Document:

EXECUTION
VERSION

    

    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the "Agreement"), dated
as of November 22, 2010, by and among IsoRay, Inc., a Minnesota corporation,
with headquarters located at 350 Hills St., Suite 106, Richland, Washington
99354 (the "Company"), and the investors
listed on the Schedule of Buyers attached hereto (individually, a "Buyer" and collectively, the
"Buyers").

     

    WHEREAS:

     

    A.           The
Company and the Buyers desire to enter into this transaction to purchase the
Common Shares (as defined below) and Warrants (as defined below) pursuant to a
currently effective shelf registration statement on Form S-3, which has at least
$11,000,000 of initial offering price of unallocated securities available for
sale as of the date hereof (Registration Number 333-162694) (the "Registration Statement"),
which Registration Statement has been declared effective in accordance with the
Securities Act of 1933, as amended (the "1933 Act"), by the United
States Securities and Exchange Commission (the "SEC").

     

    B.           Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares of
common stock, par value $0.001 per share, of the Company (the "Common Stock") set forth
opposite such Buyer's name in column (3) on the Schedule of Buyers attached
hereto (which aggregate number for all Buyers shall be 2,250,000 and shall
collectively be referred to herein as the "Common Shares"), (ii)
warrants, in substantially the form attached hereto as Exhibit A (the "Series A Warrants"), to acquire up to
that number of shares of Common Stock set forth opposite such Buyer's name in
column (4) of the Schedule of Buyers (as exercised, collectively, the "Series A Warrant Shares"),
(iii) warrants, in substantially the form attached hereto as Exhibit A (the "Series B Warrants"), to
acquire up to that number of shares of Common Stock set forth opposite such
Buyer's name in column (5) of the Schedule of Buyers (as exercised,
collectively, the "Series B
Warrant Shares"), (iv) warrants, in substantially the form attached
hereto as Exhibit
A (the "Series C
Warrants"), to acquire up to that number of shares of Common Stock set
forth opposite such Buyer's name in column (6) of the Schedule of Buyers (as
exercised, collectively, the "Series C Warrant Shares") and,
(v) warrants, in substantially the form attached hereto as Exhibit B (the "Series D Warrants" and,
together with the Series A Warrants, Series B Warrants and Series C Warrants,
the "Warrants"), to
acquire up to that number of shares of Common Stock set forth opposite such
Buyer's name in column (7) of the Schedule of Buyers (as exercised,
collectively, the "Series D
Warrant Shares" and, together with the Series A Warrant Shares, the
Series B Warrant Shares and the Series C Warrant Shares, the "Warrant Shares"), which
Warrant Shares shall be issued pursuant to the Registration Statement or, if
such Registration Statement is not available at the time of issuance of such
Warrant Shares, shall be issued solely pursuant to the cashless exercise
provisions of the Warrant as securities exempt from registration pursuant to
Section 3(a)(9) of the 1933 Act.

     

    C.           The
Common Shares, the Warrants and the Warrant Shares collectively are referred to
herein as the "Securities."

     

    NOW, THEREFORE, the Company
and each Buyer hereby agree as follows:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.           PURCHASE AND SALE OF COMMON
SHARES AND WARRANTS.

     

    (a)           Purchase of Common Shares
and Warrants.

     

    (i)           Common Shares and
Warrants. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer, severally, but
not jointly, shall purchase from the Company on the Closing Date (as defined
below), (v) the number of Common Shares as is set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers, (w) Series A Warrants
to acquire up to that number of Series A Warrant Shares as is set forth opposite
such Buyer's name in column (4) on the Schedule of Buyers, (x) Series B
Warrants to acquire up to that number of Series B Warrant Shares as is set forth
opposite such Buyer's name in column (5) on the Schedule of Buyers,
(y) Series C Warrants to acquire up to that number of Series C Warrant
Shares as is set forth opposite such Buyer's name in column (6) on the Schedule
of Buyers and (z) Series D Warrants to acquire up to that number of Series D
Warrant Shares as is set forth opposite such Buyer's name in column (7) on the
Schedule of Buyers (the "Closing").

     

    (ii)          Closing.  The
date and time of the Closing (the "Closing Date") shall be 10:00
a.m., New York City time, on the date hereof (or such later date as is mutually
agreed to by the Company and each Buyer) after notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below, at
the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New
York 10022.

     

    (iii)         Purchase
Price.  The aggregate purchase price for the Common Shares and
the Warrants to be purchased by such Buyer at the Closing (the "Purchase Price") shall be the
amount set forth opposite such Buyer's name in column (8) of the Schedule of
Buyers.  The timing of the Closing shall be in accordance with Rule
15c6-1 promulgated under the 1934 Act.

     

    (b)           Form of
Payment.  On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Common Shares and the Warrants to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions
(less, in the case of [Buyer] ("[Buyer]"), the amount withheld
pursuant to Section 4(f)) and (ii) the Company shall (A) cause
Computershare Trust Company, N.A. (together with any subsequent transfer agent,
the "Transfer Agent")
through the Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, to credit such aggregate number of Common Shares
that such Buyer is purchasing as is set forth opposite such Buyer's name in
column (3) of the Schedule of Buyers to such Buyer's or its designee's balance
account with DTC through its Deposit/Withdrawal at Custodian system and (B)
deliver to each Buyer the Warrants (allocated in the amounts as such Buyer shall
request) which such Buyer is purchasing, in each case duly executed on behalf of
the Company and registered in the name of such Buyer or its
designee.

    
      
         

      

      
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    2.           BUYER'S REPRESENTATIONS AND
WARRANTIES.  Each Buyer, severally and not jointly, represents
and warrants with respect to only itself that:

     

    (a)           Organization;
Authority.  Such Buyer is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance by such Buyer
of the transactions contemplated by this Agreement has been duly authorized by
all necessary action on the part of such Buyer.  This Agreement has
been duly executed by such Buyer, and when delivered by such Buyer in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Buyer, enforceable against it in accordance with its terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.

     

    (b)           No
Conflicts.  The execution, delivery and performance by such
Buyer of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment  or decree (including federal and state securities laws)
applicable to such Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations which would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the ability of such Buyer to perform its obligations hereunder.

     

    (c)           Residency.  Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.

     

    The
Company acknowledges and agrees that each Buyer does not make or has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.

    

    3.           REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.  The Company represents and warrants
to each of the Buyers that, as of the date hereof and as of the Closing
Date:

    
      
         

      

      
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    (a)           Shelf Registration
Statement.  A "shelf" registration statement on Form S-3 (File
No. 333-162694) with respect to the Securities has been prepared by the Company
in conformity in all material respects with the requirements of the 1933 Act,
and the rules and regulations (the "Rules and Regulations") of the
SEC thereunder and has been filed with the SEC. The Company and the transactions
contemplated by this Agreement meet the requirements and comply with the
conditions for the use of Form S-3.  The Registration Statement (as
defined below) meets the requirements of Rule 415(a)(1)(x) under the 1933 Act
and complies in all material respects with said rule.  Copies of such
registration statement, including any amendments thereto, the base prospectus
(meeting in all material respects the requirements of the Rules and Regulations)
contained therein (the "Base
Prospectus") and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the Company to
the Buyers.  Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) under the
1933 Act, is herein referred to as the "Registration Statement", which
shall be deemed to include all information omitted therefrom in reliance upon
Rules 430A, 430B or 430C under the 1933 Act and contained in the Prospectus
referred to below. The Registration Statement has become effective under the
1933 Act and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement.   The term "Prospectus" as used in this
Agreement means the Base Prospectus together with the final prospectus
supplement relating to the Securities (the "Prospectus Supplement") first
filed with the SEC pursuant to and within the time limits described in Rule
424(b) under the 1933 Act.  Any reference herein to the Registration
Statement, or the Prospectus or to any amendment or supplement to any of the
foregoing documents shall be deemed to refer to and include any documents
incorporated by reference therein, and, in the case of any reference herein to
the Prospectus, also shall be deemed to include any documents incorporated by
reference therein, and any supplements or amendments thereto, filed with the SEC
after the date of filing of the Prospectus Supplement under Rule 424(b) under
the 1933 Act and prior to the termination of the offering of the
Securities.

     

    (b)           Prospectus.  As
of the Applicable Time (as defined below) and as of the Closing Date (as defined
below), neither (x) the General Use Free Writing Prospectus(es) (as defined
below) issued at or prior to the Applicable Time, the Statutory Prospectus (as
defined below), all considered together (collectively, the "General Disclosure Package"),
nor (y) any individual Limited Use Free Writing Prospectus (as defined below),
when considered together with the General Disclosure Package, included or will
include any untrue statement of a material fact or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  As used in
this subsection and elsewhere in this Agreement:

     

    (i)           "Applicable Time" means 5:30
p.m. (New York time) on the date of this Agreement or such other time as agreed
to by the Company and the Buyers.

     

    (ii)          "Statutory Prospectus" as of
any time means the Base Prospectus included in the Registration Statement
immediately prior to that time.

     

    (iii)         "Issuer Free Writing
Prospectus" means any "issuer free writing prospectus," as defined in
Rule 433 under the 1933 Act, relating to the Securities in the form filed or
required to be filed with the SEC or, if not required to be filed, in the form
retained in the Company's records pursuant to Rule 433(g) under the 1933
Act.

     

    (iv)         "General Use Free Writing
Prospectus" means any Issuer Free Writing Prospectus that is identified
on Schedule I to this Agreement.

     

    (v)          "Limited Use Free Writing
Prospectus" means any Issuer Free Writing Prospectus that is not a
General Use Free Writing Prospectus.

    
      
         

      

      
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    (c)           Organization. The
Company has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Minnesota, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement, the General Disclosure Package and the
Prospectus.  The Company has no significant subsidiaries (as such term
is defined in Rule 1-02 of Regulation S-X promulgated by the SEC) other than as
listed in Exhibit 21.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2010 (the "Annual Report") (collectively,
the "Subsidiaries").  Each
of the Subsidiaries has been duly organized and is validly existing as an entity
in good standing under the laws of the jurisdiction of its organization, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement, the General Disclosure
Package and the Prospectus.  The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company.  The Company and
each of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, except where the failure to be so qualified would not reasonably
be expected to result in any material adverse effect on the business,
properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, individually or
taken as a whole, or on the transactions contemplated hereby and the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents (as defined below)
(collectively a "Material
Adverse Effect").  The outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable and are owned by the Company or another Subsidiary free
and clear of all liens, encumbrances and equities and claims, except as
described in the Registration Statement and the Annual Report; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Subsidiaries are outstanding.

     

    (d)           Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants, the Lock-Up Agreements (as defined in Section 3(yy)) and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction Documents") and to
issue the Securities in accordance with the terms hereof and
thereof.  The execution and delivery of the Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the Common
Shares, the issuance of the Warrants and the reservation for issuance and the
issuance of the Warrant Shares issuable upon exercise of the Warrants have been
duly authorized by the Company's Board of Directors, and no further filing,
consent, or authorization is required by the Company's Board of Directors or its
stockholders.  This Agreement and the other Transaction Documents of
even date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.

    
      
         

      

      
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    (e)           Issuance of
Securities.  The outstanding shares of Common Stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; the Securities to be issued and sold by the Company have been
duly authorized and when issued and paid for as contemplated herein will be free
from all taxes, liens and charges with respect to the issue thereof, validly
issued, fully paid and non-assessable, and no preemptive rights of stockholders
exist with respect to any of the Securities or the issue and sale
thereof.  As of the Closing, a number of shares of Common Stock shall
have been duly authorized and reserved for issuance which equals or exceeds the
maximum number of Warrant Shares issuable upon exercise of the Warrants
(assuming for purposes hereof, that the Warrants are exercisable at the Exercise
Price and without taking into account any limitations on the Warrant Shares set
forth in the Warrants).  Neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common
Stock.  Upon issuance or exercise in accordance with the Warrants, the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all preemptive or similar rights, taxes, liens and charges with respect to
the issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.  There are no securities or instruments issued
by the Company containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities.

     

    (f)           Equity
Capitalization.  As of the date hereof and as of the Closing
Date, the Company has or will have, as the case may be, an authorized, issued
and outstanding capitalization as is set forth in the Registration Statement and
the Prospectus (subject, in each case, to the issuance of shares of Common Stock
upon exercise of stock options and warrants disclosed as outstanding in the
Registration Statement and the Prospectus and the grant or issuance of options
or shares under existing equity compensation plans or stock purchase plans
described in the Registration Statement or the Prospectus), and such authorized
capital stock conforms to the description thereof set forth in the Registration
Statement and the Prospectus.  All of the Securities conform to the
description thereof contained in the Registration Statement and the
Prospectus.  The form of certificates for the Warrant Shares will
conform to the corporate law of the jurisdiction of the Company's
incorporation.

     

    (g)           Disclosure.

     

    (i)           The
SEC has not issued an order preventing or suspending the use of any Issuer Free
Writing Prospectus or the Prospectus relating to the offering of the Securities,
and no proceeding for that purpose or pursuant to Section 8A of the 1933 Act has
been instituted or, to the Company's knowledge, threatened by the SEC. The
Registration Statement conforms, and the Prospectus and any amendments or
supplements thereto will conform, to the requirements of the 1933 Act and the
Rules and Regulations.  The documents incorporated, or to be
incorporated, by reference in the Prospectus, at the time filed with the SEC
conformed in all material respects, or will conform in all respects, to the
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") or the 1933 Act, as
applicable, and the Rules and Regulations.  The Registration Statement
and any amendments and supplements thereto do not contain, and on the Closing
Date will not contain, any untrue statement of a material fact and do not omit,
and on the Closing Date will not omit, to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.  The Prospectus and any amendments and supplements thereto
do not contain, and on the Closing Date will not contain, any untrue statement
of a material fact; and do not omit, and on the Closing Date will not omit, to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.

    
      
         

      

      
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    (ii)          Each
Issuer Free Writing Prospectus, as of its issue date and at all subsequent times
through the completion of the public offer and sale of the Securities or until
any earlier date that the Company notified or notifies the Buyers as described
in the next sentence, did not, does not and will not include any information
that conflicted, conflicts or will conflict with the information contained in
the Registration Statement or the Prospectus, including any document
incorporated by reference therein that has not been superseded or
modified.  If at any time following issuance of an Issuer Free Writing
Prospectus, there occurred or occurs an event or development as a result of
which such Issuer Free Writing Prospectus included or would include an untrue
statement of a material fact or omitted or would omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances, not misleading, the Company has notified or will notify promptly
the Buyers so that any use of such Issuer Free Writing Prospectus may cease
until it is amended or supplemented.

     

    (iii)         Other
than information to be contained in the 8-K Filing (as defined below), the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information.  The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company.  All disclosure provided to the Buyers
regarding the Company or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company does not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.  No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.  For the purpose of this Agreement, "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.

     

    (h)           Offering
Materials.  The Company has not, directly or indirectly,
distributed and will not distribute any offering material in connection with the
offering and sale of the Securities other than the Prospectus, any Issuer Free
Writing Prospectus and other materials, if any, permitted under the 1933
Act.  The Company will file with the SEC all Issuer Free Writing
Prospectuses in the time required under Rule 433(d) under the 1933
Act.  The Company has satisfied or will satisfy the conditions in Rule
433 under the 1933 Act to avoid a requirement to file with the SEC any
electronic road show.

    
      
         

      

      
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    (i)           Ineligible Issuer
Status.  At the time of filing the Registration Statement and
(ii) as of the date hereof (with such date being used as the determination date
for purposes of this clause (ii)), the Company was not and is not an "ineligible
issuer" (as defined in Rule 405 under the 1933 Act, without taking into account
any determination by the SEC pursuant to Rule 405 under the 1933 Act that it is
not necessary that the Company be considered an ineligible issuer), including,
without limitation, for purposes of Rules 164 and 433 under the 1933 Act with
respect to the offering of the Securities as contemplated by the Registration
Statement.

     

    (j)           Financial
Statements.  The consolidated financial statements of the
Company and the Subsidiaries, together with related notes and schedules as set
forth or incorporated by reference in the Registration Statement, the General
Disclosure Package and the Prospectus, present fairly in all material respects
the financial position and the results of operations and cash flows of the
Company and the consolidated Subsidiaries, at the indicated dates and for the
indicated periods.  Such consolidated financial statements and related
schedules have been prepared in accordance with United States generally accepted
principles of accounting ("GAAP"), consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made.  The summary and selected consolidated financial and
statistical data included or incorporated by reference in the Registration
Statement, the General Disclosure Package and the Prospectus presents fairly in
all material respects the information shown therein, at the indicated dates and
for the indicated periods, and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.  All disclosures, if any, contained in the Registration
Statement, the General Disclosure Package and the Prospectus regarding "non-GAAP
financial measures" (as such term is defined by the Rules and Regulations)
comply in all material respects with Regulation G of the 1934 Act and Item 10 of
Regulation S-K under the 1933 Act, to the extent applicable.  The
Company and the Subsidiaries do not have any material liabilities or
obligations, direct or contingent (including any off-balance sheet obligations
or any "variable interest entities" within the meaning of Financial Accounting
Standards Board Interpretation No. 46), not disclosed in the Registration
Statement, the General Disclosure Package and the Prospectus.  There
are no financial statements (historical or pro forma) that are required to be
included in the Registration Statement, the General Disclosure Package or the
Prospectus that are not included as required.

     

    (k)           Accountants.   DeCoria,
Maichel & Teague, P.S., who have certified certain of the financial
statements filed with the SEC as part of, or incorporated by reference in, the
Registration Statement, the General Disclosure Package and the Prospectus is an
independent registered public accounting firm with respect to the Company and
the Subsidiaries within the meaning of the 1933 Act and the applicable Rules and
Regulations and the Public Company Accounting Oversight Board (United States)
(the "PCAOB").

     

    (l)           Weaknesses or Changes in
Internal Accounting Controls.  Other than as set forth in the
documents incorporated by reference in the Base Prospectus, neither the Company
nor any of the Subsidiaries has knowledge of (i) any material weakness in its
internal control over financial reporting or (ii) change in internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.

    
      
         

      

      
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    (m)          Sarbanes-Oxley.  Solely
to the extent that the Sarbanes-Oxley Act of 2002, as amended, and the rules and
regulations promulgated by the SEC and The NYSE Amex Equities (the "Principal Market") thereunder
(collectively, the "Sarbanes-Oxley Act") has been
applicable to the Company, there is and has been no failure on the part of the
Company to comply in all respects with any provision of the Sarbanes-Oxley
Act.  The Company has taken all necessary actions to ensure that it is
in compliance in all respects with all provisions of the Sarbanes-Oxley Act that
are in effect with respect to which the Company is required to comply and is
actively taking steps to ensure that it will be in compliance with the other
provisions of the Sarbanes-Oxley Act which will become applicable to the
Company.

     

    (n)           Litigation.  There
is no action, suit, claim or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any of the Subsidiaries before any
court or administrative agency or otherwise which if determined adversely to the
Company or any of the Subsidiaries would have, individually or in the aggregate,
a Material Adverse Effect, except as set forth in the Registration Statement,
the General Disclosure Package and the Prospectus.

     

    (o)           Title.  The
Company and the Subsidiaries have good and marketable title to all of the
material properties and assets reflected in the consolidated financial
statements hereinabove described or described in the Registration Statement, the
General Disclosure Package and the Prospectus, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements or described in the Registration Statement, the General
Disclosure Package and the Prospectus or which are not material in amount or
would not materially interfere with the use to be made of such properties or
assets. The Company and the Subsidiaries occupy their leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement, the General Disclosure Package
and the Prospectus.

     

    (p)           Taxes.  The
Company and the Subsidiaries have filed all federal, state, local and foreign
tax returns which have been required to be filed and have paid all taxes
indicated by such returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested in good
faith and for which an adequate reserve for accrual has been established in
accordance with GAAP.  All tax liabilities have been adequately
provided for in the consolidated financial statements of the Company in
accordance with GAAP, and the Company does not know of any actual or proposed
additional material tax assessments.

     

    (q)           Absence of Certain
Changes.  Since the respective dates as of which information is
given in the Registration Statement, the General Disclosure Package and the
Prospectus, as each may be amended or supplemented, there has not been any
Material Adverse Effect, and there has not been any material transaction entered
into by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and transactions described in the Registration Statement, the
General Disclosure Package and the Prospectus, as each may be amended or
supplemented.  The Company and the Subsidiaries have no material
contingent obligations which are not disclosed in the Company's consolidated
financial statements which are included in the Registration Statement, the
General Disclosure Package and the Prospectus.

    
      
         

      

      
        - 9
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    (r)           No
Conflicts.  Neither the Company nor any of the Subsidiaries is,
or with the giving of notice or lapse of time or both, will be after giving
effect to the execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Common Shares, the Warrants, and the reservation for issuance and the
issuance of the Warrant Shares), (i) in violation of its articles of
organization, by-laws, any certificate of designations or other organizational
documents or (ii) in violation of or in default under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it, or any of its properties, is bound and, solely with respect to this
clause (ii), which violation or default would have a Material Adverse
Effect.  The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary or any of their respective
properties is bound, or of the articles of organization or by-laws of the
Company or any law, order, rule or regulation judgment, order, writ or decree
applicable to the Company or any Subsidiary of any court or of any government,
regulatory body or administrative agency or other governmental body having
jurisdiction, except to the extent that such conflict, breach or default would
not have a Material Adverse Effect.

     

    (s)           Contracts.  There
is no document, contract or other agreement required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required by the 1933
Act or the Rules and Regulations. Each description of a contract, document or
other agreement in the Registration Statement and the Prospectus accurately
reflects in all material respects the terms of the underlying contract, document
or other agreement. Each contract, document or other agreement described in the
Registration Statement and Prospectus or listed in the exhibits to the
Registration Statement or incorporated by reference is in full force and effect
and is valid and enforceable by and against the Company in accordance with its
terms (except as rights to indemnity and contribution thereunder may be limited
by federal or state securities laws and matter of public policy and except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principle).  Neither the Company nor any of its Subsidiaries nor, to
the Company's knowledge, any other party is in default in the observance or
performance of any term or obligation to be performed by it under any such
agreement or any other agreement or instrument to which the Company or its
Subsidiaries is a party or by which the Company or its Subsidiaries or their
respective properties or businesses may be bound, and no event has occurred
which with notice or lapse of time or both would constitute such a default, in
any such case in which the default or event, individually or in the aggregate,
would have a Material Adverse Effect.

     

    (t)           Regulatory
Approvals.  Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the SEC, the
Principal Market, the Financial Industry Regulatory Authority, Inc. (the "FINRA") or such additional
steps as may be required under state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.

    
      
         

      

      
        - 10
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    (u)           Conduct of
Business.  Other than as disclosed in the documents
incorporated by reference in the Base Prospectus with respect to the Company's
violation of the maintenance rules of the Principal Market, neither the Company
nor any of its Subsidiaries is in violation of any judgment, decree or order or
any statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Except as
set forth above, the Company is not otherwise in violation of any of the rules,
regulations or requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future.

     

    (v)           Intellectual
Property.  Except as described in the Registration Statement or
in any document incorporated by reference therein, the Company and each of the
Subsidiaries hold all material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of their businesses
in the manner in which they are being conducted; the Company and the
Subsidiaries each own or possess the right to use all patents, patent rights,
trademarks, trade names, service marks, service names, copyrights, license
rights, know-how (including trade secrets and other unpatented and unpatentable
proprietary or confidential information, systems or procedures) and other
intellectual property rights ("Intellectual Property")
necessary to carry on their business in all material respects in the manner in
which it is being conducted; neither the Company nor any of the Subsidiaries has
infringed, and none of the Company or the Subsidiaries have received notice of
an infringement with, any Intellectual Property of any other person or
entity.  The Company has taken all steps reasonably necessary to
secure ownership interests in Intellectual Property created for it by any
contractors.  There are no outstanding options, licenses or agreements
of any kind relating to the Intellectual Property of the Company that are
required to be described in the Registration Statement, the General Disclosure
Package and the Prospectus and are not described therein in all material
respects.  The Company is not a party to or bound by any options,
licenses or agreements with respect to the Intellectual Property of any other
person or entity that are required to be set forth in the Prospectus and are not
described therein in all material respects.  None of the technology
employed by the Company and material to the Company's business has been obtained
or is being used by the Company in violation of any contractual obligation
binding on the Company or, to the Company's knowledge, any of its officers,
directors or employees or, to the Company's knowledge, otherwise in violation of
the rights of any persons.  Except as disclosed in the Base Prospectus
and except as would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, the Company has not received
any written, or to its knowledge, any oral communications, alleging that the
Company has violated or infringed, or, by conducting its business as set forth
in the Registration Statement, the General Disclosure Package and the
Prospectus, would violate or infringe any of the Intellectual Property of any
other person or entity.  The Company knows of no infringement by
others of Intellectual Property owned by or licensed to the Company that would,
either individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.

     

    (w)           Manipulation of
Prices.  Neither the Company, nor to the Company's knowledge,
any of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Securities.

    
      
         

      

      
        - 11
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    (x)           Investment Company
Act.  Neither the Company nor any Subsidiary is or, after
giving effect to the offering and sale of the Securities contemplated hereunder
and the application of the net proceeds from such sale as described in the
Prospectus, and for so long any Buyer holds any Securities, will be an
"investment company" within the meaning of such term under the Investment
Company Act of 1940 as amended (the "1940 Act"), and the rules and
regulations of the SEC thereunder.

     

    (y)           Internal Accounting
Controls.  Other than as set forth in the documents
incorporated by reference in the Base Prospectus:

     

    (i)           The
Company and each of the Subsidiaries maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(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 existing assets at reasonable intervals and appropriate action is
taken with respect to any differences; and

     

    (ii)          The
Company has established and maintains "disclosure controls and procedures" (as
defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act); the Company's
"disclosure controls and procedures" are reasonably designed to ensure that all
information (both financial and non-financial) required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and regulations of the 1934 Act, and that all such information is
accumulated and communicated to the Company's management as appropriate to allow
timely decisions regarding required disclosure and to make the certifications of
the Chief Executive Officer and Principal Financial and Accounting Officer of
the Company required under the 1934 Act with respect to such
reports.

     

    (z)           [Intentionally
Omitted]

     

    (aa)         Money Laundering
Laws.  The operations of the Company and the Subsidiaries are
and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
"Money Laundering
Laws"), and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any or its subsidiaries with respect to the Money Laundering Laws is pending
or, to the Company's knowledge, threatened.

     

    
      
         

      

      
        - 12
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    (bb)         Office of Foreign Assets
Control.  Neither the Company nor, to the Company's knowledge,
any director, officer, agent, employee or affiliate of the Company is currently
subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department ("OFAC"); and the Company will
not directly or indirectly use the proceeds of the offering, or lend, contribute
or otherwise make available such proceeds to any subsidiary, joint venture
partner or other person or entity, for the purpose of financing the activities
of any person currently subject to any U.S. sanctions administered by
OFAC.

     

    (cc)         Insurance.  The
Company and each of the Subsidiaries carry, or are covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of their
respective businesses and the value of their respective properties.

     

    (dd)         Employee
Benefits.  Neither the Company nor any Subsidiary has or
maintains any "pension plan" as defined in the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder.

     

    (ee)         Employee
Relations.  (i)  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company and its Subsidiaries believe that
their relations with their employees are good.  No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the 1933
Act) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary.  No
executive officer of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters, except where such violation would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

     

    (ii)          The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.

     

    (ff)          Transactions with
Affiliates.  To the Company's knowledge, there are no
affiliations or associations between any member of the FINRA and any of the
Company's officers, directors or 5% or greater securityholders, except as set
forth in the Registration Statement.  There are no relationships or
related-party transactions involving the Company or any of the Subsidiaries or,
to the knowledge of the Company, any other person required to be described in
the Prospectus which have not been described as required.

     

    (gg)        Environmental
Laws.  Neither the Company nor any of the Subsidiaries is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), owns or
operates any real property contaminated with any substance that is subject to
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws that is not properly accrued on the Company's
balance sheet, or is subject to any claim relating to any environmental laws,
which violation, contamination, liability or claim would, individually or in the
aggregate, have a Material Adverse Effect; and the Company has no knowledge of
any pending investigation which would reasonably be expected to lead to such a
claim.

    
      
         

      

      
        - 13
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    (hh)        Listing; 1934 Act
Registration.  The Common Stock is listed for trading on the
Principal Market and the listing application with respect to the Common Shares
and the Warrant Shares has been filed with the Principal Market.  The
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act, nor has the
Company received any notification that the SEC is contemplating terminating such
registration.

     

    (ii)           Contributions; Foreign
Corrupt Practices.  Neither the Company nor any of the
Subsidiaries has made any contribution or other payment to any official of, or
candidate for, any federal, state or foreign office in violation of any law
which violation is required to be disclosed in the Prospectus.

     

    (jj)           No Integrated
Offering.  Other than the exercise of warrants which occurred
in October 2010 which does not exceed 250,000 shares of Common Stock, the
Company has not sold or issued any securities that would be integrated with the
offering of the Securities contemplated by this Agreement pursuant to the 1933
Act, the Rules and Regulations or the interpretations thereof by the
SEC.   None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would cause this offering of the Securities
to require approval of stockholders of the Company for purposes of any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated.  None
of the Company, its Subsidiaries, their affiliates and any Person acting on
their behalf will take any action or steps referred to in the preceding sentence
that would cause the offering of the Securities to be integrated with other
offerings for purposes of any such applicable stockholder approval
provisions.

     

    (kk)         Brokerage Fees;
Commissions.  Except as described in the Registration Statement
and the Prospectus, neither the Company nor any of its Subsidiaries is a party
to any contract, agreement or understanding with any person that would give rise
to a valid claim against the Company or the Buyers for a brokerage commission,
finder's fee or like payment in connection with the offering and sale of the
Securities.  The Company shall pay, and hold the Buyers harmless
against, any liability, loss or expense (including, without limitation,
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.

     

    (ll)           Consents.  Other
than as described in Section 3(t) hereof, or as have been previously obtained,
filed or made, neither the Company nor any of its Subsidiaries is required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or
thereof.  The Company and its Subsidiaries have no knowledge of any
facts or circumstances that might prevent the Company from obtaining or
effecting any of the registration, application or filings pursuant to the
preceding sentence.

    
      
         

      

      
        - 14
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    (mm)       Acknowledgment Regarding
Buyer's Purchase of Securities.  The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company, (ii) to the knowledge of the Company, an "affiliate" of the
Company or any of its Subsidiaries (as defined in Rule 144 of the 1933 Act) or
(iii) to the knowledge of the Company, a "beneficial owner" of more than 10% of
the shares of Common Stock (as used in this Agreement, the term "affiliate"
shall have the meaning set forth in Rule 405 of the 1933 Act).  The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities.  The Company further represents to
each Buyer that the Company's decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.

     

    (nn)        Dilutive
Effect.  The Company acknowledges that its obligation to issue
the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.

     

    (oo)        Application of Takeover
Protections; Rights Agreement.  Other than Section 302A.671 of
the Minnesota Business Corporation Act governing acquisitions of more than 20%
of the Company, the Company and its board of directors have taken all necessary
action, if any, in order to amend the provisions of any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Articles
of Incorporation of the Company or the laws of the state of its incorporation to
permit the issuance of the Securities which are or could become applicable to
any Buyer as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of Securities and each
Buyer's ownership of the Securities).  Except as set forth on Schedule
3(oo), the Company does not have any stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of Common Stock or
a change in control of the Company.

     

    (pp)        Subsidiary
Rights.  The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

    
      
         

      

      
        - 15
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    (qq)        Off Balance Sheet
Arrangements.  There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

     

    (rr)          Transfer
Taxes.  On the Closing Date, all stock transfer or other
similar taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.

     

    (ss)         Acknowledgement Regarding
Buyers' Trading Activity.  Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, it is understood and
acknowledged by the Company (i) none of the Buyers have been asked by the
Company or its Subsidiaries to agree, nor has any Buyer agreed with the Company
or its Subsidiaries, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Buyer, including, without
limitation, short sales or "derivative" transactions, before or after the
closing of the transactions contemplated by this Agreement or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Buyer, and counter parties in
"derivative" transactions to which such Buyer is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iv)
that such Buyer shall not be deemed to have any affiliation with or control over
any arm's length counter-party in any "derivative" transaction.  The
Company further understands and acknowledges that (a) one or more Buyers may
engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding and (b) such hedging and/or trading
activities (if any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging and/or trading
activities are being conducted.  The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of
this Agreement, the Warrants or any of the documents executed in connection
herewith.

     

    (tt)          U.S. Real Property Holding
Corporation.  The Company is not, has not ever been, nor, while
any Buyer holds any Securities, will not become, a U.S. real property holding
corporation within the meaning of Section 897 of the Code, and the Company shall
so certify upon any Buyer's request.

     

    (uu)        [Intentionally
Omitted]

     

    (vv)        Bank Holding
Company.  Neither the Company nor any of its Subsidiaries or
affiliates is, nor, while any Buyer holds any Securities, will become, subject
to the Bank Holding Company Act of 1956, as amended (the "BHCA") and to regulation by
the Board of Governors of the Federal Reserve System (the "Federal
Reserve").  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, nor, while any Buyer holds any Securities, will own
or control, directly or indirectly, five percent or more of the outstanding
shares of any class of voting securities or twenty-five percent or more of the
total equity of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.  Neither the Company nor any of its
Subsidiaries or affiliates exercises, nor, while any Buyer holds any Securities,
will exercise, a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal
Reserve.

    
      
         

      

      
        - 16
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    (ww)       Placement Agent's
Fees. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against any liability, loss or expense(including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with such claim (other than for claims made by Persons engaged by the
Buyers).  The Company acknowledges that it has engaged Life Tech
Capital (the "Agent") as
placement agent in connection with the sale of Securities. Other than the Agent,
neither the Company nor any of its Subsidiaries has engaged any placement agent
or other agent in connection with the sale of the Securities.

     

    (xx)         Placement Agent
Agreement. The Company has entered into a Letter Agreement, dated as of
October 27, 2010, with the Agent that contains certain representations,
warranties, covenants and agreements of the Company.  Such
representations, warranties, covenants and agreements are for the benefit of and
may be relied upon by the Buyers, each of which shall be a third party
beneficiary thereof.

     

    (yy)        Lock-Up
Agreements.  The Company and each of the parties set forth on
Exhibit C
hereto has executed and delivered to the Company a lock-up agreement in the form
attached hereto as Exhibit D (the "Lock-Up
Agreement").

     

    4.           COVENANTS.

     

    (a)           Best
Efforts.  Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

     

    (b)           Maintenance of Registration
Statement.

     

    (i)           For
so long as any of the Common Shares or Warrants remain outstanding, the Company
shall use its reasonable best efforts to maintain the effectiveness of the
Registration Statement for the issuance thereunder of the Registrable Securities
(as defined below); provided that, if at any time while the Warrants are
outstanding the Company shall be ineligible to utilize Form S-3 (or any
successor form) for the purpose of issuance of the Registrable Securities the
Company shall use its reasonable best efforts to promptly amend the Registration
Statement on such other form as may be necessary to maintain the effectiveness
of the Registration Statement for this purpose.  For the purpose of
this Agreement, "Registrable
Securities" means (i) the Common Shares, (ii) the Warrant Shares
issued or issuable upon exercise of the Warrants, (iii) the Warrants and (iv)
any shares of capital stock of the Company issued or issuable with respect to
the Common Shares, the Warrants and/or the Warrant Shares as a result of any
stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on exercise of the
Warrants.

     

    
      
         

      

      
        - 17
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    (c)           Prospectus Supplement and
Blue Sky.  In the manner required by law, the Company shall
have delivered to the Buyers, and as soon as practicable after the Closing the
Company shall file, the Prospectus Supplement with respect to the Securities as
required under and in conformity with the 1933 Act, including Rule 424(b)
thereunder.  If required, the Company, on or before the Closing Date,
shall take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for or to qualify the Securities for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to the Buyers on or prior to the Closing Date.  The Company shall make
all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.

     

    (d)           Use of
Proceeds.  The Company will use the proceeds from the sale of
the Securities in the manner described in the Registration Statement and the
Prospectus.

     

    (e)           Listing.  The
Company shall promptly secure the listing of all of the Common Shares and
Warrant Shares upon each securities exchange and automated quotation system, if
any, upon which the Common Stock is then listed, including the Principal Market
(subject to official notice of issuance) and shall use its reasonable best
efforts to maintain, in accordance with the Warrants, such listing of all
Warrant Shares from time to time issuable under the terms of the Transaction
Documents.  The Company shall use reasonable best efforts to maintain
the authorization for quotation of the Common Stock on the Principal Market or
if such authorization is not able to be maintained, on another Eligible Market
(as defined in the Warrants).  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal
Market.  The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(e).

     

    (f)           Fees.  Subject
to Section 8 below, at Closing, the Company shall pay an expense allowance to
[Buyer] or its designee(s) (in addition to any other expense amounts paid to any
Buyer prior to the date of this Agreement) for all actual and accountable
reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amount, at such Buyer's discretion, may be withheld
by such Buyer from its Purchase Price at the Closing.  The Company
shall be responsible for the payment of any placement agent's fees, financial
advisory fees, or broker's commissions (other than for Persons engaged by any
Buyer) relating to or arising out of the transactions contemplated
hereby.  The Company shall pay, and hold each Buyer harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorney's fees and out-of-pocket expenses) arising in connection with any claim
relating to any such payment.

     

    (g)           Pledge of
Securities.  The Company acknowledges and agrees that the
Securities may be pledged by any holder of Securities (an "Investor") in connection with
a bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities.  The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document.  The
Company hereby agrees, subject to applicable securities laws, to execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by an
Investor.

    
      
         

      

      
        - 18
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    (h)           Disclosure of Transactions
and Other Material Information.  On or before 8:30 a.m., New
York City time, on the first Business Day following the execution of this
Agreement, the Company shall issue a press release and file a Current Report on
Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules of this Agreement), the form of Lock-Up Agreement and the
form of Warrants) as exhibits to such filing (including all attachments, the
"8-K
Filing").  As of immediately following the filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is not disclosed in
the 8-K Filing or in prior filings with the SEC.  The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer.  If a Buyer has, or
believes it has, received any such material, nonpublic information regarding the
Company or any of its Subsidiaries provided in breach of the preceding sentence,
it shall provide the Company with written notice thereof in which case the
Company shall, within two (2) Trading Days (as defined in the Warrants) of
receipt of such notice, make public disclosure of any such material, nonpublic
information provided in breach of the preceding sentence.  In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, of such material, nonpublic information without
the prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents but shall send the Company
the press release prior to dissemination and in good faith consider suggestions
the Company may have.  No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such
disclosure.  To the extent that the Company, its Subsidiaries or any
of its or their respective officers, directors, employees, stockholders or
agents deliver any material, non-public information to a Buyer without such
Buyer's consent, the Company hereby covenants and agrees that such Buyer shall
not have any duty of confidentiality with respect to, or a duty not to trade on
the basis of, such material, non-public information.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law, regulation or any Eligible Market on which the
Company's securities are then listed or quoted (provided that in the case of
clause (i) each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its
release).  Without the prior written consent of any applicable Buyer,
neither the Company nor any of its Subsidiaries or affiliates shall disclose the
name of such Buyer in any filing, announcement, release or otherwise other than
in connection with the Registration Statement unless such disclosure is required
by law, regulation or any Eligible Market on which the Company's securities are
then listed or quoted.

    
      
         

      

      
        - 19
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    (i)           Variable
Securities.  So long as any Buyer beneficially owns any
Securities, the Company shall not issue any other securities that would cause a
breach or default under the Warrants.  For so long as any Securities
remain outstanding, the Company shall not, in any manner, issue or sell any
rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price,
unless the conversion, exchange or exercise price of any such security cannot be
less than the then applicable Exercise Price (as defined in the Warrants) with
respect to the Common Stock into which any Warrant is exercisable.

     

    (j)           Corporate
Existence.  For so long as any Buyer beneficially owns any
Warrants, the Company shall not be party to any Fundamental Transaction (as
defined in the Warrants) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Warrants.

     

    (k)           Reservation of
Shares.  The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than
(i) the maximum number of shares of Common Stock issuable upon exercise of the
Warrants (without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants).

     

    (l)           Additional Issuances of
Securities.

     

    (i)           For
purposes of this Section 4(l), the following definitions shall
apply.

     

    (1)           "Approved Stock Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.

     

    (2)           "Common Stock Equivalents"
means, collectively, Options and Convertible Securities.

     

    (3)           "Convertible Securities" means
any stock or securities (other than Options) convertible into or exercisable or
exchangeable for Common Stock.

     

    (4)           "Excluded Securities" means any
Common Stock issued or issuable: (i) in connection with any Approved Stock Plan,
(ii) upon exercise of the Warrants; provided, that the terms of the Warrants are
not amended, modified or changed on or after the date hereof; and (iii) upon
exercise of any Options or Convertible Securities which are outstanding on the
day immediately preceding the date hereof, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the date hereof.

    
      
         

      

      
        - 20
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    (5)           "Options" means any rights,
warrants or options to subscribe for or purchase Common Stock or Convertible
Securities.

     

    (ii)          Other
than the filing of a resale registration statement on Form S-3 for the resale of
not more than 250,000 shares of Common Stock issued or issuable upon the
exercise of warrants outstanding as of the date hereof, from the date hereof
until 180 days after the Closing Date (the "Trigger Date"), the Company
will not (A), directly or indirectly, file any registration statement with the
SEC other than the Registration Statement and shall not file any Prospectus
Supplement with respect to any Subsequent Placement, (B) directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its or its Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a "Subsequent
Placement") or (C) be party to any solicitations, negotiations or
discussions with regard to the foregoing.

     

    (iii)         From
the Trigger Date until the second anniversary of the Closing Date the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with this Section 4(l)(iii).

     

    (1)           The
Company shall deliver to each Buyer an irrevocable written notice
(the "Offer
Notice") of any proposed or intended issuance or sale or exchange
(the "Offer") of
the securities being offered (the "Offered Securities") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers at least 50% of the Offered Securities, allocated
among such Buyers (a) based on such Buyer's pro rata portion of the Common
Shares and Warrants purchased hereunder (the "Basic Amount"), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional
portion of the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the "Undersubscription Amount"),
which process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.

    
      
         

      

      
        - 21
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    (2)           To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the tenth (10th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer Period"), setting forth
the portion of such Buyer's Basic Amount that such Buyer elects to purchase and,
if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice of
Acceptance").  If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "Available Undersubscription
Amount"), each Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent its deems reasonably
necessary.  Notwithstanding anything to the contrary contained herein,
if the Company desires to modify or amend the terms and conditions of the Offer
prior to the expiration of the Offer Period, the Company may deliver to Buyers a
new Offer Notice and the Offer Period shall expire on the tenth (10th) Business
Day after such Buyer's receipt of such new Offer Notice.

     

    (3)           The
Company shall have five (5) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused
Securities") pursuant to a definitive agreement (the "Subsequent Placement
Agreement") but only to the offerees described in the Offer Notice (if so
described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring person or persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of
such Subsequent Placement Agreement, and (b) either (x) the consummation of the
transactions contemplated by such Subsequent Placement Agreement or (y) the
termination of such Subsequent Placement Agreement, which shall be filed with
the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.

     

    (4)           In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(l)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 4(l)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to the Buyers pursuant to Section 4(l)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities.  In the event that any Buyer so elects to reduce
the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(l)(iii)(1)
above.

    
      
         

      

      
        - 22
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    (5)           Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(l)(iii)(3) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer.  Notwithstanding anything to the contrary contained in this
Agreement, if the Company does not consummate the closing of the issuance, sale
or exchange of all or less than all of the Refused Securities, within fifteen
(15) Business Days of the expiration of the Offer Period, the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4(l)(iii)(3) above if the
Buyers have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel.

     

    (6)           Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(l)(iii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.

     

    (7)           The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, neither the Subsequent Placement Agreement with respect to such Offer nor
any other transaction documents related thereto (collectively, the "Subsequent Placement
Documents") shall include any term or provisions whereby any Buyer shall
be required to agree to any restrictions in trading as to any securities of the
Company owned by such Buyer prior to such Subsequent Placement.

     

    (8)           Notwithstanding
anything to the contrary in this Section 4(l) and unless otherwise agreed to by
the Buyers, the Company shall either confirm in writing to the Buyers that the
transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case
in such a manner such that the Buyers will not be in possession of material
non-public information, by the fifteenth (15th)
Business Day following delivery of the Offer Notice.  If by the
fifteenth (15th)
Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company.  Should the Company decide to
pursue such transaction with respect to the Offered Securities, the Company
shall provide the Buyers with another Offer Notice and each Buyer will again
have the right of participation set forth in this Section
4(l)(iii).  The Company shall not be permitted to deliver more than
one such Offer Notice to the Buyers in any 60 day period.

     

    (iv)    
     The restrictions contained in subsections (ii) and
(iii) of this Section 4(l) shall not apply in connection with the issuance of
any Excluded Securities.

    
      
         

      

      
        - 23
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    (m)           Lock-Up.  The
Company shall not amend or waive any provision of the Lock-Up Agreements (as
defined in Section 3(yy)) except to extend the term of the lock-up period
contained therein and shall enforce the provisions of the Lock-Up Agreements in
accordance with their terms.  If any party to a Lock-Up Agreement
breaches any provision of a Lock-Up Agreement, the Company shall promptly use
its best efforts to seek specific performance of the terms of such Lock-Up
Agreement.

     

    (n)           Closing
Documents.  On or prior to fourteen (14) calendar days after
the Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Buyer and Schulte Roth & Zabel LLP executed copies of the Transaction
Documents, Securities and other document required to be delivered to any party
pursuant to Section 7 hereof.

     

    5.           REGISTER; TRANSFER AGENT
INSTRUCTIONS.

     

    (a)           Register.  The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Warrants in which the Company shall record the
name and address of the Person in whose name the Warrants have been issued
(including the name and address of each transferee)), the number of Warrant
Shares issuable upon exercise of the Warrants held by such
Person.  The Company shall keep the register open and available at all
times during business hours for inspection of any Buyer or its legal
representatives.

     

    (b)           Transfer Agent
Instructions.  The Company shall issue irrevocable instructions
to the Transfer Agent, and any subsequent transfer agent, to issue certificates
or credit shares to the applicable balance accounts at DTC, registered in the
name of each Buyer or its respective nominee(s), for the Warrant Shares in such amounts as
specified from time to time by each Buyer to the Company upon exercise of the
Warrants in the form of Exhibit E attached
hereto (the "Irrevocable
Transfer Agent Instructions").  The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5 will be given by the Company to the
Transfer Agent, and any subsequent transfer agent with respect to the
Securities, and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the other Transaction Documents.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer.  Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

     

    6.           CONDITIONS TO THE COMPANY'S
OBLIGATION TO SELL.

     

    The
obligation of the Company hereunder to issue and sell the Common Shares and the
related Warrants to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

    
      
         

      

      
        - 24
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    (i)           
Such Buyer shall have executed each of the Transaction Documents to which it is
a party and delivered the same to the Company.

     

    (ii)           Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of [Buyer], the amounts withheld pursuant to Section
4(f)) for the Common Shares and the related Warrants being purchased by such
Buyer at the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.

     

    (iii)           The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.

     

    7.           CONDITIONS TO EACH BUYER'S
OBLIGATION TO PURCHASE.

     

    The
obligation of each Buyer hereunder to purchase the Common Shares and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice
thereof:

     

    (i)           The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (allocated in such amounts as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the related Warrants (allocated in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.

     

    (ii)           Such
Buyer shall have received the opinion of Keller Rohrback P.L.C., the Company's
counsel, dated as of the Closing Date, in substantially the form of Exhibit F attached
hereto.

     

    (iii)          The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

     

    (iv)          The
Company shall have delivered to such Buyer a certificate (or a fax or pdf copy
of such certificate) evidencing the formation and good standing of the Company
and each of its Subsidiaries in such entity's jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as of a
date within ten (10) days of the Closing Date.

    
      
         

      

      
        - 25
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    (v)           The
Company shall have delivered to such Buyer a certificate (or a fax or pdf copy
of such certificate) evidencing the Company's qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office of each jurisdiction in which the Company conducts business and is
required to so qualify, as of a date within ten (10) days of the Closing
Date.

     

    (vi)          The
Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Secretary of State of the State of Minnesota
(or a fax or pdf copy of such certificate) within ten (10) days of the Closing
Date.

     

    (vii)         The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(d) as adopted by the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit
G.

     

    (viii)       The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date.  Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect in the form attached hereto as Exhibit
H.

     

    (ix)          The
Company shall have delivered to such Buyer a letter from the Transfer Agent
certifying the number of shares of Common Stock outstanding as of a date within
five days of the Closing Date.

     

    (x)           The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, in writing by the SEC or the Principal Market.

     

    (xi)          The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.

     

    (xii)         The
Registration Statement shall be effective and available for the issuance and
sale of the Securities hereunder and the Company shall have delivered to such
Buyer the Prospectus and the Prospectus Supplement as required
thereunder.

     

    (xiii)        Each
of the Lock-Up Agreements shall be in full force and effect, enforceable against
each of the parties set forth in Exhibit C hereto in
accordance with their terms, and no default under any such Lock-Up Agreement
shall have occurred.

    
      
         

      

      
        - 26
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    (xiv)        The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

     

    8.           TERMINATION.  In
the event that the Closing shall not have occurred with respect to a Buyer on or
before three (3) Business Days from the date hereof due to the Company's or such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse [Buyer] for the expenses described in Section 4(f)
above.

     

    9.           MISCELLANEOUS.

     

    (a)           Governing Law; Jurisdiction;
Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    (b)           Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

     

    (c)           Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

    
      
         

      

      
        - 27
-

        
          

        

      

      
         

      

    

     

    (d)           Severability.  If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

    (e)           Entire Agreement;
Amendments.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters.  No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding upon the Buyers and holders of Securities as applicable.  No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the applicable Securities then outstanding.  No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents, holders of
Common Shares and holders of Warrants.  The Company has not, directly
or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.  Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.

     

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

    
      
         

      

      
        - 28
-

        
          

        

      

      
         

      

    

    

     

    If to the
Company:

     

    IsoRay,
Inc.

    350 Hills
St., Suite 106

    Richland,
Washington  99354

    Telephone:      (509)
375-1202

    Facsimile:        (506) 375-3473

    Attention:        Dwight Babcock, Chairman & CEO

    

    with a
copy (for informational purposes only) to:

     

    Keller Rohrback, P.L.C.

    3101 North Central Ave.

    Suite 1400

    Phoenix, Arizona  85012

    Telephone:     
 (602) 230-6361

    Facsimile:        (602) 248-2822

    Attention:        Stephen R. Boatwright, Esq.

    

    If to the
Transfer Agent:

     

    Computershare Trust Company, N.A.

    350 Indiana Street

    Golden, Colorado 80401

    Telephone:     
 (303) 262-0600

    Facsimile:        (303) 262-0631

    Attention:        Dan Konecny

    

    If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers,

     

    with a
copy (for informational purposes only) to:

     

    Schulte
Roth & Zabel LLP

    919 Third
Avenue

    New York,
New York  10022

    Telephone:    
  (212) 756-2000

    Facsimile:        (212)
593-5955

    Attention:        Eleazer
N. Klein, Esq.

     

    or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

    
      
         

      

      
        - 29
-

        
          

        

      

      
         

      

    

     

    (g)           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Warrants.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Warrants).  A Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.

     

    (h)           No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

    (i)     
      Survival.  Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the
Closing.  Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

     

    (j)      
     Further
Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
are reasonably necessary in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

     

    (k)           Indemnification.  (i)  In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees"), as incurred,
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party that is not an affiliate of such Indemnitee (including for
these purposes a derivative action brought on behalf of the Company) and arising
out of or resulting from (i) the execution, delivery, performance or enforcement
of the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, (iii) any disclosure made by such Buyer pursuant to Section
4(h), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents.  To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

     

    
      
         

      

      
        - 30
-

        
          

        

      

      
         

      

    

     

    (ii)           Promptly
after receipt by an Indemnitee under this Section 9(k) of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving an Indemnified Liability, such Indemnitee shall, if a
claim for indemnification in respect thereof is to be made against any
indemnifying party under this Section 9(k), deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnitee; provided, however, that an Indemnitee
shall have the right to retain its own counsel with the fees and expenses of not
more than one counsel for such Indemnitee to be paid by the indemnifying party,
if, in the reasonable opinion of the Indemnitee, the representation by such
counsel of the Indemnitee and the indemnifying party would be inappropriate due
to actual or potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceeding.  Legal counsel
referred to in the immediately preceding sentence shall be selected by the
Investors holding at least a majority of the Registrable
Securities.  The Indemnitee shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or Indemnified Liabilities by the indemnifying party and shall furnish to
the indemnifying party all information reasonably available to the Indemnitee
that relates to such action or Indemnified Liabilities.  The
indemnifying party shall keep the Indemnitee fully apprised at all times as to
the status of the defense or any settlement negotiations with respect
thereto.  No indemnifying party shall be liable for any settlement of
any action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent.  No indemnifying party shall, without
the prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liabilities or litigation.  Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnitee with respect to all third parties, firms or corporations relating to
the matter for which indemnification has been made.  The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnitee under this Section 9(k), except to the extent that
the indemnifying party is prejudiced in its ability to defend such
action.

    
      
         

      

      
        - 31
-

        
          

        

      

      
         

      

    

     

    (iii)           The
indemnification required by this Section 9(k) shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Liabilities are incurred.

     

    (iv)           The
indemnity agreements contained herein shall be in addition to  (x) any
cause of action or similar right of the Indemnitee against the indemnifying
party or others, and (y) any liabilities the indemnifying party may be subject
to pursuant to the law.

    

    (l)          
 No Strict
Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.

     

    (m)           Remedies.  Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.  Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Buyers.  The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

     

    (n)           Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Buyer exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     

    (o)           Payment Set
Aside.  To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

    
      
         

      

      
        - 32
-

        
          

        

      

      
         

      

    

    (p)           Independent Nature of
Buyers' Obligations and Rights.  The obligations of each Buyer
under any Transaction Document are several and not joint with the obligations of
any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction
Document.  Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges, and each Buyer
confirms, that the Buyers do not so constitute, a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group, and the Company will not
assert any such claim with respect to such obligations or the transactions
contemplated by the Transaction Documents and the Company acknowledges, and each
Buyer confirms, that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents.  The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and
advisors.  Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

     

    [Signature
Page Follows]

    
      
         

      

      
        - 33
-

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.

     

    
      
        
          	 
      	
                  COMPANY:

                
	 
      	 
      
	 
      	
                  ISORAY,
      INC.

                
	 
      	 
      
	 
      	
                  By:

                	 
      
	 
      	 
      	
                  Name:

                
	 
      	 
      	
                  Title:

                

        

      

    

     

    [Signature
Page to Securities

    Purchase
Agreement]

    
      
         

      

      
        - 34
-

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.

     

    
      
        
          
            	 
      	
                    BUYERS:

                  
	 
      	 
      
	 
      	
                    [Buyer].

                  
	 
      	 
      
	 
      	
                    By:

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

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

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    Name: **************

                  
	 
      	 
      	
                    Title:   Authorized
      Signatory

                  

          

        

      

    

     

    
      
         

      

      
        - 35
-

        
          

        

      

      
         

      

    

    SCHEDULE
OF BUYERS

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  	
                                                                          (1)

                                                                        	 	
                                                                          (2)

                                                                        	 	 	
                                                                          (3)

                                                                        	 	 	
                                                                          (4)

                                                                        	 	 	
                                                                          (5)

                                                                        	 	 	
                                                                          (6)

                                                                        	 	 	
                                                                          (7)

                                                                        	 	 	
                                                                          (8)

                                                                        	 	
                                                                          (9)

                                                                        
	
                                                                          Buyer

                                                                        	 	
                                                                          Address
      and

                                                                          Facsimile
      Number

                                                                        	 	 	
                                                                          Number

                                                                          of

                                                                          Common

                                                                          Shares

                                                                        	 	 	
                                                                          Maximum

                                                                          Number of

                                                                          Series
      A

                                                                          Warrant Shares

                                                                        	 	 	
                                                                          Number of

                                                                          Series
      B

                                                                          Warrant Shares

                                                                        	 	 	
                                                                          Number of

                                                                          Series
      C

                                                                          Warrant Shares

                                                                        	 	 	
                                                                          Number of

                                                                          Series
      D

                                                                          Warrant

                                                                          Shares

                                                                        	 	 	
                                                                          Purchase

                                                                          Price

                                                                        	 	
                                                                          Legal Representative's

                                                                          Address

                                                                          and
      Facsimile Number

                                                                        
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                          [Buyer]

                                                                        	 	 	**************	 	 	 	2,250,000	 	 	 	666,667	 	 	 	562,500	 	 	 	2,812,500	 	 	 	   2,812,500	
                                                                          
                                                                            
                                                                              1

                                                                            

                                                                          

                                                                        	 	$	2,250,000	 	
                                                                          Schulte
      Roth & Zabel LLP

                                                                          
                                                                            919
      Third Avenue

                                                                            New
      York, New York  10022

                                                                            Attention:  Eleazer
      Klein, Esq.

                                                                            Facsimile:   212)
      593-5955

                                                                            Telephone: (212)
      756-2376

                                                                          

                                                                        

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                                    

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    1 The
number of Series D Warrants that will be exercisable will be reduced by the
number of Series C Warrants that are exercised.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBITS

     

    
      
        	
                Exhibit
      A

              	
                Form
      of Series [A] [B] [C] Warrant

              
	
                Exhibit
      B

              	
                Form
      of Series D Warrant

              
	
                Exhibit
      C

              	
                Parties
      to Lock-Up Agreements

              
	
                Exhibit
      D

              	
                Form
      of Lock-Up Agreement

              
	
                Exhibit
      E

              	
                Form
      of Irrevocable Transfer Agent Instructions

              
	
                Exhibit
      F

              	
                Form
      of Opinion of Company's Counsel

              
	
                Exhibit
      G

              	
                Form
      of Secretary's Certificate

              
	
                Exhibit
      H

              	
                Form
      of Officer's Certificate

              

      

    

     

    SCHEDULES

     

    
      
        	
                Schedule
      I

              	
                List
      of General Use Free Writing Prospectus

              
	
                Schedule
      3 (oo)

              	
                Stockholder
      Rights Plan

              

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
C

    

    Parties
to Lock-Up Agreements

    

    
      	
              1.

            	
              Dwight
      Babcock

            

    

    
      	
              2.

            	
              Brien
      Ragle

            

    

    
      	
              3. 

            	
              Fredric
      Swindler

            

    

    
      	
              4. 

            	
              William
      Cavanagh

            

    

    
      	
              5. 

            	
              Robert
      Kauffman

            

    

    
      	
              6. 

            	
              Thomas
      LaVoy

            

    

    
      	
              7. 

            	
              Albert
      Smith

            

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
3(oo)

    

    On
February 1, 2007, the Board of Directors of IsoRay, Inc. (the “Company”)
declared a dividend of one preferred share purchase right (a “Right”) for each
outstanding Common Share of the par value of $.001 per share (the “Common
Shares”) of the Company. The dividend is payable on February 16, 2007 (the
“Record Date”) to shareholders of record on that date.

    

    Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a Series C Junior Participating Preferred Share of the par
value of $.001 per share (the “Preferred Shares”) of the Company at a price of
$25 per one one-hundredth of a Preferred Share (the “Purchase Price”), subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the “Rights Agreement”), dated as of February 1, 2007, between
the Company and Computershare Trust Company N.A., as Rights Agent (the “Rights
Agent”).

    

    Initially,
the Rights will attach to all certificates representing Common Shares then
outstanding and no separate Right Certificates will be distributed. The Rights
will separate from the Common Shares and a Distribution Date for the Rights will
occur upon the earlier of:

    

    (i)           
the close of business on the
fifteenth day following a public announcement that a person or group of
affiliated or associated persons has become an “Acquiring Person” (i.e., has
become, subject to certain exceptions, the beneficial owner of 15% or more of
the voting power of the outstanding shares of voting capital stock of the
Company in the election of directors), or

    

    (ii)           the close of business on the fifteenth
day following the first public announcement relating to a tender offer or
exchange offer the consummation of which would result in a person or group of
affiliated or associated persons becoming, subject to certain exceptions, the
beneficial owner of 15% or more of the voting power of the outstanding shares of
voting capital stock of the Company in the election of directors (or such later
date as may be determined by the Board of Directors of the Company prior to a
person or group of affiliated or associated persons becoming an Acquiring
Person).

    

    Until the
Distribution Date,

    

    (i)           
the Rights will be evidenced by
the Common Share certificates and will be transferred with and only with the
Common Shares,

    

    (ii)          
new Common Share certificates
issued after the Record Date upon transfer or new issuance of the Common Shares
will contain a notation incorporating the Rights Agreement by reference,
and

    

    (iii)         
the surrender for transfer of any
Common Share certificate, even without such notation or a copy of this Summary
of Rights attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such
certificate.

    

    As
promptly as practicable following the Distribution Date, separate certificates
evidencing the Rights (“Right Certificates”) will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.

    

    The
Rights are not exercisable until the Distribution Date. The Rights will expire
on February 16, 2017, unless extended or earlier redeemed or exchanged by the
Company as described below.

    

    The
Purchase Price payable, and the number of Preferred Shares or other securities
or property issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution:

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    (i)           
in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the Preferred
Shares,

    

    (ii)          
upon the grant to holders of the
Preferred Shares of certain rights, options or warrants to subscribe for or
purchase Preferred Shares or convertible securities at less than the then
current market price of the Preferred Shares, or

    

    (iii)         
upon the distribution to holders
of the Preferred Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends or dividends payable in Preferred Shares) or of
subscription rights or warrants (other than those described in clause (ii)
hereof).

    

    The
number of Preferred Shares issuable upon the exercise of a Right is also subject
to adjustment in the event of a dividend on Common Shares payable in Common
Shares, or a subdivision, combination or consolidation of the Common
Shares.

    

    With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price. No fractional Preferred Shares will be issued (other than fractional
shares which are integral multiples of one one-hundredth (subject to adjustment)
of a Preferred Share, which may, at the election of the Company, be evidenced by
depositary receipts) if in lieu thereof a payment in cash is made based on the
closing price (pro-rated for the fraction) of the Preferred Shares on the last
trading date prior to the date of exercise.

    

    In the
event that any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights that are or were beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price of the Right that number of
Common Shares having a market value of two times the exercise price of the
Right, subject to certain possible adjustments.

    

    In the
event that, after the Distribution Date or within 15 days prior thereto, the
Company is acquired in certain mergers or other business combination
transactions or 50% or more of the assets or earning power of the Company and
its subsidiaries (taken as a whole) are sold after the Distribution Date or
within 15 days prior thereto, each holder of a Right (other than Rights which
have become void under the terms of the Rights Agreement) will thereafter have
the right to receive, upon exercise thereof at the then current exercise price
of the Right, that number of common shares of the acquiring company (or, in
certain cases, one of its affiliates) having a market value of two times the
exercise price of the Right.

    

    In
certain events specified in the Rights Agreement, the Company is permitted to
temporarily suspend the exercisability of the Rights.

    

    At any
time after a person or group of affiliated or associated persons becomes an
Acquiring Person (subject to certain exceptions) and prior to the acquisition by
a person or group of affiliated or associated persons of 50% or more of the
voting power of the outstanding shares of voting capital stock of the Company in
the election of directors, the Board of Directors of the Company may exchange
all or part of the Rights (other than Rights which have become void under the
terms of the Rights Agreement) for Common Shares or equivalent securities at an
exchange ratio per Right equal to the result obtained by dividing the exercise
price of a Right by the current per share market price of the Common Shares,
subject to adjustment.

    

    At any
time prior to such time as a person or group of affiliated or associated persons
becomes an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right, subject to
adjustment (the “Redemption Price”), payable in cash. The period of time during
which the Rights may be redeemed may be extended by the Board of Directors of
the Company if no person has become an Acquiring Person. The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish. The
Board of Directors and the Company shall not have any liability to any person as
a result of the redemption or exchange of the Rights pursuant to the provisions
of the Rights Agreement.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    The terms
of the Rights may be amended by the Board of Directors of the Company, subject
to certain limitations after such time as a person or group of affiliated or
associated persons becomes an Acquiring Person, without the consent of the
holders of the Rights, including an amendment prior to the date a person or
group of affiliated or associated persons becomes an Acquiring Person to lower
the 15% threshold for exercisability of the Rights to not less than the greater
of (i) the sum of .001% and the largest percentage of the outstanding
shares of voting capital stock of the Company with voting power in the election
of directors then known by the Company to be beneficially owned by any person or
group of affiliated or associated persons (subject to certain exceptions) or
(ii) 10%.

    

    Until a
Right is exercised, the holder thereof, as such, will have no rights as a
shareholder of the Company, including, without limitation, the right to vote or
to receive dividends.

    

    A copy of
the Rights Agreement (including all exhibits thereto) is filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K, filed with the SEC on February 7,
2007. The foregoing description of the Rights Agreement is qualified in its
entirety by reference to the full text of the Rights Agreement.ISORAY,
INC.

     

    Form
of Lock-Up Agreement

     

    November
22, 2010

     

    IsoRay,
Inc.

    350 Hills
St., Suite 106

    Richland,
Washington  99354

    

    
      Re:  IsoRay, Inc. – Lock-Up
Agreement

    

     

    Dear
Sirs:

     

    This Lock-Up Agreement is being
delivered to you in connection with the Securities Purchase Agreement (the
"Purchase Agreement"),
dated as of November 22, 2010 by and among IsoRay, Inc. (the "Company") and the investors
party thereto (the "Buyers"), with respect to the
issuance of (i) shares of Common Stock, par value $0.001 per share (the "Common Stock") and (ii) series
A, series B, series C and series D warrants (collectively, the "Warrants") which Warrants will
be exercisable to purchase Common Stock.  Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings set
forth in the Purchase Agreement.

     

    In order to induce the Buyers to enter
into the Purchase Agreement, the undersigned agrees that, commencing on the date
hereof and ending on the six month anniversary of the Closing Date (the "Lock-Up Period"), the
undersigned will not, and will cause all "affiliates" (as defined in Rule 144 of
the Securities Act of 1933, as amended and the rules and regulations of the
Securities Exchange Commission promulgated thereunder) of the undersigned or any
person in privity with the undersigned or any affiliate of the undersigned not
to, (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge,
grant any option to purchase, make any short sale or otherwise dispose of or
agree to dispose of, directly or indirectly, any shares of Common Stock, or
establish or increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Securities and
Exchange Act of 1934, as amended and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder with respect to any shares of
Common Stock owned directly by the undersigned (including holding as a
custodian) or with respect to which the undersigned has beneficial ownership
within the rules and regulations of the Securities and Exchange Commission
(collectively, the "Undersigned's Shares'), (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of any of the
Undersigned's Shares, whether any such transaction described in clauses (i) or
(ii) above is to be settled by delivery of such securities, in cash or otherwise
or (iii) publicly disclose the intention to do any of the
foregoing.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    The foregoing restriction is expressly
agreed to preclude the undersigned or any affiliate of the undersigned from
engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Undersigned's Shares even if the Undersigned's Shares would be disposed of
by someone other than the undersigned.  Such prohibited hedging or
other transactions would include, without limitation, any short sale or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any of the Undersigned's Shares or with respect to
any security that includes, relates to, or derives any significant part of its
value from the Undersigned's Shares.

     

    Notwithstanding the foregoing, the
undersigned may transfer the Undersigned's Shares as a bona fide gift or gifts,
provided that the donee or donees thereof agree to be bound in writing by the
restrictions set forth herein.  The undersigned now has, and, except
as contemplated by the immediately preceding sentence, for the duration of this
Lock-Up Agreement will have, good and marketable title to the Undersigned's
Shares, free and clear of all liens, encumbrances, and claims
whatsoever.  The undersigned also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent and registrar
against the transfer of the Undersigned's Shares except in compliance with the
foregoing restrictions.

     

    In order to enforce this covenant, the
Company shall impose irrevocable stop-transfer instructions preventing the
Transfer Agent from effecting any actions in violation of this Lock-Up
Agreement.

     

    The undersigned acknowledges that the
execution, delivery and performance of this Lock-Up Agreement is a material
inducement to the Buyers to complete the transactions contemplated by the
Purchase Agreement and that the Company shall be entitled to specific
performance of the undersigned’s obligations hereunder.  The
undersigned hereby represents that the undersigned has the power and authority
to execute, deliver and perform this Lock-Up Agreement, that the undersigned has
received adequate consideration therefor and that the undersigned will
indirectly benefit from the closing of the transactions contemplated by the
Purchase Agreement.

     

    The undersigned understands and agrees
that this Lock-Up Agreement is irrevocable and shall be binding upon the
undersigned's heirs, legal representatives, successors, and
assigns.

     

    If the Closing (as defined in the
Purchase Agreement) has not occurred on or prior to November 29, 2010, this
Lock-Up Agreement shall immediately terminate and shall be of no further force
and effect.

     

    This Lock-Up Agreement may be executed
in two counterparts, each of which shall be deemed an original but both of which
shall be considered one and the same instrument.

     

    This Lock-Up Agreement will be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to any choice of law or conflicting provision or rule (whether of
the State of New York, or any other jurisdiction) that would cause the laws of
any jurisdiction other than the State of New York to be applied.  In
furtherance of the foregoing, the internal laws of the State of New York will
control the interpretation and construction of this Lock-Up Agreement, even if
under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.

     

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blank]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      
        
          
            
              	
                      Very
      truly yours,

                    
	 
      
	 
      
	
                      Exact
      Name of Stockholder

                    
	 
      
	 
      
	
                      Authorized
      Signature

                    
	 
      
	 
      
	
                      Title

                    

            

          

        

      

    

    

    
      Agreed to
and Acknowledged:

    

    

    
      
        
          	
                  ISORAY,
      INC.

                
	 
      	 
      
	
                  By: 

                	 
      
	 
      	
                  Name:  Dwight
      Babcock

                
	 
      	
                  Title:  CEO
      and Chairman

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