Document:

Unassociated Document

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (the “Agreement”) is made and entered into as of
      August 9, 2006 by and among IsoRay, Inc., a Minnesota corporation (the
“Company”), and the “Investors” named in that certain Common Stock and Warrant
      Purchase Agreement by and among the Company and the Investors (the “Purchase
      Agreement”).

     

    The
      parties hereby agree as follows:

     

    1. Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.001 per share, and any securities
      into which such shares may hereinafter be reclassified.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Investors”
shall
      mean the Investors identified in the Purchase Agreement and any Affiliate or
      permitted transferee of any Investor who is a subsequent holder of any Warrants
      or Registrable Securities.

     

    “Prospectus”
shall
      mean (i) the prospectus included in any Registration Statement, as amended
      or
      supplemented by any prospectus supplement, with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference in such prospectus, and (ii) any “free writing prospectus” as defined
      in Rule 163 under the Securities Act.

     

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the Securities Act (as defined below),
      and
      the declaration or ordering of effectiveness of such Registration Statement
      or
      document.

     

    “Registrable
      Securities”
shall
      mean (i) the Shares, (ii) the Warrant Shares and (iii) any other securities
      issued or issuable with respect to or in exchange for Registrable Securities;
      provided, that, a security shall cease to be a Registrable Security upon (A)
      sale pursuant to a Registration Statement or Rule 144 under the Securities
      Act,
      or (B) such security becoming eligible for sale by the Investors pursuant to
      Rule 144(k).

     

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the Securities Act
      that covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, amendments and supplements to such Registration
      Statement, including post-effective amendments, all exhibits and all material
      incorporated by reference in such Registration Statement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “Required
      Investors”
means
      the Investors holding a majority of the Registrable Securities.

     

    “SEC”
means
      the U.S. Securities and Exchange Commission.

     

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

     

    “Shares”
means
      the shares of Common Stock issued pursuant to the Purchase
      Agreement.

     

    “Warrants”
means
      the warrants to purchase shares of Common Stock issued to the Investors pursuant
      to the Purchase Agreement.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon the exercise of the
      Warrants.

     

    2. Registration.

     

    (a) Shelf
      Registration.

     

    (i) Promptly
      following the closing of the purchase and sale of the securities contemplated
      by
      the Purchase Agreement (the “Closing Date”) but no later than sixty (60) days
      after the Closing Date, the Company shall prepare and file with the SEC one
      Registration Statement on Form S-1 or Form SB-2 (or, if both of such forms
      are
      not then available to the Company, on such form of registration statement as
      is
      then available to effect a registration for resale of the Registrable
      Securities), covering the resale of the Registrable Securities in an amount
      at
      least equal to the Shares and the Warrant Shares. Subject to any SEC comments,
      such Registration Statement shall include the plan of distribution attached
      hereto as Exhibit
      A.
      Such
      Registration Statement also shall cover, to the extent allowable under the
      Securities Act and the rules promulgated thereunder (including Rule 416), such
      indeterminate number of additional shares of Common Stock resulting from stock
      splits, stock dividends or similar transactions with respect to the Registrable
      Securities. The Registration Statement (and each amendment or supplement
      thereto, and each request for acceleration of effectiveness thereof) shall
      be
      provided in accordance with Section 3(c) to the Investors and their counsel
      prior to its filing or other submission.

     

    (ii) Additional
      Registrable Securities.
      Upon
      the written demand of any Investor following any change in the Exercise Price
      (as defined in the Warrant) such that additional shares of Common Stock become
      issuable upon the exercise of the Warrants, the Company shall prepare and file
      with the SEC one or more Registration Statements on Form S-1 or Form SB-2 (or,
      if both of such forms are not then available to the Company, on such form of
      registration statement as is then available to effect a registration for resale
      of such additional shares of Common Stock (the “Additional Shares”)) or amend
      the Registration Statement filed pursuant to clause (i) above, if such
      Registration Statement has not previously been declared effective, covering
      the
      resale of the Additional Shares, but only to the extent the Additional Shares
      are not at the time covered by an effective Registration Statement. Such
      Registration Statement also shall cover, to the extent allowable under the
      Securities Act and the rules promulgated thereunder (including Rule 416), such
      indeterminate number of additional shares of Common Stock resulting from stock
      splits, stock dividends or similar transactions with respect to the Additional
      Shares. The Registration Statement (and each amendment or supplement thereto,
      and each request for acceleration of effectiveness thereof) shall be provided
      in
      accordance with Section 3(c) to the Investors and their counsel prior to its
      filing or other submission.

     

    
      
         

      

      
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    (b) Expenses.
      The
      Company will pay all expenses associated with each registration, including
      filing and printing fees, the Company’s counsel and accounting fees and
      expenses, costs associated with clearing the Registrable Securities for sale
      under applicable state securities laws, listing fees, but excluding discounts,
      commissions, fees of underwriters, selling brokers, dealer managers or similar
      securities industry professionals fees and other expenses (including fees and
      disbursements of counsel to the Investors which shall not exceed $10,000)
      incurred by the Investors in connection with the registration with respect
      to
      the Registrable Securities being sold (the “Registration
      Expenses”).

     

    (c) Effectiveness.

     

    (i) The
      Company shall use its best efforts to have the Registration Statement declared
      effective as soon as practicable. The Company shall notify the Investors by
      facsimile or e-mail as promptly as practicable, and in any event, within
      twenty-four (24) hours, after any Registration Statement is declared effective
      and shall simultaneously provide the Investors with copies of any related
      Prospectus to be used in connection with the sale or other disposition of the
      securities covered thereby. 

     

    (ii) For
      not
      more than twenty (20) consecutive days or for a total of not more than
      forty-five (45) days in any twelve (12) month period, the Company may delay
      the
      disclosure of material non-public information concerning the Company, by
      suspending the use of any Prospectus included in any registration contemplated
      by this Section containing such information, the disclosure of which at the
      time
      is not, in the good faith opinion of the Company, in the best interests of
      the
      Company (an “Allowed Delay”); provided, however, that the Company may suspend
      the use of any Prospectus included in any registration contemplated by this
      Section, and such suspension shall not be included in the number of days
      constituting an Allowed Delay, for a period commencing on the date that the
      Company publicly announces its quarterly or annual earnings and ending on the
      date that the SEC declares effective a post-effective amendment to the related
      Registration Statement including updated financial statements reflecting such
      earnings (an “Update Delay”). Upon the occurrence of an Allowed Delay or an
      Update Delay that the Company shall promptly (a) notify the Investors in writing
      of the existence of an Allowed Delay or an Update Delay (but in no event,
      without the prior written consent of an Investor, shall the Company disclose
      to
      such Investor any of the facts or circumstances regarding) material non-public
      information giving rise to an Allowed Delay, (b) advise the Investors in writing
      to cease all sales under the Registration Statement until the end of the Allowed
      Delay or Update Delay and (c) use commercially reasonable efforts to terminate
      an Allowed Delay or Update Delay as promptly as practicable. The Allowed Delay
      and the Update Delay are referred to hereinafter collectively as the “Suspension
      Period”.

     

    (d) Additional
      Interest.
      If:

    

    (i) a
      Registration Statement covering the Registrable Securities is not filed with
      the
      SEC on or before October 16, 2006, 

     

    
      
         

      

      
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    (ii) a
      Registration Statement is filed and declared effective but, during the
      Effectiveness Period, shall thereafter cease to be effective or fail to be
      usable for its intended purpose without such disability being cured within
      ten
      Business Days by an effective post-effective amendment to the Registration
      Statement, a supplement to the Prospectus or a report filed with the Commission
      pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures
      such failure; or 

    

    (iii) Suspension
      Periods exceed an aggregate of 60 days in any 360-day period (each such event
      referred to in foregoing clauses (i) through (iii), a “Registration Default”),

    

    then
      the
      Company will make pro rata payments to each Investor, as liquidated damages
      and
      not as a penalty, in an amount equal to 2.0% of the portion of Purchase Price
      (as defined in the Purchase Agreement) paid by each Investor pursuant to the
      Purchase Agreement, for each 30-day period or pro rata for any portion thereof
      from and including the day following the Registration Default to but excluding
      the day on which the Registration Default has been cured, accruing during the
      period during which a Registration Default shall have occurred and be continuing
      (the “Blackout Period”); provided, however, that in no event shall the Company
      be liable for liquidated damages in excess of 10% of the Purchase Price. Such
      payments shall constitute the Investors’ exclusive monetary remedy for such
      events, but shall not affect the right of the Investors to seek injunctive
      relief. The amounts payable as liquidated damages pursuant to this paragraph
      shall be paid monthly within three (3) Business Days of the last day of each
      month following the commencement of the Blackout Period until the termination
      of
      the Blackout Period. Such payments shall be made to each Investor in
      cash.

    

    (e) Company
      Registration.
      

    

    (i) If
      at any
      time or from time to time the Company shall determine to register any of its
      securities, either for its own account or the account of any stockholder, in
      an
      underwritten public offering, the Company will:

    

    (A) promptly
      give to each Investor written notice thereof and of each such Investor’s rights
      under this Section; and

    

    (B) use
      commercially reasonable efforts to include in such registration (and any related
      qualification under blue sky laws or other compliance), and in any underwriting
      involved therein, all the Registrable Securities specified in a written request
      or requests, made within ten (10) days after receipt of such written notice
      from
      the Company, by any Investor, subject to Section(e)(ii).

     

    
      
         

      

      
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    (ii) The
      right
      of any Investor to registration pursuant to Section 2(e)(i) shall be conditioned
      upon such Investor’s participation in such underwriting and the inclusion of
      Registrable Securities in the underwriting to the extent provided herein. All
      Investors proposing to distribute their securities through such underwriting
      shall (together with the Company) enter into an underwriting agreement in
      customary form with the managing underwriter selected for such underwriting
      by
      the Company. Notwithstanding any other provision of this Section 2(e), if
      the managing underwriter advises the Company in writing that marketing factors
      require a limitation of the number of shares to be underwritten, the managing
      underwriter may limit the Registrable Securities and other securities to be
      distributed through such underwriting, provided, that the Company shall include
      in such registration (a) first,
      one
      hundred percent (100%) of the securities the Company proposes to sell, and
      (b) second,
      the
      amount of Registrable Securities which the Investors have requested to be
      included in such registration, such amount to be allocated pro rata among all
      requesting Investors on the basis of the relative amount of Registrable
      Securities then held by each such Investor together with other holders of rights
      similar to those granted in this Agreement on a pari
      passu
      basis.
      The Company shall so advise all Investors distributing their securities through
      such underwriting of such limitation, and the number of shares of Registrable
      Securities that may be included in the registration and underwriting shall
      be
      allocated among all Investors in proportion, as nearly as practicable, to the
      respective amounts of Registrable Securities held by such Investors at the
      time
      of filing the Registration Statement or in such other manner as shall be agreed
      to by the Company and holders of a majority in interest of the Registrable
      Securities proposed to be included in such registration. To facilitate the
      allocation of shares in accordance with the above provisions, the Company may
      round the number of shares allocated to any Investor or other selling
      stockholder to the nearest one hundred (100) shares. If any Investor does not
      agree to the terms of any such underwriting, such Investor shall be excluded
      therefrom by written notice from the Company or the underwriter. Any Registrable
      Securities or other securities excluded or withdrawn from such underwriting
      shall be withdrawn from such registration. If shares are so withdrawn from
      the
      registration and if the number of shares of Registrable Securities to be
      included in such registration was previously reduced as a result of marketing
      factors, the Company shall then offer to all Investors who have retained the
      right to include securities in the registration the right to include additional
      securities in the registration in an aggregate amount equal to the number of
      shares so withdrawn, with such shares to be allocated among the persons
      requesting additional inclusion in accordance with this Section 2(e)(ii).
      The registrations provided for in this Section 2(e) are in addition to, and
      not in lieu of the registrations made on behalf of the Investors as described
      elsewhere in this Section 2.

    

      (iii) The
        Company shall have the right to terminate or withdraw any registration initiated
        by it under this Section 2(e) prior to the effectiveness of such registration
        whether or not any Investor has elected to include securities in such
        registration. The Registration Expenses of the Investors relating to such
        withdrawn registration shall be borne by the Company.

      

      3. Company
        Obligations.
        The
        Company will use commercially reasonable efforts to effect the registration
        of
        the Registrable Securities in accordance with the terms hereof, and pursuant
        thereto the Company will, as expeditiously as possible:

       

      (a) cause
        such Registration Statement to become effective and to remain continuously
        effective for a period that will terminate upon the earlier of (i) the date
        on
        which all Registrable Securities covered by such Registration Statement as
        amended from time to time, have been sold, and (ii) the date on which all
        Registrable Securities covered by such Registration Statement may be sold
        pursuant to Rule 144(k) (the “Effectiveness Period”) and advise the Investors in
        writing when the Effectiveness Period has expired;

       

      
        
           

        

        
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      (b) prepare
        and file with the SEC such amendments and post-effective amendments to the
        Registration Statement and the Prospectus as may be necessary to keep the
        Registration Statement effective for the Effectiveness Period and to comply
        with
        the provisions of the Securities Act and the Exchange Act with respect to
        the
        distribution of all of the Registrable Securities covered thereby;

       

      (c) provide
        copies to and permit counsel designated by the Investors to review each
        Registration Statement and all amendments and supplements thereto no fewer
        than
        three (3) Business Days prior to their filing with the SEC and not file any
        document to which such counsel reasonably objects;

       

      (d) furnish
        to the Investors and their legal counsel (i) promptly after the same is prepared
        and publicly distributed, filed with the SEC, or received by the Company
        (but
        not later than two (2) Business Days after the filing date, receipt date
        or
        sending date, as the case may be) one (1) copy of any Registration Statement
        and
        any amendment thereto, each preliminary prospectus and Prospectus and each
        amendment or supplement thereto, and (ii) such number of copies of a Prospectus,
        including a preliminary prospectus, and all amendments and supplements thereto
        and such other documents as each Investor may reasonably request in order
        to
        facilitate the disposition of the Registrable Securities owned by such Investor
        that are covered by the related Registration Statement;

       

      (e) use
        commercially reasonable efforts to (i) prevent the issuance of any stop order
        or
        other suspension of effectiveness and, (ii) if such order is issued, obtain
        the
        withdrawal of any such order at the earliest possible moment;

       

      (f) prior
        to
        any public offering of Registrable Securities, register or qualify or cooperate
        with the Investors and their counsel in connection with the registration
        or
        qualification of such Registrable Securities for offer and sale under the
        securities or blue sky laws of such jurisdictions requested by the Investors
        and
        do any and all other commercially reasonable acts or things necessary or
        advisable to enable the distribution in such jurisdictions of the Registrable
        Securities covered by the Registration Statement;

       

      (g) use
        commercially reasonable efforts to cause all Registrable Securities covered
        by a
        Registration Statement to be listed on each securities exchange, interdealer
        quotation system or other market on which similar securities issued by the
        Company are then listed;

       

      (h) immediately
        notify the Investors, at any time prior to the end of the Effectiveness Period,
        upon discovery that, or upon the happening of any event as a result of which,
        the Prospectus includes an untrue statement of a material fact or omits to
        state
        any material fact required to be stated therein or necessary to make the
        statements therein not misleading in light of the circumstances then existing,
        and promptly prepare, file with the SEC and furnish to such Investor a
        supplement to or an amendment of such Prospectus as may be necessary so that
        such Prospectus shall not include an untrue statement of a material fact
        or omit
        to state a material fact required to be stated therein or necessary to make
        the
        statements therein not misleading in light of the circumstances then existing;
        and

       

      
        
           

        

        
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      (i) comply
        with all applicable rules and regulations of the SEC under the Securities
        Act
        and the Exchange Act, including, without limitation, Rule 172 under the
        Securities Act, file any final Prospectus, including any supplement or amendment
        thereof, with the SEC pursuant to Rule 424 under the Securities Act, promptly
        inform the Investors in writing if, at any time during the Effectiveness
        Period,
        the Company does not satisfy the conditions specified in Rule 172 and, as
        a
        result thereof, the Investors are required to deliver a Prospectus in connection
        with any disposition of Registrable Securities and take such other actions
        as
        may be reasonably necessary to facilitate the registration of the Registrable
        Securities hereunder; and make available to its security holders, as soon
        as
        reasonably practicable, but not later than the Availability Date (as defined
        below), an earnings statement covering a period of at least twelve (12) months,
        beginning after the effective date of each Registration Statement, which
        earnings statement shall satisfy the provisions of Section 11(a) of the
        Securities Act, including Rule 158 promulgated thereunder (for the purpose
        of
        this subsection 3(i), “Availability Date” means the 45th day following the end
        of the fourth fiscal quarter that includes the effective date of such
        Registration Statement, except that, if such fourth fiscal quarter is the
        last
        quarter of the Company’s fiscal year, “Availability Date” means the 90th day
        after the end of such fourth fiscal quarter).

       

      (j) With
        a
        view to making available to the Investors the benefits of Rule 144 (or its
        successor rule) and any other rule or regulation of the SEC that may at any
        time
        permit the Investors to sell shares of Common Stock to the public without
        registration, the Company covenants and agrees to: (i) make and keep public
        information available, as those terms are understood and defined in Rule
        144,
        until the earlier of (A) six months after such date as all of the Registrable
        Securities may be resold pursuant to Rule 144(k) or any other rule of similar
        effect or (B) such date as all of the Registrable Securities shall have been
        resold; (ii) file with the SEC in a timely manner all reports and other
        documents required of the Company under the Exchange Act; and (iii) furnish
        to
        each Investor upon request, as long as such Investor owns any Registrable
        Securities, (A) a written statement by the Company that it has complied with
        the
        reporting requirements of the Exchange Act, (B) a copy of the Company’s most
        recent Annual Report on Form 10-KSB or Quarterly Report on Form 10-QSB, and
        (C)
        such other information as may be reasonably requested in order to avail such
        Investor of any rule or regulation of the SEC that permits the selling of
        any
        such Registrable Securities without registration.

      

      4. Due
        Diligence Review; Information.
        The
        Company shall make available, during normal business hours, for inspection
        and
        review by the Investors, advisors to and representatives of the Investors
        (who
        may or may not be affiliated with the Investors and who are reasonably
        acceptable to the Company), all financial and other records, all filings
        with
        the SEC, and all other corporate documents and properties of the Company
        as may
        be reasonably necessary for the purpose of such review, and cause the Company’s
        officers, directors and employees, promptly, to supply all such information
        reasonably requested by the Investors or any such representative, advisor
        or
        underwriter in connection with such Registration Statement (including, without
        limitation, in response to all questions and other inquiries reasonably made
        or
        submitted by any of them), prior to and from time to time after the filing
        and
        effectiveness of the Registration Statement for the sole purpose of enabling
        the
        Investors and such representatives, advisors and underwriters and their
        respective accountants and attorneys to conduct initial and ongoing due
        diligence with respect to the Company and the accuracy of such Registration
        Statement.

       

      
        
           

        

        
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      The
        Company shall not disclose material nonpublic information to the Investors,
        or
        to advisors to or representatives of the Investors, unless prior to disclosure
        of such information the Company identifies such information as being material
        nonpublic information and provides the Investors, such advisors and
        representatives with the opportunity to accept or refuse to accept such material
        nonpublic information for review and any Investor wishing to obtain such
        information enters into an appropriate confidentiality agreement with the
        Company with respect thereto.

       

      5. Obligations
        of the Investors.

       

      (a) Each
        Investor shall furnish in writing to the Company such information regarding
        itself, the Registrable Securities held by it and the intended method of
        disposition of the Registrable Securities held by it as shall be reasonably
        required to effect the registration of such Registrable Securities and shall
        execute such documents in connection with such registration as the Company
        may
        reasonably request. At least five (5) Business Days prior to the first
        anticipated filing date of any Registration Statement, the Company shall
        notify
        each Investor of the information the Company requires from such Investor
        if such
        Investor elects to have any of the Registrable Securities included in the
        Registration Statement. An Investor shall provide such information to the
        Company at least three (3) Business Days prior to the first anticipated filing
        date of such Registration Statement if such Investor elects to have any of
        the
        Registrable Securities included in the Registration Statement. The Company
        shall
        not have any obligation hereunder with respect to Registrable Securities
        held by
        an Investor that does not comply with the terms and conditions of this
        Agreement.

       

      (b) Each
        Investor, by its acceptance of the Registrable Securities agrees to cooperate
        with the Company as reasonably requested by the Company in connection with
        the
        preparation and filing of a Registration Statement hereunder, unless such
        Investor has notified the Company in writing of its election to exclude all
        of
        its Registrable Securities from such Registration Statement.

       

      (c) Each
        Investor agrees that, upon receipt of any notice from the Company of either
        (i)
        the commencement of an Allowed Delay or an Update Delay pursuant to Section
        2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof,
        such
        Investor will immediately discontinue disposition of Registrable Securities
        pursuant to the Registration Statement covering such Registrable Securities,
        until the Investor is advised by the Company that such dispositions may again
        be
        made.

       

      6. Indemnification.

       

      (a) Indemnification
        by the Company.
        The
        Company will indemnify and hold harmless each Investor and its officers,
        directors, members, employees and agents, successors and assigns, and each
        other
        person, if any, who controls such Investor within the meaning of the Securities
        Act, against any losses, claims, damages or liabilities, joint or several,
        to
        which they may become subject under the Securities Act or otherwise, insofar
        as
        such losses, claims, damages or liabilities (or actions in respect thereof)
        arise out of or are based upon: (i) any untrue statement or alleged untrue
        statement of any material fact contained in any Registration Statement, any
        preliminary Prospectus or final Prospectus, or any amendment or supplement
        thereof; (ii) any blue sky application or other document executed by the
        Company
        specifically for that purpose or based upon written information furnished
        by the
        Company filed in any state or other jurisdiction in order to qualify any
        or all
        of the Registrable Securities under the securities laws thereof; (iii) the
        omission or alleged omission to state therein a material fact required to
        be
        stated therein or necessary to make the statements therein not misleading;
        (iv)
        any violation by the Company or its agents of any rule or regulation promulgated
        under the Securities Act applicable to the Company or its agents and relating
        to
        action or inaction required of the Company in connection with such registration;
        or (v) any failure to register or qualify the Registrable Securities included
        in
        any such Registration in any state where the Company or its agents has
        affirmatively undertaken or agreed in writing that the Company will undertake
        such registration or qualification on an Investor’s behalf and will reimburse
        such Investor, and each such officer, director or member and each such
        controlling person for any legal or other expenses reasonably incurred by
        them
        in connection with investigating or defending any such loss, claim, damage,
        liability or action; provided,
        however,
        that
        the Company will not be liable in any such case if and to the extent that
        any
        such loss, claim, damage or liability arises out of or is based upon an untrue
        statement or alleged untrue statement or omission or alleged omission so
        made in
        conformity with information furnished by such Investor or any such controlling
        person in writing specifically for use in such Registration Statement or
        Prospectus.

       

      
        
           

        

        
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      (b) Indemnification
        by the Investors.
        Each
        Investor agrees, severally but not jointly, to indemnify and hold harmless,
        to
        the fullest extent permitted by law, the Company, its directors, officers,
        employees, stockholders and each person who controls the Company (within
        the
        meaning of the Securities Act) against any losses, claims, damages, liabilities
        and expense (including reasonable attorney fees) resulting from any untrue
        statement of a material fact or any omission of a material fact required
        to be
        stated in the Registration Statement or Prospectus or preliminary Prospectus
        or
        amendment or supplement thereto or necessary to make the statements therein
        not
        misleading, to the extent, but only to the extent that such untrue statement
        or
        omission is contained in any information furnished in writing by such Investor
        to the Company specifically for inclusion in such Registration Statement
        or
        Prospectus or amendment or supplement thereto. In no event shall the liability
        of an Investor be greater in amount than the dollar amount of the proceeds
        (net
        of all expense paid by such Investor in connection with any claim relating
        to
        this Section 6 and the amount of any damages such Investor has otherwise
        been
        required to pay by reason of such untrue statement or omission) received
        by such
        Investor upon the sale of the Registrable Securities included in the
        Registration Statement giving rise to such indemnification
        obligation.

       

      (c) Conduct
        of Indemnification Proceedings.
        Any
        person entitled to indemnification hereunder shall (i) give prompt notice
        to the
        indemnifying party of any claim with respect to which it seeks indemnification
        and (ii) permit such indemnifying party to assume the defense of such claim
        with
        counsel reasonably satisfactory to the indemnified party; provided
        that any
        person entitled to indemnification hereunder shall have the right to employ
        separate counsel and to participate in the defense of such claim, but the
        fees
        and expenses of such counsel shall be at the expense of such person unless
        (a)
        the indemnifying party has agreed to pay such fees or expenses, or (b) the
        indemnifying party shall have failed to assume the defense of such claim
        and
        employ counsel reasonably satisfactory to such person or (c) in the reasonable
        judgment of any such person, based upon written advice of its counsel, a
        conflict of interest exists between such person and the indemnifying party
        with
        respect to such claims (in which case, if the person notifies the indemnifying
        party in writing that such person elects to employ separate counsel at the
        expense of the indemnifying party, the indemnifying party shall not have
        the
        right to assume the defense of such claim on behalf of such person); and
        provided,
        further,
        that
        the failure of any indemnified party to give notice as provided herein shall
        not
        relieve the indemnifying party of its obligations hereunder, except to the
        extent that such failure to give notice shall materially adversely affect
        the
        indemnifying party in the defense of any such claim or litigation. It is
        understood that the indemnifying party shall not, in connection with any
        proceeding in the same jurisdiction, be liable for fees or expenses of more
        than
        one separate firm of attorneys at any time for all such indemnified parties.
        No
        indemnifying party will, except with the consent of the indemnified party,
        consent to entry of any judgment or enter into any settlement that does not
        include as an unconditional term thereof the giving by the claimant or plaintiff
        to such indemnified party of a release from all liability in respect of such
        claim or litigation.

       

      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

       

      (d) Contribution.
        If for
        any reason the indemnification provided for in the preceding paragraphs (a)
        and
        (b) is unavailable to an indemnified party or insufficient to hold it harmless,
        other than as expressly specified therein, then the indemnifying party shall
        contribute to the amount paid or payable by the indemnified party as a result
        of
        such loss, claim, damage or liability in such proportion as is appropriate
        to
        reflect the relative fault of the indemnified party and the indemnifying
        party,
        as well as any other relevant equitable considerations. No person guilty
        of
        fraudulent misrepresentation within the meaning of Section 11(f) of the
        Securities Act shall be entitled to contribution from any person not guilty
        of
        such fraudulent misrepresentation. In no event shall the contribution obligation
        of an Investor be greater in amount than the dollar amount of the proceeds
        (net
        of all expenses paid by such Investor in connection with any claim relating
        to
        this Section 6 and the amount of any damages such Investor has otherwise
        been
        required to pay by reason of such untrue or alleged untrue statement or omission
        or alleged omission) received by it upon the sale of the Registrable Securities
        giving rise to such contribution obligation.

       

      7. Miscellaneous.

       

      (a) Amendments
        and Waivers.
        This
        Agreement may be amended only by a writing signed by the Company and the
        Required Investors. The Company may take any action herein prohibited, or
        omit
        to perform any act herein required to be performed by it, only if the Company
        shall have obtained the written consent to such amendment, action or omission
        to
        act, of the Required Investors.

       

      (b) 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:

       

      (i) All
        correspondence to the Company shall be addressed as follows:

       

      
        
           

        

        
          -10-

          
            

          

        

        
           

        

      

       

      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

       

      (ii) All
        correspondence to any Investor shall be sent to such Investor at the address
        set
        forth in Exhibit A
        to the
        Purchase Agreement.

       

      (iii)  Any
        person or entity may change the address to which correspondence to it is
        to be
        addressed by written notification as provided for herein.

       

      (c) Assignments
        and Transfers by Investors.
        The
        provisions of this Agreement shall be binding upon and inure to the benefit
        of
        the Investors and their respective successors and assigns. An Investor may
        transfer or assign, in whole or from time to time in part, to one or more
        persons its rights hereunder in connection with the transfer of Registrable
        Securities by such Investor to such person, provided that such Investor complies
        with all laws applicable thereto and provides written notice of assignment
        to
        the Company promptly after such assignment is effected.

       

      (d) Assignments
        and Transfers by the Company.
        This
        Agreement may not be assigned by the Company (whether by operation of law
        or
        otherwise) without the prior written consent of the Required Investors,
        provided, however, that the Company may assign its rights and delegate its
        duties hereunder to any surviving or successor corporation in connection
        with a
        merger or consolidation of the Company with another corporation, or a sale,
        transfer or other disposition of all or substantially all of the Company’s
        assets to another corporation, without the prior written consent of the Required
        Investors, after notice duly given by the Company to each Investor.

       

      (e) Benefits
        of the Agreement.
        The
        terms and conditions of this Agreement shall inure to the benefit of and
        be
        binding upon the respective permitted successors and assigns of the parties.
        Nothing in this Agreement, express or implied, is intended to confer upon
        any
        party other than the parties hereto or their respective successors and assigns
        any rights, remedies, obligations, or liabilities under or by reason of this
        Agreement, except as expressly provided in this Agreement.

       

      (f) Counterparts;
        Faxes.
        This
        Agreement may be executed in two or more counterparts, each of which shall
        be
        deemed an original, but all of which together shall constitute one and the
        same
        instrument. This Agreement may also be executed via facsimile, which shall
        be
        deemed an original.

       

      
        
           

        

        
          -11-

          
            

          

        

        
           

        

      

       

      (g) Titles
        and Subtitles.
        The
        titles and subtitles used in this Agreement are used for convenience only
        and
        are not to be considered in construing or interpreting this
        Agreement.

       

      (h) Severability.
        Any
        provision of this Agreement that is prohibited or unenforceable in any
        jurisdiction shall, as to such jurisdiction, be ineffective to the extent
        of
        such prohibition or unenforceability without invalidating the remaining
        provisions hereof but shall be interpreted as if it were written so as to
        be
        enforceable to the maximum extent permitted by applicable law, and any such
        prohibition or unenforceability in any jurisdiction shall not invalidate
        or
        render unenforceable such provision in any other jurisdiction. To the extent
        permitted by applicable law, the parties hereby waive any provision of law
        which
        renders any provisions hereof prohibited or unenforceable in any
        respect.

       

      (i) Further
        Assurances.
        The
        parties shall execute and deliver all such further instruments and documents
        and
        take all such other actions as may reasonably be required to carry out the
        transactions contemplated hereby and to evidence the fulfillment of the
        agreements herein contained.

       

      (j) Entire
        Agreement.
        This
        Agreement is intended by the parties as a final expression of their agreement
        and intended to be a complete and exclusive statement of the agreement and
        understanding of the parties hereto in respect of the subject matter contained
        herein. This Agreement supersedes all prior agreements and understandings
        between the parties with respect to such subject matter.

       

      (k) Governing
        Law; Consent to Jurisdiction; Waiver of Jury Trial.
        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. 

       

      
        
           

        

        
          -12-

          
            

          

        

        
           

        

      

       

      IN
        WITNESS WHEREOF, the parties have executed this Agreement or caused their
        duly
        authorized officers to execute this Agreement as of the date first above
        written.

       

      

      
        	 	 	 
	The
                Company:	ISORAY
                INC.
	 
 	 
 	 
 
	 	By:  	/s/ Roger
                E.
                Girard
	 	
                
Name:
                Roger E. Girard
	 	Title:
                CEO

      

          

       

      
        
           

        

        
          -13-Unassociated Document

    NEITHER
      THIS WARRANT NOR THE STOCK FOR WHICH IT MAY BE EXERCISED HAS BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY OTHER
      FEDERAL OR STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
      DISPOSED OF EXCEPT AS EXPRESSLY PROVIDED HEREIN. 

     

     

    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 $3.00 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 five (5) 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
      2
      of that
      certain Warrant and Common Stock Purchase Agreement between the Company and
      certain “Purchasers” thereunder, dated as of August 9, 2006 (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 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 Certificates.
      Certificates for the shares purchased pursuant to Section 1.01 shall
      be
      delivered to the Holder within ten (10) days after the rights represented by
      this Warrant shall have been so exercised, 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
      1.03 Optional
      Call.
      At
      any
      time during which the registration statement required by the Registration Rights
      Agreement and covering the Warrant Shares is effective, and within 45 days
      following the first period of 60 consecutive trading days thereafter in which
      the Company's common stock closing price is at or above $4.50 per share for
      any
      30 days out of such 60 day period,
      the
      Company shall have the option to call all or a portion of this Warrant (and
      as
      to which no Subscription Form has been received by the Company), at $0.01 per
      share (the "Call Price"). Notice of the call (the "Call Notice") shall
      be given to the Holder at least 30 days prior to the date on which the call
      will
      occur (the "Call Date"). Such notice shall be deemed received two (2) business
      days after it is deposited in the United States mail, certified or registered
      mail, postage prepaid, or one (1) business day after it is deposited with
      an express mail courier for overnight delivery, or on the same day that it
      is
      delivered via hand delivery or telefacsimile transmission. This Warrant may
      be
      exercised in accordance with Section 1.01 at any time prior to the Call Date.
      

     

    Section
      1.04 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
      1.05 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; and

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (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. 

     

    (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. 

     

    (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 or sale 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. 

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    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. 

     

    Section
      2.04 Adjustment
      of Exercise Price for Dilutive Issuances.
      The
      Exercise Price shall also be subject to adjustment from time to time as
      follows:

     

    (a)  For
      purposes of this Section
      2.04,
      the
      following definitions shall apply: 

     

    (i)  “Convertible
      Securities” means securities by their terms convertible into or exchangeable for
      Common Stock (other than Excluded Stock) and options to purchase or rights
      to
      subscribe for such convertible or exchangeable securities. 

     

    (ii)  “Dilutive
      Issuance” means an issuance of Purchase Rights or Common Stock without
      consideration or for a consideration per share less than the then applicable
      Exercise Price. “Dilutive Issuance” excludes any stock dividend, subdivision or
      split-up, stock combination, dividend or transaction described in Sections
      2.01, 2.02 and 2.03,
      and any
      issuance of Additional Shares as such term is defined in the Purchase
      Agreement.

     

    (iii)  “Excluded
      Stock” means:

     

    (1)  all
      shares of Common Stock issued and outstanding on the date of this Warrant and
      all shares of Common Stock issued after the date of this Warrant pursuant to
      the
      Purchase Agreement and all shares of Common Stock issued or issuable upon the
      exercise or conversion of any Options or Convertible Securities outstanding
      on
      the date of this Warrant (provided that the terms of such Options and
      Convertible Securities are not modified or changed except as otherwise
      contemplated by the Purchase Agreement) and all shares of Common Stock issued
      or
      issuable upon the exercise of this Warrant and all other Warrants issued
      pursuant to the Purchase Agreement;

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (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 members
      of the Board of Directors of the Company. 

     

    (iv)  “Options”
      means warrants and options to purchase or rights to subscribe for Common Stock
      (other than Excluded Stock).

     

    (v)  “Purchase
      Rights” means Options and Convertible Securities.

     

    (b)  If
      the
      Company issues or is deemed to issue any Common Stock or Purchase Rights in
      a
      Dilutive Issuance, the applicable Exercise Price in effect after each such
      issuance shall be adjusted to a price equal to the following: the applicable
      Exercise Price in effect immediately prior to the Dilutive Issuance (the “Old
      Exercise Price”) multiplied by the quotient obtained by dividing:

     

    (i)  an
      amount
      equal to the sum of (x) the total number of shares of Common Stock outstanding
      immediately prior to the Dilutive Issuance plus the total number of shares
      of
      Common Stock then issuable upon conversion of Convertible Securities and
      exercise of outstanding options and warrants, plus (y) the number of shares
      of
      Common Stock which the consideration received by the Company upon the Dilutive
      Issuance would purchase at such Old Exercise Price, by 

     

    (ii)  the
      total
      number of shares of Common Stock outstanding immediately after the Dilutive
      Issuance plus the total number of shares of Common Stock issuable on conversion
      of Convertible Securities and exercise of outstanding options and
      warrants.

     

    (c)  For
      purposes of any adjustment of the applicable Exercise Price pursuant to
Section
      2.04(b)
      above,
      the following provisions shall be applicable:

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (i)  In
      the
      case of the issuance of Common Stock for cash, the consideration shall be deemed
      to be the amount of cash paid therefor.

     

    (ii)  In
      the
      case of the issuance of Common Stock for a consideration in whole or in part
      other than cash, the consideration other than cash shall be deemed to be the
      fair market value thereof as determined in good faith and in the exercise of
      reasonable judgment by the Board of Directors of the Company, in accordance
      with
      generally accepted accounting principles; provided, however, that if at the
      time
      of such determination, the Company’s Common Stock is traded in the
      over-the-counter market or on a national or regional securities exchange, such
      fair market value as determined by the Board of Directors of the Company shall
      be equal to the “Current Market Price” (as defined below) of the shares of
      Common Stock being issued.

     

    (iii)  In
      the
      case of the issuance of Purchase Rights in a Dilutive Issuance:

     

    (1)  the
      aggregate maximum number of shares of Common Stock deliverable upon exercise
      of
      Options shall be deemed to have been issued at the time such Options were issued
      and for a consideration equal to the consideration (determined in the manner
      provided in Section
      2.04(c)(i)
      and
(ii)
      above),
      if any, received by the Company upon the issuance of such Options plus the
      minimum purchase price provided for in such Options;

     

    (2)  the
      aggregate maximum number of shares of Common Stock deliverable upon conversion
      or exercise of or exchange for any Convertible Securities shall be deemed to
      have been issued at the time such Convertible Securities were issued and for
      a
      consideration equal to the consideration received by the Company for any such
      Convertible Securities (excluding any cash received on account of accrued
      interest or accrued dividends), plus the minimum additional consideration,
      if
      any, to be received by the Company upon the conversion or exchange of such
      Convertible Securities (determined in the manner provided in Section
      2.04(c)(i)
      and
(ii)
      above);

     

    (3)  on
      any
      change in the number of shares of Common Stock deliverable upon exercise of
      any
      such Purchase Rights or on any change in the minimum purchase price of such
      Purchase Rights, other than a change resulting from the antidilution provisions
      of such Purchase Rights, the applicable Exercise Price shall forthwith be
      readjusted to such Exercise Price as would have been obtained had the adjustment
      made upon (x) the issuance of such Purchase Rights not exercised, converted
      or
      exchanged prior to such change, as the case may be, been made upon the basis
      of
      such change or (y) the issuance of options or rights related to such securities
      not converted or exchanged prior to such change, as the case may be, been made
      upon the basis of such change; and

     

    (4)  on
      the
      expiration of any Purchase Rights, the applicable Exercise Price shall forthwith
      be readjusted to such Exercise Price as would have obtained had the adjustment
      made upon the issuance of such Purchase Right been made upon the basis of the
      issuance of only the number of shares of Common Stock actually issued upon
      the
      exercise of such Purchase Rights.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (d)  All
      calculations under this Section
      2.04
      shall be
      made to the nearest cent or to the nearest one hundredth (1/100) of a share,
      as
      the case may be.

     

    (e)  For
      the
      purpose of any computation pursuant to this Section
      2.04,
      the
“Current Market Price” at any date of one share of Common Stock, shall be deemed
      to be the average of the highest reported bid and the lowest reported offer
      prices on the preceding business day as reported by Nasdaq (or other recognized
      source of quotations); provided, however, that if the Common Stock is not traded
      in such manner that the quotations referred to in this Section
      2.04(e)
      are
      available for the period required hereunder, Current Market Price shall be
      determined in good faith and in the exercise of reasonable judgment by the
      Board
      of Directors of the Company.

     

    Section
      2.05 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
      2.06 Minimum
      Adjustment.
      Except
      as provided in Section 2.04, 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; and provided
      further, that if the Company shall at any time subdivide or combine the
      outstanding shares of Common Stock or issue additional shares of Common Stock
      as
      a dividend, said percentage shall forthwith be proportionately adjusted so
      as to
      appropriately reflect the same. 

     

    Section
      2.07 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, 2.03 and 2.04 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
      2.08 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. 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    Section
      2.09 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. 

     

    Section
      2.10 Notice
      of Adjustment.
      Upon
      any Dilutive Issuance and 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 nature
      of
      the Dilutive Issuance, and the increase or decrease, if any, 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
      2.11 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.

     

    TRANSFER
      RESTRICTIONS

     

    Section
      3.01 Securities
      Law Transfer Restrictions.
      By
      taking and holding this Warrant, the Holder (i) acknowledges that neither this
      Warrant nor any shares of Common Stock that may be issued upon exercise of
      this
      Warrant have been registered under the Securities Act or any applicable state
      securities or blue sky law (collectively, "Securities Laws"); (ii) agrees not
      to
      sell, transfer or otherwise dispose of this Warrant, and agrees not to sell,
      transfer or otherwise dispose of any such shares of Common Stock without
      registration unless the sale, transfer or disposition of such shares can be
      effected without registration and in compliance with the Securities Laws; and
      (iii) agrees not to sell, transfer or otherwise dispose of this Warrant or
      any
      portion thereof or interest therein except as otherwise expressly permitted
      herein. No part of this Warrant or any portion thereof or interest therein
      may
      be transferred, whether voluntarily, involuntarily or by operation of law,
      except to a Permitted Transferee as hereinafter defined. “Permitted Transferee”
shall mean a transferee or assignee that (a)(i) is an entity as to which the
      Holder is the beneficial owner of at least a majority of the equity therein
      and
      the Holder has voting control thereover, (ii) is a member of the Holder's family
      or a trust for the benefit of an individual Holder or (iii) a successor by
      inheritance or intestate succession to any interest in this Warrant or any
      portion thereof and (b) accepts by written instrument reasonably acceptable
      to
      the Company each of the terms and conditions that govern this Warrant. Any
      certificate for shares of Common Stock issued upon exercise of this Warrant
      shall bear an appropriate legend describing the foregoing restrictions, unless
      such shares of Common Stock have been effectively registered under the
      applicable Securities Laws. 

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    Section
      3.02 Provision
      of Information by Holder.
      The
      Holder shall make available to the Company such written information, presented
      in form and content satisfactory to the Company, as the Company may reasonably
      request, from time to time, in order to make the determination provided for
      in
      Section 3.01. 

     

     

    ARTICLE
      IV.

     

    MISCELLANEOUS

     

    Section
      4.01 Transfer
      of Warrants.
      No
      right or interest in this Warrant shall be transferable except as provided
      in
      Article III. 

     

    Section
      4.02 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
      4.03 No
      Shareholder Rights.
      This
      Warrant shall not entitle the Holder to any voting rights or other rights as
      a
      shareholder of the Company.

     

    Section
      4.04 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.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    Section
      4.05 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
      4.06 Successors.
      The
      covenants, agreements and provisions of this Warrant shall bind the parties
      hereto and their respective successors and permitted assigns.

     

    Section
      4.07 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
      1,200,000 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 holders of Company Warrants representing at least 50% of
      the
      number of shares of Common Stock then subject to all outstanding Company
      Warrants (the “Majority
      Holders”);
      provided,
      that
      (x) any such amendment or waiver must apply to all Company Warrants; and (y)
      the
      number of Warrant Shares subject to this Warrant, the Exercise Price and the
      Expiration Date may not be amended, and the right to exercise this Warrant
      may
      not be altered or waived, without the written consent of the
      Holder.

     

    Section
      4.08 Registration
      Rights.
      The
      Holder is entitled to the benefit of certain registration rights with respect
      to
      the shares of Common Stock issuable upon the exercise of this Warrant as
      provided in the Registration Rights Agreement entered into with the original
      Holder, and any subsequent Holder may be entitled to such rights.

     

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be issued effective
      as
      of the 9th day of August, 2006.

     

    

     

    
      	
              ISORAY,
                INC.,
                a
                Minnesota corporation

            
	
               

               

              By:__________________________________

              Roger
                E. Girard, CEO

            

    

    

     

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

     

    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 herewith delivers the
      sum
      of $____________ 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)

    

       

     

    
      
         

      

      
        1

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