CONTRACT MANUFACTURING AGREEMENT

Exhibit 10.2

INIS – RADQUAL

2006

CONTRACT

MANUFACTURING AGREEMENT

This Manufacturing Agreement (the "Agreement") is entered into as of January 30, 2006, by and between International Isotopes Inc. ("INIS"), a Texas corporation with offices at 4137 Commerce Circle, Idaho Falls, ID 83401 and RadQual, LLC, an Ohio corporation at 114 Barrington Town Square #124, Aurora, OH 44202. This agreement replaces the original Manufacturing Agreement, which was put in place in November 2000, and all previous modifications to that Agreement.

WITNESSETH

WHEREAS, INIS desires to act as a contract manufacturer for the production of Sources and Custom Sources (collectively referred to as "Sources") for RadQual as defined in this Agreement; and

WHEREAS, RadQual desires to engage INIS as a contract manufacturer for Sources; and

WHEREAS, the parties desire to set forth the terms under which INIS will contract manufacture Sources for Radqual;

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.

"Anniversary Date" means each January 1 beginning with January 1, 2009.

"Custom Source" means any source listed in Exhibit II of this Agreement or newly created product proposed by RadQual not offered as a standard catalog item.

"Commercially Reasonable Basis" means cost at which a given Source or product can be acquired or produced.

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

"FDA" means the United States Federal Food and Drug Administration.

"Inventions" has the same meaning as set forth in Section II.2(a).

"Manufacturing Facility" means that portion of INIS's facility that will be dedicated to the manufacture of the Sources.

 

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"Operation Qualification" means the program employed by INIS by which it is established that the equipment and systems used in the Process are capable of Processing Sources that consistently meet the Requirements.

"Processing," "Process, " and "Processed" shall have comparable meanings and mean the act of manufacturing, handling, storing, analyzing, packaging, inspecting, and labeling Sources in accordance with the Source Specifications, the Requirements, and all other applicable federal, state and local laws and regulations for the manufacture of the Sources.

"Process Validation" means the defined set of procedures, materials, and controls which provide a high degree of assurance that the Process will consistently produce Sources that meet all Source Specifications and other quality criteria and attributes as mutually agreed upon by the parties and as set forth in the applicable INIS process validation protocol.

"Proprietary Information" has the same meaning as set forth in Section 11.1, 11.2, and 11.3.

"Purchase Order" means the written or electronic document provided to INIS by RadQual, or any of its distributors, that sets forth the number of Sources ordered, the expected delivery dates, and the sales price. This includes orders placed electronically on the RadQual web site.

"Quality Control Tests" means the analytical testing of Source attributes performed by INIS according to the test methods specified by the Requirements, to determine whether a given Source meets its Source Specifications.

"Requirements" means those Source Specifications, Process parameters, and other governmental requirements relating to the Source and its classification as a Sealed Source which may be revised from time to time upon written agreement of the parties and as dictated by applicable laws and regulations.

"Sealed Source" means any Source that has been manufactured to meet the Requirements of a Sealed Source Device Registration issued by either an agreement state or the Nuclear Regulatory Commission (NRC).

"Source" means any of the Sources listed in Exhibit I to this Agreement.

"Source Specifications" means the composition of the Source, along with the set of analytical tests, methods, and acceptance criteria for Source attributes, which must be met, in order to prove that the Product meets the standards of quality, purity, identity, and strength. All Source Specifications may be amended from time to time by written agreement of the parties and as dictated by applicable laws and regulations.

"Standard Operating Procedures" ("SOPs") means INIS's internal written standard operating procedures, controlled by INIS's quality assurance unit, governing all aspects of manufacturing and testing Sources.

"Waste" means all (a) rejected or unusable Sources, (b) Sources not purchased by RadQual for whatever reason, (c) waste relating to INIS's Processing of Sources, and (d) expended Sources, which have been returned for disposal.

ARTICLE II - MANUFACTURE AND SUPPLY

2.1

Contract Manufacturer.

INIS shall act as a contract manufacturer of Sources for RadQual in accordance with the terms of this Agreement. There shall be no joint venture or other partnership relationship established between INIS and RadQual.

2.2

Exclusivity.

(a)

INIS will manufacture Sources exclusively for RadQual and will not manufacture any other products that would compete directly with RadQual Sources.

 

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(b)

If RadQual notifies INIS that it wants to contract manufacture a new product as an additional Source or Custom Source under this Agreement and INIS is willing to manufacture the additional product then both parties shall complete a Modification to this Agreement within thirty (30) days adding this Source in either Exhibit I or Exhibit II, as applicable. Upon INIS notification to RadQual that it does not desire to produce the new product, then RadQual shall be free to manufacture that product directly or contract manufacture with another company substantially on the same terms as previously disclosed to INIS.

2.3

Right of First Refusal.

RadQual shall give INIS the right of first refusal as set forth in Section 2.2 to contract manufacture Sources, Custom Sources, or any new products RadQual desires to have contract manufactured for North American distribution. If INIS desires to contract manufacture the Source or Custom Source, and offers to do so on a commercially reasonable basis, RadQual may not manufacture the Source or offer the manufacturing to any third party. However, until such time that INIS is ready to contract manufacture the new product RadQual may purchase the new product on the open market and resell it to its customer until such time as INIS is capable of producing the product at a commercially reasonable basis. Once INIS is able to contract manufacture the product at a commercially reasonable basis to RadQual's alternative manufacturers, RadQual must purchase such product from INIS.

2.4

Exclusive Procurement.

Except as set forth in Section 2.2, RadQual shall only procure Sources contract manufactured by INIS for distribution to RadQual's customers.

2.5

Manufacture and Supply of Sources.

(a)

General. INIS shall (i) manufacture the Sources in strict conformity with the Sealed Source and Device Registration and other Requirements, applicable laws, rules and regulations, (ii) maintain all documentation and quality control records regarding the Sources and (iii) shall supply the Sources to the appropriate party in accordance with the terms of this Agreement.

(b)

Manufacture and Supply. During the term of this Agreement, INIS will manufacture and supply to RadQual such quantities of the Sources as RadQual may order from INIS pursuant to Purchase Orders and website order entries.

(c)

Site of Manufacturing; Subcontracting. INIS may manufacture the Sources only at its own facility.

(d)

Approval of Manufacturing Changes. INIS agrees that no changes will be made that will affect Source performance or appearance without RadQuals prior written approval. Subsequent to such approval from RadQual, INIS may then make such approved changes, so long as, in any event (i) such changes are permitted by applicable governmental regulations and the terms of any licenses, registrations, authorizations or approvals previously granted by the applicable governmental entity with respect to the Source and (ii) RadQual receives copies of all documentation relating to such approved changes.

2.6

Orders and Fulfillment.

(a)

RadQual shall deliver Purchase Orders to INIS for the Sources that RadQual desires to purchase. Each Source's Purchase Order shall specify the shipping date and shall be shipped in such manner, and to such location, as directed by RadQual. With each order RadQual shall identify the following: (i) party sold to, (ii) party to be shipped to, (iii) catalog number, (iv) number of Sources sold, and (v) RadQual sales price to the Distributor or end user. Sources will normally be shipped within five (5) working days (for non-stock Sources) or within one (1) day (for inventory Sources).

 

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(b)

Additional Provisions and Purchase Orders. To the extent any Purchase Order, invoice or acknowledgement form contains any provisions additional or contrary to the provisions of this Agreement, such additional or contrary provisions shall have no force or effect and the terms of this Agreement shall control.

(c)

Notice of Inability or delay to Fulfill.  INIS shall notify RadQual by telephone and in writing if INIS acquires any information that it will either not be able to fulfill or will have a delay in the fulfillment of a Purchase Order(s) exclusive of 2.6 (a). INIS shall promptly notify RadQual by telephone and in writing of any production issues that may adversely affect the regulatory status of the Sources or the ability of INIS to supply the Sources in accordance with this Agreement and the Purchase Orders.

2.7

Compliance with Law; Handling of Sources.

While the Sources are in its possession or under its control, INIS shall be responsible for complying with all applicable federal, state and local governmental statutory and regulatory requirements, including requirements relating to the manufacturing, handling, storage, security, labeling, packing, and shipment of the Sources. In performing its obligations under this Agreement, INIS shall comply with all applicable environmental, health and safety laws and shall be solely responsible for determining how to carryout those obligations.

2.8

Testing and Documentation.

INIS shall certify in writing with each Source produced and tested is in compliance with (i) the Requirements. The test and analysis provided in the Requirements and the written certification referenced therein may or shall be amended from time to time with the mutual consent of the parties and appropriate regulatory agencies.

2.9

Waste Disposal.

(a)

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

(b)

INIS will be responsible to accept expended sources directly from U.S. customers on a one-for-one replacement basis for new Benchmark Sources sold to that customer.  INIS reserves the right, at its sole discretion, to contract directly with distributors or foreign and domestic customers to provide additional expended source disposition services. Such additional source disposition services are outside and separate from the terms of this Manufacturing Agreement.

2.10

Marketing and Sales.

RadQual is responsible for all sales and marketing of their Sources and shall use its best efforts to market and sell the Sources. RadQual shall be responsible for all costs associated with the sales and marketing of their Sources. INIS may not market or sell Sources or source components without the written consent of RadQual.

2.11

Research and Development.

RadQual will be responsible for all costs associated with any Research and Development (R&D) of procedures, equipment, and products related to their Sources or development of new Sources.  All R&D will be per a separate agreement.

 

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ARTICLE III - RAW MATERIALS

3.1

Supply of Materials.

INIS will contract with third parties approved by RadQual and pay for the supplies of all raw materials that are necessary to manufacture, package, and ship the Sources, a list of approved and accepted suppliers will be documented in Exhibit V. INIS shall be responsible for obtaining the type and amount of all such raw materials necessary to fulfill all Purchase Orders, the cost of which shall be covered by INIS and is auditable by RadQual. RadQual shall approve the selection and specifications of raw materials and manufactured components.

3.2

Quality of Materials.

INIS is responsible for establishing a Quality Assurance program that will verify the specifications appropriate for raw materials or manufactured components and for ensuring compliance of all supplied raw materials and manufactured components with those specifications. RadQual will be responsible for establishing material specifications and may audit this process at their discretion.

ARTICLE IV - PURCHASE OBLIGATION

4.1

Minimum Purchase Requirements.

In exchange for INIS committing to contract manufacture for RadQual, RadQual hereby agrees to purchase a minimum number of flood sources from INIS during each contract year. For this purpose, a contract year shall be a calendar year (January 1 through December 31).  The minimum purchase requirement only applies to any activity level of Source designated as flood sources (i.e. source model numbers BMO1, BM02, BM04, BM05, and BM09).

2006

2007

2008

2009

2010 (and thereafter)

500

550

600

650

700

 

In the event that RadQual does not purchase the minimum number of Sources stipulated in this Section RadQual shall pay INIS an amount computed as follows and constitutes meeting RadQual's annual commitment for flood source purchases:

$839.21 x (No. of sources required to reach the annual minimum)

ARTICLE V - PRICING

5.1

Purchase Price

(a)

INIS shall charge RadQual the fixed price indicated in Exhibit I and II for all Sources and Custom Sources. The fixed charge to RadQual for Sources and Custom Sources listed in Exhibit I and II shall be computed as indicated in the Exhibit IV. If new products are added new cost basis calculations may be added if necessary.  These calculation methods shall be used as the basis for future list or fixed price changes.

(b)

INIS and RadQual will establish a separate price schedule Exhibit III for additional non-Source items requested by RadQual and their customers.  Examples of these items include Radshields®, extra packaging material, shielded cases, return kits, restocking charges etc.

(c)

Exhibits I and II will also state the RadQual List price (RadQual's sales price to customers or distributors).

 

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(d)

If substantial changes occur in either market prices (greater than 10%) or manufacturing costs (greater than 10% aggregate) that either party feel necessitates a revision of Exhibit I, II, or III the parties shall make a best faith effort to negotiate and revise the Exhibits accordingly. Any changes to the Exhibit's must be agreed to by both parties and documented by having both parties sign the revised Exhibits and attach them to the original Agreement.  These revised Exhibits supersede the previous Exhibits but do not effect any of the other terms of this Agreement.  If the parties cannot come to agreement on revisions to the Exhibits then either party may elect to terminate the agreement per 13.2(c) and are subject to conditions set forth in 11.4.

5.2

Shipping Charges.

INIS shall arrange for the packaging and shipping of all Sources. RadQual or the third party customer shall be responsible for the payment of all shipping charges (including, without limitation, freight, handling, insurance, customs, duties and all other transportation related items) associated with such shipments.

5.3

Invoices.

(a)

INIS shall invoice RadQual for all Sources weekly but may defer the invoice at their discretion to have the invoice period coincide with the end of a significant calendar monthly, quarterly, or annual period. All invoices will be paid by RadQual (sixty) 60 days net of its receipt of such invoice. A late payment fee of 1.5% per month may be applied to any balance outstanding past 60 days.

(b)

Each INIS invoice will provide a complete listing of all Sources sold during the period, the order number, date shipped, RadQual sales price, and the corresponding INIS charge for each item. Any additional non-Source item will normally be included on this invoice; however, INIS may elect to invoice non-Source items or Custom Sources separately at the time of shipment.

5.6

Scrap and Spoilage

Both parties will work closely together to develop an optimum base inventory level of Sources. INIS shall be responsible for automatically manufacturing Sources to maintain the base inventory level. INIS shall be responsible for establishing and tracking the shelf life of all Sources placed in inventory and scrapping Sources as required. RadQual and INIS shall share equally in the raw material and labor cost for each scrapped Source. Scrap and spoilage charges shall not apply to Sources that are scrapped because of defects in Sources associated with manufacturing process irregularities resulting from INIS personnel, or non approved changes to manufacturing equipment or procedures.

ARTICLE VI - DELIVERY

6.1

Delivery.

INIS shall be responsible for reviewing all Purchase Orders and processing each order.  Order processing includes manufacturing, administrative license review, packaging, and shipping each Source order.  INIS shall update the RadQual order entry system as the status of order processing changes to keep RadQual and its distributors informed of the status of each order.

6.2

Packaging and Shipping Materials.

(a)

Each Source sale price includes the normal shield, holder, and necessary transportation packaging for each item.

(b)

Custom Sources may require special packaging or shielding and any additional charges for those materials will be addressed in Exhibit II.

 

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(c)

Additional items such as additional radshields, hard cases, shielded cases, or return source packaging materials are not included as part of a Source order and will be additionally and separately invoiced.

ARTICLE VII - REPRESENTATIONS AND WARRANTIES

7.1

Labor and Equipment

INIS represents that it shall furnish all qualified labor and validated equipment processes necessary to manufacture Sources in the amounts, and in a timely manner, as set forth in each Purchase Order.

7.2

Manufacturing Facility and Process

INIS represents that it will maintain its Manufacturing Facility and Process according to the Requirements, and all applicable laws and regulations.

7.3

Processing Requirements

INIS extends to RadQual and to any purchaser of Sources from or through RadQual the following warranties: E