Document:

Hanford
      Area Economic Investment Fund Committee

    Loan
      Agreement

     

    THIS
      LOAN
      AGREEMENT (the “Agreement”)
      is made
      and entered into this 15
      day
      of June, 2006,
      by and
      among the Hanford Area Economic Investment Fund Committee (the “Lender”),
      and
IsoRay
      Medical, Inc. a wholly owned subsidiary of IsoRay, Inc. a Delaware
      Corporation,
      (the
“Borrower/s”)
      (collectively the “Parties”).

    

    RECITALS

    

    A.    The
      Hanford Area Economic Investment Fund Committee (the “Lender”);
      desires to make such funds available to private borrowers in order to assist
      in
      the implementation of new value-added projects; stimulate private investment;
      provide capital to ventures consistent with local economic development goals
      and
      capable of growth in the business markets; encourage and increase the employment
      of Benton and Franklin Counties; and assist viable, small
      businesses.

    

    B.    The
      Lender has determined that the Borrower/s application for a loan meets the
      Program’s
      requirements.

    

    C.    The
      Lender desires to loan funds to the Borrower/s, and the Borrower/s desire to
      borrow funds from the Lender, under the terms and conditions set forth in this
      Agreement, which is intended to control the relationship among the
      Parties.

    

    AGREEMENT

    

    NOW
      THEREFORE, in consideration of the mutual promises contained in this Agreement,
      the Parties agree as follows:

    

    1.    Overview
      of the Transaction.
      Under
      this agreement, the Lender will lend One
      Million Four Hundred Thousand Dollars and 00/100
      ($1,400,000.00)
      to the
      Borrowers at an interest rate of Eight
      and One Half Percent
      (8.50%)
      per
      annum, plus a one-half of one percent (.50%) loan service fee, for an effective
      rate of Nine
      Percent
      (9.00%)
      per
      annum. Interest is calculated based on actual/365 day bases. The purpose of
      the
      loan is to purchase Equipment
      for Production Lab.
      The
      loan will be governed by this Agreement and the Lenders’
      Promissory Note of even date.

    

    A
      more
      detailed description of the transaction is contained in the remaining provisions
      of this Agreement, which sets forth the duties and responsibilities of the
      Parties.

    

    
      	 	
              2.

            	
              Definitions.

            

    

    2.01.    Business
      Day.
      A
      weekday, excluding federal holidays, state holidays, Saturdays and
      Sundays.

    2.02.    Collateral.
      That
      property, whether real or personal, which is pledged by Borrowers to secure
      the
      Loan, as detailed in the Loan Documents.

    2.03.    Lender
      Promissory Note.
      The
      Promissory Note from the Borrowers to the Lender evidencing the Indebtedness
      of
      the Loan referred to in Section 3, and in the form attached hereto as Exhibit
      A
      and incorporated herein by this reference.

    2.04.    Lender
      Promissory Note Repayment.
      The
      Borrowers repayment of the Loan, including principal interest, which is to
      be
      remitted to the Lender or loan servicing company.

    2.05.    Loan.
      The Loan
      from the Lender to the Borrowers.

    2.06.    Loan
      Documents.
      Those
      standard documents required by the Lender to make and close a loan including,
      but not limited to, the Lenders’
      Promissory Note, security agreements, financing statements, assignment of
      assets, and Deeds of Trust.

    2.07.    Project.
      The
      endeavor for which the funds comprising the Loan were borrowed by the
      Borrower/s. 

    2.08.    Section
      Four Covenants.
      Those
      covenants of the Borrowers included in Section 4.01, 4.02, 4.03, 4.04, 4.05,
      4.06, 4.07, and 4.08.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3.    The
      Loan.
      Subject
      to the terms and conditions set forth in this Agreement and the terms and
      conditions set forth in the Loan Documents, the Lender hereby agrees to loan
      to
      the Borrower/s One
      Million Four Hundred Thousand and 00/100
      ($1,400,000.00)
      (the
“Loan”)
      at an
      interest rate of Nine
      Percent
      (9.00%)
      per
      annum.

    

    3.01    Loan
      Documents.
      As
      evidence of the Loan, the Borrower/s hereby agrees that the Loan Documents
      shall
      inure to the benefit of the Lender and that the Borrower/s shall review the
      form
      of the Loan Documents prior to execution.

    3.02    Closing.
      The
      Borrower/s shall execute and deliver to the Lender all documents necessary
      to
      evidence the borrowing under this Agreement and to perfect the security
      interests granted to the Lender. If a Deed of Trust is taken as collateral,
      the
      Borrower/s shall furnish the Lender with a standard form loan policy of title
      insurance issued by a title company approved by the Lender insuring the Deed
      of
      Trust against the real property, subject only to matters approved by the
      Lender.

    3.03    Loan
      Fee.
      A loan
      fee of one and one-half (1.50%) of the approved loan amount is due at time
      of
      closing.

    

    4.    Borrower/s
      Representations, Warranties and Covenants. To induce the Lender to enter into
      this Agreement, the Borrower/s hereby make the following representations,
      warranties and covenants:

    4.01.    Repayment.
      The
      Borrower/s covenant and agree to make, when due, all payments of any interest
      and/or principal in accordance with the terms of the Promissory
      Note;

    4.02.    Authority.
      The
      Borrower/s represent and warrant that they are fully organized, validly existing
      and in good standing under the laws of the State of Washington in force as
      of
      the date of this Agreement; that they have the legal power to enter into this
      Agreement and to exercise their rights and perform their obligations under
      this
      Agreement; and that all actions required to authorize the making, execution,
      and
      performance of this Agreement have been duly taken;

    4.03.    Use
      of
      Funds.
      The
      Borrower/s covenant and agree that they will use the proceeds of the Loan for
      the purposes of the Project only;

    4.04.    Insurance.
      The
      Lender shall require the Borrower/s to obtain an adequate and sufficient amount
      of fire and extended coverage insurance covering the Collateral in the full
      amount of the Loan. The Lender shall be named as loss payee or insured lender,
      and such insurance shall be continuously maintained so long as the Lender has
      an
      interest in the Loan and the Collateral. In addition, if the Collateral is
      located in a flood hazard area as designated by the Federal Insurance
      Administrator, the Department shall require the Borrowers to obtain flood
      insurance which shall be continuously maintained in the lesser of either the
      outstanding principal balance of the Loan or the maximum available amount of
      National Flood Insurance Program insurance.

    4.05.    Government
      Regulations.
      The
      Borrower/s covenants and agrees that they will comply with all applicable state
      and local laws, regulations, and requirements.

    4.06.    False,
      Incorrect, or Incomplete Information.
      The
      Borrower/s covenant and agree that they have not submitted any materially false,
      incorrect, or incomplete information to the Lender; and

    4.07.    Financial
      Records. IsoRay
      Medical, Inc. and IsoRay, Inc.
      covenants and agrees to submit financial records to the Lender as follows:
      annual CPA reviewed financial statements. Corporate tax returns are due
      annually. The guarantor’s
      personal financial statements are due annually. Guarantor’s
      tax
      returns are due annually.

    4.08.    Additional
      Loan Covenants.
      Additional loan covenants are included in Exhibit B., attached and made a part
      of this loan agreement.

    

    
      
        5.    Loan
          Security.

      

    

    
      
        5.01.    Collateral.

      

    

    

    A.    “Accounts”
      means
      any right to payment for goods sold or leased, or to be sold or to be leased,
      or
      for services rendered or to be rendered no matter how evidenced, including
      accounts receivable, chattel paper, contract rights, purchase orders, notes,
      instruments, drafts, acceptances and other forms of obligations and
      receivables.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    B.    “Inventory”
      means
      all of Borrower’s
      goods,
      merchandise and other personal property which are held for sale or lease
      including those held for display or demonstration or out on lease or consignment
      or to be furnished under a contract of service or are raw materials, work in
      process or materials used or consumed, or to be used or consumed, in
      Borrower’s
      business, and shall include all general intangibles, proprietary rights,
      patents, trademarks, copyrights, plans, drawings, diagrams, schematics, assembly
      and display materials relating thereto.

    

    C.    “Equipment”
      means
      all of Borrower’s
      equipment, including machinery and office equipment, together with all parts,
      fittings, accessories, and special tools, and renewals or replacements of all
      or
      any part thereof; and in all work in process and finished goods, whether now
      owned or hereafter acquired by borrower and wheresoever located. Including
      specific equipment and machinery listed on attached Exhibit C.

    

    D.    “Assignment
      of Lease”
      means
      that all of Borrower’s
      rights,
      title, and interest in a lease dated February 9, 2005 and amended by Revision
      1dated May 5, 2005 and made by subsidiaries of the Parties now delineated as
      signatories, is made and entered into this 1st
      day of
      November, 2005 between Nuvotec USA, Inc. as “Lessor”
      and
      IsoRay, Inc. “Lessee”.

    

    E.    “Assignment
      of Life Insurance”
      means
      all of Borrower’s
      rights,
      title, and interest in Life Insurance policies issued by Empire General Life
      Assurance Corporation, or as may be modified, and issued as listed
      below:

    

    
      	 	
              1.

            	
              Roger
                E Girard

            

    

    
      	 	
              2.

            	
              David
                J. Swanberg

            

    

    
      	 	
              3.

            	
              Garrett
                N. Brown

            

    

    
      	 	
              4.

            	
              Michael
                K. Dunlop

            

    

    

    6.    Compliance
      with Covenants.
      The
      Lender or its agent shall monitor the Borrowers compliance with the covenants
      contained in Section 4 of this Agreement (the “Section
      Four Covenants”).

    

    7.    Borrowers
      Default. 

    7.01.    Breach
      of Section Four Covenant.

    A.    If
      the
      Lender shall conclude that the Borrower/s have materially breached one or more
      of the Section Four Covenants, the Lender may declare the Promissory Note to
      be
      in default, and due and payable in full by providing a notice of default to
      the
      Borrower/s. Such notice shall inform the Borrower/s of the breach of the
      relevant Section Four Covenant(s), and shall allow the Borrower/s thirty (30)
      Business Days, the outstanding balance of the Promissory Note shall be due
      and
      payable in full.

    

    B.    If
      at the
      end of the thirty (30) business day cure period: (i) the Borrower/s have not
      cured the breach and notified the Lender of such cure; or (ii) the Borrower/s
      have not paid the outstanding balance of the Promissory Note in full, then
      the
      interest rate on the Promissory Note shall immediately and automatically be
      increased to twelve percent (12%), and the Department shall proceed against
      the
      Collateral.

    

    8.    Termination
      of this Agreement.
      This
      Agreement shall terminate and be of no force or effect if the following event
      shall occur:

    

    A.    If
      not
      sooner terminated by the Lender, then upon payment-in-full of the indebtedness
      evidenced by the Promissory Note.

    

    
      	 	
              9.

            	
              Notice.

            

    

    A.    All
      notices required or permitted under this Agreement shall be in writing and
      personally delivered or mailed to the offices set forth below by certified
      mail,
      return receipt requested, postage prepaid, and addressed to the Parties as
      follows:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	To the Lender:	Hanford
              Area Economic Investment Fund Committee
              2912
                W. Hood Ave. A202

              Kennewick,
                WA 99336

            
	 	 
	To the Borrower:	IsoRay Medical, Inc.
              350
                Hills St.

              Suite
                106

              Richland,
                WA 99354

            

    

     

    B.
      Any
      party may, from time to time, change the address to which its notices are to
      be
      sent, by written notice to all other Parties pursuant to this
      section.

    C.
      Whenever notice is required or permitted to be given to fewer than all the
      Parties, copies of the notice shall also be mailed to all other Parties. Copies
      of notices required to be mailed pursuant to this Section shall be sent in
      accordance with this section.

    

    10.    Indemnification.
      It is
      understood and agreed that this Agreement is solely for the benefit of the
      Parties to the Agreement and gives no right to any other party. The Borrower/s
      agree that the Lender is acting only as lender and is not directing or
      controlling the business as a manager, partner, owner, principal, or any other
      capacity. It is understood and agreed that no joint venture or partnership
      is
      formed as a result of this Agreement. Each party hereto agrees to be responsible
      and assume liability for its own negligent acts or omissions, or those of its
      partners, officers, agents, or employees to the fullest extent required by
      law,
      and agrees to save, indemnify, defend and hold the other Parties harmless from
      any such liability. In the case of negligence of more than one party, any
      damages allowed shall be levied in proportion to the percentage of negligence
      attributable to each party; and each party shall have the right to seek
      contribution from each of the other Parties in proportion to the percentage
      of
      negligence attributable to each of the other Parties.

    

    11.    No
      Waiver.
      Waiver
      of any covenant, term, or condition of this Agreement by any party shall not
      be
      deemed a waiver of any subsequent breach of the same covenant, term, or
      condition. No waiver of any default or breach by any party shall be implied
      from
      any failure to take action upon such default or breach, if the default or breach
      persists or repeats.

    

    12.    Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of the successors and assigns of all the
      Parties, provided that the Borrowers interest under this Agreement may not
      be
      assigned or transferred without the prior written consent of the
      Department.

    

    13.    Time.
      Time is
      of the essence of this Agreement.

    

    14.    Severability.
      The
      invalidity of one or more provisions of this Agreement shall not affect, in
      any
      respect whatsoever, the validity of the remainder of this
      Agreement.

    

    15.    Entire
      Agreement.
      This
      Agreement, together with the Loan Documents, shall constitute the entire
      agreement among the Parties. Any amendment to this Agreement must be in writing
      and signed by all the Parties.

    

    16.    Governing
      Laws.
      This
      Agreement shall be governed by and construed in accordance with the Laws of
      the
      State of Washington. Any action brought under this Agreement shall be brought
      in
      Superior Court of Benton County, Washington.

    

    IN
      WITNESS WHEREOF, the Parties have executed this Loan Agreement by and through
      their duly authorized representatives as of the date first above
      written.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    
      	 	
              Hanford
                Area Economic Investment Fund Committee

            
	 	 
	 	
              By:
                /s/
                Max E. Benitz, Jr.

               Max
                E. Benitz, Jr.

            
	 	 
	 	Title:   Chair
	 	 
	 	Date:   June
              15, 2006
	 	 
	 	IsoRay Medical, Inc.
	 	 
	 	
              By: /s/
                Roger E. Girard

               Roger
                E. Girard

            
	 	 
	 	Title:    CEO
              & Chairman
	 	 
	 	Date:    June
              15, 2006
	 	 
	 	IsoRay, Inc.
	 	 
	 	
              By: /s/
                Roger E. Girard

               Roger
                E. Girard

            
	 	 
	 	Title:    CEO
              & Chairman
	 	 
	 	Date:    June
              15, 2006

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Exhibit
      A

    

    Hanford
      Area Economic Investment Fund Committee

    Promissory
      Note

    

    
      	
              $1,400,000.00

            	Kennewick, Washington
              June
                15, 2006

            

    

          

    FOR
      VALUE
      RECEIVED, IsoRay
      Medical, Inc. a wholly owned subsidiary of IsoRay, Inc.
      promises
      to pay to the order of the Hanford Area Economic Investment Fund Committee,
      the
      principal sum of One
      Million Four Hundred Thousand Dollars and 00/100 ($1,400,000.00),
      along
      with interest on the outstanding balance at a rate of Nine percent (9.00%).
      Interest calculation based on actual days/365 day bases.

    

    The
      loan
      shall be repaid in 120
      successive Monthly
      payments
      of $17,734.61
      including interest as specified above. The first payment will be due
August
      1, 2006,
      and
      will continue on the first (1st)
      day of
      the month until paid in full. The privilege is reserved to prepay the
      indebtedness evidenced hereby in full at anytime without penalty.

    

    Late
      Fee:
      Any payment hereunder that has not been received by Hanford Area Economic
      Investment Fund Committee within fifteen (15) days of the due date shall be
      deemed to be late and a penalty of five percent (5%) of the payment due will
      be
      assessed as a late charge and shall be deducted before any application of the
      funds to principal or interest.

    

    Default
      in the payment of any installment of principal or interest, at the option of
      the
      holder, shall render the whole amount then unpaid due and payable, whether
      due
      by lapse of time or not, time being of the essence of this agreement. Failure
      to
      exercise this option shall not constitute a waiver of the right to exercise
      the
      same at any other time.

    

    Default
      under this note is defined in the Loan Agreement.

    

    Should
      any action be brought for the collection of any principal or interest due under
      this note, the undersigned promises to pay all costs thereof, including such
      additional sum as attorneys’
      fees, as
      the court may adjudge reasonable.

    

    The
      makers and endorsers severally waive presentment, protest, and demand, notice
      of
      protest, demand, or dishonor and nonpayment of this note, and expressly agree
      that this note, or any payment hereunder, may be extended from time-to-time
      without in any way affecting the liability of the makers and endorsers
      hereof.

    

    This
      note
      and any renewals or extensions thereof are to be governed by and construed
      in
      accordance with the laws of the state of Washington and the Loan
      Agreement.

    

    June
      15, 2006

    

    By:
      /s/
      Roger E. Girard

    

    Title:
      CEO
      & Chairman

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Exhibit
      B

    

    Loan
      Covenants:

    

    
      	 	
              A.

            	
              Current
                Ratio not less than 1.50 to 1

            

    

    

    
      	 	
              B.

            	
              Debt
                to Equity not more than 2.00 to 1

            

    

    

    
      	 	
              C.

            	
              Fixed
                Charge Coverage not less than

                      a)
                1.10 to 1 by
                December 31, 2006 and thereafter

            

    

     

    
      	 	
              D.

            	
              All
                production facilities and corporate headquarters to remain within
                the
                boundaries of Benton and Franklin Counties of Washington State. If
                IsoRay
                removes all or any part of its operations from the boundaries of
                Benton or
                Franklin Counties, all principle and accrued interest due by IsoRay
                is
                automatically due and payable in full. HAEFIC will consider requests
                for
                moving part of it operations or establishing additional facilities
                outside
                of the defined boundaries.

            

    

    

    
      	 	
              E.

            	
              Benton-Franklin
                Economic Development District to subordinate all collateral to
                HAEIFC.

            

    

    

    
      	 	
              F.

            	
              IsoRay
                will not remove any equipment purchased with the proceeds of this
                loan
                from the PECOS facility, any removal will require the reduction in
                loan
                principle equal to the equipments original cost, or full repayment
                of the
                outstanding principle and accrued
                interest.

            

    

    

    
      	 	
              G.

            	
              Assignment
                of lease and leasehold improvements, which will allow HAEIFC to take
                position of the production
                facility.

            

    

    

    
      	 	
              H.

            	
              Letters
                from all creditors recognizing HAEIFC’s
                loan and waiving any default such loan may
                trigger.

            

    

    

    
      	 	
              I.

            	
              Letters
                from all creditors recognizing HAEIFC’s
                collateral and waiving all rights to
                it.

            

    

    

    
      	 	
              J.

            	
              Assignment
                of Life Insurance for $250,000.00 each from guarantors Girard, Segna,
                Swanberg, and Dunlop.

            

    

    

    
      	 	
              K.

            	
              Will
                not pay annual compensation to any Officer, Director, Manager, Salaried
                Employee, or Family member of any for mentioned in excess of $100,000.00
                annually during the term of this loan. Annual compensations over
                $100,000.00 at time of application to be grandfathered. Requests
                for
                grandfathered annual compensation to be supported by individuals
                name,
                annual compensation, and position. Exceptions to annual compensation
                will
                be considered for newly hired, or replacement employees on a case
                by case
                basis.

            

    

    

    
      	 	
              L.

            	
              Will
                pay no dividend to common and/or preferred stockholders and/or bonuses
                to
                Employees as an aggregated total that exceeds 30% of prior
                year’s
                net income as expressed by generally acceptable accounting principles
                and
                reported on the companies prior years audited financial statement
                during
                the term of this loan. This covenant will become effective on June
                30,
                2010.

            

    

    

    
      	 	
              M.

            	
              Buy
                back any stock either common or preferred from any Officer, Director,
                Manager, or Salaried employee or their family members during the
                term of
                this loan.

            

    

    

    
      	 	
              N.

            	
              Annual
                audited financial statements and tax return, due within 90 days of
                corporate year-end.

            

    

    

    
      	 	
              O.

            	
              Quarterly
                GAAP prepared financial statements, due by the end of the month following
                the quarters end.Unassociated Document

    COMMERCIAL
      SECURITY AGREEMENT

     

    
      	
              Borrower:

            	IsoRay Medical, Inc. a wholly owned
              subsidiary of IsoRay, Inc. a Delaware corporation
              350
                Hills St.

              Suite
                106

              Richland,
                WA 99354

            
	 	 
	Lender:	Hanford Area Economic Investment Fund
              Committee
              2912
                W. Hood Ave. A202

              Kennewick,
                WA 99336

            

    

     

    Location
      of Collateral:
      350
      Hills St. Richland, WA 99354 and 2025 Battelle Boulevard, Richland, WA
      99354

    

    Grant
      of Security Interest:
      For
      value received, and to secure both the payment of the indebtedness owed to
      Lender and the performance of the obligations under this Security Agreement
      and
      any Related Documents, and in accordance with the definitions and terms set
      forth below. Borrower grants Lender a security interest in all of the following
      Collateral:

    

    
      	 	
              A.

            	
              Accounts
                Receivables

            

    

    
      	 	
              B.

            	
              Inventory

            

    

    
      	 	
              C.

            	
              Equipment
                & Machinery

            

    

    
      	 	
              D.

            	
              Assignment
                of Lease

            

    

    
      	 	
              E.

            	
              Assignment
                Life Insurance

            

    

    

    Borrower
      agrees to insure the Collateral for at least its’
      replacement value.

    

    1.
      Definitions.

    1.1
      Indebtedness. “Indebtedness”
      shall
      mean all amounts and liabilities of every kind and description, whether now
      owed
      or hereafter owed by Borrower to Lender, whether or not evidenced by a
      promissory note or credit agreement and whether direct, indirect, or
      contingent.

    

    1.2
      Related Documents. “Related
      Documents”
      shall
      mean the promissory notes, loan agreements, guaranties, trust deeds, mortgages,
      other security agreements, or any other documents executed in connection with
      this Security Agreement or the Indebtedness, whether already existing, executed
      now or later.

    

    1.3
      Collateral. “Collateral”
      shall
      mean the collateral described as:

    

    A.    “Accounts”
      means
      any right to payment for goods sold or leased, or to be sold or to be leased,
      or
      for services rendered or to be rendered no matter how evidenced, including
      accounts receivable, chattel paper, contract rights, purchase orders, notes,
      instruments, drafts, acceptances and other forms of obligations and
      receivables.

    

    B.    “Inventory”
      means
      all of Borrower’s
      goods,
      merchandise and other personal property which are held for sale or lease
      including those held for display or demonstration or out on lease or consignment
      or to be furnished under a contract of service or are raw materials, work in
      process or materials used or consumed, or to be used or consumed, in
      Borrower’s
      business, and shall include all general intangibles, proprietary rights,
      patents, trademarks, copyrights, plans, drawings, diagrams, schematics, assembly
      and display materials relating thereto.

    

    C.    “Equipment”
      means
      all of Borrower’s
      equipment, including machinery and office equipment, together with all parts,
      fittings, accessories, and special tools, and renewals or replacements of all
      or
      any part thereof; and in all work in process and finished goods, whether now
      owned or hereafter acquired by borrower and wheresoever located. Including
      specific equipment and machinery listed on attached Exhibit A.

    

    D.    “Assignment
      of Lease”
      means
      that all of Borrower’s
      rights,
      title, and interest in a lease dated February 9, 2005 and amended by Revision
      1dated May 5, 2005 and made by subsidiaries of the Parties now delineated as
      signatories, is made and entered into this 1st
      day of
      November, 2005 between Nuvotec USA, Inc. as “Lessor”
      and
      IsoRay, Inc. “Lessee”.

     

    
      
        
        

      

      
        Page 1
          of 5

        
          

        

      

      
        
        

      

    

     

    E.    “Assignment
      of Life Insurance”
      means
      all of Borrower’s
      rights,
      title, and interest in Life Insurance policies issued by Empire General Life
      Assurance Corporation, or as may be modified, and issued as listed
      below:

    

    
      	 	
              1.

            	
              Roger
                E Girard

            

    

    
      	 	
              2.

            	
              David
                J. Swanberg

            

    

    
      	 	
              3.

            	
              Garrett
                N. Brown

            

    

    
      	 	
              4.

            	
              Michael
                K. Dunlop

            

    

    

    
      	2.	
              Obligations
                of Borrower.

              Borrower
                warrants and covenants:

            

    

     

    

    
      	
              2.1

            	
              Perfection
                of Security Interest.
                Borrower agrees to execute financing statements and to take whatever
                other
                action is requested by Lender to perfect and continue Lender’s
                security interest in the Collateral. Upon request of Lender, Borrower
                will
                deliver to Lender any and all documents evidencing or constituting
                the
                Collateral. and Borrower will note Lender’s
                interest upon any and all chattel paper. Borrower hereby appoints Lender
                the Borrower’s
                irrevocable attorney in fact for the purpose of executing any documents
                necessary to perfect or to continue the security interest granted
                herein.
                Lender may at any time, and without further authorization from Borrower;
                file copies of this Security Agreement as a financing statement.
                Borrower
                will reimburse Lender for all expenses for perfecting or continuing
                this
                security interest.

            

    

    

    
      	
              2.2

            	
              Removal
                of Collateral.
                Borrower warrants that the Collateral (or to the extent the Collateral
                consists of intangible property such as accounts, the records concerning
                the Collateral) is located at Borrower’s
                address or the Collateral address shown above.

               

              Except
                in the ordinary course of its business
                within the county in which the Collateral is located. Borrower shall
                not
                remove the Collateral from its location without the prior written
                consent
                of Lender, which shall not be unreasonably withheld. To the extent
                the
                Collateral constitutes vehicles, or other titled property, and except
                for
                sales of inventory in the ordinary course of its business, Borrower
                shall
                not take or permit any action which would require registration of
                the
                vehicles outside of the state in which the Lender is located, without
                the
                prior consent of Lender.

            

    

     

    
      	
              2.3

            	
              Transactions
                Involving Collateral.
                Except for inventory sold or accounts collected in the ordinary course
                of
                Borrower’s
                business, Borrower shall not sell, offer to sell, or otherwise transfer
                the Collateral. Borrower shall not pledge mortgage, encumber or otherwise
                permit the Collateral to be subject to any lien, security interest,
                or
                charge, other than the Security interest provided for herein without
                the
                prior written consent of Lender. This includes security interests
                even if
                junior in right, to this Security Agreement. Unless waived by Lender,
                all
                proceeds from any disposition of the Collateral (for whatever reason)
                shall be held in trust for Lender, and shall not be commingled with
                any
                other funds; provided, however, that this requirement shall not constitute
                consent by Lender to any sale or other disposition. Borrower shall
                immediately deliver any such proceeds to
                lender.

            

    

    

    
      	
              2.4

            	
              Title.
                Borrower
                warrants that it holds marketable title to the Collateral subject
                only to
                the lien of this Security Agreement. Borrower shall defend
                Lender’s
                rights against the claims and demands of all
                persons.

            

    

    

    
      	
              2.5

            	
              Use.
                Borrower shall keep the Collateral in first class condition and repair.
                Borrower will not commit or permit damage to or destruction of the
                Collateral or any part thereof.

            

    

    

    
      	
              2.6

            	
              Taxes,
                Assessments, and Liens.
                Borrower will pay when due all taxes, assessments, and liens upon
                the
                collateral, its use or operation, upon this Security Agreement, upon
                any
                promissory notes evidencing the Indebtedness or upon any of the other
                Related Documents. Borrower may withhold any such payment or may
                elect to
                contest any lien if Borrower is in good faith conducting appropriate
                proceedings to contest the obligation to pay and so long as
                Lender’s
                interest in the Collateral is not jeopardized. If the Collateral
                is
                subjected to a lien which is not discharged within 15 days, Borrower
                shall
                deposit with lender cash, a sufficient corporate surety bond or other
                security satisfactory to Lender in any amount adequate to provide
                for the
                discharge of the lien plus any interest, costs, attorneys’
                fees or other charges that could accrue as a result of foreclosure
                or
                sale. In any contest Borrower shall defend itself and Lender and
                shall
                satisfy any final adverse judgment before enforcement against the
                Collateral. Borrower shall name Lender as an additional obligee under
                any
                surety bond furnished in the contest
                proceedings.

            

    

     

    
      
        
        

      

      
        Page 2
          of 5

        
          

        

      

      
        
        

      

    

     

    
      	
              2.7

            	
              Compliance
                With Governmental Requirements.
                Borrower shall comply promptly with all laws, ordinances and regulations
                of all governmental authorities applicable to the use of the Collateral.
                Borrower may contest in good faith any such law, ordinance, or regulation
                and withhold compliance during any proceeding, including appropriate
                appeals, so long as Lender’s
                interest in the Collateral is not
                jeopardized.

            

    

    

    
      	
              2.8

            	
              Maintenance
                of Casualty Insurance.
                Borrower shall procure and maintain policies of fire and other casualty
                insurance with standard extended coverage covering the Collateral
                on the
                basis and in at least the amount described above, and with loss payable
                to
                Lender. Policies shall be written by insurance companies reasonably
                acceptable to Lender. Borrower shall deliver to Lender certificates
                of
                coverage from each insurer containing a stipulation that coverage
                will not
                be canceled or diminished without a minimum of 10 days prior written
                notice to Lender. 

            

    

    

    
      	
              2.9

            	
              Application
                of Insurance Proceeds.
                Borrower shall promptly notify Lender of any loss or damage to the
                Collateral or any portion thereof having a fair market value in excess
                of
                $1,000. Lender may make proof of loss if Borrower fails to do so
                within 15
                days of the casualty. All proceeds of any insurance on the Collateral
                shall be held by Lender as part of the Collateral. If Borrower and
                Lender
                agree to repair or replace the damaged or destroyed Collateral, Lender
                shall, upon satisfactory proof of expenditure. Pay or reimburse Borrower
                from the proceeds for the reasonable cost of repair or restoration.
                If
                Borrower and Lender do not agree to restore the Collateral, Lender
                shall
                retain a sufficient amount of the proceeds to pay all of the Indebtedness,
                and shall pay the balance to Borrower. Any proceeds which have not
                been
                paid out within 180 days after their receipt and which Borrower has
                not
                committed to the repair or restoration of the collateral shall be
                used to
                prepay the Indebtedness.

            

    

    

    
      	
              2.10

            	
              Insurance
                Reserves. Lender
                may require Borrower to maintain with Lender reserves for payment
                of
                insurance premiums which reserves shall be created by monthly payments
                of
                a sum estimated by lender to be sufficient to produce, at least 15
                days
                before due, amounts at least equal to the insurance premiums to be
                paid.
                If 15 days before payment is due the reserve funds are insufficient.
                Borrower shall upon demand pay any deficiency to lender. The reserve
                funds
                shall be held by Lender as a general deposit from Borrower and shall
                constitute a noninterest-bearing debt from Lender to Borrower which
                Lender
                may satisfy by payment of the insurance premiums required to be paid
                by
                Borrower as they become due. Lender does not hold the reserve funds
                in
                trust for Borrower, and Lender is not the agent of Borrower for payment
                of
                the insurance premiums required to be paid by
                Borrower.

            

    

    

    
      	
              2.11

            	
              Borrower’s
                Report on Insurance.
                If
                requested by Lender within 60 days after the close of Borrower’s
                fiscal year. Borrower shall furnish to Lender a report on each existing
                policy of insurance showing:

            

    

    
      	 	
              (a)

            	
              the
                name of the insurer;

            

    

    
      	 	
              (b)

            	
              the
                risks insured;

            

    

    
      	 	
              (c)

            	
              the
                amount of the policy;

            

    

    
      	 	
              (d)

            	
              the
                property insured;

            

    

    
      	 	
              (e)

            	
              the
                then current value and the basis of which insurance has been obtained
                and
                the manner of determining that
                value;

            

    

    and

    
      	 	
              (f)

            	
              the
                expiration date of the policy.

            

    

    

    Borrower
      shall upon request have an independent appraiser satisfactory to Lender to
      determine, as applicable, the cash value or replacement cost of the
      Collateral.

    

    3.
      Borrower’s
      Right to Possession.

    Until
      default, Borrower may have possession of the tangible personal property and
      beneficial use of all of the Collateral and may use it in any lawful manner
      not
      inconsistent with this Security Agreement or the Related Documents.

    

    4.
      Expenditures by Lender. 

    If
      not
      discharged or paid by Borrower when due. Lender may discharge taxes, liens,
      security interest, or other encumbrances at any time levied or placed on the
      Collateral, may pay for insurance on the collateral, and may pay for maintenance
      and preservation of the Collateral. All such payments shall become a part of
      Borrower’s
      obligations secured hereby, payable on demand, with Interest at the maximum
      rate
      permitted by law from date of expenditure until repaid. Such right shall be
      in
      addition to any other rights or remedies to which Lender may be entitled on
      account of default.

     

    
      
        
        

      

      
        Page 3
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    5.
      Events of Default

    Borrower
      shall be in default under this Security Agreement upon:

    
      	 	
              (a)

            	
              Failure
                to make any payment of Indebtedness when due;
                or

            

    

    
      	 	
              (b)

            	
              Failure
                to comply within 30 days after written notice from lender demanding
                compliance with any other term, obligation, covenant or condition
                contained herein (or in any of the Related Documents), provided,
                if
                compliance is not possible within 30 days, default shall occur upon
                failure within 30 days to take steps that will produce compliance
                as soon
                as is reasonably practical; or

            

    

    
      	 	
              (c)

            	
              Any
                warranty, representation, or statement made or furnished to Lender
                by or
                on behalf of Borrower proves to have been false in any material respect
                when made or furnished; or

            

    

    
      	 	
              (d)

            	
              Borrower’s
                death (if Borrower is an Individual), dissolution or termination
                of
                Borrower’s
                existences a going business, insolvency, appointment of a receiver
                for any
                part of Borrower’s
                property, any assignment for the benefit of creditors, or the commencement
                of any proceeding under any bankruptcy or insolvency laws by or against
                Borrower; or

            

    

    
      	 	
              (e)

            	
              Commencement
                of foreclosure, whether by judicial proceeding, self-help, repossession,
                or any other method, by any creditor of Borrower against any of the
                Collateral, but this subsection shall not apply in the event of a
                good
                faith dispute by Borrower as to the validity or reasonableness of
                the
                claim which is the basis of the foreclosure suit, provided that Borrower
                provides lender with written notice of such claim and provides adequate
                reserves therefore.

            

    

    

    6.
      Rights of Lender.

    
      	 	6.1	Rights Prior to Default or
              Thereafter.
              Lender and its designated representatives or agents may at all reasonable
              times examine and inspect the Collateral, wherever
              located.

      	 	 	 

      	 	
              6.2

            	
              Rights
                upon Default or Thereafter.
                Upon default, or if Lender reasonably deems itself insecure, Lender
                may
                exercise any one ore more of the following rights and remedies in
                addition
                to any other rights or remedies that may be available at law, in
                equity,
                or otherwise:

            

    

    
      	 	
              (a)

            	
              Lender
                may declare the entire Indebtedness including any prepayment penalty
                which
                Borrower would be required to pay, immediately due and
                payable.

            

    

    
      	 	
              (b)

            	
              Lender
                may require Borrower to deliver to Lender all or any portion of the
                Collateral and any and all certificates of title and other documents
                relating thereto. Lender may require Borrower to assemble the Collateral
                and make it available to Lender at a place to be designated by Lender
                which is reasonably convenient to both parties. Lender also shall
                have
                full power to enter upon the property of Borrower to take possession
                of
                and remove the Collateral.

            

    

    
      	 	
              (c)

            	
              Lender
                shall have full power to sell, lease, transfer, or otherwise deal
                with the
                Collateral or proceeds thereof in its own name or that of Borrower.
                Lender
                may sell the Collateral at public auction. Unless the Collateral
                threatens
                to decline speedily in value or is of the type customarily sold on
                a
                recognized market, Lender will give Borrower reasonable notice of
                the time
                after which any private sale or any other intended disposition thereof
                is
                to be made. The requirements of reasonable notice shall be met if
                such
                notice is mailed by registered or certified mail postage prepaid,
                to the
                address of Borrower stated in this Security Agreement at led 10 days
                before the time of the sale or disposition. Borrower shall be liable
                for
                expenses of retaking, hold, preparing for sale, selling, and the
                like.
                

            

    

    
      	 	
              (d)

            	
              Lender
                may have a receiver appointed as a matter of right. The receiver
                may be an
                employee of Lender and may serve without bond. All fees of the receiver
                and his attorney shall be secured
                hereby.

            

    

    
      	 	
              (e)

            	
              Lender
                may revoke Borrower’s
                right to collect the rents and revenues from the Collateral, and
                may,
                either itself or through a receiver, collect the same. To facilitate
                collection, Lender may notify any account debtors of Borrower to
                pay
                directly to Lender.

            

    

    
      	 	
              (f)

            	
              Lender
                may obtain a judgment for any deficiency remaining in the indebtedness
                due
                to Lender after application of all amounts received from the exercise
                of
                the rights provided in this section. Borrower shall be liable for
                a
                deficiency even if the underlying transaction is a sale of accounts
                or
                chattel paper.

            

    

    
      	 	
              (g)

            	
              Lender
                shall have and may exercise any or all of the rights and remedies
                of a
                secured creditor under the provisions of the Uniform Commercial Code,
                at
                law, in equity, or otherwise.

            

    

    

    7.
      Waiver.

    Lender
      shall not be deemed to have waived any rights hereunder (or under the Related
      Documents) unless such waiver be in writing and signed by Lender. No delay
      or
      omission on the part of Lender in exercising any right shall operate as a waiver
      of such right or any other right. A waiver by any party of a breach of a
      provision of this Security Agreement shall not constitute a waiver of or
      prejudice the party’s
      right
      otherwise to demand strict compliance with that provision or any other
      provision. Whenever consent by Lender Is required herein, the granting of such
      consent by Lender in any instance shall not constitute continuing consent to
      subsequent instances where such consent is required herein.

    

    8.
      Remedies Cumulative.

    All
      of
      the Lender’s
      rights,
      and remedies, whether evidenced hereby or by any other writing, shall be
      cumulative and may be exercised singularly or concurrently. Election by Lender
      to pursue any remedy shall not exclude pursuit of any other remedy, and an
      election to make expenditures or take action to perform an obligation of
      Borrower under this Security Agreement after Borrower’s
      failure
      to perform shall not affect Lender’s
      right
      to declare a default and exercise its remedies under Section 6.

     

    
      
        
        

      

      
        Page 4
          of 5

        
          

        

      

      
        
        

      

    

     

    9.
      Successor Interests.

    This
      Security Agreement shall be binding upon and inure to the benefit of the
      parties, their successors, and assigns, but whenever there is no outstanding
      indebtedness, Borrower may terminate this Security Agreement upon written notice
      to Lender.

    

    10.
      Notice.

    Any
      notice under this Security Agreement shall be in writing and shall be effective
      when actually delivered or when deposited in the mail, registered or certified,
      addressed to the parties at the addresses stated herein or such other addresses
      as either party may designate by written notice to the other.

    

    11.
      Expenses, Costs, and Attorneys’
      Fees.

    In
      the
      event Lender is required to commence any suit or action to enforce any of the
      terms of this Security Agreement, Lender shall be entitled to recover from
      Borrower reasonable attorneys’
      fees and
      legal expenses at trial and also such fees and expenses on appeal, in addition
      to all other sums provided by law. In the event that Lender is otherwise
      required to incur any expenses whatsoever to protect or enforce its rights
      hereunder, whether or not litigation is commenced. Lender shall be entitled
      to
      recover any and all such sums and all Incidental expenses, including reasonable
      attorneys’
      fees.
      All such sums shall be part of the Indebtedness secured hereby.

    

    12.
      Applicable Law.

    This
      Security Agreement is accepted in and shall be governed by the laws of the
      state
      in which the lender is located.

    

    13.
      Multiple Parties; Corporate Authority.

    If
      Borrower consists of more than one person or entity, all obligations of Borrower
      under this Security Agreement shall be joint and several. Where anyone or more
      of Borrowers are corporations or partnerships It is not necessary for Lender
      to
      inquire into the powers of Borrowers or the officers, directors, partners,
      or
      agents acting or purporting to act on their behalf, and any indebtedness made
      or
      created in reliance upon the professed exercise of such powers shall be
      guaranteed hereunder. 

    

    IN
      WITNESS WHEREOF, the parties have executed this Security Agreement as of the
      dates shown below.

     

    
      	LENDER:	BORROWER:
	 	 
	Hanford Area Economic Investment
              Fund
              Committee	IsoRay Medical,
              Inc.
	 	 
	By: /s/
              Max E. Benitz, Jr.	By: /s/
              Roger E. Girard
	
              Max
                E. Benitz, Jr.

            	
              Roger
                Girard

            
	 	 
	Title: Chair	Title: CEO/Chairman
	 	 
	Date: June 15, 2006	Date:
              June 15, 2006
	 	 
	 	 
	 	IsoRay, Inc.
	 	 
	 	By: /s/
              Roger E. Girard
	 	 
	 	Title: CEO/Chairman
	 	 
	 	Date: June 15,
              2006

    

     

    
      
        
        

      

      
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