispute addressed by the
contradictions within one month after receipt of the last
contradiction, the certified public accountant KPMG Dusseldorf shall
determine with binding effect for all the parties on the basis of the
principles set forth in subsections 1 and 2 above how the points under
dispute addressed by the contradictions and not already settled between
the parties before shall be settled. The costs of KPMG Dusseldorf shall
be borne by the parties in relation in which they do not prevail with
their respective opinion.
ss. 11
Representations and Warranties of the Seller 1 and the Seller 2
<PAGE>
20
In concluding this Agreement the Purchaser relies on the correctness of the
representations and warranties made by the Seller 1 and the Seller 2 hereafter.
The Seller 1 and the Seller 2 hereby represent and warrant as a guaranteed
quality (in accordance with ss. 459 Sub-Section 2 German Civil Code) and as an
independent guarantee (in accordance with ss. 305 German Civil Code) that the
following representations and warranties are correct today and, except for
interim changes in full compliance with ss. 7 above, will be correct at the
Closing.
1. (a) The statements in ss. 1 and ss. 2 and ss. 3 hereof about Chemotrade,
Chemotrade Leipzig and IUT and the Business are complete and correct in
every respect. Chemotrade, Chemotrade Leipzig, and IUT are corporations
validly existing and in good standing under German law. They have a
requisite power and authority to own or lease their properties and to
carry on their business as presently being conducted. All matters which
need to be registered in the commercial register have been duly
registered. Chemotrade, Chemotrade Leipzig and IUT do not have any
supervisory, advisory or similar bodies.
(b) The Chemotrade Shares as well as the Chemotrade Leipzig shares and the
IUT shares (the "Subsidiaries' Shares") are duly and validly issued and
outstanding, fully paid and free of secondary or other obligations or
restrictions. The stated capital of Chemotrade, Chemotrade Leipzig and
IUT has directly, or indirectly, not been repaid nor has it been
reduced by losses. The Seller 1 and the Seller 2 have legal title to
the Chemotrade Shares and Chemotrade has legal title to the
Subsidiaries' Shares. The Chemotrade Shares and the Subsidiaries'
Shares are free and clear of any claims, liens, pledges, and
encumbrances, sub-participations or security assignments or other
interests except as disclosed in Schedule ss. 11 (1) (b) hereto. The
Chemotrade Shares and the Subsidiaries' Shares have not been issued in
violation of, and are not subject to, any pre-emptive or subscription
rights other than stipulated in the articles of association
("Gesellschaftsvertrag") (waived
<PAGE>
21
pursuant to ss. 5 subsection 3 above). None of the Chemotrade Shares or
of the Subsidiaries' Shares are subject to any voting trust agreement
or other agreement (outside of the articles of association) restricting
or otherwise relating to the voting, dividend rights or disposition of
the Chemotrade Shares or the Subsidiaries' Shares, respectively. There
are no outstanding warrants, options, convertible or exchangeable
securities or other commitments pursuant to which the Seller 1 or the
Seller 2 or Chemotrade or Chemotrade Leipzig or IUT are, or may become,
obligated to issue, sell, purchase, return or redeem any shares or
registered share capital or other securities of Chemotrade or of
Chemotrade Leipzig or IUT.
(c) The Seller 1 and the Seller 2 have all requisite powers and authority
to execute and to deliver this Sale and Purchase Agreement and to
consummate the transactions contemplated hereby. This Agreement has
been duly executed by the Seller 1 and the Seller 2. This Agreement
constitutes a valid and binding obligation of the Seller 1 and the
Seller 2, enforceable against them in accordance with its terms.
Conclusion and completion of this Agreement do not constitute the sale
of the entire or almost the entire assets of the Seller 1 or the Seller
2 under ss. 419 German Civil Code.
(d) The execution and delivery of this Agreement by the Seller 1 and the
Seller 2 does not, and the performance by them of the transactions
contemplated hereby to be performed by them will not conflict with, or
result in, the breach of any provision of the articles of association
of Chemotrade, Chemotrade Leipzig or IUT. No consent, approval or
authorization of, or registration with, any court or governmental
agency is required for the Seller 1 and the Seller 2 to enter into and
to perform their obligations hereunder. By the assignment of the
Chemotrade shares pursuant to this Agreement the Purchaser will acquire
full, unrestricted and unencumbered title to the Chemotrade shares at
its free disposal.
<PAGE>
22
2. (a) Except as disclosed in Schedule ss. 11 (2) (a) hereto, Chemotrade,
Chemotrade Leipzig and IUT has full unrestricted and unencumbered title
to, and direct or indirect possession of, or tangible and intangible
assets which are used in its business, except those assets which (i)
are leased or licensed from persons and companies other than the Seller
1, the Seller 2, companies controlled by, and persons related to, the
Seller 1 and/or the Seller 2 on normal market terms, (ii) are still
subject to usual reservations of title by suppliers pending payment or
(iii) or neither individual nor in total material. To the extent that
such assets, and in particular tools, are in the direct possession of
third parties, Chemotrade, Chemotrade Leipzig and IUT can demand
delivery of such assets free of charge at any time.
(b) Schedule ss. 11 (2) (b) hereto reflects completely and correctly all
existing security rights including, without limitation, share pledges,
encumbrances, transfer of assets or assignments of claims as well as
undertakings and restrictions regarding the corporate structure of
Chemotrade, Chemotrade Leipzig and IUT granted by them and all existing
obligations of them to grant security rights.
3. The financial statements as of December 31, 1997 of Chemotrade and
Chemotrade Leipzig ( together the "Chemotrade Financial Statements") have
been prepared with the care of a conscientious business man on the basis of
proper book keeping and in accordance with accounted valuation and
depreciation principles generally accepted in Germany. Except as disclosed
to the Purchaser in Schedule ss. 11 (3) hereto these principles have been
applied consistently and without change in preparing the Chemotrade
Financial Statements of Chemotrade and Chemotrade Leipzig as of December
31, 1996. As of December 31, 1997 there are no risks, devaluations and
losses other than those duly provided for by sufficient depreciations
changes or evaluation or reserves in the Chemotrade Financial Statements.
The Chemotrade Financial Statements, including the notes, are complete and
correct and
<PAGE>
23
present completely and correctly the financial position of Chemotrade and
Chemotrade Leipzig as of December 31, 1997 and the results of the
operations of the fiscal year ended December 31, 1997. The equity of
Chemotrade and Chemotrade Leipzig as of December 31, 1997 is not less than
the amounts reflected in the Chemotrade Financial Statements.
4. Except as disclosed in Schedule ss. 11 (4) hereto, since December 31, 1997
(i) Chemotrade and Chemotrade Leipzig have only been conducted within the
normal and ordinary course of business (ii) no extraordinary business event
or legal arrangement has occurred or been entered into and there has not
been any event which by itself or together with other events has materially
adversely affected the business the assets or the financial situation of
Chemotrade or Chemotrade Leipzig and (iii) or salary and wage increases
granted since December 31, 1997 were required under collective bargaining
agreements or, if that was not the case, were within the normal scope.
5. (a) Except as reflected in the Chemotrade Financial Statements, Chemotrade
and Chemotrade Leipzig have not erected any buildings, improvements or
constructions on real estate owned by third parties.
(b) All buildings, improvements and constructions leased by Chemotrade or
Chemotrade Leipzig from third parties (the "Chemotrade Buildings") are
in good and serviceable condition, normal wear and tear excepted. The
condition or the present use of the Chemotrade Buildings do not violate
any statutory, administrative or other legal provisions including
building regulations, building restrictions and provisions concerning
environmental protection. To the extent that real estate leased by
Chemotrade or Chemotrade Leipzig is currently contaminated, any present
and future obligation (other than as a result of changes of law) to
clean up such contaminations rests with the owners and not with
Chemotrade or Chemotrade Leipzig, or to the extent that it rests with
Chemotrade or Chemotrade Leipzig is fully covered by insurance, and to
the extent that Chemotrade or Chemotrade Leipzig take clean-up
<PAGE>
24
measures required by law, Chemotrade and Chemotrade Leipzig are fully
protected by corresponding claims against the owners and/or insurance.
Except as reflected in the Chemotrade Financial Statements, Chemotrade
and Chamotrade Leipzig do not have any reconstruction obligations in
respect of the leased real estate.
6. All material and movable assets of Chemotrade and Chemotrade Leipzig have
been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted. All inventories of Chemotrade and Chemotrade
Leipzig existing on December 31, 1997 have been valued in the Chemotrade
Financial Statements according to the strict lower of cost or market
principle taking quantity and quality aspects into consideration. Except
for the two items reflected on Schedule ss. 11 (6) hereto, the aggregate
amount shown as receivables in the books and records of Chemotrade and
Chemotrade Leipzig as of December 31, 1997 has been or will be collected on
the basis of collection procedures usual within Chemotrade and Chemotrade
Leipzig within 90 days from the due date at the gross amount shown without
deductions and delcredere, collection or other costs, less the amount of
individual and lump sum reserves made in the Chemotrade Financial
Statements in respect thereof. The accounts receivable reflected on
Schedule ss. 11 (6) hereto can be collected on April 30, 1999 at the latest
at the gross amount shown without deductions and delcredere, collection or
other costs, less the amount of individual and lump sum reserves made in
the Chemotrade Financial Statements in respect thereof.
7. Except for the disputes set forth in Schedule ss. 11 (7) hereto, Chemotrade
and Chemotrade Leipzig are not a party to, or to the best of the knowledge
of the Seller 1 or the Seller 2 threatened by, any litigation,
administrative proceedings or investigations having a value of more than DM
50,000 per case, nor are circumstances known to exist which might
reasonably be expected to lead to such litigation, administrative
proceedings or investigations. Chemotrade and Chemotrade Leipzig are not
subject to any judgements, decree or settlement in any legal or
administrative proceedings which materially restricts or impairs
<PAGE>
25
them in certain business measures, in the acquisition or disposition of
assets, in competition or in the operation of their business.
8. Except for the contracts, agreements and promises described in Schedule ss.
11 (8) hereto (hereinafter collectively the "Contractual Obligations"),
Chemotrade and Chemotrade Leipzig are not subject to any contractual
obligations of the type set forth in Schedule ss. 11 (8) hereto.
The Contractual Obligations are valid, and neither Chemotrade or Chemotrade
Leipzig nor the respective other party have breached, or are in default
under, any of the Contractual Obligations to any material degree. The
execution and consummation of this Agreement will not result in any change
or termination of any Contractual Obligations, in the acceleration of any
material obligation or liability of Chemotrade or Chemotrade Leipzig, in
the repayment of any grants, tax advantages or comparable benefits of any
kind whatsoever granted to Chemotrade or Chemotrade Leipzig or, to the best
knowledge of the Seller 1 or Seller 2 in the reduction or termination of
any supply or delivery relations between Chemotrade or Chemotrade Leipzig
and their respective suppliers and customers. Neither Chemotrade nor
Chemotrade Leipzig has a workers' council or is a member in an
"Arbeitgeberverband".
9. Schedule ss. 11 (9) hereto contains a complete and correct list of all
patents, petty patents, design patents, trade marks and trade mark
applications and all other intellectual property rights of Chemotrade and
Chemotrade Leipzig. Except as stated in Schedule ss. 11 (9) hereto and
subject to the best knowledge of the Seller 1 or Seller 2 these
intellectual property rights are free from all rights of third parties and
not subject to cancellation or total or partial nullification or any rights
of prior users; Chemotrade and Chemotrade Leipzig are also not restricted
in their exclusive use. All fees required to maintain such intellectual
property rights have been paid and all other action required in this
respect has been taken.
<PAGE>
26
Chemotrade and Chemotrade Leipzig have all manufacturing, processing and
marketing know-how for their entire previous and present products and for
all products and product improvements in preparation and hold, to the
extent that such manufacturing, processing and marketing know-how has been
reduced to writing, all documents pertaining thereto. All software used by
Chemotrade and Chemotrade Leipzig is either owned or properly licensed.
Except as stated in Schedule ss. 11 (9) hereto, Chemotrade and Chemotrade
Leipzig do not infringe to any material degree or with any material
consequences any industrial property rights and copy rights of third
parties by manufacturing and/or marketing their present products or by any
other act within their business.
10. Chemotrade and Chemotrade Leipzig carry adequate insurance against all
risks which a conscientious business man in their light of business
normally covers, including fire. The insurance contracts are in full force
and effect and all premiums due until today have been paid. Since December
31, 1997 no material events or damage have arisen at Chemotrade or
Chemotrade Leipzig which could have been, but are not covered by insurance.
11. Chemotrade and Chemotrade Leipzig have obtained all administrative
approvals and licenses which they require for the conduct of the Business.
Chemotrade and Chemotrade Leipzig do not violate in the Business to any
degree or with any consequences, any rights of third parties or any
applicable laws including, but without limitation, competition and trade
law and provisions concerning environmental protection and foreign trade,
and have also in the past not violated any provisions concerning
environmental protection or foreign trade to any degree. All products
manufactured and/or distributed by Chemotrade or Chemotrade Leipzig conform
to the legal provisions in the country of sale by Chemotrade and Chemotrade
Leipzig.
12. To the best knowledge of Seller 1 or Seller 2, there are no particular
circumstances which could in the future materially adversely affect the
Business. The Seller 1 and the Seller 2 have no knowledge of any facts or
<PAGE>
27
circumstances which could result in any restriction, impediment or
cessation of the manufacture and/or marketing of any product which is
presently manufactured and/or marketed by Chemotrade or Chemotrade Leipzig.
ss. 12
Performance and Liability
1. The Seller 1 and the Seller 2 shall be jointly and severally
("Gesamtschuldner") liable for the performance of this Agreement and for
all claims of the Purchaser against them pursuant to this Agreement up to
the balance held from time to time on the Escrow Deposit Account.
Otherwise, they shall be severally liable.
2. (a) Subject to the provisions in paragraphs (b) to (d) below, all claims of
the Purchaser pursuant to this Agreement shall be excluded unless
substantiated in writing by April 30, 2001, and claims substantiated in
writing by April 30, 2001 shall be subject to a period of limitation
until September 30, 2001.
(b) Claims based on defects of title of the Chemotrade shares shall not be
excluded before expiration of the statutory period of limitation.
(c) Claims in respect of liabilities of Chemotrade or Chemotrade Leipzig
for taxes, social security charges and other public dues shall not be
excluded before (i) the expiration of six months after final
assessment, following the administrative audits for the respective
periods, of all taxes, social security charges and other public dues
payable by Chemotrade or Chemotrade Leipzig for the period through
December 31, 1997 or (ii) the periods set forth in paragraph (a) above
whichever is longer.
(d) For claims of the Purchaser on the basis of obligations of the Seller 1
and/or the Seller 2 in this Agreement which relate to the period from
or after the Closing, the period of limitation pursuant to paragraph
(a) above
<PAGE>
28
shall, to the extent necessary, extend until the expiration of six
months (i) after the expiration of the term of the obligation if the
obligation has a defined term or (ii) after the claim has arisen if the
obligation does not have a definite term.
(e) The provisions in paragraphs (a) and (e) above shall apply mutatis
mutandis to all claims of the Seller 1 and/or the Seller 2 pursuant to
this Agreement.
3. Every right of rescission ("Wandelung and Rucktritt") shall be excluded
except as expressly provided for in this Agreement. ss.ss. 123, 476 and 826
German Civil Code shall not be affected.
4. (a) Any liability of the Seller 1 and the Seller 2 beyond the
representations, warranties and obligations expressly assumed by the
Seller 1 and the Seller 2 in this Agreement shall be excluded. The
statutory or contractual liability for defects of title to the
Chemotrade Shares shall not be affected.
(b) In case of a violation of representations and warranties, the Seller 1
and the Seller 2 shall put the Purchaser or Chemotrade or Chemotrade
Leipzig, respectively, into a position as if the respective
representation and warranty were correct. If this is factually not
possible, the Purchaser shall have all statutory legal recourse except
as specifically agreed otherwise in this Agreement.
5. (a) An review, inspection and investigation of the Purchaser or any
certified public accountant, attorney or other consultant retained by
the Purchaser shall neither affect the obligations, representations and
warranties of the Seller 1 and the Seller 2 hereunder nor the right of
the Purchaser to raise claims on the basis of such obligations,
representations and warranties.
<PAGE>
29
(b) Subsequent changes of the Chemotrade Financial Statements or prior
financial statements of Chemotrade or Chemotrade Leipzig, including
changes, if any, resulting from administrative audits, shall not have
any effect upon the determination of the Total Consideration and shall
also not result in any other payment in cash or in kind on any legal
basis whatsoever of the Purchaser to the Seller 1 or the Seller 2 or of
the Seller 1 or the Seller 2 to the Purchaser except as expressly
provided otherwise in this Agreement and in its Schedules.
6. (a) Claims of the Purchaser against the Seller 1 and the Seller 2 in
respect of tax liabilities can only be raised to the extent that the
tax liabilities not reflected or reserved in the Chemotrade Financial
Statements exceed (i) tax reimbursements, if any, not reflected in the
Chemotrade Financial Statements and (ii) the aggregate amount
discounted to December 31, 1997 at a discount rate of 5.0 per cent p.a.
of the tax benefit, if any, to Chemotrade or Chemotrade Leipzig
resulting in the period beginning December 31, 1997 and ending December
31, 2002 from the revaluation of assets and/or the devaluation of
liabilities and/or accruals in the course of tax field audits for the
period until December 31, 1997.
(b) Claims of the Purchaser against the Seller 1 and the Seller 2 on the
basis of the representations and warranties of the Seller 1 and the
Seller 2 in this Agreement can only be raised to the extent that their
aggregate amount, after considering the provision in paragraph (a)
above, exceeds DM 200,000; provided, however, that such de-minimis
amount shall not apply in respect of the warranty pursuant to ss. 11
no. 6 to the extent related to the accounts receivable and any claim of
the Purchaser in respect of such warranty can be set off against the
Adjusted Contingent Cash Consideration.
(c) Subject to the proviso in this subsection 6 (b) at the end, claims of
the Purchaser against the Seller 1 and the Seller 2 on the basis of the
representations and warranties in this Agreement shall be restricted to
<PAGE>
30
a maximum amount equal to the aggregate of the Installment Cash
Consideration pursuant to ss. 9 subsection 1,4 and 6 and the Adjusted
Contingent Cash Consideration pursuant to ss. 9 subsections 1, 3 and 5
outstanding on the day when claims are raised by the Purchaser.
(d) The provisions in paragraphs (b) and (c) above shall not apply to
claims in respect of defects of title to the Chemotrade Shares which
can be raised without considering this deductible and this cap; on the
other hand such claims shall not be considered in order to determine
whether other claims of the Purchaser can be raised against the Seller
1 or the Seller 2.
(e) Claims of the Purchaser against the Seller 1 or the Seller 2 which have
not been raised as a consequence of paragraph (b) above shall be taken
into consideration without regard to any applicable statutory
limitation pursuant to subsection 2 above in order to determine whether
subsequent claims can be raised in accordance with paragraph (b) above.
ss. 13
Implementation
1. Tax matters of Chemotrade and Chemotrade Leipzig (including appeals)
concerning the period through December 31, 1997 shall be handled after the
Closing by Chemotrade, Chemotrade Leipzig and the Purchaser in agreement
with the Seller 1 and the Seller 2 (acting jointly and uniformly). The
Seller 1 and the Seller 2 jointly or severally must in particular be
notified in time of, and must be given an opportunity to comment on and to
participate in, tax field audits. Binding declarations to the tax
authorities which may have consequences for
<PAGE>
31
the Seller 1 and/or the Seller 2 shall be made by Chemotrade, Chemotrade
Leipzig and/or the Purchaser only in agreement with the Seller 1 and the
Seller 2 (acting jointly and uniformly); the Seller 1 and the Seller 2
hereby assume corresponding obligations vis-a-vis Chemotrade, Chemotrade
Leipzig and the Purchaser.
2. The Purchaser shall procure that Chemotrade and Chemotrade Leipzig grant
the Seller 1 and the Seller 2 and their representatives also after the
Closing the right to inspect during normal business hours all books and
business records of Chemotrade and Chemotrade Leipzig relating to the
period until the Closing, to the extent that such inspection is reasonably
requested for tax reasons, for reasons of defense against claims or for
other legitimate reasons.
3. The parties undertake, upon the request of any party, at any time after the
Closing and without further compensation to make and accept all
declarations in proper form and to take all measures which may still be
necessary in order to consummate, and to comply fully with, the purpose of
this Agreement.
ss. 14
Other Undertakings
1. (a) Chemotrade, Chemotrade Leipzig, the Purchaser and their respective
legal or contractual successors shall have the right to use and to
permit others to use worldwide as a name, mark or in any other desired
manner at any time after the Closing in accordance with the then
prevailing provisions of the law, the present firm names of Chemotrade
and Chemotrade Leipzig and every distinctive part thereof, with or
without addition.
(b) The Seller 1 and the Seller 2 severally undertake after the Closing not
to use the present firm names of Chemotrade or Chemotrade Leipzig nor
any distinctive part thereof nor any firm name confusingly similar
therewith, with or without addition, nor a trade or service mark, a
design
<PAGE>
32
or a trade dress presently used by Chemotrade or Chemotrade Leipzig or
confusingly similar with the ones used by Chemotrade or Chemotrade
Leipzig in any business connection whatsoever.
2. The Seller 1 and the Seller 2 shall enter into an employment agreement or a
consultancy agreement, respectively, as mutual agreed with the Purchaser
and the existing employment contracts shall be terminated without penalty
as of the Closing.
3. The Seller 1 and the Seller 2 severally undertake for a period of five
years from the effective date of termination of their respective employment
agreement or consultancy agreement not to manufacture or market any
products or render any services in Europe and in the United States which
are of the same kind as, or competitive with, products manufactured or
marketed or services rendered by Chemotrade or Chemotrade Leipzig in the
past or at present or currently planned to be manufactured, marketed or
rendered by Chemotrade or Chemotrade Leipzig, nor to assist third parties,
directly or indirectly, in the manufacture or marketing of such products or
the rendering of such services, nor to hold in any way whatsoever an
interest in a company, which manufactures or markets such products or
renders such services. Excluded from this restriction is the acquisition
and holding for investment purposes of (i) common stock of Isonics
Corporation or (ii) shares or convertible debentures of a company listed on
a stock exchange which is engaged in the manufacture or marketing of such
products or in the rendering of such services; provided, however, that in
the latter case the Seller 1 and the Seller 2 do not acquire directly
and/or indirectly shares or convertible debentures which constitute, or can
be converted into, more than five per cent of the share capital of the
respective company.
4. In case of a rescission by the Purchaser pursuant to this Agreement, the
Purchaser undertakes for a period of five years from the date of rescission
to keep strictly secret all matters and in particular all business and
trade secrets of Chemotrade, Chemotrade Leipzig or IUT known to it and not
to disclose such
<PAGE>
33
matters and secrets, directly or indirectly, to any third party, nor to
cause such disclosure by third parties, nor to abet or justify such
disclosure, nor to use such matters or secrets for itself or for the
benefit of its associated companies. This shall not apply to the extent
that such information is already known to the Purchaser and/or its
associated companies from sources other than Chemotrade, Chemotrade Leipzig
or IUT or becomes known to them without any violation of this secrecy
obligation.
5. Seller 1 and Seller 2 understand that the Base In Kind Consideration has
not been registered under the Securities Act of 1993, as amended (the
"Securities Act"). Seller 1 and Seller 2 also understand that the Base In
Kind Consideration is being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Seller 1's
and Seller 2's representations contained in this Agreement.
At the time of the execution of this Agreement by Seller 1 and Seller 2,
such persons are located outside of the United States. Neither Seller 1 nor
Seller 2 is a "U.S. Person" as such term is defined in Rule 902(o) of
Regulation S promulgated under the Securities Act.
Seller 1 and Seller 2 are acquiring the Base In Kind Consideration for each
of their own accounts for investment only, and not with a view towards
their distribution. Seller 1 and Seller 2 understand that the Base In Kind
Consideration may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that
in the absence of an effective registration statement covering the Base In
Kind Consideration or an available exemption from registration under the
Securities Act, the Base In Kind Consideration must be held indefinitely.
In particular, Seller 1 and Seller 2 are aware that the Base In Kind
Consideration may only be sold pursuant to Rule 144 promulgated under the
Securities Act if all of the conditions of that Rule are met. Seller 1 and
Seller 2 represent that, in the absence of an effective registration
statement covering the Base In Kind Consideration they will sell, transfer,
or otherwise dispose of the Base In Kind
<PAGE>
34
Consideration only in a manner consistent with their representations set
forth herein.
Seller 1 and Seller 2 understand that in no event will they make a transfer
or disposition of any of the Base In Kind Consideration (other than
pursuant to an effective registration statement under the Securities Act
or, to Isonics' satisfaction, pursuant to Rule 144) unless and until (i)
Seller 1 and Seller 2 shall have notified Isonics of the proposed
disposition and shall have furnished Isonics with a statement of the
circumstances surrounding the disposition, and (ii) if requested by
Isonics, at the expense of Seller 1 and Seller 2 or the proposed
transferee, Seller 1 and Seller 2 shall have furnished to Isonics an
opinion of counsel, reasonably satisfactory to Isonics, to the effect that
such transfer may be made without registration under the Securities Act.
Seller 1 and Seller 2 understand that each certificate representing the
Base In Kind Consideration will be enclosed with the following legend:
The Securities represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may not be offered, sold or
otherwise transferred, assigned, pledged or hypothecated, except as
provided for in this Agreement, unless and until registered under the act
or unless the company has received an opinion of counsel satisfactory to
the company and its counsel that such registration is not required.
6. The pension entitlements of the Seller 1 and the Seller 2 shall be
transferred by Chemotrade to HS Consult GmbH as per the Closing against
transfer of the employer's pension liability insurance
("Ruckdeckungsversicherung") and payment in cash of the excess of the
pension reserve over the employer's pension liability insurance, each as
per the Closing.
ss. 15
Share Pledges
<PAGE>
35
1. The Purchaser hereby pledges the Chemotrade Shares to the Seller 1 and the
Seller 2 as joint creditors ("Gesamtglaubiger") as collateral for
Purchaser's obligation to make payments in respect of the Installment Cash
Consideration and the Adjusted Contingent Cash Consideration as provided in
this Agreement. The pledge of the Chemotrade Shares shall be governed by
the legal provisions under the German Civil Code for a pledge ("Pfandrecht
am Rechten").
2. The Seller 1 and the Seller 2 hereby pledge to the Purchaser jointly and
severally ("Gesamtschuldner") the Base In Kind Consideration as collateral
for their obligations, if any, under ss. 9 subsection 6 or ss. 12 of this
Agreement (the "U.S. Pledge"). The U.S. Pledge shall be governed by the
provisions under the German Civil Code for a pledge to the extent legally
permitted.
ss. 16
Miscellaneous
1. The notarial fees, registration fees and transfer taxes, if any, connected
with the execution and consummation of this Agreement shall be borne by the
Purchaser. Apart therefrom, each contractual party shall bear its own costs
and taxes and the costs of its advisers and auditors.
2. Changes and amendments to this Agreement as well as declarations to be made
hereunder shall be valid only if made in writing unless a notarial deed is
legally required. This shall also apply to any change of this subsection 2.
3. The Seller 1 and the Seller 2 shall jointly and uniformly advise the
Purchaser of a person or legal entity which is authorized to make and
accept with legally binding effect for the Seller 1 and the Seller 2 all
declarations under this Agreement or in consummation hereof.
The Seller 1 and the Seller 2 hereby appoint as such agent:
<PAGE>
36
BM Partner Revision GmbH Wirtschaftsprufungsgesellschaft
Kanzlerstrasse 8, 40472 Dusseldorf.
A change in the person or address of the agent of the Seller 1 and the
Seller 2 shall be effective for the Purchaser only one month after the date
on which it has been notified of such change. Until the laps of such
period, the authority of the previous agent as well as his address shall be
deemed to continue.
4. Each party shall be personally responsible for the fulfillment of all
obligations, if any, vis-a-vis brokers or finders assumed by that party in
respect of the transactions agreed herein. The Seller 1 and the Seller 2
jointly and severally represent and warrant that neither Chemotrade nor
Chemotrade Leipzig is subject to any obligation vis-a-vis brokers or
finders.
5. If a provision of this Agreement should be or become invalid or not contain
a necessary regulation, the validity of the other provisions of this
Agreement shall not be affected thereby. The invalid provision shall be
replaced, or the gap be filled, by a legally valid arrangement which
corresponds as closely as possible to the intention of the parties or what
would have been the intention of the parties according to the aim and
purpose of this Agreement if they had recognized the gap. If a provision of
this Agreement should be invalid because of its scope of application in
terms of timing, territory or nature such invalid provision shall be deemed
having been agreed upon with the maximum scope of application permitted by
law.
6. Isonics hereby assumes joint and several liability for all obligations
undertaken by the Purchaser in this Agreement.
7. The Schedules to this Agreement shall form an integral part of this
Agreement. The headings in this Agreement shall only serve the purpose of
easier orientation and shall be of no consequence for the contents and
interpretation of this Agreement. Statements in one provision or Schedule
of this Agreement
<PAGE>
37
shall be deemed to have been made also for the purposes of all other
provisions and Schedules of this Agreement.
8. This Agreement shall be governed by German law.
9. The English version of this Agreement shall be binding, except for
explanatory additions in this Agreement and Schedules in the German
language for which the German version shall be binding.
Agreement
between
Helmut Swyen
Am Oberen Feld 105, 40668 Meerbusch
("Seller 1")
Herbert Hegener
Sebastiansweg 20, 40231 Dusseldorf
("Seller 2")
Des-Dur Vermogensverwaltungs GmbH, Hallbergmoos
AG Munchen HRB 120192
duly represented by its managing director Dr. Andreas Rodin
("Purchaser")
Isonics Corporation
4010 Moorpark Avenue, Suite 119
San Jose, CA 95117, U.S.A.
duly represented by its managing director Jim Alexander.
WHEREAS, the parties hereto have entered on May 29, 1998 into a sale and
purchase agreement relating to all shares in the registered share capital of
Chemotrade Chemiehandelsgesellschaft mbH, Dusseldorf ("Chemotrade"), notarial
deed no. 28/1998 of the notary-public Wilhelm Hebing, Berlin;
WHEREAS, the Purchaser has purchased from the Seller 1 and the Seller 2, and the
Seller 1 and the Seller 2 have sold to the Purchaser, all their Chemotrade
shares under said notarial deed;
<PAGE>
2
WHEREAS, the Chemotrade shares shall be assigned on the Closing Date (as defined
in the sale and purchase agreement) by the Seller 1 and the Seller 2 to the
Purchaser against (i) payment of DM 1.5 million plus interest thereon at a rate
of 10% p.a. from July 1, 1998 until the Closing Date to each of the Seller 1 and
the Seller 2 (in aggregate DM 3 million), and (ii) delivery of 178,865 common
shares of Isonics Corporation to each of the Seller 1 and the Seller 2 (in
aggregate 357,730 common shares);
WHEREAS, Chemotrade has an account payable to Isonics Corporation of US-$
924,000 and has an account receivable in the amount of US-Dollar 1,018,500;
WHEREAS, the parties hereto intend to modify the sale and purchase agreement in
respect of the obligations to be satisfied by the Purchaser on the Closing date;
Now, therefore, the parties hereto agree as follows:
1. Isonics Corporation hereby assigns to the Purchaser its account
receivable from Chemotrade in the amount of US-$924,000 and the
Purchaser hereby accepts such assignment. Isonics Corporation will
account for such assignment as an investment in the Purchaser.
Chemotrade hereby confirms the assignment. Isonics Corporation confirms
that it has not otherwise disposed of its account receivable and
represents and warrants that such assignment does not violate any
arrangement, agreement or undertaking of Isonics Corporation.
<PAGE>
3
2. Chemotrade hereby pledges and assigns by way of security its account
receivable in the amount of US-$1,018,500 to the Purchaser as
collateral for Chemotrade's account payable to the Purchaser in the
amount of US-$924,000.
3. The Purchaser hereby assigns its account receivable from Chemotrade in
the amount of US-$1,018,500 in two equal instalments of US-$462,000
each to the Seller 1 and the Seller 2 and the Seller 1 and the Seller 2
hereby accept such assignment. Chemotrade confirms the assignment by
the Purchaser to the Seller 1 and the Seller 2 and undertakes in favour
of the Seller 1 and the Seller 2 not to dispose of its account
receivable up to the amount of US-$1,018,500 other than in fulfilment/
satisfaction of the account payable in the amount of US-$924,000
assigned by the Purchaser to the Seller 1 and the Seller 2.
4. The Purchaser and the Seller 1 and the Seller 2 agree that on the
Closing Date the Chemotrade shares shall be assigned by the Seller 1
and the Seller 2 to the Purchaser against (i) a cash payment by the
Purchaser to the Seller 1 and the Seller 2 in the aggregate amount of
DM 1,336,800 plus interest thereon a rate of 10% from July 1, 1998
until the Closing Date, (ii) delivery by the Purchaser of 178,865
common shares of Isonics Corporation to each of the Seller 1 and the
Seller 2, and (iii) an undertaking of the Purchaser in favour of the
Seller 1 and the Seller 2 to pay interest on the account receivable
from Chemotrade in the amount of US-$924,000 at a rate of 2% per month
from July 1, 1998 through the date of receipt of the account receivable
by the Seller 1 and the Seller 2.
5. Isonics Corporation guarantees all obligations undertaken hereunder by
the Purchaser. This Agreement and the assignments and the pledge set
forth herein shall be governed by German law.
Dusseldorf, July 15, 1998
<PAGE>
4
- ----------------------------------------------------
-------------------------------------------------------
Herbert Hegener Helmut Swyen
Berlin, July 16, 1998
- ---------------------------------------------
Des-Dur Vermogensverwaltungsgesellschaft GmbH
Dr. Andreas Rodin
San Jose, July 16, 1998
- --------------------------------------------------------------------------------
Isonics Corporation
Jim Alexander
News Release
FOR RELEASE JUNE 1, 1998 AT 7:30 AM EDT
- ---------------------------------------
Contact: Matt Clawson (investors) or Paul J. Catuna
Owen Daley (media) Vice President, Finance
Allen & Caron, Inc Isonics Corporation
(714) 252-8440 (408) 260-0155
ISONICS CORPORATION ANNOUNCES IT HAS AGREED
TO ACQUIRE CHEMOTRADE GMBH
SAN JOSE, CA (June 1, 1998) . . . Isonics Corporation (OTC: ISON) announced
today that it has signed a definitive agreement to acquire Dusseldorf,
Germany-based Chemotrade GmbH, a privately held company that supplies both
stable and radioactive isotopes to customers world-wide. In business since 1990,
Chemotrade had sales of over $7 million for its fiscal year ended December 31,
1997 and has been profitable since its first year of operation.
Isonics has agreed to pay approximately $3.6 million in a combination of cash,
notes, and restricted Isonics common stock. A substantial portion of the
purchase price is contingent upon the future performance of Chemotrade. The
number of shares of Isonics stock to be issued will be based upon the average
closing price of Isonics stock for the 10 trading days preceding and 5 trading
days following the signing. The transaction is expected to close before the end
of August, subject to the completion of due diligence and other closing
conditions. Chemotrade will operate as a wholly owned subsidiary with existing
management remaining in place.
Isonics President & CEO James E. Alexander commented, "Chemotrade primarily
markets isotopes and related products that are not competitive with Isonics
products, so their revenues and profits will be completely incremental. The
acquisition of Chemotrade also opens the European market and provides access to
key customers for Isonics products. While Chemotrade has several supply
relationships for their radioisotope products in the United States, we believe
we can help them dramatically expand their North American market share."
"Chemotrade's expertise in radioisotopes provides Isonics a new opportunity with
a large potential upside." Alexander added, "They now supply Iodine-125, which
is used in surgical implants to treat prostate cancer. Chemotrade management is
considering strategies related to manufacturing the actual radioactive `seeds'
as well as developing other brachytherapy products in partnership with medical
device companies."
MORE-MORE-MORE
4010 Moorpark Ave. Suite 119 o San Jose CA 95117
(408) 260-0155 o Fax (408) 260-2110
<PAGE>
ISONICS CORPORATION TO ACQUIRE CHEMOTRADE GMBH
Page 2-2-2
Chemotrade was co-founded and is managed by Herbert Hegener and Helmut Swyen.
According to Swyen, "During the structuring of this deal, we have come to know
Isonics management personnel and appreciate their overall corporate growth
strategy. The strategic fit between our companies is excellent.
"Isonics' access to technology, obtained through its joint venture with the
Institute of Stable Isotopes in Tblisi, Georgia, combines well with the German
government's economic development programs for creating high technology jobs in
the former East Germany" he said. "It also provides an outstanding opportunity
for creating the only `domestic' source of the stable isotope Carbon-13 for the
emerging European diagnostic breath test market."
Isonics is a specialty chemical and advanced materials company which develops
and commercializes products based on enriched stable isotopes. Stable isotopes
can be thought of as ultra-ultra pure materials. This high degree of
purification provides enhanced performance properties compared to normal
materials. Stable isotopes have commercial uses in several areas, including
energy; research, medical diagnostics, and drug development; product tagging and
stewardship; semiconductors; lasers; and optical materials.
Except for historical information contained herein, this document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks
and uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein, including the
risk that the acquisition may not close due to a variety of reasons and the
risks inherent in acquiring a company in Chemotrade's industry, and the risk
that future business and technology acquisitions may not occur for a variety of
reasons, including the unavailability of financing. Further, the Company
operates in industries where securities values may be volatile and may be
influenced by regulatory and other factors beyond the Company's control.
Important factors that the Company believes might cause such differences are
discussed in the risk factors detailed in the Company's Prospectus, dated
September 22, 1997, and its recent 10-QSB's filed with the Securities and
Exchange Commission. In assessing forward-looking statements contained herein,
readers are urged to carefully read all cautionary statements contained in those
filings with the Securities and Exchange Commission.
# # # #
News Release
FOR RELEASE JULY 21, 1998 AT 7:30 AM EDT
- ----------------------------------------
Contact: Matt Clawson (investors) or Paul J. Catuna
Owen Daley (media) Vice President, Finance
Allen & Caron, Inc Isonics Corporation
(714) 252-8440 (408) 260-0155
ISONICS CORPORATION COMPLETES
CHEMOTRADE GMBH ACQUISITION
SAN JOSE, CA (July 21, 1998) . . . Isonics Corporation (OTC: ISON) reported
today that it completed its previously announced acquisition of Dusseldorf,
Germany-based Chemotrade GmbH for $2.5 million in a combination of cash, notes,
and restricted Isonics common stock. Additional consideration of $1.1 million is
payable over the next three years based on Chemotrade meeting future
profitability targets. Chemotrade, a supplier of both stable and radioactive
isotopes to customers world-wide, had sales of over $7 million for its fiscal
year ended December 31, 1997 and has been profitable in each of the past 7
years. The Company will operate as a wholly owned subsidiary of Isonics with
existing management remaining in place.
Isonics President & CEO James E. Alexander commented, "The acquisition of
Chemotrade not only opens the European market and provides access to key
customers for Isonics products, it also expands our product lines to include
radioisotopes used in medical diagnostics and therapeutics. Our goal is to
leverage Chemotrade's current European market position while implementing plans
to bring our stable isotope production capabilities to western Europe."
Isonics is a specialty chemical and advanced materials company, which develops
and commercializes products based on enriched stable isotopes. Stable isotopes
can be thought of as ultra-ultra pure materials. This high degree of
purification provides enhanced performance properties compared to normal
materials. Stable isotopes have commercial uses in several areas, including
energy; research, medical diagnostics, and drug development; product tagging and
stewardship; semiconductors; lasers; and optical materials.
Except for historical information contained herein, this document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks
and uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein including the
risks inherent in acquiring a company in Chemotrade's industry (e.g., assumption
of known and unknown liabilities, including environmental liabilities). Further,
the Company operates in industries where securities values may be volatile and
may be influenced by regulatory and other factors beyond the Company's control.
Other important factors that the Company believes might cause such differences
are discussed in the risk factors detailed in the Company's Prospectus, dated
September 22, 1997, and its recent 10-QSB's filed with the Securities and
Exchange Commission. In assessing forward-looking statements contained herein,
readers are urged to carefully read all cautionary statements contained in those
filings with the Securities and Exchange Commission.
# # # #
4010 Moorpark Ave. Suite 119 o San Jose CA 95117
(408) 260-0155 o Fax (408) 260-2110
