-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mct7wHQFccGg458g3CoeUkTPwcUZcTDBZ8m6U1tMwxN2tuWkmeSgXS2fBDl74g/9 BtCsaQjsdQDPHfXspwK7mA== 0001047469-99-031465.txt : 19990813 0001047469-99-031465.hdr.sgml : 19990813 ACCESSION NUMBER: 0001047469-99-031465 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990812 GROUP MEMBERS: ADAM SMITH & COMPANY, INC, GROUP MEMBERS: ADAM SMITH CAPITAL MANAGEMENT LLC GROUP MEMBERS: ADAM SMITH INVESTMENT PARTNERS LP GROUP MEMBERS: ADAM SMITH INVESTMENTS, LTD. GROUP MEMBERS: DIAMOND CAPITAL MANAGEMENT INC. GROUP MEMBERS: GROSSMAN RICHARD /NY/ GROUP MEMBERS: ORIN HIRSCHMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ISONICS CORP CENTRAL INDEX KEY: 0001023966 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 770338561 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-56669 FILM NUMBER: 99686057 BUSINESS ADDRESS: STREET 1: 20 GREAT OAKS BLVD STREET 2: SUITE 220 CITY: SAN JOSE STATE: CA ZIP: 95119 BUSINESS PHONE: 4082600155 MAIL ADDRESS: STREET 1: 20 GREAT OAKS BLVD STREET 2: SUITE 220 CITY: SAN JOSE STATE: CA ZIP: 95119 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GROSSMAN RICHARD /NY/ CENTRAL INDEX KEY: 0001092694 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 101 EAST 52 STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127514900 MAIL ADDRESS: STREET 1: 101 EAST 52 STREET CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 SC 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 ISONICS CORPORATION - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, NO PAR VALUE ------------------------------------------------------------------------------- (Title of Class of Securities) 464895101 ------------------------------- (CUSIP Number) Check the following box if a fee is being paid with this statement [ ]. (A fee is not required only if the filing person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7). *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON RICHARD GROSSMAN - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS PF, WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 40,000 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 1,833,336 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 40,000 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 1,833,336 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 1,873,336 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 23.2 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON ORIN HIRSCHMAN - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS PF, WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 40,000 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 1,832,336 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 40,000 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 1,832,336 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 1,872,336 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 23.2 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON ADAM SMITH CAPITAL MANAGEMENT LLC - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 1,106,668 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 0 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 1,106,668 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 1,106,668 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 15.1 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* OO - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON ADAM SMITH INVESTMENT PARTNERS, L.P. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 1,106,668 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 0 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 1,106,668 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 1,106,668 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 15.1 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON DIAMOND CAPITAL MANAGEMENT INC. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 226,668 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 0 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 226,668 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 226,668 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 3.5 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON ADAM SMITH INVESTMENTS, LTD. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION BRITISH VIRGIN ISLANDS - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 226,668 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 0 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 226,668 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 226,668 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 3.5 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON ADAM SMITH & COMPANY, INC. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF ------------------------------------------------------ SHARES 8. SHARED VOTING POWER BENEFICIALLY OWNED BY 500,000 EACH ------------------------------------------------------ REPORTING 9. SOLE DISPOSITIVE POWER PERSON WITH: 0 ------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 500,000 ------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON. 500,000 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11. 7.4 % - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* BD, CO - -------------------------------------------------------------------------------- * SEE INSTRUCTION BEFORE FILLING OUT! Item 1. Security and Issuer. This Statement on Schedule D relates to the shares of Common Stock, no par value per share (the "Shares"), of Isonics Corporation, a California corporation (the "Company"), into which shares of Series A Convertible Preferred Stock are convertible, and which warrants are exercisable to purchase. The principal executive offices of the Company are located at 5906 McIntyre Street, Golden, Colorado 80403. Item 2. Identity and Background. (a) This Statement is filed by Richard Grossman and Orin Hirschman by virtue of their direct beneficial ownership of Shares and as the owners of each of Adam Smith & Company, Inc. ("ASC"), Adam Smith Capital Management LLC ("ASCM"), and Diamond Capital Management Inc. ("DCM"); by DCM by virtue of being the Investment Manager of Adam Smith Investments, Ltd., a British Virgin Islands corporation ("ASI"); by ASCM, by virtue of being the sole general partner of Adam Smith Investment Partners, L.P. ("ASIP"); by ASC by virtue of its direct beneficial ownership of Shares; and by ASIP by virtue of its direct beneficial ownership of Shares. By virtue of the relationships described above, each of Richard Grossman and Orin Hirschman may be deemed to possess indirect beneficial ownership of the Shares held by each entity. The directors of ASI are F.M.C. Limited and S.C.S. Limited, which are subsidiaries of Insinger Trust (BVI) Limited, all of which are British Virgin Islands corporations. Richard Grossman and Orin Hirschman are the only officers and directors and/or members of ASC, ASCM and DCM. (b) The principal executive offices of ASC, ASCM, ASIP, DCM and the business address of each of Richard Grossman and Orin Hirschman, are located at 101 East 52nd Street, New York, New York 10022. The principal executive offices of ASI are c/o Insinger Fund Administration (BVI) Limited, Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands. (c) ASC is a registered broker-dealer, ASCM manages ASIP, and DCM manages ASI and other investment vehicles. ASI and ASIP are investment vehicles. Each of Richard Grossman and Orin Hirschman's principal business is acting as an officer and/or director of ASC, ASCM, and DCM. (d) None of the Reporting Persons has been convicted in a criminal proceeding in the past five years (excluding traffic violations or similar misdemeanors). (e) During the past five years, none of the Reporting Persons was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws of finding any violation with respect to such laws. (f) ASC is a New York corporation, ASCM is a New York limited liability company, DCM is a New York corporation, ASI is a British Virgin Islands corporation, and ASIP is a New York limited partnership. Richard Grossman and Orin Hirschman are citizens of the United States. Item 3. Source and Amount of Funds or Other Consideration. ASIP acquired 553,334 units ("Units"), each consisting of one share of Series A Convertible Preferred Stock, convertible into one Share, and a warrant ("Warrant") immediately exercisable to purchase one Share at an exercise price of $3.75 per Share, for a total of $830,001. ASI acquired 113,334 Units for a total of $170,001. Richard Grossman acquired 20,000 Units for a total of $30,000. Orin Hirschman acquired 20,000 Units for a total of $30,000. All of such Units were paid for out of the working capital of the respective entity (or personal funds of the respective individual) and purchased from the Company pursuant to a Subscription Agreement dated July 29, 1999. ASC acquired warrants to purchase 500,000 Shares at an exercise price of $3.75 per Share, issued as a fee pursuant to an Investment Banking Agreement with the Company dated July 29, 1999. Item 4. Purpose of Transaction. Each of Richard Grossman, Orin Hirschman, ASC, ASI, and ASIP acquired the securities that are the subject of this Schedule 13D (the "Securities") for investment only. Depending upon their evaluations of the Company's investments and prospects, and upon future developments (including, but not limited to, market for the Company's securities, the effective yield on the company's securities, availability of funds, alternative uses of funds, and money, stock market and general economic conditions), each of the Reporting Persons may from time to time purchase additional securities of the Company, dispose of all or a portion of the securities of the Company that it holds, or securities of the Company may be in open market or privately-negotiated transactions or otherwise. Item 5. Interest in Securities of the Issuer. (a) Richard Grossman is the direct beneficial owner of 40,000 Shares, and may be deemed the indirect beneficial owner of 1,833,336 Shares, by virtue of rights to acquire all such Shares, representing beneficial ownership of 23.2% of the Shares deemed outstanding by the Company as of July 29, 1999. Orin Hirschman is the direct beneficial owner of 40,000 Shares, and may be deemed the indirect beneficial owner of 1,833,336 Shares, by virtue of rights to acquire all such Shares, representing beneficial ownership of 23.2% of the Shares deemed outstanding by the Company as of July 29, 1999. ASI is the direct beneficial owner of 226,668 Shares, by virtue of rights to acquire all such Shares, representing beneficial ownership of 3.5% of the Shares deemed outstanding by the Company as of July 29, 1999. DCM may be deemed the indirect beneficial owner of 226,668 Shares, representing beneficial ownership of 3.5% of the Shares deemed outstanding by the Company as of July 29, 1999. ASC is the direct beneficial owner of 500,000 Shares, by virtue of rights to acquire all such Shares, representing beneficial ownership of 7.4% of the Shares deemed outstanding by the Company as of July 29, 1999. ASIP is the direct beneficial owner of 1,106,668 Shares, by virtue of rights to acquire all such Shares, representing beneficial ownership of 15.1% of the Shares deemed outstanding by the Company as of July 29, 1999. ASCM may be deemed the indirect beneficial owner of 1,106,668 Shares, representing beneficial ownership of 15.1% of the Shares deemed outstanding by the Company as of July 29, 1999. (b) Richard Grossman has sole power to vote or to direct the vote, and sole power to dispose or direct the disposition, of 40,000 Shares of which he is the beneficial owner, and shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 1,833,336 Shares of which he may be deemed the beneficial owner. Orin Hirschman has sole power to vote or to direct the vote, and sole power to dispose or direct the disposition, of 40,000 Shares of which he is the beneficial owner, and shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 1,833,336 Shares of which he may be deemed the beneficial owner. ASCM has shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 1,106,668 Shares of which it may be deemed the beneficial owner. ASIP has shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 1,106,668 Shares of which it may be deemed the beneficial owner. DCM has shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 226,668 Shares of which it may be deemed the beneficial owner. ASI has shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 226,668 Shares of which it may be deemed the beneficial owner. ASC has shared power to vote or to direct the vote, and shared power to dispose or direct the disposition, of 500,000 Shares of which it is the beneficial owner. (c) Except as set forth above, none of the Reporting Persons have effected any transaction in the Shares during the past 60 days. (d) Not Applicable (e) Not Applicable Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. All of the Reporting Persons other than ASC are party to the Subscription Agreement dated July 29, 1999 (the "Subscription Agreement"), attached hereto as Exhibit B. The parties to the Subscription Agreement have granted James E. Alexander a proxy to cast their vote at a meeting of the holders of Series A Preferred Stock for the limited purpose of approving a resolution to make a single correction to the Company's Certificate of Determination of Preferences and Rights of Series A Convertible Preferred Stock. Attached hereto as Exhibit C is the Company's Amended and Restated Certificate of Determination of Preferences and Rights of Series A Convertible Preferred Stock (the "Certificate"). Among other things, the Certificate gives certain rights to holders of Series A Convertible Preferred Stock in the proceeds from certain defined transactions. Item 7. Material to be Filed as Exhibits. Exhibit A: Joint Filing Statement Exhibit B: Subscription Agreement dated as of July 29,1999. Exhibit C: Amended and Restated Certificate of Determination of Preferences and Rights of Series A Convertible Preferred Stock. SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, we certify that the information set forth in this statement is true, complete and correct. August 10, 1999. /s/ Richard Grossman ----------------------------------------------- Richard Grossman /s/ Orin Hirschman ----------------------------------------------- Orin Hirschman ADAM SMITH & COMPANY, INC. By: /s/ Richard Grossman ------------------------------------------- ADAM SMITH CAPITAL MANAGEMENT LLC By: /s/ Richard Grossman ------------------------------------------- ADAM SMITH INVESTMENT PARTNERS, L.P. By: ADAM SMITH CAPITAL MANAGEMENT LLC By: /s/ Richard Grossman ------------------------------------------ ADAM SMITH INVESTMENTS, LTD. By: /s/ Martyn Crespel ------------------------------------------- For S.C.S. Limited Corporate Directors By: /s/ Judy Hylton ------------------------------------------- For F.M.C Limited Corporate Directors DIAMOND CAPITAL MANAGEMENT INC. By: /s/ Richard Grossman ------------------------------------------- EX-99.A 2 EXHIBIT 99.A EXHIBIT A JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D (including amendments thereto) with respect to the common stock, no par value, of Isonics Corporation, and further agree that this Joint Filing Agreement be included as an Exhibit to such joint filings. In evidence thereof, the undersigned, being duly authorized, hereby execute this Joint Filing Agreement as of August 9, 1999. /s/ Richard Grossman ----------------------------------------------- Richard Grossman /s/ Orin Hirschman ----------------------------------------------- Orin Hirschman ADAM SMITH & COMPANY, INC. By: /s/ Richard Grossman ------------------------------------------- ADAM SMITH CAPITAL MANAGEMENT LLC By: /s/ Richard Grossman ------------------------------------------- ADAM SMITH INVESTMENT PARTNERS, L.P. By: ADAM SMITH CAPITAL MANAGEMENT LLC By: /s/ Richard Grossman ----------------------------------------- ADAM SMITH INVESTMENTS, LTD. By: /s/ Martyn Crespel ------------------------------------------- For S.C.S. Limited Corporate Directors By: /s/ Judy Hylton ------------------------------------------- For F.M.C Limited Corporate Directors DIAMOND CAPITAL MANAGEMENT INC. By: /s/ Richard Grossman ------------------------------------------- EX-99.B 3 EXHIBIT 99.B EXHIBIT B ISONICS CORPORATION SUBSCRIPTION AGREEMENT FOR SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANTS SUBSCRIPTION AGREEMENT (the "AGREEMENT") dated as of July 29, 1999 among ISONICS CORPORATION, a California corporation ("COMPANY"), and the persons who execute this agreement as investors (the "INVESTORS"). WHEREAS, the Company desires to sell to the Investors, and the Investors desire to purchase, up to 1,500,000 shares of the Company's Series A Convertible Preferred Stock, no par value (the "SERIES A PREFERRED STOCK"), having the terms set forth in the Amended and Restated Certificate of Determination of Preferences and Rights of Series A Convertible Preferred Stock attached hereto as EXHIBIT 1 (the "CERTIFICATE") and 1,500,000 three year warrants, each exercisable to purchase one share of the Company's Common Stock, no par value, in substantially the form attached hereto as EXHIBIT 2 (the "WARRANTS"); and WHEREAS, in connection with the completion of the offering of the Series A Preferred Stock to the Investors as described in the previous paragraph, the Company has obtained agreement from five creditors of the Company described on Exhibit 6A to convert $425,000 into Units on the terms stated in this Subscription Agreement; and WHEREAS, in connection with the completion of the offering of the Series A Preferred Stock to the Investors, the Company has obtained an agreement from Isoserve to convert disputed contractual obligations into shares of the Series A Preferred Stock as described on Exhibit 6B on the terms stated in this Subscription Agreement; and WHEREAS, in connection with the completion of the offering of the Series A Preferred Stock to the Investors, the Company has obtained an agreement from two creditors to extend the maturity on certain payment obligations as described on Exhibit 6C. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. PURCHASE AND SALE OF STOCK. 1.1. SALE AND ISSUANCE OF PURCHASED SECURITIES. The Company shall sell to the Investors and the Investors shall purchase from the Company, up to 1,500,000 units, each consisting of one share of Series A Preferred Stock and one Warrant, at a price of $1.50 per unit, or a total of up to 1,500,000 shares of Series A Preferred Stock (the "PURCHASED SHARES") and up to 1,500,000 Warrants (the "PURCHASED WARRANTS"), for an aggregate purchase price of up to $2,250,000. The Purchased Shares and Purchased Warrants are referred to herein collectively as the "PURCHASED SECURITIES". The number of Purchased Shares and Purchased Warrants to be purchased by each Investor from the Company is set forth opposite the name of such Investor on the signature page hereof, subject to acceptance, in whole or in part, by the Company. 1.2. CLOSING. The purchase and sale of the Purchased Shares hereunder shall take place at a closing (the "FIRST CLOSING"; the date on which the First Closing occurs is hereinafter referred to as the "FIRST CLOSING DATE"); provided that at least $2,000,000 of Purchased Shares are purchased. If less than all Purchased Shares are sold at the First Closing, the purchase and sale of additional Purchased Shares hereunder shall take place at one or more additional closings within 10 days after the First Closing (each an "ADDITIONAL CLOSING", and with the First Closing, a "CLOSING"). Each Closing shall take place concurrently with the execution and delivery of this Agreement by the Investors purchasing Purchased Shares at such Closing. At each Closing: (a) the Investors purchasing Purchased Shares at such Closing shall deliver to the Company or its designees by wire transfer, cashier's check or certified checks from a bank acceptable to the Company, or such other method of payment as the Company shall approve, an amount equal to the purchase price of the portion of the Purchased Securities, as set forth opposite its name on the signature pages hereof; (b) the Company shall issue and deliver to each Investor purchasing Purchased Shares at such Closing (i) a certificate or certificates for its portion of the Purchased Shares and (ii) warrants for the portion of the Purchased Warrants to be issued by the Company and purchased by such Investor, as set forth opposite such Investor's name on the signature pages hereof; (c) the Company and such Investors shall execute and deliver a Registration Rights Agreement in the form attached as Exhibit 8 with respect to the Underlying Shares (as hereafter defined); (d) at the First Closing only, the Company shall (i) execute and deliver an investment banking agreement with Adam Smith & Company, Inc. in the form attached as Exhibit 9 providing for compensation of 500,000 warrants in the same form as the Purchased Warrants (the "INVESTMENT BANKING WARRANTS") and (ii) deliver to the Investors purchasing Shares at such Closing copies of the agreements described on EXHIBIT 6; and (e) the Company shall deliver to the Investors an Opinion of Counsel with respect to the matters set forth on EXHIBIT 4. All certificates shall have all necessary stock transfer tax stamps (purchased at the expense of the Company) affixed. The parties agree that for purposes of allocating the price paid for the Purchased Securities, the Purchased Warrants have a nominal value. The Company acknowledges the materiality of the agreements described on EXHIBIT 6 To the investment made hereunder by the Investors and covenants that it will close each transaction covered by such agreements as promptly as practicable after the First Closing. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Investors as follows: 2.1. CORPORATE ORGANIZATION; AUTHORITY; DUE AUTHORIZATION. (a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own or lease its properties as and in the places where such business is now conducted and to carry on its business as now conducted and (iii) is duly qualified and in good standing as a foreign corporation authorized to do business in every jurisdiction where the failure to so qualify, individually or in the aggregate, would have a material adverse effect on the operations, prospects, assets, liabilities, financial condition or business of the Company (a "COMPANY MATERIAL ADVERSE EFFECT"). (b) The Company (i) has the requisite corporate power and authority to execute, deliver and perform this Agreement and the other agreements contemplated hereby to which it is a party and to incur the obligations herein and therein and (ii) has been authorized by all necessary corporate action to execute, deliver and perform this Agreement and the other agreements contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby (the "CONTEMPLATED TRANSACTIONS"). This Agreement and each of the other agreements contemplated hereby to which the Company is a party is a valid and binding obligation of the Company enforceable in accordance with its terms. 2.2. CAPITALIZATION. Immediately prior to the First Closing, the authorized capital of the Company consisted of (i) 20,000,000 shares of Common Stock, no par value (the "COMMON STOCK"), of which 6,215,612 shares of Common Stock are outstanding, and (ii) 10,000,000 shares of Preferred Stock, no par value, of which no shares are outstanding. Immediately after the First Closing and the closing of the transactions described on EXHIBIT 6, the number of shares Series A Preferred Stock Outstanding will be as set forth on EXHIBIT 7. The Certificate has been duly filed with and recorded by the Secretary of State of the State of California. All outstanding shares were issued in compliance with all applicable Federal and state securities laws. Except as contemplated by this Agreement or as set forth in the disclosure letter delivered to the Investors prior to the execution of this Agreement (the "COMPANY DISCLOSURE LETTER", which letter is referenced in Exhibit 10), there are (i) no outstanding subscriptions, warrants, options, conversion privileges or other rights or agreements to purchase or otherwise acquire or issue any shares of capital stock of the Company (or shares reserved for such purpose), (ii) no preemptive rights or rights of first refusal with respect to the issuance of additional shares of capital stock of the Company, including the Purchased Securities and the shares of Common Stock which the Purchased Warrants and Investment Banking Warrants are exercisable to purchase and for which the Purchased Shares are convertible into, and (iii) no commitments or understandings (oral or written) of the Company to issue any shares, warrants, options or other rights. To the best of the Company's knowledge, except as set forth in the Company Disclosure Letter, none of the shares of Common Stock are subject to any shareholders' agreement, voting trust agreement or similar arrangement or understanding. Except as set forth in the Company Disclosure Letter, the Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. 2.3. VALIDITY OF PURCHASED SHARES. The issuance of the Purchased Shares has been duly authorized, and when issued, sold and delivered in accordance with the terms and for the consideration expressed herein, the Purchased Shares shall be validly issued, fully paid and non-assessable. 2.4. COMMON STOCK ISSUABLE UPON CONVERSION OF PURCHASED SHARES AND EXERCISE OF PURCHASED WARRANTS AND INVESTMENT BANKING WARRANTS. The issuance of the shares of Common Stock (the "UNDERLYING SHARES") issuable upon conversion of the Purchased Shares or upon exercise of the Purchased Warrants has been duly authorized and the Underlying Shares have been, and at all times prior to such conversion or exercise will have been, duly reserved for issuance upon such conversion or exercise and, when so issued, will be validly issued, fully paid and non-assessable. 2.5. PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf has within the last 12 months issued, sold or offered any security of the Company to any person or organization under circumstances that would cause the issuance and sale of the Purchased Securities, as contemplated by this Agreement, or the issuance of the Investment Banking Warrants to be subject to the registration requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"). The Company agrees that neither the Company nor anyone acting on its behalf will offer the Purchased Securities or Investment Banking Warrants or any part thereof or any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Purchased Securities or the issuance of the Investment Banking Warrants subject to the registration requirements of Section 5 of the Securities Act. 2.6. BROKERS AND FINDERS. The Company has not retained any investment banker, broker or finder in connection with the Contemplated Transactions. 2.7. SUBSIDIARIES. (a) Except as set forth in the Company Disclosure Letter, the Company has no Subsidiaries and does not otherwise directly or indirectly control any other business entity. As used in this Agreement, "SUBSIDIARY" means any corporation or other organization, whether incorporated or unincorporated, of which the Company directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, or any organization of which the Company is a general partner or any limited liability company of which the Company is a manager. (b) Each Subsidiary of the Company (each, a "COMPANY SUBSIDIARY" and collectively, "COMPANY SUBSIDIARIES") is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect. The copies of the Certificates of Incorporation and Bylaws of the Company and the Company Subsidiaries previously made available to the Purchaser are true and correct. (c) Except as set forth in the Company Disclosure Letter, the Company owns directly or indirectly all of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect a majority of directors or others performing similar functions with respect to such Company Subsidiary) of each of the Company Subsidiaries. Each of the outstanding shares of capital stock of each of the Company Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by the Company. Except as set forth in the Company Disclosure Letter, each of the outstanding shares of capital stock of each Company Subsidiary is owned, directly or indirectly, by the Company free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. There are no irrevocable proxies, voting agreements or similar obligations with respect to such capital stock of the Company Subsidiaries, and no equity securities or other interests of any of the Company Subsidiaries are or may become required to be issued or purchased by reason of any options, warrants, rights to subscribe to, puts, calls, reservation of shares or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of any capital stock of any Company Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any Company Subsidiary is bound to issue additional shares of its capital stock, or options, warrants or rights to purchase or acquire any additional shares of its capital stock or securities convertible into or exchangeable for such shares. The Company Disclosure Letter sets forth the following information for each Company Subsidiary, if applicable: (i) its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or share capital; (iii) the number of issued and outstanding shares of capital stock or share capital, and (iv) the percentage of such shares owned by the Company. 2.8. OTHER INTEREST. Except as set forth in the Company Disclosure Letter, except for interests in the Company Subsidiaries, neither the Company nor any Company Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity. 2.9. USE OF PROCEEDS. The Company will use the proceeds from the sale of the Purchased Securities as set forth on EXHIBIT 5 attached hereto. 2.10. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution and delivery of this Agreement by the Company do not, and the consummation by the Company of the transactions contemplated hereby will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws or equivalent organizational documents of (x) the Company or (y) any Company Subsidiary, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any Company Subsidiary or by which any property or asset of the Company or any Company Subsidiary is bound or affected, or (iii) except as set forth in the Company Disclosure Letter, result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of purchase or sale, or any right of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or any Company Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary or any property or asset of the Company or any Company Subsidiary is bound or affected, except, in the case of clauses (i)(y), (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or delay consummation of any of the Contemplated Transactions in any material respect, or otherwise prevent the Company from performing its obligations under this Agreement in any material respect, and would not, individually or in the aggregate, have a Company Material Adverse Effect. The execution and delivery of this Agreement by the Company do not, and the consummation by the Company of the Contemplated Transactions will not, result in any material breach of or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, result in the loss of a material benefit under, or give to others any right of purchase or sale, or any right of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or any Company Subsidiary pursuant to, any Company Material Contract (as hereafter defined). (b) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement and the consummation by the Company of the transactions contemplated hereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign (each a "GOVERNMENTAL ENTITY") except for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") or any state securities or "blue sky" laws ("BLUE SKY LAWS"). 2.11. COMPLIANCE. Except as set forth in the Company Disclosure Letter neither the Company nor any Company Subsidiary is in conflict with, or in default or violation of (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any Company Subsidiary ("LEGAL REQUIREMENT") or by which any property or asset of the Company or any Company Subsidiary is bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary or any property or asset of the Company or any Company Subsidiary is bound or affected, in each case except for any such conflicts, defaults or violations that would not, individually or in the aggregate, have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any Legal Requirement. The Company and the Company Subsidiaries have obtained all licenses, permits, and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have, individually or in the aggregate, a Company Material Adverse Effect. None of the Company, any Company Subsidiary or, to the knowledge of Company, any director, officer, agent, employee or other person acting on behalf of any of the foregoing has used any corporate funds for unlawful contributions, payments, gifts or entertainment or for the payment of other unlawful expenses relating to political activity, or made any direct or indirect unlawful payments to governmental or regulatory officials or others. For purposes of this Agreement "GOVERNMENTAL BODY" shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal). 2.12. SEC DOCUMENTS. (a) The Company has filed all forms, reports and documents required to be filed by it with the Securities and Exchange Commission (the "SEC") since its formation (collectively, together with the 1999 Form 10-KSB defined below, the "COMPANY REPORTS"). As of their respective dates, the Company Reports filed prior to the date hereof (i) complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representation in clause (ii) of the preceding sentence shall not apply to any misstatement or omission in any Company Report filed prior to the date of this Agreement which was superseded by a subsequent Company Report filed prior to the date of this Agreement. The Company has provided to the Investors a draft of the Form 10-KSB for its fiscal year ended April 30, 1999 which will be filed with the SEC on or before August 13, 1999 and which is not expected to be materially different from that provided to the Investors (except to the extent amended to reflect the transactions contemplated hereby) (the "1999 10-KSB"). When filed with the SEC, the 1999 Form 10-KSB (i) will comply as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No Company Subsidiary is required to file any report, form or other document with the SEC. Except as set forth in the Company Disclosure Letter neither the Company nor any Company Subsidiary is a party or is subject to any note, bond, mortgage, indenture, contract, lease, license, agreement, understanding, instrument, bid or proposal that is required to be described in or filed as an exhibit to any Company Report that is not described in or filed as an exhibit to such Company Report as required by the Securities Act or the Exchange Act, as the case may be. No event has occurred prior to the date hereof as a consequence of which the Company would be required to file a Current Report on Form 8-K pursuant to the requirements of the Exchange Act as to which such a report has not been timely filed with the SEC. Any reports, statements and registration statements and amendments thereto (including, without limitation, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by the Company with the SEC after the date hereof shall be provided to the Purchaser no later than the date of such filing. (b) Each of the consolidated balance sheets of Company included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents the consolidated financial position of the Company and the Company Subsidiaries as of its date, and each of the consolidated statements of income, retained earnings and cash flows of Company included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of the Company and the Company Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of the Company or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except for (i) liabilities or obligations that were so reserved on, or reflected in (including the notes to), the consolidated balance sheet of the Company as of April 30, 1999; (ii) liabilities or obligations arising in the ordinary course of business since April 30, 1999 and (iii) liabilities or obligations which would not, individually or in the aggregate, have a Company Material Adverse Effect. 2.13. LITIGATION. Except as set forth in the Company Disclosure Letter there are no claims, actions, suits, investigations, inquiries or proceedings pending against the Company or the Company Subsidiaries or, to the knowledge of the Company, threatened against the Company or the Company Subsidiaries, or any officer, director, employee or agent thereof in his or her capacity as such, at law or in equity, or before or by any court, tribunal, arbitrator, mediator or any federal or state commission, board, bureau, agency or instrumentality, that, individually or in the aggregate, are reasonably likely to have a Company Material Adverse Effect. 2.14. ABSENCE OF CERTAIN CHANGES. Except as specifically contemplated by this Agreement or set forth in the Company Disclosure Letter, since January 31, 1999, there has not been (i) any event, occurrence, fact, condition, change, development or effect ("EVENT") that would reasonably be expected to have a Company Material Adverse Effect; (ii) any declaration, payment or setting aside for payment of any dividend (except to Company or a Company Subsidiary wholly owned by Company) or other distribution or any redemption, purchase or other acquisition of any shares of capital stock or securities of Company or any Company Subsidiary; (iii) any return of any capital or other distribution of assets to stockholders of Company or any Company Subsidiary (except to Company or a Company Subsidiary wholly owned by Company); (iv) any acquisition (by merger, consolidation, acquisition of stock or assets or otherwise) of any person or business; (v) any other action or agreement or undertaking by Company or any Company Subsidiary that, if taken or done on or after the date hereof would reasonably be expected to have a Company Material Adverse Effect; or (vi) any material change in its accounting principles, practices or methods. Without limiting foregoing, since April 30, 1999, there has been no Company Material Adverse Effect affecting the Company's financial condition as of July 29, 1999 or results of operation through that date which would be reflected in its unaudited financial statements to be prepared for and through July 31, 1999. 2.15. TAXES. (a) Each of the Company and the Company Subsidiaries has filed all material tax returns and reports required to be filed by it, or requests for extensions to file such returns or reports have been timely filed and granted and have not expired, and all tax returns and reports are complete and accurate in all respects, except to the extent that such failures to file, have extensions granted that remain in effect or be complete and accurate in all respects, as applicable, individually or in the aggregate, would not have a Company Material Adverse Effect. The Company and each of the Company Subsidiaries has paid (or the Company has paid on its behalf) all taxes shown as due on such tax returns and reports. The most recent financial statements contained in the Company Reports reflect an adequate reserve for all taxes payable by the Company and the Company Subsidiaries for all taxable periods and portions thereof accrued through the date of such financial statements, and no deficiencies for any taxes have been proposed, asserted or assessed against the Company or any Company Subsidiary that are not adequately reserved for, except for inadequately reserved taxes and inadequately reserved deficiencies that would not, individually or in the aggregate, have a Company Material Adverse Effect. No requests for waivers of the time to assess any taxes against the Company or any Company Subsidiary have been granted or are pending, except for requests with respect to such taxes that have been adequately reserved for in the most recent financial statements contained in the Company Reports, or, to the extent not adequately reserved, the assessment of which would not, individually or in the aggregate, have a Company Material Adverse Effect. (b) As used in this Section 2.15, "taxes" shall include all Federal, state, local and foreign income, franchise, property, sales, use, excise and other taxes, including obligations for withholding taxes from payments due or made to any other person and any interest, penalties or additions to tax. 2.16. EMPLOYEE BENEFIT PLANS. Except as would not, individually or in the aggregate, have a Company Material Adverse Effect, (i) all employee benefit plans or programs maintained for the benefit of the current or former employees or directors of the Company or any Company Subsidiary that are sponsored, maintained or contributed to by the Company or any Company Subsidiary, or with respect to which the Company or any Company Subsidiary has any liability, including without limitation any such plan that is an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), are in compliance with all applicable requirements of law, including ERISA and the Code, and (ii) neither the Company nor any Company Subsidiary has any liabilities or obligations with respect to any such employee benefit plans or programs, whether accrued, contingent or otherwise, nor to the knowledge of the Company are any such liabilities or obligations expected to be incurred. The execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay, bonus, golden parachute or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. The only severance agreements or severance policies applicable to the Company or the Company Subsidiaries are the agreements and policies specifically referred to in the Company Disclosure Letter. 2.17. LABOR MATTERS. Neither the Company nor any of the Company Subsidiaries has any material obligations, contingent or otherwise, under any employment, severance or consulting agreement, any collective bargaining agreement or any other contract with a labor union or other labor or employee group. To the knowledge of Company, as of the date of this Agreement, there are no negotiations, demands or proposals which are presently pending or overtly threatened by or on behalf of any labor union with respect to the unionizing of employees of Company or any Company Subsidiary. There is no labor strike, labor dispute, work slowdown, stoppage or lockout actually pending, or to the knowledge of the Company, threatened against or affecting the Company or any Company Subsidiary, except as would not, individually or in the aggregate, have a Company Material Adverse Effect. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the Company, threatened against the Company or its Subsidiaries relating to their business, except for any such proceeding which would not have a Company Material Adverse Effect. 2.18. CONTRACTS. Except as set forth in the Company Reports or the Company Disclosure Letter or in Exhibit 6, neither the Company nor any Company Subsidiary is a party or is subject to, and their property and assets are not bound or affected by, any of the following (each, a "COMPANY MATERIAL CONTRACT"): (a) any agreement or understanding with an affiliate of the Company or of a Company Subsidiary; (b) any contract relating to the acquisition, transfer, use, development, sharing or license of any technology or any Proprietary Asset (as hereafter defined); (c) any single note, bond, mortgage, indenture, contract, lease, license, agreement, understanding, instrument, bid or proposal pursuant to which the financial obligation of the Company or a Company Subsidiary thereunder or applicable to the assets or properties of the Company or a Company Subsidiary subject thereto could exceed $10,000 after the First Closing Date; (d) any single contract, bid or offer to which the Company or a Company Subsidiary is a party or by which the Company or a Company Subsidiary is bound to provide services to third parties which provides for recurring monthly revenues to the Company or a Company Subsidiary in excess of $10,000; (e) any contract creating or involving any agency relationship, distribution arrangement or franchise relationship; (f) any contract which includes any exclusivity restrictions applicable to the Company or a Company Subsidiary or imposes any restriction on the Company's right or ability (A) to compete with any person, (B) to acquire any product or other asset or any services from any other person, to sell any product or other asset to or perform any services for any other person or to transact business or deal in any other manner with any other person, or (C) develop or distribute any technology; (g) any contract relating to the acquisition, issuance or transfer of any securities, except as contemplated hereunder; (h) any contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement; (i) any contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities; (j) any contract constituting or relating to a Government Contract (as hereafter defined) or Government Bid (as hereafter defined); (k) any contract that was entered into outside the ordinary course of business or was inconsistent with the Company's or a Company Subsidiary's past practices; (l) any other Company Contract that has a term of more than 120 days and that may not be terminated by the Company (without penalty) within 120 days after the delivery of a termination notice by the Company; or (m) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation that is material to the ownership or operation of any of the Company or a Company Subsidiary. The Company has made available to the Investors true and accurate copies of the Company Material Contracts. Except as set forth in the Company Disclosure Letter all such Company Material Contracts, including without limitation the agreements described on EXHIBIT 6, are or will be valid and binding and are or will be in full force and effect and enforceable in accordance with their respective terms. Except as set forth in the Company Disclosure Letter no consent of any person is needed in order that each such Company Material Contract shall continue in full force and effect in accordance with its terms without penalty, acceleration or rights of early termination by reason of the consummation of the transactions contemplated by this Agreement, except for consents the absence of which, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary is in violation or breach of or default under any such Company Material Contract, nor to the Company's knowledge is any other party to any such Company Material Contract in violation or breach of or default under any such Company Material Contract, in each case where such violation or breach would give rise to a right of termination or modification. For purposes of this Agreement "GOVERNMENT BID" shall mean any quotation, bid or proposal submitted to any Governmental Body or any proposed prime contractor or higher-tier subcontractor of any Governmental Body. For purposes of this Agreement "GOVERNMENT CONTRACT" shall mean any prime contract, subcontract, letter contract, purchase order or delivery order executed or submitted to or on behalf of any Governmental Body or any prime contractor or higher-tier subcontractor, or under which any Governmental Body or any such prime contractor or subcontractor otherwise has or may acquire any right or interest. 2.19. ENVIRONMENTAL MATTERS. As of the date of this Agreement, (i) the Company and the Company Subsidiaries are in compliance with all applicable Environmental Laws (as hereinafter defined), (ii) there is no civil, criminal or administrative judgment, action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending or, to the knowledge of the Company, threatened against the Company, a Company Subsidiary or any of their respective properties pursuant to Environmental Laws, and (iii) there are no past or present Events which, reasonably may be expected to prevent compliance with, or which have given rise to or will give rise to liability on the part of the Company or a Company Subsidiary under, Environmental Laws, except, in each case, for any deviations from the foregoing which, individually or in the aggregate, do not and would not reasonably be expected to have a Company Material Adverse Effect. The Company has provided or made available to the Investors prior to the date of this Agreement true, accurate and complete copies of all environmental reports in the possession of the Company or a Company Subsidiary relating to any of their respective past or present properties. As used herein, the term "ENVIRONMENTAL LAWS" shall mean laws relating to pollution, waste control, the generation, presence or disposal of asbestos, hazardous or toxic wastes or substances, the protection of the environment, environmental activity or public health and safety. 2.20. PROPRIETARY ASSETS. (a) For purposes of this Agreement "PROPRIETARY ASSETS" shall mean any: (i) patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset; or (ii) right to use or exploit any of the foregoing. (b) The Company Disclosure Letter sets forth, with respect to each Proprietary Asset of the Company or a Company Subsidiary registered with any Governmental Body or for which an application has been filed with any Governmental Body, (i) a brief description of such Proprietary Asset and (ii) the names of the jurisdictions covered by the applicable registration or application. The Company Disclosure Letter identifies and provides a brief description of all other Proprietary Assets owned by the Company or a Company Subsidiary, and identifies and provides a brief description of each Proprietary Asset licensed to the Company or a Company Subsidiary by any person (except for any Proprietary Asset that is licensed to the Company or a Subsidiary under any third party software license generally available to the public at a cost of less than $10,000), and identifies the license agreement under which such Proprietary Asset is being licensed to the Company or a Company Subsidiary. Except as set forth in the Company Disclosure Letter, the Company or a Company Subsidiary: has good, valid and marketable title to all of the Proprietary Assets identified in the Company Disclosure Letter, free and clear, of all liens and other encumbrances; has a valid right to use all Proprietary Assets identified in the Company Disclosure Letter; and is not obligated to make any payment to any person for the use of any Proprietary Asset. Except as set forth in the Company Disclosure Letter, neither the Company nor any Company Subsidiary has developed jointly with any other person any Proprietary Asset with respect to which such other person has any rights. (c) The Company and the Company Subsidiaries have taken all measures and precautions necessary to protect and maintain the confidentiality and secrecy of all Proprietary Assets of the Company and the Company Subsidiaries (except Proprietary Assets whose value would be unimpaired by public disclosure) and otherwise to maintain and protect the value of all Proprietary Assets of the Company and the Company Subsidiaries. Except as set forth in the Company Disclosure Letter, the Company and the Company Subsidiaries have not (other than pursuant to license agreements identified in the Company Disclosure Letter) disclosed or delivered to any person, or permitted the disclosure or delivery to any person of, (i) the source code, or any portion or aspect of the source code, of any Proprietary Asset, or (ii) the object code, or any portion or aspect of the object code, of any Proprietary Asset of the Company or a Company Subsidiary. (d) To the best of the knowledge of the Company, none of the Proprietary Assets of the Company or a Company Subsidiary infringes or conflicts with any Proprietary Asset owned or used by any other Person. The Company and the Company Subsidiaries are not infringing, misappropriating or making any unlawful use of, and the Company and the Company Subsidiaries have not at any time infringed, misappropriated or made any unlawful use of, or received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful use of, any Proprietary Asset owned or used by any other Person. To the best of the knowledge of the Company, no other Person is infringing, misappropriating or making any unlawful use of, and no Proprietary Asset owned or used by any other person infringes or conflicts with, any Proprietary Asset of the Company or a Company Subsidiary. (e) Except as set forth in the Company Disclosure Letter, there has not been any claim by any customer or other person alleging that any Proprietary Asset of the Company or a Company Subsidiary (including each version thereof that has ever been licensed or otherwise made available by the Company or a Company Subsidiary to any person) does not conform in all material respects with any specification, documentation, performance standard, representation or statement made or provided by or on behalf of the Company or a Company Subsidiary, and, to the best of the knowledge of the Company, there is no basis for any such claim. (f) The Proprietary Assets of the Company and the Company Subsidiaries constitute all the Proprietary Assets necessary to enable the Company and the Company Subsidiaries to conduct their businesses in the manner in which such businesses have been and are being conducted. Except as set forth in the Company Disclosure Letter (i) the Company and the Company Subsidiaries have not licensed any of their Proprietary Assets to any person on an exclusive, semi-exclusive or royalty-free basis, and (ii) the Company and the Company Subsidiaries have not entered into any covenant not to compete or contract limiting their ability to exploit fully any of their Proprietary Assets or to transact business in any market or geographical area or with any person. 2.21. NO ADVERSE ACTIONS. Except as set forth in the Company Disclosure Letter there is no existing, pending or, to the knowledge of the Company, threatened termination, cancellation, limitation, modification or change in the business relationship of Company or any of the Company Subsidiaries, with any supplier, customer or other person except such as would not reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect. 2.22. INSURANCE. The Company maintains with sound and reputable insurance companies all insurance customarily maintained by comparable companies. 2.23. DISCLOSURE. No representation or warranty of the Company herein and no information contained or referenced in the Company Reports or Company Disclosure Letter contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor represents and warrants to the Company as follows: 3.1. AUTHORIZATION. When executed and delivered by such Investor, this Agreement will constitute the valid and binding obligation of such Investor. 3.2. BROKERS AND FINDERS. Such Investor has not retained any investment banker, broker or finder in connection with the Contemplated Transactions. 4. SECURITIES LAWS. 4.1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF INVESTORS. (a) This Agreement is made with each Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Purchased Securities to be received by such Investor will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof such that such Investors would constitute an "underwriter" under the Securities Act, and that such Investor has no present intention of selling, granting any participation in or otherwise distributing the Purchased Securities. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person with respect to, any of the Purchased Securities. (b) Each Investor understands and acknowledges that the offering of the Purchased Securities pursuant to this Agreement will not be registered under the Securities Act or qualified under any Blue Sky Laws on the grounds that the offering and sale of the Purchased Securities are exempt from registration and qualification, respectively, under the Securities Act and the Blue Sky Laws, and that the Company's reliance upon such exemption is predicated upon such Investor's representations set forth in this Agreement. (c) Each Investor covenants that, unless the Purchased Shares, the Purchased Warrants, the Underlying Shares or any other shares of capital stock of the Company received in respect of the foregoing have been registered pursuant to the Registration Rights Agreement being entered into among the Company and the Investors, such Investor will not dispose of such securities unless and until such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with an opinion of counsel reasonably satisfactory in form and substance to the Company to the effect that (x) such disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken; PROVIDED, HOWEVER, that an Investor may dispose of such securities without providing the opinion referred to above if the Company has been provided with adequate assurance that such disposition is made in compliance with Rule 144 under the Securities Act (or any similar or analogous rule) and any applicable state, local or foreign law. (d) In connection with the investment representations made herein, each Investor represents that (i) such Investor is able to fend for itself in the Contemplated Transactions; (ii) such Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of such Investor's prospective investment in the Purchased Securities; (iii) such Investor has the ability to bear the economic risks of such Investor's prospective investment and can afford the complete loss of such investment; (iv) such Investor has been furnished with and has had access to such information as is in the Company Disclosure Letter together with the opportunity to obtain such additional information as it requested to verify the accuracy of the information supplied; and (v) such Investor has had access to officers of the Company and an opportunity to ask questions of and receive answers from such officers and has had all questions that have been asked by such Investor satisfactorily answered by the Company. (e) Each Investor further represents by execution of this Agreement that such Investor qualifies as an "accredited investor" as such term is defined under Rule 501 promulgated under the Securities Act. Any Investor that is a corporation, a partnership, a trust or other business entity further represents by execution of this Agreement that it has not been organized for the purpose of purchasing the Purchased Securities. (f) By acceptance hereof, each Investor agrees that the Purchased Shares, the Purchased Warrants, the Underlying Shares and any shares of capital stock of the Company received in respect of the foregoing held by it may not be sold by such Investor without registration under the Securities Act or an exemption therefrom, and therefore such Investor may be required to hold such securities for an indeterminate period. 4.2. LEGENDS. All certificates for the Purchased Shares, Purchased Warrants and the shares of Common Stock issued upon conversion or exercise thereof, and each certificate representing any shares of capital stock of the Company received in respect of the foregoing, whether by reason of a stock split or share reclassification thereof, a stock dividend thereon or otherwise and each certificate for any such securities issued to subsequent transferees of any such certificate (unless otherwise permitted herein) shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE [SECURITIES REPRESENTED BY THIS WARRANT] HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES [WARRANTS] MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT." In addition, such certificates shall bear any legend that, in the opinion of the Company's counsel, is required pursuant to any state, local or foreign law governing the Purchased Shares, the Purchased Warrants or the Underlying Shares. 5. ADDITIONAL COVENANTS OF THE COMPANY. 5.1. REPORTS, INFORMATION, SHARES. (a) The Company shall cooperate with each Investor in supplying such information as may be reasonably requested by such Investor to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of an exemption, presently existing or hereafter adopted, from the Securities Act for the sale of any of the Purchased Shares, the Purchased Warrants, the Underlying Shares and shares of capital stock of the Company received in respect of the foregoing. (b) The Company shall deliver to each Investor, contemporaneously with delivery to other holders of Common Stock, a copy of each report of the Company delivered to holders of Common Stock. (c) The Company shall keep reserved for issuance a sufficient number of authorized but unissued shares of Common Stock so that the Purchased Warrants may be exercised to purchase, and the Purchased Shares may be converted into, Common Stock at any time. 5.2. EXPENSES; INDEMNIFICATION. (a) The Company agrees to pay on the First Closing Date (and in the event of Additional Closings on the date of each Additional Closing) and save the Investors harmless against liability for the payment of any stamp or similar taxes (including interest and penalties, if any) that may be determined to be payable in respect of the execution and delivery of this Agreement, the issue and sale of any Purchased Securities, the expense of preparing and issuing the Purchased Securities, the cost of delivering the Purchased Securities purchased by each Investor to such Investor's home office, insured to such Investor's satisfaction, and the costs and expenses incurred in the preparation of all certificates and letters on behalf of the Company and of the Company's performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with. Each Investor shall be responsible for its out-of-pocket expenses arising in connection with the Contemplated Transactions, including, without limitation, fees and disbursements of counsel to the Investors and due diligence expenses of the Investors. (b) The Company hereby agrees and acknowledges that the Investors have been induced to enter into this Agreement and to purchase the Purchased Securities hereunder, in part, based upon the representations, warranties and covenants of the Company contained herein. The Company hereby agrees to pay, indemnify and hold harmless the Investors and any director, officer or employee of any Investor against all claims, losses and damages resulting from any and all legal or administrative proceedings, including without limitation, reasonable attorneys' fees and expenses incurred in connection therewith (collectively, "LOSS"), resulting from a breach by the Company of any representation or warranty of the Company contained herein or the failure of the Company to perform any covenant made herein. (c) As soon as reasonably practicable after receipt by an Investor of notice of any Loss in respect of which the Company may be liable under this Section 5.2, the Investor shall give notice thereof to the Company. Each Investor may, at its option, claim indemnity under this Section 5.2 as soon as a claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as counsel for such Investor shall in good faith determine that such claim is not frivolous and that such Investor may be liable or otherwise incur a Loss as a result thereof and shall give notice of such determination to the Company. Each Investor shall permit the Company, at the Company's option and expense, to assume the defense of any such claim by counsel mutually and reasonably satisfactory to the Company and the Investors who are subject to such claim, and to settle or otherwise dispose of the same; PROVIDED, HOWEVER, that each Investor may at all times participate in such defense at such Investor's expense; and PROVIDED, FURTHER, that the Company shall not, in defense of any such claim, except with the prior written consent of each Investor subject to such claim, (i) consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to each Investor and its subsidiaries of a release of all liabilities in respect of such claims, or (ii) consent to any settlement of such claim. If the Company does not promptly assume the defense of such claim irrespective of whether such inability is due to the inability of the afore-described Investors and the Company to mutually agree as to the choice of counsel, or if any such counsel is unable to represent an investor due to a conflict or potential conflict of interest, then an Investor may assume such defense and be entitled to indemnification and prompt reimbursement from the Company for its costs and expenses incurred in connection therewith, including without limitation, reasonable attorneys' fees and expenses. Such fees and expenses shall be reimbursed to the Investors as soon as practicable after submission of invoices to the Company. 5.3. AMENDMENT OF THE CERTIFICATE. (a) The Company covenants to amend the definition of "Applicable Percentage" in the Certificate as soon as practicable after the date hereof to read as follows: "Applicable Percentage shall mean 25%." The undersigned shareholder hereby consents to a resolution of shareholders necessary to approve the foregoing change to the Certificate, and specifically grants James E. Alexander a proxy to cast the undersigned's vote as shareholder for such a resolution at any meeting of the holders of Series A Preferred Stock called to consider such an amendment, and appoints James E. Alexander as the undersigned's attorney-in-fact to execute in the name of the undersigned a statement of consent of the holders of Series A Preferred Stock approving such a resolution. (b) The Company further agrees that if, for any reason, such amendment is not made prior to the occurrence of a Silicon Isotope Transaction (as defined in the Certificate), the holders of the Series A Preferred Stock shall have the same rights and shall receive the same benefits (including Exchange Interests and Transaction Cash Proceeds, as defined in the Certificate) as if such amendment had been accomplished. 6. MISCELLANEOUS. 6.1. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement, the Warrants and the Registration Rights Agreement constitute the entire contract between the parties relative to the subject matter hereof and no party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. Any previous agreement among the parties with respect to the sale of the Purchased Securities is superseded by this Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors and assigns of the parties. Except as expressly provided herein, nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any right of the Investors fully to investigate the affairs of the Company and notwithstanding any knowledge of facts determined or determinable by any Investor pursuant to such right of investigation or right of investigation, each Investor has the right to rely fully upon the representations, warranties, covenants and agreements of the Company contained in this Agreement or in any documents delivered pursuant to this Agreement. All such representations and warranties of the Company shall survive the execution and delivery of this Agreement and each Closing hereunder and shall continue in full force and effect for six months after any applicable statute of limitations (taking into account any waiver or tolling thereof) with respect to claims which may arise thereunder or relate thereto shall have run and the provisions of this Section 6.2 shall constitute a waiver by the Company of any such applicable statute of limitations. 6.3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. Each party hereby irrevocably consents and submits to the jurisdiction of any New York State or United States Federal Court sitting in the State of New York, County of New York, over any action or proceeding arising out of or relating to this Agreement and irrevocably consents to the service of any and all process in any such action or proceeding by registered mail addressed to such party at its address specified in Section 8(b). Each party further waives any objection to venue in New York and any objection to an action or proceeding in such state and county on the basis of forum non conveniens. Each party also waives any right to trial by jury. 6.4. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5. HEADINGS. The headings of the sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 6.6. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery and if a fax number has been provided, upon delivery (with answerback confirmed), addressed to a party at its address and the fax number, if any, shown below or at such other address and fax number as such party may designate by three days advance notice to the other party. Any notice to the Investors shall be sent to the addresses set forth on EXHIBIT 3, with a copy to: Hahn & Hessen LLP 350 Fifth Avenue New York, New York 10118, Fax Number: (212) 594-7167 Attention: James Kardon, Esq. Any notice to the Company shall be sent to: Isonics Corporation 5906 McIntyre Street Golden, Colorado 80403 Fax Number: 303-279-7300 Attention: James Alexander, President with a copy to: Norton - Lidstone, LLC 5445 DTC Parkway, Suite 850 Englewood, Colorado 80111 Fax Number: 303-221-5553 Attention: Herrick Lidstone, Esq. 6.7. RIGHTS OF TRANSFEREES. Any and all rights and obligations of Investors herein incident to the ownership of Purchased Securities shall pass successively to all subsequent transferees of such Purchased Securities until extinguished pursuant to the terms hereof. 6.8. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or any other provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. (signatures) EXHIBITS AND SCHEDULES TO THE SUBSCRIPTION AGREEMENT (exhibits and schedules are not included in filing with the Schedule 13D) Exhibit 1: Certificate of Determination of Preferences and Rights of Series A Convertible Preferred Stock Exhibit 2: Form of Warrants Exhibit 3: Name, Address and Fax of Investors Exhibit 4: Legal Opinion Exhibit 5: Use of Proceeds Exhibit 6: Required Agreements Exhibit 7 Series A Preferred Stock to be Outstanding Post-Closing. Exhibit 8: Registration Rights Agreement Exhibit 9: Investment Banking Agreement Exhibit 10: Disclosure Letter
EX-99.C 4 EXHIBIT 99.C EXHIBIT C AMENDED AND RESTATED CERTIFICATE OF DETERMINATION OF PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK OF ISONICS CORPORATION * * * * The undersigned, James E. Alexander and Brantley J. Halstead, certify that: 1. They are the duly acting President and Secretary, respectively, of ISONICS CORPORATION, a corporation organized and existing under the Corporations Code of the State of California (the "Corporation"). 2. That, pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, and pursuant to the provisions of Section 401 of Title 1 of the Corporations Code of the State of California, said Board of Directors, pursuant to an action by unanimous consent dated July 26, 1999, adopted a resolution mending and restating the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation's Series A Convertible Preferred Stock, which resolution is as follows: RESOLVED, that a series of Preferred Stock in Isonics Corporation, a California corporation (the "Corporation"), having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation's Articles of Incorporation. 1. NUMBER AND DESIGNATION. This series shall consist of 1,850,000 shares of Preferred Stock of the Corporation and shall be designated the Series A Convertible Preferred Stock ("Series A Stock"). The number of authorized shares of Series A Stock may be reduced to the extent any shares are not issued and outstanding by further resolution duly adopted by the Board of Directors of the Corporation and by filing amendments to the Certificate of Determination pursuant to the provisions of the Corporations Code of the State of California stating that such reduction has been so authorized, but the number of authorized shares of this Series shall not be increased except pursuant to majority vote of the Series A Holders. None of the shares of Series A Stock has been issued. 2. DIVIDENDS. When and as any dividend or distribution is declared or paid by the Corporation on Common Stock, whether payable in cash, property, securities or rights to acquire securities, the Series A Holders will be entitled to participate with the holders of Common Stock in such dividend or distribution as set forth in this Section 2. At the time such dividend or distribution is payable to the holders of Common Stock, the Corporation will pay to each Series A Holder such holder's share of such dividend or distribution equal to the amount of the dividend or distribution per share of Common Stock payable at such time multiplied by the number of shares of Common Stock then obtainable upon conversion of such holder's Series A Stock. 3. VOTING RIGHTS. A. The Series A Holders shall be entitled to notice of any shareholders' meeting and to vote as a single class with the Common Stock upon any matter submitted for approval by the holders of Common Stock on the following basis: the Series A Holders shall have that number of votes equal to the number of shares of Common Stock into which such Series A Stock is then convertible. B. In addition to any other rights provided by law, so long as any Series A Stock is outstanding, the Corporation, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of such outstanding shares of Series A Stock, will not: (i) amend or repeal any provision of, or add any provision to, the Corporation's Articles of Incorporation or By-Laws if such action would alter adversely the liquidation preferences of, or the rights or restrictions provided for the benefit of, any Series A Stock; (ii) authorize or issue shares of any class or series of stock not expressly authorized herein having any preference or priority as to dividends, voting or liquidation or other rights superior to any such preference or priority of the Series A Stock, or authorize or issue shares of stock of any class or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the Corporation having any preference or priority as to dividends, voting or liquidation or other rights superior to any such preference or priority of the Series A Stock; (iii) reclassify any class or series of stock junior to the Series A Stock into stock senior to the Series A Stock with respect to any preference or priority; (iv) issue any class(es) or series of equity security(ies) which (a) is (are) convertible directly or indirectly into Common Stock at a rate related to the market price of the Common Stock or other such variable basis (other than normal anti-dilution provisions) or (b), in any transaction or series of transactions over a 12 month period, constitute(s) 15% or more of the outstanding Common Stock of the Corporation, assuming conversion or exercise in full of any Convertible Securities included in such securities; (v) elect to windup, dissolve or liquidate the Corporation or revoke any such election; or (vi) sell or otherwise dispose of (including without limitation through lease, mortgage, licensing, joint venture, exchange, transfer or similar arrangements) all or a significant portion of the Silicon Isotope Business. 4. PREFERENCE UPON LIQUIDATION. A. Upon any liquidation, dissolution or winding up of the Corporation, each Series A Holder will be entitled to be paid, before any distribution or payment is made upon any Junior Securities of the Corporation, an amount in cash equal to the aggregate Liquidation Value (as defined in Section 7C below) of all shares of Series A Stock held by such holder, plus accrued dividends, if any; thereafter, each Series A Holder will participate in any distribution or payment on a pro rata basis with all Junior Securities as if the Series A Stock had been converted into Common Stock. B. The reorganization, consolidation or the merger of the Corporation into or with any other corporation(s) or other entity(ies) ("Reorganization"), the sale, lease, licensing, exchange or other transfer by the Corporation of all or any significant part of its assets or the commencement by the Corporation of a voluntary case under the United States bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any other country, or consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or the making of an assignment for the benefit of its creditors, or an admission in writing of its inability to pay its debts generally as they become due, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 4; PROVIDED THAT, with the consent of the Series A Holders acting by a majority vote (the "Reorganization Consent"), a Reorganization of the Corporation shall not be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 4 if (i) the principal agreement for such Reorganization shall expressly provide that the Series A Stock shall become preferred stock of such surviving entity with the equivalent rights to the rights set forth herein ("Surviving Entity Preferred Stock"), (ii) the holders of Junior Securities receive, in exchange for such Junior Securities, common stock or preferred stock in the surviving entity (whether or not the surviving entity is the Corporation) of such Reorganization, or common stock or preferred stock of another entity, which is junior as to dividends and upon liquidation, dissolution or winding up to the Series A Stock or Surviving Entity Preferred Stock, as applicable, and (iii) the Series A Holders shall be entitled to receive at the option of each Series A Holder (A) either the Surviving Entity Preferred Stock or (B) the kind and amount of shares or other securities or property which they would have been entitled to receive had they converted their shares of Series A Stock into shares of Common Stock of the Corporation as of the record date for the determination of holders of Common Stock entitled to cast their votes for or against or to express any dissent to such Reorganization. After any such Reorganization and Reorganization Consent, the rights of such holders of Surviving Entity Preferred Stock with respect to the adjustment of the Conversion Price shall be appropriately continued and preserved in order to afford, as nearly as possible, protection against dilution of the conversion rights and privileges comparable to those conferred herein. 5. CONVERSION INTO CONVERSION STOCK; SILICON ISOTOPE TRANSACTION. A. CONVERSION. (i) At any time prior to the Redemption Date (as defined in Section 6 B below), any Series A Holder may convert all or any portion of such holder's shares of Series A Stock into a number of shares of the Conversion Stock computed by multiplying the number of shares to be converted by $1.50 and dividing the result by the Conversion Price then in effect. For purposes of this Section, "Conversion Stock" means the Common Stock. (ii) Each conversion of Series A Stock will be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series A Stock to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of the holder of such Series A Stock as such holder will cease and the person or persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (iii) As soon as possible after a conversion has been effected, the Corporation will deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; and (b) a certificate representing any shares of Series A Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (iv) If any fractional share of Conversion Stock would be issuable upon any conversion, the Corporation will pay the holder of the Conversion Stock the fair market value of such fractional share. (v) The issuance of certificates for shares of Conversion Stock upon conversion of Series A Stock will be made without charge. (vi) The Corporation will not close its books against the transfer of Series A Stock or of Conversion Stock issued or issuable upon conversion of Series A Stock in any manner which interferes with the conversion of Series A Stock. B. CONVERSION PRICE. The initial Conversion Price for the Series A Stock will be $1.50. In order to prevent dilution of the conversion rights granted under this Section, the Conversion Price will be subject to adjustment from time to time pursuant to this Section 5. C. SUBDIVISION OR COMBINATION OF COMMON STOCK; DISSOLUTION. (i) If the Corporation at any time subdivides (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (ii) In the event of a judicial or non-judicial dissolution of the Corporation, the conversion rights and privileges of the Series A Holders shall terminate on a date, as fixed by the Board of Directors of the Corporation, not more than 45 days and not less than 30 days before the date of such dissolution. The reference to shares of Common Stock herein shall be deemed to include shares of any class into which said shares of Common Stock may be changed. D. OTHER ADJUSTMENTS. (i) GENERAL. In any case to which Section 5C hereof is not applicable, where the Corporation shall issue or sell shares of its Common Stock after the Original Issue Date for a consideration per share less than the Conversion Price in effect pursuant to the terms of the Series A Stock at the time of issuance or sale of such additional shares (the "Lower Exercise Price"), then the Conversion Price in effect hereunder shall simultaneously with such issuance or sale be reduced to the Lower Exercise Price. (ii) CONVERTIBLE SECURITIES. (a) In case the Corporation shall issue or sell any securities convertible into Common Stock of the Corporation ("Convertible Securities") after the Original Issue Date, there shall be determined the price per share for which Common Stock is issuable upon the conversion or exchange thereof, such determination to be made by dividing (1) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (2) the maximum number of shares of Common Stock of the Corporation issuable upon the conversion or exchange of all of such Convertible Securities. (b) If the price per share so determined shall be less than the applicable Conversion Price, then such issue or sale shall be deemed to be an issue or sale for cash (as of the date of issue or sale of such Convertible Securities) of such maximum number of shares of Common Stock at the price per share so determined, provided that, if such Convertible Securities shall by their terms provide for an increase or increases or decrease or decreases with the passage of time, in the amount of additional consideration, if any, to the Corporation, or in the rate of exchange, upon the conversion or exchange thereof, the adjusted Conversion Price shall, forthwith upon any such increase or decrease becoming effective, be readjusted to reflect the same, and provided further, that upon the expiration of such rights of conversion or exchange of such Convertible Securities, if any thereof shall not have been exercised, the adjusted Conversion Price shall forthwith be readjusted and thereafter be the price which it would have been had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were issued or sold upon the conversion or exchange of such Convertible Securities, and that they were issued or sold for the consideration actually received by the Corporation upon such conversion or exchange, plus the consideration, if any, actually received by the Corporation for the issue or sale of all of such Convertible Securities which shall have been converted or exchanged. (iii) RIGHTS AND OPTIONS. (a) In case the Corporation shall grant any rights or options to subscribe for, purchase or otherwise acquire Common Stock (other than pursuant to an incentive plan for employees adopted by a majority of the stockholders of the Corporation providing for the issuance of options to purchase no more than an aggregate of 500,000 shares of Common Stock at a price of no less than 85% of fair market value), there shall be determined the price per share for which Common Stock is issuable upon the exercise of such rights or options, such determination to be made by dividing (1) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of such rights or options, by (2) the maximum number of shares of Common Stock of the Corporation issuable upon the exercise of such rights or options. (b) If the price per share so determined shall be less than the applicable Conversion Price, then the granting of such rights or options shall be deemed to be an issue or sale for cash (as of the date of the granting of such rights or options) of such maximum number of shares of Common Stock at the price per share so determined, provided that, if such rights or options shall by their terms provide for an increase or increases or decrease or decreases, with the passage of time, in the amount of additional consideration payable to the Corporation upon the exercise thereof, the adjusted Conversion Price shall, forthwith upon any such increase or decrease becoming effective, be readjusted to reflect the same, and provided, further, that upon the expiration of such rights or options, if any thereof shall not have been exercised, the adjusted Conversion Price shall forthwith be readjusted and thereafter be the price which it would have been had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were those issued or sold upon the exercise of such rights or options and that they were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such rights or options, whether or not exercised. E. SILICON ISOTOPE TRANSACTION. In the event that on or before January 1, 2001 the Corporation sells or otherwise disposes of (including, without limitation, through lease, mortgage, joint venture, exchange, transfer or similar arrangements), or enters into a contract to sell or dispose of, all or a significant portion of the Silicon Isotope Business (a "Silicon Isotope Transaction"), the Corporation shall cause to be delivered to each Series A Holder, concurrently with the consummation of the Silicon Isotope Transaction, its pro rata share of the Exchange Interests and Transaction Cash Proceeds (as defined in Section 7C below). The Corporation shall not effect any Silicon Isotope Transaction unless prior to or simultaneous with the consummation thereof, the Silicon Isotope Successor Entity shall (i) deliver to each Series A Holder such holder's pro rata share of the Exchange Interests and Transaction Cash Proceeds; (ii) enter into a Registration Rights Agreement on terms substantially similar to that entered into between the Corporation and the Series A Holders, dated as of the Original Issue Date and (iii) provide the holders of Exchange Interests with equivalent rights to the rights set forth herein. F. CERTAIN EVENTS. If any event occurs of the type contemplated by the provisions of this Section 5 but not expressly provided for by such provisions, then the Board of Directors of the Corporation will make (i) an appropriate adjustment in the Conversion Price so as to protect the rights of the Series A Holders; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 5 or decrease the number of shares of Conversion Stock issuable upon conversion of each share of Series A Stock and (ii) an appropriate adjustment in the terms of the Silicon Isotope Transaction so as to protect the rights of the Series A Holders. G. NOTICES. (i) Immediately upon any adjustment of the Conversion Price, the Corporation will send written notice thereof to all Series A Holders. (ii) The Corporation will send written notice to all Series A Holders at least 20 days prior to the date (a) on which the Corporation closes its books or takes a record (1) with respect to any dividend or distribution upon Common Stock, (2) with respect to any PRO RATA subscription offer to holders of Common Stock, (3) for determining rights to vote on or approve any matter or (b) proposes to take any action on which the Series A Holders are entitled to vote pursuant to Section 3B or Section 4B. (iii) In addition to the notice required under paragraph (ii) above, the Corporation will send written notice (the "Exchange Notice") to all Series A Holders at least 30 days prior to the date of any proposed Silicon Isotope Transaction setting forth in reasonable detail the material terms of the Silicon Isotope Transaction and the capitalization, financial condition, business plan and other material facts of the Silicon Isotope Successor Entity. (iv) All notices and other communications from the Corporation to a Series A Holder shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Corporation in writing by such holder, or, until an address is so furnished, to and at the address of the last holder who has so furnished an address to the Corporation. H. CONVERTED OR REDEEMED SHARES. Any shares of Series A Stock which are converted pursuant to this Section 5 or redeemed pursuant to Section 6 will be canceled and will not be reissued, sold or transferred. I. INSUFFICIENT AUTHORIZED SHARES. In the event at the time any Series A Holder requests conversion of any of such shares and the Corporation does not have a sufficient (for other events) number of shares of Common Stock authorized and unreserved to provide for conversion of all outstanding shares of Series A Stock, the Corporation shall give at least 10 days prior written notice of such requested conversion to all other Series A Holders in order to enable such other holders to request conversion of their respective shares. In the event that Series A Holders request conversion of shares or Series A Stock into a greater number of shares of Common Stock than the Corporation then has authorized and unreserved (for other events), the Corporation shall issue all of its authorized and unreserved (for other events) shares of Common Stock to such holders PRO RATA in accordance with the number of shares of Series A Stock of which each holder has requested conversion. The unconverted balance of the shares of Series A Stock will remain as shares of Series A Stock until the Corporation has authorized a sufficient number of additional shares of Common Stock to provide for conversion of all shares of Series A Stock then outstanding. In the event at the time any Series A Holder requests conversion of any of such shares and the Corporation does not have a sufficient number of shares of Common Stock authorized and reserved to provide for conversion of all outstanding shares of Series A Stock, the Corporation will promptly reserve such number of shares of authorized Common Stock as are sufficient to provide for conversion of all outstanding shares of Series A Stock, but if the Corporation does not have a sufficient number of shares of Common Stock authorized and unreserved (for other events) to reserve such number of shares, the Corporation will promptly reserve the authorized and unreserved (for other events) Common Stock and provide for such meetings to be held, and approvals to be solicited, as are necessary to authorize and reserve a sufficient number of shares of Common Stock to provide for conversion of all outstanding shares of Series A Stock. 6. OPTIONAL REDEMPTION. A. After the Redemption Trigger Date (as defined in Section 7C below) all or any part of the Series A Stock may be redeemed by the Corporation at its election at any time and from time to time, in the manner prescribed in this Section 6, provided that (i) in any redemption under this Section 6A the Corporation shall redeem no less than all outstanding shares of Series A Stock and (ii) the Corporation may not make any redemption unless and until the Corporation has registered under the Securities Act of 1933, as amended, either the issuance of the shares of Common Stock issuable on conversion of the Series A Stock or the resale of such shares by the holders thereof. B. Before making any redemption, the Corporation shall mail by certified or registered mail, return receipt requested, to each record holder of any Series A Stock at the address shown on the Corporation's records, a written notice (a "Redemption Notice") stating: (i) the number of shares of Series A Stock held of record by such holder which the Corporation proposes to redeem; (ii) the date (herein called the "Redemption Date") on which the Corporation proposes to pay the Redemption Price for the shares to be redeemed; (iii) the Redemption Price which under this Section 6 is to be paid for each share to be redeemed; (iv) the place at which the shares to be redeemed may be surrendered in exchange for the Redemption Price for such shares; and (v) the then current Conversion Price. Upon the mailing of a Redemption, the Corporation shall become obligated to redeem the Series A Stock specified in such notice on the date specified in such notice as the Redemption Date. Each Redemption Notice shall be mailed at least 30 days before the Redemption Date, provided that if the Corporation fails to pay the Redemption Price on such date (for a reason other than a holder's failure to deposit Series A Stock certificates pursuant to Section 6D below), the Redemption Date shall be the date on which the Corporation actually pays the Redemption Price. C. The number of shares of Series A Stock to be redeemed from each holder thereof in repurchases under Section 6A shall be determined by multiplying the total number of shares of Series A Stock to be redeemed by a fraction, the numerator of which shall be the total number of shares of Series A Stock held by such holder and the denominator of which shall be the total number of shares of Series A Stock outstanding. D. (i) For each share of Series A Stock which shall be redeemed by the Corporation at any time under Section 6A, the Corporation shall be obligated to pay to the holder of such share an amount in cash (herein called the "Redemption Price" for such share) equal to the Liquidation Value of such share. The Corporation shall be obligated to pay on any Redemption Date on which the Corporation shall be required to redeem any Series A Stock both the Redemption Price for each share and all dividends which shall have been declared on each share to and including the Redemption Date and which shall not previously have been paid. Such payments which the Corporation shall be obligated to make on any Redemption Date shall be deemed to become "due" for all purposes of this Section 6 regardless of whether the Corporation shall be able to legally permitted to make such payments on such Redemption Date. (ii) Each holder of Series A Stock shall be entitled to receive on or at any time after any Redemption Date the full Redemption Price, plus declared but unpaid dividends, for each share of Series A Stock held by such holder which the Corporation shall be obligated to redeem on such Redemption Date upon surrender by such holder at the Corporation's principal office of the certificate representing such share duly endorsed in blank or accompanied by an appropriate form of assignment duly endorsed in blank. After the payment by the Corporation in cash of the full Redemption Price for any Series A Stock, plus accrued unpaid dividends, all rights of the holder of such stock shall (whether or not the certificate representing such stock shall have been surrendered for cancellation) cease and terminate with respect to such stock. 7. MISCELLANEOUS. A. REGISTRATION OF TRANSFER. The Corporation will keep at its principal office a register for the registration of Series A Stock. Upon the surrender of any certificate representing Series A Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. B. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series A Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate representing the number of shares represented by such lost, stolen, destroyed or mutilated certificate. C. DEFINITIONS. For purposes hereof: "APPLICABLE PERCENTAGE" shall mean the percentage that results from multiplying 25% by a fraction, the numerator of which is the number of shares of Series A Stock issued on, or within 30 days of, the date this Certificate is filed with the Secretary of State of the State of California and the denominator of which is 1,850,000. "COMMON STOCK" means the Common Stock of the Corporation, no par value per share, and includes all stock of any class or classes (however designated) of the Company, authorized upon the Original Issue Date or thereafter, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency). "CONVERSION PRICE" and "CONVERSION STOCK" shall have the meaning set forth in Sections 5B and 5A(i), respectively. "CORPORATION" shall have the meaning set forth in the first paragraph of this Certificate of Determination. "EXCHANGE INTERESTS" shall mean equity interests (whether in the form of stock, limited liability company interests, partnership interests, a percentage of profits and losses, or otherwise) entitling the holders thereof to the Applicable Percentage of the profits, votes and distributions of the Silicon Isotope Successor Entity and having substantially similar terms, preferences and other rights as the Series A Stock. "JUNIOR SECURITIES" means the Common Stock and any equity securities of any kind (but not including any debt securities convertible into equity securities) which the Corporation or any Subsidiary at any time issues or is authorized to issue other than the Series A Stock unless the terms of such security explicitly state that such security shall be senior to or on a par with the Series A Stock. "LIQUIDATION VALUE" of any share of Series A Stock as of any particular date will be $1.50. "ORIGINAL ISSUE DATE" means the date the Series A Stock is first issued. "PERSON" and "PERSON" means an individual, a partnership, a corporation, a limited liability company, a trust, a joint venture, an unincorporated organization and a government or any department or agency thereof. "REDEMPTION TRIGGER DATE" shall mean the business day immediately following the thirtieth consecutive trading day that the average Closing Price during such trading days (or, if no closing price is reported, the average of the bid and ask prices) of the shares of Common Stock was above $8.00 per share (which minimum price shall be proportionately adjusted for stock splits, stock dividends, reverse stock splits and any other subdivision or combination of the Common Stock. "SERIES A HOLDER" shall mean a registered holder of Series A Stock. "SERIES A STOCK" shall have the meaning set forth in Section 1. "SILICON ISOTOPE BUSINESS" shall mean all the assets and business of the Corporation relating to the development, production, use or sale of isotopes of silicon metal and related products, including without limitation all related patents, know-how, procedures, business plans, customer lists and other intellectual property. "SILICON ISOTOPE SUCCESSOR ENTITY" shall mean the Person or other entity that will conduct the Silicon Isotope Business upon the consummation of the Silicon Isotope Transaction. "SUBSIDIARY" means any corporation of which the shares of stock having a majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. "TRANSACTION CASH PROCEEDS" shall mean the Applicable Percentage of the cash paid or payable in connection with a Silicone Isotope Transaction D. AMENDMENT AND WAIVER. No amendment, modification or waiver will be binding or effective with respect to any provision hereof without the prior approval of a majority of the outstanding Shares of Series A Stock; provided notwithstanding Section 3.B above that no such action will change or affect (a) the Conversion Price of the Series A Stock or the number of shares or the class of stock into which the Series A Stock is convertible, (b) the Liquidation Value of the Series A Stock, or (c) the amount of cash, securities or other property receivable or to be received by the Series A Holders. E. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. When any accounting determination or calculation is required to be made, such determination or calculation (unless otherwise provided) will be made in accordance with generally accepted accounting principles, consistently applied, except that if because of a change in generally accepted accounting principles the Corporation would have to alter a previously utilized accounting method or policy in order to remain in compliance with generally accepted accounting principles, such determination or calculation will continue to be made in accordance with the Corporation's previous accounting methods and policies unless the Corporation has obtained the prior written consent of the holders of a majority of the Series A Stock then outstanding. 3. The number of authorized shares of Preferred Stock of the Corporation is 10,000,000, and the number of shares of Series A Stock, none of which has been issued, is 1,850,000. IN WITNESS WHEREOF, the undersigned officers of the Corporation have executed this Amended and Restated Certificate this _____ day of July, 1999. ISONICS CORPORATION By:________________________________ James E. Alexander, President By:________________________________ Brantley J. Halstead, Secretary VERIFICATION The undersigned, James E. Alexander and Brantley J. Halstead, the President and Secretary, respectively, of Isonics Corporation, each declares under penalty of perjury that the matters set out in the foregoing Amended and Restated Certificate are true of his own knowledge. Executed at Golden, Colorado, on this _____ day of July, 1999. ---------------------------- James E. Alexander ---------------------------- Brantley J. Halstead -----END PRIVACY-ENHANCED MESSAGE-----