ENGAGEMENT AGREEMENT

CONFIDENTIAL

Roger Girard

Chief Executive Officer and Chairman

IsoRay, Inc.

350 Hills St., Suite 106

Richland , WA 99354

Dear Mr. Girard:

This letter (the “Agreement”) confirms that Punk, Ziegel & Company, L.P. (“Punk, Ziegel & Company”) will, subject to the second paragraph of this Agreement, act as exclusive financial advisor and lead placement agent to IsoRay, Inc. (together with its subsidiaries and affiliates, “IsoRay” or the “Company”) in connection with the offering and sale of up to twenty million dollars ($20,000,000) of equity or equitylike securities of IsoRay (the "Securities”) to investors (the “Potential Transaction”), on the terms and conditions set forth below.

Subject to the terms and conditions of this Agreement, the Company hereby appoints Punk, Ziegel & Company to place the Securities in an amount and on terms and conditions satisfactory to the Company. Punk, Ziegel & Company hereby accepts such agency and agrees on the terms of this Agreement to use its best efforts to privately place the Securities with potential investors. The Company shall promptly refer to Punk, Ziegel & Company all offers, inquiries and proposals relating to any placement of the Securities made at any time. Notwithstanding anything to the contrary contained in this Agreement, the Company may retain Maxim Group LLC ("Maxim") as a co-placement agent in connection with the placement of the Securities.

This Agreement supersedes the Engagement Agreement dated January 26, 2006 between the parties hereto (the "Original Letter"), and upon execution and delivery by the parties of this Agreement, the Original Letter shall terminate.

1. Services to be Rendered. Punk, Ziegel & Company agrees, on the terms and conditions set forth herein, and subject to the performance by the Company of all its obligations hereunder and the completeness and accuracy, in all material respects, of the representations and warranties of the Company set forth herein, to act as exclusive financial advisor to the Company (subject to the second paragraph of this Agreement), and in that regard to (i) assist the Company in the preparation of a summary business description, (ii) at the Company’s request, be available to the Board of Directors to discuss a Potential Transaction and its financial implications, (iii) assist the Company in structuring the Securities, (iv) market the Securities on a best efforts basis and assist in negotiating the terms of the Securities, (v) on behalf of the Company, coordinate the due diligence effort of potential Investors and (vi) assist the Company in negotiation of the final terms of the Potential Transaction.

Punk, Ziegel & Company agrees, on the terms and conditions set forth herein, and subject to the performance by the Company of all its obligations hereunder and the completeness and accuracy, in all material respects, of the representations and warranties of the Company set forth herein, to act as a Placement Agent, with Maxim, to assist the Company in identifying and contacting possible parties to a Potential Transaction (“Investors”).

2. Compensation. For Punk, Ziegel & Company’s services hereunder, the Company agrees to pay Punk, Ziegel & Company (a) a non-refundable cash retainer fee (the “Retainer Fee”) of forty thousand dollars ($40,000) and (b) a placement fee (the “Placement Fee”) equal to three point three percent (3.30% or 55% of the 6.0% cash fee payable to the placement agents) of the aggregate gross proceeds of the Securities placed, payable in full, in cash, upon the closing of the sale of any of the Securities. The Retainer Fee will be creditable against the payment of a Placement Fee.

The Company shall deliver a warrant, or, if so requested, warrants, to Punk, Ziegel & Company and/or its designees (the “Agent Warrant”), which Agent’s Warrant shall be exercisable to purchase additional Securities equal to two point two five percent (2.25% or 45% of the 5% total warrants payable to the placement agents rounded to the nearest higher whole number) of the total number of shares sold to the Investors. Any fractional shares shall be rounded to the nearest whole number. The Agent’s Warrant will be exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one year from the closing of the offering, at a price per share equal to 110% of the per share offering price of the Securities in the offering. The Agent’s Warrant will provide for registration rights (including a one time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) consistent with the National Association of Securities Dealers, Inc. (“NASD”) Rules of Fair Practice and satisfactory to Punk, Ziegel & Company and its counsel.

For a period of twelve months following the closing of the sale of any of the Securities, Punk, Ziegel & Company will have a right of first refusal (i) to act as the Company’s exclusive financial advisor with regard to any privately negotiated sales of the Company’s equity securities in excess of five million dollars ($5,000,000) or financing required to consummate any merger, acquisition, change of control transaction or sale of all or substantially all of the assets of the Company and (ii) to act as a managing underwriter of any public offering of the Company’s equity securities.

3. Expenses. In addition to any fees that may be payable hereunder and regardless of whether or not any Potential Transaction is consummated, the Company shall reimburse Punk, Ziegel & Company from time to time, upon request (but not less frequently than monthly), for (i) travel and other out-of-pocket expenses, up to a maximum of $35,000, incurred in connection with Punk, Ziegel & Company’s engagement hereunder and under the Original Letter, plus (ii) including the reasonable fees, expenses and other charges of its legal counsel. Any individual expenses under clause (i) above that are greater than $5,000 and any aggregate expenses under such clause in excess of $35,000, shall require prior authorization by the Company.

4. Information. The Company will furnish Punk, Ziegel & Company such information with respect to the Company and access to such Company personnel and representatives, including the Company’s auditors and counsel, as Punk, Ziegel & Company may request in order to permit Punk, Ziegel & Company to advise the Company and to assist the Company in preparing any informational materials it may deem necessary for use in connection with the Potential Transaction ("Offering Materials"). The Company will be solely responsible for the contents of the Offering Materials and any other information provided to potential Investors with the approval of the Company. The Company represents and warrants to Punk, Ziegel & Company that such information will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees to advise Punk, Ziegel & Company promptly upon the Company becoming aware of the occurrence of any event or change in circumstance that results or might reasonably be expected to result in such information containing any untrue statement of a material fact or omitting to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company authorizes Punk, Ziegel & Company to provide such information to potential Investors in a Potential Transaction. The Company and Punk, Ziegel & Company shall jointly approve every form of letter, circular, notice, memorandum or other written communication from the Company or any person acting on its behalf in connection with a Potential Transaction.

5. Termination and Survival. This Agreement shall terminate on the first anniversary of the execution thereof, subject to the extension thereafter as may be agreed in writing by the parties, but either party hereto may terminate this Agreement at any time upon 30 days’ prior written notice. Notwithstanding the foregoing, it is understood that the provisions of paragraphs 2 (to the extent fees are payable irrespective of whether a transaction is consummated), 3 (to the extent expenses have been incurred prior to termination), 4 (the second and third sentences only), 5, 6, 7, 8, 9, 10 and 11 of this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of Punk, Ziegel & Company or any Indemnified Person (as defined in the Indemnification Agreement (which is hereafter defined)), (ii) the consummation of any Potential Transaction or (iii) any termination of this Agreement. In addition, if within twelve (12) months following the termination of this Agreement any Potential Transaction is consummated with any Investor