Document:

Exhibit 10.7

 

WARRANT

 

THE SECURITIES
REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

ISONICS CORPORATION

 

Warrant To Purchase Common Stock

 

	
  Warrant No.:
  CCP-001

  	
  Number of Shares: 3,000,000

  
	
   

  	
   

  
	
   

  	
  Warrant Exercise Price: $1.75

  
	
   

  	
   

  
	
   

  	
  Expiration Date: May 30,
  2009

  

 

Date of Issuance: May 30, 2006

 

Isonics
Corporation, a California corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Cornell Capital
Partners, LP (the “Holder”), the registered holder hereof or
its permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times on
or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) Three Million (3,000,000) fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant
Shares”) at the exercise price per share provided in Section 1(b) below
or as subsequently adjusted; provided, however, that in no event shall the
holder be entitled to exercise this Warrant for a number of Warrant Shares in
excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise, except within
sixty (60) days of the Expiration Date (however, such restriction may be waived
by Holder (but only as to itself and not to any other holder) upon not less
than 65 days prior notice to the Company). 
For purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall include
the number of shares of Common Stock issuable upon exercise of this Warrant
with respect to which the determination of such proviso is being made, but
shall exclude shares of Common Stock which would be issuable upon (i) exercise
of the remaining, unexercised Warrants beneficially owned by the holder and its
affiliates and

 

1

 

(ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by the holder and its affiliates (including,
without limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein.  Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.  For
purposes of this Warrant, in determining the number of outstanding shares of
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB,
as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth
the number of shares of Common Stock outstanding.  Upon the written request of any holder, the
Company shall promptly, but in no event later than one (1) Business Day
following the receipt of such notice, confirm in writing to any such holder the
number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the exercise of
Warrants (as defined below) by such holder and its affiliates since the date as
of which such number of outstanding shares of Common Stock was reported.

 

Section 1.

 

(a) This
Warrant is one (1) of three (3) common stock purchase warrants (the “Warrant”)
issued pursuant to the Securities Purchase Agreement (“Securities Purchase
Agreement”) dated the date hereof between the Company and the Buyers listed
on Schedule I thereto.  The other
warrant issued pursuant to the Securities Purchase Agreement is referred to
herein as the “Companion Warrants” and is to be interpreted together
with this Warrant.  Convertible
debentures were issued to the holder of this Warrant at the same time as and
after this Warrant and the Companion Warrants as described in the Securities
Purchase Agreement and are referred to herein as the Convertible Debentures.

 

(b) Definitions.  The following words and terms as used in this
Warrant shall have the following meanings:

 

(i)            “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.

 

(ii)           “Business
Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized or required by law to
remain closed.

 

(iii)          “Closing
Bid Price” means the closing bid price of Common Stock as quoted on the Principal
Market (as reported by Bloomberg Financial Markets (“Bloomberg”) through
its “Volume at Price” function).

 

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(iv)          “Common
Stock” means (i) the Company’s common stock, no par value per share,
and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

 

(v)           “Event
of Default” means an event of default under the Securities Purchase
Agreement, the Convertible Debentures issued in connection therewith or the
Investor’s Registration Rights Agreement dated the date hereof.

 

(vi)          “Excluded
Securities” means, any of the following:

 

(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 Warrant 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, as quoted by
Bloomberg, LP 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.

 

(vii)         “Expiration
Date” means the date three (3) years from the Issuance Date of this
Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the City of New York or the
State of New York or on which trading does not take place on the Principal
Exchange or automated quotation system on which the Common Stock is traded (a “Holiday”),
the next date that is not a Holiday.

 

(viii)        “Issuance
Date” means the date hereof.

 

(ix)           “Options”
means any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.

 

3

 

(x)            “Other
Securities” means (i) those convertible debentures, options and
warrants of the Company issued prior to, and outstanding on, the Issuance Date
of this Warrant, (ii) the shares of Common Stock issuable on exercise of
such convertible debentures, options and warrants, provided such convertible
debentures, options and warrants are not amended after the Issuance Date of
this Warrant and (iii) the shares of Common Stock issuable upon exercise
of this Warrant the Convertible Debenture and the Companion Warrants that were
issued pursuant to the Securities Purchase Agreement, and (iv) the 660,000
shares of restricted common stock issued or to be issued pursuant to the
Securities Purchase Agreement, and (v) any other shares of Common Stock
issued or issuable pursuant to this Warrant, the Companion Warrants, the
Convertible Debenture, and the registration rights agreement entered into between
the Company and the initial holder of this Warrant.

 

(xi)           “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

(xii)          “Principal
Market” means the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market, the Nasdaq Capital Market, whichever is at the time the
principal trading exchange or market for such security, or the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg or, if no bid or sale information is reported for such security by
Bloomberg, then the average of the bid prices of each of the market makers for
such security as reported in the “pink sheets” by the National Quotation Bureau, Inc.

 

(xiii)         “Securities
Act” means the Securities Act of 1933, as amended.

 

(xiv)        “VWAP”
means the volume weighted average price per share of the Company’s Common Stock
on the Nasdaq Capital Market or other Subsequent Market, as quoted by
Bloomberg, LP.

 

(xv)         “Warrant”
means this Warrant and all Warrants issued in exchange, transfer or replacement
thereof.

 

(xvi)        “Warrant
Exercise Price” shall be $1.75 or as subsequently adjusted as provided in Section 8
hereof.

 

(xvii)       “Warrant
Shares” means the shares of Common Stock issuable at any time upon exercise
of this Warrant.

 

(c) Other
Definitional Provisions.

 

(i)            Except
as otherwise specified herein, all references herein (A) to the Company
shall be deemed to include the Company’s successors and (B) to any
applicable law defined or referred to herein shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.

 

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(ii)           When
used in this Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer
to this Warrant as a whole and not to any provision of this Warrant, and the
words “Section”, “Schedule”, and “Exhibit” shall refer to
Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.

 

(iii)          Whenever
the context so requires, the neuter gender includes the masculine or feminine,
and the singular number includes the plural, and vice versa.

 

Section 2.               Exercise
of Warrant.

 

(a) Subject to
the terms and conditions hereof, this Warrant may be exercised by the holder
hereof then registered on the books of the Company, pro rata as hereinafter
provided, at any time on any Business Day on or after the opening of business
on such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by
delivery of a written notice, in the form of the subscription notice attached
as Exhibit A hereto (the “Exercise Notice”), of such holder’s
election to exercise this Warrant, which notice shall specify the number of
Warrant Shares to be purchased, payment to the Company of an amount equal
to the Warrant Exercise Price(s) applicable to the Warrant Shares being
purchased, multiplied by the number of Warrant Shares (at the applicable
Warrant Exercise Price) as to which this Warrant is being exercised (plus
any applicable issue or transfer taxes) (the “Aggregate Exercise Price”)
in cash or wire transfer of immediately available funds and the surrender of
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction) to a common carrier for overnight
delivery to the Company as soon as practicable following such date (“Cash
Basis”) or (ii) if after January 15, 2007, at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement or if an Event of Default has occurred, by delivering an Exercise
Notice and in lieu of making payment of the Aggregate Exercise Price in cash or
wire transfer, elect instead to receive upon such exercise the “Net Number” of
shares of Common Stock determined according to the following formula (the “Cashless
Exercise”):

 

Net Number = (A x B) – (A x C)

B

 

For purposes
of the foregoing formula:

 

A = the total number of Warrant Shares with
respect to which this Warrant is then being exercised.

 

B = the VWAP of the Common Stock on the date
of exercise of the Warrant.

 

C = the Warrant Exercise Price then in effect
for the applicable Warrant Shares at the time of such exercise.

 

In the event
of any exercise of the rights represented by this Warrant in compliance with
this Section 2, the Company shall on or before the fifth (5th) Business
Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or

 

5

 

destruction)
and the receipt of the representations of the holder specified in Section 6
hereof, if requested by the Company (the “Exercise Delivery Documents”),
and if the Common Stock is DTC eligible, credit such aggregate number of shares
of Common Stock to which the holder shall be entitled to the holder’s or its
designee’s balance account with The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical
delivery of any or all of the Warrant Shares, or, if the Common Stock is not
DTC eligible then the Company shall, on or before the fifth (5th)
Business Day following receipt of the Exercise Delivery Documents, issue and
surrender to a common carrier for overnight delivery to the address specified in
the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled
pursuant to such request.  Upon delivery
of the Exercise Notice and Aggregate Exercise Price referred to in clause (i) or
(ii) above the holder of this Warrant shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised. 
In the case of a dispute as to the determination of the Warrant Exercise
Price, the VWAP or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the holder the number of Warrant Shares that is
not disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of
receipt of the holder’s Exercise Notice.

 

(b) If the
holder and the Company are unable to agree upon the determination of the
Warrant Exercise Price or arithmetic calculation of the Warrant Shares within
one (1) day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via
facsimile or other form of electronic communication (including without
limitation e-mail) (i) the disputed determination of the Warrant Exercise
Price or the VWAP to an independent, reputable investment banking firm or (ii) the
disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant.  The Company shall
cause the investment banking firm or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the
holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations.  Such investment banking firm’s or accountant’s
determination or calculation, as the case may be, shall be deemed conclusive
absent manifest error.

 

(c) Unless the
rights represented by this Warrant shall have expired or shall have been fully
exercised, the Company shall, as soon as practicable and in no event later than
five (5) Business Days after any exercise and at its own expense, issue a
new Warrant identical in all respects to this Warrant exercised except it shall
represent rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant exercised, less the
number of Warrant Shares with respect to which such Warrant is exercised.

 

(d) No
fractional Warrant Shares are to be issued upon any pro rata exercise of this
Warrant, but rather the number of Warrant Shares issued upon such exercise of
this Warrant shall be rounded up or down to the nearest whole number.

 

(e) If the
Company or its Transfer Agent shall fail for any reason or for no reason to
issue to the holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
holder is entitled or to credit the holder’s balance account with The
Depository Trust Company for such number of Warrant

 

6

 

Shares to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant or
otherwise available to such holder, pay as additional damages in cash to such
holder on each day the issuance of such certificate for Warrant Shares is not
timely effected an amount equal to 0.025% of the product of (A) the sum of
the number of Warrant Shares not issued to the holder on a timely basis and to
which the holder is entitled, and (B) the VWAP of the Common Stock for the
trading day immediately preceding the last possible date which the Company
could have issued such Common Stock to the holder without violating this Section 2.

 

(f) If within
ten (10) days after the Company’s receipt of the Exercise Delivery
Documents, the Company fails to deliver a new Warrant to the holder for the
number of Warrant Shares to which such holder is entitled pursuant to Section 2
hereof, then, in addition to any other available remedies under this Warrant,
or otherwise available to such holder, the Company shall pay as additional
damages in cash to such holder on each day after such tenth (10th)
day that such delivery of such new Warrant is not timely effected in an amount
equal to 0.25% of the product of (A) the number of Warrant Shares
represented by the portion of this Warrant which is not being exercised and (B) the
VWAP of the Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Warrant to the holder
without violating this Section 2.

 

Section 3.               Covenants
as to Common Stock.  The Company
hereby covenants and agrees as follows:

 

(a) This
Warrant is, and any Warrants issued in substitution for or replacement of this
Warrant will upon issuance be, duly authorized and validly issued.

 

(b) Subject to
the availability of sufficient authorized shares, all Warrant Shares which may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.

 

(c) During the
period within which the rights represented by this Warrant may be exercised,
and subject to the availability of sufficient authorized shares the Company
will at all times have authorized and reserved at least one hundred percent
(100%) of the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant and the par value of
said shares will at all times be less than or equal to the applicable Warrant
Exercise Price.  If at any time after December 31,
2006 the Company does not have a sufficient number of shares of Common Stock
authorized and available, then the Company shall call and hold a special
meeting of its stockholders within sixty (60) days of that time for the
sole purpose of increasing the number of authorized shares of Common Stock.

 

(d) The
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
by it hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such action as
may reasonably be requested by the holder of this Warrant in order to protect
the exercise

 

7

 

privilege of
the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. 
The Company will not increase the par value of any shares of Common
Stock receivable upon the exercise of this Warrant above the Warrant Exercise
Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant assuming that there is an exemption available from the
registration requirements of the Securities Act of 1933 and applicable state
law for such exercise.

 

(e) This
Warrant will be binding upon any entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company’s
assets.

 

Section 4.               Taxes.  The Company shall pay any and all taxes,
except any applicable withholding, which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.

 

Section 5.               Warrant
Holder Not Deemed a Stockholder. 
Except as otherwise specifically provided herein, no holder, as such, of
this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of capital stock of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the holder of
this Warrant of the Warrant Shares which he or she is then entitled to receive
upon the due exercise of this Warrant. 
In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.  Notwithstanding this Section 5,
the Company will provide the holder of this Warrant with copies of the same
notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

 

Section 6.               Representations
of Holder.  The holder of this
Warrant, by the acceptance hereof, represents that it is acquiring this Warrant
and the Warrant Shares for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
of this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any
of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act.  The holder of this
Warrant further represents, by acceptance hereof, that, as of this date, such
holder is an “accredited investor” as such term is defined in Rule 501(a)(1) of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an “Accredited Investor”).  Upon exercise of this Warrant the holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the holder’s own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale

 

8

 

and that such
holder is an Accredited Investor.  If
such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder’s exercise of this Warrant
that the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of this Warrant shall not violate any United States or state
securities laws.

 

Section 7.               Ownership
and Transfer.

 

(a) The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to the holder hereof), a
register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as
the name and address of each transferee. 
The Company may treat the person in whose name any Warrant is registered
on the register as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, but in all events recognizing any
transfers made in accordance with the terms of this Warrant.

 

Section 8.               Adjustment
of Warrant Exercise Price and Number of Shares.  The Warrant Exercise Price and the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
from time to time as follows:

 

(a) Adjustment
of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock.  If and whenever on or after the Issuance Date
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than (i) Excluded Securities,
(ii) shares of Common Stock which are issued or deemed to have been issued
by the Company in connection with an Approved Stock Plan, or (iii) the
Other Securities) (the New Shares) for a consideration per share less than a
price (the “Applicable Price”) equal to the Warrant Exercise Price in
effect immediately prior to such issuance or sale, then immediately after such
issue or sale the Warrant Exercise Price then in effect shall be adjusted (the “Weighted
Adjustment”) to a price determined by multiplying such exercise price by a
fraction,

 

the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance plus the
number of shares of common stock that the aggregate consideration received by
the Company for such issuance would purchase at the Warrant Exercise Price then
in effect; and

 

the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of New Shares.

 

For the
purposes of this Section 8(a), the term “Common Stock outstanding”
includes all shares of Common Stock then outstanding calculated in accordance
with generally accepted accounting principles consistently applied.

 

Upon each such
adjustment of the Warrant Exercise Price hereunder, the number of Warrant
Shares issuable upon exercise of this Warrant shall be adjusted to the number
of shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Warrant Exercise Price resulting from such
adjustment.

 

9

 

(b) Effect
on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted
Warrant Exercise Price under Section 8(a) above, the following shall
be applicable:

 

(i)            Issuance
of Options.  If after the date
hereof, the Company in any manner grants any Options and the lowest price per
share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange of any convertible securities
issuable upon exercise of any such Option is less than the Applicable Price
(not including Excluded Securities), then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share and shall
be subject to the Weighted Adjustment. 
For purposes of this Section 8(b)(i), the lowest price per share
for which one share of Common Stock is issuable upon exercise of such Options
or upon conversion or exchange of such Convertible Securities shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon the granting
or sale of the Option, upon exercise of the Option or upon conversion or
exchange of any convertible security issuable upon exercise of such
Option.  No further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such Common
Stock or of such convertible securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion or exchange of
such convertible securities.

 

(ii)           Issuance
of Convertible Securities.  If the
Company in any manner issues or sells any convertible securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price (not including
Excluded Securities), then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such convertible securities for such price per share and
shall be subject to the Weighted Adjustment. 
For the purposes of this Section 8(b)(ii), the lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the convertible security and upon conversion
or exchange of such convertible security. 
No further adjustment of the Warrant Exercise Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other provisions
of this Section 8(b), no further adjustment of the Warrant Exercise Price
shall be made by reason of such issue or sale.

 

(iii)          Change
in Option Price or Rate of Conversion. 
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
convertible securities, or the rate at which any convertible securities are
convertible into or exchangeable for Common Stock changes at any time, the
Warrant Exercise Price in effect at the time of such change shall be adjusted
and shall be subject to the Weighted Adjustment to the Warrant Exercise Price which
would have been in effect at such time had such Options or convertible
securities provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of Warrant Shares issuable upon exercise of this
Warrant

 

10

 

shall be
correspondingly readjusted.  For purposes
of this Section 8(b)(iii), if the terms of any Option or convertible
security that was outstanding as of the Issuance Date of this Warrant are
changed in the manner described in the immediately preceding sentence, then
such Option or convertible security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.  No
adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.

 

(c) Effect
on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted
Warrant Exercise Price under Sections 8(a) and 8(b), the following
shall be applicable:

 

(i)            Calculation
of Consideration Received.  If any
Common Stock, Options or convertible securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefore will be
deemed to be the gross amount received by the Company therefore.  If any Common Stock, Options or convertible
securities are issued or sold for a consideration other than cash, the amount
of such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company will
be the market price of such securities on the date of receipt of such
securities.  If any Common Stock, Options
or convertible securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the surviving entity, the
amount of consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or convertible securities, as the
case may be.  The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the holders of Warrants representing at least a majority of the
Warrant Shares issuable upon exercise of the Warrants and Companion Warrants
then outstanding.  If such parties are
unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value
of such consideration will be determined within five (5) Business Days
after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
holders of Warrants representing at least a majority of the Warrant Shares
issuable upon exercise of the Warrants (including the Companion Warrants) then
outstanding.  The determination of such
appraiser shall be final and binding upon all parties and the fees and expenses
of such appraiser shall be borne equally by the Company and the holders of
Warrants.

 

(ii)           Integrated
Transactions.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.

 

(iii)          Treasury
Shares.  The number of shares of
Common Stock outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of any shares so
owned or held will be considered an issue or sale of Common Stock.

 

11

 

(iv)          Record
Date.  If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options or in
convertible securities or (2) to subscribe for or purchase Common Stock,
Options or convertible securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

(d) Adjustment
of Warrant Exercise Price upon Subdivision or Combination of Common Stock.  If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced
and the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately increased. 
If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(d) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

 

(e) Distribution
of Assets.  If the Company shall
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

 

(i)            any
Warrant Exercise Price in effect immediately prior to the close of business on
the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such Warrant
Exercise Price by a fraction of which (A) the numerator shall be the
Closing Sale Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (B) the denominator shall be the Closing Sale Price of the
Common Stock on the trading day immediately preceding such record date; and

 

(ii)           either
(A) the number of Warrant Shares obtainable upon exercise of this Warrant
shall be increased to a number of shares equal to the number of shares of
Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution multiplied by the reciprocal of the fraction set forth
in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall

 

12

 

be identical
to those of this Warrant, except that such warrant shall be exercisable into
the amount of the assets that would have been payable to the holder of this
Warrant pursuant to the Distribution had the holder exercised this Warrant
immediately prior to such record date and with an exercise price equal to the
amount by which the exercise price of this Warrant was decreased with respect
to the Distribution pursuant to the terms of the immediately preceding clause
(i).

 

(f) Certain
Events.  If any event occurs of the
type contemplated by the provisions of this Section 8 but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate
adjustment in the Warrant Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights of
the holders of the Warrants; provided, except as set forth in section 8(d),that
no such adjustment pursuant to this Section 8(f) will increase the
Warrant Exercise Price or decrease the number of shares of Common Stock
obtainable as otherwise determined pursuant to this Section 8.

 

(g) Notices.

 

(i)            Immediately
upon any adjustment of the Warrant Exercise Price, the Company will give
written notice thereof to the holder of this Warrant, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.

 

(ii)           The
Company will give written notice to the holder of this Warrant at least ten (10) days
prior to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Organic Change (as defined
below), dissolution or liquidation, provided that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to such holder.

 

(iii)          The
Company will also give written notice to the holder of this Warrant at least
ten (10) days prior to the date on which any Organic Change, dissolution
or liquidation will take place, provided that such information shall be made
known to the public prior to or in conjunction with such notice being provided
to such holder.

 

(h) Limitations.  Notwithstanding the above provisions of this Section 8,
the Company may not issue any shares of Common Stock upon exercise of this
Warrant until the Company’s shareholders approve (without the vote of any
shares acquired in this transaction and related transactions) the issuance of
the Total Transaction Shares as defined in Section 4(l) of the Securities
Purchase Agreement.

 

Section 9.               Purchase
Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.

 

(a) In addition
to any adjustments pursuant to Section 8 above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common

 

13

 

Stock (the “Purchase
Rights”), then the holder of this Warrant will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

 

(b) Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company’s assets to another Person or other
transaction in each case which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.”  Prior to the consummation of any (i) sale
of all or substantially all of the Company’s assets to an acquiring Person or (ii) other
Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the “Acquiring Entity”)
a written agreement (in form and substance satisfactory to the holders of
Warrants representing at least a majority of the Warrant Shares issuable upon
exercise of the Warrants then outstanding) to deliver to each holder of
Warrants in exchange for such Warrants, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and satisfactory to the holders of the Warrants (including an
adjusted warrant exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of the Warrants without regard to any limitations on exercise, if
the value so reflected is less than any Applicable Warrant Exercise Price immediately
prior to such consolidation, merger or sale). 
Prior to the consummation of any other Organic Change, the Company shall
make appropriate provision (in form and substance satisfactory to the holders
of Warrants representing a majority of
the Warrant Shares issuable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
Warrant Shares immediately theretofore issuable and receivable upon the
exercise of such holder’s Warrants (without regard to any limitations on
exercise), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of Warrant Shares which would have been issuable and receivable upon the
exercise of such holder’s Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exercisability of this Warrant).

 

Section 10.             Lost,
Stolen, Mutilated or Destroyed Warrant. 
If this Warrant is lost, stolen, mutilated or destroyed, the Company
shall promptly, on receipt of an indemnification undertaking (or, in the case
of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination
and tenor as this Warrant so lost, stolen, mutilated or destroyed.

 

Section 11.             Notice.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant 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 receipt is received by the sending party transmission is

 

14

 

mechanically
or electronically generated and kept on file by the sending party); or (iii) one
Business 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 Holder:

  	
  Cornell Capital Partners, LP

  
	
   

  	
  101 Hudson Street – Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Attention:

  	
  Mark A. Angelo

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  
	
  With Copy to:

  	
  David Gonzalez, Esq.

  
	
   

  	
  101 Hudson Street – Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  
	
  If to the Company, 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 a holder
of this Warrant, to it at the address and facsimile number set forth on Exhibit C
hereto, with copies to such holder’s representatives as set forth on Exhibit C,
or at such other address and facsimile as shall be delivered to the Company
upon the issuance or transfer of this Warrant. 
Each party shall provide five days’ prior written notice to the other
party of any change in address or facsimile number.  Written confirmation of receipt (A) given
by the recipient of such notice, consent, facsimile, waiver or other
communication, (or (B) 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 12.             Date.  The date of this Warrant is set forth on page 1
hereof.  This Warrant, in all events,
shall be wholly void and of no effect after the close of business on the
Expiration Date, except that notwithstanding any other provisions hereof, the
provisions of

 

15

 

Section 8(b) shall
continue in full force and effect after such date as to any Warrant Shares or
other securities issued upon the exercise of this Warrant.

 

Section 13.             Amendment
and Waiver.  Except as otherwise
provided herein, the provisions of the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Warrants representing at a majority of the Warrant
Shares issuable upon exercise of the Warrants then outstanding; provided that,
except for Section 8(d), no such action may increase the Warrant Exercise
Price or decrease the number of shares or class of stock obtainable upon
exercise of any Warrant without the written consent of the holder of such
Warrant.

 

Section 14.             Descriptive
Headings; Governing Law.  The
descriptive headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this
Warrant.  The corporate laws of the State
of New Jersey shall govern all issues concerning the relative rights of the
Company and its stockholders.  All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
Jersey, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New Jersey or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the State of New Jersey.  Each party
hereby irrevocably submits to the exclusive jurisdiction of United States
District Court for the District of New Jersey sitting in Newark New Jersey, for
the adjudication of any dispute hereunder or in connection herewith or
therewith, or with any transaction contemplated hereby or discussed herein, 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 brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  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 to such party at the
address for such 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.

 

Section 15.            Waiver
of Jury Trial.  AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

 

REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

 

16

 

IN
WITNESS WHEREOF, the Company has caused this Warrant
to be signed as of the date first set forth above.

 

	
   

  	
  ISONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   James E. Alexander

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
					

 

17

 

EXHIBIT A
TO WARRANT

 

EXERCISE
NOTICE

 

TO BE EXECUTED 

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

 

ISONICS CORPORATION

 

The
undersigned holder hereby exercises the right to purchase                         
of the shares of Common Stock (“Warrant Shares”) of Isonics Corporation
(the “Company”), evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

 

Specify Method of exercise by check mark:

 

1.  o       Cash
Exercise

 

(a) Payment
of Warrant Exercise Price. The holder shall pay the Aggregate Exercise
Price of $                    
to the Company in accordance with the terms of the Warrant.

 

(b) Delivery
of Warrant Shares.  The Company shall
deliver to the holder                
Warrant Shares in accordance with the terms of the Warrant.

 

2.  o       Cashless
Exercise

 

(a) Payment
of Warrant Exercise Price.  In lieu
of making payment of the Aggregate Exercise Price, the holder elects to receive
upon such exercise the Net Number of shares of Common Stock determined in
accordance with the terms of the Warrant.

 

(b) Delivery
of Warrant Shares.  The Company shall
deliver to the holder                
Warrant Shares in accordance with the terms of the Warrant.

 

By submitting this Exercise Notice, the undersigned holder represents
and warrants to the Company 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 Company
and the securities being acquired pursuant to this Exercise Notice as the
undersigned (in consultation with its advisors) has determined appropriate, and
that it is submitting this Exercise Notice of its own volition and free will.

 

Date:                            
      ,          

 

Name of Registered Holder

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

2

 

EXHIBIT B
TO WARRANT

 

FORM OF
WARRANT POWER

 

FOR
VALUE RECEIVED, the undersigned does hereby assign and
transfer to                        ,
Federal Identification No.                ,
a warrant to purchase                      
shares of the capital stock of Isonics Corporation represented by warrant
certificate no.           ,
standing in the name of the undersigned on the books of said corporation.  The undersigned does hereby irrevocably
constitute and appoint                       ,
attorney to transfer the warrants of said corporation, with full power of
substitution in the premises.

 

In submitting
this Warrant Power, the undersigned represents and warrants to Isonics
Corporation that it has not offered the Warrant through any means of general
advertising or public solicitation, and that it will provide Isonics Corporation
such other information and representations of the undersigned or of the
transferee necessary or appropriate to permit Isonics Corporation to determine
whether there is an exemption available for the transfer of this Warrant.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
							

 

B-1Exhibit 10.8

 

WARRANT

 

THE SECURITIES
REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO
THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

ISONICS CORPORATION

 

Warrant To Purchase Common Stock

 

	
  Warrant No.:
  CCP-001

  	
  Number
  of Shares: 3,000,000

  
	
   

  	
   

  
	
   

  	
  Warrant
  Exercise Price: $2.00

  
	
   

  	
   

  
	
   

  	
  Expiration
  Date: May 30, 2009

  

 

Date of Issuance:
May 30, 2006

 

Isonics
Corporation, a California corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Cornell Capital
Partners, LP (the “Holder”), the registered holder hereof or
its permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) Three Million (3,000,000) fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant
Shares”) at the exercise price per share provided in Section 1(b)
below or as subsequently adjusted; provided, however, that in no event shall
the holder be entitled to exercise this Warrant for a number of Warrant Shares
in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise, except within
sixty (60) days of the Expiration Date (however, such restriction may be waived
by Holder (but only as to itself and not to any other holder) upon not less
than 65 days prior notice to the Company). For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such proviso is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and

 

1

 

(ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by the holder and its affiliates (including,
without limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB, as the
case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or its transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written request of any holder, the
Company shall promptly, but in no event later than one (1) Business Day
following the receipt of such notice, confirm in writing to any such holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported.

 

Section 1.

 

(a) This
Warrant is one (1) of three (3) common stock purchase warrants (the “Warrant”)
issued pursuant to the Securities Purchase Agreement (“Securities Purchase
Agreement”) dated the date hereof between the Company and the Buyers listed
on Schedule I thereto. The other warrant issued pursuant to the Securities
Purchase Agreement is referred to herein as the “Companion Warrants” and
is to be interpreted together with this Warrant. Convertible debentures were
issued to the holder of this Warrant at the same time as and after this Warrant
and the Companion Warrants as described in the Securities Purchase Agreement
and are referred to herein as the Convertible Debentures.

 

(b) Definitions.
The following words and terms as used in this Warrant shall have the following
meanings:

 

(i)            “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.

 

(ii)           “Business
Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of New York are authorized or required by law to
remain closed.

 

(iii)          “Closing
Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).

 

2

 

(iv)          “Common
Stock” means (i) the Company’s common stock, no par value per share,
and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

 

(v)           “Event
of Default” means an event of default under the Securities Purchase
Agreement, the Convertible Debentures issued in connection therewith or the
Investor’s Registration Rights Agreement dated the date hereof.

 

(vi)          “Excluded
Securities” means, any of the following:

 

(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 Warrant 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, as quoted by
Bloomberg, LP 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.

 

(vii)         “Expiration
Date” means the date three (3) years from the Issuance Date of this Warrant
or, if such date falls on a Saturday, Sunday or other day on which banks are
required or authorized to be closed in the City of New York or the State of New
York or on which trading does not take place on the Principal Exchange or
automated quotation system on which the Common Stock is traded (a “Holiday”),
the next date that is not a Holiday.

 

(viii)        “Issuance
Date” means the date hereof.

 

(ix)           “Options”
means any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.

 

3

 

(x)            “Other
Securities” means (i) those convertible debentures, options and
warrants of the Company issued prior to, and outstanding on, the Issuance Date
of this Warrant, (ii) the shares of Common Stock issuable on exercise of such
convertible debentures, options and warrants, provided such convertible
debentures, options and warrants are not amended after the Issuance Date of
this Warrant and (iii) the shares of Common Stock issuable upon exercise
of this Warrant the Convertible Debenture and the Companion Warrants that were
issued pursuant to the Securities Purchase Agreement, and (iv) the 660,000
shares of restricted common stock issued or to be issued pursuant to the
Securities Purchase Agreement, and (v) any other shares of Common Stock issued
or issuable pursuant to this Warrant, the Companion Warrants, the Convertible
Debenture, and the registration rights agreement entered into between the
Company and the initial holder of this Warrant.

 

(xi)           “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

(xii)          “Principal
Market” means the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market, the Nasdaq Capital Market, whichever is at the time the
principal trading exchange or market for such security, or the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg or, if no bid or sale information is reported for such security by
Bloomberg, then the average of the bid prices of each of the market makers for
such security as reported in the “pink sheets” by the National Quotation
Bureau, Inc.

 

(xiii)         “Securities
Act” means the Securities Act of 1933, as amended.

 

(xiv)        “VWAP”
means the volume weighted average price per share of the Company’s Common Stock
on the Nasdaq Capital Market or other Subsequent Market, as quoted by
Bloomberg, LP.

 

(xv)         “Warrant”
means this Warrant and all Warrants issued in exchange, transfer or replacement
thereof.

 

(xvi)        “Warrant
Exercise Price” shall be $2.00 or as subsequently adjusted as provided in
Section 8 hereof.

 

(xvii)       “Warrant
Shares” means the shares of Common Stock issuable at any time upon exercise
of this Warrant.

 

(c) Other
Definitional Provisions.

 

(i)            Except
as otherwise specified herein, all references herein (A) to the Company
shall be deemed to include the Company’s successors and (B) to any
applicable law defined or referred to herein shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.

 

4

 

(ii)           When
used in this Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer
to this Warrant as a whole and not to any provision of this Warrant, and the
words “Section”, “Schedule”, and “Exhibit” shall refer to
Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.

 

(iii)          Whenever
the context so requires, the neuter gender includes the masculine or feminine,
and the singular number includes the plural, and vice versa.

 

Section 2.               Exercise
of Warrant.

 

(a) Subject to
the terms and conditions hereof, this Warrant may be exercised by the holder
hereof then registered on the books of the Company, pro rata as hereinafter
provided, at any time on any Business Day on or after the opening of business
on such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of
a written notice, in the form of the subscription notice attached as Exhibit
A hereto (the “Exercise Notice”), of such holder’s election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, payment to the Company of an amount equal to the Warrant
Exercise Price(s) applicable to the Warrant Shares being purchased, multiplied
by the number of Warrant Shares (at the applicable Warrant Exercise Price)
as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the “Aggregate Exercise Price”) in cash or wire transfer
of immediately available funds and the surrender of this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) to a common carrier for overnight delivery to the
Company as soon as practicable following such date (“Cash Basis”) or
(ii) if after January 15, 2007, at the time of exercise, the Warrant Shares are
not subject to an effective registration statement or if an Event of Default
has occurred, by delivering an Exercise Notice and in lieu of making payment of
the Aggregate Exercise Price in cash or wire transfer, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (the “Cashless Exercise”):

 

Net Number = (A x B) – (A x C)

B

 

For purposes of the foregoing formula:

 

A = the total number of Warrant Shares with respect to which this
Warrant is then being exercised.

 

B = the VWAP of the Common Stock on the date of exercise of the
Warrant.

 

C = the Warrant Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.

 

In the event
of any exercise of the rights represented by this Warrant in compliance with
this Section 2, the Company shall on or before the fifth (5th) Business
Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or

 

5

 

destruction)
and the receipt of the representations of the holder specified in Section 6
hereof, if requested by the Company (the “Exercise Delivery Documents”),
and if the Common Stock is DTC eligible, credit such aggregate number of shares
of Common Stock to which the holder shall be entitled to the holder’s or its
designee’s balance account with The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical
delivery of any or all of the Warrant Shares, or, if the Common Stock is not
DTC eligible then the Company shall, on or before the fifth (5th)
Business Day following receipt of the Exercise Delivery Documents, issue and
surrender to a common carrier for overnight delivery to the address specified
in the Exercise Notice, a certificate, registered in the name of the holder,
for the number of shares of Common Stock to which the holder shall be entitled
pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
Exercise Price referred to in clause (i) or (ii) above the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised. In the case of a dispute as to the determination of the Warrant
Exercise Price, the VWAP or the arithmetic calculation of the Warrant Shares,
the Company shall promptly issue to the holder the number of Warrant Shares
that is not disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of receipt
of the holder’s Exercise Notice.

 

(b) If the
holder and the Company are unable to agree upon the determination of the
Warrant Exercise Price or arithmetic calculation of the Warrant Shares within
one (1) day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via
facsimile or other form of electronic communication (including without
limitation e-mail) (i) the disputed determination of the Warrant Exercise Price
or the VWAP to an independent, reputable investment banking firm or (ii) the
disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or calculations.
Such investment banking firm’s or accountant’s determination or calculation, as
the case may be, shall be deemed conclusive absent manifest error.

 

(c) Unless the
rights represented by this Warrant shall have expired or shall have been fully
exercised, the Company shall, as soon as practicable and in no event later than
five (5) Business Days after any exercise and at its own expense, issue a new
Warrant identical in all respects to this Warrant exercised except it shall
represent rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant exercised, less the
number of Warrant Shares with respect to which such Warrant is exercised.

 

(d) No
fractional Warrant Shares are to be issued upon any pro rata exercise of this
Warrant, but rather the number of Warrant Shares issued upon such exercise of
this Warrant shall be rounded up or down to the nearest whole number.

 

(e) If the
Company or its Transfer Agent shall fail for any reason or for no reason to
issue to the holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
holder is entitled or to credit the holder’s balance account with The
Depository Trust Company for such number of Warrant

 

6

 

Shares to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant or
otherwise available to such holder, pay as additional damages in cash to such
holder on each day the issuance of such certificate for Warrant Shares is not
timely effected an amount equal to 0.025% of the product of (A) the sum of the
number of Warrant Shares not issued to the holder on a timely basis and to
which the holder is entitled, and (B) the VWAP of the Common Stock for the
trading day immediately preceding the last possible date which the Company
could have issued such Common Stock to the holder without violating this
Section 2.

 

(f) If within
ten (10) days after the Company’s receipt of the Exercise Delivery Documents,
the Company fails to deliver a new Warrant to the holder for the number of
Warrant Shares to which such holder is entitled pursuant to Section 2 hereof,
then, in addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such holder on each day after such tenth (10th) day that
such delivery of such new Warrant is not timely effected in an amount equal to
0.25% of the product of (A) the number of Warrant Shares represented by
the portion of this Warrant which is not being exercised and (B) the VWAP
of the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Warrant to the holder without
violating this Section 2.

 

Section 3.               Covenants
as to Common Stock. The Company hereby covenants and agrees as follows:

 

(a) This
Warrant is, and any Warrants issued in substitution for or replacement of this
Warrant will upon issuance be, duly authorized and validly issued.

 

(b) Subject to
the availability of sufficient authorized shares, all Warrant Shares which may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.

 

(c) During the
period within which the rights represented by this Warrant may be exercised,
and subject to the availability of sufficient authorized shares the Company
will at all times have authorized and reserved at least one hundred percent
(100%) of the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant and the par value of
said shares will at all times be less than or equal to the applicable Warrant
Exercise Price. If at any time after December 31, 2006 the Company does not
have a sufficient number of shares of Common Stock authorized and available,
then the Company shall call and hold a special meeting of its stockholders
within sixty (60) days of that time for the sole purpose of increasing the
number of authorized shares of Common Stock.

 

(d) The
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
by it hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such action as
may reasonably be requested by the holder of this Warrant in order to protect the
exercise

 

7

 

privilege of
the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. The Company will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant assuming that there is an
exemption available from the registration requirements of the Securities Act of
1933 and applicable state law for such exercise.

 

(e) This
Warrant will be binding upon any entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company’s
assets.

 

Section 4.               Taxes.
The Company shall pay any and all taxes, except any applicable withholding,
which may be payable with respect to the issuance and delivery of Warrant
Shares upon exercise of this Warrant.

 

Section 5.               Warrant
Holder Not Deemed a Stockholder. Except as otherwise specifically provided
herein, no holder, as such, of this Warrant shall be entitled to vote or receive
dividends or be deemed the holder of shares of capital stock of the Company for
any purpose, nor shall anything contained in this Warrant be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of
the Company or any right to vote, give or withhold consent to any corporate
action (whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance
to the holder of this Warrant of the Warrant Shares which he or she is then
entitled to receive upon the due exercise of this Warrant. In addition, nothing
contained in this Warrant shall be construed as imposing any liabilities on
such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

 

Section 6.               Representations
of Holder. The holder of this Warrant, by the acceptance hereof, represents
that it is acquiring this Warrant and the Warrant Shares for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution of this Warrant or the Warrant Shares,
except pursuant to sales registered or exempted under the Securities Act;
provided, however, that by making the representations herein, the holder does
not agree to hold this Warrant or any of the Warrant Shares for any minimum or
other specific term and reserves the right to dispose of this Warrant and the
Warrant Shares at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act. The holder of this Warrant
further represents, by acceptance hereof, that, as of this date, such holder is
an “accredited investor” as such term is defined in Rule 501(a)(1) of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an “Accredited Investor”). Upon exercise of this Warrant
the holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder’s own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale

 

8

 

and that such
holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder’s exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.

 

Section 7.               Ownership
and Transfer.

 

(a) The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to the holder hereof), a
register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as
the name and address of each transferee. The Company may treat the person in
whose name any Warrant is registered on the register as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary, but in
all events recognizing any transfers made in accordance with the terms of this
Warrant.

 

Section 8.               Adjustment
of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price
and the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted from time to time as follows:

 

(a) Adjustment
of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock.
If and whenever on or after the Issuance Date of this Warrant, the Company
issues or sells, or is deemed to have issued or sold, any shares of Common
Stock (other than (i) Excluded Securities, (ii) shares of Common Stock
which are issued or deemed to have been issued by the Company in connection
with an Approved Stock Plan, or (iii) the Other Securities) for a consideration
per share less than a price equal to the Warrant Exercise Price in effect
immediately prior to such issuance or sale (the “Applicable Price”),
then immediately after such issue or sale the Warrant Exercise Price then in
effect shall be reduced to the Applicable Price.

 

(b) Effect
on Warrant Exercise Price of Certain Events. For purposes of determining
the adjusted Warrant Exercise Price under Section 8(a) above, the following
shall be applicable:

 

(i)            Issuance
of Options. If after the date hereof, the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any convertible securities issuable upon exercise of any such Option is less
than the Applicable Price (not including Excluded Securities), then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 8(b)(i), the lowest price per
share for which one share of Common Stock is issuable upon exercise of such
Options or upon conversion or exchange of such Convertible Securities shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
the granting or sale of the Option, upon exercise of the Option or upon
conversion or exchange of any convertible security issuable upon exercise of
such Option. No further adjustment of the Warrant Exercise Price shall be made upon
the actual issuance of such Common Stock or of such convertible securities upon
the exercise of such Options or upon

 

9

 

the actual
issuance of such Common Stock upon conversion or exchange of such convertible
securities.

 

(ii)           Issuance
of Convertible Securities. If the Company in any manner issues or sells any
convertible securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion or exchange thereof is less than
the Applicable Price (not including Excluded Securities), then such share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this
Section 8(b)(ii), the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Company with respect to one share of Common Stock upon the issuance or sale of
the convertible security and upon conversion or exchange of such convertible
security. No further adjustment of the Warrant Exercise Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such convertible securities, and if any such issue or sale of such convertible
securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other provisions
of this Section 8(b), no further adjustment of the Warrant Exercise Price shall
be made by reason of such issue or sale.

 

(iii)          Change
in Option Price or Rate of Conversion. If the purchase price provided for
in any Options, the additional consideration, if any, payable upon the issue,
conversion or exchange of any convertible securities, or the rate at which any
convertible securities are convertible into or exchangeable for Common Stock
changes at any time, the Warrant Exercise Price in effect at the time of such
change shall be adjusted to the Warrant Exercise Price which would have been in
effect at such time had such Options or convertible securities provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares issuable upon exercise of this Warrant shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if the
terms of any Option or convertible security that was outstanding as of the
Issuance Date of this Warrant are changed in the manner described in the
immediately preceding sentence, then such Option or convertible security and
the Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such change. No
adjustment pursuant to this Section 8(b) shall be made if such adjustment
would result in an increase of the Warrant Exercise Price then in effect.

 

(c) Effect
on Warrant Exercise Price of Certain Events. For purposes of determining
the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the
following shall be applicable:

 

(i)            Calculation
of Consideration Received. If any Common Stock, Options or convertible
securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefore will be deemed to be the gross amount
received by the Company therefore. If any Common Stock, Options or convertible
securities are issued or sold for a consideration other than cash, the amount
of such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of

 

10

 

marketable
securities, in which case the amount of consideration received by the Company
will be the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities are issued
to the owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration
therefore will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or convertible securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the holders of Warrants representing at least a majority of the
Warrant Shares issuable upon exercise of the Warrants and Companion Warrants
then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “Valuation
Event”), the fair value of such consideration will be determined within
five (5) Business Days after the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the holders of Warrants representing at least a majority of the
Warrant Shares issuable upon exercise of the Warrants (including the Companion
Warrants) then outstanding. The determination of such appraiser shall be final
and binding upon all parties and the fees and expenses of such appraiser shall
be borne equally by the Company and the holders of Warrants.

 

(ii)           Integrated
Transactions. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated transaction
in which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$.01.

 

(iii)          Treasury
Shares. The number of shares of Common Stock outstanding at any given time
does not include shares owned or held by or for the account of the Company, and
the disposition of any shares so owned or held will be considered an issue or
sale of Common Stock.

 

(iv)          Record
Date. If the Company takes a record of the holders of Common Stock for the
purpose of entitling them (1) to receive a dividend or other distribution
payable in Common Stock, Options or in convertible securities or (2) to
subscribe for or purchase Common Stock, Options or convertible securities, then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

 

(d) Adjustment
of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If
the Company at any time after the date of issuance of this Warrant subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, any Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this
Warrant combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, any Warrant Exercise Price in effect immediately prior to such
combination will be proportionately increased and the

 

11

 

number of
Warrant Shares issuable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 8(d) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.

 

(e) Distribution
of Assets. If the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any
time after the issuance of this Warrant, then, in each such case:

 

(i)            any
Warrant Exercise Price in effect immediately prior to the close of business on
the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such Warrant
Exercise Price by a fraction of which (A) the numerator shall be the Closing
Sale Price of the Common Stock on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company’s Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing Sale Price of the Common Stock on the
trading day immediately preceding such record date; and

 

(ii)           either
(A) the number of Warrant Shares obtainable upon exercise of this Warrant shall
be increased to a number of shares equal to the number of shares of Common
Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding clause (i), or (B) in the event that the Distribution is
of common stock of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant shall receive an additional warrant to purchase Common Stock,
the terms of which shall be identical to those of this Warrant, except that
such warrant shall be exercisable into the amount of the assets that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
exercise price equal to the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding clause (i).

 

(f) Certain
Events. If any event occurs of the type contemplated by the provisions of
this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(d),that no such adjustment pursuant to this
Section 8(f) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.

 

12

 

(g) Notices.

 

(i)            Immediately
upon any adjustment of the Warrant Exercise Price, the Company will give
written notice thereof to the holder of this Warrant, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.

 

(ii)           The
Company will give written notice to the holder of this Warrant at least ten
(10) days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any
Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.

 

(iii)          The
Company will also give written notice to the holder of this Warrant at least
ten (10) days prior to the date on which any Organic Change, dissolution or
liquidation will take place, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to
such holder.

 

(h) Limitations.
Notwithstanding the above provisions of this Section 8, the Company may not
issue any shares of Common Stock upon exercise of this Warrant until the
Company’s shareholders approve (without the vote of any shares acquired in this
transaction and related transactions) the issuance of the Total Transaction
Shares as defined in Section 4(l) of the Securities Purchase Agreement.

 

Section 9.               Purchase
Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.

 

(a) In
addition to any adjustments pursuant to Section 8 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “Purchase Rights”),
then the holder of this Warrant will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.

 

(b) Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company’s assets to another Person or other
transaction in each case which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.”  Prior to the consummation of any (i) sale of
all or substantially all of the Company’s assets to an acquiring

 

13

 

Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the “Acquiring Entity”)
a written agreement (in form and substance satisfactory to the holders of
Warrants representing at least a majority of the Warrant Shares issuable upon
exercise of the Warrants then outstanding) to deliver to each holder of
Warrants in exchange for such Warrants, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and satisfactory to the holders of the Warrants (including an
adjusted warrant exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of the Warrants without regard to any limitations on exercise, if
the value so reflected is less than any Applicable Warrant Exercise Price
immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the holders of Warrants
representing a majority of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
Warrant Shares immediately theretofore issuable and receivable upon the
exercise of such holder’s Warrants (without regard to any limitations on
exercise), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of Warrant Shares which would have been issuable and receivable upon the
exercise of such holder’s Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exercisability of this Warrant).

 

Section 10.             Lost,
Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen,
mutilated or destroyed, the Company shall promptly, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

 

Section 11.             Notice.
Any notices, consents, waivers or other communications required or permitted to
be given under the terms of this Warrant 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 receipt is received by the sending party
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business 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 Holder:

  	
  Cornell Capital Partners, LP

  
	
   

  	
  101 Hudson Street – Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Attention:

  	
  Mark A. Angelo

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  
	
  With Copy to:

  	
  David Gonzalez, Esq.

  
	
   

  	
  101 Hudson Street – Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  

 

14

 

	
  If to the Company, to:

  	
  Isonics Corporation

  
	
   

  	
  5906 McIntyre Street – Suite 220

  
	
   

  	
  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 a holder
of this Warrant, to it at the address and facsimile number set forth on Exhibit C
hereto, with copies to such holder’s representatives as set forth on Exhibit C,
or at such other address and facsimile as shall be delivered to the Company
upon the issuance or transfer of this Warrant. Each party shall provide five
days’ prior written notice to the other party of any change in address or
facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, facsimile, waiver or other communication,
(or (B) 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 12.             Date.
The date of this Warrant is set forth on page 1 hereof. This Warrant,
in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8(b) shall continue in full
force and effect after such date as to any Warrant Shares or other securities
issued upon the exercise of this Warrant.

 

Section 13.             Amendment
and Waiver. Except as otherwise provided herein, the provisions of the
Warrants may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holders of Warrants
representing at a majority of the Warrant Shares issuable upon exercise of the
Warrants then outstanding; provided that, except for Section 8(d), no such
action may increase the Warrant Exercise Price or decrease the number of shares
or class of stock obtainable upon exercise of any Warrant without the written
consent of the holder of such Warrant.

 

Section 14.             Descriptive
Headings; Governing Law. The descriptive headings of the several sections
and paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The corporate laws of the State of New
Jersey shall govern all

 

15

 

issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
Jersey, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New Jersey or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New Jersey. Each party hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the District of New Jersey
sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or
in connection herewith or therewith, or with any transaction contemplated
hereby or discussed herein, 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 brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. 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 to such party at the address for
such 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.

 

Section
15.            Waiver of Jury
Trial. AS A MATERIAL INDUCEMENT FOR EACH
PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS
TRANSACTION.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

16

 

IN
WITNESS WHEREOF, the Company has caused this Warrant
to be signed as of the date first set forth above.

 

	
   

  	
  ISONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   James E. Alexander

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
					

 

17

 

EXHIBIT A TO
WARRANT

 

EXERCISE
NOTICE

 

TO BE EXECUTED 

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

 

ISONICS CORPORATION

 

The
undersigned holder hereby exercises the right to purchase                      
of the shares of Common Stock (“Warrant Shares”) of Isonics Corporation
(the “Company”), evidenced by the attached Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

 

Specify Method of exercise by check mark:

 

1. o        Cash
Exercise

 

(a) Payment
of Warrant Exercise Price. The holder shall pay the Aggregate Exercise
Price of $                    
to the Company in accordance with the terms of the Warrant.

 

(b) Delivery
of Warrant Shares. The Company shall deliver to the holder                 
Warrant Shares in accordance with the terms of the Warrant.

 

2. o        Cashless
Exercise

 

(a) Payment
of Warrant Exercise Price. In lieu of making payment of the Aggregate
Exercise Price, the holder elects to receive upon such exercise the Net Number
of shares of Common Stock determined in accordance with the terms of the
Warrant.

 

(b) Delivery
of Warrant Shares. The Company shall deliver to the holder                 
Warrant Shares in accordance with the terms of the Warrant.

 

By submitting this Exercise Notice, the undersigned holder represents
and warrants to the Company 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 Company and the
securities being acquired pursuant to this Exercise Notice as the undersigned
(in consultation with its advisors) has determined appropriate, and that it is
submitting this Exercise Notice of its own volition and free will.

 

Date:                               
     ,              

 

Name of Registered Holder

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

2

 

EXHIBIT B TO
WARRANT

 

FORM OF
WARRANT POWER

 

FOR
VALUE RECEIVED, the undersigned does hereby assign and
transfer to                          ,
Federal Identification No.                   ,
a warrant to purchase                           
shares of the capital stock of Isonics Corporation represented by warrant
certificate no.         , standing
in the name of the undersigned on the books of said corporation. The
undersigned does hereby irrevocably constitute and appoint                           ,
attorney to transfer the warrants of said corporation, with full power of
substitution in the premises.

 

In submitting
this Warrant Power, the undersigned represents and warrants to Isonics
Corporation that it has not offered the Warrant through any means of general
advertising or public solicitation, and that it will provide Isonics
Corporation such other information and representations of the undersigned or of
the transferee necessary or appropriate to permit Isonics Corporation to determine
whether there is an exemption available for the transfer of this Warrant.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
							

 

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