Exhibit 10.4

 

Execution Copy

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as
of June 13, 2008, by and between ISONICS CORPORATION, a California corporation
with its principal place of business located at 5906 McIntyre Street, Golden, CO
80403 (the “Company”), and the undersigned subsidiaries of the Company (each a
“Guarantor,” and collectively together with the Company, the “Grantors”), in
favor YA GLOBAL INVESTMENTS, L.P. (the “Secured Party”).

 

WHEREAS, in connection with the Securities Purchase Agreement by and among the
Company and the Secured Party of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue to the Secured Party
(i) an aggregate original principal amount of $1,175,000 of notes (the “Notes”);
and (ii) warrants (the “Warrants”) to be exercisable to acquire shares of the
Company’s common stock, no par value per share (the “Common Stock”) initially in
that number of shares of Common Stock set forth in the Securities Purchase
Agreement;

 

WHEREAS, each of the Guarantors (other than the Company) has executed and
delivered a Guaranty dated the date hereof (the “Guaranty”) in favor of the
Secured Party, with respect to the Company’s obligations under the Securities
Purchase Agreement, the Notes, and the Transaction Documents (as defined below);
and

 

WHEREAS, each of the Guarantors shall receive a direct benefit from the Secured
Party entering into the Securities Purchase Agreement, the Notes, and the
Transaction Documents; and

 

WHEREAS, it is a condition precedent to the Secured Party purchasing the Notes
and Warrants pursuant to the Securities Purchase Agreement that the Grantors
shall have executed and delivered to the Secured Party this Agreement providing
for the grant to the Secured Party of a security interest in all personal
property of each Grantor to secure all of the Company’s obligations under the
“Transaction Documents” (as defined in the Securities Purchase Agreement) (the
“Transaction Documents”) and the Guarantors’ obligations under the Guaranty;

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants herein
contained, and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:

 

ARTICLE 1.

 

DEFINITIONS AND INTERPRETATIONS

 

Section 1.1.            Recitals.  The above recitals are true and correct and
are incorporated herein, in their entirety, by this reference.

 

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Section 1.2.            Interpretations. Nothing herein expressed or implied is
intended or shall be construed to confer upon any person other than the Secured
Party any right, remedy or claim under or by reason hereof.

 

Section 1.3.            Definitions.   Reference is hereby made to the
Securities Purchase Agreement and the Convertible Debentures for a statement of
the terms thereof.  All capitalized terms used in this Agreement and the
recitals hereto and not defined herein shall have the meanings set forth in the
Securities Purchase Agreement, the Convertible Debentures, or in Articles 8 or 9
of the Uniform Commercial Code as in effect from time to time in the State of
New Jersey (the “Code”).

 

Section 1.4.            Other Definitions.  As used in this Agreement, the
following terms shall have the respective meanings indicated below, such
meanings to be applicable equally to both the singular and plural forms of such
terms:

 

“Event of Default” shall be deemed to have occurred under this Agreement upon
the failure by the Company to perform, observe, or comply with any of the
covenants, agreements, terms or conditions set forth herein or the occurrance
of an Event of Default under and as defined in the Convertible Debentures.

 

ARTICLE 2.

 

PLEDGED PROPERTY

 

SECTION 2.1.            GRANT OF SECURITY INTEREST.

 

(A)           AS COLLATERAL SECURITY FOR ALL OF THE OBLIGATIONS (AS DEFINED IN
SECTION 2.2 HEREOF), EACH GRANTOR HEREBY PLEDGES AND ASSIGNS TO THE SECURED
PARTY, AND GRANTS TO THE SECURED PARTY FOR ITS BENEFIT, A CONTINUING SECURITY
INTEREST IN AND TO ALL PERSONAL PROPERTY OF EACH GRANTOR, WHEREVER LOCATED AND
WHETHER NOW OR HEREINAFTER EXISTING AND WHETHER NOW OWNED OR HEREAFTER ACQUIRED,
OF EVERY KIND AND DESCRIPTION, TANGIBLE OR INTANGIBLE, INCLUDING WITHOUT
LIMITATION, ALL GOODS, INVENTORY, EQUIPMENT, FIXTURES, INSTRUMENTS (INCLUDING
PROMISSORY NOTES), DOCUMENTS, ACCOUNTS (INCLUDING HEALTH-CARE-INSURANCE
RECEIVABLES, AND LICENSE FEES), CONTRACTS, CONTRACT RIGHTS, CHATTEL PAPER
(WHETHER TANGIBLE OR ELECTRONIC), DEPOSIT ACCOUNTS (AND IN AND TO ANY DEPOSITS
OR OTHER SUMS AT ANY TIME CREDITED TO EACH SUCH DEPOSIT ACCOUNT), MONEY, LETTERS
OF CREDIT AND LETTER-OF-CREDIT RIGHTS (WHETHER OR NOT THE LETTER OF CREDIT IS
EVIDENCED BY A WRITING), COMMERCIAL TORT CLAIMS, SECURITIES AND ALL OTHER
INVESTMENT PROPERTY, GENERAL INTANGIBLES (INCLUDING PAYMENT INTANGIBLES AND
SOFTWARE), FARM PRODUCTS, ALL BOOKS AND RECORDS RELATING TO ANY OF THE
FOREGOING, AND ALL SUPPORTING OBLIGATIONS, AND ANY AND ALL PROCEEDS AND PRODUCTS
OF ANY THEREOF, INCLUDING PROCEEDS OF INSURANCE COVERING ANY OR ALL OF THE
FOREGOING, WHEREVER LOCATED, WHETHER NOW OWNED, OR NOW DUE, IN WHICH A GRANTOR
HAS AN INTEREST OR THE POWER TO TRANSFER RIGHTS, OR HEREAFTER ACQUIRED, ARISING,
OR TO BECOME DUE, OR IN WHICH A GRANTOR OBTAINS AN INTEREST, OR THE POWER TO
TRANSFER RIGHTS, AND AS MORE PARTICULARLY DESCRIBED ON EXHIBIT A ATTACHED HERETO
(COLLECTIVELY, THE PLEDGED PROPERTY).

 

(B)           SIMULTANEOUSLY WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH GRANTOR SHALL MAKE, EXECUTE, ACKNOWLEDGE, FILE, RECORD AND DELIVER TO THE
SECURED

 

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PARTY SUCH DOCUMENTS, INSTRUMENTS, AND AGREEMENTS, INCLUDING, WITHOUT
LIMITATION, FINANCING STATEMENTS, CERTIFICATES, AFFIDAVITS AND FORMS AS MAY, IN
THE SECURED PARTY’S REASONABLE JUDGMENT, BE NECESSARY TO EFFECTUATE, COMPLETE OR
PERFECT, OR TO CONTINUE AND PRESERVE, THE SECURITY INTEREST OF THE SECURED PARTY
IN THE PLEDGED PROPERTY.

 

SECTION 2.2             SECURITY FOR OBLIGATIONS.  THE SECURITY INTEREST CREATED
HEREBY IN THE PLEDGED PROPERTY CONSTITUTES CONTINUING COLLATERAL SECURITY FOR
ALL OF THE FOLLOWING OBLIGATIONS, WHETHER NOW EXISTING OR HEREINAFTER INCURRED
(COLLECTIVELY, THE “OBLIGATIONS”):

 

(A)  (I) THE PAYMENT BY THE COMPANY, AS AND WHEN DUE AND PAYABLE (BY SCHEDULED
MATURITY, ACCELERATION, DEMAND OR OTHERWISE), OF ALL AMOUNTS FROM TIME TO TIME
OWING BY IT IN RESPECT OF THE CONVERTIBLE DEBENTURES, THE OTHER TRANSACTION
DOCUMENTS, OR ANY OTHER AMOUNTS OWING BY IT TO THE SECURED PARTY, WHETHER OR NOT
NOW IN EXISTENCE OR HEREINAFTER INCURRED, OR (II) IN THE CASE OF ANY GUARANTOR,
THE PAYMENT BY SUCH GUARANTOR, AS AND WHEN DUE AND PAYABLE OF ALL “GUARANTEED
OBLIGATIONS” UNDER (AND AS DEFINED IN) THE GUARANTY; AND

 

(B)  THE DUE PERFORMANCE AND OBSERVANCE BY THE EACH GRANTOR OF ALL OF ITS OTHER
OBLIGATIONS FROM TIME TO TIME EXISTING IN RESPECT OF ANY OF THE TRANSACTION
DOCUMENTS, INCLUDING WITHOUT LIMITATION, WITH RESPECT TO ANY CONVERSION OR
REDEMPTION RIGHTS OF THE SECURED PARTY UNDER THE CONVERTIBLE DEBENTURES.

 

ARTICLE 3.

 

ATTORNEY-IN-FACT; PERFORMANCE

 

SECTION 3.1.            SECURED PARTY APPOINTED ATTORNEY-IN-FACT.

 

The Grantors hereby appoint the Secured Party as its attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, exercisable after and during the continuance of an Event of
Default, from time to time in the Secured Party’s discretion to take any action
and to execute any instrument which the Secured Party may reasonably deem
necessary to accomplish the purposes of this Agreement, including, without
limitation, to (a) receive and collect all instruments made payable to the
Grantor representing any payments in respect of the Pledged Property or any part
thereof and to give full discharge for the same; (b) demand, collect, receipt
for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged
Property as and when the Secured Party may determine, and (c) to facilitate
collection, the Secured Party may notify account debtors and obligors on any
Pledged Property to make payments directly to the Secured Party.  The foregoing
power of attorney is a power coupled with an interest and shall be irrevocable
until all Obligations are paid and performed in full.  The Grantors agree that
the powers conferred on the Secured Party hereunder are solely to protect the
Secured Party’s interests in the Pledged Property and shall not impose any duty
upon the Secured Party to exercise any such powers.

 

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SECTION 3.2.                                   SECURED PARTY MAY PERFORM.

 

If a Grantor fails to perform any agreement contained herein, the Secured Party,
at its option, may itself perform, or cause performance of, such agreement, and
the expenses of the Secured Party incurred in connection therewith shall be
included in the Obligations secured hereby and payable by such Grantor under
Section 8.3.

 

ARTICLE 4.

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.1.                                   AUTHORIZATION; ENFORCEABILITY.

 

Each of the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery, this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.

 

SECTION 4.2.                                   OWNERSHIP OF PLEDGED PROPERTY.

 

Each Grantor represents and warrants that it is the legal and beneficial owner
of the Pledged Property free and clear of any lien, security interest, option or
other charge or encumbrance (each, a “Lien”) except for the security interest
created by this Agreement and other Permitted Liens.  For purposes of this
Agreement, “Permitted Liens” means: (1) the security interest created by this
Agreement, (2) existing Liens which have been disclosed by the Company to the
Secured Party on Schedule 4.2 attached hereto; (3) inchoate Liens for taxes,
assessments or governmental charges or levies not yet due, as to which the grace
period, if any, related thereto has not yet expired, or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (4) Liens of carriers, materialmen,
warehousemen, mechanics and landlords and other similar Liens which secure
amounts which are not yet overdue or which are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; (5) licenses, sublicenses, leases or subleases granted to
other Persons not materially interfering with the conduct of the business of the
Company; (6) Liens securing capitalized lease obligations and purchase money
indebtedness incurred solely for the purpose of financing an acquisition or
lease; (7) easements, rights-of-way, restrictions, encroachments, municipal
zoning ordinances and other similar charges or encumbrances, and minor title
deficiencies, in each case not securing debt and not materially interfering with
the conduct of the business of the Company and not materially detracting from
the value of the property subject thereto; (8) Liens arising out of the
existence of judgments or awards which judgments or awards do not constitute an
Event of Default; (9) Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment insurance, pension
liabilities and social security benefits and Liens securing the performance of
bids, tenders, leases and contracts in the ordinary course of business,
statutory obligations, surety bonds, performance bonds and other obligations of

 

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a like nature (other than appeal bonds) incurred in the ordinary course of
business (exclusive of obligations in respect of the payment for borrowed
money); (10) Liens in favor of a banking institution arising by operation of law
encumbering deposits (including the right of set-off) and contractual set-off
rights held by such banking institution and which are within the general
parameters customary in the banking industry and only burdening deposit accounts
or other funds maintained with a creditor depository institution; (11) usual and
customary set-off rights in leases and other contracts; and (12) escrows in
connection with acquisitions and dispositions.

 

Section 4.3                                      Location of Pledged Property.

 

The Pledged Property is or will be kept at the address(es) of each Grantor set
forth on the signature pages hereof, or such other locations as the Grantors
have given the Secured Party written notice prior to the date hereof, and,
unless otherwise provided herein, the Grantors will not remove any Pledged
Property from such locations without the prior written consent of the Secured
Party which consent shall not be unreasonably withheld.

 

Section 4.4                                      Location, State of
Incorporation and Name of Grantors.

 

Each Grantor’s principal place of business, state of organization, organization
identification number, and exact legal name is as set forth on each such
Grantor’s signature page to this Agreement.

 

Section 4.5                                      Priority of Security Interest.

 

The security interest granted to the Secured Party hereunder shall be a first
priority security interest subject to no other Liens.  Except for the Permitted
Liens, no financing statement covering any of the Pledged Property or any
proceeds thereof is on file in any public office.

 

ARTICLE 5.

 

DEFAULT; REMEDIES

 

SECTION 5.1                                      METHOD OF REALIZING UPON THE
PLEDGED PROPERTY: OTHER REMEDIES.

 

If any Event of Default shall have occurred and be continuing:

 

(a)                                  The Secured Party may exercise in respect
of the Pledged Property, in addition to any other rights and remedies provided
for herein or otherwise available to it, all of the rights and remedies of a
secured party upon default under the Code (whether or not the Code applies to
the affected Pledged Property), and also may (i) take absolute control of the
Pledged Property, including, without limitation, transfer into the Secured
Party’s name or into the name of its nominee or nominees (to the extent the
Secured Party has not theretofore done so) and thereafter receive, for the
benefit of the Secured Party, all payments made thereon, give all consents,
waivers and ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof,

 

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(ii) require each Grantor to assemble all or part of the Pledged Property as
directed by the Secured Party and make it available to the Secured Party at a
place or places to be designated by the Secured Party that is reasonably
convenient to both parties, and the Secured Party may enter into and occupy any
premises owned or leased by a Grantor where the Pledged Property or any part
thereof is located or assembled for a reasonable period in order to effectuate
the Secured Party’s rights and remedies hereunder or under law, without
obligation to the Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to prepare or
process the Pledged Property for sale, (A) sell the Pledged Property or any part
thereof in one or more parcels at public or private sale, at any of the Secured
Party’s offices or elsewhere, for cash, on credit or for future delivery, and at
such price or prices and upon such other terms as the Secured Party may deem
commercially reasonable and/or (B) lease, license or dispose of the Pledged
Property or any part thereof upon such terms as the Secured Party may deem
commercially reasonable.  Each Grantor agrees that, to the extent notice of sale
or any other disposition of the Pledged Property shall be required by law, at
least ten (10) days’ notice to the Grantor of the time and place of any public
sale or the time after which any private sale or other disposition of the
Pledged Property is to be made shall constitute reasonable notification.  The
Secured Party shall not be obligated to make any sale or other disposition of
any Pledged Property regardless of notice of sale having been given.  The
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. 
Each Grantor hereby waives any claims against the Secured Party arising by
reason of the fact that the price at which the Pledged Property may have been
sold at a private sale was less than the price which might have been obtained at
a public sale or was less than the aggregate amount of the Obligations, even if
the Secured Party accepts the first offer received and does not offer such
Pledged Property to more than one offeree, and waives all rights that the
Grantor may have to require that all or any part of such Pledged Property be
marshaled upon any sale (public or private) thereof.  Each Grantor hereby
acknowledges that (i) any such sale of the Pledged Property by the Secured Party
may be made without warranty, (ii) the Secured Party may specifically disclaim
any warranties of title, possession, quiet enjoyment or the like, and (iii) such
actions set forth in clauses (i) and (ii) above shall not adversely affect the
commercial reasonableness of any such sale of Pledged Property.

 

(b)                                 Any cash held by the Secured Party as
Pledged Property and all cash proceeds received by the Secured Party in respect
of any sale of or collection from, or other realization upon, all or any part of
the Pledged Property shall be applied (after payment of any amounts payable to
the Secured Party pursuant to Section 8.3 hereof) by the Secured Party against,
all or any part of the Obligations in such order as the Secured Party shall
elect, consistent with the provisions of the Securities Purchase Agreement.  Any
surplus of such cash or cash proceeds held by the Secured Party and remaining
after the indefeasible payment in full in cash of all of the Obligations shall
be paid over to whomsoever shall be lawfully entitled to receive the same or as
a court of competent jurisdiction shall direct.

 

(c)                                  In the event that the proceeds of any such
sale, collection or realization are insufficient to pay all amounts to which the
Secured Party is legally entitled, each

 

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Grantor shall be liable for the deficiency, together with interest thereon at
the rate specified in the Convertible Debentures for interest on overdue
principal thereof or such other rate as shall be fixed by applicable law,
together with the costs of collection and the reasonable fees, costs, expenses
and other client charges of any attorneys employed by the Secured Party to
collect such deficiency.

 

(d)                                 Each Grantor hereby acknowledges that if the
Secured Party complies with any applicable state, provincial, or federal law
requirements in connection with a disposition of the Pledged Property, such
compliance will not adversely affect the commercial reasonableness of any sale
or other disposition of the Pledged Property.

 

(e)                                  The Secured Party shall not be required to
marshal any present or future collateral security (including, but not limited
to, this Agreement and the Pledged Property) for, or other assurances of payment
of, the Obligations or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of the Secured
Party’s rights hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights,
however existing or arising.  To the extent that the Grantor lawfully may, each
Grantor hereby agrees that it will not invoke any law relating to the marshaling
of collateral which might cause delay in or impede the enforcement of the
Secured Party’s rights under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such laws.

 

SECTION 5.2                                      DUTIES REGARDING PLEDGED
PROPERTY.

 

The Secured Party shall have no duty as to the collection or protection of the
Pledged Property or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody and reasonable care of any of the
Pledged Property actually in the Secured Party’s possession.

 

ARTICLE 6.

 

AFFIRMATIVE COVENANTS

 

So long as any of the Obligations shall remain outstanding, unless the Secured
Party shall otherwise consent in writing:

 

SECTION 6.1.                                   EXISTENCE, PROPERTIES, ETC.

 

(A)                                  EACH GRANTOR SHALL DO, OR CAUSE TO BE DONE,
ALL THINGS, OR PROCEED WITH DUE DILIGENCE WITH ANY ACTIONS OR COURSES OF ACTION,
THAT MAY BE REASONABLY NECESSARY (I) TO MAINTAIN GRANTOR’S DUE ORGANIZATION,
VALID EXISTENCE AND GOOD STANDING UNDER THE LAWS OF ITS STATE OF INCORPORATION,
AND (II) TO PRESERVE AND KEEP IN FULL FORCE AND EFFECT ALL QUALIFICATIONS,
LICENSES AND REGISTRATIONS IN THOSE JURISDICTIONS IN WHICH THE FAILURE TO DO SO
COULD HAVE A MATERIAL ADVERSE EFFECT (AS DEFINED BELOW); AND (B) EACH GRANTOR
SHALL NOT DO, OR CAUSE TO BE DONE, ANY ACT IMPAIRING THE GRANTOR’S CORPORATE

 

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POWER OR AUTHORITY (I) TO CARRY ON THE GRANTOR’S BUSINESS AS NOW CONDUCTED, AND
(II) TO EXECUTE OR DELIVER THIS AGREEMENT OR ANY OTHER DOCUMENT DELIVERED IN
CONNECTION HEREWITH, INCLUDING, WITHOUT LIMITATION, ANY UCC-1 FINANCING
STATEMENTS REQUIRED BY THE SECURED PARTY (WHICH OTHER LOAN INSTRUMENTS
COLLECTIVELY SHALL BE REFERRED TO AS THE “LOAN INSTRUMENTS”) TO WHICH IT IS OR
WILL BE A PARTY, OR PERFORM ANY OF ITS OBLIGATIONS HEREUNDER OR THEREUNDER.  FOR
PURPOSE OF THIS AGREEMENT, THE TERM “MATERIAL ADVERSE EFFECT” SHALL MEAN ANY
MATERIAL AND ADVERSE AFFECT AS DETERMINED BY SECURED PARTY IN ITS REASONABLE
DISCRETION, WHETHER INDIVIDUALLY OR IN THE AGGREGATE, UPON (A) THE GRANTOR’S
ASSETS, BUSINESS, OPERATIONS, PROPERTIES OR CONDITION, FINANCIAL OR OTHERWISE;
(B) THE GRANTOR’S ABILITY TO MAKE PAYMENT AS AND WHEN DUE OF ALL OR ANY PART OF
THE OBLIGATIONS; OR (C) THE PLEDGED PROPERTY.

 

SECTION 6.2.                                   FINANCIAL STATEMENTS AND REPORTS.

 

Each Grantor shall furnish to the Secured Party within a reasonable time such
financial data as the Secured Party may reasonably request.

 

SECTION 6.3.                                   ACCOUNTS AND REPORTS.

 

Each Grantor shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied (“GAAP”) and
provide, at its sole expense, to the Secured Party the following:

 

(A)                                  AS SOON AS AVAILABLE, A COPY OF ANY NOTICE
OR OTHER COMMUNICATION ALLEGING ANY NONPAYMENT OR OTHER MATERIAL BREACH OR
DEFAULT, OR ANY FORECLOSURE OR OTHER ACTION RESPECTING ANY MATERIAL PORTION OF
ITS ASSETS AND PROPERTIES, RECEIVED RESPECTING ANY OF THE INDEBTEDNESS OF THE
GRANTOR IN EXCESS OF $250,000 (OTHER THAN THE OBLIGATIONS), OR ANY DEMAND OR
OTHER REQUEST FOR PAYMENT UNDER ANY GUARANTY, ASSUMPTION, PURCHASE AGREEMENT OR
SIMILAR AGREEMENT OR ARRANGEMENT RESPECTING THE INDEBTEDNESS OR OBLIGATIONS OF
OTHERS IN EXCESS OF $250,000; AND

 

(B)                                 WITHIN FIFTEEN (15) DAYS AFTER THE MAKING OF
EACH SUBMISSION OR FILING, A COPY OF ANY REPORT, FINANCIAL STATEMENT, NOTICE OR
OTHER DOCUMENT, WHETHER PERIODIC OR OTHERWISE, SUBMITTED TO THE SHAREHOLDERS OF
THE GRANTOR, OR SUBMITTED TO OR FILED BY THE GRANTOR WITH ANY GOVERNMENTAL
AUTHORITY INVOLVING OR AFFECTING (I) THE GRANTOR THAT COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT; (II) THE OBLIGATIONS; (III) ANY PART
OF THE PLEDGED PROPERTY; OR (IV) ANY OF THE TRANSACTIONS CONTEMPLATED IN THIS
AGREEMENT OR THE LOAN INSTRUMENTS (EXCEPT, IN EACH CASE, TO THE EXTENT ANY SUCH
SUBMISSION, FILING, REPORT, FINANCIAL STATEMENT, NOTICE OR OTHER DOCUMENT IS
POSTED ON EDGAR ONLINE).

 

SECTION 6.4.                                   MAINTENANCE OF BOOKS AND RECORDS;
INSPECTION.

 

Each Grantor shall maintain its books, accounts and records in accordance with
GAAP, and permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time during
normal business hours and upon reasonable notice to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan

 

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Instruments), corporate books and financial records, and to discuss its
accounts, affairs and finances with any employee, officer or director thereof
(it being agreed that, unless an Event of Default shall have occurred and be
continuing, there shall be no more than two (2) such visits and inspections in
any Fiscal Year).

 

SECTION 6.5.                                   MAINTENANCE AND INSURANCE.

 

(A)                                  EACH GRANTOR SHALL MAINTAIN OR CAUSE TO BE
MAINTAINED, AT ITS OWN EXPENSE, ALL OF ITS MATERIAL ASSETS AND PROPERTIES IN
GOOD WORKING ORDER AND CONDITION, ORDINARY WEAR AND TEAR EXCEPTED, MAKING ALL
NECESSARY REPAIRS THERETO AND RENEWALS AND REPLACEMENTS THEREOF.

 

(B)                                 EACH GRANTOR SHALL MAINTAIN OR CAUSE TO BE
MAINTAINED, AT ITS OWN EXPENSE, INSURANCE IN FORM, SUBSTANCE AND AMOUNTS
(INCLUDING DEDUCTIBLES), WHICH THE GRANTOR DEEMS REASONABLY NECESSARY TO THE
COMPANY’S BUSINESS, (I) ADEQUATE TO INSURE ALL ASSETS AND PROPERTIES OF THE
GRANTOR OF A CHARACTER USUALLY INSURED BY PERSONS ENGAGED IN THE SAME OR SIMILAR
BUSINESS AGAINST LOSS OR DAMAGE RESULTING FROM FIRE OR OTHER RISKS INCLUDED IN
AN EXTENDED COVERAGE POLICY; (II) AGAINST PUBLIC LIABILITY AND OTHER TORT CLAIMS
THAT MAY BE INCURRED BY THE GRANTOR; (III) AS MAY BE REQUIRED BY THE TRANSACTION
DOCUMENTS AND/OR APPLICABLE LAW AND (IV) AS MAY BE REASONABLY REQUESTED BY
SECURED PARTY, ALL WITH FINANCIALLY SOUND AND REPUTABLE INSURERS.

 

SECTION 6.6.                                   CONTRACTS AND OTHER COLLATERAL.

 

Each Grantor shall perform all of its obligations under or with respect to each
instrument, receivable, contract and other intangible included in the Pledged
Property to which the Grantor is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement, except to the extent the failure to so perform such obligations would
not reasonably be expected to have a Material Adverse Effect.

 

SECTION 6.7.                                   DEFENSE OF COLLATERAL, ETC.

 

Each Grantor shall defend and enforce its right, title and interest in and to
any part of:  (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss would reasonably be
expected to have a Material Adverse Effect, each against all manner of claims
and demands on a timely basis to the full extent permitted by applicable law
(other than any such claims and demands by holders of Permitted Liens).

 

SECTION 6.8.                                   TAXES AND ASSESSMENTS.

 

Each Grantor shall (a) file all material tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency (taking into account any extensions of the original due date),
(b) pay and discharge all material taxes, assessments and governmental charges
or levies imposed upon the Grantor, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and (c) pay all material taxes, assessments and

 

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governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that the Grantor in good faith
may contest any such tax, assessment, governmental charge or levy described in
the foregoing clauses (b) and (c) so long as appropriate reserves are maintained
with respect thereto if and to the extent required by GAAP.

 

SECTION 6.9.                                   COMPLIANCE WITH LAW AND OTHER
AGREEMENTS.

 

Each Grantor shall maintain its business operations and property owned or used
in connection therewith in compliance with (a) all applicable federal, state and
local laws, regulations and ordinances governing such business operations and
the use and ownership of such property, and (b) all agreements, licenses,
franchises, indentures and mortgages to which the Grantor is a party or by which
the Grantor or any of its properties is bound, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.

 

SECTION 6.10.                             NOTICE OF DEFAULT.

 

The Grantors will immediately notify the Secured Party of any event causing a
substantial loss or diminution in the value of all or any material part of the
Pledged Property and the amount or an estimate of the amount of such loss or
diminution. The Grantors shall promptly notify the Secured Party of any
condition or event which constitutes, or would constitute with the passage of
time or giving of notice or both, an Event of Default, and promptly inform the
Secured Party of any events or changes in the financial condition of any Grantor
occurring since the date of the last financial statement of such Grantor
delivered to the Secured Party, which individually or cumulatively when viewed
in light of prior financial statements, which might reasonably be expected to
have a Material Adverse Effect on the business operations or financial condition
of the Grantor.

 

SECTION 6.11.                             NOTICE OF LITIGATION.

 

Each Grantor shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$250,000, instituted by any persons against the Grantor, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Grantor on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Grantor.

 

Section 6.13.                             Future Subsidiaries.

 

If any Grantor shall hereafter create or acquire any subsidiary, simultaneously
with the creation or acquisition of such subsidiary, such Grantor shall cause
such subsidiary to become a party to this Agreement as an additional “Grantor”
hereunder, and to duly execute and deliver a guaranty of the Obligations in
favor of the Secured Party in form and substance reasonably acceptable to the
Secured Party, and to duly execute and/or deliver such opinions of counsel and
other documents, in form and substance

 

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reasonably acceptable to the Secured Party, as the Secured Party shall
reasonably request with respect thereto.

 

Section 6.14.                             Changes to Identity.

 

Each Grantor will (a) give the Secured Party at least 30 days’ prior written
notice of any change in such Grantor’s name, identity or organizational
structure, (b) maintain its jurisdiction of incorporation, organization or
formation as set forth on its respective signature page attached hereto,
(C) immediately notify the Secured Party upon obtaining an organizational
identification number, if on the date hereof such Grantor did not have such
identification number.

 

Section 6.15.                             Establishment of Deposit Account,
Dominion Account Agreements; Control.

 

Within ten (10) days of the date hereof, each Grantor, the Secured Party, and
each applicable bank or other depository institution shall enter into a deposit
account agreement (“Deposit Account Agreement”) in the form of Exhibit B with
respect to each of the Grantor’s Deposit Accounts, including, without
limitation, all savings, passbook, money market or other depository accounts,
and all certificates of deposit, maintained by each Company with any bank,
savings and loan association, credit union or other depository institution
maintained or used by each Grantor providing dominion and control over such
accounts to the Secured Party such that upon notice by the Secured Party to such
bank or other depository institution of the occurrence of an Event of Default
all actions under such account shall be taken solely at the Secured Party’s
direction.  Each Grantor’s current Deposit Accounts are set forth on Schedule
6.14 attached hereto.

 

Each Grantor shall cause all cash, all collections and proceeds from accounts
receivable, all receipts from credit card payments, and all proceeds from the
sale of any Pledged Property to be deposited only into its Deposit Accounts in
the ordinary course of business and consistent with past practices.

 

Each Grantor shall have valid and effective Deposit Account Agreements in place
at all times with respect to all of its Deposit Accounts.  No Deposit Account
shall be established, used or maintained by the Company unless it first enters
into a Deposit Account Agreement.

 

With respect to each Deposit Account, from and after the occurrence of an Event
of Default, the Secured Party shall have the right, at any time and from time to
time, to exercise its rights under such Deposit Account Agreement, including,
for the avoidance of any doubt, the exclusive right to give instructions to the
financial institution at which such Deposit Account is maintained as to the
disposition of funds or other property on deposit therein or credited thereto. 
The Secured Party hereby covenants and agrees that it will not send any such
notice to a financial institution at which any such Deposit Account is
maintained directing the disposition of funds or other property therein unless
and until the occurrence of an Event of Default.

 

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In connection with the foregoing, each Grantor hereby authorizes and directs
each bank or other depository institution which maintains any Deposit Account to
pay or deliver to the Secured Party upon the Secured Party’s written demand
thereof made at any time after the occurrence of an Event of Default has
occurred all balances in each Deposit Account with such depository for
application to the Obligations then outstanding.

 

Section 6.16                                Perfection of Security Interests.

 

(a)                                  Financing Statements.   The Grantors hereby
irrevocably authorize the Secured Party, at the sole cost and expense of the
Grantors, at any time and from time to time to file in any filing office in any
jurisdiction any initial financing statements and amendments thereto that
(a) indicate the Pledged Property (i) as all assets of Grantors or words of
similar effect, regardless of whether any particular asset comprised in the
Pledged Property falls within the scope of Article 9 of the Code of such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by Part 5 of Article 9 of
the Code for the sufficiency or filing office acceptance of any financing
statement or amendment, including (i) whether such Grantor is an organization,
the type of organization and any organization identification number issued to
such Grantor, and (ii) in the case of a financing statement filed as a fixture
filing, a sufficient description of real property to which the Pledged Property
relates.  Grantors agree to furnish any such information to the Secured Party
promptly upon request.  Grantors also ratify their authorization for the Secured
Party to have filed in any jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof. The Grantors acknowledge
that they are not authorized to file any financing statement or amendment or
termination statement with respect to any financing statement without the prior
written consent of the Secured Party and agree that they will not do so without
the prior written consent of the Secured Party.  The Grantors acknowledge and
agree that this Agreement constitutes an authenticated record.

 

(b)                                 Possession.   The Grantors (i) shall have
possession of the Pledged Property, except where expressly otherwise provided in
this Agreement or where the Secured Party chooses to perfect its security
interest by possession in addition to the filing of a financing statement; and
(ii) will, where Pledged Property is in the possession of a third party, join
with the Secured Party in notifying the third party of the Secured Party’s
security interest and obtaining an acknowledgment from the third party that it
is holding the Pledged Property for the benefit of the Secured Party.

 

(c)                                  Control.   In addition to the provisions
set forth in Section 6.15 above, the Grantors will cooperate with the Secured
Party in obtaining control with respect to the Pledged Property consisting of
(i) Investment Property, (ii) Letters of Credit and Letter-of-Credit Rights and
(iii) electronic Chattel Paper.

 

(d)                                 Chattel Paper.   Marking of Chattel Paper.
The Grantors will not create any Chattel Paper without placing a legend on the
Chattel Paper acceptable to the Secured Party indicating that the Secured Party
has a security interest in the Chattel Paper.

 

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Section 6.17                                Notice of Commercial Tort Claims. If
any Grantor shall at any time acquire a Commercial Tort Claim, such Grantor
shall immediately notify the Secured Party in a writing signed by such Grantor
which shall (a) provide brief details of said claim and (b) grant to the Secured
Party a security interest in said claim and in the proceeds thereof, all upon
the terms of this Agreement, in such form and substance satisfactory to the
Secured Party.

 

ARTICLE 7.

 

NEGATIVE COVENANTS

 

So long as any of the Obligations shall remain outstanding, unless the Secured
Party shall otherwise consent in writing each Grantor covenants and agrees that
it shall not:

 

Section 7.1.                                   Transfers, Liens and
Encumbrances.

 

(A)                                  SELL, ASSIGN (BY OPERATION OF LAW OR
OTHERWISE), LEASE, LICENSE, EXCHANGE OR OTHERWISE TRANSFER OR DISPOSE OF ANY OF
THE PLEDGED PROPERTY, EXCEPT GRANTOR MAY (I) SELL OR DISPOSE OF INVENTORY IN THE
ORDINARY COURSE OF BUSINESS, AND (II) SELL OR DISPOSE OF ASSETS THE GRANTOR  HAS
DETERMINED, IN GOOD FAITH, NOT TO BE USEFUL IN THE CONDUCT OF ITS BUSINESS, AND
(III) SELL OR DISPOSE OF ACCOUNTS IN THE COURSE OF COLLECTION IN THE ORDINARY
COURSE OF BUSINESS CONSISTENT WITH PAST PRACTICE.

 

(B)                                 DIRECTLY OR INDIRECTLY MAKE, CREATE, INCUR,
ASSUME OR PERMIT TO EXIST ANY LIEN IN, TO OR AGAINST ANY PART OF THE PLEDGED
PROPERTY OTHER THAN PERMITTED LIENS.

 

Section 7.2.                                   Restriction on Redemption and
Cash Dividends

 

Directly or indirectly, redeem, repurchase or declare or pay any cash dividend
or distribution on its capital stock without the prior express written consent
of the Secured Party.

 

Section 7.3.                                   Incurrence of Indebtedness.

 

Directly or indirectly, incur or guarantee, assume or suffer to exist any
indebtedness, other than the indebtedness evidenced by the Convertible
Debentures and other Permitted Indebtedness.  “Permitted Indebtedness” means:
(i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
described on the Disclosure Schedule to the Securities Purchase Agreement;
(iii) indebtedness incurred solely for the purpose of financing the acquisition
or lease of any equipment by the Company, including capital lease obligations
with no recourse other than to such equipment; (iv) indebtedness (A) the
repayment of which has been subordinated to the payment of the Convertible
Debentures on terms and conditions acceptable to the Secured Party, including
with regard to interest payments and repayment of principal, (B) which does not
mature or otherwise require or permit redemption or repayment prior to or on the
91st day after the maturity date of any Convertible Debentures then outstanding;
and (C) which is not secured by any assets of the Company; (v) indebtedness
solely between the

 

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Grantor and/or one of its domestic subsidiaries, on the one hand, and the
Grantor and/or one of its domestic subsidiaries, on the other which indebtedness
is not secured by any assets of the Grantor or any of its subsidiaries, provided
that (x) in each case a majority of the equity of any such domestic subsidiary
is directly or indirectly owned by the Grantor, such domestic subsidiary is
controlled by the Grantor and such domestic subsidiary has executed a security
agreement in the form of this Agreement and (y) any such loan shall be evidenced
by an intercompany note that is pledged by the Grantor or its subsidiary, as
applicable, as collateral pursuant to this Agreement; (vi) reimbursement
obligations in respect of letters of credit issued for the account of the
Grantor or any of its subsidiaries for the purpose of securing performance
obligations of the Grantor or its subsidiaries incurred in the ordinary course
of business so long as the aggregate face amount of all such letters of credit
does not exceed $500,000 at any one time; and (vii) renewals, extensions and
refinancing of any indebtedness described in clauses (i) or (iii) of this
subsection.

 

Section 7.4.                                   Places of Business.

 

Change the location of its chief place of business, chief executive office or
any place of business disclosed to the Secured Party, unless such change in
location is to a different location within the United States and the Grantor
provides notice to the Secured Party of new location within 10 days’ of such
change in location.

 

ARTICLE 8.

 

MISCELLANEOUS

 

Section 8.1.                                   Notices.

 

All notices or other communications required or permitted to be given pursuant
to this Agreement shall be in writing and shall be considered as duly given on: 
(a) the date of delivery, if delivered in person or by nationally recognized
overnight delivery service or (b) five (5) days after mailing if mailed from
within the continental United States by certified mail, return receipt requested
to the party entitled to receive the same:

 

If to the Secured Party:

 

YA Global Investments, L.P.

 

 

101 Hudson Street-Suite 3700

 

 

Jersey City, New Jersey 07302

 

 

Attention:

Mark Angelo

 

 

 

Portfolio Manager

 

 

Telephone:

(201) 986-8300

 

 

Facsimile:

(201) 985-8266

 

 

 

With a copy to:

 

David Gonzalez, Esq.

 

 

101 Hudson Street, Suite 3700

 

 

Jersey City, NJ 07302

 

 

Telephone:

(201) 985-8300

 

 

Facsimile:

(201) 985-8266

 

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If to the Company:

 

Isonics Corporation

 

 

5906 McIntyre Street

 

 

Golden, CO 80403

 

 

Attention: Chief Executive Officer

 

 

Telephone:

(303) 279-7900

 

 

Facsimile:

(303) 279-7300

 

 

 

With a copy to:

 

Burns, Figa & Will, P.C.

 

 

Suite 1000, 6400 South Fiddlers Green Circle

 

 

Greenwood Village, CO 80112

 

 

Attention: Herrick K. Lidstone, Jr., Esq.

 

 

Telephone:

(303) 796-2626

 

 

Facsimile:

(303) 796-2777

 

 

 

If to any other Grantor

 

To the address listed on the respective signature pages attached hereto

 

Any party may change its address by giving notice to the other party stating its
new address.  Commencing on the tenth (10th) day after the giving of such
notice, such newly designated address shall be such party’s address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.

 

Section 8.2.                                   Severability.

 

If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.

 

Section 8.3.                                   Expenses.

 

In the event of an Event of Default, the Company will pay to the Secured Party
the amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its counsel, which the Secured Party may incur
in connection with:  (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Grantor to perform or observe any of the provisions hereof.

 

Section 8.4.                                   Waivers, Amendments, Etc.

 

The Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Grantor of any undertakings, agreements or covenants shall
not waive, affect, or diminish any right of the Secured Party under this
Agreement to demand strict

 

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compliance and performance herewith.  Any waiver by the Secured Party of any
Event of Default shall not waive or affect any other Event of Default, whether
such Event of Default is prior or subsequent thereto and whether of the same or
a different type.  None of the undertakings, agreements and covenants of the
Grantor contained in this Agreement, and no Event of Default, shall be deemed to
have been waived by the Secured Party, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Secured Party in the case of any such waiver,
and signed by the Secured Party and the Grantor in the case of any such
amendment, change or modification.  Further, no such document, instrument,
and/or agreement purported to be executed on behalf of the Secured Party shall
be binding upon the Secured Party unless executed by a duly authorized
representative of the Secured Party.

 

Section 8.5.                                   Continuing Security Interest.

 

This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect so long as any of the
Obligations shall remain outstanding; (ii) be binding upon each Grantor and its
successors and assigns; and (iii) inure to the benefit of the Secured Party and
its successors and assigns.  Upon the payment or satisfaction in full of the
Obligations, this Agreement and the security interest created hereby shall
terminate, and, in connection therewith, each Grantor shall be entitled to the
return, at its expense, of such of the Pledged Property as shall not have been
sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the
terms hereof and the Secured Party shall deliver to the Grantor such documents
as the Grantor shall reasonably request to evidence such termination.

 

Section 8.6.                                   Independent Representation.

 

Each party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the substance of this Agreement.

 

Section 8.7.                                   Applicable Law:  Jurisdiction.

 

This Agreement shall be governed by and interpreted in accordance with the laws
of the State of New Jersey without regard to the principles of conflict of
laws.  The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph, provided, however, that nothing herein shall prevent the Secured
Party from enforcing its rights and remedies (including, without limitation, by
filing a civil action) with respect to the Pledged Property and/or the Grantors
in any other jurisdiction in which the Pledged Property and/or the Grantors may
be located.

 

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Section 8.8.                                   Waiver of Jury Trial.

 

AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND
TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

 

Section 8.9                                      Right of Set Off.

 

The Grantors each hereby grant to the Secured Party, a lien, security interest
and right of setoff as security for all liabilities and obligations to the
Secured Party, whether now existing or hereafter arising, upon and against all
deposits, credits, collateral and property, now or hereafter in the possession,
custody, safekeeping or control of the Secured Party or any of its affiliates,
or any entity under the control of the Secured Party, or in transit to any of
them. At any time, without demand or notice, the Secured Party may set off the
same or any part thereof and apply the same to any liability or obligation of
the Grantors even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE THE SECURED
PARTY TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GRANTORS, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

Section 8.10                                Entire Agreement.

 

This Agreement constitutes the entire agreement among the parties and supersedes
any prior agreement or understanding among them with respect to the subject
matter hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of the date first above written.

 

 

 

COMPANY:

 

Isonics Corporation

 

 

 

By:

 

 

Name:

Gregory A. Meadows

 

Title:

Vice President/Assistant Secretary

 

 

 

 

 

Jurisdiction of Incorporation, Organization or

 

Formation: California

 

 

 

Organizational ID:

 

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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of the date first above written.

 

 

 

GUARANTOR:

 

Isonics Vancouver, Inc.

 

 

 

By:

 

 

Name:

Gregory A. Meadows

 

Title:

Vice President

 

 

 

 

 

Isonics Corporation

 

5906 McIntyre Street

 

Golden, CO 80403

 

Attention: Chief Executive Officer

 

Telephone:

(303) 279-7900

 

Facsimile:

(303) 279-7300

 

 

 

 

 

Jurisdiction of Incorporation, Organization or

 

Formation: Washington

 

Organizational ID:

 

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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of the date first above written.

 

 

 

GUARANTOR:

 

Protection Plus Security Corporation

 

 

 

By:

 

 

Name:  Chris Toffales

 

Title:    President

 

 

 

 

 

Address For Notices:

 

Isonics Corporation

 

5906 McIntyre Street

 

Golden, CO 80403

 

Attention: Chief Executive Officer

 

Telephone:

(303) 279-7900

 

Facsimile:

(303) 279-7300

 

 

 

 

 

Jurisdiction of Incorporation, Organization or

 

Formation: New York

 

 

 

Organizational ID:

 

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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of the date first above written.

 

 

 

GUARANTOR:

 

Isonics Homeland Security and Defense

 

Corporation

 

 

 

By:

 

 

Name:

Gregory A. Meadows

 

Title:

Vice President

 

 

 

 

 

Address For Notices:

 

Isonics Corporation

 

5906 McIntyre Street

 

Golden, CO 80403

 

Attention: Chief Executive Officer

 

Telephone:

(303) 279-7900

 

Facsimile:

(303) 279-7300

 

 

 

 

 

Jurisdiction of Incorporation, Organization or

 

Formation: Delaware

 

 

 

Organizational ID:

 

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EXHIBIT A

DEFINITION OF PLEDGED PROPERTY

 

For the purpose of securing prompt and complete payment and performance by the
Grantor of all of the Obligations, the Grantors each unconditionally and
irrevocably hereby grant to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of each Grantor (all
capitalized terms used herein shall have the respective meanings ascribed
thereto in the Code):

 

All personal property of each Grantor, wherever located and whether now or
hereinafter existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible, including without limitation, all:

 

1.                                       Goods;

 

2.                                       Inventory, including, without
limitation, all goods, merchandise and other personal property now owned or
hereafter acquired by the Grantor which are held for sale or lease, or are
furnished or to be furnished under any contract of service or are raw materials,
work-in-process, supplies or materials used or consumed in the Grantor’s
business, and all products thereof, and all substitutions. replacements,
additions or accessions therefor and thereto; and any cash or non-cash Proceeds
of all of the foregoing;

 

3.                                       Equipment, including, without
limitation, all machinery, equipment, furniture, parts, tools and dies, of every
kind and description, of the Grantor (including automotive equipment and motor
vehicles), now owned or hereafter acquired by the Grantor, and used or acquired
for use in the business of the Grantor, together with all accessions thereto and
all substitutions and replacements thereof and parts therefor and all cash or
non-cash Proceeds of the foregoing;

 

4.                                       Fixtures, including, without
limitation, all goods which are so related to particular real estate that an
interest in them arises under real estate law and all accessions thereto,
replacements thereof and substitutions therefor, including, but not limited to,
plumbing, heating and lighting apparatus, mantels, floor coverings, furniture,
furnishings, draperies, screens, storm windows and doors, awnings, shrubbery,
plants, boilers, tanks, machinery, stoves, gas and electric ranges, wall
cabinets, appliances, furnaces, dynamos, motors, elevators and elevator
machinery, radiators, blinds and all laundry, refrigerating, gas, electric,
ventilating, air-refrigerating, air-conditioning, incinerating and sprinkling
and other fire prevention or extinguishing equipment of whatsoever kind and
nature and any replacements, accessions and additions thereto, Proceeds thereof
and substitutions therefor;

 

5.                                       Instruments (including promissory
notes);

 

6.                                       Documents;

 

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7.                                       Accounts, including, without
limitation, all Contract Rights and accounts receivable, health-care-insurance
receivables, and license fees; any other obligations or indebtedness owed to the
Grantor from whatever source arising; all rights of Grantor to receive any
payments in money or kind; all guarantees of Accounts and security therefor; all
cash or non-cash Proceeds of all of the foregoing; all of the right, title and
interest of Grantor in and with respect to the goods, services or other property
which gave rise to or which secure any of the accounts and insurance policies
and proceeds relating thereto, and all of the rights of the Grantor as an unpaid
seller of goods or services, including, without limitation the rights of
stoppage in transit, replevin, reclamation and resale and all of the foregoing,
whether now existing or hereafter created or acquired;

 

8.                                       Contracts and Contract Rights,
including, to the extent not included in the definition of Accounts, all rights
to payment or performance under a contract not yet earned by performance and not
evidenced by an Instrument or Chattel Paper;

 

9.                                       Chattel Paper (whether tangible or
electronic);

 

10.                                 Deposit Accounts (and in and to any deposits
or other sums at any time credited to each such Deposit Account);

 

11.                                 Money, cash and cash equivalents;

 

12.                                 Letters of Credit and Letter-of-Credit
Rights (whether or not the Letter of Credit is evidenced by a writing);

 

13.                                 Commercial Tort Claims;

 

14.                                 Securities Accounts, Security Entitlements,
Securities, Financial Assets and all other Investment Property, including,
without limitation, all ownership or membership interests in any subsidiaries or
affiliates (whether or not controlled by the Grantor);

 

15.                                 General Intangibles, including, without
limitation, all payment intangibles, tax refunds and other claims of the Grantor
against any governmental authority, and all choses in action, insurance
proceeds, goodwill, patents, copyrights, trademarks, tradenames, customer lists,
formulae, trade secrets, licenses, permits, franchises, designs, computer
software, research and literary rights now owned or hereafter acquired;

 

16.                                 Farm Products;

 

17.                                 All books and records (including all ledger
sheets, files, computer programs, tapes and related data processing software)
evidencing an interest in or relating to any of the foregoing;

 

18.                                 To the extent not already included above,
all supporting obligations, and any and all cash and non-cash Proceeds,
products, accessions, and/or replacements of any of the foregoing, including
proceeds of insurance covering any or all of the foregoing.

 

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EXHIBIT B

 

FORM OF DEPOSIT ACCOUNT AGREEMENT

 

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DISCLOSURE SCHEDULE

 

Schedule 4.2 – Existing Liens

 

Liens to Cornell Capital Partners, L.P., now known as YA Global Investments,
L.P.

 

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