QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

        This Securities Purchase Agreement (this "Agreement") is dated as of
February 24, 2005 among Isonics Corporation, a California corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

ARTICLE I.
DEFINITIONS

        1.1    Definitions.    In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Debentures (as defined herein), and
(b) the following terms have the meanings indicated in this Section 1.1:

        "Action" shall have the meaning ascribed to such term in Section 3.1(j).

        "Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

        "Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.

        "Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchasers' obligations to pay the
Subscription Amount and (ii) the Company's obligations to deliver the Securities
have been satisfied or waived.

        "Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading Market
(as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if there is no
such price on such date, then the closing bid price on the Trading Market on the
date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New
York time) for the closing bid price for regular session trading on such day),
or (c) if the Common Stock is not then listed or quoted on a Trading Market and
if prices for the Common Stock are then quoted on the OTC Bulletin Board, the
closing bid price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New
York time), (d) if the Common Stock is not then listed or quoted on the Trading
Market and if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets LLC (formerly the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported, or (e) if the shares of Common Stock are not then publicly traded the
fair market value of a share of Common Stock as determined by a qualified
independent appraiser selected in good faith by the Purchasers of a majority in
interest of the Shares then outstanding.

--------------------------------------------------------------------------------

        "Commission" means the Securities and Exchange Commission.

        "Common Stock" means the common stock of the Company, no par value, and
any securities into which such common stock shall hereinafter have been
reclassified into.

        "Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

        "Company Counsel" means Burns, Figa & Will, P.C., Denver, Colorado and,
for the purposes of California law, Lord, Bissell & Brook, LLP, Los Angeles,
California.

        "Conversion Price" shall have the meaning ascribed to such term in the
Debentures.

        "Debentures" means, the 8% Convertible Debentures issued by the Company
to the Purchasers hereunder, in the form of Exhibit A.

        "Disclosure Schedules" shall have the meaning ascribed to such term in
Section 3.1.

        "Effective Date" means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.

        "Escrow Agent" shall have the meaning set forth in the Escrow Agreement.

        "Escrow Agreement" shall mean the Escrow Agreement in substantially the
form of Exhibit E hereto executed and delivered contemporaneously with this
Agreement.

        "Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) shares of Common Stock
or options to non-employee directors of the Company pursuant to the Company's
Directors Stock Option Plan, (c) shares of Common Stock or options or warrants
to non-employee consultants to the Company as compensation for services
rendered, in an aggregate amount not to exceed 1,000,000 shares or equivalents
for any twelve-month period, (d) securities upon (i) the exercise of or
conversion of any securities issued hereunder, (ii) the exercise or conversion
of any convertible securities, options or warrants issued and outstanding on the
date of this Agreement, or (iii) the application of any anti-dilution provisions
contained in the provisions establishing any securities issued hereunder or that
are outstanding on the date of this Agreement or that are issuable pursuant to
the plans described in clauses (a) or (b) hereof, provided that the material
terms of such issuances in clauses (i)-(iii) are determined on the date hereof
and are not amended after the date of this Agreement to increase the number of
such securities or to decrease the exercise or conversion price of any such
securities, and (e) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in which the Company
anticipates receiving benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.

        "FW" means Feldman Weinstein LLP with offices at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.

2

--------------------------------------------------------------------------------

        "GAAP" shall have the meaning ascribed to such term in Section 3.1(h).

        "Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).

        "Legend Removal Date" shall have the meaning ascribed to such term in
Section 4.1(c).

        "Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

        "Material Adverse Effect" shall have the meaning assigned to such term
in Section 3.1(b).

        "Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).

        "Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.

        "Participation Maximum" shall have the meaning ascribed to such term in
Section 4.13.

        "Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

        "Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.

        "Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

        "Purchaser Party" shall have the meaning ascribed to such term in
Section 4.11.

        "Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit B attached hereto.

        "Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Registrable Securities (as defined in the Registration Rights
Agreement) by each Purchaser as provided for in the Registration Rights
Agreement.

        "Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).

        "Required Minimum" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants and Debentures (including
Underlying Shares issuable as payment of interest), ignoring any conversion or
exercise limits set forth therein, and assuming that the Conversion Price is at
all times on and after the date of determination 75% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.

        "Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

        "SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).

        "Securities" means the Debentures, the Warrants, the Warrant Shares and
the Underlying Shares.

        "Securities Act" means the Securities Act of 1933, as amended.

        "Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Trading Market (or any successor entity)
from the shareholders of the Company with respect to the transactions
contemplated by the Transaction Documents, including the

3

--------------------------------------------------------------------------------

issuance of all of the Underlying Shares and shares of Common Stock issuable
upon exercise of the Warrants in excess of 19.99% of the issued and outstanding
Common Stock on the Closing Date.

        "Short Sales" shall include all "short sales" as defined in Rule 3b-3 of
the Exchange Act.

        "Subscription Amount" means, as to each Purchaser, the aggregate amount
to be paid for Debentures and Warrants purchased hereunder as specified below
such Purchaser's name on the signature page of this Agreement and next to the
heading "Subscription Amount", in United States Dollars and in immediately
available funds.

        "Subsequent Financing" shall have the meaning ascribed to such term in
Section 4.13.

        "Subsequent Financing Notice" shall have the meaning ascribed to such
term in Section 4.13.

        "Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).

        "Trading Day" means a day on which the Common Stock is traded on a
Trading Market

        "Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.

        "Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Escrow Agreement, the Registration Rights Agreement and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

        "Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Debentures.

        "Warrants" means collectively the Common Stock purchase warrants, in the
form of Exhibit C delivered to the Purchasers at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to three years.

        "Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Warrants.

ARTICLE II.
PURCHASE AND SALE

        2.1    Closing.    On the Closing Date, upon the terms and subject to
the conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase in the aggregate, severally and not jointly, up to
$22,000,000 principal amount of the Debentures. Each Purchaser shall deliver
pursuant to Section 2.2(b) via wire transfer or a certified check immediately
available funds equal to their Subscription Amount and the Company shall deliver
their respective Debenture and Warrants as determined pursuant to Section 2.2(a)
and the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of the Escrow Agent, or such other location as the parties shall
mutually agree.

        2.2    Deliveries.    

a)On the Closing Date, the Company shall deliver or cause to be delivered to the
Escrow Agent with respect to each Purchaser the following:

(i)this Agreement duly executed by the Company;

(ii)a Debenture with a principal amount equal to such Purchaser's Subscription
Amount, registered in the name of such Purchaser;

4

--------------------------------------------------------------------------------

(iii)a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 35% of such Purchaser's Subscription
Amount divided by the Conversion Price, with an exercise price equal to $6.25,
subject to adjustment therein;

(iv)the written voting agreement, in the form of Exhibit F attached hereto, of
all of the officers, directors and shareholders holding more than 10% of the
issued and outstanding shares of Common Stock on the date hereof to vote all
Common Stock owned by each of such officers, directors and shareholders as of
the record date for the annual meeting of shareholders of the Company in favor
of Shareholder Approval amounting to, in the aggregate, at least 50% of the
issued and outstanding Common Stock;

(v)the Registration Rights Agreement duly executed by the Company;

(vi)the Escrow Agreement duly executed by the Company; and

(vii)a legal opinion of Company Counsel, in the form of Exhibit D attached
hereto.

b)On the Closing Date, each Purchaser shall deliver or cause to be delivered to
the Escrow Agent the following:

(i)this Agreement duly executed by such Purchaser;

(ii)such Purchaser's Subscription Amount by wire transfer to the account of the
Escrow Agent;

(iii)the Escrow Agreement duly executed by such Purchaser; and

(iv)the Registration Rights Agreement duly executed by such Purchaser.

        2.3    Closing Conditions.    

a)The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed;

(iii)written approval of the transactions contemplated hereunder by the Trading
Market; and

(iv)the delivery by the Purchasers of the items set forth in Section 2.2(b) of
this Agreement.

b)The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

(i)the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

(iii)the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

(iv)there shall have been no Material Adverse Effect with respect to the Company
since the date hereof;

(v)the Company shall have obtained the consent of Asset Managers
International, Ltd. to include the Registrable Securities (as defined in the
Registration Rights Agreement) on the next registration statement to be filed on
behalf of Asset Managers International, Ltd.;

5

--------------------------------------------------------------------------------

(vi)written approval of the transactions contemplated hereunder by the Trading
Market; and

(vii)From the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Debentures at the Closing.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

        3.1    Representations and Warranties of the Company.    Except as set
forth under the corresponding section of the disclosure schedules delivered to
the Purchasers concurrently herewith (the "Disclosure Schedules") which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.

        (a)    Subsidiaries.    All of the direct and indirect subsidiaries of
the Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, the capital stock or other equity interests of each Subsidiary free
and clear of any Liens, and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities.

        (b)    Organization and Qualification.    Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Documents, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Documents (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.    When used in this
Agreement or in the Transaction Documents, the term "Material Adverse Effect"
does not include any effect that may result from the matters disclosed on
Schedule 3.1(b).

        (c)    Authorization; Enforcement.    The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the

6

--------------------------------------------------------------------------------

Transaction Documents and otherwise to carry out its obligations thereunder. The
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Documents has been (or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

        (d)    No Conflicts.    The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
other transactions contemplated thereby do not and will not: (i) conflict with
or violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

        (e)    Filings, Consents and Approvals.    The Company is not required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) filings required pursuant to Section 4.6, (ii) the filing with
the Commission of the Registration Statement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Debentures and Warrants and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby, (iv) the filing of Form D with
the Commission and such filings as are required to be made under applicable
state securities laws and (vi) Shareholder Approval (collectively, the "Required
Approvals").

        (f)    Issuance of the Securities.    The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents and applicable securities
laws. The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company. The number of shares of
Common Stock the Company has reserved from its duly authorized capital stock for
issuance of the Underlying Shares is set forth on Schedule 3.1(f), which shares
shall be fairly apportioned among the Purchasers pro-rata based on their initial
purchases of Debentures hereunder. Each Purchaser shall have the sole and
absolute discretion in determining, within such allocation, whether to receive
Conversion Shares or Warrant Shares.

7

--------------------------------------------------------------------------------

        (g)    Capitalization.    The capitalization of the Company is as
described in the Disclosure Schedules. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.

        (h)    SEC Reports; Financial Statements.    The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

        (i)    Material Changes.    Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.

8

--------------------------------------------------------------------------------

        (j)    Litigation.    There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

        (k)    Labor Relations.    No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.

        (l)    Compliance.    Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any material indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business except in each case as could not have
a Material Adverse Effect. The Company has not taken any action in violation of
applicable law designed to or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.

        (m)    Regulatory Permits.    The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

        (n)    Title to Assets.    The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance.

9

--------------------------------------------------------------------------------

        (o)    Patents and Trademarks.    The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights of others.

        (p)    Insurance.    The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. To the best of Company's knowledge, such insurance
contracts and policies are accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

        (q)    Transactions With Affiliates and Employees.    Except as set
forth in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.

        (r)    Sarbanes-Oxley; Internal Accounting Controls.    The Company is
in material compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of the date prior to the filing date of the
most recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and

10

--------------------------------------------------------------------------------

procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of Regulation S-K
under the Exchange Act) or, to the Company's knowledge, in other factors that
could significantly affect the Company's internal controls.

        (s)    Certain Fees.    No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.

        (t)    Private Placement.    Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

        (u)    Investment Company.    The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.

        (v)    Registration Rights.    No Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company which are subject to registration statements that are effective.

        (w)    Listing and Maintenance Requirements.    The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the
12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

        (x)    Application of Takeover Protections.    The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the Securities.

        (y)    Disclosure.    The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure

11

--------------------------------------------------------------------------------

Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
with respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.

        (z)    No Integrated Offering.    Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated.

        (aa)    Solvency.    Based on the financial condition of the Company as
of the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder,

(i)the Company's fair saleable value of its assets exceeds the amount that will
be required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they mature;

(ii)the Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as proposed to
be conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and

(iii)the current cash flow of the Company, together with its cash on hand and
the proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its debt when such amounts are required
to be paid.

        The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of cash to
be payable on or in respect of its debt). The Company has no knowledge of any
facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. The SEC Reports set forth as
of the dates thereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.

        (bb)    Form S-3 Eligibility.    The Company is eligible to register the
resale of the Underlying Shares for resale by the Purchaser on Form S-3
promulgated under the Securities Act.

12

--------------------------------------------------------------------------------

        (cc)    Tax Status.    Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary federal,
state and foreign income and franchise tax returns and has paid or accrued all
taxes shown as due thereon, and the Company has no knowledge of a tax deficiency
which has been asserted or threatened against the Company or any Subsidiary.

        (dd)    No General Solicitation.    Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities by any
form of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.

        (ee)    Foreign Corrupt Practices.    Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended

        (ff)    Accountants.    The Company's accountants are set forth on
Schedule 3.1(ff) of the Disclosure Schedule. To the Company's knowledge, such
accountants, who the Company expects will express their opinion with respect to
the financial statements to be included in the Company's Annual Report on
Form 10-KSB for the year ending April 30, 2005 are a registered public
accounting firm as required by the Securities Act.

        (gg)    Seniority.    As of the Closing Date, no indebtedness or other
equity of the Company is senior to the Debentures in right of payment, whether
with respect to interest or upon liquidation or dissolution, or otherwise, other
than indebtedness secured by purchase money security interests (which is senior
only as to underlying assets covered thereby) and capital lease obligations
(which is senior only as to the property covered thereby).

        (hh)    No Disagreements with Accountants and Lawyers.    There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers.

        (ii)    Acknowledgment Regarding Purchasers' Purchase of
Securities.    The Company acknowledges and agrees that each of the Purchasers
is acting solely in the capacity of an arm's length purchaser with respect to
the Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

13

--------------------------------------------------------------------------------

        3.2    Representations and Warranties of the Purchasers.    Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as follows:

        (a)    Organization; Authority.    Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each Transaction
Documents to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

        (b)    Own Account.    Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof, has no present intention of
distributing any of such Securities and has no arrangement or understanding with
any other persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such Purchaser
does not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.

        (c)    Purchaser Status.    At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants or converts any Debentures it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a "qualified institutional buyer" as
defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required
to be registered as a broker-dealer under Section 15 of the Exchange Act.

        (d)    Experience of Such Purchaser.    Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

        (e)    General Solicitation.    Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

        (f)    Short Sales.    Other than the transaction contemplated
hereunder, such Purchaser has not directly or indirectly, nor has any Person
acting on behalf of or pursuant to any understanding with such Purchaser,
executed any disposition, including Short Sales (but not including the location
and/or reservation of shares of Common Stock), in the securities of the Company
(including, without limitations, any Short Sales involving the Company's
securities) since the later of (i) 9 P.M.

14

--------------------------------------------------------------------------------

(New York Time) on December 27, 2004 and (ii) time that such Purchaser first
received a term sheet from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder ("Discussion Time").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.

        (g)    No Advice From the Company.    In executing this Agreement and in
completing the transactions contemplated herein and by the other Transaction
Documents, each Purchaser is relying on its own investigation (including the
information set forth herein and in the Disclosure Schedules hereto), and on
advice from its own legal, financial, investment, and accounting advisors, and
is not relying on any advice received from the Company.

        (h)    Completion of Due Diligence.    Each Purchaser has reviewed this
Agreement, the Disclosure Schedules, the SEC Reports, and the Transaction
Documents to the full extent desired by such Purchaser, and has requested and
received and reviewed such other information regarding the Company or its
Subsidiaries (including, without limitation, its or their business, financial
condition, operations, management, and assets) that such Purchaser has
requested.

        The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

        4.1    Transfer Restrictions.    

        (a)   The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.

        (b)   The Purchasers agree to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in substantially the
following form:

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF

15

--------------------------------------------------------------------------------

THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

        (c)   Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such
Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
the Company's transfer agent promptly after the Effective Date if required by
the Company's transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Debenture or Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement to cover
the resale of the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations thereof)
then such Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Underlying Shares, as applicable,
issued with a restrictive legend (such third Trading Day, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section. If no legend is required on the certificates for
Conversion Shares pursuant to this Section 4.1(c), such certificates shall be
transmitted by the transfer agent of the Company to the Purchaser by crediting
the account of the Purchaser's prime broker with the Depository Trust Company
System through the Deposit Withdrawal Agent Commission system if the Company is
a participant in such system, or another established clearing corporation
performing similar functions, provided the Purchaser requests such transmission
and provided that the Purchaser

16

--------------------------------------------------------------------------------

making such request provides the transfer agent with the prime broker account
information necessary to effect such transfer.

        (d)   In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, for each $1,000 of Underlying Shares (based on the Closing Price
of the Common Stock on the date such Securities are submitted to the Company's
transfer agent) delivered for removal of the restrictive legend and subject to
this Section 4.1(d), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day after
the Legend Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser's right to pursue actual damages for
the Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.

        (e)   Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company's reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom.

        (f)    Until the date that each Purchaser holds less than 20% of the
Debentures initially purchased hereunder by such Purchaser, the Company shall
not undertake a reverse or forward stock split or reclassification of the Common
Stock without the prior written consent of the Purchasers holding a majority in
principal amount outstanding of the Debentures.

        4.2    Acknowledgment of Dilution.    The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company. The Company
further understands and acknowledges that (a) one or more Purchasers may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Underlying Shares deliverable with respect to Securities is being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted.

        4.3    Furnishing of Information.    As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

        4.4    Integration.    The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under

17

--------------------------------------------------------------------------------

the Securities Act of the sale of the Securities to the Purchasers or that would
be integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.

        4.5    Conversion and Exercise Procedures.    Section 4.1 of this
Agreement, the form of Notice of Exercise included in the Warrants and the form
of Notice of Conversion included in the Debentures set forth the totality of the
procedures required of the Purchasers in order to exercise the Warrants or
convert the Debentures. No additional legal opinion or other information or
instructions shall be required of the Purchasers to exercise their Warrants or
convert their Debentures. The Company shall honor exercises of the Warrants and
conversions of the Debentures and shall deliver Underlying Shares in accordance
with the terms, conditions and time periods set forth in the Transaction
Documents.

        4.6    Securities Laws Disclosure; Publicity.    The Company shall, by
8:30 a.m. Eastern time on the Trading Day following the date hereof, issue a
Current Report on Form 8-K, reasonably acceptable to each Purchaser disclosing
the material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).

        4.7    Shareholder Rights Plan.    No claim will be made or enforced by
the Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.

        4.8    Non-Public Information.    The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

        4.9    Use of Proceeds.    Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.

        4.10    Reimbursement.    If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder or as a result
of the Purchaser's breach of any of its representations, warranties or covenants
contained in this Agreement

18

--------------------------------------------------------------------------------

or the Transaction Documents), solely as a result of such Purchaser's
acquisition of the Securities under this Agreement, the Company will reimburse
such Purchaser for its reasonable legal and other expenses (including the cost
of any investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement.

        4.11    Indemnification of Purchasers.    Subject to the provisions of
this Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
Party, or any of them or their respective Affiliates, by any stockholder of the
Company who is not an Affiliate of such Purchaser Party, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser Party may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.

        4.12    Reservation and Listing of Securities.    

        (a)   After the Authorized Capital Shareholder Approval Date (as defined
below), the Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.

        (b)   If, on any date after Isonics' next annual meeting of
shareholders, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then the
Board of Directors of the Company shall use

19

--------------------------------------------------------------------------------

commercially reasonable efforts to amend the Company's certificate or articles
of incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time, as soon as possible
and in any event not later than the 75th day after such date.

        (c)   The Company shall, if applicable: (i) in the time and manner
required by the Trading Market, prepare and file with the Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application and
prepare and file with the Trading Market a listing application for the
Debentures and Warrants, (ii) take all steps necessary to cause such shares of
Common Stock, Debentures and Warrants to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing, and (iv) maintain the listing of the Debentures, the Warrants
and Common Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market.

        (d)   The Company shall hold a special meeting of shareholders (which
may also be at the annual meeting of shareholders) on or before November 30,
2005 for the purpose of obtaining Shareholder Approval with the recommendation
of the Company's Board of Directors that such proposal be approved, and the
Company shall solicit proxies from its shareholders in connection therewith in
the same manner as all other management proposals in such proxy statement and
all management-appointed proxyholders shall vote their proxies in favor of such
proposals. If the Company fails to obtain Shareholder Approval at such meeting,
the Company shall be obligated to hold at least one meeting of shareholders
semi-annually thereafter for the purpose of obtaining Shareholder Approval, as
set forth above until the Debentures are no longer outstanding.

        (e)   On or before April 30, 2005, the Company shall have increased its
authorized capital stock (such date, the "Authorized Capital Shareholder
Approval Date") to at least the amount as is required to fulfill its obligations
of the Company in full under the Transaction Documents.

        4.13    Participation in Future Financing.    

        (a)   From the date hereof until the one year anniversary of the
Effective Date, upon any financing by the Company or any of its Subsidiaries of
Common Stock or Common Stock Equivalents (a "Subsequent Financing"), each
Purchaser shall have the right to participate in up to 100% of the Subsequent
Financing (the "Participation Maximum").

        (b)   At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing
(such additional notice, a "Subsequent Financing Notice"). Upon the request of a
Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day after such
request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto.

        (c)   Any Purchaser desiring to participate in such Subsequent Financing
must provide written notice to the Company by not later than 5:30 p.m. (New York
City time) on the 5th Trading Day after all of the Purchasers have received the
Pre-Notice that the Purchaser is committed to participate in the Subsequent
Financing, the amount of the Purchaser's commitment, and that the Purchaser has
such funds ready, willing, and available for investment on the terms set forth
in the Subsequent Financing Notice.

20

--------------------------------------------------------------------------------

        (d)   If by 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their commitment to participate in the Subsequent Financing (or to
cause their designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and to the Persons set forth
in the Subsequent Financing Notice.

        (e)   If the Company receives no notice from a Purchaser as of such 5th
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.

        (f)    The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice. In the event the Company
receives responses to Subsequent Financing Notices from Purchasers seeking to
purchase more than the aggregate amount of the Subsequent Financing, each such
Purchaser shall have the right to purchase their Pro Rata Portion (as defined
below) of the Participation Maximum. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased by a participating Purchaser and
(y) the sum of the aggregate Subscription Amount of all participating
Purchasers.

        (g)   Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance.

        4.14    Subsequent Equity Sales.    

        (a)   From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents; provided, however, the 90 day period set forth in this
Section 4.14 shall be extended for the number of Trading Days during such period
in which (y) trading in the Common Stock is suspended by any Trading Market, or
(z) following the Effective Date, the Registration Statement is not effective or
the prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Underlying Shares.

        (b)   From the date hereof until such time as no Purchaser holds any of
the Debentures, the Company shall be prohibited from effecting or entering into
an agreement to effect any Subsequent Financing involving a "Variable Rate
Transaction" (as defined below). The term "Variable Rate Transaction" shall mean
a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined price.

        (c)   Unless Shareholder Approval has been obtained and deemed
effective, the Company shall not make any issuance whatsoever of Common Stock or
Common Stock Equivalents which would cause any adjustment of the Conversion
Price to the extent the holders of Debentures would not be permitted, pursuant
to Section 4(c)(i) of the Debentures, to convert their respective outstanding
Debentures and exercise their respective Warrants in full, ignoring for such
purposes the

21

--------------------------------------------------------------------------------

conversion or exercise limitations in Section 4(c)(ii) of the Debentures. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

        (d)   Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction shall
be an Exempt Issuance.

        4.15    Equal Treatment of Purchasers.    No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.

        4.16    Short Sales.    Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period from the Discussion Time until prior
to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

ARTICLE V.
MISCELLANEOUS

        5.1    Termination.    This Agreement may be terminated by any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated on or before February 28, 2005; provided that no such termination
will affect the right of any party to sue for any breach by the other party (or
parties).

        5.2    Fees and Expenses.    Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities.

        5.3    Entire Agreement.    The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

        5.4    Notices.    Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a

22

--------------------------------------------------------------------------------

Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.

        5.5    Amendments; Waivers.    No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

        5.6    Headings    The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

        5.7    Successors and Assigns.    This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser. Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

        5.8    No Third-Party Beneficiaries.    This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

        5.9    Governing Law.    All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall

23

--------------------------------------------------------------------------------

be reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

        5.10    Survival.    The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.

        5.11    Execution.    This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

        5.12    Severability.    If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

        5.13    Rescission and Withdrawal Right.    Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.

        5.14    Replacement of Securities.    If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

        5.15    Remedies.    In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under
the Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

        5.16    Payment Set Aside.    To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Documents or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and

24

--------------------------------------------------------------------------------

continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

        5.17    Usury.    To the extent it may lawfully do so, the Company
hereby agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or advantage
of, usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Documents. Notwithstanding any provision to the contrary contained in any
Transaction Documents, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.

        5.18    Independent Nature of Purchasers' Obligations and Rights.    The
obligations of each Purchaser under any Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Documents. Nothing contained herein or in any
Transaction Documents, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only DKR. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.

        5.19    Liquidated Damages.    The Company's obligations to pay any
partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate
until all unpaid partial liquidated damages and other amounts have been paid
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.

        5.20    Construction.    The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments hereto.

(Signature Pages Follow)

25

--------------------------------------------------------------------------------

        IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

ISONICS CORPORATION   Address for Notice:
By:
 
 
 
     

--------------------------------------------------------------------------------

Name:
Title:    
With a copy to (which shall not constitute notice):

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

26

--------------------------------------------------------------------------------

[PURCHASER SIGNATURE PAGES TO ISON SECURITIES PURCHASE AGREEMENT]

        IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser:    

--------------------------------------------------------------------------------

Signature of Authorized Signatory of Purchaser:    

--------------------------------------------------------------------------------

Name of Authorized Signatory:    

--------------------------------------------------------------------------------

Title of Authorized Signatory:    

--------------------------------------------------------------------------------

Email Address of Purchaser:    

--------------------------------------------------------------------------------

Address for Notice of Purchaser:
    
     Address for Delivery of Securities for Purchaser (if not same as above):
    
    

Subscription Amount:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

27

--------------------------------------------------------------------------------

Disclosure Schedules

Schedule 3.1(a)

        Isonics currently conducts some of its operations through three wholly
owned-subsidiaries and one partially owned subsidiary. The following chart
provides some information about those subsidiaries:

Name and Headquarters

--------------------------------------------------------------------------------

  Place of
Formation

--------------------------------------------------------------------------------

  Ownership
Percentage

--------------------------------------------------------------------------------

  Business

--------------------------------------------------------------------------------

Chemotrade GmbH
Dusseldorf, Germany   Germany   100%   Chemotrade GmbH ("Chemotrade") is a
value-added re-seller of stable and radioactive isotopes. It supplies
radioactive isotopes for pharmaceutical and industrial research as well as for
industrial and medical imaging, calibration sources and for brachytherapy
applications. Additionally, Chemotrade supplies various stable isotope labeled
compounds for pharmaceutical research and drug design, as well as oxygen-18 for
use in producing a radioisotope used in positron emission tomography.
Chemotrade's market is primarily Europe, but sales are also made to North
America and Asia.              

28

--------------------------------------------------------------------------------

IUT Detection Technologies, Inc.
 
Colorado, USA
 
85%, owned not by
Isonics but by
IHSD
 
IUT Detection Technologies,Inc. ("IUTDT") owns and we anticipate will
commercialize the detection technology that we acquired from IUT. This
isotope-based trace detection technology will be used to detect explosives and
chemical and biological weapons.
Isonics Homeland
Security and Defense
Corporation
 
Delaware, USA
 
100%
 
IHSD is a newly-formed corporation that is coordinating our efforts in the
homeland security market.
Isonics Vancouver, Inc.
 
Washington, USA
 
100% (subject to a
security interest to
Silver Silicon, Inc.)
 
IVI operates our silicon wafer and SOI wafer fabrication and reclamation plant
in Vancouver, Washington

        The foregoing does not include our minority ownership in two companies:

•Interpro Zinc, LLC, a Colorado entity that engages in the research and
development for the recovery and recycling of zinc metal from various sources.
We have a 25% interest in this entity. Interpro Zinc, LLC has suspended its
operations due to a lack of funding and it is unclear as to if or when it will
resume such operations.

•IUT, an entity based in Berlin, Germany, which performs research and
development, and manufacturing of radioisotopes. We have a 6% interest in IUT
through Chemotrade.

Schedule 3.1(e)

        Asset Managers International Ltd. has a right of first refusal for
future financings.

Schedule 3.1(f)

        As of January 31, 2005, there are approximately 91,000 shares of Isonics
common stock that are authorized for issuance but which have not been issued or
reserved for issuance.

29

--------------------------------------------------------------------------------

Schedule 3.1(g)

        Capitalization, as of January 31, 2005 (not including the shares
issuable as a result of the transactions contemplated by the Agreement):

Shares of Common Stock outstanding   27,586,800
6,666 shares of convertible Series A Preferred Stock outstanding, liquidation
preference $1.50 per share
 
13,332
No shares of convertible Series B Preferred Stock outstanding
 
None
No shares of convertible Series C Preferred Stock outstanding
 
None
2,450 shares of convertible Series D Preferred Stock outstanding, liquidation
preference $100 per share
 
172,727
33,000 shares of convertible Series E Preferred Stock outstanding, liquidation
preference $100 per share
 
3,300,000
Class C Warrants that are issuable (exercisable at $2.50 per share; expiring
December 31, 2005)
 
1,780,110
Options, that expire through October 6, 2014, with an average exercise price of
$1.44
 
2,212,647
Warrants, that expire through November 2007, with an average exercise price of
$1.62
 
3,810,610
Options which may be issued pursuant to 1996 Stock Option Plan (which plan has
been terminated).
 
Zero
Options which may be issued pursuant to 1996 Executives' Equity Incentive Plan,
which authorizes the grant of options to purchase 2,000,000 stock options (not
including the options which have been issued and which have been exercised or
remain outstanding)
 
641,605
Options which may be issued pursuant to 1996 Equity Incentive Plan, which
authorizes the grant of options to purchase 1,000,000 stock options (not
including the options which have been issued and which have been exercised or
remain outstanding).
 
247,879

30

--------------------------------------------------------------------------------

Shares remaining to be purchased pursuant to 1998 Employee Stock Purchase Plan,
which authorizes employees to purchase of up to 200,000 shares of Isonics common
stock (not including the shares which have been purchased through December 2004)
  142,776
The 1998 Directors' Plan authorized each person serving as a member of the Board
who is not an employee to receive options to purchase 20,000 shares of common
stock when such person accepts his position as a Director and to receive an
additional option to purchase 10,000 shares when such person is re-elected as a
Director provided such person is not an employee of Isonics. The exercise price
for the options is the Fair Market Value (as defined in the Executives' Plan) on
the date such person becomes a director and the options are exercisable for five
years from such date. The options granted under the Directors' Plan vest
immediately upon the date of the grant. In the event a Director resigns or is
not re-elected to the Board, his or her failure to exercise the options in three
months results in the options' termination prior to the expiration of their
term.
 
Options to be
issued at the
scheduled 2004
annual meeting (to
be held in April
2005), to one or
more new
directors, and
thereafter
Options which may be issued to new members of the Advisory Board to Isonics
Homeland Security and Defense Corporation
 
Unknown

        Asset Managers International has a right of first refusal. The Company
also has an obligation to pay dividends to Asset Managers International with
respect to the Series E Preferred Stock for a period of one year after issuance,
and is obligated to pay liquidated damages because of a failure to meet a
registration obligation.

        Isonics plans to adopt new stock option plans to replace the 1996
Executives' Equity Incentive Plan and the 1996 Equity Incentive Plan and propose
such plans to its shareholders for approval at its next annual meeting of
shareholders, currently scheduled to be held in April 2005.

Schedule 3.1(i)

        Isonics has paid dividends to the holders of its Series E Preferred
Stock and is contractually required to do so through October 2005..

Schedule 3.1(j)

        Isonics has provided information to both Nasdaq and the Securities and
Exchange Commission in connection with inquiries received from both.

Schedule 3.1(l)

        Isonics has registration obligations for shares held by Silver
Silicon Ltd. and to Asset Managers International Ltd. which are in default.

Schedule 3.1(n)

        Silver Silicon Ltd. has security interests in the assets of Isonics
Vancouver, Inc., and in the shares of Isonics Vancouver, Inc., common stock.

        In addition to the foregoing, Isonics has several capital lease
obligations aggregating approximately $125,000.

        There are liens for taxes which have not yet become due or payable.

31

--------------------------------------------------------------------------------

Schedule 3.1(s)

        Upon completion of the transaction, Isonics will owe placement agent
fees of 6.5%, of which 3.0% is payable in cash and 3.5% is payable in kind) to
Harborview Capital Management and J.H. Darbie as described in the Escrow
Agreement.

Schedule 3.1(v)

        See schedule 6.1(b) to the Registration Rights Agreement for persons who
have registration rights for shares of Isonics common stock which have not been
satisfied.

Schedule 3.1(x)

        The Board of Directors has the ability to issue preferred stock (which
may be considered a takeover protection device in certain circumstances).

        California law requires that the shareholders be offered the right to
cumulate votes in the election of directors—a right that may be considered a
takeover protection device.

Schedule 3.1(ff)

        Isonics' independent accountants are Hein & Associates, LLP. Grant
Thornton LLP audited Isonics' financial statements for the years ended April 30,
2003 and 2004, and the financial statements for EnCompass Materials Group, Ltd.
(now known as Silver Silicon Ltd.) included in Isonics' Form 8-K reporting
Isonics' acquisition of the assets of EnCompass Materials Group.

Schedule 3.1(gg)

        See Schedule 3.1(n).

Schedule 3.1(hh)

        See the SEC Reports for a discussion of the dismissal of Grant Thornton
LLP.

Schedule 3.1(ii)

        See the SEC Reports.

32

--------------------------------------------------------------------------------

QuickLinks

SECURITIES PURCHASE AGREEMENT