-----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, KnGxXS/3Qf5hhNfaL9Foa++XldIA7jjlBMpRnc6jGMshGMkM28pMtijyHwKVt0pS vXjS7cPYHkdTku/Q/qV/3g== 0000950134-99-006184.txt : 19990715 0000950134-99-006184.hdr.sgml : 19990715 ACCESSION NUMBER: 0000950134-99-006184 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL ISOTOPES INC CENTRAL INDEX KEY: 0001038277 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 742763837 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-82821 FILM NUMBER: 99664140 BUSINESS ADDRESS: STREET 1: 3100 JIM CHRISTAL ROAD CITY: DENTON STATE: TX ZIP: 76207 BUSINESS PHONE: 9404849492 MAIL ADDRESS: STREET 1: 3100 JIM CHRISTAL ROAD CITY: DENTON STATE: TX ZIP: 76207 S-3 1 FORM S-3 1 - -------------------------------------------------------------------------------- As filed with the Securities and Exchange Commission on July 14, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. ------------------------- FORM S-3 Registration Statement Under The Securities Act of 1933 ------------------------ INTERNATIONAL ISOTOPES INC. (Name of Small Business Issuer in its Charter) TEXAS 2835 74-276837 (State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Organization) Classification Code Number) Identification No.)
3100 JIM CHRISTAL ROAD Denton, Texas 76207-9987 (940) 484-9492 (Address and Telephone Number of Principal Executive Offices and Principal Place of Business) IRA LON MORGAN, CHAIRMAN 3100 JIM CHRISTAL ROAD Denton, Texas 76207-9987 (940) 484-9492 (Name, Address and Telephone Number of Agent for Service) COPY TO: CURTIS R. ASHMOS LOCKE LIDDELL & SAPP LLP 100 CONGRESS, SUITE 300 AUSTIN, TEXAS 78701 (512) 305-4716 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
- ----------------------- -------------------- --------------------- --------------------- -------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED SHARE PRICE REGISTRATION FEE REGISTERED - ----------------------- -------------------- --------------------- --------------------- -------------------- Common Stock, $.01 1,503,804 shares $9.03125 (1) $13,581,230 (1) $3,775.58 par value - ----------------------- -------------------- --------------------- --------------------- --------------------
(1) Estimated in accordance with Rule 457(c) of the Securities Act of 1933 solely for the purpose of calculating the registration fee based upon an assumed price of $9.03125, the average of the high and low sales prices of the Common Stock as reported on Nasdaq SmallCap Market on July 12, 1999. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS 2 REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. 3 PROSPECTUS 1,503,804 SHARES INTERNATIONAL ISOTOPES INC. COMMON STOCK ------------------------- This Prospectus relates to the offering for resale of 1,503,804 shares of Common Stock, par value $.01 per share (the "Common Stock"), of International Isotopes Inc. ("I(3)" or the "Company"). All of the Common Stock being registered may be offered and sold from time to time by certain selling stockholders of the Company. See "Selling Stockholders" and "Plan of Distribution." The Company will not receive any proceeds from the sale of the Common Stock by the Selling Stockholders. The Company's Common Stock is quoted on the Nasdaq SmallCap Market under the symbol "INIS" and is listed on the Boston Stock Exchange ("BSE") under the symbol "ITL." On July 12, 1999, the last reported sale price for the Company's Common Stock on the Nasdaq SmallCap Market was $9.1875 per share. ----------------------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 1. ----------------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------------------- The Company has not authorized any person, agent or entity to give any information or make any representation other than those contained in this Prospectus (including material incorporated by reference herein). You should not rely on any such information or representation as having been authorized by the Company. This Prospectus is not an offer to sell the securities and it is not soliciting an offer to buy the securities in any state where offers or sales are not permitted. The date of this Prospectus is July 13, 1999 4 TABLE OF CONTENTS Forward Looking Statements..................................................1 The Company.................................................................1 Risk Factors................................................................1 Selling Stockholders........................................................2 Plan of Distribution........................................................3 Incorporation of Certain Documents by Reference.............................4 Legal Matters...............................................................6 Experts.....................................................................6 Available Information.......................................................6
5 FORWARD-LOOKING STATEMENTS This Prospectus contains, or incorporates by reference, certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based on experience, market trends, our perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. The forward-looking statements included in this Prospectus are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, market, governmental and technological factors affecting the Company's operations, production, markets, products, services and prices, and other factors discussed in our filings under the Securities Act and the Exchange Act. Investors are cautioned that such forward-looking statements are not guarantees of our future performance and that actual results, developments and business decisions may differ from those envisioned by our forward-looking statements. THE COMPANY International Isotopes Inc., a Texas corporation (the "Company," "We" or "I(3)"), is a developmental stage Company that has begun executing plans for operations in the production, marketing, and distribution of a full range of products used in diagnostic and therapeutic nuclear medicine, research and industry. Completion of the plans we have developed will establish the first independent commercial domestic producer of a full range of finished radiopharmaceuticals (on a contract or joint venture basis), pharmaceutical grade radioisotopes, radioisotopes and medical devices for commercial sale to the nuclear medicine industry for the diagnosis and therapeutic treatment of cancer and other diseases. We are also engineering instrumentation and products for the radiation therapy and medical imaging markets. Our principal executive offices located at 3100 Jim Christal Road, Denton, Texas 76207-9987. The telephone number is (940) 484-9492. RISK FACTORS An investment in our Common Stock is speculative and involves a substantial degree of risk. Investors should carefully consider, along with other information in this Prospectus, the considerations and risks set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and other reports and documents filed by the Company from time to time with the SEC in evaluating an investment in our Company. You should not purchase any Common Stock unless you can afford to lose your entire investment. 6 SELLING STOCKHOLDERS The following table sets forth certain information, as of June 30, 1999, with respect to the shares of Common Stock beneficially owned prior to the offering and the shares being offered hereby by the stockholders listed below (the "Selling Stockholders"). All of the shares of Common Stock offered hereby underly other securities issued originally in a transaction not involving a public offering. Absent the current registration, such shares may not be sold by the Selling Stockholders, except in certain limited situations including compliance with Rule 144 under the Securities Act. The Selling Stockholders on May 18, 1999 acquired in a private placement $10,000,000 of the Company's 5% Convertible Redeemable Preferred Stock and Warrants to purchase up to 410,000 shares of the Company's Common Stock. The shares offered hereby represent shares of Common Stock issuable to the Selling Stockholders as a result of (i) conversion of the Preferred Stock (ii) payment of interest on the Preferred Stock (in lieu of cash) and (iii) exercise of the Warrants.
SHARES OF COMMON STOCK BENEFICIALLY OWNED PRIOR SHARES OFFERED BY THIS PERCENTAGE OWNED FOLLOWING NAME TO THIS OFFERING PROSPECTUS OFFERING (1) ---- ------------------------- ---------------------- -------------------------- Brown Simpson 556,407 556,407 0% Strategic Growth Fund, L.P. Brown Simpson 947,397 947,397 0% Strategic Growth Fund, Ltd. - ---------------------------------------------------------------------------------------------------------------------
(1) Assumes all shares of Common Stock offered hereby are sold in this offering. There is no assurance that the Selling Stockholders will sell any or all of the shares of Common Stock offered hereby. -2- 7 PLAN OF DISTRIBUTION The Company is registering the Common Stock ("Registrable Securities") on behalf of the Selling Stockholders ("Holders"). As used herein, the term Holder means the holder of the Registrable Securities and includes donees and pledgees selling Registrable Securities received from a named Holder after the date of this Prospectus. All costs, expenses and fees in connection with the registration of the Registrable Securities offered hereby will be borne by the Company. Brokerage commissions and similar selling expenses, if any, attributable to the sale of Registrable Securities will be borne by the Holders. Sales of Registrable Securities may be effected by Holders from time to time in one or more types of transactions (which may include block transactions) on Nasdaq, on the BSE, in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the Registrable Securities, through short sales of Registrable Securities, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. The Holders have advised the Company that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinated broker acting in connection with the proposed sale of Registrable Securities by the Holders. The Holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the Registrable Securities or of securities convertible into or exchangeable for the Registrable Securities in the course of hedging positions they assume with Holders. The Holders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealers or other financial institutions of Registrable Securities offered by this Prospectus, which Registrable Securities such broker-dealer or other financial institution may resell pursuant to this Prospectus (as amended or supplemented to reflect such transaction). The Holders may effect such transactions by selling Registrable Securities directly to purchasers or to or through broker-dealers, which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from Holders and/or the purchasers of Registrable Securities for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Holders and any broker-dealers that act in connection with the sale of Registrable Securities might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale -3- 8 of the Registrable Securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act. The Company has agreed to indemnify each Holder against certain liabilities, including liabilities arising under the Securities Act. The Holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the Registrable Securities against certain liabilities, including liabilities arising under the Securities Act. The Holders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. The Holders will be subject to the prospectus delivery requirements of the Securities Act. The Company has informed the Holders that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may apply to their sales in the market. Holders also may resell all or a portion of the Registrable Securities in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of such Rule. Upon the Company being notified by a Holder that any material arrangement has been entered into with a broker-dealer for the sale of Registrable Securities through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this Prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Holder and of the participating broker-dealer(s), (ii) the number of Registrable Securities involved, (iii) the initial price at which such Registrable Securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by referenced in this Prospectus and (vi) other facts material to the transactions. In addition, upon the Company being notified by a Holder that a donee or pledgee intends to sell more than 500 Registrable Securities, a supplement to this Prospectus will be filed. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by the Company are incorporated by reference in this Prospectus: (1) the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as amended; (2) the Company's Quarterly Report on Form 10-Q for the three month periods ended March 31, 1999. -4- 9 (3) the Company's Current Report on Form 8-K filed on May 28, 1999; and -5- 10 (4) the description of the Company's Common Stock contained in the Company's Registration Statement on form 8-A filed August 1, 1997, including any amendment or report filed for the purposes of updating such description. All reports and other documents filed by the Company pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Common Stock shall be deemed to be incorporated by reference in this Prospectus and to be part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. A copy of the documents incorporated by reference (other than exhibits thereto) will be forwarded without charge to each person to whom this Prospectus is delivered, upon such person's written or oral request to International Isotopes Inc., Office of the Secretary, 3100 Jim Christal Road, Denton, Texas 76207-9987, telephone number (940) 484-9492. The Company's internet address is ilmorgan@intiso.com. LEGAL MATTERS The validity of the shares of Common Stock offered hereby have been passed upon for the Company by Locke Liddell & Sapp LLP, Austin, Texas. EXPERTS The consolidated financial statements of the Company as of December 31, 1997 and 1998 and for the years then ended and the periods from November 1, 1995 (inception) to December 31, 1996 and December 31, 1998 have been incorporated by reference herein in reliance on the report of KPMG LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and accordingly files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other -6- 11 information filed by the Company with the Commission can be inspected and copied, at prescribed rates, at the Public Reference Room maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet web site at http://www.sec.gov/ that also contains such reports, proxy statements and other information. The Company has filed with the Commission a Registration Statement on Form S-3 (including all amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered hereby. The Registration Statement has been filed electronically with the Commission pursuant to its Electronic Data Gathering and Retrieval ("EDGAR") system. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement. -7- 12 PART II Information Not Required in Prospectus ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses of this offering, all of which will be paid by Registrant, are as follows: SEC Registration Fee $ 3,775.58 Nasdaq Listing Fee $ 7,500.00 Accounting Fees and Expenses $ 5,000.00 Registrant's Legal Fees and Expenses $ 20,000.00 Total $ 36,275.58
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the Texas Business Corporation Act ("TBCA"), the Company's Restated Articles of Incorporation provide that the Company will indemnify its officers, directors, employees and agents to the fullest extent permitted by the TBCA against actions that may arise against them in such capacities, and advance expenses in connection with any such actions. Registrant's Restated Articles of Incorporation provide that directors of the Company will not be personally liable to Registrant or its stockholders for monetary damages for any act or omission in his capacity as a director except as authorized under the TBCA. The TBCA provides that a corporation may indemnify a person who was, is, or is threatened to be made a named defendant in a proceeding because such person is or was a director if it is determined in accordance with the provisions of the TBCA that the person (i) conducted himself in good faith, (ii) reasonably believed, in the case of conduct in his official capacity as director, that his conduct was in the corporation's best interests or, in other cases, that his conduct at least was not opposed to the corporation's interests and (iii) in the case of any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. A director may not be indemnified with respect to a proceeding in which the person is found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity, or in which the person is found liable to the corporation. Officers, employees and agents of a corporation are entitled to be indemnified by the corporation as, and to the same extent provided for, directors of the corporation. Registrant carries directors' and officers' liability insurance with an aggregate policy limit of $5,000,000. II-1 13 ITEM 16. EXHIBITS. Exhibits 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (Registration No. 333-26269)). 4.2 Form of Warrant issued to Selling Stockholders. 4.3 Certificate of Designation, Preferences and Rights of 5% Convertible Redeemable Preferred Stock. 4.4 Securities Purchase Agreement between the Selling Stockholders and the Company. 5. Opinion of Locke Liddell & Sapp LLP with respect to the legality of the securities being registered hereby. 23.1 Consent of KPMG LLP 23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5). 24 Power of Attorney (included as part of Signature page). ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of its Restated Articles of Incorporation, its By-Laws, the Texas Business Corporation Act or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment by Registrant for expenses incurred or paid by an officer, director or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a) (3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) II-2 14 which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (40 or 497(b) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 15 POWER OF ATTORNEY TO SIGN AMENDMENTS KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint IRA LON MORGAN and CARL W. SEIDEL, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully, for all intents and purposes, as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. SIGNATURES In accordance with the requirements of the Securities Act of 1933, Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Denton, State of Texas, on the 8th day of July, 1999. INTERNATIONAL ISOTOPES INC. By: /s/ Ira Lon Morgan. --------------------------------------- Ira Lon Morgan, Ph.D. Chairman of the Board and Treasurer By: /s/ Carl W. Seidel. --------------------------------------- Carl W. Seidel President, Chief Executive Officer and Director II-4 16 In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE /s/ Carl W. Seidel President, Chief Executive July 8, 1999 - -------------------------- Officer, and Director (Principal Carl W. Seidel Executive Officer) /s/ Joan Gillett Chief Financial Officer July 8, 1999 - -------------------------- (Principal Financial and Joan Gillett Accounting Officer) /s/ Ira Lon Morgan Chairman of the Board and July 8, 1999 - -------------------------- Treasurer Ira Lon Morgan, Ph.D. /s/ Tommy L. Thompson Executive Vice President, Chief July 8, 1999 - -------------------------- Operating Officer and Director Tommy L. Thompson /s/ Virgil L. Simmons Senior Vice President and Director July 8, 1999 - -------------------------- Virgil L. Simmons /s/ John M. McCormack Director July 8, 1999 - -------------------------- John M. McCormack /s/ William W. Nicholson Director July 8, 1999 - -------------------------- William W. Nicholson /s/ Robert J. Gary Director July 8, 1999 - -------------------------- Robert J. Gary /s/ Frederick J. Bonte Director July 8, 1999 - -------------------------- Frederick J. Bonte, M.D. /s/ Charles LeMaistre Director July 8, 1999 - -------------------------- Charles LeMaistre, M.D.
II-5 17 EXHIBIT INDEX EXHIBIT NO. 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (Registration No. 333-26269)). 4.2 Form of Warrant issued to Selling Stockholders. 4.3 Certificate of Designation, Preferences and Rights of 5% Convertible Redeemable Preferred Stock. 4.4 Securities Purchase Agreement between the Selling Stockholders and the Company. 5 Opinion of Locke Liddell & Sapp LLP with respect to the legality of the securities being registered hereby. 23.1 Consent of KPMG LLP 23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5). 24 Power of Attorney (included as part of Signature page). EX-4.2 2 FORM OF WARRANT ISSUED TO SELLING STOCKHOLDERS 1 EXHIBIT 4.2 FORM OF WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. [INSERT DATE OF ISSUANCE] ________shares Warrant No. __ INTERNATIONAL ISOTOPES INC. STOCK PURCHASE WARRANT Registered Owner: [INSERT REGISTERED OWNER] This certifies that, for value received, International Isotopes Inc., a Texas corporation, the ("Company") grants the following rights to the Registered Owner, or assigns, of this Warrant: 1. ISSUE. Upon tender (as defined in Section 5) to the Company, the Company, within three (3) Business Days of the date thereof, shall issue to the Registered Owner, or assigns, up to the number of shares specified in Section 2 of fully paid and nonassessable shares of Common Stock that the Registered Owner, or assigns, is otherwise entitled to purchase. 2. NUMBER OF SHARES. The total number of shares of Common Stock that the Registered Owner, or assigns, of this Warrant is entitled to receive upon exercise of this Warrant (the "Warrant Shares") is _____ shares, subject to adjustment from time to time as set forth in Section 6. The Company shall at all times reserve and hold available sufficient shares of Common Stock to satisfy all conversion and purchase rights represented by outstanding convertible securities, options and warrants, including this Warrant. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of this Warrant shall, upon issuance, be duly and validly issued, fully paid and nonassessable, free from all taxes, liens and charges with respect to the purchase and the issuance of the shares, and shall not have any legend or restrictions on resale, except as required by Section 3.2(b) of the Purchase Agreement. 2 3. EXERCISE PRICE. The initial per share exercise price of this Warrant, representing the price per share at which the shares of stock issuable upon exercise of this Warrant may be purchased, is _______ ($_____) [insert 110% of the Average Price on the applicable Closing Date] (the "Exercise Price"). 4. EXERCISE PERIOD. This Warrant may be exercised from the Closing Date (as defined in the Purchase Agreement) up to and including May 20, 2002 (the "Exercise Period"). If not exercised during this period, this Warrant and all rights granted under this Warrant shall expire and lapse. 5. TENDER; ISSUANCE OF CERTIFICATES. a. This Warrant may be exercised, in whole or in part, by (i) actual delivery of (a) the Exercise Price in cash, (b) a duly executed Warrant Exercise Form, a copy of which is attached to this Warrant as Exhibit A, properly executed by the Registered Owner, or assigns, of this Warrant, and (c) by surrender of this Warrant, or (ii) if the resale of the Warrant Shares by the Registered Owner is not then registered pursuant to an effective registration statement under the Securities Act, delivery to the Company of a written notice of an election to effect a "Cashless Exercise" (as defined below) for the Warrant Shares specified in the Warrant Exercise Form. The Warrant Shares so purchased shall be deemed to be issued to the Registered Owner as of the close of business on the date on which this Warrant shall have been surrendered, the completed Warrant Exercise Form shall have been delivered and payment shall have been made for such shares as set forth above. The payment and Warrant Exercise Form must be delivered to the registered office of the Company either in person or as set for in Section 14. b. Commencing ninety (90) days from the Filing Date (as defined in the Registration Rights Agreement), if, and only if, at the time of exercise of this Warrant, the Warrant Shares are not saleable pursuant to an effective registration statement, then in addition to the exercise of all or a part of this Warrant by payment of the Exercise Price in cash as provided above, and in lieu of such payment, the Registered Owner shall have the right to effect a cashless exercise (a "Cashless Exercise"). In the event of a Cashless Exercise, the Registered Owner may exercise this Warrant in whole or in part by surrendering this Warrant in exchange for the number of shares of Common Stock equal to the product of (x) the number of shares as to which this Warrant is being exercised multiplied by (y) a fraction, the numerator of which is the Per Share Market Value of the Common Stock less the Exercise Price then in effect and the denominator of which is the Per Share Market Value (in each case adjusted for fractional shares as herein provided). c. In lieu of physical delivery of the Warrant, provided the Company's transfer agent is participating in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Registered Owner and in compliance with the provisions hereof, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Warrant Shares to the Registered Owner by crediting the account of the Registered Owner's Prime Broker with DTC through its 2 3 Deposit Withdrawal Agent Commission system. The time period for delivery described herein shall apply to the electronic transmittals described herein. d. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Warrant Exercise Form, shall be delivered to the Registered Owner within a reasonable time, not exceeding three (3) Business Days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the Registered Owner and shall be registered in the name of the Registered Owner or such other name as shall be designated by such Registered Owner. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the Registered Owner a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. 6. ADJUSTMENT OF EXERCISE PRICE. a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits. If the Company, at any time while this Warrant is outstanding, (a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, then (i) the Exercise Price thereafter shall be determined by multiplying the Exercise Price by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and the denominator of which shall be the number of shares of Common Stock outstanding after such event and (ii) the number of Warrant Shares shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event and the denominator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event. Any adjustment made pursuant to this paragraph (6)(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. b. Rights; Warrants. If the Company, at any time while this Warrant is outstanding, shall issue rights or warrants to all of the holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Exercise Price, the Exercise Price shall thereafter be determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at the Exercise Price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become 3 4 effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants. c. Subscription Rights. If the Company, at any time while this Warrant is outstanding, shall distribute to all of the holders of Common Stock evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in paragraphs 6(a) and (b) above), then in each such case the Exercise Price at which the Warrant shall thereafter be exercisable shall be determined by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction, the denominator of which shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and the numerator of which shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors in good faith; provided, however, that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, such fair market value shall be determined by an Appraiser selected in good faith by the Registered Owner of the Warrant; and provided, further, that the Company, after receipt of the determination by such Appraiser shall have the right to select in good faith an additional Appraiser meeting the same qualifications in which case the fair market value shall be equal to the average of the determinations by each such Appraiser. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above d. Rounding. All calculations under this Section 6 shall be made to the nearest cent or the nearest l/l00th of a share, as the case may be. e. Notice of Adjustment. Whenever the Exercise Price is adjusted pursuant to paragraphs 6(a), (b) or (c), the Company shall promptly deliver to the Registered Owner a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. f. Redemption Events. The following are "Redemption Events" under this Section 6(f): (A) any reclassification of the Common Stock, (B) any Change of Control (as such term is defined in the Purchase Agreement), (C) any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, (D) any suspension from listing or delisting of the Common Stock from the Nasdaq, the BSE, or any Subsequent Market (as defined in the Purchase Agreement) on which the Common Stock is listed for a period of five consecutive days, (E) the Company's notice to any registered owner of the Warrants, including by way of public announcement, at any time, of its intention, for any reason, not to comply with proper requests for the exercise of any such Warrants, or (F) a breach by the Company of any representation, warranty, covenant or other term or condition of the Purchase Agreement, the Registration Rights Agreement, the Preferred Stock, this Warrant or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby or hereby, except to the extent that such breach would not have a 4 5 Material Adverse Effect (as defined in Section 2.1(a) of the Purchase Agreement) and except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least ten days after the Company knows or reasonably should have known of the existence of such breach. On and after the date of any Redemption Event, the Registered Owner shall have the option to require the Company to redeem (the "Redemption Right") in cash and subject to the terms of payment provisions set forth in Section 7(e), from funds legally available therefor at the time of such redemption, the Registered Owner's shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such Registered Owner's Warrants at a price per share equal to the product of (i) the Average Price immediately preceding the effective date, the date of the closing, date of occurrence or the date of the announcement, as the case may be, of the Redemption Event triggering such Redemption Right and (ii) the number of shares of Common Stock of the Company for which the Warrant could have been exercised immediately prior to such Redemption Event. After the occurrence of (A), (B) or (C), the Registered Owner shall have the right at his or its option, in lieu of the Redemption Right, to exercise the Warrant for shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such Redemption Event; the Registered Owner shall be entitled upon such event to receive such amount of securities, cash or property as if the Registered Owner had held the shares of the Common Stock for which the Warrant could have been exercised immediately prior to such Redemption Event (without taking into account any limitations or restrictions on the exercisability of the Warrants). In the case of a transaction specified in (B) in which holders of the Company's Common Stock receive cash, the Registered Owner shall have the right at his or its option, in lieu of the Redemption Right, to exercise the Warrant for such number of shares of the surviving company equal to the amount of cash for which the Warrant is excercisable divided by the fair market value of the shares of the surviving company on the effective date of the merger. In the case of (A), (B) or (C), the Company shall not effect any such Redemption Event unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered and reasonably satisfactory to, the Registered Owner of this Warrant, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant), (b) the obligations of the Company under the Purchase Agreement, the Preferred Stock, this Warrant, and the Registration Rights Agreement, and (c) the obligation to deliver to the Registered Owner such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 6(f), the Registered Owner may be entitled to receive. Nothing in this Section 6(f) shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by the Purchase Agreement. This provision shall similarly apply to successive Redemption Events. 5 6 g. Reclassification, Etc. If: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (iii) the Company shall authorize the granting to the holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or (iv) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (v) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of exercise of this Warrant, and shall cause to be delivered to the Registered Owner, at least 10 Business Days prior to the applicable record or effective date hereinafter specified, a notice (provided such notice shall not include any material non-public information) stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. h. Adjustment to Exercise Price. If the Company, at any time while this Warrant is outstanding, takes any of the actions described in this Section 6(h), then, in order to prevent dilution of the rights granted under this Warrant, the Exercise Price will be subject to adjustment from time to time as provided in this Section 6(h). i. Adjustment of Exercise Price upon Issuance of Common Stock. If at any time while this Warrant is outstanding the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than (1) the Underlying Shares or shares of Common Stock deemed to have been issued by the Company in connection 6 7 with an Approved Stock Plan, (2) the shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, (3) the securities to be issued in the transactions set forth on such Schedule 2.1(c), (4) the shares of Common Stock issuable upon an Underwritten Offer (as defined in the Registration Rights Agreement) occurring before December 2000, or (5) the shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another person) for a consideration per share less than the Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale, the Exercise Price then in effect shall be reduced to an amount equal to the consideration per share of Common Stock of such issuance or sale. For the purpose of determining the adjusted Exercise Price under this Section 6(h)(i), the following shall be applicable: (A) Issuance of Options. If at any time while this Warrant is outstanding the Company in any manner grants any rights or options to subscribe for or to purchase Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (other than (1) the Underlying Shares or shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan, (2) the shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, (3) the securities to be issued in the transactions set forth on such Schedule 2.1(c), (4) the shares of Common Stock issuable upon an Underwritten Offer (as defined in the Registration Rights Agreement) occurring before December 2000, (5) the shares of Common Stock issuable upon an Underwritten Offer (as defined in the Registration Rights Agreement) or (6) the shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another person) (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Exercise Price in effect immediately prior to such grant, then the Exercise Price shall be adjusted to equal the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities. No adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (B) Issuance of Convertible Securities. If at any time while this Warrant is outstanding the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon such conversion or exchange (other than the Underlying Shares or 7 8 shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan, shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another person) is less than the Exercise Price in effect immediately prior to issuance or sale, then the Exercise Price shall be adjusted to equal the price per share for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities. (C) Change in Option Price or Rate of Conversion. If there is a change at any time in (i) the purchase price provided for in any Options, (ii) the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, then the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase of the Exercise Price then in effect. (D) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under this Section 6(h)(i), the following shall be applicable: (I) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Average Price of such security on Trading Day immediately preceding the date of receipt thereof. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the registered owners of a majority of the Underlying 8 9 Shares of Warrants then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within forty-eight (48) hours of the tenth (10th) day following the Valuation Event by an Appraiser selected in good faith by the Company and agreed upon in good faith by the holders of a majority of the Warrants then outstanding. The determination of such Appraiser shall be binding upon all parties absent manifest error. (II) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for an aggregate consideration of $.01. (III) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (IV) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (V) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 6(h)(i) (subject to the exceptions stated therein) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Exercise Price so as to protect the rights of the Registered Owner, or assigns, of this Warrant; provided, however, that no such adjustment will increase the Exercise Price as otherwise determined pursuant to this Section 6(h). Notwithstanding the foregoing, in no event shall any provision in this Section 6 cause the Exercise Price to be greater than the Exercise Price on the date of issuance of this Warrant. j. Adjustment of Number of Shares. Upon each adjustment of the Exercise Price as a result of the calculations made in this Section 6, this Warrant shall thereafter 9 10 evidence the right to receive, at the adjusted Exercise Price, that number of shares of Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i) the product of the aggregate number of shares covered by this Warrant immediately prior to such adjustment and the Exercise Price in effect immediately prior to such adjustment of the Exercise Price by (ii) the Exercise Price in effect immediately after such adjustment of the Exercise Price. 7. OPTIONAL REDEMPTION. a. Optional Redemption. This Warrant is redeemable in whole or in part at the option of the Company during the following time periods, from time to time, under the following conditions and subject also to the conditions set forth in Section 7(b) (the "Optional Redemption"): (i) Prior to the first anniversary of the Closing Date, the Company may redeem the Warrant, subject to the other conditions herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 200% of the Exercise Price as at the Closing Date; (ii) During the period commencing on the First Business Day immediately after the first anniversary of the Closing Date and ending on the second anniversary of the Closing Date, the Company may redeem the Warrant, subject to the other conditions herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 175% of the Exercise Price as at the Closing Date; and (iii) After the second anniversary of the Closing Date, the Company may redeem the Warrant, subject to the other conditions herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 150% of the Exercise Price as at the Closing Date. b. Redemption Notice. Subject to the conditions set forth in Section 7(a), so long as (i) no Event of Default (or any event that with the passage of time or giving of notice or both would constitute an Event of Default) shall have occurred and be continuing, (ii) any Registration Statement required to be filed and be effective pursuant to the Registration Rights Agreement is then in effect and has been in effect and sales of all of the Registrable Securities can be made thereunder for at least twenty (20) days prior to the Redemption Notice Date (as defined below) and (iii) the Company has a sufficient number of authorized shares of Common Stock reserved for issuance upon full exercise of the outstanding Warrants, upon ten (10) Business Days prior written notice to the Registered Owner (a "Redemption Notice"), the Warrant may be redeemed by the Company, in whole or in part, at a redemption price equal to $.01 per Warrant (the "Redemption Price'). c. Mechanics of Redemption. The Company shall exercise its right to redeem by delivering its Redemption Notice by facsimile and overnight courier to each Registered Owner (such date that the Redemption Notice is given on the "Redemption 10 11 Notice Date"). Such Redemption Notice shall indicate (A) the Redemption Price, (B) each Registered Owner's pro rata allocation of such maximum amount, and (C) a confirmation of the date that the Company shall effect the redemption (the "Redemption Date"). The Redemption Date shall be not less than thirty (30) Business Days and not more than sixty (60) calendar days after the Redemption Notice Date. Notwithstanding anything in this Section 7(c), the Company shall convert any Warrant pursuant to Section 5 if the Warrant Exercise Form for a Warrant submitted for exercise is (i) delivered before the Redemption Date, (ii) for an Exercise Price greater than or equal to the Redemption Price (appropriately adjusted in accordance with the terms hereof) or (iii) in excess of such Registered Owner's pro rata allocation of the maximum Redemption Price indicated in its Redemption Notice. d. Payment of Redemption Price. The Company shall pay the applicable Redemption Price to the Registered Owner of the Warrants being redeemed in cash on the Redemption Date. If the Company shall fail to pay the applicable Redemption Price to such Registered Owner on the Redemption Date, in addition to any remedy such Registered Owner may have under this Warrant and the Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month until paid in full. Until the Company pays such unpaid applicable Redemption Price in full to each Registered Owner, each Registered Owner of Warrants submitted for redemption pursuant to this Section 7 and for which the applicable Redemption Price has not been paid, shall have the option, in lieu of redemption, (A) to require the Company to promptly return to such Registered Owner all of the Warrants that were submitted for redemption by such Registered Owner under this Section 7 and for which the applicable Redemption Price has not been paid or (B) to exercise those Warrants for which the applicable Redemption Price has not been paid at an Exercise Price equal to the lesser of (I) the Exercise Price applicable to such exercise on the Redemption Date and (II) the lowest Per Share Market Value from the Redemption Date to the date the Registered Owner gives a Void Redemption Notice by sending written notice thereof to the Company via facsimile (the "Void Redemption Notice"). Upon the Company's receipt of such Void Redemption Notice(s) requesting the return of the Warrants and before payment of the full applicable Redemption Price to each Registered Owner, (i) the redemption shall be null and void with respect to those Warrants submitted for redemption and for which the applicable Redemption Price has not been paid, (ii) the Company shall immediately return any Warrants submitted to the Company by each Registered Owner for redemption under this Section 7 and for which the applicable Redemption Price has not been paid and (iii) the Exercise Price of such returned Warrants shall be adjusted to the lesser of (I) the Exercise Price applicable to such conversion on the date on which such Warrants were originally presented for redemption and (II) the lowest Per Share Market Value from the Redemption Date to the date the Registered Owner gives a Void Redemption Notice. If the Company fails to timely effect a redemption in accordance with this Section 7, the Company shall not be allowed to submit another Redemption Notice without the prior written consent of Registered Owners of at least two-thirds (2/3) of the principal amount of the Warrants then outstanding. 11 12 8. NASDAQ LIMITATION. In no event shall the Issuer be required to issue shares of Common Stock upon the exercise of a Warrant if such issuance would violate the rules of Nasdaq. 9. RESTRICTION ON EXERCISE BY EITHER THE REGISTERED OWNER OR THE COMPANY. Notwithstanding anything herein to the contrary, in no event shall any Registered Owner or the Company have the right or be required to exercise this Warrant if as a result of such conversion the aggregate number of shares of Common Stock beneficially owned by such Registered Owner and its Affiliates would exceed 4.99% of the outstanding shares of the Common Stock following such exercise. For purposes of this Section 9, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this Section 9 may be waived by a Registered Owner as to itself (and solely as to itself) upon not less than 65 days prior written notice to the Company. 10. OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon exercise shall be adjusted as required by the provisions of Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted number of shares determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officer's certificate shall be made available at all reasonable times for inspection by any Registered Owner of the Warrants and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the each of the Registered Owners. 11. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement. As used in this Warrant, the following terms have the following meanings: "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Appraiser" shall mean a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing. "Approved Stock Plan" shall mean any contract, plan or agreement which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer, director or consultant. "Average Price" has the meaning set forth in the Preferred Stock. 12 13 "Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close. "Closing" has the meaning set forth for "First Closing" as in Section 1.2(a) of the Purchase Agreement. "Common Stock" means the shares of the Company's Common Stock, par value $0.01 per share. "Company" means International Isotopes Inc., a Texas corporation. "Convertible Securities" has the meaning assigned to it in Section 6(h)(i)(A). "Distribution Date" has the meaning assigned to it in Section 22. "Exercise Period" has the meaning assigned to it the Section 4. "Exercise Price" has the meaning assigned to it in Section 3 "Options" has the meaning assigned to it in Section 6(h)(i)(A). "Per Share Market Value" means on any particular date (i) the closing bid price per share of the Common Stock on such date on the Nasdaq SmallCap Market or other registered national stock exchange on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (ii) if the Common Stock is not listed then on the Nasdaq National Market or the Nasdaq SmallCap Market or any registered national stock exchange, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (iii) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser selected in good faith by the holder of this Warrant; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select, in good faith, an additional Appraiser, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. "Preferred Stock" means the shares of the Series A 5% convertible redeemable preferred stock issued pursuant to the Company's Certificate Of Designation Of Preferences and Rights and sold pursuant to the Purchase Agreement. "Prepayment Amount" has the meaning assigned to it in Section 8. "Purchase Agreement" means that certain Securities Purchase Agreement, dated May 18, 1999, among the Company and the Purchasers. 13 14 "Purchaser" has the meaning set forth in the Purchase Agreement. "Redemption Date" has the meaning assigned to it in Section 7(c). "Redemption Event" has the meaning assigned to it in Section 6(f). "Redemption Notice" has the meaning assigned to it in Section 7(b). "Registered Owner" means the person identified on the face of this Warrant as the registered owner hereof or such other person as shown on the records of the Company as being the registered owner of this Warrant. "Redemption Price" has the meaning assigned to it in Section 7(b) hereof. "Registrable Securities" has the meaning assigned to it in the Registration Rights Agreement. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated May 18, 1999, among the Company and the Purchasers. "Rights" has the meaning assigned to it in Section 22. "Trading Day(s)" means any day on which the primary market on which shares of Common Stock are listed is open for trading. "Underlying Shares" has the meaning assigned to it in Section 2.1(d) of the Purchase Agreement. "Void Redemption Notice" has the meaning assigned to it in Section 7(d). "Warrant(s)" means the warrants issuable at the Closing. 12. REGISTRATION RIGHTS. The Company will undertake the registration of the Common Stock into which such Warrants are exercisable at such times and upon such terms pursuant to the provisions of the Registration Rights Agreement. 13. RESERVATION OF UNDERLYING SHARES; LISTING. The Company covenants that it will at all times reserve and keep available out of its authorized shares of Common Stock, free from preemptive rights, solely for the purpose of issue upon exercise of the Warrants as herein provided, such number of shares of the Common Stock as shall then be issuable upon the exercise of all outstanding Warrants into Common Stock. The Company covenants that all shares of the Common Stock issued upon exercise of the Warrant which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of the Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock form time to time issuable upon the 14 15 exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. 14. NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if received by 8:00 p.m. EST where such notice is to be received), or the first Business Day following such delivery (if received after 8:00 p.m. EST where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to International Isotopes Inc., 3100 Jim Christal Road, Denton, Texas 76207, Telephone: (940) 484-9492, Facsimile: (940) 484-0877, Attention: Ira Lon Morgan with copies to Locke Liddell & Sapp LLP, 100 Congress, Suite 300, Austin, Texas, 78701, Attention: Curtis R. Ashmos and (ii) if to the Registered Owner to ________ with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attn: James Kaye, fax no. (212) 872-1002 or such other address as may be designated in writing hereafter, in the same manner, by such person. 15. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants that if any shares of Common Stock required to be reserved for purposes of exercise of Warrants hereunder require registration with or approval of any governmental authority under any Federal or state law, or any national securities exchange, before such shares may be issued upon exercise, the Company will use its best efforts to cause such shares to be duly registered or approved, as the case may be. 16. FRACTIONAL SHARES. Upon any exercise hereunder, the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the Registered Owner shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 17. PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of certificates for shares of the Common Stock upon exercise of the Warrants shall be made without charge to the Registered Owners thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon exercise in a name other than that of the Registered Owner of such Warrant so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 15 16 18. WARRANTS OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining whether the holders of the outstanding Warrants have concurred in any direction, consent or waiver under this Warrant, Warrants which are owned by the Company or any other obligor on the Warrants or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Warrants shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that any Warrants owned by the Purchasers (as defined in the Purchase Agreement) shall be deemed outstanding for purposes of making such a determination. Warrants so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Company the pledgee's right so to act with respect to such Warrants and that the pledgee is not the Company or any other obligor upon the Warrants or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Warrants. 19. EFFECT OF HEADINGS; REFERENCES. The section headings herein are for convenience only and shall not affect the construction hereof. References herein to Sections are to Sections of this Warrant, unless otherwise expressly provided. 20. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the Registered Owner to any rights as a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent exercised for shares of Common Stock in accordance with the terms hereof. 21. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. 22. SHAREHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the event that the Company shall distribute "poison pill" rights pursuant to a "poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu of making any adjustment pursuant to Section 6, make proper provision so that each Registered Owner who exercises a Warrant after the record date for such distribution and prior to the expiration or redemption of the Rights shall be entitled to receive upon such exercise, in addition to the shares of Common Stock issuable upon such exercise, a number of Rights to be determined as follows: (i) if such exercise occurs on or prior to the date for the distribution to the holders of Rights of separate certificates evidencing such Rights (the "Distribution Date"), the same number of Rights to which a holder of a number of shares of Common Stock equal to the number of shares of Common Stock issuable upon such 16 17 exercise at the time of such exercise would be entitled in accordance with the terms and provisions of and applicable to the Rights; and (ii) if such exercise occurs after the Distribution Date, the same number of Rights to which a holder of the number of shares into which the Warrant to exercised was exercisable immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of and applicable to the Rights, and in each case subject to the terms and conditions of the Rights. 23. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to the benefit of the Registered Owners and its assigns, and shall be binding upon any entity succeeding to the Company by merger or acquisition of all or substantially all the assets of the Company. The Company may not assign this Warrant or any rights or obligations hereunder without the prior written consent of the Registered Owner. The Registered Owner may assign this Warrant without the prior written consent of the Company. 24. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above. INTERNATIONAL ISOTOPES INC. By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- 17 18 EXHIBIT A Warrant Exercise Form TO: INTERNATIONAL ISOTOPES INC. The undersigned hereby: (1) irrevocably subscribes for and offers to purchase _______ shares of Common Stock of International Isotopes Inc., pursuant to Warrant No. ___ heretofore issued to ___________________ on ____________, 1999; (2) encloses a payment of $__________ for these shares at a price of $____ per share (as adjusted pursuant to the provisions of the Warrant); and (3) requests that a certificate for the shares be issued in the name of the undersigned and delivered to the undersigned at the address specified below. Date: -------------------------------------------------------- Investor Name: ----------------------------------------------- Taxpayer Identification: -------------------------------------- Number: ------------------------------------------------------ By: ---------------------------------------------------------- Printed Name: ------------------------------------------------ Title: ------------------------------------------------------- Address: ----------------------------------------------------- Note: The above signature should correspond exactly with the name on the face of this Warrant Certificate or with the name of assignee appearing in assignment form below. AND, if said number of shares shall not be all the shares purchasable under the within Warrant, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder less any fraction of a share paid in cash and delivered to the address stated above. 18 EX-4.3 3 CERTIFICATE OF DESIGNATION 1 EXHIBIT 4.3 INTERNATIONAL ISOTOPES INC. Certificate of Designation, Preferences and Rights of Preferred Stock by Resolution of the Board of Directors Providing for an Issue of 10,000 Shares of Preferred Stock Designated Series A 5% Convertible Redeemable Preferred Stock ---------------- We, Carl W. Seidel, President, and Virgil L. Simmons, of International Isotopes Inc., a Texas corporation (the "Company"), in accordance with the provisions of Article 2.13 of the Texas Business Corporation Act, do HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Company (hereinafter referred to as the "Articles of Incorporation"), said Board of Directors has duly adopted the following resolution effective May 17, 1999 providing for the issuance of a series of Preferred Stock, designated "Series A 5% Convertible Redeemable Preferred Stock." RESOLVED, that pursuant to the authority vested in the Board of Directors of the Company by the Articles of Incorporation of the Company, the Board of Directors hereby authorizes and provides for the issue of a series of Convertible Redeemable Preferred Stock, $.01 par value per share, of the Company to be designated as Series A 5% Convertible Redeemable Preferred Stock, consisting of 10,000 shares, and does hereby fix, state and express the designations, voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof as set forth in Exhibit A hereto. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by Carl W. Seidel, its President and Virgil L. Simmons, its Secretary, this ______ day of May, 1999. The date of adoption of this resolution is the 17th day of May, 1999. INTERNATIONAL ISOTOPES INC. By: ------------------------------ Name: Carl W. Seidel, President By: ------------------------------ Name: Virgil L. Simmons, Secretary 2 EXHIBIT A ARTICLE I DESIGNATION, AMOUNT, PAR VALUE, LIQUIDATION VALUE AND RANK 1.1 The series of preferred stock shall be designated as Series A 5% Convertible Redeemable Preferred Stock, ("Series A Preferred Stock" or "Preferred Stock"), and the number of shares so designated shall be up to 10,000 (which shall not be subject to increase without the consent of each of the holders of the Series A Preferred Stock ("Holders")). Each share of Preferred Stock, $.01 par value per share, shall have a liquidation value of $1,000 per share (the "Liquidation Value"). 1.2 The Series A Preferred Stock shall rank senior to the Junior Securities as to dividends, distributions and upon liquidation, dissolution or winding up. No class of equity securities of the Company shall be senior to the Series A Preferred Stock as to dividends, distributions and upon liquidation, dissolution or winding up. ARTICLE II DIVIDENDS 2.1 Holders of Series A Preferred Stock shall be entitled to receive, out of funds legally available therefor, and the Company shall pay, cumulative dividends at the rate per share (as a percentage of the Liquidation Value per share) equal to 5% per annum, payable quarterly, on January 15, April 15, July 15 and October 15 of each year (each a "Dividend Payment Date") commencing on October 15, 1999, in cash or shares of Common Stock, as set forth in Section 2.2, at the option of the Company. The "Record Date" for any dividend payment is the close of business on January 1, April 1, July 1 or October 1, as the case may be, whether or not a Business Day, immediately preceding the Dividend Payment Date on which such dividend is payable. Dividends on the Series A Preferred Stock shall be calculated on the basis of a 365-day year (or 366-day year for any leap year), shall accrue daily commencing on the Issuance Date, and shall be deemed to accrue from such date and be cumulative whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. Accrued and unpaid dividends of the Preferred Stock for any shares which are being converted shall be paid on the date on which such Preferred Stock is converted. Except as otherwise provided herein, if at any time the Company pays less than the total amount of dividends then accrued on account of the Preferred Stock, such payment shall be distributed ratably among the Holders based upon the number of shares held by each Holder. 2.2 Dividends may, at the Company's option be paid in shares of Common Stock calculated based upon the Average Price on the date such dividends are due. It shall be assumed that the Company shall elect to make all payments of dividends in cash, unless the Company shall have given written notice to each Holder not less than four (4) Business Days' prior to the applicable Dividend Payment Date of its intention to pay such dividends in Common Stock. Notwithstanding anything to the contrary contained herein, the Company may not issue 3 shares of Common Stock in payment of the dividends if: (i) the number of shares of Common Stock at the time authorized, unissued and unreserved for all other purposes is insufficient to pay dividends hereunder in shares of Common Stock or there is an insufficient number of authorized shares of Common Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement) for issue for full conversion of all shares of Preferred Stock issued pursuant to the Purchase Agreement; (ii) such shares are not either registered for resale pursuant to the Registration Statement (as defined in the Registration Rights Agreement) or freely transferable without volume restrictions pursuant to Rule 144(k) promulgated under the Act, as determined by counsel to the Company pursuant to a written opinion letter addressed and in form and substance acceptable to the Holder and the transfer agent for such shares, subject to receipt from the Holder of a representation from such Holder that it is not an Affiliate of the Company; (iii) such shares are not listed or quoted on the Nasdaq or a Subsequent Market; or (iv) the issuance of such shares would result in the recipient thereof beneficially owning more than 4.99% of the issued and outstanding shares of Common Stock as determined in accordance with Section 7.4. 2.3 So long as any Preferred Stock shall remain outstanding or unconverted, except pursuant to existing agreements of the Company on the date hereof, neither the Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Company directly or indirectly pay or declare any dividend or make any distribution (other than a dividend or distribution described herein) upon, nor shall any distribution be made in respect of, any Junior Securities, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities. ARTICLE III VOTING RIGHTS 3.1 Except as otherwise provided herein and as otherwise required by law, the Preferred Stock shall have no voting rights. However, so long as any shares of Preferred Stock are outstanding, the Company shall not and shall cause its subsidiaries not to, without the affirmative vote of the Holders of more than 75% of the shares of the Preferred Stock then outstanding, (a) alter or change adversely the absolute or relative powers, preferences or rights given to the Preferred Stock, (b) alter or amend this Certificate of Designation, (c) amend its, or their, Certificate of Incorporation, bylaws or other charter documents so as to affect adversely any rights of any Holders, (d) increase the authorized number of shares of Preferred Stock, (e) sell all or substantially all of its, or their, assets, (f) merge with or into another company, in the event that the Company will not be the surviving entity or (g) enter into any agreement with respect to the foregoing. ARTICLE IV LIQUIDATION 4.1 Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Preferred 2 4 Stock an amount equal to the Liquidation Value, plus all accrued but unpaid dividends per share, whether declared or not, before any distribution or payment shall be made to the Holders of any Junior Securities. If the assets of the Company shall be insufficient to pay in full all amounts due to the Holders then the entire assets to be distributed to the Holders and the Holders of all securities ranking pari passu to the Preferred Stock ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A sale, conveyance, lease, transfer or disposition of all or substantially all of the assets of the Company or the consummation by the Company of a transaction or series of related transactions in which more than 40% of the voting power of the Company is disposed of, or a consolidation or merger of the Company with or into any other company or companies shall not be treated as a Liquidation, but instead shall be subject to the provisions of Article VII. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder. ARTICLE V CONVERSION 5.1 RIGHT OF HOLDERS TO CONVERT PREFERRED STOCK INTO COMMON STOCK. (a) Conversion Price. Subject to and upon compliance with the provisions of this Section 5.1, each share of Preferred Stock (and any declared but unpaid dividends thereon) may, at any time at or before the close of business on May 20, 2002 be converted into duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock at a conversion price of $11.86 per share to be adjusted as set forth in Section 5.1(b), and subject to the provisions of this Article V (the "Conversion Price"). [PARAGRAPH (b) SHALL NOT APPEAR IN THE CERTIFICATE OF DESIGNATION ISSUED IN THE THIRD CLOSING] (b) Quarterly Adjustments of Conversion Price. At 5:00 p.m. on October 15, 1999 and on each Dividend Payment Date thereafter (each, a "Reset Date"), subject to the last sentence of this Section 5.1(b), the Conversion Price shall be adjusted to be equal to the Average Price on such Reset Date. The Holder shall send written notice to the Company of the Conversion Price, as adjusted pursuant to this paragraph, together with computation of such adjusted Conversion Price and the computation of the average Per Share Market Value for each such ten-day period, no later than the second (2nd) Business Day after the Reset Date. The Conversion Price shall be deemed to be adjusted to such new Conversion Price unless the Company notifies the Holder within two (2) Business Days after receipt of such written notice from the Holder that the Company disagrees with the computation of such adjustment. If the Holder and the Company fail to agree upon the adjusted Conversion Price within one (1) Business Day after the Company has given such notice, the Conversion Price shall be computed promptly by a securities firm acceptable to both the Holder and the Company, and such computation shall be final; provided, however, that the Conversion Price shall always be greater than or equal to $7.00 per share but in no event shall the Conversion Price exceed $11.86. 3 5 (c) Notice of Conversion. If an adjustment in the Conversion Price and, if applicable, a change in the securities or other property issuable upon conversion has taken place pursuant to Articles V or VII, then the conversion described in Section 5.1(a) shall be at the applicable Conversion Price and in such securities or other property as so adjusted. The Purchaser desiring to make a conversion shall deliver to the Company, during usual business hours of the Company's office, or, at the Purchaser's option, to the Company's transfer agent during its usual business hours (with a copy to the Company), a written notice of election to convert, as provided in the form attached hereto as Exhibit A (a "Notice of Conversion"), accompanied, if required, by the stock certificate(s) evidencing the shares of Preferred Stock which are to be converted. 5.2 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION. No payment or adjustment will be made for dividends on any Common Stock except as provided herein. On conversion of shares of Preferred Stock, any declared but unpaid dividends thereon attributable to the period from the Original Issuance Date to the Conversion Date with respect to the converted shares of Preferred Stock shall not be canceled, extinguished or forfeited, but rather shall be paid in full to the Holder thereof by the payment of an amount of shares of Common Stock valued at the Average Price equal thereto; provided, however, that the Company shall pay such amount in cash if the Holder provides the Company with ten (10) days prior written notice of its intention to be paid in cash. 5.3 ISSUANCE OF SHARES UPON CONVERSION. (a) As promptly as practicable, but in any event no later than two (2) Trading Days after delivery of a Notice of Conversion and, if required, the surrender, as herein provided, of any certificates for shares of Preferred Stock for conversion, the Company shall deliver or cause to be delivered to the Holder of the Preferred Stock delivering such Notice of Conversion, or such Holder's designee, a certificate or certificates representing the number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock, into which such shares of Preferred Stock may be converted in accordance with the provisions of this Article V. Such conversion shall be deemed to have been made at the time and on the date the Notice of Conversion is delivered to the Company, as long as, if required, the Preferred Stock being converted are promptly delivered to the Company and the rights of the Holder of such Preferred Stock as a Holder (subject to the Company's satisfaction of its obligations hereunder with respect to such conversion) shall cease at such time with respect to the shares of Preferred Stock that such Holder would have held had the shares of Preferred Stock converted into Underlying Shares not been so converted (the "Converted Preferred Stock"), the Person or Persons entitled to receive the shares of Common Stock, upon conversion of such Preferred Stock, shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time (the "Conversion Date"). Subject to paragraph 5.3(b), if any certificated shares of Preferred Stock are converted in part only, upon such conversion the Company shall execute and deliver to the Holder thereof, as requested by such Holder, a new Preferred Stock certificate for the number of shares of Preferred Stock equal to the unconverted portion of such Preferred Stock certificate. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties hereto agree that if the 4 6 Company fails to deliver the shares of Common Stock required to be issued upon the conversion of such shares of Preferred Stock under this Section 5.3 within the two (2) Trading Day period referred above, the Company shall pay to the Holder upon demand an amount of cash (at the Holder's option) equal to: (i) the commissions, discounts and similar expenses charged to the Holder in purchasing a number of shares of Common Stock no greater than the number of shares of Common Stock required to be issued upon the conversion of the Preferred Stock, or (ii) the product of (w) the number of shares of Common Stock required to be issued upon the conversion of the Preferred Stock, (x) the Per Share Market Value of such shares on the Conversion Date, (y) the number of days after such two (2) day period that such shares are not delivered to the Holder, and (z) 0.005. (b) Notwithstanding anything to the contrary set forth herein, upon conversion of shares of Preferred Stock in accordance with the terms hereof, the Holder shall not be required to physically surrender its certificate of Preferred Stock to the Company unless the entire amount of shares of Preferred Stock is so converted. The Holder and the Company shall maintain records showing the number of shares of Preferred Stock already converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of the Preferred Stock certificate(s) upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of shares of a Preferred Stock certificate is converted, the Holder may not transfer the Preferred Stock certificate unless the Holder first physically surrenders the certificate to the Company, whereupon the Company shall promptly issue and deliver upon the order of the Holder a new certificate of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing the number of remaining unconverted shares of Preferred Stock. The Holder and any assignee, by acceptance of the Preferred Stock, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of a Preferred Stock certificate, the unpaid and unconverted shares of such Preferred Stock certificate may be less than the amount stated on the face thereof. (c) In lieu of delivering physical certificates representing the Conversion Shares, provided the Company's transfer agent is participating in the Depositary Trust Company Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and in compliance with the provisions of Sections 5.1 and 5.3, the Company shall use its best efforts to cause its transfer agent to electronically transmit the shares of Common Stock issuable upon conversion of the Preferred Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. The time period for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein. (d) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates for shares of Common Stock pursuant to Section 5.3(a), including for purposes hereof, any shares of Common Stock to be issued on the Conversion Date on account of any declared but unpaid dividends hereunder, by the second (2nd) Trading Day after the Conversion Date, and if after such second (2nd) Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in 5 7 satisfaction of a sale by such Holder of the Underlying Shares which the Holder was entitled to receive upon such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the market price of the Common Stock at the time of the sale giving rise to such purchase obligation and (B) at the option of the Holder, either return the Preferred Stock for which such conversion was not honored or deliver to such Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations under Section 5.3(a). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Preferred Stock with respect to which the market price of the Underlying Shares on the date of conversion totaled $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. 5.4 MANDATORY REDEMPTION ON MAY 20, 2002. (a) All outstanding and unconverted shares of Series A Preferred Stock on May 20, 2002 shall be redeemed by the Company pursuant to this Section 5.4 from funds or shares of Common Stock legally available therefor at a price per share equal to the purchase price as set forth in the Purchase Agreement plus any and all accrued but unpaid dividends. Thereafter, all shares of Series A Preferred Stock shall cease to be outstanding and shall have the status of authorized but undesignated preferred stock. The Company, at its option, shall pay the redemption price either in cash or in shares of Common Stock valued at the Average Price on May 20, 2002. (b) If any portion of the applicable redemption price under Section 5.4(a) shall not be paid by the Company within seven (7) calendar days after the date due, interest shall accrue thereon at the rate of 15% per annum until the redemption price plus all such interest is paid in full (which amount shall be paid as liquidated damages and not as a penalty). In addition, if any portion of such redemption price remains unpaid for more than seven (7) calendar days after the date due, the Holder of the Preferred Stock subject to such redemption may elect, by written notice to the Company given within 30 days after the date due, to either (i) demand conversion in accordance with the formula and the time frame therefor set forth in Section 5.1 of all of the shares of Preferred Stock for which such redemption price, plus accrued liquidated damages thereof, has not been paid in full (the "Unpaid Redemption Shares"), in which event the Per Share Market Price for such shares shall be the lower of the Per Share Market Price calculated on the date such redemption price was originally due and the Per Share Market Price as of the Holder's written demand for conversion, or (ii) invalidate ab initio such redemption, notwithstanding anything herein contained to the contrary. If the Holder elects option (i) above, the Company shall within five Trading Days of its receipt of such election deliver to the Holder the shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares subject to such Holder conversion demand and otherwise perform its obligations hereunder with respect thereto; or, if the Holder elects option (ii) above, the Company shall promptly, and in any event 6 8 not later than five Trading Days from receipt of Holder's notice of such election, return to the Holder all of the Unpaid Redemption Shares. ARTICLE VI REGISTRATION REQUIREMENTS 6.1 RESERVATION OF SHARES. The Company covenants that it will at all times reserve and keep available out of its authorized shares of Common Stock, free from preemptive rights, solely for the purpose of issue upon conversion of the Preferred Stock as herein provided, such number of shares of the Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock into Common Stock (the "Reserved Amount"). The Company covenants that all shares of the Common Stock issued upon conversion of the Preferred Stock which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable. 6.2 If, at any time a Holder of Preferred Stock submits a Notice of Conversion, and the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article VI (a "Conversion Default"), subject to Section 7.10, the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of Preferred Stock which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company to permit such conversion at which time the Conversion Price in respect thereof shall be the lesser of (i) the Per Share Market Value on the Conversion Default Date (as defined below) and (ii) the Per Share Market Value on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Company shall pay to the Holder payments ("Conversion Default Payments") for a Conversion Default in the amount of (x) the sum of (1) the number of the Holder's then outstanding shares of Preferred Stock plus (2) any declared and unpaid dividends on such shares of Preferred Stock through the Authorization Date (as defined below) multiplied by (y) .24, multiplied by (z) (N/365), where N equals the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the "Conversion Default Date") to the date (the "Authorization Date") that the Company authorizes a sufficient number of shares of Common Stock to effect conversion of the full number of outstanding shares of Preferred Stock. The Company shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Company or that the Company otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Company shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common 7 9 Stock (at such time as there are sufficient authorized shares of Common Stock following the Authorization Date) at the applicable Conversion Price, at the Holder's option, as follows: (a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) Business Day of the month following the month in which it has accrued; and (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the lesser of the Conversion Price (as in effect at the time of conversion) and the Per Share Market Value (on the fifth day of the month referred to below) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article VI (so long as there is then a sufficient number of authorized shares of Common Stock). 6.3 The Holder's election shall be made in writing to the Company at any time prior to 9:00 p.m., New York City Time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holder's right to pursue actual damages (to the extent in excess of the conversion Default Payments) for the Company's failure to maintain a sufficient number of authorized shares of Common Stock, and each Holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 6.4 Notwithstanding the foregoing, the provisions of Section 2(d) of the Registration Rights Agreement are incorporated herein by reference. ARTICLE VII ADJUSTMENT OF CONVERSION PRICE 7.1 ADJUSTMENT OF CONVERSION PRICE. In addition to any adjustment to the Conversion Price provided elsewhere in this Certificate of Designation, the Conversion Price in effect at any time shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits. If the Company, at any time while the Preferred Stock is outstanding, (a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of Capital Stock of the Company, the Conversion Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and the denominator of which shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 7.1(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. 8 10 Notwithstanding the foregoing, if the Company shall combine outstanding shares of Common Stock into a smaller number of shares (a "reverse stock split") at any time prior to the twelve (12) month anniversary of the Closing Date, then the Conversion Price in effect immediately prior to such reverse stock split shall not be adjusted and shall remain in effect after giving effect to such reverse stock split. (b) Rights; Warrants. If the Company, at any time while the Preferred Stock is outstanding, shall issue rights or warrants to all of the holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Conversion Price, the Conversion Price shall be multiplied by a fraction, the denominator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at the Conversion Price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants. (c) Subscription Rights. If the Company, at any time while the Preferred Stock is outstanding, shall distribute to all of the holders of Common Stock evidence of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Sections 7.1(a) and (b) above), then in each such case the Conversion Price at which the Preferred Stock shall thereafter be exercisable shall be determined by multiplying the Conversion Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction, the denominator of which shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and the numerator of which shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors in good faith; provided, however, that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, such fair market value shall be determined by an Appraiser selected in good faith by the Holder; and provided, further, that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser meeting the same qualifications, in good faith, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (d) Rounding. All calculations under Section 7.1 shall be made to the nearest cent or the nearest l/l00th of a share, as the case may be. (e) Notice of Adjustment. Whenever the Conversion Price is adjusted pursuant to paragraphs 7.1(a), (b) or (c), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. 9 11 (f) Redemption Events. The following are "Redemption Events" under this Section 7.1(f): (A) any reclassification of the Common Stock, (B) any Change of Control, (C) any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, (D) any suspension from listing or delisting of the Common Stock from the Nasdaq, the BSE, or any Subsequent Market on which the Common Stock is listed for a period of five consecutive days, (E) the Company's notice to any Holder of the Preferred Stock, including by way of public announcement, at any time, of its intention, for any reason, not to comply with proper requests for the conversion of any such Preferred Stock, or (F) a breach by the Company of any representation, warranty, covenant or other term or condition of the Purchase Agreement, the Registration Rights Agreement, the Warrant, this Certificate of Designation, or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby or hereby, except to the extent that such breach would not have a Material Adverse Effect (as defined in Section 2.1(a) of the Purchase Agreement) and except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least ten days after the Company knows or reasonably should have known of the existence of such breach. On and after the date of any Redemption Event, the Holder shall have the option to require the Company to redeem (the "Redemption Right") in cash and subject to the terms of payment provisions set forth in Section 5.3, from funds legally available therefor at the time of such redemption, the Holder's shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Preferred Stock at a price per share equal to the product of (i) the Average Price immediately preceding the effective date, the date of the closing, date of occurrence or the date of the announcement, as the case may be, of the Redemption Event triggering such Redemption Right and (ii) the number of shares of Common Stock of the Company into which the Preferred Stock could have been converted immediately prior to such Redemption Event. After the occurrence of (A), (B) or (C), the Holder shall have the right at his or its option, in lieu of the Redemption Right, to convert the Preferred Stock for shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such Redemption Event; the Holder shall be entitled upon such event to receive such amount of securities, cash or property as if the Holder had converted the shares of the Common Stock into which the Preferred Stock could have been converted immediately prior to such Redemption Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Stock). In the case of a transaction specified in (B) in which holders of the Company's Common Stock receive cash, the Holder shall have the right at his or its option, in lieu of the Redemption Right, to convert the Preferred Stock for such number of shares of the surviving company equal to the amount of cash into which the Preferred Stock is convertible divided by the fair market value of the shares of the surviving company on the effective date of the merger. In the case of (A), (B) or (C), the Company shall not effect any such Redemption Event unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the conversion of the Preferred Stock as provided herein shall assume, by written instrument delivered and reasonably satisfactory to, the Holder of the Preferred Stock, (a) the obligations of the Company under this Certificate of Designation (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Certificate of Designation), (b) the obligations of the Company under the Purchase Agreement, the Warrant, this Certificate of Designation, and the Registration Rights 10 12 Agreement, and (c) the obligation to deliver to the Registered Owner such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 7.1(f), the Holder may be entitled to receive. Nothing in this Section 7.1(f) shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by the Purchase Agreement. This provision shall similarly apply to successive Redemption Events. (g) Adjustment to Conversion Price. (i) If the Company, at any time while the Preferred Stock is outstanding, takes any of the actions described in this Section 7.1(g), then, in order to prevent dilution of the rights granted under this Certificate of Designation, at any time prior to the Maturity Date, the Conversion Price will be subject to adjustment from time to time as provided in this Section 7.1(g). (ii) Adjustment of Conversion Price upon Issuance of Common Stock. If at any time while the Preferred Stock is outstanding the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than the shares of Common Stock underlying the Warrants or the Preferred Stock or shares issued upon exercise of the Warrants or conversion of the Preferred Stock (collectively, the "Underlying Shares") or shares of Common Stock deemed to have been issued by the Company in connection with a Stock Option Plan, or shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement or the securities to be issued in the transactions set forth on such Schedule 2.1(c) or any securities to be issued in an Underwritten Offering (as defined in the Registration Rights Agreement) before December 31, 2000 or shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another Person), for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, then immediately after such issuance or sale the Conversion Price then in effect shall be reduced to an amount equal to the consideration per share of Common Stock in such issuance or sale. For the purpose of determining the adjusted Conversion Price under this Section 7.1(g), the following shall be applicable: (A) Issuance of Options. If at any time while the Preferred Stock is outstanding the Company in any manner grants any rights or options to subscribe for or to purchase Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (other than the Underlying Shares or shares of Common Stock deemed to have been issued by the Company in connection with a Stock Option Plan, or shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, or the securities to be issued in the transactions set forth on such Schedule 2.1(c), or any securities to be issued in an Underwritten Offering (as defined in the Registration Rights Agreement) before December 31, 2000, or shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another Person) 11 13 (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to such grant, then the Conversion Price then in effect shall be reduced to equal the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities. No adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Options. (B) Issuance of Convertible Securities. If at any time while the Preferred Stock is outstanding the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon such conversion or exchange (other than the Underlying Shares or shares of Common Stock deemed to have been issued by the Company in connection with a Stock Option Plan, shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another Person) is less than the Conversion Price in effect immediately prior to issuance or sale, then the Conversion Price then in effect shall be reduced to an amount equal to the price per share for which the Common Stock is issuable upon the conversion or exchange of such Convertible Securities. No adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (C) Change in Option Price or Rate of Conversion. If there is a change at any time in (i) the Purchase Price provided for in any Options, (ii) the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, then immediately after such change in option price or rate of conversion the Conversion Price in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed Purchase Price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (D) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 7.1(g)(ii), the following shall be applicable: (I) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or 12 14 deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Average Price of such security immediately preceding the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holders of Preferred Stock representing a majority of the aggregate number of shares of Preferred Stock then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (a "Valuation Event"), the fair value of such consideration will be determined within forty-eight (48) hours of the tenth (10th) day following the Valuation Event by an Appraiser selected in good faith by the Company and agreed upon by the Holders of Preferred Stock representing a majority of the aggregate number of shares of Preferred Stock then outstanding. The determination of such Appraiser shall be binding upon all parties absent manifest error. (II) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for an aggregate consideration of $.01. (III) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (IV) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the 13 15 making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (E) Certain Events. If any event occurs of the type contemplated by the provisions of Section 7.1(g) (subject to the exceptions stated therein) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, or assigns, of the Preferred Stock; provided, however, that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7.1(g). (F) Notices. The Company shall give the Holder written notice of the occurrence of any of the events specified in this Section 7.1(g) as soon as practicable, but in no event later than three (3) Business Days, after such event and shall publicly disclose such event prior to or concurrently with the giving of such notice. Such notice shall contain at least: (A) a description of the event, (B) the adjusted Conversion Price with a reference to the applicable paragraph in Section 7.1(g), and (C) the dates of the five (5) Trading Day period during which the adjusted Conversion Price is in effect. (h) Delay in Payment to Holder. If the Company fails for any reason, voluntarily or involuntarily, to pay any amount of money to the Holder (including, without limitation, the declared dividends on the Preferred Stock, penalties or liquidated damages) in full on the date such amount is due to the Holder (the "Payment Due Date"), then, as partial relief for the delay in such payment to the Holder (which remedy shall not be exclusive of any other remedies available at law or in equity and shall not excuse or waive the Company's obligation to make such payment), from and after the Payment Due Date the Conversion Price in effect on the Payment Due Date shall be adjusted to the lesser of (i) the Conversion Price in effect on the Payment Due Date and (ii) 80% of the lowest Per Share Market Value on any day during the period beginning on and including the Payment Due Date and ending on the including the date, if ever, the Company pays in full to the Holder all amounts the Company's failure of which to pay is the basis for this adjustment, subject to further adjustment pursuant to this paragraph or other provisions of this Certificate of Designation. No adjustments will be made under this paragraph if the Company's failure to pay is due solely to delays caused by the Commission, so long as the Company has not breached or failed to observe or perform any covenant or agreement contained in this Certificate of Designation, the Warrant(s), the Purchase Agreement or the Registration Rights Agreement. 7.2 QUALIFIED AUDITORS' REPORT. In the event that the Company's independent certified public accountants issue a report on their audit of the Company's financial statements for a full fiscal year and such report contains either a qualification or an explanatory paragraph relating to the Company's ability to continue as a going concern, the Conversion Price shall be adjusted to be equal to the lesser of: (i) the then current Conversion Price, or (ii) the Average Price for the ten-day period commencing on the first public announcement of such audit report. 14 16 7.3 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE COMPANY. Notwithstanding anything herein to the contrary, in no event shall any Holder or the Company have the right or be required to convert any or all of the aggregate purchase price of the Preferred Stock and declared but unpaid dividends thereon of the Preferred Stock if as a result of such conversion the aggregate number of shares of Common Stock beneficially owned by such Holder and its Affiliates would exceed 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of this Section 7.3, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this Section 7.3 may be waived by a Holder as to itself (and solely as to itself) upon not less than 65 days prior written notice to the Company, and the provisions of this Section 7.3 shall continue to apply until such 65th day (or later, if stated in the notice of waiver). 7.4 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon conversion shall be adjusted as required by the provisions of Section 7.1, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted number of shares determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officer's certificate shall be made available at all reasonable times for inspection by any holder of the Preferred Stock and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the each of the Holders. 7.5 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants that if any shares of Common Stock required to be reserved for purposes of conversion of Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law, or any national securities exchange, before such shares may be issued upon conversion, the Company will use its best efforts to cause such shares to be duly registered or approved, as the case may be. 7.6 FRACTIONAL SHARES. Upon a conversion hereunder, the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 7.7 PAYMENT OF TAX UPON ISSUE OR TRANSFER. The issuance of certificates for shares of the Common Stock on conversion of the Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Preferred Stock so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid 15 17 to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 7.8 NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if received by 8:00 p.m. EST where such notice is to be received), or the first Business Day following such delivery (if received after 8:00 p.m. EST where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to International Isotopes Inc., 3100 Jim Christal Road, Denton, Texas 76207, Telephone: (940) 484-9492, Facsimile: (940) 484-0877, Attention: Ira Lon Morgan with copies to Locke Liddell & Sapp, LLP, 100 Congress, Suite 300, Austin, Texas 78731, Attention: Curtis R. Ashmos, and (ii) if to any Holder to the address set forth on Schedule II to the Purchase Agreement with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attn: James Kaye, fax no. (212) 872-1002 or such other address as may be designated in writing hereafter, in the same manner, by such Person. 7.9 ALLOCATIONS OF RESERVED AMOUNT. The Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock issued to each Holder. Each increase to the Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock held by each Holder at the time of the increase in the Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining Holders, pro rata, based on the number of shares of Preferred Stock then held by such Holders. 7.10 NASDAQ LIMITATION. In no event shall the Company be required to issue shares of Common Stock upon the conversion of Preferred Stock if such issuance would violate the rules of Nasdaq. ARTICLE VIII OPTIONAL REDEMPTION 8.1 OPTIONAL REDEMPTION. (a) The shares of Preferred Stock are redeemable, in whole or in part, at the option of the Company during the following time periods, from time to time, under the following conditions and subject also to the conditions set forth in Section 8.1(b) (the "Optional Redemption"): (i) Prior to the first anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions 16 18 herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 200% of the Conversion Price as at the Original Issue Date; (ii) During the period commencing on the first Business Day immediately after the first anniversary of the Original Issue Date and ending on the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 175% of the Conversion Price as at the Original Issue Date; and (iii) After the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Company's Common Stock over twenty (20) consecutive Trading Days reaches over 150% of the Conversion Price as at the Original Issue Date. (b) Subject to the conditions set forth in Section 8.1(a), so long as (i) any Registration Statement required to be filed and be effective pursuant to the Registration Rights Agreement is then in effect and has been in effect and sales of all of the Registrable Securities can be made thereunder for at least twenty (20) days prior to the Redemption Notice Date (as defined below) and (ii) the Company has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Preferred Stock, upon ten (10) Business Days prior written notice to the Holder (a "Redemption Notice"), the full number of outstanding shares of Preferred Stock may be redeemed by the Company, in whole at a price equal to the original purchase price of the Preferred Stock (the "Redemption Price"), together with any declared but unpaid dividends and all liquidated damages and other amounts due in respect thereof up to the Redemption Date (as defined below) (subject to the right of the Holder on the Record Date to receive dividends due on the Dividend Payment Date). 8.2 MECHANICS OF REDEMPTION. The Company shall exercise its right to redeem by delivering its Redemption Notice by facsimile and overnight courier to each Holder (such date that the notice is given, the "Redemption Notice Date"). Such Redemption Notice shall indicate (A) the Redemption Price, (B) each Holder's pro rata allocation of such maximum amount, and (C) a confirmation of the date ("Redemption Date") that the Company shall effect the redemption, which date shall be not less than thirty (30) Business Days and not more than sixty (60) calendar days after the Redemption Notice Date. Notwithstanding anything in this Section 8.2, the Company shall convert any Preferred Stock pursuant to Article VIII if the Conversion Notice for shares of Preferred Stock submitted for conversion is (i) delivered before the Redemption Date, (ii) for a Conversion Price greater than or equal to the Redemption Price (appropriately adjusted in accordance with the terms hereof) or (iii) in excess of such Holder's pro rata allocation of the maximum Redemption Price indicated in its Redemption Notice. 8.3 PAYMENT OF REDEMPTION PRICE. The Company shall pay the applicable Redemption Price to the Holder of the shares of Preferred Stock being redeemed in cash on the Redemption Date. If the Company shall fail to pay the applicable Redemption Price to such Holder on the Redemption Date, in addition to any remedy such Holder may have under this 17 19 Certificate of Designation and the Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month until paid in full. Until the Company pays such unpaid applicable Redemption Price in full to each Holder, each Holder of shares of Preferred Stock submitted for redemption pursuant to this Article VIII and for which the applicable Redemption Price has not been paid, shall have the option, in lieu of redemption, (A) to require the Company to promptly return to such Holder all of the shares of Preferred Stock that were submitted for redemption by such Holder under this Article VIII and for which the applicable Redemption Price has not been paid or (B) to convert those shares of Preferred Stock for which the applicable Redemption Price has not been paid at a Conversion Price equal to the lesser of (I) the Conversion Price applicable to such conversion on the Redemption Date and (II) the lowest Per Share Market Value from the Redemption Date to the date the Holder gives a Void Redemption Notice by sending written notice thereof to the Company via facsimile (the "Void Redemption Notice"). Upon the Company's receipt of such Void Redemption Notice(s) requesting the return of the shares of Preferred Stock and prior to payment of the full applicable Redemption Price to each Holder, (i) the redemption shall be null and void with respect to those shares of Preferred Stock submitted for redemption and for which the applicable Redemption Price has not been paid, (ii) the Company shall immediately return any Preferred Stock certificates submitted to the Company by each Holder for redemption under this Article VIII and for which the applicable Redemption Price has not been paid and (iii) the Conversion Price of such returned shares of Preferred Stock shall be adjusted to the lesser of (I) the Conversion Price applicable to such conversion on the date on which such shares of Preferred Stock were originally presented for redemption and (II) the lowest Per Share Market Value from the Redemption Date to the date the Holder gives a Void Redemption Notice. If the Company fails to timely effect a redemption in accordance with this Article VIII, the Company shall not be allowed to submit another Redemption Notice without the prior written consent of Holders of at least two-thirds (2/3) of the number of shares of Preferred Stock then outstanding. ARTICLE IX DEFINITIONS 9.1 DEFINITIONS. For the purposes hereof, the following terms shall have the following meanings: "Act" means the Securities Act of 1993, as amended. "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing. "Authorization Date" has the meaning set forth in Section 6.2. 18 20 "Average Price" on any date means (x) the sum of the Per Share Market Value for the ten (10) Trading Days immediately preceding such date minus (y) the highest and lowest Per Share Market Value during the ten (10) Trading Days immediately preceding such date, divided by (z) eight (8), or a similar calculation if another figure for the number of Trading Days is set forth for clause (x) of this definition. "BSE" means the Boston Stock Exchange. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Change of Control" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Section 13(d)(3) of the Exchange Act) of in excess of 40% of the voting securities of the Issuer, (ii) a replacement of more than one-half of the members of the Issuer's Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof, or their duly elected successors who are directors immediately prior to such transaction, in one or a series of related transactions, (iii) the merger of the Issuer with or into another entity, unless following such transaction, the Holders of the Issuer's securities continue to hold at least 67% of such securities following such transaction, (iv) the consolidation or sale of all or substantially all of the assets of the Issuer in one or a series of related transactions, or (v) the execution by the Issuer of an agreement to which the Issuer is a party or by which it is bound, providing for any of the events set forth above in (i), (ii), (iii) or (iv). "Closing Date" means the date of the closing of the purchase and sale of the Preferred Stock. "Commission" means the United States Securities and Exchange Commission, or any successor to such agency. "Common Stock" means the Company's common stock, $.01 par value per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. "Conversion Date" has the meaning set forth in Section 5.3(a). "Conversion Default" has the meaning set forth in Section 6.2. "Conversion Default Date" has the meaning set forth in Section 6.2. "Conversion Default Payments" has the meaning set forth in Section 6.2. "Conversion Price" has the meaning set forth in Section 5.1. "Conversion Ratio" means, at any time, a fraction, the numerator of which is the Liquidation Value and the denominator of which is the Conversion Price at such time. "Conversion Shares" has the meaning set forth in the Purchase Agreement. 19 21 "Converted Preferred Stock" has the meaning set forth in Section 5.3(a). "Convertible Securities" has the meaning set forth in Section 7.1(g)(ii)(A). "Dividend Payment Date" has the meaning set forth in Section 2.1. "DTC" means the Depositary Trust Corporation. "Excess Amount" has the meaning set forth in Section 6.2. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" or other similar terms means the registered holder of any share of Preferred Stock. "Issuance Date" means the date of first issue of any shares of Preferred Stock. "Junior Securities" means the Common Stock and all other equity securities of the Company]which are junior in rights and liquidation preference to Preferred Stock. "Liquidation Value" has the meaning set forth in Section 1.1. "Nasdaq" means the Nasdaq SmallCap Market. "Notice of Conversion" has the meaning set forth in Section 5.1(c). "Options" has the meaning set forth in Section 7.1(g)(ii)(A). "Original Issue Date" shall mean the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock. "Payment Due Date" has the meaning set forth in Section 7.1(h). "Per Share Market Value" means (i) on any particular date the closing bid price per share of the Common Stock on such date (as reported by Bloomberg Information Services, Inc., or any successor reporting service) on Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent Market on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date or (ii) if the Common Stock is not listed then on Nasdaq or any Subsequent Market, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (iii) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser selected in good faith by the holder of this Debenture; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select in good faith an additional Appraiser, in which case, the fair market value 20 22 shall be equal to the average of the determinations by each such Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Purchase Agreement" means the Securities Purchase Agreement, dated as of the Original Issue Date, among the Company and the original Holders of the Preferred Stock. "Record Date" has the meaning set forth in Section 2.1. "Redemption Date" has the meaning set forth in Section 8.2. "Redemption Notice" has the meaning set forth in Section 8.1(b). "Redemption Notice Date" has the meaning set forth in Section 8.2. "Redemption Price" has the meaning set forth in Section 8.1(b). "Registrable Securities" has the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Original Issue Date, by and among the Company and the original Holders. "Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Reserved Amount" has the meaning set forth in Section 6.2. "Reset Date" has the meaning set forth in Section 5.1(b). "Stock Option Plan" means any contract, plan or agreement which has been approved by the Board of Directors of the Issuer, pursuant to which the Issuer's securities may be issued to any employee, officer, director or consultant. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of the Capital Stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "Subsequent Market" means the New York Stock Exchange, American Stock Exchange or Nasdaq National Market. "Trading Day" means (a) a day on which the Common Stock is traded on Nasdaq or, if the Common Stock is not then designated on Nasdaq, on such Subsequent Market on which the Common Stock is then listed or quoted or (b) if the Common Stock is not listed on Nasdaq or 21 23 a Subsequent Market, a day on which the Common Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions or reporting prices) provided, however that in any event that the Common Stock is not listed or quoted as set forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business Day. "Underlying Shares" means the number of shares of Common Stock into which the shares of Preferred Stock are convertible in accordance with the terms hereof and the Purchase Agreement. "Unpaid Redemption Shares" has the meaning set forth in Section 5.4(b). "Valuation Event" has the meaning set forth in Section 7.1(g)(ii)(D)(I). "Void Redemption Notice" has the meaning set forth in Section 8.3. "Warrant" or "Warrants" has the meaning set forth in the Purchase Agreement. ARTICLE X MISCELLANEOUS 10.1 MODIFICATION OF CERTIFICATE OF DESIGNATION. This Certificate of Designation may be modified without prior notice to any Holder upon the written consent of the Company and the Holders of more than 75% of the shares of Preferred Stock then outstanding. The Holders of more than 75% of the shares of Preferred Stock then outstanding may waive compliance by the Company with any provision of this Certificate of Designation without prior notice to any Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver may not (1) reduce the number of shares of Preferred Stock whose Holders must consent to an amendment, supplement or waiver, or (2) make any shares of Preferred Stock payable in money or property other than as stated in the Certificate of Designation. 10.2 MISCELLANEOUS. This Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof, except for matters of corporate law, which shall be governed by the laws of the State of Texas. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Certificate of Designation, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence 22 24 without notice. The Holder of Preferred Stock by acceptance of a share of Preferred Stock agrees to be bound by the provisions of this Certificate of Designation which are expressly binding on such Holder. 10.3 PREFERRED STOCK OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining whether the holders of the requisite number of shares of Preferred Stock have concurred in any direction, consent or waiver under this Certificate of Designation, shares of Preferred Stock which are owned by the Company or any other obligor on the Preferred Stock or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that any shares of Preferred Stock owned by the Purchasers shall be deemed outstanding for purposes of making such a determination. Shares of Preferred Stock so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Company the pledgee's right so to act with respect to such shares of Preferred Stock and that the pledgee is not the Company or any other obligor upon the Preferred Stock or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock. 10.4 NOTICE TO HOLDERS PRIOR TO TAKING CERTAIN TYPES OF ACTION. In case: (a) the Company shall authorize the issuance, at any time from and after the Original Issue Date, to all holders of any class or series of its Capital Stock, of rights or warrants to subscribe for or purchase shares of its capital stock or of any other right; (b) the Company shall authorize, at any time from and after the Original Issue Date, the distribution to all holders of any class or series of its Capital Stock, of evidences of its indebtedness or assets; (c) the Company shall declare a dividend (or other distribution) on its Common Stock or the Company shall declare a special nonrecurring dividend on or a redemption of its Common Stock; (d) of any subdivision, combination or reclassification of any class or series of Capital Stock of the Company at any time from and after the Original Issue Date or of any consolidation or merger to which the Company is a party and for which approval by the shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (e) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be mailed to the Holders, at their last addresses as they shall appear upon the registration books of the Company, at least 10 days prior to the applicable record date hereinafter specified, a notice stating (i) the date as of which the holders of record of such class or series of Capital Stock are to be entitled to receive any such rights, warrants or 23 25 distribution are to be determined, or (ii) the date on which any such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action is expected to become effective, and the date as of which it is expected that holders of record of such class or series of Capital Stock record shall be entitled to exchange their stock for securities or other property, if any, deliverable upon such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action. The failure to give the notice required by this Section 10.4 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action, or the vote upon any of the foregoing. 10.5 EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10.6 REFERENCES. References to Sections and Articles are to Sections and Articles of this Certificate of Designation, unless otherwise expressly provided. 10.7 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.8 LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence reasonably satisfactory to the Company (including any bond the Company's transfer agent requires the Holders to post) of the loss, theft, destruction or mutilation of any stock certificates representing Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of such Series A Preferred Stock certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Stock into Common Stock. 10.9 REMEDIES CHARACTERIZED; OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. The Company covenants to each Holder of Preferred Stock that there shall be no characterization concerning this instrument other than as expressly provided herein. The Company further covenants that it will not take any action which might materially and adversely affect the rights of the Holders of Preferred Stock. Amounts set forth or provided for herein with respect to payments, conversion 24 26 and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Stock and that the remedy at law in the event of any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 10.10 SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all Purchasers (as defined in this Purchase Agreement) and shall not be construed against any person as the drafter hereof. 10.11 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a Holder of Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 10.12 PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of certificates for shares of the Common Stock upon conversion of the Preferred Shares shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. [SIGNATURE PAGE(S) TO FOLLOW] 25 27 IN WITNESS WHEREOF International Isotopes Inc. has caused this Certificate of Designation to be signed by its President and Secretary on this ___ day of May, 1999. By: ----------------------------- Name: Carl W. Seidel President By: ----------------------------- Name: Virgil L. Simmons Secretary 26 28 EXHIBIT A NOTICE OF CONVERSION AT THE ELECTION OF HOLDER (To be Executed by the Registered Holder in order to convert shares of Series A Convertible Redeemable Preferred Stock) The undersigned hereby elects to convert the number of shares of Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") indicated below, into shares of common stock, par value $.01 per share (the "Common Stock"), of International Isotopes Inc. (the "Company") according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any. Conversion calculations: ----------------------------------------------- Date to effect conversion ----------------------------------------------- Number of shares of Series A Preferred Stock to be converted ----------------------------------------------- Number of shares of Common Stock to be issued ----------------------------------------------- Applicable Conversion Price ----------------------------------------------- Signature ----------------------------------------------- Name ----------------------------------------------- Address 27 EX-4.4 4 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 4.4 ================================================================================ SECURITIES PURCHASE AGREEMENT Among INTERNATIONAL ISOTOPES INC. and THE PURCHASERS LISTED ON SCHEDULE I Dated as of May 18, 1999 ================================================================================ 2 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of May 18, 1999 among International Isotopes Inc., a Texas corporation (the "Company"), and the various purchasers identified and listed on Schedule I hereto (each referred to herein as a "Purchaser" and, collectively, the "Purchasers.") WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission (the "Commission") under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"); WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to acquire from the Company, 5,000 shares of the Company's Series A 5% Convertible Redeemable Preferred Stock, par value $.01 per share, liquidation value $1,000 per share (the "Preferred Stock"), at an aggregate purchase price of $5,000,000 issued pursuant to a Certificate of Designation of Preferences and Rights ("Certificate of Designation") in the form of Exhibit A annexed hereto, and a stock purchase warrant or warrants (each, a "Warrant"), in the form of Exhibit B annexed hereto, to purchase an aggregate amount of 205,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"); WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form of Exhibit C attached hereto (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws; and WHEREAS, at each of the Second Closing and Third Closing (as defined in Sections 1.2(b) and 1.2(c)), the parties hereto shall execute and deliver a Registration Rights Agreement substantially in the form of Exhibit C attached hereto pursuant to which the Company shall agree to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, in consideration of the promises and mutual covenants and agreements hereinafter, the Company and the Purchasers hereby agree as follows: 3 ARTICLE I. PURCHASE AND SALE 1.1 Purchase and Sale. a. On the First Closing Date (as defined below), subject to the terms and conditions set forth herein, the Company shall issue and sell to each Purchaser and each Purchaser, severally and not jointly, shall purchase from the Company the number of shares of Preferred Stock as set forth on Schedule I and a Warrant or Warrants exercisable for the amount of Common Stock, par value $0.01 per share ("Common Stock"), as set forth on Schedule I for such Purchaser. The aggregate purchase price of the shares of Preferred Stock purchased by the Purchasers shall be $5,000,000, the aggregate number of shares Preferred Stock purchased by the Purchasers shall be 5,000, and the aggregate number of Common Stock for which the Warrant or Warrants will be exercisable shall be 205,000 shares of Common Stock. b. On the Second Closing Date (as defined below), subject to the terms and conditions set forth herein, the Company shall issue and sell to the Purchasers (1) an additional 5,000 shares of Preferred Stock at an aggregate purchase price of $5,000,000 and (2) an additional Warrant exercisable for an aggregate amount of 205,000 shares of Common Stock. c. On the Third Closing Date (as defined below), subject to the terms and conditions set forth herein, the Company shall issue and sell to the Purchasers (1) an additional 8,000 shares of Preferred Stock for an aggregate purchase price of $8,000,000 and (2) an additional Warrant for an aggregate 350,000 shares of Common Stock. 1.2 Closings. a. The First Closing. The closing of the purchase and sale of the initial 5,000 Shares of Preferred Stock at an aggregate purchase price of $5,000,000 and Warrants for an aggregate of 205,000 shares of Common Stock (the "First Closing") shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, or by transmission by facsimile and overnight courier, immediately following the execution hereof or such later date or different location as the parties shall agree, but not prior to the date that the conditions set forth in Section 4.1 have been satisfied or waived by the appropriate party (the "First Closing Date"). At the First Closing: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on Schedule I in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver a Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on Schedule I, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation with a Conversion Price (as defined therein) equal to $11.86; 2 4 (iii) The Company shall deliver a Warrant(s), in the form of Exhibit B hereto and with the Exercise Price (as defined therein) equal to $11.86 representing the number of shares of Common Stock as set forth next to such Purchaser's name on the Schedule I, registered in the name of such Purchaser; and (iv) The parties shall execute and deliver each of the documents referred to in Section 4.1. b. Second Closing. Subject to the terms and conditions set forth in Section 4.2 and elsewhere in this Agreement, the closing and sale of an additional 5,000 shares of Preferred Stock for an aggregate purchase price of $5,000,000 and Warrants for an aggregate of 205,000 shares of Common Stock shall take place on October 15, 1999 in the same manner as the First Closing (the "Second Closing Date"); provided that in no case shall the Second Closing take place unless and until the conditions listed in Section 4.2 have been satisfied or waived by the appropriate party. At the Second Closing: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on a schedule similar to Schedule I (the "Second Closing Schedule"), to be delivered to the Company by the Purchasers two days before the Second Closing Date, in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver a Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on the Second Closing Schedule, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation with a Conversion Price equal to $11.86; (iii) The Company shall deliver a Warrant(s), in the form of Exhibit B hereto and with the Exercise Price equal to $11.86 representing the number of shares of Common Stock as set forth next to such Purchaser's name on the Second Closing Schedule, registered in the name of such Purchaser; and (iv) The parties shall execute and deliver each of the documents referred to in Section 4.2. c. Third Closing. Subject to the terms and conditions set forth in Section 4.3 and elsewhere in this Agreement, the Purchasers shall have the right (the "Purchasers Call Option") at any time within a two-year period commencing on the First Closing Date to deliver a written notice to the Company (a "Purchasers Call Option Notice") requiring the Company to issue and sell on the same terms and conditions and at the same purchase price as at the First Closing (1) an additional principal amount of 8,000 shares of Preferred Stock at an aggregate purchase price of $8,000,000 and (2) an additional Warrant for an aggregate amount of up to 350,000 shares of the Common Stock. The closing of the purchase and sale of the additional shares of Preferred Stock and Warrant(s) (such closing or the closing under the Company Put Option Notice (defined below), the "Third Closing") under the Purchasers Call Option Notice shall take place in the same manner as the First Closing, within two (2) business days of the date after delivery of 3 5 the Purchasers Call Option Notice (such date or the date of the Third Closing under the Company Put Option Notice, the "Third Closing Date"); provided that in no case shall the Third Closing take place unless and until the conditions listed in Section 4.3 have been satisfied or waived by the appropriate party and provided further that, if the Company has filed a registration statement under the Securities Act relating to an Underwritten Offering (as defined in the Registration Rights Agreement) and if the Company, after consultation with the managing underwriter(s) or underwriter(s), should reasonably determine that the Third Closing would materially adversely affect the offering contemplated in such registration statement, then the Third Closing shall be delayed until thirty (30) days after the closing of such offering or until after the cancellation of such offering. At the Third Closing: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on a schedule similar to Schedule I (the "Third Closing Schedule"), to be attached to the Purchasers Call Option Notice, in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver a Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation, except that Section 4.2(b) thereof shall be omitted, with a Conversion Price equal to $11.86. (iii) The Company shall deliver a Warrant(s), in the form of Exhibit B hereto representing the Warrant(s) with an Exercise Price (as defined therein) equal to 110% of the Average Price on the Third Closing Date being purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser; and (iv) The parties shall execute and deliver each of the documents referred to in Section 4.3. d. Company Put Option. Subject to the terms and conditions in Section 4.3 and elsewhere in this Agreement, after exercise by the Company of the Optional Redemption of the shares of Preferred Stock (as defined in Section 8.1 of the Certificate of Designation) and the Optional Redemption of the Warrants (as defined in Section 7 of the Warrants) or the conversion of all the shares of Preferred Stock and the exercise of all the Warrants issued at both of the First Closing and the Second Closing, the Company shall have the one time right (the "Company Put Option") at any time within the two-year period commencing on the First Closing to deliver a written notice to the Purchasers (a "Company Put Option Notice") requiring the Purchasers to exercise the Purchasers Call Option. If the Company determines to exercise the Company Put Option, it shall notify the Purchasers 10 business days prior to the exercise of such right and of the amount of Preferred Stock the Company intends to issue at the Third Closing. If the Company does not issue 8,000 shares of Preferred Stock, the aggregate number of shares of Common Stock issuable upon the exercise of the Warrants shall be reduced proportionately The Third Closing under this Company Put Option Notice shall take place on such date indicated in 4 6 the Company Put Option Notice but no earlier than 10 business days after the Purchasers' receipt of the Company Put Option Notice; provided that in no case shall the Third Closing take place unless and until the conditions listed in Section 4.3 have been satisfied or waived by the appropriate party. Five business days after receipt of the Company Put Option Notice, the Purchasers shall deliver to the Company a Third Closing Schedule, indicating (1) the number of shares of Preferred Stock that each Purchaser shall purchase and (2) the number of shares of Common Stock for which each Warrant, to be bought by Purchasers at the Third Closing, may be exercised. At the Third Closing under the Company Put Option Notice: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on the Third Closing Schedule, in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver a Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation, except that Section 4.2(b) thereof shall be omitted, with a Conversion Price equal to $11.86; (iii) The Company shall deliver a Warrant(s), in the form of Exhibit B hereto representing the Warrant(s) with an Exercise Price (as defined therein) equal to 110% of the Average Price on the Third Closing Date being purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser; and (iv) The parties shall execute and deliver each of the documents referred to in Section 4.3. e. Purchasers' Damages. In addition to any other rights available to the Purchasers, if the Company fails to deliver to each Purchaser the shares of Preferred Stock and Warrants required to be delivered at the Second or Third Closing, the Company shall pay each such Purchaser, upon the Purchaser's demand, an amount calculated according to the formula below as liquidated damages by cash or wire transfer in immediately available funds to the account of such Purchaser, or as otherwise directed by such Purchaser: [(MP-CP) x CSPS] + [(MP-EP) x CSW] where MP is the Per Share Market Price (as defined in the Registration Rights Agreement) on the applicable Closing Date; where CSPS is the number shares of Common Stock into which the shares of Preferred Stock that should have been delivered at the applicable Closing could have been converted; where CSW is the number of shares of Common Stock for which the Warrants that should have been delivered at the applicable Closing could have been exercised; 5 7 where CP is the Conversion Price (as defined in the Certificate of Designation) of the shares of Preferred Stock; and where EP is the Exercise Price (as defined in the Warrants) of the Warrants. f. Company Damages. In the event that any Purchaser shall fail to purchase the shares of Preferred Stock and Warrant that it is required to purchase at the Second or Third Closing, then, as partial relief for the damages to the Company by reason of any delay in or failure of such purchase (which remedy shall not be exclusive of any other remedies available at law or in equity), such Purchaser shall pay to the Company an amount in cash equal to the aggregate purchase price of the shares of Preferred Stock such Purchaser purchased at the First Closing multiplied by two hundredths (.020) times the sum of: (i) number of months (prorated for partial months) after the applicable Closing and prior to the date such Purchaser purchases the shares of Preferred Stock and Warrant required to be purchased at the applicable Closing ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 Representations, Warranties and Agreements of the Company. The Company hereby makes the following representations and warranties to each of the Purchasers: a. Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Except as set forth on Schedule 2.1(a), the Company has no subsidiaries (collectively, the "Subsidiaries"). Each of the Subsidiaries (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns the majority of such entity's capital stock or holds an equivalent equity or similar interest) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the full corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each of the Company and the Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of any of this Agreement or the Transaction Documents (as defined in Section 2.1(b)) or any of the transactions contemplated hereby or thereby, (y) have or result in a material adverse effect on the results of operations, assets, prospects, or financial condition of the Company and its Subsidiaries, taken as a whole or (z) impair the Company's ability to perform fully on a timely basis its obligations under any Transaction Document (any of (x), (y) or (z), being a "Material Adverse Effect"). The Company has furnished to each of the Purchasers true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the true, complete 6 8 and accurate copies of documents evidencing all classes of securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. b. Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and the Certificate of Designation, the Warrants and the Registration Rights Agreement (collectively, the "Transaction Documents"), and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of this Agreement and the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further action is required by the Company, its Board of Directors or its stockholders. Each of this Agreement and the Transaction Documents has been duly executed by the Company and when delivered in accordance with the terms hereof will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application and except that rights to indemnification and contribution may be limited by Federal or state securities laws or public policy relating thereto. Neither the Company nor any Subsidiary is in any material violation of any of the provisions of its respective certificate of incorporation, bylaws or other charter documents such that any right of a holder of shares of Preferred Stock would be affected. c. Capitalization. As of the date hereof, the authorized capital stock of the Company is as set forth in Schedule 2.1(c). All of such outstanding shares of capital stock have been, or upon issuance will be, validly authorized and issued, fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act, or pursuant to valid exemptions therefrom. Except as disclosed in Schedule 2.1(c), (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, nor is any holder of the Common Stock entitled to preemptive or similar rights arising out of any agreement or understanding with the Company by virtue of any Transaction Document, (ii) there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, or giving any Person (as defined below) any right to subscribe for or acquire, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iii) there are no outstanding debt securities, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except the Registration Rights Agreement), (v) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the shares of Common 7 9 Stock as described in this Agreement, (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement and (viii) except as specifically disclosed in the SEC Documents (as defined in Section 2.1(k)), no Person (as defined below) or group of related Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or has the right to acquire by agreement with or by obligation binding upon the Company beneficial ownership of in excess of 5% of the Common Stock. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. d. Authorization and Validity; Issuance of Shares. The shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants (collectively, the "Underlying Shares") are and will at all times hereafter continue to be duly authorized and reserved for issuance and the shares of Common Stock issued upon conversion of the Preferred Stock (the "Conversion Shares") and exercise of the Warrants (the "Warrant Shares") and the Shares of Preferred Stock and will be validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances and Company rights of first refusal, other than liens and encumbrances created by the Purchasers (collectively, "Liens") and will not be subject to any preemptive or similar rights. The issuance by the Company of the Preferred Stock, the Warrants and the Underlying Shares is exempt from registration under the Securities Act. e. No Conflicts. The execution, delivery and performance of this Agreement and each of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including the issuance of the Underlying Shares) do not and will not (i) conflict with or violate any provision of the Certificate of Incorporation, Bylaws or other organizational documents of the Company or any of the Subsidiaries, (ii) subject to obtaining the consents referred to in Section 2.1(f), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument (evidencing a Company or Subsidiary debt or otherwise) to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or any Subsidiary is subject (including Federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries, or by which any material property or asset of the Company or any Subsidiary is bound or affected. f. Consents and Approvals. Except as specifically set forth on Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, regulatory or self regulatory agency, or other Person in connection with the execution, delivery and performance by the Company of this Agreement or the Transaction Documents, other than (i) the filing of a registration statement with the Commission, which shall be filed in accordance with and in the time periods set forth in the 8 10 Registration Rights Agreement, (ii) the application(s) or any letter(s) acceptable to the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock Exchange ("BSE") for the listing of the Underlying Shares with Nasdaq and the BSE (and with any other national securities exchange or market on which the Common Stock is then listed), and (iii) any filings, notices or registrations under applicable state securities laws (together with the consents, waivers, authorizations, orders, notices and filings referred to on Schedule 2.1(f), the "Required Approvals"). g. Litigation; Proceedings. Except as specifically set forth on Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Transaction Documents or (ii) could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. h. No Default or Violation. Neither the Company nor any Subsidiary (i) is in default under or in violation of any indenture, loan or other credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound and which is required to be included as an exhibit to any SEC Document (as defined in Section 2.1(k)) or will be required to be included as an exhibit to the Company's next filing under either the Securities Act or Exchange Act (ii) is in violation of any order of any court, arbitrator or governmental body applicable to it, (iii) is in violation of any statute, rule or regulation of any governmental authority to which it is subject, (iv) is in default under or in violation of its Certificate of Incorporation, Bylaws or other organizational documents, respectively, or (v) is in default under or in violation of any of the listing requirements of Nasdaq or the BSE as in effect on the date hereof and is not aware of any facts which would reasonably lead to delisting or suspension of the Common Stock by Nasdaq or, the BSE in the foreseeable future. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, rule or regulation of any governmental entity, except where such violations have not resulted or would not reasonably result, individually or in the aggregate, in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in breach of any agreement where such breach, individually or in the aggregate, would have a Material Adverse Effect i. Disclosure; Absence of Certain Changes. None of this Agreement, the Schedules to this Agreement, the Transaction Documents, the SEC Documents or any other written or formally presented information, report, financial statement, exhibit, schedule or document furnished by or on behalf of the Company in connection with the negotiation of the transactions contemplated hereby contained, contains, or will contain at the time it was or is so furnished any untrue statement of a material fact or omitted, omits or will omit at such time to state any material fact necessary in order to make the statements made herein and therein, in light of the circumstances under which they were made, not misleading. Except as disclosed on Schedule 2.1(i) or in SEC Documents filed on EDGAR at least five business days prior to the date hereof, since December 31, 1998, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, liabilities or results of operations or, insofar as can reasonably be foreseen, prospects of the Company or the 9 11 Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective businesses, properties, operations or financial condition or, insofar as can reasonably be foreseen, prospects, that would be required to be disclosed by the Company under applicable securities laws on a registration statement (including by way of incorporation by reference) filed with the Commission, on the date this representation is made or deemed to be made, relating to an issuance and sale by the Company of its Common Stock and which has not been publicly disclosed. j. Private Offering. The Company and all Persons acting on its behalf have not made, directly or indirectly, and will not make, offers or sales of any securities or solicited any offers to buy any security under circumstances that would require registration of the Preferred Stock, the Warrants, the Conversion Shares, the Warrant Shares or the Underlying Shares or the issuance of such securities under the Securities Act. The offer, sale and issuance of the Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares to the Purchasers will not be integrated with any other offer, sale and issuance of the Company's securities (past, current, or future) under the Securities Act or any regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated or for purposes of any stockholder approval provision applicable to the Company or its securities. Subject to the accuracy and completeness of the representations and warranties of the respective Purchasers contained in Section 2.2, the offer, sale and issuance by the Company to the Purchasers of the Preferred Stock, the Warrants and the Underlying Shares is exempt from the registration requirements of the Securities Act. k. SEC Documents; Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(b) of the Exchange Act. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including pursuant to Section 13, 14 or 15(d) thereof (the foregoing materials and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein being collectively referred to herein as the "SEC Documents"), on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. The Company has delivered to each of the Purchasers or its representatives true, complete and accurate copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject and which are required to be filed as exhibits to the SEC Documents have been filed as exhibits to the SEC Documents as required and neither the Company nor any Subsidiary is in breach of any such agreement. As of their respective dates, the financial statements of the 10 12 Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments. No other information provided by or on behalf of the Company to the Purchasers which is not included in the SEC Documents, including, without limitation, information referred to in Section 2.1(i) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Purchasers with any material, nonpublic information, except as set forth in Schedule 2.1(k). The Company acknowledges that the Purchasers will be trading in the securities of the Company in reliance on the foregoing representation and warranty. l. Investment Company. The Company is not, and is not controlled by or under common control with an affiliate (an "Affiliate") of an "investment company" within the meaning of the Investment Company Act of 1940, as amended. m. Broker's Fees. No fees or commissions or similar payments with respect to the transactions contemplated by this Agreement or the Transaction Documents have been paid or will be payable by the Company to any broker, financial advisor, finder, investment banker, or bank, other than as set forth in Schedule 2.1(m). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 2.1(m) that may be due in connection with the transactions contemplated by this Agreement and the Transaction Documents. n. Form S-3 Eligibility. The Company is, and at the Closing Date will be, eligible to register securities (including the Underlying Shares) for resale with the Commission under Form S-3 (or any successor form) promulgated under the Securities Act. o. Listing and Maintenance Requirements Compliance. The principal markets on which the Common Stock is currently traded are Nasdaq and the BSE. Except as disclosed on Schedule 2.1(o), the Company has not in the three years preceding the date hereof received notice (written or oral) from Nasdaq or the BSE (or any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted)) to the effect that the Company is not in compliance with the listing or maintenance requirements of such market or exchange. The Company is not aware of any facts that would reasonably lead to delisting or suspension of the Common Stock by Nasdaq or the BSE. After giving effect to the transactions contemplated by this Agreement and the Transaction Documents, the Company is and will be in compliance with all such maintenance requirements. 11 13 p. Intellectual Property Rights. The Company and each of its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trademark applications, trade names and service marks, whether or not registered, and all patents, patent applications, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and intellectual property rights (collectively, "Intellectual Property Rights") which are necessary for use in connection with their respective businesses as now conducted and as described in the SEC Documents. Except as set forth on Schedule 2.1(p), none of the Company's Intellectual Property Rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement. Neither the Company nor any of its Subsidiaries has infringed or is infringing on any of the Intellectual Property Rights of any Person and, except as set forth on Schedule 2.1(p), there is no claim, action or proceeding which has been made or brought against, or to the Company's knowledge, is being made, brought or threatened against, the Company or its Subsidiaries regarding the infringement of any of the Intellectual Property Rights, and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing, except where any of the foregoing would not have a Material Adverse Effect. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. q. Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. Except as set forth on Schedule 2.1(q), since December 31, 1998 no executive officer (as defined in Rule 501(f) under the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. r. Registration Rights; Rights of Participation. Except as described on Schedule 2.1(r) hereto, (i) the Company has not granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority which has not been satisfied and (ii) no Person, including, but not limited to, current or former stockholders of the Company, underwriters, brokers or agents, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement or any Transaction Document. s. Title. Except as disclosed on Schedule 2.1(s), the Company and each of its Subsidiaries have good and marketable title in fee simple to all real property and personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, except for Liens that do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and, to the Company's best knowledge, enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and the Subsidiaries. 12 14 t. Permits. The Company and each of its Subsidiaries possess all certificates, authorizations, licenses, easements, consents, approvals, orders and permits necessary to own, lease and operate their respective properties and to conduct their respective businesses as currently conducted except where the failure to possess such permits would not, individually or in the aggregate, have a Material Adverse Effect ("Material Permits"), and there is no proceeding pending, or, to the knowledge of the Company, threatened relating to the revocation, modification, suspension or cancellation of any Material Permit. Neither the Company nor any of the Subsidiaries is in conflict with or default or violation of any Material Permit. u. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverages as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business, at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. v. Internal Accounting Controls. The Company and each of the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with United States generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. w. Tax Status; Firpta. Except as set forth on Schedule 2.1(w), the Company and each of its Subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith (which are set forth on Schedule 2.1(w)), and has set aside on it books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company is not a "United States real property holding corporation" within the meaning of Section 847(c)(2) of the Internal Revenue Code of 1986, as amended. x. Transactions With Affiliates. Except as set forth on Schedule 2.1(c) or Schedule 2.1(x), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as 13 15 employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. y. Application to Takeover Protection. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or the laws of the state of incorporation which is or could become applicable to the Purchasers or the Transaction Documents as a result of the transactions contemplated by this Agreement or the Transaction Documents. None of the transactions contemplated by this Agreement or the Transaction Documents, including the conversion of the shares of Preferred Stock and the exercise of the Warrants, will trigger any poison pill provisions of any of the Company's stockholders' rights or similar agreements. z. Environmental Laws. Except as set forth on Schedule 2.1(z), the Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permits, licenses or other approvals except where the failure of any of the foregoing would not result in a Material Adverse Effect. aa. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee form corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. bb. Solicitation Materials. The Company has not (i) distributed any offering materials in connection with the offering and sale of the Preferred Stock or the Warrants, other than the SEC Documents, the Schedules to this Agreement, any amendments and supplements thereto and the materials listed on Schedule 2.1(bb), or (ii) solicited any offer to buy or sell the Preferred Stock or the Warrants by means of any form of general solicitation or advertising. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Preferred Stock or Warrants. 14 16 cc. Acknowledgement of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares and Warrant Shares upon conversion of the Preferred Stock or exercise of the Warrants. The Company further acknowledges that its obligation to issue Conversion Shares and Warrant Shares upon conversion of the Preferred Stock or exercise of the Warrants in accordance with this Agreement, the Certificate of Designation and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. dd. Acknowledgement Regarding Purchasers' Purchase of Preferred Stock. The Company acknowledges and agrees that the Purchasers are acting solely in the capacity of arm's length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchasers' purchase of the securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives. ee. Solvency. The Company (both before and after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year. ff. Seniority; Exclusivity. No class of equity securities of the Company will be senior to the Preferred Stock in right of payment, whether upon liquidation, dissolution or otherwise. So long as any Preferred Stock issued hereunder remains outstanding, the Company shall not exchange, redeem or covert any of the Company's capital stock for indebtedness, including convertible debt, of the Company. The Company shall not issue and sell any shares of Preferred Stock, other than to the Purchasers pursuant to this Agreement, without the prior written consent of each of the Purchasers. gg. Other Agreements. The Company has not, directly or indirectly, made any agreements with any Purchasers relating to the terms and conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. 2.2 Representations and Warranties of the Purchasers. Each of the Purchasers, severally and not jointly, hereby represents and warrants to the Company as follows: 15 17 a. Organization; Authority. Such Purchaser is a corporation or a limited duration company or a limited liability company or limited partnership duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with the requisite power and authority, corporate or otherwise, to enter into and to consummate the transactions contemplated hereby and by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The purchase by such Purchaser of the shares of Preferred Stock and the Warrants hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement and the Registration Rights Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. b. Investment Intent. Such Purchaser is acquiring the shares of Preferred Stock and the Warrants for its own account and not with a present view to or for distributing or reselling the shares of Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares or any part thereof or interest therein in violation of the Securities Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any of the shares of Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares for any minimum or other specific term and reserves the right to dispose of the shares of Preferred Stock at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. c. Purchaser Status. At the time such Purchaser was offered the Preferred Stock and the Warrants, and at the Closing Date, (i) it was and will be an "accredited investor" as defined in Rule 501 under the Securities Act and (ii) such Purchaser, either alone or together with its representatives, had and will have such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Preferred Stock and the Warrants. d. Reliance. Such Purchaser understands and acknowledges that (i) the Preferred Stock and the Warrants are being offered and sold to such Purchaser without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act under Section 4(2) of the Securities Act or Regulation D promulgated thereunder and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the representations set forth in this Section 2.2 and such Purchaser hereby consents to such reliance. e. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Preferred Stock and Warrants which have been requested by such Purchaser or its advisors. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Purchaser or any of its advisors or representatives shall modify, amend or affect Purchaser's right to rely on the Company's representations and warranties contained in Section 2.1 above or representations and warranties of the Company contained in 16 18 any other transaction document. Such Purchaser understands that its investment in the Preferred Stock and Warrants involves a significant degree of risk. f. Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Preferred Stock or Warrants. g. Residency. Such Purchaser is a resident of the jurisdiction set forth immediately below such Purchaser's name on Schedule II hereto. The Company acknowledges and agrees that the Purchasers make no representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 2.2. ARTICLE III. OTHER AGREEMENTS 3.1 Transfer Restrictions. a. If any Purchaser should decide to dispose of shares of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares held by it, such Purchaser understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from the registration requirements of the Securities Act or Rule 144 promulgated under the Securities Act ("Rule 144"). The Company shall announce any material non-public information that it legally is required to announce on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement) of the registration statement filed pursuant to the Registration Rights Agreement and shall not enter into any subsequent non-disclosure agreements that would prevent it from announcing an such information that otherwise legally could have been announced on or prior to the Effectiveness Date, unless confidential treatment for such information is granted by the Commission. In connection with any transfer of any shares of the Preferred Stock, Warrants, Conversion Shares or Warrant Shares other than pursuant to an effective registration statement, Rule 144 or to the Company, the Company may require the transferor thereof to provide to the Company a written opinion of counsel experienced in the area of United States securities laws selected by the transferor, the form and substance of which 17 19 opinion shall be customary for opinions of counsel in comparable transactions, to the effect that such transfer does not require registration of such transferred securities under the Securities Act; provided, however, that if the Preferred Stock, Warrants, Conversion Shares or Warrant Shares may be sold pursuant to Rule 144(k), no written opinion of counsel shall be required from the Purchaser if such Purchaser provides reasonable assurances that such security can be sold pursuant to Rule 144(k). Notwithstanding the foregoing, the Company hereby consents to and agrees to register any transfer by any Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act. Any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Transaction Documents. If a Purchaser provides the Company with an opinion of counsel, the form and substance of which opinion shall be customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares may be made without registration under the Securities Act or the Purchaser provides the Company with reasonable assurances that the Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser and without any restrictive legend. Notwithstanding the foregoing or anything else contained herein to the contrary, the Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. b. Each Purchaser agrees to the imprinting, so long as is required by this Section 3.1(b), of the following legend on the Preferred Stock certificates, the Warrants, the Conversion Shares and the Warrant Shares: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Neither the Preferred Stock certificates, the Warrants, the Conversion Shares, nor the Warrant Shares shall contain the legend set forth above (or any other legend) (i) at any time while a registration statement is effective under the Securities Act covering such security, (ii) if in the written opinion of counsel to the Company experienced in the area of United States securities laws such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) or (iii) if such shares of Preferred Stock, Warrants, Conversion Shares or Warrant Shares may be sold pursuant to Rule 144(k). The Company agrees that it will provide each Purchaser, upon request, with a certificate or certificates representing shares of Preferred Stock, Warrants, Conversion Shares or Warrant Shares, free from such legend at such time as such legend is no longer required hereunder. If such certificate or certificates had previously been issued with such a legend or any other legend, the Company shall, upon request, receive such certificate or certificates free of any legend. 3.2 Stop Transfer Instruction. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions on transfer set forth in Section 3.1. 18 20 3.3 Furnishing of Information. As long as any Purchaser owns shares of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares, the Company will cause the Common Stock to continue at all times to be registered under Section 12(g) of the Exchange Act, will timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and promptly furnish, but in no event later than two (2) business days after the filing thereof with the Commission, the Purchasers with true and complete copies of all such filings, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. As long as any Purchaser owns shares of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any holder of the shares of Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares may reasonably request, all to the extent required from time to time to enable such Person to sell the shares of Preferred Stock, the Warrants, the Conversion Shares, or the Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including the legal opinion referenced above in Section 3.1(b). Upon the request of any such Person, the Company shall deliver to such Person a written certification of a duly authorized officer as to whether it has complied with such requirements. 3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement, the Company shall (i) qualify the Conversion Shares and the Warrant Shares under the securities or "blue sky" laws of such jurisdictions as the Purchasers may request (or to obtain an exemption from such qualification), (ii) shall provide evidence of any such action so taken to each Purchaser on or before the Effectiveness Date (as defined in the Registration Rights Agreement) and (iii) shall continue such qualification at all times through the resale of all Conversion Shares or Warrant Shares, but in any event not past the fourth anniversary of the Closing Date. 3.5 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares in a manner that would require the registration under the Securities Act of the sale of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant Shares to any Purchaser or cause the offering of such securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities. 3.6 Listing and Reservation of Conversion Shares and Warrant Shares. 19 21 a. The Company shall (i) not later than ten (10) business days after the Closing Date prepare and file with Nasdaq and the BSE (as well as any other national securities exchange or market on which the Common Stock is then listed) additional shares listing applications or letters acceptable to Nasdaq and the BSE covering and listing a number of shares of Common Stock which is at least equal to 120% the maximum number of Underlying Shares then issuable, assuming that the payment of all future dividends on such shares then outstanding were made in shares of Common Stock, (ii) take all steps necessary to cause the Underlying Shares to be approved for listing on Nasdaq and the BSE (as well as on any other national securities exchange or market on which the Common Stock is then listed) as soon as possible thereafter, (iii) maintain, so long as any other shares of Common Stock shall be so listed, such listing of all such Underlying Shares, and (iv) provide to the Purchasers evidence of such listing. Neither the Company nor any of its Subsidiaries shall take any action that may result in the delisting or suspension of the Common Stock on Nasdaq or the BSE. The Company shall promptly provide to each Purchaser copies of any notices it receives from Nasdaq or BSE regarding the continued eligibility of the Common Stock for listing on such automated quotation system, so long as such notice does not include material, nonpublic information. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 3.6(a). b. The Company at all times shall reserve a sufficient number of shares of its authorized but unissued Common Stock to provide for 1.2 times the full conversion of the outstanding shares of Preferred Stock (including the payment of all dividends thereon) and exercise of the outstanding Warrants. Shares of Common Stock reserved for issuance upon conversion of the shares of Preferred Stock and the exercise of the Warrants shall be allocated pro rata to each of the Purchasers in accordance with the number of shares of Preferred Stock and Warrants issued and delivered to such Purchaser at the Closing. If at any time the number of shares of Common Stock authorized and reserved for issuance is insufficient to cover 100% of the number of Conversion Shares and Warrant Shares issued and issuable upon conversion of the shares of Preferred Stock and exercise of the Warrants (based on the Conversion Price (as defined in the Certificate of Designation) of the shares of Preferred Stock in effect from time to time and the Exercise Price (as defined in the Warrants) of the Warrants in effect from time to time) without regard to any limitation on conversions or exercises, the Company will promptly take all corporate action necessary to authorize and reserve 120% of such shares pursuant to Section 3(b) of the Registration Rights Agreement, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company's obligations under this Section 3.6(b), in the case of an insufficient number of authorized shares, and using best efforts to obtain stockholder approval of an increase in such authorized number of shares. In addition, if, at any time within the 45-day period preceding a reset or adjustment (a "reset") of the Conversion Price pursuant to the terms of the Certificate of Designation, the closing bid price per share of the Common Stock on Nasdaq or the BSE (or any Subsequent Market (as defined in Certificate of Designation) on which the Common Stock is then listed, or if there is no such price on such date, then the Average Price (as defined in the Certificate of Designation) is less than $11.86, the Company shall be required to file within five (5) business days after such five (5) Trading Day period a registration statement covering the greater of (a) the product of (i) 1.2 and (ii) the aggregate number of Underlying Shares that would be issuable based on a Conversion Price equal to the average closing bid price during such five (5) Trading Day period, less the number of Underlying Shares for which a registration statement is then effective or (b) the aggregate number of Underlying Shares, calculated as if the Conversion Price (as defined in the 20 22 Certificate of Designation) was reset on such fifth day pursuant to the Certificate of Designation; provided, however, that if on the actual reset date (pursuant to the Certificate of Designation) the registration statements are insufficient to register all Underlying Shares (after giving effect to such reset), the Company shall immediately, but in no more than five (5) business days thereafter, file a registration statement sufficient to register such additional shares of Common Stock. All calculations of the above amount shall be made without regard to any limitation on conversions of shares of Preferred Stock or exercises of Warrants. 3.7 Notice of Breaches. a. The Company and each Purchaser shall give prompt written notice to the other of any breach by it of any representation, warranty or other agreement contained in this Agreement or in the Transaction Documents, as well as any events or occurrences arising after the date hereof and prior to the Closing Date, which would reasonably be likely to cause any representation or warranty or other agreement of such party, as the case may be, contained herein to be incorrect or breached as of the Closing Date provided such notice will not constitute material non-public information. However, no disclosure by either party pursuant to this Section 3.7 shall be deemed to cure any breach of any representation, warranty or other agreement contained herein or in the Transaction Documents. b. Notwithstanding the generality of Section 3.7(a), the Company shall promptly notify, provided such notification will not constitute material non-public information, each Purchaser of any notice or claim (written or oral) that it receives from any lender of the Company or any Subsidiary to the effect that the consummation of the transactions contemplated hereby and by the Registration Rights Agreement violates or would violate any written agreement or understanding between such lender and the Company or any Subsidiary, and the Company shall promptly furnish by facsimile to the Purchasers a copy of any written statement in support of or relating to such claim or notice. c. The default by any Purchaser of any of its obligations, representations or warranties under this Agreement or the Transaction Documents shall not be imputed to, and shall have no effect upon, any other Purchaser or affect the Company's obligations under this Agreement or any Transaction Document to any non-defaulting Purchaser. 3.8 Form D. The Company agrees to file a Form D with respect to the Preferred Stock and Warrants as required by Rule 506 under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. 3.9 Future Financings. a. Except for (i) issuance of the Underlying Shares; (ii) shares of Common Stock deemed to have been issued by the Company in connection with any plan which has been approved by the Board of Directors of the Company prior to the date hereof, pursuant to which the Company's securities may be issued to any employee, officer, director or consultant of the Company; (iii) shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) hereto; (iv) the securities to be issued in the transactions set forth on such Schedule 2.1(c); (v) an Underwritten Offering (as defined in 21 23 the Registration Rights Agreement) occurring before December 31, 2000; or (vi) shares of Common Stock issued or deemed to have been issued as consideration for an acquisition by the Company of a division, assets or business (or stock constituting any portion thereof) from another Person, if the Company agrees to issue shares of Common Stock or other securities convertible into or exchangeable or exercisable for Common Stock (the "New Security") while any shares of Preferred Stock are outstanding at (a) an effective price per share which is less or may be less (including, without limitation, any security which is convertible into or exchangeable or exercisable for Common Stock at a price which may change with the market price of the Common Stock) than the Conversion Price (as defined in the Certificate of Designation) of the shares of Preferred Stock as of the date thereof or (b) an effective price per share greater than the Conversion Price but less than the Average Price (as defined in the Certificate of Designation) on the date of such issuance or sale (either of (a) or (b) a "Future Financing"), the Company shall provide to the Purchasers by 5:00 p.m. (New York time) on or before the third (3rd) Trading Day (as defined below) after the decision to issue the New Security has been made, written notice of the Future Financing containing in reasonable detail (i) the proposed terms of the Future Financing, (ii) the amount of the proceeds that will be raised and (iii) the Person with whom such Future Financing shall be effected, and attached to which shall be a term sheet or similar document relating thereto (the "Future Financing Notice"). Upon receiving the Future Financing Notice, each Purchaser shall have the pro rata right (based on the purchase price of the shares of Preferred Stock held by such Purchaser relative to the aggregate purchase price of shares of Preferred Stock) to purchase, on the same terms as the Future Financing, an amount of New Securities having a purchase price which shall not exceed the sum of (i) aggregate purchase price paid by such Purchaser for the shares of Preferred Stock and the Warrants purchased by such Purchaser. In the event a Purchaser desires to exercise the right granted under this Section 3.9, such Purchaser must notify the Company on or prior to the fifth (5th) Trading Day after such Purchaser has received the Future Financing Notice. In the event the terms and conditions of a proposed Future Financing are amended in any respect after delivery of the Future Financing Notice but prior to the closing of the proposed Future Financing to which such Future Financing Notice relates, the Company shall deliver a new notice to each Purchaser describing the amended terms and conditions of the proposed Future Financing and each Purchaser thereafter shall have an option during the five (5) Trading Days period following delivery of such new notice to purchase its pro rata share (based on the Purchaser's percentage of the aggregate purchase price of the outstanding shares of Preferred Stock such Purchaser owns) of the New Securities being offered on the same terms as contemplated by such proposed Future Financing, as amended. The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Financing. In the event one or more Purchasers elects not to exercise its rights granted hereby, the Company shall permit those Purchasers electing to exercise the right granted under this Section 3.9 to purchase, on a pro rata basis equal to its percentage ownership of the then outstanding number of shares of Preferred Stock, the sum of the number of shares of Common Stock that the other Purchaser(s) were eligible to purchase, if they had exercised their right hereunder. Those Purchasers desiring to purchase additional shares of Common Stock must notify the Company of their intention to do so within five (5) Trading Days after the Company has informed the Purchasers of their right to purchase additional shares of Common Stock. Within five (5) Trading Days of the termination of the final notice period, the transactions contemplated by this Section 3.9 shall close, subject to the completion of mutually satisfactory documentation, and the Company shall tender to each 22 24 Purchaser certificates representing the New Securities that it agreed to purchase and the Purchasers shall make payment for the entire purchase price in immediately available funds at the closing of such sale; provided, however, that each Purchaser, in lieu of providing cash as consideration for the purchase price, may tender shares of Preferred Stock valued at the greater of the Conversion Price then in effect or the Average Price on the date of tender multiplied by the number of shares of Common Stock issuable upon conversion of such Preferred Stock as payment of the purchase price for the shares of Common Stock that it desires to purchase pursuant to this Section 3.9. Each Person who purchases any New Security in such a Future Financing other than a Purchaser, shall enter into a lock-up agreement with the Company, in form satisfactory to the Purchasers, that such Person shall not sell or transfer any New Securities purchased for a period of at least 180 calendar days after the closing date of the Future Financing. The Company may not register any New Securities sold in the Future Financing under the Securities Act except for those New Securities sold and issued to any Purchaser. "Trading Day" shall mean a day on which the Nasdaq or the BSE (or in the event the Common Stock is not traded on Nasdaq or the BSE, such other securities market on which the Common Stock is listed) is open for trading. b. If the Company shall enter into a transaction to issue any New Securities prior to (6) months from Closing Date (a "Subsequent Transaction"), each Purchaser shall have the right to have such Purchaser's Transaction Documents amended to reflect the terms of such Subsequent Transaction and the Company shall, if requested, issue new shares of Preferred Stock and Warrants to such Purchaser reflecting the terms of the Subsequent Transaction. 3.10 Use of Proceeds. The Company shall use the proceeds from the sale of the Preferred Stock and the exercise of the Warrants to acquire assets, reduce debt and for working capital. 3.11 Transactions with Affiliates. So long as any Preferred Stock or Warrants are outstanding, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors or persons who were officers or directors at any time during the previous two years, stockholders who beneficially own 5% or more of the Common Stock, or Affiliates or any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a "Related Party"), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a Person other than such Related Party, or (c) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "Affiliate" for purposes of this section only means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity. 23 25 "Control" or "Controls" for purposes of this section means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. 3.12 Transfer Agent Instructions. At each Closing the Company shall issue irrevocable instructions to its transfer agent (and shall issue to any subsequent transfer agent as required), to issue certificates, registered in the name of each such Purchaser or its respective nominee(s), for the Conversion Shares and/or the Warrant Shares in such amounts as specified from time to time by each Purchaser to the Company in a form acceptable to such Purchasers (the "Irrevocable Transfer Agent Instructions"). So long as required pursuant to Section 3.1(b), all such certificates shall bear the restrictive legend specified in Section 3.1(b) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 3.12, and stop transfer instructions to give effect to Section 3.1 (in the case of the Conversion Shares and the Warrant Shares, prior to registration of the Conversion Shares under the Securities Act) will be given by the Company to its transfer agent and that the Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Transaction Documents. If a Purchaser provides the Company with an opinion of counsel, the form and substance of which opinion shall be customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares may be made without registration under the Securities Act or the Purchaser provides the Company with reasonable assurances that the Warrants, the Conversion Shares and the Warrant Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchasers by violating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 3.12 will be inadequate and agrees, in the event of a beach or threatened breach by the Company of the provisions of this Section 3.12, that the Purchasers, shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 3.13 Press Release; Filing of Form 8-K. Subject to the provisions of Section 6.10, prior to the opening of Nasdaq and the BSE on May 19, 1999, the Company shall file a press release in form and substance acceptable to the Purchasers. On or before the 3rd business day following the Closing Date, the Company shall file a Form 8-K with the Commission describing the terms of the transaction contemplated by this Agreement and the Transaction Documents in the form required by the Exchange Act. 3.14 Financial Information. The Company agrees to send the following to each Purchaser prior to and during the Effectiveness Period (as defined in the Registration Rights Agreement): (i) within three (3) business days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on 24 26 Form 8-K and any registration statements or amendments (other than on Form S-8) filed pursuant to the Securities Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. 3.15 Ordinary Course Brokerage and Trading. Subject to compliance with all applicable securities laws, Nasdaq regulations and BSE regulations, no Purchaser shall be prohibited from engaging in its ordinary course brokerage and trading activities in respect of the Company's Common Stock; provided that the personnel engaged in such activities have not been involved with the transactions contemplated hereby and have not been provided with confidential information with respect to the Company; provided further that Purchasers shall not engage in any ordinary course brokerage or trading activities in respect of the Company's Common Stock during the six-month period commencing on the Closing Date, unless the Average Price (as defined in the Certificate of Designation) on any given date as calculated on the basis of 22 consecutive Trading Days rises above 200% of the Conversion Price (as defined in the Certificate of Designation). 3.16 Best Efforts. Each of the parties hereto shall use its best efforts to satisfy each of the conditions to be satisfied by it as provided in Article IV of this Agreement. 3.17 Corporate Existence. Until such time as all of the Purchasers provide the Company with written notice that they do not beneficially own any shares of Preferred Stock or Warrants, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose common stock is listed for trading on the Nasdaq, the New York Stock Exchange or the American Stock Exchange. 3.18 No Violation of Applicable Law. Notwithstanding any provision of this Agreement to the contrary, if the redemption of shares of Preferred Stock or Underlying Shares otherwise required under this Agreement or the Registration Rights Agreement would be prohibited by the relevant provisions of the Texas Business Corporation Act, such redemption shall be effected as soon as it is permitted under such law; provided, however, that from the fifth (5th) day after such Redemption Notice (as defined in the Certificate of Designation) until such Redemption Price (as defined in the Certificate of Designation) is paid in full, interest on any such unpaid amount shall accrue and be payable at the rate of 15% per annum in accordance with the Certificate of Designation. 3.19 Subsequent Registrations. Other than Underlying Shares and other Registrable Securities (as defined in the Registration Rights Agreement) to be registered in accordance with the Registration Rights Agreement, the securities to be issued in the transactions set forth on Schedule 2.1(c), and any securities in an Underwritten Offering (as defined in the Registration Rights Agreement) before December 31, 2000, the Company shall not, for a period of not less than 90 Trading Days after the date that the Registration Statement is declared effective by the 25 27 Commission, without the prior written consent of two-thirds of the Purchasers, (i) issue or sell any of its or any of its Affiliates' equity or equity-equivalent securities unless such issuance or sale is equal to or at a premium to the Per Share Market Price (as defined in the Registration Rights Agreement) on the date such issuance or sale, (ii) register for resale any securities of the Company or (iii) have a registration statement declared effective covering an issuance by the Company of any of its securities. Any days that any Purchaser is unable to sell Underlying Shares under an Registration Statement shall be added to such 90 Trading Day period for the purposes of (i), (ii) and (iii) above. ARTICLE IV. CONDITIONS 4.1 First Closing. a. Conditions Precedent to the Obligation of the Company to Sell the Shares of Preferred Stock and Warrants. The obligation of the Company to sell the shares of Preferred Stock and Warrants is subject to the satisfaction or waiver (with prior written notice to each Purchaser) by the Company, at or before the First Closing Date of each of the following conditions: (i) Accuracy of the Purchasers' Representations and Warranties. The representations and warranties of each Purchaser in this Agreement shall be true and correct in all material respects as of the date when made and as of the First Closing; (ii) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or before the First Closing; and (iii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents. b. Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares of Preferred Stock and Warrants at the First Closing. The obligation of each Purchaser hereunder to acquire and pay for the shares of Preferred Stock and Warrants at the First Closing is subject to the satisfaction or waiver by such Purchaser, at or before the First Closing Date, of each of the following conditions: (i) Accuracy of the Company's Representations and Warranties. The representations and warranties of the Company set forth in this Agreement and in the Registration Rights Agreement shall be true and correct in all respects as of the date when made and as of the First Closing Date; (ii) Performance by the Company. The Company shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions 26 28 required by this Agreement to be performed, satisfied or complied with by the Company at or before the First Closing Date; (iii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement and the Transaction Documents; (iv) No Suspensions of Trading in Common Stock. The trading in the Common Stock shall not have been suspended by the Commission, on Nasdaq or on the BSE (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company); (v) Listing of Common Stock. The Common Stock shall have been at all times since the date of this Agreement and on the Closing Date listed for trading on the Nasdaq and the BSE; (vi) Required Approvals. All Required Approvals, other than those relating solely to Closing Dates other than the First Closing Date, shall have been obtained and copies thereof delivered to the Purchasers other than those relating solely to Closing Dates other than the First Closing Date; (vii) Shares of Common Stock. The Company shall have duly reserved the number of Underlying Shares required by this Agreement and the Transaction Documents to be reserved upon the exercise of the Warrants or the conversion of the shares of Preferred Stock acquired by the Purchaser on the First Closing Date; (viii) Adverse Changes. Since the date of the financial statements included in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed prior to the date of this Agreement, no event which had a Material Adverse Effect shall have occurred which is not disclosed on any Schedule hereto (for purposes hereof, changes in the market price of the Common Stock may be considered in determining whether there has occurred an event which has had a Material Adverse Effect); (ix) Litigation. No litigation shall have been instituted or threatened against the Company which could reasonably be expected to, individually or in the aggregate, have had a Material Adverse Effect; (x) Change of Control. No Change of Control shall have occurred between the date hereof and the First Closing Date. "Change of Control" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act), other than the Purchasers or any of their Affiliates, of in excess of 40% of the voting securities of the Company, (ii) a replacement of more than one-half of the members of the Company's Board of Directors that is not approved by those individuals who are members of the Board of Directors on the date hereof in one or a series of related transactions, (iii) the merger of the Company with or into another entity, unless following such transaction the Holders of the Issuer's securities continue to hold at least 67% of such securities following such transaction, (iv) the consolidation or sale of all or 27 29 substantially all of the assets of the Company in one or a series of related transactions or (v) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii), (iii) or (iv); and (xi) Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in a form acceptable to the Purchasers, shall have been delivered to and acknowledged in writing by the Company's transfer agent with a copy forwarded to each Purchaser. c. Documents and Certificates. At the First Closing, the Company shall have delivered to the Purchasers, the following in form and substance reasonably satisfactory to the Purchasers: (i) Opinion. An opinion of the Company's legal counsel in the form attached hereto as Exhibit D dated as of the First Closing Date; (ii) Preferred Stock Certificate. A Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on Schedule I, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation with a Conversion Price equal to $11.86; (iii) Warrant. A Warrant(s), in the form of Exhibit B hereto and with the Exercise Price equal to $11.86 representing the Warrant(s) being purchased by each Purchaser as set forth next to such Purchaser's name on the Schedule I, registered in the name of such Purchaser; (iv) Registration Rights. The Company shall have executed and delivered the Registration Rights Agreement; (v) Officer's Certificate. An Officer's Certificate dated the First Closing Date and signed by an executive officer of the Company confirming the accuracy of the Company's representations, warranties and covenants as of such First Closing Date and confirming the compliance by the Company with the conditions precedent set forth in this Section 4.1(b) as of the First Closing Date; (vi) Secretary's Certificate. A Secretary's Certificate dated the First Closing Date and signed by the Secretary or Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the Certificate of Incorporation of the Company, as in effect on the First Closing Date, (B) that attached thereto is a true and complete copy of the by-laws of the Company, as in effect on the First Closing Date and (C) that attached thereto is a true and complete copy of the Resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and of the Transaction Documents, and that such Resolutions have not been modified, rescinded or revoked; (vii) Certificates of Incorporation. The Company shall have delivered to each of the Purchasers a copy of a certificate evidencing the incorporation and good standing 28 30 of the Company and each Subsidiary, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the First Closing Date. The Company shall have delivered to each of the Purchasers a copy of its Certificate of Incorporation as certified by the Secretary of State of the State of Texas within ten days of the First Closing Date; (viii) Transfer Agent Letter. The Company shall have delivered to each Purchaser a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the First Closing Date; and (ix) Other Documents. The Company shall have delivered to each Purchaser such other documents relating to the transactions contemplated by the Transaction Documents as the Purchasers or its counsel may reasonably request. 4.2 Second Closing. a. Conditions Precedent to the Obligation of the Company to Sell the shares of Preferred Stock and Warrants. The obligation of the Company to sell the shares of Preferred Stock and Warrants at the Second Closing is subject to the satisfaction or waiver (with prior written notice to each Purchaser) by the Company, at or before the Second Closing Date of each of the following conditions: (i) Accuracy of the Purchasers' Representations and Warranties. The representations and warranties of each Purchaser in this Agreement shall be true and correct in all material respects as of the date when made and as of the Second Closing; (ii) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or before the Second Closing; and (iii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents. b. Conditions Precedent to the Obligation of the Purchasers to Purchase. The obligation of each Purchaser hereunder to acquire and pay for the shares of Preferred Stock and Warrants at the Second Closing is subject to the satisfaction or waiver (with prior written notice to the Company and each other Purchaser) by such Purchaser, at or before the Second Closing Date, of each of the following conditions: (i) First Closing. The First Closing shall have occurred; (ii) Accuracy of the Company's Representations and Warranties. The representations and warranties of the Company set forth in this Agreement and the Registration Rights Agreement shall be true and correct in all respects as of the date when made and as of the 29 31 Second Closing Date as though made at that time (except for representations and warranties made as of a specific date); (iii) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Transaction Documents to be performed, satisfied or complied with by the Company at or before to the Second Closing; (iv) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement and the Transaction Documents; (v) Registration Statements for Underlying ShareS from First Closing. The Registration Statement with respect to the Underlying Shares of the Warrants sold at the First Closing the Preferred Stock and shall have been declared effective under the Securities Act by the SEC; and on the Second Closing Date such Registration Statement shall be effective, not subject to any stop order and not be subject to any suspension pursuant to Section 3(o) of the Registration Rights Agreement, and shall have been effective and shall not have been subject to any stop order for the thirty (30) business days prior to the Second Closing Date and no stop order shall be pending or threatened as at the Second Closing Date. (vi) Adverse Changes. Since the date of the financial statements included in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed prior to the date of this Agreement, no event which had a Material Adverse Effect shall have occurred which is not disclosed on any Schedule hereto or otherwise in writing to each of the Purchasers; (vii) Litigation. No litigation shall have been instituted or threatened against the Company which could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect; (viii) Management. There shall have been no substantial changes in the position or responsibilities of the Chief Executive Officer and the Chief Financial Officer of the Company; (ix) No Suspensions of Trading in Common Stock. The trading in the Common Stock shall not have been suspended by the Commission, on Nasdaq or on the BSE (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company); (x) Listing of Common Stock. The Underlying Shares shall on the Second Closing Date be, listed for trading on Nasdaq, on the BSE, or other exchange acceptable to Purchasers; (xi) Required Approvals. All Required Approvals shall have been obtained and copies thereof delivered to the Purchasers. 30 32 (xii) Shares of Common Stock. The Company shall have duly reserved the number of Underlying Shares required by this Agreement to be reserved for issuance upon exercise of the Warrants purchased on the First Closing Date and on the Second Closing Date or the conversion of the shares of Preferred Stock purchased on the First Closing Date and on the Second Closing Date. (xiii) Performance of Conversion/Exercise Obligations. The Company shall have delivered Underlying Shares upon any demand for conversion of any of the shares of Preferred Stock or exercise of the Warrant(s) and otherwise performed its obligations in accordance with the terms, conditions and timing requirements of the Transaction Documents. (xiv) Change of Control. No Change of Control in the Company shall have occurred; and (xv) Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in a form acceptable to the Purchasers, shall have been delivered to and acknowledged by the Company's transfer agent with a copy forwarded to each Purchaser. c. Documents and Certificates. On the Second Closing Date, the Company shall have delivered to the Purchasers, the following in form and substance reasonably satisfactory to the Purchasers: (i) Registration Rights Agreement. The Company and each of the Purchasers shall have executed and delivered a Registration Rights Agreement substantially in the form of Exhibit C attached hereto pursuant to which the Company shall agree to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder and applicable state laws with respect to the shares of Common Stock issuable upon the conversion of the shares of Preferred Stock, and upon the exercise of the Warrants, to be issued at the Second Closing; (ii) Opinion. An opinion of the Company's legal counsel, in substantially the form attached hereto as Exhibit D dated as of the Second Closing Date; (iii) Preferred Stock Certificate. A Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on the Second Closing Schedule, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation with a Conversion Price equal to $11.86; (iv) Warrant. A Warrant(s), in the form of Exhibit B hereto and with the Exercise Price equal to $11.86 representing the Warrant(s) being purchased by each Purchaser as set forth next to such Purchaser's name on the Second Closing Schedule, registered in the name of such Purchaser; (v) Officer's Certificate. The Company shall deliver to the Purchasers an Officer's Certificate dated the Second Closing Date and signed by an executive officer of the Company confirming the accuracy of the Company's representations, warranties and covenants 31 33 as of such Second Closing Date and confirming the compliance by the Company with the conditions precedent set forth in Section 4.2(b) as of the Second Closing Date. (vi) Secretary's Certificate. A Secretary's Certificate dated the Second Closing Date and signed by the Secretary or Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the Certificate of Incorporation of the Company, as in effect on the Second Closing Date, (B) that attached thereto is a true and complete copy of the bylaws of the Company, as in effect on the Second Closing Date and (C) that attached thereto is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of the Agreement and the Transaction Documents and that such resolutions have not been modified, rescinded or revoked. (vii) Certificates of Incorporation. The Company shall have delivered to each of the Purchasers a copy of a certificate evidencing the incorporation and good standing of the Company and each Subsidiary, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the Second Closing Date. The Company shall have delivered to each of the Purchasers a copy of its Certificate of Incorporation as certified by the Secretary of State of the State of Texas within ten days of the Second Closing Date; (viii) Transfer Agent Letter. The Company shall have delivered to each Purchaser a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Second Closing Date; and (ix) Other Documents. The Company shall have delivered to each Purchaser such other documents relating to the transactions contemplated by the Transaction Documents as the Purchasers or its counsel may reasonably request. 4.3 Third Closing. a. Conditions Precedent to the Obligation of the Company to Sell the Shares of Preferred Stock and Warrants. The obligation of the Company to sell the shares of Preferred Stock and Warrants at the Third Closing is subject to the satisfaction or waiver (with prior written notice to each Purchaser) by the Company, at or before the Third Closing Date of each of the following conditions: (i) Accuracy of the Purchasers' Representations and Warranties. The representations and warranties of each Purchaser in this Agreement shall be true and correct in all material respects as of the date when made and as of the Third Closing; (ii) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or before the Third Closing; and (iii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or 32 34 governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents. b. Conditions Precedent to the Obligation of the Purchasers to Purchase. The obligation of each Purchaser hereunder to acquire and pay for the shares of Preferred Stock and Warrants at the Third Closing is subject to the satisfaction or waiver (with prior written notice to the Company and each other Purchaser) by such Purchaser, at or before the Third Closing Date, of each of the following conditions: (i) First and Second Closings. The First and Second Closings shall have occurred; (ii) Accuracy of the Company's Representations and Warranties. The representations and warranties of the Company set forth in this Agreement and the Registration Rights Agreement shall be true and correct in all respects as of the date when made and as of the Third Closing Date as though made at that time (except for representations and warranties made as of a specific date); (iii) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Transaction Documents to be performed, satisfied or complied with by the Company at or before to the Third Closing; (iv) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement and the Transaction Documents; (v) Registration Statements for Underlying Shares of Preferred Stock and Warrants issued at First and Second Closings. The Registration Statement with respect to the Underlying Shares with respect to the Warrants and Preferred Stock sold at the First Closing and the Second Closing shall have been declared effective under the Securities Act by the SEC and such Registration Statement shall be effective, not subject to any stop order and not be subject to any suspension pursuant to Section 3(o) of the Registration Rights Agreement, and shall have been effective and shall not have been subject to any stop order for the thirty (30) business days prior to the Third Closing Date and no stop order shall be pending or threatened as at the Third Closing Date. (vi) Adverse Changes. Since the date of the financial statements included in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed prior to the date of this Agreement, no event which had a Material Adverse Effect shall have occurred which is not disclosed on any Schedule hereto or otherwise in writing to each of the Purchasers; (vii) Litigation. No litigation shall have been instituted or threatened against the Company which could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect; 33 35 (viii) Management. There shall have been no substantial changes in the position or responsibilities of the Chief Executive Officer and the Chief Financial Officer of the Company; (ix) No Suspensions of Trading in Common Stock. The trading in the Common Stock shall not have been suspended by the Commission, on Nasdaq or on the BSE (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company); (x) Listing of Common Stock. The Underlying Shares shall on the Third Closing Date be listed for trading on Nasdaq, on the BSE, or other exchange acceptable to Purchasers; (xi) Required Approvals. All Required Approvals shall have been obtained and copies thereof delivered to the Purchasers. (xii) Shares of Common Stock. The Company shall have duly reserved the number of Underlying Shares required by this Agreement to be reserved for issuance upon exercise of the Warrants, purchased on the First Closing Date, the Second Closing Date and the Third Closing Date, and the conversion of the Preferred Stock, purchased on the First Closing Date, the Second Closing Date, and the Third Closing Date. (xiii) Performance of Conversion/Exercise Obligations. The Company shall have delivered Underlying Shares upon any demand for conversion of any of the Preferred Stock or exercise of the Warrant(s) and otherwise performed its obligations in accordance with the terms, conditions and timing requirements of the Transaction Documents. (xiv) Change of Control. No Change of Control in the Company shall have occurred; and (xv) Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in a form acceptable to the Purchasers, shall have been delivered to and acknowledged by the Company's transfer agent with a copy forwarded to each Purchaser. c. Documents and Certificates. On the Third Closing Date, the Company shall have delivered to the Purchasers, the following in form and substance reasonably satisfactory to the Purchasers: (i) Registration Rights Agreement. The Company and each of the Purchasers shall have executed and delivered a Registration Rights Agreement substantially in the form of Exhibit C attached hereto pursuant to which the Company shall agree to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder and applicable state laws with respect to the shares of Common Stock issuable upon the conversion of the Preferred Stock, and upon the exercise of the Warrants to be issued at the Third Closing; (ii) Opinion. An opinion of the Company's legal counsel, in substantially the form attached hereto as Exhibit D dated as of the Third Closing Date; 34 36 (iii) Preferred Stock Certificate. A Preferred Stock certificate(s) representing the number of shares of Preferred Stock purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser, each in form satisfactory to the Purchaser and issued pursuant to the Certificate of Designation, except that Section 5.1(b) thereof shall be omitted, with a Conversion Price equal to $11.86; (iv) Warrant. A Warrant(s), in the form of Exhibit B hereto representing the Warrant(s) with an Exercise Price (as defined therein) equal to 110% of the Average Price on the Third Closing Date being purchased by each Purchaser as set forth next to such Purchaser's name on the Third Closing Schedule, registered in the name of such Purchaser; (v) Officer's Certificate. The Company shall deliver to the Purchasers an Officer's Certificate dated the Third Closing Date and signed by an executive officer of the Company confirming the accuracy of the Company's representations, warranties and covenants as of such Third Closing Date and confirming the compliance by the Company with the conditions precedent set forth in Section 4.3(b) as of the Third Closing Date. (vi) Secretary's Certificate. A Secretary's Certificate dated the Third Date and signed by the Secretary or Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the Certificate of Incorporation of the Company, as in effect on the Third Closing Date, (B) that attached thereto is a true and complete copy of the bylaws of the Company, as in effect on the Third Closing Date and (C) that attached thereto is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of the Agreement and the Transaction Documents and that such resolutions have not been modified, rescinded or revoked. (vii) Certificates of Incorporation. The Company shall have delivered to each of the Purchasers a copy of a certificate evidencing the incorporation and good standing of the Company and each Subsidiary, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the Third Closing Date. The Company shall have delivered to each of the Purchasers a copy of its Certificate of Incorporation as certified by the Secretary of State of the State of Texas within ten days of the Third Closing Date; (viii) Transfer Agent Letter. The Company shall have delivered to each Purchaser a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Third Closing Date; and (ix) Other Documents. The Company shall have delivered to each Purchaser such other documents relating to the transactions contemplated by the Transaction Documents as the Purchasers or its counsel may reasonably request. 35 37 ARTICLE V. INDEMNIFICATION 5.1 Indemnification. Except to the extent that matters which could be covered by this Section 5 are covered by Section 5 of the Registration Rights Agreement, in consideration of the Purchasers execution and delivery of this Agreement and the Transaction Documents and acquiring the Preferred Stock, Conversion Shares, Warrants and Warrant Shares thereunder and in addition to all of the Company's other obligations under this Agreement and the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Purchaser, its past and present Affiliates and their successors and assigns (in accordance with the provisions of Section 6.5), each other holder of the Underlying Shares and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing Person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnities") from and against any and all actions, causes of action, suits, claims, losses, proceedings, costs (as incurred), penalties, fees (including legal fees and expenses), liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnity is a party to the action for which indemnification hereunder is sought), and including interest, penalties and attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnity as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or in the Transaction Documents, or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Transaction Documents, or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made, other than by the Company, against such Indemnity and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement or the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Preferred Stock or Warrants or (iii) solely the status of such Purchasers or holder of the Preferred Stock, the Conversion Shares, the Warrants or the Warrant Shares as an investor in the Company. The indemnification obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliate of the Purchasers and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Purchasers and any such affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or any of the Transaction Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of such Purchaser or entity in connection with the transactions contemplated by this Agreement or the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 36 38 ARTICLE VI. MISCELLANEOUS 6.1 Entire Agreement. This Agreement, together with the Exhibits and Schedules hereto and the Transaction Documents contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. 6.2 Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party (if received by 7:00 p.m. EST where such notice is received) or the first business day following such delivery (if received after 7:00 p.m. EST where such notice is received); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: International Isotopes Inc. 3100 Jim Christal Road Denton, Texas 76207 Telephone: (940) 484-9492 Facsimile: (940) 484-0877 Attention: Ira Lon Morgan With a copy to: Locke Liddell & Sapp LLC 100 Congress, Suite 300 Austin, Texas 78701 Telephone: (512)305-4716 Facsimile: (512)305-4800 Attention: Curtis R. Ashmos If to the Transfer Agent: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Telephone: (718)921-8256 Facsimile: (718)921-8327 Attention: Joseph Comito 37 39 If to Brown Simpson Strategic Growth Fund, Ltd. to: 152 West 57th Street, 40th Floor New York, New York 10029 Telephone: (212) 247-8200 Facsimile: (212) 247-1329 Attention: Paul Gustus If to Brown Simpson Strategic Growth Fund, L.P. to: 152 West 57th Street, 40th Floor New York, New York 10029 Telephone: (212) 247-8200 Facsimile: (212) 247-1329 Attention: Paul Gustus With a copy, in the case of Notice to Brown Simpson Strategic Growth Fund, Ltd., or Brown Simpson Strategic Growth Fund, L.P., to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 590 Madison Avenue New York, New York 10022 Telephone: (212) 872-1000 Facsimile: (212) 872-1002 Attention: James Kaye Each party shall provide written notice to the other party of any change in address or facsimile number in accordance with the provisions hereof. 6.3 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and each of the Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Notwithstanding the foregoing, no such amendment shall be effective to the extent that it applies to less than all of the holders of the shares of Preferred Stock outstanding. The Company shall not offer or pay any consideration to a Purchaser for consenting to such an amendment or waiver unless the same consideration is offered to each Purchaser and the same consideration is paid to each Purchaser which consents to such amendment or waiver. 6.4 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 38 40 6.5 References. References herein to Sections are to Sections of this Agreement, unless otherwise expressly provided. 6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of the Purchasers. The Purchasers may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company, provided, that any assignees must make the representations and warranties set forth in Section 2.2 and otherwise comply with the terms of this Agreement otherwise applicable to its assignor. This provision shall not limit a Purchaser's right to transfer securities in accordance with all of the terms of this Agreement or the Transaction Documents. 6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 6.8 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 6.9 Survival. The representations and warranties of the Company and the Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants set forth in Section 3, and the indemnification provisions set forth in Section 5, shall survive the Closing and any conversion of the shares of Preferred Stock or exercise of the Warrants regardless of any investigation made by or on behalf of the such Purchaser or by or on behalf of the Company, except that, in the case of representations and warranties such survival shall be limited to the period of four (4) years following the Closing Date on which they were made or deemed to have been made (other than with respect to any claim by a third party against the party to this Agreement who seeks to assert a claim based on such representations and warranties). This section shall have no effect on the survival of the indemnification provisions of the Registration Rights Agreement. 39 41 6.10 Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 6.11 Publicity. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. The Company shall not publicly or otherwise disclose the names of any of the Purchasers without each such Purchaser's prior written consent. The Purchasers and their affiliated companies shall, without further cost, have the right to use in its advertising, marketing or other similar materials all or parts of the Company's press releases that focus on the Transaction forming the subject matter of this Agreement or which make reference to the Transaction. The Purchasers understand that this grant by the Company only waives objections that the Company might have to the use of such materials by the Purchasers and in no way constitutes a representation by the Company that references in such materials to the activities of third-parties have been cleared or constitute a fair use. 6.12 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.13 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchasers will be entitled to specific performance of the obligations of the Company under this Agreement or the Transaction Documents without the showing of economic loss and without any bond or other security being required. Each of the Company and the Purchasers (severally and not jointly) agree that monetary damages would not be adequate compensation for any loss incurred by reason of any breach of its obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 6.14 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser hereunder is several and not joint with the obligations of the other Purchasers hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a 40 42 joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 6.15 Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchasers hereunder or pursuant to the Transaction Documents or the Purchasers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 6.16 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 6.17 Fees and Expenses. Except as set forth in the Registration Rights Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement; provided, however, that the Company shall pay the Purchasers an aggregate fee of $30,000 at the First Closing. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Preferred Stock, Warrants and Underlying Shares pursuant hereto. 41 43 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized persons as of the date first indicated above. INTERNATIONAL ISOTOPES INC. By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: 44 BROWN SIMPSON STRATEGIC GROWTH FUND, LTD. By: --------------------------------- Name: Title: BROWN SIMPSON STRATEGIC GROWTH FUND, L.P. By: --------------------------------- Name: Title: 1 45 SCHEDULE I
Number of Shares of Preferred Stock at First Number of shares Name of Purchaser Closing Purchase Price underlying Warrant - ----------------- ------- -------------- ------------------ Brown Simpson Strategic 1,850 $1,850,000 75,850 Growth Fund, L.P. Brown Simpson Strategic 3,150 $3,150,000 129,150 Growth Fund, Ltd.
46 SCHEDULE II
Name of Purchaser Address - ----------------- ------- Brown Simpson Strategic Growth Fund, Ltd. 152 West 57th Street, 40th Floor New York, New York 10019 Attn: Paul Gustus Fax: (212) 247-1329 Residence: Grand Cayman, Cayman Islands Brown Simpson Strategic Growth Fund, L.P. 152 West 57th Street, 40th Floor New York, New York 10019 Attn: Paul Gustus Fax: (212) 247-1329 Residence: New York, New York
1 47 Exhibit A [Form of Certificate of Designation] 48 Exhibit B [Form of Warrant] 1 49 Exhibit C [Registration Rights Agreement] 50 Exhibit D [Company's Legal Opinion] 1. Each of the Company(1) and its Subsidiaries is a corporation, duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company has no subsidiaries other than the Subsidiaries. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary. 2. The Company has the requisite corporate power and authority to enter into and consummate the transactions contemplated by each of the Transaction Documents(2) and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company. Each of the Transaction Documents has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. 3. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated by such agreements do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party and which is required to be included as an exhibit to the SEC Documents (as defined herein), or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restrictions of any court or governmental authority to which the Company is subject (including Federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental authority. - -------------------------- (1) The opinion letter should state that capitalized terms not otherwise defined have the meanings assigned to them in the Purchase Agreement. (2) The term Transaction Documents means the Purchase Agreement, the Registration Rights Agreement, the Certificate of Designation and the Warrants. 1 51 4. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other Federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Transaction Documents. Based on the representations and warranties of the Company set forth in Section 2.1 of the Purchase Agreement and assuming the accuracy of the representations and warranties of the Purchasers set forth in Section 2.2 of the Purchase Agreement, the offer, issuance and sale of the shares of Preferred Stock and the Warrants to the Purchasers pursuant to the Purchase Agreement and the Warrant are exempt from the registration requirements of the Securities Act. 5. To my knowledge, the Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the date hereof (the "SEC Documents") on a timely basis. As of their respective dates, the SEC Documents complied in all material respects as to form with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. 6. There is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries which, if adversely decided, could reasonably be expected to have a material adverse effect on the issuance of the shares of Preferred Stock or the Conversion Shares, or the issuance or exercise of the Warrants or Warrant Shares, or the consummation of the transactions contemplated by the Transaction Documents. 7. All of the Company's issued and outstanding capital stock has been duly authorized, validly issued and is fully paid and non-assessable as of the date hereof. 8. The Company has full corporate power and authority to issue, sell and deliver the Preferred Stock, Conversion Shares, Warrants and Warrant Shares pursuant to the Transaction Documents. 9. The Company has duly authorized and reserved for issuance such number of shares of Common Stock as are issuable upon conversion of the Preferred Stock and exercise of the Warrants (the "Underlying Shares") in accordance with the terms of the Preferred Shares and the Warrants. When issued by the Company in accordance with the terms of the Preferred Shares and the Warrants, the Underlying Shares will be validly issued, fully paid and non-assessable. When issued by the Company in accordance with the terms of the Securities Purchase Agreement, the shares of Preferred Stock will be validly issued, fully paid and non-assessable. 2 EX-5 5 OPINION AND CONSENT OF LOCKE LIDDELL & SAPP LLP 1 EXHIBIT 5 Locke Liddell & Sapp LLP 100 Congress, Suite 300 Austin, Texas 78701 June 30, 1999 International Isotopes Inc. 3100 Jim Christian Road Denton, Texas 76207-9987 Ladies and Gentlemen: As legal counsel to International Isotopes Inc., a Texas corporation (the "Company"), we have examined the Restated Articles of Incorporation and Bylaws of the Company as well as such other documents and proceedings as we have considered necessary for the purposes of this opinion. We have also examined and are familiar with the Company's Registration Statement on Form S-3 (the "Registration Statement") as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), relating to 1,503,804 shares of the Company's Common Stock, par value $.01 per share (the "Common Shares"), which may be offered or sold by the Selling Stockholders referred to in the Registration Statement. Based upon the foregoing, and having regard to legal considerations which we deem relevant, we are of the opinion that the Common Shares are legally issued, fully paid and non-assessable. We hereby consent to the inclusion of this opinion letter as an exhibit to the Registration Statement and the reference to our Firm under the caption "Legal Matters." In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, Locke Liddell & Sapp LLP /s/ Locke Liddell & Sapp LLP ------------------------------ EX-23.1 6 CONSENT OF KPMG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS Board of Directors International Isotopes Inc. We consent to the use of our report incorporated by reference herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Dallas, Texas July 8, 1999 -----END PRIVACY-ENHANCED MESSAGE-----