Isonics Corporation (ISON)

[diy_investor]

E-P Viewpoint of Dispute with Isonics.

First, thanks Chronos for the sponsorship.

Here is a link to the E-P Holdings 10-Q. In it, you can read the E-P side of the dispute. Apparently, E-P was the first to initiate binding arbitration. From reading the statements, I get the impression that E-P can produce and deliver Si-28, however, it seems reluctant to do so due to the DZ issue. Any other reads on this?

http://www.sec.gov/Archives/edgar/data/1059568/000095015201503240/l89399ae10-q.txt

On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the
depleted zinc distribution business (the "DZ Business") of Isonics Corporation
("Isonics") for approximately $8.2 million, payable $6.7 million at closing and
$1.5 million in three installments of $500,000 each payable on the first three
anniversaries of the closing. At the time of the acquisition, a single customer
represented approximately 55% of the DZ Business. Following the completion of
the acquisition, this customer informed EPT that it would no longer be
purchasing depleted zinc from an outside supplier. EPT initiated binding
arbitration against Isonics on March 26, 2001 with the American Arbitration
Association in Dallas, Texas pursuant to contractual dispute resolution
procedures. EPT'S arbitration demand is based on breach of representations and
warranties in the purchase and sale agreement for the DZ Business as well as
fraud and negligent misrepresentation, and seeks to recover damages in excess of
$10 million and other remedies. While the company believes it has a meritorious
claim against Isonics, there can be no assurance that the company will obtain
any recovery as a result of this claim.

In connection with the sale of the DZ Business, EPT agreed to sell 200 kg
of isotopically purified silicon-28 to Isonics. Due to various factors, EPT has
not yet
delivered any silicon-28 to Isonics. Isonics has asserted a counterclaim against
EPT in the DZ Business arbitration described above for failure to deliver
silicon-28, seeking damages in excess of $10 million. EPT believes that any
obligation to deliver silicon-28 has been excused by, among other things, a
force majeure clause in the purchase and sale agreement for the DZ Business.
Contemporaneously with the purchase and sale of the DZ Business, EPT and Isonics
entered into a supply agreement (the "Supply Agreement") pursuant to which EPT
agreed that, commencing upon delivery of 200 kg of silicon-28, EPT would devote
the capacity of a pilot plant used to produce such material to producing
silicon-28 and sell all silicon-28 produced in such pilot plant and meeting
certain specifications, as well as any silicon-29 or silicon-30 actually
produced as a byproduct, to Isonics for a ten year term. Isonics amended its
counterclaim in the DZ Business arbitration to assert a claim that the Supply
Agreement requires EPT to produce a certain amount of silicon-28, silicon-29 and
silicon-30 and alleging damages of not less than $75 million for anticipatory
breach of such alleged obligation. EPT believes that the terms of the Supply
Agreement and applicable law clearly establish that the Supply Agreement does
not impose any obligation to produce any quantity of silicon-28, silicon-29 or
silicon-30 and that Isonics' claims are without merit. Isonics also amended its
counterclaim to allege that EPT's parent company, Eagle-Picher Industries, Inc.
("EPI") is liable for any damages of EPT under an "alter ego" theory, a claim
which EPI and EPT believe is also without merit. EPT and EPI intend to assert
other defenses as well and to defend this counterclaim vigorously. EPT continues
to explore alternative processes that may enable it to produce silicon-28, but
there is no assurance that such efforts will be successful.