As filed with the Securities and Exchange Commission on July 3, 1997
Registration No. 333-26269
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
FORM SB-2
Registration Statement
Under The
Securities Act of 1933
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INTERNATIONAL ISOTOPES INC.
(Name of Small Business Issuer in its Charter)
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<S> <C> <C>
Texas 2835 74-2763837
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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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. [ ]
---------------
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)
<TABLE>
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Form SB-2 Item No. and Caption Prospectus Captions
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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 ...... Description of Capital Stock
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
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 Consolidated Financial Data; Consolidated
Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure .......................................... Not Applicable
</TABLE>
<PAGE>
Subject to Completion, Dated July 3, 1997
PROSPECTUS
[INTERNATIONAL ISOTOPES INC. LOGO]
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 public 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 "ITL."
Certain existing stockholders, directors and officers of the Company and
their affiliates or designees intend to purchase approximately 10% of the
shares of Common Stock being offered hereby. Certain other stockholders of the
Company (the "Selling Stockholders") have granted the Underwriters an option to
purchase 100,000 shares of Common Stock solely to cover over-allotments, if
any. See "Principal and Selling Stockholders."
------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE 9 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 REPRESENTATION 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 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 "Principal and Selling Stockholders" and "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.
------------------
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 constitute an offer to sell or the
solicitation 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 under the securities laws of any such State.
------------------
Keane Securities Co., Inc.
The date of this Prospectus is , 1997.
<PAGE>
Steps from Accelerator to Patients
for Use in Nuclear Medicine Diagnostics and Therapeutics
As of the date of this Prospectus, the Company's radioisotope production
facility has not been constructed and the Company's proton linear accelerator
(the "LINAC") has not been tested.
Step I: When fully operational, the LINAC will use intense beams to
simultaneously bombard a wide variety of stable isotope targets, thereby
efficiently creating a number of radioactive isotopes ("radioisotopes").
Step II: Further in-house processing and refining followed by thorough quality
control testing will be implemented to assure that the Company's products are
pharmaceutical grade radioisotopes.
Step III: Pharmaceutical grade radioisotopes will be sent either to
radiopharmaceutical companies or to the Company's in-house laboratory for final
processing and will be chemically attached ("tagged") to appropriate
pharmaceutical molecules, thereby creating radiopharmaceuticals for use in
diagnostic and therapeutic nuclear medicine. The pharmaceutical components may
be monoclonal antibodies, peptides or other chemical entities that act as
vectors in the delivery of tagged radioisotopes to selected internal targets
within the patient.
[PHOTO OF LINAC]
Step IV: Radiopharmaceuticals may be packaged in single doses or in multidose
forms and will be promptly shipped via common carriers to local, regional,
national and/or international radiopharmacies, hospitals, clinics and research
institutions.
Step V. Upon arrival at a hospital's nuclear medicine radiology or cardiology
department (or other designated site), qualified physicians or their designated
technologists will utilize the radiopharmaceuticals in-the-body ("in vivo") in
conjunction with external imaging equipment such as SPECT or PET cameras to
conduct diagnostic tests for cardiovascular problems, cancerous tumor location
and other organ malfunctions.
Step VI: When feasible, radiopharmaceuticals are increasingly being used for in
vivo therapeutic treatment of primary and secondary tumors and metastasized
cells of various cancers including lung, breast, prostate, bone and brain
cancer. The Company believes that in vivo therapeutics using existing as well
as promising new radiopharmaceuticals represent the fastest growing segment of
nuclear medicine.
---------------------------
CERTAIN PERSONS PARTICIPATING IN THIS 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>
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 58 of this
Prospectus.
The Company
International Isotopes Inc. (the "Company") is a development stage company
which intends to be the first domestic producer of a full range 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 for use in diagnostic nuclear medicine a high
resolution medical imaging camera, key components of which are patented. Based
on spatial resolutions achieved in industrial applications of the licensed
patented inventions, the Company believes its medical imaging camera will have
resolution at least four times greater than any medical 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.
According to a 1995 report by the Committee on Biomedical Isotopes of the
Institute of Medicine--National Academy of Sciences entitled "Isotopes for
Medicine and Life Sciences" (the "IOM Report"), nuclear medicine is estimated
to be a $7 to $10 billion industry in the United States of which, according to
a 1995 study by Frost & Sullivan entitled "World Nuclear Medical Imaging" (the
"F&S 1995 Report"), the U.S. diagnostic radiopharmaceutical segment, in which
the Company plans to participate, was estimated at $594 million in 1995,
increasing at a 12.1% compound annual rate, which would result in over a $1
billion U.S. market for diagnostic radiopharmaceuticals by the year 2000. The
Company believes that the in vivo therapeutics radiopharmaceutical segment of
nuclear medicine, in which the Company also plans to participate, 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 and
secondary tumors, metastasized sites 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 as illustrated by certain new drug applications ("NDAs")
filed with the FDA by Mallinckrodt Medical, Inc. and, accordingly, generate
proportionally greater revenues.
In May 1996, the Company acquired for approximately $2.9 million from the
State of Texas the equipment, proprietary designs and certain intellectual
property rights comprising the proton linear accelerator injector (the
3
<PAGE>
"LINAC") which was part of the U.S. government's 53-mile Superconducting Super
Collider ("SSC") project. The State of Texas had acquired all of the SSC
project's land, facilities and equipment from the U.S. government as part of a
settlement among the State of Texas, the U.S. government and the U.S.
Department of Energy (the "DOE") following Congress's termination of the SSC
project in 1994, and elected to sell most of these assets under sealed bids.
The LINAC assets constituted the first of the assets to be sold. 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 commercial proton cyclotron accelerators
currently in use in the United States (collectively, the "Cyclotrons"). In
addition, the LINAC is also designed to have a beam intensity of 1,000
microamperes ("1.0mA"), which is five times the beam intensity of all but four
of the Cyclotrons, four times the beam intensity of one of the Cyclotrons, and
equivalent beam intensity to the remaining three Cyclotrons (the latter three
Cyclotrons having an energy level of only 18 MeV). When fully operational in
conformity with the Company's redesign and reconfiguration, anticipated to
occur in the second quarter of 1998, as to which there can be no assurance, the
Company believes 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 Cyclotrons. According to a report by Austin &
Repatriation Medical Centre (the "Austin Report"), a new 10 MeV cyclotron cost
approximately $7.6 million in 1992. Based upon such report and the Company's
estimation of additional costs associated with purchasing a 30 MeV cyclotron,
the Company believes a new 30 MeV cyclotron radioisotope production facility
would cost approximately $10 to $12 million and would become operational two to
three years from the date ordered. To the Company's knowledge, there are no new
commercial cyclotrons or linear accelerators with energy capacities of 30 MeV
or more currently on order in the United States.
Only one of the Cyclotrons has an energy level significantly above 30 MeV
(i.e. approximately 80 MeV) but it is limited in its production capacity due to
its maximum 0.25mA beam intensity. According to the IOM Report, the production
of many 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.
According to the IOM Report, one out of every three hospital patients in
the United States undergoes a procedure involving the use of radioisotopes for
diagnosis or therapy and more than 13 million diagnostic medical procedures
employing radioisotopes are performed annually. Based on the 13 million
diagnostic medical procedures and the projected 12.1% compound annual growth
rate thereof, the Company estimates that there will be approximately 21 million
diagnostic medical procedures employing radioisotopes performed in the United
States by the year 2000. In addition, according to the 1996 Radiation Oncology
Census Summary Report Analysis by Technology Marketing Group (the "TMG 1996
Radiation Oncology Report"), approximately 490,000 therapeutic medical
procedures employing radioisotopes were performed in the United States in 1995
with each such procedure requiring multiple therapeutic treatments, resulting
in more than one million therapeutic treatments employing radioisotopes. The
F&S 1995 Report projects that the oncological (i.e., therapeutic) world
radiopharmaceutical market will grow at a compound annual rate of 19.7%, which
should result in over one million therapeutic medical procedures employing
radioisotopes being performed in the United States by the year 2000.
Cancer is the leading cause of death in the United States after heart
disease according to the American Heart Association. In the United States, five
million persons have been diagnosed as having cancer within the past five years
and, according to the American Cancer Society, 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 according to a 1997 report by Frost & Sullivan (the
"F&S 1997 Report"). Many of these are radiopharmaceuticals which require
specific radioisotopes which cyclotron accelerators currently in
4
<PAGE>
commercial use in the United States cannot produce either in volume or at all
because of their limited energy and/or beam intensity. The Company expects that
the LINAC will be able to produce such specific radioisotopes.
Presently, the most commonly used radioisotopes in the United States, such
as molybdenum-99 ("Mo-99"), thallium-201, gallium-67, indium-111 and
palladium-103, which the Company intends to commercially produce, are produced
by four domestic radiopharmaceutical companies, primarily for their own use,
and by two foreign manufacturers, and are used either independently or in
various combinations or "cocktails" to assist in the diagnosis of a myriad of
medical conditions, including coronary heart disease, pulmonary embolism,
thyroid carcinoma, bone cancer, brain disorders, acute cholecystitis
(inflammation of the gall bladder), gastrointestinal bleeding, renal artery
stenosis and other diseases.
Based on volume, 70% of all radioisotopes currently used in diagnostic
nuclear medicine 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 DOE. Accelerators have a significant
environmental advantage over nuclear reactors in that they produce
radioisotopes with relatively little attendant radioactive waste. Mo-99, which
accounted for 36% of the revenues and 68% of the unit volume of sales of
radioisotopes for diagnostic nuclear medicine in 1993 according to a report by
Technology Marketing Group (the "TMG 1993 Report"), currently is
reactor-produced and represents approximately 6% of the fission product yield,
resulting in approximately 90% radioactive waste with long-term hazardous
levels of radiation. As a result of the high energy level of the LINAC, the
Company believes it will be able to utilize the LINAC beam to bombard a target
that produces a cone of neutrons which, in turn, will bombard another target to
produce Mo-99 with limited attendant radioactive waste. In addition, most of
the costs associated with producing Mo-99, whether by nuclear reactor or by the
LINAC as contemplated by the Company, are attributable to the chemical
processing required to isolate Mo-99 after its production. Accordingly, the
Company expects that the cost of producing Mo-99 in the LINAC will be
substantially equivalent to the cost of producing Mo-99 in a nuclear reactor.
The Company is constructing a 27,000 square foot facility for
administration, manufacturing, research and development and intends to
construct 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 biomedical research 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 September 1997 and the
Radioisotope Production Facility (for which a preliminary design study has been
completed) to be completed by March 1998, as to which there can be no
assurance. The Research Center is strategically located adjacent to a principal
highway and is approximately 24 miles from the Dallas/Fort Worth International
Airport and approximately 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 approximately 60 additional 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 the development of and commence to manufacture and
market for use in diagnostic nuclear medicine a high resolution medical imaging
camera, key components of which are patented. 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. These
inventions refine the resolution of penetrating radiation to the count of
single photons. Pursuant to the 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. Current medical imaging cameras are
limited in their spatial resolution and sensitivity due to the use of electric
5
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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
licensed patented inventions which will be adapted for use in the Company's
medical imaging camera have been used in a camera designed 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 and the likelihood of a successful outcome following
treatment.
In 1995, according to the 1995 Nuclear Medicine Database Summary Report
Analysis by Technology Marketing Group (the "TMG 1995 Nuclear Medicine
Report"), the number of installed medical imaging cameras worldwide was 10,110
located at 4,780 sites. According to the 1995 TMG Nuclear Medicine Report, the
predominant imaging cameras were SPECT, which numbered 6,890 units in 1995 up
from 5,940 units in 1993. According to the F&S 1995 Report, it is estimated
that more than 1,000 medical imaging cameras for diagnostic nuclear medicine
will be purchased during 1997 representing an annual U.S. 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.
The Company's business strategy is to become the leading domestic
commercial producer of a full range of radioisotopes and radiopharmaceuticals,
on a contract or joint venture basis, and a producer of medical instrumentation
for use in nuclear medicine, radiation oncology, diagnostic imaging and
research by:
[bullet] Completing construction of the Radioisotope Production Facility by
March 1998;
[bullet] Commencing full operation of the LINAC by 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;
[bullet] Developing relationships with major and specialized
radiopharmaceutical companies to produce, package and distribute
radiopharmaceuticals, on a contract or joint venture basis, to
radiopharmacies and end-users throughout the United States and
worldwide;
[bullet] Forming joint ventures in foreign countries to construct hand/or
operate linear accelerator facilities to produce radioisotopes and
radiopharmaceuticals and to license the related technology;
[bullet] 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;
[bullet] Completing development of, manufacturing and marketing a
proprietary high resolution medical imaging camera for use in
diagnostic nuclear medicine; and
[bullet] 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), is expected to be moved to
the administration, manufacturing, research and development facility being
constructed at Denton, Texas by September 1997.
6
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The Offering
<TABLE>
<S> <C>
Common Stock offered by the Company ..................... 2,200,000 shares
Common Stock outstanding prior to the Offering ......... 3,915,950 shares(1)
Common Stock to be outstanding after the Offering ...... 6,115,950 shares(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 ................................. "ITL"
</TABLE>
- --------
(1) Does not include 600,000 shares of Common Stock reserved for issuance upon
exercise of options or stock appreciation rights or the issuance of
restricted stock under the Company's 1997 Long Term Incentive Plan (the
"Incentive Plan"), pursuant to which options to purchase 290,000 shares of
Common Stock have been granted or approved for grant by the Company's
Board of Directors at an exercise price of $ per share (85% of the
initial public offering price per share). See "Capitalization,"
"Management--Long Term Incentive Plan" and "Certain Transactions."
7
<PAGE>
Summary Financial Information
<TABLE>
<CAPTION>
Period from Three months Period from
November 1, 1995 ended March 31, November 1, 1995
(inception) through ------------------------------ (inception) through
December 31, 1996 1997 1996 March 31, 1997
--------------------- -------------- ------------- --------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Sale of accelerator components ...... $ 775,102 $ 128,072 $ -- $ 903,174
Cost of sales ........................ 263,440 65,656 -- 329,096
----------- ----------- ---------- -------------
Gross profit ........................ 511,662 62,416 -- 574,078
Operating costs and expenses ......... (883,637) (334,659) (14,452) (1,218,296)
Other income (expenses) ............ (712,471) (82,893) -- (795,364)
Extraordinary gain on debt
extinguishment ..................... 250,000 -- -- 250,000
----------- ----------- ---------- -------------
Net loss ........................... (834,446) (355,136) (14,452) (1,189,582)
=========== =========== ========== =============
Net loss per share .................. $(0.22) $(0.09)
=========== ===========
Weighted average shares of Common
Stock used to compute net loss
per share ........................... 3,766,663 3,944,002
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(1)(2)
---------------- --------------- ------------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital ............ $ 774,974 $ 774,974 $ 16,584,755
Total assets ............... 4,234,484 5,184,484 19,275,484
Total liabilities ......... 2,707,862 3,677,599 448,599
Deficit accumulated during the
development stage ......... (1,189,582) (1,245,372) (1,245,372)
Stockholders' equity ...... 1,526,622 1,585,832 18,905,832
</TABLE>
- --------
(1) Gives pro forma effect to the following events which occurred subsequent to
March 31, 1997: (a) the incurrence by the Company of additional
indebtedness and the repayment of certain indebtedness between March 31,
1997 and June 30, 1997 (the "Subsequent Financings"), (b) the contribution
to capital of 247,496 shares of Common Stock and the subsequent sale by
the Company of such shares, plus an additional 47,504 shares, at a
purchase price of $1.60 per share, for notes aggregating $472,000 and (c)
the recognition of compensation expense of $55,790 for the period March
31, 1997 through June 30, 1997 for the transactions described in clause
(b) above. See "Use of Proceeds," "Plan of Operation--Liquidity and
Capital Resources" and "Certain Transactions."
(2) Adjusted to give effect to 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. See "Use of Proceeds," "Plan of Operation--Liquidity and
Capital Resources" and the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus.
8
<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 forth in the following risk factors and elsewhere in this Prospectus.
Development Stage Company; Limited Operating History; History of Losses
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 March 31, 1997, the Company had an accumulated deficit of
approximately $1,200,000. 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 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/or 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, or at all.
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; delays in the regulatory approval process for the
Radioisotope Production Facility, the LINAC, the proposed medical imaging
camera or the proposed pulsed plasma device; unanticipated expenses in
developing the proposed medical imaging camera or pulsed plasma device; the
necessity of having 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."
The Company is financing construction of its administration,
manufacturing, research and development facility with mortgage financing from a
commercial lending institution, and although it also intends to finance
construction of its Radioisotope Production Facility, at an estimated cost of
$3,500,000, through additional mortgage financing, there can be no assurance
that the Company will be able to obtain such 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
9
<PAGE>
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 developed by the
Company, 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
Concurrent with acquiring the LINAC assets from the State of Texas, the
Company acquired the intellectual property rights in the LINAC assets granted
to Texas under a settlement agreement among the DOE, the U.S. government and
the Texas National Research Laboratory Commission, an agency of the State of
Texas (the "TNRLC"). The Company is exploring, through inquiries of the
intellectual property counsel of the DOE, the extent of the Company's
intellectual property rights so acquired. In the event the Company's
intellectual property rights are 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. The two
patents relate to high-speed single photon counting cameras and camera
configurations which minimize the "noise" associated with the scattering of low
energy photons. Pursuant to the license, the Company issued 25,000 shares of
Common Stock to the Hospital Financial Corporation (the licensor) 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 licensed
patents 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.
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 or
technologies, 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 or any of its licensors for infringement, 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
10
<PAGE>
presumption of validity and the contesting party would be required to
demonstrate invalidity of such patent by clear and convincing evidence. 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 to sign intellectual
property assignment and non-disclosure 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
"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 medical use radioisotopes across state lines,
from the FDA, as to which there can be no assurance. In addition, the U.S.
Department of Transportation (the "DOT") regulates the quantity and method of
shipment of radioactive materials, and sets specifications with respect to the
class of shipping containers used. The Radioisotope Production Facility will be
subject to continual inspection for compliance with the federal current good
manufacturing practice ("cGMP") regulations, which require that the Company
manufacture radioisotopes and maintain manufacturing, testing and quality
control records in a prescribed manner. The Company also 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.
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.
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 will not require the filing of pre-market approval applications but will be
eligible for pre-market clearance through the 510(k) notification procedure
based upon their substantial equivalence to previously marketed devices.
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
approvals will not involve a long and costly process or be granted subject to
conditions on the marketing or manufacturing of the proposed products that may
impede the Company's ability to market and/or manufacture them. 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. Further, hospitals or clinics which purchase the pulsed plasma device
for purposes of gadolinium neutron capture therapy (a type of external beam
radiation therapy) will be required to file a product license application
("PLA") with the FDA, a protracted and costly process involving an extensive
human clinical trial program, the success of which cannot be assured.
11
<PAGE>
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 and Treasurer, Carl W. Seidel, President and Chief Executive Officer,
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 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. Seidel, Mr.
Thompson and Dr. Watson. 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."
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 outstanding as of June 30, 1997 to
Dr. Morgan. In addition, the Company intends to use a portion of the net
proceeds from this Offering to repay a $100,000 loan outstanding as of June 30,
1997 from Hartland Bank, N.A. which is secured, in part, by $100,000 of the
personal assets of a Selling Stockholder in this Offering. The Company also
intends to use a portion of the net proceeds from this Offering to repay the
$1,652,200 principal balance of a loan from Texas Bank outstanding as of June
30, 1997 and to repay $607,000 outstanding under a line of credit from Texas
Bank outstanding as of June 30, 1997. The loan and the line of credit from
Texas Bank are secured, in part, by letters of credit in the amounts of
$250,000 from each of Messrs. John W. McCormack and William M. Nicholson,
directors of the Company, and letters of credit in the amounts of $100,000 from
each of Dr. Morgan and James K. Eichelberger, a director of the Company. In
addition, Dr. Morgan and Virgil L. Simmons, a founder and the Company's Senior
Vice President of International Operations, each have personally guaranteed
$350,000 of the Texas Bank loan and line of credit. Further, the Company
intends to use a portion of the net proceeds from this Offering to repay the
outstanding balance under a $1,500,000 bridge loan commitment by Auric
Partners, a Michigan limited partnership ("Auric"), of which Mr. Nicholson, a
director of the Company, is a partner. As of June 30, 1997, $500,000 has been
borrowed under such commitment and the Company expects to borrow an additional
estimated $250,000 under such commitment prior to the date of this Prospectus.
See "Use of Proceeds," "Plan of Operation--Liquidity and Capital Resources" and
"Certain Transactions."
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 13.2% of the net proceeds of this Offering (21.7% 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."
Competition and Risk of Technological Obsolescence
Within the United States, the Company believes there currently is no
producer of a full range of radioisotopes for commercial sale to the nuclear
medicine industry. Currently, radioisotopes produced by cyclotron accelerators
are manufactured in the United States principally by DuPont Merck
Pharmaceutical Co., Mallinckrodt Medical, Inc., Amersham Medi-Physics, Inc. and
Theragenics, Inc. (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 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
12
<PAGE>
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. Outside the United States, Nordion, Inc., a Canadian firm,
and Mallinckrodt, N.V. at Petten, a Netherlands firm, which have substantially
greater capital and other resources than the Company, are major producers of
cyclotron-produced and reactor-produced radioisotopes. Nordion, Inc. currently
supplies a significant portion of the radioisotopes used in the diagnostic
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 U.S. and foreign firms, including ADAC Laboratories Inc., Elscint
Ltd., GE Medical Systems, Park Medical Systems, Picker International Inc.,
Hitachi, Ltd., Siemens Medical Systems, Inc., SMV Corporation, Toshiba Corp.
and Trionix Research Laboratory, Inc., all 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, although the Company is not aware of any
current commercial producer of such 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. An
imaging camera designed for industrial applications utilizing the patented
inventions licensed to the Company by Hospital Financial Corporation is
currently owned by the University of North Texas ("UNT") and is leased by the
Company. Based on spatial resolutions achieved by this imaging camera in
industrial applications, the Company believes it can develop its medical
imaging camera with a resolution significantly higher than other medical
imaging cameras currently on the market. The milestones required for
commercialization of the medical imaging camera include the Company
successfully building a prototype of the medical imaging camera, testing the
prototype for reliability and performance including calibrating the device
under FDA standards, submitting the device to the FDA pursuant to a 510(k)
pre-market notification filing and obtaining clearance thereof, and
manufacturing, packaging and marketing commercial versions of the product.
Avogadro Energy Systems, Inc. ("Avogadro"), the proposed licensor of the pulsed
plasma device, has constructed a working prototype of the pulsed plasma device
employing the patented technology to be licensed by the Company from such
licensor. The milestones required for commercialization of the proposed pulsed
plasma device include Avogadro, pursuant to a proposed development agreement
with the Company, successfully building a modified prototype of the pulsed
plasma device pursuant to the Company's specifications, testing the prototype
for reliability and performance including calibrating the device under FDA
standards, submitting the device to the FDA pursuant to a 510(k) pre-market
notification filing and obtaining clearance thereof, and manufacturing,
packaging and marketing commercial versions of the product. Under the proposed
license agreement with Avogadro, in the event the Company has not obtained a
commercial market for products covered by the license after a period of five
years and decides to abandon utilization of the products, each of the Company
and Avogadro may terminate the license agreement without prejudice. There can
be no assurance that any of the milestones for commercialization of these
proposed products will be achieved in a timely manner, if at all, or if
achieved, that such products 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. See "Business--Proposed Medical Imaging Camera,"
"Business--Proposed Pulsed Plasma Device," "Business--Patents and Proprietary
Rights" and "Business--Government Regulation."
13
<PAGE>
Control By Directors and Officers
Upon consummation of this Offering, the directors and officers of the
Company will beneficially own 45.5% (43.9% 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."
Establishment of Board of Technical Advisors and Board of Industrial Advisors;
Relationships of Technical Advisors with Other Entities
To further assist in the development of its technologies, the Company,
following consummation of this Offering, intends to establish a board of
technical advisors (the "Board of Technical Advisors") to be comprised of
individuals with technical and scientific credentials who are expected to
advise the Company on technical and scientific issues. There can be no
assurance that the Company will be successful in establishing and recruiting
members to such Board. The Company anticipates that the Board of Technical
Advisors will meet on a quarterly basis at the Company's headquarters for a
two-day review of the technical progress of the Company's products, engineering
and research and development. The Company will require Technical Advisors to
sign non-disclosure and intellectual property assignment agreements pursuant to
which intellectual property generated as a result of services to the Company is
the property of the Company. Such agreements may be subject to the rights of
the Technical Advisors' primary employers or other third parties with whom such
individuals have consulting arrangements. However, the Company does not intend
to retain individuals to serve on the Board of Technical Advisors whose primary
employers, or other third parties with whom such individuals have consulting
arrangements, are in competition with the Company. Technical Advisors may be
retained individually by the Company on a consulting basis to perform work
specifically for and at the direction of the Company. Technical Advisors will
likely be employed on a full-time basis by academic or research institutions.
Accordingly, the Technical Advisors will be 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 or themselves, individually.
The Company also intends to establish a board of industrial advisors (the
"Board of Industrial Advisors") following consummation of this Offering to be
comprised of individuals with business and financial experience who are
expected to advise the Company on business and finance issues. There can be no
assurance that the Company will be successful in establishing and recruiting
members to such Board. See "Business--Technical and Industrial 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 adjacent to the site of
the proposed Radioisotope Production Facility, although there are other power
sources readily available through the tri-grid system. 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 device 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 pulsed plasma devices as well
14
<PAGE>
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 pulsed plasma
device 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 pulsed plasma devices 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."
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 $5.91 per share or 65.7% 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."
Arbitrary Determination of Offering Price; No Public Market for Common Stock
The initial public offering price of the Common Stock will be determined
arbitrarily by negotiations between the Company and the Representative. Factors
considered in such negotiations, in addition to prevailing market conditions,
will include 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 are deemed
relevant. Therefore, the initial public offering price per share of the Common
Stock will 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 this Offering or, if
developed, be sustained. See "Underwriting."
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
6,115,950 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 3,815,950
shares currently outstanding (other than the 100,000 shares to be sold by the
Selling Stockholders pursuant to the Underwriters' over-allotment option) are
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 (a) the initial public
offering price or (b) 85% of the initial public offering price per share solely
in the case of sales of shares of Common Stock which were
15
<PAGE>
issued upon exercise of incentive stock options granted pursuant to the
Company's Incentive Plan, and, in each case, only through the Representative
acting as broker. If the shares to be sold by the Selling Stockholders pursuant
to the Underwriters' over-allotment option are not sold, the Selling
Stockholders have agreed not to sell or otherwise transfer their shares for six
months following the date of this Prospectus without the consent of the
Representative and the Company and for the six-month period thereafter, such
holders have agreed not to sell their shares at a price per share less than the
initial public offering price per share and only through the Representative
acting as broker. 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 of Rule 144, and subject, further, to the subsequent
12-month restrictions described in clause (ii) above. See "Description of
Capital Stock" and "Shares Eligible for Future Sale."
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 this 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) per share. 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."
16
<PAGE>
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 $17,320,000 (or
approximately $19,183,000 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:
<TABLE>
<CAPTION>
Approximate Approximate
Amount Percent
------------- ------------
<S> <C> <C>
To repay certain indebtedness(1) .............................. $ 3,229,000 18.6%
To reconfigure, 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) ......... 2,291,000 13.2
------------ ------
Total ...................................................... $17,320,000 100.0%
============ ======
</TABLE>
- --------
(1) Reflects retirement of (i) the $20,000 principal balance remaining as of
June 30, 1997 of an aggregate of $120,000 previously loaned by Dr. Morgan
bearing interest at 10% per annum, the proceeds of which were added to
working capital and used for general corporate purposes, (ii) a $100,000
loan outstanding as of June 30, 1997 from Hartland Bank in July 1996
bearing interest at 7% per annum, the proceeds of which were added to
working capital and used for general corporate purposes, (iii) the
$100,000 principal balance outstanding as of June 30, 1997 of a $242,000
loan from Hartland Bank in January 1997 bearing interest at 7.05% per
annum with principal and interest due on July 17, 1997 (for which the
Company intends to request a 30-day extension), the proceeds of which were
applied toward payment of a profit sharing fee and legal expenses
associated with the Company's $2,900,000 loan in May 1996 from Fidelity
Funding of California, Inc., (iv) a $1,652,200 loan outstanding as of June
30, 1997 from Texas Bank in May 1997 with interest payable monthly through
November 19, 1997 and thereafter principal and interest payable monthly
through November 19, 2004 (the maturity date), such interest ranging from
Texas Bank's prime rate to one percent above its prime rate depending upon
the balance, up to $300,000, that the Company maintains in transaction and
money accounts with Texas Bank, the proceeds of which were paid directly
to Hartland Bank in connection with Texas Bank's assumption of Hartland
Bank's December 1996 bank loan to the Company, (v) the $607,000
outstanding principal balance as of June 30, 1997 of a $619,000 line of
credit issued in May 1997 by Texas Bank bearing interest at Texas Bank's
prime rate payable monthly commencing June 19, 1997, approximately
$500,000 of the proceeds of which were used to retire a $500,000 line of
credit from Southwest Bank, approximately $40,000 of which was used to pay
interest on the December 1996 Hartland Bank loan, approximately $8,260 of
which was paid to Texas Bank as an origination fee and the balance of
which was added to working capital and used for general corporate
purposes, and (vi) the outstanding principal balance (consisting of
$500,000 borrowed on June 4, 1997 and an additional estimated $250,000 to
be borrowed prior to the date of this Prospectus) of a $1,500,000 bridge
loan commitment from Auric made available in June 1997 bearing interest at
10% per annum and payable, together with principal, on June 1, 1999, the
proceeds of which were added to working capital and used for general
corporate purposes, including payment of expenses in connection with this
Offering. 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" and
"Business--Business Strategy."
17
<PAGE>
(3) Consists of $1,300,000 and $800,000 to purchase (through funding the
related production expenses including personnel, labor and materials
costs), over a 12-month period for commercial distribution by the Company,
Mo-99 and neutron-produced research and therapeutic radioisotopes from
U.S. government, domestic and foreign sources, and accelerator-produced
radioisotopes from U.S. government sources, respectively. The Company
currently is in discussions, the success of which cannot be assured, with
(i) Sandia National Laboratory and South Africa Atomic Energy Commission
to purchase Mo-99 and neutron-produced therapeutic radioisotopes, (ii)
Missouri University Research Reactor to purchase neutron-produced research
radioisotopes and (iii) Brookhaven National Laboratory and Los Alamos
National Laboratory to purchase accelerator-produced radioisotopes. See
"Plan of Operation" and "Business--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. The
Company is financing construction of its administration, manufacturing,
research and development facility with mortgage financing from a commercial
lending institution, and although it also intends to finance construction of
its Radioisotope Production Facility, estimated to cost $3,500,000, through
additional mortgage financing, there can be no assurance such 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 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."
18
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at March 31, 1997 (i) on an actual basis, (ii) on a pro forma basis
to give effect to the following events which occurred subsequent to March 31,
1997: (a) the Subsequent Financings, (b) the contribution to capital of 247,496
shares of Common Stock and the subsequent sale by the Company of such shares,
plus an additional 47,504 shares, at a price of $1.60 per share, for notes
aggregating $472,000 and (c) the recognition of compensation expense of $55,790
for the period March 31, 1997 through June 30, 1997 for the transactions
described in clause (b) above and (iii) on a pro forma, as adjusted basis to
give additional 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. This
table should be read in conjunction with the Consolidated Financial Statements
and the notes thereto which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
------------------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------------- ---------------- ----------------
<S> <C> <C> <C>
Short-term debt .............................. $ 1,061,877 $ 1,954,877 $ 371,862
============= ============= =============
Long-term debt ................................. $ 1,645,985 $ 1,702,985 $ 57,000
Stockholders' Equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized; no shares
issued and outstanding, actual, pro forma and
pro forma as adjusted ........................ -- -- --
Common Stock, $.01 par value;
20,000,000 shares authorized and
3,868,446 shares issued and outstanding
actual; 3,915,950 shares issued and outstanding
pro forma; 6,115,950 shares issued and
outstanding pro forma as adjusted (1) ...... 38,684 39,160 61,160
Additional paid-in capital .................. 3,073,514 3,264,044 20,562,044
Deficit accumulated during the development stage (1,189,582) (1,245,372) (1,245,372)
Receivable from stock sales .................. -- (472,000) (472,000)
Treasury stock receivable ..................... (395,994) -- --
------------- ------------- -------------
Total Stockholders' Equity .................. 1,526,622 1,585,832 18,905,832
------------- ------------- -------------
Total Capitalization ..................... $ 3,172,607 $ 3,288,817 $ 18,962,832
============= ============= =============
</TABLE>
- --------
(1) Does not include 600,000 shares issuable upon exercise of options or stock
appreciation rights or the issuance of restricted stock under the
Incentive Plan, pursuant to which options to purchase 290,000 shares of
Common Stock have been granted or approved for grant by the Company's
Board of Directors at an exercise price of $ per share (85% of the
initial public offering price per share). See "Management--Long Term
Incentive Plan" and "Certain Transactions."
19
<PAGE>
DILUTION
At March 31, 1997, the Company had a pro forma net tangible book value of
$1,585,832, or $.40 per share after giving effect, as of March 31, 1997, to (a)
the Subsequent Financings, (b) the contribution to capital of 247,496 shares of
Common Stock and the subsequent sale by the Company of such shares, plus an
additional 47,504 shares, at a purchase price of $1.60 per share, for notes
aggregating $472,000 and (c) the recognition of compensation expense of $55,790
for the period March 31, 1997 through June 30, 1997 for the transactions
described in clause (b) above. 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 March 31,
1997 would have been $18,905,832, or $3.09 per share, representing an immediate
increase in net tangible book value of $2.69 per share to the present
stockholders and an immediate dilution of $5.91 per share, or 65.7%, 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:
<TABLE>
<S> <C> <C>
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 .......................................... $ .40
Increase in net tangible book value per share of Common
Stock attributable to public investors .............................. 2.69
-----
Pro forma net tangible book value per share of Common Stock
after the Offering ................................................... 3.09
-----
Dilution to public investors .......................................... $5.91
=====
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock would be $3.27, which
would result in the dilution to public investors of $5.73 per share, or 63.6%,
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) ...... 3,915,950 64.0% $ 3,303,204 14.3% $ .84
Public investors(1) ............ 2,200,000 36.0 19,800,000 85.7 $9.00
--------- ----- ----------- -----
Total ........................ 6,115,950 100.0% $23,103,204 100.0%
========= ===== =========== =====
</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
3,815,950 shares, or 60.1% 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 39.9% of the shares to be outstanding.
See "Principal and Selling Stockholders."
(2) Does not include 600,000 shares of Common Stock reserved for issuance upon
exercise of options or stock appreciation rights or the issuance of
restricted stock under the Incentive Plan, pursuant to which options to
purchase 290,000 shares of Common Stock have been granted or approved for
grant by the Company's Board of Directors at an exercise price of $
per share (85% of the initial public offering price per share). See
"Management--Long Term Incentive Plan" and "Certain Transactions."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated 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. The selected consolidated financial data as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 and for the period
November 1, 1995 (inception) through March 31, 1997 have been derived from
unaudited consolidated financial statements and include all adjustments,
consisting only of normal recurring accruals, which management considers
necessary for a fair presentation of such financial information for those
periods. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of results that may be expected for any other
interim period or for the full year. The data should be read in conjunction
with the consolidated financial statements of the Company and its subsidiary
(including the notes thereto) and the Plan of Operation, both of which are
incorporated herein.
Statement of Operations Data:
<TABLE>
<CAPTION>
Period from
Period from Three months ended November 1,
November 1, 1995 March 31, 1995 (inception)
(inception) through ------------------------------ through
December 31, 1996 1997 1996 March 31, 1997
--------------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Sale of accelerator components ...... $ 775,102 $ 128,072 $ -- $ 903,174
Cost of sales ........................ 263,440 65,656 -- 329,096
------------ ----------- ---------- ------------
Gross profit ........................ 511,662 62,416 -- 574,078
Operating costs and expenses:
General and administrative ......... 67,193 63,422 -- 130,615
Commissions and fees ............... 95,315 -- -- 95,315
Consulting fees ..................... 367,749 3,459 -- 371,208
Legal and professional fees ......... 59,685 1,227 -- 60,912
Salaries and contract labor ......... 109,887 199,979 5,752 309,866
Rent and security .................. 98,427 46,740 -- 145,167
Other .............................. 85,381 19,832 8,700 105,213
------------ ----------- ---------- ------------
Total operating expenses ......... 883,637 334,659 14,452 1,218,296
------------ ---------- ------------
Loss from development stage
operations ........................ (371,975) (272,243) (14,452) (644,218)
Other income (expense):
Gain on sale of assets held for sale 336,364 -- -- 336,364
Interest income ..................... 4,906 423 -- 5,329
Interest expense .................. (303,741) (83,316) -- (387,057)
Loan financing ..................... (750,000) -- -- (750,000)
------------ ----------- ---------- ------------
Loss before extraordinary item . (1,084,446) (355,136) (14,452) (1,439,582)
Extraordinary gain on debt
extinguishment ..................... 250,000 -- -- 250,000
------------ ----------- ---------- ------------
Net loss .............................. (834,446) (355,136) (14,452) (1,189,582)
============ =========== ========== ============
Net loss per share .................. ($0.22) $(0.09)
====== ======
Weighted average shares of
Common Stock used to compute
net loss per share .................. 3,766,663 3,944,002
============ ===========
</TABLE>
Balance Sheet Data:
March 31, 1997
----------------
Working capital ....................................... $ 774,974
Total assets .......................................... 4,234,484
Total liabilities .................................... 2,707,862
Deficit accumulated during the development stage ...... (1,189,582)
Stockholders' equity ................................. 1,526,622
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
domestic producer of a full range 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 SSC project, which the Company acquired in May 1996 for
approximately $2.9 million from the State of Texas, together with the related
proprietary designs and certain intellectual property rights. The State of
Texas had acquired all of the SSC project's land, facilities and equipment from
the U.S. government as part of a settlement among the State of Texas, the U.S.
government and the DOE following Congress's termination of the SSC project in
1994, and elected to sell most of these assets under sealed bids. The LINAC
assets constituted the first of the assets to be sold. According to the DOE, as
of August 1993 (nine months prior to termination of the SSC project in May
1994), the proton linear accelerator injector stage of the SSC project had cost
the U.S. government approximately $45.9 million and was anticipated to cost
approximately $57 million upon completion (including $5.4 million allocated by
the DOE to unforeseen contingencies) of which, according to a report by the
TNRLC, $21.7 million was expended on equipment.
Most of the equipment comprising the LINAC assets purchased by the Company
from the State of Texas was 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, begin
development of its proposed medical imaging device and proposed pulsed plasma
device 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 by September 1997, as to
which there can be no assurance. Following completion of construction, the
Company intends to move its principal executive office to such facility and 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 expected to
commence in October 1997 (for which a preliminary design study has been
completed) and be completed and ready for commercial production of
radioisotopes by March 1998, as to which there can be no assurance. 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, the success of which cannot be assured, to acquire (i) wholesale
quantities of Mo-99 and neutron-produced therapeutic radioisotopes from Sandia
National Laboratory and/or South Africa Atomic Energy Commission and neutron-
produced research radioisotopes from Missouri University Research Reactor, and
(ii) accelerator-produced radioisotopes from Los Alamos National Laboratory
and/or Brookhaven National Laboratory. The Company has
22
<PAGE>
allocated a portion of the net proceeds from this Offering for the purchase of
such wholesale quantities of radioisotopes. See "Use of Proceeds,"
"Business--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, although there can be no assurance with respect thereto. See
"Business--Business Strategy" and "Business--Supply of Raw Materials."
As a result of agreements by the Company to issue shares of Common Stock
to certain key employees entered into by the Company between January 1997 and
April 1997, the Company will record $190,000 of compensation expense for the
year ended December 31, 1997, of which $78,947 was recorded for the three
months ended March 31, 1997 and an additional $55,790 is anticipated to be
recorded for the three months ended June 30, 1997. See "Certain Transactions."
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Sales of accelerator components and cost of sales for the three months
ended March 31, 1997 were $128,072 and $65,656, respectively, compared to $0
for the same period in 1996, resulting in gross profit of $62,416 for the three
months ended March 31, 1997.
Operating costs increased by $320,207 to $334,659 for the three months
ended March 31, 1997 from $14,452 in the comparable period in 1996 principally
due to the fact that for the first three months in 1996 the Company had no paid
personnel, no leased office facilities and only limited equipment and assets.
Salaries and contract labor expenses increased by $194,227, general and
administrative expenses increased by $63,422, consulting fees increased by
$3,459, legal and professional fees increased by $1,227, rent and security
expenses by $46,740 and interest expense by $83,316, and other expenses
increased by $11,132 for the three months ended March 31, 1997, compared to the
same period in 1996.
Liquidity and Capital Resources
From November 1, 1995 (inception) through June 30, 1997, the Company has
obtained approximately $7,786,000 in funds (assuming an additional estimated
$250,000 is borrowed under the Company's $1,500,000 bridge loan commitment),
consisting of net proceeds of approximately $4,156,000 (53.3%) from bank loans,
approximately $1,700,000 (21.8%) from sales of accelerator components and
excess equipment, $1,060,000 (13.6%) from sales of shares of Common Stock in
private placements to investors (inclusive of $80,000 (1.0%) from the sale of
shares in a private placement to a stockholder of the Company) and $870,000
(11.2%) from loans from stockholders and directors.
For the period November 1, 1995 (inception) through March 31, 1997, the
Company had revenues of $903,174 from sales of accelerator components which,
after deducting $329,096 of acquisition and other selling costs, resulted in a
gross profit to the Company of $574,078. 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 March 31, 1997, 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 at a value of $.004 per share 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 Fidelity Funding of
California, Inc. ("Fidelity") to fund the acquisition of the LINAC assets (the
"Fidelity Loan"). The Fidelity 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 Fidelity Loan. The remaining principal balance of the
Fidelity Loan, plus $290,000 of interest, a $500,000 profit sharing fee and
legal expenses, were repaid in December 1996.
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In July 1996, the Company borrowed $100,000 from Hartland Bank, N.A.
("Hartland Bank") at an interest rate of 7% per annum, secured by $100,000 of
the personal assets of Susan Jarvis, a Selling Stockholder in this Offering,
the proceeds of which were added to working capital and used for general
corporate purposes. The loan matures on July 17, 1997, and the Company intends
to request a 30-day extension. 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 Hartland Bank (the
"December 1996 Hartland Bank Loan"), payable in quarterly installments of
$250,000 plus interest at the rate of 15% per annum. The loan was 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, a $300,000
certificate of deposit purchased by the Company plus $130,000 of the personal
assets of Dr. Morgan and $100,000 of the personal assets of Mr. Eichelberger.
See "Certain Transactions." The proceeds of this loan were used to repay
$1,500,000 of the principal amount and $250,000 of interest on the Fidelity
Loan. In May 1997, the December 1996 Hartland Bank Loan, which had an
outstanding principal balance of approximately $1,652,200, was assumed by Texas
Bank.
In November and December 1996, the Company sold 550,001 shares of Common
Stock in a private placement to 15 investors at a purchase price of $1.60 per
share for an aggregate of $880,000. $500,000 of the proceeds were used to pay a
profit sharing fee to Fidelity in connection with the Fidelity Loan, $300,000
was used to purchase a certificate of deposit used as partial collateral for
the December 1996 Hartland Bank Loan and the balance was added to working
capital for general corporate purposes.
In December 1996, the Company sold 50,000 shares of Common Stock in a
private placement to Susan Jarvis, a Selling Stockholder in this Offering, at a
purchase price of $1.60 per share, for an aggregate of $80,000. See "Certain
Transactions." The proceeds from this sale were added to working capital and
used for general corporate purposes.
In January 1997, the Company sold 62,500 shares of Common Stock in a
private placement to 15 investors at a purchase price of $1.60 per share for an
aggregate of $100,000, of which 17,188 shares were purchased by Mr.
Eichelberger's spouse. See "Certain Transactions." The proceeds from this
private placement were added to working capital and used for general corporate
purposes.
In January 1997, the Company obtained a $500,000 line of credit from
Southwest Bank of Texas, N.A. (the "Southwest Bank Line of Credit") with
interest at the bank's prime rate plus 1% payable monthly commencing February
15, 1997. $250,000 of the line of credit was personally guaranteed by John M.
McCormack, a director of the Company, and an additional $250,000 was personally
guaranteed by William W. Nicholson, a director of the Company. See "Certain
Transactions." The Company drew $400,000 from this line of credit prior to
March 31, 1997 and an additional $100,000 subsequent to such date, for general
corporate purposes, and repaid the $500,000 balance and retired the line of
credit in May 1997.
In January 1997, the Company borrowed $242,000 from Hartland Bank (the
"January 1997 Hartland Bank Loan") with interest payable at 7.05% per annum and
the principal and interest due on April 24, 1997, for which the Company has
obtained an extension through July 17, 1997 (and intends to request a 30-day
extension). The proceeds from this loan were applied to the repayment of the
profit sharing fee and legal expenses associated with the Fidelity Loan. At
March 31, 1997, the outstanding principal balance on this loan was $162,000,
which was reduced to $100,000 in May 1997. The Company intends to repay the
balance of this loan with a portion of the net proceeds of this Offering. See
"Use of Proceeds."
In May 1997, the Company obtained a loan, mortgage financing and a line of
credit from Texas Bank.
The loan is in the principal amount of approximately $1,652,200 with
interest payable monthly through November 19, 1997, and thereafter principal
and interest payable monthly through November 19, 2004, the loan's maturity
date. The rate of interest ranges from Texas Bank's prime rate to one percent
above its prime rate depending upon the balance, up to $300,000, that the
Company maintains in transaction and money market accounts with Texas Bank. The
proceeds from the loan were paid directly by Texas Bank to Hartland Bank in
connection with Texas Bank's assumption of the December 1996 Hartland Bank
Loan. 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 $165,000 of personal assets of Dr. Morgan and
$100,000 of personal assets of Mr. Eichelberger. See "Certain Transactions."
The Company intends to repay the outstanding balance of this loan with a
portion of the net proceeds of this Offering. See "Use of Proceeds."
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The mortgage financing is in the principal amount of $928,000 and matures
on February 19, 2018, with interest payable monthly at Texas Bank's prime rate
through February 19, 1998 and thereafter at interest rates ranging from Texas
Bank's prime rate to one percent above its prime rate depending upon the
balance, up to $300,000, that the Company maintains in transaction and money
market accounts with Texas Bank. At June 30, 1997, approximately $57,000 of
this mortgage financing was outstanding. The mortgage is secured by
approximately 1.6 acres of land owned by the Company and the administration
building constituting part of the administration, manufacturing, research and
development facility being constructed on such 1.6 acres, and is being used to
fund such construction.
The line of credit is in the principal amount of $619,000 and is payable
on November 19, 1997 with interest at Texas Bank's prime rate payable monthly
commencing June 19, 1997. At June 30, 1997, $607,000 of this line of credit was
outstanding. Approximately $500,000 of this line of credit was used to retire
the Southwest Bank Line of Credit, approximately $40,000 was used to pay
interest on the December 1996 Hartland Bank Loan, approximately $8,260 was paid
to Texas Bank as an origination fee and the balance was added to the Company's
working capital for general corporate purposes. The Company intends to repay
the outstanding balance under this line of credit with a portion of the net
proceeds of this Offering. See "Use of Proceeds."
The loan, mortgage financing and line of credit from Texas Bank,
collectively, are additionally secured by an aggregate of $700,000 of letters
of credit consisting of letters of credit in the amounts of $250,000 from each
of Messrs. McCormack and Nicholson, letters of credit in the amounts of
$100,000 from each of Dr. Morgan and Mr. Eichelberger, the assignment of the
Company's 51% interest in the key-man life insurance policy on the life of Dr.
Morgan and a certificate of deposit in the amount of $100,000 owned by the
Company. In addition, Dr. Morgan and Virgil L. Simmons, a founder and the
Senior Vice President of International Operations of the Company, each have
personally guaranteed $350,000 of such loan, mortgage financing and line of
credit. See "Certain Transactions."
On June 4, 1997, the Company obtained a $1,500,000 bridge loan commitment
(from which $500,000 was borrowed on June 4, 1997 and an additional estimated
$250,000 is expected to be borrowed prior to the date of this Prospectus) from
Auric, payable together with interest at the rate of 10% per annum on June 1,
1999, except that Auric may require the Company to repay all principal and
accrued interest in full following consummation of this Offering. The proceeds
from this bridge loan commitment were added to the Company's working capital
and used for general corporate purposes, including payment of expenses in
connection with this Offering. William W. Nicholson, a director of the Company,
is a partner of Auric. See "Certain Transactions." The Company intends to repay
the outstanding balance under the bridge loan commitment with a portion of the
net proceeds from this Offering. See "Use of Proceeds."
The Company may apply 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 Radioisotope
Production Facility, estimated at $3,500,000, through additional mortgage
financing with a commercial lending institution. 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 LINAC, the proposed medical
imaging camera or the proposed pulsed plasma device; unanticipated expenses in
developing the proposed medical imaging camera or pulsed plasma device; 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, or at all. 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."
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BUSINESS
General
The Company is a development stage company which intends to be the first
domestic producer of a full range 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 in vivo therapeutics. The Company also intends,
under an exclusive worldwide license, to complete development of and to
manufacture and market for use in diagnostic nuclear medicine a high resolution
medical imaging camera, key components of which are patented. Based on spatial
resolutions achieved in industrial applications of the licensed patented
inventions, the Company believes its medical imaging camera will have
resolution at least four times greater than any medical 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
According to the IOM Report, nuclear medicine is estimated to be a $7 to
$10 billion industry in the United States of which, according to the F&S 1995
Report, the U.S. diagnostic radiopharmaceutical segment, in which the Company
plans to participate, was estimated at $594 million in 1995, increasing at a
12.1% compound annual rate, which would result in over a $1 billion U.S. market
for diagnostic radiopharmaceuticals by the year 2000. The Company believes that
the in vivo therapeutics radiopharmaceutical segment of nuclear medicine, in
which the Company also plans to participate, 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 and secondary tumors, metastasized sites 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 as illustrated by certain NDAs filed with the FDA by
Mallinckrodt Medical, Inc. and, accordingly, generate proportionally greater
revenues.
According to the IOM Report, one out of every three hospital patients in
the United States undergoes a procedure involving the use of radioisotopes for
diagnosis or therapy and more than 13 million diagnostic medical procedures
employing radioisotopes are performed annually. Based on the 13 million
diagnostic medical procedures and the projected 12.1% compound annual growth
rate thereof, the Company estimates that there will be approximately 21 million
diagnostic medical procedures employing radioisotopes performed in the United
States by the year 2000. In addition, according to the TMG 1996 Radiation
Oncology Report, approximately 490,000 therapeutic medical procedures employing
radioisotopes were performed in the United States in 1995 with each such
procedure requiring multiple therapeutic treatments, resulting in more than one
million therapeutic treatments employing radioisotopes. The F&S 1995 Report
projects that the oncological (i.e therapeutic) world radiopharmaceutical
market will grow at a compound annual rate of 19.7%, which should result in
over one million therapeutic medical procedures employing radioisotopes being
performed in the United States by the year 2000.
Cancer is the leading cause of death in the United States after heart
disease according to the American Heart Association. In the United States, five
million persons have been diagnosed as having cancer within the past five years
and, according to the American Cancer Society, 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 according to the F&S 1997 Report. Many of these are
radiopharmaceuticals which require specific radioisotopes which cyclotron
accelerators currently in commercial use in the United States cannot produce
either in volume or at all because of their limited energy and/or beam
intensity. The Company expects that the LINAC will be able to produce such
specific radioisotopes.
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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.
Accelerators have a significant environmental advantage over nuclear
reactors in that they produce radioisotopes with relatively little attendant
radioactive waste. Mo-99, which accounted for 36% of the revenues and 68% of
the unit volume of sales of radioisotopes for diagnostic nuclear medicine in
1993, according to the TMG 1993 Report, currently is reactor-produced and
represents approximately 6% of the fission product yield, resulting in 90%
radioactive waste with long-term hazardous levels of radiation. As a result of
the high energy level of the LINAC, the Company believes it will be able to
utilize the LINAC beam to bombard a target that produces a cone of neutrons
which, in turn, will bombard another target to produce Mo-99 with limited
attendant radioactive waste. In addition, most of the costs associated with
producing Mo-99, whether by nuclear reactor or by the LINAC as contemplated by
the Company, are attributable to the chemical processing required to isolate
Mo-99 after its production. Accordingly, the Company expects that the cost of
producing Mo-99 in the LINAC will be substantially equivalent to the cost of
producing Mo-99 in a nuclear reactor.
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 Cyclotrons 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 IOM Report, the production of many 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, most
of which the Company intends to commercially produce, are produced by Dupont
Merck Pharmaceutical Co., Mallinckrodt Medical, Inc., Amersham Medi-Physics,
Inc. and Theragenics, Inc., primarily for their own use, and by two foreign
manufacturers. These radioisotopes include:
Radioisotope Symbol Half-life Primary Source
- ----------------------- --------- ----------- ---------------
Thallium--201 Tl-201 3 days Domestic
Gallium--67 Ga--67 3.26 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
*Technetium-99m is the "daughter" of Molybdenum-99.
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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, bone cancer, brain disorders, acute cholecystitis (inflammation of
the gall bladder), gastrointestinal bleeding, renal artery stenosis and other
diseases.
Based on volume, 70% of all radioisotopes currently used in diagnostic
nuclear medicine 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.
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 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.
The Cyclotrons are owned by the Radioisotope Producing Companies. Eleven
of the 17 Cyclotrons operate at 30 MeV with a 0.20mA beam intensity, one
Cyclotron operates at 30 MeV with a 0.18mA beam intensity, one operates at 22
MeV with a 0.15mA beam intensity, three operate at 18 MeV with a 1.0mA beam
intensity, and one 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 16 Cyclotrons that operate at 30 MeV or
less, and five times the beam intensity of 13 of the 17 Cyclotrons, four times
the beam intensity of one of the Cyclotrons, and equivalent beam intensity to
the remaining three Cyclotrons (the latter three Cyclotrons having an energy
level of only 18 MeV). 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 100 curies of 12
different radioisotopes during a 24-hour period. According to the Austin
Report, a new 10 MeV cyclotron cost approximately $7.6 million in 1992. Based
upon such report and the Company's estimation of additional costs associated
with purchasing a 30 MeV cyclotron, the Company believes a new 30 MeV cyclotron
radioisotope production facility would cost approximately $10 to $12 million
and would become operational two to three years from the date ordered. To the
Company's knowledge, there are no new commercial 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 and radiopharmaceuticals (on a
contract or joint venture basis) and a producer of 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 September 1997 and its
40,000 square foot Radioisotope Production Facility to be completed by March
1998, as to which there can be no assurance. The Company has retained Lockwood
Green Inc., a consulting and construction firm, to design the Radioisotope
Production Facility in accordance with FDA standards. Lockwood Greene has
designed and constructed similar facilities for other pharmaceutical companies,
including DuPont Merck Pharmaceutical Co. and Mallinckrodt Medical, Inc. The
administration, manufacturing, research and development facility is being
constructed, and the Radioisotope Production Facility, for which a preliminary
design study has been completed, will be constructed, on 21.6 acres of land the
Company has acquired in a 500
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acre high technology biomedical research 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 approximately 24
miles from the Dallas/Fort Worth International Airport and approximately 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 hours to
24 hours of production.
Upon full operation of the LINAC in conformity with the Company's redesign
and reconfiguration in June 1998, as to which there can be no assurance, the
Company intends to produce currently used radioisotopes and the upcoming and
potentially superior diagnostic and therapeutic pharmaceutical grade
radioisotopes which can only be accelerator-produced with the high energy (70
MeV) and the 1.0mA beam intensity of the LINAC. See "--Manufacturing."
The Company currently is holding discussions to acquire (i) wholesale
quantities of Mo-99 and neutron-produced therapeutic radioisotopes from Sandia
National Laboratory and/or South Africa Atomic Energy Commission and
neutron-produced research radioisotopes from Missouri University Research
Reactor, and (ii) accelerator-produced radioisotopes from Los Alamos National
Laboratory and/or Brookhaven National Laboratory, to commercially distribute
such radioisotopes prior to the LINAC being fully operational. There can be no
assurance the discussions will result in any agreements with such sources to
acquire such radioisotopes. 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 contracting
supplier 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 of this Offering have been allocated to purchase such
radioisotopes from such sources. 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
radiopharmacies and end-users throughout the country. In December 1996,
concurrent with acquiring the 21.6 acres of land in the Research Center, the
Company acquired a three-year option from John M. McCormack and William W.
Nicholson, who subsequently became directors of the Company, to purchase
approximately 60 additional acres of land in the Research Center adjacent to
the site of the Radioisotope Production Facility for approximately $3.7 million
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. See "Certain Transactions." 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,
the success of which cannot be assured. 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/or operation of linear accelerators to produce
radioisotopes and radiopharmaceuticals and to license the related technology,
the success of which cannot be assured.
The Company also intends to establish formal relationships with medical
institutions and universities in the southwestern United States, including 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 success of which cannot be assured. The Company currently is
negotiating with UNT, the success of which cannot be assured, (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
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regional biomedical tracer facility. Under the proposed program, the success of
which cannot be assured, 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.
As part of its long-term strategy, the Company intends, under an exclusive
worldwide license, to complete the development of and commence to manufacture
and market a high resolution medical imaging camera for use in diagnostic
nuclear medicine, key components of which are patented. Based on spatial
resolutions achieved in industrial applications of the licensed patented
inventions, the Company believes its medical imaging camera will have
resolution at least four times greater than any medical 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 "Risk Factors--No Assurance
of Development of Medical Imaging Camera or Pulsed Plasma Device," "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 developed by the Company, 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."
The Company anticipates that it will be able to purchase enriched stable
isotopes from the DOE, although there can be no assurance with respect thereto.
The Company also intends to enter into supply agreements for enriched stable
isotopes from foreign sources, such as Russia, Israel and China, although there
can be no assurance with respect thereto.
Manufacturing
It is anticipated 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 cGMP
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 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.
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The Company intends to use 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 cGMP
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 cGMP 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 also will 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 adversely 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 there are other
power sources readily available through the tri-grid system. See "Risk
Factors--Dependence on Power Supply."
Upon initial operation of the LINAC, scheduled for March 1998, as to which
there can be no assurance, 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 procedures:
Radioisotope Half-life
- -------------------- -----------
Thallium-201 ...... 3 days
Indium-111 ......... 2.8 days
Iodine-123 ......... 13 hours
Gallium-67 ......... 3.26 days
Cobalt-57 ......... 271.8 days
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, bone cancer, brain disorders, acute cholecystitis (inflammation of
gall bladder), gastrointestinal bleeding, renal artery stenosis and other
diseases.
Upon full operation of the LINAC in conformity with the Company's redesign
and reconfiguration, scheduled for June 1998, as to which there can be no
assurance, the Company believes that the 70 MeV energy level and 1.0mA beam
intensity of the LINAC will enable it to produce Mo-99 and the following
experimental radioisotopes that cannot be produced either in volume or at all
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
Silicon-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
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Radioisotope Half-life Applications
- ------------------------ ------------- -------------------------------
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 and 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 ...... 100.5 hours cancer therapy
Lutetium-177 ......... 6.7 days cancer therapy
Rhenium-186 ......... 90 hours lung cancer
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, including the Radioisotope Producing Companies,
engaged in creating radiopharmaceuticals by coupling radioisotopes with carrier
drugs, (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 compile and
maintain a computerized data base of potential customers 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 to acquire (i) wholesale
quantities of Mo-99, which is used in many diagnostic imaging procedures, and
wholesale quantities of neutron-produced therapeutic radioisotopes from Sandia
National Laboratory and/or South Africa Atomic Energy Commission, and
neutron-produced research radioisotopes from Missouri University Research
Reactor and (ii) accelerator-produced radioisotopes from Los Alamos National
Laboratory and/or Brookhaven National Laboratory by funding the personnel,
labor and materials costs at such facilities, during specified times, to
produce the radioisotopes. 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 such
sources. See "Use of Proceeds," "Plan of Operation" and "--Business Strategy."
Proposed Medical Imaging Camera
As part of its long-term strategy, upon completion of its facilities, the
Company intends to complete the development of and commence to manufacture and
market for use in diagnostic nuclear medicine a high resolution medical imaging
camera, key components of which are patented. The Company has obtained the
exclusive worldwide rights in the medical field under the relevant patents from
Hospital Financial Corporation which cover certain inventions by Dr. Morgan.
These inventions refine the resolution of penetrating radiation to the count of
single photons. Based on spatial resolutions achieved in industrial
applications of the licensed patented inventions, the Company believes its
medical imaging camera will have resolution at least four times greater than
any medical imaging camera currently on the market.
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
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cameras is approximately four millimeters and is approximately ten millimeters
for PET cameras. The licensed patented inventions, which will be adapted for
use in the Company's medical imaging camera, have been used in a camera
designed 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 cancer and the likelihood of a successful outcome following
treatment.
In 1995, according to the TMG Report, the number of installed medical
imaging cameras worldwide was 10,110 located at 4,780 sites. According to the
TMG 1995 Nuclear Medicine Report, the predominant imaging cameras were SPECT,
which numbered 6,890 units in 1995 up from 5,940 units in 1993. According to
the F&S 1995 Report, it is estimated that more than 1,000 medical imaging
cameras for diagnostic nuclear medicine will be purchased during 1997
representing an annual U.S. 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, the success of which cannot be assured, an agreement to lease
analytical instrumentation from UNT for development of its medical imaging
camera for which it presently anticipates 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. The Company currently is in discussions with
the University of Texas Southwestern Medical Center relating to such
collaboration agreements, although there can be no assurance the discussions
will be successful.
UNT owns an imaging camera designed and manufactured for industrial
applications utilizing the patented inventions licensed to the Company by
Hospital Financial Corporation. The milestones required for commercialization
of the medical imaging camera, the success of which cannot be assured, include
the Company successfully building a prototype of the medical imaging camera,
testing the prototype for reliability and performance, including calibrating
the device under FDA standards, submitting the device to the FDA pursuant to a
510(k) pre-market notification filing and obtaining clearance thereof, and
manufacturing, packaging and marketing commercial versions of the product. See
"Risk Factors--No Assurance of Development of Medical Imaging Camera or Pulsed
Plasma Device" and "--Government Regulation."
Proposed Pulsed Plasma Device
The Company intends to develop a pulsed plasma device for sale to
hospitals and clinics for the production of short-lived radioisotopes used in
PET scan imaging or pulsed beams of neutrons essential for a certain type of
cancer therapy. The device will be developed under an exclusive license with
respect to two U.S. patents and related proprietary technical know-how
currently being negotiated by the Company with Avogadro, the success of which
cannot be assured, relating to the production of plasma generated neutrons.
Under one configuration, the pulsed plasma device is designed to 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, although there can be no assurance with respect thereto.
Under a different configuration, the device is designed as an external
beam radiation treatment unit to produce thermal neutrons that are essential
for gadolinium neutron capture therapy ("GNCT"), a type of external beam
radiation 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 an external beam of thermal
neutrons which destroys the tumor without damage to external healthy tissue.
According to the TMG 1996 Radiation Oncology Report, radiation therapy was
performed in 1995 at an estimated 1,670 radiation oncology sites having
external beam therapy equipment. Hospitals or clinics which purchase the
Company's pulsed plasma device for
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purposes of GNCT will be required to file a PLA with the FDA, a protracted and
costly process involving an extensive human clinical trial program. See
"--Government Regulation."
Avogadro has constructed a working prototype of the pulsed plasma device
employing the patented technology which it is negotiating to license to the
Company. The milestones required for commercialization thereof, the success of
which cannot be assured, include Avogadro, pursuant to a proposed development
agreement with the Company, successfully building a modified prototype of the
pulsed plasma device according to Company specifications, testing the prototype
for reliability and performance, including calibrating the device under FDA
standards, submitting the device to the FDA pursuant to a 510(k) pre-market
notification filing and obtaining clearance thereof, and manufacturing,
packaging and marketing commercial versions of the product. See "Risk
Factors--No Assurance of Development of Medical Imaging Camera or Pulsed Plasma
Device," "--Patents and Proprietary Rights" and "--Government Regulation."
Competition
Within the United States, the Company believes there currently is no
producer of a full range of radioisotopes for commercial sale to the nuclear
medicine industry. 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. Outside the United
States, Nordion, Inc., a Canadian firm, and Mallinckrodt, N.V. at Petten, a
Netherlands firm, both of which have substantially greater capital and other
resources than the Company, are major producers of cyclotron-produced and
accelerator-produced radioisotopes. Nordion, Inc. currently supplies a
significant portion of the radioisotopes used in the diagnostic 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 U.S. and foreign firms, including ADAC Laboratories Inc., Elscint
Ltd., GE Medical Systems, Park Medical Systems, Picker International Inc.,
Hitachi, Ltd., Siemens Medical Systems, Inc., SMV Corporation, Toshiba Corp.
and Trionix Research Laboratory, Inc., all 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,
although the Company is not aware of any current commercial producer of such
device. See "Risk Factors--Competition and Risk of Technological Obsolescence."
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) and the radio frequency quadropole accelerator to accelerate
nuclear particles to an intermediate energy. These patents 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.
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In conjunction with acquiring the LINAC from the State of Texas, the Company
acquired the intellectual property rights in the LINAC assets as granted to
Texas under a settlement agreement among the DOE, the U.S. government and the
TNRLC. The Company is exploring, through inquiries of the intellectual property
counsel of the DOE, the extent of the Company's intellectual property rights so
acquired. In the event the Company's intellectual property rights are deemed to
be non-exclusive, there can be no assurance that the DOE will not license
others to use the same technology. In any event, 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 cameras and camera
configurations which minimize the "noise" associated with the scattering of low
energy photons. 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 patented
inventions.
The Company is negotiating, the success of which cannot be assured, for an
exclusive worldwide license from 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 a 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. In the event the Company has not obtained
a commercial market for products covered by the license after a period of five
years and decides to abandon utilization of the products, the Company and
Avogadro may terminate the license agreement without prejudice. 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. Under the development
agreement, Avogadro would receive a royalty-free, non-exclusive license from
the Company to utilize any inventions made or copyrightable works created by
Avogadro under the development agreement solely for fields of applications
other than the fields for which it is negotiating an exclusive license to the
Company.
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
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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.
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 or
technologies, 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 or any of its licensors for infringement, 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. 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 to sign intellectual
property assignment and non-disclosure 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 and radiopharmaceuticals 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 medical use radioisotopes
across state lines, from the FDA. In addition, the DOT regulates the quantity
and method of shipment of radioactive materials, and sets specifications with
respect to the class of shipping containers used. The Radioisotope Production
Facility will be subject to continual inspection for compliance with cGMP
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 and radiopharmaceuticals.
As of the date of this Prospectus, the Company has obtained a permit from
the Texas Department of Health to operate certain components of the LINAC in
accordance with Texas regulations governing the control of radiation and is
preparing an amendment to this permit to permit operation of the LINAC at an
energy level of up to 30 MeV. The Company anticipates that it will be permitted
to operate the LINAC at a 70 MeV level by the Texas Department of Health by May
1998, although there can be no assurance with respect thereto.
The Company has retained Lockwood Greene Inc., a consulting and
construction firm, to design the Radioisotope Production Facility in accordance
with FDA standards. Lockwood Greene has designed and constructed similar
facilities for other pharmaceutical companies, including DuPont Merck
Pharmaceutical Co. and Mallinckrodt Medical, Inc. Concurrently with receiving
approval of the LINAC from the Texas Department of Health for the production of
radioisotopes, the Company will file an application to the FDA for approval of
manufacturing and selling medical use radioisotopes and radiopharmaceuticals
across state lines, which the Company anticipates receiving by May 1998,
although there can be no assurance with respect thereto.
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The Company will be required to file a Drug Master File ("DMF") with the
FDA for each radioisotope proposed to be produced and used in
radiopharmaceutical products. 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, which will make reference to the Company's applicable
DMF. The DMF is a compilation of information relating to the proposed product,
required 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, but becomes a part of the customer's
NDA. In some cases, it may be necessary for the customer to generate clinical
data for the radiopharmaceutical incorporating the radioisotope. The Company
currently is negotiating with various pharmaceutical companies to manufacture
radioisotopes under their existing NDAs, the success of which cannot be
assured.
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 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
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 through 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.
In compliance with applicable state laws, the Company maintains a
Radiation Safety Committee, currently comprised of Dr. Morgan, Jerry M. Watson,
Vice President of Manufacturing and Systems Engineering, Homer B. Hupf, 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 cGMP 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 proposed pulsed plasma
device are subject to extensive federal and state regulation. The proposed
products 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
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<PAGE>
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 cGMP 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.
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 and proposed pulsed plasma device will be "substantially
equivalent" to other products currently legally marketed as Class II devices,
and anticipates filing 510(k) pre-market notifications with respect to such
products. If the FDA determines that the products are substantially equivalent,
then they may be marketed in the United States. The FDA may, however, require
additional data or additional test results or may determine that the proposed
products are "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 and/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.
Hospitals or clinics which purchase the pulsed plasma device for purposes
of GNCT will be required to file a PLA with the FDA, a protracted and costly
process involving an extensive human clinical trial program.
In connection with developing its proposed medical imaging camera, the
Company has obtained a license from the Texas Department of Health to store,
research and develop radioactive sources and to operate tomography systems
utilizing such radioactive sources. The Company anticipates filing an amendment
to this license to permit it to operate, test and manufacture its proposed
medical imaging camera, although there can be no assurance that the proposed
amendment will be approved.
In connection with developing its proposed pulsed plasma device, the
Company will be required to register the device with the Texas Department of
Health as a result of the device's use of radiation. The Company anticipates
applying for a license to operate and test the proposed pulsed plasma device,
although there can be no assurance that the proposed license will be granted.
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<PAGE>
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 cGMP 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 diagnostic
medical 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 care 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 pulsed plasma device. 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.
Other Regulations
In the event the Company enters into agreements with suppliers to acquire
Mo-99, neutron-produced research and therapeutic radioisotopes or
accelerator-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 contracting supplier. See
"Plan of Operation" and "--Business Strategy."
Any radiopharmaceuticals developed under arrangements between the Company
and 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 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.
See "Risk Factors--Government Regulation."
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<PAGE>
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 proposed pulsed
plasma device 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 proposed pulsed plasma device 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 and Industrial Advisors
To further assist in the development of its technologies, the Company,
following consummation of this Offering, intends to establish a Board of
Technical Advisors to be comprised of individuals with technical and scientific
credentials who are expected to advise the Company on technical and scientific
issues. There can be no assurance that the Company will be successful in
establishing and recruiting members to such Board. The Company anticipates that
the Board of Technical Advisors will meet on a quarterly basis at the Company's
headquarters for a two-day review of the technical progress of the Company's
products, engineering and research and development, and will be compensated at
a rate per meeting to be determined by the Company's Board of Directors plus
reasonable travel expenses in connection with such meetings. The Board of
Technical Advisors will make recommendations to the Company regarding product
capability and specifications, engineering designs and research and development
objectives, and future technical development of the Company.
The Company will require Technical Advisors to sign non-disclosure and
intellectual property assignment agreements pursuant to which intellectual
property generated as a result of services to the Company is the property of
the Company. Such agreements may be subject to the rights of the Technical
Advisors' primary employers or other third parties with whom such individuals
have consulting arrangements. However, the Company does not intend to retain
individuals to serve on the Board of Technical Advisors whose primary
employers, or other third parties with whom such individuals have consulting
arrangements, are in competition with the Company.
Technical Advisors may be retained individually by the Company on a
consulting basis to perform work specifically for and at the direction of the
Company.
Following consummation of this Offering, the Company also intends to
establish a Board of Industrial Advisors to be comprised of individuals with
business and financial experience who are expected to advise the Company on
business and finance issues. There can be no assurance that the Company will be
successful in establishing and recruiting members to such Board. The Company
anticipates that the Board of Industrial Advisors will meet on a quarterly
basis at the Company's headquarters for a two-day review of the Company's
operations with respect to its facilities, financing, marketing and
distribution of products and its strategic alliances, and will be compensated
at a rate per meeting to be determined by the Company's Board of Directors plus
reasonable travel expenses in connection with such meetings. Industrial
Advisors will be required to sign non-disclosure agreements with the Company
and individually may be retained by the Company on a consulting basis.
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 administration, manufacturing, research and development facility
by September 1997 and to vacate the warehouse space following completion of the
Radioisotope Production Facility.
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Employees
As of June 30, 1997, the Company has 16 full-time employees, consisting of
nine executive officers, four additional scientific and professional personnel
and three 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. None of the employees
are represented by a union and there have been no work stoppages to date.
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:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ira Lon Morgan 70 Chairman of the Board, Treasurer and Director
Carl W. Seidel 58 President, Chief Executive Officer and Director
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 M. Watson 54 Vice President of Manufacturing and Systems
Engineering
Homer B. Hupf 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 70 Director
</TABLE>
- ----------------
Ira Lon Morgan, Ph.D., a founder of the Company, has served as Chairman of
the Board of Directors and Treasurer since the Company's formation in November
1995. Dr. Morgan also served as Chief Executive Officer until May 5, 1997, when
Carl W. Seidel assumed this office. 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 1979 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 the manufacturing of
analytical chemical and pollution monitoring systems. From 1987 to 1997, Dr.
Morgan served as Adjunct Professor and Assistant to the Vice President of
Research at the University of Texas. From 1966 to 1976, Dr. Morgan also served
as Professor of Physics and directed the Center for Nuclear Studies 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 21 patents in these and other areas. From 1964 to 1976,
Dr. Morgan was Co-Chairman of the Conference on the Application of Accelerators
in Research and Industry and also was 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.
Carl W. Seidel has served as President and Chief Executive Officer since
May 5, 1997 and was elected a director in March 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 Nemours and Company ("DuPont") and DuPont
Merck Pharmaceutical Co. ("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 1982 to 1991, served in various positions in
the radiopharmaceutical division of DuPont. From 1969 to 1982, 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 radiopharmaceuticals. 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
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<PAGE>
facility and an independent producer of radioisotopes. Mr. Seidel received an
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.
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., 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, and as a director since
November 1995. 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 M. 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, a founder of the Company, has served as Vice President of
Radioisotope Production since June 1996. From 1988 to 1993, Mr. Beaver served
as a staff scientist at Oak Ridge National Laboratory. From 1980 to 1987, Mr.
Beaver served as Cyclotron Operations 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., a founder of the Company, has served as Vice
President of Radiochemistry since June 1996. 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
43
<PAGE>
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 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. For the last
three years, Mr. Nicholson has been a private investor and advisor to the Amway
Policy Counsel Board. 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. Mr. Nicholson received a B.S.
from the University of Nevada in 1966.
James K. Eichelberger, a founder of the Company, has been a director since
February 1996. Mr. Eichelberger has been a private investor, real estate broker
and commercial builder in the Austin, Texas area for the last three years. Mr.
Eichelberger received a B.A. from Southern Methodist University in 1950.
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
has served as Director of the Nuclear Medicine Center of Southwestern Medical
School in Dallas, Texas since 1980 and as the Dr. Jack Krohmer Professor of
Radiation Physics at University of Texas Southwestern Medical Center since
1994. From 1990 to 1994, he served as the Effie and Wofford Cain Distinguished
Chair in Diagnostic Imaging at University of Texas Southwestern Medical Center
and from 1973 to 1980, as Dean of Southwestern Medical School. Dr. Bonte has
served as Chairman of the Medical Committee of the Texas Radiation Advisory
Board since 1986, as a member of the Commission on Radiologic Units, Standards
and Protection of the American College of Radiology since 1991 and as a member
of the Radiation Advisory Committee and Environmental Hazards Committee of the
American Medical Association since 1986 and 1988, respectively. Dr. Bonte
received an M.D. from Western Reserve University School of Medicine in 1945 and
a B.S. from Western Reserve University in 1942.
----------------
As a result of their activities relating to the organization of the
Company, Dr. Morgan, Mr. Simmons, Mr. Beaver, Dr. Hupf and Mr. Eichelberger 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, or
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, Carl W. Seidel and
Virgil L. Simmons. The Executive Committee is responsible for the Company's
general operations, as provided in directives from the Board of Directors.
44
<PAGE>
The Audit Committee, established in January 1997, currently consists of
James K. Eichelberger, John M. McCormack, Ira Lon Morgan and Jon Starnes (a
founder and stockholder of the Company). The Audit Committee meets with the
Company's independent auditors to review the scope 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 of the Board 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
provisions and provides that Dr. Morgan may not compete with the Company or
solicit its employees during the term of his employment and for a period of two
years after termination of his employment.
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 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 has entered into an employment agreement with Carl W. Seidel
effective May 5, 1997, pursuant to which Mr. Seidel is employed as President
and Chief Executive Officer through May 5, 2002 at an annual salary of
$175,000, subject to an annual increase and bonus at the discretion of the
Company's Board of Directors. Such bonus, if awarded, is anticipated to be
approximately 50% of Mr. Seidel's base salary but in no event more than 10% of
the Company's pre-tax profits. Mr. Seidel's employment is terminable by the
Company for "cause," which includes, among other things, a willful violation of
law or aiding or abetting a competitor to the detriment of the Company, or by
the Company or Mr. Seidel without cause upon 90 days' written notice. If
terminated by the Company without cause, Mr. Seidel is entitled to continued
salary and benefits for 18 months from the effective date of such termination
or, at the Company's election, a lump-sum severance payment equal to the total
cash compensation that would be payable to him under the employment agreement
for the 32-month period following
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<PAGE>
the effective date of termination. The employment agreement contains
confidentiality provisions and provides that Mr. Seidel may not compete with
the Company during the term of his employment and for a period of six months
following termination of his employment with the Company.
On March 21, 1997, pursuant to a preliminary employment agreement with Mr.
Seidel, the Company agreed to issue Mr. Seidel 75,000 shares of Common Stock as
soon as practicable after the date of such agreement and 75,000 shares at
December 31, 1997, in each case at a purchase price of $1.60 per share, and
agreed to grant Mr. Seidel a stock option to purchase 75,000 shares of Common
Stock subject to approval by the Company's Board of Directors of a stock option
plan. The initial 75,000 shares were issued to Mr. Seidel in June 1997 and a
stock option to purchase 75,000 shares of Common Stock at an exercise price
equal to $ per share (85% of the initial public offering price per share)
was granted to Mr. Seidel under the Incentive Plan on May 5, 1997, and is
exercisable at the rate of one third per annum commencing May 5, 1998 (one year
from the commencement date of Mr. Seidel's employment with the Company) and
terminates May 5, 2000 (concurrent with the date the remaining one third of the
shares become purchasable under the option), subject to earlier termination in
the event of termination of Mr. Seidel's employment. See "Certain
Transactions."
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. The Company also is a 100%
beneficiary of $500,000 policies on the lives of Homer B. Hupf, Ph.D., Vice
President of Manufacturing and Systems Engineering, and Joe Beaver, Vice
President of Radioisotope Production, and also has applied for $500,000 key-man
insurance policies on the lives of Tommy L. Thompson, Executive Vice President
and Chief Operating Officer and Jerry W. Watson, Ph.D., Vice President of
Manufacturing and Systems Engineering.
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 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, which amount was paid by
the Company prior to the date of this Prospectus. The Company will retain
additional consultants as required.
Long Term Incentive Plan
The Company has adopted a 1997 Long Term Incentive Plan (the "Incentive
Plan") which 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, and to directors and consultants of the Company. The purpose of
the Incentive Plan is to attract and retain key employees, directors and
consultants, to motivate such persons to achieve long-range goals and to align
their interests with those 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 is 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 than 75,000
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.
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<PAGE>
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 three (3) 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; provided, however, that in no event may the exercise price be less
than 85% of the initial public offering price per share of the Common Stock.
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 stockholder and such rights will
accrue only as to shares actually purchased through the exercise of an option.
As of June 30, 1997, the Company had granted, or the Board of Directors
had approved for grant, options to purchase an aggregate of 290,000 shares of
Common Stock under the Incentive Plan, consisting of (i) options to purchase
245,000 shares granted to certain officers and other key employees of the
Company and Auric, of which a director of the Company is a partner (see
"Certain Transactions"), (ii) an option to purchase an additional 15,000 shares
of Common Stock expected to be granted to Auric prior to the date of this
Prospectus (assuming the Company borrows an additional estimated $250,000 from
Auric under the Company's $1,500,000 bridge loan commitment) (see "Certain
Transactions") and (iii) options to purchase an aggregate of 30,000 shares of
Common Stock approved for grant by the Company's Board of Directors to various
individuals subject, in each individual's case, to commencement of his or her
respective employment with the Company.
----------------
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 with an exercise price
per share less than the initial public offering price per share of the Common
Stock offered hereby, except that options or warrants granted to officers,
directors, key employees and consultants of the Company may have an exercise
price of not less than 85% of the initial public offering price per share; or
(ii) issue more than an aggregate of 600,000 shares of Common Stock (including
shares underlying options and warrants heretofore granted, 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 may 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 per share 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.
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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>
Shares Beneficially
Owned Prior to Shares Beneficially
Name and Address of Beneficial Offering(1) Shares Owned After Offering(3)
Owner Number Percent Offered(2) Number Percent
- ----------------------------------- ----------- --------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Ira Lon Morgan
3800 Palomar Lane
Austin, Texas 78759 ............ 967,940 24.7% -- 981,829(4) 15.5%
Virgil L. Simmons
5 Sugar Shack Dr.
Austin, Texas 78746 ............ 217,629 5.6% -- 217,629 3.4%
James K. Eichelberger
12300 FM 140 West
Driftwood, Texas 78619(5) ...... 255,386 6.5% 10,400 244,986 3.9%
John M. McCormack
1303 Campbell Road
Houston, Texas 7705 ............ 434,875 11.1% -- 434,875 6.9%
William W. Nicholson
1101 Post Oak Blvd., Suite 9700
Houston, Texas 77056(6) ......... 479,875 12.1% -- 535,431(4) 8.4%
Carl W. Seidel .................. 75,000 1.9% -- 75,000 1.2%
Tommy L. Thompson(7) ............ 65,625 1.7% -- 65,625 1.0%
Robert J. Gary .................. 125,000 3.2% -- 125,000 2.0%
Frederick J. Bonte ............... -- * -- -- *
All directors and executive
officers as a group
(13 persons)(5)(6)(7) ............ 2,746,330 69.3% 10,400 2,805,375(4) 43.9%(8)
Robert J. Hollingsworth ......... 125,000 3.2% 30,000 95,000 1.5%
Susan Jarvis ..................... 97,000 2.5% 20,000 77,000 1.2%
Kyle R. Gary ..................... 62,500 1.6% 22,725 39,775 *
Phil Adams(9) .................. 62,500 1.6% 10,000 52,500 *
Bernhard Muller .................. 18,750 * 1,875 16,875 *
Martha Madeley .................. 15,625 * 2,500 13,125 *
John J. Lapicola .................. 15,625 * 2,500 13,125 *
</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) Represents the aggregate number of shares (100,000 shares) which the
Underwriters have the option to purchase from the Selling Stockholders if
the Underwriters' over-allotment option is exercised in full.
(3) Assumes the Underwriters' over-allotment option is exercised in full.
(4) Includes, with respect to Dr. Morgan, 13,889 shares of Common Stock to be
purchased by Dr. Morgan in this Offering and, with respect to Mr.
Nicholson, 55,556 shares of Common Stock to be purchased by Auric (of
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<PAGE>
which Mr. Nicholson is a partner) in this Offering, in each case assuming
an initial public offering price of $9.00 per share.
(5) Includes 17,188 shares owned by Mr. Eichelberger's spouse. Mr. Eichelberger
disclaims beneficial ownership of the shares owned by his spouse.
(6) Includes 30,000 shares purchasable by Auric, of which Mr. Nicholson is a
partner, under options and an additional 15,000 shares to be purchasable
under options by Auric assuming the Company borrows an additional
estimated $250,000 from Auric under the Company's $1,500,000 bridge loan
commitment. See "Plan of Operation--Liquidity and Capital Resources" and
"Certain Transactions."
(7) Includes 15,625 shares owned by Mr. Thompson's spouse. Mr. Thompson
disclaims beneficial ownership of the shares owned by his spouse.
(8) In the event the Underwriters' over-allotment option is not exercised, all
directors and executive officers as a group will beneficially own 45.5% of
the outstanding shares of Common Stock after this Offering.
(9) Includes 31,250 shares owned and 10,000 shares being offered by a profit
sharing plan for which Mr. Adams serves as trustee.
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<PAGE>
CERTAIN TRANSACTIONS
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 at a value of $.004 per share 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 referred to above,
(ii) 250,000 shares to Virgil L. Simmons, Vice President of International
Marketing, (iii) 250,000 shares to James K. Eichelberger, a director of the
Company and (iv) 312,920 shares to other founders.
In January 1996, Dr. Morgan, Mr. Simmons, Mr. Eichelberger and Jon Starnes
(a founder of the Company) transferred 159,862 shares, 28,224 shares, 28,225
shares and 14,100 shares, respectively, to Homer B. Hupf, Vice President of
Radiochemistry, who received an aggregate 57,603 shares in consideration for
consulting services relating to the design of the proposed Radioisotope
Production Facility, 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 Radioisotope Production Facility,
and Frederick E. Smithline, an individual who received 115,205 shares in
consideration for financial consulting services relating to the Company's
equipment purchases and the Fidelity Loan. The transferees of these shares were
also founders of the Company.
In February 1996, the Company issued 25,000 shares of Common Stock to
Hospital Financial Corporation at a value of $.004 per share 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 21,700
shares of Common Stock to Dr. Morgan and 21,700 shares of Common Stock to Mr.
Eichelberger at a value of $.004 per share in consideration for their
respective pledges of $130,000 and $100,000 of personal assets as partial
collateral for the Fidelity Loan.
In July 1996, the Company issued 21,700 shares of Common Stock to Susan
Jarvis, a Selling Stockholder in this Offering, at a value of $.004 per share
in consideration for such stockholder's pledge of $100,000 of personal assets
as collateral for a $100,000 loan from Hartland Bank obtained by 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 (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 for financial consulting services related to
the Fidelity Loan, (iii) 50,000 shares of Common Stock to Denis Bieber, a
founder and then a director of the Company, for consulting services related to
the Company's marketing strategies and business plan, and (iv) 50,000 shares of
Common Stock to Jon Starnes, a founder of the Company, for financial consulting
services related to the Company's equipment loans from Fidelity and Hartland
Bank. All of such shares were valued at $1.40 per share.
In December 1996, the Company borrowed $1,750,000 from Hartland Bank
secured, in part, by $130,000 of the personal assets of Dr. Morgan and $100,000
of the personal assets of Mr. Eichelberger. In May 1997, this loan was assumed
by Texas Bank, at which time there was an outstanding principal balance of
approximately $1,652,200. See "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 owned 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 is being constructed, from Messrs. John M.
McCormack and William W. Nicholson, for 372,375 shares of Common Stock to Mr.
McCormack and 372,375 shares to Mr. Nicholson, which shares were valued at
$1.60 per share. Concurrently, the Company issued 82,750 shares to Thomas
Fouts, a real estate broker who introduced Messrs. McCormack and Nicholson to
the Company, for acting as real estate broker in the transaction, which shares
were also valued at $1.60 per share. Also, in December 1996, the Company
acquired a three-year option from Messrs. McCormack and Nicholson to purchase
approximately 60 additional acres of land
50
<PAGE>
in the Research Center adjacent to the site of the Radioisotope Production
Facility for approximately $3.7 million. See "Business--Business Strategy."
Messrs. McCormack and Nicholson were elected directors of the Company
subsequent to these transactions.
In November and December 1996, the Company sold 550,001 shares of Common
Stock in a private placement to 15 investors at a purchase price of $1.60 per
share, for an aggregate of $880,000. See "Plan of Operation--Liquidity and
Capital Resources."
In December 1996, the Company sold 50,000 shares of Common Stock in a
private placement to Susan Jarvis, a Selling Stockholder in this Offering, at a
purchase price of $1.60 per share, for an aggregate of $80,000. See "Plan of
Operation--Liquidity and Capital Resources."
In January 1997, the Company sold 62,500 shares of Common Stock in a
private placement to 15 investors at a purchase price of $1.60 per share, for
an aggregate of $100,000, 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, valued at $1.60 per share, for his assistance in obtaining the
Fidelity Loan. See "Plan of Operation--Liquidity and Capital Resources."
In January 1997, the Company obtained a $500,000 line of credit from
Southwest Bank of Texas, N.A., $250,000 of which was personally guaranteed by
Mr. McCormack and an additional $250,000 of which was personally guaranteed by
Mr. Nicholson. The $500,000 outstanding under this line of credit was repaid in
May 1997 and the line of credit retired. See "Plan of Operation--Liquidity and
Capital Resources." On January 22, 1997, the Company agreed to issue 62,500
shares of Common Stock to each of Messrs. McCormack and Nicholson at a purchase
price of $1.60 per share in consideration for their respective personal
guarantees of the Southwest Bank Line of Credit. Such shares were issued to
Messrs. McCormack and Nicholson in June 1997.
In January 1997, in order to establish a pool of shares for issuances to
new employees, seven of the Company's founding stockholders agreed to
contribute 247,496 shares of Common Stock, valued at $1.60 per share, to the
Company. Such shares were contributed to capital in April 1997.
On January 14, 1997, pursuant to a preliminary employment agreement, the
Company agreed to issue Tommy L. Thompson, who subsequently became the
Company's Executive Vice President and Chief Operating Officer, 50,000 shares
as soon as practicable after the date of the agreement and 50,000 shares at
December 31, 1997, in each case at a purchase price of $1.60 per share, and
agreed to grant Mr. Thompson a stock option to purchase 60,000 shares of Common
Stock subject to approval by the Company's Board of Directors of a stock option
plan. The initial 50,000 shares were issued to Mr. Thompson in June 1997 and a
stock option to purchase 60,000 shares of Common Stock at an exercise price
equal to $ per share (85% of the initial public offering price per share)
was granted to Mr. Thompson under the Incentive Plan on May 1, 1997, and is
exercisable at the rate of one third per annum commencing February 15, 1998
(one year from the commencement date of Mr. Thompson's employment with the
Company) and terminates February 15, 2000 (concurrent with the date the
remaining one third of the shares becomes purchasable under the option),
subject to earlier termination in the event of termination of Mr. Thompson's
employment. See "Management--Long-Term Incentive Plan."
On January 22, 1997, pursuant to a preliminary employment agreement, the
Company agreed to issue Jerry M. Watson, Ph.D., who subsequently became the
Company's Vice President of Manufacturing and Systems Engineering, 25,000
shares as soon as practicable after the date of the agreement and 25,000 shares
at December 31, 1997, in each case at a purchase price of $1.60 per share, and
agreed to grant Dr. Watson a stock option to purchase 50,000 shares of Common
Stock subject to approval by the Company's Board of Directors of a stock option
plan. The initial 50,000 shares were issued to Dr. Watson in June 1997 and a
stock option to purchase 50,000 shares of Common Stock at an exercise price
equal to $ per share (85% of the initial public offering price per share)
was granted to Dr. Watson under the Incentive Plan on May 1, 1997, and is
exercisable at the rate of one third per annum commencing March 21, 1998 (one
year from the commencement date of Dr. Watson's employment with the Company)
and terminates March 21, 2000 (concurrent with the date the remaining one third
of the shares becomes purchasable under the option), subject to earlier
termination in the event of termination of Dr. Watson's employment. See
"Management--Long-Term Incentive Plan."
On March 21, 1997, pursuant to a preliminary employment agreement, the
Company agreed to issue Carl W. Seidel, who subsequently became the Company's
President and Chief Executive Officer, 75,000 shares as soon
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<PAGE>
as practicable after the date of the agreement and 75,000 shares at December
31, 1997, in each case at a purchase price of $1.60 per share, and agreed to
grant Mr. Seidel a stock option to purchase 75,000 shares of Common Stock
subject to approval by the Company's Board of Directors of a stock option plan.
The initial 75,000 shares were issued to Mr. Seidel in June 1997 and a stock
option to purchase 75,000 shares of Common Stock at an exercise price equal to
$ per share (85% of the initial public offering price per share) was granted
to Mr. Seidel under the Incentive Plan on May 5, 1997, and is exercisable at
the rate of one third per annum commencing May 5, 1998 (one year from the
commencement date of Mr. Seidel's employment with the Company) and terminates
May 5, 2000 (concurrent with the date the remaining one third of the shares
becomes purchasable under the option), subject to earlier termination in the
event of termination of Mr. Seidel's employment. See "Management--Executive
Compensation" and "Management--Long-Term Incentive Plan."
On April 23, 1997, pursuant to a preliminary employment agreement, the
Company agreed to issue to Gaylord King, a prospective employee of the Company,
20,000 shares of Common Stock as soon as practicable after the date of the
agreement at a purchase price of $1.60 per share. Such shares were issued to
Mr. King in June 1997.
In May 1997, the Company obtained a loan, mortgage financing and a line of
credit from Texas Bank. The loan, in the principal amount of approximately
$1,652,200, is secured, in part, by $165,000 of personal assets of Dr. Morgan
and $100,000 of personal assets of Mr. Eichelberger. The Company intends to
repay the outstanding balance of this loan with a portion of the net proceeds
of this Offering. See "Use of Proceeds." The mortgage financing is in the
principal amount of $928,000. The $619,000 line of credit, of which $607,000
was outstanding at June 30, 1997, will be repaid with a portion of the net
proceeds of this Offering. See "Use of Proceeds." The loan, mortgage financing
and line of credit collectively are additionally secured, in part, by $700,000
in letters of credit, consisting of letters of credit in the amounts of
$250,000 from each of Messrs. McCormack and Nicholson and letters of credit in
the amounts of $100,000 from each of Dr. Morgan and Mr. Eichelberger. In
addition, Dr. Morgan and Mr. Simmons each have personally guaranteed $350,000
of such loan, mortgage financing and line of credit. See "Plan of
Operation--Liquidity and Capital Resources."
On June 4, 1997, the Company obtained a $1,500,000 bridge loan commitment
($500,000 of which was borrowed on June 4, 1997 and an additional estimated
$250,000 is expected to be borrowed prior to the date of this Prospectus) from
Auric, of which Mr. Nicholson is a partner. See "Plan of Operation--Liquidity
and Capital Resources." Prior to providing the bridge loan commitment, Auric
entered into a 90-day consulting agreement with the Company pursuant to which
Auric agreed to assist the Company in obtaining $1,500,000 in debt financing,
either through Auric or other lenders, in consideration for the issuance of
options under the Company's Incentive Plan to purchase 15,000 shares of Common
Stock for every $250,000 in debt financing obtained (up to a maximum of 90,000
shares) at an exercise price equal to $ per share (85% of the initial public
offering price per share), exercisable in full commencing 30 days after
consummation of this Offering, and terminating three years thereafter under the
option). Accordingly, on June 4, 1997, the Company granted Auric a stock option
under the Incentive Plan to purchase 30,000 shares of Common Stock and expects
to issue an additional option to purchase 15,000 shares prior to the date of
this Prospectus. The Company intends to repay the outstanding balance under the
bridge loan commitment in full with a portion of the net proceeds of this
Offering. See "Use of Proceeds" and "Management--Long-Term Incentive Plan."
In June 1997, as part of the Company's incentive stock compensation
program, 170,000 shares of the 247,496 shares of Common Stock contributed to
the Company by its founders in April 1997 were issued to the following key
employees at a purchase price of $1.60 per share pursuant to agreements entered
into on January 14, 1997, January 22, 1997, March 21, 1997 and April 23, 1997,
respectively, as described above: Tommy L. Thompson, Executive Vice President:
50,000 shares; Jerry M. Watson, Ph.D., Vice President of Manufacturing and
Systems Engineering: 25,000 shares; Carl W. Seidel, President and Chief
Executive Officer: 75,000 shares; and Gaylord King, a prospective employee of
the Company: 20,000 shares. Also, in June 1997, pursuant to an agreement
entered into on January 22, 1997 as described above, the Company sold 62,500
shares of Common Stock to each of Messrs. McCormack and Nicholson at a purchase
price of $1.60 per share (comprised of the 77,496 share balance of the 247,496
shares contributed by the Company's founders in April 1997, and an additional
47,504 newly issued shares of Common Stock).
The Company believes that all prior transactions and loans between the
Company and its officers, directors and 5% or greater stockholders have been on
terms no less favorable than could be obtained by the Company from unaffiliated
third parties. All future transactions and loans between the Company and its
officers, directors and 5% or greater stockholders will be on terms no less
favorable than can be obtained by the Company from unaffiliated third parties
and will be approved by a majority of the independent, disinterested directors
of the Company.
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<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 3,915,950 shares of Common Stock issued and outstanding
and held of record by 46 stockholders 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 stockholder 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
$5,000,000.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is therefore unenforceable.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, New York is the
transfer agent and registrar for the Common Stock.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,115,950 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 3,815,950 shares of Common Stock currently
outstanding (other than the 100,000 shares to be sold by the Selling
Stockholders pursuant to the Underwriters' over-allotment option) 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 June 30, 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 at a price
per share less than (a) the initial public offering price per share or (b) 85%
of the initial public offering price per share solely in the case of sales of
shares of Common Stock which are issued upon exercise of incentive stock
options granted pursuant to the Company's Incentive Plan, and in each case only
through the Representative acting as broker. If the shares to be sold by the
Selling Stockholders pursuant to the Underwriters' over-allotment option are
not sold, the Selling Stockholders have agreed not to sell or otherwise
transfer their shares for six months following the date of this Prospectus
without the consent of the Representative and the Company and for the six-month
period thereafter, such holders have agreed not to sell their shares at a price
per share less than the initial public offering price per share and only
through the Representative acting as broker. The Representative has no general
policy with respect to the release of shares prior to the expiration of the
lock-up period and no present intention to waive or modify any of these
restrictions on the sale of Company securities. However, the Representative may
in the future consider such waivers or modifications if, in its opinion, such
waiver or modification would not materially impact the market for the Company's
securities.
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."
54
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Keane
Securities Co., Inc. is acting as 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 of 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 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 this
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 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
55
<PAGE>
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 to sell
their shares at a price per share less than (a) the initial public offering
price per share or (b) 85% of the initial public offering price per share
solely in the case of sales of shares of Common Stock which are issued upon
exercise of incentive stock options granted pursuant to the Company's Incentive
Plan, and in each case only through the Representative acting as broker. If the
shares to be sold by the Selling Stockholders pursuant to the Underwriters'
over-allotment option are not sold, the Selling Stockholders have agreed not to
sell or otherwise transfer their shares for six months following the date of
this Prospectus without the consent of the Representative and the Company and
for the six-month period thereafter, such holders have agreed not to sell their
shares at a price per share less than the initial public offering price per
share and only through the Representative acting as broker. An appropriate
legend shall be marked on the face of certificates representing all such
securities. The Representative has no general policy with respect to the
release of shares prior to the expiration of the lock-up period and no present
intention to waive or modify any of these restrictions on the sale of Company
securities. However, the Representative may in the future consider such waivers
or modifications if, in its opinion, such waiver or modification would not
materially impact the market for the Company's securities.
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 this 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 this 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 this
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 will 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,
will 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 material terms of the agreements
described above and does not purport to be complete. Reference is made to the
copies of such agreements which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Epstein Becker & Green, P.C., New York,
New York, and the validity of the shares of Common Stock offered by the Selling
Stockholders hereby will be passed upon by Locke Purnell Rain Harrell (A
Professional Corporation), Austin, Texas. Orrick, Herrington & Sutcliffe LLP,
New York, New York, has acted as counsel to the Underwriters in connection with
this Offering.
56
<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 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.
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.
57
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
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.
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.
Photon ........................ Energetic radiation emitted from the nucleus as a radioisotope
decays to a stable isotope.
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.
</TABLE>
58
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(Development Stage Enterprises)
Index To Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated Financial Statements:
Report of KPMG Peat Marwick LLP, Independent Auditors ......................... F-2
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 Audited Consolidated Financial Statements ............................ F-7
Consolidated Financial Statements (unaudited):
Balance Sheet as of March 31, 1997 (unaudited) ................................ F-13
Statements of Operations for the three months ended
March 31, 1997 and 1996 and for the period November 1, 1995 (inception)
through March 31, 1997 (unaudited) .......................................... F-14
Statements of Stockholders' Equity for period from November 1, 1995 (inception)
through March 31, 1997 (unaudited) .......................................... F-15
Statements of Cash Flows for the three months ended March 31, 1997 and
1996 and for the period from November 1, 1995 (inception)
through March 31, 1997 (unaudited) .......................................... F-16
Notes to Consolidated Financial Statements (unaudited) ........................ F-17
</TABLE>
All schedules are omitted for the reason that they are not required or not
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
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 enterprises)
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
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
===========
</TABLE>
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
<TABLE>
<S> <C>
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
===========
</TABLE>
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. The majority of 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 administration manufacturing, research and development 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
production 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 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.
F-7
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies (Continued)
(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 as 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.
(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 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.
F-8
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies (Continued)
(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 using fair value of the
stock for the property, similar to 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.
The Company also acquired a three-year option to purchase approximately 60
additional acres of land adjacent to the property held by Gazelle for
approximately $3.7 million. No consideration was exchanged for this option.
(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:
<TABLE>
<S> <C>
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 stockholders. 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 stockholder, due
January 17, 1997. Subsequently renewed until July 17, 1997 at the same
interest rate. ............................................................... 100,000
------------
1,850,000
============
</TABLE>
F-9
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(4) Notes Payable to Bank (Continued)
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 stockholders 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 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) Stockholder'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-10
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(7) Stockholder's Equity (Deficit) (Continued)
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:
<TABLE>
<S> <C>
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 .............................................. $ --
=========
</TABLE>
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
stockholders 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
F-11
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(9) Net Loss per Common Share (Continued)
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 stockholders and affiliates for consulting services. In
addition, the Company issued 21,700 shares each to two board members and a
stockholder as compensation for providing collateral on notes payable (see note
4).
(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 stockholder. 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 shares of common stock
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 manufacturing 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-12
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Balance Sheets
March 31, 1997
(Unaudited)
March 31,
1997
-----------
(unaudited)
Assets
-------
Current assets:
Cash and cash equivalents ................................... $ 96,396
Restricted certificate of deposit ........................... 300,000
Assets held for sale ........................................ 546,630
Inventory ................................................... 699,479
Prepaids .................................................... 183,853
Other ....................................................... 10,493
-----------
Total current assets .................................... 1,836,851
Property and equipment, net:
Buildings ................................................... 61,388
Land ........................................................ 1,336,891
Furniture and equipment ..................................... 999,354
-----------
Total property and equipment, net ....................... 2,397,633
-----------
Total assets ............................................ $ 4,234,484
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................ $ 221,943
Accrued liabilities ......................................... 149,508
Current portion of notes payable to banks ................... 670,426
Notes payable to chairman ................................... 20,000
-----------
Total current liabilities ............................... 1,061,877
Long-term liability--notes payable to banks ................. 1,645,985
-----------
Total liabilities ....................................... 2,707,862
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding .......................... --
Common stock, $.01 par value; 20,000,000 shares authorized;
3,868,446 shares issued and outstanding ................... 38,684
Additional paid-in capital .................................. 3,073,514
Deficit accumulated during the development stage ............ (1,189,582)
Treasury stock receivable, 247,496 shares at fair value ..... (395,994)
-----------
Total stockholders' equity .............................. 1,526,622
-----------
Total liabilities and stockholders' equity .............. $ 4,234,484
===========
See accompanying notes to unaudited consolidated financial statements.
F-13
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Period from
ended March 31 November 1, 1995
-------------------------- (inception) through
March 31,
1997 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sale of accelerator components ............. $ 128,072 -- $ 903,174
Cost of sales .............................. 65,656 -- 329,096
----------- ----------- -----------
Gross profit ......................... 62,416 -- 574,078
Operating costs and expenses:
General and administrative ............... 63,422 -- 130,615
Commissions and fees ..................... -- -- 95,315
Consulting fees .......................... 3,459 -- 371,208
Legal and professional fees .............. 1,227 -- 60,912
Salaries and contract labor .............. 199,979 5,752 309,866
Rent and security ........................ 46,740 -- 145,167
Other .................................... 19,832 8,700 105,213
----------- ----------- -----------
Total operating expenses ............. 334,659 14,452 1,218,296
----------- ----------- -----------
Loss from development stage operations (272,243) (14,452) (644,218)
Other income (expense):
Gain on sale of assets held for sale ..... -- -- 336,364
Interest income .......................... 423 -- 5,329
Interest expense ......................... (83,316) -- (387,057)
Loan financing fees ...................... -- -- (750,000)
----------- ----------- -----------
Loss before extraordinary item ....... (355,136) (14,452) (1,439,582)
Extraordinary gain on debt extinguishment .. -- -- 250,000
----------- ----------- -----------
Net loss ................................... $ (355,136) $ (14,452) $(1,189,582)
=========== =========== ===========
Net loss per common share .................. $ (0.09)
===========
Shares used to compute net loss per share .. 3,944,002
===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-14
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statements of Stockholders' Equity
Period from November 1, 1995 (inception) through
March 31, 1997
<TABLE>
<CAPTION>
Deficit
accumulated
Additional Stock Treasury during the
Common stock paid-in proceeds stock development
Shares Amount capital receivable receivable stage Total
----------- ---------- ------------ ------------ ------------ --------------- --------------
<S> <C> <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
Collection of receivable for
shares issued (unaudited) .... -- -- -- 160,000 -- -- 160,000
Shares issued through private
placement (unaudited) 62,500 625 99,375 -- -- -- 100,000
Shares issued to director for
services rendered
(unaudited) 39,283 392 62,460 -- -- -- 62,852
Contribution of shares by
founders (unaudited) -- -- 395,994 -- (395,994) -- --
Net loss (unaudited) .......... -- -- -- -- -- (355,136) (355,136)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 1997
(unaudited) 3,868,446 $ 38,684 3,073,514 -- (395,994) (1,189,582) 1,526,622
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-15
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months Period from
ended March 31 November 1, 1995
-------------------------------- (inception) through
March 31,
1997 1996 1997
--------------- -------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (355,136) $ (14,452) $ (1,189,582)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .............................. 1,821 -- 3,481
Gain on sale of assets .................................... -- -- (336,364)
Services compensated by stock issuance ..................... 62,852 -- 323,738
Changes in operating assets and liabilities:
Other assets ............................................. 362 (1,110) (10,493)
Prepaids ................................................... (183,853) (10,000) (183,853)
Inventory ................................................ 58,019 -- (699,479)
Accounts payable .......................................... (19,398) 7,902 221,943
Accrued liabilities ....................................... 133,033 -- 149,508
----------- ---------- -------------
Net cash used in operating activities .................. (302,300) (17,660) (1,721,101)
Cash flows from investing activities:
Purchase of certificate of deposit ........................... -- -- (300,000)
Building construction costs ................................. (61,388) -- (61,388)
Purchase of assets for resale and furniture and equipment
held for operations ....................................... (28,203) -- (1,916,876)
Proceeds from sale of assets held for sale, net of related
expenses ................................................... -- -- 691,051
----------- ---------- -------------
Net cash used in investing activities .................. (89,591) -- (1,587,213)
----------- ---------- -------------
Cash flows from financing activities:
Proceeds from issuance of notes payable to chairman ......... -- 10,760 120,000
Proceeds from sale of common stock ........................... 260,000 7,266 1,063,366
Proceeds from issuance of debt .............................. 642,000 -- 5,392,000
Principal payments on notes payable ........................ (745,110) -- (3,075,656)
Payments on notes payable from chairman ..................... -- -- (95,000)
----------- ---------- -------------
Net cash provided by financing activities ............... 156,890 18,026 3,404,710
----------- ---------- -------------
Net increase in cash and cash equivalents ..................... (235,001) 366 96,396
Cash and cash equivalents at beginning of period ............ 331,397 -- --
----------- ---------- -------------
Cash and cash equivalents at end of period .................. $ 96,396 $ 366 $ 96,396
=========== ========== =============
Supplemental disclosure of cash flow activities:
Cash paid for interest ....................................... $ 57,515 $ -- $ 352,940
=========== ========== =============
Cash paid for financing fees ................................. $ 5,045 $ -- $ 505,045
=========== ========== =============
Supplemental disclosure of noncash transactions:
Conversion of notes payable to common stock .................. $ -- $ -- $ 5,000
=========== ========== =============
Acquisition of subsidiary through issuance of common
stock ...................................................... $ -- $ -- $ 1,324,000
=========== ========== =============
Acquisition of patent through issuance of common stock ...... $ -- $ -- $ 100
=========== ========== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-16
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996 (Unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements included herein have been
prepared by International Isotopes Inc. (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission and in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with the 1996 consolidated
financial statements and notes thereto.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements have been prepared on a basis
substantially consistent with the audited consolidated financial statements and
contain adjustments, all of which are of a normal recurring nature, necessary
to present fairly its financial position as of March 31, 1997 and its results
of operations and cash flows for the three months ended March 31, 1997 and 1996
and for the period November 1, 1995 (date of inception) to March 31, 1997.
Interim results are not necessarily indicative of results for the full fiscal
year.
The Company effected a 2.5-to-1 stock split of its common stock on March
15, 1997. All common share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
this stock split.
(2) Net Loss Per Share Attributable to Common Stockholders
Net loss per share attributable to common stockholders is computed using
the weighted average number of shares of common stock outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 83,
common stock issued for consideration below the assumed IPO price and warrants
exercised, warrants granted and stock options granted with exercise prices
below the IPO price during the 12-month period preceding the date of the
initial filing of the registration statement, even when antidilutive, have been
included in the calculation of common equivalent shares, using the treasury
stock method based on the assumed IPO price, as if they were outstanding for
all periods presented.
F-17
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(3) Notes Payable to Banks
Notes payable to bank consisted of the following:
<TABLE>
<CAPTION>
March 31,
1997
------------
(unaudited)
<S> <C>
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 stockholders. A quarterly principal payment of $95,589 was made
on March 16, 1997 and a principal payment of $2,218 was made in April 1997. The
remaining balance was refinanced on May 19, 1997. (See note 6) ..................... 1,654,411
7% Note payable to bank, secured by collateral owned by a stockholder, due July 17, 1997 100,000
7.05% Note payable to a bank, secured by personal collateral of a stockholder, due
on April 24, 1997. Subsequently renewed until July 17, 1997. A principal payment of
$62,000 was made at time of renewal .................................................. 162,000
1% over prime $500,000 revolving line of credit from a bank. The loan is personally
guaranteed by two directors and is due and payable March 15, 1998. On May 19, 1997,
the outstanding principal and interest on this note was paid in full. ............... 400,000
----------
2,316,411
Less current portion .................................................................. 670,426
----------
Long-term debt ........................................................................ 1,645,985
==========
</TABLE>
The Company had the ability and intent to refinance certain of the above
indebtedness on a long term basis as evidenced by the debt restructuring
disclosed in note 6. Accordingly, the current portion of the above indebtedness
has been computed based upon such refinancings.
(4) Common Stock
Incentive Stock
In January and March 1997, the Company agreed to issue stock as incentives
to three recently hired key employees as follows:
[bullet] 150,000 shares at a purchase price of $1.60 per share which were
issued in June 1997
[bullet] 150,000 shares at a purchase price of $1.60 per share which are
first purchasable at December 31, 1997.
The Company utilized APB 25 to record the stock transaction whereby the
difference between the assumed market price of the stock versus the exercise
price at the measurement date was charged to expense over the vesting period.
The assumed market value at January 1997 and March 1997 was $1.60 and $2.60,
respectively, resulting in a recognition of compensation expense of $78,947
relating to these incentive grants during the first quarter of 1997.
In April 1997, the Company agreed to issue an additional 20,000 shares of
common stock at a purchase price of $1.60 to another key employee scheduled to
begin employment July 1997. These shares were issued in June 1997.
Compensation
In January 1997, the Company agreed to issue 62,500 shares of stock to
each of two directors as compensation for loan guarantees at a purchase price
of the then market value of the stock of $1.60 per share. These shares were
issued in June 1997.
The stock issued in June 1997 for incentive stock and compensation, as
noted above, resulted in amounts due to the Company from the issuees of
$472,000.
F-18
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(5) Treasury Stock Receivable
In October 1996, the Company's founders agreed to contribute shares of
common stock to the Company to be used as incentive stock for key employees. In
January 1997, the founders committed to contribute 247,496 shares of common
stock with an assumed market value of $1.60 per share to the Company. The
shares were delivered to the Company in April 1997. These shares were accounted
for as a capital contribution at the measurement date at the assumed market
value of $1.60 per share.
(6) Subsequent Events
Approval of Initial Public Offering
On April 23, 1997, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell approximately 2,200,000 shares (2,430,000 shares by the
Company if the underwriters' over-allotment option is exercised in full) of its
common stock.
Debt Restructuring
In April 1997, the Company drew an additional $100,000 under its revolving
line of credit bringing the outstanding balance of this note to $500,000. All
outstanding principal and interest on this note was subsequently paid in full
in May 1997.
As of May 19, 1997, the Company entered into a master loan agreement for
the following:
[bullet] A revolving loan with a line of credit of $619,000 bearing
interest at prime due November 19, 1997. As of June 4, 1997, $607,143 had
been drawn on this line of credit.
[bullet] A $1,652,193 term loan bearing interest at prime, due November 19,
2004, which refinanced the outstanding balance of an existing note
payable. Interest is payable monthly through November 19, 1997 and
principal and interest payments are due monthly beginning December 19,
1997.
[bullet] A $928,000 interim construction loan due February 19, 2018.
Principal and interest payments are due monthly beginning March 19, 1998.
As of June 4, 1997, $56,819 had been drawn under this agreement to fund
the construction of the administration, manufacturing, research and
development building.
These notes are secured by substantially all of the assets of the company,
including land and equipment, as well as, letters of credit from four
directors, personal guarantees of two directors, a certificate of deposit and
the assignment of a life insurance policy on the life of the Chairman. Interest
on the term and interim construction loans is based upon the combined
outstanding balances of all of the above notes as follows; prime plus 1% when
combined outstanding balances are below $150,000, prime plus 0.5% when combined
outstanding balances are between $150,000 and $300,000, and prime when combined
outstanding balances exceed $300,000. Interest payments are due monthly
beginning June 19, 1997.
Construction Commitment
In May 1997, the Company signed an agreement with a contractor to begin
construction of the administration, manufacturing, research and development
building for an estimated cost of $900,000.
Stock Option Plan
In May 1997, the Company finalized, and the Board of Directors approved,
the terms of its 1997 Long Term Incentive Plan (the "Plan") whereby not more
than 600,000 shares of the Company's common stock may be awarded to employees,
directors, and consultants as designated by the Company. Under the terms of the
Plan, the Board may designate the participants to whom stock options are to be
awarded and the vesting terms of the awards. On May 1, 1997 effective with the
approval of the Plan, 215,000 options exercisable ratably over a three year
period were granted to various employees under the Plan with an exercise price
of 85% of the initial public offering price
F-19
<PAGE>
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
(development stage enterprises)
Notes to Consolidated Financial Statements
(6) Subsequent Events (Continued)
(contingent upon the approval of the initial public offering). These options
are exercisable ratably over a three year period based upon the awarded
employees' employment commencement dates.
Additional options with similar terms for 30,000 common shares were
approved for grant to two additional persons upon employment anticipated to
begin July 1997.
Bridge Financing
On June 4, 1997, the Company obtained a $1,500,000 bridge loan commitment,
(from which $500,000 was borrowed on June 4, 1997) from a company related to a
director at a rate of 10%. Principal and interest on the unsecured loan is due
in full on June 1, 1999.
Concurrent with the bridge financing loan, the Company entered into a
consulting agreement to obtain bridge financing whereby the Company is required
to award options to purchase 30,000 shares of the Company's common stock for
every $500,000 drawn on the bridge financing loan up to a maximum of 90,000
shares (or one share for each $16.667 advanced to the Company in the event of
draws in increments other than $500,000). The options are exercisable for a
period beginning 30 days from the closing of the initial public offering at a
per share price equal to 85% of the initial public offering price (contingent
upon the completion of the initial public offering) and ending three years
thereafter in accordance with the Plan.
F-20
<PAGE>
[ARTIST'S RENDERING OF RADIOISOTOPE PRODUCTION FACILITY]
Architect's rendering of the Company's 40,000 square foot Radioisotope
Production Facility to be constructed according to FDA specifications in the
North Texas Research Center in Denton, Texas, which will house the Company's
LINAC where radioisotopes will be produced, processed, assayed, packaged and
distributed.
[DRAWING INDICATING THE COMPANY'S PROXIMITY TO AIRPORTS AND UNIVERSITIES]
The North Texas Research Center, located in Denton, Texas, is
strategically located adjacent to a principal highway and is approximately 24
miles from the Dallas/Fort Worth International Airport and approximately 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.
<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 than those 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 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
Page
----
Prospectus Summary .............................. 3
Risk Factors .................................... 9
Use of Proceeds ................................. 17
Dividend Policy ................................. 18
Capitalization ................................. 19
Dilution ....................................... 20
Selected Consolidated Financial Data ............ 21
Plan of Operation .............................. 22
Business ....................................... 26
Management ....................................... 42
Principal and Selling Stockholders ............... 48
Certain Transactions ........................... 50
Description of Capital Stock ..................... 53
Shares Eligible for Future Sale .................. 54
Underwriting .................................... 55
Legal Matters .................................... 56
Experts .......................................... 57
Additional Information ........................... 57
Glossary ....................................... 58
Index to Consolidated Financial Statements ...... F-1
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.
2,200,000 Shares
[INTERNATIONAL ISOTOPES INC. LOGO]
INTERNATIONAL ISOTOPES INC.
Common Stock
----------------------------
PROSPECTUS
----------------------------
Keane Securities Co., Inc.
, 1997
================================================================================
<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 Registrant 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. Registrant's Restated
Articles of Incorporation provides that directors of Registrant 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 $5,000,000.
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 .............................. 65,000
Registrant's Legal Fees and Expenses ..................... 200,000
Blue Sky Expenses and Counsel Fees ........................ 30,000
Printing and Engraving Fees .............................. 100,000
Transfer Agent and Registrar's Fees and Expenses ......... 5,000
Miscellaneous Expenses .................................... 74,739
---------
Total ................................................... $500,000
=========
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 $.004 per share to founders, consisting of
(i) 1,250,000 shares to Ira Lon Morgan, Ph.D., Registrant's Chairman of the
Board, 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, (iii) 250,000 shares to James K.
Eichelberger, a director of Registrant and (iv) 312,920 shares to other
founders. 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, Dr. Morgan, Mr. Simmons, Mr. Eichelberger and Jon
Starnes (a founder of Registrant) transferred 159,862 shares, 28,224 shares,
28,225 shares and 14,100 shares, respectively, to Homer B. Hupf, Registrant's
Vice President of Radiochemistry, who received an aggregate of 57,603 shares in
consideration for
II-1
<PAGE>
consulting services relating to the design of the proposed Radioisotope
Production Facility, Joe Beaver, Registrant's 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 Radioisotope
Production Facility and Frederick E. Smithline, an individual who received
115,205 shares in consideration for financial consulting services relating to
the Company's equipment purchases and Fidelity Loan. The transferees of such
shares were also founders of Registrant who, as founders, had access to all
material information regarding Registrant of the kind usually provided in a
registration statement. Accordingly, the transfers were exempt from
registration under the Securities Act pursuant to Section 4(1) thereunder.
In February 1996, Registrant issued 25,000 shares of Common Stock to
Hospital Financial Corporation at a value of $.004 per share in consideration
for the assignment of an exclusive license. The issuance of shares to Hospital
Financial Corporation was an isolated issuance of securities to an "accredited
investor" that bargained for such consideration and had access to Registrant's
officers and founders for answers to questions with respect thereto.
Accordingly, 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 the Fidelity 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 Selling Stockholder in this Offering in
consideration for such stockholder's pledge of $100,000 of personal assets as
collateral for a $100,000 bank loan obtained by Registrant. The issuance of
shares to such stockholder was an isolated issuance of securities to an
"accredited investor" who, by the nature of her close (non-family) relationship
with certain founders, was provided access to material information regarding
Registrant required to make an informed investment decision. Accordingly, this
issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.
In November 1996, Registrant issued (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 for financial consulting services, (iii)
50,000 shares of Common Stock to Jon Starnes, a founder of Registrant, for
financial consulting services (valued at $70,000) relating to Registrant's
equipment loans from Fidelity and Hartland Bank and (iv) 50,000 shares to Denis
Bieber, a founder of Registrant and then a director of Registrant, for
consulting services (valued at $70,000) relating to developing marketing
strategies and Registrant's business plan. All of such shares were valued at
$1.40 per share. Mr. Simmons is a founder and key employee of Registrant with
access to all material information of the kind usually provided in a
registration statement; Mr. Eichelberger is a founder of Registrant and an
experienced investor and businessman who currently is a director of Registrant;
Mr. Starnes is a founder of Registrant and an experienced investor who, in
advising Registrant with respect to financial matters, had access to material
information about Registrant; and Mr. Bieber is a founder of Registrant and an
experienced investor and former director of Registrant. Accordingly, these
several 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, of which 372,375 shares were issued to John M. McCormack and
372,375 shares to William W. Nicholson, who were elected directors of
Registrant subsequent to this transaction. Registrant also issued 82,750 shares
to Mr. Thomas Fouts, a real estate broker, in consideration for acting as real
estate broker in such transaction. All of such shares were valued at $1.40 per
share. Messrs. McCormack and Nicholson are "accredited investors" with
substantial business experience who, by virtue of negotiating the sale of stock
of Gazelle Realty to Registrant, had access to material information regarding
an investment in Registrant. Mr. Stouts, a real estate broker, has substantial
business experience and close business relationships with Messrs. McCormack and
Nicholson and, accordingly, also was afforded access to material information
regarding Registrant to make an informed investment decision. Accordingly,
these issuances were exempt from registration under the Securities Act pursuant
to Section 4(2) thereunder.
II-2
<PAGE>
In November and December 1996, Registrant sold 550,001 shares of Common
Stock in a private placement to 15 investors at a purchase price of $1.60 per
share, for an aggregate of $880,000. Such investors were "accredited investors"
who completed investor questionnaires, subscription agreements and received
copies of a private placement memorandum describing the nature of Registrant
and the risks associated with an investment therein and were afforded the
opportunity to ask questions of and receive answers from Registrant's founders
and management. Accordingly, these issuances were exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.
In December 1996, Registrant sold 50,000 shares in a private placement to
Susan Jarvis, a Selling Stockholder in this Offering, at a purchase price of
$1.60 per share, for an aggregate of $80,000. Such Selling Stockholder is an
"accredited investor" who was a stockholder at the time of purchase, and has
had substantial previous business dealings with Registrant prior thereto,
having pledged personal collateral in connection with a bank loan by Registrant
in July 1996. Accordingly, this transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereunder.
In January 1997, Registrant sold 62,500 shares of Common Stock in a
private placement to 15 investors at a purchase price of $1.60 per share, for
an aggregate of $100,000, of which 17,188 shares were purchased by Mr.
Eichelberger's spouse. These investors were friends, relatives and associates
of Mr. Eichelberger, a founder and director of Registrant, who were provided
access to and informed of Registrant's business plan and financial statements.
Accordingly, these issuances were exempt from registration under the Securities
Act pursuant to Section 4(2) 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 the Fidelity Loan. This transaction was exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.
In January 1997, seven of Registrant's founding stockholders agreed to
contribute, and in April 1997, contributed, an aggregate of 247,496 shares of
Common Stock to Registrant. In June 1997, as part of Registrant's incentive
stock compensation program, 170,000 of such shares were issued to the following
key employees at a purchase price of $1.60 per share: Tommy L. Thompson,
Executive Vice President: 50,000 shares (pursuant to a preliminary employment
agreement dated January 14, 1997); Jerry M. Watson, Ph.D., Vice President of
Manufacturing and Systems Engineering: 25,000 shares (pursuant to a preliminary
employment agreement dated January 22, 1997); Carl W. Seidel, President and
Chief Executive Officer (pursuant to a preliminary employment agreement dated
March 21, 1997): 75,000 shares; and Gaylord King, a prospective employee of the
Company (pursuant to a preliminary employment agreement dated April 23, 1997).
Also, in June 1997, pursuant to an agreement by the Company on January 22,
1997, in consideration for the personal guarantees by Messrs. McCormack and
Nicholson of the Southwest Bank Line of Credit, Registrant sold 62,500 shares
of Common Stock to each of Messrs. McCormack and Nicholson at a purchase price
of $1.60 per share (comprised of the 77,496 share balance of the 247,496 shares
contributed by the founders in April 1997, and an additional 47,504 newly
issued shares of Common Stock). The key employees were all insiders who had
access to the kind of information provided in a registration statement, and
Messrs. McCormack and Nicholson are "accredited investors" with substantial
business experience who were directors of Registrant at the time of issuance
and, accordingly, also had access to the kind of information provided in a
registration statement. As a result, these issuances were exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder.
All stock certificates issued in connection with the foregoing
transactions were legended to reflect their restricted status.
II-3
<PAGE>
Item 27. Exhibits
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<S> <C> <C>
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.*
5.1 - Opinion by Epstein Becker & Green, P.C., as to legality of the shares of Common Stock
offered by the Company.
5.2 - Opinion of Locke Purnell Rain Harrell (A Professional Corporation), as to legality of the
shares of Common Stock offered by the Selling Stockholders.
10.1 - Copy of Registrant's 1997 Long Term Incentive Plan, including forms of non-qualified stock
option agreement, incentive stock option agreement and restricted stock purchase agreement.
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 Assignment Agreement dated June 5, 1997 (and effective February 11, 1996)
between Registrant and Hospital Financial Corporation.
10.4 - Intentially omitted.
10.5 - Intentially omitted.
10.6 - Copy of Real Estate Option Agreement effective December 13, 1996 among Registrant,
Terrano Realty Inc. and NW Realty 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.
10.8 - Copy of Employment Agreement effective May 5, 1997 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-8).
23.2 - Consent of Epstein Becker & Green, P.C. (included in Exhibit 5.1).
23.3 - Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in Exhibit 5.2).
24 - Power of Attorney (included as part of Signature Page).
27.1 - Financial Data Schedule as of March 31, 1997.
</TABLE>
- ----------------
*Previously filed.
II-4
<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.
The undersigned Registrant hereby undertakes that if the underwriter(s) in
the Offering covered by this Registration Statement enter into transactions
with any of the selling security holders named herein, or waive lock-
ups applicable to such selling securityholders, then:
(a) if such transaction or waiver of lock-up relates to not less than 5%
nor more than 10% of the registered selling securityholders'
securities, the Registrant will file a "sticker" supplement pursuant
to Rule 424(c) under the Act relating thereto; and
(b) if such transaction or lock-up relates to more than 10% of the
registered selling securityholders, the Registrant will file a
post-effective amendment to the Registration Statement relating
thereto.
II-5
<PAGE>
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that Carl W. Seidel, 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 Austin, State of Texas, on the 1st day of July, 1997.
INTERNATIONAL ISOTOPES INC.
By: /s/ Ira Lon Morgan
---------------------------------
Ira Lon Morgan
Chairman of the Board 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ ----
<S> <C> <C>
* IRA LON MORGAN Chairman of the Board, Treasurer
- ------------------------- and Director July 1, 1997
Ira Lon Morgan
/s/ CARL W. SEIDEL President, Chief Executive Officer
- ------------------------- and Director
Carl W. Seidel (Principal Executive Officer) July 1, 1997
* JOAN GILLETT Chief Financial Officer (Principal
- ------------------------- Financial and Accounting Officer July 1, 1997
Joan Gillett
* TOMMY L. THOMPSON Director July 1, 1997
- -------------------------
Tommy L. Thompson
* VIRGIL L. SIMMONS Director July 1, 1997
- -------------------------
Virgil L. Simmons
II-6
<PAGE>
Signature Title Date
--------- ------ ----
* JOHN M. MCCORMACK Director July 1, 1997
- -------------------------
John M. McCormack
* WILLIAM W. NICHOLSON Director July 1, 1997
- -------------------------
William W. Nicholson
* JAMES K. EICHELBERGER Director July 1, 1997
- -------------------------
James K. Eichelberger
* ROBERT J. GARY Director July 1, 1997
- -------------------------
Robert J. Gary
* FREDERICK J. BONTE Director July 1, 1997
- -------------------------
Frederick J. Bonte
</TABLE>
- -----------------------
* By: /s/ Ira Lon Morgan
------------------
Ira Lon Morgan
Attorney-in-Fact
II-7
[DESCRIPTION OF SPECIMEN COMMON STOCK CERTIFICATE -- FRONT]
- ---------------- ----------------
NUMBER SHARES
1 I3 INTERNATIONAL ISOTOPES INC.
- ---------------- ----------------
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
THIS CERTIFIES THAT CUSIP 45972C 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
INTERNATIONAL ISOTOPES INC. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles of Incorporation, as amended and the By-Laws of the Corporation, as
amended (copies of which are on file at the office of the Transfer Agent), to
all of which the holder of this Certificate by acceptance hereof assents. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile all of the Corporation and facsimile signatures of
its duly authorized officers.
Dated:
/s/ Virgil L. Simmons /s/ Ira L. Morgan
Senior Vice President and Secretary Chairman of the Board
INTERNATIONAL ISOTOPES INC.
TEXAS
1995
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
[DESCRIPTION OF SPECIMEN COMMON STOCK CERTIFICATE -- BACK]
INTERNATIONAL ISOTOPES INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act____________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received _______________________ hereby sell, assign and transfer onto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
________________________________________________________________________________
Shares
_________________________________________________________________________
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated _______________________
___________________________________
SIGNATURE
Signature Guaranteed By:
_________________________________
_________________________________
Bank or Member Firm of
a Stock Exchange
Signature(s) Guaranteed:
__________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT
TO S.E.C. RULE 17Ad-15.
Exhibit 5.1
EPSTEIN BECKER & GREEN, P.C.
ATTORNEYS AT LAW
250 Park Avenue
New York, NY 10177
(212) 351-4735
July 1, 1997
International Isotopes Inc.
2600 Longhorn Boulevard
Suite 105
Austin, Texas 78758
Ladies and Gentlemen:
We have acted as counsel to International Isotopes Inc. (the
"Company") in connection with its filing of a registration statement on Form
SB-2 (File No. 333-26269) (the "Registration Statement") covering 2,200,000
shares (2,430,000 shares if the underwriters' over-allotment option is fully
exercised) of the Company's authorized and unissued Common Stock, $.01 par value
(the "Company IPO Shares"). The Registration Statement also covers 100,000
shares of the Company's authorized and issued Common Stock, $.01 par value,
offered by certain selling stockholders of the Company, for which a separate
opinion of counsel is being provided.
As such counsel, we have examined original copies, or copies
certified to our satisfaction, of certain corporate records, agreements and
other instruments, certificates of public officials and such other documents as
we deemed necessary as a basis for the opinion hereinafter set forth.
On the basis of the foregoing, we are of the opinion that the
Company IPO Shares have been validly authorized and, when sold as contemplated
by the Registration Statement, will be legally issued, fully paid and
nonassessable.
<PAGE>
International Isotopes Inc.
July 1, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement.
EPSTEIN BECKER & GREEN, P.C.
By: /s/ Sidney Todres
---------------------
Sidney Todres
Exhibit 5.2
LOCKE PURNELL RAIN HARRELL
515 Congress Avenue
Suite 2500
Austin, Texas 78701
(512) 305-4716
June 30, 1997
International Isotopes Inc.
2600 Longhorn Boulevard
Suite 105
Austin, Texas 78758
Ladies and Gentlemen:
We have acted as counsel to International Isotopes Inc. (the
"Company") in connection with its filing of a registration statement on Form
SB-2 (File No. 333-26269) (the "Registration Statement") covering 100,000 shares
of the Company's authorized and issued Common Stock, $.01 par value, offered by
certain selling stockholders of the Company upon exercise of the underwriters'
over-allotment option (the "Selling Stockholder Shares"). The Registration
Statement also covers 2,200,000 shares (2,430,000 if the underwriters
over-allotment option is fully exercised) of the Company's authorized and
unissued shares of common stock, $.01 par value, for which a separate opinion of
counsel is being provided.
As such counsel, we have examined original copies, or copies
certified to our satisfaction, of certain corporate records, agreements and
other instruments, certificates of public officials and such other documents as
we deemed necessary as a basis for the opinion hereinafter set forth.
On the basis of the foregoing, we are of the opinion that the
Selling Stockholder Shares are validly authorized, legally issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement.
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
/s/ Locke Purnell Rain Harrell
International Isotopes Inc.
1997 Long-Term Incentive Plan
I. GENERAL
1. Purpose. The International Isotopes Inc. 1997 Long-Term Incentive Plan (the
"1997 Plan") has been established by INTERNATIONAL ISOTOPES INC. (the "Company")
to:
(a) attract and retain key executive and managerial employees, and closely
associate the interests of outside directors and consultants with the
shareholders of the Company;
(b) motivate participating employees, directors and consultants by means
of appropriate incentive, to achieve long-range goals;
(c) provide incentive compensation opportunities which are competitive
with those of other major corporations; and
(d) further identify Participants' interests with those of the Company's
other shareholders through compensation alternatives based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the holders of a majority
of the Stock of the Company present, or represented, and entitled to vote at a
meeting of its stockholders, the 1997 Plan shall be effective as of May 1, 1997,
provided, however, that awards made under the 1997 Plan prior to such approval
of the 1997 Plan by stockholders of the Company are contingent on such approval
of the 1997 Plan by the stockholders of the Company and shall be null and void
if such approval of the stockholders of the Company is withheld. The 1997 Plan
shall terminate on April 30, 2006.
3. Definitions. The following definitions are applicable to the 1997
Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
<PAGE>
"Disabled" means the inability of a Participant, by reason of a physical or
mental impairment, to engage in any substantial gainful activity, of which the
Board shall be the sole judge.
"Fair Market Value" of any Stock means (a) if the Stock is listed on a
national securities exchange, the closing price on the Stock on a given date;
(b) if the Stock is traded on an exchange or market in which prices are reported
on a bid and asked price, the average of the mean between the bid and asked
price for the Stock on a given date; and (c) if the Stock is not listed on a
national securities exchange nor traded on the over-the-counter market, such
value as the Committee, in good faith, shall determine.
"Option Date" means, with respect to any Stock Option, the date on which
the Stock Option is awarded under the 1997 Plan.
"Participant" means any employee of the Company or any Subsidiary, or any
non-employee member of the Board, or any consultant to the Company who is
selected by the Board to participate in the 1997 Plan.
"Permitted Transferees" means a member of an optionee's immediate family,
trusts for the benefit of such immediate family members, and partnerships in
which the optionee and/or such immediate family members are the only partners,
provided that no consideration is provided for the transfer. Immediate family
members shall include an optionee's descendants (children, grandchildren and
more remote descendants), and shall include step-children and relationships
arising from legal adoption.
"Performance Unit" shall have the meaning ascribed to it in Part VI.
"Related Company" means any corporation during any period in which it is a
Subsidiary, or during any period in which it directly or indirectly owns 50% or
more of the total combined voting power of all classes of stock of the Company
that are entitled to vote.
"Restricted Period" has the meaning ascribed to it in Part V.
"Restricted Stock" has the meaning ascribed to it in Part V.
"Retirement" means (i) termination of employment in accordance with the
retirement procedures set by the Company from time to time; (ii) termination of
employment because a participant becomes Disabled; or (iii) termination of
employment voluntarily with the consent of the Company (of which the Board shall
be the sole judge).
"Stock" means INTERNATIONAL ISOTOPES INC. common stock.
"Stock Appreciation Right" means the right of a holder of a Stock Option to
receive Stock or cash as described in Part IV.
<PAGE>
"Stock Option" means the right of a Participant to purchase Stock pursuant
to an Incentive Stock Option or Non-Qualified Option awarded pursuant to the
provisions of the 1997 Plan.
"Subsidiary" means any corporation during any period of which 50% or more
of the total combined voting power of all classes of stock entitled to vote is
owned, directly or indirectly, by the Company.
4. Administration. The authority to manage and control the operation and
administration of the 1997 Plan shall be vested in the Board. Subject to the
provisions of the 1997 Plan, the Board will have authority to select employees,
directors and/or consultants to receive awards of Stock Options with or without
tandem Stock Appreciation Rights, Restricted Stock and/or Performance Units, to
determine the time or times of receipt, to determine the types of awards and the
number of shares covered by the awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such awards, to
determine the number and value of Performance Units awarded and earned, and to
cancel, modify or suspend awards. In making such award determinations, the Board
may take into account the nature of services rendered by the respective
employee, director, or consultant, his or her present and potential contribution
to the Company's success and such other factors as the Board deems relevant. The
Board is authorized to interpret the 1997 Plan, to establish, amend, and rescind
any rules and regulations relating to the 1997 Plan, to determine the terms and
provisions of any agreements made pursuant to the 1997 Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the 1997 Plan.
The Board, in its discretion, may delegate any or all of its authority,
powers and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in itself
at any time. If appointed, the Committee shall function as follows: A majority
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by all members of the Committee, shall be the acts of the Committee,
unless provisions to the contrary are embodied in the Company's Bylaws or
resolutions duly adopted by the Board. All actions taken and decisions and
determinations made by the Board or the Committee pursuant to the Plan shall be
binding and conclusive on all persons interested in the Plan. No member of the
Board or the Committee shall be liable for any action or determination taken or
made in good faith with respect to the Plan.
5. Participation. Subject to the terms and conditions of the 1997 Plan,
the Board shall determine and designate, from time to time, the key executives
and managerial employees, directors and consultants of the Company and/or its
Subsidiaries who will participate in the 1997 Plan. In the discretion of the
Board, a Participant may be awarded Stock Options with or without tandem Stock
Appreciation Rights, Restricted Stock or Performance Units or any combination
thereof, and more than one award may be granted to a Participant. Except as
otherwise agreed to by the Company and the
<PAGE>
Participant, any award under the 1997 Plan shall not affect any previous award
to the Participant under the 1997 Plan or any other plan maintained by the
Company or its Subsidiaries.
6. Shares Subject to the 1997 Plan. The shares of Stock with respect to
which awards may be made under the 1997 Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the discretion
of the Board, shares purchased in the market). Subject to the provisions of
paragraph I.10, the number of shares of Stock available under the 1997 Plan for
the grant of Stock Options with or without tandem Stock Appreciation Rights,
Performance Units and Restricted Stock shall not exceed 600,000 shares in the
aggregate. If, for any reason, any award under the 1997 Plan otherwise
distributable in shares of Stock, or any portion of the award, shall expire,
terminate or be forfeited or cancelled, or be settled in cash pursuant to the
terms of the 1997 Plan and, therefore, any such shares are no longer
distributable under the award, such shares of Stock shall again be available for
award under the 1997 Plan. The maximum number of shares of Stock with respect to
which options or rights may be granted each calendar year to each employee shall
be 75,000.
7. Compliance With Applicable Laws and Withholding of Taxes.
Notwithstanding any other provision of the 1997 Plan, the Company shall have no
liability to issue any shares of Stock under the 1997 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1997 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares. All awards and payments under the 1997
Plan are subject to withholding of all applicable taxes, which withholding
obligations may be satisfied, with the consent of the Board, through the
surrender of shares of Stock which the Participant already owns, or to which a
Participant is otherwise entitled under the 1997 Plan. The Company shall have
the right to deduct from all amounts paid in cash in consequence of the exercise
of a Stock Option or Stock Appreciation Right or in connection with an award of
Restricted Stock or Performance Units under the 1997 Plan any taxes required by
law to be withheld with respect to such cash payments. Where an employee or
other person is entitled to receive shares of Stock pursuant to the exercise of
a Stock Option or a Stock Appreciation Right or with respect to an award of
Performance Units pursuant to the 1997 Plan, the Company shall have the right to
require the employee or such other person to pay to the Company the amount of
any taxes that the Company is required to withhold with respect to such shares,
or, in lieu thereof, to retain, or sell without notice, a sufficient number of
such shares to cover the amount required to be withheld. Upon the disposition
(within the meaning of Code Section 424(c)) of shares of Stock acquired pursuant
to the exercise of an Incentive Stock Option prior to the expiration of the
holding period requirements of Code Section 422(a)(1), the employee shall be
required to give notice to the Company of such disposition and the Company shall
have the right to require the employee to pay to the Company the amount of any
taxes that are required by law to be withheld with respect to such disposition.
Upon termination of the Restricted Period with respect to an award of Restricted
Stock (or such earlier time, if any, as an election is made by the employee
under
<PAGE>
Code Section 83(b), or any successor provisions thereto, to include the value of
such shares in taxable income), the Company shall have the right to require the
employee or other person receiving shares of Stock in respect of such Restricted
Stock award to pay to the Company the amount of taxes that the Company is
required to withhold with respect to such shares of Stock or, in lieu thereof,
to retain or sell without notice a sufficient number of shares of Stock held by
it to cover the amount required to be withheld. The Company shall have the right
to deduct from all dividends paid with respect to Restricted Stock the amount of
taxes that the Company is required to withhold with respect to such dividend
payments.
8. Transferability. Incentive Stock Options with or without tandem Stock
Appreciation Rights, Performance Units, and, during the period of restriction,
Restricted Stock awarded under the 1997 Plan are not transferable except as
designated by the Participant by will or by the laws of descent and
distribution. Incentive Stock Options with or without tandem Stock Appreciation
Rights may be exercised during the lifetime of the Participant only by the
Participant or his guardian or legal representative. If provided in the option
agreement, Non-Qualified Stock Options with or without tandem Stock Appreciation
Rights may be transferred by a Participant to Permitted Transferees, and may be
exercised either by the Participant, his guardian or legal representative, or by
a Permitted Transferee.
9. Employee, Director, Consultant and Stockholder Status. The 1997 Plan
does not constitute a contract of employment, and selection as a Participant
will not give any employee the right to be retained in the employ of the Company
or any Subsidiary, or any director or consultant the right to continue to serve
as a director or consultant of the Company or any Subsidiary. Subject to the
provisions of paragraph V.3(a), no award under the 1997 Plan shall confer upon
the holder thereof any right as a stockholder of the Company prior to the date
on which he fulfills all service requirements and other conditions for receipt
of shares of Stock. If the redistribution of shares is restricted pursuant to
paragraph I.7, certificates representing such shares may bear a legend referring
to such restrictions.
10. Adjustments to Number of Shares Subject to the 1997 Plan. Subject to
the following provisions of this paragraph 10, in the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, spinoff, recapitalization, merger, consolidation, combination, exchange
of shares or other similar change, the aggregate number of shares of Stock with
respect to which awards may be made under the 1997 Plan, the terms and the
number of shares of any outstanding Stock Options, Stock Appreciation Rights,
Performance Units, or Restricted Stock, and the purchase price of a share of
Stock under Stock Options, may be equitably adjusted by the Board in its sole
discretion.
11. Change in Control. The following provisions shall apply unless a
Participant's written agreement provides otherwise. If, while any Stock Options,
Stock Appreciation Rights, Restricted Shares or Performance Units are
outstanding under the 1997 Plan, there shall occur (a) a merger or consolidation
of the Company with or into
<PAGE>
another corporation in which the Company shall not be the surviving corporation,
(b) a dissolution of the Company, or (c) a transfer of all or substantially all
of the assets of the Company in one transaction or a series of related
transactions to one or more other persons or entities, then, with respect to
each Stock Option, Stock Appreciation Right and Restricted Stock outstanding
immediately prior to the consummation of such transaction, if provision is not
otherwise made in writing in connection with such transaction for the
substitution of securities of another corporation, and without the necessity of
any action by the Board of Directors, each such Stock Option, Stock Appreciation
Right, Restricted Stock or Performance Unit shall terminate, but (A) the holder
of any outstanding Stock Option shall be entitled, immediately prior to the
effective date of such transaction, to purchase the number of shares that are
then vested and exercisable; (B) the holder of any Stock Appreciation Right
shall be entitled, immediately prior to the effective date of such transaction,
to exercise such Right to the extent the Stock Option is exercisable at such
time in accordance with its terms; and (C) the recipient of any Performance Unit
shall be entitled, immediately prior to the effective date of such transaction,
to receive the then vested values under such Unit. The unexercised portion of
any Stock Option or Stock Appreciation Right, and all non-vested Restricted
Shares shall be deemed canceled, forfeited, and terminated as of the effective
date of such transaction.
12. Agreement With Company. At the time of any awards under the 1997 Plan,
the Board will require a Participant to enter into an agreement with the Company
in a form specified by the Board, agreeing to the terms and conditions of the
1997 Plan and to such additional terms and conditions, not inconsistent with the
1997 Plan, as the Board may, in its sole discretion, prescribe.
13. Amendment and Termination of 1997 Plan. Subject to the following
provisions of this paragraph 13, the Board may at any time and in any way amend,
suspend or terminate the 1997 Plan. No amendment of the 1997 Plan and, except as
provided in paragraph 10, no action by the Board shall, without further approval
of the stockholders of the Company, increase the total number of shares of Stock
with respect to which awards may be made under the 1997 Plan, materially
increase the benefits accruing to Participants under the 1997 Plan or materially
modify the requirements as to eligibility for participation in the 1997 Plan, if
stockholder approval of such amendment is a condition of Securities and Exchange
Commission Rule 16b-3 or the Code at the time such amendment is adopted. No
amendment, suspension or termination of the 1997 Plan shall alter or impair any
Stock Option with or without tandem Stock Appreciation Right, share of
Restricted Stock or Performance Unit previously awarded under the 1997 Plan
without the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the 1997 Plan
entitles the Participant to purchase shares of Stock at a price fixed at the
time the option is awarded, subject to the following terms of this Part II.
<PAGE>
2. Eligibility. The Board shall designate the Participants to whom
Incentive Stock Options, as described in section 422(b) of the Code or any
successor section thereto, are to be awarded under the 1997 Plan and shall
determine the number of option shares to be offered to each of them. Incentive
Stock Options may be awarded only to key executive and managerial employees, and
not to non-employee directors or consultants. In no event shall the aggregate
Fair Market Value (determined at the time the option is awarded) of Stock with
respect to which Incentive Stock Options are exercisable for the first time by
an individual during any calendar year (under all plans of the Company and all
Related Companies) exceed $100,000.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that in no
event shall such price be less than the greater of (a) 100% of the Fair Market
Value of a share of Stock as of the Option Date (or 110% of such Fair Market
Value if the holder of the option owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary)
or (b) the par value of a share of Stock on such date. To the extent provided by
the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. The exercise of an Incentive
Stock Option will result in the surrender of the related Stock Appreciation
Right, if any. In addition, unless restricted by the Board, Participants may
elect to pay the purchase price of shares of Stock purchased upon the exercise
of Incentive Stock Options in cash or through the delivery at the time of such
exercise of shares of Stock (valued at Fair Market Value as of the day of
exercise) already owned by the Participant, or any combination thereof,
equivalent to the purchase price of such Incentive Stock Options. A
Participant's payment of the purchase price in connection with the exercise of
an Incentive Stock Option through delivery of shares of Stock (the "ISO Stock")
that were acquired through the exercise of an Incentive Stock Option and that
have not been held for more than one year will be considered a disposition
(within the meaning of Code Section 424(c)) of the ISO Stock, resulting in the
disqualification of the ISO Stock from treatment as an incentive stock option
under Code Section 422, and the Participant's recognition of ordinary income.
Participants should consult with their tax advisors prior to electing to
exercise an Incentive Stock Option by this method.
5. Option Expiration Date. The "Expiration Date" with respect to an
Incentive Stock Option or any portion thereof awarded to a Participant under the
1997 Plan means the earliest of:
(a) the date that is 10 years after the date on which the Incentive Stock
Option is awarded (or, if the Participant owns stock possessing
<PAGE>
more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary, the date that is 5 years after the date
on which the Incentive Stock Option is awarded);
(b) the date established by the Board at the time of the award;
(c) the date that is one year after the Participant's employment with the
Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death;
or
(d) the date that is three months after the date the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the 1997
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part III.
2. Eligibility. The Board shall designate the Participants to whom
Non-Qualified Stock Options are to be awarded under the 1997 Plan and shall
determine the number of option shares to be offered to each of them.
3. Price. The purchase price of a share of Stock under each Non-Qualified
Stock Option shall be determined by the Board; provided, however, that in no
event shall such price be less than fifty percent (50%) of the Fair Market Value
of a share of Stock as of the Option Date. To the extent provided by the Board,
the full purchase price of each share of Stock purchased upon the exercise of
any Non-Qualified Stock Option shall be paid in cash or in shares of Stock
(valued at Fair Market Value as of the day of exercise), or in any combination
thereof, at the time of such exercise and, as soon as practicable thereafter, a
certificate representing the shares so purchased shall be delivered to the
person entitled thereto. In addition, unless restricted by the Board,
Participants may elect to pay the purchase price of shares of Stock purchased
upon the exercise of Non-Qualified Stock Options in cash or through the
constructive delivery at the time of such exercise of shares of Stock (valued at
Fair Market Value as of
<PAGE>
the day of exercise) already owned by the Participant, or any combination
thereof, equivalent to the purchase price of such Non-Qualified Stock Options,
and, as soon as practicable thereafter, a certificate representing the net
number of shares so purchased shall be delivered to the person entitled thereto.
Participants also may elect to pay, unless restricted by the Board, the purchase
price, in whole or in part, of shares of Stock purchased upon the exercise of
Non-Qualified Options through the Company's withholding of shares of Stock
(valued at Fair Market Value as of the day of exercise) that would otherwise by
issuable upon exercise of such options equivalent to the purchase price of such
Non-Qualified Stock Options and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto.
4. Exercise. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. The exercise of a Non-Qualified
Stock Option will result in the surrender of the related Stock Appreciation
Right, if any.
5. Option Expiration Date. The "Expiration Date" with respect to a
Non-Qualified Stock Option or any portion thereof awarded to a Participant under
the 1997 Plan means the earliest of:
(a) the date established by the Board at the time of the award;
(b) the date that is one year after the Participant's employment with the
Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death;
or
(c) the date that is three months after the date the Participant's
employment with the Company and all Related Companies is terminated by
reasons other than death or becoming Disabled, or three months after
the date the Participant's service as a director or consultant of the
Company and all Related Companies is terminated for any reason.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
IV. STOCK APPRECIATION RIGHTS
1. Definition. A Stock Appreciation Right is an award that may be granted
in tandem with a Non-Qualified Stock Option or Incentive Stock Option, and
entitles the holder to receive an amount equal to the difference between the
Fair Market Value of the shares of option Stock at the time of exercise of the
Stock Appreciation Right and the option price, subject to the applicable terms
and conditions of the tandem options and the following provisions of this Part
IV.
2. Eligibility. The Board may, in its discretion, award the holders of
any Incentive Stock Options or Non-Qualified Stock Options awarded under the
1997 Plan a Stock Appreciation Right under this Part IV concurrent with, or
subsequent to, the award of the option.
<PAGE>
3. Exercise. A Stock Appreciation Right may be exercised under the
applicable terms and conditions of the Incentive Stock Option or Non-Qualified
Stock Option with respect to which the Stock Appreciation Right is awarded. A
Stock Appreciation Right shall entitle the holder of a Stock Option to receive,
upon the exercise of the Stock Appreciation Right, shares of Stock (valued at
their Fair Market Value at the time of exercise), cash or a combination thereof,
in the discretion of the Board, in an amount equal in value to the excess of the
Fair Market Value of the shares of Stock subject to the Stock Appreciation Right
as of the date of such exercise over the purchase price of the Stock Option. The
exercise of a Stock Appreciation Right will result in the surrender of the
related Incentive Stock Option or Non-Qualified Stock Option.
4. Expiration Date. The "Expiration Date" with respect to a Stock
Appreciation Right shall be determined by the Board, and shall be not later than
the Expiration Date for the related Stock Option.
V. RESTRICTED STOCK
1. Definition. Restricted Stock awards are grants of Stock to
Participants, the vesting of which is subject to a required period of employment
or service as a director or consultant and any other conditions established by
the Board.
2. Eligibility. The Board shall designate the Participants to whom
Restricted Stock is to be awarded and the number of shares of Stock that are
subject to the award.
3. Terms and Conditions of Awards. All shares of Restricted Stock awarded
to Participants under the 1997 Plan shall be subject to the following terms and
conditions and to such other terms and conditions, not inconsistent with the
1997 Plan, as shall be prescribed by the Board in its sole discretion and as
shall be contained in the Agreement referred to in Part I, paragraph 12.
(a) Restricted Stock awarded to Participants may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as hereinafter
provided, for a period of five years or such shorter period as the
Board may determine, but not less than one year, after the time of the
award of such stock (the "Restricted Period"). Except for such
restrictions, the Participant as owner of such shares shall have all
the rights of a shareholder, including but not limited to the right to
vote such shares and, except as otherwise provided by the Board, the
right to receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the date of the
award of Restricted Stock, adjust the length of the Restricted Period
to account for individual circumstances of a Participant or group of
Participants, but in no case shall the length of the Restricted Period
be less than one year.
<PAGE>
(c) Except as otherwise determined by the Board in its sole discretion, a
Participant whose employment or service as a director or consultant
with the Company and all Related Companies terminates prior to the end
of the Restricted Period for any reason shall forfeit all shares of
Restricted Stock remaining subject to any outstanding Restricted Stock
Award.
(d) Each certificate issued in respect of shares of Restricted Stock
awarded under the 1997 Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate
may be deposited in a bank designated by the Board. Each such
certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the INTERNATIONAL ISOTOPES INC., 1997
Long-Term Incentive Plan and an agreement entered into between the
registered owner and INTERNATIONAL ISOTOPES INC. A copy of such plan
and agreement is on file in the office of the Secretary of
INTERNATIONAL ISOTOPES INC., 2600 Longhorn Blvd., Suite 105, Austin,
Texas.
(e) At the end of the Restricted Period for Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
4. Substitution of Cash. The Board may, in its discretion, substitute
cash equal to the Fair Market Value (determined as of the date of distribution)
of Stock otherwise required to be distributed to a Participant in accordance
with Part V, paragraph 3.
VI. PERFORMANCE UNITS
1. Definition. Performance Units are awards to Participants who may
receive value for the units at the end of a Performance Period. The number of
units earned, and value received for them, will be contingent on the degree to
which the performance measures established at the time of the initial award are
met.
2. Eligibility. The Board shall designate the Participants to whom
Performance Units are to be awarded, and the number of units to be the subject
of such awards.
3. Terms and Conditions of Awards. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of units,
which may be stated either in cash or in shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
performance period during which the performance measures will apply; the
relationship between the level of
<PAGE>
achievement of the performance measures and the degree to which Performance
Units are earned; whether, during or after the performance period, any revision
to the performance measures or performance period should be made to reflect
significant events or changes that occur during the performance period; and the
number of earned Performance Units that will be paid in cash and/or shares of
Stock.
4. Payment. The Board will compare the actual performance to the
performance measures established for the performance period and determine the
number of units to be paid and their value. Payment for units earned shall be
wholly in cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units to
be paid in cash and the number to be paid in Stock. For Performance Units valued
when awarded in shares of Stock, one share of Stock will be paid for each unit
earned, or cash will be paid for each unit earned equal to either (a) the Fair
Market Value of a share of Stock at the end of the Performance Period or (b) the
Fair Market Value of the Stock averaged for a number of days determined by the
Board. For Performance Units valued when awarded in cash, the value of each unit
earned will be paid in its initial cash value, or shares of Stock will be
distributed based on the cash value of the units earned divided by (a) the Fair
Market Value of a share of Stock at the end of the Performance Period or (b) the
Fair Market Value of a share of Stock averaged for a number of days determined
by the Board.
5. Retirement, Death or Termination. A Participant whose employment with
the Company and Related Companies terminates during a performance period because
of Retirement or death shall be entitled to the prorated value of earned
Performance Units, issued with respect to that performance period, at the
conclusion of the performance period based on the ratio of the months employed
during the period to the total months of the performance period. If the
Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, or if
a Participant's service as a director or consultant of the Company and Related
Companies terminates during a performance period for any reason, the Performance
Units issued with respect to that performance period will be forfeited on the
date his employment or service with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment or service as a director or consultant with the Company
and Related Companies terminates before the end of the Performance Period with
respect to any Performance Units awarded to him, the Board may determine that
the Participant will be entitled to receive all or any portion of the units that
he or she would otherwise receive, and may accelerate the determination and
payment of the value of such units or make such other adjustments as the Board,
in its sole discretion, deems desirable.
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE
INTERNATIONAL ISOTOPES INC.
1997 LONG TERM INCENTIVE PLAN
Date of Grant: ______________, 1997
Name of
Optionee: ___________
Number of Shares: ______
Price Per Share: _____________________
International Isotopes Inc., a Texas corporation (the "Corporation"),
hereby grants to the above-named optionee (the "Optionee") an option (the
"Option") to purchase from the Corporation, for the price per share set forth
above, the number of shares of Common Stock (the "Stock"), of the Corporation
set forth above pursuant to the International Isotopes Inc. 1997 Long Term
Incentive Plan (the "Plan"). This Option is not intended to constitute an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code,").
The terms and conditions of the Option granted hereby, to the extent
not controlled by the terms and conditions contained in the Plan, are as
follows:
1. The price at which each share of Stock subject to this Option may be
purchased shall be the price set forth above, subject to any adjustments that
may be made pursuant to the terms of the Plan.
2. This Option may not be exercised prior to approval of the Plan by
the Corporation's shareholders.
3. Subject to Section 2 above, this Option may be exercised only to the
extent that such Option is vested in accordance with the following table:
<PAGE>
May Be Purchased
----------------
Number of Shares Not Before Not After
---------------- ---------- ---------
______ 1 year from Grant 3 years and 1 day from
Grant
______ 2 years from Grant 3 years and 1 day from
Grant
______ 3 years from Grant 3 years and 1 day from
Grant
4. Except as provided in Section 8 hereof, this Option may not be
exercised unless the Optionee is in the employ of the Corporation or one of its
subsidiary corporations (within the meaning of Section 424(f) of the Code, and
each individually referred to herein as a "Subsidiary") at the time of such
exercise.
5. The Optionee (or his representative, guardian, devisee or heir, as
applicable) may exercise any portion of this Option that has become exercisable
in accordance with the terms hereof as to all or any of the shares of Stock then
available for purchase by delivering to the Corporation written notice
specifying:
(i) the number of whole shares of Stock to be purchased
together with payment in full of the aggregate option price of such
shares, provided that this Option may not be exercised for less than
fifty (50) shares of Stock or the number of shares of Stock remaining
subject to this Option, whichever is smaller;
(ii) the address to which dividends, notices, reports, etc.
are to be sent; and
(iii) the Optionee's social security number.
Payment shall be in cash, or by certified or cashier's check payable to the
order of the Corporation, free from all collection charges, by delivery of
shares of Common Stock already owned by the Optionee and having a fair market
value equal to the aggregate Option Price, or by a combination of cash and
shares of Common Stock. Only one certificate evidencing the Stock will be issued
unless the Optionee otherwise requests in writing. Shares of Stock purchased
upon exercise of the Option will be issued in the name of the Optionee. The
Optionee shall not be entitled to any rights and privileges as a shareholder of
the Corporation in respect of any shares of Stock covered by this Option until
such shares of Stock shall have been paid for in full and issued to the
Optionee.
6. As soon as practicable after the Corporation receives payment for
shares of Stock covered by this Option, it shall deliver a certificate or
certificates representing the shares of Stock so purchased to the Optionee. Such
certificate shall be registered in the name of the Optionee. Such stock
certificate shall carry such appropriate legends, and such written instructions
shall be given to the Corporation's transfer agent, if any, as may
-2-
<PAGE>
be deemed necessary or advisable by counsel to the Corporation in order to
comply with the requirements of the Securities Act of 1933, as amended, and any
state securities laws or any other applicable laws. If at the time the Optionee
desires to exercise this Option, a Shareholders Agreement is in effect, then, as
a condition precedent to the right of the Optionee to exercise the Option, the
Optionee will execute counterparts of the Shareholders Agreement and/or such
other instruments or documents as the Corporation may require pursuant to which
the Optionee shall become a party to the Shareholders Agreement and the stock
acquired by the Optionee upon exercise of the Option shall be subject to the
restrictions and terms of the Shareholders Agreement in all respects.
7. This Option is personal to the Optionee and during the Optionee's
lifetime may be exercised only by the Optionee or his guardian or representative
upon the events and in accordance with the terms and conditions set forth in the
Plan. This Option shall not be transferable other than by will or the laws of
descent and distribution.
8. If the Optionee's employment with the Corporation or any Subsidiary
shall terminate, then the terms and provisions of Article III of the Plan shall
govern the portion, if any, of this Option that remains unexercised as of the
date of such termination.
9. This Option does not confer on the Optionee any right to continue in
the employ of the Corporation or any Subsidiary or interfere in any way with the
right of the Corporation or any Subsidiary to determine the terms of the
Optionee's employment.
10. This Option and the terms and conditions herein set forth are
subject in all respects to the terms and conditions of the Plan, which shall be
controlling and are incorporated herein by reference. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to such terms in
the Plan. All interpretations or determinations of the Board of Directors with
respect to the Plan and this Option shall be binding and conclusive upon the
Optionee and his legal representatives with respect to any question arising
hereunder.
11. Optionee acknowledges and agrees that any powers, rights or
responsibilities of the Corporation's Board of Directors set forth herein may be
delegated to and exercised by the Committee as defined in and as permitted under
the Plan.
12. All notices hereunder to the parties to this Non-Qualified Stock
Option Agreement shall be delivered or mailed to the following addresses:
If to the Corporation:
International Isotopes Inc.
2600 Longhorn Blvd. Suite 105
Austin, Tx. 78758
Attention: Chief Financial Officer
-3-
<PAGE>
If to the Optionee:
_______________
______________________
______________________
Such addresses for the service of notices may be changed at any time provided
notice of such change is furnished in advance to the other party.
13. This Non-Qualified Stock Option Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without application
of the conflict of laws principles thereof, except to the extent preempted by
federal law, which shall govern to such extent.
IN WITNESS WHEREOF, the undersigned have caused this Non-Qualified
Stock Option Agreement to be duly executed as of the date first above written.
INTERNATIONAL ISOTOPES INC.
By:________________________
Name:______________________
Title:_____________________
OPTIONEE:
___________________________
__________
-4-
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
INTERNATIONAL ISOTOPES INC.
1997 LONG TERM INCENTIVE PLAN
Date of Grant:
Name of
Optionee:
Number of Shares:
Price Per Share: $_______________, 100% of the Fair Market Value
per Share of the Shares as of the date of grant
as determined in accordance with the 1997 Long
Term Incentive Plan
International Isotopes Inc., a Texas corporation (the "Corporation"),
hereby grants to the above-named optionee (the "Optionee") an option (the
"Option") to purchase from the Corporation, for the price per share set forth
above, the number of shares of Common Stock (the "Stock"), of the Corporation
set forth above pursuant to the International Isotopes Inc. 1997 Long Term
Incentive Plan (the "Plan"). This Option is intended to constitute an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
The terms and conditions of the Option granted hereby, to the extent
not controlled by the terms and conditions contained in the Plan, are as
follows:
1. The price at which each share of Stock subject to this Option may be
purchased shall be the price set forth above, subject to any adjustments that
may be made pursuant to the terms of the Plan.
2. This Option may not be exercised prior to approval of the Plan by
the Corporation's shareholders.
3. Subject to Section 2 above, this Option may be exercised only to the
extent that such Option is vested in accordance with the following table:
<PAGE>
May Be Purchased
----------------
Number of Shares Not Before Not After
---------------- ---------- ---------
______ 1 year from Grant 10 years from Grant
______ 2 years from Grant 10 years from Grant
______ 3 years from Grant 10 years from Grant
4. Except as provided in Section 8 hereof, this Option may not be
exercised unless the Optionee is in the employ of the Corporation or one of its
subsidiary corporations (within the meaning of Section 424(f) of the Code, and
each individually referred to herein as a "Subsidiary") at the time of such
exercise.
5. The Optionee (or his representative, guardian, devisee or heir, as
applicable) may exercise any portion of this Option that has become exercisable
in accordance with the terms hereof as to all or any of the shares of Stock then
available for purchase by delivering to the Corporation written notice
specifying:
(i) the number of whole shares of Stock to be purchased
together with payment in full of the aggregate option price of such
shares, provided that this Option may not be exercised for less than
fifty (50) shares of Stock or the number of shares of Stock remaining
subject to this Option, whichever is smaller;
(ii) the address to which dividends, notices, reports, etc.
are to be sent; and
(iii) the Optionee's social security number.
Payment shall be in cash, or by certified or cashier's check payable to the
order of the Corporation, free from all collection charges, by delivery of
shares of Common Stock already owned by the Optionee and having a fair market
value equal to the aggregate Option Price, or by a combination of cash and
shares of Common Stock. Only one certificate evidencing the Stock will be issued
unless the Optionee otherwise requests in writing. Shares of Stock purchased
upon exercise of the Option will be issued in the name of the Optionee. The
Optionee shall not be entitled to any rights and privileges as a shareholder of
the Corporation in respect of any shares of Stock covered by this Option until
such shares of Stock shall have been paid for in full and issued to the
Optionee.
6. As soon as practicable after the Corporation receives payment for
shares of Stock covered by this Option, it shall deliver a certificate or
certificates representing the shares of Stock so purchased to the Optionee. Such
certificate shall be registered in the name of the Optionee. Such stock
certificate shall carry such appropriate legends, and such written instructions
shall be given to the Corporation's transfer agent, if any, as may be deemed
necessary or advisable by counsel to the Corporation in order to comply with the
requirements of the Securities Act of 1933, as amended, and any state securities
laws or any other applicable laws. If at the time the Optionee desires to
exercise this Option, a Shareholders Agreement is in effect, then, as a
condition precedent to the right of the
<PAGE>
Optionee to exercise the Option, the Optionee will execute counterparts of the
Shareholders Agreement and/or such other instruments or documents as the
Corporation may require pursuant to which the Optionee shall become a party to
the Shareholders Agreement and the stock acquired by the Optionee upon exercise
of the Option shall be subject to the restrictions and terms of the Shareholders
Agreement in all respects.
7. This Option is personal to the Optionee and during the Optionee's
lifetime may be exercised only by the Optionee or his guardian or representative
upon the events and in accordance with the terms and conditions set forth in the
Plan. This Option shall not be transferable other than by will or the laws of
descent and distribution.
8. If the Optionee's employment with the Corporation or any Subsidiary
shall terminate, then the terms and provisions of Article II of the Plan shall
govern the portion, if any, of this Option that remains unexercised as of the
date of such termination.
9. This Option does not confer on the Optionee any right to continue in
the employ of the Corporation or any Subsidiary or interfere in any way with the
right of the Corporation or any Subsidiary to determine the terms of the
Optionee's employment.
10. This Option and the terms and conditions herein set forth are
subject in all respects to the terms and conditions of the Plan, which shall be
controlling and are incorporated herein by reference. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to such terms in
the Plan. All interpretations or determinations of the Board of Directors with
respect to the Plan and this Option shall be binding and conclusive upon the
Optionee and his legal representatives with respect to any question arising
hereunder.
11. Optionee acknowledges and agrees that any powers, rights or
responsibilities of the Corporation's Board of Directors set forth herein may be
delegated to and exercised by the Committee as defined in and as permitted under
the Plan.
12. All notices hereunder to the parties to this Incentive Stock Option
Agreement shall be delivered or mailed to the following addresses:
If to the Corporation:
International Isotopes Inc.
2600 Longhorn Suite 105
Austin TX 78758
Attention: Chief Financial Officer
If to the Optionee:
_______________
______________________
______________________
<PAGE>
Such addresses for the service of notices may be changed at any time provided
notice of such change is furnished in advance to the other party.
13. This Incentive Stock Option Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without application
of the conflict of laws principles thereof, except to the extent preempted by
federal law, which shall govern to such extent.
IN WITNESS WHEREOF, the undersigned have caused this Incentive Stock
Option Agreement to be duly executed as of the date first above written.
International Isotopes Inc.
By:________________________
Name:______________________
Title:_____________________
OPTIONEE:
___________________________
<PAGE>
INTERNATIONAL ISOTOPES INC.
RESTRICTED STOCK PURCHASE AGREEMENT
INTERNATIONAL ISOTOPES INC., a Texas Corporation (the
"Corporation"), pursuant to action of the Board of Directors, hereby awards to
___________ (the "Participant") a right to purchase _______ shares of the
Corporation's authorized and outstanding Common Stock, subject, however, to the
following terms and conditions:
1. 1997 Long-Term Incentive Plan. This Agreement is subject to
the INTERNATIONAL ISOTOPES INC. 1997 Long-Term Incentive Plan (the "Plan")
adopted by the Board of Directors on May 27, 1997, and effective on May 1, 1997.
A copy of the Plan is attached hereto. The terms and provisions of the Plan, and
any amendments thereto, are hereby incorporated herein and made a part thereof.
In the event of any conflict between the provisions of this Agreement and the
provisions of the Plan, the provisions of the Plan will prevail.
2. Right to Purchase Restricted Shares; Term. The Participant
may purchase shares of Common Stock for a purchase price equal to $____ per
share, in accordance with the table set forth below. The shares of Common Stock
awarded hereunder may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of during the Restricted Period:
Purchase Date Number of Shares Restricted Period
------------- ---------------- -----------------
_____, 1997 ______ Through ________,
1998
_____, 1998 ______ Through _________
__, 1999
The purchased shares shall also be subject to any "lock-up"
agreement entered into with the underwriter in the event of an initial public
offering. Subsequent to the "lock-up" period and after the Restricted Period,
the purchased shares may only be sold under Rule 144 under the General Rules and
Regulations under the Securities Act of 1933, solely through the underwriter,
and at a price that must exceed the initial public offering price.
3. Conditions. Participant is subject to the following
conditions during the Restricted Period:
a. Participant shall have all the rights of a
holder of the Corporation's Common Stock
including, but not limited to, the
<PAGE>
right to receive all dividends paid on such
shares and the right to vote such shares.
b. Participant will deposit the certificate(s)
for the shares, together with a Stock Power
endorsed in blank, with the Corporation and
such certificates will be held throughout
the term of the Restricted Period with
respect to such shares.
c. At the expiration of the Restricted Period
with respect to any shares of Common Stock,
Participant is entitled to possession of the
certificate(s) and all imposed restrictions
shall terminate.
4. Early Termination of Restricted Period. In the event that
the Participant ceases to be an employee of the Corporation by reason of (a)
death, (b) disability, (c) retirement with the Board's discretionary waiver of
the vesting requirements (as provided in Article V of the Plan), or (d)
Involuntary Termination (as defined herein) of his employment within a period of
one (1) year following a Change of Control, the restrictions imposed by Article
V of the Plan and those stated in Paragraphs 2 and 3 above shall lapse and the
Participant, his legal representatives or heirs will be entitled to unrestricted
ownership of such shares. In the event the Participant ceases to be a full-time
employee of the Corporation by reason other than (a) death, (b) disability, (c)
retirement with Board waiver, or (d) Involuntary Termination of employment
within a period of one (1) year following a Change of Control, all shares of
Stock previously awarded which are still subject to the restrictions imposed by
Article V of the Plan and those stated in Paragraphs 2 and 3 above shall be
forfeited and returned to the Corporation upon such termination of employment.
As used herein, "Involuntary Termination" occurs if the Paticipant is terminated
without Cause. "Cause" shall have the meaning as set forth in Participant's
Employment Agreement with the Corporation dated _________________.
5. Compliance with Federal Securities Laws. The Corporation
and Participant agree to comply with all applicable federal securities laws in
respect of the shares awarded hereunder and any resale or other transfer, if
any, of such shares by Participant.
6. Withholding Taxes. Participant shall advise the Corporation
within thirty (30) days of the date hereof whether the Participant wishes to be
taxed at the time of grant or at the time the Restricted Period expires. At the
time Participant elects to be taxed, Participant shall advise the Corporation
whether it shall withhold from regular compensation the amount of applicable
taxes or whether Participant shall pay the Corporation the amount of Federal tax
required to be withheld.
-2-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on this
the ____ day of ___________, 19__.
INTERNATIONAL ISOTOPES INC.
By:________________________
PARTICIPANT:
___________________________
____________
Social Security Number:
___________________________
Address of Record:
___________________________
___________________________
Participant's spouse joins in the execution of this Agreement to
signify her knowledge of, and consent to, the provisions of the Plan and the
Agreement as they may affect her community property interest in the shares of
Common Stock awarded to the Participant.
_______________________________________
Participant's Spouse
ASSIGNMENT AGREEMENT
--------------------
This Agreement, effective as of February 11, 1996, is made and entered into
this 5th day of June, 1997, between International Isotopes, Inc. ("International
Isotopes") (formerly named Applied Isotope Products Corp.), a Texas corporation
and Hospital Financial Corporation, a Delaware corporation d/b/a Hospital
Finance Corporation ("HFC"):
WHEREAS, HFC, CTX Systems Corporation ("CTX"), a Delaware Corporation and
wholly-owned subsidiary of HFC, and SKM, Incorporated ("SKM") entered into an
Agreement dated November 3, 1977 ("the Original Agreement"), relating to the
allocation of intellectual property rights arising out of a research and
development program by SKM partially funded by HFC relating to the construction
of an x-ray tomographic scanning prototype;
WHEREAS, the Original Agreement granted CTX an irrevocable, royalty-free
exclusive license to make, use or sell throughout the world in the Medical Field
x-ray scanner systems, or parts thereof, embodying the Project Inventions or
using the Project Data resulting from the research and development program;
WHEREAS, the Original Agreement granted CTX an irrevocable, royalty-free,
non-exclusive license to make, use or sell throughout the world in the Medical
Field x-ray scanner systems, or parts thereof, embodying SKM Inventions or using
SKM Proprietary Data;
WHEREAS, U.S. Patent No. 4,284,895 issued on August 18, 1981, and U.S.
Patent No.
<PAGE>
4,437,006 issued on March 13, 1984, cover inventions within the scope
of the Project Inventions licensed to CTX pursuant to the Original Agreement;
WHEREAS, CTX changed its name to Healthscan Corporation pursuant to the
Unanimous Consents and Certificate of Amendment dated March 5, 1981;
WHEREAS, CTX was merged into HFC on September 30, 1981 pursuant to a
Certificate of Ownership and Merger;
WHEREAS, HFC now holds CTX's rights under the Original Agreement, including
the exclusive licenses under U.S. Patent Nos. 4,284,895 and 4,437,006 to the
Medical Field, and desires to assign such rights and licenses to International
Isotopes;
WHEREAS, International Isotopes desires to obtain HFC's rights in the
Original Agreement, including the licenses previously described, and agrees to
assume all liabilities of HFC under the Original Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the parties agree as follows:
I. DEFINITIONS
A. "Patents" licensed hereunder means inventions claimed in United States
Letters Patent No.
2
<PAGE>
U.S. Patent Nos. 4,284,895 and 4,437,006.
B. "Scanners" subject to royalties hereunder means any apparatus or method
corresponding to a claim of "Patents".
C. "Licensee" means any entity to whom International Isotopes grants a license
to manufacture, use, or sell Scanners.
D. "Net Sales" means:
(1) If a Scanner is sold to a person not affiliated with International
Isotopes, Net Sales means the net proceeds received by International
Isotopes and/or Licensees for the sale or lease of Scanners, f.o.b.
factory, after deduction of standard discounts. If such Scanner is sold as
a subcomponent of a larger device or system, the "net selling price" of
said Scanner shall be calculated by multiplying the net selling price of
the larger device or system by the ratio of the sum of the costs of the
component parts and cost of assembly of said Scanner to the sum of the
costs of the component parts and cost of assembly of said larger device or
system. Such ratio shall be determined in accordance with generally
accepted accounting practices.
(2) The fair market value in all other cases of sale or use of a Scanner.
The fair market value for any Scanner used by International Isotopes and/or
Licensees shall be based, if possible, on average net selling prices for
equivalent Scanners sold during the same calendar six-month period in which
the Scanner is first used.
E. Scanners shall be deemed to have been sold or leased when billed out, when
shipped, or when paid for, whichever shall occur first.
F. "International Isotopes" means International Isotopes, Inc., its successors
and assigns,
3
<PAGE>
including the resultant of any merger or consolidation or the purchasers of all
or any substantial part of its assets and any affiliated company. "Affiliated
company" means any company of which International Isotopes, Inc. owns or
controls, directly or indirectly, fifty percent (50%) of the stock having the
right to vote for directors.
II. ASSIGNMENT
HFC agrees to sell, assign, transfer, set over and convey to International
Isotopes all of HFC's rights, title and interest in and to said Original
Agreement, including the exclusive licenses under U.S. Patent Nos. 4,284,895 and
4,437,006 in the Medical Field.
III. INITIAL PAYMENT AND ROYALTY
A. In consideration for the assignment to it of rights under the Original
Agreement, International Isotopes agrees to issue to HFC 10,000 shares as of the
effective date of this Agreement (which stock has subsequently split into 25,000
shares) in the common stock of International Isotopes.
B. During the term of this Agreement, International Isotopes also agrees to
pay to HFC a royalty of one percent (1%) of Net Sales of Scanners manufactured,
used, or sold by International Isotopes which are covered by a claim of one or
more Patents licensed to International Isotopes pursuant to this Agreement.
C. The royalty payments shall be made by International Isotopes to HFC within
sixty (60) days following the end of each calendar six-month period.
D. International Isotopes shall not be liable for royalties upon any Scanner
returned by a purchaser to International Isotopes for credit, and International
Isotopes shall have the right to deduct the amount of any such royalties already
paid from the amount of the royalties that may subsequently accrue. No royalty
shall be paid on the parts of Scanners that are sold as repairs or
4
<PAGE>
furnished as replacements to Scanners on which a royalty has previously been
paid.
IV. RECORDS AND REPORTS
A. International Isotopes shall keep, and shall require its Licensees to keep,
proper books of account with reference to all Scanners which it or they may
manufacture, sell, or use in accordance with the aforesaid Patents and shall
render semi-annual reports from such books to HFC, giving the number and net
selling prices of such apparatus as may have been manufactured, sold or used by
International Isotopes or its Licensees during the preceding six (6) months and
the amount of royalties payable to HFC, the said reports to be rendered at the
time of making the royalty payments designated in Article III. hereof.
B. International Isotopes shall also permit and require its Licensees to
permit HFC, through a duly accredited representative or certified public
accountant, to inspect such books of account as may be necessary to determine
the completeness and accuracy of the semi-annual reports and to make reasonable
extracts therefrom at reasonable times.
V. LITIGATION
If, during the continuation in force of this Agreement, litigation shall
result in a final court decision, from which no appeal or further review has or
may be taken, holding that a claim or claims of the Patents are invalid,
International Isotopes shall promptly notify HFC. If, as a result of any such
litigation, other claims of such Patents continue to provide protection for
Scanners, International Isotopes and HFC shall negotiate with each other in good
faith to establish a reduced minimum royalty rate based upon the reduced value
of such Patents. HFC, however, shall be entitled to retain the royalty payments
specified herein made to it up to the time of such decision.
5
<PAGE>
VI. WARRANTIES AND REPRESENTATIONS
A. HFC warrants that it has the right to convey its rights in and under the
Original Agreement described herein and that it has not executed, and will not
execute, any agreement in conflict herewith.
B. HFC makes no representation regarding whether any Scanners subject to this
Assignment Agreement infringe upon any other patent or other rights of any
person or entity not a party hereto. In addition, HFC makes no representation
that International Isotope will be successful in making, using and/or selling
Scanners.
C. HFC agrees to promptly execute and deliver to International Isotopes or its
legal representatives any and all papers, instruments or affidavits to which may
be necessary or desirable to carry out the purposes hereof.
D. International Isotopes agrees to assume HFC's obligations under the
Original Agreement.
VII. TERM
Unless previously terminated pursuant to this Agreement, this Agreement
shall terminate upon the expiration of the last of the patents subject to this
Agreement.
VIII. MISCELLANEOUS
A. The failure of either party to enforce at any time, or for any period of
time, a provision hereof shall not be construed to be a waiver of such provision
or the right of such party thereafter to enforce each and every such provision.
B. This Agreement represents the entire understanding and agreement between
the parties hereto relating to the assignment of the Patents referred to
hereinabove relating to tomographic scanning systems; and any and all prior
agreements, whether written or oral, that may exist between
6
<PAGE>
the parties regarding same are hereby superseded. In particular, this Agreement
supersedes the Assignment Agreement among the parties dated February 11, 1996.
C. No modification, renewal, extension and/or termination of this Agreement or
any provision herein contained shall be binding upon the parties against whom
enforcement of such modification, renewal, extension or termination is sought,
unless it is made in writing and signed on its behalf by its duly authorized
representative.
D. The invalidity or unenforceability of any provision hereof shall not affect
the validity or enforceability of any other provision.
E. This Agreement is to be interpreted in accordance with the substantive law
of the State of Texas in effect at the time of execution of this Agreement. This
Agreement is made and is to be performed in Travis County, Texas.
F. Any notice, communication or statement required or permitted to be given
hereunder shall be in writing and deemed to have been sufficiently given when
delivered in person or by U.S. certified mail, return receipt requested, to the
address of the respective parties:
Ira L. Morgan, Chairman and CEO
International Isotopes, Inc.
2600 Longhorn Blvd., Suite 105
Austin, Texas 78758
W.J. Lepeska, President
Hospital Financial Corporation
11330 Theo. Trecker Way
West Allis, WI 53214
or to a different address when such different address is provided to the other
party in writing pursuant to the terms of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in
multiple originals as of the date and year first written above.
INTERNATIONAL ISOTOPES, INC.
/s/ Ira L. Morgan
Ira L. Morgan, Chairman and CEO
HOSPITAL FINANCIAL CORPORATION
/s/ W.J. Lepeska
W.J. Lepeska, President
REAL ESTATE OPTION AGREEMENT
----------------------------
THIS REAL ESTATE OPTION AGREEMENT ("Agreement") is made and entered into by
and between Applied Isotope Products Corporation, a Texas corporation whose
address is 2600 Longhorn Blvd., Suite 105, Austin, Texas 78758 (the "Purchaser")
and Terrano Realty, Inc., ("Terrano") and NW Realty, Inc., ("NW"), both Texas
corporations whose addresses are 1303 Campbell Road, Houston, Texas 77055. The
term "seller" as used herein shall refer to Terrano or NW, or both, as
applicable.
WITNESSETH:
1. In accordance with the terms, covenants and conditions hereinafter set
forth, Terrano does hereby live and grant to Purchaser for the term set forth
herein the right and option to purchase the land (the "Terrano Land") described
in Exhibit A attached hereto and made a part hereof for all purposes, subject to
the conditions herein set forth, and NW does hereby give and grant to Purchaser
for the term set forth herein the right and option to purchase the land (the "NW
Land") described in Exhibit B attached hereto and made a part hereof for all
purposes, subject to the conditions herein set forth. The Terrano Land described
on Exhibit A hereto is divided into two tracts of land, called tract 4 and tract
7, tract 4 being hereinafter referred to as "Terrano Tract 4", and tract 7 being
hereinafter referred to as "Terrano Tract 7". The NW Land described on Exhibit B
attached hereto is divided into four separate tracts, being tracts 1, 6, 8 and
5, tract 1 being hereinafter called the "NW Tract 1", tract 6 being hereinafter
called the "NW Tract 6", tract 8 being hereinafter called the "NW Tract 8", and
tract 5 being hereinafter called the "NW Tract 5". The Terrano Land and the NW
Land collectively is referred to as the "Premises", and each tract comprising
the NW Land and the Terrano Land is a portion of the "Premises".
2. Purchase Price. The purchase price for NW Tract 5 is $60,000.00 per acre
of land comprising NW Tract 5. The purchase price for Terrano Tracts 4 and 7 is
$65,000.00 per acre of land comprising Terrano Tracts 4 and 7. The purchase
price for NW Tracts 1, 6 and 8 is $70,000.00 per acre of land comprising NW
Tracts 1, 6 and 8. The purchase prices shall be payable in cash, or by good and
sufficient bank cashier's check or (confirmed) wire transfer at Closing (as
hereinafter defined) in U.S. Dollars.
3. Exercise of Option. This option with respect to each Tract comprising
the Premises shall be deemed effectively exercised only if written Notice of
Exercise is given in such form as is reasonably calculated by the Purchaser to
inform NW or Terrano, as the case may be, of such exercise and is mailed by
certified mail to NW or Terrano, whichever is the applicable seller, at their
address as set forth in the first paragraph hereof, on or before the expiration
date of such option. Notice of such exercise which is given by mail shall be
deemed effective when received by the proper recipient. Notice of Exercise must
be given at least 90 days prior to Closing with respect to tile Tract or Tracts
to be purchased by Purchaser. This option shall be divided into three segments;
namely, NW Tract 5 being one segment, Terrano Tracts 4 and 7 being another
segment; and NW Tracts 1, 6 and 8 being another segment. Terrano Tracts 4 and 7
must be purchased and closed and paid for at the same time. NW Tracts 1, 6 and 8
must be closed and purchased and paid for at the same time. Accordingly, any
Notice of Exercise of this option must elect to purchase either NW Tract 5,
Terrano Tracts 4 and 7, or NW Tracts 1, 6 and 8. A Notice of Exercise will not
be deemed properly given if the Notice does not refer specifically to the Tract
or Tracts as to which the purchase will be consummated, and the Notice must be
as to either NW Tract 5, NW Tracts 1, 6 and 8, and/or Terrano Tracts 4 and 7,
and the Notice of Exercise must be accompanied by a good and sufficient bank
cashier's check in the amount of 10% of the applicable purchase price of the
Tracts to be purchased.
4. Closing. Closing of the first purchase hereunder must occur on or before
three (3) years after the Effective Date of this Agreement, and closing of all
purchases hereunder must occur on or before five (5) years after the Effective
Date of this Agreement. Each date of closing hereunder is referred to as the
"Closing Date". Closing shall take place at the offices
Page 1 of 7
<PAGE>
of NW or Terrano, whichever is the applicable seller, unless otherwise mutually
agreed in writing. Neither party need be present if written closing instructions
are delivered. Title to the applicable portion of the Premises purchased shall
be conveyed by one or more Special Warranty Deeds (the "Deed"). The seller shall
bear the expense of an Owner's Policy of Title Insurance (the "Title Policy") to
be issued at or as of Closing insuring Purchaser in the amount of the Purchase
Price, and of preparation of the Deed. All other closing costs shall be paid by
the party ordering the service to which such expenses pertain. The Title Policy
shall be issued by a Title Company selected by the seller (the "Title Company")
at or as of the Closing Date and shall insure Purchaser's title to the portion
of the Premises purchased, subject to the standard printed exceptions and
subject to all restrictions, easements, rights-of-way, conditions, reservations,
outstanding mineral and royalty interests, laws and ordinances, matters caused
by Purchaser and all matters of record or affecting the Premises, and matters
which a survey or inspection would reveal. The Deed shall be made and delivered
subject to any and all restrictive covenants, terms, conditions, contracts,
provisions, reservations, outstanding mineral and royalty interests, easements,
rights-of-way, laws and ordinances, and any other items of record, matters
caused by Purchaser, and matters which a survey or inspection would reveal,
pertaining to all or any portion of the Premises.
At Closing, ad valorem taxes, maintenance fees or assessments, MUD taxes,
standby fees, if any, homeowner's fees and assessments and other similar charges
attributable to ownership of the Premises (the "Taxes") shall be prorated
between seller and Purchaser as of the Closing Date. If the actual amounts of
any of such charges are unavailable as of the Closing Date, prorations shall be
made and based upon the most current information then available or, if there is
none, then based upon the previous calendar year's amounts. Purchaser shall,
upon Closing, assume all payment of all Taxes, including, but not limited to,
Taxes becoming due because of a change in land usage or ownership, and Purchaser
agrees to indemnify and hold harmless Seller from any and all claims and
liability for payment thereof. All prorations shall be final. If any land not
yet conveyed to Purchaser pursuant hereto is affected by any special assessment
or assessments caused by and attributable to improvements made by Purchaser or
others to or on any portion of the Premises or other land owned by Purchaser,
Purchaser shall reimburse Seller for the amount of such special assessment or
assessments paid by Seller at the time of the conveyance of such land pursuant
hereto.
At Closing, seller shall, if required by the Title Company, deliver to
Purchaser a "nonforeign person" certificate as permitted by Section 1445(b)(2),
Internal Revenue Code 1986, as amended.
5. Default: In the event that seller defaults under any of the provisions
of this Agreement, Purchaser shall, as its sole and exclusive remedy, have the
right to only either (i) terminate this Agreement upon written notice to seller,
or (ii) enforce specific performance, thereby waiving all claims against seller
and accepting whatever title seller is able to convey; provided, however, if
Purchaser is to enforce specific performance, then as a condition to Purchaser's
right to enforce specific performance Purchaser must notify seller affirmatively
in writing within five (5) days after seller's failure to comply or this remedy
is waived, whereupon Purchaser's sole and exclusive remedy shall be to terminate
this Agreement. Each of the following events shall constitute a default by
Purchaser hereunder:
(a) Purchaser's failure to close the purchase of either NW Tract 5,
Terrano Tracts 4 and 7, or NW Tracts 1, 6 and 8, on or before three
(3) years after the Effective Date of this Agreement;
(b) Purchaser's failure to timely perform or observe any of the covenants
or agreements set forth herein;
(c) The filing of any petition against or by Purchaser in any court,
whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension,
arrangement, or insolvency proceedings, and the adjudication
thereafter of Seller as a bankrupt, or the approval of such petition
by the court, or the court's
Page 2 of 7
<PAGE>
assuming jurisdiction of the subject matter, or not dismissing such
proceedings within ninety (90) days after the institution of the same;
(d) The appointment, in any proceeding, of a receiver or trustee for all
or any portion of the property of Purchaser, and the failure of such
receivership or trusteeship to be vacated within ninety (90) days
after the appointment of such receiver or trustee;
(e) An assignment for the benefit of creditors of Purchaser; and
(f) The dissolution of Purchaser in accordance with the provisions of the
Business Corporation Act of the State of Texas.
In the event Purchaser defaults under any of the terms of this Agreement,
seller shall have the right to terminate this Agreement upon written notice to
Purchaser. In no event shall Purchaser have the right to seek money damages of
any kind as a result of Seller's default under any of the terms of this
Agreement. In no event shall Seller be obligated to cure or remove title or
survey defects or objections.
6. Amendments: This Agreement, once properly signed by both parties, can be
modified or amended only by a written instrument, executed by authorized
representatives of each of the respective parties hereto.
7. Notice: All notices given pursuant to this Agreement, shall be served
via hand delivery, or certified mail, return receipt requested and shall be
addressed as follows:
If to Purchaser: Applied Isotope Products Corporation
Attn: Ira Lon Morgan
2600 Longhorn Blvd., Suite 105
Austin, Texas 78758
Facsimile (512) 834-2257
If to Seller: Terrano Realty, Inc. or NW Realty, Inc., as applicable
1303 Campbell Road
Houston, Texas 77055
Facsimile (713) 984-2632
Except as otherwise provided, Notices shall be deemed served as of the date of
actual delivery thereof, if hand delivered or faxed or two (2) days after
deposit with the U.S. Postal Service if served via certified mail.
8. Assignment: Purchaser may not assign this Agreement without sellers'
prior written consent, such consent to be given or denied in sellers' sole and
absolute discretion. Seller reserves the unilateral right, exercisable in
seller's sole discretion at any time prior to the Closing Date without the
necessity of obtaining Purchaser's consent, to convey the Premises to an
affiliate or designee of seller (a "Permitted Assignee") subject to the terms
and conditions of this Agreement. In such event, the Permitted Assignee shall
thereupon be responsible for performing all of seller's duties and obligations
under this Agreement, and the original party designated as the seller shall
thereafter be released from all duties and obligations hereunder. Purchaser
agrees to close the transaction contemplated herein with the Permitted Assignee,
subject to the terms and conditions of this Agreement.
9. Purchaser's Representations, Covenants and Warranties: Purchaser hereby
represents and warrants that each of the following statements are true and
correct. Purchaser hereby agrees to represent and warrant that such statements
are true and correct as of the Closing Date:
(a) Purchaser has the full right, power and authority to enter into this
Agreement and carry out its obligations under this Agreement;
Page 3 of 7
<PAGE>
(b) The person or persons executing this Agreement on behalf of Purchaser
are fully authorized to execute this Agreement on behalf of Purchaser;
(c) Purchaser has made a personal on-site inspection of the Premises prior
to the Purchaser's execution of this Agreement;
(d) Seller has not entered into any agreements with Purchaser to provide
or complete roads, sewers, water, gas, electric service, or any other
facilities or amenities related to the Premises;
(e) Seller has made no representations as to the provision or completion
by seller or anyone else of roads, sewers, water, gas, electric
service, or any other facilities or amenities related to the Premises;
(f) To the best of Purchaser's knowledge and belief, this Agreement (1) Is
not covered by the Interstate Land Sale Full Disclosure Act
("ILSFDA"); (2) qualifies for a statutory full exemption under the
ILSFDA; and (3) seller is not obligated to register the Premises or
provide Purchaser with a property report under the ILSFDA;
(g) At Closing Purchaser will execute the applicable form of notice of
deed restrictions, and any certificates and waivers and closing
statements as the Title Company may require.
Purchaser acknowledges that Seller is relying on the foregoing
representations and warranties and, that but for the above representations and
warranties, Seller would not enter into this Agreement.
10. Survival: All representations and warranties made by Purchaser and
Seller in this Agreement or in any document executed at the Closing, shall
survive the Closing.
11. Brokers: There is no broker fee or commission to be paid by seller.
Purchaser hereby agrees with Tom Fouts, as Broker, to pay to said Broker six
percent (6%) of the sales price of the Premises if, as and when sold and
conveyed by Purchaser to a third party, said commission to be paid in cash at
closing of each such sale.
12. Effective Date: This Agreement shall become effective upon the date
that the seller executes this Agreement (the "Effective Date"). The time periods
specified herein for the performance by either the Purchaser or the seller as to
any of the conditions specified herein, shall be calculated utilizing the
Effective Date unless the context specifically requires otherwise.
13. No Warranty: PURCHASER HEREBY EXPRESSLY ACKNOWLEDGES THAT SELLER HAS
NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES AS TO THE PHYSICAL
CONDITION OF THE PREMISES, OR ANY OTHER MATTER AFFECTING OR RELATING TO THE
HEREIN DESCRIBED PREMISES (EXCEPT ONLY THE SPECIAL WARRANTY OF TITLE TO BE
CONTAINED IN THE DEED) AND THAT THE PURCHASER HAS BEEN AFFORDED AN ADEQUATE
OPPORTUNITY TO INSPECT AND EVALUATE THE CONDITION OF THE PREMISES. SELLER
SPECIFICALLY DISCLAIMS ANY WARRANTY, GUARANTY OR REPRESENTATION, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, OR CONCERNING (i) THE NATURE AND
CONDITION OF THE PREMISES, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND
GEOLOGY, AND THE SUITABILITY THEREOF AND OF THE PREMISES FOR ANY AND ALL
ACTIVITIES AND USES WHICH PURCHASER MAY ELECT TO CONDUCT THEREON, AND THE
EXISTENCE OF ANY ENVIRONMENTAL HAZARDS OR CONDITIONS THEREIN OR COMPLIANCE WITH
ANY APPLICABLE LAWS, RULES OR REGULATIONS; (ii) THE NATURE AND EXTENT OF ANY
RIGHT-OF-WAY, LEASE, POSSESSION, LIEN, ENCUMBRANCE, LICENSE, RESERVATION,
CONDITION OR OTHERWISE; AND (iii) THE COMPLIANCE OF THE PREMISES OR ITS
OPERATION WITH ANY LAWS,
Page 4 of 7
<PAGE>
ORDINANCES OR REGULATIONS OF ANY GOVERNMENT OR OTHER BODY. PURCHASER HEREBY
EXPRESSLY ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS OR WARRANTIES HAVE BEEN
MADE, AND PURCHASER AGREES TO ACCEPT THE PREMISES "AS IS" AND "WHERE IS" AND
"WITH ALL FAULTS" AND WITHOUT WARRANTY, EITHER EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW, INCLUDING, BUT NOT LIMITED TO, THE MERCHANTABILITY OF THE
PREMISES OR OF ITS FITNESS FOR ANY PARTICULAR USE OR PURPOSE, OR OTHERWISE.
PURCHASER AGREES THAT THE FOREGOING DISCLAIMER MAY EITHER BE INSERTED IN THE
DEED TO BE DELIVERED AT CLOSING OR, ALTERNATIVELY, IN A CERTIFICATE DATED AS OF
CLOSING REFLECTING THE FOREGOING TO BE EXECUTED BY THE PARTIES AT CLOSING. THE
FOREGOING SHALL NOT AFFECT THE SPECIAL WARRANTY OF TITLE TO BE CONTAINED IN THE
DEED TO BE DELIVERED AT CLOSING.
PURCHASER IS PURCHASING THE PROPERTY AS IS, WHERE IS, AND WITH ALL FAULTS.
PURCHASER OR ANYONE CLAIMING BY, THROUGH OR UNDER PURCHASER, HEREBY FULLY
RELEASES SELLER, ITS SUCCESSORS, EXECUTORS AND REPRESENTATIVES, FROM ANY AND ALL
CLAIMS THAT PURCHASER MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST SELLER, ITS
SUCCESSORS, EXECUTORS OR REPRESENTATIVES, FOR ANY COST, LOSS, LIABILITY, DAMAGE,
EXPENSE, DEMAND, ACTION OR CAUSE OF ACTION ARISING FROM OR RELATED TO ANY
DEFECTS, ERRORS OMISSIONS, OR OTHER CONDITIONS AFFECTING THE SAID PREMISES,
INCLUDING THOSE RESULTING FROM THE NEGLIGENCE OF SELLER. PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT THIS RELEASE SHALL BE GIVEN FULL FORCE AND EFFECT
ACCORDING TO EACH OF ITS EXPRESS TERMS AND PROVISIONS, INCLUDING, BUT NOT
LIMITED TO, THOSE RELATING TO UNKNOWN AND UNSUSPECTED CLAIMS, DAMAGES AND CAUSES
OF ACTION. THIS COVENANT RELEASING SELLER SHALL BE A COVENANT RUNNING WITH THE
PREMISES AND SHALL BE BINDING UPON PURCHASER, ITS SUCCESSORS AND ASSIGNS.
The foregoing provisions in this paragraph 13 may be set forth in the Deed.
14. Condemnation: In the event any portion of the Premises is taken or
condemned (or voluntarily conveyed in lieu thereof) prior to Closing, seller
shall give notice thereof to Purchaser and Purchaser shall elect, within five
(5) business days after such notice from seller, to either (a) terminate this
Agreement, in which event neither party shall have any further rights, duties or
obligations hereunder; or, (b) elect to exercise the option with respect to the
Tract or Tracts affected by such taking or condemnation, subject to the other
provisions and conditions of this Agreement, and promptly proceed with the
Closing of such Tracts within 90 days after such exercise of the option, in
which event seller shall convey to Purchaser the unaffected portions of the
Tracts as to which Purchaser exercises its option, without reduction in the
purchase price, and in such event, Seller shall assign to Purchaser at Closing
all of Seller's right, title and interest in and to the condemnation awards or
other compensation payable to the Seller for that portion of the Premises
purchased by Purchaser which has been condemned, taken or conveyed.
15. Enforcement: Seller and Purchaser both hereby expressly agree that any
action brought by either party to either enforce or interpret any of the terms,
covenants and provisions hereof shall be brought in Harris County, Texas.
16. Donation: It is the intent of Seller to donate to an institution such
as University of North Texas, the tract of land described on Exhibit C attached
hereto and made a part hereof for all purposes. However, Purchaser understands
that there must be certain occurrences before the donation occurs, such as the
City agreeing to build the parkway street with utilities, the Purchaser
demonstrating financial stability to the satisfaction of the City, and Purchaser
agreeing to build its 35,000 square foot building on property owned by Purchaser
or its affiliate on the 20.00 acre tract of land situated between the land
described on Exhibit C and NW Tract 1, and
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the University of North Texas receiving certain grants from the federal
government, State of Texas, foundations or private donors, among other matters.
17. Miscellaneous:
(a) Neither this Agreement nor any memorandum thereof shall be recorded in
any public records. This Agreement shall be construed under and in
accordance with the laws of the State of Texas. In case any one or
more of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect,
that provision shall not affect any other provision hereunder. This
Agreement constitutes the sole agreement of the parties hereto and
supersedes any prior understanding or written or oral agreements
between the parties respecting the subject matter of this Agreement.
Words of any gender used in this Agreement shall be held and construed
to include any other gender and words in the singular number shall be
held to include the plural and vice versa unless the context requires
otherwise. The titles used in connection with the paragraphs of this
Agreement are for convenience only and should not be deemed to
construe, define or limit the meaning or effect of the provisions set
forth in this Agreement.
(b) This Agreement may be executed in multiple original counterparts, each
of which shall be deemed an original, and all such counterparts shall
together constitute but one and the same instrument in evidence of
this Agreement.
(c) If any of the parties hereto shall breach any of the terms,
provisions, representations or warranties in this Agreement and it
shall be necessary for the other party to employ an attorney to
enforce any of the terms and provisions of this Agreement, then said
defaulting party or parties shall be liable for and hereby agree to
pay reasonable attorney's fees and any and all reasonable costs and
expenses of enforcement incurred by the prevailing party in such
litigation or expenses of enforcement. Recovery under this
sub-paragraph shall be limited to the prevailing party involved in
such breach.
(d) In accordance with the requirements of Texas Real Estate License Act,
Purchaser is hereby advised by Broker that it should be furnished with
or obtain a policy of title insurance or have the abstract covering
the Premises examined by any attorney of its own selection.
(e) Time is of the essence of this Agreement.
(f) Whenever any determination is to be made or action to be taken on a
date specified in this Agreement, if such date shall fall upon a
Saturday, Sunday or holiday observed by federal savings banks in the
State of Texas, the date for such determination or action shall be
extended to the first business day immediately thereafter.
18. WAIVER OF CONSUMER RIGHTS: PURCHASER HAS WAIVED AND RELINQUISHED ALL
PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT
(CHAPTER 17, SUBCHAPTER E, OF THE TEXAS BUSINESS AND COMMERCE CODE), OTHER THAN
SECTION 17.555 THEREOF, IN CONNECTION WITH THE TRANSACTION CONTEMPLATED BY THIS
AGREEMENT, THE FULLEST EXTENT PERMITTED BY LAW. PURCHASER REPRESENTS AND
WARRANTS TO SELLER THAT: (A) PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION; (B) PURCHASER IS REPRESENTED BY LEGAL COUNSEL IN CONNECTION
WITH THE SALE CONTEMPLATED BY THIS AGREEMENT; AND (C) PURCHASER IS KNOWLEDGEABLE
AND EXPERIENCED IN THE PURCHASE, OPERATION, OWNERSHIP, DEVELOPMENT, AND SALE OF
REAL ESTATE, AND IS FULLY ABLE TO EVALUATE THE MERITS AND RISKS OF THIS
TRANSACTION. THIS WAIVER
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SHALL EXPRESSLY SURVIVE THE CLOSING OR TERMINATION OF THE TRANSACTION
CONTEMPLATED IN THIS AGREEMENT AND SHALL BE BINDING ON PURCHASER'S SUCCESSORS,
ASSIGNS AND THIRD PARTIES CLAIMING THROUGH PURCHASER.
I, THE UNDERSIGNED PURCHASER, WAIVE MY RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ, BUSINESS AND COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF MY OWN SELECTION, I VOLUNTARILY CONSENT TO THIS
WAIVER.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the dates hereinbelow set forth.
PURCHASER:
APPLIED ISOTOPE PRODUCTS CORPORATION
a Texas corporation
By: /s/ Virgil L. Simmons
Name: Virgil L. Simmons
Title: President
Date: 12/16/96
SELLER:
NW REALTY, INC.,
a Texas corporation
By: /s/ John M. McCormack
Name: John M. McCormack
Title: President
Date: 12/13/96
TERRANO REALTY, INC.,
a Texas corporation
By: /s/ John M. McCormack
Name: John M. McCormack
Title: President
Date: 12/13/96
[International Isotopes Inc. logo]
ADDENDUM TO LON MORGAN EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT - ROYALTY AGREEMENT
This amendment, effective as of December 31, 1996, is incorporated as a part of
the EMPLOYMENT - ROYALTY AGREEMENT between International Isotopes Inc. and Ira
Lon Morgan. The agreement has an effective date of November 1, 1995, and was
entered into on the 16th day of November, 1995.
Whereas, Section I., Employment; Salary, Royalties and Benefits provided for the
payment of Compensation at the rate of $100,000 for the period November 1, 1995
to October 31, 1996 and for $100,000 for the period November 1, 1996 to October
31, 1997, such compensation for the period November 1, 1995 to December 31, 1996
was calculated to be $137,487.06.
This amendment shall serve as an agreement between I.L. Morgan and International
Isotopes to modify the terms for the purpose of eliminating any compensation for
the period November 1, 1995 to December 31, 1996. The employee agrees to waive
any rights related to compensation for the period from November 1, 1995 to
December 31, 1996 excluding royalties and benefits which may be realized in the
future.
As described in Section VII. Miscellaneous, Item 4. Entire Agreement; Amendment,
this amendment shall be binding upon both parties if the amendment is made in
writing and signed by the parties concerned or by duly authorized representative
of such party. IN WITNESS WHEREOF, the parties have executed this agreement as
of the date and year first above written.
INTERNATIONAL ISOTOPES INC.
By: /s/ Virgil Simmons
Title: Senior Vice President
EMPLOYEE: /s/ Ira Lon Morgan
Ira Lon Morgan
Chairman
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (as it may be amended or supplemented, this
"Agreement") is entered into as of May 5, 1997 (the "Effective Date"), by and
between International Isotopes Inc., a Texas corporation ("Company"), and Carl
W. Seidel ("Employee").
RECITALS
--------
A. Company desires to employ Employee as its President and Chief
Executive Officer because of his experience and expertise and to secure his
services upon the terms and subject to the conditions set forth in this
Agreement.
B. Employee desires and is willing to accept such employment upon such
terms and subject to the conditions.
THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, Company and Employee agree
as follows:
1. Employment. Upon the terms and subject to the conditions contained in
this Agreement, Company hereby employs Employee; and Employee hereby accepts
such employment, upon such terms and subject to such conditions.
2. Duties and Authority.
2.1 Duties of Employee. During the term of this Agreement, Employee
will serve as Company's President and Chief Executive Officer and will
faithfully and to the best of his ability perform such duties consistent with
the position of President and Chief Executive Officer as are determined and
directed by the Board of Directors of Company, or as are necessary, in the
reasonable judgment of Employee, to carry out his duties under this Agreement.
In his capacity as President and Chief Executive Officer, Employee will be
generally responsible for the implementation of directives of, and policies and
procedures adopted by, the Board of Directors of Company and for the overall
day-to-day executive management of Company. In performing his duties under this
Agreement, Employee will fully support and cooperate with Company's efforts to
develop its markets, expand its business, and operate profitably and in
conformity with business and strategic plans approved from time to time by
Company's Board of Directors.
2.2 Direction from Board of Directors and the Chairman of the Board.
Employee will look primarily to the Board of Directors of Company for direction
and
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guidance as to the performance of Employee's duties under this Agreement;
however, to facilitate communication between Employee and the Board of Directors
of Company, Employee will report on the status of Employee's activities and the
performance of Employee's duties to the Chairman of the Board of Company at such
times as he may be requested to do so by the Chairman.
2.3 Employee's Authority. In performing his duties under this
Agreement, Employee will have such authority as is necessary for him to
implement the directives of, and policies and procedures adopted by, the Board
of Directors of Company and to oversee the management of Company's day to day
affairs; but, from time to time as thought appropriate by Employee or Company's
Chairman of the Board, Employee will discharge his duties in consultation with
and under the direction of the Chairman of the Board of Company. Without
limiting the generality of the foregoing, in exercising his authority as
President and Chief Executive Officer of Company, Employee will have the
authority for employing, dismissing, and assigning job duties and
responsibilities to Company's employees.
2.4 Election as an Officer. Company will cause Employee to be elected
to the office of President and Chief Executive Officer and Board of Directors
(as to such other offices, if any, as Company's Board of Directors determines to
be appropriate).
2.5 Time and Attention to Services. Employee will devote
substantially all of his time and attention to the performance of his duties to
Company during the term of this Agreement. Company, however, recognizes that
Employee may be engaged in other non-conflicting passive business investments
and in community activities unrelated to his duties under this Agreement that
will require some portion of his time, and Company hereby consents to Employee's
attention to such other activities so long as such activities (a) do not hinder
Employee's ability to perform his duties under this Agreement and (b) do not
represent a conflict of interest in contravention of the agreements contained in
paragraph 11 or a competitive activity in contravention of the agreements
contained in paragraph 13 of this Agreement.
3. Term and Termination.
3.1 Term. This Agreement is effective as of the Effective Date
and will continue in effect until May 5, 2002, unless it is (a) terminated in
accordance with paragraph 3.2 or (b) extended in accordance with paragraph 3.3.
3.2 Termination. This Agreement may be terminated prior to
May 5, 2002, as follows:
(a) Termination by Mutual Consent. This Agreement may be
terminated at any time by the written mutual consent of
Company and Employee.
(b) Termination By Company for Cause. This Agreement may be
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terminated by Company at any time for Cause by the delivery
to Employee of a written notice of termination stating the
effective date of termination and the basis upon which this
Agreement is being terminated. As used in this Agreement,
the term "Cause" means (a) a vote by the Board of Directors
of Company to effect the dissolution of Company, or (b) (i)
a material default in the performance of Employee's duties
under this Agreement, or (ii) Employee's dishonesty, willful
misconduct, breach of fiduciary duty involving personal
profit, willful violation of any law, rule, or regulation,
action (or omission) involving moral turpitude and
reflecting unfavorably upon the public image of Company or
its Affiliates, or action (or omission) abiding or abetting
a competitor, supplier or customer of Company or its
Affiliates to the material disadvantage of Company or its
Affiliates; and the term "Affiliate" means any other person
or entity who directly controls, is controlled by, or is
under common control with Company or any Affiliate of
Company (and "control" means possession, directly or
indirectly, of power to direct or cause the direction of
management or policies, whether through ownership of voting
securities or otherwise). In the event of termination for
Cause, Employee will be entitled to such salary and benefits
as have accrued under this Agreement through the effective
date of termination, but will not be entitled to any other
salary, benefits, or other compensation after such date.
(c) Termination By Company Without Cause. This Agreement may be
terminated by Company at any time without Cause by the
delivery to Employee of a written notice of termination not
less than 90 days prior to the effective date of
termination. Upon such termination, Employee will be paid
salary and benefits as provided in this Agreement through
the effective date of termination and for the period of
eighteen (18) months after such date; provided, that
Company, at its election, may pay Employee on or before the
effective date of termination a lump-sum severance payment
equal to the total cash compensation that would be payable
to Employee under this Agreement for the 32-month period
following the effective date of termination (under no
circumstances, however, will Company be obligated to pay any
bonus after the effective date of termination except for
bonus payments approved by the Board of Directors of Company
prior to the effective date of termination).
(d) Termination by Employee. This Agreement may be terminated by
Employee at any time, with or without Cause, by the delivery
to Company of a written notice of termination not less than
90 days prior to the effective date of termination. In the
event of termination by Employee, Employee will be entitled
to such salary and benefits as have accrued under this
Agreement through the effective date of termination, but
will not be entitled to any other salary, benefits, or other
compensation after such date.
(e) Termination Upon Death or Disability of Employee. This
Agreement will be terminated immediately upon the death or
permanent disability (which shall be determined in
accordance with Company's disability plan as then in effect,
or if no such plan is then in effect, as determined in good
faith by Company's Board of Directors at such time as
Employee becomes physically or mentally incapable or
properly performing his duties under this Agreement and such
incapacity will exist or can reasonably be expected to exist
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<PAGE>
for a period of ninety days or more) of Employee. In either
such event, Employee or his beneficiary as designated in
writing to Company (or his estate, if no such beneficiary
has been designated) will be entitled to such benefits (i)
as are consistent with Company policy then if effect or (ii)
as are determined by Company's Board of Directors in its
sole discretion.
3.3 Extension of Term. The term of this Agreement may be
extended beyond May 5 2002, by the mutual agreement of Employee and Company and
on such basis as Employee and Company shall agree. Each such extension, unless
expressly agreed otherwise by Employee and Company, will be for five(5), years
commencing on January 1 of the year following the expiration of the original or
any renewal term. Mutual agreement to extend the term of this Agreement shall be
evidenced by either (a) a written agreement executed by Company and Employee or
(b) the continuation of Employee's performance of services under this Agreement
with the approval of Company and without notice of termination given by Company
or Employee. Any extended term of this Agreement may be terminated as set forth
in paragraph 3.2 above, unless otherwise agreed in writing by Company and
Employee.
4. Compensation.
4.1 Base Annual Salary. In consideration for the performance of his
duties under this Agreement, Employee will be paid a base annual salary of
$175,000, which shall be payable (less applicable withholding for federal taxes)
in bi-weekly installments or otherwise in such manner as the salaries of other
executive officers of Company are paid in accordance with Company policy.
4.2 Annual Salary Review. Company's Board of Directors will review
Employee's salary level on an annual basis and may elect, on the basis of such
review, to increase Employee's base annual salary; but any such increase in
Employee's Salary will be made solely at the discretion of Company's Board of
Directors.
4.3 Bonus. In addition to the annual salary to be paid to Employee
pursuant to this Agreement, Employee will be considered for an annual bonus at
the end of each calendar or fiscal year of Company. The Board of Directors of
Company, at its discretion, will determine the amount of the bonus, if any, to
be paid to Employee after considering such factors related to the performance of
Employee and of Company during the preceding fiscal year as the Board of
Directors of Company determines to be appropriate; however, if Company meets
reasonable goals and objectives established by Company's Board of Director, and
if the Board of Directors believes, in its judgment, that Employee has performed
his duties under this Agreement in an exemplary manner, then it is anticipated
that any such bonus shall be approximately up to 50% percent of Employee's base
salary but not to exceed 10% of pretax profits. At its election, Company's Board
of Directors may elect to have any such bonus awarded (cash, Stock, annuities or
other) to Employee paid in a single payment on such date as the Board determines
(but no later than December 31 of the year next following the end of the fiscal
year for which the bonus is awarded) or in up to 12 equal
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<PAGE>
monthly installments beginning within 30 days following the date on which the
Company's Board of Directors resolves to award the bonus.
4.4 Independent Consideration. Concurrently with the execution of
this Agreement, Company is making a payment of $100 to Employee as independent
and additional consideration ("Independent Consideration") for Employee's
agreement to comply with the provisions of paragraph 13 of this Agreement for
the Applicable Period which is defined as the term of this employment agreement
and six months thereafter.
5. Expenses and Reimbursements. Employee will be entitled to
reimbursement for reasonable out-of-pocket expenses incurred by Employee that
are directly attributable to the performance of Employee's duties under this
Agreement. Employee will adhere to Company's customary practices and procedures
with respect to incurring out-of-pocket expenses and will present such expense
statements, receipts, vouchers, or other evidence supporting expenses incurred
by Employee as Company may from time to time request.
6. Benefits. During the term of this Agreement, Employee will be entitled
to the benefits generally provided or made available to other executive officers
of Company, including, but without limitation, such group medical (including
dental) insurance and life insurance benefits as are made available to employees
of Company generally and participation in any "cafeteria" plan or retirement
plan that may be available to employees of Company (subject, however, to (I)
eligibility and (ii) modification or elimination in accordance with Company's
standard policies as in effect from time to time) and to the following specific
benefits:
(a) Relocation. Company will pay the reasonable moving expenses
incurred by Employee in connection with his relocation from Boston ,Mass to
Denton, Tx in accordance with Company's standard policy for relocation of
employees, will reimburse Employee for reasonable temporary housing expenses for
a period of up to four months following the Effective Date, and will reimburse
Employee for incidental expenses reasonably incurred in connection with
Employee's relocation.
(b) Professional Dues and Charges. During the period between the
Effective Date and the first anniversary of his membership (based on an annual
membership contract), Company will reimburse Employee for the monthly dues and
other basic monthly charges incurred by Employee for a one-year term membership
in Professional Societies or Organizations which benefit the Company or
Professional development of Employee.
(c) Cellular Phone. Company will pay the basic monthly charge for a
cellular phone.
(d) Vacation. Employee will be entitled to such vacation time as is
allotted to other executive officers of Company (but in no event less than
four(4) weeks in
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any calendar year).
(f) Sick Leave. Employee will be entitled to the benefits, and
subject to all provisions of, Company's standard policies and procedures
regarding sick leave and time off.
7. Stock Options. As a material inducement to Employee to enter into this
Agreement, Company agrees that it will grant an option (the "Option") to
Employee to purchase up to 75,000 shares of common capital stock of Company (the
"Option Shares") (on the assumption that 4,024,000 shares of Company's common
stock will be issued and outstanding at the date of grant; if such assumption
proves to be incorrect, then the number of Option Shares will be adjusted to the
number which equals NA percent of the issued and outstanding shares of Company's
common stock on the date of grant) for fair market value and otherwise on terms
to be agreed upon between Company and Employee at a later date (though in no
event later than 30 days after the Effective Date). The Option will be evidenced
by a written agreement (the "Option Agreement") acceptable to, and executed by,
Company and Employee. The Option Agreement (a) will specify the purchase price
to be paid by Employee for the Option Shares upon his exercise of the Option
(which will be the fair market value of the Option Shares as determined in good
faith by Company's Board of Directors); (b) will provide that Employee may
exercise the option over a three(3) -year period as follows: (i) as to 33.3
percent of the Option Shares, on and after May 1998, (ii) as to 33.3 percent of
the Option Shares, on and after May 1999 (iii) as to 33.4 percent of the Option
Shares, on and after May 2000 (provided, that Employee remains employed by
Company on each of such dates); (c) will provide for such restrictions on
transferability as may be reasonably required by Company; and (d) will set forth
other terms and conditions related to the Option agreed upon by Company and
Employee. The foregoing notwithstanding, Employee acknowledges that Company is
engaged in discussions with a corporation (an "Acquiring Company") that has
expressed an interest in acquiring all the outstanding capital stock of Company
with the effect of Company becoming a wholly-owned subsidiary of such Acquiring
Company; and in such event Company agrees to act in good faith in an effort to
negotiate options in favor of Employee that would provide Employee an
opportunity, by their exercise, to acquire capital stock of the Acquiring
Company of comparable value to the Option Shares (and on substantially similar
terms to the terms upon which the Option is or would otherwise be granted by
Company).
8. Resources and Support.
8.1 Secretarial Support. Company will employ an experienced secretary
selected by Company, and acceptable to Employee, and will assign such secretary
to provide secretarial support to Employee (alone or in a sharing arrangement
with another executive officer of Company) during the term of this Agreement.
8.2 Computer Support. Company will provide Employee and his secretary
with compatible computers and such other computer equipment and software as
Company and Employee shall mutually determine.
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9. Confidentiality and Non-Disclosure. Employee acknowledges that in the
performance of his duties to Company under this Agreement he will gain a close,
personal, and special influence with Company's customers and suppliers and will
obtain and/or develop certain trade secrets and valuable, confidential
information of or pertaining to Company or its Affiliates, including, but
without limitation, information concerning the following: operations; business
opportunities; price and cost information; finances; customer names; customer
prospects, and customer lists; the terms of contracts with customers, suppliers,
and agents; business plans; marketing and sales plans; sales techniques;
manuals; letters; notebooks; procedures; reports; products; processes;
specifications; services; inventions; research and development; and other
concepts or ideas involving or relating to the business or prospective business
of Company (collectively, "Confidential Information"), which Confidential
Information has been or will be uniquely developed by or for Company or its
Affiliates and cannot be readily obtained by third parties from outside sources.
Employee accordingly agrees as follows:
(a) Detrimental Statements. For so long as this Agreement remains in
effect and for a period of 24 months after the date of termination or expiration
of this Agreement (the "Applicable Period"), Employee will not, directly or
indirectly, in any individual or representative capacity whatsoever, make any
statement, oral or written, or perform any act or omission which is or could be
detrimental in any material respect to the goodwill of Company, provided that
any truthful statement made by Employee in good faith shall not violate this
subparagraph.
(b) Covenant of Confidentiality. All Confidential Information and
other information communicated to Employee by, or otherwise belonging to,
Company, its Affiliates, or their customers, whether before or after the
Effective Date, shall at all times be held in strict confidence, shall be used
only for the purpose of this Agreement, and shall not be disclosed by Employee
without the prior written consent of Company, except as may be necessary by
reason of legal, accounting, or regulatory requirements beyond the reasonable
control of Employee.
(c) Return of Lists, Books, Records, and Property. Upon the
expiration of the term or termination of this Agreement, Employee will surrender
to Company all tangible Confidential Information in the possession of Employee,
including, but without limitation, the originals and all copies of all lists,
books, and records of or pertaining to any Confidential Information, and all
other property in the possession of Employee belonging to Company or any of its
Affiliates.
(d) Right to Injunctive Relief. Employee acknowledges that a
violation or attempted violation on his part of any agreement in this paragraph
9 will cause irreparable damage to Company and to its Affiliates, and
accordingly Employee agrees that Company shall be entitled as a matter of right
to an injunction, out of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by Employee;
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and such right to an injunction shall be cumulative and in addition to whatever
other remedies Company may have.
(e) Survival of Terms. The terms and agreements set forth in this
paragraph 9 shall survive the expiration of the term or termination of this
Agreement regardless of the reason. The existence of any claim of Employee,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Company of the agreements contained in this
paragraph 9.
(f) Separate Non-Disclosure Agreement. If after the Effective Date
Company so requests, Employee will enter into a separate non-disclosure
agreement the provisions of which are substantially the same as those contained
in this paragraph 9.
10. Proprietary Information. Employee agrees to promptly and freely
disclose to Company in writing any and all ideas, conceptions, inventions,
improvements, suggestions for improvements, discoveries, formulae, processes,
designs, software, hardware, circuitry, diagrams, copyrights, trade secrets, and
any other proprietary information (collectively, "Proprietary Information"),
whether patentable or not, which are conceived, developed, and made or acquired
by Employee, alone or jointly with others, during the period of his employment
by Company or using Company's time, data, facilities, and/or materials, and
which are related to the products, business, or activities of Company or which
Employee conceives, develops, makes, or acquires as a result of his employment
by Company, and Employee agrees to assign and hereby does assign all of his
right, title, and interest therein to Company. Whenever requested to do so by
Company, Employee will execute applications, assignments, or other instruments
which Company deems necessary to apply for and obtain letters patent or
copyrights of the United States or any foreign country, to otherwise protect
Company's interest in any Proprietary Information, or to vest title to any
Proprietary Information in Company. These obligations shall continue beyond the
expiration or termination of Employee's employment, regardless of the reason for
such termination, with respect to any Proprietary Information conceived,
developed, made, or acquired by Employee during the period of his employment and
shall be binding upon Employee's assigns, executors, administrators, and other
legal representatives.
11. Conflict of Interest. In keeping with Employee's fiduciary duties to
Company, Employee agrees that while employed by Company he will not, acting
along or in conjunction with others, directly or indirectly, become involved in
a conflict of interest or, upon discovery thereof, allow a conflict of interest
to continue. Moreover, Employee agrees that he will immediately disclose to the
Board of Directors of Company any facts which might involve any reasonable
possibility of a conflict of interest. It is agreed that any direct or indirect
interest in, connection with, or benefit from any outside activities, where such
interest might in any way adversely affect Company, involves a possible conflict
of interest. Circumstances in which a conflict of interest on the part of
Employee might arise, and which must be reported immediately by Employee to the
Board of Directors of Company, include,
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but are not limited to, the following: (a) ownership of a material interest in
any supplier, contractor, subcontractor, customer, or other entity with which
Company does business; (b) acting in any capacity, including director, officer,
partner, consultant, employee, distributor, agent, or the like, for a supplier,
contractor, subcontractor, customer, or other entity with which Company does
business; (c) accepting, directly or indirectly, payment, service, or loans from
a supplier, contractor, subcontractor, customer, or other entity with which
Company does business, including, but not limited to, gifts, trips,
entertainment, or other favors of more than a nominal value; (d) misuse of
Company's information or facilities to which Employee has access in a manner
which will be detrimental to Company's interest, such as utilization for
Employee's own benefit of know-how, inventions, or information developed through
Company's business activities; (e) disclosure or other misuse of Confidential
Information of any kind obtained through Employee's connection with Company; (f)
the ownership, directly or indirectly, of a material interest in an enterprise
in competition with Company, or acting as an owner, director, principal,
officer, partner, consultant, employee, agent, servant, or otherwise of any
enterprise which is in competition with Company; and (g) appropriation of a
Corporate Opportunity, as defined in paragraph 12 of this Agreement. Company
acknowledges that Employee has disclosed that he has a financial interest as a
shareholder of E. I. Du Pont ("Du Pont"), a corporation that engages in certain
manufacturing activities that could be in competition with certain activities of
the Company. Company and Employee agree to act in good faith in a mutual effort
to resolve any conflicts of interest that may result from Employee's involvement
with Du Pont ; however, while Company is committed to an effort to resolve any
such conflicts in a manner that is fair and reasonable to Company and Employee,
Company waives no rights under this Agreement in the event such efforts shall
prove to be unsuccessful and Employee acknowledges that Company is under no
obligation to waive any such rights.
12. Corporate Opportunities. Employee acknowledges that during the course
of his employment by Company he may be offered or become aware of business or
investment opportunities in which Company may or might have an interest (a
"Corporate Opportunity") and that he has a duty to advise Company of any such
Corporate Opportunities before acting upon them. Accordingly, Employee agrees
(a) that he will disclose to Company's Board of Directors any Corporate
Opportunity offered to Employee or of which Employee becomes aware, and (b) that
he will not act upon any Corporate Opportunity for his own benefit or for the
benefit of any person or entity other than Company without first obtaining the
consent or approval of Company's Board of Directors (whose consent or approval
may be granted or denied solely at the discretion of Company's Board of
Directors).
13. Non-Competition.
13.1 Covenant Not to Compete. As an ancillary covenant to the terms
and conditions set forth elsewhere in this Agreement, and in particular the
covenants set forth in paragraph 9, paragraph 10, and paragraph 11 above, and in
consideration of the mutual promises set forth in this Agreement and other good
and valuable consideration received and
Page 9
<PAGE>
to be received, including, but without limitation, the Independent
Consideration, which has been paid to Employee in consideration of Employee's
agreement to comply with the terms and conditions of this paragraph 13, Employee
agrees that, during the term of this Agreement, and throughout the Applicable
Period (term of employment agreement and six months thereafter), Employee will
not, directly or indirectly, own or become employed by or otherwise provide
consulting services to, any business engaged or planning to become engaged in
the business of providing or marketing of radioisotopes or medical
instrumentation or any business competitive with Company prior to the date of
termination of this Agreement, in the U. S. and any other country in which
Company commences business while this Agreement remains in effect. Employee
understands that the current business activities of Company and its Affiliates
include manufacturing radioisotopes and medical instrumentation and that Company
and its Affiliates have plans to expand the scope of such activities and the
geographic area of operations of Company and its Affiliates in the near future
with the direct involvement of Employee, therefore, Employee agrees that the
limitations as to time, geographical area, and scope of activity contained in
this covenant do not impose a greater restraint than is necessary to protect the
goodwill and other business interests of Company. If any provision of this
covenant is found to be invalid in part or in whole, Company may elect, but
shall not be required, to have such provision reformed, whether as to time, area
covered, or otherwise, as and to the extent required for its validity under
applicable law and, as so reformed, such provision shall be enforceable.
13.2 Right to Injunctive Relief. Employee acknowledges that a
violation or attempted violation on his part of any agreement in this paragraph
13 will cause irreparable damage to Company and its Affiliates, and accordingly
Employee agrees that Company shall be entitled as a manner of right to an
injunction, out of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by Employee; such right to an
injunction, however, shall be cumulative and in addition to whatever other
remedies Company may have. Furthermore, Employee shall be entitled to seek a
declaratory judgment regarding any conduct or enterprise to determine whether or
not such conduct or violation is violative of the terms of this Agreement;
provided however, that no suit shall be filed until Employee has given Company
at least 15 days to respond to Employee's written request for permission to
undertake certain requested acts. The terms and agreements set forth in this
paragraph 13 shall survive the expiration of the term or termination of this
Agreement for any reason. The existence of any claim of Employee, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the agreements contained in this paragraph 13.13.3
Separate Non-Competition Agreement. If after the Effective Date Company so
requests, Employee will enter into a separate non-competition agreement the
provisions of which are substantially the same as those contained in this
paragraph 13.
13.3 Separate Non-Competition Agreement. If after the Effective Date
Company so requests, Employee will enter into a separate non-competition
agreement the provisions of which are substantially the same as those contained
in this paragraph 13.
14. Indemnification. Company, shall, and does hereby, indemnify and agree
to hold Employee harmless to the fullest extent provided to officers and
directors of Company under the Charter of Company's First Amended and Restated
Charter, as amended from time
Page 10
<PAGE>
to time (the "Charter Indemnification"); provided that (a) Employee shall be
entitled to all benefits provided to directors of Company under the Charter
Indemnification, whether or not Employee is, or at any time is elected, a
director of Company; (b) any determination of indemnification made under the
Charter Indemnification with respect to Employee shall be made by special legal
counsel selected by the mutual agreement of Company's Board of Directors and
Employee (or, if Company's Board of Directors and Employee cannot agree, then by
Company, but in such case, such legal counsel must be a partner or shareholder
in a law firm headquartered in the State of Texas and having no fewer than 100
lawyers); and (c) if for any reason the Charter Indemnification has been
terminated or is otherwise inapplicable to Employee, Employee shall be entitled
to indemnification to the fullest extent that a corporation may grant
indemnification to a director, officer, and employee under the Texas Business
Corporation Act, as the same exists or as it may hereafter be amended ("TBCA"),
if Employee was, or is threatened to be made a named defendant or respondent in
a preceding (as hereinafter defined) because Employee (i) is or was an employee
of Company or an Affiliate of Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or in a similar position in a partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise in which Employee serves on behalf of Company or at Company's
request. In the event of Employee's death such right shall inure to the benefit
of Employee's heirs, successors, and assigns. The indemnification granted to
Employee hereunder is a contract right and shall survive the expiration of the
term or termination of this Agreement and Company shall be obligated to
indemnify Employee pursuant to and in accordance with this paragraph 14
regardless of whether this Agreement shall have expired or shall have been
terminated. The rights conferred above shall not be exclusive of any other right
which Employee may have or hereafter acquire under any statute, bylaw,
resolution of shareholders or directors, agreement or otherwise. As used in this
paragraph, the term "proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether a civil, criminal, or administrative
proceeding or an arbitration or investigation, any appeal in any such action,
suit, or proceeding, and any inquiry or investigation that could lead to such an
action, suit, or proceeding.
15. Company's Right of Offset. Should Employee at any time be indebted to
Company, or otherwise obligated to pay money to Company for any reason, Company,
at its election, may offset amounts otherwise payable to Employee under this
Agreement, including, but without limitation, salary and bonus payments, against
any such indebtedness or amounts due from Employee to Company.
16. Miscellaneous.
16.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS.
16.2 Entirety and Amendments. This Agreement embodies the entire agreement
between the parties and supersedes all prior agreements and understandings
Page 11
<PAGE>
relating to the subject matter hereof. This Agreement may be amended or modified
only in writing executed by Employee and the Chairman of the Board of Directors
of Company or another officer of Company expressly authorized by Company's Board
of Directors.
16.3 Notices. Any notice or other communication hereunder must be in
writing to be effective and shall be deemed to have been given when personally
delivered to Employee or Company or, if mailed, on the third day after it is
enclosed in an envelope and sent certified mail/return receipt requested in the
United States mail. Either party may from time to time change its address for
notification purposes by giving the other party written notice of the new
address and the date upon which it will become effective. The address for each
party for notices hereunder is as follows:
Employee: Carl W. Seidel
25 Ruth Allen Road
Chelmsford, MA 01824
Company: International Isotopes Inc.
2600 Longhorn Boulevard, Suite 105
Austin, TX 78758
16.4 Attorney's Fees. In the event that either party is required to
obtain the services of an attorney in order to enforce any right or obligation
hereunder, the prevailing party shall be entitled to recover reasonable
attorney's fees and court costs from the other party.
16.5 Assignability; Binding Nature. Neither this Agreement nor any
right, duty, obligation, or interest hereunder may be assigned or delegated by
one party hereto without the prior written consent of the other party hereto.
This Agreement is binding upon Company and Employee and their respective
successors, heirs and assigns. Notwithstanding anything to the contrary herein,
the rights and obligations of Employer hereunder may be assigned by Employer to
any Affiliate of Employer or any entity that succeeds to all or substantially
all of the assets of Employer or such Affiliate through merger, consolidation,
liquidation, acquisition of assets, or otherwise.
16.6 Headings. The headings of paragraphs contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
16.7 Severability. If, but only to the extent that, any provision of
this Agreement is declared or found to be illegal, unenforceable, or void, then
both Company and Employee shall be relieved of all obligations arising under
such provision, it being the intent and agreement of Company and Employee that
this Agreement shall be deemed amended by modifying such provision to the extent
necessary to make it legal and
Page 12
<PAGE>
enforceable while preserving its intent. If such amendment is not possible,
another provision that is legal and enforceable and achieves the same objective
shall be substituted therefor. If the remainder of this Agreement is not
affected by such declaration or finding and is capable of substantial
performance by both Company and Employee, then the remainder shall be enforced
to the extent permitted by law.
16.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be part of the same instrument.
Executed as of the Effective Date set forth above by:
International Isotopes Inc.
By: /s/ Ira Lon Morgan /s/ Carl W. Seidel
---------------------------------- ---------------------------------
Ira Lon Morgan Carl W. Seidel
Title: Chairman Title: President & CEO
------------------------------ --------------------------
Date: 4-8-97 Date: 4/10/97
------------------------------ --------------------------
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
(No. 333-26269) 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 the reference to our firm under the
captions "Experts" and "Selected Consolidated Financial Data" in the
Registration Statement.
KPMG Peat Marwick LLP
Dallas, Texas
July 2, 1997
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