Document:

Exhibit
10.2

 

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

 

TERM NOTE

 

June 13, 2008

 

	
  Jersey
  City, New Jersey

  	
  $1,175,000

  

 

FOR
VALUE RECEIVED,
the undersigned, ISONICS CORPORATION,
a California corporation (the “Company”), promises to pay YA GLOBAL INVESTMENTS, LP (the “Lender”)
at 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 or other
address as the Lender shall specify in writing, the principal sum of One Million One Hundred Seventy-Five Thousand Dollars ($1,175,000) and interest at the annual rate of thirteen
percent (13%) on the unpaid balance pursuant to the following terms of
this Term Note (the “Note”):

 

1.                                       Principal and Interest.  For value received, the Company hereby
promises to pay to the order of the Lender on October 31, 2009 (“Maturity
Date”) in lawful money of the United States of America and in immediately
available funds the principal sum of One Million One Hundred Seventy-Five
Thousand Dollars ($1,175,000), together with interest on the unpaid principal
of this note at the rate of thirteen percent (13%) per year (computed on
the basis of a 365-day year and the actual days elapsed) from the date of this
Note until paid.

 

2.                                       Right of Prepayment.  The Company at its option shall have the
right to prepay, with ten (10) business days advance written notice (a “Prepayment
Notice”), any amount of outstanding principal of the Note (a “Company
Prepayment”).  The Prepayment Notice
must state the portion of the Note (including interest) that the Company wishes
to pay (the “Prepayment Amount”). 
Prepayment Notices are irrevocable. 
If the Company elects a prepayment, on the tenth (10th)
business day following the Lender’s receipt of the Prepayment Notice, the
Company shall pay to the Lender, by wire transfer of immediately available
funds, an amount in cash equal to 120% of the principal portion of the
Prepayment Amount plus accrued and unpaid interest.

 

3.                                       Waiver and Consent.  To the fullest extent permitted by law and
except as otherwise provided herein, the Company waives demand, presentment,
protest, notice of dishonor, suit against or joinder of any other person, and
all other requirements necessary to charge or hold the Company liable with
respect to this Note.

 

 

4.                                       Costs, Indemnities and Expenses.  In the event of default as described herein,
the Company agrees to pay all reasonable fees and costs incurred by the Lender
in collecting or securing or attempting to collect or secure this Note,
including reasonable attorneys’ fees and expenses, whether or not involving
litigation, collecting upon any judgments and/or appellate or bankruptcy
proceedings.  The Company agrees to pay
any documentary stamp taxes, intangible taxes or other taxes which may now or
hereafter apply to this Note or any payment made in respect of this Note, and
the Company agrees to indemnify and hold the Lender harmless from and against
any liability, costs, attorneys’ fees, penalties, interest or expenses relating
to any such taxes, as and when the same may be incurred.

 

5.                                       Event of Default.  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):

 

(i)             the Company’s failure
to pay to the Lender any amount of principal, interest, or other amounts when
and as due under this Note (including, without limitation, the Company’s
failure to pay any redemption payments or amounts hereunder) or any other
Transaction Document (as defined in the Securities Purchase Agreement (the “Securities
Purchase Agreement”), dated the date hereof, between Company and Lender);

 

(ii)          The Company 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 Note, any of
the other Transaction Documents, or any other note issued, or shall hereinafter
be issued to the Lender or its affiliates which is not cured within the time
prescribed;

 

(iii)       The Company or any
subsidiary of the Company shall commence, or there shall be commenced against
the Company or any subsidiary of the Company under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor thereto, or the
Company or any subsidiary of the Company 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 Company or any subsidiary of
the Company or there is commenced against the Company or any subsidiary of the
Company any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 61 days; or the Company or any subsidiary of the
Company is adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company or any
subsidiary of the Company 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 undischarged or unstayed for a period of sixty one
(61) days; or the Company or any subsidiary of the Company makes a general
assignment for the benefit of creditors; or the Company or any subsidiary of
the Company 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 Company
or any subsidiary of the Company shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debt; or
the Company or any subsidiary of the Company 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 Company or
any subsidiary of the Company for the purpose of effecting any of the
foregoing;

 

(iv)      The Company or any
subsidiary of the Company shall default in any of its obligations under any
other promissory note, or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement, debenture 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 Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

 

(v)         If the Common Stock is
quoted or listed for trading on any of the following and it ceases to be so
quoted or listed for trading and shall not again be quoted or listed for
trading on any Primary Market within five (5) Trading Days of such
delisting: (a) the American Stock Exchange, (b) New York Stock
Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital
Market, or (e) the Nasdaq OTC Bulletin Board (“OTCBB”) (each, a “Primary
Market”);

 

(vi)      The Company or any
subsidiary of the Company shall be a party to any Change of Control Transaction
unless in connection with such Change of Control Transaction this Note is
retired (“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 Company, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Company (except that the acquisition of
voting securities by the Lender or any other current holder of convertible
securities of the Company 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 Company 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 assets of the Company or any subsidiary
of the Company in one or a series of related transactions with or into another
entity, or (d) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (a), (b) or (c));

 

(vii)   To
the extent that the Company is eligible to file a Registration Statement, the
Company shall fail to file the Registration Statement with the Commission, or
the Registration Statement shall not have been declared effective by the
Commission, in each case within thirty (30) days of the periods set forth in
the Registration Rights Agreement (“Registration Rights Agreement”)
dated June 13, 2008 among the Company and each Buyer listed on Schedule I
attached thereto, or, while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the Lender for sale of all of the Lender’s Registrable
Securities (as defined in the 

 

 

Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of more than
ten (10) consecutive Trading Days or for more than an aggregate of twenty
(20) days in any 365-day period (which need not be consecutive);  and

 

(viii)        The Company 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 Note (except as
may be covered by Section 5(i) through 5(vi) hereof) or any
Transaction Document which is not cured within the time prescribed.

 

6.                                       Remedies.                           During the time that any
portion of this Note is outstanding, if any Event of Default has occurred, the
full unpaid principal amount of this Note, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become at
the Lender’s election, immediately due and payable in cash.  If an Event of Default (after giving effect
to any specified cure period) occurs and for so long as such Event of Default
remains uncured, the interest rate on this Note shall immediately become
twenty-four percent (24%) per annum and shall remain at such increased interest
rate until the applicable Event of Default is cured.  Furthermore, in addition to any other
remedies, the Lender shall have the right (but not the obligation) to appoint a
majority of the Company’s board of directors provided the Lender does so in
compliance with the requirements of the Securities Exchange Act of 1934, as
amended.  The Lender need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, (other than required notice of conversion) and the Lender 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 Lender 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.

 

7.                                       Maximum Interest Rate.  In no event shall any agreed to or actual
interest charged, reserved or taken by the Lender as consideration for this
Note exceed the limits imposed by New Jersey law.  In the event that the interest provisions of
this Note shall result at any time or for any reason in an effective rate of
interest that exceeds the maximum interest rate permitted by applicable law,
then without further agreement or notice the obligation to be fulfilled shall
be automatically reduced to such limit and all sums received by the Lender in
excess of those lawfully collectible as interest shall be applied against the
principal of this Note immediately upon the Lender’s receipt thereof, with the
same force and effect as though the Company had specifically designated such
extra sums to be so applied to principal and the Lender had agreed to accept
such extra payment(s) as a premium-free prepayment or prepayments.

 

8.                                       Cancellation of Note. Upon the
repayment by the Company of all of its obligations hereunder to the Lender,
including, without limitation, the principal amount of this Note, plus accrued
but unpaid interest, the indebtedness evidenced hereby shall be deemed canceled
and paid in full.  Except as otherwise
required by law or by the provisions of this Note, payments received by the
Lender hereunder shall be applied first against expenses and indemnities, next
against interest accrued on this Note, and next in reduction of the outstanding
principal balance of this Note.

 

 

9.                                       Severability.  If any provision of this Note is, for any
reason, invalid or unenforceable, the remaining provisions of this Note will
nevertheless be valid and enforceable and will remain in full force and
effect.  Any provision of this Note that
is held invalid or unenforceable by a court of competent jurisdiction will be
deemed modified to the extent necessary to make it valid and enforceable and as
so modified will remain in full force and effect.

 

10.                                 Amendment and Waiver.  This Note may be amended, or any provision of
this Note may be waived, provided that any such amendment or waiver will be
binding on a party hereto only if such amendment or waiver is set forth in a
writing executed by the parties hereto. 
The waiver by any such party hereto of a breach of any provision of this
Note shall not operate or be construed as a waiver of any other breach.

 

11.                                 Successors.  Except as otherwise provided herein, this
Note shall bind and inure to the benefit of and be enforceable by the parties
hereto and their permitted successors and assigns.

 

12.                                 Assignment.  This Note shall not be directly or indirectly
assignable or delegable by the Company. 
The Lender may assign this Note as long as such assignment complies with
the Securities Act of 1933, as amended.

 

13.                                 Reissuance of this Note.

 

(i)             Transfer.  If this Note is to be transferred any such
transfer must be made in accordance with applicable securities laws, and the
Lender shall surrender this Note to the Company, whereupon the Company will,
subject to the satisfaction of the transfer provisions of the Securities
Purchase Agreement, forthwith issue and deliver upon the order of the Lender a
new Note (in accordance with Section 6(d)), registered in the name of the
registered transferee or assignee, representing the outstanding Principal being
transferred by the Holder and, if less then the entire outstanding Principal is
being transferred, a new Note (in accordance with Section 13(iv)) to the
Lender representing the outstanding principal not being transferred.

 

(ii)          Lost, Stolen or
Mutilated Note.  Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Lender to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Lender a new Note
(in accordance with Section 13(iv)) representing the outstanding
principal.

 

(iii)       Note Exchangeable for
Different Denominations.  This Note
is exchangeable, upon the surrender hereof by the Lender at the principal
office of the Company, for a new Note or Notes (in accordance with Section 13(iv))
representing in the aggregate the outstanding principal of this Note, and each
such new Note will represent such portion of such outstanding principal as is
designated by the Lender at the time of such surrender.

 

(iv)      Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note,

 

 

(ii) shall
represent, as indicated on the face of such new Note, the principal remaining
outstanding (or in the case of a new Note being issued pursuant to Section 13(i) or
Section 13(iii), the principal designated by the Lender which, when added
to the principal represented by the other new Notes issued in connection with
such issuance, does not exceed the principal remaining outstanding under this
Note immediately prior to such issuance of new Notes), (iii) shall have an
date, as indicated on the face of such new Note, which is the same as the date
of this Note, (iv) shall have the same rights and conditions as this Note,
and (v) shall represent accrued and unpaid interest from the date of this
Note.

 

14.                                 No Strict Construction.  The language used in this Note will be deemed
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction will be applied against any party.

 

15.                                 Further Assurances.  Each party hereto will execute all documents
and take such other actions as the other party may reasonably request in order
to consummate the transactions provided for herein and to accomplish the
purposes of this Note.

 

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

 

	
  If to Company:

  	
   

  	
  Isonics Corporation

  
	
   

  	
   

  	
  5906 McIntyre Street

  
	
   

  	
   

  	
  Golden, CO 80403

  
	
   

  	
   

  	
  Attn: Chairman

  
	
   

  	
   

  	
  Telephone: (303) 279-7900

  
	
   

  	
   

  	
  Facsimile: (303) 279-7300

  
	
   

  	
   

  	
   

  
	
  With
  a Copy to:

  	
   

  	
  Burns,
  Figa & Will, P.C.

  
	
   

  	
   

  	
  Suite 1000,
  6400 South Fiddlers Green Circle

  
	
   

  	
   

  	
  Greenwood
  Village, CO 80112

  
	
   

  	
   

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

  
	
   

  	
   

  	
  Telephone:
  (303) 796-2626

  
	
   

  	
   

  	
  Facsimile:
  (303) 796-2777

  
	
   

  	
   

  	
   

  
	
  If
  to the Lender:

  	
   

  	
  YA
  Global Investments, LP

  
	
   

  	
   

  	
  101
  Hudson Street, Suite 3700

  
	
   

  	
   

  	
  Jersey
  City, NJ 07302

  
	
   

  	
   

  	
  Attention:
  Mark A. Angelo

  
	
   

  	
   

  	
  Telephone:
  (201) 985-8300

  
	
   

  	
   

  	
  Facsimile:
  (201) 985-8744

  

 

 

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 (A) given
by the recipient of such notice, consent, waiver or other communication, (B) 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 (C) 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.

 

17.                                 Remedies, Other Obligations, Breaches and Injunctive
Relief.  The Lender’s
remedies provided in this Note shall be cumulative and in addition to all other
remedies available to the Lender under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy of the Lender contained herein shall be deemed a waiver of compliance
with the provisions giving rise to such remedy and nothing herein shall limit
the Lender’s right to pursue actual damages for any failure by the Company to
comply with the terms of this Note.  No
remedy conferred under this Note upon the Lender is intended to be exclusive of
any other remedy available to the Lender, pursuant to the terms of this Note or
otherwise.  No single or partial exercise
by the Lender of any right, power or remedy hereunder shall preclude any other
or further exercise thereof.  The failure
of the Lender to exercise any right or remedy under this Note or otherwise, or
delay in exercising such right or remedy, shall not operate as a waiver
thereof.  Every right and remedy of the
Lender under any document executed in connection with this transaction may be
exercised from time to time and as often as may be deemed expedient by the
Lender.  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Lender and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the Lender shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, and specific performance without the necessity of showing economic loss
and without any bond or other security being required.

 

18.                                 Governing Law; Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
Jersey, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New Jersey or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the State of New Jersey.  Each party
hereby irrevocably submits to the exclusive jurisdiction of the Superior Court
of the State of New Jersey sitting in Hudson County, New Jersey and the United
States Federal District Court for the District of New Jersey sitting in Newark,
New Jersey, for the adjudication of any dispute hereunder or in connection
herewith or therewith, or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a 

 

 

copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.

 

19.                                 No Inconsistent Agreements.  None of the parties hereto will hereafter
enter into any agreement, which is inconsistent with the rights granted to the
parties in this Note.

 

20.                                 Third Parties.  Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any person or entity,
other than the parties to this Note and their respective permitted successor
and assigns, any rights or remedies under or by reason of this Note.

 

21.                                 Waiver of Jury Trial.  AS A
MATERIAL INDUCEMENT FOR THE LENDER TO LOAN TO THE COMPANY THE MONIES HEREUNDER,
THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
ASSOCIATED WITH THIS TRANSACTION.

 

22.                                 Entire Agreement.  This
Note (including any recitals hereto) set forth the entire understanding of the
parties with respect to the subject matter hereof, and shall not be modified or
affected by any offer, proposal, statement or representation, oral or written,
made by or for any party in connection with the negotiation of the terms
hereof, and may be modified only by instruments signed by all of the parties
hereto.

 

[REMAINDER OF PAGE INTENTIONALY
LEFT BLANK]

 

 

IN
WITNESS WHEREOF, this Promissory Note is executed by the
undersigned as of the date hereof.

 

	
   

  	
   

  	
  YA
  GLOBAL INVESTMENTS, LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  Yorkville Advisors, LLC

  
	
   

  	
   

  	
  Its:
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark
  Angelo

  
	
   

  	
   

  	
  Its:

  	
  Portfolio
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ISONICS
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Gregory A.
  Meadows

  
	
   

  	
   

  	
  Title:   Vice
  President/Assistant SecretaryExhibit 10.3

 

WARRANT

 

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

 

ISONICS CORORATION

 

Warrant To Purchase Common Stock

 

	
  Warrant No.: ISON-1-1

  	
   

  	
  Number of Shares:

  	
   

  	
  13,000,000

  
	
   

  	
   

  	
  Warrant Exercise Price:

  	
   

  	
  $0.03

  
	
   

  	
   

  	
  Expiration Date:

  	
   

  	
  June 13, 2015

  

 

Date of Issuance: June 13,
2008

 

ISONICS CORPORATION, a California corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, YA
Global Investments, L.P. (the “Holder”), the registered
holder hereof or its permitted assigns, is entitled, subject to the terms set
forth below, to purchase from the Company upon surrender of this Warrant, at
any time or times on or after the date hereof, but not after 11:59 P.M.
Eastern Time on the Expiration Date (as defined herein) up to Thirteen Million
(13,000,000) fully paid and nonassessable shares of Common Stock (as defined
herein) of the Company (the “Warrant Shares”) at the exercise price per
share provided in Section 1(b) below or as subsequently adjusted;
provided, however, that in no event shall the holder be entitled to exercise
this Warrant for a number of Warrant Shares in excess of that number of Warrant
Shares which, upon giving effect to such exercise, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise, except within sixty (60) days of the Expiration Date
(however, such restriction may be waived by Holder (but only as to itself and
not to any other holder) upon not less than 65 days prior notice to the
Company).  For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such proviso is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by the holder and its affiliates (including,
without 

 

 

limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein.  Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.  For
purposes of this Warrant, in determining the number of outstanding shares of
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company’s most recent Form 10-Q or Form 10-K,
as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth
the number of shares of Common Stock outstanding.  Upon the written request of any holder, the
Company shall promptly, but in no event later than one (1) Business Day
following the receipt of such notice, confirm in writing to any such holder the
number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the exercise of
Warrants (as defined below) by such holder and its affiliates since the date as
of which such number of outstanding shares of Common Stock was reported.

 

Section 1.

 

(a)          This Warrant is issued pursuant to the
Securities Purchase Agreement (“Securities Purchase Agreement”) dated the
date hereof between the Company and the Buyers listed on Schedule I thereto or
issued in exchange or substitution thereafter or replacement thereof.  Each Capitalized term used, and not otherwise
defined herein, shall have the meaning ascribed thereto in the Securities
Purchase Agreement.

 

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

 

(i)                                     “Approved Stock
Plan” means a stock option plan that has been approved by the Board of
Directors of the Company prior to the date of the Securities Purchase
Agreement, pursuant to which the Company’s securities may be issued only to any
employee, officer or director for services provided to the Company.

 

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

 

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

 

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

 

(v)                                 “Event of Default”
means an event of default under the Securities Purchase Agreement or the Notes
issued in connection therewith.

 

 

(vi)                              “Excluded Securities”
means, (a) shares issued or deemed to have been issued by the Company
pursuant to an Approved Stock Plan, (b) shares of Common Stock issued or
deemed to be issued by the Company upon the conversion, exchange or exercise of
any right, option, obligation or security outstanding on the date prior to date
of the Securities Purchase Agreement, provided that the terms of such right,
option, obligation or security are not amended or otherwise modified on or
after the date of the Securities Purchase Agreement, and provided that the
conversion price, exchange price, exercise price or other purchase price is not
reduced, adjusted or otherwise modified and the number of shares of Common
Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common
Stock issued or deemed to be issued by the Company upon conversion exercise of
the Warrants.

 

(vii)                           “Expiration Date”
means the date set forth on the first page of this Warrant.

 

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

 

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

 

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

 

(xi)                                “Primary Market”
means on any of (a) the American Stock Exchange, (b) New York Stock
Exchange, (c) the Nasdaq Global Select Market, (d) the Nasdaq Global
Market, (e) the Nasdaq Capital Market, or (e) the

Over-the-Counter Bulletin Board (“OTCBB”).

 

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

 

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

 

(xiv)                         “Warrant Exercise Price”
shall be $0.03 or as subsequently adjusted as provided in Section 8
hereof.

 

(c)          Other Definitional Provisions.

 

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

 

(ii)                                  When used in this
Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer
to this Warrant as a whole and not to any 

 

 

provision of
this Warrant, and the words “Section”, “Schedule”, and “Exhibit”
shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

 

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

 

Section 2.                                            Exercise
of Warrant.

 

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

 

	
   

  	
  Net Number =

  	
  (A x B) – (A x C)

  	
   

  
	
   

  	
   

  	
  B

  	
   

  

 

For purposes of the foregoing formula:

 

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

 

B = the Closing Bid Price of the Common Stock on the date of exercise
of the Warrant.

 

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

 

In the event of any exercise of the rights represented by this Warrant
in compliance with this Section 2, the Company shall on or before the
fifth (5th) Business Day following the date of receipt of the Exercise
Notice, the Aggregate Exercise Price and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) and the receipt of the representations of the holder specified in Section 6
hereof, if 

 

 

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

 

(b)         If the holder and the Company are unable to
agree upon the determination of the Warrant Exercise Price or arithmetic
calculation of the Warrant Shares within one (1) day of such disputed
determination or arithmetic calculation being submitted to the holder, then the
Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price or the Closing Bid Price to an
independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the Warrant Shares to its independent, outside
accountant.  The Company shall cause the
investment banking firm or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. 
Such investment banking firm’s or accountant’s determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

 

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

 

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

 

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

 

 

pay as
additional damages in cash to such holder on each day the issuance of such
certificate for Warrant Shares is not timely effected an amount equal to 0.025%
of the product of (A) the sum of the number of Warrant Shares not issued
to the holder on a timely basis and to which the holder is entitled, and (B) the
Closing Bid Price of the Common Stock for the trading day immediately preceding
the last possible date which the Company could have issued such Common Stock to
the holder without violating this Section 2.

 

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

 

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

 

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

 

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

 

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

 

(d)         If at any time after the date hereof the Company
shall file a registration statement, the Company shall include the Warrant
Shares issuable to the holder, pursuant to the terms of this Warrant and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Warrant Shares from time to time issuable upon the exercise of
this Warrant; and the Company shall so list on each national securities
exchange or automated quotation system, as the case may be, and shall maintain
such listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.

 

 

(e)          The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the holder
of this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant.  The Company
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Warrant Exercise Price then in effect,
and (ii) will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant.

 

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

 

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

 

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

 

Section 6.                                            Representations
of Holder.  The holder of this
Warrant, by the acceptance hereof, represents that it is acquiring this Warrant
and the Warrant Shares for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
of this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the representations
herein, the holder does not agree to hold this Warrant or any of the Warrant
Shares for any minimum or other specific term and reserves the right to dispose
of this Warrant and the Warrant Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities
Act.  The holder of this Warrant further
represents, by acceptance hereof, that, as of this date, such holder is an “accredited
investor” as such term is defined in 

 

 

Rule 501(a)(1) of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an “Accredited Investor”).  Upon exercise of this Warrant the holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the holder’s own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale and that such
holder is an Accredited Investor.  If
such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder’s exercise of this Warrant
that the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of this Warrant shall not violate any United States or state
securities laws.

 

Section 7.                                            Ownership
and Transfer.

 

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

 

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

 

(a)          Adjustment of Warrant Exercise Price and
Number of Shares upon Issuance of Common Stock.  If and whenever on or after the Issuance Date
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than Excluded Securities) for a
consideration per share less than a price (the “Applicable Price”) equal
to the Warrant Exercise Price in effect immediately prior to such issuance or
sale, then immediately after such issue or sale the Warrant Exercise Price then
in effect shall be reduced to an amount equal to such consideration per
share.  Upon each such adjustment of the
Warrant Exercise Price hereunder, the number of Warrant Shares issuable upon
exercise of this Warrant shall be adjusted to the number of shares determined
by multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof
by the Warrant Exercise Price resulting from such adjustment.

 

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

 

(i)                                     Issuance of
Options.  If after the date hereof,
the Company in any manner grants any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange of any convertible securities issuable
upon exercise of any such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued

 

 

and sold by
the Company at the time of the granting or sale of such Option for such price
per share.  For purposes of this Section 8(b)(i),
the lowest price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option or upon conversion or exchange of any convertible security issuable upon
exercise of such Option.  No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of
such Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such convertible securities.

 

(ii)                                  Issuance of
Convertible Securities.  If the
Company in any manner issues or sells any convertible securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such convertible
securities for such price per share.  For
the purposes of this Section 8(b)(ii), the lowest price per share for
which one share of Common Stock is issuable upon such conversion or exchange
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the convertible security and upon conversion or
exchange of such convertible security.  No
further adjustment of the Warrant Exercise Price shall be made upon the actual
issuance of such Common Stock upon conversion or exchange of such convertible
securities, and if any such issue or sale of such convertible securities is
made upon exercise of any Options for which adjustment of the Warrant Exercise
Price had been or are to be made pursuant to other provisions of this Section 8(b),
no further adjustment of the Warrant Exercise Price shall be made by reason of
such issue or sale.

 

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

 

(iv)                              Calculation of
Consideration Received.  If any
Common Stock, Options or convertible securities are issued or sold or deemed to
have been issued or sold for 

 

 

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

 

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

 

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

 

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

 

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

 

 

combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, any Warrant
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(c) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

 

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

 

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

 

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

 

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

 

 

Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.

 

(f)            Voluntary Adjustments By Company.  The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company.

 

(g)         Notices.

 

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

 

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

 

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

 

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

 

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

 

(b)         Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company’s assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an “Organic Change.”  Prior to the consummation of any (i) sale
of all or substantially all of the Company’s assets to an acquiring Person or (ii) other
Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from 

 

 

such Organic
Change (in each case, the “Acquiring Entity”) a written agreement (in
form and substance satisfactory to the holders of Warrants representing at
least two-thirds (iii) of the Warrant Shares issuable upon exercise of the
Warrants then outstanding) to deliver to each holder of Warrants in exchange
for such Warrants, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant and
satisfactory to the holders of the Warrants (including an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, and exercisable for a corresponding
number of shares of Common Stock acquirable and receivable upon exercise of the
Warrants without regard to any limitations on exercise, if the value so
reflected is less than any Applicable Warrant Exercise Price immediately prior
to such consolidation, merger or sale). 
Prior to the consummation of any other Organic Change, the Company shall
make appropriate provision (in form and substance satisfactory to the holders
of Warrants representing a majority  of
the Warrant Shares issuable upon exercise of the Warrants then outstanding) to
insure that each of the holders of the Warrants will thereafter have the right
to acquire and receive in lieu of or in addition to (as the case may be) the
Warrant Shares immediately theretofore issuable and receivable upon the
exercise of such holder’s Warrants (without regard to any limitations on
exercise), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of Warrant Shares which would have been issuable and receivable upon the
exercise of such holder’s Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exercisability of this Warrant).

 

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

 

Section 11.                                      Notice.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.  The addresses
and facsimile numbers for such communications shall be:

 

	
  If to Holder:

  	
  YA Global Investments, 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

  
					

 

 

	
  If to the Company, to:

  	
  Isonics Corporation

  
	
   

  	
  5906 McIntyre Street

  
	
   

  	
  Golden, CO 80403

  
	
   

  	
  Attn:  Chairman

  
	
   

  	
  Telephone: (303) 279-7900

  
	
   

  	
  Facsimile: (303) 279-7300

  
	
   

  	
   

  
	
  With a copy to:

  	
  Burns, Figa & Will, P.C.

  
	
   

  	
  Suite 1000, 6400 South Fiddlers Green Circle

  
	
   

  	
  Greenwood Village, CO 80112

  
	
   

  	
  Attn: Herrick K. Lidstone, Jr.

  
	
   

  	
  Telephone: (303) 796-2626

  
	
   

  	
  Facsimile: (303) 796-2777

  

 

If to a holder of this Warrant, to it at the address and facsimile
number set forth in this Section 11, or at such other address and
facsimile as shall be delivered to the Company upon the issuance or transfer of
this Warrant.  Each party shall provide
five days’ prior written notice to the other party of any change in address or
facsimile number.  Written confirmation
of receipt (A) given by the recipient of such notice, consent, facsimile,
waiver or other communication, (or (B) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

Section 12.                                      Date.  The date of this Warrant is set forth on page 1
hereof.  This Warrant, in all
events, shall be wholly void and of no effect after the close of business on
the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 8(b) shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.

 

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

 

Section 14.                                      Descriptive
Headings; Governing Law.  The
descriptive headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this
Warrant.  The corporate laws of the State
of California shall govern all issues concerning the relative rights of the
Company and its stockholders.  All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
Jersey, without giving effect to any choice of 

 

 

law or conflict of law
provision or rule (whether of the State of New Jersey or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New Jersey.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in Hudson County
and the United States District Court for the District of New Jersey, for the
adjudication of any dispute hereunder or in connection herewith or therewith,
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is brought in an inconvenient forum
or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.

 

Section 15.                                      Remedies,
Other Obligations, Breaches and Injunctive Relief.   The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this
Warrant, in any other agreement between the Company and the Holder, at law or
in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the right of the Holder to pursue
actual damages for any failure by the Company to comply with the terms of this
Warrant.  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

 

Section 16.                                   Waiver
of Jury Trial.  AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

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

 

	
   

  	
   

  	
  ISONICS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Gregory A. Meadows

  
	
   

  	
   

  	
  Title:   Vice President/Assistant Secretary

  

 

 

EXHIBIT A TO WARRANT

 

EXERCISE NOTICE

 

TO BE EXECUTED 

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

 

ISONICS CORPORATION

 

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

 

Specify Method of exercise by check mark:

 

1.             Cash Exercise

 

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

 

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

 

2.             Cashless Exercise

 

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

 

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

 

Date:
                              
    ,

 

Name of Registered Holder

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

 

EXHIBIT B TO WARRANT

 

FORM OF WARRANT POWER

 

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

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
							

 

B-1

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