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:

        


        ARTICLE
          I 

         

        INTRODUCTION
          AND DEFINITIONS

         

        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.

         

        
          
             

          

          
            1

            
              

            

          

          
             

          

           

        

        “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.

        


        
          
             

          

          
            2

            
              

            

          

          
             

          

           

        

        “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.

        


        
          
             

          

          
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        ARTICLE
          II

         

        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.

         

        This
          agreement is binding under the conditions and timing set forth
          herein.

         

        ARTICLE
          III

         

        REPRESENTATIONS
          AND WARRANTIES

         

        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.

         

        
          
             

          

          
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        (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”).

         

        
          
             

          

          
            5

            
              

            

          

          
             

          

           

        

        (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 relation to this Agreement and is not
          advising
          the Company with regard to the suitability or merits of the transaction.
          The
          Placement Agent shall be the Company contact for all information relating
          to the
          status of funding, location of Shares, settlement of the payment of the
          Purchase
          Price and any other information requests of the Company. Notwithstanding
          the
          above, in the event the Purchase Price is not paid as required herein,
          Company
          may directly contact the Custodial Bank and provide Company notice of demand
          for
          the return of the Shares as provided in Schedule B.

         

        
          
             

          

          
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        The
          Purchaser acknowledges and agrees that the Company makes no representation
          or
          warranty with respect to the transactions contemplated hereby other than
          those
          specifically set forth in Section
          3.1
          hereof.

         

        3.2   Representations
          and Warranties of the Purchaser.
          The
          Purchaser hereby represents and warrants to the Company as follows:


         

        (a)   Organization;
          Authority.
          The
          Purchaser is a corporation, duly organized, validly existing and in good
          standing under the laws of the jurisdiction of its formation with the requisite
          power and authority to enter into and to consummate the transactions
          contemplated hereby and by the other Transaction Documents and otherwise
          to
          carry out its obligations hereunder and thereunder. The acquisition of
          the
          Shares to be purchased by the Purchaser hereunder has been duly authorized
          by
          all necessary action on the part of the Purchaser. This Agreement has been
          duly
          executed and delivered by the Purchaser and constitutes the valid and legally
          binding obligation of the Purchaser, enforceable against it in accordance
          with
          its terms, except as such enforceability may be limited by applicable
          bankruptcy, insolvency, reorganization, moratorium or similar laws relating
          to,
          or affecting generally the enforcement of, creditors rights and remedies
          or by
          other general principles of equity.

         

        (b)   Investment
          Intent.
          The
          Purchaser is acquiring the Shares to be purchased by it hereunder, for
          its own
          account for investment purposes only and not with a view to or for distributing
          or reselling such Shares, or any part thereof or interest therein, without
          prejudice, however, to such Purchaser’s right, subject to the provisions of this
          Agreement, at all times to sell or otherwise dispose of all or any part
          of such
          Shares in compliance with applicable federal and state securities laws.
          

         

        (c)   Experience
          of Purchaser.
          The
          Purchaser, either alone or together with its representatives, has such
          knowledge, sophistication and experience in business and financial matters
          so as
          to be capable of evaluating the merits and risks of an investment in the
          Shares
          to be acquired by it hereunder, and has so evaluated the merits and risks
          of
          such investment.

         

        (e)   Ability
          of Purchaser to Bear Risk of Investment.
          The
          Purchaser is able to bear the economic risk of an investment in the Securities
          to be acquired by it hereunder and, at the pre-sent time, is able to afford
          a
          complete loss of such investment.

         

        (f)   Access
          to Information.
          The
          Purchaser acknowledges that it has been afforded (i) the opportunity to
          ask such
          questions as it has deemed necessary of, and to receive answers from,
          representatives of the Company concerning the terms and conditions of the
          Securities offered hereunder and the merits and risks of investing in such
          securities; (ii) access to information about the Company and the Company’s
          financial condition, results of operations, business, properties, management
          and
          prospects sufficient to enable it to evaluate its investment in the Securities;
          and (iii) the opportunity to obtain such additional information which the
          Company possesses or can acquire without unreasonable effort or expense
          that is
          necessary to make an informed investment decision with respect to the investment
          and to verify the accuracy and completeness of the information that it
          has
          received about the Company.

         

        
          
             

          

          
            7

            
              

            

          

          
             

          

           

        

        (g)   Reliance.
          The
          Purchaser understands and acknowledges that (i) the Shares being offered
          and
          sold to it hereunder are being offered and sold without registration under
          the
          Securities Act in a private placement that is exempt from the registration
          provisions of the Securities Act under Section 4(2) of the Securities Act
          and
          (ii) the availability of such exemption depends in part on, and that the
          Company
          will rely upon the accuracy and truthfulness of, the foregoing representations
          and such Purchaser hereby consents to such reliance.

         

        (h)   No
          Short Position.
          The
          Purchaser, or any subsequent purchaser, shall not take or cause any short
          position to be taken in the security or Shares for a period of one year
          from the
          date of issuance to the Purchaser.

         

        The
          Company acknowledges and agrees that the Purchaser makes no representations
          or
          warranties with respect to the transactions contemplated hereby other than
          those
          specifically set forth in this Section
          3.2.

         

        ARTICLE
          IV

         

        OTHER
          AGREEMENTS OF THE PARTIES

        


        4.1   Manner
          of Offering.
          The
          Securities are being issued pursuant to section 4(2) of the Securities
          Act, and
          Rule 506 thereunder. 

         

        4.2   Notice
          of Certain Events.
          The
          Company shall, on a continuing basis, (i) advise the Purchaser promptly
          after obtaining knowledge of, and, if requested by the Purchaser, confirm
          such
          advice in writing, of (A) the issuance by any state securities commission
          of any
          stop order suspending the qualification or exemption from qualification
          of the
          Shares, for offering or sale in any jurisdiction, or the initiation of
          any
          proceeding for such purpose by any state securities commission or other
          regulatory authority, or (B) any event that makes any statement
          of a
          material fact made by the Company in Section
          3.1
          or in
          the Disclosure Documents untrue or that requires the making of any additions
          to
          or changes in Section
          3.1
          or in
          the Disclosure Documents in order to make the statements therein, in the
          light
          of the circumstances under which they are made, not misleading, (ii) use
          its
          best efforts to prevent the issuance of any stop order or order suspending
          the
          qualification or exemption from qualification of the Securities under any
          state
          securities or Blue Sky laws, and (iii) if at any time any state securities
          commission or other regulatory authority shall issue an order suspending
          the
          qualification or exemption from qualification of the Securities under any
          such
          laws, and use its best efforts to obtain the withdrawal or lifting of such
          order
          at the earliest possible time.

         

        4.3   Blue
          Sky Laws.
          The
          Company shall cooperate with the Purchaser in connection with the exemption
          from
          registration of the Shares under the securities or Blue Sky laws of such
          jurisdictions as the Purchasers may request; provided,
          however,
          that
          neither the Company nor its Subsidiaries shall be required in connection
          therewith to qualify as a foreign corporation where they are not now so
          qualified. The Company agrees that it will execute all necessary documents
          and
          pay all necessary state filing or notice fees to enable the Company to
          sell the
          Shares to the Purchaser.

         

        
          
             

          

          
            8

            
              

            

          

          
             

          

           

        

        4.4   Integration.
          The
          Company shall not and shall use its best efforts to ensure that no Affiliate
          shall sell, offer for sale or solicit offers to buy or otherwise negotiate
          in
          respect of any security (as defined in Section 2 of the Securities Act)
          that
          would be integrated with the offer or sale of the Securities in a manner
          that
          would require the registration under the Securities Act of the sale of
          the
          Shares to the Purchaser.

         

        4.5   Furnishing
          of Rule 144(c) Materials.
          The
          Company shall, for so long as any of the Shares remain outstanding and
          during
          any period in which the Company is not subject to Section 13 or
          15(d) of
          the Exchange Act, make available to any registered holder of the Shares
          (“Holder” or “Holders”) in connection with any sale thereof and any prospective
          purchaser of such Shares from such Person, such information in accordance
          with
          Rule 144(c) promulgated under the Securities Act as is required
          to sell the
          Shares under Rule 144 promulgated under the Securities Act.

         

        4.6   Solicitation
          Materials.
          The
          Company shall not (i) distribute any offering materials in connection with
          the
          offering and sale of the Shares other than the Disclosure Documents and
          any
          amendments and supplements thereto prepared in compliance herewith or (ii)
          solicit any offer to buy or sell the Shares by means of any form of general
          solicitation or advertising.

         

        4.7   Listing
          of Common Stock.
          If the
          Common Stock is or shall become listed on the OTCBB or on another exchange,
          the
          Company shall (a) use its best efforts to maintain the listing of
          its
          Common Stock on the OTCBB or such other exchange on which the Common Stock
          is
          then listed until two years from the date hereof, and (b) shall
          provide to
          the Purchaser evidence of such listing.

         

        4.8   Indemnification.

         

        (a)   Indemnification

         

        (i)   The
          Company shall, notwithstanding termination of this Agreement and without
          limitation as to time, indemnify and hold harmless the Purchaser and its
          officers, directors, agents, employees and affiliates, each Person who
          controls
          the Purchaser (within the meaning of Section 15 of the Securities Act or
          Section
          20 of the Exchange Act) (each such Person, a “Control
          Person”)
          and
          the officers, directors, agents, employees and affiliates of each such
          Control
          Person, to the fullest extent permitted by applicable law, from and against
          any
          and all losses, claims, damages, liabilities, costs (including, without
          limitation, costs of preparation and attorneys’ fees) and expenses
          (collectively, “Losses”),
          as
          incurred, arising out of, or relating to, a breach or breaches of any
          representation, warranty, covenant or agreement by the Company under this
          Agreement or any other Transaction Document.

         

        (ii)   The
          Purchaser shall, notwithstanding termination of this Agreement and without
          limitation as to time, indemnify and hold harmless the Company, its officers,
          directors, agents and employees, each Control Person and the officers,
          directors, agents and employees of each Control Person, to the fullest
          extent
          permitted by application law, from and against any and all Losses, as incurred,
          arising out of, or relating to, a breach or breaches of any representation,
          warranty, covenant or agreement by the Purchaser under this Agreement or
          the
          other Transaction Documents.

         

        
          
             

          

          
            9

            
              

            

          

          
             

          

           

        

        (b)   Conduct
          of Indemnification Proceedings.
          If any
          Proceeding shall be brought or asserted against any Person entitled to
          indemnity
          hereunder (an “Indemnified
          Party”),
          such
          Indemnified Party promptly shall notify the Person from whom indemnity
          is sought
          (the “Indemnifying
          Party”)
          in
          writing, and the Indemnifying Party shall assume the defense thereof, including
          the employment of counsel reasonably satisfactory to the Indemnified Party
          and
          the payment of all fees and expenses incurred in connection with defense
          thereof; provided, that the failure of any Indemnified Party to give such
          notice
          shall not relieve the Indemnifying Party of its obligations or liabilities
          pursuant to this Agreement, except (and only) to the extent that it shall
          be
          finally determined by a court of competent jurisdiction (which determination
          is
          not subject to appeal or further review) that such failure shall have
          proximately and materially adversely prejudiced the Indemnifying
          Party.

         

        An
          Indemnified Party shall have the right to employ separate counsel in any
          such
          Proceeding and to participate in the defense thereof, but the fees and
          expenses
          of such counsel shall be at the expense of such Indemnified Party or Parties
          unless: (1) the Indemnifying Party has agreed to pay such fees and expenses;
          or
          (2) the Indemnifying Party shall have failed promptly to assume the defense
          of
          such Proceeding and to employ counsel reasonably satisfactory to such
          Indemnified Party in any such Proceeding; or (3) the named parties to any
          such
          Proceeding (including any impleaded parties) include both such Indemnified
          Party
          and the Indemnifying Party, and such Indemnified Party shall have been
          advised
          by counsel that a conflict of interest is likely to exist if the same counsel
          were to represent such Indemnified Party and the Indemnifying Party (in
          which
          case, if such Indemnified Party notifies the Indemnifying Party in writing
          that
          it elects to employ separate counsel at the expense of the Indemnifying
          Party,
          the Indemnifying Party shall not have the right to assume the defense of
          the
          claim against the Indemnified Party but will retain the right to control
          the
          overall Proceedings out of which the claim arose and such counsel employed
          by
          the Indemnified Party shall be at the expense of the Indemnifying Party).
          The
          Indemnifying Party shall not be liable for any settlement of any such Proceeding
          effected without its written consent, which consent shall not be unreasonably
          withheld. No Indemnifying Party shall, without the prior written consent
          of the
          Indemnified Party, effect any settlement of any pending Proceeding in respect
          of
          which any Indemnified Party is a party, unless such settlement includes
          an
          unconditional release of such Indemnified Party from all liability on claims
          that are the subject matter of such Proceeding.

         

        All
          fees
          and expenses of the Indemnified Party to which the Indemnified Party is
          entitled
          hereunder (including reasonable fees and expenses to the extent incurred
          in
          connection with investigating or preparing to defend such Proceeding in
          a manner
          not inconsistent with this Section) shall be paid to the Indemnified Party,
          as
          incurred, within ten (10) Business Days of written notice thereof to the
          Indemnifying Party.

         

        No
          right
          of indemnification under this Section shall be available as to a particular
          Indemnified Party if there is a non-appealable final judicial determination
          that
          such Losses arise solely out of the negligence or bad faith of such Indemnified
          Party in performing the obligations of such Indemnified Party under this
          Agreement or a breach by such Indemnified Party of its obligations under
          this
          Agreement.

         

        
          
             

          

          
            10

            
              

            

          

          
             

          

           

        

        (c)   Contribution.
          If a
          claim for indemnification under this Section is unavailable to an Indemnified
          Party or is insufficient to hold such Indemnified Party harmless for any
          Losses
          in respect of which this Section would apply by its terms (other than by
          reason
          of exceptions provided in this Section), then each Indemnifying Party,
          in lieu
          of indemnifying such Indemnified Party, shall contribute to the amount
          paid or
          payable by such Indemnified Party as a result of such Losses in such proportion
          as is appropriate to reflect the relative benefits received by the Indemnifying
          Party on the one hand and the Indemnified Party on the other and the relative
          fault of the Indemnifying Party and Indemnified Party in connection with
          the
          actions or omissions that resulted in such Losses as well as any other
          relevant
          equitable considerations. The relative fault of such Indemnifying Party
          and
          Indemnified Party shall be determined by reference to, among other things,
          whether there was a judicial determination that such Losses arise in part
          out of
          the negligence or bad faith of the Indemnified Party in performing the
          obligations of such Indemnified Party under this Agreement or the Indemnified
          Party’s breach of its obligations under this Agreement. The amount paid or
          payable by a party as a result of any Losses shall be deemed to include
          any
          attorneys’ or other fees or expenses incurred by such party in connection with
          any Proceeding to the extent such party would have been indemnified for
          such
          fees or expenses if the indemnification provided for in this Section was
          available to such party.

         

        (d)   Non-Exclusivity.
          The
          indemnity and contribution agreements contained in this Section are in
          addition
          to any obligation or liability that the Indemnifying Parties may have to
          the
          Indemnified Parties. 


         

        ARTICLE
          V

         

        MISCELLANEOUS

         

        5.1   Fees
          and Expenses.
          Except
          as set forth in this Agreement, each party shall pay the fees and expenses
          of
          its advisers, counsel, accountants and other experts, if any, and all other
          expenses incurred by such party incident to the negotiation, preparation,
          execution, delivery and performance of this Agreement. The Company shall
          pay all
          stamp and other taxes and duties levied in connection with the issuance
          of the
          Shares pursuant hereto. The Purchaser shall pay the Placement Agent
          pursuant
          to the terms and conditions contained in Schedule 5.1.
          The
          Purchaser shall be responsible for any taxes payable by the Purchaser that
          may
          arise as a result of the investment hereunder or the transactions contemplated
          by this Agreement or any other Transaction Document. The Company shall
          pay all
          costs, expenses, fees and all taxes incident to and in connection with:
          (A) the issuance and delivery of the Shares, (B) the exemption
          from
          registration of the Securities for offer and sale to the Purchaser under
          the
          securities or Blue Sky laws of the applicable jurisdictions, and (C) the
          preparation of certificates for the Shares (including, without limitation,
          printing and engraving thereof), and (D) all fees and expenses of
          counsel
          and accountants of the Company.

        


        5.2   Entire
          Agreement.
          This
          Agreement, together with all of the Exhibits and Schedules annexed hereto,
          and
          any other Transaction Document contains the entire understanding of the
          parties
          with respect to the subject matter hereof and supersede all prior agreements
          and
          understandings, oral or written, with respect to such matters. This Agreement
          shall be deemed to have been drafted and negotiated by both parties hereto
          and
          no presumptions as to interpretation, construction or enforceability shall
          be
          made by or against either party in such regard.

         

        
          
             

          

          
            11

            
              

            

          

          
             

          

           

        

        5.3   Notices.
          Any
          notice or other communication required or permitted to be given hereunder
          shall
          be in writing and shall be deemed to have been duly given upon facsimile
          transmission (with written transmission confirmation report) at the number
          designated below (if delivered on a Business Day during normal business
          hours
          where such notice is to be received), or the first Business Day following
          such
          delivery (if delivered other than on a Business Day during normal business
          hours
          where such notice is to be received) whichever shall first occur. The addresses
          for such communications shall be:

        


        
          	 	If to the Company:	IsoRay, Inc.


          	 	 	OTCBB: ISRY 


          	 	 	350 Hills Street


          	 	 	Suite 106 


          	 	 	Richland, WA 99354


          	 	 	Phone: (509) 375-1202


          	 	 	 


          	 	
                  With
                    copies to:

                	 


        

        


        
          	 	
                  If
                    to the Purchaser:

                	
                  Mercatus
                    & Partners, Limited

                


        

        
          	 	 	
                  4100
                    NINE MCFARLANE DRIVE

                


        

        
          	 	 	
                  ALPHARETTA,
                    GEORGIA 30004

                


        

        
          	 	 	
                  Attn:
                    Cary Masi, Director 

                


        

        
          	 	 	
                  Phone:
                    (770) 475-2266

                


        

        


        
          	 	
                  With
                    copies to:

                	 


        

         

        


         

        5.4   Amendments;
          Waivers.
          No
          provision of this Agreement may be waived or amended except in a written
          instrument signed, in the case of an amendment, by both the Company and
          the
          Purchaser, or, in the case of a waiver, by the party against whom enforce-ment
          of any such waiver is sought. No waiver of any default with respect to
          any
          provision, condition or require-ment of this Agreement shall be deemed
          to be a
          continuing waiver in the future or a waiver of any other provision, condition
          or
          requirement hereof, nor shall any delay or omission of either party to
          exercise
          any right hereunder in any manner impair the exercise of any such right
          accruing
          to it thereafter.

         

        5.5   Headings.
          The
          headings herein are for convenience only, do not constitute part of this
          Agreement and shall not be deemed to limit or affect any of the provisions
          hereof.

         

        5.6   Successors
          and Assigns.
          This
          Agreement shall be binding upon and inure to the benefit of the parties
          and
          their respective successors and permitted assigns. The assignment by a
          party of
          this Agreement or any rights hereunder shall not affect the obligations
          of such
          party under this Agreement.

         

        
          
             

          

          
            12

            
              

            

          

          
             

          

           

        

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

         

        5.8   Governing
          Law; Venue; Service of Process.
          The
          parties hereto acknowledge that the transactions contemplated by this Agreement
          and the exhibits hereto bear a reasonable relation to the State of New
          York. The
          parties hereto agree that the internal laws of the State of New York shall
          govern this Agreement and the exhibits hereto, including, but not limited
          to,
          all issues related to usury. Any action to enforce the terms of this Agreement
          or any of its exhibits, or any other Transaction Document shall be brought
          exclusively in the state and/or federal courts situate in the County and
          State
          of New York. Service of process in any action by the Purchaser to enforce
          the
          terms of this Agreement may be made by serving a copy of the summons and
          complaint, in addition to any other relevant documents, by commercial overnight
          courier to the Company at its principal address set forth in this
          Agreement.

         

        5.9   Survival.
          The
          representa-tions and warranties of the Company and the Purchaser contained
          in
          this agreement shall survive the Closing.

         

        5.10   Counterpart
          Signatures.
          This
          Agreement may be executed in two or more counterparts, all of which when
          taken
          together shall be considered one and the same agreement and shall become
          effective when counterparts have been signed by each party and delivered
          to the
          other party, it being understood that both parties need not sign the same
          counterpart. In the event that any signature is delivered by facsimile
          transmission, such signature shall create a valid and binding obligation
          of the
          party executing (or on whose behalf such signature is executed) the same
          with
          the same force and effect as if such facsimile signature page were an original
          thereof.

         

        5.11   Publicity.
          The
          Company and the Purchaser shall consult with each other in issuing any
          press
          releases or otherwise making public statements with respect to the transactions
          contemplated hereby and neither party shall issue any such press release
          or
          otherwise make any such public statement without the prior written consent
          of
          the other, which consent shall not be unreasonably withheld or delayed,
          unless
          counsel for the disclosing party deems such public statement to be required
          by
          applicable federal and/or state securities laws. Except as otherwise required
          by
          applicable law or regulation, the Company will not disclose to any third
          party
          (excluding its legal counsel, accountants and representatives) the names
          of the
          Purchaser.

         

        5.12   Severability.
          In case
          any one or more of the provisions of this Agreement shall be invalid or
          unenforceable in any respect, the validity and enforceability of the remaining
          terms and provisions of this Agreement shall not in any way be affected
          or
          impaired thereby and the parties will attempt to agree upon a valid and
          enforceable provision which shall be a reasonable substitute therefore,
          and upon
          so agreeing, shall incorporate such substitute provision in this
          Agreement.

         

        5.13   Limitation
          of Remedies.
          With
          respect to claims by the Company or any person acting by or through the
          Company,
          or by the Purchaser or any person acting through the Purchaser, for remedies
          at
          law or at equity relating to or arising out of a breach of this Agreement,
          liability, if any, shall, in no event, include loss of profits or incidental,
          indirect, exemplary, punitive, special or consequential damages of any
          kind.

         

        
          
             

          

          
            13

            
              

            

          

          
             

          

           

        

        5.14   Delivery
          of
          Shares.
          The Company shall deliver the Shares directly to the Custodial Bank, for
          deposit
          into the Banca MB account in accordance with the directions provided in
          Schedule
          A, within five business days following delivery of the Joint Written Direction,
          in the form attached hereto as Schedule B, signed by both the Company and
          the
          Purchaser, to the Custodial Bank
          and SICAV. The
          Shares may not sold or a short position taken on the Securities by the
          Purchaser
          on or before January 1, 2007 and the Shares’ Certificates shall bear a
          restrictive legend prohibiting transfer until that date.

        


        5.15   Delivery
          of Payment.
          The Purchaser shall, within thirty (30) days of the delivery of the Shares
          to
          the Custodial Bank issue the Payment to the Company via wire transfer to
          the
          directed wire transfer bank and account as specified
          below:

         

        Beneficiary
          Account Name: Holland
          & Knight LLP 

         

        Beneficiary
          Account No.: _______________

         

        ABA/Transit
          No.: ______________

         

        Beneficiary
          Bank: 
          Chase Manhattan Bank

        


        If
          the Purchase Price is not paid within thirty (30) days of the delivery
          of the
          Shares to the Custodial Bank, the Company has the right to demand recall
          of the
          shares after that time, and such Shares shall be transmitted back to the
          Company
          within ten (10) business days from the date of the demand, as provided
          in the
          Joint Written Direction attached hereto as Schedule B. The timeline from
          deposit
          to payment shall be as provided in Schedule A attached
          hereto.

        


        5.16   Registration
          of
          Shares. As
          part
          of this Agreement
          the Company has agreed
          to file
          a registration statement pursuant to Form
          SB-2
          or amend a previously filed Form SB-2 Registration Statement registering
          the
          Shares on or before sixty (60) days after execution of this
          Agreement.

        


        [Signatures
          on Following Page]


        
          
             

          

          
            14

            
              

            

          

          
             

          

        


        IN
          WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
          executed as of the date first indicated above.

        
          	 	 	 
	 	Company:
	 	 
	 	IsoRay,
                  Inc.
	 
 	 
 	 
 
	 	By:  	/s/ Roger
                  E. Girard
	 	
                  
Name:
                  Roger E. Girard
	 	Title:
                  Chairman/CEO


        

         

        
          	 	 	 
	 	Purchaser:
	 	 
	 	Cari
                  Masi on behalf of Purchaser
	 
 	 
 	 
 
	 	By:  	/s/ Cari
                  Masi
	 	
                  
Name:
                  Cari Masi
	 	Title:
                  Director




        
          
             

          

          
            15