CONFIDENTIAL





CONSULTING AND SEVERANCE
AGREEMENT





THIS
CONSULTING AND SEVERANCE AGREEMENT (the "Agreement") isdated as of this
12th
day of January, 2010 (the "Effective Date") by and among
ISORAY, INC., a Minnesota corporation ("IsoRay") and LORI WOODS
("Woods"). (IsoRay
together with its subsidiary company IsoRay Medical, Inc., a Delaware
corporation ("Medical"), its subsidiary
company IsoRay International LLC ("International"), and all of
IsoRay's subsidiaries, including Medical and International, are referred to
herein as the "Company".)





RECITALS:





A.           Woods
has been employed by IsoRay pursuant to an executive employment agreement,
initially serving as Vice-President of Medical and now as Chief Operating
Officer of IsoRay and has served on the Disclosure Committee of the
Company.





B.           Woods
has decided to voluntarily resign from her employment and service in all
capacities with IsoRay and all of its subsidiaries as of the Effective Date but
has agreed to serve as a consultant for a six month period ending August 1,
2010.





C.           Woods
agrees, subject to the terms and conditions of this Agreement, to make the
representations, warranties and covenants contained herein in exchange for the
Company making certain payments as described in Article I.





D.           The
parties hereto desire to mutually release each other from various obligations
and have agreed to enter into this Agreement for such purpose.





AGREEMENT:





ARTICLE
I





FINANCIAL
TERMS; RESIGNATION





1.1.        Resignation; Payments to Woods.Effective as of 5 p.m. (PDT) on January 31, 2010 (the "Resignation Date"), Woods
shall resign from all positions as an employee and as a member of the Disclosure
Committee of the Company.  Any press release announcing and the Form
8-K describing the event shall refer to her departure as a "resignation" and not
as a "termination" by the Company.  All accrued expenses incurred in
accord with her duties as COO through the Resignation Date shall be paid and a
final salary payment also shall be made by the Company at its next scheduled
employee pay period for services rendered through the Resignation
Date.  In addition, the Company shall pay Woods for all accrued
vacation time up through the Resignation Date in accordance with its standard
practice of providing employees with a check for accrued vacation time on the
Resignation Date, including without limitation reduction for withholding taxes
and FICA. As severance and consideration for the covenants and promises made to
the Company hereunder, for the six (6) month period (the "Severance Period")
commencing on the Severance Date (as defined below), IsoRay shall pay Woods
$16,500 per month ("Severance Pay") by Company check cut on
the 15th day of
each month beginning as of February 15, 2010 and ending on July 15, 2010. The
"Severance Date" shall
be the Resignation Date provided that this Agreement has not been rescinded by
Woods pursuant to Section 1.4 below.








1.2.        No Continuation of
Benefits.The Company shall not continue to provide any
welfare plan benefits ("Severance Benefits")
currently being provided to Woods.  Woods acknowledges and agrees that
she shall not be entitled to vacation pay during the Severance Period and
vacation pay for the period prior to the Resignation Date shall be dealt with
solely as set forth in Section 1.1 above.





1.3.        Medical
Insurance/COBRA.  Woods shall have the right to purchase
personal group medical continuation coverage pursuant to her rights under the
COBRA statute and regulations after the Resignation Date.





1.4         Right to Review. Woods may
rescind this Agreement by giving IsoRay written notice of her desire to rescind
within seven (7) days.  If Woods does not rescind this Agreement
within seven (7) days of signing it, this Agreement will become irrevocable.
This Agreement will not be effective until that period has
expired.  Woods understands the significance and consequences of this
Agreement, and acknowledges that it is voluntary and has not been given as a
result of any coercion.  In the event Woods rescinds this Agreement
and IsoRay has theretofore made any Severance Pay, then Woods shall immediately
repay IsoRay for the cost of such Severance Pay.





1.5.        Option Exercise Term
Extension.Notwithstanding anything contained in the Company's
option plan or the applicable option agreements with Woods to the contrary, the
exercise term of the options to purchase 100,000 shares of IsoRay common stock
owned by Woods, with a grant date of July 1, 2009 (the "Vesting Options"), shall
fully vest effective as of the Resignation Date regardless of their original
terms of vesting as originally set forth in the applicable option agreement and
shall not be reduced as a result of Woods ceasing to be employed by the Company.
All options held by Woods as of the Resignation Date other than the Vesting
Options shall be cancelled and terminate in accordance with the terms of the
Company's various stock option plans pursuant to which said options were
granted.





1.6.        Consulting
Services.  The parties agree that Woods shall provide
consulting services at no additional charge to the Company of up to a maximum of
ten (10) hours per month for the six month period ending on August 1, 2010,
which services will include assisting the Board of Directors with any transition
in management.  Services may be rendered out of Woods' home office and
are not required on the premises of IsoRay.  Woods shall have all
airfare, hotel, travel and other reasonable out of pocket expenses reimbursed by
IsoRay if IsoRay requires travel to its corporate offices or
otherwise.


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ARTICLE
II





REPRESENTATIONS
AND WARRANTIES





Woods
hereby represents and warrants to the Company as of the date of this Agreement
that:





2.1.        Agreement
Binding.Neither the execution, delivery, nor performance of
this Agreement by Woods will, with or without the giving of notice or the
passage of time, or both, conflict with or result in a default, right to
accelerate or loss of rights under, or result in the creation of, any lien,
charge or encumbrance or any franchise, mortgage, deed of trust, lease, license,
agreement, understanding, law, rule or regulation, or any order, judgment or
decree to which Woods is a party or by which Woods may be bound or
affected.





2.2.        Full Settlement.Woods agrees
that upon the performance of this Agreement, no further compensation is due or
owing to Woods from the Company whether in the form of cash or non-cash
compensation with respect to any relationship between the Company and
Woods.





2.3         Return of
Property.  As of the Resignation Date, Woods has returned to
the Company all Company-owned property, specifically including all keys and card
key badges to company buildings or property, all company-owned equipment, and
all company documents and papers, including but not limited to trade secrets or
confidential company information.  The parties acknowledge that Woods
shall be provided with access to Company email and documents on the Company's
servers as necessary to fulfill her consulting duties as set forth in Section
1.6 above.





ARTICLE
III





COVENANTS





3.1.        (a)           Woods
Release.Woods and her heirs, executors, successors,
predecessors, assigns, present and former partners, principals, employees,
agents, attorneys, and all other persons acting on behalf of the aforementioned
parties (the "Woods
Parties") hereby release and forever discharge the Company and its
successors, assigns, affiliates, subsidiaries, divisions, present and former
officers, directors, employees, shareholders, agents, attorneys, and all other
persons acting on behalf of the aforementioned parties (the "Company Parties") from any
and all claims, debts, demands, suits, actions and causes of action of
whatsoever kind and nature, whether in law or in equity, known or unknown that
Woods or the Woods Parties may now have, at any time prior hereto ever had, or
hereafter may have or could assert against the Company or the Company Parties
for, upon or by reason of any matter, cause or thing whatsoever arising out of,
set forth in, or connected with the employment of or services rendered by
Woods.  Woods acknowledges and agrees that she does not claim or have
any interest in any patents, copyrights or any other intellectual property
rights relating to the Company's products, marketing materials, documentation or
other assets, and that any such rights have vested in the Company as works for
hire to the extent permitted by applicable law or have been assigned to the
Company.  This paragraph shall not affect Woods's rights as a
shareholder of the Company.





(b)          Company
Release.The Company and the Company Parties hereby release
and forever discharge Woods from any and all claims, debts, demands, suits,
actions and causes of action of whatsoever kind and nature, whether in law or in
equity, known or unknown that the Company or the Company Parties may now have,
at any time prior hereto ever had, or hereafter may have or could assert against
Woods for, upon or by reason of any matter, cause or thing whatsoever arising
out of, set forth in, or connected with the employment of or services rendered
by Woods.


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3.2.        Antidiscrimination
Release.  Woods hereby releases and forever discharges the
Company and the Company Parties from any and all claims, demands, debts, suits,
actions, causes of action of whatever kind and nature, in law or in equity known
or unknown, that Woods may now have or at any time hereto ever had, or hereafter
may have or could assert against the Company for, upon or by reason of any
matter, cause or thing whatsoever arising out of, set forth in or in connection
with Woods's employment by the Company, including but not limited to claims
under the Age Discrimination in Employment Act, as modified by the Older Workers
Benefit Protection Act (or any similar applicable state or federal
laws).





3.3.        No Release of Obligations Contained
in this Agreement.The Company and Woods hereby each
acknowledge and agree that nothing contained in this Agreement shall release or
discharge any of them from rights, duties and obligations contained in or
assumed under this Agreement.





3.4.        Covenant Not to
Sue.Woods and the Woods Parties hereby agree and covenant not
to sue the Company or the Company Parties for any and all claims, counterclaims,
crossclaims, set-offs, debts, actions for contribution or indemnity, demands or
any action whatsoever, in law or in equity, which Woods may now have, at any
time prior hereto ever had or hereafter may have or could assert against the
Company or the Company Parties for, upon or by reason of any matter, cause or
thing whatsoever arising out of, set forth in or connected with the employment
of or services rendered by Woods or any dealings between the Company or the
Company Parties and Woods or the Woods Parties.  This paragraph shall
not affect Woods's rights as a shareholder of the Company.  The
Company and the Company Parties hereby agree and covenant not to sue Woods or
the Woods Parties for any and all claims, counterclaims, crossclaims, set-offs,
debts, actions for contribution or indemnity, demands or any action whatsoever,
in law or in equity, which the Company may now have, at any time prior hereto
ever had or hereafter may have or could assert against Woods or the Woods
Parties for, upon or by reason of any matter, cause or thing whatsoever arising
out of, set forth in or connected with the employment of or services rendered by
Woods or any dealings between the Company or the Company Parties and Woods or
the Woods Parties.





3.5.        Confidentiality; Covenant Not to
Compete; Non-Solicitation.Woods acknowledges and agrees that
as partial consideration for the Severance Pay to be provided hereunder, she
shall be subject to the following covenants following execution of this
Agreement:





(a)    Covenant Not to
Compete.  Woods shall not engage in any business or perform any
service, directly or indirectly, or have any interest, whether as a proprietor,
partner, employee, investor, principal, agent, consultant, director or officer,
in any enterprise which manufactures Cesium-131, Iodine-125 or Palladium-103
used in the treatment of prostate, head and neck, or lung cancers, ocular
melanoma, or any other treatment applications that the Company is considering as
of the Effective Date, for a period of twelve months (12) months after
the Effective Date. Nothing in this Section 3.5(a) shall be deemed to
prohibit Woods from purchasing less than five percent (5%) of the outstanding
shares of any corporation whose shares are traded on a national exchange and
which, at the time of purchase, is not engaged in competition with the Company.
In the event Woods desires to accept an employment position which would
otherwise violate the restrictive covenant set forth in this Section 3.5(a), the
Company agrees to consider waiving such covenant, in its sole discretion,
subject to getting a written summary from Woods describing the proposed
position, the proposed employer and its business and any other reasonable
information requested by the Company.


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If any
court shall determine that the duration or geographical limit of the foregoing
restriction is unenforceable, it is the intention of the parties that the
foregoing restriction shall not be terminated but shall be deemed amended to the
extent required to render it valid and enforceable, such amendment to apply only
with respect to the operation of this Section 3.5(a) in the jurisdiction of
the court that has made the adjudication.





(b)    Confidential
Information.  Woods acknowledges that she has had and will have
access to trade secrets and confidential business information of the Company
throughout the term of her service to the Company and that any such trade secret
or confidential information, regardless of whether Woods alone or with others
developed any such trade secret or confidential information, shall be and shall
remain the property of the Company. After the Effective Date, Woods shall not,
either voluntarily or involuntarily, on either her own account, as a member of a
firm, or on behalf of another employer or otherwise, directly or indirectly use
or reveal to any person, partnership, corporation or association any trade
secret or confidential information of the Company, its parents, subsidiaries, or
affiliates. Such trade secrets shall include, but shall not be limited to,
business plans, marketing plans or programs, financial information, forecasts,
compensation arrangements, contracts (whether leases, financing arrangements, or
other contracts), customer lists, and business opportunities. The term "trade
secrets" shall not include information generally available to the public or a
governmental agency except such term "trade secrets" shall include information
provided to the Securities and Exchange Commission or other governmental agency
on a confidential basis. Woods will not make available to any person,
partnership, limited liability company, corporation or association, or retain
after termination of employment, any Company policy manuals, contracts or other
written materials.





(c)          Non-Disparagement.  So
long as Woods owns any shares of the Company's common or preferred stock, or has
options or warrants to acquire shares of the Company's common or preferred
stock, and for a period of twelve (12) months following date on which Woods
ceases to own any equity interest in the Company (the "Non-Disparagement Period"),
Woods and her affiliates (including Woods's trust beneficiaries,
representatives, agents, attorneys, dependents, spouse, administrators,
executors, heirs, assigns, predecessors and successors-in-interest) shall not
provide oral or written information or disparage or in any manner cause harmful
remarks or comments to be disseminated to any third parties regarding the
business, aptitude, skills, practices, procedures, operations, methods, or any
other subject which may have a detrimental impact on the future business
prospects or extant business relationships of the Company or any officers or
directors of the Company, except as required by law if called as a witness in
any court proceedings.  During the Non-Disparagement Period, the
Company and its officers and directors shall not provide oral or written
information or disparage or in any manner cause harmful remarks or comments to
be disseminated to any third parties regarding the business, aptitude, skills,
practices, procedures, operations, methods, or any other subject which may have
a detrimental impact on the future business prospects or extant business
relationships of Woods, except as required by law if called as a witness in any
court proceedings


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(d)
        Non-Solicitation.
  Woods will not, during the twelve (12) month period following the
Effective Date for any reason, directly or indirectly solicit for employment, or
employ any person who, at the time of such solicitation or employment, is
employed by the Company or its affiliates or was employed by the Company or its
affiliates during the twelve (12) month period prior to the solicitation or
employment or induce or attempt to induce any person to terminate his or her
employment with the Company or its affiliates.





(e)    Injunctive
Relief.  Woods acknowledges that the restrictions contained in
this Section 3.5 are a reasonable and necessary protection of the immediate
interests of the Company and that any violation of these restrictions would
cause substantial injury to the Company. In the event of a breach or threatened
breach by Woods of these restrictions, the Company shall be entitled to apply to
any court of competent jurisdiction for an injunction restraining Woods from
such breach or threatened breach; provided, however, that the
right to apply for an injunction shall not be construed as prohibiting the
Company from pursuing any other available remedies for such breach or threatened
breach.





3.6.        Release Not Applicable to Future
Services.Notwithstanding any language to the contrary
contained herein, in the event that the parties engage in future contracts for
services, including but not limited to the services contemplated pursuant to
Section 1.6, any and all claims, debts, demands, suits, actions, and courses of
action arising from such services, occurring after the execution date shall not
be released and discharged by Sections 3.1 or 3.2 of this Agreement and the
covenant not to sue contained in Section 3.4 shall not apply to such future
services.





ARTICLE
IV





MISCELLANEOUS





4.1.        Confidentiality.Woods
will not discuss or disclose this Agreement or any of its terms with or to any
unaffiliated person or entity not signing this Agreement, except as required by
law, and will not voluntarily cooperate or aid any claimant adverse to the
Company.  Woods may disclose the terms of this agreement only with her
legal and financial advisors.





4.2         Effectiveness.  Woods
acknowledges that she has freely, knowingly and voluntarily entered into this
Agreement.  This Agreement shall be null and void and of no further
legal force or effect unless executed by all parties by 5 p.m. (PDT) on January
12, 2010.





4.3.        Separate
Counsel.The parties stipulate and agree that, in entering
into this Agreement, they have relied upon the advice and representation of
counsel and other advisors selected by them, the Company having urged Woods to
rely on separate counsel chosen by her.  Woods particularly stipulates
and agrees that she was afforded time within which to consider the terms of this
Agreement, with her legal counsel if she so chose, and that she and her counsel
and advisors have not received and are not relying on any representations or
warranty from any person or entity retained or employed by the Company in
connection with Woods' entry into this Agreement. Woods acknowledges that Keller
Rohrback, P.L.C. and its attorneys serve as counsel for the Company and do not
represent Woods.


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4.4.        Waiver of Breach or Default.No waiver of any breach or default hereunder shall be considered valid
unless in writing and signed by the party giving such waiver, and no such waiver
shall be deemed a waiver of any subsequent breach or default of the same or
similar nature.





4.5.        Successors and
Assigns.This Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns.





4.6.        Paragraph
Headings.The paragraph headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said paragraphs.





4.7.        Counterparts.This
Agreement may be executed in one or more counterparts, all of which taken
together shall be deemed one original.





4.8.        Applicable
Law.This Agreement and all amendments thereof shall be
governed by and construed in accordance with the laws of the State of Washington
applicable to contracts made and to be performed therein and the parties herein
are subject to the personal jurisdiction of the courts in and for the State of
Washington, with venue to lie in Benton County, and to the extent permitted by
law, are also subject to the personal jurisdiction of the Federal District
Court, with venue to lie in the Eastern District of Washington.





4.9.        Severability.Wherever
there is any conflict between any provisions of this Agreement and any statute,
law, regulation or judicial precedent, the latter shall prevail, but in such
event the provisions of this Agreement thus affected shall be curtailed and
limited only to the extent necessary to bring it within the requirement of the
law.  In the event that any part, section, paragraph or clause of this
Agreement shall be held by a court of proper jurisdiction to be invalid or
unenforceable, the entire Agreement shall not fail on account thereof, but the
balance of the Agreement shall continue in full force and effect unless such
construction would clearly be contrary to the intention of the parties or would
result in unconscionable injustice.





4.10.      Litigation.  In the
event of any litigation between the parties arising out of this Agreement, the
prevailing party shall be entitled to recover its court costs and reasonable
attorneys' fees.





4.11.      Entire Agreement and
Modification.This Agreement represents the entire agreement
by, between and among any of the parties and may be modified only by a duly
authorized writing, executed by the Company and Woods or their respective heirs,
successors or assigns.  This Agreement terminates and supersedes the
Executive Employment Agreement between the parties dated as of January 1,
2007.


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4.12       No Admission of Liability; Reference
Letter; Mutual Statement to Public.  This Agreement shall not
be considered as evidence of any violation of any statute or law, or any
wrongdoing or liability on the part of the Company or its directors, officers,
agents, trustees, employees, employee-spouses, successors and assigns agents or
employees.  In partial consideration for Woods entering into this
Agreement and the promises and covenants contained herein, IsoRay shall provide
to Woods a mutually agreed upon letter of reference.  Woods and IsoRay
will also negotiate, in good faith and no later than the Resignation Date, a
mutually satisfactory statement to be provided to prospective employers seeking
an employment reference, and separate mutually satisfactory statements to be
provided by the Company to the public in the event of any inquiries concerning
Woods and to be provided by Woods to the public in the event of any inquiries
concerning the Company.





[Signature
Page Follows]




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Medical:ISORAY
      MEDICAL, INC., a Delaware corporationBy
                            /s/ Dwight
BabcockDwight Babcock, CEODate:
      1/12/10IsoRay:ISORAY,
      INC., a Minnesota corporationBy
                            /s/ Dwight
BabcockDwight Babcock, CEODate:
      1/12/10ISORAY
      INTERNATIONAL LLC, a Washington limited liability
  companyBy
                            /s/ Dwight
BabcockDwight Babcock, CEODate:
      1/12/10Lori
      Woods:/s/ Lori WoodsLori
      WoodsDate:
      1/12/10


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