Document:

Exhibit 10.1

 

 

 

Dyax Corp.

300 Technology Square

Cambridge,
MA 02139

CONFIDENTIAL DOCUMENT

November 16, 2006

Ivana Magovčević-Liebisch

Dear Ivana,

In
connection with your appointment as General Counsel and Executive Vice
President, Corporate Communications, reporting directly to Dyax’s Chief
Executive Officer, Henry Blair, the Company agrees to provide to you with the
additional benefits described herein.

All
employees at Dyax are employed at will.  “Employment
at will” refers to the traditional relationship between employer and employee,
allowing either party to unilaterally terminate the employment
relationship.  While we ask that all
senior executives provide at least ninety (90) days prior notice, you will be
free to resign at any time.  Similarly,
the Company reserves the right to terminate your employment at any time, with
or without cause and with or without prior notice.

However,
in the event you are terminated by the Company without “cause,” (as defined
below) Dyax agrees to pay you your monthly base salary for a minimum of six (6)
months following termination of employment as severance provided that you sign
a general release of employment claims in a form satisfactory to the
Company.  All bonuses that have been
earned for a completed calendar year and all accrued vacation time shall be
paid upon termination.  Medical and
dental benefits shall continue during the period  you are receiving severance.  Other than your rights under COBRA, all other
benefits and vesting of your stock options will terminate as of your date of
termination.  The timing of any severance
payments made to you by the Company pursuant to this Agreement will be subject
to and made in accordance with Section 409A of the Internal Revenue Code of
1986, as amended, which may include a six month delay in when your severance
may begin to be paid.

If your employment is terminated for “cause” by the Company or is
terminated by you for any reason, your compensation, benefits, and stock option
vesting shall cease as of the termination date, and you will not be entitled to
any unpaid bonus.  For purposes of this
offer, “cause” shall mean:

(i)                                     the
willful and continued failure by you substantially to perform your duties with
the Company (other than any such failure resulting from your incapacity due to
physical or mental illness or any failure resulting from your terminating your
employment following a material diminution of your title or duties to the
Company), as determined by the Board of Directors;

 

 

(ii)                                  gross
misconduct or the commission of any act of dishonesty or moral turpitude in
connection with your employment, as determined by the Board of Directors; or

(iii)                               the conviction of a
felony or a crime involving moral turpitude.

If the benefits contained herein (and the terms and conditions
applicable thereto) are all acceptable to you, kindly sign and return to the
Company the enclosed copy of this Agreement which will then constitute our full
and complete agreement on this subject.

	
  

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  /s/ Henry E. Blair

  
	
   

  	
  Henry E. Blair

  
	
   

  	
  Chairman and Chief Executive Officer

  

 

 

I
acknowledge receipt and agree with the foregoing terms and conditions.

	
  /s/ Ivana
  Magovcevic-Liebisch

  	
   

  	
   

  
	
  Ivana
  Magovčević-Liebisch

  	
   

  	
   

  

 

 2Exhibit 10.1

 

Date of Original Issuance:  November 14, 2006

 

NEITHER THIS DEBENTURE NOR THE
SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

	
  No. CCP-5

  	
   

  	
  $3,000,000

  

 

ISONICS CORPORATION

Secured Convertible Debenture

Due: May 30, 2009

This Secured Convertible
Debenture (the “Debenture”) is issued by ISONICS
CORPORATION, a
California corporation (the “Obligor”), to CORNELL
CAPITAL PARTNERS, LP (the “Holder”), pursuant to that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”)
dated May 30, 2006.

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

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

Interest  Payments.  The Obligor at its option shall make payment
of all outstanding and accrued interest at the Maturity Date (“Scheduled
Payment”) in shares of the Obligor’s Common Stock or cash; provided,
however, payment of the interest amount in shares of the Obligor’s Common Stock
can only be made if the Obligor’s shareholders have approved the transaction as
contemplated in Section 4(l) of the Securities Purchase Agreement.  If such Schedule Payment is made in Common
Stock, such number of shares of the Company’s Common Stock due as

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payment shall be calculated based on the amount of
interest due divided by eighty eight percent (88%) of the average VWAP of the
Company’s Common Stock for the five (5) Trading Days immediately preceding the
date the Maturity Date.

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

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

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

Security
Agreements.  This
Debenture is secured by Security Agreements dated May 30, 2006 between the Obligor
and the Holder as well as Isonics
Vancouver, Inc., Isonics Homeland Security and Defense Corporation, and Protection Plus Security Corporation,
all of which are wholly owned subsidiaries of the Obligor, and the Holders (all
such security agreements shall be referred to as the “Security Agreement”).

Consent  of Holder to Sell Capital Stock or Grant
Security Interests.  So long as any of the principal amount on this
Debenture remains unpaid and unconverted and except for Excluded Securities,
the Obligor shall not, without the prior consent of the Holder, (i) issue
or sell any shares of Common Stock without consideration or for consideration
per share less than the VWAP of the Common Stock on the Trading Day immediately
prior to its issuance, (ii) issue or sell any warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for consideration per
share less than the Closing Bid Price  of
the Common Stock on the date of issuance , (iii) issue or sell any shares
of preferred stock without consideration or for consideration per share less
than the VWAP of the Common Stock on the Trading Day immediately prior to its
issuance  (iv) enter into any
security instrument granting the holder a security interest in any of the
assets of the Obligor, other than security interests in connection with capital
lease financing, in cases where the security interest is in the nature of a
purchase money security interest, or for funds used for acquisitions by the
Obligor or any subsidiary of a business that has positive earnings before  interest, taxes, depreciation, and amortization
expenses or to refinance of the purchase money security interest in such event
the Holder shall take a second security position, provided however in the event
that a security interest is not given in connection with acquisitions by the
Obligor or any subsidiary of a business that has positive earnings before  interest, taxes, depreciation, and

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amortization expenses 
it is understood that the Holder shall be given a first security
interest or (v) file any
registration statements on Form S-8.

Rights of First Refusal.  For a period through May 30,
2007, so long as any portion of this
Debenture is outstanding (including principal or accrued interest), if the
Obligor intends to raise additional capital by the issuance or sale of capital
stock of the Obligor, including without limitation shares of any class of
Common Stock, any class of preferred stock, options, warrants or any other
securities convertible or exercisable into shares of Common Stock (whether the
offering is conducted by the Obligor, underwriter, placement agent or any third
party) the Obligor shall be obligated to offer to the Holder a percentage of
such issuance or sale of capital stock, by providing in writing the principal
amount of capital it intends to raise and outline of the material terms of such
capital raise, prior to the offering such issuance or sale of capital stock
 to any third parties including, but not limited to, current or former
officers or directors, current or former shareholders and/or investors of the
obligor, underwriters, brokers, agents or other third parties.  For the
purposes of this paragraph, the percentage shall be calculated by multiplying
fifty percent (50%) by a fraction, the numerator of which is the principal
amount of this Debenture, and the denominator of which is $16,000,000.

After
May 30, 2007, so long as any portion of
this Debenture is outstanding (including principal or accrued interest), if the
Obligor intends to raise additional capital by the issuance or sale of capital
stock of the Obligor, including without limitation shares of any class of
Common Stock, any class of preferred stock, options, warrants or any other
securities convertible or exercisable into shares of Common Stock (whether the
offering is conducted by the Obligor, underwriter, placement agent or any third
party) the Obligor shall be obligated to offer to the Holder a percentage of
such issuance or sale of capital stock, by providing in writing the principal
amount of capital it intends to raise and outline of the material terms of such
capital raise, prior to the offering such issuance or sale of capital stock
 to any third parties including, but not limited to, current or former
officers or directors, current or former shareholders and/or investors of the
obligor, underwriters, brokers, agents or other third parties.  For the
purposes of this paragraph, the percentage shall be calculated by multiplying
twenty five percent (25%) by a fraction, the numerator of which is the
principal amount of this Debenture, and the denominator of which is
$16,000,000.

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

This
Debenture is subject to the following additional provisions:

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

 3
 

 

Section 2.              Events of Default.

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

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

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

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

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

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

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

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

(viii)        The
Obligor or the Obligor’s transfer agent, as the case maybe, shall fail for any
reason to deliver Common Stock certificates to a Holder, as contemplated under
the Irrevocable Transfer Agent Instructions dated May 30, 2006, prior to the
third (3rd) or
sixth (6th)  Trading Day, as the case my be under the
Irrevocable Transfer Agent Instructions, after a Conversion Date or the Obligor
shall provide notice to the Holder, including by way of public announcement, at
any time, of its intention not to comply with requests for conversions of this
Debenture in accordance with the terms hereof and;

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

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

 (b)          During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred, the full principal amount of this Debenture, together
with interest and other amounts owing in respect thereof, to the date of acceleration
shall become at the Holder’s election, immediately due and payable in cash, provided however, the Holder may request
(but shall have no obligation to request) payment of such amounts in Common
Stock of the Obligor.    In addition to
any other remedies, the Holder shall have the right (but not the obligation) to
convert this Debenture at any time after (x) an Event of Default or (y) the
Maturity Date at the Conversion Price then in-effect.  The Holder need not provide and the Obligor
hereby waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded and
annulled by Holder at any time prior to payment hereunder. No such rescission
or annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.  Upon an Event of
Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares except those restrictions imposed by federal or
applicable state securities laws.

 5
 

 

Section 3.              Conversion.

(a)           Conversion at Option of Holder.

(i)            (a)
Provided the Obligor has sufficient authorized shares, in which case the
Obligor shall be obligated to increase its authorized shares pursuant to
Section 4 (e) of the Securities Purchase Agreement, and provided that the
Obligor has obtained shareholder approval as contemplated in Section 4(l) of
the Securities Purchase Agreement, this Debenture shall be convertible into
shares of Common Stock at the option of the Holder, in whole or in part at any
time and from time to time, after the Original Issue Date (as defined in Section 5) (subject to the limitations on conversion set
forth in Section 3(b) hereof)
provided however the Holder shall not be entitled to sell such shares, until
the later  to occur of i) the date the
Underlying Shares Registration Statement is declared effective or ii) (subject
to compliance with federal and applicable state securities laws) one hundred
twenty (120) calendar days from May 30, 2006 (collectively referred to as the “Waiting
Period”), unless waived by the Obligor. Notwithstanding the foregoing in
the event that the Underlying Shares Registration Statement is not declared
effective within one (1) year from the date hereof the Holder shall be entitled
to sell shares of the Obligor’s  Common
Stock issuable hereunder pursuant to Rule 144 as applicable. The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section 3(c)(i)).  The
Obligor shall deliver Common Stock certificates to the Holder prior to the
Fifth (5th)
Trading Day after a Conversion Date.

(b)         Provided that there is
an effective Underlying Shares Registration Statement the Obligor at its option
shall have the right at any time and from time to time, if the VWAP of the
Obligor’s Common Stock as quoted by Bloomberg, LP is equal to or greater than
Two Dollars and Fifty Cents ($2.50) (the “Forced Conversion Price”) for
twenty (20) consecutive Trading Days (the “Forced Conversion Pricing Period”),
to force the Holder to convert the outstanding Principal amount of this
Debenture plus outstanding and accrued interest, subject to the limitations in
Section 3(b)(i) herein, at the Fixed Conversion Price, in whole or in
part.  In such event the Obligor shall
provide to the Holder written notice at the end of business, but not later than
5:30 pm EST, on the last Trading Day of the Forced Conversion Pricing Period
(the “Forced Conversion Notice”). 
The Holder shall than on the next Trading Day from receipt of the Forced
Conversion Notice, convert this Debenture, subject to the limitations in
Section 3(b)(i) herein, in whole or in part, at the Fixed Conversion Price (“Forced
Conversion Period”).  Provided
however in the event that the VWAP of the Obligor’s Common Stock, as quoted by
Bloomberg, LP, during the Forced Conversion Period is lower than the Forced Conversion
Price the Obligor shall not have the right to force the Holder to exercise this
Debenture, in whole or in part.

(ii)           Notwithstanding
anything to the contrary contained herein, if after December 31, 2006, on any
Conversion Date:  (1) the number of shares
of Common Stock at the time authorized, unissued and unreserved for all
purposes, or held as treasury stock, is insufficient to pay principal and
interest hereunder in shares of Common Stock; (2) the Common Stock is not
listed or quoted for trading on the OTCBB or on a Subsequent Market; (3) the
Obligor has failed to timely satisfy its conversion; or (4) the issuance of
such shares of Common Stock would result in a violation of Section 3(b), then, at the option of the
Holder, the Obligor, in lieu of delivering shares of Common Stock pursuant to Section 3(a)(i), shall deliver, within
five (5) 

 6
 

 

Trading Days of each applicable Conversion Date, an
amount in cash equal to the product of the outstanding principal amount to be
converted plus any interest due therein divided by the Conversion Price, chosen
by the Holder, and multiplied by the VWAP of the Common Stock on the   date of the conversion notice until the date
that such cash payment is made.

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

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

(b)           Certain Conversion Restrictions.

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

 7
 

 

amount tendered for conversion in excess of the
permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
65 days prior notice to the Obligor. Other Holders shall be unaffected by any
such waiver.

(ii) Commencing January 25, 2007 and subject to further
limitations in Section 3(a)(i), the Holder shall not convert any portion of the
aggregate outstanding principal amount and accrued interest due under all
Debentures issued under the Securities Purchase Agreement,  into shares of the Obligor’s Common Stock in
excess of Two Hundred Thousand Dollars ($200,000) at the Market Conversion
Price in any seven (7) calendar  day
period.  Notwithstanding the forgoing,
this conversion restriction shall not apply upon the occurrence of an Event of
Default or if waived in writing by the Obligor. 
Thereafter, the Holder shall not convert any portion of the aggregate
outstanding principal amount and accrued interest due under all Debentures
issued under the Securities Purchase Agreement, into shares of the Company’s
Common Stock in excess of Four Hundred Thousand Dollars ($400,000) at the
Market Conversion Price in any seven (7) calendar day period.

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

(c)           Conversion Price and Adjustments
to Conversion Price.

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

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

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

(ii)           If
the Obligor, at any time while this Debenture is outstanding, shall
(a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its

 8
 

 

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

(iii)          If
the Obligor, at any time while this Debenture is outstanding, shall issue
rights, options or warrants to all holders of Common Stock (and not to the
Holder) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Fixed Conversion Price (not including the
issuance of Excluded Securities), then the Fixed Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants (plus the number of additional
shares of Common Stock offered for subscription or purchase), and of which the
numerator shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants,
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at the Fixed Conversion Price. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However,
upon the expiration of any such right, option or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the Fixed
Conversion Price pursuant to this Section, if any such right, option or warrant
shall expire and shall not have been exercised, the Fixed Conversion Price
shall immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Fixed Conversion Price made pursuant to
the provisions of this Section after the issuance of such rights or warrants)
had the adjustment of the Fixed Conversion Price made upon the issuance of such
rights, options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights, options or warrants actually exercised.

(iv)          If
the Obligor or any subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that are convertible into or
exchangeable for shares of Common Stock (“Common Stock Equivalents”)
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Fixed Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of
Common Stock at a price per share which is less than the Fixed Conversion Price
(in all cases, other than Excluded Securities), such issuance shall be deemed
to

 9
 

 

have occurred for less than the Fixed Conversion
Price), then, at the sole option of the Holder, the Fixed Conversion Price
shall be adjusted to mirror the conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any reset provisions
thereof) at issue. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. The Obligor shall notify the Holder in
writing, no later than one (1) business day following the issuance of any
Common Stock or Common Stock Equivalent subject to this Section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. No adjustment under this
Section shall be made as a result of issuances and exercises of options to
purchase shares of Common Stock issued for compensatory purposes pursuant to
any of the Obligor’s stock option or stock purchase plans.

(v)           If
the Obligor, at any time while this Debenture is outstanding, shall distribute
to all holders of Common Stock (and not to the Holder) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Fixed Conversion Price at which this
Debenture shall thereafter be convertible shall be determined by multiplying
the Fixed Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Closing Bid Price determined as of
the record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

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

(vii)         The
Obligor shall at all times after December 31, 2006 reserve and keep available
out of its authorized Common Stock the full number of shares of Common Stock
issuable upon conversion of all outstanding amounts under this Debenture; and within
three (3)

 10

 

Trading Days following the receipt by the Obligor of a
Holder’s notice that such minimum number of Underlying Shares is not so
reserved, the Obligor shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.

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

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

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

(xi)           In
case of any  merger or consolidation of
the Obligor or any subsidiary of the Obligor with or into another Person, a
Holder shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders
of Common Stock following such merger, consolidation or sale, and such Holder
shall be entitled upon such event or series of related events to receive such
amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of this Debenture could have been
converted immediately prior to such merger, consolidation or sales

 11
 

 

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

(d)           Other Provisions.

(i)            The
Obligor covenants that it will at all times after December 31, 2006 reserve and
keep available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holder, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Obligor as to reservation of
such shares set forth in this Debenture) be issuable (taking into account the
adjustments and restrictions of Sections
2(b) and 3(c)) upon the conversion of the outstanding principal
amount of this Debenture and payment of interest hereunder. The Obligor
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable
and, if the Underlying Shares Registration Statement has been declared
effective under the Securities Act, registered for public sale in accordance
with such Underlying Shares Registration Statement.

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

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

 12
 

 

persons requesting the issuance thereof shall have
paid to the Obligor the amount of such tax or shall have established to the
satisfaction of the Obligor that such tax has been paid.

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

(v)           In
addition to any other rights available to the Holder, if the Obligor fails to
deliver to the Holder such certificate or certificates pursuant to Section 3(a)(i) by the fifth (5th) Trading Day after the
Conversion Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving
upon such conversion (a “Buy-In”), then the Obligor shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y)
the product of (1) the aggregate number of shares of Common Stock that such
Holder anticipated receiving from the conversion at issue multiplied by (2) the
market price of the Common Stock at the time of the sale giving rise to such
purchase obligation and (B) at the option of the Holder, either reissue a
Debenture in the principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Obligor timely complied with its
delivery requirements under Section 3(a)(i).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Obligor shall be required to pay the Holder
$1,000.  The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in respect
of the Buy-In.

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

 13
 

 

 

	
  If to the Obligor, to:

  	
   

  	
  Isonics Corporation

  
	
   

  	
   

  	
  5906 McIntyre Street

  
	
   

  	
   

  	
  Golden, CO 80403

  
	
   

  	
   

  	
  Attention:

  	
  James E. Alexander, President

  
	
   

  	
   

  	
  Telephone:

  	
  (303) 279-7900

  
	
   

  	
   

  	
  Facsimile:

  	
  (303) 279-7300

  
	
   

  	
   

  	
   

  
	
  With a copy
  (which does not

  constitute notice) to:

  	
   

  	
  Burns, Figa & Will, P.C.

  
	
   

  	
   

  	
  6400 South Fiddler’s Green Circle – Suite 1000

  
	
   

  	
   

  	
  Greenwood Village, CO 80111

  
	
   

  	
   

  	
  Attention:

  	
  Herrick K. Lidstone, Jr., Esq.

  
	
   

  	
   

  	
  Telephone:

  	
  (303) 796-2626

  
	
   

  	
   

  	
  Facsimile:

  	
  (303) 796-2777

  
	
  If to the
  Holder:

  	
   

  	
  Cornell Capital Partners, LP

  
	
   

  	
   

  	
  101 Hudson Street, Suite 3700

  
	
   

  	
   

  	
  Jersey City, NJ 07303

  
	
   

  	
   

  	
  Attention:

  	
  Mark Angelo

  
	
   

  	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  David Gonzalez, Esq.

  
	
   

  	
   

  	
  101 Hudson Street – Suite 3700

  
	
   

  	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
   

  	
  Facsimile:

  	
  (201) 985-8266

  

 

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

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

“Approved Stock Plan” means any employee benefit plan which has
been approved or is in the future approved by the Board of Directors of the
Company, pursuant to which the Company’s securities may be issued to any employee,
consultant, officer or director for services provided to the Company.

 14
 

 

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

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

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

“Commission”
means the Securities and Exchange Commission.

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

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

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

“Excluded Securities” means:

(a) any issuance by the Company of securities in connection with a
strategic partnership or a joint venture (the primary purpose of which is not
to raise equity capital),

(b) any issuance by the Company of securities as consideration for a
merger or consolidation or the acquisition of a business, product, license, or
other assets of another person or entity,

(c) options to purchase shares of Common Stock, provided (I) such
options are issued after the date of this Debenture to employees of the Company
within thirty (30) days of such employee’s starting his employment with the
Company, and (II) the exercise price of such options is not less than the
Closing Price of the Common Stock on the date of issuance of such option,

(d) securities issued pursuant to an Approved Stock Plan,

 15
 

 

(e) up to 1,000,000 without registration rights and not pursuant to
Form S-8 (in the event that such issuance has registration rights the Obligor
shall obtain the prior written approval of the Holder) shares that may be
issued from time to time at a price no less than the VWAP ending within three
(3) Business Days prior to the completion of the transaction (the primary
purpose of which is not to raise equity capital), and

(f) any issuance of securities to holders of the Other Securities
provided such transactions are in accordance with the terms of such instrument (including
any anti-dilution protection contained in such instrument) or are on terms
determined by the Board of Directors of the Company to be no less favorable to
the Company than the existing terms.

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

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

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

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

“Transaction
Documents” means the Securities Purchase Agreement or any other agreement
delivered in connection with the Securities Purchase Agreement, including,
without limitation, the Security Agreement, the Irrevocable Transfer Agent
Instructions, and the Registration Rights Agreement.

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

“Underlying
Shares Registration Statement” means a registration statement meeting the
requirements set forth in the Investor’s Registration Rights Agreement, dated
May 30, 2006 by and between the Obligor and the Holder, covering among other
things the resale of the Underlying Shares and naming the Holder as a “selling
stockholder” thereunder.

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

Section 6.              Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligations of
the Obligor, which are absolute and unconditional, to pay the principal of,
interest and other charges (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed.  This Debenture is a direct obligation of the
Obligor.

 16
 

 

This Debenture ranks pari passu with all other 6%
Debentures now or hereafter issued to the Holder under the terms set forth
herein. As long as this Debenture is outstanding, the Obligor shall not and
shall cause their subsidiaries not to, without the consent of the Holder of at
least a majority of the principal amount of the 6% Convertible Debentures then
outstanding (whether or not the Holder consents), (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holder; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (iii) enter into any agreement with respect to any of
the foregoing.

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

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

Section 9.              Except as described in the
Disclosure Schedule, no indebtedness of the Obligor is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. 
Without the Holder’s consent, the Obligor will not and will not permit
any of their subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any indebtedness of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits there from that is senior in any
respect to the obligations of the Obligor under this Debenture except for
capital lease financing, in cases where the security interest is in the nature
of a purchase money security interest, or for funds used for acquisitions by
the Obligor or any subsidiary of a business that has positive earnings
before  interest, taxes, depreciation,
and amortization expenses or to refinance of the purchase money security
interest initially taken.

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

Section 11.            If the Obligor fails to strictly comply
with the terms of this Debenture, then the Obligor shall reimburse the Holder
promptly for all fees, costs and expenses, including, without limitation,
attorneys’ fees and expenses incurred by the Holder in any action in connection
with this Debenture, including, without limitation, those incurred: (i) during
any workout, attempted workout, and/or in connection with the rendering of
legal advice as to the

 17
 

 

Holder’s rights, remedies and obligations, (ii)
collecting any sums which become due to the Holder, (iii) defending or
prosecuting any proceeding or any counterclaim to any proceeding or appeal; or
(iv) the protection, preservation or enforcement of any rights or remedies of
the Holder.

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

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

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

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

[REMAINDER OF PAGE INTENTIONLLY
LEFT BLANK]

 18
 

 

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

	
  

  	
  ISONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  John Sakys

  
	
   

  	
  Title:

  	
  Vice President and Chief Financial Officer

  
					

 

 19

 

EXHIBIT “A”

NOTICE OF
CONVERSION

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

 

TO:

 

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

	
  Conversion Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Applicable Conversion Price:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Amount to be converted:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Amount of Debenture unconverted:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Conversion Price per share:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Number of shares of Common Stock to be issued:

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Issue to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorized Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Phone Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Broker DTC Participant Code:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Account Number:

  	
   

  	
   

  

 

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

 

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

	
  By:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Social Security Number

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]