ISORAY, INC.
 

 
COMMON STOCK PURCHASE WARRANT
No._____

 
This certifies that, for value received, __________________________ ("Holder"),
is entitled to subscribe for and purchase from IsoRay, Inc., a Minnesota
corporation ("Company"), ________ shares, subject to adjustment as set forth in
Article II below ("Warrant Shares"), of Common Stock of the Company, par value
$0.001 per share ("Common Stock"), at the exercise price of $5.00 per share,
which price is subject to adjustment as set forth in Article II below (the
"Exercise Price"), at any time and from time to time beginning on the date of
this Warrant as set forth below ("Exercise Date"), and ending on the date that
is four years (4) years after the date of this Warrant ("Expiration Date"), upon
written notice from the Holder to the Company ("Notice") and subject to the
terms provided herein.
 
This Warrant is issued pursuant to Section 1(a) of that certain Securities
Purchase Agreement between the Company and certain “Purchasers” thereunder,
dated as of March 21, 2007 (the “Purchase Agreement”), pursuant to which such
Purchasers, including the Holder, purchased Common Stock and Warrants of the
Company.
 
This Warrant is subject to the following provisions, terms and conditions:
 
ARTICLE I.

 
EXERCISE; RESERVATION OF SHARES
 
Section 1.01 Warrant Exercise. The rights represented by this Warrant may be
exercised in whole or in part by the Holder at any time and from time to time
prior to the expiration of this Warrant, upon Notice, by the surrender at the
principal office of the Company of this Warrant together with a duly executed
subscription in the form annexed hereto as Exhibit A ("Subscription Form") and,
subject to Section 1.02, accompanied by payment, in certified or immediately
available funds, of the Exercise Price for the number of Warrant Shares
specified in the Subscription Form. The shares so purchased shall be deemed to
be issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall be exercised as hereinabove
provided. No fractional shares or scrip representing fractional shares shall be
issued upon exercise of this Warrant and the number of shares that shall be
issued upon such exercise shall be rounded to the nearest whole share without
the payment or receipt of any additional consideration.
 
Section 1.02 Net Issue Exercise. If at the time of exercise of this Warrant a
registration statement covering the Warrant Shares that are the subject of the
Subscription Notice (the "Unavailable Warrant Shares") is not available for the
resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, and in lieu of exercising this Warrant pursuant to Section 1.01
hereof, exercise this Warrant by surrendering this Warrant to the Company, with
a duly executed Subscription Form marked to reflect Net Issue Exercise and
specifying the number of Warrant Shares to be purchased, during normal business
hours on any business day during the Exercise Period. Such Warrant Shares shall
be deemed to be issued to Holder as the record holder of such Warrant Shares as
of the close of business on the date on which this Warrant is surrendered in
accordance with the provisions hereof. Upon such exercise, Holder shall be
entitled to receive, and the Company shall issue to Holder, a number of Warrant
Shares computed as of the date of surrender of this Warrant to the Company using
the following formula:
 

 
 

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X = Y(A-B)
A
 
Where
X =
the number of Warrant Shares to be issued to Holder under this Section 1.02;

 

 
Y =
the number of Warrant Shares in respect of which this election is made;

 

 
A =
the fair market value of one share of the Common Stock at the date of such
calculation; and

 

 
B =
the Exercise Price (as adjusted to the date of the issuance).

 
Section 1.03 Fair Market Value. For the purposes of Section 1.02 hereof, the
fair market value of one share of the Common Stock shall mean, as of any date:
 
(i) the fair market value of the shares of the Company's Common Stock as of such
date, as determined from the last closing price per share of the Company's
Common Stock on the principal national securities exchange on which the
Company's Common Stock is listed or admitted to trading, or
 
(ii) the fair market value of the shares of the Company's Common Stock as of
such date, as determined from the last reported sales price per share of the
Company's Common Stock on the Nasdaq National Market, the Nasdaq Capital Market
or any other NASDAQ market if the Company's Common Stock is not listed or traded
on any such exchange, or
 
(iii) the fair market value of the shares of the Company's Common Stock as of
such date, as determined from the average of the bid and asked price per share
of the Company's Common Stock, at the closing of the market on such date, as
reported on the OTC Bulletin Board or in the "pink sheets" published by the
National Quotation Bureau, Inc., if the Company's Common Stock is not listed or
traded on any exchange or Nasdaq, or
 
(iv) if such quotations are not available, the fair market value per share of
the Company's Common Stock on the date such notice was received by the Company
as reasonably determined in good faith by the Board of Directors of the Company.
 

 
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Section 1.04 Certificates. Certificates for the shares purchased pursuant to
Sections 1.01 and 1.02 shall be delivered to the Holder within two (2) business
days after the rights represented by this Warrant shall have been so exercised
(which exercise shall be deemed to occur on the date on which this Warrant,
together with a duly executed Subscription Form and full payment of the Exercise
Price, whether in cash or by Net Issue Exercise, are delivered to the Company at
its principal offices (the "Date of Exercise")), by the transfer agent of the
Company either (i) by crediting the account in the Holder's name held at the
Holder's prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is then a participant
in such system or (ii) if the Company is not then a participant in such system,
the Warrant Shares are not issuable without restrictive legend or Holder so
elects ,by physical delivery to the address specified by Holder on the
Subscription Form, and a new Warrant in the name of the Holder representing the
rights, if any, that shall not have been exercised prior to the Expiration Date
with respect to this Warrant shall also be delivered to such Holder within such
time, with such new Warrant to be identical in all other respects to this
Warrant. The Holder shall for all purposes be deemed to have become the holder
of record of the Warrant Shares on the date this Warrant was exercised (the date
the Holder has fully complied with the requirements of Section 1.01),
irrespective of the date of delivery of the certificate or certificates
representing the Warrant Shares; provided that, if the date such exercise is
made is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of record of the Warrant Shares
at the close of business on the next succeeding date on which the stock transfer
books are open. The term "Warrant," as used herein, includes any Warrants into
which this Warrant may be divided or combined and any subsequent Warrants issued
upon the transfer or exchange or reissuance upon loss hereof.
 
Section 1.05 Company's Failure to Timely Deliver Securities. If for any reason
or for no reason within three (3) trading days of the Date of Exercise the
Company shall fail to issue and deliver a certificate to the Holder and register
such shares of Common Stock on the Company's share register or credit the
Holder's balance account with Depository Trust Company for the number of shares
of Common Stock to which the Holder is entitled upon the Holder's exercise
hereunder, and if on or after such trading day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"Buy-In"), then the Company shall, within three (3) trading days after the
Holder's request and in the Company's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"Buy-In Price"), at which point the Company's obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock and pay cash to the Holder
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the VWAP on the date of
exercise. For purposes of this Warrant, “VWAP” means, for any date, the price
determined by the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a trading market, the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the trading market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a trading day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time); (b) if the Common Stock
is then quoted on the OTC Bulletin Board, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Company and reasonably acceptable to the
Holder, the fees and expenses of which shall be paid by the Company.
 
 
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Section 1.06 Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement and security reasonably satisfactory in form and substance
to the Company or, in the case of mutilation, on surrender and cancellation of
this Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new Warrant of like tenor and amount.
 
Section 1.07 Company Covenants. The Company represents, warrants, covenants and
agrees:
 
(a) That all shares of Common Stock that may be issued upon exercise of 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;
 
(b) That during the period the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of issue and delivery upon exercise of the rights evidenced by this
Warrant, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant; and
 
(c) That the Company will pay any documentary stamp taxes attributable to the
initial issuance of Warrant Shares issuable upon the exercise of the Warrant.
 
ARTICLE II.

 
ADJUSTMENTS
 
Section 2.01 Adjustment Events.
 
(a) Capital Events. If any reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation (in any instance, a "Capital Event") shall be effected in such a way
that holders of Common Stock shall be entitled to receive stock, securities or
assets (including cash) with respect to or in exchange for their Common Stock,
then, as a condition of such Capital Event, lawful and adequate provisions shall
be made whereby the Holder hereof shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, an amount of such shares of stock, securities or assets
(including cash) as may have been issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such Capital
Event not taken place.
 

 
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(b) Preservation of Value. In the case of any Capital Event, appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the number of shares that may be issued
upon exercise of this Warrant and the Exercise Price hereof) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets (including cash) thereafter deliverable upon the exercise of the
rights represented hereby.
 
(c) Obligation Expressly Assumed. The Company shall not effect any
consolidation, merger, sale or transfer of all or substantially all of its
assets, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation into or for the securities of which the previously outstanding stock
of the Company shall be changed in connection with such consolidation or merger,
or the corporation purchasing such assets, as the case may be, shall assume by
written instrument executed and mailed or delivered to the registered Holder at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder, upon exercise of this Warrant, such shares
of stock, securities or assets (including cash) as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase.
 
Section 2.02 Subdivision or Combination of Stock. In the event that the Company
shall at any time subdivide or split its outstanding shares of Common Stock into
a greater number of shares, the number of Warrant Shares subject to issuance
upon exercise of this Warrant at the opening of business on the day upon which
such subdivision becomes effective shall be proportionately increased. In the
event that the outstanding shares of Common Stock of the Company shall be
combined into a smaller number of shares, the number of shares subject to
issuance upon exercise of this Warrant at the opening of business on the day
upon which such subdivision becomes effective shall be proportionately
decreased. Any such increase or decrease, as the case may be, shall become
effective immediately after the opening of business on the day following the day
upon which such subdivision or combination, as the case may be, becomes
effective.
 
Section 2.03 Stock Dividends. In the event that the Company shall at any time
declare any dividend or distribution upon its Common Stock payable in stock, the
number of Warrant Shares subject to issuance upon exercise of this Warrant shall
be increased by the number (and the kind) of shares which would have been issued
to the holder of this Warrant if this Warrant were exercised immediately prior
to such dividend. Such increase shall become effective immediately after the
opening of business on the day following the record date for such dividend or
distribution.
 

 
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Section 2.04 Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares of the Company owned or held by or
for the account of the Company.
 
Section 2.05 Minimum Adjustment. No adjustment in the number of shares that may
be issued upon exercise of this Warrant as provided in this Article II shall be
required unless such adjustment would require an increase or decrease in such
number of shares of at least one percent (1%) of the then adjusted number of
shares of Common Stock that may be issued upon exercise of this Warrant;
provided, however, that any such adjustments that by reason of the foregoing are
not required to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment.
 
Section 2.06 Adjustment of Exercise Price. Whenever the number of shares of
Common Stock that may be issued upon exercise of this Warrant is adjusted, and
effective at the time such adjustment is effective, as provided in
Sections 2.01, 2.02 and 2.03 of this Article II, the Exercise Price shall be
adjusted (to the nearest whole cent) by multiplying each such Exercise Price
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock which may be issued upon the
exercise of each such Warrant immediately prior to such adjustment, and (y) the
denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter. The Company may retain a firm of independent
certified public accountants (which may not be the regular accountants employed
by the Company) to make any required computation, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
 
Section 2.07 Record Date. In the event that the Company shall not take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend payable in Common Stock, then such record date shall be deemed for
the purposes of this Article II 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.
 
Section 2.08 Officer's Certificate. Whenever the Exercise Price shall be
adjusted as provided in this Article II, the Company shall forthwith file with
its Secretary and retain in the permanent records of the Company, an officer's
certificate showing the adjusted Exercise Price determined as provided in this
Article II, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional or fewer shares of
Common Stock, and such other facts as may be reasonably necessary to show the
reason for and the method of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holder.

 
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Section 2.09 Notice of Adjustment. Upon any adjustment of the number of shares
that may be issued upon exercise of this Warrant or the Exercise Price, the
Company shall give prompt notice thereof to the Holder, which notice shall state
the increase or decrease in the number of shares that may be issued upon the
exercise of this Warrant and the Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
 
Section 2.10 Definition of "Common Stock". As used in this Article II, the term
"Common Stock" shall mean and include all of the Company's authorized Common
Stock of any class as constituted on the date of this Warrant as set forth
below, and shall also include any capital stock of any class of the Company
thereafter authorized that shall not be limited to a fixed sum or stated value
in respect of the rights of the holders thereof to participate in dividends or
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.
 
ARTICLE III.

 
MISCELLANEOUS
 
Section 3.01 Notices. Any notice or communication to be given pursuant to this
Warrant shall be in writing and shall be delivered in person or by certified
mail, return receipt requested, in the United States mail, postage prepaid.
Notices to the Company shall be addressed to the Company's principal office.
Notices to the Holder shall be addressed to the Holder's address as reflected in
the records of the Company. Notices shall be effective upon delivery in person,
or, if mailed, at midnight on the fifth business day after mailing.
 
Section 3.02 No Shareholder Rights. This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of the Company.
 
Section 3.03 Governing Law. This Warrant shall be governed by, and construed in
accordance with, the internal laws of the State of New York, without reference
to the choice of law provisions thereof. The Company and, by accepting this
Warrant, the Holder, each irrevocably submits to the exclusive jurisdiction of
the courts of the State of New York located in New York County and the United
States District Court for the Southern District of New York for the purpose of
any suit, action, proceeding or judgment relating to or arising out of this
Warrant and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Warrant. The Company and, by accepting this Warrant, the
Holder, each irrevocably consents to the jurisdiction of any such court in any
such suit, action or proceeding and to the laying of venue in such court. The
Company and, by accepting this Warrant, the Holder, each irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum..
 

 
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Section 3.04 Headings; Interpretation. The section headings used herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provision of this Warrant. When used in this Warrant,
the term "including" shall mean "including, without limitation.”
 
Section 3.05 Successors. The covenants, agreements and provisions of this
Warrant shall bind the parties hereto and their respective successors and
permitted assigns.
 
Section 3.06 Amendment; Waiver. This Warrant is one of a series of Warrants of
like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 826,100 shares of Common Stock (collectively,
the “Company Warrants”). Any term of this Warrant may be amended or waived
(including the adjustment provisions included in Article II of this Warrant)
upon the written consent of the Company and the Holder.
 
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued effective
as of the 21st day of March, 2007.

 

 
ISORAY, INC., a Minnesota corporation
 
 
 
By:__________________________________
Jonathan Hunt, CFO

 
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Exhibit A
 
SUBSCRIPTION FORM
 
(To be Executed only upon Exercise of Warrant)
 
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases __________ shares of Common Stock of IsoRay, Inc., a
Minnesota corporation, that may be issued under this Warrant and
 

 
(a)
herewith delivers the sum of $____________; or

 

 
(b)
hereby elects (if available at the time of exercise) a "net exercise" pursuant
to Section 1.02 of this Warrant

 
in either case, in full payment of the Exercise Price for such shares, all on
the terms and conditions specified in this Warrant. Such shares are to be
delivered to such holder at the address reflected in the records of the Company
unless contrary instructions are herein given.
 
Deliver certificates to:
__________________________
 
Dated:_____________
________________________________________

(Signature of Registered Owner)
 
________________________________________
(Street Address)
 
________________________________________
(City) (State) (Zip Code)
 
 
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