Document:

Exhibit 10.3

Dated of Original Issuance: June 5, 2006

   Date of Amendment and Restatement: June 13,
2006

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

No. CCP-4                                                                                                                                                                         $3,000,000

ISONICS CORPORATION

Amended and Restated Secured
Convertible Debenture

Due May 30, 2009

This Secured
Convertible Debenture (the “Debenture”) is issued by ISONICS CORPORATION, a
California corporation (the “Obligor”), to CORNELL
CAPITAL PARTNERS, LP (the “Holder”), pursuant to that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”) of
even date herewith. This Amended and Restated
Secured Convertible Debenture cancels and replaces Debenture No. CCP-2
in the original principal amount of $10,000,000 issued by Isonics Corporation,
a California corporation, which Debenture is superseded in its entirety hereby.

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

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

 1
 

 

Interest
Payments. The Obligor at its option shall make payment of
all outstanding and accrued interest at the Maturity Date (“Scheduled
Payment”) in shares of the Obligor’s Common Stock or cash; provided,
however, payment of the interest amount in shares of the Obligor’s Common Stock
can only be made if the Obligor’s shareholders have approved the transaction as
contemplated in Section 4(l) of the Securities Purchase Agreement. If
such Schedule Payment is made in Common Stock, such number of shares of the
Company’s Common Stock due as payment shall be calculated based on the amount
of interest due divided by eighty eight percent (88%) of the average VWAP of
the Company’s Common Stock for the five (5) Trading Days immediately
preceding the date the Maturity Date.

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

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

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

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

Consent of Holder to Sell Capital Stock or Grant Security
Interests. So long as any of the
principal amount on this Debenture remains unpaid and unconverted and except
for Excluded Securities, the Obligor shall not, without the prior consent of
the Holder, (i) issue or sell any shares of Common Stock without
consideration or for consideration per share less than the VWAP of the Common
Stock on the Trading Day immediately prior to its issuance, (ii) issue or
sell any warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock
without consideration or for consideration per share less than the Closing Bid Price
of the Common Stock on the date of issuance, (iii) issue or sell any
shares of preferred stock without consideration or for consideration per share
less than the VWAP of the Common Stock on the Trading Day immediately prior to
its issuance (iv) enter into any security instrument granting the
holder a security interest in any of the assets of the Obligor, other than
security interests in connection with capital lease financing, in cases where 

 2
 

 

the security
interest is in the nature of a purchase money security interest, or for funds
used for acquisitions by the Obligor or any subsidiary of a business that has
positive earnings before interest, taxes, depreciation, and amortization
expenses or to refinance of the purchase money security interest in such event
the Holder shall take a second security position, provided however in the event
that a security interest is not given in connection with acquisitions by the
Obligor or any subsidiary of a business that has positive earnings before interest,
taxes, depreciation, and amortization expenses it is understood that the Holder
shall be given a first security interest or
(v) file any registration statements on Form S-8.

Rights of
First Refusal. For
a period of one (1) year from the date hereof, so long as any portion of this Debenture is outstanding (including
principal or accrued interest), if the Obligor intends to raise additional
capital by the issuance or sale of capital stock of the Obligor, including
without limitation shares of any class of Common Stock, any class of preferred
stock, options, warrants or any other securities convertible or exercisable
into shares of Common Stock (whether the offering is conducted by the Obligor,
underwriter, placement agent or any third party) the Obligor shall be obligated
to offer to the Holder a percentage of such issuance or sale of capital stock,
by providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering such
issuance or sale of capital stock to any third parties including, but not
limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents or
other third parties. For the purposes of this paragraph, the percentage shall
be calculated by multiplying fifty percent (50%) by a fraction, the numerator
of which is the principal amount of this Debenture, and the denominator of
which is $16,000,000.

After one (1) year
from the date hereof, so long as any
portion of this Debenture is outstanding (including principal or accrued
interest), if the Obligor intends to raise additional capital by the issuance
or sale of capital stock of the Obligor, including without limitation shares of
any class of Common Stock, any class of preferred stock, options, warrants or
any other securities convertible or exercisable into shares of Common Stock
(whether the offering is conducted by the Obligor, underwriter, placement agent
or any third party) the Obligor shall be obligated to offer to the Holder a
percentage of such issuance or sale of capital stock, by providing in writing
the principal amount of capital it intends to raise and outline of the material
terms of such capital raise, prior to the offering such issuance or sale of
capital stock to any third parties including, but not limited to, current or
former officers or directors, current or former shareholders and/or investors
of the obligor, underwriters, brokers, agents or other third parties. For the
purposes of this paragraph, the percentage shall be calculated by multiplying
twenty five percent (25%) by a fraction, the numerator of which is the
principal amount of this Debenture, and the denominator of which is
$16,000,000.

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

This Debenture is subject
to the following additional provisions:

 3
 

 

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

Section 2.              Events of Default.

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

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

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

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

(iv)          The Obligor or any subsidiary of the
Obligor shall default in any of its obligations under any other debenture or
any mortgage, credit agreement or other facility, 

 4
 

 

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

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

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

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

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

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

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

 (b)          During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred, the full principal amount of this Debenture, together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become at the Holder’s election, immediately due and payable
in cash, provided however, the
Holder may request (but shall have no obligation to request) payment of such
amounts in Common Stock of the Obligor. In addition to any other remedies, the
Holder shall have the right (but not the obligation) to convert this Debenture
at any time after (x) an Event of Default or (y) the Maturity Date at
the Conversion Price then in-effect. The Holder need not provide and the
Obligor hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies 

 5
 

 

hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon. Upon an Event of Default, notwithstanding
any other provision of this Debenture or any Transaction Document, the Holder
shall have no obligation to comply with or adhere to any limitations, if any,
on the conversion of this Debenture or the sale of the Underlying Shares except
those restrictions imposed by federal or applicable state securities laws.

Section 3.              Conversion.

(a)           Conversion at Option of Holder.

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

 6
 

 

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

 (ii)          Notwithstanding
anything to the contrary contained herein, if after December 31, 2006, on
any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to pay principal and interest hereunder in shares of
Common Stock; (2) the Common Stock is not listed or quoted for trading on
the OTCBB or on a Subsequent Market; (3) the Obligor has failed to timely
satisfy its conversion; or (4) the issuance of such shares of Common Stock
would result in a violation of Section 3(b),
then, at the option of the Holder, the Obligor, in lieu of delivering shares of
Common Stock pursuant to Section 3(a)(i),
shall deliver, within five (5) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal amount to
be converted plus any interest due therein divided by the Conversion Price,
chosen by the Holder, and multiplied by the VWAP of the Common Stock on the date
of the conversion notice until the date that such cash payment is made.

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

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

 7
 

 

(b)           Certain Conversion Restrictions.

(i)            A Holder may not convert this
Debenture or receive shares of Common Stock as payment of interest hereunder to
the extent such conversion or receipt of such interest payment would result in
the Holder, together with any affiliate thereof, beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 4.99% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of, and payment of interest on, this Debenture held by such Holder
after application of this Section. Since the Holder will not be obligated to
report to the Obligor the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction
contained in this Section will limit any particular conversion hereunder
and to the extent that the Holder determines that the limitation contained in
this Section applies, the determination of which portion of the principal
amount of this Debenture is convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of this Debenture that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Obligor shall notify
the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section 3(a)(i) and,
at the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions
or return such excess principal amount to the Holder. The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 65 days prior notice to the Obligor. Other Holders shall be
unaffected by any such waiver.

(ii) Commencing
at the end of the Waiting Period and for one hundred twenty (120) calendar days
thereafter and subject to further limitations in Section 3(a)(i), the
Holder shall not convert any portion of the aggregate outstanding principal
amount and accrued interest due under all Debentures issued under the
Securities Purchase Agreement, into shares of the Obligor’s Common Stock in
excess of Two Hundred Thousand Dollars ($200,000) at the Market Conversion
Price in any seven (7) calendar day period. Notwithstanding the forgoing,
this conversion restriction shall not apply upon the occurrence of an Event of
Default or if waived in writing by the Obligor. Thereafter, the Holder shall
not convert any portion of the aggregate outstanding principal amount and
accrued interest due under all Debentures issued under the Securities Purchase
Agreement, into shares of the Company’s Common Stock in excess of Four Hundred
Thousand Dollars ($400,000) at the Market Conversion Price in any seven (7) calendar
day period.

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

 8
 

 

(c)           Conversion Price and Adjustments
to Conversion Price.

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

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

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

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

(iii)          If the Obligor, at any time while this
Debenture is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to the Holder) entitling them to subscribe for
or purchase shares of Common Stock at a price per share less than the Fixed
Conversion Price (not including the issuance of Excluded Securities), then the
Fixed Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants (plus the number of additional shares of Common Stock offered for
subscription or purchase), and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such 

 9
 

 

rights or
warrants, plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at the Fixed Conversion Price.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights, options or warrants. However,
upon the expiration of any such right, option or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the Fixed
Conversion Price pursuant to this Section, if any such right, option or warrant
shall expire and shall not have been exercised, the Fixed Conversion Price
shall immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Fixed Conversion Price made pursuant to
the provisions of this Section after the issuance of such rights or
warrants) had the adjustment of the Fixed Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights, options or warrants
actually exercised.

(iv)          If the Obligor or any subsidiary
thereof, as applicable, at any time while this Debenture is outstanding, shall
issue shares of Common Stock or rights, warrants, options or other securities
or debt that are convertible into or exchangeable for shares of Common Stock (“Common
Stock Equivalents”) entitling any Person to acquire shares of Common Stock,
at a price per share less than the Fixed Conversion Price (if the holder of the
Common Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which is issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price per share which is less than the
Fixed Conversion Price (in all cases, other than Excluded Securities), such
issuance shall be deemed to have occurred for less than the Fixed Conversion
Price), then, at the sole option of the Holder, the Fixed Conversion Price
shall be adjusted to mirror the conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any reset provisions
thereof) at issue. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. The Obligor shall notify the Holder in
writing, no later than one (1) business day following the issuance of any
Common Stock or Common Stock Equivalent subject to this Section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. No adjustment under this Section shall
be made as a result of issuances and exercises of options to purchase shares of
Common Stock issued for compensatory purposes pursuant to any of the Obligor’s
stock option or stock purchase plans.

(v)           If the Obligor, at any time while this
Debenture is outstanding, shall distribute to all holders of Common Stock (and
not to the Holder) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Fixed Conversion Price at which this Debenture shall thereafter be convertible
shall be determined by multiplying the Fixed Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Closing Bid Price determined as of the record date mentioned
above, and of which the numerator shall be such Closing Bid Price on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of

 

 10

 

 

indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

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

(vii)         The Obligor shall at all times after December 31,
2006 reserve and keep available out of its authorized Common Stock the full
number of shares of Common Stock issuable upon conversion of all outstanding
amounts under this Debenture; and within three (3) Trading Days following
the receipt by the Obligor of a Holder’s notice that such minimum number of
Underlying Shares is not so reserved, the Obligor shall promptly reserve a
sufficient number of shares of Common Stock to comply with such requirement.

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

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

(x)            If (A) the Obligor shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Obligor shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock; (C) the Obligor shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval of
any stockholders of the Obligor shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Obligor is a party, any sale or transfer of all or substantially all of the
assets of the Obligor, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or (E) the
Obligor shall authorize the voluntary or involuntary 

 11
 

 

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

(xi)           In case of any  merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, a Holder shall have the
right to (A) exercise any rights under Section 2(b),
(B) convert the aggregate amount of this Debenture then outstanding into
the shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger, consolidation
or sale, and such Holder shall be entitled upon such event or series of related
events to receive such amount of securities, cash and property as the shares of
Common Stock into which such aggregate principal amount of this Debenture could
have been converted immediately prior to such merger, consolidation or sales
would have been entitled, or (C) in the case of a merger or consolidation,
require the surviving entity to issue to the Holder a convertible Debenture
with a principal amount equal to the aggregate principal amount of this
Debenture then held by such Holder, plus all accrued and unpaid interest and
other amounts owing thereon, which such newly issued convertible Debenture
shall have terms identical (including with respect to conversion) to the terms
of this Debenture, and shall be entitled to all of the rights and privileges of
the Holder of this Debenture set forth herein and the agreements pursuant to
which this Debentures were issued. In the case of clause (C), the conversion
price applicable for the newly issued shares of convertible preferred stock or
convertible Debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction and
the Conversion Price in effect immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale or
consolidation shall include such terms so as to continue to give the Holder the
right to receive the securities, cash and property set forth in this Section upon
any conversion or redemption following such event. This provision shall
similarly apply to successive such events.

(d)           Other Provisions.

(i)            The Obligor covenants that it will
at all times after December 31, 2006 reserve and keep available out of its
authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture and payment of interest on this 

 12
 

 

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

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

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

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

(v)           In addition to any other rights
available to the Holder, if the Obligor fails to deliver to the Holder such
certificate or certificates pursuant to Section 3(a)(i) by
the fifth (5th)
Trading Day after the Conversion Date, and if after such fifth (5th) Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a “Buy-In”), then the Obligor shall (A) pay
in cash to the Holder (in addition to any remedies available to or elected by
the Holder) the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder anticipated receiving from the conversion at
issue multiplied by (2) the market price of 

 13
 

 

the Common Stock
at the time of the sale giving rise to such purchase obligation and (B) at
the option of the Holder, either reissue a Debenture in the principal amount
equal to the principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Obligor timely complied with its delivery requirements under Section 3(a)(i). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of Debentures with respect to
which the market price of the Underlying Shares on the date of conversion was a
total of $10,000 under clause (A) of the immediately preceding sentence,
the Obligor shall be required to pay the Holder $1,000. The Holder shall
provide the Obligor written notice indicating the amounts payable to the Holder
in respect of the Buy-In.

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

 

	
  If to the Obligor, to:

  	
  Isonics Corporation

  
	
   

  	
  5906 McIntyre Street

  
	
   

  	
  Golden, CO 80403

  
	
   

  	
  Attention: James E. Alexander, President

  
	
   

  	
  Telephone: (303) 279-7900

  
	
   

  	
  Facsimile: (303) 279-7300

  
	
   

  	
   

  
	
  With a copy
  (which does not constitute notice) to:

  	
  Burns, Figa & Will, P.C.

  
	
   

  	
  6400 South Fiddler’s Green Circle — Suite 1000

  
	
   

  	
  Greenwood Village, CO 80111

  
	
   

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

  
	
   

  	
  Telephone: (303) 796-2626

  
	
   

  	
  Facsimile: (303) 796-2777

  
	
  If to the
  Holder:

  	
  Cornell Capital Partners, LP

  
	
   

  	
  101 Hudson Street, Suite 3700

  
	
   

  	
  Jersey City, NJ 07303

  
	
   

  	
  Attention: Mark Angelo

  
	
   

  	
  Telephone: (201) 985-8300

  
	
   

  	
   

  
	
  With a copy to:

  	
  David Gonzalez, Esq.

  
	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone: (201) 985-8300

  
	
   

  	
  Facsimile: (201) 985-8266

  

 

 14
 

 

 

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

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

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

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

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

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

“Commission” means
the Securities and Exchange Commission.

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

 15
 

 

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

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

“Excluded Securities” means:

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

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

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

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

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

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

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

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

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

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

“Transaction Documents”
means the Securities Purchase Agreement or any other agreement delivered in
connection with the Securities Purchase Agreement, including, without 

 16
 

 

limitation, the
Security Agreement, the Irrevocable Transfer Agent Instructions, and the
Registration Rights Agreement.

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

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

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

Section 6.              Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligations of
the Obligor, which are absolute and unconditional, to pay the principal of,
interest and other charges (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of the Obligor. This Debenture ranks pari passu with all
other 6% Debentures now or hereafter issued to the Holder under the terms set
forth herein. As long as this Debenture is outstanding, the Obligor shall not
and shall cause their subsidiaries not to, without the consent of the Holder of
at least a majority of the principal amount of the 6% Convertible Debentures then
outstanding (whether or not the Holder consents), (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer
to repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents; or (iii) enter into
any agreement with respect to any of the foregoing.

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

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

Section 9.              Except as described in the
Disclosure Schedule, no indebtedness of the Obligor is senior to this Debenture
in right of payment, whether with respect to interest, damages or upon
liquidation or dissolution or otherwise. Without the Holder’s consent, the
Obligor will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property 

 17
 

 

or assets now
owned or hereafter acquired or any interest therein or any income or profits
there from that is senior in any respect to the obligations of the Obligor
under this Debenture except for capital lease financing, in cases where the
security interest is in the nature of a purchase money security interest, or
for funds used for acquisitions by the Obligor or any subsidiary of a business
that has positive earnings before 
interest, taxes, depreciation, and amortization expenses or to refinance
of the purchase money security interest initially taken.

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

Section 11.            If the Obligor fails to strictly
comply with the terms of this Debenture, then the Obligor shall reimburse the
Holder promptly for all fees, costs and expenses, including, without
limitation, attorneys’ fees and expenses incurred by the Holder in any action
in connection with this Debenture, including, without limitation, those
incurred: (i) during any workout, attempted workout, and/or in connection
with the rendering of legal advice as to the Holder’s rights, remedies and
obligations, (ii) collecting any sums which become due to the Holder, (iii) defending
or prosecuting any proceeding or any counterclaim to any proceeding or appeal;
or (iv) the protection, preservation or enforcement of any rights or
remedies of the Holder.

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

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

 18
 

 

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

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

[REMAINDER
OF PAGE INTENTIONLLY LEFT BLANK]

 19
 

 

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

	
  

  	
  ISONICS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  James E. Alexander

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 20

 

EXHIBIT “A”

NOTICE OF CONVERSION

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

 

TO:

 

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

	
  Conversion
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Applicable
  Conversion Price:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Amount to
  be converted:

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  Amount of
  Debenture unconverted:

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  Conversion
  Price per share: 

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of
  shares of Common Stock to be issued:

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Issue to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorized
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Phone
  Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Broker
  DTC Participant Code:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Account
  Number:

  	
   

  	
   

  

 

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

 

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

	
  By:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Social Security NumberExhibit 10.4

WARRANT

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

ISONICS CORPORATION

Amended and Restated Warrant To Purchase Common Stock

	
  Warrant No.: CCP-002

  	
  Number
  of Shares: 2,000,000

  
	
   

  	
   

  
	
   

  	
  Warrant
  Exercise Price: $1.25

  
	
   

  	
   

  
	
   

  	
  Expiration
  Date: May 30, 2009

  

 

Date of
Original Issuance: May 31, 2006

Date of Amendment and Restatement: 
June 13, 2006

This Warrant cancels and replaces
Warrant No. CCP-001 for the purchase of 2,000,000 shares of common
stock of Isonics Corporation, a California corporation, which warrant is
superseded in its entirety hereby.

Isonics Corporation, a
California corporation (the “Company”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Cornell Capital Partners, LP
(the “Holder”), the registered holder hereof or its permitted assigns,
is entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) Two Million (2,000,000) 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: (i) for more than 2,000,000 shares
(regardless of any adjustment provisions herein) until after the shareholder
approval as contemplated in Section 4(l) of the Securities Purchase
Agreement (as defined in Section 1(a), below); or  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 

 1
 

 

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-QSB or Form 10-KSB, as the
case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or its transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written request of any holder, the
Company shall promptly, but in no event later than one (1) Business Day
following the receipt of such notice, confirm in writing to any such holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported.

Section 1.

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

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

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

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

 2
 

 

(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, the Convertible Debentures issued in
connection therewith or the Investor’s Registration Rights Agreement dated the
date hereof.

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

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

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

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

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

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

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

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

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

 3
 

 

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

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

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

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

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

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

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

(xvi)        “Warrant Exercise Price” shall be $1.25 or as
subsequently adjusted as provided in Section 8 hereof.

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

(c)   Other Definitional Provisions.

(i)            Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company’s
successors and (B) to any applicable 

 4
 

 

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 after January 15,
2007, at the time of exercise, the Warrant Shares are not subject to an
effective registration statement or if an Event of Default has occurred, by
delivering an Exercise Notice and in lieu of making payment of the Aggregate
Exercise Price in cash or wire transfer, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula (the “Cashless Exercise”):

	
  Net Number =

  	
  (A x B) – (A x
  C)

  	
   

  
	
   

  	
  B

  	
   

  

 

For purposes of the foregoing formula:

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

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

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

 5
 

 

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
VWAP or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the holder the number of Warrant Shares that is not disputed
and shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) Business Day of receipt of the holder’s
Exercise Notice.

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

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

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

 6
 

 

(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 VWAP of the Common Stock for the
trading day immediately preceding the last possible date which the Company
could have issued such Common Stock to the holder without violating this Section 2.

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

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

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

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

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

(d)   The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of 

 7
 

 

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 assuming that there is an exemption available from the
registration requirements of the Securities Act of 1933 and applicable state
law for such exercise.

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

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

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

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

 8
 

 

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

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

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

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

Upon each such
adjustment of the Warrant Exercise Price hereunder, the number of Warrant
Shares issuable upon exercise of this Warrant shall be adjusted to the number
of shares 

 9
 

 

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

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

(iii)          Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any convertible
securities, or the rate at which any convertible securities are convertible
into or exchangeable for Common Stock changes at any time, the

 

 10

 

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

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

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

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

 11
 

 

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

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

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

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

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

(ii)           either (A) the number of Warrant
Shares obtainable upon exercise of this Warrant shall be increased to a number
of shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for 

 12
 

 

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

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

(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, 

 13
 

 

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

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

Section 11.             Notice. Any notices,
consents, waivers or other communications required or permitted to be given
under the terms of this Warrant must be in writing and will be deemed to have
been delivered:  (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent 

 14
 

 

by facsimile
(provided confirmation of receipt is received by the sending party transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

	
  If to Holder:

  	
  Cornell Capital Partners, LP

  
	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Attention: Mark A. Angelo

  
	
   

  	
  Telephone: (201) 985-8300

  
	
   

  	
  Facsimile: (201) 985-8266

  
	
   

  	
   

  
	
  With Copy to:

  	
  David Gonzalez, Esq.

  
	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone: (201) 985-8300

  
	
   

  	
  Facsimile: (201) 985-8266

  
	
   

  	
   

  
	
  If to the
  Company, to:

  	
  Isonics Corporation

  
	
   

  	
  5906 McIntyre Street

  
	
   

  	
  Golden, CO 80403

  
	
   

  	
  Attention: James E. Alexander, President

  
	
   

  	
  Telephone: (303) 279-7900

  
	
   

  	
  Facsimile: (303) 279-7300

  
	
   

  	
   

  
	
  With a copy
  (which does not constitute notice) to:

  	
  Burns, Figa & Will, P.C.

  
	
   

  	
  6400 South Fiddler’s Green Circle — Suite 1000

  
	
   

  	
  Greenwood Village, CO 80111

  
	
   

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

  
	
   

  	
  Telephone: (303) 796-2626

  
	
   

  	
  Facsimile: (303) 796-2777

  

 

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

Section 12.             Date. The date of this
Warrant is set forth on page 1 hereof. This Warrant, in all events,
shall be wholly void and of no effect after the close of business on the
Expiration Date, except that notwithstanding any other provisions hereof, the
provisions of 

 15
 

 

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

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

Section 14.             Descriptive Headings; Governing
Law. The descriptive headings of the several sections and paragraphs of
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant. The corporate laws of the State of New Jersey shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New Jersey, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New Jersey or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New Jersey. Each party hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the District of New Jersey, sitting in Newark, New Jersey for the adjudication
of any dispute hereunder or in connection herewith or therewith, or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.

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

REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

 16
 

 

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

 

	
  

  	
  ISONICS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  James E. Alexander

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 

 17

 

EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO
BE EXECUTED 

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

ISONICS
CORPORATION

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

Specify Method of exercise by check mark:

1. ___     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.

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

Date: _______________ __,
______

Name of Registered Holder

 1
 

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 2

 

EXHIBIT B TO WARRANT

FORM OF WARRANT
POWER

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

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

 

	
  Dated:

  	
   

  	
   

  	
  

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  

 

 B-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]