Document:

Exhibit
      10.3

       

      ROYALTY
        AGREEMENT OF INVENTION AND PATENT APPLICATION

       

      For
        value
        received as stated below, Lane A. Bray of 67 Park, Richland WA 99352
        (hereinafter ASSIGNOR), as recited in the ASSIGNMENT AGREEEMENT, sells, assigns,
        transfers, and sets over unto IsoRay LLC of 9011 W. Klamath Ct., Kennewick,
        WA
        99336 (hereinafter ASSIGNEE) 100% of the following: 

       

      
        	 	
                (A)

              	
                ASSIGNOR’S
                  right, title and interest in and to the invention entitled “METHOD OF
                  SEPARATION OF CESIUM-131 FROM BARIUM” invented by ASSIGNOR;
                  

              

      

       

      
        	 	
                (B)

              	
                the
                  application for United States patent therefor, signed by ASSIGNOR
                  on
                  04/28/99, U.S. Patent and Trademark Office Application Number 09/301,640,
                  filed 04/28/99; 

              

      

       

      
        	
              	(C)	
                any
                  patent or reissues of any patent that may be granted thereon; and
                  

              

      

       

      
        	 	
                (D)

              	
                any
                  applications which are continuations, continuations-in-part, substitutes,
                  or divisions of said application. ASSIGNOR authorizes ASSIGNEE
                  to enter
                  the date of signature and/or Serial Number and Filing Date in the
                  spaces
                  above. ASSIGNOR also authorizes and requests the Assistant Commissioner
                  for Patents to issue any resulting patent(s) as follows: 0% to
                  ASSIGNOR
                  and 100% to ASSIGNEE. 

              

      

       

      ASSIGNOR
        hereby further sells, assigns, transfers, and sets over unto ASSIGNEE, the
        above
        percentage of ASSIGNOR’S entire right, title and interest in and to said
        invention in each and every country foreign to the United States; and ASSIGNOR
        further conveys to ASSIGNEE the above percentage of all priority rights
        resulting from the above-identified application for United States patent.
        ASSIGNOR agrees to execute all papers, give any required testimony and perform
        other lawful acts, at ASSIGNEE’S expense, as ASSIGNEE may require to enable
        ASSIGNEE to perfect ASSIGNEE’S interest in any resulting patent of the United
        States and countries foreign thereto, and to acquire, hold, enforce, convey,
        and
        uphold the validity of said patent and reissues and extensions thereof, and
        ASSIGNEE’S interest therein. 

       

      
        1.VALUE
          RECEIVED BY ASSIGNOR: 

      

       

      
        	 	
                (A)

              	
                IsoRay,
                  LLC shall pay all attorneys’ fees and filing fees associated with said
                  patent. 

              

      

       

      
        	 	
                (B)

              	
                Seed
                  Royalty: IsoRay, LLC shall pay a royalty of 1% of Gross Profit
                  of seed
                  wherein the process described in aforesaid patent is used, in whole
                  or in
                  part. Gross Profit per seed shall be calculated as Gross Seed Sales
                  Price
                  minus Direct Production Cost which includes seed material cost,
                  direct
                  production processing including irradiation charges, and direct
                  production
                  labor cost per seed. All indirect costs including marketing/sales
                  costs
                  shall be excluded from Gross Profit.

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

         

      

      
        	 	
                (C)
                  

              	
                Non-Seed
                  Product Royalty: IsoRay, LLC shall pay a royalty of 1% of Gross
                  Profit for
                  use of said process, in whole or in part, for production of any
                  non-seed
                  product. Gross Profit for use of said process shall be calculated
                  as Gross
                  Product Unit Sales Price minus Direct Production Cost which includes
                  direct material cost, direct production processing including irradiation
                  charges, and direct production labor cost per unit of production.
                  All
                  indirect costs including marketing/sales costs shall be excluded
                  from
                  Gross Profit. 

              

      

       

      
        	 	
                (D)

              	
                Sub-assignment
                  Royalty: IsoRay, LLC shall pay a royalty of 2% of Gross Sales for
                  sub-assignment of the aforesaid patented process by IsoRay LLC
                  to any
                  SUB-ASSIGNEE(S). Gross Sales shall be Assignee’s net invoiced price to
                  Sub-assignee (Gross invoice price less taxes, discounts, or credits).
                  

              

      

       

      
        	 	
                (E)

              	
                Royalty
                  shall be payable to LANE A. AND GWEN M. BRAY TRUST within 30 days
                  after
                  the end of each calendar quarter in which invoiced payments for
                  sales of
                  said seeds, non seed products, or subassignments were made.
                  

              

      

       

      2. REPORTS;
        TIME OF ROYALTY PAYMENTS; EXAMINATION.
        Assignee agrees to keep regular books of account and to render a statement
        within thirty (30) days after the end of each calendar quarter setting forth,
        under oath if requested, the class of units sold, the number of each class
        sold,
        the royalty base as defined in Section 1, above, and the royalty due thereon,
        and shall accompany each such report with a remittance covering the royalty
        due.
        Such books of account shall be open at all reasonable business hours for
        inspection by Assignor or his duly authorized representative. Assignee shall
        pay
        interest to Assignor upon any and all amounts of royalties that are at any
        time
        overdue and payable to Assignor at the rate of 6% per annum from the date
        when
        such royalties are due and payable as provided herein to the date of payment.
        

       

      3. PATENT
        PROSECUTION:

       

      
        	 	
                (A)

              	
                DOMESTIC.
                  Assignee shall, at ASSIGNEE’S expense, prosecute it above U.S. patent
                  application assignment, and any continuations, division,
                  continuations-in-part, substitutes, and reissues of such patent
                  application or any patent thereon until all applicable patents
                  issue or
                  any patent application becomes finally abandoned. ASSIGNEE shall
                  also pay
                  any maintenance fees which are due on any patent(s) which issue
                  on said
                  patent application. If for any reason, ASSIGNEE intends to abandon
                  any
                  patent application, hereunder, it shall notify ASSIGNOR at least
                  two
                  months in advance of any such abandonment so as to give ASSIGNOR
                  the
                  opportunity to take over prosecution of any such application and
                  maintenance of any patent. If ASSIGNOR takes over prosecution,
                  ASSIGNEE
                  shall cooperate with ASSIGNOR in any manner ASSIGNOR requires at
                  ASSIGNOR’S expense. 

              

      

       

      
        	 	
                (B)

              	
                FOREIGN.
                  ASSIGNEE shall have the opportunity, but not the obligation, to
                  file
                  corresponding foreign patent applications to the aforesaid patent.
                  If
                  ASSIGNEE files any such foreign patent applications, ASSIGNEE may
                  license,
                  sell, or otherwise exploit the invention and pay royalties in accordance
                  with the aforesaid terms. 

              

      

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

         

      

      
        	 	
                (C)

              	
                INFRINGEMENT.
                  If either party discovers that the above patent is infringed, it
                  shall
                  communicate the details to the other party. ASSIGNEE shall thereupon
                  have
                  the right, but not the obligation, to take whatever action it deems
                  necessary, including the filing of lawsuits, to protect the rights
                  of the
                  parties to this Agreement and to terminate such infringement. ASSIGNOR
                  shall cooperate with ASSIGNEE if ASSIGNEE takes any such action,
                  but all
                  expenses of ASSIGNOR shall be borne by ASSIGNEE. If ASSIGNEE recovers
                  any
                  damages or compensation for any action hereunder, ASSIGNEE shall
                  retain
                  100% of such damages. If ASSIGNEE does not wish to take any action
                  hereunder, ASSIGNOR shall also have the right, but not the obligation,
                  to
                  take any such action, in which case ASSIGNEE shall cooperate with
                  ASSIGNOR, but all of ASSIGNOR’S expenses shall be borne by ASSIGNOR.
                  ASSIGNOR shall receive 100% of any damages or compensation awarded.
                  

              

      

       

      4.TERMINATION.
        

       

      
        	 	
                (A)

              	
                DEFAULT.
                  If ASSIGNEE fails to make any payment on the date such payment
                  is due
                  under this Agreement, or if ASSIGNEE makes any other default under
                  or
                  breach of this Agreement, ASSIGNOR shall have the right to terminate
                  this
                  Agreement upon giving three month’s written Notice of Intent to Terminate,
                  specifying such failure, breach, or default to ASSIGNEE. If ASSIGNEE
                  fails
                  to make any payment in arrears, or otherwise fails to cure the
                  breach or
                  default within such three-month period, then ASSIGNOR may then
                  send a
                  written Notice of Termination to ASSIGNEE, whereupon this Agreement
                  shall
                  terminate in one month from the date of such Notice of Termination.
                  If
                  this Agreement is terminated hereunder, ASSIGNEE shall not be relieved
                  of
                  any of its obligations to the date of termination and ASSIGNOR
                  may act to
                  enforce ASSIGNEE’S obligations after any such termination.
                  

              

      

       

      
        	 	
                (B)

              	
                BANKRUPTCY,
                  etc. If ASSIGNEE shall go into receivership, bankruptcy, or insolvency,
                  or
                  make an assignment for the benefit of creditors, or go out of business,
                  this Agreement shall be immediately terminable by ASSIGNOR by written
                  notice, but without prejudice to any rights of ASSIGNOR hereunder.
                  

              

      

       

      
        	 	
                (C)

              	
                ANTISHELVING.
                  If ASSIGNEE discontinues its sales or manufacture of product(s)
                  using the
                  invention, without intent to resume, it shall so notify ASSIGNOR
                  within
                  one month of such discontinuance, whereupon ASSIGNOR shall have
                  the right
                  to terminate this Agreement upon one month’s written notice. If ASSIGNEE
                  does not begin manufacture or sales of said product(s) within one
                  and
                  one-half years from the date of this Agreement or, after commencing
                  manufacture and sales of product(s), discontinues its manufacture
                  and
                  sales of product(s) for one and one-half years, ASSIGNOR shall
                  have the
                  right to terminate this Agreement upon one month’s written notice, unless
                  ASSIGNEE can show that it in good faith intends and is actually
                  working to
                  resume or begin manufacture or sales, and has a reasonable basis
                  to
                  justify its delay. In such case ASSIGNEE shall advise ASSIGNOR
                  in writing,
                  before the end of such one-and-one-half year period, of the circumstances
                  involved and ASSIGNEE shall thereupon have up to an additional
                  year to
                  resume or begin manufacture or sales. It is the intent of the parties
                  hereto that ASSIGNOR shall not be deprived of the opportunity,
                  for an
                  unreasonable length of time, to exclusively license its patent
                  if ASSIGNEE
                  has discontinued or has not commenced manufacture or sales of said
                  product(s). In no case shall ASSIGNOR have the right to terminate
                  this
                  Agreement if and so long as ASSIGNEE is paying ASSIGNOR royalties
                  under
                  Part 1 above. 

              

      

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

         

      

      
        	 	
                (D)

              	
                If
                  a patent is not issued by the U.S. Patents and Trademarks Office
                  pursuant
                  to this License Application, this Agreement shall be null and void.
                  

              

      

       

      5.NOTICES.
        All
        notices, payments, or statements under this Agreement shall be in writing
        and
        shall be sent by firs-class certified mail, return receipt requested, postage
        prepaid to the party concerned at the above address, or to any substituted
        address given by notice hereunder. Any such notice, payment, or statement
        shall
        be considered sent or made on the day deposited in the mails. Payments and
        statements may be sent by ordinary mail; payments may be by direct deposit.
        

       

      6.LICENSES.
        If
        ASSIGNEE grants any licenses hereunder, it shall notify ASSIGNOR within one
        month from any such grant and shall provide ASSIGNOR with a true copy of
        any
        license agreement. Any licensee of ASSIGNEE/LICENSOR under this Agreement
        shall
        be bound by all of the terms applying to ASSIGNEE hereunder and ASSIGNEE
        shall
        be responsible for the obligations and duties of any of its licensees.

       

      7.MEDIATION
        AND ARBITRATION.
        If any
        dispute arises under this Agreement, the parties shall negotiate in good
        faith
        to settle such dispute. If the parties cannot resolve such dispute themselves,
        then either party may submit the dispute to mediation by a mediator approved
        by
        both parties. The parties shall both cooperate with the mediator, or if either
        party does not wish to abide by any decision of the mediator, then they shall
        submit the dispute to arbitration by any mutually acceptable arbitrator.
        If no
        arbitrator is mutually acceptable, then they shall submit the matter to
        arbitration under the rules of the American Arbitration Association. Under
        any
        arbitration, both parties shall cooperate with and agree to abide finally
        by any
        decision of the arbitration proceeding. The arbitrator’s award shall be
        non-appealable and enforceable in any court of competent jurisdiction.

       

      8.ASSIGNMENT.
        The
        rights of ASSIGNOR under this Agreement shall be assignable or otherwise
        transferable, in whole or in part, by ASSIGNOR and shall vest ASSIGNOR’S assigns
        or transferees with the same rights and obligations as were held by ASSIGNOR.
        This Agreement shall be assignable by ASSIGNOR to any entity that succeeds
        to
        the business of ASSIGNOR to which products using the invention relate or
        to any
        other entity if ASSIGNOR’S permission is first obtained in writing. Any Assignee
        of ASSIGNOR shall be bound by all of the terms applying to ASSIGNOR hereunder.
        

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

         

      

      9.JURISDICTION
        AND VENUE.
        This
        Agreement shall be interpreted under the Laws of Washington State. 

       

      10.RECTIFICATION.
        In case
        of mistake in this Agreement, including any error, ambiguity, illegality,
        contradiction, or omission, this Agreement shall be interpreted as if such
        mistake were rectified in a manner which implements the intent of the parties
        as
        nearly as possible and effects substantial fairness, considering all pertinent
        circumstances. 

       

      11.DISCLAIMER
        AND HOLD HARMLESS.
        

       

      
        	 	
                (A)

              	
                DISCLAIMER
                  OF WARRANTY.
                  Nothing herein shall be construed as a warranty of representation
                  by
                  ASSIGNOR as to the scope or validity of the above patent application
                  or
                  any patent issuing thereon. 

              

      

       

      
        	 	
                (B)

              	
                PRODUCT
                  LIABILITY.
                  ASSIGNEE shall hold ASSIGNOR harmless from any product liability
                  actions
                  involving product using the invention.

              

      

       

      12.TERM.
        The
        term of this Agreement shall end with the expiration of the last of any
        patent(s) which issues on ASSIGNOR’S patent application, unless terminated
        sooner for any reason set forth in this Agreement. The parties have voluntarily
        decided upon this term as a matter of convenience. 

       

      13.
        SEVERABILITY.
        If any
        provision of this Agreement is held to be unenforceable for any reason, it
        shall
        be conformed to prevailing law rather than voided, if possible, to achieve
        the
        intent of the parties to the extent possible. In any event, all other provisions
        of this Agreement shall be deemed valid and enforceable to the full extent
        possible. 

       

      14.ENTIRE
        AGREEMENT.
        Along
        with the Assignment Agreement, this Agreement sets forth the entire
        understanding between the parties and supersedes any prior or contemporaneous
        oral understandings and any prior written agreements. This Agreement may
        not be
        superseded, amended, or modified except by a written agreement signed by
        the
        parties. 

       

      
        
          	
                  ASSIGNOR:
/s/
                    Lane A. Bray 

                  Lane
                    A. Bray

                	Date: July
                  12, 1999
	 	 
	
                  ASSIGNEE: /s/
                    James L. Madsen

                  James
                    L. Madsen

                  General
                    Manager

                  IsoRay
                    LLC

                	Date: 07/12/99 

        

      

       

      
        
           

        

        
          5Exhibit
      10.5

     

     

    
      	DEPARTMENT
              OF HEALTH & HUMAN SERVICES	
              Public
                Health
                Service

            

    

     

    
      	 	
              Food
                and Drug Adminstration

              9200
                Corporate Boulevard

              Rockville
                MD 20850

            

    

    
       

    

    
      
        	Mr. David J. Swanberg
Chief
                Operations Officer
IsoRay, Inc.
350 Hills Street, Suite
                106
RICHLAND WA 99352	
                Re: 
                  K030162

                Trade/Device
                  Name: Lawrence CSERION

                Model
                  CS-1

                Regulation
                  Number: 21 CFR 892.5730

                Regulation
                  Name: Radionuclide

                brachytherapy
                  source

                Regulatory
                  Class: II

                Product
                  Code: 90 KXK

                Dated:
                  January 13, 2003

                Received:
                  January 16,
                  2003

              

      

    

        

    Dear
      Mr.
      Swanberg:

    

    We
      have
      reviewed your Section 510(k) premarket notification of intent to market the
      device referenced above and have determined the device is substantially
      equivalent (for the indications for use stated in the enclosure) to legally
      marketed predicate devices marketed in interstate commerce prior to May 28,
      1976, the enactment date of the Medical Device Amendments, or to devices that
      have reclassified in accordance with the provisions of the Federal Food, Drug,
      and Cosmetic Act (Act) that do not require approval of a premarket approval
      application (PMA). You may, therefore, market the device, subject to the general
      controls provisions of the Act. The general controls provisions of the Act
      include requirements for annual registration, listing of devices, good
      manufacturing practice, labeling, and prohibitions against misbranding and
      adulteration. 

    

    If
      your
      device is classified (see above) into either Class II (Special Controls) or
      Class III (PMA), it may be subject to additional controls. Existing major
      regulations affecting your device can be found in the Code of Federal
      Regulations, Title 21, Parts 800 to 898. In addition, FDA may publish further
      announcements concerning your device in the Federal
      Register.

    

    Please
      be
      advised that FDA’s issuance of a substantial equivalence determination does not
      mean that FDA has made a determination that your device complies with other
      requirements of the Act or any Federal statutes and regulations administered
      by
      other Federal agencies. You must comply with all the Act’s requirements,
      including, but not limited to: registration and listing (21 CFR Part 807);
      labeling (21 CFR Part 801); good manufacturing practice requirements as set
      forth in the quality systems (QS) regulation (21 CFR Part 820); and if
      applicable, the electronic product radiation control provisions (sections
      531-542 of the Act); 21 CFR 1000-1050. 

    

    This
      letter will allow you to begin marketing your device as described in your
      Section 510(k) premarket notification. The FDA finding of substantial
      equivalence of your device to a legally 

    marketed
      predicate device results in a classification for your device and thus, permits
      your device to the proceed to the market.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
Page
      2

     

    If
      you
      desire specific advice for your device on our labeling regulation (21 CFR Part
      801), please contact the Office of Compliance at one of the following numbers,
      based on the regulation number at the top of the letter:

    

    
      
        	 	
                8xx.1xxx

                876.2xxx, 3xxx, 4xxx, 5xxx

                884.2xxx, 3xxx, 4xxx, 5xxx, 6xxx

                892.2xxx, 3xxx, 4xxx, 5xxx

                Other

              	
                (301)
                  594-4591

                (301) 594-4616

                (301) 594-4616

                (301)
                  594-4654

                (301)
                  594-4692

              

      
   

    Additionally,
      for questions on the promotion and advertising of your device, please contact
      the Office of Compliance at (301) 594-4639. Also, please note the regulation
      entitled “Misbranding by reference to premarket notification” (21 CFR Part
      807.97) you may obtain. Other general information on your responsibilities
      under
      the Act may be obtained from the Division of Small Manufacturers, International
      and Consumer Assistance at its toll-free number (800) 638-2041 or (301) 443-6597
      or its Internet address
http://www.fda.gov/cdrh/dsma/dsmamain.html.

     

    
      	 	 	 
	 	Sincerely
              yours,
	 	 
	 	
              /s/ Nancy C. Brogdon

              Director, Division of Reproductive,

              Abdominal and Radiological Devices

              Office of Device Evaluation

              Center for Devices and Radiological
                Health

            

     

    Enclosure

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