Document:

EXHIBIT
10.4

PLEDGE
AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT
(the “Agreement”) is made and entered into as of April 10, 2007 (the “Effective
Date”) by and among ISONICS CORPORATION,
a corporation organized and existing under the laws of the State of California
(the “Pledgor” or “Company”), CORNELL
CAPITAL PARTNERS, L.P., (the “Pledgee”), and DAVID GONZALEZ, ESQ.,
as escrow agent (“Escrow Agent”).

RECITALS:

WHEREAS, in order to secure the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all of the Company’s
obligations to the Pledgee or any successor to the Pledgee under  this Agreement, the
Securities Purchase Agreement of even date herewith between the Pledgor and the
Pledgee (the “Securities Purchase Agreement”), the secured convertible
debentures (the “2007 Convertible Debentures”) issued by the Company to
the Pledgee, in a total of Two Million Dollars ($2,000,000) of principal, plus
any interest, costs, fees, and other amounts owed to the Pledgee thereunder, the
Security Agreements dated May 30, 2006 between the Pledgor and the Pledgee (the
“Security Agreement”), the Investor Registration Rights Agreement, and
the Irrevocable Transfer Agent Instructions, all of which are dated the date
hereof (collectively referred to as the “2007 Transaction Documents”)
(collectively, the “Transaction Documents”), the Pledgor has agreed to
irrevocably pledge to the Pledgee five hundred fifty thousand (550,000) shares
(the “Pledged Shares”) of Class A Common Stock, par value $0.001 per
share of SenseIt Corp., a Delaware corporation (“SenseIt”), currently
owned of record and beneficially by Pledgor..

WHEREAS, the Company issued and
the Secured Party purchased secured convertible debentures in the aggregate
amount of Sixteen Million Dollars ($16,000,000) pursuant to the Securities
Purchase Agreement dated May 30, 2006, (the “May 2006 Convertible Debentures”),
which shall be convertible into shares of common stock of the Company, no par
value (the “Common Stock”) (as converted, the “Conversion Shares”),
in the respective amounts set forth on Schedule I attached to the
Securities Purchase Agreement dated May 30, 2006;

WHEREAS, the Company desires to secure the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all of
the Company’s obligations to the Pledgee or any successor to the Pledgee under  the Securities Purchase Agreement dated May 30, 2006,
the  May 2006 Convertible Debentures, the
Investor Registration Rights Agreement dated May 30, 2006,  and the Irrevocable Transfer Agent
Instructions dated May 30, 2006 (collectively referred to as the “May 2006
Transaction Documents”) (collectively the 2007 Transaction Documents and
the May 2006 Transaction Documents are referred to as the “Transaction
Documents”);

NOW, THEREFORE, in consideration
of the mutual covenants, agreements, warranties, and representations herein
contained, and for other good and valuable consideration, and subject to the
approval of SenseIt and the other stockholders of SenseIt, pursuant to the
agreement 

   
 

among the stockholders of SenseIt, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:

TERMS
AND CONDITIONS

1.             Pledge and Transfer of
Pledged Shares; Delivery of SenseIt Stockholders’ Agreement.

1.1.          The Pledgor hereby
grants to Pledgee a security interest in all Pledged Shares as security for
Pledgor’s obligations to the Pledgee under the 2007  Convertible Debentures and the May 2006
Convertible Debenture (collectively referred to as the “Convertible
Debentures”) (the
“Obligations”). 
Simultaneously with the execution of this Agreement, the Pledgor shall
deliver to the Escrow Agent stock certificates representing the Pledged Shares
which have been re-issued in the name of the Pledgor, together with duly
executed stock powers or other appropriate transfer documents executed in blank
by the Pledgor (the “Transfer Documents”) and (b) Pledgee shall deliver
to the Escrow Agent two copies of a completed Instrument of Accession, each
duly executed by Pledgee and SenseIt (the “Instrument of Accession”), in
the form attached as Schedule I to that certain Stockholders’ Agreement, dated
as of October 26, 2006 (the “SenseIt Stockholders Agreement”), among
SenseIt, Christopher Toffales (“Toffales”) and Pledgor, pursuant to
which Pledgee shall become a party to, and subject to all of the restrictions
and conditions of a stockholder owning the Pledged Securities upon the exercise
of Pledgee’s rights under Section 5. 
Such stock certificates,  and
Transfer Documents and Instrument of Accession shall be held by the Escrow
Agent pursuant to this Agreement until the full payment of all amounts due to
the Pledgee under the and through repayment in accordance with the terms of the
Convertible Debentures, the receipt by Escrow Agent of a Default Notice (as
defined herein) or the termination or expiration of this Agreement in
accordance with its terms shall have occurred, such stock certificates,
Transfer Documents and Instrument of Accession shall thereafter be delivered to
the appropriate parties as provided in this Agreement.

2.             Rights Relating to Pledged
Shares.

2.1           Prior to the occurrence of an Event
of Default (as defined herein) and the issuance of Pledged Shares to the
Pledgee (in accordance with Section 5.1), the Pledgor shall be entitled to vote
the Pledged Stock and to give consents, waivers, and ratifications in respect
thereof, provided that no vote shall be cast or consent, waiver or ratification
given or any action taken which would violate, or not comply with any of the
terms and provisions of this Agreement, the Convertible Debentures or any and
all documents executed in connection therewith. 
If there shall have occurred an Event of Default, Pledgee shall be
entitled to vote or consent in Pledgee’s sole discretion the Pledged Shares.

2.2           Prior to the occurrence of an Event
of Default (as defined herein) and the issuance of Pledged Shares to the
Pledgee (in accordance with Section 5.1), all cash dividends payable in respect
of the Pledged Stock shall be paid to Pledgor, provided that all cash dividends
payable in respect of the Pledged Stock which are determined by Pledgee, in
Pledgee’s absolute discretion, to represent in whole or in part, an
extraordinary, liquidating or other distribution in return of capital shall be
paid to the Escrow Agent and retained by it as part of the collateral 

 2
 

under
the Security Agreement.  The Escrow Agent
shall also be entitled to receive directly, and to retain as part of the
collateral under the Security Agreement:

(a)           other or additional stock or
securities or property (other than cash) paid or distributed by way of dividend
in respect of the Pledged Stock;

(b)           all other or additional (or less)
stock or any other securities or property (including cash) paid or distributed
in respect of the Pledged Stock by way of stock-split, spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement;

(c)           all other or additional stock or
other securities or property (including cash) which may be paid or distributed
in respect of the collateral under the Security Agreement by reason of any
consolidation, merger, exchange of stock, conveyance of assets, liquidation or
similar corporate reorganization of SenseIt.

3.             Release of Pledged Shares
from Pledge.  Upon the payment of all amounts due to
the Pledgee under the Convertible Debentures by repayment in accordance with
the terms of the Note, the parties hereto shall notify the Escrow Agent to such
effect in writing.  Upon receipt of such
written notice, the Escrow Agent shall return to the Pledgor the Transfer
Documents, the certificates representing the Pledged Shares, as well as the two
executed copies of the Instrument of Accession delivered to the Escrow Agent
pursuant to Section 1.1, (collectively the “Pledged Materials”),
whereupon any and all rights of Pledgee in the Pledged Materials shall be
terminated.  Notwithstanding anything to
the contrary contained herein, upon full payment of all amounts due to the
Pledgee under the Convertible Debentures, by repayment in accordance with the
terms of the Convertible Debentures, this Agreement and Pledgee’s security
interest and rights in and to the Pledged Shares shall terminate.

4.             Event of Default.  An
“Event of Default” shall be deemed to have occurred under this Agreement
upon any Event of Default under the Transaction Documents.

5.             Remedies.

5.1.          Upon and anytime
after the occurrence of an Event of Default, the Pledgee shall have the right
acquire the Pledged Shares in accordance with the following procedure:  (a) the Pledgee shall provide written notice
of such Event of Default (the “Default Notice”) to the Escrow Agent,
with copies to the Pledgor, SenseIt and Toffales; (b) in a Default Notice the
Pledgee shall specify the number of Pledged Shares to be foreclosed by on by
the Pledgee, and (c) as soon as practicable after receipt of a Default Notice,
the Escrow Agent shall deliver to SenseIt 
copies of the applicable Transfer Documents with respect to the number
of Pledged Shares the Pledgor is foreclosing upon, together one executed copy
of the Instrument of Accession to SenseIt (with second executed copy of the
Instrument of Accession being delivered to Toffales) with instructions to
SenseIt to amend their books and records to reflect the ownership of such
specified number of Pledged Shares by the Pledgee in accordance with the terms
of this Agreement (the “Instructions”).

5.2.          Upon receipt of the
Pledged Shares issued to the Pledgee in accordance with Section 5.1, the
Pledgee shall have all rights, title and interest to such Pledged Shares, 

 3
 

subject to the
provisons of the SenseIt Stockholders Agreement, including but not limited to all cash dividends and those items
described in Section 2.2 (a) — (c). 
The Pledgor shall have the absolute right,subject to the SenseIt terms
and conditions of the SenseIt Stockholders Agreement,  to (i) sell the Pledged Shares or dispose of
the Pledged Shares in any manner it sees fit and shall have no liability to the
Pledgor or any other party for selling or disposing of such Pledged Shares,
even if other methods of sales or dispositions would or allegedly would result
in greater proceeds than the method actually, and to apply the proceeds of such
sales, net of any selling commissions, to the Obligations owed to the Pledgee
by the Pledgor under the Transaction Documents, including, without limitation,
outstanding principal, interest, legal fees, and any other amounts owed to the
Pledgee, and exercise all other rights and (ii) any and all remedies of a
secured party with respect to such property as may be available under the
Uniform Commercial Code as in effect in the State of New Jersey.  To the extent that the net proceeds received
by the Pledgee are insufficient to satisfy the Obligations in full, the Pledgee
shall be entitled to a deficiency judgment against the Pledgor for such
amount.    The Pledgor shall remain
liable for shortfalls, if any, that may exist after the Pledgee has exhausted
all remedies hereunder.  The Pledgee
shall return any Pledged Shares issued to the Pledgee and instruct the Escrow
Agent to return any Pledged Shares it is holding in escrow after the all
amounts owed to the Pledgee under the Convertible Debentures have been
satisfied.

6.             Each right, power and remedy of the Pledgee provided for
in this Agreement or any other Transaction Document shall be cumulative and
concurrent and shall be in addition to every other such right, power or
remedy.  The exercise or beginning
of the exercise by the Pledgee of any one or more of the rights, powers or
remedies provided for in this Agreement or any other Transaction
Document or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee of all such other rights, powers or remedies, and no
failure or delay on the part of the Pledgee to exercise any such right, power
or remedy shall operate as a waiver thereof. 
No notice to or demand on the Pledgor in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Pledgee to any other further
action in any circumstances without demand or notice. The Pledgee shall have
the full power to enforce or to assign or contract is rights under this
Agreement to a third party.

7.             Representations and
Warranties of SenseIt.

7.1.          SenseIt hereby represents and warrants that
they shall take such action as outlined in Section 5.1. upon receipt of such
Instructions with no further action or instructions.

7.2.          SenseIt hereby
represents and warrants that upon the Pledgee acquiring the Pledged Shares  as contemplated hereunder, with no further action or instructions by
SenseIt, the Pledgee and shall have all rights, title and interest to
such Pledged Shares, subject to the provisions of the SenseIt Stockholders
Agreement, to vote the Pledged
Shares,   and to dispose of such Pledged
Shares as contemplated hereunder.

 4
 

8.             Concerning the Escrow
Agent.

8.1.          The Escrow Agent
undertakes to perform only such duties as are expressly set forth herein and no
implied duties or obligations shall be read into this Agreement against the
Escrow Agent.

8.2.          The Escrow Agent may
act in reliance upon any writing or instrument or signature which it, in good
faith, believes to be genuine, may assume the validity and accuracy of any
statement or assertion contained in such a writing or instrument, and may
assume that any person purporting to give any writing, notice, advice or
instructions in connection with the provisions hereof has been duly authorized
to do so.  The Escrow Agent shall not be
liable in any manner for the sufficiency or correctness as to form, manner, and
execution, or validity of any instrument deposited in this escrow, nor as to
the identity, authority, or right of any person executing the same; and its
duties hereunder shall be limited to the safekeeping of such certificates,
monies, instruments, or other document received by it as such escrow holder,
and for the disposition of the same in accordance with the written instruments
accepted by it in the escrow.

8.3.          Pledgee and the
Pledgor hereby agree, to defend and indemnify the Escrow Agent and hold it
harmless from any and all claims, liabilities, losses, actions, suits, or
proceedings at law or in equity, or any other expenses, fees, or charges of any
character or nature which it may incur or with which it may be threatened by
reason of its acting as Escrow Agent under this Agreement; and in connection
therewith, to indemnify the Escrow Agent against any and all expenses,
including attorneys’ fees and costs of defending any action, suit, or
proceeding or resisting any claim (and any costs incurred by the Escrow Agent
pursuant to Sections 6.4 or 6.5 hereof). 
The Escrow Agent shall be vested with a lien on all property deposited
hereunder, for indemnification of attorneys’ fees and court costs regarding any
suit, proceeding or otherwise, or any other expenses, fees, or charges of any
character or nature, which may be incurred by the Escrow Agent by reason of
disputes arising between the makers of this escrow as to the correct
interpretation of this Agreement and instructions given to the Escrow Agent
hereunder, or otherwise, with the right of the Escrow Agent, regardless of the
instructions aforesaid, to hold said property until and unless said additional
expenses, fees, and charges shall be fully paid.  Any fees and costs charged by the Escrow
Agent for serving hereunder shall be paid by the Pledgor.

8.4.          If any of the
parties shall be in disagreement about the interpretation of this Agreement, or
about the rights and obligations, or the propriety of any action contemplated
by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion
deposit the Pledged Materials with the Clerk of the United States District
Court of New Jersey, sitting in Newark, New Jersey, and, upon notifying all
parties concerned of such action, all liability on the part of the Escrow Agent
shall fully cease and terminate.  The
Escrow Agent shall be indemnified by the Pledgor, the Company and Pledgee for
all costs, including reasonable attorneys’ fees in connection with the
aforesaid proceeding, and shall be fully protected in suspending all or a part
of its activities under this Agreement until a final decision or other settlement
in the proceeding is received.

8.5.          The Escrow Agent may
consult with counsel of its own choice (and the costs of such counsel shall be
paid by the Pledgor and Pledgee) and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in 

 5
 

accordance
with the opinion of such counsel.  The
Escrow Agent shall not be liable for any mistakes of fact or error of judgment,
or for any actions or omissions of any kind, unless caused by its willful
misconduct or gross negligence.

8.6.          The Escrow Agent may
resign upon ten (10) days’ written notice to the parties in this
Agreement.  If a successor Escrow Agent
is not appointed within this ten (10) day period, the Escrow Agent may petition
a court of competent jurisdiction to name a successor.

8.7.          Conflict Waiver. The Pledgor hereby acknowledges that the
Escrow Agent is general counsel to the Pledgee, a partner in the general
partner of the Pledgee, and counsel to the Pledgee in connection with the transactions
contemplated and referred herein.  The
Pledgor agrees that in the event of any dispute arising in connection with this
Agreement or otherwise in connection with any transaction or agreement
contemplated and referred herein, the Escrow Agent shall be permitted to
continue to represent the Pledgee and the Pledgor will not seek to disqualify
such counsel and waives any objection Pledgor might have with respect to the
Escrow Agent acting as the Escrow Agent pursuant to this Agreement.

8.8.          Notices. 
Unless otherwise provided herein, all demands, notices, consents,
service of process, requests and other communications hereunder shall be in
writing and shall be delivered in person or by overnight courier service, or
mailed by certified mail, return receipt requested, addressed:

	
  If to the Pledgor, to:

  	
  Isonics Corporation

  
	
   

  	
  5906 McIntyre Street

  
	
   

  	
  Golden, CO 80403

  
	
   

  	
  Attention:

  	
  John Sakys

  
	
   

  	
  Telephone:

  	
  (303) 279-7900

  
	
   

  	
  Facsimile:

  	
  (303) 279-7300

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Burns, Figa & Will, P.C.

  
	
   

  	
  6400 South Fiddler’s Green Circle — Suite 1000

  
	
   

  	
  Greenwood Village, CO 80111

  
	
   

  	
  Attention:

  	
  Herrick K. Lidstone, Jr., Esq.

  
	
   

  	
  Telephone:

  	
  (303) 796-2626

  
	
   

  	
  Facsimile:

  	
  (303) 796-2777

  
	
   

  	
   

  	
   

  
	
  If to the
  Pledgee:

  	
  Cornell Capital Partners, L.P.

  
	
   

  	
  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

  

 

 6
 

 

	
  

  	
   

  	
   

  
	
  If to the Escrow
  Agent, to:

  	
  David Gonzalez, Esq.

  
	
   

  	
  101 Hudson Street, Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  	
   

  
	
  If to SenseIt,
  to:

  	
  Christopher Toffales

  
	
   

  	
  SenseIt Corp.

  
	
   

  	
  21 Motts Hollow Road

  
	
   

  	
  Port Jefferson, NY 11777

  
	
   

  	
  Telephone:

  	
  (631) 331-3371

  
	
   

  	
  Facsimile:

  	
  (631) 331-3371

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Neil M. Kaufman, Esq.

  
	
   

  	
  Davidoff Malito & Hutcher LLP

  
	
   

  	
  200 Garden City Plaza

  
	
   

  	
  Suite 315

  
	
   

  	
  Garden City, NY 11530

  
	
   

  	
  Telephone:

  	
  (516) 247-4425

  
	
   

  	
  Facsimile:

  	
  (516) 248-6422

  
	
   

  	
   

  	
   

  
	
  If to Toffales,
  to:

  	
  Christopher Toffales

  
	
   

  	
  SenseIt Corp.

  
	
   

  	
  21 Motts Hollow Road

  
	
   

  	
  Port Jefferson, NY 11777

  
	
   

  	
  Telephone:

  	
  (631) 331-3371

  
	
   

  	
  Facsimile:

  	
  (631) 331-3371

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Neil M. Kaufman, Esq.

  
	
   

  	
  Davidoff Malito & Hutcher LLP

  
	
   

  	
  200 Garden City Plaza

  
	
   

  	
  Suite 315

  
	
   

  	
  Garden City, NY 11530

  
	
   

  	
  Telephone:

  	
  (516) 247-4425

  
	
   

  	
  Facsimile:

  	
  (516) 248-6422

  
	
   

  	
   

  	
   

  

 

Any such notice shall be
effective (a) when delivered, if delivered by hand delivery or overnight
courier service, or (b) five (5) days after deposit in the United States
mail, as applicable.

9.             Binding
Effect.  All of the covenants and obligations
contained herein shall be binding upon and shall inure to the benefit of the
respective parties, their successors and assigns.

In addition, SenseIt and
Toffales, as parties to the SenseIt Stockholders Agreement, shall be deemed for
all purposes relating to this Agreement, third party beneficiaries of this
Agreement 

 7
 

entitled to enforce the
requirements of the execution and delivery to SenseIt of the Instrument of
Accession.

10.           Governing Law; Venue;
Service of Process.  The validity, interpretation and performance
of this Agreement shall be determined in accordance with the laws of the State
of New Jersey applicable to contracts made and to be performed wholly within
that state except to the extent that Federal law applies.  The parties hereto agree that any disputes,
claims, disagreements, lawsuits, actions or controversies of any type or nature
whatsoever that, directly or indirectly, arise from or relate to this
Agreement, including, without limitation, claims relating to the inducement,
construction, performance or termination of this Agreement, shall be brought in
the state superior courts located in Hudson County, New Jersey or Federal
district courts located in Newark, New Jersey, and the parties hereto agree not
to challenge the selection of that venue in any such proceeding for any reason,
including, without limitation, on the grounds that such venue is an
inconvenient forum.  The parties hereto
specifically agree that service of process may be made, and such service of
process shall be effective if made, pursuant to Section 8 hereto.

11.           Enforcement Costs.  If any legal action or other pro­ceeding is
brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresenta­tion in connection with any
provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys’ fees, court costs and all
expenses even if not taxable as court costs (including, without limita­tion,
all such fees, costs and expenses incident to appeals), incurred in that action
or proceeding, in addition to any other relief to which such party or parties
may be entitled.

12.           Remedies Cumulative.  No remedy herein conferred upon any party is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or here­after existing at law, in equity, by statute, or
otherwise.  No single or partial exercise
by any party of any right, power or remedy hereunder shall preclude any other
or further exercise thereof.

13.           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.

14.           No Penalties.  No provision of this Agreement is to be
interpreted as a penalty upon any party to this Agreement.

15.           JURY TRIAL.  EACH OF THE PLEDGEE AND THE PLEDGOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO
A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN
PLEDGEE AND PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED
IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY 

 8
 

HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.

 9
 

IN WITNESS WHEREOF, the parties hereto have duly executed this
Pledge and Escrow Agreement as of the date first above written.

 

	
  

  	
  Cornell Capital Partners, L.P.

  
	
   

  	
  By:

  	
  Yorkville Advisors, LLC

  
	
   

  	
  Its:

  	
  Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark Angelo

  
	
   

  	
  Title:

  	
  Portfolio
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Isonics Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  John Sakys

  
	
   

  	
  Title:

  	
  President and
  Interim Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Escrow Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  David Gonzalez,
  Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  SenseIt Corp.*

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Chris Toffales

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
				

*                    Executed
exclusively with regard to the Representations and Warranties contained in
Section 7.

 

 10Exhibit
10.5

IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

April 10, 2007

 

Continental Stock Transfer & Trust Company

17 Battery Place 8th Floor

New York, NY 10004

Attention: William Seegraber

 

RE:         ISONICS
CORPORATION

Ladies and
Gentlemen:

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

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

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

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

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

3.                                       Up
to 250,000 Warrant Shares.

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

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

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

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

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

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

 2
 

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

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

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

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

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

 3
 

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

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

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

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

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

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

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

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

 4
 

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

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

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

6.               All Shares.

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

 5
 

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

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

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

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

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

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

 6
 

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

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

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 7
 

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

	
  

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Isonics Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: John Sakys

  
	
   

  	
  Title:   President & Interim
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  David Gonzalez, Esq.

  

 

	
  Continental Stock Transfer and Trust Company

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: William
  Seegraber

  
	
  Title:

  	
   

  	
   

  
				

 

 8

 

SCHEDULE I

SCHEDULE OF BUYERS

	
  Name

  	
   

  	
  Signature

  	
   

  	
  Address/Facsimile

  Number of Buyers

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cornell Capital Partners, L.P.

  	
   

  	
  By:       Yorkville
  Advisors, LLC

  	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
   

  	
  Its:        Investment
  Manager

  	
   

  	
  Jersey City, NJ 07303

  
	
   

  	
   

  	
   

  	
   

  	
  Facsimile:(201) 985-8266

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:   Mark Angelo

  	
   

  	
   

  
	
   

  	
   

  	
  Its:         Portfolio
  Manager

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						

 

 

 

EXHIBIT A

Notice of
Failure to Timely Deliver

 

Continental Stock Transfer and Trust Company

17 Battery Place 8th Floor

New York, NY 10004

Attention: William Seegraber

 

Dear Mr. Seegraber,

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

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

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

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

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

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

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

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

 

 

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

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

	
  

  	
  CORNELL CAPITAL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:       Yorkville
  Advisors, LLC

  
	
   

  	
  Its:       Investment
  Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:   Mark Angelo

  
	
   

  	
  Title:     Portfolio
  Manager

  
	
   

  	
   

  
	
  State of New Jersey

  	
   

  
	
  County of Hudson

  	
   

  
	
   

  	
   

  
	
  On this      day of
           , 2007

  appeared before me

  	
   

  
	
                                who
  is personally known

  to me and executed the foregoing document.

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

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