<PAGE>
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
<TABLE>
<S> <C>
File by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
ISONICS CORPORATION
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
JAMES E. ALEXANDER, PRESIDENT
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
</TABLE>
Payment of Filing Fee (Check the appropriate Box:)
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule O-11:(1)
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule O-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
ISONICS CORPORATION
5906 MCINTYRE STREET
GOLDEN, CO 80403
---------------------
AUGUST 31, 2000
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders on
Wednesday, October 11, 2000, at 10:00 a.m. at the Denver-West Marriott located
at 1717 Denver-West Marriott Boulevard, Golden, Colorado 80401 (telephone:
303-279-9100).
The Board of Directors recommends that all shareholders vote for the
election of the nominated directors and for the other proposals presented in
this proxy statement.
Proposals numbered 2 and 3 are for amendments to the Company's 1996
Executives' Equity Incentive Plan and to the Company's 1996 Equity Incentive
Plan to increase the amount of shares available under these plans. The Board of
Directors believes that these plans are necessary to enable us to provide
meaningful equity incentives to attract, motivate, and retain employees.
Consequently the Board of Directors recommends that the shareholders vote for
ratification of these proposals. Isonics operates in an extremely competitive
job market where unemployment is extremely low and where turnover can be very
high. In this job market, equity incentive plans are offered by the majority of
the public companies with whom we compete for talent. YOUR SUPPORT OF THIS
PROPOSAL IS VERY IMPORTANT TO THE FUTURE SUCCESS OF YOUR COMPANY.
Whether or not you plan to attend the Annual Meeting, PLEASE MARK, SIGN,
DATE, AND RETURN your proxy card in the enclosed envelope as soon as possible.
This will assure that your stock will be voted in accordance with the
instructions you give in your proxy card whether or not you attend the Annual
Meeting. You may, of course, attend the Annual Meeting and vote in person even
if you have previously sent in your proxy card. IT IS VERY IMPORTANT THAT EVERY
SHAREHOLDER VOTE. PLEASE SEND IN YOUR PROXY CARD.
Sincerely yours,
James E. Alexander, PRESIDENT
<PAGE>
ISONICS CORPORATION
5906 MCINTYRE STREET
GOLDEN, CO 80403
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 11, 2000
---------------------
August 31, 2000
TO THE SHAREHOLDERS OF ISONICS CORPORATION:
The Annual Meeting of Shareholders of ISONICS CORPORATION, a California
corporation, ("Isonics" or the "Company") will be held at the Denver-West
Marriott located at 1717 Denver-West Marriott Blvd., Golden, CO 80401
(telephone: 303-279-9100), on October 11, 2000 at 10:00 a.m. local time, to
consider and take action on:
1. The election of five directors to serve until the next annual meeting of
shareholders and until their successors have been elected and qualified.
2. Amendment of the 1996 Executives' Equity Incentive Plan to increase the
number of shares of common stock included to 1,000,000.
3. Amendment of the 1996 Equity Incentive Plan to increase the number of
shares of common stock included to 500,000.
4. Such other business as may properly come before the meeting, or any
adjournments or postponements thereof.
The discussion of the proposals set forth above is intended only as a
summary, and is qualified in its entirety by the information contained in the
accompanying Proxy Statement.
Only holders of record of common stock at the close of business on
August 30, 2000, will be entitled to notice of and to vote at this Annual
Meeting, and any postponements or adjournments thereof.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON AND THE
MANAGEMENT OF THE COMPANY HOPES THAT YOU WILL FIND IT CONVENIENT TO ATTEND.
Shareholders, whether or not they expect to be present at the meeting, are
requested to sign and date the enclosed proxy and return it promptly in the
envelope enclosed for that purpose. Any person giving a proxy has the power to
revoke it at any time by following the instructions provided in the Proxy
Statement.
By Order of the Board of Directors:
James E. Alexander, PRESIDENT
PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES MAY BE
VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF SUCH PROXY DOES NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
YOUR VOTE IS IMPORTANT
<PAGE>
ISONICS CORPORATION
5906 MCINTYRE STREET
GOLDEN, CO 80403
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 11, 2000
------------------
August 31, 2000
This Proxy Statement is being furnished to shareholders of ISONICS
CORPORATION ("Isonics" or the "Company") in connection with the solicitation of
proxies by and on behalf of the Company's Board of Directors for use at the
Annual Meeting of shareholders of the Company (the "Annual Meeting") and at any
adjournments or postponements thereof. The Annual Meeting will be held at
10:00 a.m. local time, at the Denver-West Marriott located at 1717 Denver-West
Marriott Blvd., Golden, CO 80401 (telephone: 303-279-9100), on October 11, 2000.
This Proxy Statement will be first mailed to the shareholders on or before
September 8, 2000.
VOTING SECURITIES
Holders of record of the Company's common stock (the "Common Stock") at the
close of business on August 30, 2000 (the "Record Date") will be entitled to
vote on all matters. On the Record Date, the Company had 10,999,660 shares of
Common Stock outstanding and 1,516,667 shares of Series A Convertible Preferred
Stock outstanding. The holders of shares of Common Stock and Series A
Convertible Preferred Stock are entitled to one vote per share. The Company's
voting securities include its outstanding Common Stock and Series A Convertible
Preferred Stock.
A majority of the issued and outstanding shares of the Common Stock entitled
to vote, represented in person or by proxy, constitutes a quorum for the
transaction of business at the meeting. As described in more detail below, if
there is a quorum present the five nominees for the Board receiving the greatest
number of affirmative votes will be elected as directors (proposal 1). If a
quorum is present, a majority of the shares voting is necessary for the approval
of Proposals 2 and 3.
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has that number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, will be
elected. Votes withheld will be counted for the purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but will have no other legal effect upon the election of directors
under California law. The Company seeks discretionary authority to cumulate
votes in the event that additional persons are nominated at the Annual Meeting
for the election of directors. In the event that cumulative voting is invoked,
the proxy holders intend to cast the votes covered by the proxies received by
them in such a manner under cumulative voting as they believe will ensure the
election of as many of the Company's nominees as possible.
1
<PAGE>
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions and broker non-votes, the Company
believes that both abstentions and broker non-votes should be counted for
purposes of determining whether a quorum is present at the Annual Meeting.
Abstentions and broker non-votes will not be counted for the purposes of
determining the outcome of the vote on the election of directors or the
proposals to amend the 1996 Executives' Equity Incentive Plan (Proposal 2) or
the 1996 Equity Incentive Plan (Proposal 3).
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile. The Company does not
intend to retain a professional solicitor to assist in the solicitation of
proxies.
Management may, in its discretion, seek an adjournment of the meeting to a
specific time and place if a quorum is not present.
A shareholder who gives his proxy pursuant to this solicitation may revoke
it at any time before it is voted either by giving notice of the revocation
thereof to the Secretary of the Company, by filing another proxy with the
Secretary or by attending the Annual Meeting and voting in person. All properly
executed and unrevoked proxies, if received in time, will be voted in accordance
with the instructions of the beneficial owners contained thereon.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of August 30, 2000, by: (i) each nominee for
director; (ii) each of the executive officers named in the Summary Compensation
Table; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
<S> <C> <C>
James E. Alexander (1)...................................... 2,076,779 18.8%
Boris Rubizhevsky (2)....................................... 1,878,293 17.0%
Stephen J. Burden (3)....................................... 289,212 2.6%
Daniel J. Grady (4)......................................... 241,769 2.2%
Brantley J. Halstead (5).................................... 141,000 1.3%
Robert H. Cuttriss (6)...................................... 307,982 2.8%
Herbert Hegener (7)......................................... 178,365 1.6%
Lindsay Gardner (8)......................................... 289,761 2.6%
Richard Parker (9).......................................... 40,000 0.4%
Larry Wells (10)............................................ 107,241 1.0%
All executive officers and directors as a group (10
persons). The address for all of the above directors and
executives officers is:
5906 McIntyre Street, Golden, CO 80403.................... 5,550,402 47.0%
Richard Grossman (11)....................................... 1,873,336 17.0%
Anfel Trading (12).......................................... 666,668 5.7%
Eagle-Picher Technologies, LLC (13)......................... 3,130,435 28.5%
</TABLE>
------------------------
(1) Includes (i) 25,000 shares of Common Stock underlying options which are
currently exercisable, (ii) 45,455 shares of Common Stock held in the name
of The James & Carol Alexander Family
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<PAGE>
Foundation, and (iii) 500,000 shares held by wife Carol, and (iv) 4,000
shares held by son Benjamin Alexander, and (v) 4,000 shares held by son
Jonathan Alexander.
(2) Includes (i) 1,781,127 shares of Common Stock held jointly with Mr.
Rubizhevsky's wife, (ii) 22,500 shares of Common Stock underlying options
which are currently exercisable, and (iii) 33,333 shares of Common Stock
underlying 33,333 warrants to purchase Common Stock of Isonics, (iv) 33,333
shares of Common Stock held by wife Nancy Eiden Rubizhevsky, (v) 4,000
shares of Common Stock held by son Zachary Rubizhevsky, (vi) 4,000 shares of
Common Stock held by son Ryan Rubizhevsky.
(3) Includes 192,887 shares of Common Stock underlying options of which 146,346
have vested as of August 30, 2000, and which are currently exercisable.
(4) Includes 222,965 shares of Common Stock subject to stock options that are
currently exercisable.
(5) Includes 141,000 shares of Common Stock underlying options of which 91,000
have vested as of August 30, 2000, and which are currently exercisable.
(6) Includes (i) 287,982 shares of Common Stock held in the name of Metallurgy
International, Inc., in which Dr. Cuttriss and his wife, P. D. Cuttriss, are
controlling shareholders, and (ii) 20,000 shares of Common Stock underlying
options that are currently exercisable.
(7) Includes 35,000 shares of Common Stock underlying warrants, which are
currently exercisable.
(8) Includes 40,000 shares of Common Stock underlying stock options, which are
currently exercisable.
(9) Includes 40,000 shares of Common Stock underlying stock options, which are
currently exercisable.
(10) Includes 30,000 shares of Common Stock underlying stock options, which are
currently exercisable. Also includes 77,241 shares owned by Daystar
Partners, L.P. of which an affiliate owned by Mr. Wells is general partner,
and in which Mr. Wells owns a 9.9% equity interest.
(11) Includes beneficial ownership of the following shares: (i) 40,000 shares of
Common Stock underlying 20,000 shares of Convertible Preferred Stock and
20,000 warrants owned of record and beneficially by Richard Grossman,
(ii) 40,000 shares of Common Stock underlying 20,000 shares of Convertible
Preferred Stock and 20,000 warrants owned of record and beneficially by Orin
Hirschman (of which shares Mr. Grossman disclaims beneficial ownership),
(iii) 1,106,668 shares of Common Stock underlying 553,334 shares of
Convertible Preferred Stock and 553,334 warrants owned of record and
beneficially by Adam Smith Investment Partners, L.P., (iv) 226,668 shares of
Common Stock underlying 113,334 shares of Convertible Preferred Stock and
113,334 warrants owned of record and beneficially by Adam Smith Investments,
Ltd., and (v) 500,000 shares of Common Stock underlying 500,000 warrants
owned of record and beneficially by Adam Smith & Company, Inc., all as set
forth on the Schedule 13D filed by such persons on August 12, 1999. The
business addresses of Richard Grossman and Orin Hirschman, and the principal
executive offices of Adam Smith Investment Partners, L.P. and Adam Smith &
Company, Inc., are located at 101 East 52nd Street, New York, New York
10022. The principal executive offices of Adam Smith Investments, Ltd. are
c/o Insinger Fund Administration (BVI) Limited, Tropic Isle Building,
P.O. Box 438, Road Town, Tortola, British Virgin Islands.
(12) Includes 666,668 shares of Common Stock underlying 333,334 shares of
Convertible Preferred Stock and 333,334 warrants. The principal executive
offices of Anfel Trading Ltd. are c/o Me. Andre Zolty, 24 Route De Malagnou,
1208 Geneva, Switzerland.
(13) This share ownership results from Eagle-Picher's exercise of a warrant to
purchase 4,000,000 shares of our Common Stock at $3.75 per share, which
resulted in Eagle-Picher acquiring 3,130,435 shares upon surrender of the
warrant. (Eagle-Picher has not accepted our calculation of the number of
shares owed, and claims that an additional 155,279 may be due. We are
continuing to discuss this with Eagle-Picher.) We paid the warrants to
Eagle-Picher in consideration of its obligation to deliver 200
3
<PAGE>
kilograms of silicon-28 to us. If Eagle-Picher does not deliver the full 200
kilograms to us by December 31, 2000, the shares held pursuant to the
exercise of the warrants will be proportionately reduced. The principal
executive offices of Eagle-Picher Technologies, LLC are located at 250 East
Fifth Street, Suite 500, Cincinnati, Ohio 45202.
The Series A Convertible Preferred Stock ("Series A Stock") consists of
1,830,000 shares issued with a liquidation preference and conversion right of
$1.50 per share. Through the record date, 313,333 shares of Series A Stock have
elected to convert into Common Stock. The Series A Stock is entitled to
dividends or distributions 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 Series A Stock.
The Redemption Trigger Date for the Series A Stock shall be 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 proportionally adjusted for stock
splits, stock dividends, reverse stock splits and any other subdivision or
combination of the Common Stock). After the Redemption Date, the Company may
redeem all or any part of the Series A Stock at its election at any time and
from time to time. The Series A Stock is convertible into Common Stock at the
option of the holder until the Company, if at all, chooses to redeem such shares
on the basis of one share of Common Stock per share of Series A Stock and, until
converted, each share of Series A Stock is entitled to one vote at any meeting
of the shareholders of the Company.
The Company knows of no arrangement, the operation of which may, at a
subsequent date, result in change in control of the Company.
PROPOSAL 1--ELECTION OF DIRECTORS
The following persons are nominated as directors of the Company for a term
of one year and until the election and qualification of their successors:
<TABLE>
<S> <C> <C>
James E. Alexander Boris Rubizhevsky Lindsay A. Gardner
Richard Parker Larry J. Wells
</TABLE>
These persons will constitute the entire Board of Directors. The person
named in the proxy intends to vote for those nominees, each of whom has been
recommended for election by the Board of Directors of the Company, unless a
shareholder withholds authority to vote for any or all of the nominees. The five
nominees receiving the greatest number of affirmative votes will be elected as
directors. If any nominee is unable to serve or, for good cause, will not serve,
the person named in the proxy reserves the right to substitute another person of
his choice as nominee in his place. Each of the nominees has agreed to serve, if
elected.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of all the Directors and
Executive Officers of Isonics, and the positions held by each such person as of
August 30, 2000. The directors each serve until
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their successors are duly elected and qualified; officers are appointed by, and
serve at the pleasure of, the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------------------------------------------------------
<S> <C> <C>
James E. Alexander.......... 51 President, Chief Executive Officer and Chairman of the
Board
Boris Rubizhevsky........... 49 Senior Vice President, Vice Chairman and Director
Daniel J. Grady............. 46 Vice President, Life Sciences
Stephen J. Burden........... 51 Vice President, Semiconductor Materials
Brantley J. Halstead........ 43 Chief Financial Officer, Vice President, Finance
Robert Cuttriss............. 51 President of Interpro, Vice President, Zinc Recovery
Herbert Hegener............. 53 Managing Director of Chemotrade
Lindsay A. Gardner (1)(2)... 49 Director
Richard Parker (1)(2)....... 56 Director
Larry J. Wells (1)(2)....... 57 Director
</TABLE>
------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Each of the directors holds office until the next annual meeting of
shareholders and until his or her successor is elected and qualified or until
his or her earlier death, resignation, or removal. Each officer serves at the
discretion of the Board.
Mr. Alexander is our co-founder and has served as our President, Chief
Executive Officer and a director since our inception. He has worked full-time
for Isonics since January 1994. From June 1972 to December 1993, he worked in a
variety of technology positions at General Electric Corporation ("GE") in the
aircraft engine and nuclear power businesses, where his last position was
Manager of Technology Programs. Mr. Alexander received his Bachelors degree in
Metallurgical Engineering from the University of Cincinnati and performed
graduate work in materials science there. He earned a Masters degree in Business
Administration from Santa Clara University.
Mr. Rubizhevsky is also a co-founder of Isonics and has been a Senior Vice
President and a director since inception and became Vice Chairman in
March 1997. From November 1986 through December 1994, he owned and operated SAR
Marketing, a consulting firm providing business advice and services to large
multinational corporations. From June 1977 to May 1986, Mr. Rubizhevsky worked
at General Electric Corporation as Business Development Manager in various
international locations. He received his Bachelors degree in Engineering from
Stevens Institute of Technology.
Dr. Grady joined us as Vice President, Medical, Research and Diagnostics in
1995. From March 1994 through September 1995, Dr. Grady was Vice President of
Research and Development at Sopha Medical Systems, a medical diagnostic imaging
equipment manufacturer. From April 1991 until March 1994, he served as Marketing
Manager, Nuclear Energy for General Electric Corporation ("GE"). From May 1988
through March 1991, Dr. Grady served as Software Engineer Manager, Nuclear
Medicine for GE in England. From October 1984 through May 1988, he served as
Clinical Applications Manager for GE Nuclear Medicine. Between June 1981 and
October 1984, he served as Engineering Analysis Section Head for TRW. Dr. Grady
received his Bachelors and Masters degrees, and Ph.D. in Nuclear Engineering
from the University of Michigan.
Dr. Burden joined us in 1997 as Director of Research & Development and was
promoted to Vice President, Semiconductor Materials effective January 1, 1999.
Prior to joining Isonics Dr. Burden was Director of Product Development at sp3,
Inc., a manufacturer of diamond-coated tools. From 1984 to 1993, he was Manager
of Advanced Materials R&D at GTE Valenite, a subsidiary of GTE Corporation, a
manufacturer of cutting tools. From 1974 to 1984, Dr. Burden was employed by
General Electric Corporation in various capacities. Dr. Burden received his
Ph.D., and Masters of Science degrees, in
5
<PAGE>
Materials Science and Engineering, from Drexel University, and his Bachelors
degree in Science Engineering from Northwestern University. Dr. Burden also has
an MBA from the University of Michigan.
Mr. Halstead joined us as Chief Financial Officer in 1999 and was promoted
to Vice President, Finance effective January 30, 2000. Most recently,
Mr. Halstead was Chief Financial Officer of Bio-Medical Automation, Inc.
(formerly OZO Diversified Automation, Inc.), from 1997 through 1999.
Mr. Halstead also has nine years of management consulting experience, including
five years with Deloitte & Touche LLP. Prior to earning his Masters of Business
Administration in Finance from the University of Denver, Mr. Halstead worked as
a metallurgical engineer. Mr. Halstead received his Bachelors degree in
Metallurgical Engineering from the Colorado School of Mines, and his Masters of
Accountancy from the University of Denver.
Dr. Cuttriss has served as the President of Interpro since 1993. Since May
2000, Dr. Cuttriss has also served as Vice President, Zinc Recovery. With 29
years experience in process operations in the mining and metallurgical
industries, Dr. Cuttriss' experience includes holding the title of principal
consultant and director of Metallurgy International, Inc., from 1983 through
1993. He has undertaken management and technical assignments covering the
design, commissioning and operation of mineral treatment plants, technical
audits and evaluations, pilot plant testing and process development for projects
throughout the world. Dr. Cuttriss received his Bachelors and Ph.D. degrees in
Metallurgy from the University of Melbourne and his Masters in Metallurgy from
the University of Queensland.
Mr. Hegener is a co-founder of Chemotrade and has served as the President
since its formation in 1991. From 1988 to 1991, Mr. Hegener was with Medgenix
Deutschland GmbH-Dusseldorf, and his last position with this firm was Managing
Director. From 1973 to 1988, Mr. Hegener worked at the Hempel Group, Dusseldorf,
Germany, in various management positions. Mr. Hegener is a specialist in stable
and radioactive isotopes. He has degrees in Chemistry and Economics.
Ms. Gardner was elected a director in September 1993. She has served from
1991 through the present as President of LG Associates, a US-based, management
consulting firm providing materials management expertise to foreign company
affiliates of US companies in developing countries. During her tenure at LG
Associates Ms. Gardner resided in Moscow, Russia from September 1991 to January
1994, when she moved to Beijing, China. As of April 2000, Ms. Gardner resides in
Cincinnati, Ohio. From 1977 to 1991, Ms. Gardner worked for General Electric
Corporation in a variety of management and functional positions including
international marketing, quality assurance and materials. Ms. Gardner received a
Bachelors degree in International Economics from The George Washington
University Elliott School of International Affairs, and earned a Masters of
Business Administration from the University of Louisville.
Mr. Parker has served as a director since August 1998. Mr. Parker is
presently Vice-President of Distribution Sales for Cypress Semiconductor and has
held that position since December 1997. Previously, Mr. Parker was Director of
Sales for Cypress from April 1984 to December 1997. Prior to joining Cypress, he
held various sales and marketing management positions at Fairchild Semiconductor
from 1973 to 1984. He received a Bachelors degree in Education from the
University of North Dakota.
Mr. Wells was elected a director of Isonics in January 2000. Since 1989,
Mr. Wells has been a general partner of SVP Management Company, the management
company for Sundance Venture Partners, L.P., a venture capital fund. From 1983
to 1989, Mr. Wells served as Vice President of Citicorp Venture Capital then
became Senior Vice president of Inco Venture Capital. Mr. Wells is a director of
Cellegy Pharmaceuticals, Identix, Inc., as well as several privately held
companies. Mr. Wells received his bachelors degree in Economics and earned a
masters degree in Business Administration from Stanford University. Mr. Wells
was previously a director of Isonics from September 1996 through December 1998.
6
<PAGE>
There are no significant employees who are not also directors or executive
officers as described above. As of April 30, 2000, and subsequently, there were
and are no family relationships among the officers, directors or any person
chosen by Isonics to become a director or officer. No arrangement exists between
any of the above officers and directors pursuant to which any one of those
persons was elected to such office or position.
MEETINGS OF THE BOARD AND COMMITTEES
The Board of Directors held three formal meetings during the fiscal year
ended April 30, 2000, and one meeting subsequently, on August 17, 2000, through
August 30, 2000. Each director attended all of the formal meetings either in
person or by telephone, without exception. In addition, regular communications
were maintained throughout the year among all of the officers and directors of
the Company and the directors acted by unanimous consent five times during
fiscal 2000 and two times subsequently through August 30, 2000. Isonics has
standing audit and compensation committees. It does not have a standing
nomination committee.
AUDIT COMMITTEE
The audit committee was formed in 1996 and held one formal meeting during
the fiscal year ended April 30, 2000, and one meeting subsequently through
August 30, 2000. Each member of that committee attended each of those meetings
in person or by telephone. The responsibilities of the audit committee include:
- recommending the appointment of independent accountants;
- reviewing the arrangements for and scope of the audit by independent
accountants;
- reviewing the independence of the independent accountants;
- considering the adequacy of the system of internal accounting controls and
reviewing any proposed corrective actions;
- reviewing and monitoring Isonics' policies regarding business ethics and
conflicts of interest;
- discussing with management and the independent accountants Isonics' draft
annual financial statements and key accounting and reporting matters; and
- reviewing the activities and recommendations of our accounting department.
COMPENSATION COMMITTEE
The compensation committee held two formal meetings during the fiscal year
ended April 30, 2000, and no meetings subsequently through August 30, 2000. Each
member of that committee attended each of those meetings in person or by
telephone. The compensation committee has the authority to review and make
recommendations to our board of directors with respect to the compensation of
our executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
SECTION 16(a) DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires Isonics' directors, executive officers and persons who own more than
ten percent of a registered class of Isonics' equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of Isonics. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
Isonics with copies of all Section 16(a) forms they file.
7
<PAGE>
To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended April 30, 2000, and subsequently, all
Section 16(a) filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners were complied with exception (or in
addition) to the following:
1. Mr. Rubizhevsky filed a Form 4 in February 2000 reporting a purchase
that took place in July 1999. Mr. Rubizhevsky also filed a Form 4 after
April 10, 2000 to report a sale of 1,000 shares made in March 2000.
2. Mr. Parker filed a Form 3 in February 2000. He became subject to the
Section 16(a) reporting requirements when he became a director of Isonics
in August 1998.
3. Dr. Cuttriss and his affiliate, Metallurgy International, Inc., jointly
filed a Form 3 in February 2000. Dr. Cuttriss became subject to the
Section 16(a) reporting requirements when he became an executive officer
of Isonics in May 1998. A joint filing of two Form 4s was also made in
February 2000 reporting transactions that occurred in July 1999 and
September 1999, which Dr. Cuttriss amended in May 2000.
4. Mr. Halstead filed a Form 3 in February 2000. He became subject to the
Section 16(a) reporting requirements when he became an executive officer
of Isonics in February 1999.
5. Dr. Burden filed a Form 3 in February 2000. He became subject to the
Section 16(a) reporting requirements when he became an executive officer
of Isonics in January 1999. Dr. Burden also filed a Form 4 in
February 2000 reporting a purchase that took place in July 1999.
Dr. Burden filed a Form 4 after April 10, 2000, reporting an exercise of
warrants that occurred in March 2000.
6. Mr. Hegener filed a Form 3 in February 2000. He became subject to the
Section 16(a) reporting requirements when he became an executive officer
of Isonics' subsidiary, Chemotrade, Inc., in June 1998. Mr. Hegener filed
a Form 4 in February 2000, reporting a warrant acquired in June 1999.
Mr. Hegener also filed Forms 4 in August 2000 reporting sales that took
place in May, June and July of 2000.
7. Eagle-Picher Technologies, LLC became subject to the
Section 16(a) reporting requirements when it became a greater than 10%
beneficial owner in December 1999. Eagle-Picher filed a Form 3 in
March 2000. Eagle-Picher exercised warrants in March 2000 but, to our
knowledge has not yet filed a Form 4 reporting the exercise; Eagle-Picher
has also not yet filed an amendment to its Schedule 13D reporting this
exercise.
8. Mr. Paul Catuna, a former executive officer of Isonics, was subject to
the reporting requirements of Section 16(a) of the 1934 Act during the
course of his employment. Mr. Catuna has filed a Form 4 in
February 2000, reporting a stock bonus received in January 1999.
9. Mr. Wells filed a Form 4 after April 10, 2000, reporting that an
affiliated entity exercised warrants in March 2000.
10. Ms. Gardner filed a Form 4 in May 2000, reporting the exercise of
warrants in March 2000.
In addition to the foregoing, several directors and executive officers filed
Form 4s in February 2000, which voluntarily reported the acquisition of certain
Common Stock options that are exempt from the reporting requirements pursuant to
Rule 16b-3.
(a) Mr. Alexander voluntarily filed three Form 4s in February 2000 reporting
transactions that took place in January, April, and December of 1999. The
Board of Directors approved the January and April transactions in minutes
effective October 31, 1999.
8
<PAGE>
(b) Mr. Rubizhevsky voluntarily filed two Form 4s in February 2000 reporting
transactions that took place in January and April 1999. The January and
April transactions were approved by the Board of Directors in minutes
effective October 31, 1999.
(c) Ms. Gardner voluntarily filed one Form 4 in February 2000 reporting
transactions that took place in May and October of 1998.
(d) Mr. Parker voluntarily filed a Form 4 in February 2000 reporting
transactions that occurred in October 1998.
(e) Mr. Halstead voluntarily filed two Form 4s in February 2000 reporting
transactions that took place in April 1999 and in January 2000. The Board
of Directors approved these transaction in minutes effective October 31,
1999, and January 30, 2000.
(f) Dr. Burden voluntarily filed one Form 4 in February 2000 reporting a
transaction that took place in April 1999. The Board of Directors
approved this transaction in minutes effective October 31, 1999.
(g) Dr. Grady voluntarily filed two Form 4s in February 2000 reporting
transactions that took place in January and April 1999 and were approved
by the Board of Directors in minutes effective October 31, 1999.
SHORT-SWING LIABILITY
On behalf of Metallurgy International, Inc., an affiliate of Dr. Cuttriss,
but without authorization from Dr. Cuttriss or Isonics, a broker-dealer sold and
purchased shares in July and September of 1999 respectively. With authorization
from Dr. Cuttriss and Isonics, Metallurgy International sold additional shares
in February and March 2000. As a result, Isonics raised the concern that Dr.
Cuttriss may have obtained a short-swing profit which Dr. Cuttriss satisfied,
subject to further review after consultation with his personal counsel. Isonics
has received an opinion of counsel, which reached the conclusion that "a court
would likely not impose liability on [Dr.] Cuttriss for the unauthorized July
1999 and September 1999 transactions under Section 16(b) of the Securities
Exchange Act of 1934."
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation awarded,
paid to, or earned by the chief executive officer and the other principal
officers of Isonics for the three years ended April 30, 1998, 1999, and 2000. No
other person who is currently an executive officer of Isonics earned salary and
bonus compensation exceeding $100,000 during any of those years. This includes
all compensation paid to each by Isonics and any subsidiary.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------- ----------------------------------
AWARDS PAYOUT
----------------------- --------
SECURITIES
($) UNDERLYING
FISCAL ($) ($) ($) RESTRICTED OPTIONS & LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER (A) AWARDS SARS (#) PAYOUT COMPENSATION
--------------------------- -------- -------- -------- --------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Alexander .............. 1998 204,870 0 60,553(g) 0 0 0 0
President & CEO 1999 200,000 50,000 35,016(g) 0 25,000(k) 0 0
2000 212,000 172,549(e) 39,280(h) 0 0 0 0
Boris Rubizhevsky ............... 1998 176,975 0 25,946(g) 0 0 0 0
Senior Vice President 1999 184,100 45,000 25,404(g) 0 22,500(l) 0 0
2000 191,000 147,670(f) 28,185(i) 0 0 0 0
Daniel J. Grady ................. 1998 125,603 0 0 0 0 0 0
Vice President 1999 127,188 16,000 0 0 15,625(m) 0 0
2000 125,000 10,271 23,833(j) 0 0 0 0
Stephen J. Burden, .............. 1998 N/A N/A N/A N/A N/A N/A N/A
Vice President (b) 1999 0 0 0 0 121,458(n) 0 0
2000 125,000 0 23,452 0 0 0 0
Robert H. Cuttriss .............. 1998 N/A N/A N/A N/A N/A N/A N/A
President of Interpro (c) 1999 92,872 80,000 0 0 20,000(o) 0 0
2000 104,815 0 3,144 0 0 0 0
Brantley J. Halstead, ........... 1998 N/A N/A N/A N/A N/A N/A N/A
Vice President (d) 1999 22,182 0 0 0 116,000(p) 0 0
2000 102,000 16,000 3,870 0 25,000(q) 0 0
</TABLE>
------------------------
(a) Excludes other compensation, the aggregate amount of which does not exceed
the lesser of $50,000 or 10% of such named Executive Officers' annual
compensation.
(b) Dr. Burden became an officer of Isonics effective January 1999.
(c) Interpro was acquired effective April 30, 1998. Prior to May 1, 1998, Dr.
Cuttriss was not an Isonics employee. The bonus paid to Dr. Cuttriss in
fiscal year 1999 was for back pay accrued prior to the acquisition of
Interpro by Isonics.
(d) Mr. Halstead became an officer of Isonics in February 1999, upon his joining
the Company as Chief Financial Officer. Mr. Halstead was promoted to Vice
President, Finance in January 2000.
(e) Mr. Alexander's amount includes $133,451 for forgiveness of a loan owed to
the Company, and $39,098 to pay applicable payroll taxes on a stock bonus
granted in January 1999. Please see "CORPORATE LOANS TO OFFICERS."
(f) Mr. Rubizhevsky's amount includes $113,598 for forgiveness of a loan owed to
the Company, and $29,072 to pay applicable taxes on stock bonus granted in
January 1999, and a $5,000 additional cash bonus. Please see "CORPORATE
LOANS TO OFFICERS."
(g) Mr. Alexander's amounts represent $35,016 for interest and taxes payable as
a result of a loan in fiscal year 1999, and $60,553 for interest and taxes
payable as a result of a loan in fiscal year 1998.
10
<PAGE>
Mr. Rubizhevsky's amounts represent $25,404 for interest and taxes payable
as a result of a loan in fiscal year 1999, and $25,946 for interest and
taxes payable as a result of a loan in fiscal year 1998.
(h) Mr. Alexander's amount includes $26,543 for accrued vacation that was paid
in December 1999, $9,487 car allowance, and $3,250 employer matching
contribution to the Company's 401k plan.
(i) Mr. Rubizhevsky's amount includes $15,005 for accrued vacation that was paid
in December 1999, $9,000 car allowance, and $4,180 employer matching
contribution to the Company's 401k plan.
(j) Dr. Grady's amount includes $12,020 for accrued vacation that was paid in
December 1999, $9,000 car allowance, and $2,813 employer matching
contribution to the Company's 401k plan.
(k) Options to purchase 25,000 shares of Common Stock were granted in
April 1999 as consideration for delaying salary in March and April 1999, and
are currently exercisable at $1 7/16 per share and expire April 26, 2004.
(l) Options to purchase 22,500 shares of Common Stock were granted in
April 1999 as consideration for delaying salary in March and April 1999, and
are currently exercisable at $1 7/16 per share and expire April 26, 2004.
(m) Options to purchase 15,625 shares of Common Stock were granted in
April 1999 as consideration for delaying salary in March and April 1999, and
are currently exercisable at $1 7/16 per share and expire April 26, 2004.
(n) Options to purchase 100,000 shares of Common Stock were granted in
January 1999 as consideration for Dr. Burden's promotion to vice president
in January 1999, with an exercise price of $1.10 per share (of which 50,000
have vested as of August 30, 2000, and continue to vest at a rate of 5%, or
5,000, per quarter).
(o) Options to purchase 21,458 shares of Common Stock were granted in
April 1999 as consideration for delaying salary in March and April 1999, and
are currently exercisable at $1 7/16 per share and expire April 26, 2004.
(p) Options granted in May 1998 in connection with the acquisition of Interpro
by Isonics are currently exercisable at $2.00 per share and expire May 1,
2003. Options to purchase 100,000 shares of Common Stock were granted in
February 1999 as consideration for Mr. Halstead joining the Company as Chief
Financial Officer, with an exercise price of $2 9/16 per share (of which
50,000 have vested as of August 30, 2000, and continue to vest at a rate of
5%, or 5,000, per quarter). Options to purchase 16,000 shares of Common
Stock were granted in April 1999 as consideration for delaying salary in
March and April 1999, and are currently exercisable at $1 7/16 per share and
expire April 26, 2004.
(q) Options to purchase 25,000 shares of Common Stock were granted in
January 2000 as consideration for Mr. Halstead's promotion to Vice President
in January 2000, with an exercise price of $7 5/16 per share.
In October 1996, we adopted an employee benefit plan under Internal Revenue
Code Section 401(k). The 401(k) plan is a profit sharing plan under which both
employees and Isonics are entitled (at their own discretion) to contribute a
portion of compensation and earnings, respectively, to investment funds to
supplement employee retirement benefits. On November 1, 1999, the Isonics
Corporation 401(k) plan was merged with the Interpro 401(k) plan.
We do not have written plans to pay bonuses or deferred compensation to our
employees except those expressly stated in the following sections.
We have adopted medical, dental, and life insurance plans for our employees
and their dependents at our cost. In some cases, we also provide discretionary
disability and other insurance plans for the benefit of our employees.
11
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS
In September 1997, we entered into employment agreements with James E.
Alexander and Boris Rubizhevsky. The agreements have a term of four years and
provide for annual salaries of $200,000 and $180,000, respectively, although
either Isonics or the individuals may terminate these agreements prematurely in
their discretion. By resolution of the Board made on January 30, 2000, both Mr.
Alexander and Mr. Rubizhevsky received salary increases commencing February 1,
2000, equal to 20% of their current salary, $240,000 and $216,000, respectively.
The salary increases were granted in recognition of their performance for
Isonics and the fact that neither Mr. Alexander nor Mr. Rubizhevsky had received
salary increases in approximately two and one-half years. Under the agreements,
the officer is entitled to receive incentive compensation up to 50% of the
officer's annual salary, as we approve, pursuant to such executive compensation
plan as we may approve. The agreements provide that upon a termination of
employment other than for cause (as defined in the agreements), the officer is
entitled to severance compensation of eighteen (18) months of his salary, paid
at the same time as salary payments, 25% of the officer's annual prevailing
salary, paid upon termination, and in addition all outstanding stock options
held by the officer will be accelerated and will become exercisable in full and
our right of repurchase will terminate with respect to such shares. The
agreements provide for similar accelerated vesting of outstanding stock options
upon a change in control of Isonics.
We have also entered into employment agreements with Dr. Daniel J. Grady and
Dr. Stephen J. Burden. The agreements have an indefinite term and provides for
at-will employment, terminable at any time by either party. The agreements
provide for a rate of annual compensation, which we will review annually. Under
the each agreement, Dr. Grady and Dr. Burden are entitled to participate in our
standard plans and policies. The agreements also include confidentiality and
invention assignment provisions. Additionally, Mr. Herbert Hegener and Dr.
Robert Cuttriss are covered by employment agreements extending through the
September 2001 and September 2003, respectively.
Mr. Brantley J. Halstead was hired as Chief Financial Officer in
February 1999. Mr. Halstead has entered into an employment agreement with us.
The agreement has an indefinite term and provides for at-will employment,
terminable at any time by either party. The agreement provided for an initial
rate of annual compensation of $96,000, and annual reviews. Under the agreement,
Mr. Halstead is entitled to participate in our standard plans and policies. The
agreement also includes confidentiality and invention assignment provisions.
Mr. Halstead received a raise to $120,000 effective February 1, 2000.
STOCK OPTIONS AND OPTION PLANS
We grant options to executive officers, employees and consultants under the
following plans (collectively the "Plans"):
(a) 1996 Stock Option Plan which has been terminated, but as to which, there are
options outstanding.
(b) 1996 Executives' Equity Incentive Plan (the "Executives' Plan") authorized
the grant of options to purchase 225,000 stock options, which after being
adjusted for stock splits that occurred following the adoption of the plan
resulted in 570,000 shares (1,000,000 shares if Proposal No. 2 is approved).
The options granted may be either incentive stock options if they meet the
requirements of Section 422 of the Internal Revenue Code, or non-qualified
stock options. The directors approved this plan in September 1996 and the
shareholders in October 1996.
12
<PAGE>
(c) 1996 Equity Incentive Plan (the "Employees' Plan") authorized the grant of
options to purchase 50,000 stock options, which after being adjusted for
stock splits that occurred following the adoption of the plan resulted in
150,000 shares (500,000 shares if Proposal No. 3 is approved). The options
granted may be either incentive stock options if they meet the requirements
of Section 422 of the Internal Revenue Code, or non-qualified stock options.
The directors approved this plan in September 1996 and the shareholders in
October 1996.
(d) 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan") authorized
employee purchase of up to 200,000 shares of Isonics Common Stock. The
directors approved this plan in August 1998, and the shareholders in October
1998.
As of August 30, 2000, options to purchase a total of 365,583 shares,
104,500 shares, and 358,769 shares respectively, were outstanding under the
Executives' Plan, Employees' Plan, and 1996 Stock Option Plan, and options to
purchase 189,417, 9,862, and 0 shares, respectively, remained available for
grant.
Except for the Director's Plan, we have not adopted any other stock option
or stock appreciation rights plan. See "COMPENSATION OF DIRECTORS."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following options were granted to executive officers named in the
compensation table during the fiscal year ended April 30, 2000. We did not grant
any stock appreciation rights to any person during fiscal year 2000, or
subsequently. There were no exercises of options or SARs by executive officers
named in the compensation table during the fiscal year ended April 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED
OPTIONS/SARS TO EMPLOYEES EXERCISE PRICE
NAME AND PRINCIPAL POSITION GRANTED (#) IN FISCAL YEAR ($/SH) EXPIRATION DATE
--------------------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
James E. Alexander
President & CEO......................... 0 0.0% N/A N/A
Boris Rubizhevsky
Senior Vice President................... 0 0.0% N/A N/A
Daniel J. Grady
Vice President.......................... 0 0.0% N/A N/A
Stephen J. Burden
Vice President (a)...................... 0 0.0% N/A N/A
Robert H. Cuttriss
President of Interpro................... 0 0.0% N/A N/A
Brantley J. Halstead
Vice President.......................... 25,000 28.7% $ 7 5/16 January 2005
</TABLE>
------------------------
(a) Does not include 33,333 warrants obtained in a private transaction completed
in July 1999, and exercised in March 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
No officer exercised employee stock options during the fiscal year ended
April 30, 2000, or subsequently.
13
<PAGE>
The following table sets forth information regarding the year-end value of
options being held by the Chief Executive Officer and the other such named
officers and persons on April 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT APRIL 30, 2000 AT APRIL 30, 2000
NAME AND PRINCIPAL POSITION EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James E. Alexander
President & CEO (a)........... 0 0 25,000/0 $53,125.00/$0
Boris Rubizhevsky
Senior Vice President
(a) (b)....................... 0 0 22,500/0 $47,812.50/$0
Daniel J. Grady
Vice President (a)............ 0 0 222,965/0 $651,851.78/$0
Stephen J. Burden
Vice President (c)............ 0 0 78,599/114,288 $166,991/$257,822
Robert H. Cuttriss
President of Interpro......... 0 0 20,000/0 $31,350/$0
Brantley J. Halstead
Vice President................ 0 0 86,000/55,000 $321,125/$140,938
</TABLE>
------------------------
(a) Does not include 45,455 shares of Common Stock awarded to Mr. Alexander,
36,364 shares of Common Stock awarded to Mr. Rubizhevsky, and 14,545 shares
of Common Stock awarded to Dr. Grady in January 1999. These were stock
grants and not grants of stock options.
(b) Does not include 33,333 warrants obtained in a private transaction completed
in July 1999.
(c) Does not include 33,333 warrants obtained in a private transaction completed
in July 1999, and exercised in March 2000.
LONG TERM INCENTIVE COMPENSATION PLANS, AND DEFINED BENEFIT AND ACTUARIAL PLANS
Isonics has no long term incentive compensation plans, defined benefit
plans, or actuarial plans.
COMPENSATION OF DIRECTORS
The directors of Isonics were not compensated for their services during
fiscal year 1999, or subsequently during calendar year 1999. However, each
director was reimbursed for travel and related expenses associated with Board of
Directors' meetings. In January 2000, it was agreed to compensate non-employee
directors $2,000 for attending Board of Directors' meetings in person and $500
for attending Board of Directors' meetings telephonically beginning January 1,
2000.
The 1998 Directors' Plan (the "Directors' Plan") authorized each person
serving as a member of the Board who is not an employee of Isonics to receive
options to purchase 20,000 shares of Isonics Common Stock when such person
accepts his position as a Director and to receive an additional option to
purchase 10,000 shares when such person is re-elected as a Director provided
such person is not an employee of Isonics. The exercise price for the options is
the Fair Market Value (as defined in the Executives' Plan) on the date such
person becomes a director and the options are exercisable for five years from
such date. The options granted under the Directors' plan vest immediately upon
the date of the grant. In the event a Director resigns or is not re-elected to
the Board, failure to exercise the options in three months results in the
options' termination prior to the expiration of their term. Although the
Directors adopted the plan in 1998, the Board formalized the plan by resolution
in January 2000.
14
<PAGE>
Under the Directors' Plan the following individuals have been granted
options:
(a) On May 21, 1998, Lindsay Gardner received 20,000 options exercisable at
$2.3750 per share through May 21, 2003.
(b) On August 1, 1998, Richard Parker received 20,000 options exercisable at
$1.65 per share through August 1, 2003.
(c) On October 5, 1998, as a result of their re-election to the Board of
Directors Ms. Gardner and Mr. Parker each received options to acquire an
additional 10,000 shares exercisable at $1.1875 per share through
October 5, 2003.
(d) On January 30, 2000, Larry J. Wells received 20,000 options exercisable
at $7.3125 per share through January 29, 2005.
(e) On April 26, 2000, following their re-election as directors at our
annual meeting of shareholders, we granted options to purchase 10,000
shares to each of Ms. Gardner and Messrs. Parker and Wells. These options
are exercisable at $6.125 per share through April 26, 2005.
As of April 30, 2000, options to purchase a total of 110,000 shares were
outstanding under the Directors Plan. We do not have any other arrangements
pursuant to which we compensate the Directors for acting in their capacities as
such.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following sets out information regarding transactions between officers,
directors and significant shareholders of the Company during the most recent two
fiscal years and during the subsequent fiscal year.
CORPORATE LOANS TO OFFICERS
During the fiscal years ended April 30, 1998, 1999, and 2000, we had loans
outstanding to two officers. The funds had been advanced to the officers to
allow them to exercise options prior to our Initial Public Offering. The options
were exercised in September 1996, in part, to allow us to establish a pool of
shares available for future awards pursuant to the Plans in amounts that comply
with the guidelines established by certain state blue sky authorities. Interest
was charged on these loans at a rate of 6.6% per annum. In minutes effective
October 31, 1999 and January 30, 2000, the Board of Directors agreed to forgive
a portion of the current interest and principal due and to accept Isonics Common
Stock, owned by the officers, in payment of the remaining balance owed. The
amount owed by Mr. Alexander, that was forgiven by the Board of Directors, in
October 1999, was $74,038.54. The amount owed by Mr. Rubizhevsky, that was
forgiven by the Board of Directors, in October 1999, was $60,534.23. In both
cases the amount forgiven was treated as bonus compensation to Mr. Alexander and
Mr. Rubizhevsky. Mr. Alexander and Mr. Rubizhevsky surrendered 30,437 shares of
Isonics Common Stock each to pay off $175,012.33 in accumulated interest and
principal ($10,012.33 in interest and $165,000.00 in principal each). As of
15
<PAGE>
April 30, 2000 we had no loans receivable outstanding with our officers or
employees. Please refer to the following schedule.
<TABLE>
<CAPTION>
JAMES E. ALEXANDER BORIS RUBIZHEVSKY
PRESIDENT & CEO SENIOR VICE PRESIDENT
------------------ ---------------------
<S> <C> <C>
Balance as of May 1, 1997................................. $198,570.46 $167,570.46
FY 1998 Borrowings (a).................................... 86,662.35 59,812.86
FY 1998 Repayments (a).................................... 53,207.42 4,040.88
----------- -----------
Balance as of April 30, 1998.............................. $232,025.39 $223,342.44
FY 1999 Borrowings (a).................................... 8,360.78 3,750.51
FY 1999 Repayments (a).................................... 4,025.79 3,767.73
----------- -----------
Balance as of April 30, 1999.............................. $236,360.38 $223,325.22
FY 2000 Borrowings (a).................................... 7,690.49 7,221.34
FY 2000 Repayments (a)(b)................................. 244,050.87 230,546.56
----------- -----------
Balance as of April 30, 2000.............................. $ 0.00 $ 0.00
</TABLE>
------------------------
(a) Includes interest accrued and paid. Amounts are aggregated.
(b) Includes amounts forgiven, as described above.
CORPORATE LOANS FROM OFFICERS AND EMPLOYEES
On occasion during the fiscal years ended April 30, 1998, 1999, and 2000,
officers and employees of Isonics loaned Isonics funds. The following schedules
summarize these borrowing and repayments.
<TABLE>
<CAPTION>
BALANCE AS OF FY 1998 FY 1998 BALANCE AS OF
NAME AND PRINCIPAL POSITION MAY 1, 1997 BORROWINGS (A) REPAYMENTS (A) APRIL 30, 1998
--------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
James E. Alexander ...................... $ 0.00 $ 25,000.00 $ 25,000.00 $0.00
President & CEO
Boris Rubizhevsky ....................... $ 0.00 $ 0.00 $ 0.00 $0.00
Senior Vice President
Daniel J. Grady ......................... $ 0.00 $ 15,600.00 $ 15,600.00 $0.00
Vice President
Stephen J. Burden ....................... $ 0.00 $ 86,821.92 $ 86,821.92 $0.00
Vice President (b)
Lindsay Gardner ......................... $ 0.00 $122,880.28 $122,880.28 $0.00
Director (c)
Jacques J. Delente (d) .................. $150,000.00 $ 13,020.55 $163,020.55 $0.00
</TABLE>
------------------------
(a) Includes interest accrued and paid through April 30, 1998. Amounts are
aggregated.
(b) Dr. Burden was also granted warrants exercisable for 40,951 shares of Common
Stock issued in connection with a private placement (the "Placement I") of
12% nonconvertible promissory notes and warrants to purchase Isonics Common
Stock in September 1997.
(c) Ms. Gardner was also granted warrants exercisable for 91,001 shares of
Common Stock issued in connection with Placement I of 12% nonconvertible
promissory notes and warrants to purchase Isonics Common Stock in
September 1997.
16
<PAGE>
(d) Dr. Delente was also granted warrants exercisable for 122,853 shares of
Common Stock issued in connection with Placement I of 12% nonconvertible
promissory notes and warrants to purchase Isonics Common Stock in
September 1997.
<TABLE>
<CAPTION>
BALANCE AS OF FY 1999 FY 1999 BALANCE AS OF
NAME AND PRINCIPAL POSITION MAY 1, 1998 BORROWINGS (A) REPAYMENTS (A) APRIL 30, 1999
--------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
James E. Alexander ...................... $0.00 $ 0.00 $ 0.00 $ 0.00
President & CEO
Boris Rubizhevsky ....................... $0.00 $44,290.20 $ 0.00 $44,290.20
Senior Vice President
Daniel J. Grady ......................... $0.00 $47,100.00 $47,100.00 $ 0.00
Vice President
Stephen J. Burden ....................... $0.00 $ 0.00 $ 0.00 $ 0.00
Vice President
Lindsay Gardner ......................... $0.00 $ 0.00 $ 0.00 $ 0.00
Director
Jacques J. Delente ...................... $0.00 $93,000.00 $48,000.00 $45,000.00
</TABLE>
------------------------
(a) Includes interest accrued and paid through April 30, 1999. Amounts are
aggregated.
<TABLE>
<CAPTION>
BALANCE AS OF FY 2000 FY 2000 BALANCE AS OF
NAME AND PRINCIPAL POSITION MAY 1, 1999 BORROWINGS (A) REPAYMENTS (A) APRIL 30, 2000
--------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
James E. Alexander ...................... $ 0.00 $ 0.00 $ 0.00 $0.00
President & CEO
Boris Rubizhevsky ....................... $44,290.20 $ 8,858.04 $53,148.24 $0.00
Senior Vice President (b)
Daniel J. Grady ......................... $ 0.00 $ 0.00 $ 0.00 $0.00
Vice President
Stephen J. Burden ....................... $ 0.00 $57,500.00 $57,500.00 $0.00
Vice President (c)
Lindsay Gardner ......................... $ 0.00 $ 0.00 $ 0.00 $0.00
Director
Jacques J. Delente ...................... $45,000.00 $13,500.00 $58,500.00 $0.00
</TABLE>
------------------------
(a) Includes interest accrued and paid through April 30, 2000. Amounts are
aggregated.
(b) Mr. Rubizhevsky's note to Isonics was converted into 66,666 shares of Common
Stock underlying 33,333 shares of Series A Convertible Preferred Stock and
33,333 warrants issued in connection with a second private placement (the
"Placement II") of Series A Convertible Preferred Stock and warrants to
purchase Isonics Common Stock on July 30, 1999.
(c) Dr. Burden's note to Isonics was converted into 66,666 shares of Common
Stock underlying 33,333 shares of Series A Convertible Preferred Stock and
33,333 warrants issued in connection with Placement II on July 30, 1999.
Mr. Hegener had a loan payable to him from Isonics in the amount of $438,314
resulting from the 1998 purchase of Chemotrade by Isonics. Isonics issued to Mr.
Hegener 35,000 warrants to purchase Common Stock at $3.00 per share through June
30, 2004, to compensate him for a late loan payment.
COMPENSATION AGREEMENTS. Please refer to the prior section, "Item 10.
Executive Compensation," describing the employment agreements between the
Company and Messrs. Alexander, Rubizhevsky, Halstead, and Hegener, and Drs.
Grady, Burden, and Cuttriss. Also described in this section is the directors'
compensation policy.
17
<PAGE>
PURCHASE OF PREFERRED STOCK, COMMON STOCK AND WARRANTS. Please refer to the
prior section, "Item 11. Security Ownership of Certain Beneficial Owners and
Management," for more information regarding purchases of equity instruments by
management and directors.
SHORT SWING LIABILITY. On behalf of Metallurgy International, Inc., an
affiliate of Dr. Cuttriss, but without authorization from us or Dr. Cuttriss, a
broker-dealer sold and purchased shares of Isonics common Stock in July and
September of 1999 respectively. With our authorization and that from Dr.
Cuttriss, Metallurgy International sold additional shares in February and March
2000. As a result, we raised the concern that Dr. Cuttriss may have obtained a
short-swing profit which Dr. Cuttriss satisfied, subject to further review after
consultation with his personal counsel. We have received an opinion of counsel,
which reached the conclusion that "a court would likely not impose liability on
[Dr.] Cuttriss for the unauthorized July 1999 and September 1999 transactions
under Section 16(b) of the Securities Exchange Act of 1934."
18
<PAGE>
AMENDMENT OF THE 1996 EXECUTIVES' EQUITY INCENTIVE PLAN
(PROPOSAL NO. 2)
AND
AMENDMENT OF THE 1996 EQUITY INCENTIVE PLAN
(PROPOSAL NO. 3)
YOUR BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT OF
THE 1996 EXECUTIVES' EQUITY INCENTIVE PLAN
AND
"FOR" THE AMENDMENT OF
THE 1996 EQUITY INCENTIVE PLAN
THE 1996 EXECUTIVES' EQUITY INCENTIVE PLAN. The 1996 Executives' Equity
Incentive Plan (the "Executives' Plan") was adopted by the Board of Directors in
November 1996 and ratified by the shareholders of the Company at the 1997 Annual
Meeting. The purpose of the Executives' Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company and its subsidiaries,
by offering them an opportunity to participate in the Company's future
performance through awards of stock options, restricted stock and stock bonuses.
The proposed amendment will increase from 570,000 to 1,000,000 the number of
shares reserved for issuance under the Executives' Plan. As of August 30, 2000,
189,417 shares or options remain issuable under the Executives' Plan.
THE 1996 EQUITY INCENTIVE PLAN. The 1996 Equity Incentive Plan (the
"Employees' Plan") was adopted by the Board of Directors in November 1996 and
ratified by the shareholders of the Company at the 1997 Annual Meeting. As the
case of the Executives' Plan, the purpose of the Employees' Plan is to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company and its subsidiaries, by offering
them an opportunity to participate in the Company's future performance through
awards of stock options, restricted stock and stock bonuses. The proposed
amendment will increase from 150,000 to 500,000 the number of shares reserved
for issuance under the Employees' Plan. As of August 30, 2000, only 9,862 shares
or options remain issuable under the Employees' Plan.
RECOMMENDATION OF THE BOARD. At the Annual Meeting, the shareholders are
being requested to ratify the amendments to increase the number of shares
available under the Executives' Plan to 1,000,000 (an increase of 430,000
shares, Proposal No. 2) and to increase the number of shares available under the
Employees' Plan to 500,000 (an increase of 350,000, Proposal No. 3).
Your Board recommends amending both of the Plans to increase the number of
shares reserved for issuance under the plans. These amendments will allow the
Compensation Committee of the Board and the Board itself to issue options and
stock bonuses, and to provide for the issuance of restricted stock to executives
and employees of the Company to encourage them to continue to share in the
growth and prosperity of the Company.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present, or represented and entitled to vote at the
Annual Meeting, will be required to ratify the adoption of both Proposals. If
only one Proposal is adopted, that Proposal will be implemented regardless of
whether the other Proposal is adopted.
The Board of Directors believes that the Executives' Plan and the Employees'
Plan each continues to be necessary to allow the Company to provide meaningful
equity incentives to attract, motivate and retain executives and employees.
Consequently, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR PROPOSAL NO 2 TO INCREASE THE NUMBER OF SHARES INCLUDED IN THE
EXECUTIVES' PLAN; AND
FOR PROPOSAL NO 3 TO INCREASE THE NUMBER OF SHARES INCLUDED IN THE
EMPLOYEES' PLAN.
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<PAGE>
PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS PROPOSAL UNLESS
SHAREHOLDERS SPECIFY OTHERWISE IN THOSE PROXIES.
REASONS FOR RECOMMENDATION. Isonics operates in an extremely competitive
high tech job market where unemployment is extremely low and where turnover can
be very high. In this job market, stock option and other equity incentive plans
are offered by the majority of the firms with whom the Company competes for
talent.
SUMMARY OF THE PLANS. The terms of both the Executives' Plan and the
Employees' Plan are similar. A summary of the principal provisions of the Plans
is set forth below.
PURPOSE. The purpose of each of the Plans is to attract and retain the best
available personnel, to provide additional incentives to the employees of the
Company and its subsidiaries, to promote the success of the Company's business
and to enable the executives and employees to share in the growth and prosperity
of the Company by providing them stock options, stock bonuses, and restricted
stock awards.
ADMINISTRATION. The Executives' Plan and the Employees' Plan are each
administered by a committee of the Board of Directors formed pursuant to the
Executives' Plan (the "Committee"). Currently the members of the Committee are
Lindsay Gardner, Richard Parker, and Larry Wells, all outside (non-employee)
directors who are not eligible to participate in the Executives' Plan. All
questions of interpretation of the Executives' Plan or the Employees' Plan are
determined in the sole discretion of the Committee, and its determinations are
final and binding upon all participants.
ELIGIBILITY. Incentive stock options may be granted only to employees
(including officers and directors who are also employees) of the Company or of a
subsidiary. All other awards may be granted to employees, officers, directors,
consultants, independent contractors and advisors of the Company or any
subsidiary provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction.
PURCHASE PRICE. The exercise price for incentive stock options issued under
the plan must be no less than 100% of the market price of the Company's common
stock on the date the options are granted; non-qualified stock options can be
issued with an exercise price no less than 85% of the fair market value of the
Common Stock. The purchase price of shares sold under either of the Plans
pursuant to a restricted stock award must be at least 85% of the fair market
value of the shares on the date the restricted stock award is granted. Stock
bonuses issued to persons under either of the Plans will be treated as
compensation to the recipient based on the current fair market value of the
shares. The determination of the fair market value of the shares on a grant date
is based upon the price at which the shares are traded on the public market.
CAPITAL CHANGES. In the event any change is made in the Company's
capitalization, such as a stock split or stock dividend, which results in an
increase or decrease in the number of outstanding shares of common stock without
receipt of consideration by the Company, appropriate adjustments will be made by
the Board of Directs in the shares subject to purchase under the Executives'
Plan or the Employees' Plan and in the purchase price per share.
NON-ASSIGNABILITY. No person receiving any options or rights under the
Executives' Plan or the Employees' Plan may pledge, assign or transfer the
options or rights for any reason. Shares issued under the Executives' Plan or
the Employees' Plan, or upon the exercise of an option issued under either Plan
can only be transferred in accordance with the requirements of federal and
applicable state securities laws.
AMENDMENT AND TERMINATION OF THE PLANS. The Board may at any time terminate
or amend the Executives' Plan or the Employees' Plan in any respect; provided,
however, that the Board will not, without the approval of the shareholders of
the Company, amend either Plan in any manner that requires such shareholder
approval pursuant to the Internal Revenue Code, the Securities Exchange Act of
1934, or the
20
<PAGE>
regulations promulgated thereunder as such provisions apply to plans such as the
Executives' Plan or the Employees' Plan.
FEDERAL TAX INFORMATION. The grant or exercise of a stock option pursuant
to any of the Option Plans, the purchase of stock pursuant, the receipt of a
stock bonus or a restricted stock award, or the sale of the Common Stock
received each is a taxable event with ramifications under the federal Internal
Revenue Code of 1986 and under applicable state laws. There are no federal
income tax consequences to the Company upon the grant of options. Stock bonuses
are treated as the payment of compensation to the recipient. The Company is
currently entitled to a deduction to the extent amounts are taxed as ordinary
income to a participant.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to shares purchased under the
Executives' Plan and does not purport to be complete, and does not discuss the
income tax laws of any municipality, state or foreign country in which a
participant may reside.
INDEPENDENT AUDITORS
The independent accounting firm of Grant Thornton LLP was selected by the
Board of Directors with respect to the audit of the consolidated financial
statements of the company for the fiscal year ending April 30, 2000, as well as
many prior fiscal years. A representative of Grant Thornton LLP is expected to
be present at the annual meeting.
PROPOSALS FROM SHAREHOLDERS
The Company expects to hold its Fiscal Year 2001 Annual Meeting of
Shareholders in October or November, 2001. Proposals from shareholders intended
to be presented at the next Annual Meeting of shareholders should be addressed
to the Company at Isonics Corporation, Attention: Corporate Secretary, 5906
McIntyre Street, Golden, CO 80403 and must be received by the Company by
June 30, 2001. Upon receipt of any such proposal, the Company shall determine
whether or not to include any such proposal in the Proxy Statement and proxy in
accordance with applicable law. It is suggested that such proposals be forwarded
by Certified Mail-Return Receipt Requested.
ANNUAL REPORT TO SHAREHOLDERS
This proxy statement is being accompanied by the Company's annual report to
shareholders. The annual report to shareholders does include the audited
financial statements for the Company.
ANNUAL REPORT ON FORM 10-KSB AND QUARTERLY REPORT ON FORM 10-QSB
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
APRIL 30, 2000, AND OTHER REPORTS FILED BY ISONICS UNDER THE SECURITIES EXCHANGE
ACT OF 1934, ARE AVAILABLE TO ANY SHAREHOLDER AT NO COST UPON REQUEST TO:
CORPORATE SECRETARY, 5906 MCINTYRE STREET, GOLDEN, CO 80403, OR BY TELEPHONE:
(303) 279-7900.
21
<PAGE>
OTHER MATTERS
Management does not know of any other matters to be brought before the
meeting. Should any other matter requiring a vote of shareholders arise at the
meeting, the persons named in the proxy will vote the proxies in accordance with
their best judgment.
By Order of the Board of Directors:
ISONICS CORPORATION
James E. Alexander, PRESIDENT
22
<PAGE>
ISONICS CORPORATION
5906 MCINTYRE STREET
GOLDEN, CO 80403
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James E. Alexander and Boris Rubizhevsky, or
either one of them, as Proxy, each with the power to appoint his substitute, and
hereby authorizes them to vote, as designated below, all of the shares of Common
Stock or Preferred Stock of ISONICS CORPORATION held of record by the
undersigned on August 30, 2000, at the Annual Meeting of Shareholders to be held
on October 11, 2000 and at any adjournments or postponements thereof.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW) / / TO VOTE FOR ALL NOMINEES LISTED BELOW / /
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE
BOX NEXT TO THE NOMINEE'S NAME BELOW.)
James E. Alexander / / Boris Rubizhevsky / / Lindsay A. Gardner / /
Richard Parker / / Larry J. Wells / /
2. AMENDMENT OF 1996 EXECUTIVES' EQUITY INCENTIVE PLAN
/ / FOR / / AGAINST ABSTAIN/ /
3. AMENDMENT OF 1996 EQUITY INCENTIVE PLAN
/ / FOR / / AGAINST ABSTAIN/ /
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(OVER)
<PAGE>
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for the election as directors of all nominees and will abstain from
voting on all other matters.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please check here if you plan to attend the Annual Meeting: / /
<TABLE>
<S> <C>
Date: , 2000
Signature
Signature if held jointly
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY IN THE ENCLOSED ENVELOPE
