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Exhibit 10.2  

EXHIBIT B  

 
 

REGISTRATION RIGHTS AGREEMENT    
    

        This Registration Rights Agreement (this "Agreement") is made and entered into as of February 24, 2005
among Isonics Corporation, a California corporation (the "Company"), and the purchasers signatory hereto (each such purchaser is a
"Purchaser" and collectively, the "Purchasers"). 

        This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement"). 

        The
Company and the Purchasers hereby agree as follows: 

        1.    Definitions    

        Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the following meanings: 

        "Advice" shall have the meaning set forth in Section 6(d). 

        "Effectiveness Date" means, with respect to the initial Registration Statement required to be filed hereunder, the 180th
calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 180th calendar day following
the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder; provided,  however, in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer
subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date
precedes the dates required above. 

        "Effectiveness Period" shall have the meaning set forth in Section 2(a). 

        "Event" shall have the meaning set forth in Section 2(b). 

        "Event Date" shall have the meaning set forth in Section 2(b). 

        "Filing Date" means, with respect to the initial Registration Statement required hereunder, the earlier of (a) the date that the
Company files the next registration statement with the Commission and (b) 150th calendar day following the date hereof and, with respect to any additional Registration Statements
which may be required pursuant to Section 3(c), the 150th day following the date on which the Company first knows, or reasonably should have known that such additional
Registration Statement is required hereunder. 

        "Holder" or "Holders" means the holder or holders, as the case may be, from time to time
of Registrable Securities. 

        "Indemnified Party" shall have the meaning set forth in Section 5(c). 

        "Indemnifying Party" shall have the meaning set forth in Section 5(c). 

        "Losses" shall have the meaning set forth in Section 5(a). 

        "Plan of Distribution" shall have the meaning set forth in Section 2(a). 

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        "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened. 

        "Prospectus" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 

        "Registrable Securities" means (i) all of the shares of Common Stock issuable upon conversion in full of the Debentures,
(ii) all shares issuable as interest on the Debentures assuming all permissible interest payments are made in shares of Common Stock and the Debentures are held until maturity, (iii) all
Warrant Shares, (iv) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, (v) any
additional shares issuable in connection with any anti-dilution provisions in the Debentures or the Warrants. 

        "Registration Statement" means the registration statements required to be filed hereunder and any additional registration statements
contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 

        "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 

        "Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 

        "Selling Shareholder Questionnaire" shall have the meaning set forth in Section 3(a). 

        2.    Shelf Registration    

        (a)   On
or prior to each Filing Date, the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering the resale of 125% of the Registrable
Securities on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company
is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith) and
shall contain (unless otherwise directed by the Holders) substantially the "Plan of Distribution" attached hereto as Annex
A. Subject to the terms of this Agreement, the Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective
under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined
by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"). The Company shall immediately notify the Holders via facsimile of the effectiveness of the Registration Statement on the same
day that the Company receives notification of 

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the
effectiveness from the Commission. Failure to so notify the Holder within 1 Trading Day of such notification shall be deemed an Event under Section 2(b). 

        (b)   If:
(i) a Registration Statement is not filed on or prior to the 15th calendar day following its Filing Date (if the Company files a Registration
Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)),
or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not be subject to further review, or
(iii) [INTENTIONALLY DELETED], or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by the
Effectiveness Date, or (v) after the Effectiveness Date, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is
required to be effective, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for 15 consecutive calendar days but no more than an aggregate of 25
calendar days during any 12-month period (which need not be consecutive Trading Days) (any such failure or breach being referred to as an
"Event", and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on
which such five Trading Day period is exceeded, or for purposes of clause (v) the date on which such 15 or 25 calendar day period, as applicable, is exceeded being referred to as
"Event Date"), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such
Holder; provided, however, with respect to the first such partial liquidated damage payment with respect
to an Event as a result of clause (i) only, such amount shall be 1.5% of such purchase price; provided,  further, with respect to an Event as a result
of clause (iv) only, partial liquidated damages will not accrue after the 270th day
following the date hereof. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon
at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month
prior to the cure of an Event. If there is more than a single Event at any time, the Company will only be liable for partial liquidated damages as though there were a single Event. 

        3.    Registration Procedures    

        In
connection with the Company's registration obligations hereunder, the Company shall: 

        (a)   Not
less than five Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of
the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than 5 Trading Days after 

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the
Holders have been so furnished copies of such documents. Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a
"Selling Shareholder Questionnaire") not less than two Trading Days prior to the Filing Date or by the end of the fourth Trading Day following the date
on which such Holder receives draft materials in accordance with this Section. 

        (b)   (i) Prepare
and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the
Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly
as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true
and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement)
with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. 

        (c)   If
during the Effectiveness Period, the number of Registrable Securities at any time exceeds 90% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably practicable but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by
the Holders of not less than 125% of the number of such Registrable Securities. 

        (d)   Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than five Trading Days prior to such
filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or
any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 

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material
fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or
existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of
the Company to allow continued availability of the Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law; provided, further,
notwithstanding each Holder's agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information. 

        (e)   Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or
(ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. 

        (f)    Furnish
to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. 

        (g)   Promptly
deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(d). 

        (h)   If
NASDR Rule 2710 requires any broker-dealer to make a filing prior to executing a sale by a Holder, make an Issuer Filing with the NASDR, Inc. Corporate
Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i) and respond promptly following the Company's receipt of any written request to do so from the Holder to any comments
received from NASDR in connection therewith, and pay the filing fee required in connection therewith. 

        (i)    Prior
to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky
laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided,
that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where
it is not then so subject or file a general consent to service of process in any such jurisdiction, but only to the extent that the Company, after reviewing the requirements of such states for
qualification, reasonably believes that it will be able to achieve such qualification. 

        (j)    If
requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be
delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names as any such Holders may request. 

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        (k)   Upon
the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company's good
faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective
amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 

        (l)    Comply
with all applicable rules and regulations of the Commission. 

        (m)  The
Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder
and, if required by the Commission, the person thereof that has voting and dispositive control over the Shares. During any periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company's request, any liquidated damages that
are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information
is delivered to the Company. In the event that a Holder does not provide the Company with the information required pursuant to this Section 3(m) within 5 Trading Days of written request by the
Company, notwithstanding the Company's commercially reasonable efforts to obtain such information from such Holder during such 5 Trading Day period, the Company shall be permitted to exclude such
Holder from the Registration Statement about to be filed; provided, however, subject to receipt of such
information from such Holder, the Company shall use commercially reasonable efforts to include such Holder on such Registration Statement after the filing date or if not on such registration
statement, o any future registration statements thereafter filed by the Company. 

        4.    Registration Expenses.    All fees and expenses incident to the performance of or compliance with this Agreement
by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading
Market on which the Common Stock is then listed for trading, (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including,
without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD
Rule 2710, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities
included in a Registration Statement), (iii) messenger, telephone and delivery expenses incurred by the Company, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of 

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its
officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on
any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents,
any legal fees or other costs of the Holders. 

        5.    Indemnification    

        (a)    Indemnification by the Company.    The Company shall, notwithstanding any termination of this Agreement,
indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and
all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except
to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the
Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated
in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware. 

        (b)    Indemnification by Holders.    Each Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of
or based solely upon: (x) such Holder's failure to comply with: (A) the prospectus delivery requirements of the Securities Act or (B) the plan of distribution set forth in the
Prospectus, or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the
statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved in writing by 

7

 

such
Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. 

        (c)    Conduct of Indemnification Proceedings.    If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to
give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party. 

        An
Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate
counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 

        Subject
to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice and
documentation thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such
actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties. 

        (d)    Contribution.    If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as
is appropriate to reflect the relative fault of each Indemnifying Party and Indemnified 

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Party
in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of each such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to information supplied by, each such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to
the limitations set forth in this Agreement, any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. 

        The
parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the
case of fraud by such Holder. 

        The
indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 

        6.    Miscellaneous    

        (a)    Remedies.    In the event of a breach by the Company or by a Holder, of any of their obligations under this
Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a
remedy at law would be adequate. 

        (b)    No Piggyback on Registrations.    Except as set forth on  Schedule 6(b) attached hereto, neither the Company nor any of
its security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the Registrable Securities. The Company shall not file any other registration statements until the initial Registration
Statement required hereunder is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements already
filed. 

        (c)    Compliance.    Each Holder covenants and agrees that it will comply with the prospectus delivery requirements
of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. 

        (d)    Discontinued Disposition.    Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities
under a Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by reference 

9

 

in
such Prospectus or Registration Statement. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable. The Company agrees and
acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b). 

        (e)    Piggy-Back Registrations.    If at any time during the Effectiveness Period there is not an
effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection
with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen calendar days after the date of such
notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered;
provided, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated
under the Securities Act or that are the subject of a then effective Registration Statement. 

        (f)    Amendments and Waivers.    The provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each Holder of the then outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided,  however, that the provisions of
this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately
preceding sentence. 

        (g)    Notices.    Any and all notices or other communications or deliveries required or permitted to be provided
hereunder shall be delivered as set forth in the Purchase Agreement. 

        (h)    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of all of the
Holders of the then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. 

        (i)    No Inconsistent Agreements.    Neither the Company nor any of its subsidiaries has entered, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the
rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(i), neither
the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in
full at the date of this Agreement. 

        (j)    Execution and Counterparts.    This Agreement may be executed in any number of counterparts, each of which when
so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the
original thereof. 

10

 

        (k)    Governing Law.    All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be determined with the provisions of the Purchase Agreement. 

        (l)    Cumulative Remedies.    The remedies provided herein are cumulative and not exclusive of any remedies provided
by law. 

        (m)    Severability.    If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 

        (n)    Headings.    The headings in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. 

        (o)    Independent Nature of Holders' Obligations and Rights.    The obligations of each Holder hereunder are several
and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by
this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other
Holder to be joined as an additional party in any proceeding for such purpose. 

********************

11

 

        IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. 

	 	 	ISONICS CORPORATION
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

[SIGNATURE
PAGE OF HOLDERS FOLLOWS] 

12

 
[SIGNATURE PAGE OF HOLDERS TO ISON RRA] 

	Name of Holder:	 
	 	

	Signature of Authorized Signatory of Holder:	 	 
	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	

[SIGNATURE
PAGES CONTINUE] 

13

   Schedule 6.1(b)  

        Isonics may include the following securities in a registration statement filed to meet the requirements of the registration rights agreement pursuant to
registration obligations that are outstanding but not fulfilled as of the date hereof: 

	Silver Silicon, Ltd.	 	731,930 shares of common stock
	Reback Living Trust	 	232,500 shares of common stock
	Asset Managers International, Inc.	 	3,914,000 shares of common stock
	Holders of the Class B and Class C Warrants	 	3,762,720 shares of common stock
	Warrants granted to HSDC advisory board	 	300,000 shares of common stock
	Various warrant and stockholders	 	371,500 shares of common stock

14

 
Plan of Distribution  

        Each Selling Stockholder (the "Selling Stockholders") of the debentures, warrants and common stock (collectively,
the "Securities") of Isonics Corporation, a California corporation (the "Company") and
any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the Trading Market or any other stock
exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares: 

	•
	ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	•
	block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the
transaction;

	•
	purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;

	•
	an
exchange distribution in accordance with the rules of the applicable exchange;

	•
	privately
negotiated transactions;

	•
	settlement
of short sales entered into after the date of this prospectus;

	•
	broker-dealers
may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

	•
	a
combination of any such methods of sale;

	•
	through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

	•
	any
other method permitted pursuant to applicable law. 

        The
Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
if available, rather than under this prospectus. 

        Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with NASDR IM-2440. 

        In
connection with the sale of the Common Stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker dealers or other financial institutions,
which may in turn engage in short sales of the Company's common stock (the "Common Stock") in the course of hedging the positions they assume. The
Selling Stockholders may also sell shares of the Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn
may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker dealers or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). 

        The
Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the 

15

 

resale
of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any
written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%). 

        The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. 

        Because
Selling Stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities
Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus. Each Selling Stockholder has advised us that they have not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the
sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders. 

        We
agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard
to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or
Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with. 

        Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with
respect to the Common Stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholders or any
other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale. 

16

   Annex B  

Isonics Corporation  

 Selling Securityholder Notice and Questionnaire  

        The undersigned beneficial owner of common stock, no par value (the "Common Stock"), of Isonics Corporation, a
California corporation (the "Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the
"Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the
"Securities Act"), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of February 22,
2005 (the "Registration Rights Agreement"), among the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available
from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. 

        Certain
legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement
and the related prospectus. 

NOTICE  

        The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby elects to include
the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement. 

17

 

        The
undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate: 

QUESTIONNAIRE  

	1.	 	Name.
	
 	
 	

(a)	
 	

Full Legal Name of Selling Securityholder
	

 	
 	

 	
 	

	

 	
 	

(b)	
 	

Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:
	

 	
 	

 	
 	

	

 	
 	

(c)	
 	

Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):
	

 	
 	

 	
 	

	
2.	
 	

Address for Notices to Selling Securityholder:
	

	

	

	Telephone:	 	 
	 	 	 	 	

	Fax:	 	 	 	 
	 	 	

	Contact Person:	 	 
	 	 	 	 	

	
3.	
 	

Beneficial Ownership of Registrable Securities:
	
 	
 	

(a)	
 	

Type and Principal Amount of Registrable Securities beneficially owned:
	

 	
 	

 	
 	

	

 	
 	

 	
 	

	

 	
 	

 	
 	

18

 

	
4.	
 	

Broker-Dealer Status:
	
 	
 	

(a)	
 	

Are you a broker-dealer?
	

Yes o        No o
	

 	
 	

Note:	
 	

If yes, the Commission's staff has indicated that you should be identified as an underwriter in the Registration Statement.
	

 	
 	

(b)	
 	

Are you an affiliate of a broker-dealer?
	

Yes o        No o
	

 	
 	

(c)	
 	

If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to distribute the Registrable Securities?
	

Yes o        No o
	

 	
 	

Note:	
 	

If no, the Commission's staff has indicated that you should be identified as an underwriter in the Registration Statement.
	
5.	
 	

Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.
	

 	
 	
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3 (the "Other
Securities").
	

 	
 	

(a)	
 	

Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
	

 	
 	

 	
 	

	

 	
 	

 	
 	

	
6.	
 	

Relationships with the Company:
	

 	
 	
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
	

 	
 	

State any exceptions here:
	

 	
 	

 	
 	

	

 	
 	

 	
 	

        The
undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the
Registration Statement remains effective. 

        By
signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the
Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the
Registration Statement and the related prospectus. 

19

 

        IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. 

	Dated:	 	 	 	Beneficial Owner:	 	 
	 	 	
	 	 	 	 	 	

	

 	
 	

 	
 	

By:	
 	

 	
 	

 
	 	 	 	 	 	 	
 Name:

Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

John
V. Sakys, CPA, Vice President-Finance

Isonics Corporation

5906 McIntyre Street

Golden, CO 80403

Facsimile: 303-279-7300

With
a copy to: Herrick K. Lidstone, Jr., Esq., Burns, Figa & Will,P.C. by facsimile only to 720-493-9951. 

20

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Exhibit 10.3  

EXHIBIT E  

 
  ESCROW AGREEMENT    
    

        THIS ESCROW AGREEMENT (this "Agreement") is made as of February 24, 2005, by and among Isonics Corporation,
a California corporation (the "Company"), the purchasers signatory hereto (each a "Purchaser" and
together the "Purchasers"), and Feldman Weinstein LLP, with an address at 420 Lexington Avenue, New York, New York 10170-0002 (the
"Escrow Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase
Agreement referred to in the first recital.

W I T N E S S E T H: 

        WHEREAS,
the Purchasers will be purchasing from the Company, severally and not jointly with the other Purchasers, in the aggregate, up to $22,000,000 in the aggregate, principal amount
of 8% Convertible Debentures (the "Debentures") and Warrants on the Closing Date as set forth in the Securities Purchase Agreement (the
"Purchase Agreement") dated the date hereof between the Purchasers and the Company, which securities will be issued under the terms contained herein and
in the Purchase Agreement; and 

        WHEREAS,
it is intended that the purchase of the securities be consummated in accordance with the requirements set forth in Regulation D promulgated under the Securities Act of
1933, as amended; and 

        WHEREAS,
the Company and the Purchasers have requested that the Escrow Agent hold the Subscription Amounts in escrow until the Escrow Agent has received the Release Notice in the form
attached hereto from the Company and each Purchaser; 

        NOW,
THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged and intending to be legally bound hereby, the parties agree as follows: 

ARTICLE 1 

TERMS
OF THE ESCROW 

        1.1.  The
parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of up to $22,000,000 in the
aggregate of Debentures and Warrants as contemplated by the Purchase Agreement. 

        1.2.  Upon
the Escrow Agent's receipt of the aggregate Subscription Amounts for the Closing into its master escrow account, together with executed counterparts of this
Agreement, the Purchase Agreement and the Registration Rights Agreement, it shall telephonically advise the Company, or the Company's designated attorney or agent, of the amount of funds it has
received into its master escrow account. 

        1.3.  Wire
transfers to the Escrow Agent shall be made as follows: 

STERLING
NATIONAL BANK

622 3RD AVENUE

NEW YORK, NY 10017

ACCOUNT NAME: FELDMAN WEINSTEIN LLP

ABA ROUTING NO: 026007773

ACCT NO: 0814180101

REMARK: ISON/[FUND NAME] 

1

 

        1.4   The
Company, promptly following being advised by the Escrow Agent that the Escrow Agent has received the Subscription Amounts for the Closing along with facsimile copies
of counterpart signature pages of the Purchase Agreement, Registration Rights Agreement and this Agreement from each Purchaser, shall deliver to the Escrow Agent the certificates evidencing the
Securities to be issued to each Purchaser at the Closing together with: 

        (a)   the
Company's executed counterpart of the Purchase Agreement; 

        (b)   the
Company's executed counterpart of the Registration Rights Agreement; 

        (c)   the
executed opinion of Company Counsel, in the form of Exhibit D to the Purchase Agreement; 

        (d)   a
debenture issued to Harborview Capital Management LLC ("Harborview"), with a principal amount equal to 3.5% of the
aggregate Subscription Amounts, otherwise in the same form of, and with the same terms and conditions as, the Debentures and a warrant issued to Harborview, to purchase up to a number of shares of
Common Stock that would otherwise be issuable to a Purchaser purchasing a Debenture with such principal amount, otherwise in the form of, and with the same terms and conditions as, the Warrant
(collectively, the "Harborview Securities") along with executed signature pages of the Purchase Agreement and Registration Rights Agreement of
Harborview; and 

        (e)   the
Company's original executed counterpart of this Escrow Agreement. 

        1.5   In
the event that the foregoing items are not in the Escrow Agent's possession within five (5) Trading Days of the Escrow Agent notifying the Company that the
Escrow Agent has custody of the Subscription Amount for the Closing, then each Purchaser shall have the right to demand the return of their portion of the Subscription Amount. 

        1.6   Once
the Escrow Agent receives a Release Notice in the form attached hereto as Exhibit X (the
"Release Notice") executed by the Company and each Purchaser (i) it shall wire 97% of the aggregate Subscription Amounts per the written
instructions of the Company and (ii) it shall wire the remaining 3% of the aggregate Subscription Amounts per the written instructions of JH Darbie & Company as its fee in connection
with the transaction described herein, net of $40,000 per the written instructions of Feldman Weinstein LLP for the legal fees and expenses of a Purchaser. 

        1.7   Wire
transfers to the Company shall be made pursuant to written instructions from the Company provided to the Escrow Agent on the date of the Purchase Agreement. 

        1.8   Once
the funds (as set forth above) have been sent per the Company's instructions, the Escrow Agent shall then arrange to have the Purchase Agreement, the Debentures,
the Registration Rights Agreement, the Escrow Agreement, the Warrants, the Harborview Securities and the opinion of counsel delivered to the appropriate parties. 

ARTICLE II 

MISCELLANEOUS 

        2.1   No
waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or
provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. 

        2.2   All
notices or other communications required or permitted hereunder shall be in writing, and shall be sent as set forth in the Purchase Agreement. 

2

 

        2.3   This
Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto. 

        2.4   This
Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all
prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument
signed by the parties to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. 

        2.5   Whenever
required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall
not be construed as if it had been prepared by one of the parties, but rather as if all parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow
Agreement. 

        2.6   The
parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State
of New York. Any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall only be brought in a state or Federal court sitting in New York City. 

        2.7   The
Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, each Purchaser and the Escrow Agent. 

        2.8   The
Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith and in the absence of gross negligence, fraud and willful misconduct, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law shall be conclusive evidence of such good faith, in the absence of
gross negligence, fraud and willful misconduct. 

        2.9   The
Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting
only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. The Escrow Agent will provide the Company with prompt
notice of and a copy of each and all such warnings, orders, judgments, and decrees. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been
entered without jurisdiction. 

        2.10   The
Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder in the absence of gross negligence, fraud and willful misconduct. 

        2.11   The
Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow
Agent in connection with the Escrow Agent's duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation; provided that the costs of such compensation
shall be borne by the Escrow Agent. The Escrow Agent has acted as legal counsel for DKR SoundShore Oasis Holding Fund Ltd.
("DKR"), and may continue to act as legal counsel for DKR from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company and
the Purchasers consent to the Escrow Agent in such capacity as legal counsel for DKR and waives any claim that such representation represents a conflict of interest on the part of the Escrow Agent.
The Company and the Purchasers understand that  

3

 

 DKR and the Escrow Agent are relying explicitly on the foregoing provision in entering into this Escrow Agreement. 

        2.12   The
Escrow Agent's responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by giving written notice to the Company and
the Purchasers. In the event of any such resignation, the Purchasers and the Company shall appoint a successor Escrow Agent and the Escrow Agent shall deliver to such successor Escrow Agent any escrow
funds and other documents held by the Escrow Agent. 

        2.13   If
the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments. 

        2.14   It
is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the
escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow Agent's possession without
liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject
matter jurisdiction and located in the City of New York in accordance with the applicable procedure therefore. 

        2.15   The
Company and each Purchaser agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and
representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated
hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent
jurisdiction to have resulted from the gross negligence, fraud or willful misconduct of the Escrow Agent. 

********************

4

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

	ISONICS CORPORATION	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	 	 	 	 
	 	 	
 Name:

Title:	 	 
	 	 	 	 	 
	With a copy to (which shall not constitute notice):
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	ESCROW AGENT:	 	 
	 	 	 	 	 
	FELDMAN WEINSTEIN LLP	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	 	 	 	 
	 	 	
 Name:

Title:	 	 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW] 

[SIGNATURE PAGE OF PURCHASERS TO ISON ESCROW] 

	Name of Investing Entity:	 	 	 
	 	

	Signature of Authorized Signatory of Investing Entity:	 
	 	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	

[SIGNATURE
PAGE OF PURCHASERS FOLLOWS] 

Exhibit X to

Escrow Agreement 

RELEASE NOTICE  

        The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of February 24, 2005, among Isonics Corporation, a California corporation, the Purchasers
signatory thereto and Feldman Weinstein LLP, as Escrow Agent (the "Escrow Agreement"; capitalized terms used herein and not defined shall have the
meaning ascribed to such terms in the Escrow Agreement), hereby notify the Escrow Agent that each of the conditions precedent to the purchase and sale of the Securities set forth in the Securities
Purchase Agreement have been satisfied. The Company and the undersigned Purchaser hereby confirm that all of their respective representations and warranties contained in the Purchase Agreement remain
true and correct and authorize the release by the Escrow Agent of the funds and documents to be released at the Closing as described in the Escrow Agreement. This Release Notice shall not be effective
until executed by the Company and the Purchasers. 

        This
Release Notice may be signed in one or more counterparts, each of which shall be deemed an original. 

        IN
WITNESS WHEREOF, the undersigned have caused this Release Notice to be duly executed and delivered as of this    day of February, 2005. 

	 	 	ISONICS CORPORATION
	 	 	 	 	 
	 	 	 	 	 
	 	 	By:	 	 
	 	 	 	 	
 Name:

Title:

[SIGNATURE PAGE OF PURCHASERS FOLLOWS] 

[SIGNATURE PAGE OF PURCHASERS TO ISON RELEASE] 

	Name of Investing Entity:	 	 	 
	 	

	Signature of Authorized Signatory of Investing Entity:	 
	 	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	

[SIGNATURE
PAGE OF PURCHASERS FOLLOWS] 

QuickLinks

ESCROW AGREEMENT

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