Exhibit 10.3

Dated of Original Issuance: June 5, 2006

   Date of Amendment and Restatement: June 13, 2006

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
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 THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

No. CCP-4                                                                                                                                                                        
$3,000,000

ISONICS CORPORATION

Amended and Restated Secured Convertible Debenture

Due May 30, 2009

This Secured Convertible Debenture (the “Debenture”) is issued by ISONICS
CORPORATION, a California corporation (the “Obligor”), to CORNELL CAPITAL
PARTNERS, LP (the “Holder”), pursuant to that certain Securities Purchase
Agreement (the “Securities Purchase Agreement”) of even date herewith. This
Amended and Restated Secured Convertible Debenture cancels and replaces
Debenture No. CCP-2 in the original principal amount of $10,000,000 issued by
Isonics Corporation, a California corporation, which Debenture is superseded in
its entirety hereby.

FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or its
successors and assigns the principal sum of Three Million Dollars ($3,000,000)
together with accrued but unpaid interest on or before May 30, 2009 (the
“Maturity Date”) in accordance with the following terms:

Interest. Interest shall accrue on the outstanding principal balance hereof at
an annual rate equal to six percent (6%). Interest shall be calculated on the
basis of a 360-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder or
its assignee (as defined in Section 5) in whose name this Debenture is
registered on the records of the Obligor regarding registration and transfers of
Debentures (the “Debenture Register”).

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Interest Payments. The Obligor at its option shall make payment of all
outstanding and accrued interest at the Maturity Date (“Scheduled Payment”) in
shares of the Obligor’s Common Stock or cash; provided, however, payment of the
interest amount in shares of the Obligor’s Common Stock can only be made if the
Obligor’s shareholders have approved the transaction as contemplated in
Section 4(l) of the Securities Purchase Agreement. If such Schedule Payment is
made in Common Stock, such number of shares of the Company’s Common Stock due as
payment shall be calculated based on the amount of interest due divided by
eighty eight percent (88%) of the average VWAP of the Company’s Common Stock for
the five (5) Trading Days immediately preceding the date the Maturity Date.

Notwithstanding the foregoing, this Debenture shall become due and immediately
payable, including all accrued but unpaid interest, upon an Event of Default (as
defined in Section 2 hereof).

Right of Redemption. The Obligor at its option shall have the right, with ten
(10) Trading Days advance written notice (the “Redemption Notice”), to redeem a
portion or all amounts outstanding under this Debenture prior to the Maturity
Date provided that the Closing Bid Price of the of the Obligor’s Common Stock,
as reported by Bloomberg, LP, is less than Two Dollars and Fifty Cents ($2.50)
at the time of the Redemption Notice. The Obligor shall pay an amount equal to
the principal amount being redeemed plus a redemption premium (“Redemption
Premium”) equal to twenty percent (20%) of the principal amount being redeemed,
and accrued interest, (collectively referred to as the “Redemption Amount”). The
Obligor shall deliver to the Holder the Redemption Amount on the tenth (10th)
Trading Day after the Redemption Notice.

Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture the Holder shall be permitted to convert all or any portion of
this Debenture during such ten (10) business day advance written notice period.

Security Agreements. This Debenture is secured by Security Agreements of even
date herewith between the Obligor and the Holder as well as Isonics
Vancouver, Inc., Isonics Homeland Security and Defense Corporation, and
Protection Plus Security Corporation, all of which are wholly owned subsidiaries
of the Obligor, and the Holders (all such security agreements shall be referred
to as the “Security Agreement”).

Consent of Holder to Sell Capital Stock or Grant Security Interests. So long as
any of the principal amount on this Debenture remains unpaid and unconverted and
except for Excluded Securities, the Obligor shall not, without the prior consent
of the Holder, (i) issue or sell any shares of Common Stock without
consideration or for consideration per share less than the VWAP of the Common
Stock on the Trading Day immediately prior to its issuance, (ii) issue or sell
any warrant, option, right, contract, call, or other security or instrument
granting the holder thereof the right to acquire Common Stock without
consideration or for consideration per share less than the Closing Bid Price of
the Common Stock on the date of issuance, (iii) issue or sell any shares of
preferred stock without consideration or for consideration per share less than
the VWAP of the Common Stock on the Trading Day immediately prior to its
issuance (iv) enter into any security instrument granting the holder a security
interest in any of the assets of the Obligor, other than security interests in
connection with capital lease financing, in cases where

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the security interest is in the nature of a purchase money security interest, or
for funds used for acquisitions by the Obligor or any subsidiary of a business
that has positive earnings before interest, taxes, depreciation, and
amortization expenses or to refinance of the purchase money security interest in
such event the Holder shall take a second security position, provided however in
the event that a security interest is not given in connection with acquisitions
by the Obligor or any subsidiary of a business that has positive earnings before
interest, taxes, depreciation, and amortization expenses it is understood that
the Holder shall be given a first security interest or (v) file any registration
statements on Form S-8.

Rights of First Refusal. For a period of one (1) year from the date hereof, so
long as any portion of this Debenture is outstanding (including principal or
accrued interest), if the Obligor intends to raise additional capital by the
issuance or sale of capital stock of the Obligor, including without limitation
shares of any class of Common Stock, any class of preferred stock, options,
warrants or any other securities convertible or exercisable into shares of
Common Stock (whether the offering is conducted by the Obligor, underwriter,
placement agent or any third party) the Obligor shall be obligated to offer to
the Holder a percentage of such issuance or sale of capital stock, by providing
in writing the principal amount of capital it intends to raise and outline of
the material terms of such capital raise, prior to the offering such issuance or
sale of capital stock to any third parties including, but not limited to,
current or former officers or directors, current or former shareholders and/or
investors of the obligor, underwriters, brokers, agents or other third parties.
For the purposes of this paragraph, the percentage shall be calculated by
multiplying fifty percent (50%) by a fraction, the numerator of which is the
principal amount of this Debenture, and the denominator of which is $16,000,000.

After one (1) year from the date hereof, so long as any portion of this
Debenture is outstanding (including principal or accrued interest), if the
Obligor intends to raise additional capital by the issuance or sale of capital
stock of the Obligor, including without limitation shares of any class of Common
Stock, any class of preferred stock, options, warrants or any other securities
convertible or exercisable into shares of Common Stock (whether the offering is
conducted by the Obligor, underwriter, placement agent or any third party) the
Obligor shall be obligated to offer to the Holder a percentage of such issuance
or sale of capital stock, by providing in writing the principal amount of
capital it intends to raise and outline of the material terms of such capital
raise, prior to the offering such issuance or sale of capital stock to any third
parties including, but not limited to, current or former officers or directors,
current or former shareholders and/or investors of the obligor, underwriters,
brokers, agents or other third parties. For the purposes of this paragraph, the
percentage shall be calculated by multiplying twenty five percent (25%) by a
fraction, the numerator of which is the principal amount of this Debenture, and
the denominator of which is $16,000,000.

The Holder shall have five (5) Trading Days from receipt of such notice of the
sale or issuance of capital stock to accept or reject all or a portion of such
capital raising offer. If the Holder does not accept and complete its
participation in the financing to the full extent to which the Holder is
entitled under this section, the right of first refusal shall terminate upon the
completion of the financing.

This Debenture is subject to the following additional provisions:

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Section 1.              This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.

Section 2.              Events of Default.

(a)           An “Event of Default”, wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body). An Event of Default shall only be deemed to exist after any
applicable cure or grace period has expired:

(i)            Any default in the payment of the principal of, interest on or
other charges in respect of this Debenture, free of any claim of subordination,
as and when the same shall become due and payable (whether on the Scheduled
Payment due date, a Conversion Date or the Maturity Date or by acceleration or
otherwise);

(ii)           The Obligor shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by
Section 2(a)(i) hereof) or any Transaction Document (as defined in Section 5)
which is not cured with in the time prescribed after notice from the Holder and
an opportunity of not less than ten (10) Trading Days to cure such breach;

(iii)          The Obligor or any subsidiary of the Obligor shall commence, or
there shall be commenced against the Obligor or any subsidiary of the Obligor
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Obligor or any subsidiary of the Obligor
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Obligor or any subsidiary of the Obligor or there is commenced against the
Obligor or any subsidiary of the Obligor any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Obligor or any subsidiary of the Obligor is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Obligor or any subsidiary of the Obligor suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues uncontested, undischarged or
unstayed for a period of sixty one (61) days; or the Obligor or any subsidiary
of the Obligor makes a general assignment for the benefit of creditors; or the
Obligor or any subsidiary of the Obligor shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Obligor or any subsidiary of the Obligor shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Obligor or any subsidiary of the Obligor
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other action is
taken by the Obligor or any subsidiary of the Obligor for the purpose of
effecting any of the foregoing;

(iv)          The Obligor or any subsidiary of the Obligor shall default in any
of its obligations under any other debenture or any mortgage, credit agreement
or other facility,

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indenture agreement, factoring agreement or other instrument under which there
may be issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or factoring
arrangement of the Obligor or any subsidiary of the Obligor in an amount
exceeding $500,000, whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

(v)           The Common Stock shall cease to be quoted for trading or listing
for trading on either the OTC Bulletin Board (“OTCBB”), Nasdaq Capital Market,
New York Stock Exchange, American Stock Exchange or the Nasdaq National Market
(each, a “Subsequent Market”) and shall not again be quoted or listed for
trading thereon within five (5) Trading Days of such delisting;

(vi)          The Obligor or any subsidiary of the Obligor shall be a party to
any Change of Control Transaction (as defined in Section 5) without the consent
of holders of at least a majority in principal amount of the 6% Convertible
Debentures then outstanding;

(vii)         The Obligor shall fail to comply with its obligations in the
Underlying Shares Registration Statement (as defined in Section 5) in any
material respect, after any notice and grace period or opportunity to cure as
provided by such Underlying Shares Registration Statement;

(viii)        The Obligor or the Obligor’s transfer agent, as the case maybe,
shall fail for any reason to deliver Common Stock certificates to a Holder, as
contemplated under the Irrevocable Transfer Agent Instructions dated the date
hereof, prior to the third (3rd) or sixth (6th) Trading Day, as the case my be
under the Irrevocable Transfer Agent Instructions, after a Conversion Date or
the Obligor shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions of this Debenture in accordance with the terms hereof and;

(x)            The Obligor shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3) days after notice
is claimed delivered hereunder;

(xi)           The Obligor shall fail for any reason to deliver the payment in
cash pursuant to Section 3 (c)(i) within three (3) days after notice is claimed
delivered hereunder.

 (b)          During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder’s election, immediately due
and payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies

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hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon. Upon an Event of Default,
notwithstanding any other provision of this Debenture or any Transaction
Document, the Holder shall have no obligation to comply with or adhere to any
limitations, if any, on the conversion of this Debenture or the sale of the
Underlying Shares except those restrictions imposed by federal or applicable
state securities laws.

Section 3.              Conversion.

(a)           Conversion at Option of Holder.

(i)            (a) Provided the Obligor has sufficient authorized shares, in
which case the Obligor shall be obligated to increase its authorized shares
pursuant to Section 4 (e) of the Securities Purchase Agreement, and provided
that the Obligor has obtained shareholder approval as contemplated in
Section 4(l) of the Securities Purchase Agreement, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue Date (as
defined in Section 5) (subject to the limitations on conversion set forth in
Section 3(b) hereof) provided however the Holder shall not be entitled to sell
such shares, until the later to occur of i) the date the Underlying Shares
Registration Statement is declared effective or ii) (subject to compliance with
federal and applicable state securities laws) one hundred twenty (120) calendar
days from the date hereof (collectively referred to as the “Waiting Period”),
unless waived by the Obligor. Notwithstanding the foregoing in the event that
the Underlying Shares Registration Statement is not declared effective within
one (1) year from the date hereof the Holder shall be entitled to sell shares of
the Obligor’s Common Stock issuable hereunder pursuant to Rule 144 as
applicable. The number of shares of Common Stock issuable upon a conversion
hereunder equals the quotient obtained by dividing (x) the outstanding amount of
this Debenture to be converted by (y) the Conversion Price (as defined in
Section 3(c)(i)). The Obligor shall deliver Common Stock certificates to the
Holder prior to the Fifth (5th) Trading Day after a Conversion Date.

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(B)         PROVIDED THAT THERE IS AN EFFECTIVE UNDERLYING SHARES REGISTRATION
STATEMENT THE OBLIGOR AT ITS OPTION SHALL HAVE THE RIGHT AT ANY TIME AND FROM
TIME TO TIME, IF THE VWAP OF THE OBLIGOR’S COMMON STOCK AS QUOTED BY BLOOMBERG,
LP IS EQUAL TO OR GREATER THAN TWO DOLLARS AND FIFTY CENTS ($2.50) (THE “FORCED
CONVERSION PRICE”) FOR TWENTY (20) CONSECUTIVE TRADING DAYS (THE “FORCED
CONVERSION PRICING PERIOD”), TO FORCE THE HOLDER TO CONVERT THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS DEBENTURE PLUS OUTSTANDING AND ACCRUED INTEREST,
SUBJECT TO THE LIMITATIONS IN SECTION 3(B)(I) HEREIN, AT THE FIXED CONVERSION
PRICE, IN WHOLE OR IN PART. IN SUCH EVENT THE OBLIGOR SHALL PROVIDE TO THE
HOLDER WRITTEN NOTICE AT THE END OF BUSINESS, BUT NOT LATER THAN 5:30 PM EST, ON
THE LAST TRADING DAY OF THE FORCED CONVERSION PRICING PERIOD (THE “FORCED
CONVERSION NOTICE”). THE HOLDER SHALL THAN ON THE NEXT TRADING DAY FROM RECEIPT
OF THE FORCED CONVERSION NOTICE, CONVERT THIS DEBENTURE, SUBJECT TO THE
LIMITATIONS IN SECTION 3(B)(I) HEREIN, IN WHOLE OR IN PART, AT THE FIXED
CONVERSION PRICE (“FORCED CONVERSION PERIOD”). PROVIDED HOWEVER IN THE EVENT
THAT THE VWAP OF THE OBLIGOR’S COMMON STOCK, AS QUOTED BY BLOOMBERG, LP, DURING
THE FORCED CONVERSION PERIOD IS LOWER THAN THE FORCED CONVERSION PRICE THE
OBLIGOR SHALL NOT HAVE THE RIGHT TO FORCE THE HOLDER TO EXERCISE THIS DEBENTURE,
IN WHOLE OR IN PART.

 (ii)          Notwithstanding anything to the contrary contained herein, if
after December 31, 2006, on any Conversion Date: (1) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay principal and interest
hereunder in shares of Common Stock; (2) the Common Stock is not listed or
quoted for trading on the OTCBB or on a Subsequent Market; (3) the Obligor has
failed to timely satisfy its conversion; or (4) the issuance of such shares of
Common Stock would result in a violation of Section 3(b), then, at the option of
the Holder, the Obligor, in lieu of delivering shares of Common Stock pursuant
to Section 3(a)(i), shall deliver, within five (5) Trading Days of each
applicable Conversion Date, an amount in cash equal to the product of the
outstanding principal amount to be converted plus any interest due therein
divided by the Conversion Price, chosen by the Holder, and multiplied by the
VWAP of the Common Stock on the date of the conversion notice until the date
that such cash payment is made.

Further, if the Obligor shall not have delivered any cash due in respect of
conversion of this Debenture or as payment of interest thereon by the fifth
(5th) Trading Day after the Conversion Date, the Holder may, by notice to the
Obligor, require the Obligor to issue shares of Common Stock pursuant to
Section 3(c), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.

(iii)          The Holder shall effect conversions by delivering to the Obligor
a completed notice in the form attached hereto as Exhibit A (a “Conversion
Notice”). The date on which a Conversion Notice is delivered is the “Conversion
Date.” Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Obligor in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon in an amount equal to the
applicable conversion. The Holder and the Obligor shall maintain records showing
the principal amount converted and the date of such conversions. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of error.

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(b)           Certain Conversion Restrictions.

(i)            A Holder may not convert this Debenture or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such interest payment would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 4.99% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, this
Debenture held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Obligor the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.99% of the then outstanding shares of Common Stock without regard to
any other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Debenture is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice
for a principal amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the Obligor shall
notify the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in accordance
with the periods described in Section 3(a)(i) and, at the option of the Holder,
either retain any principal amount tendered for conversion in excess of the
permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
65 days prior notice to the Obligor. Other Holders shall be unaffected by any
such waiver.

(ii) Commencing at the end of the Waiting Period and for one hundred twenty
(120) calendar days thereafter and subject to further limitations in
Section 3(a)(i), the Holder shall not convert any portion of the aggregate
outstanding principal amount and accrued interest due under all Debentures
issued under the Securities Purchase Agreement, into shares of the Obligor’s
Common Stock in excess of Two Hundred Thousand Dollars ($200,000) at the Market
Conversion Price in any seven (7) calendar day period. Notwithstanding the
forgoing, this conversion restriction shall not apply upon the occurrence of an
Event of Default or if waived in writing by the Obligor. Thereafter, the Holder
shall not convert any portion of the aggregate outstanding principal amount and
accrued interest due under all Debentures issued under the Securities Purchase
Agreement, into shares of the Company’s Common Stock in excess of Four Hundred
Thousand Dollars ($400,000) at the Market Conversion Price in any seven
(7) calendar day period.

Notwithstanding the forgoing, the conversion restrictions in this
Section 3(b)(ii) shall not apply upon the occurrence of an Event of Default
(after notice and any applicable cure period), if waived in writing by the
Company or if such shares being sold have been converted at the Fixed Conversion
Price (to the extent such sales are permitted under federal and applicable state
securities laws).

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(c)           Conversion Price and Adjustments to Conversion Price.

(i)            The conversion price in effect on any Conversion Date shall be,
at the sole option of the Holder, equal to either (a) One Dollar and Twenty Five
Cents ($1.25) (the “Fixed Conversion Price”) or (b) eighty percent (80%) of the
average of the two (2) lowest daily VWAPs of the Common Stock during the five
(5) Trading Days immediately preceding the Conversion Date as quoted by
Bloomberg, LP (the “Market Conversion Price”). The Fixed Conversion Price and
the Market Conversion Price are collectively referred to as the “Conversion
Price.” The Conversion Price may be adjusted pursuant to the other terms of this
Debenture. Notwithstanding the restrictions set forth in Sections 2(b)(ii) and
2(b)(iii), the Holder shall have the absolute right to convert any or all of
this Debenture at the Fixed Conversion Price free of such restriction provided
such conversion is in compliance with the shareholder approval requirements of
the Nasdaq Capital Market.

Notwithstanding anything to the contrary herein, the maximum number of shares of
the Company’s Common Stock that may be issued upon conversion of the principal
amount of this Debenture is 64,000,000 (the “Conversion Shares”).

In the event that all of the Conversions Shares are issued and there remains
outstanding principal amount and accrued interest hereunder all amounts of
outstanding principal and accrued interest shall be immediately due and payable
in cash.

 (ii)          If the Obligor, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Obligor, then the Fixed Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

(iii)          If the Obligor, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to the Holder) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Fixed Conversion Price (not including
the issuance of Excluded Securities), then the Fixed Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants (plus the number of additional shares of
Common Stock offered for subscription or purchase), and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such

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rights or warrants, plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at the Fixed Conversion
Price. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants. However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Fixed Conversion Price pursuant to this Section, if any such
right, option or warrant shall expire and shall not have been exercised, the
Fixed Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Fixed Conversion
Price made pursuant to the provisions of this Section after the issuance of such
rights or warrants) had the adjustment of the Fixed Conversion Price made upon
the issuance of such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of shares of the Common
Stock actually purchased upon the exercise of such rights, options or warrants
actually exercised.

(iv)          If the Obligor or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock (“Common Stock Equivalents”)
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Fixed Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which is issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the Fixed Conversion
Price (in all cases, other than Excluded Securities), such issuance shall be
deemed to have occurred for less than the Fixed Conversion Price), then, at the
sole option of the Holder, the Fixed Conversion Price shall be adjusted to
mirror the conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at issue. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Obligor shall notify the Holder in writing, no later than one
(1) business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances and exercises of options to purchase shares of Common Stock issued for
compensatory purposes pursuant to any of the Obligor’s stock option or stock
purchase plans.

(v)           If the Obligor, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then in each such case the Fixed Conversion Price at
which this Debenture shall thereafter be convertible shall be determined by
multiplying the Fixed Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Closing Bid
Price determined as of the record date mentioned above, and of which the
numerator shall be such Closing Bid Price on such record date less the then fair
market value at such record date of the portion of such assets or evidence of

 

10

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indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

(vi)          In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option,  (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Obligor
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Obligor to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.

(vii)         The Obligor shall at all times after December 31, 2006 reserve and
keep available out of its authorized Common Stock the full number of shares of
Common Stock issuable upon conversion of all outstanding amounts under this
Debenture; and within three (3) Trading Days following the receipt by the
Obligor of a Holder’s notice that such minimum number of Underlying Shares is
not so reserved, the Obligor shall promptly reserve a sufficient number of
shares of Common Stock to comply with such requirement.

(viii)        All calculations under this Section 3 shall be rounded up to the
nearest $0.001 or whole share.

(ix)           Whenever the Conversion Price is adjusted pursuant to Section 3
hereof, the Obligor shall promptly mail or send by electronic means (including
without limitation e-mail) to the Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.

(x)            If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary

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dissolution, liquidation or winding up of the affairs of the Obligor; then, in
each case, the Obligor shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall cause to
be mailed to the Holder at its last address as it shall appear upon the stock
books of the Obligor, at least twenty (20) calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. The Holder is
entitled to convert this Debenture during the 20-day calendar period commencing
the date of such notice to the effective date of the event triggering such
notice.

(xi)           In case of any  merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, a Holder shall have the
right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.

(d)           Other Provisions.

(i)            The Obligor covenants that it will at all times after
December 31, 2006 reserve and keep available out of its authorized and unissued
shares of Common Stock solely for the purpose of issuance upon conversion of
this Debenture and payment of interest on this

12

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Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder, not less
than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of Sections 2(b) and 3(c)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

(ii)           Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.

(iii)          The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.

(iv)          Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor ‘s failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder 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,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

(v)           In addition to any other rights available to the Holder, if the
Obligor fails to deliver to the Holder such certificate or certificates pursuant
to Section 3(a)(i) by the fifth (5th) Trading Day after the Conversion Date, and
if after such fifth (5th) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such conversion (a “Buy-In”), then the Obligor shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of

13

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the Common Stock at the time of the sale giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue a Debenture in the principal
amount equal to the principal amount of the attempted conversion or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Obligor timely complied with its delivery requirements under
Section 3(a)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Obligor shall be required to pay
the Holder $1,000. The Holder shall provide the Obligor written notice
indicating the amounts payable to the Holder in respect of the Buy-In.

Section 4.              Notices.                 Any notices, consents, waivers
or other communications required or permitted to be given under the terms hereof
must be in writing and will be deemed to have been delivered:  (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

 

If to the Obligor, to:

Isonics Corporation

 

5906 McIntyre Street

 

Golden, CO 80403

 

Attention: James E. Alexander, President

 

Telephone: (303) 279-7900

 

Facsimile: (303) 279-7300

 

 

With a copy (which does not constitute notice) to:

Burns, Figa & Will, P.C.

 

6400 South Fiddler’s Green Circle — Suite 1000

 

Greenwood Village, CO 80111

 

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

 

Telephone: (303) 796-2626

 

Facsimile: (303) 796-2777

If to the Holder:

Cornell Capital Partners, LP

 

101 Hudson Street, Suite 3700

 

Jersey City, NJ 07303

 

Attention: Mark Angelo

 

Telephone: (201) 985-8300

 

 

With a copy to:

David Gonzalez, Esq.

 

101 Hudson Street — Suite 3700

 

Jersey City, NJ 07302

 

Telephone: (201) 985-8300

 

Facsimile: (201) 985-8266

 

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or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

Section 5.              Definitions. For the purposes hereof, the following
terms shall have the following meanings:

“APPROVED STOCK PLAN” MEANS ANY EMPLOYEE BENEFIT PLAN WHICH HAS BEEN APPROVED OR
IS IN THE FUTURE APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY, PURSUANT TO
WHICH THE COMPANY’S SECURITIES MAY BE ISSUED TO ANY EMPLOYEE, CONSULTANT,
OFFICER OR DIRECTOR FOR SERVICES PROVIDED TO THE COMPANY.

“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.

“Change of Control Transaction” means the occurrence of (a) an acquisition after
the date hereof by an individual or legal entity or “group” (as described in
Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the consolidated assets of the Obligor or any subsidiary of the Obligor in one
or a series of related transactions with or into another entity, or (d) the
execution by the Obligor of an agreement to which the Obligor is a party or by
which it is bound, providing for any of the events set forth above in (a),
(b) or (c).

“Closing Bid Price” means the price per share in the last reported trade of the
Common Stock on the Nasdaq Capital Market or on the exchange  which the Common
Stock is then listed as quoted by Bloomberg, LP.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock, no par value, of the Obligor and stock of
any other class into which such shares may hereafter be changed or reclassified.

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“Conversion Date” shall mean the date upon which the Holder gives the Obligor
notice of their intention to effectuate a conversion of this Debenture into
shares of the Obligor’s Common Stock as outlined herein.

 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

“EXCLUDED SECURITIES” MEANS:

(A) ANY ISSUANCE BY THE COMPANY OF SECURITIES IN CONNECTION WITH A STRATEGIC
PARTNERSHIP OR A JOINT VENTURE (THE PRIMARY PURPOSE OF WHICH IS NOT TO RAISE
EQUITY CAPITAL),

(B) ANY ISSUANCE BY THE COMPANY OF SECURITIES AS CONSIDERATION FOR A MERGER OR
CONSOLIDATION OR THE ACQUISITION OF A BUSINESS, PRODUCT, LICENSE, OR OTHER
ASSETS OF ANOTHER PERSON OR ENTITY,

(C) OPTIONS TO PURCHASE SHARES OF COMMON STOCK, PROVIDED (I) SUCH OPTIONS ARE
ISSUED AFTER THE DATE OF THIS DEBENTURE TO EMPLOYEES OF THE COMPANY WITHIN
THIRTY (30) DAYS OF SUCH EMPLOYEE’S STARTING HIS EMPLOYMENT WITH THE COMPANY,
AND (II) THE EXERCISE PRICE OF SUCH OPTIONS IS NOT LESS THAN THE CLOSING PRICE
OF THE COMMON STOCK ON THE DATE OF ISSUANCE OF SUCH OPTION,

(D) SECURITIES ISSUED PURSUANT TO AN APPROVED STOCK PLAN,

(E) UP TO 1,000,000 WITHOUT REGISTRATION RIGHTS AND NOT PURSUANT TO FORM S-8 (IN
THE EVENT THAT SUCH ISSUANCE HAS REGISTRATION RIGHTS THE OBLIGOR SHALL OBTAIN
THE PRIOR WRITTEN APPROVAL OF THE HOLDER) SHARES THAT MAY BE ISSUED FROM TIME TO
TIME AT A PRICE NO LESS THAN THE VWAP ENDING WITHIN THREE (3) BUSINESS DAYS
PRIOR TO THE COMPLETION OF THE TRANSACTION (THE PRIMARY PURPOSE OF WHICH IS NOT
TO RAISE EQUITY CAPITAL), AND

(F) ANY ISSUANCE OF SECURITIES TO HOLDERS OF THE OTHER SECURITIES PROVIDED SUCH
TRANSACTIONS ARE IN ACCORDANCE WITH THE TERMS OF SUCH INSTRUMENT (INCLUDING ANY
ANTI-DILUTION PROTECTION CONTAINED IN SUCH INSTRUMENT) OR ARE ON TERMS
DETERMINED BY THE BOARD OF DIRECTORS OF THE COMPANY TO BE NO LESS FAVORABLE TO
THE COMPANY THAN THE EXISTING TERMS.

“Original Issue Date” shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.

“Person” means a corporation, an association, a partnership, organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency.

 “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

“Trading Day” means a day on which the shares of Common Stock are quoted on the
OTC or quoted or traded on such Subsequent Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event that the shares of
Common Stock are not listed or quoted, then Trading Day shall mean a Business
Day.

“Transaction Documents” means the Securities Purchase Agreement or any other
agreement delivered in connection with the Securities Purchase Agreement,
including, without

16

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limitation, the Security Agreement, the Irrevocable Transfer Agent Instructions,
and the Registration Rights Agreement.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
this Debenture or as payment of interest in accordance with the terms hereof.

“Underlying Shares Registration Statement” means a registration statement
meeting the requirements set forth in the Investor’s Registration Rights
Agreement, dated the date hereof by and between the Obligor and the Holder,
covering among other things the resale of the Underlying Shares and naming the
Holder as a “selling stockholder” thereunder.

“VWAP” means the price per share in the volume weighted average price of the
Common Stock on the Nasdaq Capital Market or other Subsequent Market   which the
Common Stock is then listed as quoted by Bloomberg, LP.

Section 6.              Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other 6% Debentures now or
hereafter issued to the Holder under the terms set forth herein. As long as this
Debenture is outstanding, the Obligor shall not and shall cause their
subsidiaries not to, without the consent of the Holder of at least a majority of
the principal amount of the 6% Convertible Debentures then outstanding (whether
or not the Holder consents), (i) amend its certificate of incorporation, bylaws
or other charter documents so as to adversely affect any rights of the Holder;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents; or
(iii) enter into any agreement with respect to any of the foregoing.

Section 7.              This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Obligor, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.

Section 8.              If this Debenture is mutilated, lost, stolen or
destroyed, the Obligor shall execute and deliver, in exchange and substitution
for and upon cancellation of the mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Obligor.

Section 9.              Except as described in the Disclosure Schedule, no
indebtedness of the Obligor is senior to this Debenture in right of payment,
whether with respect to interest, damages or upon liquidation or dissolution or
otherwise. Without the Holder’s consent, the Obligor will not and will not
permit any of their subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any indebtedness of any kind, on or with
respect to any of its property

17

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or assets now owned or hereafter acquired or any interest therein or any income
or profits there from that is senior in any respect to the obligations of the
Obligor under this Debenture except for capital lease financing, in cases where
the security interest is in the nature of a purchase money security interest, or
for funds used for acquisitions by the Obligor or any subsidiary of a business
that has positive earnings before  interest, taxes, depreciation, and
amortization expenses or to refinance of the purchase money security interest
initially taken.

Section 10.            This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the U.S. District Court for the District of New Jersey  sitting in Newark, New
Jersey in connection with any dispute arising under this Debenture and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens to the bringing of any such proceeding
in such jurisdictions.

Section 11.            If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys’ fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder’s rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.

Section 12.            Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.

Section 13.            If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

18

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Section 14.            Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

Section 15.            THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS
AGREEMENT.

[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]

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IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible Debenture to
be duly executed by a duly authorized officer as of the date set forth above.

ISONICS CORPORATION

 

 

 

 

By:

 

 

Name:

James E. Alexander

 

Title:

President and Chief Executive Officer

 

20

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EXHIBIT “A”

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Debenture)

 

TO:

 

The undersigned hereby irrevocably elects to convert
$                               of the principal amount of the above Debenture
into Shares of Common Stock of Isonics Corporation, according to the conditions
stated therein, as of the Conversion Date written below.

Conversion Date:

 

 

 

 

 

Applicable Conversion Price:

 

 

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Address:

 

 

 

 

 

Amount to be converted:

$

 

 

 

 

Amount of Debenture unconverted:

$

 

 

 

 

Conversion Price per share:

$

 

 

 

 

Number of shares of Common Stock to be issued:

 

 

 

 

 

Please issue the shares of Common Stock in the following name and to the
following address:

 

 

 

 

 

Issue to:

 

 

 

 

 

Authorized Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Phone Number:

 

 

 

 

 

Broker DTC Participant Code:

 

 

 

 

 

Account Number:

 

 

 

If this name is different from the name of the Holder, the Holder will have to
show compliance for such transfer with federal and applicable state securities
laws or in accordance with the plan of distribution in the Underlying Shares
Registration Statement.

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By submitting this Notice of Conversion, the undersigned holder represents and
warrants to the Obligor that it is an accredited investor as that term is
defined in SEC Rule 501(a), it is a sophisticated investor as required by SEC
Rule 506, that it has completed such investigation into the Obligor and the
securities being acquired pursuant to this Notice of Conversion as the
undersigned (in consultation with its advisors) has determined appropriate, and
that it is submitting this Notice of Conversion of its own volition and free
will.

By:

 

 

Date:

 

Name:

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Social Security Number

 

 

 

 

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