COMMON STOCK AND WARRANT PURCHASE AGREEMENT
 
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT is dated effective as of August
9, 2006 (the “Effective Date”) by and between IsoRay, Inc., a Minnesota
corporation with its principal office at 350 Hills Street, Suite 106, Richland,
WA 99354 (the “Company”), and the several purchasers identified from time to
time in the attached Exhibit A (individually, a “Purchaser” and collectively,
the “Purchasers”).
 
Recitals

A. The Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended; and
 
B. Contemporaneous with the sale of the Securities (as defined below), the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit C (the “Registration Rights Agreement”),
pursuant to which the Company will agree to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
 
NOW, THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as follows:
 
1.  Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:
 
(a)  “Additional Shares” shall have the meaning given in Section 2.1(b).
 
(b)  “Affiliate” of a party means any corporation or other business entity
controlled by, controlling or under common control with such party. For this
purpose “control” shall mean direct or indirect beneficial ownership of fifty
percent (50%) or more of the voting or income interest in such corporation or
other business entity.
 
(c)  “Agreement” means this Common Stock and Warrant Purchase Agreement.
 
(d)  “Closing” shall have the meaning given in Section 2.3.
 
(e)  “Closing Date” means the date of the sale and purchase of the Warrants and
Common Stock acquired hereunder.
 
(f)  “Company’s Knowledge” means the actual knowledge of the executive officers
(as defined in Rule 405 under the Securities Act) of the Company, after due
inquiry.
 
(g)  “Confidential Information” means trade secrets, confidential information
and know-how (including but not limited to ideas, formulae, compositions,
processes, procedures and techniques, research and development information,
computer program code, performance specifications, support documentation,
drawings, specifications, designs, business and marketing plans, and customer
and supplier lists and related information).
 
 
 

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(h)  “Disclosure Schedules” has the meaning set forth in Section 3.
 
(i)  “Exchange Act” means the Securities Exchange Act of 1934, as amended, and
all of the rules and regulations promulgated thereunder.
 
(j)  “Excluded Stock” means (1) all shares of Common Stock issued and
outstanding as of the Effective Date, and all shares of Common Stock issued
after the Effective Date pursuant to this Agreement, and all shares of Common
Stock issued or issuable upon the exercise or conversion of any Purchase Rights
outstanding as of the Effective Date (provided that the terms of such Purchase
Rights are not modified or changed except as contemplated by this Agreement),
and all shares of Common Stock issued or issuable upon the exercise of the
Warrants and all other Warrants issued pursuant to this Agreement; (2) all
shares of Common Stock or other securities hereafter issued or issuable to
officers, directors, employees, scientific advisors, or consultants of the
Company pursuant to any employee or consultant option, stock offering, plan or
arrangement approved by the majority of the members of the Board of Directors of
the Company; (3) all shares of Common Stock or other securities hereafter issued
in connection with or as consideration for the acquisition or licensing of
technology approved by the majority of the members of the Board of Directors of
the Company; and (4) all shares of Common Stock or other securities issued in
connection with equipment leasing or equipment financing arrangements approved
by the majority of the members of the Board of Directors of the Company.
 
(k)  “GAAP” shall have the meaning set forth in Section 3.5.
 
(l)  “Investor Questionnaire” shall mean that Investor Questionnaire
substantially in the form attached hereto as Appendix F submitted by each
Investor in connection with the purchase of the Securities.
 
(m)  “Lead Investor” shall mean MicroCapital Fund, LP.
 
(n)  “Majority Purchasers” shall mean Purchasers which, at any given time, hold
greater than fifty percent (50%) of the outstanding Securities that have not
been resold pursuant to an effective registration statement under the Securities
Act or Rule 144 under the Securities Act.
 
(o)  “Material Adverse Effect” means a material adverse effect on (i) the
results of operations, cash flow, business prospects, customer, supplier or
employee relations or financial condition of the Company and its Subsidiaries
taken as a whole, or (ii) the ability of the Company to perform its obligations
under the Transaction Documents.
 
(p)  “Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
 
 
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(q)  “Purchase Price” shall have the meaning given in Section 2.1.
 
(r)  “Purchase Rights” means (i) warrants and options to purchase, or rights to
subscribe for, Common Stock, and (ii) securities by their terms convertible into
or exchangeable for Common Stock, and options to purchase, or rights to
subscribe for, such convertible and exchangeable securities.
 
(s)  “Registration Rights Agreement” shall mean that certain Registration Rights
Agreement, dated as of the date hereof, among the Company and the Purchasers, in
the form attached hereto as Exhibit C.
 
(t)  “SEC” shall mean the Securities and Exchange Commission.
 
(u)  “SEC Documents” shall have the meaning given in Section 3.6.
 
(v)  “Securities” shall have the meaning given in Section 2.2.
 
(w)  “Securities Act” shall mean the Securities Act of 1933, as amended, and all
of the rules and regulations promulgated thereunder.
 
(x)  “Shares” means the shares of Common Stock being purchased by the Purchasers
hereunder.
 
(y)  “Subsidiary” means with respect to any Person, any Person (i) of which the
first Person owns directly or indirectly 50% of more of the equity interest in
the other Person, (ii) of which the first Person or any Subsidiary of the first
Person is a general partner, or (iii) of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions with respect to the
other Person are at the time owned by the first Person and/or one or more of the
first Person’s Subsidiaries.
 
(z)  “Transaction Documents” means this Agreement, the Warrants, the
Registration Rights Agreement, and the Subscription Agreement and Investor
Questionnaire, entered into between the Company and the Purchasers.
 
(aa)  “Warrants” has the meaning set forth in Section 2.1 of this Agreement.
 
(bb)  “Warrant Shares” means the shares of Common Stock issuable upon the
exercise of the Warrants.
 
2.  Purchase and Sale of Shares.
 
2.1  Purchase and Sale. (a) Subject to and upon the terms and conditions set
forth in this Agreement, the Company agrees to issue and sell to the Purchasers
(i) a minimum of 800,000 shares of the Company’s Common Stock, par value $0.001
per share (the “Common Stock”) at a purchase price of $2.50 per share and (ii)
warrants to purchase a minimum of 800,000 shares of Common Stock (subject to
adjustment) at a purchase price of $3.00 per share, in the form attached hereto
as Exhibit B (“Warrants”). Each Purchaser hereby agrees to purchase from the
Company, at the Closing (as defined below), the number of shares of Common Stock
and Warrants set forth opposite the name of such Purchaser under the heading
“Number of Shares to be Purchased” on Exhibit A hereto. The total purchase price
payable by each Purchaser for the Common Stock and Warrants that such Purchaser
is hereby agreeing to purchase (the “Purchase Price”) is set forth opposite the
name of such Purchaser under the heading “Purchase Price” on Exhibit A hereto.
 
 
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(b) The Company agrees that in the event the Company issues Purchase Rights or
Common Stock on or after the Effective Date for no consideration, or
consideration per share equal to or less than $2.00, each Purchaser shall have
the further right to purchase, and the Company shall issue and deliver to each
Purchaser, additional shares of Common Stock in an amount equal to twenty-five
(25%) percent of the aggregate amount of shares of Common Stock purchased by
each Purchaser hereunder, for a purchase price of $0.001 per share (such shares,
“Additional Shares”); provided, however, that (i) an issuance of Excluded Stock
shall not give rise to any Purchaser right to Additional Shares under this
paragraph, and (ii) an issuance of Additional Shares hereunder shall not be
deemed a “Dilutive Issuance” under the Warrant. The Company shall promptly
notify each Purchaser of any issuance that gives rise to a Purchaser right to
Additional Shares under this paragraph.
 
2.2  The shares of Common Stock sold to the Purchasers pursuant to this
Agreement are hereinafter referred to as the “Shares.” The Warrants to purchase
Common Stock sold hereunder are hereinafter referred to as the “Warrants.” The
total amount of Common Stock and other securities issuable upon conversion of
the Warrants are hereinafter referred to as the “Warrant Shares.” The Shares,
the Warrants and the Warrant Shares are hereinafter collectively referred to as
the “Securities.”
 
2.3  Closing. The initial purchase and sale of the Shares and Warrants shall
take place at the offices of Reed Smith, LLP Two Embarcadero, 20th Floor, San
Francisco, CA 94111 at 10:00 A.M. on August 16, 2006, or at such other time and
place as the Company and the Purchasers acquiring at the Closing in the
aggregate more than half of such Shares sold pursuant to Section 2.1 mutually
agree upon, but in no event later than August 21, 2006 (which time and place are
designated as the “Closing”). Within five (5) business days after the Closing,
the Company shall deliver to each Purchaser purchasing Shares and Warrants at
the Closing a certificate representing the Shares and a corresponding Warrant,
registered in the name of such Purchaser, or in such nominee's or nominees'
name(s) as designated by such Purchaser in writing in the Investor
Questionnaire, which such Purchaser is purchasing against delivery to the
Company by such Purchaser of a cashier’s check or wire transfer in the aggregate
amount of the Purchase Price therefor payable to the Company's order.
 
3.  Representations and Warranties of the Company. The Company hereby represents
and warrants to the Purchasers that, except as set forth in the schedules
delivered herewith (collectively, the “Disclosure Schedules”):
 
3.1  Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify would have a Material Adverse Effect. The Company’s
Subsidiaries are listed on Schedule 3.1 attached hereto.
 
 
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3.2  Authorization. The Company has the corporate power and has taken all
requisite action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of the
Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Securities. The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.
 
3.3  Capitalization. Schedule 3.3 sets forth (a) the authorized capital stock of
the Company on the date hereof; (b) the number of shares of capital stock issued
and outstanding; (c) the number of shares of capital stock issuable pursuant to
the Company’s stock plans; and (d) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities (other than the Shares
and the Warrants) exercisable for, or convertible into or exchangeable for any
shares of capital stock of the Company. All of the issued and outstanding shares
of the Company’s capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of pre-emptive rights and were issued in
compliance in all material respects with applicable state and federal securities
law and any rights of third parties. Except as described on Schedule 3.3, all of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in compliance in all material respects with
applicable state and federal securities law and any rights of third parties and
are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim. Except as described on Schedule 3.3, no
Person is entitled to pre-emptive or similar statutory or contractual rights
with respect to any securities of the Company. Except as described on Schedule
3.3, there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated by this Agreement, neither the Company nor
any of its Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind. Except as described on Schedule 3.3 and except
for the Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the security holders of the Company
relating to the securities of the Company held by them. Except as described on
Schedule 3.3 and except as provided in the Registration Rights Agreement, no
Person has the right to require the Company to register any securities of the
Company under the Securities Act, whether on a demand basis or in connection
with the registration of securities of the Company for its own account or for
the account of any other Person.
 
 
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Except as described on Schedule 3.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Purchasers) and will not result
in the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security. Except as described on Schedule 3.3, the Company does not
have outstanding stockholder purchase rights or “poison pill” or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.

3.4  Valid Issuance of the Shares. The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Purchasers),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized. Upon the due exercise of the Warrants, the Warrant Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for
those created by the Purchasers. The Company has reserved a sufficient number of
shares of Common Stock for issuance upon the exercise of the Warrants, free and
clear of all encumbrances and restrictions, except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws
and except for those created by the Purchasers.
 
3.5  Financial Statements. The financial statements included in each SEC filing
present fairly, in all material respects, the consolidated financial position of
the Company as of the dates shown and its consolidated results of operations and
cash flows for the periods shown (subject, in the case of unaudited statements,
to normal year-end audit adjustments), and such financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-QSB under the Exchange Act). Except as set
forth in the financial statements of the Company included in the SEC filings
filed prior to the date hereof or as described on Schedule 3.5, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, would have a
Material Adverse Effect.
 
3.6  SEC Documents. The Company has filed all reports, schedules, forms,
statements (collectively, and in each case including all exhibits, financial
statements and schedules thereto and documents incorporated by reference therein
and including all registration statements and prospectuses filed with the SEC)
required to be filed by it with the SEC through the Closing Date, and the
Company will file, on a timely basis, all similar documents with the SEC during
the period commencing on the date hereof and ending on the Closing Date (all of
the foregoing being hereinafter referred to as the “SEC Documents”). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, as of their respective filing dates.
 
 
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3.7  Consents. The execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Securities require
no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of the
representations and warranties of each Purchaser set forth in Section 4 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of
the Warrants, and (iii) the other transactions contemplated by the Transaction
Documents from the provisions of any stockholder rights plan or other “poison
pill” arrangement, any anti-takeover, business combination or control share law
or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Certificate of
Incorporation or Bylaws that is or could reasonably be expected to become
applicable to the Purchasers as a result of the transactions contemplated
hereby, including without limitation, the issuance of the Securities and the
ownership, disposition or voting of the Securities by the Purchasers or the
exercise of any right granted to the Purchasers pursuant to this Agreement or
the other Transaction Documents.
 
3.8  No Conflict. Except as disclosed in Schedule 3.8, the execution, delivery
and performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Certificate of Incorporation or the Company’s Bylaws, both as in
effect on the date hereof (true and complete copies of which have been made
available to the Purchasers), or (ii)(a) any statute, rule, regulation or order
of any governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective assets
or properties, or (b) any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject, except, in the
case of clause (ii), for such breaches, violations or defaults as would not
reasonably be expected to result in a Material Adverse Effect.
 
3.9  Brokers or Finders. Except as disclosed on Schedule 3.9, the Company has
not dealt with any broker or finder in connection with the transactions
contemplated by this Agreement or incurred any liability for any brokerage or
finders' fees or agents commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
 
3.10  No Integrated Offering. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Securities under the
Securities Act.
 
 
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3.11  Absence of Litigation. There is no action, suit or proceeding or, to the
Company's Knowledge, any investigation, pending, or to the Company's Knowledge,
threatened by or before any court, governmental body or regulatory agency
against the Company that is required to be disclosed in the SEC Documents and is
not so disclosed. The Company has not received any written or oral notification
of, or request for information in connection with, any formal or informal
inquiry, investigation or proceeding from the SEC or the NASD. The foregoing
includes, without limitation, any such action, suit, proceeding or investigation
that questions this Agreement or the Registration Rights Agreement or the right
of the Company to execute, deliver and perform under same.
 
3.12  Intellectual Property.
 
(a)  To the Company’s Knowledge, the Company has ownership of or license or
legal right to use all patents, copyrights, trade secrets, trademarks, domain
names, customer lists, designs, manufacturing or other processes, computer
software, systems, data compilations, research results and other intellectual
property or proprietary rights (collectively, “Intellectual Property”) used in
the business of the Company and material to the Company. The Company knows of no
reason why its patent applications do not or would not comply with any statutory
or legal requirements or would not issue into valid and enforceable patents.
 
(b)  To the Company’s Knowledge, there is no material default by the Company
under any material licenses or other material agreements under which (i) the
Company is granted rights in Intellectual Property or (ii) the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company. There are no outstanding or threatened claims, disputes or
disagreements with respect to any such licenses or agreements.
 
(c)  To the Company’s Knowledge, the present business, activities and products
of the Company do not infringe or misappropriate any Intellectual Property of
any third party. The Company has not been notified that any proceeding charging
the Company with infringement or misappropriation of any Intellectual Property
held by any third party has been filed. To the Company's Knowledge, there exists
no patent held by any third party which includes claims that would be infringed
by the Company in the conduct of its business as currently conducted where such
infringement would have a Material Adverse Effect. To the Company’s Knowledge,
the Company is not making unauthorized use of any Confidential Information of
any third party. Neither the Company nor, to the Company’s Knowledge, any of its
employees have any agreements or arrangements with any persons other than the
Company restricting the Company's or any such employee's engagement in business
activities that are material aspects of the Company's business as currently
conducted.
 
(d)  None of the Intellectual Property owned or, to the Company's Knowledge,
licensed by the Company that is used in the business of the Company and material
to the Company, is subject to any outstanding judgment or order, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or, to the Company’s Knowledge, threatened, which challenges the
validity, enforceability, scope, use, or ownership of, or otherwise relates to,
any such Intellectual Property anywhere in the world. None of the Company’s
patents has been or is now involved in any interference, reissue, reexamination,
opposition, or other proceeding.
 
 
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(e)  Except as set forth in Schedule 3.12(e), each employee of the Company has
executed a confidential information and invention assignment agreement in the
form made available to Purchasers. No such employee has excluded works or
inventions made prior to his or her employment with the Company from his or her
assignment of inventions pursuant to such employee's confidential information
and invention assignment agreement, which works or inventions are necessary to
the business of the Company as it is proposed to be conducted. Each consultant
to the Company has entered into an agreement containing appropriate
confidentiality and invention assignment provisions, in the form acceptable to
Purchasers. Except as set forth in Schedule 3.12(e), the Company does not
believe it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by the Company, except for inventions, trade secrets or proprietary information
that have been assigned to the Company.
 
3.13  Offering. The Company has not in the past nor will it hereafter take any
action to sell, offer for sale or solicit offers to buy any securities of the
Company which would require the offer, issuance or sale of the Securities, as
contemplated by this Agreement, to be registered under Section 5 of the
Securities Act. Neither the Company nor any Person acting on its behalf has
conducted any general solicitation or general advertising (as those terms are
used in Regulation D) in connection with the offer or sale of any of the
Securities.
 
3.14  Private Placement. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4 hereof and compliance by the
Purchasers with the terms of the Transaction Documents, the offer and sale of
the Securities to the Purchasers as contemplated hereby is exempt from the
registration requirements of the Securities Act.
 
3.15  Investment Company. The Company is not and, after giving effect to the
offering and sale of the Shares and the Warrants, will not be required to
register as, an “investment company” as such term is defined in the Investment
Company Act of 1940, as amended.
 
3.16  No Manipulation of Stock. The Company has not taken and will not in
violation of applicable law take any action designed to or that might reasonably
be expected to cause or result in unlawful manipulation of the price of the
Common Stock.
 
3.17  No Violations. The Company is not in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, or in violation of any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company, which
violation, individually or in the aggregate, would be reasonably expected to
have a Material Adverse Effect, or is not in default (and there exists no
condition which, with the passage of time or otherwise, would constitute a
default) in the performance of any material bond, debenture, note or any other
evidence of indebtedness in any indenture, mortgage, deed of trust or any other
material agreement or instrument to which the Company is a party or by which the
Company is bound or by which the property of the Company is bound, which would
be reasonably expected to have a Material Adverse Effect.
 
 
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3.18   Transactions with Affiliates. Except as disclosed in the SEC filings or
as disclosed on Schedule 3.18, none of the officers or directors of the Company
and, to the Company’s Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than as holders of stock options and/or warrants, and for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the Company’s Knowledge, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
 
3.19  Questionable Payments. Neither the Company nor any of its Subsidiaries
nor, to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers or employees, has on behalf of the Company or
any Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
 
3.20  Taxes. The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been or
might be asserted or threatened against it which would have a Material Adverse
Effect.
 
3.21  Title. The Company has good and marketable title to all real property and
good and marketable title to all personal property owned by it which is material
to the business of the Company, in each case free and clear of all encumbrances
and defects, except such as do not have a Material Adverse Effect. Any
facilities and items of equipment held under lease by the Company are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
facilities and items of equipment by the Company. The Company is in compliance
with all material terms of each lease to which it is a party or is otherwise
bound.
 
3.22  Foreign Corrupt Practices. To the Company’s Knowledge, neither the
Company, nor any director, officer, agent, employee or other person acting on
behalf of the Company, has in the course of its actions for, or on behalf of,
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
 
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3.23  Employee Relations. The Company is not involved in any union labor
dispute, nor, to the Company’s Knowledge, is any such dispute threatened. The
Company is not a party to a collective bargaining agreement, and the Company
believes that its relations with its employees are good. No executive officer
(as defined in Rule 501(1) of the Securities Act) of the Company has notified
the Company that such officer intends to leave the employ of the Company or
otherwise terminate such officer’s employment with the Company. To the Company’s
Knowledge, no employee of the Company, as a consequence of his employment by the
Company is, or is now expected to be, in violation of any material term of any
agreement, covenant or contract (including any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant with any previous employer), and the continued employment of each such
employee by the Company will not subject the Company to any liability with
respect to any of the foregoing matters.
 
3.24  Internal Accounting Controls. Except as otherwise disclosed on Schedule
3.24, the Company maintains a system of internal accounting controls (as such
term is defined in Rule 13a-14 and 15d-14 under the Exchange Act) sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
 
3.25  Disclosure Controls. The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-14 and 15d-14 under
the Exchange Act); such disclosure controls and procedures are designed to
ensure that material information relating to the Company, including its
consolidated subsidiaries, if any, is made known to the Company’s Chief
Executive Officer and its Chief Financial Officer by others within those
entities, and such disclosure controls and procedures are effective to perform
the functions for which they were established; the Company’s auditors and the
Audit Committee of the Board of Directors have been advised of: (i) any
significant deficiencies in the design or operation of internal controls which
could adversely affect the Company’s ability to record, process, summarize, and
report financial data; and (ii) any fraud, whether or not material, that
involves management or other employees who have a role in the Company’s internal
controls; any material weaknesses in internal controls have been identified for
the Company’s auditors; since the date of the most recent evaluation of such
disclosure controls and procedures, there have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses; the principal executive officers (or their
equivalents) and principal financial officers (or their equivalents) of the
Company have made all certifications required by the Sarbanes Oxley Act of 2002
(the “Sarbanes Oxley Act”) and any related rules and regulations promulgated by
the Commission, and the statements contained in any such certification are
complete and correct; and the Company is otherwise in compliance in all material
respects with all applicable effective provisions of the Sarbanes Oxley Act.
 
 
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3.26  Disclosures. Neither the Company nor any Person acting on its behalf has
provided the Purchasers or their agents or counsel with any information that
constitutes or might constitute material, non-public information, other than the
fact that the Company intends to enter into the transactions contemplated hereby
and the terms hereof. The Company understands that the Purchasers will be
relying on this representation in effecting transactions in the Company’s
securities.
 
3.27  Completeness of Disclosures. Neither the Transaction Documents, nor any of
the schedules or exhibits thereto, nor any other document or certificate
provided by the Company to the Purchasers contains any untrue statement of a
material fact or, when considered as a whole, omits to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
 
3.28  Use of Proceeds. The net proceeds of the sale of the Shares and the
Warrants hereunder shall be used by the Company for working capital and general
corporate purposes.
 
3.29  Real Property Holding Corporation. The Company is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”) and any regulations promulgated
thereunder.
 
4.  Representations and Warranties of the Purchasers. Each Purchaser severally
for itself, and not jointly with the other Purchasers, represents and warrants
to the Company as follows:
 
4.1  Authorization. All action on the part of such Purchaser and, if applicable,
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated therein has been taken. When
executed and delivered by the Company and such Purchaser, each of the
Transaction Documents will constitute the legal, valid and binding obligation of
such Purchaser, enforceable against such Purchaser in accordance with its terms,
except as such may be limited by bankruptcy, insolvency, reorganization or other
laws affecting creditors' rights generally and by general equitable principles.
Such Purchaser has all requisite power to enter into each of the Transaction
Documents and to carry out and perform its obligations under the terms of the
Transaction Documents.
 
4.2  Purchase Entirely for Own Account. The Securities to be received by such
Purchaser hereunder will be acquired for such Purchaser’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the Securities Act, and such Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of the Securities Act without prejudice, however, to such
Purchaser’s right at all times to sell or otherwise dispose of all or any part
of such Securities in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty by
such Purchaser to hold the Securities for any period of time. Such Purchaser is
not a broker-dealer registered with the SEC under the Exchange Act or an entity
engaged in a business that would require it to be so registered.
 
 
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4.3  Investor Status; Etc. Such Purchaser certifies and represents to the
Company that it is an “Accredited Investor” as defined in Rule 501 of Regulation
D promulgated under the Securities Act and was not organized for the purpose of
acquiring the Securities. Such Purchaser’s financial condition is such that it
is able to bear the risk of holding the Securities for an indefinite period of
time and the risk of loss of its entire investment. Subject to the truth and
accuracy of the representations and warranties of the Company set forth in
Section 3 of this Agreement (as modified by the Disclosure Schedules), such
Purchaser has received, reviewed and considered all information it deems
necessary, including but not limited to the Company’s Form SB-2 Registration
Statement effective June 8, 2006, in making an informed decision to make an
investment in the Securities and has been afforded the opportunity to ask
questions of and receive answers from the management of the Company concerning
this investment and has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company’s stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company.
 
4.4  Confidential Information. Each Purchaser understands that any information,
other than the SEC Documents, provided to such Purchaser by the Company,
including, without limitation, the existence and nature of all discussions and
presentations, if any, regarding this offering and the Transaction Documents, is
strictly confidential and proprietary to the Company and is being submitted to
the Purchaser solely for such Purchaser’s confidential use in connection with
its investment decision regarding the Securities. Such Purchaser agrees to use
such information for the sole purpose of evaluating a possible investment in the
Securities and such Purchaser hereby acknowledges that it is prohibited from
reproducing or distributing such information, the Transaction Documents, or any
other offering materials, in whole or in part, or divulging or discussing any of
their contents except for use internally and by its legal counsel and except as
required by law or legal process. Such Purchaser understands that the federal
securities laws prohibit any person who possesses material nonpublic information
about a company from trading in securities of such company.
 
4.5  Securities Not Registered. Such Purchaser understands that the Securities
have not been registered under the Securities Act, by reason of their issuance
by the Company in a transaction exempt from the registration requirements of the
Securities Act, and that the Securities must continue to be held by such
Purchaser unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration. The Purchaser understands
that the exemptions from registration afforded by Rule 144 (the provisions of
which are known to it) promulgated under the Securities Act depend on the
satisfaction of various conditions, and that, if applicable, Rule 144 may afford
the basis for sales only in limited amounts.
 
4.6  No Conflict. The execution and delivery of the Transaction Documents by
such Purchaser and the consummation of the transactions contemplated thereby
will not conflict with or result in any violation of or default by such
Purchaser (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
a loss of a material benefit under (i) any provision of the organizational
documents of such Purchaser, (ii) any material agreement or instrument, permit,
franchise, or license or (iii) any judgment, order, statute, law, ordinance,
rule or regulations, applicable to such Purchaser or its respective properties
or assets.
 
 
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4.7  Brokers. Except as disclosed to the Company in writing, such Purchaser has
not retained, utilized or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement.
 
4.8  Consents. All consents, approvals, orders and authorizations required on
the part of such Purchaser in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated herein have been obtained and are effective as of the Closing Date.
 
4.9  No Intent to Effect a Change of Control. Such Purchaser has no present
intent to change or influence the control of the Company within the meaning of
Rule 13d-1 of the Exchange Act.
 
5.  Conditions Precedent.
 
5.1  Conditions to the Obligation of the Purchasers to Consummate the Closing.
The obligation of each Purchaser to consummate the Closing and to purchase and
pay for the Securities being purchased by it pursuant to this Agreement is
subject to the fulfillment to such Purchaser’s satisfaction, on or prior to the
Closing Date, of the following conditions, any of which may be waived by such
Purchaser (as to itself only):
 
(a)  The representations and warranties made by the Company in Section 3 hereof
qualified as to materiality shall be true and correct at all times prior to and
on the Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 3 hereof not
qualified as to materiality shall be true and correct in all material respects
at all times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.
 
(b)  The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
 
(c)  The Registration Rights Agreement and respective Warrant shall have been
executed and delivered by the Company.
 
(d)  No proceeding challenging this Agreement or the transactions contemplated
hereby, or seeking to prohibit, alter, prevent or materially delay the Closing,
shall have been instituted before any court, arbitrator or governmental body,
agency or official and shall be pending.
 
(e)  No judgment, writ, order, injunction, award or decree of or by any court,
or judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.
 
 
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(f)  The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (d) and (e) of this Section 5.1.
 
(g)  The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
Certificate of Incorporation and Bylaws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.
 
(h)  The Purchasers shall have received an opinion from legal counsel for the
Company, dated as of the Closing Date, in form and substance reasonably
acceptable to the Purchasers and addressing such legal matters as the Purchasers
may reasonably request.
 
5.2  Conditions to the Obligation of the Company to Consummate the Closing. The
obligation of the Company to consummate the Closing and to issue and sell the
Securities at the Closing is subject to the satisfaction of the following
conditions precedent, any of which may be waived by the Company:
 
(a)  The representations and warranties contained herein of such Purchaser shall
be true and correct on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (it being understood and agreed by
the Company that, in the case of any representation and warranty of each
Purchaser contained herein which is not hereinabove qualified by application
thereto of a materiality standard, such representation and warranty need be true
and correct only in all material respects in order to satisfy as to such
representation or warranty the condition precedent set forth in the foregoing
provisions of this Section 5.2(a)).
 
(b)  The Registration Rights Agreement and respective Warrant shall have been
executed and delivered by each Purchaser.
 
(c)  The Purchase Price shall have been paid into the account of an escrow agent
designated by the Company, as set forth in Appendix E.
 
(d)  Each such Purchaser shall have executed and delivered to the Company an
Investor Questionnaire, in the form attached hereto as Appendix F, pursuant to
which such Purchaser shall provide information necessary to confirm each such
Purchaser’s status as an “accredited investor” (as such term is defined in Rule
501 promulgated under the Securities Act) and to enable the Company to comply
with the Registration Rights Agreement.
 
 
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6.  Transfer, Legends.
 
6.1  Securities Law Transfer Restrictions.
 
(a)  Restricted Securities. Such Purchaser understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
 
(b)  Each Purchaser understands that the Securities have not been registered
under the Securities Act or any state securities laws. In that connection, such
Purchaser is aware of Rule 144 under the Securities Act and the restrictions
imposed thereby. Such Purchaser will not engage in hedging or other similar
transactions which would include, without limitation, effecting any short sale
or having in effect any short position (whether or not such sale or position is
against the box and regardless of when such position was entered into) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to the Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from the Common Stock of the Company.
 
6.2   Legends. It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:
 
(a)  “The securities represented hereby may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
the Company has received an opinion of counsel reasonably satisfactory to it
that such transfer may lawfully be made without registration under the
Securities Act of 1933, as amended, or qualification under applicable state
securities laws.”
 
(b)  If required by the authorities of any state in connection with the issuance
of sale of the Securities, the legend required by such state authority.
 
6.3  Removal of Legends. Upon the earlier of (i) the resale of the Shares or
Warrant Shares pursuant to a registration statement in accordance with the plan
of distribution contained therein, delivery to the Company’s transfer agent and
registrar (or any successor thereto, the “Transfer Agent”) (with a copy to the
Company) of the certificate representing the shares of Common Stock sold and
receipt by the Company and the Transfer Agent of a certificate of subsequent
sale in the form of Exhibit D attached hereto or (ii) Rule 144(k) becoming
available, delivery to the Transfer Agent (with a copy to the Company) of the
certificate representing the shares of Common Stock and the delivery to the
Company and the Transfer Agent of a representation letter from the Purchaser in
customary form that Rule 144(k) applies to the shares of Common Stock
represented thereby, the Company shall promptly cause the Transfer Agent to
issue a certificate representing the shares of Common Stock which does not bear
such restrictive legends.
 
 
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7.  Termination; Liabilities Consequent Thereon. This Agreement may be
terminated and the transactions contemplated hereunder abandoned at any time
prior to the Closing only as follows:
 
(a)  at any time by mutual agreement of the Company and the Majority Purchasers;
or
 
(b)  by the Majority Purchasers, if there has been any breach of any
representation or warranty or any material breach of any covenant of the Company
contained herein and the same has not been cured within 15 days after notice
thereof (it being understood and agreed by each Purchaser that, in the case of
any representation or warranty of the Company contained herein which is not
hereinabove qualified by application thereto of a materiality standard, such
representation or warranty will be deemed to have been breached for purposes of
this Section 7(b) only if such representation or warranty was not true and
correct in all material respects at the time such representation or warranty was
made by the Company); or
 
(c)  by the Company with respect to a certain Purchaser, if there has been any
breach of any representation, warranty or any material breach of any covenant of
such Purchaser contained herein and the same has not been cured within 15 days
after notice thereof (it being understood and agreed by the Company that, in the
case of any representation and warranty of such Purchaser contained herein which
is not hereinabove qualified by application thereto of a materiality standard,
such representation or warranty will be deemed to have been breached for
purposes of this Section 7(c) only if such representation or warranty was not
true and correct in all material respects at the time such representation or
warranty was made by such Purchaser).
 
Any termination pursuant to this Section 7 shall be without liability on the
part of any party, unless such termination is the result of a material breach of
this Agreement by a party to this Agreement in which case such breaching party
shall remain liable for such breach notwithstanding any termination of this
Agreement.
 
8.  Survival and Indemnification.
 
8.1  Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement; provided, however, that any claim for Losses
arising out of a breach of representation or warranty must be made, if at all,
within two (2) years of the Closing Date.
 
8.2  Indemnification. The Company agrees to indemnify and hold harmless each
Purchaser and its Affiliates and their respective directors, officers, employees
and agents from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.
 
 
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8.3  Conduct of Indemnification Proceedings. Promptly after receipt by any
Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
 
9.  Miscellaneous Provisions.
 
9.1  Public Announcements. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Purchasers without the prior consent of the Company (in the
case of a release or announcement by the Purchasers) or the Lead Investor (in
the case of a release or announcement by the Company) (which consents shall not
be unreasonably withheld), except as such release or announcement may be
required by law or the applicable rules or regulations of any securities
exchange or securities market, in which case the Company or the Lead Investor,
as the case may be, shall allow the Lead Investor or the Company, as applicable,
to the extent reasonably practicable in the circumstances, reasonable time to
comment on such release or announcement in advance of such issuance. By 8:30
a.m. (New York City time) on the trading day immediately following the Closing
Date, the Company shall issue a press release disclosing the consummation of the
transactions contemplated by this Agreement. No later than the third trading day
following the Closing Date, the Company will file a Current Report on Form 8-K
attaching the press release described in the foregoing sentence as well as
copies of the Transaction Documents. In addition, the Company will make such
other filings and notices in the manner and time required by the SEC.
 
9.2  Further Assurances. Each party agrees to cooperate fully with the other
party and to execute such further instruments, documents and agreements and to
give such further written assurances, as may be reasonably requested by the
other party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Agreement.
 
 
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9.3  Rights Cumulative. Each and all of the various rights, powers and remedies
of the parties shall be considered to be cumulative with and in addition to any
other rights, powers and remedies which such parties may have at law or in
equity in the event of the breach of any of the terms of this Agreement. The
exercise or partial exercise of any right, power or remedy shall neither
constitute the exclusive election thereof nor the waiver of any other right,
power or remedy available to such party.
 
9.4  Pronouns. All pronouns or any variation thereof shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person, persons, entity or entities may require.
 
9.5  Notices. Any notices, reports or other correspondence (hereinafter
collectively referred to as “correspondence”) required or permitted to be given
hereunder shall be in writing and shall be sent by postage prepaid first class
mail, courier or telecopy or delivered by hand to the party to whom such
correspondence is required or permitted to be given hereunder, and shall be
deemed sufficient upon receipt when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or three (3) business days
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address or facsimile
number as set forth below:
 
(a)  All correspondence to the Company shall be addressed as follows:
 
IsoRay, Inc.
350 Hills Street, Suite 106
Richland, WA 99354
Attention:  Roger Girard, CEO

with a copy to:
 
Stephen R. Boatwright, Esq.
Keller Rohrback, PLC 
3101 North Central Avenue, Suite 900
Phoenix, AZ 85012
Facsimile: (602) 248-2822
 
(b)  All correspondence to any Purchaser shall be sent to such Purchaser at the
address set forth in Exhibit A.
 
(c)  Any entity may change the address to which correspondence to it is to be
addressed by written notification as provided for herein.
 
9.6  Captions. The captions and paragraph headings of this Agreement are solely
for the convenience of reference and shall not affect its interpretation.
 
 
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9.7  Severability. Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provisions shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.
 
9.8  Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York without regard to
the choice of law principles thereof. Each of the parties hereto 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 Agreement 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 Agreement. Each of
the parties hereto 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.
Each party hereto 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.
 
9.9  Amendments. This Agreement may be amended or modified only pursuant to an
instrument in writing signed by the Company and the Majority Purchasers.
 
9.10  Waiver. No waiver of any term, provision or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or be construed as, a further or continuing waiver of any such term,
provision or condition or as a waiver of any other term, provision or condition
of this Agreement.
 
9.11  Independent Nature of Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. The decision of each Purchaser to purchase Securities
pursuant to the Transaction Documents has been made by such Purchaser
independently of any other Purchaser. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the
Purchasers has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Purchasers and not because it was
required or requested to do so by any Purchaser.
 
 
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9.12  Assignment. The rights and obligations of the parties hereto shall inure
to the benefit of and shall be binding upon the authorized successors and
permitted assigns of each party. Neither party may assign its rights or
obligations under this Agreement or designate another person (i) to perform all
or part of its obligations under this Agreement or (ii) to have all or part of
its rights and benefits under this Agreement, in each case without the prior
written consent of the other party, provided, however, that a Purchaser may
assign its rights hereunder with respect to any Securities transferred in
accordance with the Registration Rights Agreement. In the event of any
assignment in accordance with the terms of this Agreement, the assignee shall
specifically assume and be bound by the provisions of the Agreement by executing
and agreeing to an assumption agreement reasonably acceptable to the other
party.
 
9.13  Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that if the Closing occurs, the Company shall
reimburse the Lead Investor for the legal fees and disbursements of their
counsel incurred in connection with the negotiation of the Transaction Documents
up to $25,000 in the aggregate upon presentation of appropriate invoices.
 
9.14  Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one instrument.
 
9.15  Entire Agreement. This Agreement, the Warrants and the Registration Rights
Agreement constitute the entire agreement between the parties hereto respecting
the subject matter hereof and supersede all prior agreements, negotiations,
understandings, representations and statements respecting the subject matter
hereof, whether written or oral. No modification, alteration, waiver or change
in any of the terms of this Agreement shall be valid or binding upon the parties
hereto unless made in writing and duly executed by the Company and the Majority
Purchasers.
 
[Signature Page to Follow]
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Common Stock and
Warrant Purchase Agreement as of the day and year first above written.
 
ISORAY, INC.
 

By: /s/ Roger E. Girard            
Name: Roger E. Girard
Title: CEO

 
THE PURCHASER’S SIGNATURE TO THE INVESTOR QUESTIONNAIRE DATED AS OF THE CLOSING
SHALL CONSTITUTE THE PURCHASER’S SIGNATURE TO THIS COMMON STOCK AND WARRANT
PURCHASE AGREEMENT.
 
 
 
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