GEMSTONE PROCESSING AGREEMENT

Exhibit 10.1

GEMSTONE PROCESSING AGREEMENT

This Gemstone Processing Agreement (the “Agreement”) is entered into as of by and between International Isotopes Inc., a Texas corporation (“I ³ ”) with offices at 4137 Commerce Circle, Idaho Falls, ID 83401, and Quali-Tech, Inc. (“QTI”) a Missouri corporation with offices at 6200 Arrowhead Lake Dr., Columbia, MO 65203.

WITNESSETH

WHEREAS, I ³ desires to act as a contractor to Process Gemstones; and

WHEREAS, QTI desires to engage I ³ as a contractor for these services; and

WHEREAS, the parties desire to set forth the terms under which I ³ will Process Gemstones for QTI;

NOW, THEREFORE, in consideration of the foregoing promises and agreements set forth herein the parties agree as follows:

ARTICLE I - DEFINITIONS

1.1

Definitions.

“Affiliate” of a Party means any corporation or other business entity controlled by, controlling or under common control with such Party.  For this purpose, “control” means direct or indirect beneficial ownership of thirty-five percent (35%) or more of the voting and income interest in such corporation or other business entity.

“By-Product Material” means any radioactive material (except special nuclear material) yielded in or made radioactive by exposure to the radiation incident to the process of producing or utilizing special nuclear material. (10 CFR 30.4).

“Effective Date” means the date this Agreement is entered into, as indicated in the first paragraph of this Agreement.

“Exempt Material” means items or material in which the concentration of By-Product Material does not exceed the concentrations listed in Schedule A, Exempt Concentrations, of 10 CFR 30.70 and if a combination of isotopes are present, the sum of the ratios of these isotopes, when compared to the Schedule A limits, does not exceed 1.

“Inventions” has the meaning as set forth in Section 10.2(a).

“Facility” means that portion of I ³ ’s facility that will be dedicated to provide the processing services described in this Agreement.

“Gemstone” or “Gemstones” means primarily Topaz, but may include lesser quantities of other precious and semi-precious stones irradiated for color enhancement.

“Limited Processing” means only performing the measurements necessary for the release of Gemstones as Exempt Material and packaging Gemstones for shipment.  Limited processing does not include preparing Gemstones for irradiation or removing Gemstones from irradiation containers and cleaning.

“MURR” means the University of Missouri Research Reactor,

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“Operation Qualification” means the program employed by I ³ by which it is established that the equipment and systems used in the Process are capable of Processing gemstones that consistently meet the Requirements, providing proper care and maintenance of irradiation containers, and meeting the Quality Acceptance requirements of MURR for irradiation of materials provided by QTI.

“Performance Qualification” means the program by which it is established that the Process, and all equipment and systems associated therewith, are effective and reproducible.

“Processing,” “Process,” and “Processed” shall have comparable meanings and mean the act of handling, sealing into irradiation containers, delivering to and picking up from MURR, removing from irradiation containers, storing, transporting, analyzing, releasing, and packaging for final shipment all Gemstones in accordance with the Release Specifications, the Requirements, and any other applicable federal, state and local laws and regulations for the handling, release and export of irradiated Gemstones.

“Process Validation” means the defined set of procedures, materials, and controls which provide a high degree of assurance that the Process will consistently produce Gemstones that meet all Specifications and other quality criteria and attributes as mutually agreed upon by the parties and as set forth in the applicable I ³ Process Validation protocol.

“Proprietary Information” means all information concerning a party (the “Disclosing Party”) which is furnished to or created by (such as notes, analysis, compilations, studies, interpretations or other documents) the other party or its directors, officers, employees, agents, advisors or Affiliates (collectively, the “Receiving Party”) as a result of entering into this Agreement and in furtherance hereof.

“Service Order” means the written or electronic document sent by QTI from time to time to I ³ that sets forth the pack code, quantity of Gemstones, irradiation hours, and priority for Processing.

“Quality Control Tests” means the analytical testing of Gemstones attributes performed by I ³ according to the test methods specified by the Requirements, to determine whether a given lot of Gemstones meet Release Specifications.

“Release Specifications” means, the set of analytical tests, methods, and acceptance criteria required to determine Gemstones radio analytical attributes that must be met in order to prove that the Gemstones meet the applicable international or domestic standards for “Exempt Material”.  Release Specifications may be amended from time to time by written agreement of the parties and as dictated by applicable laws and regulations.

“Requirements” means those Release Specifications, Process parameters, and other governmental requirements relating to the measurement of gemstones and their classification as radioactive or Exempt material which may be revised from time to time upon written agreement of the parties and as dictated by applicable laws and regulations.  Upon such revision, I ³ shall implement any modified documents and/or procedures pertinent to the revised Requirements as quickly as practically possible.  Should the revision to the Requirements have a material effect on the cost of processing the Product, the parties agree to meet and negotiate in good faith any price changes for the gemstone services.

“Services” has the same meaning as Processes.

“Standard Operating Procedures” (“SOPs”) means I ³ ’s internal written standard operating procedures, controlled by I ³ ’s quality assurance unit, governing all aspects of Processing Gemstones.

“Waste” means all (a) irradiated non-Gemstones, (b) damaged irradiation canisters and their components, and (c) waste relating to I ³ ’s Processing of Gemstones.

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ARTICLE II - PROCESS AND SUPPLY

2.1

Contract Processing.

I ³ shall act as a contract processor of Gemstones in accordance with the terms of this Agreement.  There shall be no joint venture or other partnership relationship established between I ³ and QTI.  In that regard, neither party shall represent to any other person or entity, including without limitation any governmental entity, that the relationship between the parties extends in any way beyond the express provisions of this Agreement.

2.2

Exclusivity.

I ³ shall Process Gemstones exclusively for QTI and no other party for the term of this Agreement and for two years beyond the termination date

2.3

Right of First Refusal.

QTI shall give I ³ the right of first refusal for Processing of any new Gemstone for QTI provided that Processing involves the use of typical Topaz irradiation containers and includes irradiation at MURR.  If I ³ declines to provide Processing or Limited Processing of the new Gemstone, QTI may enter into an agreement with a third party but such offer may not be on terms that are more favorable to the third party than offered to I ³ .

2.4

Process and Supply of Gemstones

(a)

General .  I ³ shall (i) Process the Gemstones in strict conformity with the Requirements and all other applicable laws, rules and regulations, (ii) maintain all documentation and quality control records regarding the Gemstones measurements and (iii) shall distribute the Gemstones as directed by QTI and in accordance with the terms of this Agreement.

(b)

Site of Processing; Subcontracting .  I ³ will Process the Gemstones at its own facilities and I ³ shall remain responsible to QTI for the Processing of such Gemstones.

(c)

Approval of Processing Changes .  I ³ agrees that no changes will be made that will affect rate of Processing, ability to irradiate in MURR, or impact the Gemstones appearance without QTI’s prior written approval.  Subsequent to such approval from QTI, I ³ may then make such approved changes, so long as, in any event (i) such changes are permitted by MURR, applicable governmental regulations, and the terms of any licenses, registrations, authorizations or approvals previously granted by the applicable governmental entity with respect to the Gemstone Processing and (ii) QTI receives copies of all documentation relating to such approved changes.

2.5

Orders and Fulfillment.

(a)

QTI shall deliver to I ³ written or electronic Service Orders for the Gemstones that QTI desires to have Processed.  Each Service Order shall specify the, pack code, quantity of Gemstones, irradiation hours, and priority for Processing.  After Gemstones have been verified to meet Requirements they will be shipped in such manner, and to such location, as directed by QTI.  Gemstones will be measured for radioactivity as soon as practical after their return from MURR and shipped to the address specified by QTI on the date the Gemstones are determined, by analysis, to meet the Requirements for release as Exempt Material.

(b)

Notice of Inability to Fulfill .  I ³ shall notify QTI by telephone and in writing if I ³ acquires any information that I ³ will not be able to fulfill any Processing request I ³ shall promptly notify QTI by telephone and in writing of any other Processing issues that may adversely affect the regulatory status of the Gemstones or the ability of I ³ to Process Gemstones in accordance with this Agreement..

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2.6

Compliance with Law; Handling of Gemstones

While the Gemstones are in its possession or under its control, I ³ shall be responsible for complying with all applicable federal, state and local governmental statutory and regulatory requirements, including Environmental Protection Agency (EPA), Nuclear Regulatory Commission (NRC), Department of Transportation (DOT), International Air Transport Association (IATA), and Occupational Safety and Health Administration (OSHA) laws relating to the handling, storage, labeling, packaging for transport, and preparation for shipment of the Gemstones and shall be solely responsible for determining how to carryout those obligations.

2.7

Testing and Documentation.

I ³ shall certify in writing that each pack of Gemstones was Processed and tested in compliance with (i) the Requirements, (ii) all applicable regulatory documents, and (iii) in accordance with procedures agreed between I ³ and QTI.  The test and analysis provided in the Requirements and the written certification referenced therein may be amended from time to time with the mutual consent of the parties.  Such consent shall be set forth in writing.

2.8

Storage Following Processing

QTI will provide shipping instructions for each pack when the Gemstones have been verified as ready for release.  Should QTI require Gemstones be stored after their release date I ³ will be responsible for storing up to three million carats of Gemstone.

2.9

Waste Disposal.

I ³ shall be responsible for the treatment and/or disposal of all radioactive Waste generated at I ³ during the Gemstone Processing in accordance with established federal, state and local environmental and OSHA laws and regulations, and the maintenance of records related thereto.

2.10

Technical Aspects.

QTI and its employees or consultants shall be responsible for developing all technology related to the irradiation of the Gemstones hereunder.  QTI will be solely responsible for all compensation and benefits for those employees and/or consultants.

ARTICLE III - RAW MATERIALS

I ³ shall be free to purchase such raw materials that are necessary to Process, package and ship the Gemstones from any reasonably acceptable third party supplier.  QTI shall be responsible for providing the type and amount of all Gemstones necessary to fulfill all Service Orders, the cost of which shall be covered by QTI.  Accordingly, I ³ shall not be responsible for paying suppliers directly or reimbursing QTI for the cost of obtaining Gemstones or any costs associated with the Gemstones before or after the Processing services provided by I ³ .

ARTICLE IV - COSTS AND CHARGES

4.1

Processing Costs

All costs associated with the normal operation of the Gemstone Processing shall be born by I ³ .  All Gemstone Processing equipment provided by MURR to QTI shall belong to QTI, however, I ³ shall be responsible for maintaining this equipment in good working order and replacing if damaged through other than normal wear and tear.  During the course of this Agreement all replacement equipment costs (with exception of irradiation containers) will normally be the responsibility of I ³ .  All purchased materials will remain under the ownership of the purchasing party.

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4.2

Irradiation Containers

QTI will maintain ownership of all irradiation containers.  QTI shall have irradiation containers fabricated as required to support Service Orders, meet contract projected volumes, and allow for replacement of containers damaged through normal wear and tear.  I ³ shall be responsible for the proper care and maintenance of the irradiation containers and shall report to QTI when container replacements are required.  I ³ is responsible for the cost of repair of replacements for any irradiation containers damaged through the company’s negligence, neglect, or failure to comply with the Operation Qualifications documents.

4.3

Service Charges

(a)

The I ³ Processing Charge will be $0.046 per carat for all topaz initially received by I ³ prior to March 1, 2004 and $0.03 per carat for all topaz received after March 1, 2004.

(b)

Effective March 1, 2004, QTI will make a best effort to supply a minimum of 1 million carats per month for Processing.

ARTICLE V - PROCESSING COSTS INVOICE AND PAYMENT

5.1

Shipping Charges.

I ³ shall arrange for the shipping of all Gemstones after Processing.  QTI shall be responsible for the payment, or for providing a third party billing account information for all shipping charges of released material (including, without limitation, freight, carrier handling, insurance, customs, duties and all other transportation related items) associated with such shipments.  I ³ is responsible for payment of all shipping costs of Gemstones in irradiation containers between the I ³ facility and MURR

5.2

Invoices.

(a)

I ³ shall invoice QTI weekly for all Gemstones Processed, and released for shipment during the proceeding week I ³ shall reference the applicable pack codes on all invoices.

(b)

Invoices shall be payable to I ³ 30 days net.

ARTICLE VI - DELIVERY

6.1

Delivery.

All Gemstones supplied by QTI hereunder shall be delivered FOB to the I ³ place of Processing.  I ³ shall be responsible for properly packaging all Gemstones it ships and for preparing the shipping labels according to QTI instructions.

6.2

Packaging and Shipping Materials.

I ³ will provide all packaging and shipping materials associated with the shipment of the Gemstones during and upon completion of Processing.

ARTICLE VII - REPRESENTATIONS AND WARRANTIES

7.1

Process Facility

I ³ represents that I ³ will maintain I ³ ’s Gemstone Processing Facility according to the Requirements and all applicable laws and regulations with a capability of processing up to 3 million carats per month of topaz and a smaller amount of other Gemstones for research and development.

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7.2

Processing Requirements

(a)

I ³ extends to QTI the following warranty:  All Gemstones that I ³ charges QTI for Processing or Limited Processing shall be in strict accordance with (i) the Requirements, (ii) all federal, state and local laws, statutes, regulations or other requirements relating thereto and applicable to the intended use of such Gemstone, and (iii) MURR requirements for Gemstone irradiation.

(b)

I ³ shall load Gemstones into irradiation containers per QTI Services Orders and have these containers delivered to MURR as needed.

(c)

I ³ shall keep documentation of the irradiation containers shipped to MURR for irradiation.

(d)

I ³ shall provide MURR the necessary documentation to completely describe the contents of each container and to certify that such container has been assembled and inspected in accordance with the Requirements.

7.3

Records Relating to Waste Disposal

I ³ represents that it shall obtain and maintain all waste generator licenses, disposal manifests, and other records in accordance with applicable federal, state, and local laws and regulations.

7.4

Changes to Gemstones and Process

I ³ represents that it shall not implement any changes, material or otherwise, relating to the Gemstone Process, or their Requirements (including Gemstone Specifications), without QTI’s prior written approval of such change.  A change is defined as any variation in the written procedures currently in place that (i) impacts the