Document:

DISTRIBUTION
AGREEMENT

     

    This
Agreement, effective as of the date of execution below, is made by and between
ISORAY MEDICAL, INC., a company with a principal place of business located at
350 Hills Street, Ste. 106, Richland, WA 99354-5411 (hereinafter “IsoRay”), and
BIOCOMPATIBLES, INC., a company with a principal place of business located at
115 Hurley Road, Building 3B, Oxford, Connecticut 06478 and affiliates
(hereinafter “Biocompatibles”).  IsoRay and Biocompatibles are
together referred to as the “Parties”.

     

    REPRESENTATIONS
AND WARRANTIES

     

    WHEREAS,
IsoRay, as Manufacturer, is in the business of manufacturing and selling certain
Cesium isotope (“Cs-131”) radioactive source medical and related products used
in the brachytherapy treatment of prostate and other cancers;

     

    WHEREAS,
Biocompatibles, as Distributor, is in the business of manufacturing, marketing,
distributing, and selling various medical and related products used in the
brachytherapy treatment of prostate and other cancers;

     

    WHEREAS,
IsoRay desires to expand the market presence for its brachytherapy products in
the treatment of cancer in the United States (herein referred to as the
“Territory”), by having Biocompatibles distribute IsoRay’s Cs-131 radioactive
source products (herein referred to collectively as the
“Products”);

     

    WHEREAS,
Biocompatibles represents that it is in compliance in all material respects with
all applicable governmental Laws and requirements of Regulatory Authorities
relating to its activities hereunder, including reporting and licensure
requirements to allow Biocompatibles to receive, store, transport, and generally
conduct the distribution of the Products, as well as other non-radioactive
medical products in a proper and legal manner in the Territory, and for purposes
of this Agreement, "Laws" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty; and  "Regulatory Authorities" means any: (a) nation, state,
county, city, town, village, district, or other jurisdiction of any nature; (b)
federal, state, local, municipal, foreign, or other government; (c) governmental
or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal); (d) multi-national organization or body; or (e) body exercising, or
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature, in each case as
such authorities hold responsibility for granting regulatory manufacturing,
distribution and/or marketing approval for a Product in any part of the
Territory;

     

    WHEREAS,
as specified herein, IsoRay wishes to engage Biocompatibles to distribute the
Products in the Territory and Biocompatibles wishes to accept said engagement
desires;

     

    WHEREAS
as a condition of the execution of this Distribution Agreement, the Parties have
also agreed to amend that certain Service Agreement dated March 1, 2006 by and
among Biocompatibles (as successor in interest to Advanced Care Medical, Inc.)
and IsoRay to provide for renewal, extension and added products and services
by  Biocompatibles;

     

    
      
         

      

      
        Page 1 of
18 

        
          

        

      

      
         

      

    

    NOW
THEREFORE, in consideration of the above recitals, the covenants and conditions
contained in this Agreement, and other good and valuable consideration the
Parties agree as follows:

     

    
      	
              1.

            	
              EXCLUSIVE
      CO-DISTRIBUTION IN TERRITORY.

            

    

     

    
      	
               
      

            	
              1.1.

            	
              Appointment.  Subject
      to all the terms and conditions of this Agreement, IsoRay hereby appoints
      Biocompatibles for the Term of this Agreement as the exclusive
      co-distributor of the Products to customers located within the
      Territory.  For the purposes of clarity, the term
      “co-distributor” shall mean that with the exception of IsoRay and its
      internal or external sales personnel as further set forth in Section 5.5
      and subject to Section 1.3 below, Biocompatibles will be the only other
      distributor of the Products. Biocompatibles accepts these appointments and
      agrees to use all commercially reasonable efforts to promote the sale of
      the Products in the Territory.  Biocompatibles hereby agrees to
      acquire Cs-131 radioactive source products exclusively from IsoRay as
      agreed to by the Parties for the treatment of prostate, lung and ocular
      melanoma cancers.

            

    

     

    
      	
               
      

            	
              1.2.

            	
              Transfer
      Price.  The  transfer price, as more
      particularly described in Exhibit A-1, shall
      include [**].

            

    

     

    
      	
               
      

            	
              1.3.

            	
              Loss of
      Exclusivity.  If sales volume of the Products sold by
      Biocompatibles pursuant to this Agreement during the quarter ended [**]
      (the "Trial Period") does not equal or exceed [**] cases, then IsoRay
      shall have the right, but not the obligation, to convert this Agreement
      into a nonexclusive agreement effective the first day of the second
      calendar month following the end of the Trial Period, i.e., [**]. If
      IsoRay elects to exercise such right, it shall provide Biocompatibles with
      written notice of the loss of its co-exclusive rights on or
      before  the tenth (10th)
      day of the first month following the end of the Trial Period, i.e. [**].
      If written notice is not given by IsoRay by such tenth (10th)
      day, then Biocompatibles’ exclusive rights shall be maintained. Future
      minimum sales volumes shall be as follows (the “Initial Sales
      Targets”):

            

    

     

    
      
        
          
            	
                    Quarter Ending

                  	 	
                    Number of Cases

                  
	
                    [**]

                  	 	
                    [**]

                  

          

        

      

    

     

    
      

    

    
      
        
          	
                  [**]

                	
                  Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                

        

      

      

        
          
             

          

          
            Page 2 of
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    If the
Agreement is renewed as provided in Section 2.1 below, during each subsequent
quarter following the quarter ended [**], the number of cases sold will be
subject to a new addendum  as mutually agreed to by the parties (the
"Subsequent Sales Targets").  If any of the Initial Sales Targets or
Subsequent Sales Targets are not met, then IsoRay shall have the right, but not
the obligation, to convert this Agreement into a nonexclusive agreement
effective the first day of the second calendar month following the end of the
quarter during which the Initial or Subsequent Sales Targets, as the case may
be, were not met. If IsoRay elects to exercise such right, it shall provide
Biocompatibles with written notice of the loss of its co-exclusive rights on or
before the tenth day of the first month following the end of the quarter in
which the Initial or Subsequent Sales Target was not met.  If written
notice is not given by IsoRay by such tenth (10th) day,
then Biocompatibles’ exclusive rights shall be maintained. For example, in the
quarter ended [**], at least [**] cases
must be sold to maintain exclusivity, and if this amount is not sold, IsoRay
could convert this Agreement into a nonexclusive agreement effective as of [**]
provided that IsoRay gives notice of its exercise of such right by [**]. In the
event IsoRay converts this Agreement into a nonexclusive agreement as set forth
above, IsoRay shall [**].

     

    
      	
              2.

            	
              TERM.

            

    

     

    
      	
               
      

            	
              2.1.

            	
              Initial
      Term.  The initial term of this Agreement shall commence
      as of the effective date hereof and continue through December 31,
      2011.

            

    

     

    
      	
               
      

            	
              2.2.

            	
              Renewal.  The
      initial term shall be automatically renewed for periods of one (1) year
      unless canceled ninety (90) days prior to the end of the initial term or
      any renewal term thereafter.

            

    

     

    
      	
              3.

            	
              PURCHASING
      AND FULFILLMENT.

            

    

     

    
      	
               
      

            	
              3.1.

            	
              Ordering
      Process.  Biocompatibles shall place orders for IsoRay
      Products in a mutually agreed-upon written or electronic form, providing
      in each case all information required by IsoRay to complete and fill each
      order.  IsoRay shall provide a specified form for said ordering
      process.  Purchase Orders are subject to the price schedule per
      Exhibit A-1, and
      the specifications and product insert per Exhibit A-2, attached
      hereto and incorporated by reference.  Purchase Orders are
      subject to the order/shipping schedule per Exhibit D, which may
      change as required by IsoRay and is attached hereto and incorporated by
      reference.  Purchase Orders shall be directed as
      follows:

            

    

     

    IsoRay,
Inc.

    Customer
Service

    350 Hills
Street, Ste. 106

    Richland,
WA 99354-5411

    509-375-5329
phone

    509-267-3670
e fax

    wkucera@isoray.com

     

    
      
        

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
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              3.2.

            	
              Authority To Receive
      Radioactive Materials.  Biocompatibles represents and
      warrants that Biocompatibles is in possession of all regulatory and
      nuclear licenses in order to allow Biocompatibles to receive, store,
      transport, and generally conduct the distribution of the Products, as well
      as other non-radioactive medical Products in a proper and legal manner in
      the Territory.  Biocompatibles further agrees and warrants to
      remain continually authorized to receive radioactive materials at the
      ship-to location.  Upon written request as provided herein in
      paragraph 15.3, Biocompatibles shall further provide IsoRay all
      appropriate documentation for confirmation of said authority to receive
      radioactive materials.

            

    

     

    
      	
               
      

            	
              3.3.

            	
              Packaging and
      Shipping.  IsoRay shall ship to the Biocompatibles
      location in Oxford, CT unless otherwise agreed in
      writing.  Shipment of accepted Orders shall use carriers chosen
      by Biocompatibles and agreeable to IsoRay and shall be scheduled for
      delivery on or before the delivery date specified.  IsoRay shall
      not be responsible for any failure of a carrier to meet its delivery
      schedule.

            

    

     

    Shipment is F.O.B. IsoRay, Richland,
WA:

     

    Title and
risk of loss passes to Biocompatibles upon leaving IsoRay’s production
facility.  IsoRay will pack Products in a manner suitable for shipment
to enable Products to withstand the normal effects of shipping, including
handling during loading and unloading, all in accordance with IsoRay’s normal
packing and shipping practices for radioactive medical devices and related
products.

     

    
      	
               
      

            	
              3.4.

            	
              Shipping And Handling Within
      Territory.  All storage, handling, duties, taxes and
      transportation costs subsequent to receipt by Biocompatibles in Oxford, CT
      shall be the responsibility of [**],
      with exceptions of returns due to product quality or
      non-conformity.

            

    

     

    
      	
              4.

            	
              INVOICES
      AND PAYMENTS TO ISORAY.

            

    

     

    
      	
               
      

            	
              4.1.

            	
              Invoices.  Within
      [**] days of each month end, IsoRay will invoice Biocompatibles for all
      Purchase Orders shipped during the month just ended.  The
      invoice will include the Purchase Order number and applicable
      detail.  Per Exhibit A, the transfer
      price used for the invoice will be based on the number of cases shipped
      during the month just ended.

            

    

     

    
      	
               
      

            	
              4.2.

            	
              Payment.  Payment
      of all Invoices is due in full within [**] days of the Invoice
      Date.  Biocompatibles shall be entitled to a [**] percent
      ([**]%) discount if paid within [**] days of the Invoice
      Date.  All invoicing and payments shall be in U.S.
      dollars.

            

    

    
        

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

         

      

    

    
      
         

      

      
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              5.

            	
              MARKETING
      BY BIOCOMPATIBLES.

            

    

     

    
      	
               
      

            	
              5.1.

            	
              General.  
      Biocompatibles shall be responsible for all sales, marketing, and
      distribution of the Products to its customers.  Notwithstanding
      the foregoing, IsoRay will provide training to Biocompatibles on
      its  Products and access to marketing and other materials
      relating to distribution of the Products, which training shall consist of
      a two-day training session and shall include [**].  IsoRay
      shall set the date, time and location of the training in its sole
      discretion and shall be responsible for the costs of the location at which
      the training is held and for the costs of the physician providing the
      training, who shall be selected by IsoRay.  If Biocompatibles
      develops any marketing materials for the Products, any such materials must
      be approved in advance by IsoRay as provided in Section 5.3
      below.

            

    

     

    
      	
               
      

            	
              5.2.

            	
              Trade
      Practices.  Biocompatibles shall diligently and
      continuously promote the sale of the Products and shall: (i) avoid
      deceptive, unfair, misleading, or unethical trade practices that are or
      might be detrimental to IsoRay, the Products, its customers, or the
      public, including any disparagement of IsoRay or the Products; (ii) make
      no false or misleading representations with regard to IsoRay or the
      Products; (iii) refrain from publishing or employing any misleading or
      deceptive advertising material; (iv) refrain from disparaging IsoRay or
      its Products, or from otherwise injuring the reputation and good standing
      of IsoRay; and (v) conduct its business in a professional manner which
      will reflect positively upon IsoRay and its
  business.

            

    

     

    
      	
               
      

            	
              5.3.

            	
              Advertising and Marketing
      Materials:  Biocompatibles shall submit for approval by
      IsoRay all promotional literature, ad copy, and marketing collateral items
      to be used by Biocompatibles with respect to the promotion of Products,
      including all such items that use any of the Trademarks for the Products,
      and shall obtain IsoRay’s approval prior to dissemination or use of such
      items.  IsoRay shall approve or disapprove, in writing, all
      items submitted pursuant to the preceding sentence within fifteen (15)
      days after receipt, and shall not unreasonably withhold said
      approval.  Biocompatibles shall provide IsoRay with at least
      three (3) copies of all approved materials concurrent with their
      deployment by Biocompatibles.

            

    

     

    
      	
               
      

            	
              5.4.

            	
              Regulatory
      Compliance:  Biocompatibles shall comply in all material
      respects with all applicable governmental laws and requirements of
      Regulatory Authorities relating to its activities hereunder, including
      reporting and licensure
requirements.

            

    

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 5 of
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              5.5

            	
              [**].  The
      Parties agree to provide each other with [**] within ten days following
      execution of this Agreement, with the [**] to include (a) [**] from the
      Party, (b) [**] from the Party and (c) [**] within the next six
      months.  Such [**] shall be considered "Confidential
      Information" and subject to the restrictions contained in Section
      9 below.  For a period of six months from the date of
      execution of this Agreement [**],
      the Parties agree that neither Party shall [**], without prior written
      consent from the other Party.  The Parties further agree to
      provide [**] to each other every ninety days throughout the term of this
      Agreement, commencing on the expiration of the [**], which [**] within the
      prior ninety (90) days.  All [**] shall be considered
      "Confidential Information" and subject to the restrictions contained in
      Section
      9 below.  The Parties agree that neither Party shall
      [**], without prior written consent from the other Party, for a period of
      ninety days from the date of such [**].  However, [**], then the
      Parties agree that [**] without being subject to the restrictions
      contained in this Section 5.5.  Notwithstanding any provision to
      the contrary, if [**] then the Parties agree that [**]. Correspondingly,
      the Parties also agree that [**].  In the event either Party
      desires to maintain the [**] otherwise expressly provided in this Section
      5.5, then such Party shall notify the other Party in writing which shall
      consider such request on a case-by-case basis and provide a written
      response of its decision, including
[**].

            

    

    

    
      	
               
      

            	
              5.6

            	
              Limitation of Certain Accounts
      Under Certain Conditions. In the event IsoRay [**], Biocompatibles
      shall [**]. To exercise this right, Biocompatibles must notify IsoRay in
      writing which notice shall include [**] and shall be given, if at all,
      within ten (10) days after [**].

            

    

     

    
      	
               
      

            	
              5.6.1

            	
              “Maintenance
      Period” shall mean the lesser of the
[**].

            

    

     

    
      	
               
      

            	
              5.6.2

            	
              “[**]”
      shall mean [**]. Any [**] shall [**]. IsoRay may require reasonable
      documentation from Biocompatibles to demonstrate [**]. If Biocompatibles
      does not provide the [**] as contemplated above then the
    [**].

            

    

     

    
      	
               
      

            	
              5.6.3

            	
              “[**]
      Calculations” shall mean the [**].

            

    

     

    
      	
              6.

            	
              TRADEMARKS.

            

    

     

    
      	
               
      

            	
              6.1.

            	
              Promotion and
      Sales.  Biocompatibles shall promote and sell its own
      products and the Products under each company’s respective Trademarks and
      market names.  Biocompatibles specifically shall in all cases
      promote and refer to the Products with the name(s): PROXCELANTM,
      Cesium-131 Brachytherapy Seeds together with Biocompatibles’ own
      Trademarks “Real Time StrandTM”,
      “RTSTM”,
      “VariStrandTM”,
      StandardStrandTM,
      EchoStrandTM,
      and “AnchorSeedTM”.  Nothing
      herein shall be deemed to give either Biocompatibles or IsoRay, either
      during the term of this Agreement or thereafter, any right to trademarks
      or copyrights of the other Party.

            

    

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 6 of
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              6.2.

            	
              Use By
      Biocompatibles.  Biocompatibles shall not use the
      Trademarks of IsoRay in any manner likely to confuse, mislead or deceive
      the public, or to be injurious or inimical to the interests of
      IsoRay.  IsoRay shall retain sole ownership of all goodwill
      associated with its Products, as represented and symbolized by IsoRay’s
      Trademarks.

            

    

     

    
      	
               
      

            	
              6.3.

            	
              Use By
      IsoRay.  IsoRay shall not use the Trademarks of
      Biocompatibles in any manner likely to confuse, mislead or deceive the
      public, or to be injurious or inimical to the interests of Biocompatibles.
      Biocompatibles shall retain sole ownership of all goodwill associated with
      its products, as represented and symbolized by the Biocompatibles’
      Trademarks.

            

    

     

    
      	
              7.

            	
              PRODUCT
      WARRANTY AND LIMITATIONS OF
LIABILITY.

            

    

     

    
      	
               
      

            	
              7.1.

            	
              Product
      Warranty.  IsoRay warrants to Biocompatibles only that
      Products, when delivered to customers pursuant to this Agreement, shall
      conform in all material respects with the Customer Order specifications in
      Exhibit E and with
      the specifications and product inserts in Exhibit A-2 and shall be
      free from material defects in construction, materials and
      workmanship.

            

    

     

    
      	
               
      

            	
              7.2.

            	
              Limitation of
      Liability.  Other than the indemnity provisions above and
      the warranty and other remedies expressly specified herein, IsoRay’s and
      its affiliates' entire and collective liability arising out of or relating
      to this Agreement, including without limitation on account of performance
      or nonperformance of obligations hereunder, regardless of the form of the
      cause of action, whether in contract, tort (including without limitation
      gross negligence but not including intentional torts, fraud, or bad
      faith), statute or otherwise, shall in no event exceed the amounts paid to
      IsoRay under this Agreement for the Products.  EXCEPT AS
      SPECIFIED IN THIS AGREEMENT, NEITHER PARTY NOR ITS AFFILIATES OR PARENTS
      SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER PARTY OR ITS
      AFFILIATES OR PARENTS FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT,
      PUNITIVE, EXEMPLARY OR SPECIAL DAMAGES OF ANY NATURE WHATSOEVER, OR FOR
      ANY DAMAGES ARISING OUT OF OR IN CONNECTION WITH ANY DELAYS, LOSS OF
      PROFIT, INTERRUPTION OF SERVICE OR LOSS OF BUSINESS OR ANTICIPATORY
      PROFITS, EVEN IF A PARTY OR ITS AFFILIATES HAVE BEEN APPRISED OF THE
      LIKELIHOOD OF SUCH DAMAGES OCCURRING.  No action, regardless of
      form, arising out of this Agreement may be brought by either party more
      than [**]
      years after the cause of action has
accrued.

            

    

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
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              8.

            	
              INDEMNIFICATION.

            

    

     

    
      	
               
      

            	
              8.1.

            	
              Biocompatibles.  Biocompatibles
      shall bear the cost of liability for any claim for loss, injury, or demand
      arising out of Biocompatibles’ acts or omissions in connection with the
      distribution of the Products and other products described herein and
      agrees to indemnify IsoRay for all such
claims.

            

    

     

    
      	
               
      

            	
              8.2.

            	
              IsoRay.  IsoRay
      shall bear the cost of liability for any claim for loss, injury, or demand
      arising out of IsoRay’s acts or omissions in connection with the
      distribution of the Products described herein and agrees to indemnify
      Biocompatibles for all such claims.  Further, per Section 7.1
      herein, IsoRay warrants to Biocompatibles only that the Products, when
      delivered to customers pursuant to this Agreement, shall conform in all
      material respects with the Purchase Order specifications and shall [**].

            

    

     

    
      	
              9.

            	
              CONFIDENTIALITY.

            

    

     

    
      	
               
      

            	
              9.1.

            	
              Confidential Information;
      Solicitation.  Each of the Parties hereto acknowledges
      that, from time to time during the term of this Agreement, the Parties
      hereto may come into the possession of confidential information of the
      other Party relating to such Party’s customers, operations, activities,
      intellectual property (including, without limitation, trade secrets and
      know-how), products and/or services, (collectively, the “Confidential
      Information”), and that such information is property valuable to the Party
      that has developed it, and that the Party that has developed it desires to
      retain it in confidence and withhold it from publication to others, and
      that such Party has a legitimate business interest in such
      intent.  Accordingly, each Party hereby agrees that during the
      term of this Agreement and thereafter, (a) that Party will not copy,
      communicate or disclose, in any manner, any of the Confidential
      Information of the other Party, except internally or as otherwise provided
      herein, (b) that Party will use Confidential Information belonging to the
      other solely for the purpose(s) for which it was disclosed hereunder or
      otherwise as contemplated hereby, and (c) that Party will not disclose
      Confidential Information (including without limitation the terms and
      conditions of the Agreement) belonging to the other Party, other than to
      its employees, consultants and/or other third parties reasonably requiring
      such Confidential Information who are bound by written obligations of
      nondisclosure and non-use; provided that the foregoing shall not restrict
      any disclosure by either Party required by applicable law provided that
      the other Party is given prompt written notice thereof and a reasonable
      opportunity to review such disclosure and, if applicable, seek a
      protective order or other method of limiting the scope of such
      disclosure.  This provision will survive for a period of five
      (5) years after the date this Agreement is terminated, provided that the
      recipient's obligations with respect to any particular Confidential
      Information will terminate at such earlier time as any of the exceptions
      set forth below in this Section 9.1 first apply.  The term
      “Confidential Information” shall also include all information of each
      Party’s affiliates, parents and subsidiaries which would qualify as
      Confidential Information if it belonged to such
  Party.

            

    

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 8 of
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    Notwithstanding
the foregoing, Confidential Information shall not include any information
disclosed hereunder that, at the relevant time:  (a) is or becomes
available to the public without breach of this Agreement; (b) was previously
known by the recipient without obligation of confidentiality as determined by
documentary evidence; (c) is received from a third party without breach of any
obligation of confidentiality as determined by documentary evidence; (d) is
independently developed by recipient without reliance on information disclosed
hereunder as determined by documentary evidence; (e) is approved for release by
written authorization of the disclosing party (but only to the extent of such
authorization).

     

    
      	
               
      

            	
              9.2.

            	
              Unlawful
      Disclosure/Injunction.  Each Party hereto acknowledges
      that its unlawful disclosure of any Confidential Information of the other
      may give rise to irreparable injury to the other, or the owner of such
      information, inadequately compensable to damages.  Accordingly,
      each Party may seek and obtain injunctive relief against the breach or
      threatened breach of the foregoing undertakings, in addition to any other
      legal remedies which may be available without requirement of posting bond
      or other security.

            

    

     

    
      	
               
      

            	
              9.3.

            	
              Customer/Patient
      Information.  IsoRay agrees that the identities, contact
      information, Product purchase quantities, etc. of Biocompatibles’
      customers disclosed in connection with this Agreement (e.g., hospitals,
      physicians, and the like as opposed to the patients ultimately receiving
      implants of the Products) is Confidential Information of Biocompatibles
      and, so long as it meets the definition of Confidential Information, it is
      not to be shared by IsoRay with third parties, except as required to
      IsoRay’s affiliates in order to meet obligations pursuant to this
      Agreement.  This separate disclosure to IsoRay’s affiliates
      shall not be deemed to disqualify this information from being considered
      Confidential Information.

            

    

     

    
      	
               
      

            	
              9.4.

            	
              Competitive Disclosure
      Prohibited.  In no event shall a Party be entitled to use
      any of the other’s Confidential Information, or any derivatives thereof,
      in connection with the sale or production of any products or services that
      are competitive with (direct or indirect) or similar to those products and
      services sold, produced, manufactured, offered for sale, designed or
      developed by the disclosing Party or any of its affiliates or parent. Each
      Party agrees to refrain from knowingly infringing, in any manner, directly
      or indirectly, on any Confidential Information of the other Party (or any
      of its affiliates or parent), regardless of whether such Confidential
      Information has been registered, filed or recorded with the United States
      Patent and Trademark Office, or any similar federal, state or
      international agency or regulatory body.  Each Party further
      agrees that it shall comply with all obligations imposed on it by the
      United States Patent and Trademark Office or any similar federal, state or
      international agency or regulatory body with respect to
      the  other Party's intellectual property rights. The obligations
      of this provision shall survive the termination of this Agreement (a) for
      the life of the relevant intellectual property rights, in the case of
      patents and trademarks, and (b) for the applicable period described in
      Section 9.1, in the case of Confidential
  Information.

            

    

     

    
      
         

      

      
        Page 9 of
18 

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              9.5.

            	
              Protected Health
      Information.  The Parties acknowledge that
      individually-identifiable information concerning the patients scheduled to
      receive implants of the Products is "Protected Health Information" under
      42 U.S.C. §1320d, enacted by the Health Insurance Portability and
      Accountability Act of 1996 ("HIPAA"), and regulations promulgated
      thereunder, which the Parties are obligated to treat as confidential under
      such law and regulations, and which may also be covered by other
      confidentiality laws, rules and regulations.  The Parties agree
      as follows with respect to Protected Health Information shared with a
      Party: (a) to maintain the confidentiality of all such patient information
      in compliance with HIPAA and applicable regulations thereunder, as the
      foregoing may now exist or hereafter be amended, and other applicable
      confidentiality laws, rules and regulations, for so long as such
      obligations apply; (b) to comply with such reasonable or customary
      obligations with respect to such patient information, as may now or
      hereafter be imposed upon the other Party by contract with its customers
      pursuant to HIPAA (e.g., under so-called Business Associate Agreements),
      provided that the providing Party shall disclose to the recipient Party in
      writing the nature of its obligations under each such agreement; and (c)
      to require any of its agents or subcontractors who may become privy to
      such patient information hereunder to comply with the foregoing to the
      same extent such Party is obligated to do so, and include in its contracts
      with any such parties a clause comparable to this
  clause.

            

    

     

    
      	
              10.

            	
              COMPLIANCE
      WITH ALL APPLICABLE LAWS

            

    

     

    
      	
            	
              10.1.

            	
              Biocompatibles - Legal And
      Regulatory Compliance In The Territory.  Biocompatibles
      hereby represents and warrants that Biocompatibles is in possession of all
      regulatory and nuclear licenses in order to allow Biocompatibles to
      receive, store, transport, and generally conduct the distribution of the
      Products, as well as other non-radioactive medical products in a proper
      and legal manner in the Territory.  Upon written request by
      IsoRay, Biocompatibles shall provide copies of all such regulatory and
      nuclear licenses to IsoRay for review prior to execution of this
      Distribution Agreement.

            

    

     

    
      	
            	
              10.2.

            	
              IsoRay - Legal And Regulatory
      Compliance In The Territory.  IsoRay hereby represents
      and warrants that IsoRay is in possession of all regulatory and nuclear
      licenses in order to allow IsoRay to manufacture, store, ship, and
      generally conduct the distribution of the Products, as well as its other
      non-radioactive medical products in a proper and legal manner in the
      Territory.  Upon written request by Biocompatibles, IsoRay shall
      provide copies of all such regulatory and nuclear licenses to
      Biocompatibles for review prior to execution of this Distribution
      Agreement.

            

    

     

    
      
         

      

      
        Page 10
of 18 

        
          

        

      

      
         

      

    

    
      	
            	
              10.3.

            	
              General Compliance –
      IsoRay.  During the term of this Agreement, IsoRay agrees
      to comply, in all material respects, with all applicable laws, ordinances,
      rules, regulations, orders, licenses, permits and other requirements, now
      or hereafter in effect, of any applicable governmental authority with
      respect to the delivery of the Products, including without limitation all
      requirements regarding labeling and traceability of the Products as
      processed by IsoRay or its affiliates, as such requirements arise out of
      or in connection with this Agreement.  IsoRay shall provide all
      reasonable cooperation to Biocompatibles in connection with
      Biocompatibles’ compliance with any law, ordinance, rule, regulation,
      order, license, permit or other requirement regarding the provision of
      this Agreement.

            

    

     

    
      	
            	
              10.4.

            	
              General Compliance –
      Biocompatibles.  During the term of this Agreement,
      Biocompatibles shall comply, in all material respects, with all applicable
      laws, ordinances, rules, regulations, orders, licenses, permits and other
      requirements, now or hereafter in effect, of any applicable governmental
      authority with respect to the sale and delivery of the Products under this
      Agreement.  Biocompatibles shall provide all reasonable
      cooperation to IsoRay in connection with IsoRay’s compliance with any law,
      ordinance, rule, regulation, order, license, permit or other requirement
      regarding the provision of this
Agreement.

            

    

     

    
      	
              11.

            	
              CUSTOMER
      COMPLAINTS AND INCIDENTS.

            

    

     

    
      	
            	
              11.1.

            	
              Notification Of Claims To
      IsoRay.  As soon as practicable after receiving notice of
      any claim, action or inquiry by the FDA or other applicable Regulatory
      Authority or court of law relating to alleged non-compliance with the
      Products’ warranty or any notice with respect to any alleged violation of
      any Law on the part of the Products, and of any adverse incidents or
      customer or patient complaints regarding the Products of which
      Biocompatibles becomes aware — Biocompatibles shall notify IsoRay as
      provided herein in Section 15.3 with the form titled “Event Report Form,”
      a copy of which is attached hereto as Exhibit C, and shall
      consult with IsoRay regarding responses to such claims, actions or
      inquiries and shall also provide IsoRay with copies of all correspondence
      in response to such claims, actions or inquiries.  In addition,
      Biocompatibles shall notify IsoRay of any adverse reaction, malfunction,
      injury or other similar claims with respect to the Products of which
      Biocompatibles becomes aware.  In addition, Biocompatibles shall
      promptly notify IsoRay of any event of a type described above relating to
      any products or services provided to customers by Biocompatibles in
      connection with the Products.

            

    

     

    
      	
            	
              11.2.

            	
              Notification Of Claims To
      Biocompatibles.  Similarly, as provided herein in Section
      15.3 IsoRay shall notify Biocompatibles as soon as practicable after
      receiving notice of any claim, action or inquiry by the FDA or other
      applicable Regulatory Authority or court of law relating to alleged
      non-compliance with the Products’ warranty affecting the Products
      generally or any notice with respect to any alleged violation of any Law
      on the part of the Products generally, and of any adverse incidents or
      customer or patient complaints regarding the Products of which IsoRay
      becomes aware.

            

    

     

    
      
         

      

      
        Page 11
of 18 

        
          

        

      

      
         

      

    

    
      	
            	
              11.3.

            	
              Suspension of
      Deliveries.  Biocompatibles may suspend the distribution
      or sale of the Products if Biocompatibles shall become aware of any
      material non-conformity of the Products to the Specifications (see Exhibit E) or other
      product performance problems that in either case Biocompatibles reasonably
      concludes poses a risk to the health of the patient or any other party,
      including without limitation Biocompatibles’ staff, hospital staff,
      transport and delivery staff, and physicians, to the clinical efficacy of
      the Products or constitutes (or the continued shipment of the Products
      would constitute) a violation of Law or of any Regulatory
      Requirement.  Biocompatibles shall promptly notify IsoRay of any
      such suspension.  Such suspension shall remain in place until
      IsoRay has either implemented appropriate modifications to its
      pre-shipment inspection procedures designed to prevent shipment of the
      Products suffering from the noted defects, or identified a root cause for
      the failure and implemented appropriate corrective
      action.  Likewise, IsoRay may suspend the manufacture and
      shipment of the Products to Biocompatibles if IsoRay shall become aware of
      any similar quality, regulatory, safety or efficacy issues involving
      Biocompatibles’ products or services provided to customers in connection
      with Biocompatibles’ distribution of the Products.  IsoRay shall
      promptly notify Biocompatibles of any such
  problems.

            

    

     

    
      
        	
              	
                11.4.

              	
                Replacement
      of Damaged or Defective
Products.

              

      

    

     

    
      
        	
              	
                11.4.1

              	
                IsoRay
      will replace,[**],
      within a period of [**] days from the date of delivery of Product(s), or
      at a later date as advised to IsoRay by Biocompatibles in order to
      coincide with the rescheduling of the relevant patient’s implant, any
      Product(s) which are proved to the reasonable satisfaction of IsoRay to be
      damaged or defective due to defects in material, or workmanship or design
      (other than a design made by Biocompatibles, the replacement of which
      shall be [**] responsibility and shall be made at [**]
      expense).

              

      

    

     

    
      
        	
              	
                11.4.2

              	
                IsoRay
      will refund to Biocompatibles the [**] on the return of any such defective
      or damaged Product, and will deliver any replacement Product to
      Biocompatibles at [**].

              

      

    

    

    IsoRay
will refund Biocompatibles’ [**] for all Product required to be returned to
IsoRay in the event of IsoRay’s notice of withdrawal of the Product. With the
exception of events arising under Force Majeure (Section 15.1); (a) in the event
of a Product recall in the Territory, IsoRay will endeavour to replace, [**],
any units required to be withdrawn by Biocompatibles from the Territory and
returned to IsoRay; and (b) in the event of a complete withdrawal of the Product
from the Territory whereby the Product cannot be replaced by IsoRay, IsoRay will
[**] to
Biocompatibles [**] by Biocompatibles to IsoRay for such Product.

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 12
of 18 

              
                

              

            

            
               

            

          

        

      

    

    

    
      	
              12.

            	
              PROPRIETARY
      RIGHTS.

            

    

     

    
      	
            	
              12.1.

            	
              Ownership. IsoRay and
      Biocompatibles shall each shall continue to own all of their respective
      Intellectual Property (“IP”), including IP developed or acquired by that
      Party after the date hereof, and nothing in this Agreement shall be
      construed as transferring any IP of a Party.  Nor shall this
      Agreement be construed to grant any license to any such IP, except as
      expressly provided for herein during the term hereof. Any derivative work,
      as relates to copyright, or improvement of a Party’s IP created by the
      other Party pursuant to this Agreement shall be the property of the Party
      who owns the IP on which the derivative work or improvement is based,
      unless otherwise specifically agreed in
advance.

            

    

     

    
      	
              13.

            	
              TERMINATION.

            

    

     

    
      	
            	
              13.1.

            	
              Termination for
      Default.   If a Party materially defaults in the
      performance of any of its obligations under this Agreement and does not
      cure such default within thirty (30) days, after receiving Notice as
      provided herein, then the other Party may, by giving Notice to the
      defaulting Party, terminate this Agreement, as of the termination date
      specified in the Notice.

            

    

     

    
      	
            	
              13.2.

            	
              Termination for
      Cause.  IsoRay may terminate this Agreement for cause if
      an act or omission of Biocompatibles, its employees, officers or agents is
      likely to cause or has caused harm or disrepute to the Products, IsoRay’s
      trade names or the goodwill attached to this Agreement or associated with
      IsoRay's Products.  In the event IsoRay believes there is
      sufficient cause to terminate this Agreement for such cause, it shall
      provide Biocompatibles with written notice of its demand for arbitration
      to determine the existence of such cause and such arbitration shall
      commence pursuant to the terms of Section
13.4.

            

    

     

    
      	
            	
              13.3.

            	
              Voluntary
      Termination.  Either Party may terminate this Agreement
      at any time ninety (90) days prior to the end of the initial term or
      renewal term, as applicable.

            

    

     

    
      	
            	
              13.4.

            	
              Arbitration to Determine
      Sufficient Cause. In the event IsoRay desires to terminate this
      Agreement for cause pursuant to Section 13.2, IsoRay may file demand for
      arbitration to be held in Richland, Washington under the then current
      commercial arbitration rules of the American Arbitration Association, in
      accordance with the terms set forth in this Section
  13.4:

            

    

     

    
      
         

      

      
        Page 13
of 18 

        
          

        

      

      
         

      

    

    
      	
               
      

            	
               13.4.1

            	
              Unless
      the Parties can agree on a single arbitrator, such arbitration shall be
      conducted by three arbitrators, one appointed by each of Biocompatibles
      and IsoRay and the third selected by the first two appointed arbitrators.
      Each arbitrator shall be a person with relevant experience in the medical
      device industry. Biocompatibles and IsoRay shall instruct such arbitrators
      to render a determination of any such dispute within 15 business days
      after the appointment of the third arbitrator. Biocompatibles and IsoRay
      must make their respective appointments within five business days of
      notice being given to Biocompatibles by IsoRay of its intention to
      terminate the Agreement for cause pursuant to Section 13.2. Such appointed
      arbitrators must select the third arbitrator within five business days of
      the last to occur of their respective appointments. The dispute shall be
      resolved by submission of documents unless the arbitration panel
      determines that an oral hearing is necessary. The arbitration panel shall,
      within the overall 15 business day time constraint, determine what shall
      be conclusively deemed to be fair and appropriate deadlines for submitting
      documents and dates, if any, of oral
hearings.

            

    

    

    
      	
               
      

            	
              13.4.2

            	
              Any
      determination made or award rendered by the arbitrators shall be final and
      binding upon the Parties. Judgment upon any determination or award
      rendered may be entered in any court having jurisdiction, or application
      may be made to such court for a judicial acceptance of the award and an
      order of enforcement, as the case may be. Each Party shall pay its own
      expenses of arbitration, and the expenses of the arbitrators shall be
      equally shared between Biocompatibles and IsoRay unless the arbitrators
      assess as part of their award all or any part of the arbitration expenses
      of a Party (including reasonable attorneys' fees) against the other
      Party.

            

    

    

    
      	
               
      

            	
              13.4.3

            	
              This
      Section 13.4 shall not prohibit a Party from seeking injunctive relief
      from a court of competent jurisdiction in the event of a breach or
      prospective breach of this Agreement by any other Party which would cause
      irreparable harm to the first
Party.

            

    

     

    
      	
              14.

            	
              INSURANCE
      AND INDEMNIFICATION.

            

    

     

    
      	
            	
              14.1.

            	
              IsoRay Insurance.  IsoRay
      shall obtain and maintain in full force and effect valid general liability
      and product liability insurance in respect of Products for death, illness,
      bodily injury and property damage in an amount not less than [**]
      million per occurrence; [**] million aggregate.  IsoRay shall
      within thirty (30) days after the Effective Date provide Biocompatibles
      with evidence of this coverage, provided that the existence of such
      coverage shall not limit IsoRay’s liability or obligations
      hereunder.  Such insurance policy shall provide that in the
      event such insurance coverage should be materially adversely changed or
      terminated for any reason, the insurer there under will give IsoRay and
      Biocompatibles thirty (30) days prior written notice of such change or
      termination.  Pursuant to and as provided in the notice
      provisions of sections 11, 15 and elsewhere herein, IsoRay shall notify
      Biocompatibles as soon as practicable upon receipt of payment by IsoRay’s
      insurers on any claims related to the Products or services encompassed by
      this Agreement.

            

    

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 14
of 18 

              
                

              

            

            
               

            

          

        

      

    

     

    
      	
            	
              14.2.

            	
              Biocompatibles
      Insurance.  Biocompatibles
      shall obtain and maintain in full force and effect valid general liability
      and product liability insurance in respect of Products for death, illness,
      bodily injury and property damage in an amount not less than [**]
      million per occurrence; [**] million aggregate.  Biocompatibles
      shall within thirty (30) days after the Effective Date provide IsoRay with
      evidence of this coverage, provided that the existence of such coverage
      shall not limit Biocompatibles’ liability or obligations
      hereunder.  Pursuant to and as provided in the notice provisions
      of sections 11, 15 and elsewhere herein, Biocompatibles shall notify
      IsoRay as soon as practicable upon receipt of payment by Biocompatibles’
      insurers on any claims related to the Products or services encompassed by
      this Agreement.

            

    

     

    
      	
            	
              14.3.

            	
              IsoRay’s
      Indemnification. To the full
      extent of IsoRay’s applicable general liability and product liability
      insurance coverage with respect to the Products, IsoRay on behalf of
      itself  and its directors, employees, affiliates, suppliers and
      agents, shall indemnify, defend and hold harmless Biocompatibles, its
      subsidiaries and affiliates and their directors, officers, agents and
      employees from and against any and all liabilities, claims, demands,
      damages, causes of action, losses, expenses and attorney’s fees, whether
      known or unknown, resulting from any and all product or material
      defects.

            

    

     

    
      	
            	
              14.4.

            	
              Biocompatibles’ Indemnification. To the full
      extent of Biocompatibles’ applicable general liability and or other
      insurance coverage with respect to the Products’ distribution as described
      herein, Biocompatibles on behalf of itself  and its directors,
      employees, affiliates, suppliers and agents, shall indemnify, defend and
      hold harmless IsoRay, its subsidiaries and affiliates and their directors,
      officers, agents and employees from and against any and all liabilities,
      claims, demands, damages, causes of action, losses, expenses and
      attorney’s fees, whether known or unknown, resulting from any and all
      handling or mishandling, use or misuse of the Products by
      Biocompatibles.

            

    

     

    
      
        

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 15
of 18 

              
                

              

            

            
               

            

          

        

         

      

    

    
      	
              15.

            	
              MISCELLANEOUS
      PROVISIONS.

            

    

     

    
      	
            	
              15.1.

            	
              Force Majeure. If and to
      the extent that a Party's performance of any of its obligations pursuant
      to this Agreement is prevented, hindered or delayed by fire, flood,
      earthquake, elements of nature or acts of God, accident, acts of war,
      terrorism, riots, civil disorders, rebellions or revolutions, strikes,
      lockouts, or other labor troubles, shortages of supplies or materials,
      utility failures or outages, action of any Regulatory Authority (excluding
      Product recalls), or any other similar cause beyond the reasonable control
      of such Party (each, a "Force Majeure
      Event"), and such non-performance, hindrance or delay could not
      have been prevented by reasonable precautions, then the non-performing,
      hindered or delayed Party shall be excused for such non-performance,
      hindrance or delay, as applicable, of those obligations affected by the
      Force Majeure Event for as long as such Force Majeure Event continues and
      such Party continues to use its best efforts to recommence performance
      whenever and to whatever extent possible without delay, including through
      the use of alternate sources, workaround plans or other
      means.  The Party whose performance is prevented, hindered or
      delayed by a Force Majeure Event shall promptly notify the other Party of
      the occurrence of the Force Majeure Event and describe in reasonable
      detail the nature of the Force Majeure Event.  During the
      pendency of the Force Majeure Event, and only during the pendency of the
      Force Majeure Event, the other Party may pursue alternative sources for
      the products or services that the Force Majeure Event has prevented it
      from obtaining under this
Agreement.

            

    

     

    
      	
            	
              15.2.

            	
              Assignment. No Party
      shall, without the consent of the other Party, assign this Agreement,
      except that any Party may assign this Agreement to an affiliate without
      such consent, and any Party may assign this Agreement in connection with a
      merger or acquisition of such Party or in connection with a sale of all or
      substantially all of the assets of such Party, provided that, in the case
      of an asset sale, the acquiring party agrees in writing to assume and be
      bound by all the obligations of the assigning Party
      hereunder.  This Agreement shall be binding on the Parties and
      their respective successors and permitted assigns.  Any
      assignment in contravention of this subsection shall be
    void.

            

    

     

    
      	
            	
              15.3.

            	
              Notices.  Except
      as otherwise specified in this Agreement, all notices, requests, consents,
      approvals, agreements, authorizations, acknowledgments, waivers and other
      communications required or permitted under this Agreement shall be in
      writing and shall be deemed given when sent by electronic mail or
      delivered by hand to the address specified below.  A copy of any
      such notice shall also be sent by overnight express air mail on the date
      such notice is transmitted by electronic mail to the address specified
      below:

            

    

     

    In
the case of IsoRay Medical, Inc.:

     

    Lori
Woods

    Chief
Operating Officer

    ISORAY,
INC.

    350 Hills
Street, Ste. 106

    Richland,
WA 99354-5411

    USA

    (T)   +1.509.375.1202
x 228

    (F)   +1.509.375.3473

    lwoods@isoray.com

    www.isoray.com

    
      
         

      

      
        Page 16
of 18 

        
          

        

      

      
         

      

    

    

    In
the case of Biocompatibles:

     

    James
Matons, President

    BIOCOMPATIBLES,
INC.

    115
Hurley Road, Building 3

    Oxford,
Connecticut 06478

    USA

    (T)   +1.203.262.0571

    (F)   +1.203.262.8968

    jmatons@brachysciences.com

    www.brachysciences.com

    

    Any Party
may change its address, telephone, or facsimile number for notification purposes
by giving the other Parties written notice of the new address, telephone, or
facsimile number, and the date upon which it will become effective.

     

    
      	
            	
              15.4.

            	
              Relationship Of
      Parties.  In entering into, and performing their duties
      under, this Agreement, the Parties are acting as independent
      parties.  No provision of this Agreement shall create, imply or
      be construed as creating a partnership, joint venture, or agency
      relationship between the Parties.  No Party shall have the
      authority to act for or bind the other Party in any
    respect.

            

    

     

    
      	
            	
              15.5.

            	
              Severability.  If
      any provision of this Agreement is held by a court of competent
      jurisdiction to be contrary to Law, then the remaining provisions of this
      Agreement, if capable of substantial performance, shall remain in full
      force and effect.

            

    

     

    
      	
            	
              15.6.

            	
              Amendments.  No
      amendment to, or change, waiver or discharge of; any provision of this
      Agreement shall be valid unless in writing and signed by an authorized
      representative of each of the
Parties.

            

    

     

    
      	
            	
              15.7.

            	
              Governing
      Law.  This Agreement and the rights and obligations of
      the Parties under this Agreement shall be governed by and construed in
      accordance with the Laws of [**],
      without giving effect to the principles thereof relating to the conflicts
      of Laws.

            

    

     

    
      	
            	
              15.8.

            	
              Counterparts.  This
      Agreement may be executed in any number of counterparts, each of which
      will be deemed an original, but all of which taken together shall
      constitute one single Agreement between the
  Parties.

            

    

     

    [SIGNATURE
PAGE FOLLOWS]

    
       

        
          

      

      
        
          
            	
                    [**]

                  	
                    Certain
      information in this document has been omitted and filed separately with
      the Securities and Exchange Commission. Confidential treatment has
      been requested with respect to the omitted
  portions.

                  

          

        

        

          
            
               

            

            
              Page 17
of 18 

              
                

              

            

            
               

            

          

        

      

    

     

    [SIGNATURE
PAGE]

     

    IN
WITNESS WHEREOF, ISORAY MEDICAL, INC. and BIOCOMPATIBLES, INC. have caused this
Agreement to be signed and delivered by its duly authorized
representative

     

    ACKNOWLEDGED
and AGREED this 18th day of
February, 2009:

     

    
      
        	
                ISORAY
      MEDICAL, INC.

              	 
      	
                BIOCOMPATIBLES,
      INC.

              
	 
      	 
      	 
      	 
      	 
      
	
                By:

              	
                /s/ Lori Woods

              	 
      	
                By:

              	
                /s/ James Matons

              
	 
      	
                Lori
      Woods

              	 
      	 
      	
                James
      Matons

              
	 
      	
                Chief
      Operating Officer

              	 
      	 
      	
                President

              

      

    

     

    
      
         

      

      
        Page 18
of 18AMENDMENT NO. 1 TO SERVICE
AGREEMENT

       

      This
AMENDMENT NO. 1 TO SERVICE AGREEMENT (hereinafter "Amendment"), effective on this
18th
day of February, 2009 (hereinafter "Effective Date"), is made by and among
ISORAY MEDICAL, INC. (hereinafter "Manufacturer" or "IsoRay"), a Minnesota
corporation having offices at 350 Hill Street, Suite 106, Richland, WA 99354,
and BIOCOMPATIBLES, INC., a Delaware corporation having a principal business
office at 115 Hurley Road, Building 3, Oxford CT 06478 and successor in interest
to, and assignee of, ADVANCED CARE MEDICAL, INC. (hereinafter "Biocompatibles").  (Manufacturer
and Biocompatibles are referred to herein as the "Parties").

       

      WHEREAS
the Manufacturer and Advanced Care Medical, Inc. ("ACM") entered into the
Service Agreement dated March 1, 2006 whereby ACM (and Biocompatibles as
successor thereof) provided certain loading, stranding, and other services to
Manufacturer as specified therein (hereinafter "Service
Agreement");

       

      WHEREAS
the term of the Service Agreement which ended dated February 29, 2008 has been
extended month to month by Manufacturer and Biocompatibles;

       

      WHEREAS
Manufacturer desires to obtain the right to purchase additional brachytherapy
services and related products from Biocompatibles in addition to those already
included in the Service Agreement as more fully described below;

       

      WHEREAS
as a condition of the renewal, extension, and added products and services by
Biocompatibles, the Parties have agreed to execute the Distribution Agreement
for Biocompatibles to distribute Manufacturer's Cesium-131 seeds on a
co-exclusive basis concurrently with this Amendment;

       

      WHEREAS
the Parties wish to amend the Service Agreement as provided herein;

       

      NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties agree as follows:

       

      1. Amendment;
Reaffirmation; Conflicts.   Except as expressly set forth
herein, the Service Agreement remains unmodified and in full force and effect
and the Service Agreement, as amended, is hereby ratified and
confirmed.  In the event of any conflict or inconsistency between the
provisions of the Service Agreement and the provisions of this Amendment, the
provisions of this Amendment shall govern.  Capitalized terms not
defined in this Amendment shall have the meaning ascribed to such terms in the
Service Agreement.

       

      2. Product
Definition.  The initial recital in the Service Agreement is
hereby deleted in its entirety and the following substituted
therefor:  "Whereas, Manufacturer sells to the medical community
devices known as "Brachytherapy
Seeds" (specifically all brachytherapy seeds regardless of the
radioactive isotope contained in such seeds, which may consist of Cs-131,
I-125,  and any other isotopes developed for brachytherapy)." For
purposes of the Service Agreement as amended by this Amendment, the term "Product" shall hereinafter
mean only those Brachytherapy Seeds containing Cs-131."

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      3. Paragraph 1.1 of the Service
Agreement is hereby deleted in its entirety and the following substituted
therefor:

       

      "On
the terms and
subject to the conditions set forth in this Agreement, Biocompatibles shall
provide to IsoRay, when and as requested by IsoRay, the Services in accordance
with Revised Exhibit A
hereto and made a part hereof, including the relevant Biocompatibles
Products.  Biocompatibles agrees to provide the Services irrespective
of the source of the Products delivered to it for processing.

       

      Except as
otherwise agreed by IsoRay in writing, throughout the Term of this Agreement,
Biocompatibles (or its affiliates) shall be responsible for the supply of all of
IsoRay's requirements for the Services as indicated on orders submitted by
IsoRay pursuant to this Agreement and in accordance with Revised Exhibit
A.  Biocompatibles shall notify IsoRay immediately upon becoming aware
that Biocompatibles is unable to supply the quantity of Services ordered by
IsoRay, and in such event, Biocompatibles shall implement all commercially
reasonable efforts to remedy the shortage.  In the event
a  shortage cannot be remedied within [**] days
from its commencement, such shortage shall be deemed a material breach of this
Agreement and IsoRay shall have the right to [**].

       

      Term. The term of this Service
Agreement as amended by this Amendment shall end December 31, 2011 ("Expiration
Date").

       

      Renewal.  The
term shall be automatically renewed for periods of one (1) year unless canceled
ninety (90) days prior to the end of the initial term or any renewal term
thereafter."

       

      4. The following provisions are hereby
added to the Service Agreement as new Sections 1.3, 1.4 and 1.5:

       

      "1.3        
AnchorSeedTM With
Mick Applicators.  AnchorSeedTM shall
only be used with IsoRay accounts that are using properly serviced
Mick Applicators, serviced by Mick Radio-Nuclear Instruments in accordance with
its normally suggested maintenance schedule (annual service) within
manufacturer's specifications (the "Required
Maintenance").  (Mick Radio-Nuclear Instruments will not
perform any unique services specific for use with AnchorSeed, but will perform
its standard evaluation and servicing of Mick
Applicators).  Applicators must be submitted to Mick Radio-Nuclear
Instruments in accordance with its return policies, including return
authorization and certificates of decontamination.  Biocompatibles
will not reimburse the cost of Applicator maintenance.  However,
Biocompatibles personnel will facilitate the servicing process between the end
user and Mick Radio-Nuclear Instruments upon request by IsoRay or an end
user.

       

      1.4          
Mick
Applicator Servicing. IsoRay shall have sole
responsibility for providing notice to IsoRay's customers regarding the Mick
Applicator servicing requirements described in Section 1.3 above and
verification that Required Maintenance has been performed, as evidenced by
documentation from Mick Radio-Nuclear Instruments.  Failure of the
AnchorSeedTM in Mick
Applicators used by IsoRay's customers that have not received the Required
Maintenance shall be the [**].
Notwithstanding the foregoing, in the event of a failure of the AnchorSeedTM when
used with a Mick Applicator for which IsoRay or the customer can document that
the Required Maintenance was performed, and to the extent that it can be proven
that the products delivered by Biocompatibles were not as warranted, then
Biocompatibles shall [**], however in no event shall [**].

       

        
          

        

      

      
        [**]Certain
information in this document has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      1.5         
Cancellations
and Unused Seeds.

       

      (a)  Due to the proprietary
nature of Biocompatibles' product technology, any cancelled cases or unused
seeds contained in Biocompatibles Services products (strands, loose-loaded
needles, AnchorSeedTM, etc.)
must be returned directly to Biocompatibles from the clinical
location.  It is the responsibility of the clinical location to ensure
that all returned materials are free from any and all contamination, both
radiological and biological.  Such products must be returned in
compliance with proper shipping regulations for radioactive
material.  Either the clinical location or IsoRay should contact
Biocompatibles to notify Biocompatibles of an impending
return.  Biocompatibles will in turn provide the clinical location
with the necessary documentation and guidance for shipping.

       

      (b)  For all strands and
loose-loaded products (excluding AnchorSeedTM),
Biocompatibles will deconstruct the kit and return the extracted seeds to IsoRay
within [**] business days following receipt of the kit from the clinical
location, at [**].  However, for all seeds that are either
AnchorSeedTM or
AnchorLoadTM, the
seeds must be held for decay at Biocompatibles. Such seeds will not be returned
to IsoRay at any point.  If any AnchorSeedTM or
AnchorLoadTM seeds
are returned to Biocompatibles due to a defect in the Services provided by
Biocompatibles, Biocompatibles agrees to [**] of the included seeds so
returned."

       

      5. The following provisions are hereby
added to the Service Agreement as new Sections 3.1.c. and d.:

       

      "c.           
Biocompatibles shall throughout the Term of this Agreement have full
responsibility for, and shall control the preparation and prosecution of, all
patent applications and the maintenance of all patents relating thereto and
shall maintain in full force and effect all issued patents relating to its
Services. IsoRay shall not have any responsibility for any action, costs,
liabilities or expenses related to the preparation, filing, maintaining and
prosecuting of such patents or patent applications.

       

      d.           Biocompatibles
agrees to immediately notify IsoRay if it is notified by any regulatory
authority that a Service does not comply with applicable rules and
regulations.  It further agrees to immediately investigate the matter
and determine what steps are needed to resolve the issue(s) identified by the
regulatory authority, which shall be resolved by Biocompatibles as soon as
commercially practicable at Biocompatibles' sole cost and
expense.  Biocompatibles further agrees to cooperate with IsoRay in
the event a recall is required as a result of any failure of the Services to
comply with all applicable rules and regulations, at Biocompatibles' sole cost
and expense."

      
         

          
            

          

        

        
          [**]Certain
information in this document has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        6. The
following provision is hereby added to the Service Agreement as new Section
7.6:

      

       

      "All
rights and licenses granted under or pursuant to any section of this Agreement
are and shall otherwise be deemed to be for purposes of Section 365(n) of Title
11, United States Code (the "Bankruptcy Code") licenses of
rights to "intellectual
property" as defined in Section 101(56) of the Bankruptcy Code. The
Parties shall retain and may fully exercise all of their respective rights and
elections under the Bankruptcy Code. Upon the bankruptcy of any Party, the
non-bankrupt Party shall further be entitled to a complete duplicate of, or
complete access to, any such intellectual property, and such, if not already in
its possession, shall be promptly delivered to the non-bankrupt Party, unless
the bankrupt Party elects to continue, and continues, to perform all of its
obligations under this Agreement. Biocompatibles' address for purpose of notice
pursuant to Section 11.1 of the Service Agreement shall be - 115 Hurley Road,
Building 3B, Oxford, Connecticut 06478,
Attention:  President."

      

      7. Section 12.1 of the Service
Agreement is hereby deleted in its entirety and the following substituted
therefor:

       

      "12.1      
A Party shall not be in default if failure to perform any obligation hereunder
is caused solely by supervening conditions beyond the Party's control, including
without limitation, acts of God, civil commotion, strikes, labor disputes, and
governmental demands or requirements, provided, however, any delay in
performance exceeding 30 days shall be grounds for terminating this Agreement by
the non-defaulting Parties.

       

      If either
Party is affected by Force Majeure, it shall promptly notify the other Party of
the nature and extent of the circumstances in question."

       

      8. Exhibits.   "Exhibit
A" and "Exhibit
B" to the Service Agreement are deleted in their entirety and the
attached "Revised
Exhibit A" and "Revised
Exhibit B" are substituted therefor.  New "Exhibit
C" attached hereto is hereby added to the Service Agreement.

       

      9. Counterparts.   This
Amendment may be executed in counterparts.

       

      [Signature
Page Follows]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      IN
WITNESS WHEREOF, ISORAY MEDICAL, INC., BIOCOMPATIBLES, INC. have caused this
AMENDMENT NO. 1 TO SERVICE AGREEMENT to be signed and delivered by their duly
authorized representatives.

       

      ACKNOWLEDGED
and AGREED this 18th day of
February 2009:

       

      
        
          
            	
                    ISORAY
      MEDICAL, INC.

                  	 	
                    BIOCOMPATIBLES,
      INC.

                  
	 
      	 
      	 	 
      	 
      
	
                    By:

                  	
                    /s/ Lori Woods

                  	 	
                    By:

                  	
                    /s/ James Matons

                  
	 
      	
                    Lori
      Woods

                  	 	 
      	
                    James
      Matons

                  
	 
      	
                    Chief
      Operating Officer

                  	 	 
      	
                    President

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