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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ISONICS CORPORATION
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(Name of Issuer)
COMMON STOCK, NO PAR VALUE
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(Title of Class of Securities)
464895101
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(CUSIP Number)
Check the following box if a fee is being paid with this statement [ ]. (A fee
is not required only if the filing person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
RICHARD GROSSMAN
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
PF, WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
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7. SOLE VOTING POWER
40,000
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 1,833,336
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 40,000
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10. SHARED DISPOSITIVE POWER
1,833,336
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
1,873,336
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
23.2 %
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14. TYPE OF REPORTING PERSON*
IN
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
ORIN HIRSCHMAN
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
PF, WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
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7. SOLE VOTING POWER
40,000
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 1,832,336
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 40,000
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10. SHARED DISPOSITIVE POWER
1,832,336
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
1,872,336
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
23.2 %
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14. TYPE OF REPORTING PERSON*
IN
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* SEE INSTRUCTION BEFORE FILLING OUT!
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
ADAM SMITH CAPITAL MANAGEMENT LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
NEW YORK
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7. SOLE VOTING POWER
0
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 1,106,668
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 0
------------------------------------------------------
10. SHARED DISPOSITIVE POWER
1,106,668
------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
1,106,668
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
15.1 %
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14. TYPE OF REPORTING PERSON*
OO
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
ADAM SMITH INVESTMENT PARTNERS, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
NEW YORK
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7. SOLE VOTING POWER
0
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 1,106,668
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 0
------------------------------------------------------
10. SHARED DISPOSITIVE POWER
1,106,668
------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
1,106,668
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
<PAGE>
SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
15.1 %
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14. TYPE OF REPORTING PERSON*
PN
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
DIAMOND CAPITAL MANAGEMENT INC.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
NEW YORK
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7. SOLE VOTING POWER
0
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 226,668
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 0
------------------------------------------------------
10. SHARED DISPOSITIVE POWER
226,668
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
226,668
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
3.5 %
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14. TYPE OF REPORTING PERSON*
CO
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
ADAM SMITH INVESTMENTS, LTD.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
BRITISH VIRGIN ISLANDS
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7. SOLE VOTING POWER
0
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 226,668
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 0
------------------------------------------------------
10. SHARED DISPOSITIVE POWER
226,668
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
226,668
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
3.5 %
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14. TYPE OF REPORTING PERSON*
CO
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
ADAM SMITH & COMPANY, INC.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP *
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [_]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
NEW YORK
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7. SOLE VOTING POWER
0
NUMBER OF ------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY
OWNED BY 500,000
EACH ------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON
WITH: 0
------------------------------------------------------
10. SHARED DISPOSITIVE POWER
500,000
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON.
500,000
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
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SHARES* [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11.
7.4 %
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14. TYPE OF REPORTING PERSON*
BD, CO
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* SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
Item 1. Security and Issuer.
This Statement on Schedule D relates to the shares of Common Stock, no
par value per share (the "Shares"), of Isonics Corporation, a California
corporation (the "Company"), into which shares of Series A Convertible Preferred
Stock are convertible, and which warrants are exercisable to purchase. The
principal executive offices of the Company are located at 5906 McIntyre Street,
Golden, Colorado 80403.
Item 2. Identity and Background.
(a) This Statement is filed by Richard Grossman and Orin Hirschman by
virtue of their direct beneficial ownership of Shares and as the owners of each
of Adam Smith & Company, Inc. ("ASC"), Adam Smith Capital Management LLC
("ASCM"), and Diamond Capital Management Inc. ("DCM"); by DCM by virtue of being
the Investment Manager of Adam Smith Investments, Ltd., a British Virgin Islands
corporation ("ASI"); by ASCM, by virtue of being the sole general partner of
Adam Smith Investment Partners, L.P. ("ASIP"); by ASC by virtue of its direct
beneficial ownership of Shares; and by ASIP by virtue of its direct beneficial
ownership of Shares. By virtue of the relationships described above, each of
Richard Grossman and Orin Hirschman may be deemed to possess indirect beneficial
ownership of the Shares held by each entity. The directors of ASI are F.M.C.
Limited and S.C.S. Limited, which are subsidiaries of Insinger Trust (BVI)
Limited, all of which are British Virgin Islands corporations. Richard Grossman
and Orin Hirschman are the only officers and directors and/or members of ASC,
ASCM and DCM.
(b) The principal executive offices of ASC, ASCM, ASIP, DCM and the
business address of each of Richard Grossman and Orin Hirschman, are located at
101 East 52nd Street, New York, New York 10022. The principal executive offices
of ASI are c/o Insinger Fund Administration (BVI) Limited, Tropic Isle Building,
P.O. Box 438, Road Town, Tortola, British Virgin Islands.
(c) ASC is a registered broker-dealer, ASCM manages ASIP, and DCM
manages ASI and other investment vehicles. ASI and ASIP are investment vehicles.
Each of Richard Grossman and Orin Hirschman's principal business is acting as an
officer and/or director of ASC, ASCM, and DCM.
(d) None of the Reporting Persons has been convicted in a criminal
proceeding in the past five years (excluding traffic violations or similar
misdemeanors).
(e) During the past five years, none of the Reporting Persons was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such person was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws of finding any
violation with respect to such laws.
(f) ASC is a New York corporation, ASCM is a New York limited liability
company, DCM is a New York corporation, ASI is a British Virgin Islands
corporation, and ASIP is a New York limited partnership. Richard Grossman and
Orin Hirschman are citizens of the United States.
<PAGE>
Item 3. Source and Amount of Funds or Other Consideration.
ASIP acquired 553,334 units ("Units"), each consisting of one share of Series A
Convertible Preferred Stock, convertible into one Share, and a warrant
("Warrant") immediately exercisable to purchase one Share at an exercise price
of $3.75 per Share, for a total of $830,001. ASI acquired 113,334 Units for a
total of $170,001. Richard Grossman acquired 20,000 Units for a total of
$30,000. Orin Hirschman acquired 20,000 Units for a total of $30,000. All of
such Units were paid for out of the working capital of the respective entity (or
personal funds of the respective individual) and purchased from the Company
pursuant to a Subscription Agreement dated July 29, 1999. ASC acquired warrants
to purchase 500,000 Shares at an exercise price of $3.75 per Share, issued as a
fee pursuant to an Investment Banking Agreement with the Company dated July 29,
1999.
Item 4. Purpose of Transaction.
Each of Richard Grossman, Orin Hirschman, ASC, ASI, and ASIP acquired the
securities that are the subject of this Schedule 13D (the "Securities") for
investment only. Depending upon their evaluations of the Company's investments
and prospects, and upon future developments (including, but not limited to,
market for the Company's securities, the effective yield on the company's
securities, availability of funds, alternative uses of funds, and money, stock
market and general economic conditions), each of the Reporting Persons may from
time to time purchase additional securities of the Company, dispose of all or a
portion of the securities of the Company that it holds, or securities of the
Company may be in open market or privately-negotiated transactions or otherwise.
Item 5. Interest in Securities of the Issuer.
(a) Richard Grossman is the direct beneficial owner of 40,000 Shares,
and may be deemed the indirect beneficial owner of 1,833,336 Shares, by virtue
of rights to acquire all such Shares, representing beneficial ownership of 23.2%
of the Shares deemed outstanding by the Company as of July 29, 1999. Orin
Hirschman is the direct beneficial owner of 40,000 Shares, and may be deemed the
indirect beneficial owner of 1,833,336 Shares, by virtue of rights to acquire
all such Shares, representing beneficial ownership of 23.2% of the Shares deemed
outstanding by the Company as of July 29, 1999. ASI is the direct beneficial
owner of 226,668 Shares, by virtue of rights to acquire all such Shares,
representing beneficial ownership of 3.5% of the Shares deemed outstanding by
the Company as of July 29, 1999. DCM may be deemed the indirect beneficial owner
of 226,668 Shares, representing beneficial ownership of 3.5% of the Shares
deemed outstanding by the Company as of July 29, 1999. ASC is the direct
beneficial owner of 500,000 Shares, by virtue of rights to acquire all such
Shares, representing beneficial ownership of 7.4% of the Shares deemed
outstanding by the Company as of July 29, 1999. ASIP is the direct beneficial
owner of 1,106,668 Shares, by virtue of rights to acquire all such Shares,
representing beneficial ownership of 15.1% of the Shares deemed outstanding by
the Company as of July 29, 1999. ASCM may be deemed the indirect beneficial
owner of 1,106,668 Shares, representing beneficial ownership of 15.1% of the
Shares deemed outstanding by the Company as of July 29, 1999.
(b) Richard Grossman has sole power to vote or to direct the vote, and
sole power to dispose
<PAGE>
or direct the disposition, of 40,000 Shares of which he is the beneficial owner,
and shared power to vote or to direct the vote, and shared power to dispose or
direct the disposition, of 1,833,336 Shares of which he may be deemed the
beneficial owner. Orin Hirschman has sole power to vote or to direct the vote,
and sole power to dispose or direct the disposition, of 40,000 Shares of which
he is the beneficial owner, and shared power to vote or to direct the vote, and
shared power to dispose or direct the disposition, of 1,833,336 Shares of which
he may be deemed the beneficial owner. ASCM has shared power to vote or to
direct the vote, and shared power to dispose or direct the disposition, of
1,106,668 Shares of which it may be deemed the beneficial owner. ASIP has shared
power to vote or to direct the vote, and shared power to dispose or direct the
disposition, of 1,106,668 Shares of which it may be deemed the beneficial owner.
DCM has shared power to vote or to direct the vote, and shared power to dispose
or direct the disposition, of 226,668 Shares of which it may be deemed the
beneficial owner. ASI has shared power to vote or to direct the vote, and shared
power to dispose or direct the disposition, of 226,668 Shares of which it may be
deemed the beneficial owner. ASC has shared power to vote or to direct the vote,
and shared power to dispose or direct the disposition, of 500,000 Shares of
which it is the beneficial owner.
(c) Except as set forth above, none of the Reporting Persons have
effected any transaction in the Shares during the past 60 days.
(d) Not Applicable
(e) Not Applicable
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
All of the Reporting Persons other than ASC are party to the
Subscription Agreement dated July 29, 1999 (the "Subscription Agreement"),
attached hereto as Exhibit B. The parties to the Subscription Agreement have
granted James E. Alexander a proxy to cast their vote at a meeting of the
holders of Series A Preferred Stock for the limited purpose of approving a
resolution to make a single correction to the Company's Certificate of
Determination of Preferences and Rights of Series A Convertible Preferred Stock.
Attached hereto as Exhibit C is the Company's Amended and Restated Certificate
of Determination of Preferences and Rights of Series A Convertible Preferred
Stock (the "Certificate"). Among other things, the Certificate gives certain
rights to holders of Series A Convertible Preferred Stock in the proceeds from
certain defined transactions.
Item 7. Material to be Filed as Exhibits.
Exhibit A: Joint Filing Statement
Exhibit B: Subscription Agreement dated as of
July 29,1999.
Exhibit C: Amended and Restated Certificate of
Determination of Preferences and Rights of
Series A Convertible Preferred Stock.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
August 10, 1999.
/s/ Richard Grossman
-----------------------------------------------
Richard Grossman
/s/ Orin Hirschman
-----------------------------------------------
Orin Hirschman
ADAM SMITH & COMPANY, INC.
By: /s/ Richard Grossman
-------------------------------------------
ADAM SMITH CAPITAL MANAGEMENT LLC
By: /s/ Richard Grossman
-------------------------------------------
ADAM SMITH INVESTMENT PARTNERS, L.P.
By: ADAM SMITH CAPITAL MANAGEMENT LLC
By: /s/ Richard Grossman
------------------------------------------
ADAM SMITH INVESTMENTS, LTD.
By: /s/ Martyn Crespel
-------------------------------------------
For S.C.S. Limited
Corporate Directors
By: /s/ Judy Hylton
-------------------------------------------
For F.M.C Limited
Corporate Directors
DIAMOND CAPITAL MANAGEMENT INC.
By: /s/ Richard Grossman
-------------------------------------------
<PAGE>
EXHIBIT A
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934,
as amended, the persons named below agree to the joint filing on behalf of each
of them of a Statement on Schedule 13D (including amendments thereto) with
respect to the common stock, no par value, of Isonics Corporation, and further
agree that this Joint Filing Agreement be included as an Exhibit to such joint
filings.
In evidence thereof, the undersigned, being duly authorized, hereby execute
this Joint Filing Agreement as of August 9, 1999.
/s/ Richard Grossman
-----------------------------------------------
Richard Grossman
/s/ Orin Hirschman
-----------------------------------------------
Orin Hirschman
ADAM SMITH & COMPANY, INC.
By: /s/ Richard Grossman
-------------------------------------------
ADAM SMITH CAPITAL MANAGEMENT LLC
By: /s/ Richard Grossman
-------------------------------------------
ADAM SMITH INVESTMENT PARTNERS, L.P.
By: ADAM SMITH CAPITAL MANAGEMENT LLC
By: /s/ Richard Grossman
-----------------------------------------
ADAM SMITH INVESTMENTS, LTD.
By: /s/ Martyn Crespel
-------------------------------------------
For S.C.S. Limited
Corporate Directors
By: /s/ Judy Hylton
-------------------------------------------
For F.M.C Limited
Corporate Directors
<PAGE>
DIAMOND CAPITAL MANAGEMENT INC.
By: /s/ Richard Grossman
-------------------------------------------
<PAGE>
EXHIBIT B
ISONICS CORPORATION
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:
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
<PAGE>
"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
(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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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 capital stock or share
capital; (iii) the number of issued and outstanding shares of capital stock 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
<PAGE>
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, 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,
<PAGE>
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 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.
<PAGE>
(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 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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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;
(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
<PAGE>
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
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,
<PAGE>
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.
(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,
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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
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),
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
(signatures)
<PAGE>
EXHIBITS AND SCHEDULES
TO THE SUBSCRIPTION AGREEMENT
(exhibits and schedules are not included in filing with the Schedule 13D)
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
EXHIBIT C
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.
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
<PAGE>
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 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;
<PAGE>
(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) ("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
<PAGE>
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.
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.
<PAGE>
(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.
(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.
<PAGE>
(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 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
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
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 (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 holder's 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
<PAGE>
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.
(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
<PAGE>
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.
"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 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.
<PAGE>
"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 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.
<PAGE>
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
