SICAV TWO SECURITIES PURCHASE AGREEMENT

THIS STOCK PURCHASE AND SUBSCRIPTION AGREEMENT (this “Agreement”) is made and entered into as of December 7, 2005, between   IsoRay, Inc, a corporation organized and existing under the laws of the State of Minnesota (the “Company”), and Mercatus & Partners, LP (the “Purchaser”).

WHEREAS, PURCHASER desires to subscribe for and purchase Shares of the Company; and  

WHEREAS, Company desires for Purchaser to subscribe for and to purchase Shares of the Company.

NOW, THEREFORE, subject to the terms and conditions set forth in this Agreement, for good, valuable and binding consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, now agree as follows:

This Agreement is entered into by the parties for purchase of equity shares of the Company by the Purchaser for placement into a European bank SICAV fund. This is not an immediate funding , and the Company recognizes the Purchaser shall have up to thirty (30) days, as set forth in this Agreement to tender the Purchase Price to the company through the intermediary Custodial Bank and intermediary Purchaser, once the valuation and repurchase of the shares is made in accordance with the terms of this Agreement. The Company shall have the right to contact the Custodial Bank administrator for Purchaser account verification and for confirmation of the share status, location and control at each step of the process. Purchaser shall have up to thirty (30) days from the date of delivery of the Shares to the Custodial Bank to pay the Purchase Price. In the event the Purchase Price is not paid within thirty (30) days from the date of delivery of the Shares to the Custodial Bank, the Shares shall be returned to the Company as provided in the Joint Written Direction attached as Schedule B to this Agreement. The particular expected time line and transaction sequence is set forth in Schedule A to this Agreement.

Certain Definitions . As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:

“ Affiliate ” means, with respect to any Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “ controlled by ” and “ under common control with ”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

“ Agreement ” shall have the meaning set forth in the introductory paragraph of this Agreement.

“ Attorney-in-fact ” means the agent of the bank account holder, Banca MB, Dwight Parscale, Esquire. The attorney-in-fact, Dwight Parscale, has full oversight authority of the Purchaser and the receiving bank to verify share deposit, valuation process and share transaction status.

“ Business Day ” means any day except Saturday, Sunday, any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government actions to close.

“ Change of Control” means the acquisition, directly or indirectly, by any Person of ownership of, or the power to direct the exercise of voting power with respect to, a majority of the issued and outstanding voting shares of the Company.

“ Closing ” shall have the meaning set forth in this document.

“ Closing Date ” shall be the date this Agreement is executed by both parties.

“ Common Stock ” shall have the meaning in the recital.

“ Company ” shall have the meaning set forth in the introductory paragraph.

“ Custodial Bank ” means the bank that will receive and retain the Shares of the Company on behalf of the parties, until payment is received the purchase is complete in accordance with Schedules A and B. In this case, the Custodial Bank is Brown Brothers Herriman, (BBH), New York City, New York. The account holder is Banca MB as the intermediary fund receiving bank.

“ Default ” means any event or condition which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“ Disclosure Documents ” means the Company’s reports filed under the Exchange Act with the SEC.

“ Event of Default ” shall have the meaning set forth in the document.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Execution Date ” means the date of this Agreement first written above.

“ Indemnified Party ” shall have the meaning set forth in the document.

“ Indemnifying Party ” shall have the meaning set forth in the document.

“ NASD ” means the National Association of Securities Dealers, Inc.

“ Nasdaq ” shall mean the Nasdaq Stock Market, Inc. ^®

“ OTCBB ” shall mean the NASD over-the counter Bulletin Board ^® .

“ Per Share Market Value ” of the Common Stock means on any particular date (a) the last sale price of shares of Common Stock on such date or, if no such sale takes place on such date, the last sale price on the most recent prior date, in each case as officially reported on the principal national securities exchange on which the Common Stock is then listed or admitted to trading.

“ Person ” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

“ Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

" Placement Agent " shall have the meaning set forth in Section 3.1(k).

“ Purchase Price ” shall have the meaning set forth in this document.

“ Purchaser ” shall have the meaning set forth in the introductory paragraph.

“ Reporting Issuer ” means a company that is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

“ Required Approvals ” shall have the meaning set forth in Section 3.1(f) .

“ Securities ” means the Common Stock and stock of any other class into which such shares may hereafter have been reclassified or changed.

“ SEC ” means the Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Shares ” shall have the meaning set forth herein .

“ Subsidiaries ” shall have the meaning set forth herein.

“ Trading Day ” means (a) a day on which the Common Stock is quoted on Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock has been listed, or (b) if the Common Stock is not quoted on Nasdaq, the OTCBB or any stock exchange.

“ Transaction Documents ” means this Agreement and all exhibits and schedules hereto and all other documents, instruments and writings required pursuant to this Agreement.

“ U.S. ” means the United States of America.

The PURCHASER hereby irrevocably subscribes for and agrees to purchase 889,073 shares of the Common Stock of the COMPANY (the “ Shares ”). The purchase price to be paid by the Purchaser shall be $3.502 per share for the purchase of the Shares.

3.1      Representations, Warranties and Agreements of the Company . The Company hereby makes the following representations and warranties to the Purchaser, all of which shall survive the Closing:

(a)      Organization and Qualification . The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Minnesota, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company has no subsidiaries other than as set forth on Schedule 3.1(a) attached hereto (collectively, the “ Subsidiaries ”). Each of the Subsidiaries is a corporation, duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the full corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, have a material adverse effect on the results of operations, assets, prospects, or financial condition of the Company and the Subsidiaries, taken as a whole (a “ Material Adverse Effect ”).

(b)      Authorization, Enforcement . The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated hereby and by each other Transaction Document and to otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby has been duly authorized by all necessary action on the part of the Company. Each of this Agreement and each of the other Transaction Documents has been or will be duly executed by the Company and when delivered in accordance with the terms hereof or thereof will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(c)      Capitalization . The authorized, issued and outstanding capital stock of the Company is set forth on Schedule 3.1(c) . No shares of Common Stock are entitled to preemptive or similar rights, nor is any holder of the Common Stock entitled to preemptive or similar rights arising out of any agreement or understanding with the Company by virtue of this Agreement. Except as disclosed in Schedule 3.1(c) , there are no outstanding options, warrants, script, rights to subscribe to, registration rights, calls or commitments of any character whatsoever relating to securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Neither the Company nor any Subsidiary is in violation of any of the provisions of its Certificate of Incorporation, bylaws or other charter documents.

(d)      Issuance of Securities . The Shares have been duly and validly authorized for issuance, offer and sale pursuant to this Agreement and, when issued and delivered as provided hereunder against payment in accordance with the terms hereof, shall be valid and binding obligations of the Company enforceable in accordance with their respective terms.

(e)      No Conflicts . The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of its Certificate of Incorporation or bylaws (each as amended through the date hereof) or (ii) be subject to obtaining any consents except those referred to in Section 3.1(f), 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 the Company is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or its Subsidiaries is subject (including, but not limited to, those of other countries and the federal and state securities laws and regulations), or by which any property or asset of the Company or its Subsidiaries is bound or affected, except in the case of clause (ii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted in violation of any law, ordinance or regulation of any governmental authority.

(f)      Consents and Approvals . Except as specifically set forth in Schedule 3.1(f) , neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents (together with the consents, waivers, authorizations, orders, notices and filings referred to in Schedule 3.1(f) , the “ Required Approvals ”).

(g)      Litigation; Proceedings . Except as specifically disclosed in Schedule 3.1(g) , there is no action, suit, notice of violation, proceeding or investigation pending or, to the best knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which (i) relates to or challenges the legality, validity or enforceability of any of the Transaction Documents, the Shares or the Underlying Shares, (ii) could, individually or in the aggregate, have a Material Adverse Effect or (iii) could, individually or in the aggregate, materially impair the ability of the Company to perform fully on a timely basis its obligations under the Transaction Documents.

(h)      No Default or Violation . Except as set forth in Schedule 3.1(h) hereto, neither the Company nor any Subsidiary (i) is in default under or in vio-lation of any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, except such conflicts or defaults as do not have a Material Adverse Effect, (ii) is in violation of any order of any court, arbitrator or governmental body, except for such violations as do not have a Material Adverse Effect, or (iii) is in violation of any statute, rule or regu-lation of any governmental authority which could (individually or in the aggregate) (iv) adversely affect the legality, validity or enforceability of this Agree-ment, (v have a Material Adverse Effect or (vi) adversely impair the Company’s ability or obligation to perform fully on a timely basis its obligations under this Agreement.

(i)      Disclosure Documents . The Disclosure Documents are accurate in all material respects and do not contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

(j)      Non-Registered Offering . Neither the Company nor any Person acting on its behalf has taken or will take any action (including, without limitation, any offering of any securities of the Company under circumstances which would require the integration of such offering with the offering of the Securities under the Securities Act) which might subject the offering, issuance or sale of the Securities to the registration requirements of Section 5 of the Securities Act.

(k)      Placement Agent . The Company accepts and agrees that Artemis Capital (“ Artemis ”) is acting for the Purchaser and does not regard any person other than the Purchaser as its customer in relation to this Agreement, and that it has not made any recommendation to the Company, in relatio