Document:

Unassociated Document

    COMMON
      STOCK AND WARRANT PURCHASE AGREEMENT

     

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

     

    Recitals

    

    A. The
      Company and the Purchasers are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation
      D”),
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended; and

     

    B. Contemporaneous
      with the sale of the Securities (as defined below), the parties hereto will
      execute and deliver a Registration Rights Agreement, in the form attached hereto
      as Exhibit
      C
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company will agree to provide certain registration rights
      under the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder, and applicable state securities laws.

     

    NOW,
      THEREFORE, in consideration of the mutual agreements, representations,
      warranties and covenants herein contained, the parties hereto agree as
      follows:

     

    1.  Definitions.
      As used
      in this Agreement, the following terms shall have the following respective
      meanings:

     

    (a)  “Additional
      Shares”
shall
      have the meaning given in Section 2.1(b).

     

    (b)  “Affiliate”
of
      a
      party means any corporation or other business entity controlled by, controlling
      or under common control with such party. For this purpose “control”
shall
      mean direct or indirect beneficial ownership of fifty percent (50%) or more
      of the voting or income interest in such corporation or other business
      entity.

     

    (c)  “Agreement”
means
      this Common Stock and Warrant Purchase Agreement.

     

    (d)  “Closing”
shall
      have the meaning given in Section 2.3.

     

    (e)  “Closing
      Date”
means
      the date of the sale and purchase of the Warrants and Common Stock acquired
      hereunder.

     

    (f)  “Company’s
      Knowledge”
means
      the actual knowledge of the executive officers (as defined in Rule 405 under
      the
      Securities Act) of the Company, after due inquiry.

     

    (g)  “Confidential
      Information”
means
      trade secrets, confidential information and know-how (including but not limited
      to ideas, formulae, compositions, processes, procedures and techniques, research
      and development information, computer program code, performance specifications,
      support documentation, drawings, specifications, designs, business and marketing
      plans, and customer and supplier lists and related information).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (h)  “Disclosure
      Schedules”
has
      the
      meaning set forth in Section 3.

     

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

     

    (j)  “Excluded
      Stock”
means
      (1) all shares of Common Stock issued and outstanding as of the Effective Date,
      and all shares of Common Stock issued after the Effective Date pursuant to
      this
      Agreement, and all shares of Common Stock issued or issuable upon the exercise
      or conversion of any Purchase Rights outstanding as of the Effective Date
      (provided that the terms of such Purchase Rights are not modified or changed
      except as contemplated by this Agreement), and all shares of Common Stock issued
      or issuable upon the exercise of the Warrants and all other Warrants issued
      pursuant to this Agreement; (2) all shares of Common Stock or other securities
      hereafter issued or issuable to officers, directors, employees, scientific
      advisors, or consultants of the Company pursuant to any employee or consultant
      option, stock offering, plan or arrangement approved by the majority of the
      members of the Board of Directors of the Company; (3) all shares of Common
      Stock
      or other securities hereafter issued in connection with or as consideration
      for
      the acquisition or licensing of technology approved by the majority of the
      members of the Board of Directors of the Company; and (4) all shares of Common
      Stock or other securities issued in connection with equipment leasing or
      equipment financing arrangements approved by the majority of the members of
      the
      Board of Directors of the Company.

     

    (k)  “GAAP”
shall
      have the meaning set forth in Section 3.5.

     

    (l)  “Investor
      Questionnaire”
shall
      mean that Investor Questionnaire substantially in the form attached hereto
      as
Appendix
      F
      submitted by each Investor in connection with the purchase of the
      Securities.

     

    (m)  “Lead
      Investor”
shall
      mean MicroCapital Fund, LP.

     

    (n)  “Majority
      Purchasers”
shall
      mean Purchasers which, at any given time, hold greater than fifty
      percent (50%) of the outstanding Securities that have not been resold
      pursuant to an effective registration statement under the Securities Act or
      Rule
      144 under the Securities Act.

     

    (o)  “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the results of operations, cash flow, business
      prospects, customer, supplier or employee relations or financial condition
      of
      the Company and its Subsidiaries taken as a whole, or (ii) the ability of the
      Company to perform its obligations under the Transaction Documents.

     

    (p)  “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

     

    
      
         

      

      
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    (q)  “Purchase
      Price”
shall
      have the meaning given in Section 2.1.

     

    (r)  “Purchase
      Rights”
means
      (i) warrants and options to purchase, or rights to subscribe for, Common Stock,
      and (ii) securities by their terms convertible into or exchangeable for Common
      Stock, and options to purchase, or rights to subscribe for, such convertible
      and
      exchangeable securities.

     

    (s)  “Registration
      Rights Agreement”
shall
      mean that certain Registration Rights Agreement, dated as of the date hereof,
      among the Company and the Purchasers, in the form attached hereto as
Exhibit
      C.

     

    (t)  “SEC”
shall
      mean the Securities and Exchange Commission.

     

    (u)  “SEC
      Documents”
shall
      have the meaning given in Section 3.6.

     

    (v)  “Securities”
shall
      have the meaning given in Section 2.2.

     

    (w)  “Securities
      Act”
shall
      mean the Securities Act of 1933, as amended, and all of the rules and
      regulations promulgated thereunder.

     

    (x)  “Shares”
means
      the shares of Common Stock being purchased by the Purchasers
      hereunder.

     

    (y)  “Subsidiary”
means
      with respect to any Person, any Person (i) of which the first Person owns
      directly or indirectly 50% of more of the equity interest in the other Person,
      (ii) of which the first Person or any Subsidiary of the first Person is a
      general partner, or (iii) of which securities or other ownership interests
      having ordinary voting power to elect a majority of the board of directors
      or
      other persons performing similar functions with respect to the other Person
      are
      at the time owned by the first Person and/or one or more of the first Person’s
      Subsidiaries.

     

    (z)  “Transaction
      Documents”
means
      this Agreement, the Warrants, the Registration Rights Agreement, and the
      Subscription Agreement and Investor Questionnaire, entered into between the
      Company and the Purchasers.

     

    (aa)  “Warrants”
has
      the
      meaning set forth in Section 2.1 of this Agreement.

     

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

     

    2.  Purchase
      and Sale of Shares.

     

    2.1  Purchase
      and Sale.
      (a)
      Subject to and upon the terms and conditions set forth in this Agreement, the
      Company agrees to issue and sell to the Purchasers (i) a minimum of 800,000
      shares of the Company’s Common Stock, par value $0.001 per share (the
“Common
      Stock”)
      at a
      purchase price of $2.50 per share and (ii) warrants to purchase a minimum of
      800,000 shares of Common Stock (subject to adjustment) at a purchase price
      of
      $3.00 per share, in the form attached hereto as Exhibit
      B (“Warrants”).
      Each
      Purchaser hereby agrees to purchase from the Company, at the Closing (as defined
      below), the number of shares of Common Stock and Warrants set forth opposite
      the
      name of such Purchaser under the heading “Number
      of Shares to be Purchased”
on
      Exhibit A
      hereto.
      The total purchase price payable by each Purchaser for the Common Stock and
      Warrants that such Purchaser is hereby agreeing to purchase (the “Purchase
      Price”)
      is set
      forth opposite the name of such Purchaser under the heading “Purchase
      Price”
on
      Exhibit A
      hereto.

     

    
      
         

      

      
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    (b) The
      Company agrees that in the event the Company issues Purchase Rights or Common
      Stock on or after the Effective Date for no consideration, or consideration
      per
      share equal to or less than $2.00, each Purchaser shall have the further right
      to purchase, and the Company shall issue and deliver to each Purchaser,
      additional shares of Common Stock in an amount equal to twenty-five (25%)
      percent of the aggregate amount of shares of Common Stock purchased by each
      Purchaser hereunder, for a purchase price of $0.001 per share (such shares,
      “Additional
      Shares”);
      provided,
      however,
      that
      (i) an issuance of Excluded Stock shall not give rise to any Purchaser right
      to
      Additional Shares under this paragraph, and (ii) an issuance of Additional
      Shares hereunder shall not be deemed a “Dilutive Issuance” under the Warrant.
      The Company shall promptly notify each Purchaser of any issuance that gives
      rise
      to a Purchaser right to Additional Shares under this paragraph.

     

    2.2  The
      shares of Common Stock sold to the Purchasers pursuant to this Agreement are
      hereinafter referred to as the “Shares.”
      The
      Warrants to purchase Common Stock sold hereunder are hereinafter referred to
      as
      the “Warrants.”
      The
      total amount of Common Stock and other securities issuable upon conversion
      of
      the Warrants are hereinafter referred to as the “Warrant
      Shares.”
The
      Shares, the Warrants and the Warrant Shares are hereinafter collectively
      referred to as the “Securities.”

     

    2.3  Closing.
      The
      initial purchase and sale of the Shares and Warrants shall take place at the
      offices of Reed Smith, LLP Two Embarcadero, 20th
      Floor,
      San Francisco, CA 94111 at 10:00 A.M. on August 16, 2006, or at such other
      time
      and place as the Company and the Purchasers acquiring at the Closing in the
      aggregate more than half of such Shares sold pursuant to Section 2.1 mutually
      agree upon, but in no event later than August 21, 2006 (which time and place
      are
      designated as the “Closing”).
      Within five (5) business days after the Closing, the Company shall deliver
      to
      each Purchaser purchasing Shares and Warrants at the Closing a certificate
      representing the Shares and a corresponding Warrant, registered in the name
      of
      such Purchaser, or in such nominee's or nominees' name(s) as designated by
      such
      Purchaser in writing in the Investor Questionnaire, which such Purchaser is
      purchasing against delivery to the Company by such Purchaser of a cashier’s
      check or wire transfer in the aggregate amount of the Purchase Price therefor
      payable to the Company's order.

     

    3.  Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Purchasers that, except as set
      forth in the schedules delivered herewith (collectively, the “Disclosure
      Schedules”):

     

    3.1  Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Subsidiaries is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation and has all requisite corporate power and authority to carry
      on
      its business as now conducted and to own its properties. Each of the Company
      and
      its Subsidiaries is duly qualified to do business as a foreign corporation
      and
      is in good standing in each jurisdiction in which the conduct of its business
      or
      its ownership or leasing of property makes such qualification or leasing
      necessary unless the failure to so qualify would have a Material Adverse Effect.
      The Company’s Subsidiaries are listed on Schedule
      3.1
      attached
      hereto.

     

    
      
         

      

      
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    3.2  Authorization.
      The
      Company has the corporate power and has taken all requisite action on the part
      of the Company, its officers, directors and stockholders necessary for (i)
      the
      authorization, execution and delivery of the Transaction Documents, (ii) the
      authorization of the performance of all obligations of the Company hereunder
      or
      thereunder, and (iii) the authorization, issuance (or reservation for issuance)
      and delivery of the Securities.
      The
      Transaction Documents constitute the legal, valid and binding obligations of
      the
      Company, enforceable against the Company in accordance with their terms, subject
      to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
      and
      similar laws of general applicability, relating to or affecting creditors’
rights generally.

     

    3.3  Capitalization.
      Schedule
      3.3
      sets
      forth (a) the authorized capital stock of the Company on the date hereof; (b)
      the number of shares of capital stock issued and outstanding; (c) the number
      of
      shares of capital stock issuable pursuant to the Company’s stock plans; and (d)
      the number of shares of capital stock issuable and reserved for issuance
      pursuant to securities (other than the Shares and the Warrants) exercisable
      for,
      or convertible into or exchangeable for any shares of capital stock of the
      Company. All of the issued and outstanding shares of the Company’s capital stock
      have been duly authorized and validly issued and are fully paid, nonassessable
      and free of pre-emptive rights and were issued in compliance in all material
      respects with applicable state and federal securities law and any rights of
      third parties. Except as described on Schedule
      3.3,
      all of
      the issued and outstanding shares of capital stock of each Subsidiary have
      been
      duly authorized and validly issued and are fully paid, nonassessable and free
      of
      pre-emptive rights, were issued in compliance in all material respects with
      applicable state and federal securities law and any rights of third parties
      and
      are owned by the Company, beneficially and of record, subject to no lien,
      encumbrance or other adverse claim. Except as described on Schedule
      3.3,
      no
      Person is entitled to pre-emptive or similar statutory or contractual rights
      with respect to any securities of the Company. Except as described on
Schedule
      3.3,
      there
      are no outstanding warrants, options, convertible securities or other rights,
      agreements or arrangements of any character under which the Company or any
      of
      its Subsidiaries is or may be obligated to issue any equity securities of any
      kind and except as contemplated by this Agreement, neither the Company nor
      any
      of its Subsidiaries is currently in negotiations for the issuance of any equity
      securities of any kind. Except as described on Schedule
      3.3
      and
      except for the Registration Rights Agreement, there are no voting agreements,
      buy-sell agreements, option or right of first purchase agreements or other
      agreements of any kind among the Company and any of the security holders of
      the
      Company relating to the securities of the Company held by them. Except as
      described on Schedule
      3.3
      and
      except as provided in the Registration Rights Agreement, no Person has the
      right
      to require the Company to register any securities of the Company under the
      Securities Act, whether on a demand basis or in connection with the registration
      of securities of the Company for its own account or for the account of any
      other
      Person. 

     

    
      
         

      

      
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    Except
      as
      described on Schedule
      3.3,
      the
      issuance and sale of the Securities hereunder will not obligate the Company
      to
      issue shares of Common Stock or other securities to any other Person (other
      than
      the Purchasers) and will not result in the adjustment of the exercise,
      conversion, exchange or reset price of any outstanding security. Except as
      described on Schedule
      3.3,
      the
      Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase
      any
      equity interest in the Company upon the occurrence of certain
      events.

    

    3.4  Valid
      Issuance of the Shares.
      The
      Shares have been duly and validly authorized and, when issued and paid for
      pursuant to this Agreement, will be validly issued, fully paid and
      nonassessable, and shall be free and clear of all encumbrances and restrictions
      (other than those created by the Purchasers), except for restrictions on
      transfer set forth in the Transaction Documents or imposed by applicable
      securities laws. The Warrants have been duly and validly authorized. Upon the
      due exercise of the Warrants, the Warrant Shares will be validly issued, fully
      paid and non-assessable free and clear of all encumbrances and restrictions,
      except for restrictions on transfer set forth in the Transaction Documents
      or
      imposed by applicable securities laws and except for those created by the
      Purchasers. The Company has reserved a sufficient number of shares of Common
      Stock for issuance upon the exercise of the Warrants, free and clear of all
      encumbrances and restrictions, except for restrictions on transfer set forth
      in
      the Transaction Documents or imposed by applicable securities laws and except
      for those created by the Purchasers.

     

    3.5  Financial
      Statements.
      The
      financial statements included in each SEC filing present fairly, in all material
      respects, the consolidated financial position of the Company as of the dates
      shown and its consolidated results of operations and cash flows for the periods
      shown (subject, in the case of unaudited statements, to normal year-end audit
      adjustments), and such financial statements have been prepared in conformity
      with United States generally accepted accounting principles applied on a
      consistent basis (“GAAP”)
      (except as may be disclosed therein or in the notes thereto, and, in the case
      of
      quarterly financial statements, as permitted by Form 10-QSB under the Exchange
      Act). Except as set forth in the financial statements of the Company included
      in
      the SEC filings filed prior to the date hereof or as described on Schedule
      3.5,
      neither
      the Company nor any of its Subsidiaries has incurred any liabilities, contingent
      or otherwise, except those incurred in the ordinary course of business,
      consistent (as to amount and nature) with past practices since the date of
      such
      financial statements, none of which, individually or in the aggregate, would
      have a Material Adverse Effect.

     

    3.6  SEC
      Documents.
      The
      Company has filed all reports, schedules, forms, statements (collectively,
      and
      in each case including all exhibits, financial statements and schedules thereto
      and documents incorporated by reference therein and including all registration
      statements and prospectuses filed with the SEC) required to be filed by it
      with
      the SEC through the Closing Date, and the Company will file, on a timely basis,
      all similar documents with the SEC during the period commencing on the date
      hereof and ending on the Closing Date (all of the foregoing being hereinafter
      referred to as the “SEC
      Documents”).
      As of
      their respective dates, the SEC Documents complied in all material respects
      with
      the requirements of the Securities Act, the Exchange Act and the rules and
      regulations of the SEC promulgated thereunder applicable to the SEC Documents,
      and none of the SEC Documents contained any untrue statement of a material
      fact
      or omitted to state a material fact required to be stated therein or necessary
      in order to make the statements made therein, in light of the circumstances
      under which they were made, not misleading, as of their respective filing
      dates.

     

    
      
         

      

      
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    3.7  Consents.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      and the offer, issuance and sale of the Securities require no consent of, action
      by or in respect of, or filing with, any Person, governmental body, agency,
      or
      official other than filings that have been made pursuant to applicable state
      securities laws and post-sale filings pursuant to applicable state and federal
      securities laws which the Company undertakes to file within the applicable
      time
      periods. Subject to the accuracy of the representations and warranties of each
      Purchaser set forth in Section 4 hereof, the Company has taken all action
      necessary to exempt (i) the issuance and sale of the Securities, (ii) the
      issuance of the Warrant Shares upon due exercise of the Warrants, and (iii)
      the
      other transactions contemplated by the Transaction Documents from the provisions
      of any stockholder rights plan or other “poison pill” arrangement, any
      anti-takeover, business combination or control share law or statute binding
      on
      the Company or to which the Company or any of its assets and properties may
      be
      subject and any provision of the Company’s Certificate of Incorporation or
      Bylaws that is or could reasonably be expected to become applicable to the
      Purchasers as a result of the transactions contemplated hereby, including
      without limitation, the issuance of the Securities and the ownership,
      disposition or voting of the Securities by the Purchasers or the exercise of
      any
      right granted to the Purchasers pursuant to this Agreement or the other
      Transaction Documents.

     

    3.8  No
      Conflict.
      Except
      as disclosed in Schedule
      3.8,
      the
      execution, delivery and performance of the Transaction Documents by the Company
      and the issuance and sale of the Securities will not conflict with or result
      in
      a breach or violation of any of the terms and provisions of, or constitute
      a
      default under (i) the Company’s Certificate of Incorporation or the Company’s
      Bylaws, both as in effect on the date hereof (true and complete copies of which
      have been made available to the Purchasers), or (ii)(a) any statute, rule,
      regulation or order of any governmental agency or body or any court, domestic
      or
      foreign, having jurisdiction over the Company, any Subsidiary or any of their
      respective assets or properties, or (b) any agreement or instrument to which
      the
      Company or any Subsidiary is a party or by which the Company or a Subsidiary
      is
      bound or to which any of their respective assets or properties is subject,
      except, in the case of clause (ii), for such breaches, violations or defaults
      as
      would not reasonably be expected to result in a Material Adverse
      Effect.

     

    3.9  Brokers
      or Finders.
      Except
      as disclosed on Schedule
      3.9,
      the
      Company has not dealt with any broker or finder in connection with the
      transactions contemplated by this Agreement or incurred any liability for any
      brokerage or finders' fees or agents commissions or any similar charges in
      connection with this Agreement or any transaction contemplated
      hereby.

     

    3.10  No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any Company
      security or solicited any offers to buy any security, under circumstances that
      would adversely affect reliance by the Company on Section 4(2) for the exemption
      from registration for the transactions contemplated hereby or would require
      registration of the Securities under the Securities Act.

     

    
      
         

      

      
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    3.11  Absence
      of Litigation.
      There
      is no action, suit or proceeding or, to the Company's Knowledge, any
      investigation, pending, or to the Company's Knowledge, threatened by or before
      any court, governmental body or regulatory agency against the Company that
      is
      required to be disclosed in the SEC Documents and is not so disclosed. The
      Company has not received any written or oral notification of, or request for
      information in connection with, any formal or informal inquiry, investigation
      or
      proceeding from the SEC or the NASD. The foregoing includes, without limitation,
      any such action, suit, proceeding or investigation that questions this Agreement
      or the Registration Rights Agreement or the right of the Company to execute,
      deliver and perform under same.

     

    3.12  Intellectual
      Property.
      

     

    (a)  To
      the
      Company’s Knowledge, the Company has ownership of or license or legal right to
      use all patents, copyrights, trade secrets, trademarks, domain names, customer
      lists, designs, manufacturing or other processes, computer software, systems,
      data compilations, research results and other intellectual property or
      proprietary rights (collectively, “Intellectual
      Property”)
      used
      in the business of the Company and material to the Company. The Company knows
      of
      no reason why its patent applications do not or would not comply with any
      statutory or legal requirements or would not issue into valid and enforceable
      patents.

     

    (b)  To
      the
      Company’s Knowledge, there is no material default by the Company under any
      material licenses or other material agreements under which (i) the Company
      is
      granted rights in Intellectual Property or (ii) the Company has granted rights
      to others in Intellectual Property owned or licensed by the Company. There
      are
      no outstanding or threatened claims, disputes or disagreements with respect
      to
      any such licenses or agreements.

     

    (c)  To
      the
      Company’s Knowledge, the present business, activities and products of the
      Company do not infringe or misappropriate any Intellectual Property of any
      third
      party. The Company has not been notified that any proceeding charging the
      Company with infringement or misappropriation of any Intellectual Property
      held
      by any third party has been filed. To the Company's Knowledge, there exists
      no
      patent held by any third party which includes claims that would be infringed
      by
      the Company in the conduct of its business as currently conducted where such
      infringement would have a Material Adverse Effect. To the Company’s Knowledge,
      the Company is not making unauthorized use of any Confidential Information
      of
      any third party. Neither the Company nor, to the Company’s Knowledge, any of its
      employees have any agreements or arrangements with any persons other than the
      Company restricting the Company's or any such employee's engagement in business
      activities that are material aspects of the Company's business as currently
      conducted.

     

    (d)  None
      of
      the Intellectual Property owned or, to the Company's Knowledge, licensed by
      the
      Company that is used in the business of the Company and material to the Company,
      is subject to any outstanding judgment or order, and no action, suit,
      proceeding, hearing, investigation, charge, complaint, claim or demand is
      pending or, to the Company’s Knowledge, threatened, which challenges the
      validity, enforceability, scope, use, or ownership of, or otherwise relates
      to,
      any such Intellectual Property anywhere in the world. None of the Company’s
      patents has been or is now involved in any interference, reissue, reexamination,
      opposition, or other proceeding.

     

    
      
         

      

      
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    (e)  Except
      as
      set forth in Schedule
      3.12(e),
      each
      employee of the Company has executed a confidential information and invention
      assignment agreement in the form made available to Purchasers. No such employee
      has excluded works or inventions made prior to his or her employment with the
      Company from his or her assignment of inventions pursuant to such employee's
      confidential information and invention assignment agreement, which works or
      inventions are necessary to the business of the Company as it is proposed to
      be
      conducted. Each consultant to the Company has entered into an agreement
      containing appropriate confidentiality and invention assignment provisions,
      in
      the form acceptable to Purchasers. Except as set forth in Schedule
      3.12(e),
      the
      Company does not believe it is or will be necessary to utilize any inventions,
      trade secrets or proprietary information of any of its employees made prior
      to
      their employment by the Company, except for inventions, trade secrets or
      proprietary information that have been assigned to the Company. 

     

    3.13  Offering.
      The
      Company has not in the past nor will it hereafter take any action to sell,
      offer
      for sale or solicit offers to buy any securities of the Company which would
      require the offer, issuance or sale of the Securities, as contemplated by this
      Agreement, to be registered under Section 5 of the Securities Act. Neither
      the
      Company nor any Person acting on its behalf has conducted any general
      solicitation or general advertising (as those terms are used in Regulation
      D) in
      connection with the offer or sale of any of the Securities.

     

    3.14  Private
      Placement.
      Assuming the accuracy of the representations and warranties of the Purchasers
      contained in Section 4 hereof and compliance by the Purchasers with the terms
      of
      the Transaction Documents, the offer and sale of the Securities to the
      Purchasers as contemplated hereby is exempt from the registration requirements
      of the Securities Act.

     

    3.15  Investment
      Company.
      The
      Company is not and, after giving effect to the offering and sale of the Shares
      and the Warrants, will not be required to register as, an “investment company”
as such term is defined in the Investment Company Act of 1940, as
      amended.

     

    3.16  No
      Manipulation of Stock.
      The
      Company has not taken and will not in violation of applicable law take any
      action designed to or that might reasonably be expected to cause or result
      in
      unlawful manipulation of the price of the Common Stock.

     

    3.17  No
      Violations.
      The
      Company is not in violation of its Certificate of Incorporation, Bylaws or
      other
      organizational documents, or in violation of any law, administrative regulation,
      ordinance or order of any court or governmental agency, arbitration panel or
      authority applicable to the Company, which violation, individually or in the
      aggregate, would be reasonably expected to have a Material Adverse Effect,
      or is
      not in default (and there exists no condition which, with the passage of time
      or
      otherwise, would constitute a default) in the performance of any material bond,
      debenture, note or any other evidence of indebtedness in any indenture,
      mortgage, deed of trust or any other material agreement or instrument to which
      the Company is a party or by which the Company is bound or by which the property
      of the Company is bound, which would be reasonably expected to have a Material
      Adverse Effect.

     

    
      
         

      

      
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    3.18   Transactions
      with Affiliates.
      Except
      as disclosed in the SEC filings or as disclosed on Schedule
      3.18,
      none of
      the officers or directors of the Company and, to the Company’s Knowledge, none
      of the employees of the Company is presently a party to any transaction with
      the
      Company or any Subsidiary (other than as holders of stock options and/or
      warrants, and for services as employees, officers and directors), including
      any
      contract, agreement or other arrangement providing for the furnishing of
      services to or by, providing for rental of real or personal property to or
      from,
      or otherwise requiring payments to or from any officer, director or such
      employee or, to the Company’s Knowledge, any entity in which any officer,
      director, or any such employee has a substantial interest or is an officer,
      director, trustee or partner.

     

    3.19  Questionable
      Payments.
      Neither
      the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
      their respective current or former stockholders, directors, officers or
      employees, has on behalf of the Company or any Subsidiary or in connection
      with
      their respective businesses: (a) used any corporate funds for unlawful
      contributions, gifts, entertainment or other unlawful expenses relating to
      political activity; (b) made any direct or indirect unlawful payments to any
      governmental officials or employees from corporate funds; (c) established or
      maintained any unlawful or unrecorded fund of corporate monies or other assets;
      (d) made any false or fictitious entries on the books and records of the Company
      or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence
      payment, kickback or other unlawful payment of any nature.

     

    3.20  Taxes.
      The
      Company has filed all necessary federal, state and foreign income and franchise
      tax returns and has paid or accrued all taxes shown as due thereon, and the
      Company has no knowledge of a tax deficiency which has been or might be asserted
      or threatened against it which would have a Material Adverse
      Effect.

     

    3.21  Title.
      The
      Company has good and marketable title to all real property and good and
      marketable title to all personal property owned by it which is material to
      the
      business of the Company, in each case free and clear of all encumbrances and
      defects, except such as do not have a Material Adverse Effect. Any facilities
      and items of equipment held under lease by the Company are held by it under
      valid, subsisting and enforceable leases with such exceptions as are not
      material and do not interfere with the use made and proposed to be made of
      such
      facilities and items of equipment by the Company. The Company is in compliance
      with all material terms of each lease to which it is a party or is otherwise
      bound. 

     

    3.22  Foreign
      Corrupt Practices.
      To the
      Company’s Knowledge, neither the Company, nor any director, officer, agent,
      employee or other person acting on behalf of the Company, has in the course
      of
      its actions for, or on behalf of, the Company, used any corporate funds for
      any
      unlawful contribution, gift, entertainment or other unlawful expenses relating
      to political activity; made any direct or indirect unlawful payment to any
      foreign or domestic government official or employee from corporate funds;
      violated or is in violation of any provision of the U.S. Foreign Corrupt
      Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
      influence payment, kickback or other unlawful payment to any foreign or domestic
      government official or employee. 

     

    
      
         

      

      
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    3.23  Employee
      Relations.
      The
      Company is not involved in any union labor dispute, nor, to the Company’s
      Knowledge, is any such dispute threatened. The Company is not a party to a
      collective bargaining agreement, and the Company believes that its relations
      with its employees are good. No executive officer (as defined in Rule 501(1)
      of
      the Securities Act) of the Company has notified the Company that such officer
      intends to leave the employ of the Company or otherwise terminate such officer’s
      employment with the Company. To the Company’s Knowledge, no employee of the
      Company, as a consequence of his employment by the Company is, or is now
      expected to be, in violation of any material term of any agreement, covenant
      or
      contract (including any employment contract, confidentiality, disclosure or
      proprietary information agreement, non-competition agreement, or any other
      contract or agreement or any restrictive covenant with any previous employer),
      and the continued employment of each such employee by the Company will not
      subject the Company to any liability with respect to any of the foregoing
      matters.

     

    3.24  Internal
      Accounting Controls.
      Except
      as otherwise disclosed on Schedule
      3.24,
      the
      Company maintains a system of internal accounting controls (as such term is
      defined in Rule 13a-14 and 15d-14 under the Exchange Act) sufficient to provide
      reasonable assurance that (i) transactions are executed in accordance with
      management’s general or specific authorizations, (ii) transactions are recorded
      as necessary to permit preparation of financial statements in conformity with
      generally accepted accounting principles and to maintain asset accountability,
      (iii) access to assets is permitted only in accordance with management’s general
      or specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    3.25  Disclosure
      Controls.
      The
      Company has established and maintains disclosure controls and procedures (as
      such term is defined in Rule 13a-14 and 15d-14 under the Exchange Act); such
      disclosure controls and procedures are designed to ensure that material
      information relating to the Company, including its consolidated subsidiaries,
      if
      any, is made known to the Company’s Chief Executive Officer and its Chief
      Financial Officer by others within those entities, and such disclosure controls
      and procedures are effective to perform the functions for which they were
      established; the Company’s auditors and the Audit Committee of the Board of
      Directors have been advised of: (i) any significant deficiencies in the design
      or operation of internal controls which could adversely affect the Company’s
      ability to record, process, summarize, and report financial data; and (ii)
      any
      fraud, whether or not material, that involves management or other employees
      who
      have a role in the Company’s internal controls; any material weaknesses in
      internal controls have been identified for the Company’s auditors; since the
      date of the most recent evaluation of such disclosure controls and procedures,
      there have been no significant changes in internal controls or in other factors
      that could significantly affect internal controls, including any corrective
      actions with regard to significant deficiencies and material weaknesses; the
      principal executive officers (or their equivalents) and principal financial
      officers (or their equivalents) of the Company have made all certifications
      required by the Sarbanes Oxley Act of 2002 (the “Sarbanes Oxley Act”) and any
      related rules and regulations promulgated by the Commission, and the statements
      contained in any such certification are complete and correct; and the Company
      is
      otherwise in compliance in all material respects with all applicable effective
      provisions of the Sarbanes Oxley Act.

     

    
      
         

      

      
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    3.26  Disclosures.
      Neither
      the Company nor any Person acting on its behalf has provided the Purchasers
      or
      their agents or counsel with any information that constitutes or might
      constitute material, non-public information, other than the fact that the
      Company intends to enter into the transactions contemplated hereby and the
      terms
      hereof. The Company understands that the Purchasers will be relying on this
      representation in effecting transactions in the Company’s
      securities.

     

    3.27  Completeness
      of Disclosures.
      Neither
      the Transaction Documents, nor any of the schedules or exhibits thereto, nor
      any
      other document or certificate provided by the Company to the Purchasers contains
      any untrue statement of a material fact or, when considered as a whole, omits
      to
      state a material fact necessary to make the statements contained herein or
      therein, in light of the circumstances in which they were made, not
      misleading.

     

    3.28  Use
      of
      Proceeds.
      The net
      proceeds of the sale of the Shares and the Warrants hereunder shall be used
      by
      the Company for working capital and general corporate purposes.

     

    3.29  Real
      Property Holding Corporation.
      The
      Company is not a real property holding corporation within the meaning of Section
      897(c)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) and any
      regulations promulgated thereunder.

     

    4.  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser severally for itself, and not jointly with the other Purchasers,
      represents and warrants to the Company as follows:

     

    4.1  Authorization.
      All
      action on the part of such Purchaser and, if applicable, its officers, directors
      and shareholders necessary for the authorization, execution, delivery and
      performance of the Transaction Documents and the consummation of the
      transactions contemplated therein has been taken. When executed and delivered
      by
      the Company and such Purchaser, each of the Transaction Documents will
      constitute the legal, valid and binding obligation of such Purchaser,
      enforceable against such Purchaser in accordance with its terms, except as
      such
      may be limited by bankruptcy, insolvency, reorganization or other laws affecting
      creditors' rights generally and by general equitable principles. Such Purchaser
      has all requisite power to enter into each of the Transaction Documents and
      to
      carry out and perform its obligations under the terms of the Transaction
      Documents. 

     

    4.2  Purchase
      Entirely for Own Account.
      The
      Securities to be received by such Purchaser hereunder will be acquired for
      such
      Purchaser’s own account, not as nominee or agent, and not with a view to the
      resale or distribution of any part thereof in violation of the Securities Act,
      and such Purchaser has no present intention of selling, granting any
      participation in, or otherwise distributing the same in violation of the
      Securities Act
      without
      prejudice, however, to such Purchaser’s right at all times to sell or otherwise
      dispose of all or any part of such Securities in compliance with applicable
      federal and state securities laws.
      Nothing
      contained herein shall be deemed a representation or warranty by such Purchaser
      to hold the Securities for any period of time. Such
      Purchaser is not a broker-dealer registered with the SEC under the Exchange
      Act
      or an entity engaged in a business that would require it to be so registered.
      

     

    
      
         

      

      
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    4.3  Investor
      Status; Etc.
      Such
      Purchaser certifies and represents to the Company that it is an “Accredited
      Investor” as defined in Rule 501 of Regulation D promulgated under the
      Securities Act and was not organized for the purpose of acquiring the
      Securities. Such Purchaser’s financial condition is such that it is able to bear
      the risk of holding the Securities for an indefinite period of time and the
      risk
      of loss of its entire investment. Subject to the truth and accuracy of the
      representations and warranties of the Company set forth in Section 3 of this
      Agreement (as modified by the Disclosure Schedules), such Purchaser has
      received, reviewed and considered all information it deems necessary, including
      but not limited to the Company’s Form SB-2 Registration Statement effective June
      8, 2006, in making an informed decision to make an investment in the Securities
      and has been afforded the opportunity to ask questions of and receive answers
      from the management of the Company concerning this investment and has sufficient
      knowledge and experience in investing in companies similar to the Company in
      terms of the Company’s stage of development so as to be able to evaluate the
      risks and merits of its investment in the Company.

     

    4.4  Confidential
      Information.
      Each
      Purchaser understands that any information, other than the SEC Documents,
      provided to such Purchaser by the Company, including, without limitation, the
      existence and nature of all discussions and presentations, if any, regarding
      this offering and the Transaction Documents, is strictly confidential and
      proprietary to the Company and is being submitted to the Purchaser solely for
      such Purchaser’s confidential use in connection with its investment decision
      regarding the Securities. Such Purchaser agrees to use such information for
      the
      sole purpose of evaluating a possible investment in the Securities and such
      Purchaser hereby acknowledges that it is prohibited from reproducing or
      distributing such information, the Transaction Documents, or any other offering
      materials, in whole or in part, or divulging or discussing any of their contents
      except for use internally and by its legal counsel and except as required by
      law
      or legal process. Such Purchaser understands that the federal securities laws
      prohibit any person who possesses material nonpublic information about a company
      from trading in securities of such company. 

     

    4.5  Securities
      Not Registered.
      Such
      Purchaser understands that the Securities have not been registered under the
      Securities Act, by reason of their issuance by the Company in a transaction
      exempt from the registration requirements of the Securities Act, and that the
      Securities must continue to be held by such Purchaser unless a subsequent
      disposition thereof is registered under the Securities Act or is exempt from
      such registration. The Purchaser understands that the exemptions from
      registration afforded by Rule 144 (the provisions of which are known to it)
      promulgated under the Securities Act depend on the satisfaction of various
      conditions, and that, if applicable, Rule 144 may afford the basis for sales
      only in limited amounts.

     

    4.6  No
      Conflict.
      The
      execution and delivery of the Transaction Documents by such Purchaser and the
      consummation of the transactions contemplated thereby will not conflict with
      or
      result in any violation of or default by such Purchaser (with or without notice
      or lapse of time, or both) under, or give rise to a right of termination,
      cancellation or acceleration of any obligation or to a loss of a material
      benefit under (i) any provision of the organizational documents of such
      Purchaser, (ii) any material agreement or instrument, permit, franchise, or
      license or (iii) any judgment, order, statute, law, ordinance, rule or
      regulations, applicable to such Purchaser or its respective properties or
      assets.

     

    
      
         

      

      
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    4.7  Brokers.
      Except
      as disclosed to the Company in writing, such Purchaser has not retained,
      utilized or been represented by any broker or finder in connection with the
      transactions contemplated by this Agreement.

     

    4.8  Consents.
      All
      consents, approvals, orders and authorizations required on the part of such
      Purchaser in connection with the execution, delivery or performance of this
      Agreement and the consummation of the transactions contemplated herein have
      been
      obtained and are effective as of the Closing Date.

     

    4.9  No
      Intent to Effect a Change of Control.
      Such
      Purchaser has no present intent to change or influence the control of the
      Company within the meaning of Rule 13d-1 of the Exchange Act.

     

    5.  Conditions
      Precedent.

     

    5.1  Conditions
      to the Obligation of the Purchasers to Consummate the Closing.
      The
      obligation of each Purchaser to consummate the Closing and to purchase and
      pay
      for the Securities being purchased by it pursuant to this Agreement is subject
      to the fulfillment to such Purchaser’s satisfaction, on or prior to the Closing
      Date, of the following conditions, any of which may be waived by such Purchaser
      (as to itself only):

     

    (a)  The
      representations and warranties made by the Company in Section 3 hereof qualified
      as to materiality shall be true and correct at all times prior to and on the
      Closing Date, except to the extent any such representation or warranty expressly
      speaks as of an earlier date, in which case such representation or warranty
      shall be true and correct as of such earlier date, and, the representations
      and
      warranties made by the Company in Section 3 hereof not qualified as to
      materiality shall be true and correct in all material respects at all times
      prior to and on the Closing Date, except to the extent any such representation
      or warranty expressly speaks as of an earlier date, in which case such
      representation or warranty shall be true and correct in all material respects
      as
      of such earlier date. The Company shall have performed in all material respects
      all obligations and covenants herein required to be performed by it on or prior
      to the Closing Date.

     

    (b)  The
      Company shall have obtained any and all consents, permits, approvals,
      registrations and waivers necessary or appropriate for consummation of the
      purchase and sale of the Securities and the consummation of the other
      transactions contemplated by the Transaction Documents, all of which shall
      be in
      full force and effect.

     

    (c)  The
      Registration Rights Agreement and respective Warrant shall have been executed
      and delivered by the Company.

     

    (d)  No
      proceeding challenging this Agreement or the transactions contemplated hereby,
      or seeking to prohibit, alter, prevent or materially delay the Closing, shall
      have been instituted before any court, arbitrator or governmental body, agency
      or official and shall be pending.

     

    (e)  No
      judgment, writ, order, injunction, award or decree of or by any court, or judge,
      justice or magistrate, including any bankruptcy court or judge, or any order
      of
      or by any governmental authority, shall have been issued, and no action or
      proceeding shall have been instituted by any governmental authority, enjoining
      or preventing the consummation of the transactions contemplated hereby or in
      the
      other Transaction Documents. 

     

    
      
         

      

      
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    (f)  The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Chief Executive Officer or its Chief Financial Officer, dated as of the
      Closing Date, certifying to the fulfillment of the conditions specified in
      subsections (a), (b), (d) and (e) of this Section 5.1.

     

    (g)  The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Secretary, dated as of the Closing Date, certifying the resolutions adopted
      by the Board of Directors of the Company approving the transactions contemplated
      by this Agreement and the other Transaction Documents and the issuance of the
      Securities, certifying the current versions of the Certificate of Incorporation
      and Bylaws of the Company and certifying as to the signatures and authority
      of
      persons signing the Transaction Documents and related documents on behalf of
      the
      Company. 

     

    (h)  The
      Purchasers shall have received an opinion from legal counsel for the Company,
      dated as of the Closing Date, in form and substance reasonably acceptable to
      the
      Purchasers and addressing such legal matters as the Purchasers may reasonably
      request.

     

    5.2  Conditions
      to the Obligation of the Company to Consummate the Closing.
      The
      obligation of the Company to consummate the Closing and to issue and sell the
      Securities at the Closing is subject to the satisfaction of the following
      conditions precedent, any of which may be waived by the Company:

     

    (a)  The
      representations and warranties contained herein of such Purchaser shall be
      true
      and correct on and as of the Closing Date with the same force and effect as
      though made on and as of the Closing Date (it being understood and agreed by
      the
      Company that, in the case of any representation and warranty of each Purchaser
      contained herein which is not hereinabove qualified by application thereto
      of a
      materiality standard, such representation and warranty need be true and correct
      only in all material respects in order to satisfy as to such representation
      or
      warranty the condition precedent set forth in the foregoing provisions of this
      Section 5.2(a)).

     

    (b)  The
      Registration Rights Agreement and respective Warrant shall have been executed
      and delivered by each Purchaser.

     

    (c)  The
      Purchase Price shall have been paid into the account of an escrow agent
      designated by the Company, as set forth in Appendix
      E.

     

    (d)  Each
      such
      Purchaser shall have executed and delivered to the Company an Investor
      Questionnaire, in the form attached hereto as Appendix
      F,
      pursuant to which such Purchaser shall provide information necessary to confirm
      each such Purchaser’s status as an “accredited investor” (as such term is
      defined in Rule 501 promulgated under the Securities Act) and to enable the
      Company to comply with the Registration Rights Agreement.

     

    
      
         

      

      
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    6.  Transfer,
      Legends.

     

    6.1  Securities
      Law Transfer Restrictions.
      

     

    (a)  Restricted
      Securities.
      Such
      Purchaser understands that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the Securities Act only in certain limited
      circumstances. 

     

    (b)  Each
      Purchaser understands that the Securities have not been registered under the
      Securities Act or any state securities laws. In that connection, such Purchaser
      is aware of Rule 144 under the Securities Act and the restrictions imposed
      thereby. Such Purchaser will not engage in hedging or other similar transactions
      which would include, without limitation, effecting any short sale or having
      in
      effect any short position (whether or not such sale or position is against
      the
      box and regardless of when such position was entered into) or any purchase,
      sale
      or grant of any right (including, without limitation, any put or call option)
      with respect to the Securities or with respect to any security (other than
      a
      broad-based market basket or index) that includes, relates to or derives any
      significant part of its value from the Common Stock of the Company.

     

    6.2   Legends.
      It is
      understood that, except as provided below, certificates evidencing the
      Securities may bear the following or any similar legend:

     

    (a)  “The
      securities represented hereby may not be transferred unless (i) such securities
      have been registered for sale pursuant to the Securities Act of 1933, as
      amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
      the
      Company has received an opinion of counsel reasonably satisfactory to it that
      such transfer may lawfully be made without registration under the Securities
      Act
      of 1933, as amended, or qualification under applicable state securities
      laws.”

     

    (b)  If
      required by the authorities of any state in connection with the issuance of
      sale
      of the Securities, the legend required by such state authority.

     

    6.3  Removal
      of Legends.
      Upon
      the earlier of (i) the resale of the Shares or Warrant Shares pursuant to a
      registration statement in accordance with the plan of distribution contained
      therein, delivery to the Company’s transfer agent and registrar (or any
      successor thereto, the “Transfer Agent”) (with a copy to the Company) of the
      certificate representing the shares of Common Stock sold and receipt by the
      Company and the Transfer Agent of a certificate of subsequent sale in the form
      of Exhibit
      D
      attached
      hereto or (ii) Rule 144(k) becoming available, delivery to the Transfer Agent
      (with a copy to the Company) of the certificate representing the shares of
      Common Stock and the delivery to the Company and the Transfer Agent of a
      representation letter from the Purchaser in customary form that Rule 144(k)
      applies to the shares of Common Stock represented thereby, the Company shall
      promptly cause the Transfer Agent to issue a certificate representing the shares
      of Common Stock which does not bear such restrictive legends. 

     

    
      
         

      

      
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    7.  Termination;
      Liabilities Consequent Thereon.
      This
      Agreement may be terminated and the transactions contemplated hereunder
      abandoned at any time prior to the Closing only as follows:

     

    (a)  at
      any
      time by mutual agreement of the Company and the Majority Purchasers;
      or

     

    (b)  by
      the
      Majority Purchasers, if there has been any breach of any representation or
      warranty or any material breach of any covenant of the Company contained herein
      and the same has not been cured within 15 days after notice thereof (it being
      understood and agreed by each Purchaser that, in the case of any representation
      or warranty of the Company contained herein which is not hereinabove qualified
      by application thereto of a materiality standard, such representation or
      warranty will be deemed to have been breached for purposes of this Section
      7(b)
      only if such representation or warranty was not true and correct in all material
      respects at the time such representation or warranty was made by the Company);
      or

     

    (c)  by
      the
      Company with respect to a certain Purchaser, if there has been any breach of
      any
      representation, warranty or any material breach of any covenant of such
      Purchaser contained herein and the same has not been cured within 15 days after
      notice thereof (it being understood and agreed by the Company that, in the
      case
      of any representation and warranty of such Purchaser contained herein which
      is
      not hereinabove qualified by application thereto of a materiality standard,
      such
      representation or warranty will be deemed to have been breached for purposes
      of
      this Section 7(c) only if such representation or warranty was not true and
      correct in all material respects at the time such representation or warranty
      was
      made by such Purchaser).

     

    Any
      termination pursuant to this Section 7 shall be without liability on the part
      of
      any party, unless such termination is the result of a material breach of this
      Agreement by a party to this Agreement in which case such breaching party shall
      remain liable for such breach notwithstanding any termination of this
      Agreement.

     

    8.  Survival
      and Indemnification.

     

    8.1  Survival.
      The
      representations, warranties, covenants and agreements contained in this
      Agreement shall survive the Closing of the transactions contemplated by this
      Agreement; provided, however, that any claim for Losses arising out of a breach
      of representation or warranty must be made, if at all, within two (2) years
      of
      the Closing Date.

     

    8.2  Indemnification.
      The
      Company agrees to indemnify and hold harmless each Purchaser and its Affiliates
      and their respective directors, officers, employees and agents from and against
      any and all losses, claims, damages, liabilities and expenses (including without
      limitation reasonable attorney fees and disbursements and other expenses
      incurred in connection with investigating, preparing or defending any action,
      claim or proceeding, pending or threatened and the costs of enforcement thereof)
      (collectively, “Losses”) to which such Person may become subject as a result of
      any breach of representation, warranty, covenant or agreement made by or to
      be
      performed on the part of the Company under the Transaction Documents, and will
      reimburse any such Person for all such amounts as they are incurred by such
      Person.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    8.3  Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”) of notice of any demand, claim or circumstances which would or might
      give rise to a claim or the commencement of any action, proceeding or
      investigation in respect of which indemnity may be sought pursuant to Section
      8.2, such Indemnified Person shall promptly notify the Company in writing and
      the Company shall assume the defense thereof, including the employment of
      counsel reasonably satisfactory to such Indemnified Person, and shall assume
      the
      payment of all fees and expenses; provided,
      however, that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      materially prejudiced by such failure to notify. In any such proceeding, any
      Indemnified Person shall have the right to retain its own counsel, but the
      fees
      and expenses of such counsel shall be at the expense of such Indemnified Person
      unless: (i) the Company and the Indemnified Person shall have mutually agreed
      to
      the retention of such counsel; or (ii) in the reasonable judgment of counsel
      to
      such Indemnified Person representation of both parties by the same counsel
      would
      be inappropriate due to actual or potential differing interests between them.
      The Company shall not be liable for any settlement of any proceeding effected
      without its written consent, which consent shall not be unreasonably withheld,
      but if settled with such consent, or if there be a final judgment for the
      plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
      from and against any loss or liability (to the extent stated above) by reason
      of
      such settlement or judgment. Without the prior written consent of the
      Indemnified Person, which consent shall not be unreasonably withheld, the
      Company shall not effect any settlement of any pending or threatened proceeding
      in respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Person, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

     

    9.  Miscellaneous
      Provisions.

     

    9.1  Public
      Announcements.
      Except
      as set forth below, no public release or announcement concerning the
      transactions contemplated hereby shall be issued by the Company or the
      Purchasers without the prior consent of the Company (in the case of a release
      or
      announcement by the Purchasers) or the Lead Investor (in the case of a release
      or announcement by the Company) (which consents shall not be unreasonably
      withheld), except as such release or announcement may be required by law or
      the
      applicable rules or regulations of any securities exchange or securities market,
      in which case the Company or the Lead Investor, as the case may be, shall allow
      the Lead Investor or the Company, as applicable, to the extent reasonably
      practicable in the circumstances, reasonable time to comment on such release
      or
      announcement in advance of such issuance. By 8:30 a.m. (New York City time)
      on
      the trading day immediately following the Closing Date, the Company shall issue
      a press release disclosing the consummation of the transactions contemplated
      by
      this Agreement. No later than the third trading day following the Closing Date,
      the Company will file a Current Report on Form 8-K attaching the press release
      described in the foregoing sentence as well as copies of the Transaction
      Documents. In addition, the Company will make such other filings and notices
      in
      the manner and time required by the SEC.

     

    9.2  Further
      Assurances.
      Each
      party agrees to cooperate fully with the other party and to execute such further
      instruments, documents and agreements and to give such further written
      assurances, as may be reasonably requested by the other party to better evidence
      and reflect the transactions described herein and contemplated hereby, and
      to
      carry into effect the intents and purposes of this Agreement.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    9.3  Rights
      Cumulative.
      Each
      and all of the various rights, powers and remedies of the parties shall be
      considered to be cumulative with and in addition to any other rights, powers
      and
      remedies which such parties may have at law or in equity in the event of the
      breach of any of the terms of this Agreement. The exercise or partial exercise
      of any right, power or remedy shall neither constitute the exclusive election
      thereof nor the waiver of any other right, power or remedy available to such
      party.

     

    9.4  Pronouns.
      All
      pronouns or any variation thereof shall be deemed to refer to the masculine,
      feminine or neuter, singular or plural, as the identity of the person, persons,
      entity or entities may require.

     

    9.5  Notices.
      Any
      notices, reports or other correspondence (hereinafter collectively referred
      to
      as “correspondence”) required or permitted to be given hereunder shall be in
      writing and shall be sent by postage prepaid first class mail, courier or
      telecopy or delivered by hand to the party to whom such correspondence is
      required or permitted to be given hereunder, and shall be deemed sufficient
      upon
      receipt when delivered personally or by courier, overnight delivery service
      or
      confirmed facsimile, or three (3) business days after being deposited in the
      regular mail as certified or registered mail (airmail if sent internationally)
      with postage prepaid, if such notice is addressed to the party to be notified
      at
      such party's address or facsimile number as set forth below:

     

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

     

    IsoRay,
      Inc.

    350
      Hills
      Street, Suite 106

    Richland,
      WA 99354

    Attention:
       Roger
      Girard, CEO

    

    with
      a
      copy to:

     

    Stephen
      R. Boatwright, Esq.

    Keller
      Rohrback, PLC 

    3101
      North Central Avenue, Suite 900

    Phoenix,
      AZ 85012

    Facsimile:
      (602) 248-2822

     

    (b)  All
      correspondence to any Purchaser shall be sent to such Purchaser at the address
      set forth in Exhibit A.

     

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

     

    9.6  Captions.
      The
      captions and paragraph headings of this Agreement are solely for the convenience
      of reference and shall not affect its interpretation.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    9.7  Severability.
      Should
      any part or provision of this Agreement be held unenforceable or in conflict
      with the applicable laws or regulations of any jurisdiction, the invalid or
      unenforceable part or provisions shall be replaced with a provision which
      accomplishes, to the extent possible, the original business purpose of such
      part
      or provision in a valid and enforceable manner, and the remainder of this
      Agreement shall remain binding upon the parties hereto.

     

    9.8  Governing
      Law.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. 

     

    9.9  Amendments.
      This
      Agreement may be amended or modified only pursuant to an instrument in writing
      signed by the Company and the Majority Purchasers. 

     

    9.10  Waiver.
      No
      waiver of any term, provision or condition of this Agreement, whether by conduct
      or otherwise, in any one or more instances, shall be deemed to be, or be
      construed as, a further or continuing waiver of any such term, provision or
      condition or as a waiver of any other term, provision or condition of this
      Agreement. 

     

    9.11  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance of the obligations of any other
      Purchaser under any Transaction Document. The decision of each Purchaser to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Purchaser independently of any other Purchaser. Nothing contained herein or
      in
      any Transaction Document, and no action taken by any Purchaser pursuant thereto,
      shall be deemed to constitute the Purchasers as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Purchasers are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Purchaser acknowledges that no other Purchaser has acted as agent for such
      Purchaser in connection with making its investment hereunder and that no
      Purchaser will be acting as agent of such Purchaser in connection with
      monitoring its investment in the Securities or enforcing its rights under the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including, without limitation, the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. The Company acknowledges that each of the
      Purchasers has been provided with the same Transaction Documents for the purpose
      of closing a transaction with multiple Purchasers and not because it was
      required or requested to do so by any Purchaser.

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    9.12  Assignment.
      The
      rights and obligations of the parties hereto shall inure to the benefit of
      and
      shall be binding upon the authorized successors and permitted assigns of each
      party. Neither party may assign its rights or obligations under this Agreement
      or designate another person (i) to perform all or part of its obligations under
      this Agreement or (ii) to have all or part of its rights and benefits under
      this
      Agreement, in each case without the prior written consent of the other party,
      provided, however, that a Purchaser may assign its rights hereunder with respect
      to any Securities transferred in accordance with the Registration Rights
      Agreement. In the event of any assignment in accordance with the terms of this
      Agreement, the assignee shall specifically assume and be bound by the provisions
      of the Agreement by executing and agreeing to an assumption agreement reasonably
      acceptable to the other party.

     

    9.13  Expenses.
      The
      parties hereto shall pay their own costs and expenses in connection herewith,
      except that if the Closing occurs, the Company shall reimburse the Lead Investor
      for the legal fees and disbursements of their counsel incurred in connection
      with the negotiation of the Transaction Documents up to $25,000 in the aggregate
      upon presentation of appropriate invoices.

     

    9.14  Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one
      instrument.

     

    9.15  Entire
      Agreement.
      This
      Agreement, the Warrants and the Registration Rights Agreement constitute the
      entire agreement between the parties hereto respecting the subject matter hereof
      and supersede all prior agreements, negotiations, understandings,
      representations and statements respecting the subject matter hereof, whether
      written or oral. No modification, alteration, waiver or change in any of the
      terms of this Agreement shall be valid or binding upon the parties hereto unless
      made in writing and duly executed by the Company and the Majority Purchasers.
      

     

    [Signature
      Page to Follow]

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Common Stock and Warrant
      Purchase Agreement as of the day and year first above written.

     

    
      
        
          	
                  ISORAY,
                    INC.

                   

                  

                  By:
                    /s/
                    Roger E.
                    Girard            
                    

                  Name:
                    Roger E. Girard

                  Title:
                    CEO

                

        

      

       

    

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

     

     

    
      
         

      

      
        22EXHIBIT 10.11

                                    AGREEMENT

     This Agreement is effective as of May 1, 2006, and is by and between
OraLabs, Inc., a Colorado corporation (the "Company") and Gary Schlatter (the
"Employee").

     WHEREAS, the parties entered into an Amended and Restated Employment
Agreement effective May 1, 2003 (the "Employment Agreement"); and

     WHEREAS, the Employment Agreement expires on April 30, 2006; and

     WHEREAS, the parties wish to amend the Employment Agreement as described in
this instrument.

     NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the adequacy and sufficiency of which is acknowledged by
the parties, the parties agree as follows:

          1. The Term of the Employment Agreement is hereby extended for one
          year, from April 30, 2006 to April 30, 2007.

          2. The salary for the Employee's services performed under the
          Employment Agreement shall be $522,610.00 for the year, which shall be
          payable by the Company in equal weekly installments and reduced by
          applicable withholding of federal, state and local taxes. The annual
          salary represents a 10% increase over the prior year's salary.

          3. Except as modified by this Agreement, all provisions of the
          Employment Agreement remain in full force and effect.

     IN WITNESS WHEREOF, the parties have executed this agreement on the dates
set forth below.

COMPANY:                                       EMPLOYEE:

ORALABS, INC., a Colorado corporation          /s/ Gary H. Schlatter
                                               ---------------------------------
                                                   Gary H. Schlatter

                                               Date:
                                                     ---------------------------

By: /s/ Michael I. Friess
    ---------------------------------------
    Michael I. Friess, authorized director

Date:
      -------------------------------------

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