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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JULY 29, 1999
ISONICS CORPORATION
(Name of small business issuer as specified in its charter)
CALIFORNIA 001-12531 77-0338561
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State of Commission File IRS Employer
Incorporation Number Identification No.
5906 MCINTYRE STREET, GOLDEN, COLORADO 80403
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Address of principal executive offices
303-279-7900
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Telephone number, including
Area code
Not applicable
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Former name or former address if changed since last report
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ITEM 5 - OTHER EVENTS
GENERAL. On July 29, 1999, Isonics Corporation completed a private
placement financing to accredited investors and conversion of debt valued in
total at $2.7 million. Isonics issued 1,830,000 units, each unit (a "Unit")
consisting of one share of preferred stock and one warrant. The $2,250,000
cash proceeds will be used for repayment of debt, working capital, and to
finance the continued growth of operations including the continued
development and commercialization of Silicon-28 wafers for the semiconductor
industry. Of the 1,830,000 Units, 330,000 Units were issued in payment of
certain corporate obligations.
The investors were primarily institutions, but also included several
individual accredited investors and two officers of the Company.
The Preferred Stock issued as part of the unit may be converted to
common shares of Isonics stock at a fixed conversion price of $1.50 per
share. Each warrant issued in the placement allows the investor to purchase
a share of Isonics stock for $3.75 through July 29, 2002.
Isonics is an advanced materials and technology 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. 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 10-KSB for the year ended April 30, 1998 filed with the
Securities and Exchange Commission, which include the Company's cash flow
difficulties, dependence on significant customers, and rapid development of
technology, among other risks. In assessing forward-looking statements
contained herein, readers are urged to carefully read all cautionary
statements contained in the Company's filings with the Securities and
Exchange Commission.
INFORMATION REQUIRED BY ITEM 701 OF REGULATION S-B.
(a) SECURITIES SOLD. The sale of securities described in the preceding
paragraphs occurred on July 29, 1999. The securities sold include:
1,830,000 shares of restricted Series A Convertible Preferred Stock,
created by filing an amended certificate of determination of preferences
and rights (the "Certificate of Determination") with the California
Secretary of State; and
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1,830,000 restricted warrants to purchase shares of restricted common stock
issued on a warrant-for-share basis with the Series A Convertible Preferred
Stock; and
500,000 restricted warrants issued as a fee pursuant to an investment
banking agreement
(b) UNDERWRITERS AND OTHER PURCHASERS.
(i) No underwriters, agents, or placement agents participated in the
private placement.
(ii) 1,500,000 Units (each Unit consisting of one share of Series A
Convertible Preferred Stock and one warrant) were sold to accredited
investors for cash; and
(iii) 330,000 Units were issued to accredited investors in settlement
of debt obligations; and
(iv) 500,000 warrants were issued to a single accredited investor as
compensation pursuant to an investment banking agreement.
(c) The Units were sold for a purchase price of $1.50 per Unit. The Units
described in (b)(ii) above were sold for cash; the Units described in
(b)(iii) above were issued in satisfaction of debt obligations.
(d) The transactions were exempt from registration under the Securities Act of
1933, as amended by reason of Sections 4(2) and 4(6) of the Securities Act
of 1933, and Rule 506 of Regulation D thereunder.
(e) Terms of conversion or exercise are as follows:
(i) The Series A Convertible Preferred Stock is convertible into shares
of common stock on a share-for-share basis, subject to dilution
adjustments. The Series A Convertible Preferred Stock is entitled
to receive dividends on a share-for-share basis with the shares of
common stock except in the case of a "Silicon Isotope Transaction"
as defined in the Certificate of Determination, in which case the
holders of Series A Convertible Preferred Stock have certain
additional rights. The Series A Convertible Preferred Stock is
entitled to a liquidation preference of $1.50 per share.
(ii) The warrants are each exercisable to purchase a single share of
common stock (subject to dilution adjustment) for a purchase price
of $3.75 per share through the expiration date, July 29, 2002.
(iii) The Company also entered into a registration rights agreement
relating to the shares of common stock underlying the Series A
Convertible Preferred Stock and the warrants, by which (subject to
certain conditions) the Company is required to register the
underlying common stock on the request of the holders of 30% or
more of the "registrable securities." The Company is not obligated
to obtain
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effectiveness for more than two such registration statements during
the term of the registration rights agreement, which expires upon
the unanimous consent of the holders and the Company.
(f) The Company intends to use the cash proceeds from the sale of the Units for
repayment of debt, working capital, and to finance the continued growth of
operations including the continued development and commercialization of
Silicon-28 wafers for the semiconductor industry.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired. NOT APPLICABLE.
(b) Pro forma financial statements. NOT APPLICABLE.
(c) Exhibits:
1. Certificate of Determination of Preferences and Rights of
the Series A Preferred Stock
2. Form of Subscription Agreement
3. Form of Warrant
4. Investment Banking Agreement
5. Form of Registration Rights Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 11th day of August 1999.
ISONICS CORPORATION
By: /s/ James E. Alexander
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James E. Alexander
President and Chief Executive Officer
and Director
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AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION OF
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ISONICS CORPORATION
* * * *
The undersigned, James E. Alexander and Brantley J. Halstead, certify that:
1. They are the duly acting President and Secretary, respectively, of
ISONICS CORPORATION, a corporation organized and existing under the
Corporations Code of the State of California (the "Corporation").
2. That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Corporation, and pursuant to the provisions
of Section 401 of Title 1 of the Corporations Code of the State of
California, said Board of Directors, pursuant to an action by unanimous
consent dated July 26, 1999, adopted a resolution mending and restating the
rights, preferences, privileges and restrictions of, and the number of shares
comprising, the Corporation's Series A Convertible Preferred Stock, which
resolution is as follows:
RESOLVED, that a series of Preferred Stock in Isonics Corporation, a
California corporation (the "Corporation"), having the rights, preferences,
privileges and restrictions, and the number of shares constituting such
series and the designation of such series, set forth below be, and it
hereby is, authorized by the Board of Directors of the Corporation pursuant
to authority given by the Corporation's Articles of Incorporation.
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1. NUMBER AND DESIGNATION. This series shall consist of 1,850,000
shares of Preferred Stock of the Corporation and shall be designated the
Series A Convertible Preferred Stock ("Series A Stock"). The number of
authorized shares of Series A Stock may be reduced to the extent any shares
are not issued and outstanding by further resolution duly adopted by the
Board of Directors of the Corporation and by filing amendments to the
Certificate of Determination pursuant to the provisions of the Corporations
Code of the State of California stating that such reduction has been so
authorized, but the number of authorized shares of this Series shall not be
increased except pursuant to majority vote of the Series A Holders. None
of the shares of Series A Stock has been issued.
2. DIVIDENDS. When and as any dividend or distribution is declared
or paid by the Corporation on Common Stock, whether payable in cash,
property, securities or rights to acquire securities, the Series A Holders
will be entitled to participate with the holders of Common Stock in such
dividend or distribution as set forth in this Section 2. At the time such
dividend or distribution is payable to the holders of Common Stock, the
Corporation will pay to each Series A Holder such holder's share of such
dividend or distribution equal to the amount of the dividend or
distribution per share of Common Stock payable at such time multiplied by
the number of shares of Common Stock then obtainable upon conversion of
such holder's Series A Stock.
3. VOTING RIGHTS.
A. The Series A Holders shall be entitled to notice of any
shareholders' meeting and to vote as a single class with the Common Stock
upon any matter submitted for approval by the holders of Common Stock on
the following basis: the Series A Holders shall have that number of votes
equal to the number of shares of Common Stock into which such Series A
Stock is then convertible.
B. In addition to any other rights provided by law, so long as
any Series A Stock is outstanding, the Corporation, without first obtaining
the affirmative vote or written consent of the holders of not less than a
majority of such outstanding shares of Series A Stock, will not:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Articles of Incorporation or By-Laws if such action
would alter adversely the liquidation preferences of, or the rights or
restrictions provided for the benefit of, any Series A Stock;
(ii) authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as
to
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dividends, voting or liquidation or other rights superior to any
such preference or priority of the Series A Stock, or authorize or
issue shares of stock of any class or any bonds, debentures, notes or
other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of stock of the Corporation
having any preference or priority as to dividends, voting or
liquidation or other rights superior to any such preference or
priority of the Series A Stock;
(iii) reclassify any class or series of stock junior to the
Series A Stock into stock senior to the Series A Stock with respect to
any preference or priority;
(iv) issue any class(es) or series of equity security(ies)
which (a) is (are) convertible directly or indirectly into Common
Stock at a rate related to the market price of the Common Stock or
other such variable basis (other than normal anti-dilution provisions)
or (b), in any transaction or series of transactions over a 12 month
period, constitute(s) 15% or more of the outstanding Common Stock of
the Corporation, assuming conversion or exercise in full of any
Convertible Securities included in such securities;
(v) elect to windup, dissolve or liquidate the Corporation or
revoke any such election; or
(vi) sell or otherwise dispose of (including without limitation
through lease, mortgage, licensing, joint venture, exchange, transfer
or similar arrangements) all or a significant portion of the Silicon
Isotope Business.
4. PREFERENCE UPON LIQUIDATION.
A. Upon any liquidation, dissolution or winding up of the
Corporation, each Series A Holder will be entitled to be paid, before any
distribution or payment is made upon any Junior Securities of the
Corporation, an amount in cash equal to the aggregate Liquidation Value (as
defined in Section 7C below) of all shares of Series A Stock held by such
holder, plus accrued dividends, if any; thereafter, each Series A Holder
will participate in any distribution or payment on a pro rata basis with
all Junior Securities as if the Series A Stock had been converted into
Common Stock.
B. The reorganization, consolidation or the merger of the
Corporation into or with any other corporation(s) or other entity(ies)
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("Reorganization"), the sale, lease, licensing, exchange or other transfer
by the Corporation of all or any significant part of its assets or the
commencement by the Corporation of a voluntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of
any other country, or consent to the entry of an order for relief in an
involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
the making of an assignment for the benefit of its creditors, or an
admission in writing of its inability to pay its debts generally as they
become due, will be deemed to be a liquidation, dissolution or winding up
of the Corporation within the meaning of this Section 4; PROVIDED THAT,
with the consent of the Series A Holders acting by a majority vote (the
"Reorganization Consent"), a Reorganization of the Corporation shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this Section 4 if (i) the principal agreement for
such Reorganization shall expressly provide that the Series A Stock shall
become preferred stock of such surviving entity with the equivalent rights
to the rights set forth herein ("Surviving Entity Preferred Stock"), (ii)
the holders of Junior Securities receive, in exchange for such Junior
Securities, common stock or preferred stock in the surviving entity
(whether or not the surviving entity is the Corporation) of such
Reorganization, or common stock or preferred stock of another entity, which
is junior as to dividends and upon liquidation, dissolution or winding up
to the Series A Stock or Surviving Entity Preferred Stock, as applicable,
and (iii) the Series A Holders shall be entitled to receive at the option
of each Series A Holder (A) either the Surviving Entity Preferred Stock or
(B) the kind and amount of shares or other securities or property which
they would have been entitled to receive had they converted their shares of
Series A Stock into shares of Common Stock of the Corporation as of the
record date for the determination of holders of Common Stock entitled to
cast their votes for or against or to express any dissent to such
Reorganization. After any such Reorganization and Reorganization Consent,
the rights of such holders of Surviving Entity Preferred Stock with respect
to the adjustment of the Conversion Price shall be appropriately continued
and preserved in order to afford, as nearly as possible, protection against
dilution of the conversion rights and privileges comparable to those
conferred herein.
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5. CONVERSION INTO CONVERSION STOCK; SILICON ISOTOPE TRANSACTION.
A. CONVERSION.
(i) At any time prior to the Redemption Date (as
defined in Section 6 B below), any Series A Holder may convert all or
any portion of such holder's shares of Series A Stock into a number of
shares of the Conversion Stock computed by multiplying the number of
shares to be converted by $1.50 and dividing the result by the
Conversion Price then in effect. For purposes of this Section,
"Conversion Stock" means the Common Stock.
(ii) Each conversion of Series A Stock will be deemed
to have been effected as of the close of business on the date on which
the certificate or certificates representing the Series A Stock to be
converted have been surrendered at the principal office of the
Corporation. At such time as such conversion has been effected, the
rights of the holder of such Series A Stock as such holder will cease
and the person or persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
conversion will be deemed to have become the holder or holders of
record of the shares of Conversion Stock represented thereby.
(iii) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
(b) a certificate representing any shares of Series A
Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion
but which were not converted.
(iv) If any fractional share of Conversion Stock would
be issuable upon any conversion, the Corporation will pay the holder
of the Conversion Stock the fair market value of such fractional
share.
(v) The issuance of certificates for shares of
Conversion Stock upon conversion of Series A Stock will be made
without charge.
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(vi) The Corporation will not close its books against
the transfer of Series A Stock or of Conversion Stock issued or
issuable upon conversion of Series A Stock in any manner which
interferes with the conversion of Series A Stock.
B. CONVERSION PRICE. The initial Conversion Price for the
Series A Stock will be $1.50. In order to prevent dilution of the
conversion rights granted under this Section, the Conversion Price will be
subject to adjustment from time to time pursuant to this Section 5.
C. SUBDIVISION OR COMBINATION OF COMMON STOCK; DISSOLUTION.
(i) If the Corporation at any time subdivides (by any stock
split, stock dividend or otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision will be proportionately reduced, and if the
Corporation at any time combines (by reverse stock split or otherwise) its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(ii) In the event of a judicial or non-judicial dissolution of
the Corporation, the conversion rights and privileges of the Series A
Holders shall terminate on a date, as fixed by the Board of Directors of
the Corporation, not more than 45 days and not less than 30 days before the
date of such dissolution. The reference to shares of Common Stock herein
shall be deemed to include shares of any class into which said shares of
Common Stock may be changed.
D. OTHER ADJUSTMENTS.
(i) GENERAL. In any case to which Section 5C hereof is not
applicable, where the Corporation shall issue or sell shares of its
Common Stock after the Original Issue Date for a consideration per
share less than the Conversion Price in effect pursuant to the terms
of the Series A Stock at the time of issuance or sale of such
additional shares (the "Lower Exercise Price"), then the Conversion
Price in effect hereunder shall simultaneously with such issuance or
sale be reduced to the Lower Exercise Price.
(ii) CONVERTIBLE SECURITIES.
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(a) In case the Corporation shall issue or sell any
securities convertible into Common Stock of the Corporation
("Convertible Securities") after the Original Issue Date, there shall
be determined the price per share for which Common Stock is issuable
upon the conversion or exchange thereof, such determination to be made
by dividing (1) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (2) the maximum number of shares of Common
Stock of the Corporation issuable upon the conversion or exchange of
all of such Convertible Securities.
(b) If the price per share so determined shall be less
than the applicable Conversion Price, then such issue or sale shall be
deemed to be an issue or sale for cash (as of the date of issue or
sale of such Convertible Securities) of such maximum number of shares
of Common Stock at the price per share so determined, provided that,
if such Convertible Securities shall by their terms provide for an
increase or increases or decrease or decreases with the passage of
time, in the amount of additional consideration, if any, to the
Corporation, or in the rate of exchange, upon the conversion or
exchange thereof, the adjusted Conversion Price shall, forthwith upon
any such increase or decrease becoming effective, be readjusted to
reflect the same, and provided further, that upon the expiration of
such rights of conversion or exchange of such Convertible Securities,
if any thereof shall not have been exercised, the adjusted Conversion
Price shall forthwith be readjusted and thereafter be the price which
it would have been had an adjustment been made on the basis that the
only shares of Common Stock so issued or sold were issued or sold upon
the conversion or exchange of such Convertible Securities, and that
they were issued or sold for the consideration actually received by
the Corporation upon such conversion or exchange, plus the
consideration, if any, actually received by the Corporation for the
issue or sale of all of such Convertible Securities which shall have
been converted or exchanged.
(iii) RIGHTS AND OPTIONS.
(a) In case the Corporation shall grant any rights or
options to subscribe for, purchase or otherwise acquire Common Stock
(other than pursuant to an incentive plan for employees adopted by a
majority of the stockholders of the Corporation providing for the
issuance of options to purchase no more than an aggregate of 500,000
shares of Common Stock at
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a price of no less than 85% of fair market value), there shall be
determined the price per share for which Common Stock is issuable
upon the exercise of such rights or options, such determination to be
made by dividing (1) the total amount, if any, received or receivable
by the Corporation as consideration for the granting of such rights
or options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of such
rights or options, by (2) the maximum number of shares of Common
Stock of the Corporation issuable upon the exercise of such rights
or options.
(b) If the price per share so determined shall be less
than the applicable Conversion Price, then the granting of such rights
or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number
of shares of Common Stock at the price per share so determined,
provided that, if such rights or options shall by their terms provide
for an increase or increases or decrease or decreases, with the
passage of time, in the amount of additional consideration payable to
the Corporation upon the exercise thereof, the adjusted Conversion
Price shall, forthwith upon any such increase or decrease becoming
effective, be readjusted to reflect the same, and provided, further,
that upon the expiration of such rights or options, if any thereof
shall not have been exercised, the adjusted Conversion Price shall
forthwith be readjusted and thereafter be the price which it would
have been had an adjustment been made on the basis that the only
shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and that they were issued
or sold for the consideration actually received by the Corporation
upon such exercise, plus the consideration, if any, actually received
by the Corporation for the granting of all such rights or options,
whether or not exercised.
E. SILICON ISOTOPE TRANSACTION. In the event that on or
before January 1, 2001 the Corporation sells or otherwise disposes of
(including, without limitation, through lease, mortgage, joint venture,
exchange, transfer or similar arrangements), or enters into a contract to
sell or dispose of, all or a significant portion of the Silicon Isotope
Business (a "Silicon Isotope Transaction"), the Corporation shall cause to
be delivered to each Series A Holder, concurrently with the consummation of
the Silicon Isotope Transaction, its pro rata share of the Exchange
Interests and Transaction Cash Proceeds (as defined in Section 7C below).
The Corporation shall not effect any Silicon Isotope Transaction unless
prior to or simultaneous with the consummation thereof, the Silicon Isotope
Successor Entity shall (i) deliver to each Series A Holder such holder's
pro rata share of the Exchange Interests and Transaction Cash Proceeds;
(ii) enter into a Registration Rights
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Agreement on terms substantially similar to that entered into between the
Corporation and the Series A Holders, dated as of the Original Issue Date
and (iii) provide the holders of Exchange Interests with equivalent rights
to the rights set forth herein.
F. CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly provided
for by such provisions, then the Board of Directors of the Corporation will
make (i) an appropriate adjustment in the Conversion Price so as to protect
the rights of the Series A Holders; provided that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this
Section 5 or decrease the number of shares of Conversion Stock issuable
upon conversion of each share of Series A Stock and (ii) an appropriate
adjustment in the terms of the Silicon Isotope Transaction so as to protect
the rights of the Series A Holders.
G. NOTICES.
(i) Immediately upon any adjustment of the Conversion
Price, the Corporation will send written notice thereof to all Series
A Holders.
(ii) The Corporation will send written notice to all
Series A Holders at least 20 days prior to the date (a) on which the
Corporation closes its books or takes a record (1) with respect to any
dividend or distribution upon Common Stock, (2) with respect to any
PRO RATA subscription offer to holders of Common Stock, (3) for
determining rights to vote on or approve any matter or (b) proposes to
take any action on which the Series A Holders are entitled to vote
pursuant to Section 3B or Section 4B.
(iii) In addition to the notice required under
paragraph (ii) above, the Corporation will send written notice (the
"Exchange Notice") to all Series A Holders at least 30 days prior to
the date of any proposed Silicon Isotope Transaction setting forth in
reasonable detail the material terms of the Silicon Isotope
Transaction and the capitalization, financial condition, business plan
and other material facts of the Silicon Isotope Successor Entity.
(iv) All notices and other communications from the
Corporation to a Series A Holder shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may
have been furnished to the Corporation in writing by such holder, or,
until an address is so
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furnished, to and at the address of the last holder who has so
furnished an address to the Corporation.
H. CONVERTED OR REDEEMED SHARES. Any shares of Series A
Stock which are converted pursuant to this Section 5 or redeemed pursuant
to Section 6 will be canceled and will not be reissued, sold or
transferred.
I. INSUFFICIENT AUTHORIZED SHARES. In the event at the time
any Series A Holder requests conversion of any of such shares and the
Corporation does not have a sufficient (for other events) number of shares
of Common Stock authorized and unreserved to provide for conversion of all
outstanding shares of Series A Stock, the Corporation shall give at least
10 days prior written notice of such requested conversion to all other
Series A Holders in order to enable such other holders to request
conversion of their respective shares. In the event that Series A Holders
request conversion of shares or Series A Stock into a greater number of
shares of Common Stock than the Corporation then has authorized and
unreserved (for other events), the Corporation shall issue all of its
authorized and unreserved (for other events) shares of Common Stock to such
holders PRO RATA in accordance with the number of shares of Series A Stock
of which each holder has requested conversion. The unconverted balance of
the shares of Series A Stock will remain as shares of Series A Stock until
the Corporation has authorized a sufficient number of additional shares of
Common Stock to provide for conversion of all shares of Series A Stock then
outstanding. In the event at the time any Series A Holder requests
conversion of any of such shares and the Corporation does not have a
sufficient number of shares of Common Stock authorized and reserved to
provide for conversion of all outstanding shares of Series A Stock, the
Corporation will promptly reserve such number of shares of authorized
Common Stock as are sufficient to provide for conversion of all outstanding
shares of Series A Stock, but if the Corporation does not have a sufficient
number of shares of Common Stock authorized and unreserved (for other
events) to reserve such number of shares, the Corporation will promptly
reserve the authorized and unreserved (for other events) Common Stock and
provide for such meetings to be held, and approvals to be solicited, as are
necessary to authorize and reserve a sufficient number of shares of Common
Stock to provide for conversion of all outstanding shares of Series A
Stock.
6. OPTIONAL REDEMPTION.
A. After the Redemption Trigger Date (as defined in Section
7C below) all or any part of the Series A Stock may be redeemed by the
Corporation at its election at any time and from time to time, in the
manner prescribed in this Section 6, provided that (i) in any redemption
under this Section 6A the Corporation shall redeem no less than all
outstanding shares of Series A Stock and
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(ii) the Corporation may not make any redemption unless and until the
Corporation has registered under the Securities Act of 1933, as amended,
either the issuance of the shares of Common Stock issuable on conversion
of the Series A Stock or the resale of such shares by the holders thereof.
B. Before making any redemption, the Corporation shall mail
by certified or registered mail, return receipt requested, to each record
holder of any Series A Stock at the address shown on the Corporation's
records, a written notice (a "Redemption Notice") stating: (i) the number
of shares of Series A Stock held of record by such holder which the
Corporation proposes to redeem; (ii) the date (herein called the
"Redemption Date") on which the Corporation proposes to pay the Redemption
Price for the shares to be redeemed; (iii) the Redemption Price which under
this Section 6 is to be paid for each share to be redeemed; (iv) the place
at which the shares to be redeemed may be surrendered in exchange for the
Redemption Price for such shares; and (v) the then current Conversion
Price. Upon the mailing of a Redemption, the Corporation shall become
obligated to redeem the Series A Stock specified in such notice on the date
specified in such notice as the Redemption Date. Each Redemption Notice
shall be mailed at least 30 days before the Redemption Date, provided that
if the Corporation fails to pay the Redemption Price on such date (for a
reason other than a holders' failure to deposit Series A Stock certificates
pursuant to Section 6D below), the Redemption Date shall be the date on
which the Corporation actually pays the Redemption Price.
C. The number of shares of Series A Stock to be redeemed from
each holder thereof in repurchases under Section 6A shall be determined by
multiplying the total number of shares of Series A Stock to be redeemed by
a fraction, the numerator of which shall be the total number of shares of
Series A Stock held by such holder and the denominator of which shall be
the total number of shares of Series A Stock outstanding.
D. (i) For each share of Series A Stock which shall be
redeemed by the Corporation at any time under Section 6A, the Corporation
shall be obligated to pay to the holder of such share an amount in cash
(herein called the "Redemption Price" for such share) equal to the
Liquidation Value of such share. The Corporation shall be obligated to pay
on any Redemption Date on which the Corporation shall be required to redeem
any Series A Stock both the Redemption Price for each share and all
dividends which shall have been declared on each share to and including the
Redemption Date and which shall not previously have been paid. Such
payments which the Corporation shall be obligated to make on any Redemption
Date shall be deemed to become "due" for all purposes of this Section 6
regardless of whether the Corporation shall be able to legally permitted to
make such payments on such Redemption Date.
<PAGE>
(ii) Each holder of Series A Stock shall be entitled
to receive on or at any time after any Redemption Date the full
Redemption Price, plus declared but unpaid dividends, for each share
of Series A Stock held by such holder which the Corporation shall be
obligated to redeem on such Redemption Date upon surrender by such
holder at the Corporation's principal office of the certificate
representing such share duly endorsed in blank or accompanied by an
appropriate form of assignment duly endorsed in blank. After the
payment by the Corporation in cash of the full Redemption Price for
any Series A Stock, plus accrued unpaid dividends, all rights of the
holder of such stock shall (whether or not the certificate
representing such stock shall have been surrendered for cancellation)
cease and terminate with respect to such stock.
7. MISCELLANEOUS.
A. REGISTRATION OF TRANSFER. The Corporation will keep at
its principal office a register for the registration of Series A Stock.
Upon the surrender of any certificate representing Series A Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the
aggregate the number of shares represented by the surrendered certificate.
Each such new certificate will be registered in such name and will
represent such number of shares as is requested by the holder of the
surrendered certificate and will be substantially identical in form to the
surrendered certificate.
B. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will
be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Series A
Stock, and in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Corporation, the Corporation
will (at its expense) execute and deliver in lieu of such certificate a new
certificate representing the number of shares represented by such lost,
stolen, destroyed or mutilated certificate.
C. DEFINITIONS. For purposes hereof:
"APPLICABLE PERCENTAGE" shall mean the percentage that results
from multiplying 25% by a fraction, the numerator of which is the number of
shares of Series A Stock issued on, or within 30 days of, the date this
Certificate is filed with the Secretary of State of the State of California
and the denominator of which is 1,850,000.
<PAGE>
"COMMON STOCK" means the Common Stock of the Corporation, no par
value per share, and includes all stock of any class or classes (however
designated) of the Company, authorized upon the Original Issue Date or
thereafter, the holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such a
contingency).
"CONVERSION PRICE" and "CONVERSION STOCK" shall have the meaning
set forth in Sections 5B and 5A(i), respectively.
"CORPORATION" shall have the meaning set forth in the first
paragraph of this Certificate of Determination.
"EXCHANGE INTERESTS" shall mean equity interests (whether in the
form of stock, limited liability company interests, partnership interests,
a percentage of profits and losses, or otherwise) entitling the holders
thereof to the Applicable Percentage of the profits, votes and
distributions of the Silicon Isotope Successor Entity and having
substantially similar terms, preferences and other rights as the Series A
Stock.
"JUNIOR SECURITIES" means the Common Stock and any equity
securities of any kind (but not including any debt securities convertible
into equity securities) which the Corporation or any Subsidiary at any time
issues or is authorized to issue other than the Series A Stock unless the
terms of such security explicitly state that such security shall be senior
to or on a par with the Series A Stock.
"LIQUIDATION VALUE" of any share of Series A Stock as of any
particular date will be $1.50.
"ORIGINAL ISSUE DATE" means the date the Series A Stock is first
issued.
"PERSON" and "PERSON" means an individual, a partnership, a
corporation, a limited liability company, a trust, a joint venture, an
unincorporated organization and a government or any department or agency
thereof.
"REDEMPTION TRIGGER DATE" shall mean the business day immediately
following the thirtieth consecutive trading day that the average Closing
Price during such trading days (or, if no closing price is reported, the
average of the bid and ask
<PAGE>
prices) of the shares of Common Stock was above $8.00 per share (which
minimum price shall be proportionately adjusted for stock splits, stock
dividends, reverse stock splits and any other subdivision or combination
of the Common Stock.
"SERIES A HOLDER" shall mean a registered holder of Series A
Stock.
"SERIES A STOCK" shall have the meaning set forth in Section 1.
"SILICON ISOTOPE BUSINESS" shall mean all the assets and business
of the Corporation relating to the development, production, use or sale of
isotopes of silicon metal and related products, including without
limitation all related patents, know-how, procedures, business plans,
customer lists and other intellectual property.
"SILICON ISOTOPE SUCCESSOR ENTITY" shall mean the Person or other
entity that will conduct the Silicon Isotope Business upon the consummation
of the Silicon Isotope Transaction.
"SUBSIDIARY" means any corporation of which the shares of stock
having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made,
owned by the Corporation either directly or indirectly through
Subsidiaries.
"TRANSACTION CASH PROCEEDS" shall mean the Applicable Percentage
of the cash paid or payable in connection with a Silicone Isotope
Transaction
D. AMENDMENT AND WAIVER. No amendment, modification or
waiver will be binding or effective with respect to any provision hereof
without the prior approval of a majority of the outstanding Shares of
Series A Stock; provided notwithstanding Section 3.B above that no such
action will change or affect (a) the Conversion Price of the Series A Stock
or the number of shares or the class of stock into which the Series A Stock
is convertible, (b) the Liquidation Value of the Series A Stock, or (c) the
amount of cash, securities or other property receivable or to be received
by the Series A Holders.
E. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. When any
accounting determination or calculation is required to be made, such
determination or calculation (unless otherwise provided) will be made in
accordance with generally accepted accounting principles, consistently
applied, except that if because of a change in generally accepted
accounting principles the Corporation would have to alter a previously
utilized accounting method or policy in order to remain in compliance with
generally accepted accounting principles, such determination or
<PAGE>
calculation will continue to be made in accordance with the Corporation's
previous accounting methods and policies unless the Corporation has
obtained the prior written consent of the holders of a majority of the
Series A Stock then outstanding.
3. The number of authorized shares of Preferred Stock of the Corporation is
10,000,000, and the number of shares of Series A Stock, none of which has
been issued, is 1,850,000.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Amended and Restated Certificate this _____ day of July, 1999.
ISONICS CORPORATION
By:
-------------------------------
James E. Alexander, President
By:
-------------------------------
Brantley J. Halstead, Secretary
<PAGE>
VERIFICATION
The undersigned, James E. Alexander and Brantley J. Halstead, the
President and Secretary, respectively, of Isonics Corporation, each declares
under penalty of perjury that the matters set out in the foregoing Amended
and Restated Certificate are true of his own knowledge. Executed at Golden,
Colorado, on this _____ day of July, 1999.
-----------------------------
James E. Alexander
-----------------------------
Brantley J. Halstead
<PAGE>
ISONICS CORPORATION
Exhibit 2 to Form 8-K reporting an event of July 29, 1999
Form of Subscription Agreement
FOR SERIES A CONVERTIBLE PREFERRED STOCK
AND WARRANTS
SUBSCRIPTION AGREEMENT (the "AGREEMENT") dated as of July 29, 1999
among ISONICS CORPORATION, a California corporation ("COMPANY"), and the
persons who execute this agreement as investors (the "INVESTORS").
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase, up to 1,500,000 shares of the Company's Series
A Convertible Preferred Stock, no par value (the "SERIES A PREFERRED STOCK"),
having the terms set forth in the Amended and Restated Certificate of
Determination of Preferences and Rights of Series A Convertible Preferred
Stock attached hereto as EXHIBIT 1 (the "CERTIFICATE") and 1,500,000 three
year warrants, each exercisable to purchase one share of the Company's Common
Stock, no par value, in substantially the form attached hereto as EXHIBIT 2
(the "WARRANTS"); and
WHEREAS, in connection with the completion of the offering of the
Series A Preferred Stock to the Investors as described in the previous
paragraph, the Company has obtained agreement from five creditors of the
Company described on Exhibit 6A to convert $425,000 into Units on the terms
stated in this Subscription Agreement; and
WHEREAS, in connection with the completion of the offering of the
Series A Preferred Stock to the Investors, the Company has obtained an
agreement from Isoserve to convert disputed contractual obligations into
shares of the Series A Preferred Stock as described on Exhibit 6B on the
terms stated in this Subscription Agreement; and
WHEREAS, in connection with the completion of the offering of the
Series A Preferred Stock to the Investors, the Company has obtained an
agreement from two creditors to extend the maturity on certain payment
obligations as described on Exhibit 6C.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
<PAGE>
1. PURCHASE AND SALE OF STOCK.
1.1. SALE AND ISSUANCE OF PURCHASED SECURITIES. The Company
shall sell to the Investors and the Investors shall purchase from the
Company, up to 1,500,000 units, each consisting of one share of Series A
Preferred Stock and one Warrant, at a price of $1.50 per unit, or a total of
up to 1,500,000 shares of Series A Preferred Stock (the "PURCHASED SHARES")
and up to 1,500,000 Warrants (the "PURCHASED WARRANTS"), for an aggregate
purchase price of up to $2,250,000. The Purchased Shares and Purchased
Warrants are referred to herein collectively as the "PURCHASED SECURITIES".
The number of Purchased Shares and Purchased Warrants to be purchased by each
Investor from the Company is set forth opposite the name of such Investor on
the signature page hereof, subject to acceptance, in whole or in part, by the
Company.
1.2. CLOSING. The purchase and sale of the Purchased Shares
hereunder shall take place at a closing (the "FIRST CLOSING"; the date on
which the First Closing occurs is hereinafter referred to as the "FIRST
CLOSING DATE"); provided that at least $2,000,000 of Purchased Shares are
purchased. If less than all Purchased Shares are sold at the First Closing,
the purchase and sale of additional Purchased Shares hereunder shall take
place at one or more additional closings within 10 days after the First
Closing (each an "ADDITIONAL CLOSING", and with the First Closing, a
"CLOSING"). Each Closing shall take place concurrently with the execution
and delivery of this Agreement by the Investors purchasing Purchased Shares
at such Closing. At each Closing:
(a) the Investors purchasing Purchased Shares at such Closing
shall deliver to the Company or its designees by wire transfer, cashier's
check or certified checks from a bank acceptable to the Company, or such
other method of payment as the Company shall approve, an amount equal to
the purchase price of the portion of the Purchased Securities, as set
forth opposite its name on the signature pages hereof;
(b) the Company shall issue and deliver to each Investor
purchasing Purchased Shares at such Closing (i) a certificate or
certificates for its portion of the Purchased Shares and (ii) warrants for
the portion of the Purchased Warrants to be issued by the Company and
purchased by such Investor, as set forth opposite such Investor's name on
the signature pages hereof;
(c) the Company and such Investors shall execute and deliver a
Registration Rights Agreement in the form attached as Exhibit 8 with
respect to the Underlying Shares (as hereafter defined);
(d) at the First Closing only, the Company shall (i) execute
and deliver an investment banking agreement with Adam Smith & Company, Inc.
in the form attached as Exhibit 9 providing for compensation of 500,000
warrants in the same form as the Purchased Warrants (the "INVESTMENT
BANKING WARRANTS") and (ii) deliver to the Investors purchasing Shares at
such Closing copies of the agreements described on EXHIBIT 6; and
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<PAGE>
(e) the Company shall deliver to the Investors an Opinion of
Counsel with respect to the matters set forth on EXHIBIT 4.
All certificates shall have all necessary stock transfer tax stamps
(purchased at the expense of the Company) affixed.
The parties agree that for purposes of allocating the price paid
for the Purchased Securities, the Purchased Warrants have a nominal value.
The Company acknowledges the materiality of the agreements
described on EXHIBIT 6 To the investment made hereunder by the Investors and
covenants that it will close each transaction covered by such agreements as
promptly as practicable after the First Closing.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investors as follows:
2.1. CORPORATE ORGANIZATION; AUTHORITY; DUE AUTHORIZATION.
(a) The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) has the corporate power and authority to own or lease
its properties as and in the places where such business is now conducted and
to carry on its business as now conducted and (iii) is duly qualified and in
good standing as a foreign corporation authorized to do business in every
jurisdiction where the failure to so qualify, individually or in the
aggregate, would have a material adverse effect on the operations, prospects,
assets, liabilities, financial condition or business of the Company (a
"COMPANY MATERIAL ADVERSE EFFECT").
(b) The Company (i) has the requisite corporate power
and authority to execute, deliver and perform this Agreement and the other
agreements contemplated hereby to which it is a party and to incur the
obligations herein and therein and (ii) has been authorized by all necessary
corporate action to execute, deliver and perform this Agreement and the other
agreements contemplated hereby to which it is a party and to consummate the
transactions contemplated hereby and thereby (the "CONTEMPLATED
TRANSACTIONS"). This Agreement and each of the other agreements contemplated
hereby to which the Company is a party is a valid and binding obligation of
the Company enforceable in accordance with its terms.
2.2. CAPITALIZATION. Immediately prior to the First Closing,
the authorized capital of the Company consisted of (i) 20,000,000 shares of
Common Stock, no par value (the "COMMON STOCK"), of which 6,215,612 shares of
Common Stock are outstanding, and (ii) 10,000,000 shares of Preferred Stock,
no par value, of which no shares are outstanding. Immediately after the First
Closing and the closing of the transactions described on EXHIBIT 6, the
number of shares Series A Preferred Stock Outstanding will be as set forth on
EXHIBIT 7. The Certificate has been duly filed with and recorded by the
Secretary of State of the State of California. All outstanding shares were
issued in compliance with all applicable Federal and
3
<PAGE>
state securities laws. Except as contemplated by this Agreement or as set
forth in the disclosure letter delivered to the Investors prior to the
execution of this Agreement (the "COMPANY DISCLOSURE LETTER", which letter is
referenced in Exhibit 10), there are (i) no outstanding subscriptions,
warrants, options, conversion privileges or other rights or agreements to
purchase or otherwise acquire or issue any shares of capital stock of the
Company (or shares reserved for such purpose), (ii) no preemptive rights or
rights of first refusal with respect to the issuance of additional shares of
capital stock of the Company, including the Purchased Securities and the
shares of Common Stock which the Purchased Warrants and Investment Banking
Warrants are exercisable to purchase and for which the Purchased Shares are
convertible into, and (iii) no commitments or understandings (oral or
written) of the Company to issue any shares, warrants, options or other
rights. To the best of the Company's knowledge, except as set forth in the
Company Disclosure Letter, none of the shares of Common Stock are subject to
any shareholders' agreement, voting trust agreement or similar arrangement or
understanding. Except as set forth in the Company Disclosure Letter, the
Company has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter.
2.3. VALIDITY OF PURCHASED SHARES. The issuance of the
Purchased Shares has been duly authorized, and when issued, sold and
delivered in accordance with the terms and for the consideration expressed
herein, the Purchased Shares shall be validly issued, fully paid and
non-assessable.
2.4. COMMON STOCK ISSUABLE UPON CONVERSION OF PURCHASED
SHARES AND EXERCISE OF PURCHASED WARRANTS AND INVESTMENT BANKING WARRANTS.
The issuance of the shares of Common Stock (the "UNDERLYING SHARES") issuable
upon conversion of the Purchased Shares or upon exercise of the Purchased
Warrants has been duly authorized and the Underlying Shares have been, and at
all times prior to such conversion or exercise will have been, duly reserved
for issuance upon such conversion or exercise and, when so issued, will be
validly issued, fully paid and non-assessable.
2.5. PRIVATE OFFERING. Neither the Company nor anyone acting
on its behalf has within the last 12 months issued, sold or offered any
security of the Company to any person or organization under circumstances
that would cause the issuance and sale of the Purchased Securities, as
contemplated by this Agreement, or the issuance of the Investment Banking
Warrants to be subject to the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"). The Company agrees that neither
the Company nor anyone acting on its behalf will offer the Purchased
Securities or Investment Banking Warrants or any part thereof or any similar
securities for issuance or sale to, or solicit any offer to acquire any of
the same from, anyone so as to make the issuance and sale of the Purchased
Securities or the issuance of the Investment Banking Warrants subject to the
registration requirements of Section 5 of the Securities Act.
2.6. BROKERS AND FINDERS. The Company has not retained any
investment banker, broker or finder in connection with the Contemplated
Transactions.
4
<PAGE>
2.7. SUBSIDIARIES.
(a) Except as set forth in the Company Disclosure
Letter, the Company has no Subsidiaries and does not otherwise directly or
indirectly control any other business entity. As used in this Agreement,
"SUBSIDIARY" means any corporation or other organization, whether
incorporated or unincorporated, of which the Company directly or indirectly
owns or controls at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board
of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which the Company
is a general partner or any limited liability company of which the Company is
a manager.
(b) Each Subsidiary of the Company (each, a "COMPANY
SUBSIDIARY" and collectively, "COMPANY SUBSIDIARIES") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its properties and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually
or in the aggregate, have a Company Material Adverse Effect. The copies of
the Certificates of Incorporation and Bylaws of the Company and the Company
Subsidiaries previously made available to the Purchaser are true and correct.
(c) Except as set forth in the Company Disclosure
Letter, the Company owns directly or indirectly all of the outstanding shares
of capital stock (or other ownership interests having by their terms ordinary
voting power to elect a majority of directors or others performing similar
functions with respect to such Company Subsidiary) of each of the Company
Subsidiaries. Each of the outstanding shares of capital stock of each of the
Company Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by the Company. Except
as set forth in the Company Disclosure Letter, each of the outstanding shares
of capital stock of each Company Subsidiary is owned, directly or indirectly,
by the Company free and clear of all liens, pledges, security interests,
claims or other encumbrances other than liens imposed by local law which are
not material. There are no irrevocable proxies, voting agreements or similar
obligations with respect to such capital stock of the Company Subsidiaries,
and no equity securities or other interests of any of the Company
Subsidiaries are or may become required to be issued or purchased by reason
of any options, warrants, rights to subscribe to, puts, calls, reservation of
shares or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of any capital stock
of any Company Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any Company Subsidiary is bound to
issue additional shares of its capital stock, or options, warrants or rights
to purchase or acquire any additional shares of its capital stock or
securities convertible into or exchangeable for such shares. The Company
Disclosure Letter sets forth the following information for each Company
Subsidiary, if applicable: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized
5
<PAGE>
capital stock or share capital; (iii) the number of issued and outstanding
shares of capital tock or share capital, and (iv) the percentage of such
shares owned by the Company.
2.8. OTHER INTEREST. Except as set forth in the Company
Disclosure Letter, except for interests in the Company Subsidiaries, neither
the Company nor any Company Subsidiary owns directly or indirectly any
interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or entity.
2.9. USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Purchased Securities as set forth on EXHIBIT 5 attached
hereto.
2.10. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws or equivalent organizational documents of (x) the
Company or (y) any Company Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Company Subsidiary or by which any property or asset of the Company or
any Company Subsidiary is bound or affected, or (iii) except as set forth in
the Company Disclosure Letter, result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become
a default) under, result in the loss of a material benefit under, or give to
others any right of purchase or sale, or any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Company or any Company Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary or any property or
asset of the Company or any Company Subsidiary is bound or affected, except,
in the case of clauses (i)(y), (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent
or delay consummation of any of the Contemplated Transactions in any material
respect, or otherwise prevent the Company from performing its obligations
under this Agreement in any material respect, and would not, individually or
in the aggregate, have a Company Material Adverse Effect. The execution and
delivery of this Agreement by the Company do not, and the consummation by the
Company of the Contemplated Transactions will not, result in any material
breach of or constitute a material default (or an event which with notice or
lapse of time or both would become a material default) under, result in the
loss of a material benefit under, or give to others any right of purchase or
sale, or any right of termination amendment, acceleration, increased payments
or cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of the Company or any Company Subsidiary pursuant
to, any Company Material Contract (as hereafter defined).
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement and the consummation by
the Company of the transactions contemplated hereby will not, require any
consent, approval,
6
<PAGE>
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign (each a
"GOVERNMENTAL ENTITY") except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") or any state
securities or "blue sky" laws ("BLUE SKY LAWS").
2.11. COMPLIANCE. Except as set forth in the Company
Disclosure Letter neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any Company Subsidiary
("LEGAL REQUIREMENT") or by which any property or asset of the Company or any
Company Subsidiary is bound or affected, or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary or any property or
asset of the Company or any Company Subsidiary is bound or affected, in each
case except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Neither the Company nor any Company Subsidiary has received any notice or
other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement. The
Company and the Company Subsidiaries have obtained all licenses, permits, and
other authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
where the failure to obtain any such item or to take any such action would
have, individually or in the aggregate, a Company Material Adverse Effect.
None of the Company, any Company Subsidiary or, to the knowledge of Company,
any director, officer, agent, employee or other person acting on behalf of
any of the foregoing has used any corporate funds for unlawful contributions,
payments, gifts or entertainment or for the payment of other unlawful
expenses relating to political activity, or made any direct or indirect
unlawful payments to governmental or regulatory officials or others. For
purposes of this Agreement "GOVERNMENTAL BODY" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental
authority of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization, unit, body or
entity and any court or other tribunal).
2.12. SEC DOCUMENTS.
(a) The Company has filed all forms, reports and
documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") since its formation (collectively, together with the
1999 Form 10-KSB defined below, the "COMPANY REPORTS"). As of their
respective dates, the Company Reports filed prior to the date hereof (i)
complied as to form in all material respects with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. The representation in clause (ii) of
the preceding sentence shall not apply to any misstatement or omission in any
Company Report filed prior to the date of this
7
<PAGE>
Agreement which was superseded by a subsequent Company Report filed prior to
the date of this Agreement. The Company has provided to the Investors a draft
of the Form 10-KSB for its fiscal year ended April 30, 1999 which will be
filed with the SEC on or before August 13, 1999 and which is not expected to
be materially different from that provided to the Investors (except to the
extent amended to reflect the transactions contemplated hereby) (the "1999
10-KSB"). When filed with the SEC, the 1999 Form 10-KSB (i) will comply as to
form in all material respects with the applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations thereunder
and (ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. No Company Subsidiary is required to file any
report, form or other document with the SEC. Except as set forth in the
Company Disclosure Letter neither the Company nor any Company Subsidiary is a
party or is subject to any note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal that is
required to be described in or filed as an exhibit to any Company Report that
is not described in or filed as an exhibit to such Company Report as required
by the Securities Act or the Exchange Act, as the case may be. No event has
occurred prior to the date hereof as a consequence of which the Company would
be required to file a Current Report on Form 8-K pursuant to the requirements
of the Exchange Act as to which such a report has not been timely filed with
the SEC. Any reports, statements and registration statements and amendments
thereto (including, without limitation, Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as amended)
filed by the Company with the SEC after the date hereof shall be provided to
the Purchaser no later than the date of such filing.
(b) Each of the consolidated balance sheets of Company
included in or incorporated by reference into the Company Reports (including
the related notes and schedules) fairly presents the consolidated financial
position of the Company and the Company Subsidiaries as of its date, and each
of the consolidated statements of income, retained earnings and cash flows of
Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of the
Company and the Company Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Neither the
Company nor any of the Company Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on, or reserved against in,
a balance sheet of the Company or in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently
applied, except for (i) liabilities or obligations that were so reserved on,
or reflected in (including the notes to), the consolidated balance sheet of
the Company as of April 30, 1999; (ii) liabilities or obligations arising in
the ordinary course of business since April 30, 1999 and (iii) liabilities or
obligations which would not, individually or in the aggregate, have a Company
Material Adverse Effect.
2.13. LITIGATION. Except as set forth in the Company Disclosure
Letter
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there are no claims, actions, suits, investigations, inquiries or proceedings
pending against the Company or the Company Subsidiaries or, to the knowledge
of the Company, threatened against the Company or the Company Subsidiaries,
or any officer, director, employee or agent thereof in his or her capacity as
such, at law or in equity, or before or by any court, tribunal, arbitrator,
mediator or any federal or state commission, board, bureau, agency or
instrumentality, that, individually or in the aggregate, are reasonably
likely to have a Company Material Adverse Effect.
2.14. ABSENCE OF CERTAIN CHANGES. Except as specifically
contemplated by this Agreement or set forth in the Company Disclosure Letter,
since January 31, 1999, there has not been (i) any event, occurrence, fact,
condition, change, development or effect ("EVENT") that would reasonably be
expected to have a Company Material Adverse Effect; (ii) any declaration,
payment or setting aside for payment of any dividend (except to Company or a
Company Subsidiary wholly owned by Company) or other distribution or any
redemption, purchase or other acquisition of any shares of capital stock or
securities of Company or any Company Subsidiary; (iii) any return of any
capital or other distribution of assets to stockholders of Company or any
Company Subsidiary (except to Company or a Company Subsidiary wholly owned by
Company); (iv) any acquisition (by merger, consolidation, acquisition of
stock or assets or otherwise) of any person or business; (v) any other action
or agreement or undertaking by Company or any Company Subsidiary that, if
taken or done on or after the date hereof would reasonably be expected to
have a Company Material Adverse Effect; or (vi) any material change in its
accounting principles, practices or methods. Without limiting foregoing,
since April 30, 1999, there has been no Company Material Adverse Effect
affecting the Company's financial condition as of July 29, 1999 or results of
operation through that date which would be reflected in its unaudited
financial statements to be prepared for and through July 31, 1999.
2.15. TAXES.
(a) Each of the Company and the Company Subsidiaries has
filed all material tax returns and reports required to be filed by it, or
requests for extensions to file such returns or reports have been timely
filed and granted and have not expired, and all tax returns and reports are
complete and accurate in all respects, except to the extent that such
failures to file, have extensions granted that remain in effect or be
complete and accurate in all respects, as applicable, individually or in the
aggregate, would not have a Company Material Adverse Effect. The Company and
each of the Company Subsidiaries has paid (or the Company has paid on its
behalf) all taxes shown as due on such tax returns and reports. The most
recent financial statements contained in the Company Reports reflect an
adequate reserve for all taxes payable by the Company and the Company
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements, and no deficiencies for any taxes have
been proposed, asserted or assessed against the Company or any Company
Subsidiary that are not adequately reserved for, except for inadequately
reserved taxes and inadequately reserved deficiencies that would not,
individually or in the aggregate, have a Company Material Adverse Effect. No
requests for waivers of the time to assess any taxes against the Company or
any Company Subsidiary have been granted or are pending, except for requests
with respect to such taxes that have been adequately reserved for in the most
recent financial statements contained in
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the Company Reports, or, to the extent not adequately reserved, the
assessment of which would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(b) As used in this Section 2.15, "taxes" shall include
all Federal, state, local and foreign income, franchise, property, sales,
use, excise and other taxes, including obligations for withholding taxes from
payments due or made to any other person and any interest, penalties or
additions to tax.
2.16. EMPLOYEE BENEFIT PLANS. Except as would not,
individually or in the aggregate, have a Company Material Adverse Effect, (i)
all employee benefit plans or programs maintained for the benefit of the
current or former employees or directors of the Company or any Company
Subsidiary that are sponsored, maintained or contributed to by the Company or
any Company Subsidiary, or with respect to which the Company or any Company
Subsidiary has any liability, including without limitation any such plan that
is an "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), are in compliance with all
applicable requirements of law, including ERISA and the Code, and (ii)
neither the Company nor any Company Subsidiary has any liabilities or
obligations with respect to any such employee benefit plans or programs,
whether accrued, contingent or otherwise, nor to the knowledge of the Company
are any such liabilities or obligations expected to be incurred. The
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any benefit plan, policy,
arrangement or agreement or any trust or loan that will or may result in any
payment (whether of severance pay, bonus, golden parachute or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The
only severance agreements or severance policies applicable to the Company or
the Company Subsidiaries are the agreements and policies specifically
referred to in the Company Disclosure Letter.
2.17. LABOR MATTERS. Neither the Company nor any of the
Company Subsidiaries has any material obligations, contingent or otherwise,
under any employment, severance or consulting agreement, any collective
bargaining agreement or any other contract with a labor union or other labor
or employee group. To the knowledge of Company, as of the date of this
Agreement, there are no negotiations, demands or proposals which are
presently pending or overtly threatened by or on behalf of any labor union
with respect to the unionizing of employees of Company or any Company
Subsidiary. There is no labor strike, labor dispute, work slowdown, stoppage
or lockout actually pending, or to the knowledge of the Company, threatened
against or affecting the Company or any Company Subsidiary, except as would
not, individually or in the aggregate, have a Company Material Adverse
Effect. There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of the Company, threatened against the Company
or its Subsidiaries relating to their business, except for any such
proceeding which would not have a Company Material Adverse Effect.
2.18. CONTRACTS. Except as set forth in the Company Reports or
the Company Disclosure Letter or in Exhibit 6, neither the Company nor any
Company Subsidiary is
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a party or is subject to, and their property and assets are not bound or
affected by, any of the following (each, a "COMPANY MATERIAL CONTRACT"):
(a) any agreement or understanding with an affiliate of the Company
or of a Company Subsidiary;
(b) any contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset
(as hereafter defined);
(c) any single note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal pursuant to
which the financial obligation of the Company or a Company Subsidiary
thereunder or applicable to the assets or properties of the Company or a
Company Subsidiary subject thereto could exceed $10,000 after the First
Closing Date;
(d) any single contract, bid or offer to which the Company or a
Company Subsidiary is a party or by which the Company or a Company
Subsidiary is bound to provide services to third parties which provides for
recurring monthly revenues to the Company or a Company Subsidiary in excess
of $10,000;
(e) any contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(f) any contract which includes any exclusivity restrictions
applicable to the Company or a Company Subsidiary or imposes any
restriction on the Company's right or ability (A) to compete with any
person, (B) to acquire any product or other asset or any services from any
other person, to sell any product or other asset to or perform any services
for any other person or to transact business or deal in any other manner
with any other person, or (C) develop or distribute any technology;
(g) any contract relating to the acquisition, issuance or transfer of
any securities, except as contemplated hereunder;
(h) any contract involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity or any surety
arrangement;
(i) any contract creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(j) any contract constituting or relating to a Government Contract
(as hereafter defined) or Government Bid (as hereafter defined);
(k) any contract that was entered into outside the ordinary course of
business or was inconsistent with the Company's or a Company Subsidiary's
past practices;
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(l) any other Company Contract that has a term of more than 120 days
and that may not be terminated by the Company (without penalty) within 120
days after the delivery of a termination notice by the Company; or
(m) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation that is
material to the ownership or operation of any of the Company or a Company
Subsidiary.
The Company has made available to the Investors true and accurate copies of
the Company Material Contracts. Except as set forth in the Company
Disclosure Letter all such Company Material Contracts, including without
limitation the agreements described on EXHIBIT 6, are or will be valid and
binding and are or will be in full force and effect and enforceable in
accordance with their respective terms. Except as set forth in the Company
Disclosure Letter no consent of any person is needed in order that each such
Company Material Contract shall continue in full force and effect in
accordance with its terms without penalty, acceleration or rights of early
termination by reason of the consummation of the transactions contemplated by
this Agreement, except for consents the absence of which, individually or in
the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any Company Subsidiary is in
violation or breach of or default under any such Company Material Contract,
nor to the Company's knowledge is any other party to any such Company
Material Contract in violation or breach of or default under any such Company
Material Contract, in each case where such violation or breach would give
rise to a right of termination or modification. For purposes of this
Agreement "GOVERNMENT BID" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body. For purposes of this
Agreement "GOVERNMENT CONTRACT" shall mean any prime contract, subcontract,
letter contract, purchase order or delivery order executed or submitted to or
on behalf of any Governmental Body or any prime contractor or higher-tier
subcontractor, or under which any Governmental Body or any such prime
contractor or subcontractor otherwise has or may acquire any right or
interest.
2.19. ENVIRONMENTAL MATTERS. As of the date of this
Agreement, (i) the Company and the Company Subsidiaries are in compliance
with all applicable Environmental Laws (as hereinafter defined), (ii) there
is no civil, criminal or administrative judgment, action, suit, demand,
claim, hearing, notice of violation, investigation, proceeding, notice or
demand letter pending or, to the knowledge of the Company, threatened against
the Company, a Company Subsidiary or any of their respective properties
pursuant to Environmental Laws, and (iii) there are no past or present Events
which, reasonably may be expected to prevent compliance with, or which have
given rise to or will give rise to liability on the part of the Company or a
Company Subsidiary under, Environmental Laws, except, in each case, for any
deviations from the foregoing which, individually or in the aggregate, do not
and would not reasonably be expected to have a Company Material Adverse
Effect. The Company has provided or made available to the Investors prior to
the date of this Agreement true, accurate and complete copies of all
environmental reports in the possession of the Company or a Company
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Subsidiary relating to any of their respective past or present properties.
As used herein, the term "ENVIRONMENTAL LAWS" shall mean laws relating to
pollution, waste control, the generation, presence or disposal of asbestos,
hazardous or toxic wastes or substances, the protection of the environment,
environmental activity or public health and safety.
2.20. PROPRIETARY ASSETS. (a) For purposes of this Agreement
"PROPRIETARY ASSETS" shall mean any: (i) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software,
computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (ii) right to use or exploit any of
the foregoing.
(b) The Company Disclosure Letter sets forth, with
respect to each Proprietary Asset of the Company or a Company Subsidiary
registered with any Governmental Body or for which an application has been
filed with any Governmental Body, (i) a brief description of such Proprietary
Asset and (ii) the names of the jurisdictions covered by the applicable
registration or application. The Company Disclosure Letter identifies and
provides a brief description of all other Proprietary Assets owned by the
Company or a Company Subsidiary, and identifies and provides a brief
description of each Proprietary Asset licensed to the Company or a Company
Subsidiary by any person (except for any Proprietary Asset that is licensed
to the Company or a Subsidiary under any third party software license
generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company or a Company Subsidiary. Except as set forth in the
Company Disclosure Letter, the Company or a Company Subsidiary: has good,
valid and marketable title to all of the Proprietary Assets identified in the
Company Disclosure Letter, free and clear, of all liens and other
encumbrances; has a valid right to use all Proprietary Assets identified in
the Company Disclosure Letter; and is not obligated to make any payment to
any person for the use of any Proprietary Asset. Except as set forth in the
Company Disclosure Letter, neither the Company nor any Company Subsidiary has
developed jointly with any other person any Proprietary Asset with respect to
which such other person has any rights.
(c) The Company and the Company Subsidiaries have taken
all measures and precautions necessary to protect and maintain the
confidentiality and secrecy of all Proprietary Assets of the Company and the
Company Subsidiaries (except Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the
value of all Proprietary Assets of the Company and the Company Subsidiaries.
Except as set forth in the Company Disclosure Letter, the Company and the
Company Subsidiaries have not (other than pursuant to license agreements
identified in the Company Disclosure Letter) disclosed or delivered to any
person, or permitted the disclosure or delivery to any person of, (i) the
source code, or any portion or aspect of the source code, of any Proprietary
Asset, or (ii) the object code, or any portion or aspect of the object code,
of any Proprietary Asset of the Company or a Company Subsidiary.
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(d) To the best of the knowledge of the Company, none of
the Proprietary Assets of the Company or a Company Subsidiary infringes or
conflicts with any Proprietary Asset owned or used by any other Person. The
Company and the Company Subsidiaries are not infringing, misappropriating or
making any unlawful use of, and the Company and the Company Subsidiaries have
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To
the best of the knowledge of the Company, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset
owned or used by any other person infringes or conflicts with, any
Proprietary Asset of the Company or a Company Subsidiary.
(e) Except as set forth in the Company Disclosure
Letter, there has not been any claim by any customer or other person alleging
that any Proprietary Asset of the Company or a Company Subsidiary (including
each version thereof that has ever been licensed or otherwise made available
by the Company or a Company Subsidiary to any person) does not conform in all
material respects with any specification, documentation, performance
standard, representation or statement made or provided by or on behalf of the
Company or a Company Subsidiary, and, to the best of the knowledge of the
Company, there is no basis for any such claim.
(f) The Proprietary Assets of the Company and the
Company Subsidiaries constitute all the Proprietary Assets necessary to
enable the Company and the Company Subsidiaries to conduct their businesses
in the manner in which such businesses have been and are being conducted.
Except as set forth in the Company Disclosure Letter (i) the Company and the
Company Subsidiaries have not licensed any of their Proprietary Assets to any
person on an exclusive, semi-exclusive or royalty-free basis, and (ii) the
Company and the Company Subsidiaries have not entered into any covenant not
to compete or contract limiting their ability to exploit fully any of their
Proprietary Assets or to transact business in any market or geographical area
or with any person.
2.21. NO ADVERSE ACTIONS. Except as set forth in the Company
Disclosure Letter there is no existing, pending or, to the knowledge of the
Company, threatened termination, cancellation, limitation, modification or
change in the business relationship of Company or any of the Company
Subsidiaries, with any supplier, customer or other person except such as
would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect.
2.22. INSURANCE. The Company maintains with sound and
reputable insurance companies all insurance customarily maintained by
comparable companies.
2.23. DISCLOSURE. No representation or warranty of the
Company herein and no information contained or referenced in the Company
Reports or Company Disclosure Letter contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
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misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
represents and warrants to the Company as follows:
3.1. AUTHORIZATION. When executed and delivered by such
Investor, this Agreement will constitute the valid and binding obligation of
such Investor.
3.2. BROKERS AND FINDERS. Such Investor has not retained any
investment banker, broker or finder in connection with the Contemplated
Transactions.
4. SECURITIES LAWS.
4.1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF
INVESTORS.
(a) This Agreement is made with each Investor in
reliance upon such Investor's representation to the Company, which by such
Investor's execution of this Agreement such Investor hereby confirms, that
the Purchased Securities to be received by such Investor will be acquired for
investment for such Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof such that
such Investors would constitute an "underwriter" under the Securities Act,
and that such Investor has no present intention of selling, granting any
participation in or otherwise distributing the Purchased Securities. By
executing this Agreement, each Investor further represents that such Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any
third person with respect to, any of the Purchased Securities.
(b) Each Investor understands and acknowledges that the
offering of the Purchased Securities pursuant to this Agreement will not be
registered under the Securities Act or qualified under any Blue Sky Laws on
the grounds that the offering and sale of the Purchased Securities are exempt
from registration and qualification, respectively, under the Securities Act
and the Blue Sky Laws, and that the Company's reliance upon such exemption is
predicated upon such Investor's representations set forth in this Agreement.
(c) Each Investor covenants that, unless the Purchased
Shares, the Purchased Warrants, the Underlying Shares or any other shares of
capital stock of the Company received in respect of the foregoing have been
registered pursuant to the Registration Rights Agreement being entered into
among the Company and the Investors, such Investor will not dispose of such
securities unless and until such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with an opinion
of counsel reasonably satisfactory in form and substance to the Company to
the effect that (x) such disposition will not require registration under the
Securities Act and (y) appropriate action necessary for compliance with the
Securities Act and any applicable state, local or foreign law has been taken;
PROVIDED, HOWEVER, that an Investor may dispose of such securities without
providing the opinion referred to above if the Company has been provided with
adequate
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assurance that such disposition is made in compliance with Rule 144 under the
Securities Act (or any similar or analogous rule) and any applicable state,
local or foreign law.
(d) In connection with the investment representations
made herein, each Investor represents that (i) such Investor is able to fend
for itself in the Contemplated Transactions; (ii) such Investor has such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of such Investor's prospective investment
in the Purchased Securities; (iii) such Investor has the ability to bear the
economic risks of such Investor's prospective investment and can afford the
complete loss of such investment; (iv) such Investor has been furnished with
and has had access to such information as is in the Company Disclosure Letter
together with the opportunity to obtain such additional information as it
requested to verify the accuracy of the information supplied; and (v) such
Investor has had access to officers of the Company and an opportunity to ask
questions of and receive answers from such officers and has had all questions
that have been asked by such Investor satisfactorily answered by the Company.
(e) Each Investor further represents by execution of
this Agreement that such Investor qualifies as an "accredited investor" as
such term is defined under Rule 501 promulgated under the Securities Act.
Any Investor that is a corporation, a partnership, a trust or other business
entity further represents by execution of this Agreement that it has not been
organized for the purpose of purchasing the Purchased Securities.
(f) By acceptance hereof, each Investor agrees that the
Purchased Shares, the Purchased Warrants, the Underlying Shares and any
shares of capital stock of the Company received in respect of the foregoing
held by it may not be sold by such Investor without registration under the
Securities Act or an exemption therefrom, and therefore such Investor may be
required to hold such securities for an indeterminate period.
4.2. LEGENDS. All certificates for the Purchased Shares,
Purchased Warrants and the shares of Common Stock issued upon conversion or
exercise thereof, and each certificate representing any shares of capital
stock of the Company received in respect of the foregoing, whether by reason
of a stock split or share reclassification thereof, a stock dividend thereon
or otherwise and each certificate for any such securities issued to
subsequent transferees of any such certificate (unless otherwise permitted
herein) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE [SECURITIES
REPRESENTED BY THIS WARRANT] HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES [WARRANTS] MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT."
In addition, such certificates shall bear any legend that, in the opinion of the
Company's counsel, is required pursuant to any state, local or foreign law
governing the Purchased Shares, the
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Purchased Warrants or the Underlying Shares.
5. ADDITIONAL COVENANTS OF THE COMPANY.
5.1. REPORTS, INFORMATION, SHARES.
(a) The Company shall cooperate with each Investor in
supplying such information as may be reasonably requested by such Investor to
complete and file any information reporting forms presently or hereafter
required by the SEC as a condition to the availability of an exemption,
presently existing or hereafter adopted, from the Securities Act for the sale
of any of the Purchased Shares, the Purchased Warrants, the Underlying Shares
and shares of capital stock of the Company received in respect of the
foregoing.
(b) The Company shall deliver to each Investor,
contemporaneously with delivery to other holders of Common Stock, a copy of
each report of the Company delivered to holders of Common Stock.
(c) The Company shall keep reserved for issuance a
sufficient number of authorized but unissued shares of Common Stock so that
the Purchased Warrants may be exercised to purchase, and the Purchased Shares
may be converted into, Common Stock at any time.
5.2. EXPENSES; INDEMNIFICATION.
(a) The Company agrees to pay on the First Closing Date
(and in the event of Additional Closings on the date of each Additional
Closing) and save the Investors harmless against liability for the payment of
any stamp or similar taxes (including interest and penalties, if any) that
may be determined to be payable in respect of the execution and delivery of
this Agreement, the issue and sale of any Purchased Securities, the expense
of preparing and issuing the Purchased Securities, the cost of delivering the
Purchased Securities purchased by each Investor to such Investor's home
office, insured to such Investor's satisfaction, and the costs and expenses
incurred in the preparation of all certificates and letters on behalf of the
Company and of the Company's performance and compliance with all agreements
and conditions contained herein on its part to be performed or complied with.
Each Investor shall be responsible for its out-of-pocket expenses arising in
connection with the Contemplated Transactions, including, without limitation,
fees and disbursements of counsel to the Investors and due diligence expenses
of the Investors.
(b) The Company hereby agrees and acknowledges that the
Investors have been induced to enter into this Agreement and to purchase the
Purchased Securities hereunder, in part, based upon the representations,
warranties and covenants of the Company contained herein. The Company hereby
agrees to pay, indemnify and hold harmless the Investors and any director,
officer or employee of any Investor against all claims, losses and
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damages resulting from any and all legal or administrative proceedings,
including without limitation, reasonable attorneys' fees and expenses
incurred in connection therewith (collectively, "LOSS"), resulting from a
breach by the Company of any representation or warranty of the Company
contained herein or the failure of the Company to perform any covenant made
herein.
(c) As soon as reasonably practicable after receipt by
an Investor of notice of any Loss in respect of which the Company may be
liable under this Section 5.2, the Investor shall give notice thereof to the
Company. Each Investor may, at its option, claim indemnity under this Section
5.2 as soon as a claim has been threatened by a third party, regardless of
whether an actual Loss has been suffered, so long as counsel for such
Investor shall in good faith determine that such claim is not frivolous and
that such Investor may be liable or otherwise incur a Loss as a result
thereof and shall give notice of such determination to the Company. Each
Investor shall permit the Company, at the Company's option and expense, to
assume the defense of any such claim by counsel mutually and reasonably
satisfactory to the Company and the Investors who are subject to such claim,
and to settle or otherwise dispose of the same; PROVIDED, HOWEVER, that each
Investor may at all times participate in such defense at such Investor's
expense; and PROVIDED, FURTHER, that the Company shall not, in defense of any
such claim, except with the prior written consent of each Investor subject to
such claim, (i) consent to the entry of any judgment that does not include as
an unconditional term thereof the giving by the claimant or plaintiff in
question to each Investor and its subsidiaries of a release of all
liabilities in respect of such claims, or (ii) consent to any settlement of
such claim. If the Company does not promptly assume the defense of such
claim irrespective of whether such inability is due to the inability of the
afore-described Investors and the Company to mutually agree as to the choice
of counsel, or if any such counsel is unable to represent an investor due to
a conflict or potential conflict of interest, then an Investor may assume
such defense and be entitled to indemnification and prompt reimbursement from
the Company for its costs and expenses incurred in connection therewith,
including without limitation, reasonable attorneys' fees and expenses. Such
fees and expenses shall be reimbursed to the Investors as soon as practicable
after submission of invoices to the Company.
5.3. AMENDMENT OF THE CERTIFICATE. (a) The Company
covenants to amend the definition of "Applicable Percentage" in the
Certificate as soon as practicable after the date hereof to read as follows:
"Applicable Percentage shall mean 25%." The undersigned shareholder hereby
consents to a resolution of shareholders necessary to approve the foregoing
change to the Certificate, and specifically grants James E. Alexander a proxy
to cast the undersigned's vote as shareholder for such a resolution at any
meeting of the holders of Series A Preferred Stock called to consider such an
amendment, and appoints James E. Alexander as the undersigned's
attorney-in-fact to execute in the name of the undersigned a statement of
consent of the holders of Series A Preferred Stock approving such a
resolution.
(b) The Company further agrees that if, for any reason,
such amendment is not made prior to the occurrence of a Silicon Isotope
Transaction (as defined in the Certificate), the holders of the Series A
Preferred Stock shall have the same rights and shall receive the same
benefits (including Exchange Interests and Transaction Cash Proceeds, as
defined in the Certificate) as if such amendment had been accomplished.
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6. MISCELLANEOUS.
6.1. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This
Agreement, the Warrants and the Registration Rights Agreement constitute the
entire contract between the parties relative to the subject matter hereof and
no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Any previous agreement among the parties with respect to the sale of
the Purchased Securities is superseded by this Agreement. The terms and
conditions of this Agreement shall inure to the benefit of and be binding
upon the respective executors, administrators, heirs, successors and assigns
of the parties. Except as expressly provided herein, nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any right of the Investors fully to investigate the affairs
of the Company and notwithstanding any knowledge of facts determined or
determinable by any Investor pursuant to such right of investigation or right
of investigation, each Investor has the right to rely fully upon the
representations, warranties, covenants and agreements of the Company
contained in this Agreement or in any documents delivered pursuant to this
Agreement. All such representations and warranties of the Company shall
survive the execution and delivery of this Agreement and each Closing
hereunder and shall continue in full force and effect for six months after
any applicable statute of limitations (taking into account any waiver or
tolling thereof) with respect to claims which may arise thereunder or relate
thereto shall have run and the provisions of this Section 6.2 shall
constitute a waiver by the Company of any such applicable statute of
limitations.
6.3. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of law. Each party hereby
irrevocably consents and submits to the jurisdiction of any New York State or
United States Federal Court sitting in the State of New York, County of New
York, over any action or proceeding arising out of or relating to this
Agreement and irrevocably consents to the service of any and all process in
any such action or proceeding by registered mail addressed to such party at
its address specified in Section 8(b). Each party further waives any
objection to venue in New York and any objection to an action or proceeding
in such state and county on the basis of forum non conveniens. Each party
also waives any right to trial by jury.
6.4. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.5. HEADINGS. The headings of the sections of this
Agreement are for convenience and shall not by themselves determine the
interpretation of this Agreement.
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6.6. NOTICES. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery and if a fax number has been provided, upon delivery (with
answerback confirmed), addressed to a party at its address and the fax
number, if any, shown below or at such other address and fax number as such
party may designate by three days advance notice to the other party.
Any notice to the Investors shall be sent to the addresses set forth on
EXHIBIT 3, with a copy to:
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118,
Fax Number: (212) 594-7167
Attention: James Kardon, Esq.
Any notice to the Company shall be sent to:
Isonics Corporation
5906 McIntyre Street
Golden, Colorado 80403
Fax Number: 303-279-7300
Attention: James Alexander, President
with a copy to:
Norton - Lidstone, LLC
5445 DTC Parkway, Suite 850
Englewood, Colorado 80111
Fax Number: 303-221-5553
Attention: Herrick Lidstone, Esq.
6.7. RIGHTS OF TRANSFEREES. Any and all rights and
obligations of Investors herein incident to the ownership of Purchased
Securities shall pass successively to all subsequent transferees of such
Purchased Securities until extinguished pursuant to the terms hereof.
6.8. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such
provision or any other provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
(signatures)
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EXHIBITS AND SCHEDULES
TO THE SUBSCRIPTION AGREEMENT
(exhibits and schedules are not included in filing with the Form 8-K)
Exhibit 1: Certificate of Determination of Preferences and Rights of Series
A Convertible Preferred Stock
Exhibit 2: Form of Warrants
Exhibit 3: Name, Address and Fax of Investors
Exhibit 4: Legal Opinion
Exhibit 5: Use of Proceeds
Exhibit 6: Required Agreements
Exhibit 7: Series A Preferred Stock to be Outstanding Post-Closing.
Exhibit 8: Registration Rights Agreement
Exhibit 9: Investment Banking Agreement
Exhibit 10: Disclosure Letter
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ISONICS CORPORATION
Exhibit 3 to Form 8-K reporting an event of July 29, 1999
FORM OF WARRANT AGREEMENT
Void after July 29, 2002 Warrant No. 1999-____
Name: to acquire __________ shares
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THIS WARRANT AND SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT. THIS WARRANT AND SUCH SHARES MAY NOT BE TRANSFERRED EXCEPT UPON
THE CONDITIONS SPECIFIED IN THIS WARRANT, AND NO TRANSFER OF THIS
WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL
SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
ISONICS CORPORATION
COMMON STOCK PURCHASE WARRANT
Isonics Corporation (the "Company"), having its principal office at 5906
McIntyre Street, Golden, Colorado, 80403 hereby certifies that, for value
received, ___________________, or assigns, is entitled, subject to the terms
set forth below, to purchase from the Company at any time on or from time to
time after July 29, 1999 and before 5:00 P.M., New York City time, on July
29, 2002 or as extended in accordance with the terms hereof (the "Expiration
Date"), _______ fully paid and non-assessable shares of Common Stock of the
Company, at the initial Purchase Price per share (as defined below) of $3.75.
The number and character of such shares of Common Stock and the Purchase
Price per share are subject to adjustment as provided herein.
BACKGROUND. The Company will issue warrants to purchase up to an
aggregate of up to 2,330,000 shares of Common Stock (subject to adjustment as
provided herein) in connection with (i) the Company's private placement (the
"Private Placement") of up to 1,500,000 shares of Series A Convertible
Preferred Stock of the Company, and up to 1,500,000 redeemable common stock
purchase warrants (each a "Private Placement Warrant"), each Warrant
entitling the Holder thereof to purchase one share of Common Stock; and (ii)
the issuance to Adam Smith & Company, Inc. of an additional 500,000 Warrants
(the "ASC Warrants") to purchase up to 500,000 shares of Common Stock, and
(iii) the Company's issuance of up to an additional 330,000 shares of Series
A Convertible Preferred Stock and up to 330,000 private placement warrants of
like tenor (the "Conversion Warrants", and collectively with the Private
Placement Warrants and the ASC Warrants, the "Warrants") to certain persons
in satisfaction of certain debt and contractual obligations as described in
the Subscription Agreement of even date herewith executed in connection with
the Private Placement. This Warrant is one of the Warrants originally issued
as of the Original Issue Date (as defined below).
<PAGE>
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
The term "Company" includes the Company and any corporation which shall
succeed to or assume the obligations of the Company hereunder.
The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue Date
or thereafter, the Holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and distributions on
any shares entitled to preference, and the Holders of which shall ordinarily,
in the absence of contingencies, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to vote has
been suspended by the happening of such a contingency).
The term "Exchange Act" means the Securities Exchange Act of 1934 as the
same shall be in effect at the time.
The term "Holder" means any record owner of Warrants or Underlying
Securities.
The term "Nasdaq" shall mean the Nasdaq SmallCap Market or other
principal market on which the Common Stock is traded.
The "Original Issue Date" is July 29, 1999, the date as of which the
Warrants were first issued.
The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu
of or in addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to section 6 or otherwise.
The term "Purchase Price per share" shall be the then applicable
exercise price for one share of Common Stock.
The terms "registered" and "registration" refer to a registration
effected by filing a registration statement in compliance with the Securities
Act, to permit the disposition of Common Stock (or Other Securities) issued
or issuable upon the exercise of Warrants, and any post-effective amendments
and supplements filed or required to be filed to permit any such disposition.
The term "Securities Act" means the Securities Act of 1933 as the same
shall be in effect at the time.
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The term "Series A Preferred Stock" shall mean the 1,500,000 shares of
Series A Convertible Preferred Stock of the Company issued simultaneously
with the issuance of the Private Placement Warrants and the 330,000 shares of
Series A Convertible Preferred Stock of the Company to be issued upon the
conversion of certain debt of the Company, as described in the Subscription
Agreement of even date herewith executed in connection with the Private
Placement.
The term "Underlying Securities" shall mean any Common Stock or Other
Securities issued or issuable upon exercise of Warrants.
The term "Warrant" shall mean, as applicable, this Warrant or each right
as set forth in this Warrant to purchase one share of Common Stock, as
adjusted.
1. REGISTRATION, ETC.
1.1. The Holder shall have the rights to registration of Underlying
Securities issuable upon exercise of the Warrants that are set forth in the
Registration Rights Agreement, dated the date hereof between the Company and
the Holder (the "Registration Rights Agreement").
2. SALE OR EXERCISE WITHOUT REGISTRATION. If, at the time of any
exercise, transfer or surrender for exchange of a Warrant or of Underlying
Securities previously issued upon the exercise of Warrants, such Warrant or
Underlying Securities shall not be registered under the Securities Act, the
Company may require, as a condition of allowing such exercise, transfer or
exchange, that the Holder or transferee of such Warrant or Underlying
Securities, as the case may be, furnish to the Company a satisfactory opinion
of counsel to the effect that such exercise, transfer or exchange may be made
without registration under the Securities Act, provided that the disposition
thereof shall at all times be within the control of such Holder or
transferee, as the case may be, and provided further that nothing contained
in this section 2 shall relieve the Company from complying with any request
for registration pursuant to the Registration Rights Agreement. The first
Holder of this Warrant, by acceptance hereof, represents to the Company that
it is acquiring the Warrants for investment and not with a view to the
distribution thereof.
3. EXERCISE OF WARRANT.
3.1. EXERCISE IN FULL. Subject to the provisions hereof, this
Warrant may be exercised in full by the Holder hereof by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by
such Holder, to the Company at its principal office accompanied by payment,
in cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock called for on the face of this Warrant (without giving effect to any
adjustment therein) by the Purchase Price per share.
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<PAGE>
3.2. PARTIAL EXERCISE. Subject to the provisions hereof, this
Warrant may be exercised in part by surrender of this Warrant in the manner
and at the place provided in subsection 3.1 except that the amount payable by
the Holder upon any partial exercise shall be the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving effect
to any adjustment therein) designated by the Holder in the subscription at
the end hereof by (b) the Purchase Price per share. Upon any such partial
exercise, the Company at its expense will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant or Warrants of like tenor,
in the name of the Holder hereof or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to the number
of such shares called for on the face of this Warrant minus the number of
such shares designated by the Holder in the subscription at the end hereof.
3.3. EXERCISE BY SURRENDER OF WARRANT OR SHARES OF COMMON STOCK.
In addition to the method of payment set forth in sections 3.1 and 3.2 and in
lieu of any cash payment required thereunder, the Holder(s) of the Warrants
shall have the right at any time and from time to time to exercise the
Warrants in full or in part by surrendering shares of Common Stock or the
Warrant Certificate in the manner and at the place specified in section 3.1
as payment of the aggregate Purchase Price per share for the Warrants to be
exercised. The number of Warrants or shares of Common Stock to be surrendered
in payment of the aggregate Purchase Price for the Warrants to be exercised
shall be determined by multiplying the number of Warrants to be exercised by
the Purchase Price per share, and then dividing the product thereof by an
amount equal to the Market Price (as defined below).
3.4. DEFINITION OF MARKET PRICE. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) if the principal trading
market for such securities is an exchange, the last reported sale price, or,
in case no such reported sale takes place on such date, the last reported
sale prices for the last previous trading days in which a sale was reported,
in either case as officially reported on any consolidated tape, (ii) if the
principal market for such securities is the over-the-counter market, the high
bid price on such trading days as set forth by Nasdaq or, (iii) if the
security is not quoted on Nasdaq, the high bid price as set forth in the
National Quotation Bureau sheet listing such securities for such day.
Notwithstanding the foregoing, if there is no reported closing price or high
bid price, as the case may be, on any of the ten trading days preceding the
event requiring a determination of Market Price hereunder, then the Market
Price shall be determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
3.5. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the
time of any exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder any
rights (including, without limitation, any right to registration of the
Underlying Securities) to which such Holder shall continue to be entitled
after such exercise in accordance with the provisions of this Warrant,
PROVIDED that if the Holder of this Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford such Holder any such rights.
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<PAGE>
4. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three business days thereafter, the Company at its own expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of full paid and non-assessable
shares of Common Stock or Other Securities to which such Holder shall be
entitled upon such exercise, plus, in lieu of any fractional share to which
such Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current Market Price of one full share, together with
any other stock or other securities and property (including cash, where
applicable) to which such Holder is entitled upon such exercise pursuant to
section 5 or otherwise.
5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall
have received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive,
without payment therefor
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by way
of dividend), or
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
then, and in each such case the Holder of this Warrant, upon the exercise
hereof as provided in section 3, shall be entitled to receive the amount of
stock and other securities and property (including cash in the cases referred
to in subdivisions (b) and (c) of this section 5) which such Holder would
hold on the date of such exercise if on the Original Issue Date such Holder
had been the Holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from
the Original Issue Date to and including the date of such exercise, retained
such shares and all such other or additional (or less) stock and other
securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this section 5) receivable by such Holder as
aforesaid during such period, giving effect to all adjustments called for
during such period by sections 6 and 7 hereof.
6. REORGANIZATION, CONSOLIDATION, MERGER, ETC.
In case the Company after the Original Issue Date shall (a) effect
a reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement
5
<PAGE>
contemplating the dissolution of the Company, then, in each such case, the
Holder of this Warrant, upon the exercise hereof as provided in section 3 at
any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
be entitled to receive (and the Company shall be entitled to deliver), in
lieu of the Underlying Securities issuable upon such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such Holder had so exercised this Warrant immediately prior thereto, all
subject to further adjustment thereafter as provided in sections 5 and 7
hereof. The Company shall not effect any such reorganization, consolidation,
merger or sale, unless prior to or simultaneously with the consummation
thereof, the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets or the appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to each Holder the shares of stock, cash, other securities or assets
to which, in accordance with the foregoing provisions, each Holder may be
entitled to and all other obligations of the Company under this Warrant.
7. OTHER ADJUSTMENTS.
7.1. GENERAL. In any case to which sections 5 and 6 hereof are not
applicable, where the Company shall issue or sell shares of its Common Stock
after the Original Issue Date for a consideration per share less than the
Purchase Price per share in effect pursuant to the terms of this Warrant at
the time of issuance or sale of such additional shares (the "Lower Exercise
Price"), then the Purchase Price in effect hereunder shall simultaneously
with such issuance or sale be reduced to an amount equal to the Purchase
Price in effect immediately prior to such issuance or sale (the "Prior
Conversion Price") multiplied by a fraction, the numerator of which is the
sum of (x) the total number of shares of Common Stock outstanding immediately
prior to such issuance and (y) the number of shares of the Common Stock which
the aggregate consideration received for the total number of additional
shares of the Common Stock being issued would purchase at the Prior
Conversion Price, and the denominator of which is the sum of (a) the total
number of shares of Common Stock outstanding immediately prior to such
issuance and (b) the number of shares of Common Stock being issued. In the
event of an adjustment to the Purchase Price under this section 7, the number
of shares of Underlying Securities issuable upon exercise hereof shall be
increased so that the aggregate exercise price of this Warrant is not reduced
as a result of such reduction of Purchase Price.
7.2. CONVERTIBLE SECURITIES. (a) In case the Company shall issue
or sell any securities convertible into Common Stock of the Company
("Convertible Securities") after the date hereof, there shall be determined
the price per share for which Common Stock is issuable upon the conversion or
exchange thereof, such determination to be made by dividing (a) the total
amount received or receivable by the Company as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (b) the maximum number of shares of Common Stock of
the Company issuable upon the conversion or exchange of all of such
Convertible Securities.
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(b) If the price per share so determined shall be less than
the applicable Purchase Price per share, then such issue or sale shall be
deemed to be an issue or sale for cash (as of the date of issue or sale of
such Convertible Securities) of such maximum number of shares of Common Stock
at the price per share so determined, provided that, if such Convertible
Securities shall by their terms provide for an increase or increases or
decrease or decreases, with the passage of time, in the amount of additional
consideration, if any, to the Company, or in the rate of exchange, upon the
conversion or exchange thereof, the adjusted Purchase Price per share shall,
forthwith upon any such increase or decrease becoming effective, be
readjusted to reflect the same, and provided further, that upon the
expiration of such rights of conversion or exchange of such Convertible
Securities, if any thereof shall not have been exercised, the adjusted
Purchase Price per share shall forthwith be readjusted and thereafter be the
price which it would have been had an adjustment been made on the basis that
the only shares of Common Stock so issued or sold were issued or sold upon
the conversion or exchange of such Convertible Securities, and that they were
issued or sold for the consideration actually received by the Company upon
such conversion or exchange, plus the consideration, if any, actually
received by the Company for the issue or sale of all of such Convertible
Securities which shall have been converted or exchanged.
7.3. RIGHTS AND OPTIONS. (a) In case the Company shall grant any
rights or options to subscribe for, purchase or otherwise acquire Common
Stock (other than pursuant to an incentive plan for employees adopted by a
majority of the stockholders of the Company providing for the issuance of
options to purchase no more than an aggregate of 500,000 shares of Common
Stock at a price no less than 85% of fair market value), there shall be
determined the price per share for which Common Stock is issuable upon the
exercise of such rights or options, such determination to be made by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, by (ii) the maximum number of shares of
Common Stock of the Company issuable upon the exercise of such rights or
options.
(b) If the price per share so determined shall be less than
the applicable Purchase Price per share, then the granting of such rights or
options shall be deemed to be an issue or sale for cash (as of the date of
the granting of such rights or options) of such maximum number of shares of
Common Stock at the price per share so determined, provided that, if such
rights or options shall by their terms provide for an increase or increases
or decrease or decreases, with the passage of time, in the amount of
additional consideration payable to the Company upon the exercise thereof,
the adjusted Purchase Price per share shall, forthwith upon any such increase
or decrease becoming effective, be readjusted to reflect the same, and
provided, further, that upon the expiration of such rights or options, if any
thereof shall not have been exercised, the adjusted Purchase Price per share
shall forthwith be readjusted and thereafter be the price which it would have
been had an adjustment been made on the basis that the only shares of Common
Stock so issued or sold were those issued or sold upon the exercise of such
rights or options and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration,
if any, actually received by the Company for the granting of all such rights
or options, whether or not exercised.
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7.4. EXCEPTIONS. This Section 7 shall not apply to (a) the issuance of
the Series A Preferred Stock, (b) the issuance of shares of Common Stock upon
conversion of the Series A Preferred Stock, (c) upon the exercise of the
Warrants aggregating not in excess of 2,330,000 shares, (d) issuances of
Common Stock, Convertible Securities, rights and options that have been
approved by the holders of not less than a majority of the outstanding shares
of Series A Preferred Stock, or (e) issuances of Common Stock pursuant to the
exercise of options, warrants and rights outstanding on the date hereof.
8. FURTHER ASSURANCES. The Company will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock upon the exercise of all
Warrants from time to time outstanding.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at its
expense will promptly cause the Company's regularly retained auditor to
compute such adjustment or readjustment in accordance with the terms of the
Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, and the number of shares of Common Stock outstanding
or deemed to be outstanding. The Company will forthwith mail a copy of each
such certificate to each Holder.
10. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the Holders of any class
of securities for the purpose of determining the Holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities (other than the issue of Common Stock on the exercise of
the Warrants), then and in each such event the Company will mail or cause
to be mailed to each Holder of a Warrant a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and
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<PAGE>
character of such dividend, distribution or right, (ii) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up
is to take place, and the time, if any, as of which the Holders of record
of Underlying Securities shall be entitled to exchange their shares of
Underlying Securities for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, and (iii)
the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall
be mailed at least 20 days prior to the date therein specified.
11. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock (or
Other Securities) from time to time issuable upon the exercise of the
Warrants.
12. LISTING ON SECURITIES EXCHANGES; REGISTRATION. In furtherance and
not in limitation of any other provision of this Warrant, if the Company at
any time shall list any Common Stock on any national securities exchange and
shall register such Common Stock under the Exchange Act, the Company will, at
its expense, simultaneously list on such exchange or Nasdaq, upon official
notice of issuance upon the exercise of the Warrants, and maintain such
listing of all shares of Common Stock from time to time issuable upon the
exercise of the Warrants; and the Company will so list on any national
securities exchange or Nasdaq, will so register and will maintain such
listing of, any Other Securities if and at the time that any securities of
like class or similar type shall be listed on such national securities
exchange or Nasdaq by the Company.
13. EXCHANGE OF WARRANTS. Subject to the provisions of section 2
hereof, upon surrender for exchange of any Warrant, properly endorsed, to the
Company, as soon as practicable (and in any event within three business days)
the Company at its own expense will issue and deliver to or upon the order of
the Holder thereof a new Warrant or Warrants of like tenor, in the name of
such Holder or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant or Warrants so surrendered.
14. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9
<PAGE>
15. WARRANT AGENT. The Company may, by written notice to each Holder
of a Warrant, appoint an agent having an office in New York, New York, for
the purpose of issuing Common Stock (or Other Securities) upon the exercise
of the Warrants pursuant to section 3, exchanging Warrants pursuant to
section 13, and replacing Warrants pursuant to section 14, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
16. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
17. NEGOTIABILITY, ETC. Subject to Section 2 above, this Warrant is
issued upon the following terms, to all of which each Holder or owner hereof
by the taking hereof consents and agrees:
(a) subject to the provisions hereof, title to this Warrant may be
transferred by endorsement (by the Holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute
owner hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser and each
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
18. NOTICES, ETC. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may have
been furnished to the Company in writing by such Holder, or, until an address
is so furnished, to and at the address of the last Holder of this Warrant who
has so furnished an address to the Company.
10
<PAGE>
19. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant is being delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
the laws of such State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof.
20. EXTENDED EXPIRATION.
The right to exercise this Warrant shall expire at 5:00 P.M., New
York City time, on the Expiration Date, provided, however, that if the
Holders of Warrants issued hereunder have, in accordance with the terms
thereof, requested a registration statement pursuant to the Registration
Rights Agreement 90 days or more prior to the Expiration Date and such
registration statement has not become effective prior to the Expiration Date
then the right to exercise this Warrant shall be extended and shall expire 30
days after the effective date of such registration statement.
21. ASSIGNABILITY. Subject to Section 2 hereof, this Warrant is fully
assignable at any time.
Dated: July 29, 1999
ISONICS CORPORATION
By:
-----------------------------
James E. Alexander, President
[Corporate Seal]
Attest:
-------------------------------
Brantley J. Halstead, Secretary
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ISONICS CORPORATION
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock of Isonics Corporation, and
herewith makes payment of $ * therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
_____________ , whose address is ___________________________ .
Dated:
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
(Address)
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
12
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _________________________ the right represented by the within Warrant to
purchase _________ of Common Stock of Isonics Corporation to which the within
Warrant relates, and appoints ______________________________ Attorney to
transfer such right on the books of Isonics Corporation with full power of
substitution in the premises. The Warrant being transferred hereby is one of
the Warrants issued by Isonics Corporation as of July 29, 1999 to purchase an
aggregate of up to 2,330,000 shares of Common Stock.
Dated:
---------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
---------------------------------------
(Address)
- ------------------------------
Signature guaranteed by a Bank
or Trust Company having its
principal office in New York City
or by a Member Firm of the New
York or American Stock Exchange
13
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ADAM SMITH & COMPANY, INC.
101 East 52nd Street
New York, NY 10022
Tel (212) 751-4900
Fax (212) 751-2892
July 29, 1999
Mr. James E. Alexander
President & CEO
Isonics Corporation
5906 McIntyre Street
Golden, Colorado 80403
Re: INVESTMENT BANKING AGREEMENT
Gentlemen:
1. Isonics Corporation and/or related entities (the "Company") hereby
engages Adam Smith & Company, Inc. ("Adam Smith") to provide investment
banking services on a non-exclusive basis under the terms described herein.
Adam Smith will provide investment banking services that the Company may
reasonably request including providing advice concerning relations with
securities analysts, the evaluation of potential public or private financing,
acquisitions, purchases or sales of major assets and mergers that have been
proposed to the Company and those which may be proposed to the Company in the
future. We shall not be responsible, of course, for your effectuating any
particular transaction. In the event we perform any functions other than
acting as your agent hereunder, such as obtaining funds for you or placing
your securities, acting as tender agent or arranging for acquisitions or
mergers, we shall be entitled to such compensation for such services as we
may hereafter agree upon, in addition to the compensation provided for in the
next paragraph; however, inability to reach agreement shall not be deemed a
breach hereof.
2. In consideration of the execution and delivery of this investment
banking agreement, the Company will irrevocably issue to Adam Smith warrants
to purchase 500,000 (five hundred thousand) shares of the Company's common
stock ("Common Stock") at a price of U.S. $3.75 (three dollars and
seventy-five cents) per share. All warrants referred to herein will be
substantially in the form attached hereto as Exhibit A and will be
exercisable from the date of issuance and will expire three years from the
date of issuance. The rights granted pursuant to the warrant shall not be
affected by the performance of services hereunder or payment of other
compensation for such services.
<PAGE>
ADAM SMITH & COMPANY, INC.
3. In the event the Company consummates a transaction(s) (such as a merger
or sale of the Company a sale by the Company of all or substantially all of
its assets, an acquisition of another company, a public or private financing
of the Company, a joint venture or licensing arrangement or similar
transaction) during the period set forth in Section 6 below and Adam Smith
initiated the transaction, identified or had conversations with the other
party (at the request of the Company) to the transaction or otherwise
rendered any services in connection with the transaction (each a "Consummated
Transaction"), Adam Smith shall be entitled to receive, and the Company
agrees to pay Adam Smith, the following compensation:
The Company shall pay to Adam Smith an investment banking fee equal to five
percent (5%) of the value of the first five million dollars ($5,000,000) of
the Consummated Transaction and two percent (2%) of the value thereof in
excess of five million dollars ($5,000,000). The fee due to Adam Smith
shall be paid by the Company in cash at the closing of the Consummated
Transaction, without regard to whether the Consummated Transaction involves
payment in cash, in stock, or a combination of cash and stock, or is made
on an installment basis. In the case of a leveraged buyout or leveraged
transaction, the value of the Consummated Transaction shall include all
funds borrowed or debt incurred or assumed by the acquiring or acquired
entity. In the event a Consummated Transaction is consummated in one or
more steps, including, without limitation, by way of a two step merger or
royalty arrangement, the value of any additional consideration paid or to
be paid in any subsequent step in the Consummated Transaction whether in
the form of (i) property, (ii) capital stock (and any securities
convertible into, or options, warrants or other rights to acquire, such
capital stock) or (iii) the assumption, directly or indirectly (by
operation of law, or otherwise), or repayment of indebtedness and other
liabilities, shall be included in the value of the Consummated Transaction
for purposes of calculating Adam Smith's fee pursuant to this paragraph.
If all or a portion of the consideration paid in the Consummated
Transaction is other than cash or securities, then the value of such non-
cash consideration shall be the fair market value thereof on the date the
Consummated Transaction is consummated as mutually agreed upon in good
faith by the Company's Board of Directors and Adam Smith. If such non-cash
consideration consists of common stock, options, warrants or rights for
which a public trading market existed prior to the consummation of the
Consummated Transaction, then the value of such securities shall be
determined by the closing or last sales price thereof on the date of the
consummation of the Consummated Transaction; provided, however, that if
such non-cash consideration consists of newly-issued, publicly-traded
common stock, options, warrants or rights for which no public trading
market existed prior to the consummation of the Consummated Transaction,
then the value thereof shall be the average of the closing prices for the
twenty (20) trading days subsequent to the fifth trading day after the
consummation of the Consummated Transaction. In such event, the fee
payable to Adam Smith pursuant to this paragraph shall be paid on the 30th
trading day subsequent to consummation of the Consummated Transaction. If
no public market exists for the common stock, options, warrants or other
rights issued in the Consummated Transaction, then the value thereof shall
be as mutually agreed upon in good faith by the Company's Board of
Directors and Adam Smith. If the non-cash consideration paid in the
Consummated Transaction consists of preferred stock or debt securities
(regardless of whether a public trading market existed for such preferred
stock or debt securities prior to the consumma-
2
<PAGE>
ADAM SMITH & COMPANY, INC.
tion of the Consummated Transaction or exists thereafter), the value
thereof shall be the face or principal amount, as the case may be. Any
amounts payable by a party to the Consummated Transaction, any
shareholder of such party or any affiliate of either such party or any
shareholder of such party in connection with a non-competition,
employment, consulting, joint venture, licensing, supply or other
agreement shall be deemed to be part of the value of the Consummated
Transaction. If all or a portion of the consideration payable in
connection with the Consummated Transaction includes contingent future
payments, then the Company shall pay to Adam Smith upon consummation of
such Consummated Transaction, an additional cash fee, determined in
accordance with this paragraph based upon the present value of the
reasonably expected maximum amount of such contingent future payments
(as such amount is determined in good faith between the Company and Adam
Smith) using a discount rate of ten percent (10%). However, in the
event of an installment purchase at a fixed price and a fixed time
schedule, the Company agrees to pay Adam Smith, upon consummation of the
Consummated Transaction, a cash fee determined in accordance with this
paragraph based upon the present value of such installment payments
using a discount rate of ten percent (10%). Any disputes concerning
value of a Consummated Transaction or any component thereof shall be
resolved by an investment banking firm or other professional valuation
firm mutually agreed upon by the parties (or if the parties fail to
agree on such firm, then such a firm chosen by the investment banking
firm chosen by each party), whose determination of value shall be final
and binding on the parties.
4. In order to coordinate efforts to effect a Consummated Transaction, in
the event that either Adam Smith initiates a transaction or the Company
requests investment banking services for a particular transaction pursuant to
this Agreement, neither the Company nor any other person acting on the
Company's behalf shall, directly or indirectly (except through Adam Smith),
solicit any offer from any party to enter into such a transaction. In the
event that, during the period of the engagement of Adam Smith hereunder, the
Company or any of its officers, directors, employees or representatives are
contacted by or on behalf of any party concerning the possibility of a
transaction, the Company will promptly so inform Adam Smith in order that
Adam Smith can evaluate such party and its interest and assist the Company,
including assisting the Company in any subsequent discussions.
5. In the event that for any reason the Company shall fail to pay to Adam
Smith all or any portion of any fees payable hereunder when due, interest
shall accrue and be payable on the unpaid cash balance hereunder from the
date then first due through and including the date when actually collected by
Adam Smith, at a rate equal to fourteen percent (14%) per year.
6. This Agreement shall be effective on the date hereof and shall be in
effect for a minimum of one year following the date hereof. After this one
year anniversary, this Agreement shall remain in effect until thirty (30)
days after written notice is given by either party to terminate this
Agreement. Notwithstanding anything herein to the contrary, if the Company
shall, within one year immediately following the termination of the
Agreement, conclude a Consummated Transaction based on any transaction that
was initiated prior to the termination of the Agreement, the Company shall
also pay Adam Smith the fee determined above.
3
<PAGE>
ADAM SMITH & COMPANY, INC.
7. (a) The Company agrees to indemnify and hold harmless Adam Smith, its
directors, officers, employees, legal counsel, agents and stockholders, (all
of such persons being hereinafter collectively referred to as the
"Indemnified Parties") against any and all losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements (and any and all actions, suits, proceedings and investigations
in respect thereof and any and all legal and other costs, expenses and
disbursements reasonably incurred in giving testimony or furnishing documents
in response to a subpoena or otherwise), including, without limitation, the
reasonable costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, suit, proceeding or
investigation (whether or not in connection with litigation in which an
Indemnified Party is a party), directly or indirectly caused by, relating to,
based upon, arising out of or in connection with (a) Adam Smith's acting for
the Company, including, without limitation, any act or omission by an
Indemnified Party in connection with its acceptance of or the performance or
nonperformance of its obligations under the Agreement, as it may be amended
from time to time; (b) any untrue statement or alleged untrue statement of
material fact contained in, or omissions or alleged omissions from, any
information furnished to an Indemnified Party, an investor, lender, provider
of funding or any party to the transaction; or (c) any Consummated
Transaction, PROVIDED, HOWEVER, such indemnity agreement shall not apply to
any portion of any such loss, claim, damage, obligation, penalty, judgment,
award, liability, cost, expense or disbursement to the extent it is found in
a final judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted primarily and directly from the gross negligence or
willful misconduct of the particular Indemnified Party. The Company also
agrees that an Indemnified Party shall not have any liability (whether direct
or indirect, in contract or tort or otherwise) to the Company or to any
person claiming through the Company for or in connection with the engagement
of Adam Smith, except to the extent that any such liability is found in a
final judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted primarily and directly from Adam Smith's gross
negligence or willful misconduct.
(b) The provisions shall be in addition to any liability the Company
may otherwise have to any of the Indemnified Parties.
(c) If any action, suit, proceeding or investigation is commenced, as
to which an Indemnified Party proposes to demand indemnification, it shall
notify the Company with reasonable promptness; PROVIDED, HOWEVER, that any
failure by an Indemnified Party to notify the Company shall not relieve the
Company from its obligations hereunder. Each Indemnified Party shall have
the right to retain counsel of its own choice to represent it, and the
Company shall pay the fees, expenses and disbursements of such counsel; and
such counsel shall to the extent consistent with its professional
responsibilities cooperate with the Company and any counsel designated by the
Company. The Company shall be liable for any settlement of any claim against
an Indemnified Party made with the Company's written consent, which consent
shall not be unreasonably withheld. The Company shall not, without the prior
written consent of an Indemnified Party, settle or compromise any claim, or
permit a default or consent to the entry of any judgment in respect thereof,
unless such settlement, compromise or consent includes, as an unconditional
term thereof, the giving by the claimant to the respective Indemnified Party
of an unconditional release from all liability in respect of such claim.
4
<PAGE>
ADAM SMITH & COMPANY, INC.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these Indemnification Provisions is made but it
is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in
such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the
respective Indemnified Party or Indemnified Parties, as applicable on the
other hand, shall contribute to the losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements
to which the indemnified persons may be subject in accordance with the
relative benefits received by the Company, on the one hand, and the
respective Indemnified Party or Indemnified Parties, as applicable on the
other hand, and also the relative fault of the Company, on the one hand, and
the respective Indemnified Party or Indemnified Parties, as applicable on the
other hand, in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements and the relative
equitable considerations shall also be considered. No person found liable
for a fraudulent misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent misrepresentation.
Notwithstanding the foregoing, the respective Indemnified Party or
Indemnified Parties, as applicable, shall not be obligated to contribute any
amount hereunder that exceeds the amount of fees previously received by the
respective Indemnified Party or Indemnified Parties, as applicable, in
connection with the foregoing.
Neither termination nor completion of the engagement of Adam Smith
pursuant to the Agreement shall affect the provisions of this Section 7 which
then shall remain operative and in full force and effect.
8. The Company shall bear Adam Smith's reasonable expenses incurred in
connection with performance of its duties hereunder, including without
limitation the reasonable fees and expenses of its outside counsel and travel
expenses; provided that Adam Smith will obtain the Company's prior approval
before incurring travel expenses or retaining experts (other than counsel).
9. Neither the Company nor Adam Smith shall make any public statement about
this agreement or any transactions or services described herein mentioning
the other party without the prior written consent of the other party, unless
that party determines in good faith, on the advice of legal counsel, that
public disclosure is required by law, in which case that party shall consult
with the other party prior to making a statement.
10. The Company represents and warrants to Adam Smith that Adam Smith's
engagement and compensation hereunder has been duly authorized and approved
by the Board of Directors of the Company and this Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company.
11. This Agreement has been executed and delivered in the State of New York
and shall be governed by the laws of such state, without giving effect to the
conflict of laws rules thereunder.
12. This Agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
5
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ADAM SMITH & COMPANY, INC.
13. This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the
same instrument.
Please sign this letter at the place indicated below and return it to the
undersigned.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
6
<PAGE>
ADAM SMITH & COMPANY, INC.
Very truly yours,
ADAM SMITH & COMPANY, INC.
By:
--------------------------
Managing Director
AGREED:
ISONICS CORPORATION
By:
--------------------------
James E. Alexander
President & CEO
7
<PAGE>
ISONICS CORPORATION
Exhibit 5 to Form 8-K reporting an event of July 29, 1999
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into this 29th day of July, 1999, by and among Isonics Corporation, a
California corporation (the "Company"), Adam Smith & Company, Inc. ("ASC"),
the individuals and trusts whose names are set forth on the signature page(s)
hereof, and the individuals described on Exhibits 6A and 6B to the
Subscription Agreement (as that term is defined in the next paragraph)
(collectively, the "Stockholders").
BACKGROUND. The Company has entered into (i) a Subscription Agreement of
even date herewith (as amended, the "Subscription Agreement") with the
Stockholders pursuant to which the Company will issue to the Stockholders an
aggregate of 1,500,000 Units, each consisting of one share of Class A
Convertible Preferred Stock of the Company and one redeemable common stock
purchase warrant (each a "Unit Warrant"), each Unit Warrant entitling the
holder thereof to purchase one share of common stock; and (ii) an investment
banking agreement with ASC providing for, among other matters, the issuance
of an additional 500,000 Warrants (the "ASC Warrants", and collectively with
the Unit Warrants, the "Warrants") to purchase up to 500,000 shares of common
stock; and (iii) agreements to issue of up to an additional 330,000 shares of
Series A Convertible Preferred Stock and up to 330,000 warrants to certain
persons in satisfaction of certain debt and contractual obligations (the
"Conversion Warrants"). An aggregate of 1,850,000 authorized but unissued
shares of common stock, no par value per share, of the Company ("Common
Stock") are reserved for issuance upon conversion of the Preferred Stock to
be issued to the Stockholders under the Subscription Agreement and the
respective conversion agreements, and an aggregate of 2,330,000 authorized
but unissued shares of Common Stock are reserved for issuance upon exercise
of the Warrants and the Conversion Warrants.
In consideration of the background transactions and the mutual covenants
and agreements herein set forth, the parties to this Agreement hereby agree,
effective at the Effective Date (as defined below), subject to the terms and
conditions hereinafter set forth, as follows:
1. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
AGREEMENT: As defined in the introductory paragraph of this Agreement.
COMMISSION: The U.S. Securities and Exchange Commission or any other
governmental authority at the time administering the Securities Act or the
Exchange Act.
COMMON STOCK: As defined in the paragraph of this Agreement entitled
"Background."
COMPANY: As defined in the introductory paragraph of this Agreement.
EFFECTIVE DATE: The date on which Preferred Stock and Warrants are
issued to the Stockholders.
<PAGE>
EXCHANGE ACT: The U.S. Securities Exchange Act of 1934, as amended, or
any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such similar or successor
federal statute.
PERSON: A corporation, an association, a partnership, a limited
liability company, an individual, a joint venture, a trust or estate, an
unincorporated organization, or a government or any department or agency
thereof.
PREFERRED STOCK: As defined in the paragraph of this Agreement entitled
"Background":
REGISTRABLE SECURITIES: (a) Any shares of Common Stock issued or
issuable upon conversion of any shares of Preferred Stock issued to the
Stockholders pursuant to the Subscription Agreement or upon exercise of the
Warrants and (b) any securities issued or issuable with respect to any Common
Stock referred to in the foregoing clauses by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Securities, once issued, such securities shall cease
to be Registrable Securities when (v) they may be sold without restriction
pursuant to Rule 144(k) (or any successor provision) under the Securities
Act, (w) a registration statement with respect to the sale of such securities
in the United States shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such
registration statement, (x) they shall have been transferred pursuant to Rule
144 (or any successor provision) under the Securities Act, (y) they shall
have been otherwise transferred, new certificates for them not bearing a
legend restricting further transfer shall have been delivered by the Company
and subsequent disposition of them shall not require registration or
qualification under the Securities Act or any similar state law then in
force, or (z) they shall have ceased to be outstanding. While the shares of
Preferred Stock and the Warrants outstanding from time to time are not
Registrable Securities for the purpose of registration, holders of shares of
Preferred Stock and Warrants shall, for purposes of giving of notices or the
calculation of percentages of Registrable Securities, be treated as the
holders of the Registrable Securities issuable upon conversion of their
shares of Preferred Stock or upon exercise of their Warrants. In addition,
for purposes of calculation of percentages of Registrable Securities, all
shares of Preferred Stock shall be treated as the same number of shares of
Cmmon Stock into which they are then convertible and all Warrants shall be
treated as the same number of shares of Common Stock which may be purchased
upon exercise thereof.
REGISTRATION EXPENSES: All expenses incident to the Company's
performance of or compliance with Section 2 of this Agreement, including,
without limitation, all registration, filing and listing or Nasdaq fees, all
fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, all messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including without limitation the expenses of
any special audits or "cold comfort" letters required by or incident to such
performance and compliance, premiums and other costs of policies of
insurance, if any, against liabilities arising out of the public offering of
the Registrable Securities being registered, and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and
2
<PAGE>
commissions, transfer taxes, if any, and the fees and disbursements of any
counsel and accountants retained by the holder or holders of the Registrable
Securities being registered.
SECURITIES ACT: The U.S. Securities Act of 1933, as amended, or any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Act shall include a
reference to the comparable section, if any, of any such similar or successor
federal statute.
SUBSCRIPTION AGREEMENT: As defined in the paragraph of this Agreement
entitled "Background."
STOCKHOLDERS: As defined in the introductory paragraph of this Agreement.
WARRANTS: As defined in the paragraph of this Agreement entitled
"Background."
2. Registration under Securities Act
2.1. (a) REGISTRATION ON REQUEST. Upon the written request of ASC or
the holder or holders of thirty percent (30%) or more of the Registrable
Securities that the Company effect the registration under the Securities Act
in connection with a sale of such shares in the United States of all or part
of such holders, Registrable Securities and specifying the intended method of
disposition thereof (including whether or not such disposition is intended to
be effected as an underwritten offering), the Company will promptly give
written notice of such requested registration to all other holders of
Registrable Securities and thereupon the Company will use its best efforts to
effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by the holder or holders submitting the request, and
(ii) all other Registrable Securities which the Company has
been requested to register by the holder or holders thereof by written
request given to the Company within fifteen (15) days after the giving of
such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities), all to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be
registered.
(b) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this Section 2.1 involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy
to each holder of Registrable Securities requesting registration) that, in
its opinion, the number of Registrable Securities and other securities of the
Company held by any other party requested to be included in such registration
exceeds the number which can be sold in (or during the time of) such offering
within a price range acceptable to the holders of a majority (by number of
shares) of the Registrable Securities requested to be included in such
registration, the Company will include in such registration all Registrable
Securities requested to be included in such registration (unless the
provisions of the following sentence apply) and will include in such
registration other securities of the Company (including any securities
proposed to be issued and sold by the Company) held by any other party only
to the extent that the number of shares which the Company is advised can be
so sold in (or during the time of) such offering exceeds the number of
Registrable Securities to be included in such registration. If a requested
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registration pursuant to this Section 2.1 involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy
to each holder of Registrable Securities requesting registration) that, in
its opinion, the number of Registrable Securities requested to be included in
such registration exceeds the number which can be sold in (or during the time
of) such offering within a price range acceptable to the holders of a
majority (by number of shares) of the Registrable Securities requested to be
included in such registration, the Company will include in such registration
only Registrable Securities requested to be included in such registration. In
such event, such Registrable Securities will be included in such registration
only to the extent of the number of shares which the Company is advised an be
so sold in (or during the time of) such offering; the Registrable Securities
to be included in such registration shall be taken up pro rata from the
holders of Registrable Securities requesting such registration on the basis
of the percentage of Registrable Securities requested to be included in such
registration; and all shares proposed to be sold by the Company or any other
party shall be deleted from such registration prior to effecting any
reduction of Registrable Securities by the holders thereof under this
paragraph (b).
(c) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission (i) for
which the Company qualifies, and which the Company's counsel (after
consultation with counsel or counsels for the holders of the Registrable
Securities) deems appropriate, and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods
of disposition specified in the request for such registration. The Company
agrees to include in any such registration statement all information as to
the holders of the Registrable Securities to be registered which the holders
of the Registrable Securities being registered shall reasonably request or
which shall be required by applicable law.
(d) EXPENSES. Except as provided in paragraph (g) of this Section
2.1, the Company will pay all Registration Expenses incurred in connection
with any registration requested pursuant to this Section 2.1 which the
Company is obligated to effect, whether or not such registration is effected.
(e) EFFECTED REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected unless
a registration statement with respect thereto has become effective except:
(i) if the registration statement is withdrawn prior to its effectiveness
pursuant to the request of all of the holders of Registrable Securities who
have requested the inclusion in such registration statement of some or all of
their Registrable Securities and one or more of the holders of Registrable
Securities have not paid the Registration Expenses relating thereto in
accordance with paragraph (g) of this Section 2.1, (ii) if, after the
registration statement has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason, and such
stop order, injunction or other order or requirement results from any action
or inaction of a holder or holders of Registrable Securities, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
due to a failure by a holder of Registrable Securities to satisfy a condition
required to be satisfied by such holder pursuant to the purchase agreement or
underwriting agreement and one or more of the holders of Registrable
Securities have not paid the Registration Expenses relating thereto in
accordance with paragraph (g) of this Section 2.1.
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(f) SELECTION OF UNDERWRITER. If a requested registration pursuant
to this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be, selected by the holders of a majority of the
Registrable Securities to be so registered, which approval shall not be
unreasonably withheld.
(g) LIMITATION ON REGISTRATIONS. The Company's obligations under
this Section 2.1 shall be limited to effecting two (2) registrations within
the meaning of paragraph (e) of this Section 2.1; provided, however, that (i)
if all of the holders who have requested the inclusion of Registrable
Securities held by them in a registration requested under this Section 2.1
withdraw such request prior to the time the registration statement has become
effective and any or all of such persons pay all Registration Expenses
relating thereto, such proposed registration shall not count as one of the
registrations provided for by this Section 2.1; and (ii) if a registration is
deemed to be effected pursuant to paragraph (e) of this Section 2.1 because a
condition to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration is not satisfied
due to a failure by a holder of Registrable Securities to satisfy a condition
required to be satisfied by such holder pursuant to such agreement and one or
more of the holders of Registrable Securities elects to pay (and shall
actually have paid) all Registration Expenses relating thereto, such
registration shall not count as one of the registrations provided for by this
Section 2.1.
(h) COMPANY'S RIGHT TO DELAY REGISTRATION. Notwithstanding the
foregoing provisions of this Section 2.1, the Company shall not be obligated
to effect a registration pursuant to this Section 2.1 within a period of one
(1) year after the effective date of a registration statement previously
filed as a result of a request pursuant to this Section 2.1. In addition, if
the Company has issued and sold to the public, pursuant to a registration
statement filed under the Securities Act, any of its securities within three
(3) months prior to the date of its receipt of a request for registration
pursuant to this Section 2.1 and the Company's investment banker has advised
the Company in writing that the registration of Registrable Securities would
materially adversely affect the market for the Common Stock, the Company
shall have the right, which may not be exercised more than once in a twelve
month period, to delay the requested registration of Registrable Securities
for such period as the investment banker may so advise, but no more than one
hundred twenty (120) days after the date on which such request was made.
(i) REGISTRATION UPON OPTIONAL REDEMPTION. In the event that in
connection with any optional redemption of Preferred Stock, the Company files
a registration statement covering the sale of the Common Stock issuable upon
the conversion of the Preferred Stock by the holders thereof, the provisions
of this Agreement governing requested registrations shall apply to such
registration.
(j) LIMITATION ON SALES. Notwithstanding the foregoing provisions
of this Section 2.1, no Registrable Securities may be sold pursuant to a
registration requested under this Section 2.1 until nine months after the
date of this Agreement.
2.2. INCIDENTAL REGISTRATION.
(a) RIGHT TO INCIDENTAL REGISTRATION. If the Company at any time
proposes to register any of its securities under the Securities Act (other
than by a registration on Form S-8 or Form S-4 or any successor or similar
form and other than pursuant to Section 2.1 of this Agreement),
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whether or not for sale for its own account, it will each such time give
prompt written notice to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.2. Upon
the written request of any such holder made within fifteen (15) days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method
of disposition thereof), the Company will use its best efforts to effect the
registration under the Securities Act in connection with a sale of such
shares in the United States of all Registrable Securities which the Company
has been so requested to register by the holders of Registrable Securities,
to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason, after consultation with the holders
of Registrable Securities which have requested inclusion in such
registration, not to register or to delay such registration, the Company may,
at its election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not
to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation
to pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1 above, and (ii) in the case of a determination
to delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration pon request under
Section 2.1 above. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested
pursuant to this Section 2.2.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If (i) a registration
pursuant to this Section 2.2 involves an underwritten offering of the
securities so being registered, whether or not for sale for the account of
the Company, and (ii) the managing underwriter of such underwritten offering
shall inform the Company and the holders of the Registrable Securities
requesting such registration by letter of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering, then (A) in the
case of an offering for the account of the Company, registration for the
Registrable Securities shall be cut back such that (i) no holder of
Registrable Securities shall be entitled to participate in such underwritten
public offering unless all shares of Common Stock proposed to be sold by the
Company for its own account have been included in such underwritten public
offering, and (ii) after the Company has included its own shares of Common
Stock, the holders of Registrable Securities and the holders of other
securities as to which the Company has granted registration rights ("Other
Registrable Securities"), including incidental registration rights, shall be
entitled to include their Registrable Securities and Other Registrable
Securities in an amount up to the amount that such managing underwriter or
underwriters advise may be included therein (allocated among the holders of
Registrable Securities and the holders of other Registrable Securities pro
rata on the basis of the number of securities requested to be included
therein by each such holder) and (B) in the case of an offering that was
commenced as a result of the exercise of demand registration rights by
Persons other than Stockholders, the Persons commencing such registration and
the holders of Registrable Securities shall be entitled to include their
Registrable Securities and Other Registrable securities in an amount up to
the amount such managing underwriters or underwriters advise may be included
therein (allocated
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among the persons commencing such registration and the holders of Registrable
Securities pro rate on the basis of the number of securities requested to be
so included therein by each such person or holder). If, however, the
registration was initiated by the Company within one hundred twenty (120)
days of a requested registration and is in lieu thereof, then the Company
shall include in the registration all Registrable Securities requested to be
included in such registration and shall decrease the number of securities
proposed to be sold by the Company and to be included in such registration to
the extent necessary to reduce the number of securities to be included in the
registration to the level recommended by the managing underwriter.
2.3. REGISTRATION PROCEDURES. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2.1 or 2.2 above, the Company
will, as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than seventy-five (75) days after the end of the period within which
requests for registration may be given to the Company (ninety (90) days in
the case of requests for registration made during the last quarter of a
fiscal year or the first fifteen (15) days of the first quarter of any
fiscal year) or such longer period as the Company shall in good faith
require to produce the financial statements required in connection with
such registration) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best efforts
to cause such registration statement to become effective, provided that the
Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
2.2(a) above, its securities which are Registrable Securities) at any time
prior to the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in such registration statement but
in no event for a period which would exceed one hundred twenty (120) days
from the date on which the registration statement became effective;
(iii) furnish to each seller of Registrable Securities
covered by such registration statement such number of conformed copies of
such registration statement and of each amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions in the United States as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long
as such
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registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be
required to either qualify generally to do business as a foreign
corporation, or subject itself to taxation or to general service of process
in any jurisdiction wherein it would not, but for the requirements of this
clause (iv), be obligated to be so qualified or subject to taxation or
service of process, other than as to matters and transactions related to
such registration or qualification;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other United States governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a copy
of each of the following, if any, addressed to the underwriters:
(A) an opinion of counsel for the Company, dated the effective
date of. such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement) reasonably satisfactory in
form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities and, in the case of the accountants'
letter, such other financial matters, and, in the case of the legal
opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(vii) (A) notify each seller of Registrable Securities covered by
such registration statement, their counsel and the managing underwriters,
if any, promptly, and (if requested in writing by any such Person), confirm
such notice in writing: (1) when a registration statement or any amendment
thereto has been filed, and, with respect to a registration statement or
any post-effective amendment, when the same has become effective, (2) of
any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to a registration statement or
related prospectus or for additional information, (3) of the issuance by
the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated by this Section 2 cease to be true and correct, (5) of the
receipt by the
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Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, and (6) of the happening of any event
that makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes to such registration statement, prospectus or
documents so that, in the case of the registration statement, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading, and that in the case of the prospectus,
it will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and (B)at the request of any such seller promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary (and a post-effective
amendment to such registration statement as may be necessary in connection
therewith) so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(viii) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction;
(ix) If requested by the managing underwriters, if any, or the
Holders of a majority in interest of the Registrable Securities being sold
in connection with an underwritten offering, promptly include in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, and such Holders may reasonably request in
order to permit the intended method of distribution of such securities and
make all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received such request;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, a historical earnings statement
covering the period of at least twelve (12) months, but not more than
eighteen (18) months, beginning with the first month of the first full
fiscal quarter after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11 (a) of
the Securities Act, and will furnish to each such seller at least five
business days prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not file
any thereof to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules or
regulations thereunder;
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(xi) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(xii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange or
trading system on which any of the Common Stock is then listed;
(xiii) Cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall be in a form eligible for
deposit with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters, if any, or holders may request in writing at least
two (2) business days prior to any sale of Registrable Securities;
(xiv) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of any registration statement at
the earliest possible moment; and
(xv) Cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of the
NASD).
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in clause (vii) (3) or (6) of this Section 2.3, such holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by clause (vii) of this Section 2.3 and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file Copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
2.4. UNDERWRITTEN OFFERINGS. (a) COOPERATION; UNDERWRITING AGREEMENTS.
If requested by the underwriters for any underwritten offering by holders of
Registrable Securities pursuant to a registration requested under Section 2.1
above, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section
2.6 below. The holders of the Registrable Securities will
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reasonably cooperate with the Company in the negotiation of the underwriting
agreement, provided that nothing herein contained shall diminish the
foregoing obligations of the Company. The holders of Registrable Securities
to be distributed by such underwriters shall be parties to such underwriting
agreement and any necessary or appropriate custody agreements and execute
appropriate powers of attorney, and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any
time proposes to register any of its securities under the Securities Act, as
contemplated by Section 2.2 above, and such securities are to be distributed
by or through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in said Section 2.2 and subject
to the provisions of Section 2.2(b), arrange for such underwriters to include
all the Registrable Securities to be offered and sold by such holder among
the securities to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be
parties to the underwriting agreement between the Company and such
underwriters and any necessary or appropriate custody agreements and execute
appropriate powers of attorney, and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
2.5. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, the
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders, and such underwriters, respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
2.6. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the event
of any registration of any securities of the Company under the Securities
Act, the Company will, and
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hereby does, indemnify and hold harmless the seller of any Registrable
Securities covered by such registration statement, its directors and
officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or underwriter
or controlling Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company will reimburse such
seller and each such director, officer, underwriter and controlling Person
for any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to theCompany through an instrument duly executed by such seller
specifically stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within
the meaning of the Securities Act, in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give a
copy of the final prospectus, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect, regardless of any investigation made
by or on behalf of such seller or any such director, officer, underwriter or
controlling Person and shall survive the transfer of such securities by such
seller and the termination or expiration of this Agreement.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as
a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.3 above, that the Company shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such securities, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subparagraph (a) of this section 2.6)
the Company, each director of the Company, each officer of the Company and
each other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in. reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for
use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect,
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regardless of any investigation made by or on behalf of the Company or any
such director, officer or controlling Person and shall survive the transfer
of such securities by such seller and the termination or expiration of this
Agreement. The obligations of any seller under this subparagraph (b) shall
be limited to the net proceeds to such seller of the Registrable Securities
sold pursuant to the registration statement to which the loss, claim, damage,
judgment, expense or liability relates.
(c) CONTRIBUTION. If the indemnification provided for in
subparagraphs (a) and (b) above for any reason is held by a court of
competent jurisdiction to be unavailable to an indemnified party in respect
of any losses, claims, damages, judgments, expenses or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, judgments, expenses or liabilities in such proportion as is
appropriate to reflect the relative fault, if any, of the Company and the
other selling holders in connection with the statements or omissions which
resulted in such losses, claims, damages, expenses or liabilities, as well as
any other relevant equitable considerations. The relative fault of the
Company and the selling holders shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the selling holders and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the holders, and
the underwriters agree that it would not be just and equitable if
contribution pursuant to this subparagraph (c) were determined by pro rata or
per capita allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding sentence. The obligations of any seller under this subparagraph
(c) are several, not joint, and shall be limited to an amount equal to the
net proceeds to such seller of Registrable Securities sold pursuant to the
registration statement to which the loss, claim, damage, judgment expense or
liability relates. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) NOTICES OF CLAIMS AND PROCEDURES. Promptly after receipt by
an indemnified Person of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subparagraphs of
this Section 2.6, such indemnified Person will, if a claim in respect thereof
is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action, provided that the failure of any
indemnified Person to give notice as provided herein shall not relieve the
indemnifying party of his, her or its obligations under the preceding
subparagraphs of this Section 2.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified Person, unless in such indemnified
Person's reasonable judgment a conflict of interest between such indemnified
Person and such indemnifying party may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified Person, and after notice from the indemnifying party to such
indemnified Person of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified Person for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the consent of
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the indemnified Person, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified Person of a release from all
liability in respect to such claim or litigation and otherwise in form and
substance reasonably satisfactory to the indemnified Person.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.6 shall be made by prompt payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) NOT EXCLUSIVE. The indemnification and contribution
provisions of Section 2.6 are in addition to any other rights to
indemnification or contribution that an indemnified party may have under law
or contract.
2.7. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not
effect or permit to occur any combination or subdivision of shares which
would materially adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in any registration of its
securities contemplated by this Section 2 or the marketability of such
Registrable Securities under any such registration.
3. RULES 144 AND 144A. The Company will file the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder (or, if the Company is
not required to file such reports, the Company will, upon the request of any
holder of Registrable Securities, make publicly available other information)
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rules
144 and 144A under the Securities Act, as such Rules may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
4. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act,
of the holder or holders of eighty percent (80%) or more of the Registrable
Securities at the time outstanding. Each holder of Registrable Securities at
the time or thereafter outstanding shall be bound by a consent authorized by
this Section 4.
5. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at his, her or its election, be treated as the
holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
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6. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing, and shall be deemed to have been delivered on
the date delivered by hand, telegram, facsimile or by similar means, on the
third (3rd) day following the day when sent by recognized courier or
overnight delivery service (fees prepaid), or on the fifth (5th) day
following the day when deposited in the mail, registered or certified
(postage prepaid), addressed (a) if to Stockholders, to the attention of each
Person at the address set forth on Exhibit 3 of the Subscription Agreement
(ASC has the same address as Adam Smith Investment Partners, L.P.), in the
stock records of the Company or such address, or to the attention of such
other Person or Persons, as a Stockholder shall have furnished to the Company
in writing, or (b) if to the Company, Isonics Corporation, 5906 McIntyre
Street, Golden, Colorado 80403, Attention: President, fax: (303) 279-7300,
with a copy to Herrick K. Lidstone, Jr., Esq., Norton-Lidstone, LLC, 5445 DTC
Parkway, Suite 850, Englewood, Colorado 80111, fax: (303) 221-5553, or such
other address, or to the attention of such other Person or Persons, as the
Company shall have furnished to each holder of Registrable Securities at the
time outstanding; provided, however, that any such communication to the
Company may also, at the option of Stockholders, be delivered to any officer
of the Company.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are
for the benefit of Stockholders shall also be for the benefit of and
enforceable by any subsequent holder of any Registrable Securities who has
executed a copy of this Agreement or otherwise indicated its agreement to be
bound hereby, subject to the provisions respecting the minimum numbers or
percentages of shares of Registrable Securities required in order to be
entitled to certain rights or take certain actions contained herein. The
Company acknowledges that ASC or any Stockholder may, at any time, transfer
any of the Registrable Securities which they may own, beneficially or of
record, to (a) their Affiliates, or (b) their partner(s), investor(s),
security holder(s) or beneficial holder(s) pursuant to their organization
documents or other agreements, and that, upon the consummation of any such
transfer, the provisions of this Agreement shall be binding upon and inure to
the benefit of each transferee of such Registrable Securities.
8. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
9. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York, U.S.A., without regard to principles of conflicts
of laws.
10. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
11. TERMINATION. This Agreement shall terminate only upon unanimous
written consent of the Company and the Stockholders.
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12. OTHER REGISTRATION RIGHTS. The Company shall not at any time grant
registration rights to any holder of shares of the Company's capital stock
(other than the rights granted to the Stockholders under this Agreement)
which are equal to or more favorable to such holders than the rights set
forth in this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement, or have caused this Agreement to be executed and delivered by
their respective duly authorized officers, on the date first above written.
ISONICS CORPORATION
By:
-----------------------------
ADAM SMITH & COMPANY, INC.
By:
-----------------------------
ADAM SMITH INVESTMENT PARTNERS, L.P.
By: Adam Smith Capital Management, L.L.C.
By:
-----------------------------
Name:
Title:
ADAM SMITH INVESTMENTS, LTD.
By:
-----------------------------
Name:
Title:
ANFEL TRADING LTD.
--------------------------------
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--------------------------------
Adolph Grossman
ADAM-CEDLINDEN CO. GENERAL PARTNERSHIP
II
--------------------------------
ADAM-THE FISHER FUND GENERAL PARTNERSHIP
II
--------------------------------
FAIRWAY INVESTORS LLC
--------------------------------
FBE FINVEST LLC
--------------------------------
--------------------------------
James Kardon
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--------------------------------
Paul Packer
--------------------------------
Orin Hirschman
--------------------------------
Richard Grossman
--------------------------------
Herschel P. Berkowitz
19
