Exhibit
10.5


IRREVOCABLE TRANSFER AGENT INSTRUCTIONS


April 10, 2007


 


Continental Stock Transfer & Trust Company


17 Battery Place 8th Floor


New York, NY 10004


Attention: William Seegraber


 


RE:         ISONICS
CORPORATION


Ladies and
Gentlemen:


Reference is made to that certain Securities Purchase
Agreement (the “Securities Purchase Agreement”) of even date herewith by
and between Isonics Corporation, a California corporation (the  “Company”), and the Buyers set
forth on Schedule I attached thereto (collectively the “Buyers”).  Pursuant to the Securities Purchase
Agreement, the Company (and subject to the terms and conditions of the
Securities Purchase Agreement) have sold to the Buyers, and the Buyers have
purchased from the Company, convertible debentures (collectively, the “Debentures”)
in the aggregate principal amount of Two 
Million Dollars ($2,000,000), plus accrued interest, which are
convertible into shares of the Company’s common stock, no par value per share
(the “Common Stock”) in accordance with the terms of the
Debentures.  The Company has also issued
to the Buyer a  warrant to purchase an
aggregate of 250,000 shares of Common Stock (the “Warrant Shares”), at
the Buyer’s discretion (the “Warrant”).


These instructions relate to stock issuances or
transfers of not more than a total 
2,276,617  shares of the Company’s
Common Stock unless and until the Company obtains shareholder approval for the
issuance of a greater number of shares of Common Stock as contemplated in
Section 4(o) of the Securities Purchase Agreement thereafter up to and 250,000
Warrant Shares of Common Stock thereafter up to:


1.                                       10,000,000
shares of Common Stock to be issued to the Buyers upon conversion of the
Debentures (“Conversion Shares”).


2.                                       Shares
of Common Stock to be issued to the Buyers upon conversion of accrued interest
and liquidated damages into Common Stock if the Company has elected to pay such
accrued interest under the Convertible Debentures (“Interest”) and/or













liquidated damages under
the Investor’s Registration Rights Agreement dated the date hereof by and
between the Company and the Buyer (“Liquidated Damages”) in shares of
the Company’s Common Stock as calculated in the Convertible Debenture and the
Investor’s Registration Rights Agreement, respectively (the “Interest Shares”
and the “Liquidated Damages Shares”).


3.                                       Up
to 250,000 Warrant Shares.


This letter shall
serve as our irrevocable authorization and direction to Continental Stock
Transfer and Trust Company (the “Transfer Agent”) to do the following
(provided that you are acting as Transfer Agent of the Company at such time):


1.               Delivery of Conversion Notice or Exercise Notice and
Exercise Price.


a.               Delivery of Conversion Notice.  In all cases where the Buyer intends to
convert a portion or all of the principal amount of the Debentures, the Buyer
must deliver to the Company via facsimile or electronic mail to the Company a
properly completed and duly executed Conversion Notice (the “Conversion
Notice”) in the form attached as Exhibit A to the Debentures.


b.              Delivery of an Exercise Notice and Exercise Price.  In all cases where the Buyer intends to
exercise a portion or all of the Warrants, the Buyer must deliver to the
Company via facsimile or electronic mail to the Company a properly completed
and duly executed Exercise Notice (the “Exercise Notice”) in the form
attached as Exhibit A to the Warrants as well the Exercise Price for the
Warrants being exercised, if being exercised on a cash basis, via wire transfer
of good and immediately available funds to such instructions provided by the
Company.


c.               In the event that
counsel to the Company fails or refuses to render an opinion as required to
issue the Conversion Shares, the Warrant Shares, the Liquidated Damages (if
elected by the Company to be paid in Common Stock), or the Interest Shares (if
elected by the Company to be paid in Common Stock of the Company) (either with
or without restrictive legends, as applicable), then the Company irrevocably
and expressly authorizes David Gonzalez, Esq. as counsel to the Buyer, or such
other counsel to the Buyer chosen by the Buyer and designated by the Buyer in
writing to the Transfer Agent with a copy to the Company, to render such
opinion.  The Transfer Agent shall accept
and be entitled to rely on such opinion for the purposes of issuing the
Conversion Shares, the Warrant Shares, the Liquidated Damages, or the Interest
Shares.


2.               Conversions, Warrant Exercises, and Issuance of Liquidated Damages
Shares or Interest Shares at the Instruction of the Company.  The
Transfer Agent shall deliver Conversion Shares, Warrant Shares, Liquidated
Damages Shares or Interest Shares (if
the Company has elected to make such payments by the issuance of Shares of the
Company’s Common Stock) (as the case may be) in accordance with the
instructions



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given to it by the Company. 
Since the Transfer Agent participates in The Depository Trust
Company (“DTC”) Fast Automated Securities Transfer Program, the Transfer
Agent shall credit the Conversion Shares, the Warrant Shares, Liquidated
Damages Shares or Interest Shares to the Buyer’s or their designees’ balance
account with DTC through its Deposit Withdrawal At Custodian (“DWAC”)
system provided that the Company is an eligible security and further provided
that the Buyer causes its bank or broker to initiate the DWAC transaction,
unless the Conversion Shares,  the
Warrant Shares Liquidated Damages Shares or Interest Shares to be issued are in
physical stock certificate form or restricted securities’ as that term is
defined in Rule 144.  When delivering
physical stock certificates or restricted securities, the Transfer Agent shall
issue and deliver via common carrier of overnight delivery to the address as
specified in the Conversion Notice or the Exercise Notice (as the case may be)
a certificate registered in the name of the Buyer or its designees for the
Conversion Shares, the Warrant Shares, Liquidated Damages Shares or Interest
Shares (as the case may be) and if “restricted securities” shall impose its
normal legend on such certificate.


3.               Failure to Deliver.  If
the Buyer has failed to receive the Conversion Shares, the Warrant Shares,
Liquidated Damages Shares or Interest Shares within three (3) Trading Days of
delivery of a Conversion Notice or Exercise Notice (as the case may be) as
required by the Warrants or the Debentures or within three (3) Trading Days of
the Company’s notification to the Buyer of its election to pay Liquidated
Damages and/or Interest in shares of the Company’s Common Stock or failure to
receive notification from the Company of its election to pay Liquidated Damages
or Interest in cash or shares of the Company’s Common Stock within three (3)
Trading Days of such Liquidated Damages or Interest being due (a “Failure to
Timely Deliver”), the Buyer may provide written notification to the Company
and to the Transfer Agent describing such failure (“Notice of Failure to
Timely Deliver”) as set forth in Exhibit A attached hereto.  Upon such notification, the Company
irrevocably appoints David Gonzalez as its agent to instruct the Transfer Agent
for all pending and future deliveries of Conversion Notices, Exercises Notices,
issuances of Liquidated Damages Shares and/or Interest Shares.


The Notice of Failure to
Timely Deliver and must set forth at least the following:


a.               A certification
that the Buyer delivered the Conversion Notice or the Exercise Notice and
Exercise Price to the Company as contemplated in paragraph 1, above and/or that
the Company has elected to pay Liquidated Damages and/or Interest in shares of
the Company’s Common Stock or has failed to advise the Buyer of its election to
pay Liquidated Damages and/or Interest in cash or shares of the Company’s
Common Stock within three (3) Trading Days of such Liquidated Damages or
Interest being due.


b.              The circumstances
surrounding the Failure to Timely Deliver, including the date that the Buyer
delivered the Conversion Notice to the Company (or in the case of a Warrant,
the Exercise Notice and full payment for the Warrant Shares if exercised on a
cash-basis), the date the Company notified or failed



 3
 









to notify the
Buyer, the Buyer of its election to pay Liquidated Damages and/or Interest in
shares of the Company’s Common Stock or and a statement that all of the
requirements of the Debenture (as to a Conversion Notice) or the Warrant (as to
an Exercise Notice) or the payment of Liquidated Damages, or Interest were
met,;


c.               The date by which
delivery was to have been made in accordance with the terms of the Debenture,
the Investor’s Registration Rights Agreement or the Warrant or the election of
the Company to pay Liquidated Damages or Interest in shares of the Company’s
Common Stock;


d.              A certification that
the Conversion Shares, Warrant Shares, Liquidated Damages Shares, or Interest
Shares have not been delivered to the Buyer;


e.               A certification that
the Buyer has sent a copy of the Notice of Failure to Timely Deliver to the
Company; and


f.                 And be duly
executed by the Buyer’s whose signature shall be notarized.


The Transfer Agent is
entitled to rely on the Notice of Failure to Timely Deliver from the Buyer.


4.              Already
Delivered Conversion Notices, Exercises Notices or Elections to Pay Liquidated
Damages or Interest in Shares of the Company’s Common Stock.  If the Transfer Agent receives a Notice
of Failure to Deliver for a Conversion Notice or Exercise Notice that has been
delivered to the Company (with full payment of, in the case of an Exercise
Notice on a cash basis), Liquidated Damages Shares or Interest Shares where the
Company has elected to pay Liquidated Damages Shares or Interest Shares, the Buyer,
through David Gonzalez, shall be entitled to instruct the Transfer Agent to
process such Conversion Notice or Exercise Notice, issue the Liquidated Damages
Shares or the Interest Shares, in accordance with the terms of these
instructions, with regard to the relevant Conversion Notice or Exercise Notice
to deliver the Conversion Shares or Warrant Shares or Liquidated Damages Shares
or Interest Shares as set forth in the Notice of Failure to Timely Deliver
within two (2) Trading Days of such notification from the Buyer.  For purposes hereof “Trading Day” shall mean any day on which the Nasdaq
Stock Market is open for customary trading.


5.               Future Conversion Notices and/or Exercise Notices or Issuances of
Liquidated Damages Shares or Interest Shares (if elected by the Company).  All such Conversion Notices and/or Exercise
Notices or requests for issuances of Liquidated Damages Shares of Interest
Shares following the date that the Transfer Agent has received a Notice of
Failure to Timely Deliver shall be delivered by David Gonzalez to the Transfer
Agent and the Company, via facsimile or electronic mail or any commercially
reasonable method, along with an opinion of counsel either from David Gonzalez,
Esq. or such other Buyer’s counsel as may be designated by the Buyer in writing
to the Transfer Agent with a copy to the Company if applicable,



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(“Instructions
and Opinion”) regarding either the availability of an exemption from
registration for the Conversion Shares, Warrant Shares, Liquidated Damages
Shares or Interest Shares to be delivered, whether the Conversion Shares,
Warrant Shares, the Liquidated Damages Shares or Interest Shares to be issued
should bear a restrictive legend, and that the issuance of the Conversion
Shares, Liquidated Damages Shares, Interest Shares, or the Warrant Shares is in
accordance with the terms of the Debentures or the Warrants, as
appropriate.  No later than on the sixth
(6th)
Trading Day following the Transfer Agent’s receipt of the Instructions and
Opinion (or, if later, the sixth (6th)
Trading Day following the date that Mr. Gonzalez has sent a copy of the
Instructions and Opinion to the Company), the Transfer Agent shall (i) issue
and deliver the Conversion Shares, the Warrant Shares, Liquidated Damages
Shares or Interest Shares (as applicable) as specified in the Instructions and
Opinion.  The Transfer Agent shall deliver Conversion Shares, the Liquidated
Damages Shares, Interest Shares or Warrant Shares (as the case may be) in
accordance with the instructions given to it in the Instructions.  Since the Transfer Agent participates in
The Depository Trust Company (“DTC”) Fast Automated Securities Transfer
Program, the Transfer Agent shall credit the Conversion Shares, Liquidated
Damages Shares, Interest Shares or the Warrant Shares to the Buyer’s or their
designees’ balance account with DTC through its Deposit Withdrawal At
Custodian (“DWAC”) system provided the Buyer causes its bank or
broker to initiate the DWAC transaction, unless the Conversion Shares or the
Warrant Shares to be issued are ‘restricted securities’ as that term is defined
in Rule 144.  When delivering restricted
securities, the Transfer Agent shall issue and deliver via common carrier of
overnight delivery to the address as specified in the Conversion Notice or the
Exercise Notice (as the case may be) a certificate registered in the name of
the Buyer or its designees for the Conversion Shares or the Warrant Shares (as
the case may be) and shall impose its normal legend on such certificate.


The Company hereby irrevocably
and expressly authorizes David Gonzalez, Esq. as counsel to the Buyer, or such
other counsel to the Buyer chosen by the Buyer, to render such Instructions and
Opinion and the Transfer Agent shall accept and be entitled to rely on such
Instructions and Opinion for the purposes of issuing the Conversion Shares,
Liquidated Damages Shares, Interest Shares and Warrant Shares.


Any Conversion Notice,
Exercise Notice or instruction to issue Liquidated Damages Shares or Interest
Shares delivered hereunder shall constitute an irrevocable instruction to the
Transfer Agent to process such notice or notices in accordance with the terms
thereof.


6.               All Shares.


a.               The Transfer Agent
shall reserve for issuance to the Buyers a minimum of 2,276,617  Conversion Shares and 250,000 Warrant
Shares.  Following approval by the
shareholders of the issuance of shares of the Company’s Common Stock in excess
of 19.99% of the Company’s outstanding shares of Common Stock upon conversion
of the Debentures and exercise of the Warrants (to be authorized by the
shareholders of the Company no later than



 5
 









November 30,
2007), the Transfer Agent shall, upon direction by the Company, reserve for
issuance to the Buyers a minimum of 10,000,000 Conversion Shares and 250,000
Warrant Shares.  All such shares shall
remain in reserve with the Transfer Agent until the Company and the Buyers
provides the Transfer Agent instructions that the shares or any part of them
shall be taken out of reserve and shall no longer be subject to the terms of
these instructions.


b.              The Company hereby
confirms to the Transfer Agent and the Buyers that no instructions other than
as contemplated herein will be given to Transfer Agent by the Company with
respect to the matters referenced herein. 
The Company hereby authorizes the Transfer Agent, and the Transfer Agent
shall be obligated, to disregard any contrary instructions received by or on
behalf of the Company.


The Company hereby confirm to the Transfer Agent and
the Buyers that certificates representing the Conversion Shares and Warrant
Shares shall not bear any legend restricting transfer and should not be subject
to any stop-transfer restrictions and shall otherwise be freely transferable on
the books and records of the Company; provided that
such shares are registered pursuant to an effective Registration Statement and
counsel to the Company has delivered a notice of effectiveness and opinion of
effectiveness to the Transfer Agent. 
Should the Conversion Shares, Warrant Shares, Liquidated Damages Shares,
Interest SAhres not be registered or otherwise “restricted securities” Counsel
to the Company will provide an opinion to the Transfer Agent that the issuance
is an exempt transaction under the Securities Act of 1933, as amended.  In the event that Counsel to the Company
fails or refuses to deliver a notice of effectiveness, opinion of
effectiveness, or opinion as to the exemption of transaction under the
Securities Act of 1933, as amended, the Company irrevocably and expressly
authorizes David Gonzalez as counsel to the Buyer, or such other counsel as may
be designated by the Buyer in writing to the Transfer Agent with a copy to the
Company, to deliver and the Transfer Agent shall accept and be authorized to
rely on such notice of effectiveness, 
opinion of effectiveness, or  such
opinion of exemption delivered by David Gonzalez or such other counsel.


  The Company
hereby agrees that it shall not replace the Transfer Agent as the Company’s
transfer agent without the prior written consent of the Buyers.


In the event that the Transfer Agent resigns as
transfer agent to the Company, the Company shall use its best efforts to obtain
a suitable replacement transfer agent, within thirty (30) calendar days of the
Transfer Agent’s resignation, which agent shall have agreed to serve as
transfer agent and to be bound by the terms and conditions of these Transfer
Agent Instructions within the Notice Period referenced above.  The Company’s obligation to obtain a suitable
replacement transfer agent shall not affect the Transfer Agent’s  ability to resign


  The Company hereby acknowledges and
confirms that complying with the terms of this Agreement does not and shall not
prohibit the Transfer Agent from satisfying any and all fiduciary
responsibilities and duties it may owe to the Company.



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The Company acknowledges that the Buyers is relying on
the representations and covenants made by the Company hereunder and are a
material inducement to the Buyers purchasing convertible debentures under the
Securities Purchase Agreement.  The
Company further acknowledges that without such representations and covenants of
the Company made hereunder, the Buyers would not purchase the Debentures.


Each party hereto specifically acknowledges and agrees
that in the event of a breach or threatened breach by a party hereto of any
provision hereof, the Buyers will be irreparably damaged and that damages at
law would be an inadequate remedy if these Irrevocable Transfer Agent
Instructions were not specifically enforced. 
Therefore, in the event of a breach or threatened breach by a party
hereto, including, without limitation, the attempted termination of the agency
relationship created by this instrument, the Buyers shall be entitled, in
addition to all other rights or remedies, to an injunction restraining such breach,
without being required to show any actual damage or to post any bond or other
security, and/or to a decree for specific performance of the provisions of
these Irrevocable Transfer Agent Instructions.


[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]



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IN WITNESS WHEREOF,
the parties have caused this letter agreement regarding Irrevocable Transfer
Agent Instructions to be duly executed and delivered as of the date first
written above.


	
  

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Isonics Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: John Sakys

  
	
   

  	
  Title:   President & Interim
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  David Gonzalez, Esq.

  



 


	
  Continental Stock Transfer and Trust Company

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: William
  Seegraber

  
	
  Title:

  	
   

  	
   

  
				



 



 8















 


SCHEDULE I


SCHEDULE OF BUYERS


	
  Name

  	
   

  	
  Signature

  	
   

  	
  Address/Facsimile

  Number of Buyers

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cornell Capital Partners, L.P.

  	
   

  	
  By:       Yorkville
  Advisors, LLC

  	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
   

  	
  Its:        Investment
  Manager

  	
   

  	
  Jersey City, NJ 07303

  
	
   

  	
   

  	
   

  	
   

  	
  Facsimile:(201) 985-8266

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:   Mark Angelo

  	
   

  	
   

  
	
   

  	
   

  	
  Its:         Portfolio
  Manager

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						



 


 


















 


EXHIBIT A


Notice of
Failure to Timely Deliver


 


Continental Stock Transfer and Trust Company


17 Battery Place 8th Floor


New York, NY 10004


Attention: William Seegraber


 


Dear Mr. Seegraber,


Please accept this notification of Cornell’s Notice of
Failure to Timely Deliver pursuant to the Irrevocable Transfer Agent
Instructions dated April  __, 2007 (the “Irrevocable
transfer Agent Instructions”).


Pursuant to the Irrevocable Transfer Agent
Instructions we the Buyer delivered [the Conversion Notice or the Exercise
Notice and Exercise Price] to the Company as contemplated Irrevocable Transfer
Agent Instructions or [the Company elected to pay Liquidated Damages and/or
outstanding and accrued interest in shares of the Company’s Common Stock or has
failed to advise the Buyer of its election to pay Liquidated Damages and/or
Interest in cash or shares of the Company’s Common Stock by
            which is
three (3) Trading Days from the date such Liquidated Damages or Interest was
due and owed].


We delivered the Conversion Notice to the Company (or
in the case of a Warrant, the Exercise Notice and full payment for the Warrant
Shares if exercised on a cash-basis), on
               .


[The Company notified or failed to notify the Buyer,
the Buyer of its election to pay Liquidated Damages and/or Interest in shares
of the Company’s Common Stock by
                 .
]


We certify that all of the requirements of the
Debenture and/or the Warrant (as to an Exercise Notice) or the payment of
Liquidated Damages, or Interest have been were met.


The [Conversion Shares, Liquidated Damages Shares,
Interest Shares or the Warrant Shares 
were due to be delivered by
                    .


The Company has failed to elect to pay Liquidated
Damages or Interest in shares of the Company’s Common Stock by
                    ;


A certification that the Conversion Shares, Warrant
Shares, Liquidated Damages Shares, or Interest Shares have not been delivered
to the Buyer;


 


















 


Therefore we irrevocably direct you to deliver the
[Conversion Shares, Liquidated Damages Shares, Interest Shares, Warrant Shares]
to us via [Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, the Transfer Agent to the our balance account with DTC
through its Deposit Withdrawal At Custodian (“DWAC”) or issue and
deliver via common carrier of overnight delivery to the address as specified in
the Conversion Notice or the Exercise Notice (as the case may be) a certificate
along with restrictive legends registered in the name of the Buyer or its
designees for the Conversion Shares, Liquidated Damages Shares, Interest
Shares  or the Warrant Shares (as the
case may be).


We are hereby simultaneously delivering this Notice of
Failure to Timely Deliver to the Company.


	
  

  	
  CORNELL CAPITAL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:       Yorkville
  Advisors, LLC

  
	
   

  	
  Its:       Investment
  Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:   Mark Angelo

  
	
   

  	
  Title:     Portfolio
  Manager

  
	
   

  	
   

  
	
  State of New Jersey

  	
   

  
	
  County of Hudson

  	
   

  
	
   

  	
   

  
	
  On this      day of
           , 2007

  appeared before me

  	
   

  
	
                                who
  is personally known

  to me and executed the foregoing document.

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: