ISONICS CORPORATION
Exhibit 5 to Form 8-K reporting an event of July 29, 1999
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into this 29th day of July, 1999, by and among Isonics Corporation, a
California corporation (the "Company"), Adam Smith & Company, Inc. ("ASC"),
the individuals and trusts whose names are set forth on the signature page(s)
hereof, and the individuals described on Exhibits 6A and 6B to the
Subscription Agreement (as that term is defined in the next paragraph)
(collectively, the "Stockholders").
BACKGROUND. The Company has entered into (i) a Subscription Agreement of
even date herewith (as amended, the "Subscription Agreement") with the
Stockholders pursuant to which the Company will issue to the Stockholders an
aggregate of 1,500,000 Units, each consisting of one share of Class A
Convertible Preferred Stock of the Company and one redeemable common stock
purchase warrant (each a "Unit Warrant"), each Unit Warrant entitling the
holder thereof to purchase one share of common stock; and (ii) an investment
banking agreement with ASC providing for, among other matters, the issuance
of an additional 500,000 Warrants (the "ASC Warrants", and collectively with
the Unit Warrants, the "Warrants") to purchase up to 500,000 shares of common
stock; and (iii) agreements to issue of up to an additional 330,000 shares of
Series A Convertible Preferred Stock and up to 330,000 warrants to certain
persons in satisfaction of certain debt and contractual obligations (the
"Conversion Warrants"). An aggregate of 1,850,000 authorized but unissued
shares of common stock, no par value per share, of the Company ("Common
Stock") are reserved for issuance upon conversion of the Preferred Stock to
be issued to the Stockholders under the Subscription Agreement and the
respective conversion agreements, and an aggregate of 2,330,000 authorized
but unissued shares of Common Stock are reserved for issuance upon exercise
of the Warrants and the Conversion Warrants.
In consideration of the background transactions and the mutual covenants
and agreements herein set forth, the parties to this Agreement hereby agree,
effective at the Effective Date (as defined below), subject to the terms and
conditions hereinafter set forth, as follows:
1. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
AGREEMENT: As defined in the introductory paragraph of this Agreement.
COMMISSION: The U.S. Securities and Exchange Commission or any other
governmental authority at the time administering the Securities Act or the
Exchange Act.
COMMON STOCK: As defined in the paragraph of this Agreement entitled
"Background."
COMPANY: As defined in the introductory paragraph of this Agreement.
EFFECTIVE DATE: The date on which Preferred Stock and Warrants are
issued to the Stockholders.
EXCHANGE ACT: The U.S. Securities Exchange Act of 1934, as amended, or
any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such similar or successor
federal statute.
PERSON: A corporation, an association, a partnership, a limited
liability company, an individual, a joint venture, a trust or estate, an
unincorporated organization, or a government or any department or agency
thereof.
PREFERRED STOCK: As defined in the paragraph of this Agreement entitled
"Background":
REGISTRABLE SECURITIES: (a) Any shares of Common Stock issued or
issuable upon conversion of any shares of Preferred Stock issued to the
Stockholders pursuant to the Subscription Agreement or upon exercise of the
Warrants and (b) any securities issued or issuable with respect to any Common
Stock referred to in the foregoing clauses by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Securities, once issued, such securities shall cease
to be Registrable Securities when (v) they may be sold without restriction
pursuant to Rule 144(k) (or any successor provision) under the Securities
Act, (w) a registration statement with respect to the sale of such securities
in the United States shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such
registration statement, (x) they shall have been transferred pursuant to Rule
144 (or any successor provision) under the Securities Act, (y) they shall
have been otherwise transferred, new certificates for them not bearing a
legend restricting further transfer shall have been delivered by the Company
and subsequent disposition of them shall not require registration or
qualification under the Securities Act or any similar state law then in
force, or (z) they shall have ceased to be outstanding. While the shares of
Preferred Stock and the Warrants outstanding from time to time are not
Registrable Securities for the purpose of registration, holders of shares of
Preferred Stock and Warrants shall, for purposes of giving of notices or the
calculation of percentages of Registrable Securities, be treated as the
holders of the Registrable Securities issuable upon conversion of their
shares of Preferred Stock or upon exercise of their Warrants. In addition,
for purposes of calculation of percentages of Registrable Securities, all
shares of Preferred Stock shall be treated as the same number of shares of
Cmmon Stock into which they are then convertible and all Warrants shall be
treated as the same number of shares of Common Stock which may be purchased
upon exercise thereof.
REGISTRATION EXPENSES: All expenses incident to the Company's
performance of or compliance with Section 2 of this Agreement, including,
without limitation, all registration, filing and listing or Nasdaq fees, all
fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, all messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including without limitation the expenses of
any special audits or "cold comfort" letters required by or incident to such
performance and compliance, premiums and other costs of policies of
insurance, if any, against liabilities arising out of the public offering of
the Registrable Securities being registered, and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and
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commissions, transfer taxes, if any, and the fees and disbursements of any
counsel and accountants retained by the holder or holders of the Registrable
Securities being registered.
SECURITIES ACT: The U.S. Securities Act of 1933, as amended, or any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Act shall include a
reference to the comparable section, if any, of any such similar or successor
federal statute.
SUBSCRIPTION AGREEMENT: As defined in the paragraph of this Agreement
entitled "Background."
STOCKHOLDERS: As defined in the introductory paragraph of this Agreement.
WARRANTS: As defined in the paragraph of this Agreement entitled
"Background."
2. Registration under Securities Act
2.1. (a) REGISTRATION ON REQUEST. Upon the written request of ASC or
the holder or holders of thirty percent (30%) or more of the Registrable
Securities that the Company effect the registration under the Securities Act
in connection with a sale of such shares in the United States of all or part
of such holders, Registrable Securities and specifying the intended method of
disposition thereof (including whether or not such disposition is intended to
be effected as an underwritten offering), the Company will promptly give
written notice of such requested registration to all other holders of
Registrable Securities and thereupon the Company will use its best efforts to
effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by the holder or holders submitting the request, and
(ii) all other Registrable Securities which the Company has
been requested to register by the holder or holders thereof by written
request given to the Company within fifteen (15) days after the giving of
such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities), all to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be
registered.
(b) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this Section 2.1 involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy
to each holder of Registrable Securities requesting registration) that, in
its opinion, the number of Registrable Securities and other securities of the
Company held by any other party requested to be included in such registration
exceeds the number which can be sold in (or during the time of) such offering
within a price range acceptable to the holders of a majority (by number of
shares) of the Registrable Securities requested to be included in such
registration, the Company will include in such registration all Registrable
Securities requested to be included in such registration (unless the
provisions of the following sentence apply) and will include in such
registration other securities of the Company (including any securities
proposed to be issued and sold by the Company) held by any other party only
to the extent that the number of shares which the Company is advised can be
so sold in (or during the time of) such offering exceeds the number of
Registrable Securities to be included in such registration. If a requested
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registration pursuant to this Section 2.1 involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy
to each holder of Registrable Securities requesting registration) that, in
its opinion, the number of Registrable Securities requested to be included in
such registration exceeds the number which can be sold in (or during the time
of) such offering within a price range acceptable to the holders of a
majority (by number of shares) of the Registrable Securities requested to be
included in such registration, the Company will include in such registration
only Registrable Securities requested to be included in such registration. In
such event, such Registrable Securities will be included in such registration
only to the extent of the number of shares which the Company is advised an be
so sold in (or during the time of) such offering; the Registrable Securities
to be included in such registration shall be taken up pro rata from the
holders of Registrable Securities requesting such registration on the basis
of the percentage of Registrable Securities requested to be included in such
registration; and all shares proposed to be sold by the Company or any other
party shall be deleted from such registration prior to effecting any
reduction of Registrable Securities by the holders thereof under this
paragraph (b).
(c) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission (i) for
which the Company qualifies, and which the Company's counsel (after
consultation with counsel or counsels for the holders of the Registrable
Securities) deems appropriate, and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods
of disposition specified in the request for such registration. The Company
agrees to include in any such registration statement all information as to
the holders of the Registrable Securities to be registered which the holders
of the Registrable Securities being registered shall reasonably request or
which shall be required by applicable law.
(d) EXPENSES. Except as provided in paragraph (g) of this Section
2.1, the Company will pay all Registration Expenses incurred in connection
with any registration requested pursuant to this Section 2.1 which the
Company is obligated to effect, whether or not such registration is effected.
(e) EFFECTED REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected unless
a registration statement with respect thereto has become effective except:
(i) if the registration statement is withdrawn prior to its effectiveness
pursuant to the request of all of the holders of Registrable Securities who
have requested the inclusion in such registration statement of some or all of
their Registrable Securities and one or more of the holders of Registrable
Securities have not paid the Registration Expenses relating thereto in
accordance with paragraph (g) of this Section 2.1, (ii) if, after the
registration statement has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason, and such
stop order, injunction or other order or requirement results from any action
or inaction of a holder or holders of Registrable Securities, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
due to a failure by a holder of Registrable Securities to satisfy a condition
required to be satisfied by such holder pursuant to the purchase agreement or
underwriting agreement and one or more of the holders of Registrable
Securities have not paid the Registration Expenses relating thereto in
accordance with paragraph (g) of this Section 2.1.
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(f) SELECTION OF UNDERWRITER. If a requested registration pursuant
to this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be, selected by the holders of a majority of the
Registrable Securities to be so registered, which approval shall not be
unreasonably withheld.
(g) LIMITATION ON REGISTRATIONS. The Company's obligations under
this Section 2.1 shall be limited to effecting two (2) registrations within
the meaning of paragraph (e) of this Section 2.1; provided, however, that (i)
if all of the holders who have requested the inclusion of Registrable
Securities held by them in a registration requested under this Section 2.1
withdraw such request prior to the time the registration statement has become
effective and any or all of such persons pay all Registration Expenses
relating thereto, such proposed registration shall not count as one of the
registrations provided for by this Section 2.1; and (ii) if a registration is
deemed to be effected pursuant to paragraph (e) of this Section 2.1 because a
condition to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration is not satisfied
due to a failure by a holder of Registrable Securities to satisfy a condition
required to be satisfied by such holder pursuant to such agreement and one or
more of the holders of Registrable Securities elects to pay (and shall
actually have paid) all Registration Expenses relating thereto, such
registration shall not count as one of the registrations provided for by this
Section 2.1.
(h) COMPANY'S RIGHT TO DELAY REGISTRATION. Notwithstanding the
foregoing provisions of this Section 2.1, the Company shall not be obligated
to effect a registration pursuant to this Section 2.1 within a period of one
(1) year after the effective date of a registration statement previously
filed as a result of a request pursuant to this Section 2.1. In addition, if
the Company has issued and sold to the public, pursuant to a registration
statement filed under the Securities Act, any of its securities within three
(3) months prior to the date of its receipt of a request for registration
pursuant to this Section 2.1 and the Company's investment banker has advised
the Company in writing that the registration of Registrable Securities would
materially adversely affect the market for the Common Stock, the Company
shall have the right, which may not be exercised more than once in a twelve
month period, to delay the requested registration of Registrable Securities
for such period as the investment banker may so advise, but no more than one
hundred twenty (120) days after the date on which such request was made.
(i) REGISTRATION UPON OPTIONAL REDEMPTION. In the event that in
connection with any optional redemption of Preferred Stock, the Company files
a registration statement covering the sale of the Common Stock issuable upon
the conversion of the Preferred Stock by the holders thereof, the provisions
of this Agreement governing requested registrations shall apply to such
registration.
(j) LIMITATION ON SALES. Notwithstanding the foregoing provisions
of this Section 2.1, no Registrable Securities may be sold pursuant to a
registration requested under this Section 2.1 until nine months after the
date of this Agreement.
2.2. INCIDENTAL REGISTRATION.
(a) RIGHT TO INCIDENTAL REGISTRATION. If the Company at any time
proposes to register any of its securities under the Securities Act (other
than by a registration on Form S-8 or Form S-4 or any successor or similar
form and other than pursuant to Section 2.1 of this Agreement),
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whether or not for sale for its own account, it will each such time give
prompt written notice to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.2. Upon
the written request of any such holder made within fifteen (15) days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method
of disposition thereof), the Company will use its best efforts to effect the
registration under the Securities Act in connection with a sale of such
shares in the United States of all Registrable Securities which the Company
has been so requested to register by the holders of Registrable Securities,
to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason, after consultation with the holders
of Registrable Securities which have requested inclusion in such
registration, not to register or to delay such registration, the Company may,
at its election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not
to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation
to pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1 above, and (ii) in the case of a determination
to delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration pon request under
Section 2.1 above. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested
pursuant to this Section 2.2.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If (i) a registration
pursuant to this Section 2.2 involves an underwritten offering of the
securities so being registered, whether or not for sale for the account of
the Company, and (ii) the managing underwriter of such underwritten offering
shall inform the Company and the holders of the Registrable Securities
requesting such registration by letter of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering, then (A) in the
case of an offering for the account of the Company, registration for the
Registrable Securities shall be cut back such that (i) no holder of
Registrable Securities shall be entitled to participate in such underwritten
public offering unless all shares of Common Stock proposed to be sold by the
Company for its own account have been included in such underwritten public
offering, and (ii) after the Company has included its own shares of Common
Stock, the holders of Registrable Securities and the holders of other
securities as to which the Company has granted registration rights ("Other
Registrable Securities"), including incidental registration rights, shall be
entitled to include their Registrable Securities and Other Registrable
Securities in an amount up to the amount that such managing underwriter or
underwriters advise may be included therein (allocated among the holders of
Registrable Securities and the holders of other Registrable Securities pro
rata on the basis of the number of securities requested to be included
therein by each such holder) and (B) in the case of an offering that was
commenced as a result of the exercise of demand registration rights by
Persons other than Stockholders, the Persons commencing such registration and
the holders of Registrable Securities shall be entitled to include their
Registrable Securities and Other Registrable securities in an amount up to
the amount such managing underwriters or underwriters advise may be included
therein (allocated
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among the persons commencing such registration and the holders of Registrable
Securities pro rate on the basis of the number of securities requested to be
so included therein by each such person or holder). If, however, the
registration was initiated by the Company within one hundred twenty (120)
days of a requested registration and is in lieu thereof, then the Company
shall include in the registration all Registrable Securities requested to be
included in such registration and shall decrease the number of securities
proposed to be sold by the Company and to be included in such registration to
the extent necessary to reduce the number of securities to be included in the
registration to the level recommended by the managing underwriter.
2.3. REGISTRATION PROCEDURES. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2.1 or 2.2 above, the Company
will, as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than seventy-five (75) days after the end of the period within which
requests for registration may be given to the Company (ninety (90) days in
the case of requests for registration made during the last quarter of a
fiscal year or the first fifteen (15) days of the first quarter of any
fiscal year) or such longer period as the Company shall in good faith
require to produce the financial statements required in connection with
such registration) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best efforts
to cause such registration statement to become effective, provided that the
Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
2.2(a) above, its securities which are Registrable Securities) at any time
prior to the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in such registration statement but
in no event for a period which would exceed one hundred twenty (120) days
from the date on which the registration statement became effective;
(iii) furnish to each seller of Registrable Securities
covered by such registration statement such number of conformed copies of
such registration statement and of each amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions in the United States as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long
as such
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registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by
such seller, except that the Company shall not for any such purpose be
required to either qualify generally to do business as a foreign
corporation, or subject itself to taxation or to general service of process
in any jurisdiction wherein it would not, but for the requirements of this
clause (iv), be obligated to be so qualified or subject to taxation or
service of process, other than as to matters and transactions related to
such registration or qualification;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other United States governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a copy
of each of the following, if any, addressed to the underwriters:
(A) an opinion of counsel for the Company, dated the effective
date of. such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement) reasonably satisfactory in
form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities and, in the case of the accountants'
letter, such other financial matters, and, in the case of the legal
opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(vii) (A) notify each seller of Registrable Securities covered by
such registration statement, their counsel and the managing underwriters,
if any, promptly, and (if requested in writing by any such Person), confirm
such notice in writing: (1) when a registration statement or any amendment
thereto has been filed, and, with respect to a registration statement or
any post-effective amendment, when the same has become effective, (2) of
any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to a registration statement or
related prospectus or for additional information, (3) of the issuance by
the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated by this Section 2 cease to be true and correct, (5) of the
receipt by the
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Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, and (6) of the happening of any event
that makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes to such registration statement, prospectus or
documents so that, in the case of the registration statement, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading, and that in the case of the prospectus,
it will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and (B)at the request of any such seller promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary (and a post-effective
amendment to such registration statement as may be necessary in connection
therewith) so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(viii) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction;
(ix) If requested by the managing underwriters, if any, or the
Holders of a majority in interest of the Registrable Securities being sold
in connection with an underwritten offering, promptly include in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, and such Holders may reasonably request in
order to permit the intended method of distribution of such securities and
make all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received such request;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, a historical earnings statement
covering the period of at least twelve (12) months, but not more than
eighteen (18) months, beginning with the first month of the first full
fiscal quarter after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11 (a) of
the Securities Act, and will furnish to each such seller at least five
business days prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not file
any thereof to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules or
regulations thereunder;
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(xi) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(xii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange or
trading system on which any of the Common Stock is then listed;
(xiii) Cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall be in a form eligible for
deposit with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters, if any, or holders may request in writing at least
two (2) business days prior to any sale of Registrable Securities;
(xiv) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of any registration statement at
the earliest possible moment; and
(xv) Cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of the
NASD).
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in clause (vii) (3) or (6) of this Section 2.3, such holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by clause (vii) of this Section 2.3 and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file Copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
2.4. UNDERWRITTEN OFFERINGS. (a) COOPERATION; UNDERWRITING AGREEMENTS.
If requested by the underwriters for any underwritten offering by holders of
Registrable Securities pursuant to a registration requested under Section 2.1
above, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section
2.6 below. The holders of the Registrable Securities will
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reasonably cooperate with the Company in the negotiation of the underwriting
agreement, provided that nothing herein contained shall diminish the
foregoing obligations of the Company. The holders of Registrable Securities
to be distributed by such underwriters shall be parties to such underwriting
agreement and any necessary or appropriate custody agreements and execute
appropriate powers of attorney, and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any
time proposes to register any of its securities under the Securities Act, as
contemplated by Section 2.2 above, and such securities are to be distributed
by or through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in said Section 2.2 and subject
to the provisions of Section 2.2(b), arrange for such underwriters to include
all the Registrable Securities to be offered and sold by such holder among
the securities to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be
parties to the underwriting agreement between the Company and such
underwriters and any necessary or appropriate custody agreements and execute
appropriate powers of attorney, and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
2.5. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, the
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders, and such underwriters, respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
2.6. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the event
of any registration of any securities of the Company under the Securities
Act, the Company will, and
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hereby does, indemnify and hold harmless the seller of any Registrable
Securities covered by such registration statement, its directors and
officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or underwriter
or controlling Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company will reimburse such
seller and each such director, officer, underwriter and controlling Person
for any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to theCompany through an instrument duly executed by such seller
specifically stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within
the meaning of the Securities Act, in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give a
copy of the final prospectus, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect, regardless of any investigation made
by or on behalf of such seller or any such director, officer, underwriter or
controlling Person and shall survive the transfer of such securities by such
seller and the termination or expiration of this Agreement.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as
a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.3 above, that the Company shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such securities, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subparagraph (a) of this section 2.6)
the Company, each director of the Company, each officer of the Company and
each other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in. reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for
use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect,
12
regardless of any investigation made by or on behalf of the Company or any
such director, officer or controlling Person and shall survive the transfer
of such securities by such seller and the termination or expiration of this
Agreement. The obligations of any seller under this subparagraph (b) shall
be limited to the net proceeds to such seller of the Registrable Securities
sold pursuant to the registration statement to which the loss, claim, damage,
judgment, expense or liability relates.
(c) CONTRIBUTION. If the indemnification provided for in
subparagraphs (a) and (b) above for any reason is held by a court of
competent jurisdiction to be unavailable to an indemnified party in respect
of any losses, claims, damages, judgments, expenses or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, judgments, expenses or liabilities in such proportion as is
appropriate to reflect the relative fault, if any, of the Company and the
other selling holders in connection with the statements or omissions which
resulted in such losses, claims, damages, expenses or liabilities, as well as
any other relevant equitable considerations. The relative fault of the
Company and the selling holders shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the selling holders and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the holders, and
the underwriters agree that it would not be just and equitable if
contribution pursuant to this subparagraph (c) were determined by pro rata or
per capita allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding sentence. The obligations of any seller under this subparagraph
(c) are several, not joint, and shall be limited to an amount equal to the
net proceeds to such seller of Registrable Securities sold pursuant to the
registration statement to which the loss, claim, damage, judgment expense or
liability relates. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) NOTICES OF CLAIMS AND PROCEDURES. Promptly after receipt by
an indemnified Person of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subparagraphs of
this Section 2.6, such indemnified Person will, if a claim in respect thereof
is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action, provided that the failure of any
indemnified Person to give notice as provided herein shall not relieve the
indemnifying party of his, her or its obligations under the preceding
subparagraphs of this Section 2.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified Person, unless in such indemnified
Person's reasonable judgment a conflict of interest between such indemnified
Person and such indemnifying party may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified Person, and after notice from the indemnifying party to such
indemnified Person of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified Person for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the consent of
13
the indemnified Person, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified Person of a release from all
liability in respect to such claim or litigation and otherwise in form and
substance reasonably satisfactory to the indemnified Person.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.6 shall be made by prompt payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) NOT EXCLUSIVE. The indemnification and contribution
provisions of Section 2.6 are in addition to any other rights to
indemnification or contribution that an indemnified party may have under law
or contract.
2.7. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not
effect or permit to occur any combination or subdivision of shares which
would materially adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in any registration of its
securities contemplated by this Section 2 or the marketability of such
Registrable Securities under any such registration.
3. RULES 144 AND 144A. The Company will file the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder (or, if the Company is
not required to file such reports, the Company will, upon the request of any
holder of Registrable Securities, make publicly available other information)
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rules
144 and 144A under the Securities Act, as such Rules may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
4. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act,
of the holder or holders of eighty percent (80%) or more of the Registrable
Securities at the time outstanding. Each holder of Registrable Securities at
the time or thereafter outstanding shall be bound by a consent authorized by
this Section 4.
5. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at his, her or its election, be treated as the
holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
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6. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing, and shall be deemed to have been delivered on
the date delivered by hand, telegram, facsimile or by similar means, on the
third (3rd) day following the day when sent by recognized courier or
overnight delivery service (fees prepaid), or on the fifth (5th) day
following the day when deposited in the mail, registered or certified
(postage prepaid), addressed (a) if to Stockholders, to the attention of each
Person at the address set forth on Exhibit 3 of the Subscription Agreement
(ASC has the same address as Adam Smith Investment Partners, L.P.), in the
stock records of the Company or such address, or to the attention of such
other Person or Persons, as a Stockholder shall have furnished to the Company
in writing, or (b) if to the Company, Isonics Corporation, 5906 McIntyre
Street, Golden, Colorado 80403, Attention: President, fax: (303) 279-7300,
with a copy to Herrick K. Lidstone, Jr., Esq., Norton-Lidstone, LLC, 5445 DTC
Parkway, Suite 850, Englewood, Colorado 80111, fax: (303) 221-5553, or such
other address, or to the attention of such other Person or Persons, as the
Company shall have furnished to each holder of Registrable Securities at the
time outstanding; provided, however, that any such communication to the
Company may also, at the option of Stockholders, be delivered to any officer
of the Company.
7. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are
for the benefit of Stockholders shall also be for the benefit of and
enforceable by any subsequent holder of any Registrable Securities who has
executed a copy of this Agreement or otherwise indicated its agreement to be
bound hereby, subject to the provisions respecting the minimum numbers or
percentages of shares of Registrable Securities required in order to be
entitled to certain rights or take certain actions contained herein. The
Company acknowledges that ASC or any Stockholder may, at any time, transfer
any of the Registrable Securities which they may own, beneficially or of
record, to (a) their Affiliates, or (b) their partner(s), investor(s),
security holder(s) or beneficial holder(s) pursuant to their organization
documents or other agreements, and that, upon the consummation of any such
transfer, the provisions of this Agreement shall be binding upon and inure to
the benefit of each transferee of such Registrable Securities.
8. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
9. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York, U.S.A., without regard to principles of conflicts
of laws.
10. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
11. TERMINATION. This Agreement shall terminate only upon unanimous
written consent of the Company and the Stockholders.
15
12. OTHER REGISTRATION RIGHTS. The Company shall not at any time grant
registration rights to any holder of shares of the Company's capital stock
(other than the rights granted to the Stockholders under this Agreement)
which are equal to or more favorable to such holders than the rights set
forth in this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement, or have caused this Agreement to be executed and delivered by
their respective duly authorized officers, on the date first above written.
ISONICS CORPORATION
By:
-----------------------------
ADAM SMITH & COMPANY, INC.
By:
-----------------------------
ADAM SMITH INVESTMENT PARTNERS, L.P.
By: Adam Smith Capital Management, L.L.C.
By:
-----------------------------
Name:
Title:
ADAM SMITH INVESTMENTS, LTD.
By:
-----------------------------
Name:
Title:
ANFEL TRADING LTD.
--------------------------------
17
--------------------------------
Adolph Grossman
ADAM-CEDLINDEN CO. GENERAL PARTNERSHIP
II
--------------------------------
ADAM-THE FISHER FUND GENERAL PARTNERSHIP
II
--------------------------------
FAIRWAY INVESTORS LLC
--------------------------------
FBE FINVEST LLC
--------------------------------
--------------------------------
James Kardon
18
--------------------------------
Paul Packer
--------------------------------
Orin Hirschman
--------------------------------
Richard Grossman
--------------------------------
Herschel P. Berkowitz
19