As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM SB-2
Registration Statement
Under The
Securities Act of 1933
---------------------------------
INTERNATIONAL ISOTOPES INC.
(Name of Small Business Issuer in its Charter)
Texas
(State or Other Jurisdiction
of Incorporation or Organization)
2835
(Primary Standard Industrial
Classification Code Number)
74-2763837
(I.R.S. Employer
Identification No.)
2600 Longhorn Boulevard, Suite 105
Austin, Texas 78758
(512) 834-1822
(Address and Telephone Number of Principal Executive Offices)
2600 Longhorn Boulevard, Suite 105
Austin, Texas 78758
(Address and Principal Place of Business or
Intended Principal Place of Business)
SIDNEY TODRES, ESQ.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
(212) 351-4500
(Name, Address and Telephone Number of Agent for Service)
Copy to:
LAWRENCE B. FISHER, ESQ.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
(212) 506-5000
Approximate Date of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
---------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Amount To Be Offering Price Aggregate Registration
Title of Each Class of Securities To Be Registered Registered Per Share(1) Offering Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ............................ 2,530,000(2) $ 10 $25,300,000 $ 7,667
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants to purchase Common Stock ...... 220,000 $ .0001 $ 22 --
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value, issuable upon
exercise of Representative's Warrants ................. 220,000 $ 12 $ 2,640,000 $ 800
- ------------------------------------------------------------------------------------------------------------------------------------
Total....................................................... $ 8,467
====================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 330,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
---------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
INTERNATIONAL ISOTOPES INC.
---------------------------------
CROSS-REFERENCE SHEET
(Between Items of Form SB-2 and Prospectus)
Form SB-2 Item No. and Caption Prospectus Captions
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................. Front Cover Page; Underwriting
2. Inside Front and Outside Back
Cover Pages of Prospectus............. Inside Front Cover Page;
Available Information; Back
Cover Page
3. Summary Information and Risk
Factors............................. Prospectus Summary; The
Company; Risk Factors
4. Use of Proceeds........................ Use of Proceeds
5. Determination of Offering
Price............................... Underwriting
6. Dilution............................... Dilution
7. Selling Security Holders............... Principal and Selling
Stockholders
8. Plan of Distribution................... Front Cover Page; Underwriting
9. Legal Proceedings...................... Business
10. Directors, Executive
Officers, Promoters and
Control Persons..................... Management; Principal and
Selling Stockholders
11. Security Ownership of Certain
Beneficial Owners and
Management.......................... Principal and Selling
Stockholders
12. Description of Securities.............. Description of Capital Stock
13. Interest of Named Experts and
Counsel............................. Experts
14. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities......................... Not Applicable
15. Organization Within Last Five
Years............................... Prospectus Summary; The
Company; Business
16. Description of Business................ Business
17. Management's Discussion and
Analysis or Plan of
Operation........................... Plan of Operation
18. Description of Property................ Business
<PAGE>
19. Certain Relationships and Related
Transactions........................ Certain Transactions
20. Market for Common Equity and
Related Stockholder
Matters............................. Front Cover Page;
Capitalization; Dividends;
Description of Securities;
Principal and Selling
Stockholders
21. Executive Compensation................. Management
22. Financial Statements................... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
With Accountants on
Accounting and Financial
Disclosure.......................... Not Applicable
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not consitute an offer to sell or the
solitication of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated May 1, 1997
PROSPECTUS
2,200,000 Shares
INTERNATIONAL ISOTOPES INC.
Common Stock
---------------------------------
International Isotopes Inc. (the "Company") hereby offers (the "Offering")
2,200,000 shares of its common stock, $.01 par value (the "Common Stock"). Prior
to this Offering, there has been no public market for the Common Stock and there
can be no assurance that such a market will develop following completion of this
Offering or, if developed, that it will be sustained. It is currently
anticipated that the initial offering price will be between $8.00 and $10.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. Application has been made for
quotation of the Common Stock on The Nasdaq SmallCap Market ("Nasdaq") under the
symbol "INIS" and listing of the Common Stock on the Boston Stock Exchange
("BSE") under the symbol "_______."
Certain existing stockholders, directors and officers of the Company and
their affiliates intend to purchase approximately 10% of the shares of Common
Stock being offered hereby. See "Underwriting."
---------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 10 AND "DILUTION."
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
Per Share................... $ $ $
- --------------------------------------------------------------------------------
Total (3)................... $ $ $
================================================================================
(1) Does not include additional compensation payable to Keane Securities Co.,
Inc., the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting estimated expenses of $_________ payable by the Company,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted the Underwriters an option, exercisable within
45 days after the date of this Prospectus, to purchase from them up to an
additional 230,000 and 100,000 shares of Common Stock, respectively, on the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to the
Company will be $______, $ and $______, respectively, and the proceeds to
the Selling Stockholders will be $______. See "Underwriting."
---------------------------------
The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by their counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify this Offering and to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock offered hereby will be made
against payment therefor at the offices of Keane Securities Co., Inc. in New
York, New York on or about ____________, 1997.
---------------------------------
Keane Securities Co., Inc.
---------------------------------
The date of this Prospectus is ____________, 1997.
<PAGE>
[Inside front cover page of Prospectus]
[Insert: Layout of diagnostic and therapeutic procedures for radioisotopes:
LINAC, targets, radiochemical separation, assay, air shipment, hospital,
scanning and therapy.]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and such other reports as the Company may determine to be
appropriate or as may be required by law.
--------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
[Front of first page of prospectus (or fold-out)]
[Insert: Photographs of radioisotope diagnostic scans of brain, heart, lung and
bones. Also, photographs of pre-and post-cancer therapy using radioisotopes.]
3
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements. Such forward-looking
statements include, but are not limited to, the Company's expectations regarding
its future financial condition and operating results, product development,
business and growth strategy, market conditions and competitive environment. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The following
summary is qualified in its entirety by the more detailed information and
financial statements and notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, information in this Prospectus (i) gives effect to a
2.5-for-1 stock split effected March 15, 1997 and the adoption of Restated
Articles of Incorporation on March 20, 1997, (ii) assumes no exercise of the
Underwriters' over-allotment option to purchase up to an additional 330,000
shares of Common Stock (230,000 shares from the Company and 100,000 shares from
the Selling Stockholders) and (iii) assumes no exercise of the warrants to
purchase 220,000 shares of Common Stock issued to the Representative in
connection with this offering (the "Representative's Warrants"). A glossary of
terms has been included on page 52 of this Prospectus.
The Company
International Isotopes Inc. (the "Company") is a development stage company
which intends to be the first independent domestic producer of pharmaceutical
grade radioactive isotopes ("radioisotopes") and radiopharmaceuticals (on a
contract or joint venture basis) for commercial sale to the nuclear medicine
industry. Radioisotopes, which are indispensable components of nuclear medicine,
are radiation emitting atoms that are used for both medical diagnostics and
in-the-body ("in vivo") therapeutics. The Company also intends, under an
exclusive worldwide license, to complete development of and to manufacture and
market a high resolution medical imaging camera, key components of which are
patented, for use in nuclear diagnostic medicine, which the Company believes
will have resolution at least four times greater than any imaging camera
currently on the market.
When a specifically selected radioisotope is attached or "tagged" to one of
a variety of pharmaceuticals, the resulting product is known as a
radiopharmaceutical. The pharmaceutical component acts as a carrier to seek out
targeted internal organs, tumor sites and/or cells for which it has a
predetermined natural affinity. In diagnostics, the radioisotope component
provides a signal as to the location of the attached pharmaceutical as it
targets the specific organ or site. This process, in turn, is captured by
external imaging equipment, such as positron emission tomography ("PET") and
single photon emission computed tomography ("SPECT") cameras. In therapeutics,
the radioisotope component provides in vivo treatment of the targeted organ,
cancerous tumor and/or cancerous cell site through the emission of either
photons or beta radiation.
Nuclear medicine is estimated to be a $7 to $10 billion industry in the
United States which, according to industry studies, is projected to grow at a
10.8% compound annual rate over the next eight years with radiopharmaceuticals
representing an estimated 13% of this market. The Company believes that the in
vivo therapeutics segment of nuclear medicine will grow at a substantially
higher rate based on anticipated United States Food and Drug Administration
("FDA") approvals of a number of monoclonal antibodies, peptides and other
pharmaceutical carriers, currently in clinical trials, for in vivo therapeutic
treatment of various forms of cancer, including primary tumors, metastasized
sites, other tumors and organ disorders, including cardiovascular disease. In
vivo therapeutic doses of radioisotopes (measured in millicuries) administered
to a patient are generally ten to 100 times greater than diagnostic doses and
generate proportionally greater revenues.
In May 1996, the Company acquired for approximately $2.9 million the
equipment, proprietary designs and intellectual property comprising the proton
linear accelerator injector (the "LINAC") which was part of the U.S.
government's 53-mile Superconducting Super Collider ("SSC") project which was
terminated in 1994. The LINAC has been redesigned and is being reconfigured by
the Company to produce an energy level of up to 70 million electron volts ("70
MeV"), which is more than twice that of all but one of the 17 largest proton
cyclotron accelerators currently in use in the United States. In addition, the
LINAC will have a beam intensity of 1,000 microamperes ("1.0mA"), which is five
times the beam intensity of any of the 17 largest cyclotron accelerators. When
fully operational in the second quarter of 1998, as to which there can be no
assurance, the Company believes that the LINAC will be able to produce
radioisotopes at approximately one-fifth the unit cost and five times the volume
(measured in millicuries) of any of the 17 cyclotron accelerators. A new 30 MeV
cyclotron radioisotope production facility costs approximately $10 to $12
million and
4
<PAGE>
becomes operational two to three years from the date ordered. To the Company's
knowledge, there are no new cyclotrons or linear accelerators with energy
capacities of 30 MeV or more currently on order in the United States.
Furthermore, of the 17 largest cyclotron accelerators currently in use in
the United States, only one has an energy level significantly above 30 MeV (i.e.
approximately 80 MeV) but is limited in its production capacity due to its
maximum 0.25mA beam intensity. According to the Committee on Biomedical Isotopes
of the Institute of Medicine-National Academy of Sciences, the production of
promising radioisotopes for medical diagnostic and therapeutic use will require
proton accelerators with energy levels higher than 30 MeV. Heretofore, two U.S.
government national laboratories, Brookhaven National Laboratory and Los Alamos
National Laboratory, have been the primary domestic suppliers of research
radioisotopes which require such higher energy levels to produce. However, a
combination of scheduling problems, costs and, more recently, anticipated
long-term or permanent shutdowns have made these two sources unreliable and/or
unavailable. It is the Company's strategy to supply currently used radioisotopes
and to use its high energy 70 MeV LINAC to manufacture many of the upcoming and
potentially superior diagnostic and therapeutic pharmaceutical grade
radioisotopes. In addition, when the LINAC is fully operational, the Company
intends to manufacture and distribute finished radiopharmaceutical kits
(finished, packaged dosage-form radiopharmaceutical drug products) for the major
and specialized radiopharmaceutical companies on a contract or joint venture
basis.
One out of every three hospital patients in the United States undergoes a
procedure involving the use of radioisotopes for diagnosis or therapy. More than
13 million diagnostic medical procedures employing radioisotopes are performed
annually and, in addition, approximately 325,000 therapeutic medical procedures
employing radioisotopes were performed in the United States in 1995 resulting in
more than one millon treatments employing radioisotopes. According to industry
sources, there will be approximately 21 million diagnostic medical procedures
and more than one million therapeutic medical procedures employing radioisotopes
performed in the United States in the year 2000.
Cancer is the leading cause of death in the United States after heart
disease. In the United States, five million persons have been diagnosed as
having cancer within the past five years and an estimated one million persons
are expected to be diagnosed with the disease in 1997. Worldwide, there are more
than 200 drug products currently under development for both cancer diagnostics
and treatment. Many of these are radiopharmaceuticals which require specific
radioisotopes which cyclotron accelerators currently in use in the United States
cannot produce either in volume or at all because of their limited energy and/or
beam intensity.
Presently, the most commonly used radioisotopes in the United States are
produced by four domestic radiopharmaceutical companies, primarily for their own
use, and by foreign manufacturers. These radioisotopes include:
Radioisotope Symbol Half-life Primary Source
- ------------ ------ --------- --------------
Thallium - 201 Tl-201 3 days Domestic
Gallium - 67 Ga - 67 3.1 days Domestic
Indium - 111 In - 111 2.8 days Domestic
Iodine - 123 I - 123 13 hours Domestic
Molybdenum - 99 Mo - 99 2.7 days Foreign
Technetium - 99m* Tc - 99m 6 hours Foreign
Xenon - 133 Xe - 133 5.3 days Foreign
Iodine - 131 I - 131 8 days Foreign
Palladium - 103 Pd - 103 17 days Domestic
*Note: Technetium-99m is the "daughter" of Molybdenum-99.
These radioisotopes are used either independently or in various
combinations or "cocktails" and assist in the diagnosis of a myriad of medical
conditions including coronary heart disease, pulmonary embolism, thyroid
carcinoma,
5
<PAGE>
brain disorders, acute cholecystitis (inflammation of the gall bladder),
gastrointestinal bleeding, renal artery stenosis, bone cancer and other
diseases.
Based on volume, 70% of all radioisotopes currently used for medical
diagnostics in the United States are from foreign sources with substantially all
commercially available nuclear reactor-produced radioisotopes being manufactured
in Canada. This is of continuing concern to the medical community, researchers
and the U.S. Department of Energy ("DOE"). Accelerators have a significant
environmental advantage over nuclear reactors in that they produce radioisotopes
with relatively little attendant radioactive waste. Molybdenum-99 ("Mo-99"),
which at present accounts for 36% of the revenues and 70% of the unit volume of
sales of radioisotopes for medical diagnostics, currently is reactor-produced
through neutron fission of uranium-235, which results in 90% radioactive waste
with long-term hazardous levels of radiation. The Company believes the LINAC
will be able to produce Mo-99 with limited attendant radioactive waste at a cost
projected to be substantially equivalent to the cost of reactor-produced Mo-99.
The Company is constructing two facilities, a 27,000 square foot facility
for administration, manufacturing, research and development and a 40,000 square
foot facility for radioisotope production (the "Radioisotope Production
Facility") on 21.6 acres of land the Company has acquired in a 500 acre high
technology industrial park located in Denton, Texas, known as the "North Texas
Research Center" (the "Research Center"). The Company expects the
administration, manufacturing, research and development facility to be completed
by August 1997 and the Radioisotope Production Facility to be completed by March
1998. The Research Center is strategically located adjacent to a principal
highway and is 24 miles from the Dallas/Fort Worth International Airport and 14
miles from Alliance Industrial Airport. Radioisotopes manufactured by the
Company will be packaged for immediate transport by overnight carriers which
have distribution hubs at these airports. Most radioisotopes used in nuclear
medicine have limited half-lives and the proximity of the Company's facilities
to these airports will enable the Company to deliver its radioisotopes and
radiopharmaceuticals to most locations in the United States within 12 to 24
hours of production.
The Company has an option to acquire an additional 60 acres of land in the
Research Center adjacent to the site of the Radioisotope Production Facility to
enable major and specialized pharmaceutical companies, radiopharmacies and
related service companies to establish facilities in close proximity to the
Company to facilitate coordination and joint venture projects with the Company
for the manufacture and delivery of radiopharmaceuticals to hospitals, clinics,
radiopharmacies and research institutions.
As part of its long-term strategy, upon completion of its facilities, the
Company intends to complete development of and commence to manufacture and
market a high resolution medical imaging camera, key components of which are
patented, for use in diagnostic nuclear medicine. The Company has obtained the
exclusive worldwide rights in the medical field to the relevant patents from
Hospital Financial Corporation which cover certain inventions by Ira Lon Morgan,
Ph.D., a founder and the Chairman of the Board of the Company, and relate to
single photon counting of penetrating radiation. Current medical imaging cameras
are limited in their spatial resolution and sensitivity due to the use of
electric current integration detection of photons and the scatter of low energy
photons. Presently, the resolution of SPECT cameras is approximately four
millimeters and is approximately ten millimeters for PET cameras. Certain
aspects of the patented technology to be used in the Company's medical imaging
camera have been used in a camera for industrial applications which has
demonstrated spatial resolution of less than 0.5 millimeters, reflecting a
material enhancement compared to existing medical imaging technology. There is a
direct correlation between the early detection of a cancerous tumor that is 2.0
millimeters or less in size and the likelihood of a successful outcome following
treatment. In 1995, according to industry sources, the number of installed
medical imaging cameras worldwide was 10,110 located at 4,780 sites representing
an investment in excess of $7.5 billion. The predominant imaging cameras were
SPECT, which numbered 6,890 units up from 5,940 units in 1993. It is estimated
that more than 1,000 medical imaging cameras for diagnostic nuclear medicine
will be purchased during 1997 representing an annual world market of
approximately $380 million.
The Company's management team has been assembled by Dr. Morgan. The Company
believes that its senior management, collectively, has had more experience in
designing, constructing and operating linear accelerators than the management
group of any other commercial company in the country. The team includes senior
management personnel who are known internationally for their expertise in
radioisotope production, radiochemical processing and radiopharmaceutical
production. In addition, Mr. Carl W. Seidel, Associate Director, Technical
Affairs of DuPont Merck Pharmaceutical Co., the largest radiopharmaceutical
manufacturer in the world, has taken early retirement and will soon join the
Company as President and Chief Executive Officer.
6
<PAGE>
The Company's business strategy is to become the leading domestic
commercial producer of a full range of radioisotopes, radiopharmaceuticals (on a
contract or joint venture basis) and medical instrumentation for use in nuclear
medicine, radiation oncology, diagnostic imaging and research by:
o Completing construction of the Radioisotope Production Facility in
March 1998;
o Commencing full operation of the LINAC in June 1998 and commencing to
produce all radioisotopes required for diagnostic medical imaging and
most radioisotopes required for radiation therapy, including
radioisotopes which can only be produced in volume with the higher
energy and beam intensity of the LINAC;
o Developing relationships with major and specialized
radiopharmaceutical companies to produce, package and distribute
radiopharmaceuticals, on a contract or joint venture basis, to
end-users throughout the country;
o Forming joint ventures in foreign countries to construct and operate
linear accelerator facilities to produce radioisotopes and
radiopharmaceuticals;
o Building upon its current relationships with medical institutions and
universities in the southwestern United States, including the
University of North Texas in Denton, Texas; the University of Texas
Southwest Medical Center in Dallas, Texas; M.D. Anderson Cancer
Institute in Houston, Texas; the School of Pharmacy and Radiopharmacy
in Albuquerque, New Mexico; and the School of Pharmacy and
Radiopharmacy at the University of Oklahoma; and entering into
contracts to assist these institutions, as well as other institutions,
in their research and development of radioisotopes and
radiopharmaceuticals in exchange for the exclusive commercial rights
to the developed technology;
o Developing, manufacturing and marketing a proprietary high resolution
medical imaging camera for use in nuclear diagnostic medicine; and
o Developing, manufacturing and marketing a pulsed plasma device to
produce (i) short-lived positron radioisotopes for use in PET imaging
cameras and (ii) thermal neutrons essential to a certain localized
cancer therapy treatment.
The Company was organized under the laws of the State of Texas in November
1995. Its principal executive offices, located at 2600 Longhorn Boulevard, Suite
105, Austin, Texas 78758 (tel. 512-834-1822), will be moved to the
administration, manufacturing, research and development facility being
constructed at Denton, Texas by August 1997.
7
<PAGE>
The Offering
Common Stock offered by
the Company.......................... 2,200,000 shares
Common Stock outstanding
prior to the Offering................ 3,868,446 shares(1)
Common Stock to be outstanding
after the Offering................... 6,068,446(1)
Use of Proceeds........................ To repay certain indebtedness; to
reconfigure, assemble, test and
commence operation of the LINAC,
including capital expenditures to
procure radioisotope processing
equipment; to acquire radioisotopes
for distribution prior to full
operation of the LINAC; to complete
development of, manufacture and market
a proposed medical imaging camera; to
develop, manufacture and market a
proposed pulsed plasma device; and for
working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors and Dilution.............. An investment in the shares of Common
Stock offered hereby involves a high
degree of risk and immediate and
substantial dilution. Prospective
investors should carefully consider
the matters set forth under the
captions "Risk Factors" and
"Dilution."
Proposed Symbols:
Nasdaq........................ "INIS"
Boston Stock Exchange......... " "
- ------------------------
(1) Does not include ______ shares of Common Stock reserved for issuance upon
exercise of options or stock appreciation rights or the issuance of
restricted stock available for grant under the Company's 1997 Long Term
Incentive Plan (the "Incentive Plan"), and ______ shares of Common Stock
reserved for issuance upon exercise of options granted under the Incentive
Plan at an exercise price of $______ per share. See "Capitalization" and
"Management - Long Term Incentive Plan."
8
<PAGE>
Summary Financial Information
Statement of Operations Data:
Period from November 1,
1995 (inception) through
December 31, 1996
-----------------
Sale of accelerator components .......................... $ 775,102
Cost of sales ........................................... 263,440
-----------
Gross Profit ............................................ 511,662
Operating costs and expenses ............................ 883,637
-----------
Net loss ................................................ (834,446)
===========
Net loss per share ...................................... $ (0.22)
===========
Weighted average shares of Common Stock
used to compute net loss per share ...................... 3,766,663
===========
Balance Sheet Data:
December 31, 1996
----------------------------------
Actual As Adjusted (1)
------------ ----------------
Working capital (deficit) ............ $ (750,907) $ 16,887,945
Total assets ......................... 4,256,176 19,306,587
Total liabilities .................... 2,697,270 108,829
Deficit accumulated during the
development stage .................... (834,446) (834,446)
Stockholders' equity ................. 1,558,906 19,197,758
- -------------------
(1) Adjusted to give effect to (i) the sale by the Company of the 2,200,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $9.00 per share and the initial application of the net proceeds
therefrom, (ii) the issuance of 101,783 shares of Common Stock for $162,852
since December 31, 1996, (iii) the collection of $160,000 of receivables
from the sale of stock issued prior to December 31, 1996 and (iv) the
repayment of $175,589 of short-term debt since December 31, 1996. See "Use
of Proceeds" and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus.
9
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully by
prospective investors, who should be in a position to risk the loss of their
entire investment. This Prospectus contains forward-looking statements which
include, but are not limited to, the Company's expectations regarding its future
financial condition and operating results, product development, business and
growth strategy, market conditions and competitive environment. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.
Development Stage Company; Limited Operating History; No Assurance of
Profitability
The Company is in the development stage and is subject to all of the
business risks associated with a new enterprise, including uncertainties
regarding operation of the LINAC, constraints on the Company's financial and
personnel resources, government regulation, development of proposed products and
competition. The Company was incorporated in November 1995 and has a limited
operating history. Its operations to date have been limited to acquiring the
LINAC and related assets, redesigning and reconfiguring the LINAC for production
of radioisotopes, designing facilities for its operations, acquiring land,
acquiring license rights for its proposed medical imaging camera and proposed
pulsed plasma device, raising capital, selling accelerator components and
disposing of excess equipment through private sales and auctions. At December
31, 1996, the Company had an accumulated deficit during the development stage of
approximately $834,000 and a working capital deficit of approximately $751,000.
The Company has generated only limited operating revenues, the LINAC is not
operational and has not been tested, and there can be no assurance as to when or
whether the Company will become profitable. See "Plan of Operation."
Untested LINAC
The LINAC design is based on the linear accelerators at the Brookhaven
National Laboratory and the Los Alamos National Laboratory, but the LINAC's
configuration differs dramatically from such linear accelerators in that the
LINAC is configured to operate at a significantly lower energy level (70 MeV as
compared to 200 MeV and 800 MeV, respectively), produce a higher beam intensity
(1.0mA as compared to 0.10mA to 0.15mA, respectively) and utilize three
extracted beams of protons at different energy levels to produce multiple
radioisotopes rather than one. In its intended configuration, the LINAC has not
been tested to produce radioisotopes and will not be able to be fully tested
until the Radioisotope Production Facility has been completed. There can be no
assurance that the tests will be successful and that the LINAC will operate as
designed. Delays in the operation of the LINAC or its inability to operate as
designed would materially adversely affect the Company. See "Business - The
LINAC."
Possible Need for Additional Financing
The Company anticipates the net proceeds of this Offering will be
sufficient to finance its activities for at least 18 months following the date
of this Prospectus. There can, however, be no assurance that the Company will
not require additional financing or, if required, that such additional financing
will be available to the Company on acceptable terms. Factors that may lead to a
need for additional financing include delays in construction of the Company's
administration, manufacturing, research and development facility or Radioisotope
Production Facility, delays in commencing operation of the LINAC, unanticipated
expenses in developing the proposed medical imaging camera or other proposed
products, needs to protect and enforce intellectual property rights, and
technological and market developments. To the extent the Company obtains
additional capital by issuing equity securities, investors in this Offering may
be diluted. Debt financing, if available, will likely contain restrictive
covenants, including covenants restricting the Company's ability to incur
additional indebtedness and pay dividends, and provide for security interests in
the Company's assets. The unavailability of additional financing, when needed,
could have a material adverse effect on the Company. See "Plan of Operation."
Although the Company intends to finance construction of its administration,
manufacturing, research and development facility and Radioisotope Production
Facility, at an estimated aggregate cost of $4,428,000, through mortgage
financing with a commercial lending institution, there can be no assurance that
the Company will be able to obtain such
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mortgage financing, in which event the Company may be required to fund such
construction, in whole or in part, with proceeds from this Offering (in which
event the Company may be required to reduce amounts currently allocated to other
uses) or alternative sources of financing, the availability of which cannot be
assured. See "Use of Proceeds" and "Plan of Operation - Liquidity and Capital
Resources."
Limited Sources for Raw Materials
Enriched stable isotopes, which are used as targets (i.e. they are
bombarded with protons to produce radioisotopes), constitute the principal raw
materials required for the manufacture of accelerator-produced radioisotopes.
The principal United States source for enriched stable isotopes is the Oak Ridge
National Laboratory in Oak Ridge, Tennessee, which relies on government funding
for continuing production. Although currently also available from Russia,
Israel, China and other foreign sources, there can be no assurance that there
will continue to be an adequate supply of enriched stable isotopes, which could
materially adversely impact the Company's ability to manufacture radioisotopes
which, in turn, would have a material adverse effect on the Company. Although
the energy level and beam intensity of the LINAC are expected to be sufficient
to produce most radioisotopes from unenriched stable isotopes, which are in
abundant supply, the production process will require various proprietary
chemical separation techniques which, although the Company has already
developed, have not been tested to date, and as to the success of which there
can be no assurance. See "Business - Supply of Raw Materials."
No Assurance as to Validity of Intellectual Property Rights
The Company has a license from the DOE with respect to all intellectual
property rights owned or licensed by the U.S. government necessary for the use
or operation of the LINAC, and currently is making inquiries of the General
Counsel of the DOE to determine whether, and to what extent, such license is
intended to be exclusive for commercial applications. In the event the license
is deemed to be non-exclusive, there can be no assurance that the DOE will not
license others to use the same technology. The Company, through its employees
and consultants, has developed and owns the proprietary rights to significant
modifications and improvements to the LINAC for the production of radioisotopes
on a commercial scale. The Company intends to file patent applications for some
of these modifications and improvements and to protect others as trade secrets.
There can be no assurance, however, that patents on such modifications and
improvements will be issued or, if issued, that such patents or modifications
and improvements protected as trade secrets will provide meaningful protection.
The Company has an exclusive license for the worldwide rights in the
medical field to two patents for its proposed medical imaging camera, one of
which expires in August 1998 and the second in March 2001. Accordingly, there
can be no assurance that such patents will provide the Company with adequate, if
any, protection. The Company is negotiating for an exclusive license for its
proposed pulsed plasma device in certain fields of use, the success of which
cannot be assured.
Third parties may have filed applications for or been issued patents and
may obtain additional patents and proprietary rights related to products or
processes competitive with or similar to those of the Company. The Company may
not be aware of all patents potentially adverse to its interests that may have
been issued to others and there can be no assurance that such patents do not
exist or have not been filed or may not be filed or issued. If patents have been
or are issued to others containing preclusive or conflicting claims and such
claims are ultimately determined to be valid, the Company may be required to
obtain licenses thereto or to develop or obtain alternate technology. There can
be no assurance that such licenses, if required, would be available on
commercially acceptable terms, if at all, or that the Company would be able to
develop or obtain alternate technology, which would have a material adverse
effect on the Company. See "Business - Patents and Proprietary Rights."
Government Regulation
The manufacture and sale of radioisotopes is subject to extensive federal
and state regulation. Prior to commencing operations, approval of the
Radioisotope Production Facility must be obtained from the Texas Department of
Health and, prior to transporting radioisotopes across state lines, from the
U.S. Department of Transportation (the "DOT") and the FDA, as to which there can
be no assurance. Thereafter, the Company's facility is subject to continual
inspection for compliance with the federal current good manufacturing practice
("GMP") regulations, which require that the Company manufacture radioisotopes
and maintain manufacturing, testing and quality control records in a prescribed
manner. The Company also
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<PAGE>
will be subject to regulation by the United States Environmental Protection
Agency ("EPA"), the Texas Natural Resources Conservation Commission, and the
United States Occupational Safety and Health Administration ("OSHA") with
respect to the radioactive content of water and air discharges and the handling
and disposal of radioactive waste. The failure to obtain any such approvals,
delays thereof or the failure to comply with any such regulations would have a
material adverse effect on the Company. See "Business - Government Regulation."
The Company's production of radioisotopes will involve the controlled use
of hazardous materials, chemicals and various radioactive substances. Although
the Company's compliance with safety procedures for handling, storing and
disposing of such materials prescribed by state and federal regulations is a
prerequisite to the Company commencing the manufacture and sale of
radioisotopes, the accidental contamination or injury from these materials will
be a continuing risk. See "Business - Government Regulation."
The FDA regulates the clinical testing, manufacturing, labeling,
distribution and promotion of medical devices in the United States, which
includes the Company's proposed medical imaging camera and its proposed pulsed
plasma device. The Company believes its proposed medical imaging camera and
proposed pulsed plasma device will be classified by the FDA as Class II devices
and that its proposed medical imaging camera will not require a pre-market
approval application but will be eligible for pre-market clearance through the
510(k) notification procedure based upon its substantial equivalence to
previously marketed devices. The Company is investigating whether its proposed
pulsed plasma device will be eligible for pre-market clearance through the
510(k) notification procedure. However, there can be no assurance that the
Company's proposed products will be so classified or obtain 510(k) pre-market
clearance or, if obtained, that such approval will not involve a long and costly
process or be granted subject to conditions on the marketing or manufacturing of
the proposed medical imaging camera that may impede the Company's ability to
market and/or manufacture the camera. If the Company's proposed medical imaging
camera or proposed pulsed plasma device does not qualify for the 510(k)
procedure (either because it is not substantially equivalent to a legally
marketed device or because it is a Class III device), the FDA must approve a
pre-market approval ("PMA") application before marketing can begin. PMA
applications must demonstrate, among other matters, that the medical device is
safe and effective. A PMA application is typically a complex submission, usually
including the results of clinical studies, and its preparation is a detailed and
time-consuming process. Once a PMA application has been submitted, the FDA's
review may be lengthy and include requests for additional data and there can be
no assurance that the application will be approved. See "Business - Government
Regulation."
Any radiopharmaceuticals developed under arrangements between the Company
and medical institutions and universities will also require the prior approval
of the FDA, which has established mandatory procedures and standards for the
clinical testing, manufacture and marketing of therapeutic and diagnostic
products, a protracted and costly process. See "Business - Government
Regulation."
Dependence on Key Management and Other Personnel
The Company is dependent on the efforts of its senior management and
scientific staff, including Ira Lon Morgan, Ph.D., Chairman of the Board of
Directors, Tommy L. Thompson, Executive Vice President and Chief Operating
Officer, Homer B. Hupf, Ph.D., Vice President of Radiochemistry, Joe Beaver,
M.A., Vice President of Radioisotope Production, and Jerry W. Watson, Ph.D.,
Vice President of Manufacturing and Systems Engineering. The Company also will
be dependent upon Carl W. Seidel, who will serve as President and Chief
Executive Officer commencing May 5, 1997. The loss of any of these individuals
could have a material adverse effect on the Company. The Company is a 51%
beneficiary of a $1,000,000 key man life insurance policy on the life of Dr.
Morgan and the 100% beneficiary of a $500,000 policy on the life of each of Dr.
Hupf and Mr. Beaver. In addition, the Company has applied for $500,000 key-man
life insurance policies on the lives of each of Mr. Thompson, Dr. Watson and Mr.
Seidel. The coverage under these policies may be inadequate to compensate the
Company for the loss of any of such individuals. The Company's future success
will depend in large part upon its ability to attract and retain skilled
scientific, management, operational and marketing personnel, as to which there
can be no assurance. See "Management."
Competition and Risk of Technological Obsolescence
Currently, radioisotopes produced by cyclotron accelerator are manufactured
in the United States principally by DuPont Merck Pharmaceutical Co.,
Mallinckrodt Medical, Inc., Amersham Medi-Physics, Inc. and Theragenics, Inc.
(the
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<PAGE>
"Radioisotope Producing Companies") primarily, the Company believes, for their
own radiopharmaceutical products. The Company believes that hospitals, medical
institutions and universities also produce certain short-lived radioisotopes
utilizing small cyclotron accelerators, principally for their own needs. The
Radioisotope Producing Companies have substantially greater capital and other
resources than the Company and there can be no assurance they will not elect to
produce radioisotopes for commercial sale. The U.S. government also produces
radioisotopes, primarily for research purposes, in two national laboratories,
Brookhaven National Laboratory and Los Alamos National Laboratory, and has
announced that it plans to modify the nuclear reactor at Sandia National
Laboratory in Albuquerque, New Mexico to produce certain radioisotopes and there
can be no assurance that a third party will not contract with the U.S.
government to acquire radioisotopes for commercial sale. In addition, a Canadian
firm, which also has substantially greater capital and other resources than the
Company, currently supplies a significant portion of the radioisotopes used in
the nuclear medicine industry in the United States and there can be no assurance
that the Company will be able to compete successfully with such firm. Further,
there can be no assurance that new improved accelerators will not be designed or
new technologies developed which would render the LINAC obsolete and the
Company's radioisotopes non-competitive.
There is substantial competition in the medical imaging camera market. The
Company faces competition in the United States imaging market from a large
number of firms, many of which have significantly greater financial and
technical resources and production and marketing capabilities than the Company.
In addition, other established medical concerns, any one of which would likely
have greater resources than the Company, may enter the market. The Company also
faces competition from other imaging technologies which are more firmly
established and have a greater market acceptance, including PET and SPECT
cameras, magnetic resonance imaging ("MRI") systems, CAT scanners and X-rays.
There can be no assurance that the Company will be able to compete successfully
against any competitor or potential competitor. In addition, the medical imaging
camera market is subject to rapid and significant technological change, and
there can be no assurance that the Company's proposed medical imaging camera can
be upgraded to meet future innovations in the medical imaging camera market or
that new technologies will not emerge, or existing technologies will not be
improved, which would render the Company's proposed medical imaging camera
obsolete or non-competitive. The Company is subject to similar substantial
competition with respect to the development of its proposed pulsed plasma
device. See "Business - Competition."
No Assurance of Development of Medical Imaging Camera or Pulsed Plasma Device
Additional research and development will be required for the Company to
develop its proposed medical imaging camera and its proposed pulsed plasma
device, as to the success of either of which there can be no assurance. Further,
in the event the medical imaging camera or pulsed plasma device is successfully
developed, regulatory approval will be required and there can be no assurance
such approval can be obtained in a timely manner, or at all, and if obtained,
that the medical imaging camera or pulsed plasma device can be marketed
successfully or profitably. Failure by the Company to successfully develop
and/or market its proposed medical imaging camera or pulsed plasma device could
have a material adverse effect on the Company.
Relationships of Technical Advisors with Other Entities
The Company's technical advisors (the "Technical Advisors") are employed on
a full-time basis by academic or research institutions. Accordingly, the
Technical Advisors are able to devote only a portion of their time to the
Company's business and research activities. In addition, except for work
performed specifically for and at the direction of the Company, the inventions
or processes discovered by the Technical Advisors and other consultants will not
become the intellectual property of the Company, but will be the intellectual
property of their institutions. Further, invention assignment agreements
executed by the Technical Advisors and consultants in connection with their
relationships with the Company may be subject to the rights of their primary
employers or other third parties with whom such individuals have consulting
relationships. See "Business - Technical Advisors."
Dependence on Power Supply
The operation of the LINAC will be dependent upon receiving 400 kilowatts
of electric power 24 hours per day six days per week, and any power interruption
could materially affect the Company's operations. The Company has elected to
receive power from the Denton Electric Power Plant (a member of a tri-grid
interconnected power system) which is located
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adjacent to the site of the proposed Radioisotope Production Facility, although
the Company believes there are other power sources readily available. See
"Business - Manufacturing."
Uncertain Availability of Health Care Reimbursement; Health Care Reform
The Company anticipates that its proposed medical imaging camera and pulsed
plasma device will be purchased or leased primarily by medical institutions
which provide health care services to their patients. Such institutions and
patients typically bill or seek reimbursement from various third party payors,
such as Medicare, Medicaid, other government programs and private insurance
carriers, for the charges associated with the health care services provided. The
Company believes that its ability to sell medical imaging cameras or pulsed
plasma devices at levels sufficient to be profitable will be directly related to
the coverage and reimbursement policies of third party payors. If adequate
coverage and reimbursement levels are not provided by government and third party
payors, the market acceptance of the Company's proposed medical imaging camera
or pulsed plasma devices would be materially adversely affected.
Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
Such reforms, if enacted, may affect the availability of third-party
reimbursement for medical imaging cameras or other proposed medical device
products of the Company as well as the price levels at which the Company will be
able to sell such products. The Company cannot predict when any proposed reforms
will be implemented, if ever, or the effect of any implemented reforms on the
Company's business. Any implemented reforms are likely, however, to have an
adverse effect on the Company.
Product Liability Exposure and Insurance
The use of its radioisotopes in radiopharmaceuticals and in clinical trials
and the use of its proposed medical imaging camera or other proposed medical
device products may expose the Company to potential product liability risks
which are inherent in the testing, manufacture, marketing and sale of human
diagnostic and therapeutic products. In addition, the failure to effect timely
delivery of radioisotopes may cause a delay in a scheduled test or procedure or
result in the functional loss of radioactivity of the radioisotope, thereby
exposing the Company to potential liability. The Company currently has no
product liability insurance. The Company intends to obtain product liability
insurance prior to commencing production of any radioisotopes and prior to the
manufacture and sale of medical imaging cameras or other proposed medical device
products but there can be no assurance it will be able to obtain or maintain
such insurance on acceptable terms or that any insurance obtained will provide
adequate coverage. Claims or losses in excess of any liability insurance
coverage ultimately obtained by the Company could have a material adverse effect
on the Company. See "Business - Product Liability and Insurance."
Control By Directors and Officers
Upon consummation of this Offering, the directors and officers of the
Company will beneficially own 43.3% (41.7% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock and,
accordingly, will have the ability to elect a majority of the Company's
directors and otherwise control the Company. See "Principal and Selling
Stockholders."
Immediate Substantial Dilution; Disparity of Consideration
Purchasers of the Common Stock in this Offering will experience immediate
and substantial dilution in the net tangible book value of the shares of Common
Stock purchased by them in this Offering of $5.84 per share, assuming an initial
public offering price of $9.00 per share. The current stockholders of the
Company, including the Company's officers and directors, acquired their shares
of Common Stock for nominal consideration or for consideration substantially
less than the assumed initial public offering price. As a result, new investors
will bear substantially all of the risks inherent in an investment in the
Company. See "Capitalization," "Dilution" and "Certain Transactions."
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Arbitrary Determination of Offering Price; No Public Market for Common Stock
The initial public offering price of the Common Stock has been determined
arbitrarily by negotiations between the Company and the Representative. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors as were deemed
relevant. Therefore, the initial public offering price of the Common Stock does
not necessarily bear any relationship to established valuation criteria and,
accordingly, may not be indicative of prices that may prevail at any time or
from time to time in the public market. Prior to this Offering, there has been
no public market for the Common Stock, and there can be no assurance that an
active trading market will develop after the Offering, or, if developed, be
sustained. See "Underwriting."
Management's Broad Discretion in Use of Proceeds
Although the Company intends to apply the net proceeds from the sale of the
Common Stock in the manner described under "Use of Proceeds," it has broad
discretion within such proposed uses as to the precise allocation of the net
proceeds, the timing of expenditures and all other aspects of the use thereof.
Further, approximately 18.2% of the net proceeds of this Offering (26.2% if the
Underwriters' over-allotment option is exercised in full) will be added to the
Company's working capital and will be utilized for general corporate purposes.
Accordingly, the Board of Directors will have broad discretion in applying such
funds. See "Use of Proceeds."
Portion of Net Proceeds to Benefit Certain Stockholders and Management
The Company intends to use a portion of the net proceeds from this Offering
to repay $20,000 of indebtedness to Dr. Morgan. In addition, the Company intends
to use a portion of the net proceeds from this Offering to repay the $1,654,000
principal balance of a bank loan for which Dr. Morgan and James K. Eichelberger,
a founder and director of the Company, have pledged $130,000 and $100,000,
respectively, of their personal assets as collateral, and to repay $400,000
outstanding under a bank line of credit which is personally guaranteed by
Messrs. John M. McCormack and William W. Nicholson, directors of the Company.
See "Use of Proceeds," "Plan of Operation - Liquidity and Capital Resources" and
"Certain Transactions."
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future. See "Dividend Policy."
Potential Adverse Effect of Shares Eligible for Future Sale
Sales of Common Stock in the public market after this Offering could
materially and adversely affect the market price of the Common Stock and might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
6,068,446 shares of Common Stock outstanding. Of these shares, the 2,200,000
shares of Common Stock sold in this Offering will be freely tradeable (unless
held by affiliates of the Company) without restriction. The remaining 3,868,446
shares will be restricted securities within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the holders thereof have agreed (i)
for a period of 12 months after the date of this Prospectus, not to sell,
directly or indirectly, any shares owned by them without the prior written
consent of the Company and the Representative and (ii) for the subsequent
12-month period, not to sell such shares at a price per share less than the
initial public offering price and then only through the Representative. The
Company and the Representative jointly may, at any time without notice, release
all or any portion of the shares subject to such lock-up agreements. Upon
expiration of the initial 12-month lock-up period, all of the shares of Common
Stock held by existing stockholders will be eligible for immediate public resale
under Rule 144, subject to the volume limitations and other requirements
thereunder. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
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Possible Issuance of Preferred Stock
The Company's Restated Articles of Incorporation authorize the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Company's Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could materially adversely affect the voting power
or other rights of the holders of the Common Stock (including those of the
purchasers in the Offering). In the event of issuance, such preferred stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company. See "Description of
Capital Stock."
Representative's Influence on the Market
A significant amount of the Common Stock offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such Common Stock through or with the
Representative. If the Representative participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the Common Stock. Any such market-making activity by the Representative may
be discontinued at any time. The price and liquidity of the Common Stock may be
significantly affected by the degree, if any, of the Representative's
participation in the market.
Price Volatility
The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. Announcements of delays in the Company's testing and
development schedules, technological innovations or new products by the Company
or its competitors, developments or disputes concerning patents or proprietary
rights, regulatory developments in the United States and foreign countries,
public concern as to the safety of products containing radioactive compounds and
economic and other external factors, as well as period-to-period fluctuations in
the Company's financial results, may have a significant impact on the market
price of the Common Stock. In addition, the realization of any of the risks
described in these "Risk Factors" could have a significant and adverse impact on
such market prices.
Potential Adverse Effect of Representative's Warrants
At the consummation of this Offering, the Company will sell to the
Representative for nominal consideration the Representative's Warrants to
purchase 220,000 shares of Common Stock. The Representative's Warrants will be
exercisable for a period of four years commencing one year after the date of
this Prospectus at an exercise price of $ (120% of the initial public offering
price of the Common Stock). For the term of the Representative's Warrants, the
holders thereof will have, at nominal cost, the opportunity to profit from a
rise in the market price of the Common Stock without assuming the risk of
ownership, with a resulting dilution in the interest of other security holders.
As long as the Representative's Warrants remain unexercised, the Company's
ability to obtain additional capital might be adversely affected. Moreover, the
holders of the Representative's Warrants may be expected to exercise such
Warrants at a time when the Company would, in all likelihood, be able to obtain
any needed capital through a new offering of its securities on terms more
favorable than those provided by the Representative's Warrants. See
"Underwriting."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting the underwriting discount and estimated offering
expenses payable by the Company, will be approximately $17,316,000 (or
approximately $19,179,000 if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $9.00 per share.
The Company intends to use the proceeds as follows:
Approximate Approximate
Amount Percent
----------- -----------
To repay certain indebtedness(1) ................ $ 2,350,000 13.6%
Toreconfigure, assemble, test and commence
operation of the LINAC, including capital
expenditures to procure radioisotope
processing equipment(2) ......................... 7,700,000 44.5
To acquire radioisotopes for distribution
prior to full operation of the LINAC(3) ......... 2,100,000 12.1
To complete development of, manufacture and
market a proposed medical imaging camera ........ 1,000,000 5.8
To develop, manufacture and market a
proposed pulsed plasma device ................... 1,000,000 5.8
For working capital and general corporate
purposes(4) ..................................... 3,166,000 18.2
----------- -------
Total ........................................... $17,316,000 100.0%
=========== =======
- ---------------
(1) Reflects retirement of (i) $100,000, $1,654,000 and $162,000 principal
balances plus accrued interest due on notes issued to a bank in July 1996,
December 1996 and January 1997, respectively, (ii) $400,000 plus accrued
interest under a bank line of credit obtained in January 1997, and (iii)
$20,000 principal balance due on notes issued to Dr. Morgan. See "Plan of
Operation - Liquidity and Capital Resources" and "Certain Transactions."
(2) Consists of (i) $6,200,000 for, among other items, upgrading the power
supply and providing necessary cooling systems for the LINAC, of which
approximately $3,700,000 is anticipated to be paid to outside contractors
and suppliers and the balance for the salary, expenses and costs of Company
personnel performing the services, and (ii) $1,500,000 to procure
additional radioisotope processing equipment. See "Plan of Operation"
Business-Strategy."
(3) Consists of $1,300,000 and $800,000 to purchase, over a 12-month period for
commercial distribution by the Company, Mo-99 and research radioisotopes
from Sandia National Laboratory and from Brookhaven National Laboratory
and/or Los Alamos National Laboratory, respectively, through funding the
personnel, labor and materials costs at such facilities during specified
times to produce the radioisotopes. See "Plan of Operation" and "Business -
Strategy."
(4) To be applied to furnish new facilities, officers' salaries, professional
fees, and office and other expenses.
The initial application of the net proceeds of this Offering represents
management's estimate based upon current business and economic conditions.
Although the Company does not contemplate material changes in such allocations,
to the extent the Company finds that an adjustment is required due to changed
business conditions, the amounts may be adjusted among the uses indicated.
Although the Company intends to finance construction of its administration,
manufacturing, research and development facility and Radioisotope Production
Facility, estimated to cost $4,428,000, through mortgage financing with a
commercial lending institution, there can be no assurance such financing will be
obtained, in which event
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the Company may be required to fund such construction, in whole or in part, with
proceeds from this Offering (in which event the Company may be required to
reduce amounts currently allocated to other uses), or alternative sources of
financing, the availability of which cannot be assured. See "Risk Factors -
Possible Need for Additional Financing" and "Plan of Operation - Liquidity and
Capital Resources."
Although the Company believes that the net proceeds of this Offering will
be sufficient to finance its activities for at least 18 months following the
date of this Prospectus, there can be no such assurance. See "Risk Factors -
Possible Need For Additional Financing" and "Plan of Operation."
To the extent that the Company's application of the net proceeds are less
than as allocated or if the net proceeds increase as a result of the exercise of
the Underwriters' over-allotment option, the resulting proceeds will be added to
the Company's working capital and will be available for general corporate
purposes. The net proceeds of this Offering that are not expended immediately
will be deposited in interest-bearing accounts, or invested in government
obligations, certificates of deposit or similar short-term, low-risk
investments.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
expect to pay any cash dividends on its Common Stock in the foreseeable future.
The payment of cash dividends in the future will depend on the evaluation by the
Company's Board of Directors of such factors as it deems relevant at the time
and restrictions imposed by the Company's debt obligations, if any. See "Risk
Factors - Absence of Dividends.
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at December 31, 1996 and as adjusted to give effect to (i) the
issuance and sale of the 2,200,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $9.00 per share and the initial
application of the net proceeds therefrom, (ii) the issuance of 101,783 shares
of Common Stock for $162,852 since December 31, 1996, (iii) the collection of
$160,000 of receivables from the sale of stock issued prior to December 31, 1996
and (iv) the repayment of $175,589 of short-term debt since December 31, 1996.
This table should be read in conjunction with the Consolidated Financial
Statements and the notes thereto which are included elsewhere in this
Prospectus.
December 31, 1996
-------------------------------
Actual As Adjusted
------------ ------------
Short-term debt ........................ $ 2,439,454 $ --
============ ============
Stockholders' Equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized; no shares
issued and outstanding, and as adjusted -- --
Common Stock, $.01 par value;
20,000,000 shares authorized and
3,766,663 shares issued and outstanding;
6,068,446 shares issued and outstanding
as adjusted (1) ........................ $ 37,667 $ 60,684
Additional paid-in capital ............. 2,515,685 19,971,520
Deficit accumulated during the
development stage ...................... (834,446) (834,446)
Receivable from stock sales ............ (160,000) --
------------ ------------
Total Stockholders' Equity ............. 1,558,906 19,197,758
------------ ------------
Total Capitalization ................... $ 1,558,906 $ 19,197,758
============ ============
- ----------------
(1) Does not include ________ shares issuable upon exercise of options or
stock appreciation rights or the issuance of restricted stock available for
grant under the Incentive Plan and ________ shares of Common Stock reserved
for issuance upon exercise of options granted under the Incentive Plan. See
"Management - Long Term Incentive Plan."
19
<PAGE>
DILUTION
At December 31, 1996, after giving effect to (i) the issuance of 101,783
shares of Common Stock for $162,852 since December 31, 1996, and (ii) the
collection of $160,000 of receivables from sale of stock issued prior to
December 31, 1996, the Company had a pro forma net tangible book value of
$1,880,658, or $.49 per share. Net tangible book value per share is equal to the
total tangible assets of the Company less total liabilities divided by the total
number of shares outstanding. After giving effect to the issuance and sale of
the 2,200,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and the initial application of the net
proceeds therefrom, the pro forma net tangible book value at December 31, 1996
would have been $19,196,658, or $3.16 per share, representing an immediate
increase in net tangible book value of $2.67 per share to the present
stockholders and an immediate dilution of $5.84 per share, or 64.9% to the
public investors from the assumed initial public offering price. Dilution per
share represents the difference between the initial public offering price and
the pro forma net tangible book value per share after the Offering. The
following table illustrates the per share dilution:
Assumed initial public offering price
per share of Common Stock ........... $9.00
Pro forma net tangible book value
per share of Common Stock
before the Offering ................. $ .49
Increase in net tangible book value
per share of Common Stock
attributable to public investors .... 2.67
-----
Pro forma net tangible book value
per share of Common Stock
after the Offering .................. 3.16
-----
Dilution to public investors ........ $5.84
=====
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock would be $3.34, which
would result in the dilution to public investors of $5.66 per share, or 62.9%,
from the assumed initial public offering price.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
present stockholders and the public investors, assuming an initial public
offering price of the Common Stock offered hereby of $9.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------------- ---------------------------- Price Per
Number Percent Amount Percent Share
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Present
stockholders(1)(2) ...... 3,868,446 63.8% $ 2,716,204 12.1% $ .70
Public investors (1) .... 2,200,000 36.2 19,800,000 87.9 $ 9.00
----------- ----------- ----------- -----------
Total ................... 6,068,446 100.0% $22,516,204 100.0%
=========== =========== =========== ===========
</TABLE>
- --------------------
(1) The exercise in full of the Underwriters' over-allotment option and
resultant sale by the Selling Stockholders of 100,000 shares will result in
a reduction in the number of shares held by the present stockholders to
3,768,446 shares, or 59.8% of the shares to be outstanding after the
Offering, and an increase in the number of shares held by the public
investors to 2,530,000 shares, or 40.2% of the shares to be outstanding.
See "Principal and Selling Stockholders."
(2) Does not include ______ shares of Common Stock reserved for issuance upon
exercise of options or stock appreciation rights or the issuance of
restricted stock available for grant under the Incentive Plan and ______
shares of Common Stock reserved for issuance upon exercise of options
granted under the Incentive Plan at an exercise price of $______ per share.
See "Management - Long Term Incentive Plan."
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1996 and
for the period from November 1, 1995 (inception) through December 31, 1996 have
been derived from the consolidated financial statements of the Company which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. Such data should be read in conjunction with the consolidated
financial statements of International Isotopes Inc. and Subsidiary (including
the notes thereto) and the Plan of Operation both of which are incorporated
herein.
Statement of Operations Data:
Period from November 1,
1995 (Inception) through
December 31, 1996
-----------------
Sale of accelerator components ........................... $ 775,102
Cost of sales ............................................ 263,440
-----------
Gross profit ............................................. 511,662
Operating costs and expenses:
General and administrative ............................... 67,193
Commissions and fees ..................................... 95,315
Consulting fees .......................................... 367,749
Legal and professional fees .............................. 59,685
Salaries and contract labor .............................. 109,887
Rent and security ........................................ 98,427
Other .................................................... 85,381
-----------
Total operating expenses ................................. 883,637
-----------
Loss from development stage operations ................... (371,975)
Other income (expense):
Gain on sale of assets held for sale ..................... 336,364
Interest income .......................................... 4,906
Interest expense ......................................... (303,741)
Loan financing ........................................... (750,000)
-----------
Loss before extraordinary item ........................... (1,084,446)
Extraordinary gain on debt extinguishment ................ 250,000
-----------
Net loss and accumulated deficit ......................... (834,446)
===========
Net loss per share ....................................... ($ 0.22)
===========
Weighted average shares of Common Stock
used to compute net loss per share ....................... $ 3,766,663
===========
Balance Sheet Data:
December 31, 1996
-----------------
Working capital .......................................... $ (750,907)
Total assets ............................................. 4,256,176
Total liabilities ........................................ 2,697,270
Deficit accumulated during development stage ............. (834,446)
Stockholders' equity ..................................... 1,558,906
21
<PAGE>
PLAN OF OPERATION
This Plan of Operation contains forward-looking statements which include,
but are not limited to, the Company's expectations regarding its future
financial condition and operating results, product development, business and
growth strategy, market conditions and competitive environment. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
General
The Company is a development stage company which intends to be the first
independent domestic producer of pharmaceutical grade radioisotopes and
radiopharmaceuticals (on a contract or joint venture basis) for commercial sale
to the nuclear medicine industry. Since its inception, the Company's operations
have been limited to acquiring the LINAC and related assets, redesigning and
reconfiguring the LINAC for production of radioisotopes, designing facilities
for its operations, acquiring land, acquiring license rights for its proposed
medical imaging camera and proposed pulsed plasma device, raising capital,
selling certain accelerator components and disposing of excess equipment through
private sales and auctions. The equipment comprising the LINAC initially was
designed to constitute the proton linear accelerator injector stage of the
53-mile SSC project which was terminated in 1994. In May 1996, the Company
acquired for approximately $2.9 million the equipment, proprietary designs and
intellectual property comprising the proton linear accelerator injector stage of
the SSC project which, according to government reports, had a cost to the U.S.
government of approximately $61.5 million ($21.5 million for the equipment and
$40.0 million for the intellectual property).
Most of the equipment comprising the LINAC assets purchased by the Company
from the State of Texas were acquired for purposes of assembling the LINAC and
commencing the commercial production of radioisotopes therewith. A portion of
such equipment, including certain ion sources, vacuum pumps, measuring
equipment, gauges and test equipment, was acquired for purposes of effecting
sales to third parties and the balance, consisting of accelerator components, is
included in inventory.
Plan of Operation
The Company's program for the balance of 1997 and the first half of 1998 is
to complete construction of its administration, manufacturing, research and
development facility and the Radioisotope Production Facility, develop its other
proposed products and pursue formal relationships with various suppliers,
universities and medical institutions and the DOE.
Construction of the administration, manufacturing, research and development
facility is anticipated to be completed in August 1997. Following completion of
construction, the Company intends to use this facility to assemble and test
components of the LINAC, to complete development of, and commence assembling and
testing of its proposed medical imaging camera, and to develop its proposed
pulsed plasma device.
Construction of the Radioisotope Production Facility is anticipated to
commence in June 1997 and be completed and ready for commercial production of
radioisotopes in March 1998. Pending completion of such facility, the Company
intends to purchase radioisotopes for distribution by the Company to hospitals,
clinics and other institutions requiring such radioisotopes for nuclear medicine
and currently is holding discussions with the DOE to acquire wholesale
quantities of Mo-99 from the Sandia National Laboratory and research
radioisotopes from Los Alamos National Laboratory and/or Brookhaven National
Laboratory. The Company has allocated a portion of the net proceeds from this
Offering for the purchase of such wholesale quantities of radioisotopes. See
"Use of Proceeds," "Business - Strategy" and "Business - Marketing."
The Company also intends, prior to completion of the Radioisotope
Production Facility, to enter into formal relationships with universities and
medical institutions in the southwestern United States to assist in their
research and development of radioisotopes and radiopharmaceuticals in exchange
for exclusive commercial rights to the developed technology, and to pursue
formal arrangements with foreign sources, such as Russia, Israel and China, for
the acquisition of enriched stable isotopes necessary for the production of
radioisotopes. See "Business - Strategy."
22
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations since inception primarily through
bank loans, sales of accelerator components, sales of excess equipment, loans
from stockholders and proceeds from the private placement of its equity
securities.
For the period November 1, 1995 (inception) through December 31, 1996, the
Company had revenues of $775,102 from sales of accelerator components which,
after deducting $263,440 of acquisition and other selling costs, resulted in a
gross profit to the Company of $511,662. In addition, during such period, the
Company received proceeds of $796,021 for the sale of excess accelerator,
mechanical and test equipment which, after deducting $459,657 of acquisition and
other selling costs, resulted in a gain of $336,364.
For the period November 1, 1995 (inception) through December 31, 1996, Dr.
Morgan loaned the Company an aggregate of $120,000 at an interest rate of 10%
per annum. The Company has repaid $95,000 of such loans in cash, exchanged
1,250,000 shares of its Common Stock for cancellation of $5,000 of such loans
and intends to repay the $20,000 principal balance out of a portion of the net
proceeds of this Offering. See "Use of Proceeds" and "Certain Transactions."
In May 1996, the Company borrowed $2,900,000 from a lending institution to
fund the acquisition of the LINAC assets (the "LINAC Loan"). The LINAC Loan was
secured by substantially all of the assets of the Company plus $130,000 of the
personal assets of Dr. Morgan and $100,000 of the personal assets of Mr.
Eichelberger, a founder and a director of the Company. See "Certain
Transactions." During 1996, $1,428,787 of proceeds from the sale of accelerator
components and from excess equipment was applied toward repayment of the LINAC
Loan. The remaining principal balance of the LINAC Loan, plus $290,000 of
interest, a $500,000 profit sharing fee and legal expenses, was repaid in
December 1996.
In July 1996, the Company borrowed $100,000 from a bank at an interest rate
of 7% per annum, secured by $100,000 of the personal assets of a stockholder of
the Company, the proceeds of which were added to working capital and used for
general corporate purposes. The Company intends to repay this loan with a
portion of the net proceeds of this Offering. See "Use of Proceeds."
In December 1996, the Company borrowed $1,750,000 from a bank, payable in
quarterly installments of $250,000 plus interest at the rate of 15% per annum,
with the final payment due on December 16, 1997. The loan is secured by a first
lien on the LINAC assets and the 20-acre tract of land on which the Company
intends to construct the Radioisotope Production Facility, plus $130,000 of the
personal assets of Dr. Morgan and $100,000 of the personal assets of Mr.
Eichelberger. See "Certain Transactions." All of the proceeds of this loan were
applied to the repayment of the LINAC Loan. At March 31, 1997, the outstanding
principal balance on this loan was $1,654,411, which the Company intends to
repay with a portion of the net proceeds of this Offering. See "Use of
Proceeds."
In December 1996 and January 1997, the Company completed a $1,060,000
private placement of 662,501 shares of Common Stock to 29 Texas residents at a
purchase price of $1.60 per share, of which 17,188 shares were purchased by Mr.
Eichelberger's spouse. See "Certain Transactions." The proceeds were added to
working capital and used for general corporate purposes, including payment of
expenses associated with this Offering.
In January 1997, the Company obtained a $500,000 line of credit from a bank
payable on March 15, 1998 with interest at the bank's prime rate plus 1% payable
monthly commencing February 15, 1997. $250,000 of the line of credit is
personally guaranteed by John M. McCormack, a director of the Company, and an
additional $250,000 is personally guaranteed by William W. Nicholson, a director
of the Company. See "Certain Transactions." At March 31, 1997, $400,000 of this
line of credit was outstanding. The Company intends to repay the outstanding
balance with a portion of the net proceeds of this Offering. See "Use of
Proceeds."
In January 1997, the Company borrowed $242,000 from a bank with interest
payable at 7.05% per annum and the principal and interest due on April 24, 1997,
for which the Company has obtained a 30-day extension. The proceeds from this
loan were applied to the repayment of the LINAC Loan. At March 31, 1997, the
outstanding principal balance on this loan was $162,000, which the Company
intends to repay with a portion of the net proceeds from this Offering. See "Use
of Proceeds."
23
<PAGE>
The Company is applying to the Texas Agriculture Finance Authority for low
interest loans from commercial lending institutions guaranteed by the State of
Texas, as to the success of which there can be no assurance.
The Company intends to finance the construction of its administration,
manufacturing, research and development facility and its Radioisotope Production
Facility, estimated at $4,428,000, through mortgage financing with a commercial
lending institution and currently is in discussions for $1,000,000 of such
financing for construction of its administration, manufacturing, research and
development facility. There can be no assurance such mortgage financing will be
obtained, in which event the Company may be required to fund such construction,
in whole or in part, with a portion of the net proceeds of this Offering (in
which event the Company may be required to reduce amounts currently allocated to
other uses), or alternative sources of financing, the availability of which
cannot be assured. See "Risk Factors - Possible Need for Additional Financing."
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this Offering
will be sufficient to finance its activities for at least 18 months following
the date of this Prospectus. The Company's future liquidity and capital funding
requirements will depend on numerous factors, including the costs and timing of
constructing the Company's administration, manufacturing, research and
development facility and Radioisotope Production Facility and commencing
production of radioisotopes; possible delays in the regulatory approval process
for the Radioisotope Production Facility, the proposed medical imaging camera
and other proposed products; costs involved in filing, prosecuting, enforcing
and defending patent claims and other intellectual property rights;
technological and market developments; and the ability of the Company to
establish and maintain collaborative academic and commercial research,
development and marketing relationships. There can be no assurance that
additional capital, if needed, will be available on terms acceptable to the
Company. Furthermore, any debt financing, if available, will likely include
restrictive covenants and provide for security interests in the Company's
assets. The failure of the Company to raise capital on acceptable terms when
needed could have a material adverse effect on the Company. See "Risk Factors -
Possible Need for Additional Financing."
24
<PAGE>
BUSINESS
General
The Company is a development stage company which intends to be the first
independent domestic producer of pharmaceutical grade radioisotopes and
radiopharmaceuticals (on a contract or joint venture basis) for commercial sale
to the nuclear medicine industry. Radioisotopes, which are indispensable
components of nuclear medicine, are radiation emitting atoms that are used for
both medical diagnostics and vivo therapeutics. The Company also intends, under
an exclusive worldwide license, to complete development of and to manufacture
and market a high resolution medical imaging camera, key components of which are
patented, for use in nuclear diagnostic medicine, which the Company believes
will have resolution at least four times greater than any imaging camera
currently on the market.
When a specifically selected radioisotope is attached or "tagged" to one of
a variety of pharmaceuticals, the resulting product is known as a
radiopharmaceutical. The pharmaceutical component acts as a carrier to seek out
targeted internal organs, tumor sites and/or cells for which it has a
predetermined natural affinity. In diagnostics, the radioisotope component
provides a signal as to the location of the attached pharmaceutical as it
targets the specific organ or site. This process, in turn, is captured by
external imaging equipment, such as PET and SPECT cameras. In therapeutics, the
radioisotope component provides in vivo treatment of the targeted organ,
cancerous tumor and/or cancerous cell site through the emission of either
photons or beta radiation.
Industry Overview
Nuclear medicine is estimated to be a $7 to $10 billion industry in the
United States which, according to industry studies, is projected to grow at a
10.8% compound annual rate over the next eight years with radiopharmaceuticals
representing an estimated 13% of this market. The Company believes that the in
vivo therapeutics segment of nuclear medicine will grow at a substantially
higher rate based on anticipated FDA approvals of a number of monoclonal
antibodies, peptides and other pharmaceutical carriers, currently in clinical
trials, for in vivo therapeutic treatment of various forms of cancer, including
primary tumors, metastasized sites, other tumors and organ disorders, including
cardiovascular disease. In vivo therapeutic doses of radioisotopes (measured in
millicuries) administered to a patient are generally ten to 100 times greater
than diagnostic doses and generate proportionally greater revenues.
One out of every three hospital patients in the United States undergoes a
procedure involving the use of radioisotopes for diagnosis or therapy. More than
13 million diagnostic medical procedures employing radioisotopes are performed
annually and, in addition, approximately 325,000 therapeutic medical procedures
employing radioisotopes were performed in the United States in 1995 resulting in
more than one millon treatments employing radioisotopes. According to industry
sources, there will be approximately 21 million diagnostic medical procedures
and more than one million therapeutic medical procedures employing radioisotopes
performed in the United States in the year 2000.
Cancer is the leading cause of death in the United States after heart
disease. In the United States, five million persons have been diagnosed as
having cancer within the past five years and an estimated one million persons
are expected to be diagnosed with the disease in 1997. Worldwide, there are more
than 200 drug products currently under development for both cancer diagnostics
and treatment. Many of these are radiopharmaceuticals which require specific
radioisotopes which cyclotron accelerators currently in use in the United States
cannot produce either in volume or at all because of their limited energy and/or
beam intensity.
Radioisotopes are produced commercially either by an accelerator (a
cyclotron or a linear accelerator) or a nuclear reactor. Accelerators are
machines which accelerate charged particles, generally protons, to a stable
(nonradioactive) isotope target, causing a reaction such that the target is
transformed into a radioactive isotope. A nuclear reactor produces radioisotopes
by bombarding a stable isotope target with neutrons. Radioisotopes produced by
cyclotrons and linear accelerators generally have higher specific activity (more
disintegrations per mass of desired element) than radioisotopes produced by
nuclear reactors, with many radioisotopes so produced being chemically different
and capable of being separated by chemistry to produce a pure radioisotope.
Radioisotopes produced by neutron bombardment in a nuclear reactor result in a
radioisotope of the same chemical element as the target, are difficult to
separate, are likely to contain radioactive impurities and have significant
attendant radioactive waste.
25
<PAGE>
Accelerators have a significant environmental advantage over nuclear
reactors in that they produce radioisotopes with relatively little attendant
radioactive waste. Mo-99, which at present accounts for 36% of the revenues and
70% of the unit volume of sales of radioisotopes for medical diagnostics,
currently is reactor-produced through neutron fission of uranium-235, which
results in 90% radioactive waste with long-term hazardous levels of radiation.
The Company believes the LINAC will be able to produce Mo-99 with limited
attendant radioactive waste at a cost projected to be substantially equivalent
to the cost of reactor-produced Mo-99.
Accelerator-produced radioisotopes are produced by two different types of
accelerators, the linear accelerator and the cyclotron. The linear accelerator
accelerates particles along a linear path to produce the energy level necessary
for converting stable isotopes through a particle reaction into radioactive
isotopes, whereas the cyclotron propels particles along a circular path to
produce the necessary energy level. The particles propelled in both types of
accelerator are identical and the resultant radioisotopes are the same.
Of the 17 largest cyclotron accelerators currently in use in the United
States, only one has an energy level significantly above 30 MeV (i.e.
approximately 80 MeV) but is limited in its production capacity due to its
maximum 0.25mA beam intensity. According to the Committee on Biomedical Isotopes
of the Institute of Medicine-National Academy of Sciences, the production of
promising radioisotopes for medical diagnostic and therapeutic use will require
proton accelerators with energy levels higher than 30 MeV. Heretofore, two U.S.
government national laboratories, Brookhaven National Laboratory and Los Alamos
National Laboratory, have been the primary domestic suppliers of research
radioisotopes which require such higher energy levels to produce. However, a
combination of scheduling problems, costs and, more recently, anticipated
long-term or permanent shutdowns have made these two sources unreliable and/or
unavailable.
Presently, the most commonly used radioisotopes in the United States are
produced by Dupont Merck Pharmaceutical Co., Mallinckrodt Medical, Inc.,
Amersham Medi-Physics, Inc. and Theragenics, Inc. (the "Radioisotope Producing
Companies"), primarily for their own use, and by foreign manufacturers. These
radioisotopes include:
Radioisotope Symbol Half-life Primary Source
- ------------ ------ --------- --------------
Thallium - 201 Tl-201 3 days Domestic
Gallium - 67 Ga - 67 3.1 days Domestic
Indium - 111 In - 111 2.8 days Domestic
Iodine - 123 I - 123 13 hours Domestic
Molybdenum - 99 Mo - 99 2.7 days Foreign
Technetium - 99m* Tc - 99m 6 hours Foreign
Xenon - 133 Xe - 133 5.3 days Foreign
Iodine - 131 I - 131 8 days Foreign
Palladium - 103 Pd - 103 17 days Domestic
*Note: Technetium-99m is the "daughter" of Molybdenum-99.
These radioisotopes are used either independently or in various
combinations or "cocktails" and assist in the diagnosis of a myriad of medical
conditions including coronary heart disease, pulmonary embolism, thyroid
carcinoma, brain disorders, acute cholecystitis (inflammation of the gall
bladder), gastrointestinal bleeding, renal artery stenosis, bone cancer and
other diseases.
Based on volume, 70% of all radioisotopes currently used for medical
diagnostics in the United States are from foreign sources with substantially all
commercially available reactor-produced radioisotopes being manufactured in
Canada. This is of continuing concern to the medical community, researchers and
the DOE.
26
<PAGE>
The LINAC
The LINAC design is based on the linear accelerators at the Brookhaven
National Laboratory in Long Island, New York and the Los Alamos National
Laboratory in Los Alamos, New Mexico, which currently are used primarily for
physics research, with only limited accessibility for production of
radioisotopes. The configuration of the LINAC differs dramatically from these
two linear accelerators, as it is configured to operate at a significantly lower
energy level (70 MeV as compared to 200 MeV and 800 MeV, respectively), produce
a higher beam intensity (1.0mA as compared to 0.10mA and 0.15mA, respectively)
and utilize three extracted beams of protons at different levels of energy to
produce multiple radioisotopes rather than one. The Company believes that the
reconfiguration will permit the LINAC to produce radioisotopes in greater volume
and with greater efficiency than Brookhaven National Laboratory or Los Alamos
National Laboratory.
There are 17 large accelerators currently in commercial use in the United
States, all of which are cyclotrons owned by the Radioisotope Producing
Companies. Sixteen of the 17 machines operate at 30 MeV with a 0.25mA beam
intensity. The seventeenth operates at 80 MeV with a 0.25mA beam intensity. The
LINAC, with a 70 MeV energy level and 1.0mA beam intensity, is designed to have
more than twice the energy level of the sixteen 30 MeV cyclotron-accelerators
and five times the beam intensity of all 17 cyclotron accelerators. Unlike the
other accelerators which produce a quantity of only one type of radioisotope per
24-hour period, the LINAC is designed to produce quantities of up to 12
radioisotopes during a 24-hour period by directing the unitary beam of protons
through switching magnets to create three separate beams directed at 12
different stable isotope targets. The Company anticipates that the LINAC will be
able to produce up to 1,000 curies of 12 different radioisotopes during a
24-hour period. A new 30 MeV cyclotron radioisotope production facility costs
approximately $10 to $12 million and becomes operational two to three years from
the date ordered. To the Company's knowledge, there are no new cyclotrons or
linear accelerators with energy capacities of 30 MeV or more currently on order
in the United States.
The Company intends to use a portion of the proceeds from this Offering to
reconfigure, assemble, test and commence operation of the LINAC, including,
among other items, to upgrade the power supply and provide necessary cooling
systems, and as capital expenditures to procure additional radioisotope
processing equipment. See "Use of Proceeds."
Business Strategy
The Company's strategy is to become the leading domestic commercial
producer of a full range of radioisotopes, radiopharmaceuticals (on a contract
or joint venture basis) and medical instrumentation for use in nuclear medicine,
radiation oncology, diagnostic imaging and research.
The Company expects its 27,000 square foot administration, manufacturing,
research and development facility to be completed by August 1997 and its 40,000
square foot Radioisotope Production Facility to be completed by March 1998. The
facilities are being constructed on 21.6 acres of land the Company has acquired
in a 500 acre high technology industrial park located in Denton, Texas, known as
the "North Texas Research Center." The Research Center is strategically located
adjacent to a principal highway and is 24 miles from the Dallas/Fort Worth
International Airport and 14 miles from Alliance Industrial Airport.
Radioisotopes manufactured by the Company will be packaged for immediate
transport by overnight carriers which have distribution hubs at these airports.
Most radioisotopes used in nuclear medicine have limited half-lives and the
proximity of the Company's facilities to these airports will enable the Company
to deliver its radioisotopes and radiopharmaceuticals to most locations in the
United States within 12 to 24 hours of production.
Upon full operation of the LINAC in June 1998, the Company intends to
produce currently used radioisotopes and the upcoming and potentially superior
diagnostic and therapeutic pharmaceutical grade radioisotopes which can only be
produced with the high energy (70 MeV) and the 1.0mA beam intensity of the
LINAC. See " - Manufacturing."
The Company currently is holding discussions with the DOE to acquire
wholesale quantities of Mo-99 from the Sandia National Laboratory and research
radioisotopes from the Los Alamos National Laboratory and/or Brookhaven National
Laboratory to commercially distribute such radioisotopes prior to the LINAC
being fully operational. Under the proposed arrangements, the Company would fund
the personnel, labor and material costs at such facilities during specified
times to produce the required radioisotopes and the DOE would continue to be
responsible for all regulatory compliance, including radioactive waste. The
Company believes that these arrangements will give the Company credibility as a
supplier of radioisotopes to the nuclear medicine industry prior to the LINAC
being fully operational. A portion of the net proceeds
27
<PAGE>
of this Offering have been allocated to purchase such radioisotopes from the
DOE. See "Use of Proceeds" and "Plan of Operation."
In addition, the Company intends to develop relationships with the major
and specialized radiopharmaceutical companies to produce, package and distribute
radiopharmaceuticals on a contract or joint venture basis to end-users
throughout the country. The Company has an option to acquire an additional 60
acres of land in the Research Center adjacent to the site of the Radioisotope
Production Facility to enable major and specialized pharmaceutical companies,
radiopharmacies and related service companies to establish facilities in close
proximity to the Company to facilitate coordination and joint venture projects
with the Company for the manufacture and delivery of radiopharmaceuticals to
hospitals, clinics, radiopharmacies and research institutions. As part of this
plan, when the LINAC is fully operational, the Company intends to manufacture
and distribute finished radiopharmaceutical kits (finished, packaged dosage-form
radiopharmaceutical drug products) for the major and specialized
radiopharmaceutical companies on a contract or joint venture basis. Further,
upon completion of the Radioisotope Production Facility and commencement of
commercial operations, the Company intends to pursue joint ventures with foreign
countries to assist them in the design, construction and operation of linear
accelerators to produce radioisotopes and radiopharmaceuticals.
The Company also intends to establish formal relationships with medical
institutions and universities in the southwestern United States, including the
University of North Texas in Denton, Texas ("UNT"); the University of Texas
Southwest Medical Center in Dallas, Texas; the M.D. Anderson Cancer Institute in
Houston, Texas; the School of Pharmacy and Radiopharmacy in Albuquerque, New
Mexico; and the School of Pharmacy and Radiopharmacy at the University of
Oklahoma, to assist such institutions, as well as other institutions, in their
research and development of radiopharmaceuticals in exchange for rights in the
radiopharmaceuticals developed. The Company currently is negotiating with UNT
(i) to provide UNT access to the LINAC for the production of experimental
radioisotopes for research and development, (ii) to assist in such research and
development and (iii) to provide training for graduate students, with the
Company to have certain rights in any products developed. The Company also is
assisting UNT and the North Texas Research Institute to develop a regional
biomedical tracer facility. Under the proposed program, UNT and the North Texas
Research Institute would operate the facility for research, education, training
and the production of research radioisotopes. The Company would provide UNT and
the North Texas Research Institute with access to the LINAC to produce research
radioisotopes and would assist on a cooperative basis in the marketing and
distribution thereof. Also, the Company is discussing donating 20 acres of land
adjacent to the Radioisotope Production Facility to UNT for a regional medical
technology center.
As part of its long-term strategy, the Company intends, under an exclusive
worldwide license, to complete development of and commence to manufacture and
market a high resolution medical imaging camera, key components of which are
patented, to be used in diagnostic nuclear medicine, which the Company believes
will have resolution at least four times greater than any imaging camera
currently on the market. The Company has allocated a portion of the net proceeds
from this Offering for the development of this product. See "Use of Proceeds"
and " - Proposed Medical Imaging Camera." In addition, the Company intends,
under an exclusive worldwide license, to develop, manufacture and market a
pulsed plasma device to produce (i) short-lived positron radioisotopes for use
in PET imaging cameras and (ii) thermal neutrons essential to a certain
localized cancer therapy treatment, and has allocated a portion of the net
proceeds from this Offering for such purposes. See "Use of Proceeds" and " -
Proposed Pulsed Plasma Device."
Supply of Raw Materials
Enriched stable isotopes, which are used as targets (i.e. bombarded with
protons to produce radioisotopes), constitute the principal raw materials
required for the manufacture of accelerator-produced radioisotopes. The
principal United States source for enriched stable isotopes is the Oak Ridge
National Laboratory in Oak Ridge, Tennessee, which relies on government funding
for continuing production. Although currently also available from Russia, Israel
and China and other foreign sources, there can be no assurance that there will
continue to be an adequate supply of enriched stable isotopes, which could
materially adversely impact the Company's ability to manufacture radioisotopes.
Although the energy and current of the LINAC are sufficient to produce most
radioisotopes from unenriched stable isotopes, which are in abundant supply, the
production process will require various proprietary chemical separation
techniques which, although the Company has already developed, have not been
tested to date, and as to the success of which there can be no assurance. See
"Risk Factors Limited Sources for Raw Materials."
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The Company anticipates that it will be able to purchase enriched stable
isotopes from the DOE. The Company also intends to enter into supply agreements
for enriched stable isotopes from foreign sources, such as Russia, Israel and
China.
Manufacturing
It is intended that the LINAC will operate 24 hours per day, six days per
week on an annual basis, and its reliability will be critical. The production of
radioisotopes cannot be commenced until regulatory approval has been obtained
for the Radioisotope Production Facility, which includes a review of the
intended manufacturing process and inspection for compliance with GMP
regulations. See " - Government Regulation." The radioisotope production process
commences with the placement of a stable isotope target in a "target station" in
the LINAC for bombardment by a stream of protons at a specific energy and
current depending on the stable isotope target and the intended radioisotope to
be produced. The target then will be pneumatically transferred from the target
area to a shielded chemical processing cell where the radioisotope will be
chemically etched and chemically processed to precipitate and separate the
radioisotope from the enriched stable isotope. The chemical recovery and
external reuse of the enriched stable isotope will be performed in a separate
laboratory following an appropriate holding period for decay, and the recovered
target material will be tested for identity and purity by activation analysis
and used to make new targets. Following chemical separation, the radioisotope
will be mixed with a purified solution, tested and then placed in separate vials
based on the radioisotope quantity per dose required. Each vial will be assigned
an identification number, sterilized and sealed. Thereafter, each lot will be
assayed for content and radioisotopic purity, each vial labeled, assigned a
shipping identification number, placed in a standard shipping container approved
by the DOT and shipped to its intended destination.
The Company intends to formulate production strategies that yield high
quantities of desired radioisotopes with minimal impurities. Techniques to
reduce impurities include selecting appropriate target materials, setting
particular target thickness and utilizing specific energy levels of protons to
bombard the target.
Quality assurance and quality control will be performed according to GMP
regulations. The Company intends to maintain a quality control ("QC") unit, to
consist of four employees, responsible for the quality of all components,
containers, in-process materials, labeling and final radiochemical products. The
QC unit will also review records to assure no errors have been made, perform
analytical tests according to established operating procedures and verify
compliance with analytical specifications. The Company also intends to maintain
a Quality Assurance unit, to consist of four employees, responsible for
reviewing and controlling basic and training records and for the Company's
compliance with GMP regulations. In- process materials will be tested for
identity, strength, quality and purity as appropriate and approved or rejected
by the QC unit before, during and after the production process. Materials stored
for long periods of time will also be subject to QC unit review.
The operation of the LINAC will be dependent upon receiving 400 kilowatts
of electric power 24 hours per day, six days per week, and any power
interruption could materially affect the Company's operations. The Company has
elected to receive power from the Denton Electric Power Plant (a member of a
tri-grid interconnected power system), which is adjacent to the site of the
proposed Radioisotope Production Facility, although the Company believes there
are other power sources readily available. See "Risk Factors - Dependence on
Power Supply."
Upon initial operation of the LINAC, scheduled for March 1998, the Company
intends to produce the following radioisotopes, which can be produced at
relatively low energy levels (30 MeV) and currently represent a majority of the
accelerator-produced radioisotopes used in nuclear medicine diagnostic
procedures:
Radioisotope Half-life
------------ ---------
Thallium-201......................... 3 days
Indium-111........................... 2.8 days
Iodine-123........................... 13 hours
Gallium-67........................... 3.1 days
Cobalt-57............................ 271 days
Strontium-82......................... 35 hours
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These radioisotopes are used either independently or in various
combinations or "cocktails" and assist in the diagnosis of a myriad of medical
conditions including coronary heart disease, pulmonary embolism, thyroid
carcinoma, brain disorders, acute cholecystitis (inflammation of gall bladder),
gastrointestinal bleeding, renal artery stenosis, bone cancer and other
diseases.
Upon full operation of the LINAC, scheduled for June 1998, the Company
believes the 70 MeV energy level and 1.0mA beam intensity of the LINAC will
enable it to produce the following experimental radioisotopes that cannot be
produced by any of the cyclotron accelerators currently in commercial use in the
United States:
Radioisotope Half-life Applications
- ------------ --------- ------------
Sodium-24.................... 15 hours hypertension
Magnesium-28................. 20.9 hours bone magnesium tracer
Silicone-31.................. 2.6 hours materials research
Phosphorus-32................ 14.2 days bone cancer therapy
Sulfur-35.................... 87.5 days DNA labeling
Chromium-51.................. 27.7 days blood volume
Manganese-54................. 312 days liver diagnostics
Iron-52...................... 8.3 hours liver diagnostics
Iron-55...................... 2.7 years liver biochemistry
Copper-67.................... 61.9 hours radioimmunotherapy
Zinc-65...................... 244 days biochemistry
Germanium-68................. 271 days antibody labeling
Selenium-75.................. 119 days biochemistry
Strontium-85................. 65 days bone tracer
Yittrium-90.................. 64 hours radioimmunotherapy
Ruthenium-97................. 2.9 days hepatobiliary function
Palladium-103................ 16.9 days prostate cancer therapy
Tin-113...................... 115 days colon cancer therapy
Xenon-122.................... 20.1 hours thyroid diagnostic &
therapy
Barium-128................... 2.4 days potassium tracer
Samarium-153................. 46.7 hours bone cancer therapy
Gadolinium-153............... 241 days osteoporosis
Gadolinium-159............... 18 hours liver cancer
Dysprosium-165............... 2.3 hours arthritis therapy
Holmium-166.................. 26.8 hours leukemia therapy
Ytterbium-169................ 32 days radiography
Ytterbium-175................ 10.5 hours cancer therapy
Lutetium-177................. 6.7 days cancer therapy
Rhenium-186.................. 90 hours lung cancer
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Rhenium-188.................. 17 hours thyroid cancer
Gold-199..................... 3.1 days tumor cancer
Bismuth-206.................. 6.2 days biochemistry
Marketing
The Company intends to market radioisotopes for use in nuclear medicine to
(i) pharmaceutical companies engaged in creating radiopharmaceuticals by
coupling radioisotopes with carrier drugs, including the Radioisotope Producing
Companies, (ii) radiopharmacies (radiopharmacies both produce
radiopharmaceuticals, generally under licenses from pharmaceutical companies,
and distribute radioisotopes) and (iii) hospitals, clinics, physicians and
licensed technicians that produce radiopharmaceuticals with "cold kits" supplied
by pharmaceutical companies and otherwise. The Company intends to maintain a
computerized data base of physicians and licensed technicians in the United
States engaged in nuclear medicine to assist in its marketing of radioisotopes,
and intends to market experimental radioisotopes to research institutions.
The Company is currently holding discussions with the DOE to acquire
wholesale quantities of Mo-99, the "parent" of technetium-99m, which is used in
many diagnostic imaging procedures, from Sandia National Laboratory, and
wholesale quantities of research radioisotopes from Los Alamos National
Laboratory and/or Brookhaven National Laboratory. If such discussions are
successful, as to which there can be no assurance, the Company intends to
distribute radioisotopes prior to the LINAC being fully operational. The Company
has allocated a portion of the net proceeds of this Offering to acquire
radioisotopes from the DOE. See "Use of Proceeds," "Plan of Operation" and " -
Strategy."
Proposed Medical Imaging Camera
As part of its long-term strategy, upon completion of its facilities, the
Company intends to complete development of and commence to manufacture and
market a high resolution medical imaging camera, key components of which are
patented, for use in diagnostic nuclear medicine. The Company has obtained the
exclusive worldwide rights in the medical field to the relevant patents from
Hospital Financial Corporation which cover certain inventions by Dr. Morgan and
relate to single photon counting of penetrating radiation.
Current medical imaging cameras are limited in their spatial resolution and
sensitivity due to the use of electric current integration detection of photons
and the scatter of low energy photons. Presently, the resolution of SPECT
cameras is approximately four millimeters and is approximately ten millimeters
for PET cameras. Certain aspects of the patented technology to be used in the
Company's medical imaging camera have been used in a camera for industrial
applications which has demonstrated spatial resolution of less than 0.5
millimeters, reflecting a material enhancement compared to existing medical
imaging technology. There is a direct correlation between the early detection of
a cancerous tumor that is 2.0 millimeters or less in size and the likelihood of
a successful outcome following treatment. In 1995, according to industry
sources, the number of installed medical imaging cameras worldwide was 10,110
located at 4,780 sites representing an investment in excess of $7.5 billion. The
predominant imaging cameras were SPECT, which numbered 6,890 units up from 5,940
units in 1993. It is estimated that more than 1,000 medical imaging cameras for
diagnostic nuclear medicine will be purchased during 1997 representing an annual
world market of approximately $380 million.
The Company intends to test the medical imaging camera using tomographic
equipment it has leased for a five-year term from UNT at a cost of $500 per
month. The Company also intends to utilize such equipment to provide tomographic
services to industrial users and will pay UNT 10% of the gross revenues received
for such services. The Company is required to maintain insurance on the
equipment for not less than 80% of replacement cost and has agreed to indemnify
UNT for any losses due to injury that may result from use of the equipment. UNT
may use the leased equipment for non- commercial purposes at times when it is
not being used by the Company. The agreement may be terminated by either party
upon 30 days written notice. The Company also is negotiating an agreement to
lease analytical instrumentation from UNT for development of its medical imaging
camera and presently contemplates paying UNT lease payments of $50,000 per year
plus 2% of any revenues from third parties for analytic services utilizing such
instrumentation. The Company also intends to enter into collaboration agreements
with the Department of Nuclear Medicine and Imaging of the University of Texas
Southwestern Medical Center for the development of the proposed medical imaging
camera.
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Proposed Pulsed Plasma Device
The Company intends to develop a pulsed plasma device that can be
configured to produce short-lived radioisotopes used in PET scan imaging and
pulsed beams of neutrons which is essential for a certain type of cancer therapy
under an exclusive license with respect to two U.S. patents and related
proprietary technical know-how being negotiated by the Company with Avogadro
Energy Systems, Inc. relating to the production of plasma generated neutrons.
Under one configuration, the Company believes that the pulsed plasma device
will produce short-lived high-intensity positron-emitting radioisotopes,
including carbon-11 with a 20-minute half-life, oxygen-15 with a 122-second
half-life, and nitrogen-13 with a 10-minute half-life, that are used extensively
in PET cameras for the diagnosis of brain, heart and lung functions. The ability
of hospitals to produce these short-lived radioisotopes for immediate PET scan
imaging should facilitate the approval for third party payor reimbursement for
PET scan imaging. The Company believes that, under a different configuration,
the device can produce thermal neutrons that are essential for gadolinium
neutron capture therapy ("GNCT"), a type of cancer therapy used to treat certain
tumorous cancers located in or near critical organs. Under GNCT, the element
gadolinium is transported to a patient's cancerous tumor and irradiated with a
beam of thermal neutrons which destroys the tumor without damage to external
healthy tissue.
Market surveys indicate that 460 radiation treatment units will be
purchased between 1996 and 1999 at an estimated investment of over $2 billion.
In 1995, radiation therapy was performed at 1,670 sites using 2,670 radiation
treatment units, representing an estimated investment of $13.35 billion.
The Company has not assembled a prototype of the pulsed plasma device. If
successfully developed for either of its proposed uses, an extensive regulatory
approval process will be required, including approval by the FDA, a costly and
protracted process, the success of which cannot be assured. See " - Government
Regulation."
Competition
Currently, radioisotopes produced by a cyclotron accelerator are
manufactured in the United States principally by the Radioisotope Producing
Companies, primarily, the Company believes, for their own radiopharmaceutical
products. The Company believes that hospitals, medical institutions and
universities also produce certain short-lived radioisotopes utilizing small
cyclotron accelerators, principally for their own needs. The Radioisotope
Producing Companies have substantially greater capital and other resources than
the Company and there can be no assurance that they may not elect to produce
radioisotopes for commercial sale. The U.S. government also produces
radioisotopes primarily for research purposes in two national laboratories,
Brookhaven National Laboratory and Los Alamos National Laboratory, and has
announced that it plans to modify the nuclear reactor at Sandia National
Laboratory in Albuquerque, New Mexico to produce certain radioisotopes and there
can be no assurance that a third party will not contract with the U.S.
government to acquire radioisotopes for commercial sale. In addition, a Canadian
firm, which also has substantially greater capital and other resources than the
Company, currently supplies a significant portion of the radioisotopes used in
the nuclear medicine industry in the United States and there can be no assurance
that the Company will be able to compete successfully with such firm. Further,
there can be no assurance that new improved accelerators will not be designed or
new technologies developed which would render the LINAC obsolete and the
Company's radioisotopes non-competitive.
There is substantial competition in the medical imaging camera market. The
Company faces competition in the United States imaging market from a large
number of firms, many of which have significantly greater financial and
technical resources and production and marketing capabilities than the Company.
In addition, other established medical concerns, any one of which would likely
have greater resources than the Company, may enter the market. The Company also
faces competition from other imaging technologies which are more firmly
established and have a greater market acceptance, including PET and SPECT
cameras, MRI systems, CAT scanners and X-rays. There can be no assurance that
the Company will be able to compete successfully against any competitor or
potential competitor. In addition, the medical imaging camera market is subject
to rapid and significant technological change, and there can be no assurance
that the Company's proposed medical imaging camera can be upgraded to meet
future innovations in the medical imaging camera market or that new technologies
will not emerge, or existing technologies will not be improved, which would
render the Company's proposed medical imaging camera obsolete or
non-competitive. The Company is subject to similar substantial competition with
respect to its proposed pulsed plasma device. See "Risk Factors - Competition
and Risk of Technological Obsolescence."
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Patents and Proprietary Rights
There are several patents which cover various components of the LINAC,
including the radio frequency ion source used to generate nuclear particles
(e.g. protons), the radio frequency quadropole accelerator to accelerate nuclear
particles to an intermediate energy, and the drift tube linear accelerator to
further accelerate the nuclear particles to the 70 MeV energy level, which were
developed at various U.S. government national laboratories or by government
contractors and, accordingly, are either owned or licensed by the U.S.
government. In conjunction with acquiring the LINAC from the State of Texas, the
Company acquired the rights to that State's license from the U.S. government
relating to all intellectual property rights owned or licensed by the U.S.
government necessary for the use or operation of the LINAC. The Company
currently is making inquiries of the General Counsel of the DOE to determine
whether, and to what extent, the Company's license is intended to be exclusive
for commercial applications. In the event the license is deemed to be
non-exclusive, there can be no assurance that the DOE will not license others to
use the same technology. Notwithstanding such clarification, the U.S government
retains the right to use intellectual property owned by it for non-commercial
government purposes.
In addition to acquiring the equipment comprising the LINAC, the Company
acquired proprietary engineering and assembly designs and drawings that were
transferred to the State of Texas by the DOE. The Company believes that the U.S.
government did not retain a copy of such designs and drawings and considers them
proprietary.
The Company, through its employees and consultants, has developed and owns
the proprietary rights to significant modifications and improvements to the
LINAC for the production of radioisotopes on a commercial scale. The Company
intends to file patent applications for some of these modifications and
improvements and to protect others as trade secrets. There can be no assurance,
however, that patents on such modifications and improvements will be issued or,
if issued, that such patents, or modifications and improvements protected as
trade secrets will provide meaningful protection.
The Company has acquired an exclusive worldwide license from Hospital
Financial Corporation to develop, market and sell medical imaging cameras in the
medical field under two U.S. patented inventions developed by Dr. Morgan. The
two patents relate to high-speed single photon counting in cameras and camera
configurations which minimize the "noise" associated with the scattering of
low-energy protons. In consideration of the assignment of the exclusive license,
the Company issued 25,000 shares of Common Stock to Hospital Financial
Corporation and agreed to pay royalties equal to 1% of the net revenues received
by the Company from the sale or use of products covered by the licensed patents.
One of the two underlying patents expires in August 1998 and the second expires
in March 2001. Accordingly, there can be no assurance that such licensed patents
will provide the Company with meaningful, if any, protection. The Company's
proposed medical imaging camera also will use data acquisition technology
acquired from the SSC project for use in conjunction with the high-speed photon
counting techniques covered by the licensed patents.
The Company is negotiating, the success of which cannot be assured, for an
exclusive worldwide license from Avogadro Energy Systems, Inc. ("Avogadro") to
manufacture, use and sell equipment in the areas of neutron and ion beam
radioisotope production and gadolinium neutron capture therapy under two U.S.
patents and related technical know-how. The two patents relate to pulsed plasma
apparatus for the production of plasma-generated neutrons. Under the proposed
license, Avogadro would be entitled to a royalty equal to 5% of the net sale
price of products made, sold or first used by the Company in any country in
which Avogadro has been issued a patent and one-half of such royalty with
respect to products made, sold or first used in a country in which Avogadro has
not been issued a patent. Avogadro also would be entitled to a percentage of any
revenues received by the Company from sublicensing the licensed patents and
technology. In the event Avogadro does not receive minimum annual royalties of
$50,000 for calendar years after 1998, Avogadro will be able to elect to convert
the license into a non-exclusive license. The Company also is negotiating a
development agreement with Avogadro, the success of which cannot be assured,
pursuant to which Avogadro or its affiliates would provide development services
on a time and materials basis to develop a prototype of the pulsed plasma device
suitable for use in the licensed areas, with a maximum fee not to exceed
$1,000,000. The Company will own all intellectual property developed by Avogadro
under the development agreement.
Third parties may have filed applications for or been issued patents and
may obtain additional patents and proprietary rights related to products or
processes competitive with or similar to those of the Company. The Company may
not be aware of all patents potentially adverse to its interests that may have
been issued to others and there can be no assurance that such patents do not
exist, have not been filed, or may not be filed or issued. If patents have been
or are issued to others containing preclusive or conflicting claims and such
claims are ultimately determined to be valid, the Company may be required to
obtain licenses thereto or to develop or obtain alternate technology. There can
be no assurance that such licenses,
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if required, would be available on commercially acceptable terms, if at all, or
that the Company would be able to develop or obtain alternate technology, which
would have a material adverse effect on the Company.
There can be no assurance that the validity of any of the patents licensed
to, or that may in the future be owned by, the Company would be upheld if
challenged by others in litigation or that the Company's products, even if
covered by Company patents, would not infringe patents owned by others. The
Company could incur substantial costs in defending suits brought against it for
infringement or any of its licensors, or in suits by it against others for
infringement or in suits contesting the validity of a patent. Any such
proceedings may be protracted. In any suit contesting the validity of a patent,
the patent being contested would be entitled to a presumption of validity and
the contesting party would be required to demonstrate invalidity of such patent
by clear and convincing evidence. The Company could also incur substantial costs
in connection with any suits relating to matters for which the Company has
agreed to indemnify its licensors. If the outcome of any such litigation is
adverse to the Company's interests, the Company's business would be materially
adversely affected.
In certain instances, the Company may choose not to seek patent protection
and may rely on trade secrets and other confidential know-how to protect its
innovations. There can be no assurance that protectable trade secrets or
know-how will be established or, if established, that they will remain
protected, or that others will not independently and lawfully develop similar or
superior innovations. The Company requires all employees and technical
consultants to sign non-disclosure and intellectual property assignment
agreements with the Company. In certain instances, the Company will enter into
agreements with its employees pursuant to which the employee will be entitled to
a small royalty with respect to products developed by the Company based upon the
employee's inventions. In addition, all directors, consultants and other parties
to whom confidential information of the Company has been or will be disclosed
have or will execute agreements containing confidentiality provisions. There can
be no assurance, however, that any such intellectual property assignment
agreements and confidentiality agreements will be complied with or will be
enforceable. See "Risk Factors - No Assurance as To Validity of Intellectual
Property Rights."
Government Regulation
Regulation of Radioisotope Production and Radioactive Waste
The manufacture of radioisotopes is subject to extensive federal and state
regulation. Prior to commencing operations, approval of the Radioisotope
Production Facility must be obtained from the Texas Department of Health (acting
in its designated role as the Texas Radiation Control Agency) and, prior to
transporting radioisotopes across state lines, from the DOT and the FDA.
Thereafter, the Radioisotope Production Facility will be subject to continual
inspection for compliance with GMP regulations, which require that the Company
manufacture radioisotopes and maintain manufacturing, testing and quality
control records in a prescribed manner. See "Risk Factors - Government
Regulation." Since the Radioisotope Production Facility will not handle "special
nuclear materials" (i.e. nuclear fuels and weapons grade uranium, thorium and
plutonium) and, therefore, will not be designated as a "fixed nuclear facility,"
the Company believes it will not be subject to regulation by the United States
Nuclear Regulatory Commission (the "NRC") or the DOE. Texas Department of Health
and FDA regulations provide that a radioisotope production facility may not be
used for any purpose other than the production of radioisotopes.
The Company will be required to file a Drug Master File ("DMF") with the
FDA for each radioisotope proposed to be produced and delivered. Radioisotopes
delivered to pharmaceutical companies for coupling with drug carriers to create
their own proprietary radiopharmaceuticals generally will be covered by NDAs
filed by the respective pharmaceutical company. The DMF is a compilation of
information relating to the proposed product, requested by the FDA, to determine
the identity, purity, strength and manufacturing documentation used for the
product and also contains analytical methods documentation and compliance with
established specifications. The DMF does not contain any clinical information,
which must be supplied by the distributor of the drugs. In some cases, it may be
necessary for the customer to generate clinical data for the radiopharmaceutical
incorporating the radioisotope.
Pursuant to the Low Level Radioactive Waste Policy Act of 1980, states are
required to assure the safe disposal of mildly radioactive materials. The
disposal of radioactive waste is regulated in Texas by the Texas Natural
Resources Conservation Commission (the "TNRCC"), which enforces federal
regulations promulgated by the EPA and its own regulations. Regulatory issues
arising from the handling, retention and disposal of solid and liquid
radioactive waste are governed by the Texas Regulations for the Control of
Radiation (the "Texas Regulations"). Radioactive waste produced by
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the Company will fall into the category of low-level radioactive waste as the
production and processing of radioisotopes generate a certain amount of
low-level, solid radioactive waste. Most of this waste will be in the form of
used laboratory expendables, such as latex gloves and absorbent paper used to
protect laboratory counter tops from direct exposure to spilled materials, which
will be compacted and disposed of through the usual commercial channels used by
universities, medical institutions and industrial users of radioactive
materials. Between scheduled waste pick-ups, compacted materials containing
longer-lived radioisotopes temporarily will be retained on-site in a specially
designed, low-level waste reduction facility, which will greatly reduce the
amount of radioactive waste to be removed to a permanent radioactive waste
disposal facility. Texas Regulations permit a limited amount of specified
radioisotopes, generally those with half-lives of less than 300 days and which
have decayed ten half-lives to be disposed of by transport to a commercial
municipal waste facility. The Company believes this regulation gives it a
distinct advantage over locations in many other states where landfill burial of
radioactive waste is forbidden.
The production of radioisotopes at the Radioisotope Production Facility
will include the chemical separation of radioisotopes. This may lead to the
production of some mixed hazardous waste, i.e., a mixture of low-level
radioactive materials, water, organic solvents and inorganic salts. As is common
practice, the Company will hold such materials on-site for a period of time
until the radioisotopes decay to stable isotopes, at which time the materials
can be moved off-site for disposal by commercial waste handlers. Liquid
radioactive waste resulting from the processing of accelerator-produced products
or from the washing down of hot cells or other decontamination procedures will
be contained in storage tanks outside the Radioisotope Production Facility. The
purpose of such holding tanks is to provide for on-site decay and dilution of
the effluent stream to levels of activity where it is permissible to dispose of
the waste through discharge into the sewerage system. It is anticipated that the
capacity of the storage tanks will be sufficient to permit the holding of
radioactive wastes until decay to negligible levels has taken place and that it
will not be necessary to discharge the tanks more than once every three or four
months. The tanks will be housed in a containment facility to prevent release
into the environment in the event of a liquid release accident.
Certain proposed federal regulations would require hospitals, clinics and
other users of radiopharmaceuticals to take special measures to assure that
radioactive waste of patients resulting from nuclear medicine procedures is not
released into the public sewer systems. Such regulations, if adopted, may impact
on the use of Tc-99m, currently the most widely used radioisotope for nuclear
medicine, which has a half-life of six hours and produces another radioactive
isotope, Tc-99, which has a 214,000 year half-life and currently is released
into sewers through patient waste products following nuclear medicine
procedures. Tc-99m is produced by hospitals and clinics in generator machines
from Mo-99, a reactor-produced radioisotope. The Company is unable to predict
what effect, if any, the enactment of these regulations would have on the
Company's business.
In compliance with applicable state laws, the Company maintains a Radiation
Safety Committee, currently comprised of Dr. Morgan, Jerry W. Watson, Ph.D.,
Vice President of Manufacturing and Systems Engineering, Homer B. Hupf, Ph.D.,
Vice President of Radiochemistry, Joe Beaver, Vice President of Radioisotope
Production, and Michael Vinson, the Company's Radiation Safety Officer, which
will oversee the Company's radiation safety procedures and will control and
monitor the Company's compliance with GMP regulations and conduct annual
radiation audits to comply with applicable regulatory requirements.
Regulation of Proposed Medical Imaging Camera and Proposed Pulsed Plasma
Device
The Company's proposed medical imaging camera and its proposed pulsed
plasma device will be regulated as medical devices and require pre-market
clearance by the FDA. Pursuant to the Medical Device Amendments of May 1976, the
FDA classifies medical devices in commercial distribution as a Class I, Class II
or Class III device. This classification scheme is based on the controls
necessary to reasonably ensure the safety and effectiveness of the medical
devices. Class I devices are those devices whose safety and effectiveness can
reasonably be ensured through general controls, such as adequate labeling,
pre-market notification and adherence to the GMP regulations. Class II devices
are those devices whose safety and effectiveness can reasonably be assured
through the use of special controls, such as performance standards, post- market
surveillance, patient registries and FDA guidelines. Class III devices are
generally devices which support or sustain human life or present a potential
risk for illness or injury. FDA regulations include "emission computed
tomography systems" as Class II devices, which are defined as devices intended
to detect the location and distribution of gamma-ray and positron-emitting
radioisotopes in the body and produce cross-sectional images through computer
reconstruction of the data. Accordingly, the Company believes that its proposed
medical imaging camera will be classified as a Class II device. The Company also
believes its pulsed plasma device will be classified as a Class II device.
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If a medical device is "substantially equivalent" to a legally marketed
Class II device, the manufacturer or distributor may seek FDA clearance by
filing what is known as a 510(k) pre-market notification which must be supported
by data and test results. The Company believes its proposed medical imaging
camera will be "substantially equivalent" to other imaging cameras currently
legally marketed as Class II devices, and is investigating whether its proposed
pulsed plasma device will be so classified. If the FDA determines that the
device is substantially equivalent, then it may be marketed in the United
States. The FDA may, however, require additional data or additional test
results, or may determine that a device is "not substantially equivalent."
Requests for additional data or test results or a "not substantially equivalent"
determination could delay the Company's market introduction of the medical
imaging camera or pulsed plasma device and could have a material adverse effect
on the Company. The FDA is not required to respond to 510(k) pre-market
notifications within a specific time period. Recently, the FDA has required a
more rigorous demonstration of substantial equivalence and the time periods
required for product approvals have increased. There can be no assurance that
the Company will not face substantial delays in receiving 510(k) pre-market
clearance or be able to obtain such clearance. If the FDA determines that a new
product is "not substantially equivalent," then the manufacturer must obtain FDA
approval of a PMA application before marketing can begin. PMA applications must
demonstrate, among other matters, that the medical device is safe and effective.
A PMA application is typically a complex submission, usually including the
results of clinical studies, and its preparation is a detailed and
time-consuming process. Once a PMA application has been submitted, the FDA's
review may be lengthy and include requests for additional data. Furthermore,
there can be no assurance that, if required, a PMA application by the Company
will be approved by the FDA.
The Company also will be required to register as a medical device
manufacturer with the FDA. As such, the Company may be inspected from time to
time by the FDA for compliance with GMP regulations. These regulations require
that the Company manufacture its products and maintain its documents in a
prescribed manner with respect to manufacturing, testing and control activities.
Further, the Company will be required to comply with various FDA requirements
for labeling. The Medical Device Reporting regulation requires that the Company
provide information to the FDA on deaths or serious injuries alleged to have
been associated with the use of its devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur. In addition, the FDA prohibits an approved device
from being marketed for unapproved applications.
Although the Company intends to comply with all applicable regulations
regarding the manufacture and sale of medical devices, such regulations are
subject to change and depend on administrative interpretations. There can be no
assurance that future changes in regulations or interpretations made by the FDA
or other regulatory bodies, with possible retroactive effect, will not have a
material adverse effect on the Company.
The Company also will be subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
fire hazard control, and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not incur
significant costs in complying with such laws and regulations or that such laws
or regulations will not have a material adverse effect upon the Company.
Sales of medical devices outside of the United States may be subject to
foreign regulatory requirements that vary widely from country to country and the
time required to obtain approval by a foreign country may be longer than that
required for FDA approval.
Medical imaging centers must comply with regulations, promulgated in most
states by an agency of the state government, under authority delegated by the
NRC, governing the possession and use of radiopharmaceuticals for medical
diagnostic procedures. In order to secure approval, a medical imaging center
must submit an acceptable site plan for its camera, employ adequate radiation
safety and quality procedures, and provide a nuclear medicine or other qualified
physician who meets certain training and experience standards.
Many states have "certificate of need" regulations that require a hospital
purchaser or user of expensive diagnostic equipment, such as medical imaging
cameras, to obtain regulatory approval prior to purchasing the equipment. A
primary purpose of those regulations is to contain health costs by restricting
the number of similar units in a particular locality. There can be no assurance
that such requirements or the delays that may be occasioned thereby will not
limit the Company's ability to market and sell its medical imaging camera or
other proposed products. Further, restrictions of this nature may increase
through the passage of legislation and the adoption of regulatory changes as a
part of overall health care reform.
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Other Regulations
In the event the Company enters into agreements with the DOE to acquire
reactor-produced radioisotopes for distribution by the Company, the Company will
be subject to regulations of the Texas Department of Health regarding the
handling of radioactive materials, but believes it will not be subject to
regulation by the NRC or any other agency for the production of the
radioisotopes, including attendant radioactive waste in connection with such
production, which will be the responsibility of the U.S. government. See "Plan
of Operation" and " - Business Strategy."
Any radiopharmaceuticals developed under arrangements between the Company
and its affiliated medical institutions and universities will require prior
approval of the FDA, which has established mandatory procedures and standards
for the clinical testing, manufacture and marketing of therapeutic and
diagnostic products, a protracted and costly process, including preclinical
animal studies, the filing of an investigational new drug application, human
clinical trials and the approval of a new drug application.
The Company also will be subject to regulation by the EPA, the TNRCC, and
OSHA with respect to the radioactive content of water and air discharges and the
handling and disposal of radioactive waste. The Company's management team has
experience in dealing with each of the above regulatory authorities and the
Company intends to comply with all such laws and regulations and believes its
facilities and operations will not pose any unusual hazards to nearby residents,
employees or visitors.
Product Liability and Insurance
The use of its radioisotopes in radiopharmaceuticals and in clinical trials
and the use of its proposed medical imaging camera or other proposed products
may expose the Company to potential product liability which is inherent in the
testing, manufacture, marketing and sale of human diagnostic and therapeutic
products. In addition, the failure to effect timely delivery of radioisotopes
may cause a delay in a scheduled test or procedure or result in the functional
loss of radioactivity of the radioisotope, thereby exposing the Company to
potential liability. The Company currently has no product liability insurance.
The Company intends to obtain product liability insurance prior to commencing
production of any radioisotopes and prior to the manufacture and sale of medical
imaging cameras or other proposed products but there can be no assurance it will
be able to obtain or maintain such insurance on acceptable terms or that any
insurance obtained will provide adequate coverage. Claims or losses in excess of
any liability insurance coverage ultimately obtained by the Company could have a
material adverse effect on the Company. See "Risk Factors - Product Liability
Exposure and Insurance."
Technical Advisors
To further assist in the development of its technology, the Company has
Technical Advisors who advise the Company on technical and scientific issues.
Technical Advisors serve without compensation. To date, one Technical Advisor
has also served as a consultant to the Company and received compensation in
connection therewith. The Technical Advisors are as follows:
Norman Hackerman, Ph.D. has been President Emeritus and Distinguished
Professor Emeritus of Chemistry of Rice University since 1987. He is a former
president of the University of Texas at Austin where he served on the chemistry
faculty for 25 years and was involved in the founding of Tracor Corporation. Dr.
Hackerman is currently the Chair of the Scientific Advisory Board of the Welch
Foundation. He is a member of the National Academy of Science and Past Chairman
of the Board of the National Science Foundation.
Peter Antich, Ph.D. has been Professor of Radiology and Chair of the
Doctoral Program in Radiological Sciences of the University of Texas
Southwestern Medical Center since 1991. Dr. Antich is a nuclear physicist whose
particle physics detection research has been concentrated in the development of
efficient high resolution PET cameras.
James Potter, Ph.D., has been President of JP Accelerator Works since
1992. Previously, Dr. Potter was Staff Scientist at AccSys Corporation and at
Los Alamos National Laboratory. Dr. Potter holds several patents and is a co-
inventor of various components and apparatus related to the construction of the
linear accelerator at Los Alamos and has over 20 years experience in the design,
operation and construction of linear accelerators.
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Benjamin Prichard, Ph.D. was Project Manager and Accelerator Systems
Coordinator for the SSC project's laboratory in the development and construction
of the SSC project linear accelerator from 1989 to 1995. Previously, Dr.
Prichard was Senior Principal Physicist and Medical Systems Project Manager for
Science Applications International Corporation's Accelerator Technology Division
and Medical Systems. Dr. Prichard also served as a Staff Physicist at the Fermi
National Accelerator Laboratory, and as the head of the Neutron Beam Program of
the Tokamak Fusion Test Reactor.
Ted Luera, Ph.D. has been Manager of Business Planning and development
at the Reactor Engineering and Technology Center of Sandia National Laboratory
since 1992. Dr. Luera is certified as a reactor operations supervisor and is
experienced in neutron produced radioisotopes in nuclear reactors and hot cell
operation and waste management including various areas of environmental safety.
Vittoria Nardi, Ph.D. has been President of Avogadro Energy Systems,
Inc. since 1991 and was Professor of Physics and Plasma Physics at Stevens
Institute from 1972 to 1996. He was also Professor of Physics and Laboratory
Director at the University of Ferrara, Italy. Dr. Nardi specializes in plasma
physics, pulsed plasmas for neutron production and pulsed power systems.
Ed Knapp, Ph.D. has been Director of the Santa Fe Research Institute
and a member of the research staff since 1989, and was formerly its President.
Previously, he was Director of the Los Alamos Meson Physics Facility where he
was responsible for the design, construction and operation of the 800 MeV linear
accelerator. He was also Director of the National Science Foundation and
President of the University Research Association, which was responsible for the
construction of the linear accelerator for the SSC project. Dr. Knapp holds
several patents or is co-inventor on various patents relating to linear
accelerator technology.
Facilities
The Company rents 12,000 square feet of warehouse and office space in
Denton, Texas, under a one-year lease expiring in August 1997 at a monthly
rental of $3,200; 32,000 square feet of warehouse space in Fort Worth, Texas at
a monthly rental of $4,800 with a 30-day cancellation notice and 4,200 square
feet of administrative office space in Austin, Texas under a lease expiring in
July 1999 at a monthly rental of $2,300 (for aggregate monthly rental payments
of $10,300 per month). The Company intends to move its executive and operations
offices to its proposed administration, manufacturing, research and development
facility soon after construction and to vacate the warehouse space following
completion of the Radioisotope Production Facility.
Employees
The Company has 11 full-time employees, consisting of nine engineers and
two administrative personnel, and intends to hire six additional technical
personnel following consummation of this Offering. The Company believes its
relationship with its employees to be good.
Legal Proceedings
There are no legal proceedings to which the Company is a party.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
- ---- --- --------
Ira Lon Morgan, Ph.D. 70 Chairman of the Board, Chief Executive
Officer, Treasurer and Director(1)
Tommy L. Thompson 50 Executive Vice President, Chief
Operating Officer and Director
Virgil L. Simmons 67 Vice President of International
Marketing, Secretary and Director
Joan H. Gillett 47 Chief Financial Officer
Jerry W. Watson, Ph.D. 48 Vice President of Manufacturing and
Systems Engineering
Homer B. Hupf, Ph.D. 62 Vice President of Radiochemistry
Joe Beaver 64 Vice President of Radioisotope
Production
Will J. Lepeska 59 Vice President of Marketing
John M. McCormack 52 Director
William W. Nicholson 54 Director
James K. Eichelberger 73 Director
Robert J. Gary 70 Director
Frederick J. Bonte, M.D. 70 Director
- ---------------
(1) Effective May 5, 1997, Carl W. Seidel will serve as President, Chief
Executive Officer and a director of the Company, and Dr. Morgan will retain
the position of Chairman of the Board of Directors.
Ira Lon Morgan, Ph.D., a founder of the Company, has served as Chairman of
the Board of Directors, Chief Executive Officer and Treasurer since the
Company's formation in November 1995. From 1987 to 1995, Dr. Morgan served as
President of International Digital Modeling Corporation and its successor,
International Diagnostic Measurements Corporation, a manufacturer of real-time
diagnostic systems for electric utilities. From 1967 to 1987, Dr. Morgan served
as President of Scientific Measurement Systems, Inc., a manufacturer of
industrial computed tomography systems used in the dimensional analysis of
manufactured products. From 1966 to 1976, Dr. Morgan served as President of
Columbia Scientific Industries, a company engaged in manufacturing and analyzing
chemical pollution monitoring systems. From 1966 to 1976, Dr. Morgan also served
as Professor of Physics and directed the Center for Nuclear Studies at the
University of Texas at Austin. From 1987 to 1997, Dr. Morgan also served as
Adjunct Professor and Assistant to the Vice President of Research at the
University of Texas. Dr. Morgan has over 100 publications in the area of nuclear
physics, nuclear reactors, particle accelerators and instrumentation and has
been awarded 13 patents in these areas since 1974. From 1964 to 1976, Dr. Morgan
was Co-Chairman of the Conference on the Application of Accelerators in Research
and Industry and was also actively involved in the Los Alamos Linear Accelerator
program. Dr. Morgan is a Fellow of the American Physics Society and a Fellow of
the American Nuclear Society. Dr. Morgan received a Ph.D. in physics from the
University of Texas at Austin in 1954, an M.A. in Physics and Mathematics from
Texas Christian University in 1951 and a B.A. in Physics from Texas Christian
University in 1949.
Tommy L. Thompson joined the Company in February 1997 as Executive Vice
President and Chief Operating Officer. From 1996 to 1997, Mr. Thompson was
Executive Vice President of Coastal Power Company, a commercial provider of
electric power, where he was responsible for international operations, including
business development, project management, engineering and construction. From
1994 to 1996, he served as Vice President of Destec Energy Asia Pte Ltd.,
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a commercial power plant construction company, and from 1992 to 1994, he served
as Vice President of Brown and Root, an international engineering and
construction company. Mr. Thompson received a B.S. in Mechanical Engineering
from the University of Texas in 1970 and is a registered professional Engineer
in the State of Texas.
Virgil L. Simmons, a founder of the Company, has served as Senior Vice
President of International Operations since March 1997. Prior thereto, Mr.
Simmons served as President of the Company from its formation in November 1995
until March 1997. Mr. Simmons has also served as Secretary of the Company since
its formation. From 1992 to 1994, Mr. Simmons served as a consultant to the
President of Tracor Inc. to manage its overseas and manufacturing operations. In
1992, Mr. Simmons founded the Westbank Partnership, and from 1993 to 1995,
served as President of Allied Interests, Inc., which companies provided
management and marketing consulting services and venture capital to start-up
technology companies. From 1975 to 1990, Mr. Simmons held various positions at
Tracor, Inc., a diversified aerospace, military and commercial products company,
and from 1982 to 1990, served as Vice President of the International Division.
From 1973 to 1975, Mr. Simmons served as Vice President of Engineering of
Accelerators Incorporated. From 1972 to 1973, Mr. Simmons served as a consultant
in the consulting firm of Wilkinson, Sedwick & Yelverton. From 1953 to 1972, Mr.
Simmons held various positions at Texas Instruments, including positions in
engineering, program management, marketing and corporate management, and in
1972, served as Corporate Director of all intercompany programs. From 1958 to
1960, Mr. Simmons served as a member of the Synthetic Aperture Guidance
Committee, and in 1988 was selected by the U.S. Secretary of Defense as one of
the seven U.S. members of the NATO Industrial Advisory Group (NIAG) in Brussels,
Belgium. Mr. Simmons received a B.S. in Physics and Mathematics from the
University of Texas in 1951.
Joan H. Gillett joined the Company in March 1997 as Chief Financial
Officer. From 1986 to 1996, Mrs. Gillett served as President and Chief Financial
Officer of Life Savings Bank, SSB. From 1985 to 1986, Mrs. Gillett served as the
Assistant Vice President for Goliad Savings and Loan, and from 1983 to 1985,
served as staff accountant for the Dominion Marketing Group. Mrs. Gillett
received a B.B.A. with honors in Accounting from Southwest Texas University and
a B.A. from the University of Houston in 1983 and 1970, respectively, and has
been registered as a Certified Public Accountant in Texas since 1987.
Jerry W. Watson, Ph.D. joined the Company in March 1997 as Vice President
of Manufacturing and Engineering. From 1994 to 1997, Dr. Watson served as Deputy
Director of the Accelerator Technology Division of the Los Alamos National
Laboratory. Dr. Watson was deputy head of the Accelerator Division of the SSC
Project, where he led the design of the Superconducting Super Collider linear
accelerator. Dr. Watson received a Ph.D., M.S. and B.S. in physics from the
University of Chicago in 1971, 1965 and 1964, respectively, and received a
E.M.B.A. from the University of New Mexico in 1987.
Joe Beaver joined the Company in June 1996 as Vice President of
Radioisotope Production. From 1980 to 1995, Mr. Beaver served as Cyclotron
Operation Manager and Director of Cyclotron Technology Development for
Mallinckrodt, Inc. From 1969 to 1980, he served as Technical Director of the
cyclotron facility at Mount Sinai Medical Center in Miami Beach, Florida, and
from 1961 to 1969, he served as Radioisotope Production Manager of the cyclotron
at Oak Ridge National Laboratory. Mr. Beaver received a B.S. in Physics from the
University of Central Oklahoma in 1958.
Homer B. Hupf, Ph.D. joined the Company in June 1996 as Vice President of
Radiochemistry. From 1985 to 1994, Dr. Hupf was a scientific investigator for
Hybritech Inc., an international instrumentation and pharmaceutical company.
From 1982 to 1985, Dr. Hupf served as Department Head of
Radiochemistry/Radiopharmacy of King Faisal Specialist Hospital, a
cyclotron-based cancer research center. From 1980 to 1982, he served as Vice
President of Radiopharmaceutical Production of Radpharm Inc., a cyclotron-based
radiopharmaceutical manufacturer and regional nuclear pharmacy. From 1976 to
1980, he served as Vice President of Radiopharmacy of Diagnostic Isotopes Inc.,
a pharmaceutical manufacturing and regional nuclear pharmacy, and from 1969 to
1976, as Department Head of Radiopharmacy of Mount Sinai Medical Center, a
cyclotron-based research center. From 1960 to 1969, Dr. Hupf served as Staff
Scientist-Isotope Production of Oak Ridge National Laboratory. Dr. Hupf received
a Ph.D. and an M.S. in chemistry from the University of Tennessee in 1969 and
1965, respectively. He also received an M.S. in pharmaceutics and a B.S. in
pharmacy from Philadelphia College of Pharmacy & Science in 1959 and 1955,
respectively.
Will J. Lepeska joined the Company in June 1996 as Vice President of
Marketing. In 1968, Mr. Lepeska founded Hospital Financial Corporation, a
company specializing in medical equipment leasing, and has served as its
President since inception. From 1954 to 1968, Mr. Lepeska was Vice President of
Marketing of Nuclear-Chicago Corp., a nuclear medicine
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instrument company, where he was responsible for marketing the Nuclear Medicine
Imaging Camera and from 1967 to 1970, he served as a director. Mr. Lepeska
received a B.S. in Electrical Engineering from Marquette University in 1954.
John M. McCormack has been a director since December 1996. Mr. McCormack is
a principal in several real estate companies in the Houston, Texas area. From
1977 to 1987, Mr. McCormack served as President of Visible Changes, a chain of
17 Texas beauty salons, and continues to serve as its Chairman. Mr. McCormack
currently serves on the Board of Advisors of M.D. Anderson Hospital and
co-chairs the Studies of Entrepreneurship at the University of Houston.
William W. Nicholson has been a director since March 1997 and also serves
as Chairman of the Company's Board of Technical Advisors. Since 1992, Mr.
Nicholson has been a private investor. From 1984 to 1992, Mr. Nicholson was
Chief Operating Officer of Amway Corporation and from 1974 to 1977 he served as
Appointments Secretary to President Ford. Currently, Mr. Nicholson serves on the
Board of Advisors to the M.D. Anderson Cancer Institute.
James K. Eichelberger has been a director since April 1997. Mr.
Eichelberger is a private investor, real estate broker and commercial builder in
the Austin, Texas area.
Robert J. Gary has been a director since March 1997. Since 1992, Mr. Gary
has been President of Gary Investment & Services, an investment and consulting
firm. From 1993 to 1996, Mr. Gary was Chairman of the Board of Integrated
Diagnostic Measurement Corp., and from 1960 to 1992, was Executive Vice
President of the Texas Utilities System.
Frederick J. Bonte, M.D. has been a director since April 1997. Dr. Bonte
serves as Director of the Nuclear Medicine Center of Southwest Medical School in
Dallas, Texas, a position he has held for more than five years.
---------------
Carl W. Seidel, age 58, will join the Company as President and Chief
Executive Officer on May 5, 1997. From 1969 to 1997, Mr. Seidel served in
various positions at New England Nuclear Company and its successors by merger,
E.I. duPont De Nemouris and Company ("DuPont") and DuPont Merck Pharmaceutical
Corp. ("DuPont Merck"), a joint venture between DuPont and Merck and Company,
Inc. for the manufacture of radiopharmaceuticals and other drug products. From
1991 to 1997, he served as Associate Director of Technical Affairs of the
Radiopharmaceutical Division of DuPont Merck. From 1991 to 1996, he served as
Associate Director and Business Manager of the Radioisotopes and Radioactive
Sources Unit and from 1981 to 1991, as Manager of the Radiopharmaceutical
Division, Radiopharmaceutical Manufacturing Operations and Contract
Manufacturing in Europe of DuPont, a multinational chemical, drug and
pharmaceutical company. From 1969 to 1981, he served as Assistant Division
Manager, New Ventures Operations and Commercial Development of New Technology of
New England Nuclear Company, a manufacturer of radioisotopes and radioactive
sources. From 1990 to 1994, Mr. Seidel served as a member of the Department of
Energy National Advisory Committee on the need for a national biomedical tracer
facility and an independent producer of radioisotopes. Mr. Seidel received a
M.S. in Chemistry from the University of Notre Dame in 1962 and a B.S. in
Chemistry from the University of Wisconsin in 1959.
---------------
As a result of their managerial positions, stock ownership and activities
relating to the organization of the Company, Dr. Morgan and Mr. Simmons may be
deemed "promoters" as that term is defined in the Securities Act. Each member of
the Board was elected to hold office for a period of one year and until his
successor is elected and qualified or until such director's earlier death,
resignation or removal. Officers are elected annually and serve at the pleasure
of the Board of Directors, subject to rights, if any, under contracts of
employment.
Committees
The Executive Committee, established in January 1997, currently consists of
Robert J. Gary, Ira Lon Morgan, William W. Nicholson and Virgil L. Simmons. The
Executive Committee is responsible for the Company's general operations, as
provided in directives from the Board of Directors.
The Audit Committee, established in January 1997, currently consists of
James K. Eichelberger, John M. McCormack and Ira Lon Morgan. The Audit Committee
meets with the Company's independent auditors to review the scope
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and timing of their audit services, any other services they are asked to
perform, the report of independent auditors on the Company's consolidated
financial statements following completion of their audit and the Company's
policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee makes an annual recommendation to the
Board of Directors concerning the appointment of independent auditors for the
ensuing year.
The Compensation Committee, established in January 1997, currently consists
of James K. Eichelberger, Robert J. Gary, John M. McCormack, Ira Lon Morgan and
William W. Nicholson. The Compensation Committee reviews the compensation and
benefits of all officers of the Company, makes recommendations to the Board of
Directors and reviews general policy matters relating to compensation and
benefits of employees of the Company.
Executive Compensation
For the period November 1, 1995 (inception) through December 31, 1996,
Virgil L. Simmons, the Company's Vice President of International Marketing, was
issued 50,428 shares of Common Stock at a value of $1.40 per share, in payment
of $70,599 of compensation for his services as an officer of the Company. Other
than the foregoing issuance of shares, none of the Company's executive officers
were paid any compensation for services to the Company as an executive officer
for the period November 1, 1995 (inception) through December 31, 1996.
The Company has entered into an employment/royalty agreement with Dr.
Morgan effective November 1, 1995, pursuant to which Dr. Morgan is employed as
Chairman and President and Chief Executive Officer or in a senior advisory
position through October 31, 2000 at an annual salary of $100,000, increasing by
$10,000 per year commencing November 1, 1997. Dr. Morgan is entitled to
participate in any pension, retirement, stock appreciation or stock option plan,
or any key employee compensation plan which may be established. Dr. Morgan's
employment is terminable only for "good cause" as determined by a court of law.
If Dr. Morgan's employment is terminated due to mental or physical disability or
incapacity, the Company will pay Dr. Morgan six months salary. Dr. Morgan has
agreed to devote not less than 75% of his working hours to the Company's
business interests. The employment agreement contains confidentiality,
non-competition and non-solicitation provisions.
In addition to salary, Dr. Morgan will receive royalty payments
semi-annually equal to 1% of the gross revenues received by the Company from the
sale, lease or use of products developed, manufactured and marketed by the
Company under any license agreement, know-how or technology developed or being
developed by Dr. Morgan, and the greater of 0.5% of gross revenues or 20% of
royalties received from the licensing by the Company of any such patents,
know-how or technology to others. The total remuneration of Dr. Morgan from
salary and royalties is not to exceed $150,000 per year until gross revenues of
the Company exceed $5,000,000 and the Company is profitable. Royalties over and
above the standard salary are to be paid out of profits not to exceed 10% of the
Company's pre-tax profits. Dr. Morgan may accept royalties in the form of cash,
Common Stock, deferred annuities or tax-free retirement plans offered by the
Company or others in combination or percentages of the above forms of royalty
payment. The Company's Board of Directors is required to offer such remuneration
to Dr. Morgan on a semi-annual basis based on earnings per share and market
value of the Company's Common Stock. Royalty compensation may not exceed
$500,000 in any one-year period.
Dr. Morgan has entered into an addendum to his employment agreement
pursuant to which he has waived any rights to salary through December 31, 1996.
The Company intends to enter into a five-year employment agreement with
Carl W. Seidel for his services as President and Chief Executive Officer.
The Company is a 51% beneficiary of a "key man" life insurance policy in
the amount of $1,000,000 on the life of Dr. Morgan, and Dr. Morgan's designee is
a 49% beneficiary. The Company has applied for a $500,000 key-man life insurance
policy on the life of Mr. Seidel.
Consultants
The Company is dependent upon third parties for significant aspects of its
operations and has retained consultants to assist in the design and
configuration of the LINAC and its administration, manufacturing, research and
development
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facility and Radioisotope Production Facility. For the period November 1, 1995
(inception) through December 31, 1996, the Company paid $107,149 in cash and
issued 186,142 shares of Common Stock at a value of $260,600 to consultants for
services rendered, including Common Stock issued to certain officers and
directors of the Company. See "Certain Transactions." As of March 31, 1997, the
Company owed 12 consultants an aggregate of approximately $12,000 for services
rendered in 1997. The Company will retain additional consultants as required.
Long Term Incentive Plan
The Company's Board of Directors is considering approval of the Company's
1997 Long Term Incentive Plan (the "Incentive Plan") which will be subject to
stockholder approval. The Incentive Plan authorizes the granting of incentive
stock options and non-qualified stock options to purchase Common Stock, stock
appreciation rights, restricted stock and performance units, to key executive
and other key employees of the Company, including officers of the Company and
its subsidiaries. The purpose of the Incentive Plan is to attract and retain key
employees, to motivate key employees to achieve long-range goals and to further
identify the interests of key employees with those of the other shareholders of
the Company.
The Incentive Plan authorizes the award of 600,000 shares of Common Stock
to be used for stock options, stock appreciation rights, or restricted stock. If
an award made under the Incentive Plan expires, terminates or is forfeited,
canceled or settled in cash, without issuance of shares of Common Stock covered
by the award, those shares will be available for future awards under the
Incentive Plan. The Incentive Plan will be administered by the Board of
Directors or, if directed by the Board of Directors, the Compensation Committee
(the Board of Directors or, if applicable, the Compensation Committee is
referred to herein as the "Committee"). Executives and other key full-time
employees of the Company and its subsidiaries may be selected by the Committee
to receive awards under the Incentive Plan. The Incentive Plan provides that no
more that 50,000 shares of Common Stock may be subject to awards granted per
year to any one employee participating in the Incentive Plan. In the discretion
of the Committee, an eligible employee may receive an award in the form of a
stock option, stock appreciation right, restricted stock award or performance
unit or any combination thereof, and more than one award may be granted to an
eligible employee.
The Incentive Plan authorizes the award of both incentive stock options
("ISOs") and nonqualified stock options. Under the Incentive Plan, an option may
be exercised at any time during the exercise period established by the
Committee, except that: (i) no option may be exercised more than 90 days after
employment with the Company and its subsidiaries terminates by reason other than
death, disability or authorized leave of absence for military or government
service; and (ii) no option may be exercised more than 12 months after
employment with the Company and its subsidiaries terminates by reason of death
or disability. The aggregate fair market value (determined at the time of the
award) of the Common Stock with respect to which ISOs are exercisable for the
first time by any employee during any calendar year may not exceed $100,000. The
term of each option is determined by the Committee, but in no event may such
term exceed 10 years from the date of grant. The exercise price of options is
determined by the Committee, but the exercise price of ISOs cannot be less than
the fair market value of the Common Stock on the date of the grant, and the
exercise price of nonqualified stock options cannot be less than 50% of the fair
market value of the Common Stock on the date of grant. The exercise price of
options may be paid in cash or in shares of Common Stock. Grants of options do
not entitle any optionee to any rights as a shareholder, and such rights will
accrue only as to shares actually purchased through the exercise of an option.
---------------
The Company has agreed for a 24-month period commencing on the date of this
Prospectus, without the prior consent of the Representative, not to (i) grant
any options or warrants to purchase Common Stock to employees or directors of
the Company with an exercise price per share less than the initial public
offering price of the Common Stock offered hereby, except that options or
warrants granted to key officers of the Company may have an exercise price of
not less than 85% of the initial public offering price; or (ii) issue more than
an aggregate of 600,000 shares of Common Stock (including securities with
equivalent rights as Common Stock, equivalent securities issuable upon exercise
of options, warrants or other contractual rights and securities convertible
directly or indirectly into Common Stock or equivalent securities), no such
shares to be issued at a price per share less than the greater of market value
at the date of issuance (or grant, as the case may be), or the initial public
offering price of the Common Stock offered hereby. Notwithstanding the
foregoing, the Company may issue securities in connection with an underwritten
public offering on behalf of the Company, authorize and issue a class of
preferred stock, and issue securities in connection with acquisitions, mergers
and other reorganizations.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of the date of this Prospectus, and as adjusted to
reflect the sale of the shares offered hereby by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) all directors and executive officers as a group
and (iv) the Selling Stockholders:
<TABLE>
<CAPTION>
Percent of Outstanding Shares of
Common Stock
-----------------------------------
Number of Shares
Name and Address of Beneficial Owner Beneficially Owned(1) Before Offering After Offering
- ------------------------------------ --------------------- --------------- --------------
<S> <C> <C> <C>
Ira Lon Morgan
3800 Palomar Lane
Austin, Texas 78759 ....................... 1,111,838 28.7% 18.3%
Virgil L. Simmons
5 Sugar Shack Dr.
Austin, Texas 78746 ....................... 246,902 6.4% 4.1%
James K. Eichelberger
12300 FM 140 West
Driftwood, Texas 78619 .................... 284,660(2) 7.4% 4.7%
John M. McCormack
1303 Campbell Road
Houston, Texas 7705 ....................... 372,375 9.6% 6.1%
William W. Nicholson
1101 Post Oak Blvd., Suite 9700
Houston, Texas 77056 ...................... 372,375 9.6% 6.1%
Dennis Bieber
55 Hiddenledge Road
Englewood, New Jersey 07631 ............... 194,522 5.0% 3.2%
Tommy L. Thompson ........................... -- * *
Robert J. Gary .............................. 125,000 3.2% 2.1%
Frederick J. Bonte, M.D ..................... -- * *
[Selling Stockholder](3)
[Selling Stockholder](3)
All directors and executive officers as
a group (14 persons) ...................... 2,628,357 67.9% 43.3%(4)
</TABLE>
- ---------------
*Less than 1%.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition, of a security.) A person is deemed as of any date
to have "beneficial ownership" of any security that such person has the
right to acquire within 60 days of such date.
(2) Includes 17,188 shares owned by Mr. Eichelberger's spouse. Mr. Eichelberger
disclaims beneficial ownership of the shares owned by his spouse.
(3) The aggregate 100,000 shares to be sold by the Selling Stockholders upon
exercise of the Underwriters' over-allotment option will be sold on a pro
rata basis.
(4) In the event the Underwriters' over-allotment option is exercised in full,
all directors and executive officers as a group will beneficially own 41.7%
of the outstanding shares of Common Stock after this Offering.
44
<PAGE>
CERTAIN TRANSACTIONS
For the period November 1, 1995 (inception) through December 31, 1996, Dr.
Morgan, Chairman and Chief Executive Officer, loaned the Company an aggregate of
$120,000 at an interest rate of 10% per annum. The Company has repaid $95,000 of
such loans in cash, exchanged 1,250,000 shares of its Common Stock for
cancellation of $5,000 of such loans and intends to repay the $20,000 principal
balance out of a portion of the net proceeds of this Offering. See "Use of
Proceeds" and "Plan of Operation - Liquidity and Capital Resources."
In December 1995 and January 1996, the Company issued an aggregate of
2,062,920 shares of Common Stock at a value of $.004 per share to founders,
consisting of (i) 1,250,000 shares to Dr. Morgan in exchange for $5,000 of the
principal amount of a loan from Dr. Morgan to the Company, (ii) 250,000 shares
to Virgil L. Simmons, Vice President of International Marketing, at a purchase
price of $.004 per share, (iii) 250,000 shares to James K. Eichelberger, a
director of the Company, at a purchase price of $.004 per share and (iv) 312,920
shares to other founders at a purchase price of $.004 per share.
In January 1996, the Company's founders transferred an aggregate of 230,411
shares of Common Stock to three individuals in consideration for consulting
services rendered by them to the Company, consisting of 159,862 shares, 28,224
shares, 28,225 shares and 14,100 shares transferred by Dr. Morgan, Mr. Simmons,
Mr. Eichelberger and other founders, respectively. The transferees of such
shares included Homer B. Hupf, Vice President of Radiochemistry, who received an
aggregate of 57,603 shares in consideration for consulting services relating to
the design of the proposed Radioisotope Production Facility, and Joe Beaver,
Vice President of Radioisotope Production, who received an aggregate of 57,603
shares in consideration for consulting services relating to the design and
licensing of the proposed Radioisotope Production Facility.
In February 1996, the Company issued at a value of $.004 per share 25,000
shares of Common Stock to Hospital Financial Corporation in consideration for
the assignment of an exclusive license. See "Business - Proposed Medical Imaging
Camera."
In May 1996, the Company approved, and in November 1996 issued, at a value
of $.004 per share 21,700 shares of Common Stock to Dr. Morgan and 21,700 shares
of Common Stock to Mr. Eichelberger in consideration for their respective
pledges of $130,000 and $100,000 of personal assets as partial collateral for
the Company's $2,900,000 LINAC Loan.
In July 1996, the Company issued, at a value of $.004 per share, 21,700
shares of Common Stock to a stockholder in consideration for such stockholder's
pledge of $100,000 of personal assets as collateral for a $100,000 bank loan
obtained by the Company. See "Plan of Operations - Liquidity and Capital
Resources."
In July 1996, the Company borrowed $100,000 from a bank, secured by
$100,000 of the personal assets of a stockholder of the Company. The Company
intends to repay this loan with a portion of the net proceeds of this Offering.
See "Use of Proceeds" and "Plan of Operation - Liquidity and Capital Resources."
In November 1996, the Company issued at a value of $1.40 per share (i)
50,428 shares to Mr. Simmons as compensation for serving as an officer of the
Company, (ii) 35,714 shares of Common Stock to Mr. Eichelberger in consideration
for financial consulting services, and (iii) 50,000 shares of Common Stock to
each of two consultants for consulting services rendered to the Company.
In December 1996, the Company borrowed $1,750,000 from a bank, secured, in
part, by $130,000 of the personal assets of Dr. Morgan and $100,000 of the
personal assets of Mr. Eichelberger. At March 31, 1997, the outstanding
principal balance on this loan was $1,654,411, which the Company intends to
repay with a portion of the net proceeds of this Offering. See "Use of Proceeds"
and "Plan of Operation - Liquidity and Capital Resources."
In December 1996, the Company acquired all of the capital stock of Gazelle
Realty, Inc., a Texas corporation that owns the 20-acre tract of land on which
the Radioisotope Production Facility will be constructed and an additional 1.6
acre tract of land on which the Company's administrative, manufacturing and
research and development facility will be constructed, from Messrs. John M.
McCormack and William W. Nicholson, in exchange for 372,375 shares of Common
Stock to Mr. McCormack and 372,375 shares to Mr. Nicholson, valued at $1.60 per
share. The Company issued 82,750 shares to another individual in December 1996
in consideration for acting as broker in such transaction. Messrs. McCormack and
Nicholson were elected directors of the Company subsequent to this transaction.
45
<PAGE>
In December 1996 and January 1997, the Company completed a $1,060,000
private placement of 662,501 shares of Common Stock (100,000 of such shares
having been issued in January 1997) to 29 Texas investors at a purchase price of
$1.60 per share, of which 17,188 shares were purchased by Mr. Eichelberger's
spouse. See "Plan of Operation Liquidity and Capital Resources."
In January 1997, the Company issued 39,283 shares of Common Stock to Mr.
Eichelberger at a value of $1.60 per share in consideration for his assistance
in obtaining the Company's $2,900,000 LINAC Loan. See "Plan of Operation -
Liquidity and Capital Resources."
In January 1997, the Company obtained a $500,000 line of credit from a
bank, $250,000 of which is personally guaranteed by Mr. McCormack and an
additional $250,000 of which is personally guaranteed by Mr. Nicholson. At March
31, 1997, $400,000 of this line of credit was outstanding. The Company intends
to repay the outstanding balance with a portion of the net proceeds of this
Offering. See "Use of Proceeds" and "Plan of Operation - Liquidity and Capital
Resources."
In April 1997, the Company's Board of Directors authorized the Company's
Chairman of the Board to negotiate, on behalf of the Company, and upon
conclusion of such negotiations, for seven of the Company's founding
stockholders to transfer an aggregate of 150,000 shares of Common Stock at a
purchase price or value of $1.60 per share, to the following key employees, as
part of the Company's incentive compensation program: 75,000 shares to Carl W.
Seidel, who will serve as President and Chief Executive Officer commencing May
1997; 50,000 shares to Tommy L. Thompson, Executive Vice President; and 25,000
shares to Jerry W. Watson, Ph.D., Vice President of Manufacturing and Systems
Engineering.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"). As of the date of this
Prospectus, there are 3,868,446 shares of Common Stock issued and outstanding
and held of record by 45 persons and no issued and outstanding shares of
Preferred Stock.
Common Stock
The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this Offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the stockholders. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock. The holders of the Common Stock
have no preemptive rights or cumulative voting rights and there are no
redemption, sinking fund or conversion provisions applicable to the Common
Stock.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors, out of funds legally available for such
purpose, subject to the dividend and liquidation rights of any Preferred Stock
that may be issued.
Preferred Stock
Pursuant to the Company's Restated Articles of Incorporation, the Board of
Directors is authorized, without further action by the stockholders, to issue up
to 5,000,000 shares of Preferred Stock in one or more series and to establish
the designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or relative rights of
any series of Preferred Stock so issued. The issuance of shares of Preferred
Stock could materially adversely affect the voting power and other rights of
holders of Common Stock. Because the terms of the Preferred Stock may be fixed
by the Board of Directors without shareholder action, the Preferred Stock could
be issued quickly with terms designated to defeat a proposed takeover of the
Company, or to make the removal of management or the directors of the Company
more difficult. The authority to issue Preferred Stock or rights to purchase
such stock could be used to discourage a change in control of the Company.
Management of the Company is not aware of any threatened transactions to obtain
control of the Company, and the Board has no current plans to issue any shares
of Preferred Stock.
Indemnification
As permitted by the Texas Business Corporation Act ("TBCA"), the Company's
Restated Articles of Incorporation provide that the Company will indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
TBCA against actions that may arise against them in such capacities, and to
advance expenses in connection with any such actions. The TBCA provides that a
corporation may indemnify a person who was, is, or is threatened to be made a
named defendant in a proceeding because such person is or was a director if it
is determined in accordance with the provisions of the TBCA that the person (i)
conducted himself in good faith, (ii) reasonably believed, in the case of
conduct in his official capacity as director, that his conduct was in the
corporation's best interests or, in other cases, that his conduct at least was
not opposed to the corporation's interests and (iii) in the case of any criminal
proceeding, had no reasonable cause to be believe his conduct was unlawful. A
director may not be indemnified with respect to a proceeding in which the person
is found liable on the basis that personal benefit was improperly received by
him, whether or not the benefit resulted from an action taken in the person's
official capacity, or in which the person is found liable to the corporation.
Officers, employees and agents of a corporation are entitled to be indemnified
by the corporation as, and to the same extent provided for, directors of the
corporation. The Company has applied for directors' and officers' liability
insurance with an aggregate policy limit of $1,000,000.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, New York is the transfer
agent and registrar for the Common Stock.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,068,446 shares of
Common Stock outstanding. Of these shares, the 2,200,000 shares issued in this
Offering (2,530,000 shares of Common Stock if the Underwriters' over-allotment
option is exercised in full) will be freely transferable without restriction
under the Securities Act, unless acquired by an "affiliate" of the Company (as
that term is defined in the Securities Act) in which event such securities will
be subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 3,868,446 shares of Common Stock currently outstanding are "restricted
securities" (the "Restricted Shares") within the meaning of Rule 144 and may not
be sold unless they are registered under the Securities Act or sold pursuant to
Rule 144 or another exemption from registration.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated for purposes of Rule 144) who has beneficially owned
"restricted securities" for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock of the Company, or (ii) the
average weekly trading volume in Common Stock during the four calendar weeks
preceding such sale, provided that certain public information about the Company,
as required by Rule 144, is then available and the seller complies with the
manner of sale and notification requirements of the rule. A person who is not an
affiliate and has not been an affiliate within three months prior to the sale
and has, together with any previous owners who were not affiliates, beneficially
owned restricted securities for at least two years is entitled to sell such
shares under Rule 144(k) without regard to any of the availability of current
public information, volume limitations, manner of sale provisions or notice
requirements of Rule 144.
The Restricted Shares will become available for sale under Rule 144 at
various dates from 90 days after the date of this Prospectus to January 31,
1998, and the holders of such shares have agreed not to sell or otherwise
transfer their shares for a minimum of 12 months following the date of this
Prospectus without the consent of the Representative and the Company and, for
the 12-month period thereafter, such holders have agreed not to sell their
shares except at a per share price at least equal to the initial public offering
price per share and only through the Representative acting as broker.
The Company is unable to predict the effect, if any, that future sales of
shares of Common Stock, or the availability of shares for future sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales could occur, may have an adverse effect on the market price of the
Common Stock. See "Risk Factors - Potential Adverse Effect of Shares Eligible
for Future Sale."
48
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Keane
Securities Co., Inc. is acting as representative (in such capacity, the
"Representative"), have severally and not jointly agreed, subject to the terms
and conditions of the Underwriting Agreement among the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company and
the Company has agreed to sell to the Underwriters on a firm commitment basis,
the respective number of shares of Common Stock set forth opposite their names
below:
Number Shares of
Underwriter Common Stock
- ----------- ------------
Keane Securities Co., Inc...........................
---------
Total............................................... 2,200,000
=========
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to the approval of certain legal matters by their counsel and
various other conditions precedent specified therein.
The Representative has advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock directly to
the public at the initial public offering price per share set forth on the cover
page of this Prospectus and that the Underwriters may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc. (the
"NASD") a selling concession not in excess of $ per share of Common Stock. Such
dealers may reallow a concession not in excess of $ per share of Common Stock to
certain other dealers who are NASD members. After the commencement of the
Offering, the public offering price, concession and reallowance may be changed
by the Representative.
The Representative has advised the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed 5% of the total number of
shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
2% of the gross proceeds derived from the sale of the Common Stock underwritten,
of which $50,000 has been paid to date.
The Company and the Selling Stockholders have granted to the Underwriters
an over-allotment option, exercisable during the 45-day period from the date of
this Prospectus, to purchase from them up to an additional 230,000 shares and
100,000 shares of Common Stock, respectively, at the initial public offering
price per share of Common Stock offered hereby, less the underwriting discount
and the non-accountable expense allowance, solely to cover over-allotments, if
any, in connection with the sale of the Common Stock offered hereby. See
"Principal and Selling Stockholders." To the extent that the Underwriters
exercise such option in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional shares of Common Stock in proportion to its initial commitment and
the Company and the Selling Stockholders will be obligated to sell such shares
of Common Stock to the Underwriters.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 220,000 shares of Common Stock (the "Representative's Warrants"). The
Representative's Warrants are initially exercisable at a price of per share of
Common Stock (120% of the initial public offering price per share of Common
Stock) for a period of four years, commencing at the beginning of the second
year after their issuance and sale, and are restricted from sale, transfer,
assignment or hypothecation for a period of 12 months from the date of this
Prospectus, except to stockholders and officers of the Representative. The
Representative's Warrants provide for adjustment in the number of shares of
Common Stock issuable upon the exercise thereof and in the exercise price of the
49
<PAGE>
Representative's Warrants as a result of certain events, including subdivisions
and combinations of the Common Stock. The Representative's Warrants grant to the
holders thereof certain rights of registration with regard to the Common Stock
issuable upon exercise thereof.
All officers and directors of the Company, and all current stockholders of
the Company and holders of options (including Common Stock underlying options,
warrants or other securities exercisable or exchangeable for or convertible into
Common Stock) have agreed (i) for a period of 12 months after the date of this
Prospectus, not to, directly or indirectly, issue, offer, agree or offer to
sell, sell, transfer, assign, encumber, grant an option for the purchase or sale
of, pledge, hypothecate or otherwise dispose of any beneficial interest in such
securities without the prior written consent of the Company and the
Representative and (ii) for the 12-month period thereafter, not sell their
shares at a price per share less than the initial public offering price per
share, and then only through the Representative acting as broker. An appropriate
legend shall be marked on the face of certificates representing all such
securities. The Company and the Representative jointly may, at any time without
notice, release all or a portion of the shares subject to such lock-up
agreements.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 330,000 shares of Common Stock, by
exercising the over-allotment option referred to above. In addition, the
Representative may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriters, the selling concession
with respect to Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock will be determined arbitrarily by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
include the history and prospects of the industry in which the Company competes,
an assessment of the Company's management, the prospects of the Company, its
capital structure, the market for initial public offerings and certain other
factors as are deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Epstein Becker & Green, P.C., New York, New York.
Certain matters regarding intellectual property rights will be passed upon for
the Company by Locke Purnell Rain Harrell (A Professional Corporation). Orrick,
Herrington & Sutcliffe LLP, New York, New York, has acted as counsel to the
Underwriters in connection with this Offering.
50
<PAGE>
EXPERTS
The consolidated financial statements of International Isotopes Inc. and
Subsidiary (development stage enterprises) as of December 31, 1996 and for the
period from November 1, 1995 (inception) to December 31, 1996 included herein or
in the Registration Statement of which this Prospectus forms a part, have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose report thereon appears herein and elsewhere in this Registration
Statement. Such financial statements are included in reliance upon the report of
KPMG Peat Marwick LLP, given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits and schedules thereto, certain parts of
which having been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto which may be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
7 World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Commission's Public Reference Section at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission pursuant to its Electronic Data Gathering Analysis and
Retrieval ("EDGAR") system. The address of the Commission's Web site is
http/www.sec.gov. The Registration Statement including all exhibits thereto and
amendments thereof, has been filed with the Commission through EDGAR.
Descriptions contained in this Prospectus as to the contents of any contract or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
contract or document.
51
<PAGE>
GLOSSARY
Accelerator........................... A machine that accelerates charged
proton particles to an energy level
suitable for causing stable isotopes to
be transformed into radioisotopes. Two
types of accelerators, the linear
accelerators and the cyclotron, are
used for the production of
radioisotopes.
Alpha particle........................ A positively charged nuclear particle
identical with the nucleus of a helium
atom that consists of two protons and
two neutrons and is ejected at a high
speed in certain radioactive
transformations.
Atom.................................. The smallest particle of an element
that can exist either alone or in
combination. Each atom has a nucleus
containing protons and neutrons.
Beta particle......................... An electron or positron ejected from
the nucleus of an atom during
radioactive decay.
Cold kit.............................. A pre-measured, sterilized packaged set
of chemicals used by hospitals and
clinics to attach a radioisotope to a
specific carrier drug according to a
procedure furnished by the
manufacturer.
Computerized axial tomography......... Radiography in which a
three-dimensional image of a body
structure is constructed by computer
from a series of plane cross-sectional
images made along an axis.
Cyclotron............................. A type of proton accelerator that
accelerates particles along a circular
path to produce the energy suitable for
transforming a stable isotope into a
radioisotope.
Element............................... One of the more than 100 fundamental
substances constituting all matter,
each of which consists of atoms of only
one kind.
Half-life............................. The time it takes for one-half of the
atoms in a radioisotope to decay into
another isotope.
Isotope, stable isotope and
enriched stable isotope............... An isotope is one of two or more forms
of the same element. Each isotope
contains the same number of protons but
a different number of neutrons in the
nucleus of its atom. A stable isotope
is a nonradioactive isotope. Stable
isotopes are used as targets in
accelerators for the production of
radioisotopes. An enriched stable
isotope is a stable isotope which has
been treated to eliminate or minimize
the presence of other undesired stable
isotopes.
Linear accelerator.................... A type of proton accelerator that
accelerates particles along a linear
path to produce the energy required to
transform a stable isotope into a
radioisotope.
Monoclonal antibody................... Single-cell immunoglobulins produced in
cells and increasingly used as carriers
of drugs to intended destinations.
Neutron............................... An uncharged particle within the
nucleus of an atom. Neutrons react with
stable isotopes in nuclear reactors to
create radioisotopes.
Nuclear medicine...................... A branch of medicine in which
radiopharmaceuticals are used as
tracers in diagnosing the location and
severity of diseases and the
functionality of organs through medical
imaging devices, and as therapeutics in
treating cancers, tumors and organ
disorders.
Peptide............................... Any of various naturally occurring
compounds derived from amino acids and
increasingly used as carriers of drugs
to intended destinations.
52
<PAGE>
Proton................................ A positively charged particle within
the nucleus of an atom. Protons react
with stable isotopes in accelerators to
produce radioisotopes.
Radioisotope.......................... A radioactive isotope, i.e. an isotope
that spontaneously emits alpha or beta
rays (streams of alpha or beta
particles) by the disintegration of the
nuclei of its atoms.
Radiopharmaceutical................... A radioisotope coupled with a carrier
drug used in nuclear medicine.
53
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(Development Stage Enterprises)
Index To Consolidated Financial Statements
Page
----
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Consolidated Financial Statements:
Balance Sheet as of December 31, 1996 ................................. F-3
Statement of Operations and Accumulated Deficit
for the period from November 1, 1995 (inception)
through December 31, 1996.............................................. F-4
Statement of Stockholders' Equity for the period from
November 1, 1995 (inception) through December 31, 1996................. F-5
Statement of Cash Flows for the period from
November 1, 1995 (inception) through December 31, 1996................. F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
International Isotopes Inc.:
We have audited the accompanying consolidated balance sheet of International
Isotopes Inc. and subsidiary (development stage enterprises) (the Company) as of
December 31, 1996, and the related consolidated statements of operations and
accumulated deficit, stockholders' equity and cash flows for the period from
November 1, 1995 (inception) through December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International
Isotopes Inc. and subsidiary (development stage enterprises) as of December 31,
1996, and the consolidated results of their operations and their cash flows for
the period from November 1, 1995 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 4, 1997, except for the first paragraph
of note 12, which is as of April 24, 1997
F-2
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprise)
Consolidated Balance Sheet
December 31, 1996
Assets
------
Current assets:
Cash and cash equivalents $ 331,397
Restricted certificate of deposit (note 4) 300,000
Assets held for sale (note 1(e)) 546,613
Inventory (note 1(f)) 757,498
Other 10,855
-----------
Total current assets 1,946,363
Property and equipment, net:
Land ( note 2 ) 1,336,891
Furniture and equipment (note 3) 972,922
-----------
Total property and equipment, net 2,309,813
-----------
Total assets $ 4,256,176
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 241,341
Accrued liabilities 16,475
Notes payable to bank (note 4) 1,850,000
Notes payable to chairman (note 6) 20,000
Payable to lending institution (note 5) 569,454
-----------
Total current liabilities 2,697,270
Commitments and contingencies (notes 4, 10 and 12)
Stockholders' equity:
Preferred stock, $1.00 par value;
5,000,000 shares authorized,
no shares issued and outstanding
at December 31, 1996 (note 7) --
Common stock, $.01 par value;
10,000,000 shares authorized;
3,766,663 shares issued and
outstanding at December 31, 1996
(notes 2 and 7) 37,667
Additional paid-in capital 2,515,685
Deficit accumulated during the development stage (834,446)
Receivable from stock sales (note 7) (160,000)
-----------
Total stockholders' equity 1,558,906
-----------
Total liabilities and stockholders' equity $ 4,256,176
===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statement of Operations and Accumulated Deficit
Period from November 1, 1995 (inception)
through December 31, 1996
Sale of accelerator components $ 775,102
Cost of sales 263,440
-----------
Gross profit 511,662
Operating costs and expenses:
General and administrative 67,193
Commissions and fees 95,315
Consulting fees 367,749
Legal and professional fees 59,685
Salaries and contract labor 109,887
Rent and security 98,427
Other 85,381
-----------
Total operating expenses 883,637
-----------
Loss from development stage operations (371,975)
Other income (expense):
Gain on sale of assets held for sale (note 1(e)) 336,364
Interest income 4,906
Interest expense (note 4) (303,741)
Loan financing fees (note 5) (750,000)
-----------
Loss before extraordinary item (1,084,446)
Extraordinary gain on debt extinguishment (note 5) 250,000
-----------
Net loss and accumulated deficit at December 31, 1996 $ (834,446)
===========
Net loss per common share (note 9) $ (0.22)
===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statement of Stockholders' Equity
Period from November 1, 1995 (inception) through
December 31, 1996
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional Stock during the
------------------------ paid-in proceeds development
Shares Amount capital receivable stage Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased by founders at par 624,997 $ 2,500 -- -- -- 2,500
Shares purchased by founders at prices
other than par 187,923 752 114 -- -- 866
Shares issued to chairman as payment
on notes payable 1,250,000 5,000 -- -- -- 5,000
Shares issued for service fees to
stockholders who collateralized debt 65,100 260 26 -- -- 286
Shares issued for patents 25,000 100 -- -- -- 100
Shares issued to stockholders for
services rendered 186,142 745 259,855 -- -- 260,600
Shares issued for purchase of subsidiary 827,500 3,310 1,320,690 -- -- 1,324,000
Shares issued through private placement 600,001 2,400 957,600 (160,000) -- 800,000
Net loss -- -- -- -- (834,446) (834,446)
Effect of 2.5 for 1 stock split -- 22,600 (22,600) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 3,766,663 $ 37,667 2,515,685 (160,000) (834,446) 1,558,906
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statement of Cash Flows
Period from November 1, 1995 (inception) through
December 31, 1996
Cash flows from operating activities:
Net loss $ (834,446)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,660
Gain on sale of assets (336,364)
Services compensated by stock issuance 260,886
Changes in operating assets and liabilities:
Other assets (10,855)
Inventory (757,498)
Accounts payable 241,341
Accrued liabilities 16,475
-----------
Net cash used in operating activities (1,418,801)
-----------
Cash flows from investing activities :
Purchase of certificate of deposit (300,000)
Purchase of assets for resale and equipment
held for operations (1,888,673)
Proceeds from sale of assets held for sale,
net of related expenses 691,051
-----------
Net cash used in investing activities (1,497,622)
-----------
Cash flows from financing activities:
Proceeds from issuance of notes payable to chairman 120,000
Proceeds from sale of common stock 803,366
Proceeds from issuance of debt 4,750,000
Principal payments on notes payable (2,330,546)
Payments on notes payable from chairman (95,000)
-----------
Net cash provided by financing activities 3,247,820
-----------
Net increase in cash and cash equivalents 331,397
Cash and cash equivalents at beginning of period --
-----------
Cash and cash equivalents at end of period $ 331,397
===========
Supplemental disclosure of cash flow activities:
Cash paid for interest (note 5) $ 295,425
===========
Cash paid for financing fees (note 5) $ 500,000
===========
Supplemental disclosure of noncash transactions:
Conversion of notes payable to common stock (note 6) $ 5,000
===========
Acquisition of subsidiary through issuance of
common stock (note 2) $ 1,324,000
===========
Acquisition of patent through issuance of common stock $ 100
===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
December 31, 1996
(1) Organization and Summary of Significant Accounting Policies
(a) Description of Business
International Isotopes Inc. (the Company) was incorporated in Texas in
November 1995 as Applied Isotope Products Corporation. The Company
changed its name to International Isotopes Inc. in January 1997. The
Company is a development stage enterprise which has acquired the
technology, proprietary designs and intellectual property for the
design and assembly of a proton linear accelerator (LINAC) to produce
radioisotopes used in nuclear medicine for the detection and treatment
of various forms of cancer and other diseases. In addition, the
Company intends to manufacture and develop accelerators, diagnostic
scanners, and proton/neutron therapy equipment. These assets were
purchased in May 1996 from the State of Texas through a competitive
bidding process arising from the termination of the government funded
Superconducting Super Collider (SSC) project. The Company also owns
100% of the outstanding common shares of Gazelle Realty, Inc. which
owns 20 acres of land on which the facility for the LINAC will be
constructed and 1.6 acres of land on which the administrative and
manufacturing building will be constructed.
The Company has devoted substantially all of its efforts since
inception to the acquisition of the LINAC and related assets and to
raising capital and other organizational activities. The operating
revenues to date have been limited to the sales of accelerator
components purchased from the State of Texas which will not be a
significant source of revenues when and if the Company achieves full
operations. Additionally, the Company has derived operating capital
from the sales of assets held for sale. The Company has recently
financed its operations through a private placement of its equity
securities (see note 7) and contemplates an initial public offering
(the Offering). The Company will continue to sell the remaining assets
held for sale and utilize the inventory of accelerator components in
the manufacturing of products for sale to generate operating capital.
The Company is also applying for a low cost state or federal loan. In
addition, certain officers and directors have noted their ability and
intent to finance the Company's operations through January 1, 1998.
To date, the Company's product sales has consisted only of accelerator
components acquired from the State of Texas. The Company has not
manufactured any linear accelerator or radioisotope products and there
can be no assurance that the Company will be able to manufacture or
market its products in the future, that future revenues will be
significant, that any sales will be profitable, or that the Company
will have sufficient funds available to manufacture or market its
products. The Company's proposed radioisotope product and
manufacturing facility is also subject to extensive government
regulations. Further, the Company's future operations are dependent on
the success of the Company's commercialization efforts and market
acceptance of its products. However, during the next
F-7
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
year the Company has the ability to delay its expenditures relating to
the construction of the manufacturing facilities and the hiring of
employees until adequate capital is obtained.
(b) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Gazelle Realty, Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
During the period from November 1, 1995 (inception) through December
31, 1995 the activity of the Company was limited to the Chairman's
funding expenses totaling $15,240 for the Company. No shares were
issued for cash until 1996. Accordingly, consolidated financial
statements as of and for the two months ended December 31, 1995 have
not been separately presented.
(c) Financial Instruments and Cash Equivalents
The Company's financial instruments consist of cash equivalents, a
restricted certificate of deposit, accounts payable and accrued
liabilities and notes payable. The carrying value of these financial
instruments approximates fair value because of their short term nature
or because they bear interest at rates which approximate market rates.
Cash equivalents of $205,847 at December 31, 1996 represent money
market accounts. For purposes of the consolidated statement of cash
flows, the Company considers all highly liquid financial instruments
with original maturities of three months or less to be cash
equivalents.
(d) Furniture and Equipment
Furniture and equipment are stated at cost less accumulated
depreciation. The majority of the assets owned by the Company
represent assets acquired from the terminated Superconducting Super
Collider project. A portion of assets will be retained for the
construction of the LINAC. The remainder of the assets were acquired
with the intention of being sold for operating capital and are
classified an assets held for sale.
Depreciation on equipment held for operations is computed using the
straight line method. Office furniture and equipment in service are
being depreciated over 3 to 5 years. LINAC assets will be depreciated
over their estimated economic life upon being placed in service.
F-8
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(e) Assets Held for Sale
Assets held for sale consist primarily of excess accelerator,
mechanical and test equipment acquired from the terminated
Superconducting Super Collider project and are carried at the lower of
cost or fair value less cost to sell. These assets are being disposed
of through private sales and auctions. During the period from November
1, 1995 (inception) through December 31, 1996, the Company sold for
cash assets held for sale with a book value of $354,687 resulting in a
gain on sale of $336,364. The remaining assets held for sale are
expected to be sold during 1997.
(f) Inventory
Inventory consists of accelerator components held for sale stated at
lower of cost or market. Cost is determined using the first-in
first-out method.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(i) Impairment of Long-Lived and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured
F-9
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(j) Stock Option Plan
The Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. This SFAS superseded certain
provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the
exercise price.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value based method
defined in SFAS No. 123 had been applied. The Company intends to elect
to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123 for its granted employee
stock options. These standards will not be implemented until the
proposed stock option plan is effective.
(2) Acquisition of Subsidiary
On December 13, 1996, the Company acquired all of the outstanding stock of
Gazelle Realty, Inc. (Gazelle) in exchange for 827,500 shares of the
Company's common stock valued at $1.60 per share. The value of the
Company's common stock was determined based on recent stock transactions at
the time of acquisition. Such fair value is not in excess of the estimated
fair value of the real estate held by Gazelle. The acquisition was
accounted for as a purchase. Gazelle's sole asset is land valued at
$1,336,891 including $12,891 in survey and appraisal costs incurred by the
Company during the acquisition. Gazelle has no additional tangible or
intangible assets or liabilities and no operating activity.
F-10
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(3) Furniture and Equipment
Furniture and equipment is summarized as follows at December 31, 1996:
Furniture and equipment $ 24,890
LINAC assets 949,492
---------
974,382
Less accumulated depreciation and amortization (1,460)
---------
Furniture and equipment, net $ 972,922
=========
(4) Notes Payable to Bank
Notes payable to bank as of December 31, 1996, consisted of the following:
15% Note payable to a bank, secured by
substantially all of the assets of the
Company, including a restricted certificate of
deposit and collateral and personal guarantees
of certain officers and shareholders. A
quarterly principal payment of $95,589 was
made on March 16, 1997. Remaining quarterly
payments of $250,000 are due until December
16, 1997 when the remaining balance is due and
payable $ 1,750,000
7% Note payable to bank, secured by collateral
owned by a shareholder, due January 17, 1997.
Subsequently renewed until July 17, 1997 at
the same interest rate. 100,000
-----------
$ 1,850,000
===========
Proceeds of the $1,750,000 note payable were primarily used to pay off the
remaining balance of a previous note payable to a lending institution (note
5).
The Company guarantees shareholders for assets owned by the shareholders
pledged as collateral on the above notes. These guarantees totaled $300,000
at December 31, 1996.
(5) Payable to Lending Institution
In May 1996, the Company obtained $2,900,000 from a lending institution to
fund the acquisition of assets of the terminated Superconducting Super
Collider project from the State of Texas and related acquisition costs.
The loan was secured by all of the assets of the Company as well as
certain collateral personally owned by certain shareholders. Under the
terms of the financing agreement the principal plus fixed interest of
$290,000 was due to have been paid from proceeds of sales of assets held
for sale by September 3, 1996. An additional minimum profit sharing fee of
$750,000 was due to have been paid from additional proceeds of sales of
assets held for sale by
F-11
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
November 3, 1996. During 1996, proceeds from the sale of assets held for
sale and inventory totaling $1,428,787 were applied to the loan balance.
On December 16, 1996, the Company obtained alternate financing from a note
payable to a bank (note 4) to pay off the remaining outstanding principal
balance of $1,471,213 under the original $2,900,000 note payable to the
lending institution plus interest, minimum additional profit sharing and
legal fees. A compromise, settlement, and release agreement was obtained
from the lending institution effective December 31, 1996. The unpaid
balance due to the lending institution of $569,454 at December 31, 1996 was
paid by January 3, 1997.
In negotiating the settlement, the initial minimum profit sharing fee of
$750,000 was reduced by $250,000 to $500,000. This reduction has been
recorded as an extraordinary item.
(6) Notes Payable to Related Party
The Company has received various cash advances totaling $120,000 from the
Company's Chairman in the form of notes payable bearing interest at 10%.
The notes payable had been reduced to $20,000 at December 31, 1996 due to
cash payments from the Company of $95,000 and conversion of notes payable
to 1,250,000 shares of common stock valued at $0.004 per share and
aggregating $5,000.
(7) Shareholder's Equity (Deficit)
Common stock - Under the terms of the original Articles of Incorporation
and By-Laws in effect at December 31, 1996, the Company was authorized to
issue 10,000,000 shares of common stock, par value $.01 per share. Restated
Articles of Incorporation and By-Laws, adopted by the Company effective
March 20, 1997, increased the authorized shares to 20,000,000. Under the
Restated Articles of Incorporation and By-Laws, the holders of common stock
are entitled to one vote for each share held of record on all matters to be
voted on by the common stockholders. The holders of common stock are
entitled to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available for them. In the event of
liquidation, dissolution or winding-up of the company, the holders of
common stock are entitled to share ratably in all assets remaining which
are available for distribution to them after payment of liabilities and
after provision has been made for each class of stock having preference
over the common stock. Holders of shares of common stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the common stock.
Stock Options - The Company has proposed a stock option plan whereby a
maximum of 10% of the Company's common stock outstanding will be set aside
as common stock options for officers and employees of the Company
exercisable at no less than 85% of market value. As of December 31, 1996,
the plan had not been finalized and no options had been granted.
F-12
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
Due from Stockholders - During December 1996, the Company issued 100,000
shares of common stock upon receipt of signed subscription agreements
relating to a private placement of the Company's common stock at $1.60 per
share resulting in amounts due from stockholders of $160,000 at December
31, 1996. Such amounts were received in January, 1997.
Issuances of common stock involving noncash consideration were based on the
fair value of the stock at the time services were rendered or assets
acquired.
Preferred Stock - Under the terms of the original Articles of Incorporation
and By-Laws in effect at December 31, 1996, the Company was authorized to
issue 5,000,000 shares of Preferred Stock, par value $1.00 per share. No
shares of $1.00 par Preferred Stock were issued. Restated Articles of
Incorporation and By-Laws, adopted by the Company effective March 20, 1997,
changed the par value of Preferred Stock to $.01 and revised certain voting
rights. Under the Restated Articles of Incorporation and By-Laws, Preferred
Stock may be issued in series from time to time at the discretion of the
Board of Directors. The Board of Directors is authorized to set the
distinguishing characteristics of each series prior to issuance, including
the granting of limited or full voting rights, rights to payment of
dividends and amounts payable in event of liquidation, dissolution or
winding up of the Company. No shares of serial preferred stock have been
issued.
Common Stock Split - The Company's Board of Directors declared a 2.5-for-1
stock split of the Company's common stock effective March 15, 1997. All
share and per share data, including stock option information, is presented
in the accompanying consolidated financial statements to reflect the stock
split on a retroactive basis. There was no change to the number of shares
authorized.
(8) Income Taxes
For the period from November 1, 1995 (inception) through December 31, 1996,
the Company recorded no provision for income taxes because of its inability
to utilize its operating losses and the creation of net operating loss
carryforwards.
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31,
1996 are presented below:
Deferred tax assets:
Net operating loss carryforwards $ 18,243
Costs expensed for financial reporting purposes
not deducted for tax 125,035
Basis difference of property and equipment 140,434
---------
Total gross deferred tax assets 283,712
Less valuation allowance (283,712)
---------
Net deferred taxes $ --
=========
F-13
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
At December 31, 1996, the Company has net operating loss carryforwards of
$53,655 which are available to offset future federal taxable income, if
any, through 2011.
Due to the fact that the Company is in the beginning stages of business
operations and the uncertainty of future income generation, a valuation
allowance of $283,712 has been established to fully offset the potential
deferred tax asset.
(9) Net loss per Common Share
Per share information was calculated based on net loss available to common
shareholders divided by the weighted average number of shares of common
stock outstanding during the period. Pursuant to the Securities and
Exchange Commission (SEC) staff accounting bulletin and SEC Staff policy,
common stock issued during the twelve-month period prior to the proposed
initial public offering for consideration below the assumed initial public
offering price have been included in the calculation of weighted average
number of shares as if they were outstanding for all periods presented.
Accordingly, common shares outstanding of 3,766,663 at December 31, 1996
were used in the calculation of net loss per common share.
(10) Lease Commitments
The Company leases office space and certain office equipment under
operating leases expiring at various dates through 2001. Rental expense
under such leases for the period from November 1, 1995 (inception) through
December 31, 1996 was $53,800.
Future minimum commitments as of December 31, 1996 under noncancelable
operating leases are as follows:
1997 $ 60,580
1998 37,740
1999 22,560
2000 6,000
---------
Total minimum lease payments $ 126,880
=========
(11) Related Party Transactions
During 1996, the Company issued 186,143 shares of common stock valued at
$260,600 to various shareholders and affiliates for consulting services. In
addition, the Company issued 21,700 shares each to two board members and a
shareholder as compensation for providing collateral on notes payable (see
note 4).
F-14
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(12) Subsequent Events
On January 3, 1997, the Company transferred funds to fully pay the balance
due to lending institution of $569,454. The funds were obtained from
proceeds of a note payable to a bank of $242,000 and cash reserves of the
Company of $327,454. The note payable, due April 24, 1997, bears interest
at 7.05% and is secured by personal collateral of a shareholder. Also, in
January 1997, the Company received $160,000 from the receivable from stock
sales which occurred in December, 1996 of which $80,000 was applied to the
principal of the $242,000 note payable to bank. On April 24, 1997, the due
date on the remaining principal of $162,000 and interest on the note was
extended for 30 days.
In January 1997, the Company issued 62,500 shares of common stock through
private placement for proceeds of $100,000. This transaction completed the
private placement which aggregated issuance of 662,501 common stock shares
and proceeds of $1,060,000.
On January 14, 1997, the Company obtained a $500,000 revolving line of
credit from a bank bearing interest at a variable rate of 1% over prime
(prime at December 31, 1996 was 8.25%). The loan is personally guaranteed
by two Directors and is due and payable March 15, 1998. As of March 31,
1997 the Company had drawn $400,000 under this agreement which has been
used to fund subsequent operating cash needs of the Company.
The Company has committed to pay architectural and engineering costs
related to the construction of an administrative and manufacture facility
on land owned by the Company. In addition, the Company has committed to
purchase steel necessary for the building construction. These commitments
total $161,988 at March 31, 1997.
In January 1997, the Company issued 39,283 shares of common stock to settle
an outstanding account payable to a director of $62,852 included in
accounts payable at December 31, 1996.
As of March 31, 1997, the Company had received proceeds of $128,072 from
sales of accelerator components with a net book value of $57,679.
F-15
<PAGE>
[Back of last page of prospectus]
[Insert: [photograph/drawing] of facilities and LINAC equipment.
<PAGE>
[Inside back cover page of prospectus]
[Insert: Proposed designs for North Texas Research Center]
<PAGE>
================================================================================
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations in connection
with this Offering other thanthose contained
in this Prospectus, and, if given or made,
such information or representation must not
be relied upon as having been authorized by
the Company or any Underwriter. This INTERNATIONAL ISOTOPES INC.
Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any
jurisdiction in which such offer or
solicitation is not authorized, or in which
the person making such offer or solicitation
is not qualified to do so or to anyone to
whom it is unlawful to make such offer or
solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall,
under any circumstances, create any
implication that there has been no change in
the affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time subsequent
to the date hereof as of which such
information is furnished.
------------------------------------
TABLE OF CONTENTS 2,200,000 Shares of
Page
Prospectus Summary........................... 4 Common Stock
Risk Factors.................................10
Use of Proceeds..............................17
Dividend Policy..............................18
Capitalization...............................19
Dilution.....................................20 ---------------------------
Selected Financial Data......................21 PROSPECTUS
Plan of Operation............................22 ---------------------------
Business.....................................25
Management...................................39
Principal and Selling Stockholders...........44
Certain Transactions.........................45
Description of Capital Stock.................47
Shares Eligible for Future Sale..............48 Keane Securities Co., Inc.
Underwriting.................................49
Legal Matters................................50
Experts......................................51
Additional Information.......................51
Glossary.....................................52
Index to Consolidated Financial Statements..F-1
, 1997
Until _____, 1997 (25 days after the
date of this Prospectus), all dealers
effecting transactions in the registered
securities, whether or not participating in
this distribution, may be required to deliver
a Prospectus. This delivery requirement is in
addition to the obligations of dealers to
deliver a Prospectus when acting as
Underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
As permitted by the Texas Business Corporation Act ("TBCA"), the Company's
Restated Articles of Incorporation provide that the Company will indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
BCA against actions that may arise against them in such capacities, and to
advance expenses in connection with any such actions. Registrant's Restated
Articles of Incorporation provides that directors of the Company will not be
personally liable to Registrant or its stockholders for monetary damages for any
act or omission in his capacity as a director except as authorized under the
TBCA. The TBCA provides that a corporation may indemnify a person who was, is,
or is threatened to be made a named defendant in a proceeding because such
person is or was a director if it is determined in accordance with the
provisions of the TBCA that the person (i) conducted himself in good faith, (ii)
reasonably believed, in the case of conduct in his official capacity as
director, that his conduct was in the corporation's best interests or, in other
cases, that his conduct at least was not opposed to the corporation's interests
and (iii) in the case of any criminal proceeding, had no reasonable cause to be
believe his conduct was unlawful. A director may not be indemnified with respect
to a proceeding in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity, or in which the person is
found liable to the corporation. Officers, employees and agents of a corporation
are entitled to be indemnified by the corporation as, and to the same extent
provided for, directors of the corporation.
Registrant has applied for directors' and officers' liability insurance
with an aggregate policy limit of $1,000,000.
The form of Underwriting Agreement included as Exhibit 1 provides for
indemnification of Registrant under certain circumstances, including
indemnification for liabilities under the Securities Act.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of this offering, all of which will be paid by
Registrant, are as follows:
SEC Registration Fee ..................................... $ 8,467
National Association of Securities Dealers, Inc. Fee ..... 3,294
Boston Stock Exchange Listing Fee ........................ 7,500
Nasdaq Listing Fee ....................................... 6,000
Accounting Fees and Expenses ............................. *
Registrant's Legal Fees and Expenses ..................... *
Blue Sky Expenses and Counsel Fees ....................... 30,000
Printing and Engraving Fees .............................. *
Transfer Agent and Registrar's Fees and Expenses ......... 5,000
Miscellaneous Expenses ................................... *
-------
Total .................................................... $ *
=======
- ------------------
* To be completed by amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
In December 1995 and January 1996, Registrant issued an aggregate of
2,062,920 shares of Common Stock at a value of $.004 per share to founders,
consisting of (i) 1,250,000 shares to Ira Lon Morgan, Ph.D., Registrant's
Chairman, in exchange for $5,000 of the principal amount of a loan from Dr.
Morgan to Registrant, (ii) 250,000 shares to Virgil L. Simmons, Registrant's
Vice President of International Marketing, at a purchase price of $.004 per
share, (iii) 250,000 shares to James K. Eichelberger, a director of Registrant,
at a purchase price of $.004 per share, and (iv) 312,920 shares to other
founders at a purchase price of $.004 per share. These issuances were exempt
from registration under the Securities Act of 1933, as amended (the Securities
Act") pursuant to Section 4(2) thereunder.
In January 1996, Registrant's founders transferred an aggregate of 230,411
of their shares to three individuals in consideration for consulting services
rendered by them to Registrant, consisting of 159,862 shares, 28,224 shares,
28,225 shares and 14,100 shares transferred by Dr. Morgan, Mr. Simmons, Mr.
Eichelberger and another founder, respectively. The transferees of such shares
included Homer B. Hupf, Registrant's Vice President of Radiochemistry, who
received an aggregate of 57,603 shares, and Joe Beaver, Registrant's Vice
President of Radioisotope Production, who received an aggregate of 57,603
shares. These transfers were exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.
In February 1996, Registrant issued at a value of $.004 per share 25,000
shares of Common Stock to Hospital Financial Corporation in consideration for
the assignment of an exclusive license. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder.
In May 1996, Registrant approved, and in November 1996 issued, at a value
of $.004 per share 21,700 shares of Common Stock to Dr. Morgan and 21,700 shares
of Common Stock to Mr. Eichelberger in consideration for their respective
pledges of $130,000 and $100,000 of personal assets, respectively, as partial
collateral for Registrant's $2,900,000 LINAC Loan. These issuances were exempt
from registration under the Securities Act pursuant to Section 4(2) thereunder.
In July 1996, Registrant issued, at a value of $.004 per share, 21,700
shares of Common Stock to a stockholder in consideration for such stockholder's
pledge of $100,000 of personal assets as collateral for a $100,000 bank loan
obtained by Registrant. This issuance was exempt from registration under the
Securities Act pursuant to Section 4(2) thereunder.
In November 1996, Registrant issued at a value of $1.40 per share (i)
50,428 shares to Mr. Simmons as compensation for serving as an officer of
Registrant, (ii) 35,714 shares of Common Stock to Mr. Eichelberger in
consideration for financial consulting services and (iii) 50,000 shares of
Common Stock to each of two consultants for consulting services rendered to the
Company. These issuances were exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.
In December 1996, Registrant issued 744,750 shares to the stockholders of
Gazelle Realty, Inc. in exchange for all of the capital stock of such
corporation, at a value of $1.60 per share, consisting of 372,375 shares issued
to each of John M. McCormack and William W. Nicholson, who were elected
directors of Registrant subsequent to this transaction. Registrant also issued
82,750 shares to another individual in consideration for acting as broker in
such transaction. These issuances were exempt from registration under the
Securities Act pursuant to Section 4(2) thereunder.
In December 1996 and January 1997, Registrant completed a $1,060,000
private placement of 662,501 shares of Common Stock (100,000 of such shares
having been issued in January 1997) to 29 Texas investors at a purchase price of
$1.60 per share, of which 17,188 shares were purchased by Mr. Eichelberger's
spouse. These transactions were exempt from registration under the Securities
Act pursuant to Section 3(a)(11) thereunder.
In January 1997, Registrant issued 39,283 shares of Common Stock to Mr.
Eichelberger at a value of $1.60 per share in consideration for his assistance
in obtaining Registrant's $2,900,000 LINAC Loan. This transaction was exempt
from registration under the Securities Act pursuant to Section 4(2) thereunder.
In April 1997, Registrant's Board of Directors authorized Registrant's
Chairman of the Board to negotiate, on behalf of Registrant, and upon conclusion
of such negotiations, for seven of Company's founding stockholders
II-2
<PAGE>
to transfer, an aggregate of 150,000 shares of Common Stock at a purchase price
or value of $1.60 per share, to the following key employees, as part of
Registrant's incentive compensation program: 75,000 shares to Carl W. Seidel,
who will serve as President and Chief Executive Officer commencing May 1997;
50,000 shares to Tommy L. Thompson, Executive Vice President; and 25,000 shares
to Jerry W. Watson, Ph.D., Vice President of Manufacturing and Systems
Engineering.
All stock certificates issued in connection with the foregoing transactions
were legended to reflect their restricted status.
Item 27. Exhibits.
(a) Exhibits:
1 - Form of Underwriting Agreement.
3.1 - Copy of Registrant's Restated Articles of
Incorporation.
3.2 - Copy of Registrant's By-Laws.
4.1 - Specimen Common Stock Certificate.*
4.2 - Form of Representative's Warrant Agreement between
Registrant and Keane
Securities Co., Inc.
5 - Opinion by Epstein Becker & Green, P.C., as to
legality.*
10.1 - Copy of Registrant's 1997 Long Term Incentive
Plan, including form of option.* 10.2 - Copy of
Equipment Lease Agreement dated July 1996 among
Registrant, the University of North Texas and
North Texas Research Institute.
10.3 - Copy of License Agreement between Registrant and
Hospital Financial Corporation.*
10.4 - Copy of License Agreement between Registrant and
Avogadro Energy Systems, Inc.*
10.5 - Copy of Development Agreement between Registrant
and Avogadro Energy Systems, Inc.*
10.6 - Copy of option to acquire 60 acres on Research
Center.*
10.7a - Copy of Employment Agreement effective November 1,
1995 between Registrant and Ira Lon Morgan, Ph.D.
10.7b - Copy of Addendum to Employment Agreement.*
10.8 - Copy of Employment Agreement between Registrant
and Carl W. Seidel.*
11 - Computation of Per Share Loss.
21 - List of Subsidiaries.
23.1 - Consent of KPMG Peat Marwick LLP (contained on
page II-7).
23.2 - Consent of Epstein Becker & Green, P.C. (included
in Exhibit 5).*
23.3 - Consent of Locke Purnell Rain Harrell (A
Professional Corporation).*
24 - Power of Attorney (included as part of Signature
Page).
27.1 - Financial Data Schedule as of December 31, 1996.
- --------------
*To be filed by amendment.
II-3
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415 under the Securities Act, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the total dollar value of securities offered,
if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission (the
"Commission") pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Restated
Articles of Incorporation, its By-Laws, the Texas Business Corporation Act or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
for expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, to
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Registrant under Rule 424(b)(1), or (4), or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Ira Lon Morgan and Virgil L. Simmons,
and each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same, as fully, for all
intents and purposes, as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Denton,
State of Texas, on the 28th day of April, 1997.
INTERNATIONAL ISOTOPES INC.
By: /s/ Ira Lon Morgan, Ph.D.
-----------------------------------
Ira Lon Morgan, Ph.D.
Chairman, Chief Executive Officer
and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Ira Lon Morgan, Ph.D. Chairman, Chief Executive April 28, 1997
- --------------------------- Officer, Treasurer and Director
Ira Lon Morgan (Principal Executive Officer)
/s/ Joan Gillett Chief Financial Officer April 28, 1997
- --------------------------- (Principal Financial and
Joan Gillett Accounting Officer
/s/ Tommny L. Thompson Director April 28, 1997
- ---------------------------
Tommy L. Thompson
/s/ Virgil L. Simmons Director April 28, 1997
- ---------------------------
Virgil L. Simmons
/s/ John M. McCormack Director April 28, 1997
- ---------------------------
John M. McCormack
/s/ William W. Nicholson Director April 28, 1997
- ---------------------------
William W. Nicholson
Director April 28, 1997
/s/ James K. Eichelberger
- ---------------------------
James K. Eichelberger
II-5
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Robert J. Gary Director April 28, 1997
- -----------------------------
Robert J. Gary
/s/ Frederick J. Bonte, M.D. Director April 28, 1997
- -----------------------------
Frederick J. Bonte, M.D.
II-6
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form SB-2 of our
report dated April 4, 1997, except for the first paragraph of note 12, which is
as of April 24, 1997, on the consolidated financial statements of International
Isotopes Inc. and Subsidiary as of December 31, 1996 and for the period from
November 1, 1995 (inception) to December 31, 1996 included herein and to the
reference to our firm under the captions "Experts" and "Selected Financial Data"
in the Prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
April 29, 1997
II-7
<PAGE>
International Isotopes Inc.
Index of Exhibits
Exhibit No. Description Page
- ----------- ----------- ----
1 Form of Underwriting Agreement......................
3.1 Copy of Registrant's Restated Articles of
Incorporation.......................................
3.2 Copy of Registrant's By-Laws........................
4.1 Specimen Common Stock Certificate................... *
4.2 Form of Representative's Warrant
Agreement between Registrant and Keane
Securities Inc......................................
5 Opinion by Epstein Becker & Green, P.C.,
as to legality...................................... *
10.1 Copy of Registrant's 1997 Long Term
Incentive Plan, including form of option............ *
10.2 Copy of Equipment Lease Agreement dated
July 1996 among Registrant, the University
of North Texas and North Texas Research
Institute...........................................
10.3 Copy of License Agreement between
Registrant and Hospital Financial
Corporation......................................... *
10.4 Copy of License Agreement between
Registrant and Avogadro Energy Systems,
Inc................................................. *
10.5 Copy of Development Agreement between
Registrant and Avogadro Energy Systems,
Inc................................................. *
10.7a Copy of Employment Agreement effective
November 1, 1995 between Registrant and
Ira Lon Morgan, Ph.D................................
10.7b Copy of Addendum to Employment
Agreement........................................... *
<PAGE>
10.8 Copy of Employment Agreement between
Registrant and Carl W. Seidel....................... *
11 Computation of Per Share Loss.......................
21 List of Subsidiaries................................
23.1 Consent of KPMG Peat Marwick LLP
(contained on page II-7)
23.2 Consent of Epstein Becker & Green, P.C.
(included in Exhibit 5) *
23.3 Consent of Locke Purnell Rain Harrell (A
Professional Corporation)........................... *
24 Power of Attorney (included as part of
signature page)
27.1 Financial Data Schedule.............................
- --------------------------
*To be filed by amendment.
2
Exhibit 1
OH&S DRAFT
4/9/97
[Form of Underwriting Agreement - Subject to Additional Review]
2,200,000 Shares of Common Stock
INTERNATIONAL ISOTOPES, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1997
KEANE SECURITIES CO., INC.
As Representative of the
Several Underwriters listed on Schedule A hereto
50 Broadway
New York, New York 10004
Ladies and Gentlemen:
International Isotopes, Inc., a Texas corporation (the "Company") and the
stockholders of the Company named in Schedule B hereto (collectively, the
"Sellers" and individually, a "Seller") each confirm their agreement with Keane
Securities Co., Inc. ("Keane") and each of the underwriters named in Schedule A
hereto (collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 12), for whom Keane
is acting as representative (in such capacity, Keane shall hereinafter be
referred to as "you" or the "Representative"), with respect to the sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares ("Shares") of the Company's common stock,
$.01 par value per share ("Common Stock"), set forth in Schedule A hereto. Such
Shares are hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 3(b), the Company and the
Sellers, acting jointly and not severally, shall also sell to the Underwriters,
up to an additional 225,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Securities").
<PAGE>
Of the Option Securities, (i) __________ shall be sold by the Company and the
balance shall be sold by the Sellers, acting severally and not jointly, in the
respective amounts which bear the same proportion to the total number of Option
Securities to be sold by such Sellers as the number of Option Securities set
forth on Schedule B hereto opposite the name of each such Seller bears to the
total number of Option Securities set forth on Schedule B and (ii) the
Underwriters, acting severally and not jointly, shall purchase the respective
number of Option Securities which bears the same proportion to the total number
of Option Securities to be purchased by the Underwriters as the number of Firm
Securities to be purchased by each Underwriter bears to the total number of Firm
Securities. The Company also proposes to issue and sell to you warrants (the
"Representative's Warrants") pursuant to the Representative's Warrant Agreement
(the "Representative's Warrant Agreement") for the purchase of an additional
220,000 shares of Common Stock. The shares of Common Stock issuable upon
exercise of the Representative's Warrants are hereinafter referred to as the
"Representative's Securities." The Firm Securities, the Option Securities, the
Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
a. The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended (the "Act"),
which registration statement and amendment or amendments have been prepared by
the Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations)), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
b. Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the
- 2 -
<PAGE>
effectiveness of the Registration Statement or any of the Company's securities
have been instituted or are pending or threatened. Each of the Preliminary
Prospectus, the Registration Statement and Prospectus at the time of filing
thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, the Registration Statement
or Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply to statements made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
c. When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform in all material
respects to the requirements of the Act and the Rules and Regulations; neither
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
strict conformity with information furnished to the Company in writing by or on
behalf of any Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
d. Each of the Company and Gazelle Realty, Inc. (the "Subsidiary")
has been duly organized and is validly existing as a corporation in good
standing under the laws of the state of its incorporation. Except as set forth
in the Prospectus, neither the Company nor the Subsidiary owns an interest in
any corporation, partnership, trust, joint venture or other business entity.
Each of the Company and the Subsidiary is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing. The Company owns, directly or
indirectly, one hundred percent (100%) of the outstanding capital stock of the
Subsidiary, and all of such shares have been validly issued, are fully paid and
non-assessable, were not issued in violation of any preemptive rights, and,
except as set forth in the Prospectus, are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiary has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals,
- 3 -
<PAGE>
orders, licenses, certificates, franchises and permits and all applicable
federal, state, local and foreign laws, rules and regulations; and neither the
Company nor the Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company or the Subsidiary. The disclosures in the Registration
Statement concerning the effects of federal, state, local, and foreign laws,
rules and regulations on the Company's and the Subsidiary' businesses as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
e. The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and each Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement, the Representative's Warrant Agreement and as described in
the Prospectus. The Securities and all other securities issued or issuable by
the Company conform or, when issued and paid for, will conform, in all respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable
and the holders thereof have no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
f. The consolidated financial statements of the Company together
with the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, income, changes in cash flow, changes in stockholders'
equity and the results of operations of the Company and the Subsidiary at the
respective dates and for the respective periods to which they apply and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved and such financial
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statements as are audited have been examined by KPMG Peat Marwick LLP who are
independent public accountants within the meaning of the Act and the Rules and
Regulations, as indicated in their reports filed therewith. There has been no
adverse change or development involving a material prospective change in the
condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Summary Financial Information,"
"Capitalization," "Selected Financial Data," and "Plan of Operations," fairly
present, on the basis stated in the Prospectus, the information set forth
therein, and have been derived from or compiled on a basis consistent with that
of the audited financial statements included in the Prospectus; and, in the case
of pro forma financial information, if any, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. The amounts shown as accrued for current and deferred income and other
taxes in such financial statements are sufficient for the payment of all accrued
and unpaid federal, state, local and foreign income taxes, interest, penalties,
assessments or deficiencies applicable to the Company and the Subsidiary,
whether disputed or not, for the applicable period then ended and periods prior
thereto; adequate allowance for doubtful accounts has been provided for
unindemnified losses due to the operations of the Company and the Subsidiary;
and the statements of income do not contain any items of special or nonrecurring
income not earned in the ordinary course of business, except as specified in the
notes thereto.
g. Each of the Company and the Subsidiary (i) has paid all federal,
state, local, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
h. No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
i. Each of the Company and the Subsidiary maintains insurance
policies, including, but not limited to, general liability, product and property
insurance, which insures each of the Company and the Subsidiary, and their
respective employees, against such losses and risks generally insured against by
comparable businesses. Neither the Company nor the Subsidiary (A) has failed to
give notice or present any insurance claim with respect to any matter, including
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but not limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (B) has any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has not failed to pay any premiums due and payable thereunder, or (C) has failed
to comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company or any Subsidiary.
j. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiary which (i) questions the validity of the capital stock of the
Company, this Agreement or the Representative's Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business or
results of operations of the Company and the Subsidiary.
k. The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representative's Warrant Agreement; and
this Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of any of the Company or the Subsidiary
pursuant to the terms of, (i) the certificate of incorporation or by-laws of any
of the Company or the Subsidiary, (ii) any license, contract, collective
bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which any of the Company or the Subsidiary is a party
or by which any of the Company or the Subsidiary is or may be bound or to which
either of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to any of the Company or the Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body
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(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over any of the
Company or the Subsidiary or any of their respective activities or properties.
l. No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representative's Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representative's Warrants to be sold by the Company
hereunder.
m. All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which any of the Company or the Subsidiary is a party
or by which it may be bound or to which its assets, properties or business may
be subject have been duly and validly authorized, executed and delivered by the
Company and constitute the legal, valid and binding agreements of the Company or
the Subsidiary, as the case may be, enforceable against each of them, in
accordance with their respective terms. The descriptions in the Registration
Statement of agreements, contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are in all material respects
complete and correct copies of the documents of which they purport to be copies.
n. Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, neither the Company nor the
Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company or the Subsidiary.
o. No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company or the Subsidiary is a party or by
which the Company or
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the Subsidiary may be bound or to which the property or assets (tangible or
intangible) of the Company or the Subsidiary is subject or affected.
p. Each of the Company and the Subsidiary has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or the Subsidiary by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal, state,
local, or foreign laws and regulations. There is no unfair labor practice charge
or complaint against the Company or the Subsidiary pending before the National
Labor Relations Board or any lockout, strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the Company or
the Subsidiary, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or the
Subsidiary, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company and the Subsidiary. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or the Subsidiary. No labor dispute with
the employees of the Company or the Subsidiary exists, or, is imminent.
q. Except as described in the Prospectus, neither the Company nor
the Subsidiary maintains, sponsors or contributes to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). None of the Company nor the Subsidiary
maintains or contributes, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company or the Subsidiary to any tax penalty on prohibited transactions and
which has not adequately been corrected. Each ERISA Plan is in compliance with
all reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. Neither the Company nor the Subsidiary has ever
completely or partially withdrawn from a "multiemployer plan."
r. Neither the Company, the Subsidiary nor any of their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
s. Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company or the Subsidiary, are in dispute so far
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<PAGE>
as known by the Company or are in any conflict with the right of any other
person or entity. Each of the Company and the Subsidiary (i) owns or has the
right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, trademark, service mark, trade name,
copyright, know-how, technology or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
t. Each of the Company and the Subsidiary owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively, herein "intellectual
property") that are material to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by the Company or the
Subsidiary, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company or the Subsidiary, or their respective
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company or the Subsidiary.
Neither the Company nor the Subsidiary is aware of any such development of
similar or identical trade secrets or technical information by others.
u. Each of the Company and the Subsidiary has taken reasonable
security measures to protect the secrecy, confidentiality and value of its
intellectual property in all material respects.
v. Each of the Company and the Subsidiary has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus, to be owned or leased by it free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
w. KPMG Peat Marwick LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
x. The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's stockholders and
holders of securities exchangeable or exercisable for or convertible into shares
of Common Stock (except the Sellers) has agreed (i) for a period of not less
than 12 months following the date of the Prospectus (the
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"Lock-up Period") not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, grant any option for the purchase or sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Representative and the Company and (ii) subsequent to the Lock-up Period, to
only sell such shares of Common Stock (a) under Rule 144, (b) solely through the
Representative and (c) at a price per share exceeding the initial public
offering price. In addition, the Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which each of the Sellers have
agreed, to the extent their shares of Common Stock are not sold in the Offering,
not to, directly or indirectly, agree to offer to sell or dispose of any
beneficial interest in the Seller Shares (as defined herein) for a period of six
months from the date of the Prospectus, without the prior written consent of the
Company and the Representative and, thereafter, such shares may only be sold (a)
if effected through the Representative and (b) at a price per share greater than
the initial public offering price. The Company will cause the Transfer Agent, as
defined below, to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
y. There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, the Subsidiary or any of their respective officers,
directors, stockholders, partners, employees or affiliates that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
z. The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market ("Nasdaq").
aa. Neither the Company, nor the Subsidiary nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or the Subsidiary has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist the Company or
the Subsidiary in connection with any actual or proposed transaction) which (a)
might subject the Company or the Subsidiary, or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
or the Subsidiary, or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company or the Subsidiary.
The Company's and the Subsidiary's internal accounting controls are sufficient
to cause each of the Company and the Subsidiary to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
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<PAGE>
bb. Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of the Subsidiary, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by the Company or the Subsidiary, or (B)
purchases from or sells or furnishes to the Company or the Subsidiary any goods
or services, or (ii) a beneficiary interest in any contract or agreement to
which the Company or the Subsidiary is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater securityholder of
the Company or the Subsidiary, or any partner, affiliate or associate of any of
the foregoing persons or entities.
cc. Any certificate signed by any officer of the Company or the
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
dd. The minute books of each of the Company and the Subsidiary have
been made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors and stockholders of each of the Company
and the Subsidiary, since the time of its incorporation, and reflect all
transactions referred to in such minutes accurately in all material respects.
ee. Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
ff. (A) Each of the Company and the Subsidiary is in compliance with
all federal, state, local or foreign laws, common law, rules, codes,
administrative orders or regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") and (B) to the best of the Company's knowledge, there are
no events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or the Subsidiary
relating to any Hazardous Materials or the violation of any Environmental Laws.
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gg. In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company and the Subsidiary, in the course of which it
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company has
reasonably concluded that such associated costs and liabilities would not,
singly or in the aggregate, have a material adverse effect on the Company and
the Subsidiary.
hh. Each of the Company and the Subsidiary confirms as of the date
hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and each of the Company and the Subsidiary further agree that if it or any
affiliate commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date is later,
or if the information reported or incorporated by reference in the Prospectus,
if any, concerning the Company's, any Subsidiary's or any affiliate's business
with Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
ii. The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
jj. Each of the Company and the Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general and specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2. Representations and Warranties of the Sellers. Each Seller,
severally and not jointly, represents and warrants to, and agrees with, the
several Underwriters as follows:
a. Each of the Sellers will have on the Closing Date, if any, good
and valid title to the shares of Common Stock to be sold by such Sellers
hereunder (the "Seller Shares"), free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, stockholders' agreement, voting trust,
community property right, defect in title, equitable interest or other equities
or restrictions of any kind whatsoever (including any liability for estate or
inheritance taxes and claims of any creditor, devisee, legatee or beneficiary);
other than as described in this
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Agreement or disclosed in the Registration Statement or Prospectus, there are no
outstanding options, warrants, rights or other agreements or arrangements with
respect to any of the Seller Shares; each Seller has and will have on the
Closing Date, if any, full right, power and authority to sell, transfer and
deliver the Seller Shares hereunder; and upon delivery of the Seller Shares
against payment of the purchase price therefor as contemplated in this
Agreement, each of the Underwriters, who has purchased in good faith and without
notice of any adverse claim, will receive good and valid title to the Seller
Shares purchased by it, free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, stockholders' agreement, voting trust, community
property right, defect in title, equitable interests or other equities or
restrictions of any kind whatsoever (including any liability for estate or
inheritance taxes and claims of any creditor, devisee, legatee or beneficiary).
b. Such Seller has full legal right, power and authority to enter
into this Agreement, the Sellers' Power of Attorney with ______________ as
attorney-in-fact (the "Attorney-in-Fact") in the form heretofore furnished to
you (the "Power of Attorney") and the Letter of Transmittal and Custody
Agreement with ___________________ as custodian (the "Custodian") in the form
heretofore furnished to you (the "Custody Agreement"). Each of this Agreement,
the Power of Attorney and the Custody Agreement has been duly executed and
delivered by such Seller, and (assuming this Agreement is a binding agreement of
yours) constitutes the valid and binding agreement of such Seller, enforceable
against such Seller in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditor's rights and the application of equitable
principles relating to the availability of remedies, and except as rights to
indemnity or contribution may be limited by federal or state securities law and
the public policy underlying such laws); the Attorney-in-Fact, acting alone, is
authorized to execute and deliver this Agreement and the certificates referred
to in Sections 3 and 9 hereof on behalf of such Seller, to authorize the
delivery of those Shares to be sold by such Seller under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Seller in
connection with this Agreement.
c. None of the execution, delivery or performance of this Agreement,
the Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated, will conflict with or result in a
breach of, or default under, any indenture, mortgage, deed of trust, voting
trust agreement, stockholders' agreement, note agreement, or other agreement or
instrument to which such Seller is a party or by which such Seller is or may be
bound or to which any of its property is or may be subject, or to the best of
such Seller's knowledge, any statute, judgment, decree, order, rule or
regulation applicable to such Seller of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over such Seller or any of its
activities or properties.
d. At the date hereof such Seller has, and at the time of delivery
of the Shares to be sold by such Seller to the several Underwriters, such Seller
will have, full right, power and authority to sell, assign, transfer and deliver
the Shares to be sold by such Seller hereunder.
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At the date hereof such Seller is, and at the time of delivery of the Shares to
be sold by such Seller, such Seller will be, the lawful owner of and has and
will have, good and valid title to such Shares free and clear of any liens,
charges, pledges, equities, encumbrances, security interests, claims,
restrictions on transfer or other defects in title. Upon delivery of and payment
for the Shares to be sold by such Seller hereunder, each of the Underwriters who
has purchased the Seller Shares in good faith and without notice of any adverse
claim, will receive good and valid title to such shares, free and clear of any
liens, charges, pledges, equities, encumbrances, security interests, claims,
restrictions on transfer or other defects in title. Except as described in the
Registration Statement and the Prospectus (or, if there is no Prospectus, the
most recent Preliminary Prospectus) or created hereby, there are no outstanding
options, warrants, rights, or other agreements or arrangements requiring such
Seller at any time to transfer any Common Stock to be sold hereunder by such
Seller.
e. At the time when the Registration Statement becomes or became
effective, and at all times subsequent thereto up to and including the Closing
Date and the Option Closing Date, the Registration Statement and any amendments
thereto and will not contain any untrue statement of a material fact regarding
such Seller or omit to state a material fact regarding such Seller required to
be stated therein or necessary in order to make the statements therein regarding
such Seller not misleading, and the Prospectus (and any supplements thereto)
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) will not contain any untrue statement of a material fact regarding
such Seller or omit to state a material fact regarding such Seller required to
be stated therein or necessary in order to make the statements therein regarding
such Seller, in light of the circumstances under which they were made, not
misleading, it being understood that, as of the date hereof, the statements
relating to such Seller under the section of the Prospectus entitled "Principal
and Selling Stockholders," in the case of all Sellers, are the only statements
provided for inclusion in the Prospectus.
f. Such Seller has not taken, directly or indirectly, any action
designed to stabilize or manipulate the price of any security of the Company, or
which has constituted or which might in the future reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of the Shares or otherwise, in
violation of the Rules and Regulations.
g. There is not pending or, to the best of such Seller's knowledge,
threatened against such Seller any action, suit or proceeding which (A)
questions the validity of this Agreement, the Power of Attorney, the Custody
Agreement or of any action taken or to be taken by such Seller pursuant to or in
connection with this Agreement, the Power of Attorney, or the Custody Agreement
or (B) is required to be disclosed in the Registration Statement which is not so
disclosed.
h. On the effective date of the Prospectus, certificates in
negotiable form for the Shares to be sold by each of the Sellers under this
Agreement, together with a stock power or powers duly endorsed in blank will
have been placed in custody with the Custodian for the purpose of effecting
delivery hereunder and thereunder.
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i. Except as set forth in the Prospectus, such Seller does not have
any registration rights or other similar rights with respect to any securities
of the Company or the Subsidiary; and, except as set forth in the Prospectus,
such Seller does not have any right of first refusal or other similar right to
purchase any securities of the Company upon the issuance or sale thereof by the
Company or upon the sale thereof by any other stockholder of the Company.
j. Such Seller has not since the filing of the initial Registration
Statement (A) sold, bid for, purchased, attempted to induce any person to
purchase, or paid anyone any compensation for soliciting purchases of, Common
Stock, or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any securities of the Company (except for the
sale of the Seller Shares to the Underwriters under this Agreement and except as
otherwise permitted by law).
k. Any certificate signed by or on behalf of such Seller and
delivered to the Underwriters shall be deemed a representation and warranty by
such Seller to the Underwriters as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities.
a. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$__________ [92% of the public offering price] per Share, that number of Firm
Securities set forth in Schedule A opposite the name of such Underwriter,
subject to such adjustment as the Representative in its sole discretion shall
make to eliminate any sales or purchases of fractional shares, plus any
additional number of Firm Securities which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 12 hereof.
b. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company and the Sellers, severally and not
jointly, hereby grant an option to the Underwriters, severally and not jointly,
to purchase all or any part of an additional 330,000 shares of Common Stock at a
price of $ ____ [92% of the public offering price] per Share. The option granted
hereby will expire 45 days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company and the Sellers setting forth the number of Option Securities as to
which the several Underwriters are then exercising the option and the time and
date of payment and delivery for any such Option Securities. Any such time and
date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than five (5) full business days after
the exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representative, the
Company and the Sellers. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered
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unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided. If the option is exercised
in whole or in part from time to time as provided above, the Company shall sell
to the Underwriters _____ of the Option Securities as to which the option shall
have been exercised and each of the Sellers, shall sell to the Underwriters that
proportion of the balance of such Option Securities which is the same as the
proportion that the total number of Option Securities set forth on Schedule B
hereto opposite the name of each such Seller bears to the total number of Option
Securities set forth on Schedule B, and each Underwriter, severally and not
jointly, shall purchase that number of Option Securities as to which the option
shall have been exercised which bears the same proportion to the total number of
such Option Securities as to which the option shall have been exercised as the
number of Firm Securities to be purchased by such Underwriter bears to the total
number of Firm Securities (plus any additional number of Option Securities which
such Underwriter may become obligated to purchase pursuant to Section 12), all
subject to such adjustments as the Representative in its sole discretion shall
make to eliminate any sales or purchases of fractional shares.
c. Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
50 Broadway, New York, New York 10004, or at such other place as shall be agreed
upon by the Representative and the Company. Such delivery and payment shall be
made at 10:00 a.m. (New York City time) on ______________, 1997 or at such other
time and date as shall be agreed upon by the Representative and the Company, but
not less than three (3) nor more than five (5) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event that
any or all of the Option Securities are purchased by the Underwriters, payment
of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above mentioned office of the Representative or
at such other place as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company and the Sellers. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company and each of the Sellers for the Firm Securities and the
respective number of Option Securities, if any, to be sold by them, by New York
Clearing House funds. Certificates for the Firm Securities and the Option
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Securities and the Option Securities, if any,
shall be made available to the Representative at such office or such other place
as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
d. On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 220,000 shares of Common Stock. The Representative's Warrants shall
be exercisable for a period of four (4) years commencing one
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(1) year from the effective date of the Registration Statement at a price
equaling one hundred twenty percent (120%) of the initial public offering price
of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
4. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representative deems advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after distribution of the Shares has been completed to such
extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
5. Covenants and Agreements of the Company and the Sellers. The Company
and (but only with respect to and to the extent provided with respect to them in
Sections 5(f), 5(l), 5(t) and 5(v) covenants and agrees with each of the
Underwriters as follows:
a. The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
b. As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing,
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission, and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
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<PAGE>
c. The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
d. The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel")
shall object.
e. The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
f. During the time when a prospectus is required to be delivered
under the Act, the Company and each of the Sellers shall use all reasonable
efforts to comply with all requirements imposed upon it by the Act and the
Exchange Act, as now and hereafter amended and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and the Prospectus, or any amendments or supplements thereto. If at any time
when a prospectus relating to the Securities is required to be delivered under
the Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or Underwriters' Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representative
and each of the Sellers promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section
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<PAGE>
10 of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
g. As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
h. During a period of seven years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent certified
public accountants;
iii. as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs which was released or prepared by or on behalf of the Company; and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the
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Company and its subsidiary are consolidated, and will be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
i. The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for the Common Stock.
j. The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
k. On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for the Lock-up
Period, each of the Company's stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock
(except the Sellers) agrees that it or he or she (i) will not directly or
indirectly, issue, offer, offer to sell, sell, grant an option for the purchase
or sale of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein without
the prior consent of the Representative and the Company (collectively, the
"Lock-up Agreements") and (ii) subsequent to the Lock-up Period, will only sell
such shares of Common Stock (a) under Rule 144, (b) solely through the
Representative and (c) at a price per share exceeding the initial public
offering price. In addition, the Company shall provide the Representative with
true copies of duly executed, legally binding and enforceable agreements
pursuant to which each of the Sellers have agreed to, the extent their shares of
Common Stock are not sold in the offering, not to, directly or indirectly, agree
or offer to sell or dispose of any beneficial interest in the Seller Shares for
a period of six months from the date of the Prospectus, without the prior
written consent of the Company and the Representative and thereafter, such
shares may only be sold (a) if effected through the Representative and (b) at a
price per share greater than the initial public offering price. During the
24-month period commencing with the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, no more
than 600,000 shares of Common Stock or any options, rights or warrants with
respect to such shares of Common Stock. Such 600,000 shares shall be issued at
prices no less than the greater of the market value of the shares on the date of
grant or the initial public offering price of the Shares. Notwithstanding the
foregoing, the Company may (i) issue securities in an underwritten public
offering on behalf of the Company, (ii) authorize and issue a class or classes
of Preferred Stock, including Convertible Preferred Stock, (iii) issue debt with
warrants attached and (iv) issue securities in connection with acquisitions,
mergers and other reorganizations. On or before the Closing Date, the
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Company shall deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject to
the Lock-up Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
l. None of the Company, the Sellers, the Subsidiary, nor any of
their respective officers, directors, stockholders, nor any of its affiliates
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
m. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
n. The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
o. The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 7(l) and 7(m) hereof.
p. The Company shall cause the Common Stock to be quoted on Nasdaq
and for a period of seven (7) years from the date hereof, use its best efforts
to maintain the Nasdaq quotation of the Common Stock to the extent outstanding.
q. For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Representative's request and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock (ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
r. As soon as practicable, (i) but in no event more than 5 business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 30 days from the effective date of
the Registration Statement, take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than seven (7) years.
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<PAGE>
s. The Company hereby agrees that it will not, without the prior
written consent of the Representative, for a period of twenty-four (24) months
from the effective date of the Registration Statement, adopt, propose to adopt
or otherwise permit to exist any employee, officer, director, consultant or
compensation plan or similar arrangement permitting (i) the grant, issue, sale
or entry into any agreement to grant, issue or sell any option, warrant or other
contract right covering more than 600,000 shares of Common Stock at an exercise
price that is less than the greater of the market price on the date of grant or
sale or the initial public offering price per share (except that options or
warrants issued to key officers of the Company may be issued at exercise prices
not less than 85% of the initial public offering price of the shares); and (ii)
the maximum number of shares of Common Stock or other securities of the company
purchasable at any time pursuant to options or warrants issued by the Company to
exceed the aggregate of 600,000 shares reserved for future issuance under the
Company's 1997 Stock Option Plan; and (iii) the payment for such securities with
any form of consideration other than cash, or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
t. Until the completion of the distribution of the Securities, the
Company and the Sellers shall not without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
u. For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representative's Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representative's Securities.
v. Each of the Sellers, without hereby making any representations or
warranties with respect to the contents thereof, consents to the use of each
Preliminary Prospectus, the Prospectus and any amendment or supplement thereto
by the Underwriters and all dealers to whom the Securities may be sold, both in
connection with the offering or sale of the Securities and for such period of
time thereafter as the Prospectus, as amended or supplemented, is required by
law to be delivered.
6. Payment of Expenses.
a. The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Representative's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
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Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement and
the Representative's Warrant Agreement, and (z) resale of the Firm Securities
and the Option Securities by the Underwriters in connection with the
distribution contemplated hereby, (iv) the qualification of the Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith (such counsel fees not to exceed $15,000 if
the Shares are listed on the American Stock Exchange or $30,000 if the Shares
have been accepted for quotation on Nasdaq), (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show" (excluding solely the travel and lodging expenses of personnel of the
Representative), information meetings and presentations, bound volumes and
prospectus memorabilia and "tomb-stone" advertisement expenses, (vi) costs and
expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel, expert or consultant retained,
(vii) fees and expenses of the transfer agent and registrar, (viii) applications
for assignments of a rating of the Securities by qualified rating agencies, (ix)
the fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the quotation of the Securities on the Nasdaq and
any other exchange.
b. If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 7 or Section 13, the Company shall reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of Underwriters' Counsel, less any amounts
already paid pursuant to Section 6(c) hereof.
c. The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
3(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to two percent (2%) of the gross proceeds received by
the Company and the Sellers from the sale of the Option Securities.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Sellers herein as of the
date hereof and as of the Closing Date and each
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Option Closing Date, if any, as if they had been made on and as of the Closing
Date or each Option Closing Date, as the case may be; the accuracy on and as of
the Closing Date or Option Closing Date, if any, of the statements of the
officers of the Company and the Sellers made pursuant to the provisions hereof;
and the performance by the Company and the Sellers on and as of the Closing Date
and each Option Closing Date, if any, of his or its covenants and obligations
hereunder and to the following further conditions:
a. The Registration Statement shall have become effective not later
than 12:00 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
b. Neither the Representative nor the Sellers shall have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representative's or such Seller's
opinion, is material, or omits to state a fact which, in the Representative's or
such Seller's opinion, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Representative's or
such Seller's opinion, is material, or omits to state a fact which, in the
Representative's or such Seller's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
c. On or prior to each of the Closing Date and the Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel
such opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
d. At the Closing Date, the Underwriters shall have received the
favorable opinion of Epstein Becker & Green, P.C., counsel to the Company and
the Subsidiary, dated the Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
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i. Each of the Company and the Subsidiary (A) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
corporate power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, to own or lease
its properties and conduct its business as described in the Prospectus;
each of the Company and the Subsidiary is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; and, none of the Company nor the
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of operations
of the Company or the Subsidiary;
ii. the Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of the Subsidiary and all such
shares have been validly issued, are fully paid and non-assessable, were
not in violation of any preemptive rights and are owned free and clear of
any liens, charges, claims, encumbrances, pledges, security interest,
defaults or other restrictions or equities of any kind whatsoever; except
as described in the Prospectus, none of the Company nor the Subsidiary
owns an interest in any other corporation, partnership, joint venture,
trust or other business entity;
iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a party
to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability
by reason of being such holders; and none of such securities were issued
in violation of the preemptive rights of any holders of any security of
the Company. The Securities to be sold by the Company hereunder and under
the Representative's Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely
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<PAGE>
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities are in due and
proper form. The Representative's Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company called
for thereby. Upon the issuance and delivery pursuant to this Agreement of
the Firm Securities and the Option Securities and the Representative's
Warrants to be sold by the Company, the Underwriters and the
Representative, respectively, will acquire good and marketable title to
the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the Underwriters
in connection with (A) the issuance by the Company of the Securities, (B)
the purchase by the Underwriters and the Representative of the Firm
Securities and the Option Securities and the Representative's Securities,
respectively, from the Company, (C) the consummation by the Company of any
of its obligations under this Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option Securities
in connection with the distribution contemplated hereby;
iv. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
v. each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations;
vi. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or the Subsidiary is a
party or by which it is bound, including any document to which the Company
or the Subsidiary is a party or by which it is bound, incorporated by
reference into the Prospectus and any supplement or amendment thereto, are
accurate in all material respects and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or threatened
against the Company or the Subsidiary any action, arbitration, suit,
proceeding, inquiry,
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<PAGE>
investigation, litigation, governmental or other proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties
or business of the Company or the Subsidiary which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects) or (y) questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement, or of any action taken or to be taken
by the Company pursuant to or in connection with any of the foregoing; (D)
no statute or regulation or legal or governmental proceeding required to
be described in the Prospectus is not described as required; and (E) there
is no action, suit or proceeding pending, or threatened, against or
affecting the Company or the Subsidiary before any court or arbitrator or
governmental body, agency or official (or any basis thereof known to such
counsel) in which there is a reasonable possibility of an adverse decision
which may result in a material adverse change in the condition, financial
or otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company or the Subsidiary, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement or the Representative's Warrant Agreement or which in any manner
draws into question the validity or enforceability of this Agreement or
the Representative's Warrant Agreement;
vii. the Company has full legal right, power and authority to enter
into each of this Agreement and the Representative's Warrant Agreement,
and to consummate the transactions provided for therein; and each of this
Agreement and the Representative's Warrant Agreement has been duly
authorized, executed and delivered by the Company. Each of this Agreement
and the Representative's Warrant Agreement, assuming due authorization,
execution and delivery by each other party thereto constitutes a legal,
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement and the Representative's Warrant
Agreement, its performance hereunder or thereunder, its consummation of
the transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under,
or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or the Subsidiary pursuant to the terms of, (A)
the certificate of incorporation or by-laws of the Company or the
Subsidiary, (B) any license, contract, collective bargaining agreement,
indenture, mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the
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<PAGE>
Company or the Subsidiary is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or
may be subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiary of
any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or the Subsidiary or any of their
respective activities or properties;
viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the Firm
Securities and the Option Securities pursuant to the Prospectus, the
issuance of the Representative's Warrants, and the Registration Statement,
the performance of this Agreement and the Representative's Warrant
Agreement, and the transactions contemplated hereby and thereby;
ix. the properties and business of each of the Company and the
Subsidiary conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiary has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for
taxes not yet due and payable;
x. neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract, collective
bargaining agreement, indenture, mortgage, installment sale agreement,
deed of trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company or the Subsidiary may be bound or to
which the property or assets (tangible or intangible) of the Company or
the Subsidiary is subject or affected; and neither the Company nor the
Subsidiary is in violation of any term or provision of its Articles of
Incorporation or By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation;
xi. the statements in the Prospectus under "THE COMPANY,"
"BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xii. the Securities have been accepted for quotation on Nasdaq;
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<PAGE>
xiii. the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such phrase
is defined in regulation 13d-3 under the Exchange Act) of the securities
set forth opposite their respective names thereunder as and to the extent
set forth therein;
xiv. except as described in the Prospectus, no person, corporation,
trust, partnership, association or other entity has the right to include
and/or register any securities of the Company in the Registration
Statement, require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
xv. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
xvi. assuming due execution by the parties thereto other than the
Company, the Lockup Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law);
xvii. none of the Company or the Subsidiary shall be subject to the
requirements of or shall be deemed an "Investment Company," pursuant to
and as defined under the Investment Company Act.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and the Subsidiary, and
representatives of the independent public accountants for the Company and the
Subsidiary, at which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed the contents of the Preliminary
Prospectus, the Registration Statement, the Prospectus, and related matters and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus).
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<PAGE>
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and the Subsidiary
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the Subsidiary, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the Company
and the Subsidiary shall state that the opinion of any such other counsel is in
form satisfactory to such counsel and that the Representative and they are
justified in relying thereon. Any opinion of counsel for the Company and the
Subsidiary shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document relating
to legal opinions, including, without limitation, the Legal Opinion Accord of
the ABA Section of Business Law (1991) or any comparable state accord.
e. At the Closing Date, the Underwriters shall have received the
favorable opinion of ________________________, intellectual property counsel to
the Company, dated the Closing Date, addressed to the Underwriters and in the
form attached hereto as Exhibit A.
f. At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Epstein Becker & Green, P.C., counsel to the
Company and the Subsidiary, and __________________, intellectual property
counsel to the Company, dated the Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of Option Closing Date the statements made by Epstein Becker &
Green, P.C. and _______________, in their respective opinions delivered on the
Closing Date.
g. At each Option closing Date, if any, the Underwriters shall have
received the favorable opinion of _______________, special counsel to the
Sellers, dated the Option Closing Date, addressed to the Underwriters, and in
form and substance reasonably satisfactory to Underwriters' Counsel, as to such
matters as the Representative or Underwriter's Counsel may request.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinions, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel, acceptable to the Underwriters' Counsel, familiar
with the applicable laws and (B) as to matters of fact, to the extent they deem
proper, in certificates and written statements of the Sellers whom they
represent and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Sellers whom they represent;
provided, that copies of any such statements or certificates shall be delivered
to Underwriters'
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<PAGE>
Counsel. The opinions shall state that the opinion of any such other counsel is
in form satisfactory to such counsel and that the Underwriters are justified in
relying thereon.
h. On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company and the Sellers herein contained.
i. Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company or the
Subsidiary, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company and the
Subsidiary is set forth in the Registration Statement and Prospectus which is
adverse to the Company or the Subsidiary; (iii) neither the Company nor the
Subsidiary shall be in default under any provision of any instrument relating to
any outstanding indebtedness; (iv) neither the Company nor the Subsidiary shall
have issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there has not been any change in the capital stock or any change in the debt
(long or short term) or liabilities or obligations of the Company or the
Subsidiary (contingent or otherwise); (v) no material amount of the assets of
the Company or the Subsidiary shall have been pledged or mortgaged, except as
set forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or the Subsidiary, or
affecting any of its properties or business before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, prospects or financial condition or income of the Company, or the
Subsidiary, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
j. At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
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ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry, are contemplated or threatened
under the Act;
iii. The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and neither the Preliminary Prospectus or any supplement
thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither the
Company nor the Subsidiary has incurred up to and including the Closing
Date or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent; (b) neither the Company nor the Subsidiary has paid
or declared any dividends or other distributions on its capital stock; (c)
neither the Company nor the Subsidiary has entered into any transactions
not in the ordinary course of business; (d) there has not been any change
in the capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in the
ordinary course of business) of the Company or the Subsidiary; (e) neither
the Company nor the Subsidiary has sustained any loss or damage to its
property or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against the Company or any affiliated party of any of the foregoing which
is required to be set forth in an amended or supplemented Prospectus which
has not been set forth; and (g) there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
k. By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
l. At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from KPMG Peat Marwick LLP:
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i. confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
ii. stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations
thereunder and that the Representative may rely upon their opinion with
respect to the financial statements and supporting schedules included in
the Registration Statement;
iii. stating that, on the basis of a limited review which included a
reading of the latest available unaudited consolidated interim financial
statements of the Company and the Subsidiary, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company,
consultations with officers and other employees of the Company and the
Subsidiary, responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the unaudited consolidated
financial statements and supporting schedules of the Company and the
Subsidiary included in the Registration Statement do not comply as to form
in all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited consolidated
financial statements of the Company and the Subsidiary included in the
Registration Statement, or (B) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has
been any change in the capital stock or long-term debt of the Company or
the Subsidiary or any decrease in the stockholders' equity or net current
assets or net assets of the Company or the Subsidiary as compared with
amounts shown in the March 31, 1997 balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during the period
from March 31, 1997 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was any
decrease in net revenues, net earnings or increase in net earnings per
common share of the Company or the Subsidiary, in each case as compared
with the corresponding period beginning March 31, 1996, other than as set
forth in or contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiary (including a break-down of commercial paper and
notes payable to banks);
v. stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company and the Subsidiary set
forth in the Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and the
Subsidiary
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and excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
vi. statements as to such other matters incident to the transaction
contemplated hereby as the Representative may request.
m. At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from KPMG Peat Marwick LLP a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (l) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
n. At each Option Closing Date, if any, the Representatives shall
have received a certificate of each of the Sellers dated as of such date, to the
effect that (i) the representations and warranties of such Seller contained
herein are true and correct in all material respects as if made on and as of the
Option Closing Date, if any, and (ii) such Seller has complied in all material
respects with all covenants and agreements and satisfied in all material
respects all conditions on its or his part to be performed or satisfied under
this Agreement or the Letter of Transmittal and Custody Agreement relating to
such Seller on or before the option Closing Date, if any. For purposes of each
such certificate, references to the Registration Statement and the Prospectus in
such representations, warranties, covenants and agreements shall mean the
Registration Statement and Prospectus as amended or supplemented to the date of
such certificate.
o. On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Firm Securities and Option
Securities.
p. No order suspending the sale of the Firm Securities and Option
Securities in any jurisdiction designated by the Representative pursuant to
subsection (e) of Section 5 hereof shall have been issued on either the Closing
Date or the Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
q. On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement
in final form and substance satisfactory to the
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Representative, and (ii) the Representative's Warrants in such denominations and
to such designees as shall have been provided to the Company.
r. On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
s. On or before the Closing Date, there shall have been delivered to
the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
8. Indemnification.
a. The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 8 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 12 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 8 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq or any other securities exchange; (B) the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made) or (C)
any breach of any representation, warranty, covenant or agreement of the Company
contained herein or in any certificate by or on behalf of the Company, the
Subsidiary and/or any of their respective officers delivered pursuant hereto,
unless, in the case of clause (A) or (B) above, such statement or omission was
made in reliance upon and in strict conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary
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<PAGE>
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
b. Each of the Sellers agrees severally, but not jointly, to
indemnify and hold harmless each of the Underwriters and each person, if any,
who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act to the same extent as the indemnity from the
Company to the Underwriters under Section 8(a) but only with respect to (A)
statements or omissions, if any, in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or in any
application (as such term is defined in Section 8(a) above), in each case, made
in reliance upon and in conformity with written information furnished to the
Company with respect to such Seller by or on behalf of such Seller for use in
such Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or in any such application or (B) any
breach of any representation, warranty, covenant or agreement of such Seller
contained herein or in any certificate by or on behalf of such Seller delivered
pursuant hereto.
c. Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, each of the Sellers and each
other person, if any, who controls the Company or any Seller within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company and
each of the Sellers, respectively, to the Underwriters under Section 8(a) or
8(b), but only with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to any Underwriter by such Underwriter expressly for use in
such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this Offering. The Company and each of the Sellers acknowledge that the
statements with respect to the public offering of the Firm Securities and the
Option Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriters
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the Prospectus.
d. Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 8, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or
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<PAGE>
parties of the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle, compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
e. In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 8, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 8 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to
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<PAGE>
be indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company or
any of the Sellers is a contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company or such Seller
on the one hand, and the Underwriters, on the other, shall be deemed to be in
the same proportion as the total net proceeds from the offering of the Firm
Securities and the Option Securities (before deducting expenses) bear to the
total underwriting discounts received by the Underwriters hereunder, in each
case as set forth in the table on the Cover Page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, by a Seller, or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, expenses or liabilities (or actions
in respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d) the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Firm Securities and the Option Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person, if any, who controls the Company within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to this subparagraph (d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
9. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 8 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, any
Seller, the Company, any controlling person of any Underwriter or the Company,
and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriters and the Representative, as the case may be.
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<PAGE>
10. Effective Date.
a. This Agreement shall become effective at 10:00 a.m., New York
City time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 6, 8 and 11 of this
Agreement shall at all times be effective. For purposes of this Section 10, the
Firm Securities and the Option Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representative of telegrams to securities dealers releasing such shares for
offering or the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Firm
Securities and the Option Securities.
11. Termination.
a. Subject to subsection (b) of this Section 11, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted, or
in the Representative's opinion will in the immediate future materially
adversely disrupt, the financial markets; or (ii) if any material adverse change
in the financial markets shall have occurred; or (iii) if trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Boston Stock Exchange, the Commission or any other governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
shall have been delisted, on any exchange or in any over-the-counter market; or
(v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if any of Ira Lon Morgan or Carl Seidel shall no longer serve the Company
in their present capacity.
b. If this Agreement is terminated by the Representative in
accordance with the provisions of Section 11(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 6(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representative, by reason of any failure on the part of the
Company to perform any undertaking
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<PAGE>
or satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 7 or Section 13) then, the
Company shall promptly reimburse and indemnify the Representative for all of its
actual out-of-pocket expenses, including the fees and disbursements of counsel
for the Underwriters (less amounts previously paid pursuant to Section 6(c)
above). In addition, the Company shall remain liable for all Blue Sky counsel
fees and disbursements, expenses and filing fees (such counsel fees not to
exceed $15,000 if the shares are listed on the American Stock Exchange or
$30,000 if the shares have been accepted for quotation on Nasdaq).
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 7, 11, 12 and 13 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 7 and Section 8 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
12. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 7, Section 11 or Section 13
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be purchased
on an Option Closing Date, the Underwriters may at the Representative's
option, by notice from the Representative to the Company, terminate the
Underwriters' obligation to purchase Option Securities from the Company on
such date).
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
13. Default by the Company and/or any of the Sellers. If the Company shall
fail at the Closing Date or at any Option Closing Date, as applicable, to sell
and deliver the number of
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Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate without any liability on the part of any
non-defaulting party other than pursuant to Section 6, Section 8 and Section 11
hereof. If any of the Sellers shall fail at any Option Closing Date, if any, to
sell and deliver the number of Option Securities which it or he is obligated to
sell hereunder on such date, the Underwriters may at the Representative's option
terminate the Underwriters' obligation to purchase Option Securities from each
of the Sellers and the Company on such date. No action taken pursuant to this
Section shall relieve the Company or any of the Sellers from liability, if any,
in respect of such default.
14. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Keane Securities Co., Inc., 50 Broadway, New York, New York
10004, Attention: Walter D. O'Hearn, Jr. with a copy to Orrick, Herrington &
Sutcliffe, LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company at 2600
Longhorn Boulevard, Suite 105, Austin, Texas 78758, Attention: Ira Lon Morgan,
Chairman and Chief Executive Officer, with a copy to Epstein Becker & Green,
P.C., 250 Park Avenue, New York, New York 10177- 0077, Attention: Sidney Todres,
Esq. Notices to the Sellers shall be directed to ___________________ at
_______________________, Attention: ______________________.
15. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon the Underwriters, the Company, the Sellers and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
16. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
18. Entire Agreement; Amendments. This Agreement and the Representative's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representative, the Sellers and the Company.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
INTERNATIONAL ISOTOPES, INC.
By:
-------------------------------
Name:
Title:
SELLERS:
----------------------------------
----------------------------------
----------------------------------
Confirmed and accepted as of
the date first above written.
KEANE SECURITIES CO., INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
--------------------------------
Walter D. O'Hearn, Jr.
Senior Vice President
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<PAGE>
SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
Keane Securities Co., Inc. . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
=========
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<PAGE>
SCHEDULE B
Number of Option
Name of Seller Shares to be Sold
- -------------- -----------------
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Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
INTERNATIONAL ISOTOPES INC.
ARTICLE ONE
International Isotopes Inc. (the "Corporation"), pursuant to the provisions of
Article 4.07 of the Texas Business Corporation Act, hereby adopts restated
articles of incorporation which accurately copy the articles of incorporation
and all amendments thereto that are in effect to date and as further amended by
such restated articles of incorporation as hereinafter set forth and which
contain no other change in any provision thereof.
ARTICLE TWO
The Articles of Incorporation of the Corporation are amended by the Restated
Articles of Incorporation as follows:
Article IV is hereby amended in full to read as follows:
ARTICLE IV
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Twenty-Five Million (25,000,000),
of which (a) Twenty Million (20,000,000) shares shall be designated as Common
Stock, par value $.01 per share, and (b) Five Million (5,000,000) shares shall
be designated as Preferred Stock, par value $.01 per share.
The following is a statement of the designations, preferences,
limitations, and relative rights, including voting rights, in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
COMMON STOCK
(1) Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
shareholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
(2) Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
1
<PAGE>
(3) In the event of any voluntary or involuntary liquidation, dissolution,
or winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of the Preferred
Stock or any series thereof, the holders of shares of the Common Stock shall be
entitled to receive all of the remaining assets of the Corporation available for
distribution to its shareholders, ratably in proportion to the number of shares
of the Common Stock held by them. A liquidation, dissolution, or winding-up of
the Corporation, as such terms are used in this Paragraph (3), shall not be
deemed to be occasioned by or to include any merger of the Corporation with or
into one or more corporations or other entities, any acquisition or exchange of
the outstanding shares of one or more classes or series of the Corporation, or
any sale, lease, exchange, or other disposition of all or a part of the assets
of the Corporation.
PREFERRED STOCK
(4) Shares of the Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such designations,
preferences, limitations, and relative rights, including voting rights, as shall
be stated and expressed herein or in a resolution or resolutions providing for
the issue of such series adopted by the Board of Directors of the Corporation.
Each such series of Preferred Stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation is hereby expressly authorized, subject to the
limitations provided by law, to establish and designate series of the Preferred
Stock, to fix the number of shares constituting each series, and to fix the
designations and the preferences, limitations, and relative rights, including
voting rights, of the shares of each series and the variations of the relative
rights and preferences as between series, and to increase and to decrease the
number of shares constituting each series, provided that the Board of Directors
may not decrease the number of shares within a series to less than the number of
shares within such series that are then issued. The relative powers, rights,
preferences, and limitations may vary between and among series of Preferred
Stock in any and all respects so long as all shares of the same series are
identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon cumulate.
The authority of the Board of Directors of the Corporation with respect to each
series shall include, but shall not be limited to, the authority to determine
the following:
(a) The designation of such series;
(b) The number of shares initially constituting such series;
(c) The rate or rates and the times at which dividends on the shares
of such series shall be paid, the periods in respect of which dividends
are payable, the conditions upon such dividends, the relationship and
preferences, if any, of such dividends to dividends payable on any other
class or series of shares, whether or not such dividends shall be
cumulative, partially cumulative, or noncumulative, if such dividends
shall be cumulative or partially cumulative, the date or dates from and
after which, and the amounts in which, they shall accumulate, whether such
dividends shall be share dividends, cash or other
2
<PAGE>
dividends, or any combination thereof, and the other terms and conditions,
if any, applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be redeemable or
subject to repurchase at the option of the Corporation or the holder
thereof or upon the happening of a specified event, if such shares shall
be redeemable, the terms and conditions of such redemption, including but
not limited to the date or dates upon or after which such shares shall be
redeemable, the amount per share which shall be payable upon such
redemption, which amount may vary under different conditions and at
different redemption dates, and whether such amount shall be payable in
cash, property, or rights, including securities of the Corporation or
another corporation;
(e) The rights of the holders of shares of such series (which may
vary depending upon the circumstances or nature of such liquidation,
dissolution, or winding up) in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation and the
relationship or preference, if any, of such rights to rights of holders of
stock of any other class or series. A liquidation, dissolution, or winding
up of the Corporation, as such terms are used in this subparagraph (e),
shall not be deemed to be occasioned by or to include any merger of the
Corporation with or into one or more corporations or other entities, any
acquisition or exchange of the outstanding shares of one or more classes
or series of the Corporation, or any sale, lease, exchange, or other
disposition of all or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof, including, but not limited to, the right of the
holders of such shares to vote as a separate class either alone or with
the holders of shares of one or more other classes or series of stock and
the right to have more (or less) than one vote per share; provided,
however, that the right to cumulate votes for the election of directors is
expressly denied and prohibited;
(g) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund shall
be provided, the terms and conditions thereof;
(h) Whether or not a purchase fund shall be provided for the shares
of such series and, if such a purchase fund shall be provided, the terms
and conditions thereof;
(i) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be convertible into stock of any other class or series and,
if such shares shall be so convertible, the terms and conditions of
conversion, including, but not limited to, any provision for the adjust
ment of the conversion rate or the conversion price;
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(j) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be exchangeable for securities, indebtedness, or property of
the Corporation and, if such shares shall be so exchangeable, the terms
and conditions of exchange, including, but not limited to, any provision
for the adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations, and relative rights as shall
not be inconsistent with the provisions of this Article IV or the
limitations provided by law.
(5) Except as otherwise required by law or in any resolution of the Board
of Directors creating any series of Preferred Stock, the holders of shares of
Preferred Stock and all series thereof who are entitled to vote shall vote
together with the holders of shares of Common Stock, and not separately by
class.
Article V is hereby amended in full to read as follows:
ARTICLE V
At each election of directors, each shareholder entitled to vote at such
election shall have the right to vote in person or by proxy the number of shares
owned by such shareholder for as many persons as there are directors to be
elected and for whose election such shareholder has a right to vote. No
shareholder shall have the right to cumulate their votes in any election of
directors.
Article VIII is hereby amended in full to read as follows:
ARTICLE VIII
The address of the initial registered office of the corporation is 2600
Longhorn Blvd., #105, Austin, Texas 78758, and the name of the its initial
registered agent at such address is Virgil Simmons.
Article X is hereby amended in full to read as follows:
ARTICLE X
The Corporation shall indemnify any person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding (as hereinafter
defined) because the person (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent that a corporation may grant indemnification to a director under
the Texas Business Corporation Act, as the same exists or may hereafter be
amended. Such right shall be a contract
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right and as such shall run to the benefit of any director or officer who is
elected and accepts the position of director or officer of the Corporation or
elects to continue to serve as a director or officer of the Corporation while
this Article X is in effect. Any repeal or amendment of this Article X shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment of this Article X. Such right
shall include the right to be paid or reimbursed by the Corporation for expenses
incurred in defending any such proceeding in advance of its final disposition to
the maximum extent permitted under the Texas Business Corporation Act, as the
same exists or may hereafter be amended. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Corporation within
90 days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, the claimant
shall be entitled to be paid also the expenses of prosecuting such claim. It
shall be a defense to any such action that such indemnification or advancement
of costs of defense are not permitted under the Texas Business Corporation Act,
but the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors or any committee
thereof, special legal counsel, or shareholders) to have made its determination
prior to the commencement of such action that indemnification of, or advancement
of costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its Board of Directors or any
committee thereof, special legal counsel, or shareholders) that such
indemnification or advancement is not permissible, shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his heirs, executors, administrators, and personal representatives.
The rights conferred above shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, resolution of
shareholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any person covered by the grant
of mandatory indemnification contained above to such further extent as is
permitted by law and may indemnify any other person to the fullest extent
permitted by law.
To the extent permitted by then applicable law, the grant of mandatory
indemnification to any person pursuant to this Article X shall extend to
proceedings involving the negligence of such person.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
5
<PAGE>
The following Article XII is hereby added to the Corporation's Articles of
Incorporation:
ARTICLE XII
Any action of the Corporation which, under the provisions of the Texas
Business Corporation Act or any other applicable law, is required to be
authorized or approved by the holders of any specified percentage which is in
excess of fifty percent of the outstanding shares (or of any class or series
thereof) of the Corporation shall, notwithstanding any law, be deemed
effectively and properly authorized or approved if authorized or approved by the
vote of the holders of more than fifty percent of the outstanding shares
entitled to vote thereon (or, if the holders of any class or series of the
Corporation's shares shall be entitled by the Texas Business Corporation Act or
any other applicable law to vote thereon separately as a class, by the vote of
the holders of more than fifty percent of the outstanding shares of each such
class or series). Without limiting the generality of the foregoing, the
foregoing provisions of this Article Twleve shall be applicable to any required
shareholder authorization or approval of: (a) any amendment to these articles of
incorporation; (b) any plan of merger, share exchange, or reorganization
involving the Corporation; (c) any sale, lease, exchange, or other disposition
of all, or substantially all, the property and assets of the Corporation; and
(d) any voluntary dissolution of the Corporation.
ARTICLE THREE
Each such amendment made by the Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such Restated Articles of Incorporation and each such amendment made by the
Restated Articles of Incorporation were duly adopted by the shareholders of the
Corporation on the 20th day of March, 1997.
ARTICLE FOUR
The number of shares outstanding was 3,759,509; the number of shares entitled to
vote on the Restated Articles of Incorporation as so amended was 3,759,509; the
number of shares voted for such Restated Articles as so amended was 3,486,798;
and the number of shares voted against such Restated Articles as so amended was
0.
ARTICLE FIVE
In connection with amending the articles to change the name of Class B Stock to
Preferred Stock, the par value has been changed. Because no Class B or Preferred
Stock has been issued, there was no exchange, reclassification, or cancellation
of issued shares to be carried out.
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ARTICLE SIX
The Articles of Incorporation and all amendments and supplements thereto are
hereby superseded by the following Restated Articles of Incorporation which
accurately copy the entire text thereof and as amended as above set forth:
ARTICLE I
The name of the Corporation is INTERNATIONAL ISOTOPES INC.
ARTICLE II
The period of duration of the Corporation is perpetual.
ARTICLE III
The purposes for which the Corporation is organized are as follows:
To transact any and all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act.
ARTICLE IV
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Twenty-Five Million (25,000,000),
of which (a) Twenty Million (20,000,000) shares shall be designated as Common
Stock, par value $.01 per share, and (b) Five Million (5,000,000) shares shall
be designated as Preferred Stock, par value $.01 per share.
The following is a statement of the designations, preferences,
limitations, and relative rights, including voting rights, in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
COMMON STOCK
(1) Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
shareholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
7
<PAGE>
(2) Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(3) In the event of any voluntary or involuntary liquidation, dissolution,
or winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of the Preferred
Stock or any series thereof, the holders of shares of the Common Stock shall be
entitled to receive all of the remaining assets of the Corporation available for
distribution to its shareholders, ratably in proportion to the number of shares
of the Common Stock held by them. A liquidation, dissolution, or winding-up of
the Corporation, as such terms are used in this Paragraph (3), shall not be
deemed to be occasioned by or to include any merger of the Corporation with or
into one or more corporations or other entities, any acquisition or exchange of
the outstanding shares of one or more classes or series of the Corporation, or
any sale, lease, exchange, or other disposition of all or a part of the assets
of the Corporation.
PREFERRED STOCK
(4) Shares of the Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such designations,
preferences, limitations, and relative rights, including voting rights, as shall
be stated and expressed herein or in a resolution or resolutions providing for
the issue of such series adopted by the Board of Directors of the Corporation.
Each such series of Preferred Stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation is hereby expressly authorized, subject to the
limitations provided by law, to establish and designate series of the Preferred
Stock, to fix the number of shares constituting each series, and to fix the
designations and the preferences, limitations, and relative rights, including
voting rights, of the shares of each series and the variations of the relative
rights and preferences as between series, and to increase and to decrease the
number of shares constituting each series, provided that the Board of Directors
may not decrease the number of shares within a series to less than the number of
shares within such series that are then issued. The relative powers, rights,
preferences, and limitations may vary between and among series of Preferred
Stock in any and all respects so long as all shares of the same series are
identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon cumulate.
The authority of the Board of Directors of the Corporation with respect to each
series shall include, but shall not be limited to, the authority to determine
the following:
8
<PAGE>
(a) The designation of such series;
(b) The number of shares initially constituting such series;
(c) The rate or rates and the times at which dividends on the shares
of such series shall be paid, the periods in respect of which dividends
are payable, the conditions upon such dividends, the relationship and
preferences, if any, of such dividends to dividends payable on any other
class or series of shares, whether or not such dividends shall be
cumulative, partially cumulative, or noncumulative, if such dividends
shall be cumulative or partially cumulative, the date or dates from and
after which, and the amounts in which, they shall accumulate, whether such
dividends shall be share dividends, cash or other dividends, or any
combination thereof, and the other terms and conditions, if any,
applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be redeemable or
subject to repurchase at the option of the Corporation or the holder
thereof or upon the happening of a specified event, if such shares shall
be redeemable, the terms and conditions of such redemption, including but
not limited to the date or dates upon or after which such shares shall be
redeemable, the amount per share which shall be payable upon such
redemption, which amount may vary under different conditions and at
different redemption dates, and whether such amount shall be payable in
cash, property, or rights, including securities of the Corporation or
another corporation;
(e) The rights of the holders of shares of such series (which may
vary depending upon the circumstances or nature of such liquidation,
dissolution, or winding up) in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation and the
relationship or preference, if any, of such rights to rights of holders of
stock of any other class or series. A liquidation, dissolution, or winding
up of the Corporation, as such terms are used in this subparagraph (e),
shall not be deemed to be occasioned by or to include any merger of the
Corporation with or into one or more corporations or other entities, any
acquisition or exchange of the outstanding shares of one or more classes
or series of the Corporation, or any sale, lease, exchange, or other
disposition of all or a part of the assets of the Corporation;
9
<PAGE>
(f) Whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof, including, but not limited to, the right of the
holders of such shares to vote as a separate class either alone or with
the holders of shares of one or more other classes or series of stock and
the right to have more (or less) than one vote per share; provided,
however, that the right to cumulate votes for the election of directors is
expressly denied and prohibited;
(g) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund shall
be provided, the terms and conditions thereof;
(h) Whether or not a purchase fund shall be provided for the shares
of such series and, if such a purchase fund shall be provided, the terms
and conditions thereof;
(i) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be convertible into stock of any other class or series and,
if such shares shall be so convertible, the terms and conditions of
conversion, including, but not limited to, any provision for the adjust
ment of the conversion rate or the conversion price;
(j) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be exchangeable for securities, indebtedness, or property of
the Corporation and, if such shares shall be so exchangeable, the terms
and conditions of exchange, including, but not limited to, any provision
for the adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations, and relative rights as shall
not be inconsistent with the provisions of this Article IV or the
limitations provided by law.
(5) Except as otherwise required by law or in any resolution of the Board
of Directors creating any series of Preferred Stock, the holders of shares of
Preferred Stock and all series thereof who are entitled to vote shall vote
together with the holders of shares of Common Stock, and not separately by
class.
10
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ARTICLE V
At each election of directors, each shareholder entitled to vote at such
election shall have the right to vote in person or by proxy the number of shares
owned by such shareholder for as many persons as there are directors to be
elected and for whose election such shareholder has a right to vote. No
shareholder shall have the right to cumulate their votes in any election of
directors.
ARTICLE VI
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE VII
No holder of any shares of any class of stock of the corporation shall, as
such holder, have any preemptive or preferential right to receive, purchase or
subscribe to additional, unissued or treasury shares of any class of stock of
the corporation, or securities, obligations or evidences of indebtedness of the
corporation convertible into or carrying a right to subscribe to or purchase
such shares, or any other securities that may hereafter from time to time be
issued or sold by the corporation.
ARTICLE VIII
The address of the initial registered office of the corporation is 2600
Longhorn Blvd., #105, Austin, Texas 78758, and the name of its initial
registered agent at such address is Virgil Simmons.
ARTICLE IX
The number of the members of the Board of Directors shall be fixed by, or
in the manner provided in, the Bylaws. The initial Board of Directors shall
consist of one member. The name and address of the person who will serve as
director until the first annual meeting of shareholders or until his successor
is elected and qualified is:
Ira Lon Morgan 3800 Palomar Lane
Austin, Texas 78727
ARTICLE X
The Corporation shall indemnify any person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding (as hereinafter
defined) because the person (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is
11
<PAGE>
or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent that a corporation may grant indemnification to a director under
the Texas Business Corporation Act, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article X is in effect. Any
repeal or amendment of this Article X shall be prospective only and shall not
limit the rights of any such director or officer or the obligations of the
Corporation with respect to any claim arising from or related to the services of
such director or officer in any of the foregoing capacities prior to any such
repeal or amendment of this Article X. Such right shall include the right to be
paid or reimbursed by the Corporation for expenses incurred in defending any
such proceeding in advance of its final disposition to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within 90 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall be entitled
to be paid also the expenses of prosecuting such claim. It shall be a defense to
any such action that such indemnification or advancement of costs of defense are
not permitted under the Texas Business Corporation Act, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, special
legal counsel, or shareholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances nor an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, special legal counsel, or shareholders) that such
indemnification or advancement is not permissible, shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his heirs, executors, administrators, and personal representatives.
The rights conferred above shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, resolution of
shareholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any person covered by the grant
of mandatory indemnification contained above to such further extent as is
permitted by law and may indemnify any other person to the fullest extent
permitted by law.
To the extent permitted by then applicable law, the grant of mandatory
indemnification to any person pursuant to this Article X shall extend to
proceedings involving the negligence of such person.
12
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As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ARTICLE XI
The name and address of the incorporator is Ira Lon Morgan, 3800 Palomar
Lane, Austin, Texas 78727.
ARTICLE XII
Any action of the Corporation which, under the provisions of the Texas
Business Corporation Act or any other applicable law, is required to be
authorized or approved by the holders of any specified percentage which is in
excess of fifty percent of the outstanding shares (or of any class or series
thereof) of the Corporation shall, notwithstanding any law, be deemed
effectively and properly authorized or approved if authorized or approved by the
vote of the holders of more than fifty percent of the outstanding shares
entitled to vote thereon (or, if the holders of any class or series of the
Corporation's shares shall be entitled by the Texas Business Corporation Act or
any other applicable law to vote thereon separately as a class, by the vote of
the holders of more than fifty percent of the outstanding shares of each such
class or series). Without limiting the generality of the foregoing, the
foregoing provisions of this Article Ten shall be applicable to any required
shareholder authorization or approval of: (a) any amendment to these articles of
incorporation; (b) any plan of merger, share exchange, or reorganization
involving the Corporation; (c) any sale, lease, exchange, or other disposition
of all, or substantially all, the property and assets of the Corporation; and
(d) any voluntary dissolution of the Corporation.
INTERNATIONAL ISOTOPES INC.
By: /s/ Virgil L. Simmons
---------------------------------
Virgil L. Simmons, President
13
Exhibit 3.2
BYLAWS
OF
INTERNATIONAL ISOTOPES INC.
<PAGE>
TABLE OF CONTENTS
Page
----
PREAMBLE
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent.......................................1
1.02 Other Offices.....................................................1
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings...................................................1
2.02 Special Meetings..................................................1
2.03 Place of Meetings.................................................1
2.04 Notice............................................................2
2.05 Voting List.......................................................2
2.06 Voting of Shares..................................................2
2.07 Quorum............................................................2
2.08 Majority Vote; Withdrawal of Quorum...............................3
2.09 Method of Voting; Proxies.........................................3
2.10 Closing of Transfer Books; Record Date............................3
2.11 Officers Duties at Meeting........................................4
ARTICLE THREE: DIRECTORS
3.01 Management........................................................4
3.02 Number; Election; Term; Qualification.............................4
3.03 Changes in Number.................................................4
3.04 Removal...........................................................4
3.05 Vacancies.........................................................5
3.06 Place of Meetings.................................................5
3.07 First Meeting.....................................................5
3.08 Regular Meetings..................................................5
3.09 Special Meetings; Notice..........................................5
3.10 Quorum; Majority Vote.............................................5
3.11 Procedure; Minutes................................................5
3.12 Presumption of Assent.............................................6
3.13 Compensation......................................................6
ARTICLE FOUR: COMMITTEES
4.01 Designation.......................................................6
4.02 Number; Qualification; Term.......................................6
4.03 Authority.........................................................6
i
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4.04 Committee Changes; Removal........................................7
4.05 Regular Meetings..................................................7
4.06 Special Meetings..................................................7
4.07 Quorum; Majority Vote.............................................7
4.08 Minutes...........................................................7
4.09 Compensation......................................................8
4.10 Responsibility....................................................8
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice............................................................8
5.02 Waiver of Notice..................................................8
5.03 Telephone and Similar Meetings....................................8
5.04 Action Without Meeting............................................8
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification.....................9
6.02 Removal...........................................................9
6.03 Vacancies.........................................................9
6.04 Authority.........................................................9
6.05 Compensation......................................................9
6.06 Chairman of the Board............................................10
6.07 Chief Executive Officer..........................................10
6.08 President........................................................10
6.09 Vice Presidents..................................................10
6.10 Treasurer........................................................10
6.11 Assistant Treasurers.............................................10
6.12 Secretary........................................................11
6.13 Assistant Secretaries............................................11
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares...........................11
7.02 Certificates for Certificated Shares.............................11
7.03 Issuance.........................................................12
7.04 Consideration for Shares.........................................12
7.05 Lost, Stolen, or Destroyed Certificates..........................12
7.06 Transfer of Shares...............................................12
7.07 Registered Shareholders..........................................13
7.08 Legends..........................................................13
7.09 Regulations......................................................13
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends........................................................13
8.02 Reserves.........................................................13
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8.03 Books and Records................................................14
8.04 Fiscal Year......................................................14
8.05 Seal.............................................................14
8.06 Attestation by the Secretary.....................................14
8.07 Resignation......................................................14
8.08 Securities of Other Corporations.................................14
8.09 Amendment of Bylaws..............................................14
8.10 Invalid Provisions...............................................15
8.11 Headings; Table of Contents......................................15
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BYLAWS
OF
INTERNATIONAL ISOTOPES INC.
A Texas Corporation
PREAMBLE
These bylaws are subject to, and governed by, the Texas Business
Corporation Act and the articles of incorporation of International Isotopes Inc.
(the "Corporation"). In the event of a direct conflict between the provisions of
these bylaws and the mandatory provisions of the Texas Business Corporation Act
or the provisions of the articles of incorporation of the Corporation, such
provisions of the Texas Business Corporation Act or the articles of
incorporation of the Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
Texas.
1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Texas, as the board of directors
may from time to time determine or the business of the Corporation may require.
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings. An annual meeting of shareholders of the Corporation
shall be held during each calendar year on such date and at such time as shall
be designated from time to time by the board of directors and stated in the
notice of the meeting, if not a legal holiday in the place where the meeting is
to be held, and, if a legal holiday in such place, then on the next business day
following, at the time specified in the notice of the meeting. At such meeting,
the shareholders shall elect directors and transact such other business as may
properly be brought before the meeting.
2.02 Special Meetings. A special meeting of the shareholders may be called
at any time by the chairman of the board, the board of directors, or the holders
of not less than ten percent of all shares
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entitled to vote at such meeting. Only business within the purpose or purposes
described in the notice of special meeting may be conducted at such special
meeting.
2.03 Place of Meetings. The annual meeting of shareholders may be held at
any place within or without the State of Texas designated by the board of
directors. Special meetings of shareholders may be held at any place within or
without the State of Texas designated by the person or persons calling such
special meeting as provided in Section 2.02 above. Meetings of shareholders
shall be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.04 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day, and hour of each meeting of the shareholders and,
in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days before the
date of the meeting by or at the direction of the president, the secretary, or
the person calling the meeting, to each shareholder of record entitled to vote
at such meeting.
2.05 Voting List. At least ten days before each meeting of shareholders,
the secretary shall prepare a complete list of shareholders entitled to vote at
such meeting, arranged in alphabetical order, including the address of each
shareholder and the number of voting shares held by each shareholder. For a
period of ten days prior to such meeting, such list shall be kept on file at the
registered office of the Corporation and shall be subject to inspection by any
shareholder during usual business hours. Such list shall be produced at such
meeting, and at all times during such meeting shall be subject to inspection by
any shareholder. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine such list.
2.06 Voting of Shares. Treasury shares, shares of the Corporation's own
stock owned by another corporation the majority of the voting stock of which is
owned or controlled by the Corporation, and shares of the Corporation's own
stock held by the Corporation in a fiduciary capacity shall not be shares
entitled to vote or to be counted in determining the total number of outstanding
shares. Shares standing in the name of another domestic or foreign corporation
of any type or kind may be voted by such officer, agent, or proxy as the bylaws
of such corporation may authorize or, in the absence of such authorization, as
the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by such person,
either in person or by proxy, without transfer of such shares into such persons
name so long as the shares form a part of the estate served by him and are in
the possession of such estate. Shares held by a trustee may be voted by such
person, either in person or by proxy, only after the shares have been
transferred into such person's name as trustee. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without transfer of such shares into
his name if authority to do so is contained in the court order by which such
receiver was appointed. A shareholder whose shares are pledged shall be entitled
to vote such shares until they have been transferred into the name of the
pledgee, and thereafter, the pledgee shall be entitled to vote such shares.
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2.07 Quorum. The holders of a majority of the outstanding shares entitled
to vote, present in person or represented by proxy, shall constitute a quorum at
any meeting of shareholders, except as otherwise provided by law, the articles
of incorporation, or these bylaws. If a quorum shall not be present or
represented at any meeting of shareholders, a majority of the shareholders
entitled to vote at the meeting, who are present in person or represented by
proxy, may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any reconvening of an adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which could have been
transacted at the original meeting, if a quorum had been present or represented.
2.08 Majority Vote; Withdrawal of Quorum. If a quorum is present in person
or represented by proxy at any meeting, the vote of the holders of a majority of
the outstanding shares entitled to vote, present in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one on which, by express provision of law, the articles of
incorporation, or these bylaws, a different vote is required, in which event
such express provision shall govern and control the decision of such question.
The shareholders present at a duly convened meeting may continue to transact
business until adjournment, notwithstanding any withdrawal of shareholders which
may leave less than a quorum remaining.
2.09 Method of Voting; Proxies. Every shareholder of record shall be
entitled at every meeting of shareholders to one vote on each matter submitted
to a vote, for every share standing in his name on the original stock transfer
books of the Corporation except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the articles of
incorporation. Such stock transfer books shall be prima facie evidence as to the
identity of shareholders entitled to vote. At any meeting of shareholders, every
shareholder having the right to vote may vote either in person or by a proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Each such proxy shall be filed with the secretary of the
Corporation before, or at the time of, the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy. If no date is stated on a proxy, such proxy shall be presumed to have
been executed on the date of the meeting at which it is to be voted. Each proxy
shall be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
2.10 Closing of Transfer Books; Record Date. For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any reconvening thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors may provide that the stock transfer books of the Corporation shall be
closed for a stated period but not to exceed in any event sixty days. If the
stock transfer books are closed for the purpose of determining shareholders
entitled to notice of, or to vote at, a meeting of shareholders, such books
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
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such date in any case to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and if no record date is fixed for
the determination of shareholders entitled to notice of, or to vote at, a
meeting of shareholders or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of its
own shares) or a share dividend, the date on which the notice of the meeting is
mailed or the date on which the resolution of the board of directors declaring
such distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
2.11 Officers Duties at Meetings. The chairman of the board shall preside
at, and the secretary shall prepare minutes of, each meeting of shareholders,
and in the absence of either such officer, his duties shall be performed by some
person or persons elected by the vote of the holders of a majority of the
outstanding shares entitled to vote, present in person or represented by proxy.
ARTICLE THREE: DIRECTORS
3.01 Management. The business and property of the Corporation shall be
managed by the board of directors, and subject to the restrictions imposed by
law, the articles of incorporation, or these bylaws, the board of directors may
exercise all the powers of the Corporation.
3.02 Number; Election; Term; Qualification. The number of directors which
shall constitute the board of directors shall be not less than one. The first
board of directors shall consist of the number of directors named in the
articles of incorporation. Thereafter, the number of directors which shall
constitute the entire board of directors shall be determined by resolution of
the board of directors at any meeting thereof or by the shareholders at any
meeting thereof, but shall never be less than one. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified. No
director need be a shareholder, a resident of the State of Texas, or a citizen
of the United States.
3.03 Changes in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director. Any directorship to be filled by reason of
an increase in the number of directors may be filled by (i) the shareholders at
any annual or special meeting of shareholders called for that purpose or (ii)
the board of directors for a term of office continuing only until the next
election of one or more directors by the shareholders; provided that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders. Notwithstanding the
foregoing, whenever the holders of any class or series of shares are entitled to
elect one or more directors by the provisions of the articles of incorporation,
any newly created directorship(s) of such class or series to be filled by reason
of an increase in the number of such directors may be filled by the affirmative
vote of a majority of the directors elected by such class or series then in
office or by
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a sole remaining director so elected or by the vote of the holders of the
outstanding shares of such class or series, and such directorship(s) shall not
in any case be filled by the vote of the remaining directors or by the holders
of the outstanding shares of the Corporation as a whole unless otherwise
provided in the articles of incorporation.
3.04 Removal. At any meeting of shareholders called expressly for that
purpose, any director or the entire board of directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of directors.
3.05 Vacancies. Any vacancy occurring in the board of directors may be
filled by (i) the shareholders at any annual or special meeting of shareholders
called for that purpose or (ii) the affirmative vote of a majority of the
remaining directors though less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected to serve for the unexpired
term of his predecessor in office. Notwithstanding the foregoing, whenever the
holders of any class or series of shares are entitled to elect one or more
directors by the provisions of the articles of incorporation, any vacancies in
such directorship(s) may be filled by the affirmative vote of a majority of the
directors elected by such class or series then in office or by a sole remaining
director so elected or by the vote of the holders of the outstanding shares of
such class or series, and such directorship(s) shall not in any case be filled
by the vote of the remaining directors or the holders of the outstanding shares
of the Corporation as a whole unless otherwise provided in the articles of
incorporation.
3.06 Place of Meetings. The board of directors may hold its meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by law, in such place or places within or without the State of Texas as
the board of directors may from time to time determine.
3.07 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and notice of such meeting shall not be necessary.
3.08 Regular Meetings. Regular meetings of the board of directors may be
held without notice at such times and places as may be designated from time to
time by resolution of the board of directors and communicated to all directors.
3.09 Special Meetings; Notice. Special meetings of the board of directors
shall be held whenever called by the chairman of the board or by any director.
The person calling any special meeting shall cause notice of such special
meeting, including therein the time and place of such special meeting, to be
given to each director at least two days before such special meeting. Neither
the business to be transacted at, nor the purpose of, any special meeting of the
board of directors need be specified in the notice or waiver of notice of any
special meeting.
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3.10 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors, fixed in the manner provided in these bylaws, shall
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the directors present at a meeting
at which a quorum is in attendance shall be the act of the board of directors,
unless the act of a greater number is required by law, the articles of
incorporation, or these bylaws.
3.11 Procedure; Minutes. At meetings of the board of directors, business
shall be transacted in such order as the board of directors may determine from
time to time. The board of directors shall appoint at each meeting a person to
preside at the meeting and a person to act as secretary of the meeting. The
secretary of the meeting shall prepare minutes of the meeting which shall be
delivered to the secretary of the Corporation for placement in the minute books
of the Corporation.
3.12 Presumption of Assent. A director of the Corporation who is present
at any meeting of the board of directors at which action on any matter is taken
shall be presumed to have assented to the action unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail to the secretary of the Corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
3.13 Compensation. Directors, in their capacity as directors, may receive,
by resolution of the board of directors, a fixed sum and expenses of attendance,
if any, for attending meetings of the board of directors or a stated salary. No
director shall be precluded from serving the Corporation in any other capacity
or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.01 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate executive and other
committees.
4.02 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal, as a committee member or as a
director.
4.03 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the
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management of the business and property of the Corporation, including, without
limitation, the power and authority to declare a dividend and to authorize the
issuance of shares of the Corporation. Notwithstanding the foregoing, however,
no committee shall have the authority of the board of directors in reference to:
(i) amending the articles of incorporation;
(ii) approving a plan of merger or consolidation;
(iii) recommending to the shareholders the sale, lease, or exchange
of all or substantially all of the property and assets of the
Corporation otherwise than in the usual and regular course of
its business;
(iv) recommending to the shareholders a voluntary dissolution of
the Corporation or a revocation thereof;
(v) amending, altering, or repealing these bylaws or adopting new
bylaws;
(vi) filling vacancies in the board of directors or of any
committee;
(vii) filling any directorship to be filled by reason of an increase
in the number of directors;
(viii) electing or removing officers or committee members;
(ix) fixing the compensation of any committee member; or
(x) altering or repealing any resolution of the board of directors
which by its terms provides that it shall not be amendable or
repealable.
4.04 Committee Changes; Removal. The board of directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee. However, a committee member may be removed by the board
of directors, only if, in the judgment of the board of directors, the best
interests of the Corporation will be served thereby.
4.05 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.06 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each
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committee member at least two days before such special meeting. Neither the
business to be transacted at, nor the purpose of, any special meeting of any
committee need be specified in the notice or waiver of notice of any special
meeting.
4.07 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the articles of incorporation, or
these bylaws.
4.08 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the secretary of the Corporation for placement in the minute
books of the Corporation.
4.09 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.10 Responsibility. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice. Whenever by law, the articles of incorporation, or these
bylaws, notice is required to be given to any committee member, director, or
shareholder and no provision is made as to how such notice shall be given, it
shall be construed to mean that any such notice may be given (i) in person, (ii)
in writing, by mail, postage prepaid, addressed to such committee member,
director, or shareholder at his address as it appears on the books of the
Corporation or, in the case of a shareholder, the stock transfer records of the
Corporation, or (iii) by any other method permitted by law. Any notice required
or permitted to be given by mail shall be deemed to be delivered and given at
the time when the same is deposited in the United States mail, postage prepaid,
and addressed as aforesaid. Any notice required or permitted to be given by
telegram, telex, cable, telecopier, or similar means shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.02 Waiver of Notice. Whenever by law, the articles of incorporation, or
these bylaws, any notice is required to be given to any committee member,
shareholder, or director of the Corporation,
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a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time notice should have been given, shall be
equivalent to the giving of such notice. Attendance of a committee member,
shareholder, or director at a meeting shall constitute a waiver of notice of
such meeting, except where such person attends for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
5.03 Telephone and Similar Meetings. Shareholders, directors, or committee
members may participate in and hold a meeting by means of a conference telephone
or similar communications equipment by means of which persons participating in
the meeting can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
5.04 Action Without Meeting. Any action which may be taken, or is required
by law, the articles of incorporation, or these bylaws to be taken, at a meeting
of shareholders, the directors, or any committee members may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders, directors, or committee members, as the case
may be, entitled to vote with respect to the subject matter thereof, and such
consent shall have the same force and effect, as of the date stated therein, as
a unanimous vote of such shareholders, directors, or committee members, as the
case may be, and may be stated as such in any document filed with the Secretary
of State of Texas or in any certificate or other document delivered to any
person. The consent may be in one or more counterparts so long as each
shareholder, director, or committee member signs one of the counterparts. The
signed consent shall be placed in the minute books of the Corporation.
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification. The officers of the
Corporation shall be a president, one or more vice presidents (and, in the case
of each vice president, with such descriptive title, if any, as the board of
directors shall determine), a secretary, and a treasurer. The Corporation may
also have a chief executive officer, a chairman of the board, one or more
assistant treasurers, one or more assistant secretaries, and such other officers
and such agents as the board of directors may from time to time elect or
appoint. The board of directors shall elect a president and a secretary at its
first meeting at which a quorum shall be present after the annual meeting of
shareholders or whenever a vacancy exists. The board of directors then, or from
time to time, may also elect or appoint one or more other officers or agents as
it shall deem advisable. Each officer and agent shall hold office for the term
for which he is elected or appointed and until his successor has been elected or
appointed and qualified. Any person may hold any number of offices. No officer
or agent need be a shareholder, a director, a resident of the State of Texas, or
a citizen of the United States.
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6.02 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the Corporation may
be filled by the board of directors, except for a vacancy in the office of the
chairman of the board, which shall be filled by the shareholders of the
corporation.
6.04 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.05 Compensation. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of directors; provided, that the board
of directors may by resolution delegate to any one or more officers of the
Corporation the authority to fix such compensation.
6.06 Chairman of the Board. The chairman of the board shall have such
powers and duties as may be prescribed by the shareholders.
6.07 Chief Executive Officer. Subject to the supervision of the board of
directors, the chief executive officer shall have general management and control
of the business and property of the Corporation in the ordinary course of its
business with all such powers with respect to such general management and
control as may be reasonably incident to such responsibilities, including, but
not limited to, the power to employ, discharge, or suspend employees and agents
of the Corporation, to fix the compensation of employees and agents, and to
suspend, with or without cause, any officer of the Corporation pending final
action by the board of directors with respect to continued suspension, removal,
or reinstatement of such officer. The chief executive officer may, without
limitation, agree upon and execute all division and transfer orders, bonds,
contracts, and other obligations in the name of the Corporation.
6.08 President. The president shall have such powers and duties as may be
prescribed by the board of directors or as may be delegated from time to time by
the chief executive officer.
6.09 Vice Presidents. Each vice president shall have such powers and
duties as may be prescribed by the board of directors or as may be delegated
from time to time by the president and (in the order as designated by the board
of directors, or in the absence of such designation, as determined by the length
of time each has held the office of vice president continuously) shall exercise
the powers of the president during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a vice
president in the performance of the duties
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of the president shall be conclusive evidence of the absence or inability to act
of the president at the time such action was taken.
6.10 Treasurer. The treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate accounts of receipts and
disbursements, and shall deposit all moneys and valuable effects in the name and
to the credit of the Corporation in such depository or depositories as may be
designated by the board of directors. The treasurer shall audit all payrolls and
vouchers of the Corporation, receive, audit, and consolidate all operating and
financial statements of the Corporation and its various departments, shall
supervise the accounting and auditing practices of the Corporation, and shall
have charge of matters relating to taxation. Additionally, the treasurer shall
have the power to endorse for deposit, collection, or otherwise all checks,
drafts, notes, bills of exchange, and other commercial paper payable to the
Corporation and to give proper receipts and discharges for all payments to the
Corporation. The treasurer shall perform such other duties as may be prescribed
by the board of directors or as may be delegated from time to time by the chief
executive officer.
6.11 Assistant Treasurers. Each assistant treasurer shall have such powers
and duties as may be prescribed by the board of directors or as may be delegated
from time to time by the chief executive officer. The assistant treasurers (in
the order as designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant treasurer continuously) shall exercise the powers of the treasurer
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant treasurer in the performance
of the duties of the treasurer shall be conclusive evidence of the absence or
inability to act of the treasurer at the time such action was taken.
6.12 Secretary. The secretary shall maintain minutes of all meetings of
the board of directors, of any committee, and of the shareholders or consents in
lieu of such minutes in the Corporation's minute books, and shall cause notice
of such meetings to be given when requested by any person authorized to call
such meetings. The secretary may sign with the chief executive officer in the
name of the Corporation, all contracts of the Corporation and affix the seal of
the Corporation thereto. The secretary shall have charge of the certificate
books, stock transfer books, stock ledgers, and such other stock books and
papers as the board of directors may direct, all of which shall at all
reasonable times be open to inspection by any director at the office of the
Corporation during business hours. The secretary shall perform such other duties
as may be prescribed by the chief executive officer or as may be delegated from
time to time by the chief executive officer.
6.13 Assistant Secretaries. Each assistant secretary shall have such
powers and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the chief executive officer. The assistant
secretaries (in the order designated by the board of directors or, in the
absence of such designation, as determined by the length of time each has held
the office of assistant secretary continuously) shall exercise the powers of the
secretary during that officer's absence or inability to act. As between the
Corporation and third parties, any action taken by an
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assistant secretary in the performance of the duties of the secretary shall be
conclusive evidence of the absence or inability to act of the secretary at the
time such action was taken.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares. The shares of the Corporation
may be either certificated shares or uncertificated shares. As used herein, the
term "certificated shares" means shares represented by instruments in bearer or
registered form, and the term "uncertificated shares" means shares not
represented by instruments and the transfers of which are registered upon books
maintained for that purpose by or on behalf of the Corporation.
7.02 Certificates for Certificated Shares. The certificates representing
certificated shares of stock of the Corporation shall be in such form as shall
be approved by the board of directors in conformity with law. The certificates
shall be consecutively numbered, shall be entered as they are issued in the
books of the Corporation or in the records of the Corporation's designated
transfer agent, if any, and shall state upon the face thereof: (i) that the
Corporation is organized under the laws of the State of Texas; (ii) the name of
the person to whom issued; (iii) the number and class of shares and the
designation of the series, if any, which such certificate represents; (iv) the
par value of each share represented by such certificate, or a statement that the
shares are without par value; and (v) such other matters as may be required by
law. The certificates shall be signed by the chief executive officer or the
president and also by the secretary, an assistant secretary or any other
officer; however, the signatures of any of such officers may be facsimiles. The
certificates may be sealed with the seal of the Corporation or a facsimile
thereof.
7.03 Issuance. Shares with or without par value may be issued for such
consideration and to such persons as the board of directors may from time to
time determine, except in the case of shares with par value the consideration
must be at least equal to the par value of such shares. Shares may not be issued
until the full amount of the consideration has been paid. After the issuance of
uncertificated shares, the Corporation or the transfer agent of the Corporation
shall send to the registered owner of such uncertificated shares a written
notice containing the information required to be stated on certificates
representing shares of stock as set forth in Section 7.02 above and such
additional information as may be required by Section 8.408 of the Texas Uniform
Commercial Code as currently in effect and as the same may be amended from time
to time hereafter.
7.04 Consideration for Shares. The consideration for the issuance of
shares shall consist of money paid, labor done (including services actually
performed for the Corporation), or property (tangible or intangible) actually
received. The promise of future services shall not constitute payment or part
payment for the issuance of shares. In the absence of fraud in the transaction,
the judgment of the board of directors as to the value of consideration received
shall be conclusive. When consideration, fixed as provided by law, has been
paid, the shares shall be deemed to have been issued and shall be considered
fully paid and nonassessable. The consideration received for
Bylaws Page 12
<PAGE>
shares shall be allocated by the board of directors, in accordance with law,
between stated capital and capital surplus accounts.
7.05 Lost, Stolen, or Destroyed Certificates. The Corporation shall issue
a new certificate or certificates in place of any certificate representing
shares previously issued if the registered owner of the certificate:
(i) Claim. Makes proof by affidavit, in form and substance
satisfactory to the board of directors, that a previously
issued certificate representing shares has been lost,
destroyed, or stolen;
(ii) Timely Request. Requests the issuance of a new certificate
before the Corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and
without notice of an adverse claim;
(iii) Bond. Delivers to the Corporation a bond in such form, with
such surety or sureties, and with such fixed or open penalty,
as the board of directors may direct, in its discretion, to
indemnify the Corporation (and its transfer agent and
registrar, if any) against any claim that may be made on
account of the alleged loss, destruction, or theft of the
certificate; and
(iv) Other Requirements. Satisfies any other reasonable
requirements imposed by the board of directors.
7.06 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the shareholders thereof in
person or by their duly authorized attorneys or legal representatives. With
respect to certificated shares, upon surrender to the Corporation or the
transfer agent of the Corporation for transfer of a certificate representing
shares duly endorsed and accompanied by any reasonable assurances that such
endorsements are genuine and effective as the Corporation may require and after
compliance with any applicable law relating to the collection of taxes, the
Corporation or its transfer agent shall, if it has no notice of an adverse claim
or if it has discharged any duty with respect to any adverse claim, issue one or
more new certificates to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books. With respect to
uncertificated shares, upon delivery to the Corporation or the transfer agent of
the Corporation of an instruction originated by an appropriate person (as
prescribed by Section 8.308 of the Texas Uniform Commercial Code as currently in
effect and as the same may be amended from time to time hereafter) and
accompanied by any reasonable assurances that such instruction is genuine and
effective as the Corporation may require and after compliance with any
applicable law relating to the collection of taxes, the Corporation or its
transfer agent shall, if it has no notice of an adverse claim or has discharged
any duty with respect to any adverse claim, record the transaction upon its
books, and shall send to the new registered owner of such uncertificated shares,
and, if the shares have been transferred subject to a registered pledge, to the
registered pledgee, a written notice
Bylaws Page 13
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containing the information required to be stated on certificates representing
shares of stock set forth in Section 7.02 above and such additional information
as may be required by Section 8.408 of the Texas Uniform Commercial Code as
currently in effect and as the same may be amended from time to time hereafter.
7.07 Registered Shareholders. The Corporation shall be entitled to treat
the shareholder of record as the shareholder in fact of any shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have actual or other notice thereof, except as otherwise provided by law.
7.08 Legends. The board of directors shall cause an appropriate legend to
be placed on certificates representing shares of stock as may be deemed
necessary or desirable by the board of directors in order for the Corporation to
comply with applicable federal or state securities or other laws.
7.09 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
representing shares of stock of the Corporation.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends. Subject to provisions of applicable statutes and the
articles of incorporation, dividends may be declared by and at the discretion of
the board of directors at any meeting and may be paid in cash, in property, or
in shares of stock of the Corporation.
8.02 Reserves. The board of directors may create out of funds of the
Corporation legally available therefor such reserve or reserves out of the
Corporation's surplus as the board of directors from time to time, in its
discretion, considers proper to provide for contingencies, to equalize
dividends, to repair or maintain any property of the Corporation, or for such
other purpose as the board of directors shall consider beneficial to the
Corporation. The board of directors may modify or abolish any such reserve.
8.03 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
shareholders, board of directors, and any committee, and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each shareholder.
8.04 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the board of directors does not defer its determination of the
fiscal year, the fiscal year shall be the calendar year.
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8.05 Seal. The seal, if any, of the Corporation shall be in such form as
may be approved from time to time by the board of directors. If the board of
directors approves a seal, the affixation of such seal shall not be required to
create a valid and binding obligation against the Corporation.
8.06 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage, or other instrument executed by the Corporation through its
duly authorized officer or officers, the attestation to such execution by the
secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.07 Resignation. Any director, committee member, officer, or agent may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the chairman of the board, or the
secretary. Such resignation shall take effect at the time specified in the
statement at the board of directors' meeting or in the written notice, but in no
event may the effective time of such resignation be prior to the time such
statement is made or such notice is given. If no effective time is specified in
the resignation, the resignation shall be effective immediately. Unless a
resignation specifies otherwise, it shall be effective without being accepted.
8.08 Securities of Other Corporations. The chief executive officer of the
Corporation shall have the power and authority to transfer, endorse for
transfer, vote, consent, or take any other action with respect to any securities
of another issuer which may be held or owned by the Corporation and to make,
execute, and deliver any waiver, proxy, or consent with respect to any such
securities.
8.09 Amendment of Bylaws. The power to amend or repeal these bylaws or to
adopt new bylaws is vested in the board of directors, but is subject to the
right of the shareholders to amend or repeal these bylaws or to adopt new
bylaws.
8.10 Invalid Provisions. If any part of these bylaws is held invalid or
inoperative for any reason, the remaining parts, so far as is possible and
reasonable, shall remain valid and operative.
8.11 Headings; Table of Contents. The headings and table of contents used
in these bylaws are for convenience only and do not constitute matter to be
construed in the interpretation of these bylaws.
The undersigned, the secretary of the Corporation, hereby certifies that
the foregoing bylaws were adopted by the board of directors of the Corporation
to be effective as of March , 1997.
/s/ Linda Eller
--------------------------
Linda Eller, Secretary
Bylaws Page 15
Exhibit 4.2
OH&S DRAFT
3/4/97
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
INTERNATIONAL ISOTOPES, INC.
AND
KEANE SECURITIES CO., INC.
--------------------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ________, 1997
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1997 between
INTERNATIONAL ISOTOPES, INC., a Texas corporation (the "Company"), and KEANE
SECURITIES CO., INC. (hereinafter referred to variously as the "Holder" or the
"Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to an aggregate 220,000 shares of Common Stock, $.01
par value, of the Company; and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the several Underwriters listed therein to act as the Representative
in connection with the Company's proposed public offering of up to 2,200,000
shares of Common Stock at a public offering price of $____ per share of Common
Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate fifteen dollars ($22.00), the
agreements herein
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set forth and other good and valuable consideration, hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase, at any time
from _______, 1998 [one year from the effective date of the Registration
Statement], until 5:30 P.M., New York time, on _______, 2002 [five years from
the effective date of the Registration Statement], up to an aggregate of 220,000
shares of Common Stock (the "Shares") at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $____ per share of Common Stock
[120% of the initial public offering price per share] subject to the terms and
conditions of this Agreement. Except as set forth herein, the Shares issuable
upon exercise of the Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
ss.3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per share of Common Stock set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock
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purchased at the Company's principal executive offices in New York (presently
located at 2600 Longhorn Boulevard, Suite 105, Austin, Texas 78758) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock underlying the Warrants). Warrants may
be exercised to purchase all or part of the shares of Common Stock represented
thereby. In the case of the purchase of less than all the shares of Common Stock
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the shares of Common Stock
purchasable thereunder.
ss.3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 as payment of the
aggregate Exercise Price. The number of Warrants to be surrendered in payment of
the aggregate Exercise Price for the Warrants to be exercised shall be
determined by multiplying the number of Warrants to be exercised by the Exercise
Price per share of Common Stock, and then dividing the product thereof by an
amount equal to the Market Price (as hereinafter defined) minus the Exercise
Price. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date which the form of election attached hereto is
deemed to have been sent to the Company pursuant to Section 13 hereof ("Notice
Date") or (ii)
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as the average of the Market Prices for each of the five trading days preceding
the Notice Date, whichever of (i) or (ii) is greater.
ss.3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq National Market ("NNM")
or the Nasdaq Small Cap Market ("Nasdaq"), or, if the Common Stock is not listed
or admitted to trading on any national securities exchange or quoted by NNM or
Nasdaq, the average closing bid price as furnished by the NASD through NNM or
Nasdaq or similar organization if NNM or Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted on NNM or Nasdaq, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance
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thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
underlying the Warrants (and/or other securities, property or rights issuable
upon the exercise of the Warrants) shall be executed on behalf of the Company by
the manual or facsimile signature of the then Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $____
[120% of the initial public offering price] per share of Common Stock. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof.
ss.6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
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7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The Warrants, the
Shares, and any of the other securities issuable upon exercise of the Warrants
(collectively, the "Warrant Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"), pursuant to the Company's
Registration Statement on Form SB-2 (Registration No. 333- ________) (the
"Registration Statement"). All of the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
incorporated by reference herein. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason, whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Warrant Securities
shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
ss.7.2 Piggyback Registration. If, at any time commencing after the date
hereof and expiring five (5) years thereafter, the Company proposes to register
any of its securities under the Act (other than pursuant to Form S-4, S-8 or a
comparable registration statement) it will give written notice by registered
mail, at least thirty (30) days prior to the filing of each such
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<PAGE>
registration statement, to the Representative and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities notify
the Company within twenty (20) business days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representative and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
ss.7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the
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Warrants and/or Warrant Securities who notify the Company within ten (10) days
after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Securities provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company shall have the option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities, to repurchase (i) any and all Warrant Securities at the
higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all
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<PAGE>
Warrants at such Market Price less the Exercise Price of such Warrant. Such
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).
ss.7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
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(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
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(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof, without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a Majority of such
securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which
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need not be audited) complying with Section 11(a) of the Act and covering a
period of at least 12 consecutive months beginning after the effective date of
the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for
12
<PAGE>
the benefit of such underwriter(s) shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
ss.8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
ss.8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately
13
<PAGE>
decreased. An adjustment made pursuant to this Section 8.2 shall be made as of
the record date for the subject stock dividend or distribution.
ss.8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
ss.8.4 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue securities with
greater or superior voting rights than the shares of Common Stock outstanding as
of the date hereof, the Holder, at its option, may receive upon exercise of any
Warrant either shares of Common Stock or a like number of such securities with
greater or superior voting rights.
ss.8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall
14
<PAGE>
execute and deliver to the Holder a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 8.
The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
ss.8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the Warrant
Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two cents (2
(cents)) per Warrant Security, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2 (cents)) per Warrant
Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date
15
<PAGE>
representing in the aggregate the right to purchase the same number of Warrant
Securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be
16
<PAGE>
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on NNM or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the
17
<PAGE>
transfer books for the determination of the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and
18
<PAGE>
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on _______, 2004. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive such termination until the close of business on
_______, 2010.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 3 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any
19
<PAGE>
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representative and any other registered Holders of Warrant Certificates or
Warrant Securities.
20
<PAGE>
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
INTERNATIONAL ISOTOPES, INC.
By:
---------------------------------------
Name: Ira Lon Morgan, Ph.D.
Title: Chief Executive Officer
Attest:
- ------------------------------
Secretary
KEANE SECURITIES CO., INC.
By:
---------------------------------------
Name: Walter D. O'Hearn, Jr.
Title: Senior Vice President
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002
No. W- Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is
the registered holder of Warrants to purchase initially, at any time from
__________, 1998 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ___________, 2002 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, $.01 par value
("Common Stock"), of INTERNATIONAL ISOTOPES, INC., a Texas corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $______ [120% of the initial public offering
price] per share of Common Stock upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the Representative's Warrant Agreement
dated as of _______, 1997 between the Company and KEANE SECURITIES CO., INC.
(the "Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check in New York Clearing House funds payable to the
order of the Company or by surrender of this Warrant Certificate.
A-1
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair the rights of the holder
as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of ___________, 1997
INTERNATIONAL ISOTOPES, INC.
By:
--------------------------------------
Name: Ira Lon Morgan, Ph.D.
Title: Chief Executive Officer
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _______________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of International
Isotopes, Inc. in the amount of $_______________________, all in accordance with
the terms of Section 3.1 of the Representative's Warrant Agreement dated as of
______________________, 1997 between International Isotopes, Inc. and Keane
Securities Co., Inc. The undersigned requests that a certificate for such
securities be registered in the name of ______________________________ whose
address is __________________________ and that such Certificate be delivered to
_________________ whose address is ____________________.
Dated:
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _________________________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1997 between International Isotopes,
Inc. and Keane Securities Co., Inc. The undersigned requests that a certificate
for such securities be registered in the name of _______________________________
whose address is ____________________ and that such Certificate be delivered to
________________________ whose address is ___________________________.
Dated:
Signature __________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: __________________ Signature: _________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
A-6
Exhibit 10.2
EQUIPMENT LEASE AGREEMENT
THIS AGREEMENT is entered into by and between the North Texas Research
Institute, UNT Box 5396, Denton, Texas, 76203 ("Lessor" or "NTRI"), the
University of North Texas, UNT Box 5396, Denton, Texas, 76203 ("UNT") and the
Applied Isotope Products Corporation, #5 Sugarshack Road, Austin, Texas, 78727
("Lessee" or "AIPC") for the purpose of leasing certain tomographic testing
equipment.
WITNESSETH,
WHEREAS, Lessor owns and has control over tomographic testing equipment
("Equipment"); and
WHEREAS, UNT anticipates assuming ownership of such equipment; and
WHEREAS, Lessee desires to use such Equipment for its own purposes and to
provide commercial services to others;
NOW, THEREFORE, in consideration of the foregoing, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. LEASE OF EQUIPMENT
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Equipment, upon the terms and conditions hereinafter set forth (the specific
item(s) and/or systems(s) which make up such Equipment are fully set forth in
Schedule A. which is attached hereto and made a part hereof for all purposes).
2. USE OF EQUIPMENT
Lessor and Lessee acknowledge that the Equipment shall be used to conduct
tomographic research, development and commercial testing for which Lessee will
contract with third parties.
Lessor and Lessee acknowledge and agree that Lessor may use the Equipment
for non-commercial purposes at time when such Equipment is not in use by
Lessee's Associates as stipulated in paragraph 4 below.
3. TERM OF LEASE
The lease term shall commence as of March 1, 1996, and continue in full
force and effect for a period of five (5) years unless otherwise terminated in
accordance with the provisions herein. Lessor or Lessee may terminate this lease
upon thirty (30) days
<PAGE>
prior written notice of the intent to terminate to the other party. Early
termination of this Agreement shall not affect rights or obligations of either
party which accrue prior to such termination.
4. LEASE PAYMENTS
Lessee hereby agrees to pay Lessor four (4) monthly rental payments of
Five Hundred Dollars ($500.00), for a total payment of Two Thousand Dollars
($2,000.00), which shall be due with the execution of this Agreement and shall
be non-refundable. Lessee further agrees to pay Lessor monthly rental payments
of Five Hundred Dollars ($500.00) each beginning on July 1, 1996 and continuing
for the remainder of the lease term. These rental payments shall be payable on
the first day of each month that this Agreement is in effect or with the
execution of this Agreement if the first day of the month has passed. In case of
a scheduling conflict, these rental payments shall provide Lessee with a right
of first refusal to the use of the Leased Equipment.
Lessee further agrees to pay Lessor use fees on the Equipment in the
amount of Ten Percent (10%) of the gross revenues received by Lessee from the
commercial scanning services of the Equipment. Use fee payments shall be payable
the month following the collection of such fees. Such payment shall be made with
the rental fee payment.
5. REVIEW OF RECORDS
Lessee agrees to keep true, accurate and complete records of all revenues
collected from use of Equipment for commercial scanning service. All such
records shall be maintained by the Lessee for the term of this Agreement and two
years thereafter. Upon request, Lessor shall have full access to any Lessee
accounts and records pertaining to this Agreement and the right to audit same.
6. INSURANCE
Both parities agree that Lessee shall insure the Equipment for fire and
extended coverage during the period of this Lease Agreement. The dollar value of
the coverage shall not be less than eighty percent (80%) of the replacement cost
of the Equipment. In the event of damage or loss, any proceeds of such insurance
shall, at the option of Lessee, (a) be used to repair or replace the Equipment
or (b) be transferred to Lessor for use in purchasing additional equipment items
for lease to Lessee.
7. ALTERATIONS
Lessee is hereby given the right to make alterations, additions, or
improvements to the Equipment, so long as the value of the equipment is not
materially reduced thereby. Lessor retains title to improvements in the
Equipment; however, software and intellectual property improvements shall remain
the property of Lessee.
<PAGE>
8. MAINTENANCE AND REPAIR
It is acknowledged that the Equipment being leased by Lessee may require
repair to return the Equipment to its as manufactured condition and performance
specification. The repairs, extent of repair and the time of repair shall be at
the sole discretion and option of Lessee. All maintenance and repair cost as
deemed necessary by Lessee shall be the sole responsibility of Lessee, subject
to Section 12 hereof.
9. LOCATION
Lessee shall not, without the prior written consent of Lessor, permit the
Equipment to be removed from the State of Texas.
10. DISCLAIMER OF WARRANTIES
LESSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS
TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR FITNESS FOR USE OF THE LEASED EQUIPMENT OR ANY PORTION THEREOF, OR
ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE LEASED EQUIPMENT OR ANY
PORTION THEREOF.
LESSEE HEREBY ACKNOWLEDGES AND DECLARES THAT LESSEE IS SOLELY RESPONSIBLE
FOR THE APPLICATION, OPERATION AND MAINTENANCE OF THE EQUIPMENT BY LESSEE, AND
THAT LESSOR HAS NO RESPONSIBILITY THEREFOR. IN NO EVENT SHALL LESSOR BE LIABLE
FOR ANY DIRECT OR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES IN
CONNECTION WITH OR ARISING OUT OF THE APPLICATION OR USE OF THE EQUIPMENT BY
LESSEE, PRIVATELY OR COMMERCIALLY, OR BY THIS LEASE AGREEMENT OR THE EXISTENCE,
FURNISHING, FUNCTIONING OR USE BY LESSEE OF ANY ITEM PRODUCT OR SERVICE PROVIDED
FOR HEREIN.
11. INDEMNIFICATION
LESSEE AGREES TO DEFEND, ASSUME THE COST OF DEFENSE, HOLD HARMLESS, AND
INDEMNIFY LESSOR, ITS OFFICERS, AGENTS, AND EMPLOYEES FROM AND AGAINST ALL
LIABILITY AND EXPENSES (INCLUDING COSTS AND ATTORNEYS' FEES) RESULTING FROM ANY
INJURY (INCLUDING DEATH) TO ANY PERSON AND FROM ANY DAMAGES TO THE PROPERTY OF
OTHERS ARISING OUT OF THE ACTS OR OMISSIONS OF LESSEE'S OFFICERS, AGENTS OR
EMPLOYEES IN CONNECTION WITH THE WORK CARRIED OUT INVOLVING THE EQUIPMENT.
LESSEE SHALL TAKE ALL REASONABLE PRECAUTIONS IN
<PAGE>
THE PERFORMANCE OF THE WORK INVOLVING THE EQUIPMENT TO PROTECT THE HEALTH AND
SAFETY OF ALL PERSONS AND TO MINIMIZE ALL HAZARDS TO LIFE AND PROPERTY.
12. GENERAL DUTIES OF LESSEE
The parties agree that Lessee shall have primary use of the Equipment for
the purpose of conducting commercial research, development, and testing
activities. Lessee, at its sole discretion, shall repair said equipment to the
degree Lessee deems necessary to conduct said commercial research, development,
and testing activities. Lessee agrees to maintain the Equipment in its as leased
condition along with any repairs or improvements in accordance with normal
practices. All costs resulting from operations, maintenance and other actions of
Lessee involving the Equipment shall be borne by Lessee, and all benefits
derived from Lessee's actions using the Equipment shall inure to Lessee during
the term of this Agreement, except as provided herein. In the event of
termination of this Agreement, Lessee shall be responsible for returning
Equipment to Lessor in the same condition which it was received, normal wear and
tear excepted. In such event, Lessee shall bear all costs associated with such
return.
13. COMPLIANCE WITH LAW
Lessee shall be solely responsible for compliance with all applicable
statutes, rules, orders, regulations and requirements of all governmental
authorities, now existing or hereinafter enacted, pertaining to Lessee's actions
involving the Equipment.
14. ASSIGNMENT AND SUBLEASE
Lessor shall not encumber its interest in the use of the Equipment and
shall not sell or encumber its ownership of this lease during the term hereof
without the consent of Lessee, except that Lessor shall have the right to
transfer ownership to UNT. Lessor and Lessee understand and acknowledge that UNT
anticipates assuming ownership of the equipment during the term of this Lease.
In such event, UNT shall automatically assume all rights and obligations of
Lessor as provided under this Agreement, whether accrued or owed in the future.
Without the prior written consent of Lessor, Lessee shall not (a) assign
or transfer this Lease Agreement, the Equipment or any part thereof, or (b)
permit the Equipment or any part thereof to be used by anyone other than Lessee.
15. NOTICES
Any notice called for or permitted under the terms hereof may be given in
writing and sent by ordinary mail to the last address of the party to whom the
notice is given as designated by such party in writing.
<PAGE>
Lessor hereby designates its address as:
Dr. Rollie R. Schafer
Executive Director
North Texas Research Institute
P. O. Box 5396, NT Station
Denton, Texas 76203-5396
Lessee hereby designates its address as:
Mr. Virgil Simmons
President
Applied Isotope Products Corporation
#5 Sugarshack Road
Austin, Texas 78727
A party may change the address it uses for notice by notifying the other party
of such address change.
16. STATE LAW AND VENUE
This Agreement shall be construed in accordance with the laws of the State
of Texas and venue for any proceeding related to this Agreement shall lie in
Denton County, Texas.
17. BINDING OF HEIRS AND ASSIGNS
Subject to the provisions of this Lease Agreement against assignment of
interests hereunder, all provisions of this Lease Agreement shall extend to and
bind, or inure to the benefit not only of the parties hereto but to each and
every one of the heirs, executors, representatives, successors, and assigns of
Lessor and Lessee.
18. INVALID CLAUSES
It is expressly agreed and understood by the parties hereto that if any
provision of this Lease Agreement is held to be invalid under any applicable
statue or rule of law, it is deemed to that extent to be omitted. However, the
balance of the Agreement shall remain in full force and effect.
19. ENTIRETY CLAUSE
This instrument and Schedule A attached hereto constitute the entire
agreement between the parties relating to the rights herein granted and the
obligations herein assumed. Any representations or modifications concerning this
instrument shall be of no force or effect excepting a subsequent modification in
writing, signed by all parties.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date of the last signature following.
NORTH TEXAS RESEARCH INSTITUTE
/s/ Rollie R. Schafer 7/22/96
- ------------------------------------------- ------------------
Rollie R. Schafer (Date)
Executive Director
UNIVERSITY OF NORTH TEXAS
/s/ Phillip C. Diebel 7/22/96
- ------------------------------------------- ------------------
Phillip C. Diebel (Date)
Vice President for Finance and
Business Affairs
APPLIED ISOTOPE PRODUCTS CORPORATION
/s/ Virgil L. Simmons 7-8-96
- ------------------------------------------- ------------------
Virgil Simmons (Date)
President
<PAGE>
SCHEDULE A
LEASED EQUIPMENT
<PAGE>
ASSET DESCRIPTION
IDM Tomographic Software.
DEC Fortran & VAM-VMS Operating System
System design specifications as specified in Exhibit 2. AGREEMENT for
Evaluation of Integrated Pipe and Inspection Systems, between Texas Utilities
Electric Company and International Digital Modeling Corporation, executed
September 7, 1990 (Exhibit 2, See Addenda).
<PAGE>
ASSET DESCRIPTION
Stationary Tomographic Pipe (IRIS-1) Inspection, IDM A06, consisting of:
(1) IDM Data Acquisition System mounted on triangular base, three banks of 243
Scintillator Detector Assemblies spaced at one-sixth degree intervals,
three Amersham 1006C Gauging Devices (each with Cobalt-60 pellet) strength
of 100 Curles. Three air conditioning units.
Electronic Housing Unit with;
CAMAC Signal Processing Unit
High Voltage Power Supply
Low Voltage Power Supply
Subpositioning Motor Drives
Control Interface Module
EHU Interface Cables
EHU Power Distributors
EHU Environmental Conditioning Unit
Source Control Module & Interface Cables
Ludlum, Model 1003, Radiation Area Alarm
(1) Pandijires Model TU Gantry Position. S/N 60-4360, 10' vertical travel
(1) Troyke. 54" Precision Rotary Table.
Computer System. Digital (DEC), Model Microvax-II (630Q2), Computer with
1-MB memory and 4-MB expansion memory, consisting of:
(1) 159-MB Winchester, Disk Drive, Model DEC-RD-54DA.
(1) Ethernet 802.3 Adapter, Model DELQA-M.
(1) 95-MB, Cartridge Tap Controller, Model TK-50-AA.
(1) Graphics, Video Terminal, Model VT330-C2
(1) Matsushira, Model TX-2016MA, Remote Terminal.
<PAGE>
(1) CDA Multiplexer.
(1) Alphatronix Inspire, Disk Drive
(1) OKITEL Model 2400 Modem.
(1) Model 2160-KS, Serial Highway Drive.
Lot Assorted installed boards, etc.
INTERNATIONAL ISOTOPES INC.
EMPLOYMENT-ROYALTY AGREEMENT
THIS AGREEMENT, effective as of November 1, 1995, is made and entered into
this 16th day of November, 1995, between International Isotopes Inc., a Texas
corporation, with authority to transact business in Texas, having its principal
office at Austin, Texas (hereinafter "Company"),and IRA LON MORGAN (hereinafter
"Employee"), of Austin, Texas.
In consideration of the mutual undertakings contained herein, the
compensation to be paid by Company to Employee and the other benefits to
Employee resulting from his employment under this Agreement, and in
consideration of $100 paid to Employee coincidental with the execution of this
Agreement, Employee agrees with Company as follows:
I. EMPLOYMENT; SALARY, ROYALTIES AND BENEFITS
Company hereby employs and continues the employment of Employee as
Chairman & Chief Executive Officer of International Isotopes Inc. or in a Senior
Advisory Position for a period of five years from the effective date of this
Agreement at an annual salary as follows:
Fiscal Year Year
----------- ----
November 1, 1995 to October 31,1996 $100,000.00
November 1, 1996 to October 31,1997 $100,000.00
November 1, 1997 to October 31,1998 $110,000.00
November 1, 1998 to October 31,1999 $120,000.00
November 1, 1999 to October 31,2000 $130,000.00
Employee's salary for each calendar year shall be paid in equal monthly
installments at the end of each month, subject to usual deductions for federal
income and employment taxes.
The employee's compensation, in addition to monthly salary, shall be a
royalty payment (paid semiannually) of one (1) percent of Company gross revenues
actually paid to COMPANY for the sale, lease or use of products developed,
manufactured, and marketed by
1
<PAGE>
COMPANY under any license agreements pursuant to patents, know-how or technology
owned or licensed by COMPANY currently in use or to be developed, or development
by the employee. Said royalty payment will be for the life of the patent or
technology and will be accrued on a semi annual basis and payable thirty (30)
days after each six months period, and except that the first such payment shall
be for the period November 1, 1997 and shall be payable semi-annually thereafter
for the life of the patents or technology. In addition, 0.5 percent of gross
revenues or 20 percent of royalties received, whichever is greater shall be paid
to employee from the licensing of Company patents, know-how and technology to
other entities utilizing Company technology for the life of the patents and
technology. It is specifically agreed that the total remuneration of Employee
from all sources, salary and royalty, shall not exceed $150,000.00 per year
until gross revenues exceed $5,000.000 and the Company is profitable. Royalties
over and above the standard salary shall be paid out of profits not to exceed
lo'-. of the pre-tax profits, The employee may accept royalties in the form of
cash, common stock, deferred annuities or tax free retirement plans offered by
the Company = others in any combination or 'percentages of the above forms ot
royalty payment, The Board of Directors will offer such remuneration to employee
on a semi-annual basis based on earni@ per share and market value of the
Company's common stock, Employee aarees that the royalty compensation shall not
exceed $500,000 any one year period.
As long as this Agreement remains in full force, Company agrees to pay all
necessary premiums to maintain key man insurance on Employee's life in the
amount of $1,000,000.00, $510,000.00 of such death benefits to be payable to the
Company and $490,000.00 of such death benefits to be payable to such
beneficiaries as Employee may from time to time designate. The Company further
agrees to include Employee as a primary key participant in any pension,
retirement, stock appreciation or stock option plan, or any key employee
compensation plan which may be established after the effective date of this
Agreement during the period of Employee's employment by the Company, except as
such preferential inclusion is contrary to federal or state law or regulations
and then under such terms as may be permissible under such laws or regulations.
Employee shall also be entitled to participate in any other employee benefit
programs which the Company presently
2
<PAGE>
has or may have from time to time in the future, including group health
insurance.
Employee's employment is terminable by the Company only for good cause as
determined by Court of Law in which event, no salary will be paid or by payment
of full salary of the remaining term of the contract. Royalties will accrue and
will be paid for the life of the patents and technology after such termination.
Notice shall be required for such termination. If the Company terminates such
employment because of Employee's mental or physical disability or incapacity,
the Company shall pay Employee termination pay six month's salary as it accrues,
based upon Employee's salary rate at the time of such termination and subject to
usual deductions for federal income and employment taxes. No termination pay
will be payable by the Company in the event of any termination by Employee
except by mutual written agreement.
II. EMPLOYEE WARRANTIES
Employee warrants that he is free to enter into the terms of this
Agreement and that he has no obligations inconsistent herewith; and he agrees to
devote his best efforts to Company's business interests and not less than 75%.
of his working hours.
III. CONFIDENTIAL INFORMATION
1. Employee recognizes that Company's business interests require a
confidential relationship between Company and Employee and the fullest practical
protection and confidential treatment of Company's financial data, writings,
computer software, sales and marketing policies, conceptions, inventions, trade
secrets, sources of supply, know-how, plans and programs and other knowledge of
Company's business whether or not copyrightable or patentable.
2. Except insofar as is authorized by the Company as necessary disclosure
to persons having a need to know consistent
3
<PAGE>
with the working relationship within Company and with Company's customers (such
disclosures to be made in accordance with Company procedure, including the due
execution of prescribed Conf idential Disclosure Agreements):
a) Employee will not directly or indirectly disclose
b) Company information to others either within or outside of
Company.
c) Employee will not make or disclose documents or copies of
documents containing disclosures of Company Information.
d) As to documents which are delivered to or generated by Employee or
which are made as a necessary part of the working relationships and
duties within the Company and with Company's customers, Employee will
treat them confidentially and will mark them as proprietary
confidential documents not to be reproduced or used without appropriate
authority of Company.
e) Employee will not advise others that the technology included
in Company Information is known to or used by Company.
3. Employee's obligations set forth in this Article III shall continue as
to each item of Company Information both during and after termination of all
Employee's employment by Company, until such item of Company Information becomes
generally known to Company's competitors from published sources.
IV. INVENTIONS AND OTHER INFORMATION:I2ISCLOSURE AND TITLE
1. Employee agrees to make prompt and complete disclosure to Company of
every item of information relating to Company's interest, and to make in writing
a disclosure of every idea and
4
<PAGE>
invention of every character which he learns of, conceives, writes, develops or
reduces to practice during the term of his employment. Employee shall submit a
report upon completion of any study or research project, setting forth in detail
the procedures used, the results achieved and stating whether or not the study
or project has resulted in an invention or other Company Information.
2. Employee agrees (a) that every item of such information which relates
to Company's field of business interest or which arises out of his use of
Company's time, facilities, personnel or money, is the property of Company; and
that every invention which is conceived in whole or in substantial part by
Employee and which is in response to, is based upon or utilizes Company
Information, is the property of Company.
3. Employee will assign all of his right, title and interest in such items
of Confidential Information and inventions to Company, subject to royalty
payments as set out in Article I.
4. Those inventions by Employee which are not related to Company's field
of business interest and which were conceived or reduced to practice during the
term of employment but were not conceived or reduced to practice during
Company's business hours or by the use of Company's facilities, personnel or
money, will still be disclosed to Company in writing, provided he may lawfully
do so, but shall remain the property of Employee, provided that, in the event
the Company desires, it shall have the right to manufacture, sell and/or lease
any such product and will pay unto Employee an additional royalty based upon the
payments set out in Article I. The right of the Company granted in the next
preceding sentence, however, shall cease 180 days after the written disclosure
given by Employee, unless Company both notifies Employee, within said 180 day
period, that it desires to exercise said right @ takes affirmative steps to
manufacture, sell and/or lease said product and proceeds with reasonable
diligence thereafter.
5. Employee agrees that upon Company's request either during or for a
period of five years after termination of his employment, but without expense to
himself, he will cooperate with the execution of any and all patent and
copyright applications, assignments and other legal instruments which Company
shall deem
5
<PAGE>
necessary or convenient for the protection of its Company Information in either
the United Sates or foreign countries. In the event Employee is no longer
employed by Company, Employee will be compensated at his salary rate last paid
by the Company on an hourly rate based on the hours expended for said services
6. Employee further agrees that upon termination of his employment he will
promptly surrender to Company all papers, documents, notebooks, writings,
illustrations, models, software and other property produced by him or coming
into his possession by or through his employment with Company.
7. The Company further agrees that upon sale, merger, or substantial
transfer of the assets or license of the patents, know-how, or technology to a
third party or entity, that diligent pursuit of the sale, manufacture, and lease
of equipment arising out of the patents, know-how, and technology will be
conducted. In the event that for a period of three (3) years, there is no
diligent pursuit of the technology, the inventions, technology, and know-how,
the patents, technoloay, inventions and know-how shall then be offered on a
first rights basis to the Employee for the assumption of patent fees and nominal
royalties with reversion in title to the employee and inventors.
V. POST-EMPLOYMENT AND RELATED OBLIGATIONS
In the course of his employment it is anticipated that Employee will learn of
and conceive Company Information during Company time and at Company expense,
which Information relates to Company's interests and is likely to be of benefit
both to Company's competitors and Company during and after termination of
Employee's employment. Accordingly, Employee agrees that in those jurisdictions
where such obligations may from time to time be lawful:
(a) For the first one year after the termination of his employment as may
be lawful consistent with the time, place and circumstance, he will not
either directly or indirectly divert or aid others in diverting any trade
which Company was enjoying at the time of such
6
<PAGE>
termination or which he had solicited on Company's behalf during the last
two years of his employment at Company.
(b) During his employment and for two years after termination of his
employment as may be lawful consistent with the time, place and
circumstance, he will not either directly or indirectly solicit or aid or
cooperate with others in soliciting any Company employee to leave
Company's employ for other employment.
(c) Without limiting the term of his obligation hereunder to preserve
Company Information for so long as it remains protectable, Employee
specifically agrees that during his employment and for two years after
termination of such employment as may be lawfully consistent with the
time, place and circumstance he will accept no employment wherein the
loyal and diligent performance of the duties and responsibilities of the
new employment will inherently call upon him to use, to disclose or to
base judgments upon Company Information in any capacity, or to utilize the
good will of Company in making sales for a competitor of Company.
VI. BINDING ON SUCCESSORS
Any successor to the Company shall have the same rights and obligations of
the Company under this Agreement, provided, however, that in the event of a
merger by the Company or Group by another entity or the sale by Company or Group
of all or substantially all of its assets, employee has the option of
terminating his employment upon such merger or sale. Any successor shall be
bound by the Salary-Royalty Agreement as set out in Article I and
Disclosure-Title as set out in Article IV.
VII. MISCELLANEOUS
1. Applicable Law. This Agreement shall be construed under the laws of the
State of Texas, but no restriction shall be considered applicable in any
Jurisdiction where it is inconsistent with the public policy of that
jurisdiction.
7
<PAGE>
2. Common Law Remedies. The provisions of this Agreement shall not be
construed as any limitation upon the remedies which Company might, in the
absence of this Agreement, have at law or in equity for any wrongs of Employee.
3. Severance. In the event any provision of this Agreement is modified or
held ineffective by any Court in any respect, such adjudication shall not
invalidate or render ineffective any of the other provisions hereof.
4. Entire Agreement; Amendment. This Agreement constitutes the entire
understanding and agreement between the parties hereto and merges and supersedes
all prior agreements, understandings, representations, conditions, warranties
and covenants (oral or written, express or implied) between the parties
concerning the subject matter of this Agreement. No amendment, modification,
renewal, or extension of this Agreement or any of its provisions shall be
binding upon any party against whom enforcement of such amendment,
modifications, renewal or extension is sought, unless it is made in writing and
signed by such party or by a duly authorized representative of such party.
5. Waiver. The failure of either party to enforce at any time, or for any
period of time, any of the provisions of this Agreement shall not be construed
to be a waiver of such provisions or a waiver of the right of such party
thereafter to enforce each and every such provision.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
originals as of the date and year first above written.
INTERNATIONAL ISOTOPES INC.
By: /s/ Virgil L. Simmons
---------------------------------
Title: President
EMPLOYEE: /s/ Ira Lon Morgan
--------------------------
IRA LON MORGAN
Date: 11-1-95
Austin, Texas
------------------------------------
City and State of Employee Execution
This Agreement executed by Employee only after advice by the undersigned
counsel.
N/A
- ---------------------------------------
Counsel
Exhibit 11
Computation of Net Loss per Common Share
Per share information was calculated based on net loss available to common
shareholders divided by the weighted average number of shares of common stock
outstanding during the period. Pursuant to Securities and Exchange Commission
(SEC) staff accounting bulletin and SEC Staff policy, common stock issued during
the twelve-month period prior to the proposed initial public offering for
consideration below the initial public offering price have been included in the
calculation of weighted average number of shares as if they were outstanding for
all periods presented. Accordingly, common shares outstanding of 3,766,663 at
December 31, 1996 were used in the calculation of net loss per common share.
Exhibit 22
List of Subsidiaries
Gazelle Realty, Inc., a Texas corporation, is a wholly-owned subsidiary of
Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements of International Isotopes Inc. and Subsidiary
as of December 31,1996 and for the period from November 1, 1995 (inception) to
December 31, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> DEC-31-1996
<CASH> 331,397
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 757,498
<CURRENT-ASSETS> 1,946,363
<PP&E> 974,382
<DEPRECIATION> 1,460
<TOTAL-ASSETS> 4,256,176
<CURRENT-LIABILITIES> 2,697,270
<BONDS> 0
0
0
<COMMON> 37,667
<OTHER-SE> 1,521,239
<TOTAL-LIABILITY-AND-EQUITY> 4,256,176
<SALES> 775,102
<TOTAL-REVENUES> 775,102
<CGS> 263,440
<TOTAL-COSTS> 883,637
<OTHER-EXPENSES> 408,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,741
<INCOME-PRETAX> (1,084,446)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,084,446)
<DISCONTINUED> 0
<EXTRAORDINARY> 250,000
<CHANGES> 0
<NET-INCOME> (834,446)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
