Exhibit
10.1


 


PRODUCT SUPPLY &
DISTRIBUTION AGREEMENT


 


This PRODUCT SUPPLY & DISTRIBUTION AGREEMENT
(“Agreement”), made as of this 27th day of July, 2004 (“Effective Date”), by
and between SCHERING-PLOUGH ANIMAL HEALTH CORPORATION (hereinafter, referred to
as “Schering”), a Delaware corporation, having its principal office located at
1095 Morris Avenue, Union, New Jersey 07083, and DIGITAL ANGEL CORPORATION
(hereinafter, referred to as “Digital Angel”), a Delaware corporation, having
its principal office located at 490 Villaume Avenue, South St. Paul, Minnesota
55075-2445.


 


RECITALS


 


WHEREAS, on January 9, 1995, Schering entered
into that Supply and Distribution Agreement (the “Original Agreement”) with
Destron Fearing Corporation (“Destron”), predecessor-in-interest to Digital
Angel, for Destron to supply to Schering, and Schering to purchase from
Destron, certain animal electronic identification products;


 


WHEREAS, Digital Angel is now engaged in the business
of developing, manufacturing, packaging, testing and selling microchips for
tracking and identifying, and sensing temperature in, pets and other animals as
more fully described below (the “Product”);


 


WHEREAS, Schering desires to purchase and receive the
Product from Digital Angel, and the exclusive right to distribute the Product
in the Territory (as hereinafter defined);


 


WHEREAS, Digital Angel agrees to sell and deliver the
Product to Schering on the terms and conditions set forth in this Agreement;


 


WHEREAS, Digital Angel has the requisite experience
and resources to sell and deliver the Product in a quantity required for the
Territory; and


 


WHEREAS, the Parties have agreed to enter into this
Agreement, which supersedes and replaces in its entirety the Original Agreement
referred to above.


 


NOW, THEREFORE, in consideration of the premises and
the mutual agreements and covenants set forth in this Agreement, Schering and
Digital Angel hereby agree as follows:


 


ARTICLE I.  DEFINITIONS


 


For purposes of this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):


 


1.01                           “Adverse
Event” shall mean:


 


(a)                                  any
expected or unexpected experience that is adverse, including what are commonly
described as adverse or undesirable experiences, adverse events, adverse
reactions, side effects, or death due to any cause associated with, or observed
in conjunction with, the use or


 

















 


following the administration of any Product, whether
or not (i) considered related to or caused by the use of any Product,
(ii) occurred in the course of the use of any Product, (iii) occurred
when the Product was used in accordance with the approved labelling or label
directions or was not used in accordance with such labelling or directions
(including a different route of administration, different species, different
indications, or different dosage), or (iv) associated with, or observed in
conjunction with, an accidental or intentional overdose, abuse, dependency, or
withdrawal from, of, or on any Products, including, without limitation, an
adverse event occurring (A) in animals in the course of use of any Product
by a veterinarian or livestock producer or otherwise in the course of
professional practice or use by another animal owner or caretaker or
(B) in humans from exposure during Manufacture, testing, handling, or use
of a Product;


 


(b)                                 any
failure of expected pharmacological action or clinical effect of any Products,
including, without limitation, deterioration or contamination of any Products
or any mistake in the labelling of any Products; or


 


(c)                                  an
adverse drug experience, as that term is defined in 21 C.F.R. § 514.3.


 


1.02                           “Affiliate”
shall mean any entity, directly or indirectly, controlling, controlled by, or
under common control with a Party.  For
purposes of this definition, “controlling” (including its cognates, “controlled
by” and “under common control”) shall mean: 
(a) ownership of more than fifty percent (50%) of the equity capital or
other ownership interest in or of an entity; (b) the power to control or
otherwise direct the affairs of an entity; (c) in the case of non-stock
organizations, the power to control the distribution of profits of an entity;
or (d) such other relationship as, in fact, results in actual control over the
management, business, and affairs of an entity.


 


1.03                           “Agent”
shall mean any officer, director, employee, agent, subcontractor, or other
authorized representatives of a Party or a Person.


 


1.04                           “Applicable
Laws” shall mean (a) all laws, statutes, constitutions, treaties, rules,
regulations, ordinances, codes, guidance, common law, and (b) all judicial,
executive, legislative, administrative or military orders, directives, decrees,
injunctions, judgments, Permits, agreements, and other legal requirements of,
with, or adopted or imposed by any Governmental Authority, now or hereafter in
effect and, in each case, as amended from time to time, including, without
limitation, any such legal requirements that relate to or govern (i) the
manufacture or quality of the Product, (ii) health, safety, industrial hygiene,
sanitation, or (iii) conditions on, under, about, or affecting any real
property (including the Environment).


 


1.05                           “Approved
Facility” shall mean Digital Angel’s facility located in 490 Villaume Street,
South St. Paul, Minnesota 55075-2445.


 


1.06                           “Certificate”
shall have the meaning set forth in Section 3.06(c) hereof.


 


1.07                           “Claim”
shall mean any claim, suit, action, cause of action, proceeding, demand, order,
directive, obligation, loss, injury, liability, damage, deficiency, assessment,
fine, penalty, forfeiture, judgment, lien, diminution of value, notice of
violation or non-compliance, cost, and expense, including, without limitation,
attorneys’ fees and expenses, incurred to enforce this Agreement, cost of
defense, and cost of settlement.


 


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1.08                           “Companion
Animal Market” shall mean all domestic animals kept as pets except horses,
cattle, swine and sheep.


 


1.09                           “Confidential
Information” shall mean any technical, financial and business information
relating to a Party’s research, development, inventions, products (including
the Products), production, manufacturing, finances, marketing, customers, or
business plans, including, without limitation, trade secrets, know-how, data,
formulas, processes, other intellectual property, or confidential
communications, that (a) is or has been disclosed to or otherwise received or
obtained by a Receiving Party, whether or not in connection with or pursuant to
this Agreement and (b) has been marked by the Disclosing Party as
“Confidential” or, if disclosed orally, has been stated to be confidential or
has been confirmed in writing by the Disclosing Party to be “Confidential”
within thirty (30) days from the date of such disclosure.


 


1.10                           “Database”
shall mean for the companion animal market the list of pet owners, their
addresses and the serial number on the Product sold to such pet owner set forth
in the centralized, computerized database developed and used by Schering in
connection with the Product and the System.


 


1.11                           “Disclosing
Party” shall mean the Party (a) who discloses, and owns or otherwise possesses
the rights or interests to or in, Confidential Information or (b) whose
Confidential Information is the subject of any process, subpoena, demand, or
request.


 


1.12                           “Effective
Date” shall have the meaning set forth in the introductory paragraph to this
Agreement.


 


1.13                           “Enrollment
Fee” shall mean the fee that a customer pays to Schering or its designated agent
for tracking and identification services related to the Product.


 


1.14                           “Environment”
shall mean air, land, water, the ocean, natural resources (including flora and
fauna), soil, sediments, surface water, groundwater, subsurface strata, the
ambient air, or any present or potential drinking water supply, including,
without limitation, any of the foregoing relating to the manufacture of any
Product or the processing, use, generation, handling, labelling,
transportation, treatment, storage, disposal, disposition, distribution,
presence, emission, discharge, release, threatened release, removal,
remediation, disclosure, or notice of the actual or potential presence,
release, or threatened release of any Hazardous Material.


 


1.15                           “Environmental
Claim” shall mean any and all Claims (a) relating in any way to the
Environment under Applicable Law or (b) made by any Person for enforcement
(including, without limitation, fines, penalties, costs, damages, specific
work, or relief), investigation, cleanup, mitigation, restoration, removal,
response, remedial or other actions or damages (including by reason of personal
injury, property damage, or death), contribution, indemnification, cost
recovery, compensation, or injunctive relief pursuant to any Applicable Law or relating,
directly or indirectly, to the Environment or Hazardous Material.


 


1.16                           “Governmental
Authority” shall mean any federal, state, commonwealth, provincial, local or
foreign governmental authority, entity, body, branch, agency, department,
bureau, board, commission, officer, official, court, adjudicator, tribunal, or
other entity, including


 


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any Agent thereof, exercising executive, legislative,
judicial, regulatory or administrative authority over the manufacture,
marketing, pricing, use, or sale of any Product, including, without limitation,
any and all state, commonwealth, provincial, local and foreign equivalents.


 


1.17                           “Hazardous
Material” shall mean any material, substance, or waste that, because of its
presence, quantity, concentration, or character, (a) is regulated under
any Applicable Law, (b) may cause or pose a risk, threat, or hazard to
human health or safety or the Environment, or (c) may result in the
imposition of, or form the basis for, a Claim from or by any Person under any
Applicable Law, including any investigation, cleanup, removal, or remedial or
other action of or concerning the Environment or any of the following:  (i) any “hazardous substance,”
“pollutant,” “contaminant,” or “hazardous waste,” as commonly understood and as
defined in any Applicable Law, (ii) any substance containing petroleum, or
any by-product or fraction thereof, any form of natural gas, mining waste,
lead, asbestos-containing material, polychlorinated biphenyls, equipment
containing polychlorinated biphenyls, pesticides, defoliants, and urea
formaldehyde foam insulation, (iii) any radioactive material or waste, or
(iv) any other dangerous, explosive, corrosive, ignitable, flammable,
hazardous, pathogenic, mutagenic, carcinogenic, teratogenic, etiologic or
otherwise toxic agent, material, contaminant, substance, element, compound,
mixture, solution, pollutant, or waste, including, without limitation, asbestos
and radioactive substances regulated by any Applicable Law.


 


1.18                           “Improved
Product” means any new, novel and useful ideas, innovations and inventions
solely for use in the Companion Animal Market, whether patentable or not, which
are discovered by Digital Angel or are otherwise made available to Digital Angel
during, or as a result of, or occurring in connection with, or arising from,
this Agreement that adds significant new functions and capabilities to the
Product and/or either Reader.


 


1.19                           “Intellectual
Property Rights” means, collectively, all of the following worldwide intangible
legal rights, whether or not filed, perfected, registered or recorded and
whether now or hereafter existing, filed, issued or acquired: (a) patents,
patent disclosures, patent rights, including any and all continuations, continuations-in-part,
divisionals, reissues, reexaminations, utility, model and design patents or any
extensions thereof, (b) rights associated with works of authorship, including
without limitation, copyrights, copyright applications and copyright registrations,
(c) rights in trademarks, trademark registrations and applications therefor,
trade names, service marks, service names, logos, or trade dress, (d) rights
relating to the protection of trade secrets and confidential information, and
(e) all other intellectual or proprietary rights anywhere in the world.


 


1.20                           “Party”
shall mean Schering or Digital Angel; “Parties” shall mean Schering and Digital
Angel.


 


1.21                           “Patent
Rights” shall mean U.S. Patent No. 5,211,129, U.S. Patent No. 4,730,188, U.S.
Patent No. 5,041,826 and U.S. Patent No. 5,166,676 and any and all patents and
patent applications (including certificates of invention and applications for
certificates of invention) over the Products, including any and all divisions,
continuations, continuations-in-part, patents of addition, reissues, renewals,
extensions, registrations, confirmations, re-examinations, any provisional
applications, supplementary protection certificates, or the like of any such
patents and


 


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patent applications, which during the Term are owned
by Digital Angel or to which Digital Angel, through license or otherwise, has
or acquires rights.


 


1.22                           “Permit”
shall mean every application (including new animal drug application) permit,
authorization, license, approval, registration (including health registration
and drug master file), franchise, certificate, permission, exemption, consent,
variance (including zoning variance approval), or equivalent decision or
document of, from, or required or issued by any Governmental Authority or under
any Applicable Laws.


 


1.23                           “Person”
shall mean and include, without limitation, (a) any corporation, partnership,
limited liability company, joint venture, joint stock company, association,
trust, business trust, estate, unincorporated organization, or other business
entity recognized under Applicable Laws, other than Schering or Digital Angel,
(b) any Governmental Authority, or (c) any individual.


 


1.24                           “Product”
shall mean Digital Angel’s animal identification package which includes the
following components:


 


(a)                                  Temperature
Sensing Product; or


 


(b)                                 Shelter
Product; and


 


(c)           Recording
forms and tags for the Database and System described herein


 


The Product shall include upgraded microchip technology necessary to
meet applicable standards, including but not limited to Federation of European
Companion Animal Veterinary Associations (“FECAVA”) technology standards. The
term “Product” as used in this Agreement, including “Improved Product”, shall,
in all cases, refer only to, and only permit use in the Companion Animal
Market.


 


1.25                           “Product
Cost” shall have the meaning set forth in Section 6.01 hereof.


 


1.26                           “Product
Quality Complaint” shall have the meaning set forth in Section 3.07 (b)
(i).


 


1.27                           “Readers”
shall mean instruments that are capable of reading and displaying the
identification code of Digital Angel’s transponders and other transponders
using Eurosil microchips, and all other transponders meeting current and future
FECAVA transponder standards to be used in the System.  Readers shall include Pocket Readers for
veterinary clinics and Pocket Readers EX for shelters.


 


1.28                           “Receiving
Party” shall mean the Party who (a) receives or otherwise obtains Confidential
Information of the Disclosing Party or (b) is served with any process, subpoena
or demand.


 


1.29                           “Shelter
Product” shall mean an injectable sterile glass encapsulated radio frequency
transponder with an anti-migration cap, preloaded in a sterilized needle and
application used to deposit the transponder subcutaneously.


 


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1.30                           “Specifications”
shall mean the written specifications for the manufacture, quality control
testing, and delivery of the Product, including, without limitation, details of
the finished packaging components for the Product, as set forth on Exhibit A,
which is attached hereto and made a part hereof, and as may be amended from
time to time.


 


1.31                           “System”
shall mean the nationwide animal registry, identification, tracking and recovery
system, comprised of the Product and the Database, developed and used by
Schering in connection with this Agreement.


 


1.32                           “Temperature
Sensing Product” shall mean an injectable sterilized glass encapsulated radio
frequency transponder with an anti-migration cap, preloaded in a sterilized
needle and application used to deposit the transponder subcutaneously which
includes temperature sensing capabilities.


 


1.33                           “Term”
shall have the meaning set forth in Section 10.01 hereof.


 


1.34                           “Territory”
shall mean the United States and its possessions and territories.


 


1.35                           “Third
Party” shall mean and include, without limitation, any individual, corporation,
partnership, limited liability company, joint venture, joint stock company,
association, trust, business trust, estate, unincorporated organization, or
other business entity recognized under Applicable Laws, other than Schering or
Digital Angel.


 


1.36                           “Trademarks”
shall have the meaning set forth in Section 7.01 hereof.


 


ARTICLE II.  REPRESENTATIONS AND WARRANTIES


 


2.01                           Representations
of Schering.  Schering hereby
represents and warrants to Digital Angel that, as of the Effective Date, the
following statements are and shall be true and correct in all material
respects:


 


(a)                                  Organization
and Good Standing.  Schering: (i) is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware; (ii) has the corporate power and authority to
conduct the business in which it presently is engaged, to enter into this
Agreement, and to perform its obligations hereunder; and (iii) is qualified to
do business in, and is in good standing in, each jurisdiction of the Territory
where the nature of its business in such jurisdiction requires it to be so
qualified.


 


(b)                                 Authorization
and Binding Effect.  All
institutional action on the part of Schering and its officers and directors
necessary for the authorization, execution, and delivery of this Agreement and
for the performance of all of Schering’s obligations hereunder has been taken,
and this Agreement, when executed and delivered, shall constitute a legal,
valid and binding obligation of Schering enforceable against Schering in
accordance with this Agreement’s terms, except as enforceability may be limited
by bankruptcy, insolvency, and other laws affecting creditors’ rights generally
or by general equitable principles.


 


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(c)                                  Execution,
Delivery and Performance.  The
execution, delivery, and performance by Schering of this Agreement do not:  (i) violate or breach the certificate of
incorporation, articles of association, bylaws, or other constituent documents
of Schering; (ii) violate or conflict with any Applicable Laws; (iii) violate,
breach, cause a default under, or otherwise give rise to a right of
termination, cancellation, or acceleration with respect to (presently, with the
giving of notice, or with the passage of time) any agreement, contract, or
instrument to which Schering is a party or by which any of its assets are
bound; or (iv) result in the creation or imposition of any lien, pledge,
mortgage, claim, charge, or encumbrance upon any assets of Schering.


 


(d)                                 Governmental
and Other Consents.  No Permit or
approval of, or exemption or other action by, any Person is required in connection
with Schering’s execution and delivery of this Agreement or with the
performance by Schering of its obligations hereunder.


 


(e)                                  Inconsistent
Obligations.  Schering has no
obligation or commitment, and will not, during the Term, assume or undertake any
obligation or commitment, that is inconsistent with its obligations under, or
the terms and conditions of, this Agreement.


 


2.02                           Representations
of Digital Angel.  Digital Angel
hereby represents and warrants to Schering that, as of the Effective Date, the
following statements are and shall be true and correct in all material
respects:


 


(a)                                  Organization
and Good Standing.  Digital
Angel:  (i) is a corporation or other
entity duly organized, validly existing, and in good standing under the laws of
Delaware; (ii) has the corporate or institutional power and authority to
conduct the business in which it presently is engaged, to enter into this
Agreement, and to perform its obligations hereunder; and (iii) is qualified to
do business in, and is in good standing in, each jurisdiction of the Territory
where the nature of its business in such jurisdiction requires it to be so
qualified.


 


(b)                                 Authorization
and Binding Effect.  All
institutional action on the part of Digital Angel and its officers and
directors necessary for the authorization, execution, and delivery of this
Agreement and for the performance of all of Digital Angel’s obligations
hereunder has been taken, and this Agreement, when executed and delivered,
shall constitute a legal, valid and binding obligation of Digital Angel
enforceable against Digital Angel in accordance with this Agreement’s terms,
except as enforceability may be limited by bankruptcy, insolvency, and other
laws affecting creditors’ rights generally or by general equitable principles.


 


(c)                                  Execution,
Delivery and Performance.  The
execution, delivery, and performance by Digital Angel of this Agreement do
not:  (i) violate or breach the
certificate of incorporation, articles of association, bylaws, or other
constituent documents of Digital Angel; (ii) violate or conflict with any
Applicable Laws; (iii) violate, breach, cause a default under, or otherwise
give rise to a right of termination, cancellation, or acceleration with respect
to (presently, with the giving of notice, or with the passage of time) any
agreement, contract, or instrument to which Digital Angel is a party or by
which any of its assets are bound; or (iv) result in the creation or imposition
of any lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of
Digital Angel.


 


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(d)                                 Governmental
and Other Consents.  No Permit or
approval of, or exemption or other action by, any Person is, or will be,
required in connection with Digital Angel’s execution and delivery of this
Agreement or with the performance by Digital Angel of its obligations
hereunder.


 


(e)                                  Inconsistent
Obligations.  Digital Angel has no
obligation or commitment, and will not, during the Term, assume or undertake
any obligation or commitment, that is inconsistent with its obligations under,
or the terms and conditions of, this Agreement.


 


(f)                                    Ownership
and Non-Infringement.  Digital Angel
owns all right, title and interest in and to and/or licenses the Intellectual
Property Rights contained in the Product. 
The Product does not infringe, misappropriate or violate any
Intellectual Property Rights of any third party.  As of the date of this Agreement, Digital Angel has no knowledge
of any pending or threatened litigation or claim relating to the Product or any
Intellectual Property Rights or materials contained therein.


 


(g)                                 Debarment.  Digital Angel (i) has not been debarred pursuant to
Section 306 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C.
§ 335a, (ii) is not subject to debarment, (iii) will not use, in
any capacity in connection with the services to be performed under this
Agreement, any Person who has been so debarred or is the subject of a
conviction described in such section, and (iv) will notify Schering
immediately if (A) Digital Angel or any Person who is performing services
hereunder is debarred or is the subject of a conviction described in such
section or (B) any action, suit, claim, investigation, or legal or
administrative proceeding is pending or, to the best of Digital Angel’s
knowledge, is threatened, relating to the debarment or conviction of Digital
Angel or any Person performing services hereunder.


 


ARTICLE III.  PRODUCT
AND QUANTITY


 


3.01                           Scope
of Agreement. During the Term, Digital Angel shall exclusively manufacture,
supply, and sell to Schering, and Schering shall exclusively purchase from
Digital Angel, such quantities of the Product as Schering may, from time to
time, elect.  Digital Angel shall not
manufacture, supply or sell the Product to any other Person in the Territory.  Digital Angel hereby grants Schering an
exclusive right to use the Product in the companion animal market for sale in
the Territory, using Digital Angel’s Intellectual Property Rights relating to
the Product or its manufacture. 
Schering shall have the right to grant sublicenses in connection with
its sale of the Product in the Territory. 
To the extent permitted by Applicable Law and subject to the terms of
this Agreement, the term “exclusive” referred to in this Article 3 means
that Digital Angel shall not itself sell, or appoint another distributor to
sell, the Product in the Territory, and Schering shall not distribute products
that contain the same functions and capabilities of the Product and are
directly competitive with the Product in the Territory.  Subject to the provisions of this Agreement,
Digital Angel also shall not create or enter into a contract to create a
database that is similar to the Database. 
Schering and Digital Angel shall discuss in good faith entering into
supply and distribution arrangements with respect to the Product in other
geographic markets in the future.


 


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3.02                           Additional
Rights.


 


(a)                                  Digital
Angel hereby grants exclusive distribution rights to Schering for the Products
in the Companion Animal Market in the Territory.  With respect to those countries listed on Exhibit C or animal
species not included in the Territory, nothing herein shall be deemed to
preclude Schering from marketing products in such countries directly
competitive with the Products.  Digital
Angel and Schering shall discuss potential distribution, co-marketing
agreements, amendments or renewals of existing distribution or co-marketing
agreements with respect to the Products in international markets and companion
animal species prior to executing an agreement, amendment or renewal with a
competitor of either Party.


 


(b)                                 Digital
Angel shall use its reasonable efforts to cause its Affiliate to grant an
exclusive option to Schering or its Affiliate during the Term of this Agreement
to enter into an exclusive license agreement, upon terms and conditions to be
negotiated by the parties and subject to any contractual obligations in effect
as of the date of this Agreement, with respect to applications of the Products
in the human pharmaceutical or medical device market.


 


3.03                           Forecasts.


 


(a)                                  Schering
shall, within two (2) months from the Effective Date, and not later than sixty
(60) days prior to the commencement of each calendar quarter thereafter during
the Term, submit to Digital Angel a written, good-faith and non-binding
forecast of Schering’s requirements for the Product for each of the succeeding
twelve (12) calendar months after the date of such forecast.  Schering shall have the right, not later
than ninety (90) days prior to the commencement of any calendar month, to
revise its forecast for such month.  All
estimates shall be prepared in good faith in order to facilitate Digital
Angel’s efficient manufacture and shipment of the Product in compliance with
this Agreement, and except as provided in Section 3.03(b) hereof, shall
not be binding upon Schering in any way. 
Schering shall not be responsible for any loss, cost, or expense of
Digital Angel arising from any such forecast. The Parties acknowledge and agree
that any forecast shall not constitute, or be deemed to constitute, a
commitment on the part of Schering to submit any purchase orders or to purchase
any quantity of Products.


 


(b)                                 Schering
shall submit to Digital Angel a non cancelable purchase order for the Product
not less than ninety (90) days prior to the delivery date requested by Schering
in such purchase order.  Each purchase
order shall (i) be in an amount not greater than one hundred twenty-five percent
(125%) of the latest monthly forecast submitted by Schering pursuant to
Section 3.03(a) hereof and (ii) set forth the quantity of the Product, the
date by which such Product is to be delivered, and the destination where such
order of Product is to be delivered in the Territory.  Digital Angel shall, within ninety (90) days from the date of
receipt of a purchase order (or at such later date as may be requested in such
purchase order) and subject to Section 12.02 hereof, diligently complete
and ship (or cause to be diligently completed and shipped) such purchase
order.  The provisions of this Agreement
shall apply to, and form part of, any and all purchase orders which may be
submitted by Schering to Digital Angel during the Term. The terms of this
Agreement shall be controlling over the terms and conditions set forth on any
purchase order, any acknowledgement form of Digital Angel, invoice, or other
form or document of either Party.


 


c)                                      Shering
shall have the right to send written notice to Digital Angel of any reduction,
suspension or hold upon any purchase order in whole or in part, and Digital
Angel shall use its best efforts to reschedule such purchase orders as
requested.


 


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3.04                           Purchase
Targets.


 


(a)                                  During
the Term of the Agreement, Schering shall, by the end of calendar year 2006,
shall have purchased twenty percent (20%) more than the amount of Product
purchased in calendar year 2005. Schering shall, by the end of calendar year
2005, have purchased twenty percent (20%) more than the amount of Product
purchased in calendar year 2004.


 


(b)                                 On
the second anniversary of the Effective Date, the Parties shall negotiate new
purchase targets for the Product for calendar year 2007 through year 2008.  On the fourth anniversary of the Effective
Date, the Parties shall negotiate new purchase targets for the Product for
calendar year 2009 through the end of the Term.  If the Parties cannot agree upon the purchase targets, the
Parties shall have a meeting with senior executives of each Party.  If the Parties still are unable to agree
upon the purchase targets, the Parties shall retain a neutral third party to
determine the purchase targets.  The
purchase targets may be calculated annually or averaged over a two (2) year
period.


 


(c)                                  If
Schering is unable to meet its purchase targets for more than one (1) calendar
year, Schering and Digital Angel shall meet to renegotiate purchase
targets.  If Schering is unable to meet
its revised purchase targets for more than two (2) consecutive calendar years,
Schering shall purchase from Ditigal Angel the sufficient amount of Product set
forth in the purchase targets applicable to such years and during each
succeeding year.  If Schering fails to
make such purchases of Product, Digital Angel may terminate the Agreement in
accordance with Section 10.05(b).


 


3.05                           Delay
and Failure to Supply.


 


(a)                                  If
Digital Angel, at any time during the Term, has reason to believe that it will
be unable to meet Schering’s requested delivery dates, then Digital Angel shall
promptly notify Schering, stating the reason(s) for the delay.  Compliance by Digital Angel with this
Section 3.05(a) shall not relieve, or be deemed to relieve, Digital Angel
of any other obligation or liability under this Agreement.


 


(b)                                 In
the event Digital Angel fails, for any reason (except any delay or failure of
performance in accordance with Section 12.02 hereof), to supply at least
ninety percent (90%) of any purchase order for the Product submitted in
accordance with Section 3.03(b) hereof within ninety (90) days from the
delivery date requested in such purchase order, Schering shall have the right,
upon written notice to Digital Angel, to seek and establish a secondary source
of supply for the purchase requirements pursuant to Section 3.03(b)
hereof.  Further, the first time Digital
Angel fails to supply at least ninety percent (90%) of a purchase order for the
Product, Schering shall receive a five percent (5%) discount on the purchase
price for such purchase order; the second time, Schering shall receive a ten percent
(10%) discount; the third time, Schering shall receive a fifteen percent (15%)
discount; the fourth time, Schering shall receive a twenty percent (20%)
discount; and the fifth and any subsequent times, Schering shall receive a
twenty-five percent (25%) discount.


 


10

















 


(c)                                  In
the event Schering determines or believes, in good faith as to any calendar
quarter, that Digital Angel, for any reason (excluding any delay or failure of
performance in accordance with Section 12.02 hereof), cannot satisfy
Schering’s purchase order requirements for the Product, Schering shall have the
right to request that Digital Angel provide written assurance of its future
performance and ability to supply Schering not less than ninety-five percent
(95%) of any purchase order delivered in accordance with this Agreement.  Digital Angel shall, within ten (10) days
from the date of receipt of such request, provide to Schering such assurance.  If (i) Digital Angel fails to provide such assurance
within such ten (10)-day period, or (ii) Digital Angel fails to adhere to or
otherwise comply with such assurance, , then Schering shall, in addition to any
rights and remedies available to it under this Agreement, have the right to
terminate this Agreement.


 


(d)                                 In
the event Digital Angel determines that it, for any reason (excluding any delay
or failure of performance in accordance with Section 12.02 hereof), will
not be able to supply (i) Schering’s purchase orders for the Product or (ii) at
least ninety-five percent (95%) of any purchase order for the Product submitted
in accordance with Section 3.03(b) hereof on the delivery date requested
in such purchase order, Digital Angel shall, within two (2) days from the date
of such determination, notify Schering of such determination, and Schering
shall have the right to suspend this Agreement and to seek and establish
another source of supply for the purchase of the shortfall of the Products, but
Schering shall have no right to grant a license to any third party to develop
or manufacturer any product that is similar to or competitive with the
Product.  Digital Angel shall
immediately notify Schering when and if Digital Angel is able to resume supply
of the Product in accordance with the terms of this Agreement, and the Parties
shall meet promptly to determine the terms and conditions upon which Digital
Angel shall supply the Product, including, without limitation, written
assurance of its future performance and ability to supply the Product.  If Digital Angel does not meet the delivery
date set forth in the purchase order and has failed to notify Schering in
accordance with this Section 3.05(d), then Schering may terminate this
Agreement upon written notice to Digital Angel.


 


3.06                           Quality
Control.


 


(a)                                  Manufacture
of the Product.  Digital Angel
represents, warrants, and covenants that all Product for or sold to Schering
pursuant to this Agreement shall: (i) be manufactured, packaged, and labeled in
accordance with the Specifications, Applicable Laws, and the terms of this
Agreement; (ii) be free of all defects and deleterious materials; (iii) not be,
or deemed to be, adulterated or misbranded within the meaning of any Applicable
Law. (iv) be manufactured, packaged, and tested to ensure that the Product meets
the Specifications for identity, sterility, quality, and stability; (v) be
manufactured in accordance with the quality control program which Digital Angel
shall maintain during the Term; (vi) bear a true and accurate expiration date;
(vii) have, as of the date of receipt of such Product at the facility of
Schering, a remaining shelf life not less than ninety-five percent (95%) of the
total stated shelf life of such Product; and (viii) may be introduced into
interstate commerce pursuant to Applicable Laws.


 


(b)                                 Change
in Materials.  Digital Angel shall
give Schering ninety (90) days prior written notice, if reasonably possible, in
the event Digital Angel changes or causes to be


 


11

















 


changed any materials, equipment, or method of production or testing
relating to the Product, which directly relate to the efficacy of the Product; provided,
however, that any such change shall also comply in all respects with the
Specifications and Applicable Laws. 
Digital Angel shall provide any additional information regarding such
change as Schering shall request.


 


(c)                                  Certificate.  Digital Angel shall, prior to the loading of
each shipment of the Product, (i) test and analyze or cause or to be tested and
analyzed (by a laboratory approved by Schering) such shipment and (ii) deliver
or cause to be delivered to Schering or any Person designated by Schering a
certificate of weight and quality analysis, in a form satisfactory to Schering
(“Certificate”), which Certificate shall provide that such shipment conforms to
the Specifications, Applicable Laws and the purchase order.


 


(d)                                 Testing
of Shipment.


 


(i)                                     Schering
shall have the right, within thirty (30) days from the date of receipt of a
Certificate or the delivery of a shipment of the Product relating to such
Certificate at its proper destination, whichever is later, to determine
(through testing or analysis approved in accordance with this Agreement) the
conformity of the contents and the weight of such shipment to the warranties
set forth in Section 3.06(a) hereof, including, without limitation, the
Certificate and the Specifications.


 


(ii)                                  The
Parties agree that the testing or analysis to determine the conformity of the
contents of a shipment of the Product to the Certificate and the Specifications
may be performed either by Schering or by an independent laboratory selected by
Schering.  In the event the contents of
any shipment of the Product do not conform to the warranties set forth in
Section 3.06(a) hereof, including, without limitation, the Certificate or
the Specifications as determined by such laboratory, Schering shall submit a
copy of such determination to Digital Angel, and Digital Angel shall, at
Digital Angel’s discretion and Digital Angel’s cost and expense, (A) replace
(at no cost or expense to Schering) any shipment of the Product rejected by
Schering or (B) refund to Schering any amount paid to Digital Angel by Schering
for any such shipment.  Upon demand by
Schering, Digital Angel shall reimburse or credit Schering for all costs and
expenses incurred by Schering with respect to the non-conforming Product, which
costs and expenses shall include, without limitation, all testing, analysis,
transportation, insurance and holding charges incurred in connection with such
Product.  Digital Angel shall maintain
sufficient inventory to replace all non-conforming Product rejected by
Schering. The Parties acknowledge and agree that Schering shall have no
obligation to pay any invoice for any shipment of the Product rejected in
accordance with this Section 3.06, unless replacement Product is provided
to Schering by Digital Angel. 
Conformance of the content of a shipment to the applicable Certificate
and the Specifications shall be deemed to be a material obligation of this Agreement.
The rights and remedies set forth in this Section 3.06(d)(ii) shall be in
addition to any other rights and remedies that Schering may have hereunder or
at law or equity.


 


(e)                                  Document
and Reserve Sample Retention.


 


(i)                                     All
documents, records and reports associated with the manufacture, holding,
storage, packaging or testing of any Product shall be retained by Digital Angel
for not less than five (5) years from the date of manufacture, or as otherwise
directed by


 


12

















 


Schering.  All
such documents, records and reports must be prepared and retained by Digital
Angel in such a manner that they are (A) readily retrievable and (B) stored in
an environment suitable to prevent damage or loss.  Digital Angel shall provide copies of all such documents and
reports to Schering as reasonably requested.


 


(ii)                                  Digital
Angel shall retain reserve samples of the Product for not less than five (5)
years that are representative of each lot in each shipment of the Product.


 


(f)                                    Packaging
Requirements.  Unless otherwise
specified by Schering, Digital Angel shall package and pack the contents of
each purchase order in a manner that is: (i) in accordance with good commercial
practice, (ii) acceptable to common carriers for shipment, and (iii) adequate
to insure safe arrival of the goods at the named destination. Digital Angel
shall mark all containers and packaging with the necessary lifting, handling
and shipping information.  Each shipment
shall be accompanied by a packing slip, which shall include the applicable
purchase order number.


 


3.07                           Adverse
Event and Product Quality Complaint Reporting.


 


(a)                                  Adverse
Event


 


 (i)                                  Digital Angel shall,
within one (1) business day from the date of receipt of notice or information
concerning any Adverse Event relating to any Product and in accordance with
Applicable Law, notify Schering of such Adverse Event.  Such notice shall (A) be forwarded to
Schering by facsimile (fax), utilizing the reporting form, which is attached
hereto as Exhibit B and made a part hereof, and (B) include the name,
address, and telephone number of the Person making the complaint or report of
an Adverse Event, the Product(s) involved, the nature of the Adverse Event, and
such other information as Schering may reasonably require.  Digital Angel also shall notify Schering of
such Adverse Event in accordance with Section 12.09.


 


(ii)                                  Schering
shall investigate any complaint or report of an Adverse Event.  Digital Angel shall cooperate fully with,
and provide all reasonable and necessary information and assistance to,
Schering in connection with such investigation, including, without limitation,
submission of complete, accurate and timely responses to requests for
additional information, completion of Schering’s form entitled “Product
Experience Form,” and collection of samples of the Products.  Schering shall notify Digital Angel of the
results of, and any action taken with respect to, Schering’s investigation.  Digital Angel shall take all steps necessary to assist
Schering in meeting any reporting obligations under Applicable Law.


 


(iii)                               In
the event Digital Angel receives from any Governmental Authority any
communication relating to any Adverse Event, Digital Angel shall, within two
(2) business days from the date of receipt of such communication, notify
Schering of such communication by facsimile (fax), utilizing the reporting
form, which is attached hereto as Exhibit B. 
The notice shall include, in addition to the communication from the
Governmental Authority, a written summary of any conversations between Digital
Angel or its Agents and the Governmental Authority and any other information
relating to such communication. Digital Angel also shall notify Schering of
such Adverse Event in accordance with Section 12.09.


 


13

















 


(iv)                              Digital
Angel shall, within thirty (30) days from the date of receipt of a request by
Schering, provide to Schering a print-out or computer disk of each Adverse
Event reported to or known by Digital Angel for the twelve (12)-month period
prior to the date of such request. 
Digital Angel shall, within ten (10) days from the date of receipt of a
request by Schering, make available to Schering or its designee, for inspection
and copying (at Schering’s cost and expense), records of Digital Angel
(including computer disks) relating to each Adverse Event.  The obligation of Digital Angel to disclose
to Schering records and information concerning any Adverse Event shall continue
as long as Schering continues to market the Products.


 


(v)                                 Schering
and Digital Angel shall meet, in a timely fashion and from time to time as may
be reasonably required, to implement the Adverse Event reporting and
consultation procedures prescribed in this Section 3.07(a).


 


(vi)                              The
holder of the registration for the Products shall have the sole right to make
or file any report, or otherwise make any disclosure, with respect to any
Adverse Event.


 


(b)                                 Product
Quality Complaint


 


(i)                                     Digital
Angel shall develop and maintain written procedures governing the receipt and
reporting of any complaint or information relating to the quality or technical
nature of any Product, including, without limitation, the identity, strength,
quality, purity, defect, ingredients, or components of a Product, the mistaken
application of a Product or its labelling to another product, or contamination
of, or other change or deterioration in, a Product (“Product Quality
Complaint”).  Digital Angel shall:  (A) make such changes to such
procedures as required by Applicable Law or as Schering may reasonably request
from time to time; (B) maintain records relating to each Product Quality
Complaint for a period of ten (10) years from the date of receipt of such
complaint; and (C) within ten (10) days from the date of receipt of a
request by Schering, make available to Schering or its designee, for inspection
and copying (at Schering’s cost and expense), records of Digital Angel relating
to each Product Quality Complaint.


 


(ii)                                  Schering
reserves the right to handle, process, investigate, and respond to each Product
Quality Complaint.  Digital Angel shall
cooperate fully with, and provide all reasonable and necessary information and
assistance to, Schering in connection with the handling, processing,
investigation, and response to a Product Quality Complaint.


 


(iii)                               In
the event Digital Angel receives a Product Quality Complaint, Digital Angel
shall, within one (1) business day from the date of receipt of such complaint,
notify Schering of such complaint by facsimile (fax), utilizing the reporting
form, which is attached hereto as Exhibit B. 
Digital Angel also shall notify Schering of such Product Quality
Complaint in accordance with Section 12.09.


 


(iv)                              Digital
Angel shall credit Schering on a quarterly basis for all Product used to
satisfy Product Quality Complaints. 
Each replacement transponder shall be credited at the original purchase
price.


 


14

















 


(c)                                  Notwithstanding
anything contained in this Section 3.07 to the contrary, if Digital Angel
obtains knowledge of an Adverse Event, Digital Angel shall also verbally report
such Adverse Event to Schering.


 


3.08                           Facility
Inspection and Audit.  Digital Angel
shall, upon two (2) days’ prior written notice by Schering and at Schering’s cost
and expense, grant Schering access to Digital Angel’s facility during normal
business hours to (a) inspect any such facility relating to or otherwise
involved in the manufacture, packaging, testing, storage, or inventory of the
Product, (b) conduct a physical inventory of Digital Angel’s inventory of the
Product, (d) inspect and review any Permits and Environmental Claims,
(e) ascertain compliance with Applicable Law, and (f) ensure the
protection and condition of the Environment and public and worker health and
safety.  Any inspection or review by
Schering in accordance with this Agreement, whether favorable or unfavorable,
or the absence of any such inspection or review shall not relieve Digital Angel
of its obligations under this Agreement or Applicable Law or result in any
liability of Schering.  In the event
Schering identifies any deficiency with respect to Digital Angel’s operations
or activities during any such inspection, or review, Schering shall notify Digital
Angel of such deficiency, and Digital Angel shall, within thirty (30) days from
the date of receipt of such notice, deliver to Schering a corrective action
plan, addressing each such deficiency. 
Upon acceptance of the corrective action plan by Schering (which
acceptance shall not be unreasonably withheld), Digital Angel shall fully
implement such corrective action plan to the reasonable satisfaction of
Schering. Digital Angel agrees to notify Schering, in writing, within two (2)
business days, of any Governmental Authority inspection, inquiry, or
notification related to the Product and shall keep Schering informed of the
progress of such inquiry or notification, and permit Schering to participate in
any such inspection.


 


3.09                           Delivery.


 


(a)                                  Schedule.  Digital Angel shall schedule the timely
manufacture and shipment of the Product in accordance with each purchase order
of Schering and Applicable Laws.  For
purposes of this Agreement, a shipment shall be deemed timely when delivered by
Digital Angel F.O.B. to the Approved Facility not later than three (3) days
after the date set forth in a purchase order of Schering (Incoterms 2000 or any
revisions thereof). Digital Angel shall provide shipping documents such that
Schering can track shipments with the shipping carrier. Documentation of proper
storage and handling shall be made upon Schering’s request.


 


(b)                                 Risk
of Loss.  Delivery of each purchase
order of the Product shall be F.O.B. to the Approved Facility.  Digital Angel shall arrange with the common
carrier designated by Schering for transportation of the Product to the
facility or other location designated by Schering. Title to and risk of loss of
the Product shall pass to Schering at the time of delivery to the designated
carrier.


 


ARTICLE IV.  OBLIGATIONS
OF THE PARTIES


 


4.01                           Obligations
of Digital Angel.


 


(a)                                  Digital
Angel shall supply to Schering as its distribution agent Readers throughout the
Companion Animal Market in the Territory for the System. Such shipments shall
be


 


15

















 


in accordance with the prior terms and conditions of
shipment and delivery described herein. 
The price of the Pocket Reader shall be $200 per unit and the price of
the Pocket Reader EX shall be $250 per unit. 
Digital Angel shall fully warranty up to two years and promptly repair
or replace any defective Readers.


 


(b)                                 Digital
Angel shall promptly inform Schering of any orders and/or inquiries for the
Product from third parties in the Territory.


 


(c)                                  If
available, Digital Angel shall make the following available to Schering on a
regular basis: (i) reasonable quantities of Product descriptions, advertising
bulletins, research materials, and other material normally supplied by Digital
Angel for promotional uses; and (ii) a reasonable amount of sales and service
training to Schering if requested by Schering. 
Digital Angel shall also render such assistance as it deems reasonably
necessary to enable Schering to prepare and carry out plans to sell and deliver
the Product as contemplated by this Agreement.


 


(d)                                 Digital
Angel and Schering shall revise the enrollment forms to permit a pet owner to
“opt out” of solicitations, direct mail and any activity not directly related
to pet recovery.


 


(e)                                  Digital
Angel shall give notice to Schering of any licensing arrangements that Digital
Angel has or enters into with respect to the Product in the Territory.    Digital Angel shall use reasonable efforts
to terminate any license agreements relative to the product in the Territory.


 


(f)                                    Digital
Angel shall use its best efforts to defend and protect its Intellectual
Property, including any Patent Rights.


 


(g)                                 Digital
Angel shall provide Schering with upgraded scanner software to be compatible
with the Reader at no charge.


 


(h)                                 Digital
Angel shall assist in developing and promoting a scanner network that detects
the Temperature Sensing Product.


 


4.02                           Improved
Products and Right of First Refusal.


 


(a)                                  Digital
Angel agrees that during the Term it shall use reasonable efforts to sustain
research and development activities with respect to the development of Improved
Products.  Digital Angel agrees that all
such Improved Products shall be made available to Schering in accordance with
Section 4.02(b).


 


(b)                                 Schering
shall have a right of first refusal to enter into an exclusive supply and
distribution agreement with Digital Angel, upon terms and conditions to be
negotiated by the Parties in good faith, with respect to any Improved Products,
in the Territory which result from the research and development programs of
Digital Angel or its Affiliates.  However,
if the Parties cannot agree to the terms of such exclusive supply and
distribution agreement within sixty


 


16

















 


(60) days of the initiation of good faith negotiations
and Digital Angel makes a bonafide offer to a third party, the price and
quantity terms of which are more favorable than the terms offered to Schering
(“Offer”) and the third party accepts such Offer, then Digital Angel shall
promptly notify Schering of such Offer and submit the Offer to Schering
including, without limitation, the essential elements of the transaction.  Schering shall have the right within sixty
(60) days from the date of receipt of such notice from Digital Angel to notify
Digital Angel that it accepts the terms of the Offer (“Schering Notice”).  Within sixty (60) days from the date of
receipt of the Schering Notice (or such other date as agreed to by the
Parties), the Parties shall execute all necessary documents and take all
necessary steps to effectuate the terms of the Offer.  Digital Angel shall not at any time enter into a supply and
distribution agreement with another party without first offering the identical
terms to Schering.  If Schering does not
accept the terms of the Offer or documentation of acceptance of the Schering
Notice is not executed within sixty (60) days, the acceptance of the Schering
Notice shall be deemed revoked, Digital Angel may immediately enter into an
agreement with the third party to accept the Offer, and the Parties shall enter
into an agreement, upon terms and conditions to be negotiated by the Parties in
good faith, for Schering to maintain and provide to Digital Angel access to the
Database for recovery purposes only for use in connection with the Improved
Product or application.  Digital Angel
and Schering shall agree upon the fee for Schering’s services in connection
with Digital Angel’s use of the database.


 


(c)                                  In
the event that Schering does not accept the terms of the Offer, Digital Angel
shall have the right to use a database from Digital Angel or another party.


 


4.03                           Obligations
of Schering.


 


(a)                                  Schering
shall promote, market and sell the Product, the System and the Database in the
Territory with efforts equivalent to Schering’s own products.  Schering agrees, subject to existing business
conditions, to employ and maintain at all times, and at its own expense, a
sales and office force sufficient for the full promotion and distribution of
the Product, the System and the Database in the Territory.


 


(b)                                 Schering
shall develop and implement a strategic business plan with educational,
marketing and promotional activities to promote, market and sell the Product,
the System and the Database in the Territory and Schering shall provide an
annual review of the strategic business plan with Digital Angel.


 


(c)                                  In
the event that Schering shall accept bids for the creation of a new database
management and recovery system, Digital Angel may submit a bid and Schering
shall consider such bid.


 


(d)                                 Schering
may provide either Reader to its customers.


 


ARTICLE V.  OWNERSHIP
OF INTELLECTUAL PROPERTY


 


5.01                           Ownership
by Schering.  The System (other than
the Intellectual Property Rights in the Product) and the Database are the
exclusive property of Schering, or the third parties from


 


17

















 


whom Schering has secured the right to use materials
contained in the System and the Database. 
No title or ownership of the System or the Database is transferred to
Digital Angel by way of this Agreement. 
Digital Angel shall have no right to access the System, Schering’s
Intellectual Property Rights, the Database, or any records, material or
information contained therein except as specifically set forth herein.  As between Schering and Digital Angel, the
System and the Database, and all Intellectual Property Rights contained in the
System and the Database (other than the Intellectual Property Rights in the
Product) are the exclusive property of Schering.  Schering and any third parties shall retain all right, title and
interest, to the extent of their respective interests, in and to all
Intellectual Property Rights embodied in the System and the Database, and to
any other intellectual property owned or otherwise provided by Schering or such
third parties.  Digital Angel shall not challenge,
or assist any other Person in challenging, Schering’s right, title, and
interest in or to the System and the Database.


 


5.02                           Third
Party Opportunities.  In the event
that the Parties enter into an agreement with a Third Party in connection with the
Database, Schering shall continue to have exclusive ownership of the Database,
shall retain all right, title and interest in and to the Database and all
Intellectual Property Rights contained therein, and Digital Angel shall not
acquire any rights in the Database by virtue of such arrangement.  Schering shall retain the right to contract
with Third Parties for any projects and purposes of Schering and its
Affiliates.


 


5.03                           Access
to Database.  Digital Angel shall
have the right to request Schering to perform certain services utilizing the
Database for Digital Angel.  Schering
shall make reasonable efforts to comply with such request.  Such services may include compiling and mailing
information to Persons who have submitted demographic information into the
Database.  Digital Angel shall pay
Schering the amount that is Schering’s direct cost for providing such
services.  Schering shall have the right
to refuse to perform any service requested by Digital Angel.


 


ARTICLE VI.  PRICING
AND PAYMENT


 


6.01                           Product
Cost.


 


(a)                                  Digital
Angel shall provide the Shelter Product to Schering at a price of Three Dollars
($3.00) per microchip on the effective date. 
With respect to the Temperature Sensing Product, Schering shall pay
Digital Angel a price of (i) Four Dollars and Twenty-Five Cents ($4.25) per
microchip for annual purchases of 1,000,000 or more units, (ii) Four Dollar and
Seventy Five Cents ($4.75) per microchip for annual purchases of 500,000 to
999,999 units, and (iii) Five Dollars and Twenty Five Cents ($5.25) per
microchip for annual purchases of less than 500,000 units.  The Parties agree that the price for the
Temperature Sensing Product shall be renegotiated every two years on the
anniversary of the Effective Date based upon competitive market conditions for
Temperature Sensing Products in the Companion Animal Market.    The number of units of Temperature Sensing
Products purchased by Schering during each calendar year shall be cumulative
such that Schering shall be entitled to receive a reimbursement credit equal to
the difference between (a) the amount paid by Schering to Digital Angel during
a given calendar year for the Temperature Sensing Products at the cost
structure referenced above; and (b) an amount, the product of which is equal to
(i) the number of Temperature Sensing Products purchased by Schering from
Digital Angel in a given calendar year; and (ii) the price of the last
Temperature Sensing Product purchased by Schering from Digital Angel in a given
calendar year.


 


18

















 


(b)                                 Digital
Angel shall furnish to Schering an invoice for each shipment of the Product,
and such invoice shall be submitted to Schering, accompanied by the
Certificate.  Subject to
Section 3.05 hereof, Schering shall, within thirty (30) days from the date
of receipt of such invoice from Digital Angel, pay such invoice in U.S.
dollars.


 


6.02                           *


 


6.03                           *


 


6.04                           *


 


6.05                           *


 


6.06                           Taxes.  Any and all sales, excise and similar taxes
(other than income and franchise taxes) that Digital Angel may be required to
pay or collect with respect to the Product covered by any purchase order
submitted pursuant to this Agreement shall be for the account of Digital Angel,
except as otherwise provided by Applicable Laws.  Any tax, excise, duty, customs, or other charge that Schering may
be required to pay to any Person with respect to any Product shall be borne
solely by Schering.


 












*  Confidential treatment requested.


 


19

















 


ARTICLE VII.  TRADEMARKS


 


7.01                           Registration.  Schering shall have the sole right to
develop, secure, renew, register, license, defend, use, and display its own
trademarks for the Product (“Trademarks”) in connection with the distribution,
marketing, advertising, and promotion of such Product within the
Territory.  Schering shall have no
obligation to use any Digital Angel trademarks on the Product or in connection
with the marketing, advertising, or promotion of the Product.  The Parties hereby agree and intend that any
and all use of the Trademarks and the goodwill associated therewith shall, at
all times, inure to the benefit of Schering or any Affiliate or licensor of
Schering, as the case may be, as the owners of the Trademarks.  Digital Angel shall cooperate with Schering
and execute all documents required to register and record Schering as the owner
of the Trademarks. Digital
Angel acknowledges and agrees that the Trademarks are the sole and exclusive
property of Schering, and Digital Angel shall not challenge Schering’s right,
title, or interest to or in the Trademarks or represent to any Person that
Digital Angel has any ownership in or rights to any Trademarks other than the
specific rights conferred under this Agreement.  Notwithstanding the foregoing, the Trademark shall not infringe any
trademark of Digital Angel or any third party or be confusingly similar
thereto.


 


7.02                           Protection.  Digital Angel shall: (a) at all times
recognize the validity and ownership of the Trademarks, whether owned by
Schering or any Affiliate or licensor of Schering, and Schering’s sole right to
use and license such Trademarks in the Territory; and (b) at no time do, or
allow to be done by its Agents or any Person on behalf of Digital Angel or its
Agents, whether by act, omission or commission, anything that would (i) put
into issue or otherwise adversely affect such validity or ownership or (ii)
damage or prejudice the reputation or goodwill of Schering or any Affiliate or
licensor of Schering.  Digital Angel
shall not, except with the prior written consent of Schering or any Affiliate
or licensor of Schering, as the case may be, use the name, SCHERING-PLOUGH
ANIMAL HEALTH CORPORATION, HOME AGAIN, the Trademarks, or any other trademarks,
trade dress, logos, or designs owned by Schering or such Affiliate or licensor
in or as a trademark or trade name or any trademark, trade dress, name, word or
symbol that is confusingly similar in appearance, sound, meaning, or commercial
impression to, a colorable imitation of, misleading or deceptive with respect
to, or dilutes any of, the Trademarks or any part thereof or any other
trademark, trade dress, logo or design owned by Schering as a trademark or
tradename, whether during the Term or after the expiration or termination of
this Agreement.  Digital Angel shall
comply with all trademark usage requirements established by Schering in
connection with the depiction or presentation of the Trademarks.  The packaging for the Product shall indicate
that the Product is manufactured by Digital Angel and identify Digital Angel’s
patent registration numbers.


 


7.03                           Infringement.  Digital Angel shall promptly notify Schering
of any potential infringement of the Trademarks or any Claim that the
Trademarks infringe the rights of any Person. 
Digital Angel shall, at Schering’s cost and expense, cooperate with
Schering in the prosecution of any infringement or defense of the Trademarks.


 


ARTICLE VIII.  CONFIDENTIAL
INFORMATION


 


8.01                           Confidentiality.  During the Term and for a period of ten (10)
years after the expiration or termination of this Agreement, the Receiving
Party shall:  (a) protect and hold in


 


20

















 


confidence the Confidential Information of the
Disclosing Party; (b) not disclose or use, or cause to be discussed or used,
such Confidential Information to or by any Person except with the prior written
consent of the Disclosing Party and in accordance with this Agreement; (c)
handle, preserve, and protect such Confidential Information with at least the
same degree of care the Receiving Party affords its own confidential
information; and (d) use diligent efforts to ensure that each of its Agents
preserves and protects the confidentiality of all Confidential Information of
the Disclosing Party.  The duty of
confidentiality under this Article VIII shall not apply to any
Confidential Information that:


 


(i)                                     is
or becomes public knowledge through no act or omission of the Receiving Party
in violation of this Agreement; provided, however, that such
information shall not be deemed a matter of public knowledge merely because it
(A) is embraced by more general information in the prior possession of a Party
or any other Person or (B) is expressed in public literature in general terms
not specifically in accordance with Confidential Information;


 


(ii)                                  is
received by, or otherwise made available to, the Receiving Party from an
independent Person who does not owe a duty of confidentiality to the Disclosing
Party in connection with the Confidential Information disclosed;


 


(iii)                               is
already in the possession of the Receiving Party or its Agents at the time of
receipt from the Disclosing Party, as documented by pre-existing records of the
Receiving Party or its Agents;


 


(iv)                              is
developed independently by the Receiving Party or its Agents without any breach
of this Agreement; or


 


(v)                                 subject
to Section 8.02 hereof, is required to be disclosed by the Receiving Party
pursuant to any Applicable Law.


 


8.02                           Disclosure.


 


(a)                                  The
Receiving Party shall immediately notify the Disclosing Party of receipt of any
process, subpoena, demand, or request by any Person to disclose the
Confidential Information of the Disclosing Party, and shall, as soon as
practicable but in no event later than three (3) business days from the date of
such receipt, furnish to the Disclosing Party a copy of such process, subpoena,
demand, or request and inform the Disclosing Party of the circumstances
relating thereto.  The Receiving Party
shall, at its cost and expense, take all reasonable steps to maintain and
protect the confidentiality of the Confidential Information of the Disclosing
Party, including, without limitation, making a motion to quash; provided,
however, that nothing in this Agreement shall be deemed to require the
Receiving Party to violate any law or judicial order.  The Disclosing Party also shall have the right to take any legal
action to prevent disclosure of its Confidential Information, including,
without limitation, the right to appear on behalf of the Receiving Party, to
represent the Receiving Party, and to employ counsel of its choice for these
purposes.


 


(b)                                 If
the Disclosing Party elects to exercise its rights under this
Section 8.02, it shall do so at its cost and expense and shall hold
harmless, defend, and indemnify the Receiving Party from and against any and
all legal responsibility or liability from the exercise of these rights (except
if caused by the negligence or willful misconduct of the Receiving Party or any


 


21

















 


of its Agents). 
If the Disclosing Party elects not to exercise any such rights or the
Receiving Party is nonetheless legally compelled to disclose the Confidential
Information of the Disclosing Party, then the Receiving Party may, without
liability under this Agreement, disclose only that portion of such Confidential
Information that it is legally compelled to disclose and shall, within ten (10)
days from the date of such disclosure, furnish to the Disclosing Party a copy
of the Confidential Information disclosed and all correspondence and
communications relating to such disclosure.


 


8.03                           Confidentiality
of Agreement.  The provisions of
this Article VIII also shall apply to the contents of this Agreement; provided,
however, that the contents hereof may be disclosed only (a) as required
by Applicable Laws, (b) in connection with the enforcement of this Agreement,
or (c) to such Agents of a Receiving Party who have a need to know such
information.


 


8.04                           Notification
of Breach.  Each Party shall, and
shall use diligent efforts to ensure that each of its Agents shall, notify the
other Party in the event of any breach of this Article VIII, including,
without limitation, conditions or circumstances that indicate that the
Confidential Information has been or may have been prejudiced or otherwise
exposed to loss or unauthorized disclosure or use.  A Receiving Party shall, upon request of the Disclosing Party,
take all steps reasonably necessary to recover any and all Confidential
Information that has been or may have been prejudiced or otherwise exposed to
loss or unauthorized disclosure or use. 
The expense of taking such steps shall be borne solely by the Receiving
Party.


 


8.05                           Return
of Confidential Information.  All
Confidential Information shall be and remain the sole property of the
Disclosing Party, and the Receiving Party and its Agents shall have no rights
or interests to or in such information (except as herein provided).  Immediately upon the expiration or
termination of this Agreement or within thirty (30) days from the date of
receipt of a request by the Disclosing Party, the Receiving Party shall, and
shall use diligent efforts to ensure that each of its Agents shall, (a)
discontinue the use of the Confidential Information of the Disclosing Party,
(b) within thirty (30) days from the date of receipt of a request by the
Disclosing Party, return or destroy all such Confidential Information,
including, without limitation, all copies and originals of such Confidential
Information in any medium, and (c) notify the Disclosing Party that all such
copies and originals have been returned or destroyed, as the case may be, and
all electronic memories, including archival media, have been purged of the
Confidential Information.  The Receiving
Party shall be permitted to retain one (1) copy of such Confidential
Information solely for the purpose of any Claim arising out of or relating to
this Agreement, and notwithstanding the expiration or termination of this
Agreement, such copy shall remain subject to the confidentiality obligations
under this Agreement.


 


22

















 


ARTICLE IX.  PRODUCT
RECALL


 


9.01         In the event Schering, or any
Governmental Authority issues a recall, or takes similar action, in connection
with the Product, Digital Angel shall bear the cost and expense of any such
recall, unless such recall results from the negligent handling, sale or
distribution by Schering.  For the
purposes of this Agreement, the cost and expense of a recall shall include,
without limitation, the expenses of notification and destruction or return of
the recalled Product, an amount equal to the monetary value associated with the
Product recalled, and any other cost and expense associated with such recall.


 


ARTICLE X.  TERM
AND TERMINATION


 


10.01                     Term.  This Agreement shall become effective as of the
Effective Date, and except as otherwise provided in this Agreement, shall
continue in full force and effect for a period of ten (10) years from the
Effective Date (“Term”). Notwithstanding the foregoing and except as otherwise
provided in this Agreement, during the Term, Schering may terminate this
Agreement, without cause and at any time, by written notice of such termination
to the Digital Angel not less than one hundred and eighty (180)  days prior to the effective date of such
termination.


 


10.02                     Termination
for Breach.  Either Party may, at
its option, terminate this Agreement in the event the other Party breaches any
material obligation under this Agreement and fails to remedy or otherwise cure
such breach within thirty (30) days from the date of receipt of notice of such
breach given by the non-breaching Party; provided, however, that,
if (a) subject to Section 12.02 hereof, such breach was beyond the
reasonable control of the other Party or (b) the other Party cures such breach
within such thirty (30)-day period, then there shall be no termination of this
Agreement for such breach pursuant to this Section 10.02.


 


10.03                     Insolvency
and other Causes for Termination.


 


(a)                                  A
Party shall have the right to terminate this Agreement immediately by written notice
to the other Party, in the event the other Party (i) files a petition in
bankruptcy, (ii) applies for or consents to the appointment of a receiver
or trustee, (iii) makes an assignment for the benefit of creditors,
(iv) becomes subject to an attachment of, execution upon, or other
judicial seizure of, all or substantially all of its assets, or
(v) becomes subject to involuntary proceedings under any bankruptcy or
insolvency law (which proceedings are not dismissed within sixty (60) days).


 


10.04                     No Liability
for Termination.  Neither the
expiration nor termination of this Agreement in accordance with this Agreement
shall subject either Party to any liability or obligation to the other Party or
to any other Person, either by operation of law or on any other basis,
including, without limitation, any consequential or special damages, any
damages for alleged loss of goodwill, profits, anticipated sales, or the like,
except as specifically set forth in this Agreement.


 


10.05                     Effect of
Termination.


 


(a)                                  Upon
the expiration or termination of this Agreement, (i) Schering shall have the
right to sell its remaining inventory of the Product and any unfinished goods
or (ii)


 


23

















 


Schering shall, at its option, have the right (but not
the obligation) to require Digital Angel to purchase from Schering, and
Schering shall sell to Digital Angel, all or any portion of the inventory of
the Product and any unfinished goods held by or for Schering at the cost in
which they were purchased by Schering.


 


(b)                                 If
Schering fails to purchase a sufficient amount of Product as a result of its
failure to achieve its purchase targets as set forth in Section 3.04(c),
Digital Angel may terminate this Agreement by written notice of termination to
Schering not less than one hundred and eighty (180) days prior to the effective
date of termination. Further, Schering shall provide Digital Angel with a copy
of the Database and Digital Angel shall have the right to use the Database for
recovery purposes only, and (ii) Digital Angel may create a new database to
collect demographic information about companion animals.


 


(c)                                  If
Schering requests that Digital Angel maintain the Database, Schering shall not
have a Database that has the same functions and capabilities and directly
competes with Digital Angel.


 


(d)                                 If
(i) Schering exercises its right to terminate without cause; (ii) Schering
terminates at the end of the Term of this Agreement, or (iii) Schering chooses
not to extend the Term of the Agreement, and Digital Angel does not increase
the price of the Product, then (i) Schering shall provide a copy of the
Database to Digital Angel and Digital Angel shall have the right to use the
Database for recovery purposes only, and (ii) Digital Angel may create a new
database to collect demographic information about companion animals.


 


(e)                                  If
Schering and Digital Angel negotiate in good faith and are unable to reach a
mutual agreement with respect to the purchase price pursuant to
Section 6.01 herein, then (i) either party may terminate this Agreement by
written notice of termination to the other party not less than one hundred and
twenty days prior to the Effective Date of termination, (ii) Schering shall
provide a copy of the Database to Digital Angel for recovery purposes only, and
(iii) Digital Angel may create a new database to collect demographic
information about companion animals.


 


10.06                     Duties and
Obligations After Expiration.  Upon
the expiration or termination of this Agreement, each Party’s duties and obligations
under this Agreement with respect to the Product shall cease as of the
effective date of such expiration or termination; provided, however,
that a Party’s other duties and obligations under this Agreement that, by their
nature, are to be performed or observed after such expiration or termination,
including, without limitation, the respective duties and obligations of each of
the Parties under Sections 4.02 5.01, 7.01, 10.05, Article VIII and XI
hereof, shall survive the expiration or termination of this Agreement.  Digital Angel shall have no rights to the
Trademark as set forth in Sections 7.01 and 7.02.


 


ARTICLE XI.  INDEMNIFICATION


 


11.01                                             Indemnification
by Schering.  Schering shall, at its
cost and expense, indemnify, defend, and forever hold harmless Digital Angel,
its Affiliates, and its and their respective Agents from and against any Claim
arising out of or resulting from (a) Schering’s breach of its obligations,
representations, or warranties under this Agreement or (b) Schering’s negligence,
errors, or omissions.  Digital Angel
shall, within three (3) business days from the date of receipt of notice of


 


24

















 


any Claim, furnish to Schering a copy of such notice and inform
Schering of all facts relating to such Claim.


 


11.02                     Indemnification
by Digital Angel.  Digital Angel
shall, at its cost and expense, indemnify, defend, and forever hold harmless
Schering, its Affiliates, and its and their respective Agents from and against
any Claims based upon, arising out of or otherwise related to (a) Digital
Angel’s breach of its obligations, representations, or warranties under this
Agreement, (b) Digital Angel’s negligence, errors, or omissions or (c) any
Claim that any Product supplied hereunder infringes any Intellectual Property
Right of a third party.  Schering shall,
within three (3) business days from the date of receipt of notice of any Claim,
furnish to Digital Angel a copy of such notice and inform Digital Angel of all
facts relating to such Claim.


 


11.03                     Assistance.  Each Party shall provide all information in
its possession and reasonable assistance to the other Party as necessary to
enable the other Party to defend any such suit, claim, or demand.


 


11.04                     Consequential
Damages.  Neither Party shall be
liable to the other Party for any special or consequential damages, whether
based upon lost goodwill, lost resale profits, work stoppage, or impairment of
other goods or arising out of breach of warranty, breach of contract, strict
liability, or negligence.


 


ARTICLE XII.  GENERAL
PROVISIONS


 


12.01                     Compliance
with Applicable Laws.  At all times
during the Term, each Party shall comply with all Applicable Laws in effect in
the Territory.


 


12.02                     Force
Majeure.  Neither Party shall be
liable for any delay or failure of performance of any obligation hereunder by
reason of any act or circumstance beyond the control of such Party, including,
without limitation, an act of God, fire, flood, war, terrorist act, public
disaster, strike or labor dispute, or governmental enactment, rule or
regulation; provided, however, that such Party shall:  (a) be excused from such performance only to
the extent of such delay or failure; (b) take good-faith efforts to resume
performance hereunder; and (c) continue performance hereunder with the utmost
dispatch as soon as the cause for such delay or failure is removed.  In the event any delay or failure of
performance is attributable to any act or circumstance beyond the control of a
Party, the time for performance affected by such act or circumstance shall be
extended for a period equal to the time lost by reason of such delay or
failure; provided that if any such delay continues for a period of sixty (60)
days or more, then the Party not asserting such excuse for delay or failure to
perform may terminate this Agreement upon written notice to the other
Party.  A Party asserting any excuse for
delay or failure of performance of any obligation under this Section 12.02
shall immediately notify the other Party.


 


12.03                     Insurance.  During the Term and for a period of five (5)
years thereafter, Digital Angel shall, at its own cost and expense, (a)
maintain, and shall cause any of its Affiliates to maintain, (i) general
liability insurance, including coverage for product liability and contractual
liability, in an amount not less than Ten Million Dollars (U.S. $10,000,000)
and (ii) such other insurance that Digital Angel is required to maintain under
Applicable Laws, and (b) furnish to Schering, upon request, a certificate of
insurance evidencing compliance with the requirements of


 


25

















 


this Section 12.03.  Such certificate shall provide that Schering shall be notified in
writing of any cancellation or material change in such insurance not less than
thirty (30) days prior to the date of such cancellation or change. Nothing
contained in this Section 12.03 shall limit, or be deemed to limit, the
obligation of Digital Angel under Section 12.03 or the liability or
responsibility of Digital Angel or any Person acting on behalf of Digital Angel
for payment of damages resulting from its acts, omissions, or other conduct or
operations under this Agreement


 


12.04                     Waiver.  A Party’s failure to exercise or enforce any
right conferred upon it hereunder shall not be deemed to be a waiver of any
such right or any other right or operate to bar the exercise or performance
thereof at any time or times thereafter; nor shall a Party’s waiver of any
right hereunder at any time, including right to any payment, be deemed a waiver
thereof for any other time.


 


12.05                     Governing
Law, Jurisdiction, and Service.


 


(a)                                  This
Agreement and all issues arising under or relating to this Agreement,
including, without limitation, its construction, interpretation, breach, and
damages for breach, shall be governed by and construed in accordance with the
laws of the State of New Jersey, excluding any conflicts or choice of law rule
or principle that otherwise might refer construction or interpretation of this
Agreement to the substantive law of another jurisdiction.


 


(b)                                 Each
of the Parties (a) agrees that any action, cause of action, Claim, or
Dispute arising under or relating to this Agreement shall be brought only in
the courts of the State of New Jersey, located in the County of Union, or the
federal court of the United States, located in Newark, New Jersey,
(b) expressly consents to personal jurisdiction in the State of New
Jersey, with respect to such action, cause of action, Claim, or dispute,
(c) irrevocably and unconditionally consents to the exclusive jurisdiction
and venue of such courts for the purposes of enforcing the terms of this
Agreement or interpreting any provision, remedying any breach, or otherwise
adjudicating any Claim or dispute of or under this Agreement, (d) irrevocably
and unconditionally waives any objection to the jurisdiction and venue required
in this Section 12.05(b), and (e) agrees not to plead or claim in any
such court that any such action, cause of action, Claim, or dispute has been
brought in an inconvenient forum.


 


12.06                     Assignment
and Amendment.


 


(a)                                  Neither
this Agreement nor any of the rights and obligations of a Party under this
Agreement shall be assigned, delegated, sold, transferred, sublicensed (except
as otherwise provided in this Agreement), or otherwise disposed of, by
operation of law or otherwise, to any Person, without the prior written consent
of the other Party, and any attempted assignment, delegation, sale, transfer,
sublicense, or other disposition, by operation of law or otherwise, of this
Agreement or of any rights or obligations under this Agreement contrary to this
Section 12.06(a) shall be deemed a material breach of this Agreement by
the attempting Party, and shall be void and without force or effect; provided,
however, that either party may, without such consent, assign this
Agreement and its rights and obligations under this Agreement (i) to an
Affiliate, (ii) in connection with the transfer or sale of all or
substantially all of its assets, or (iii) in the event of its merger or
consolidation or change in control or similar transaction.  This Agreement shall be binding upon, and
inure to the benefit of, each Party, its Affiliates, and its


 


26

















 


permitted successors and assignees.  Each Party shall be responsible for the
compliance by its Affiliates with the terms and conditions of this
Agreement.  Nothing expressed or
referred to in this Agreement shall give, or be construed to give, to any
Person other than the Parties any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement,
except such right, remedy or claim as shall inure to a successor or permitted
assignee pursuant to this Section 12.06(a).  Nothing expressed or referred to in this Agreement shall give, or
be construed to give, to any Person other than the Parties any legal or
equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement, except such right, remedy, or claim as shall
inure to a successor or permitted assignee pursuant to this Section 12.06.


 


(b)                                 Neither
this Agreement nor any provision hereof may be amended, supplemented, waived,
or modified, except by a specific writing, entitled as an amendment and
specifically referring to this Agreement, that is signed by an authorized
officer of each Party.  This Agreement
may not be amended or waived by any course of conduct.


 


12.07                     Severability.  If (a) any provision of this Agreement shall
be finally determined by a court of competent jurisdiction to be invalid or
unenforceable in any jurisdiction for any reason and (b) any right or
obligation of a Party shall be materially and adversely affected thereby, then
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability, without invalidating or rendering
unenforceable any other provision of this Agreement, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.  The Parties shall negotiate in good faith to
replace such provision with an appropriate, legal provision and, to the extent
permitted by law, hereby waive any provision of law that renders any provision
of this Agreement invalid or unenforceable in any respect.


 


12.08                     Captions,
Counterparts, and Construction.


 


(a)                                  Captions.  The captions of this Agreement are for
convenience of reference only and shall not affect, define, describe, extend,
or limit the scope or intent of this Agreement, including, without limitation,
any provision or the construction or interpretation of this Agreement.  Unless otherwise specified,
(i) references in this Agreement to any Article, Section, or Exhibit shall
be deemed to be references to such Article and Section of, and
Exhibit to, this Agreement, and (ii) references to any agreement,
instrument, or other document in this Agreement shall be deemed to be
references to such agreement, instrument, and other document as originally
executed or, if subsequently varied, replaced, or supplemented from time to
time, to such agreement, instrument, or other document as so varied, replaced,
or supplemented and in effect at the relevant time of reference thereto.


 


(b)                                 Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original copy of this
Agreement but all of which taken together shall constitute one and the same
instrument.  The exchange of copies of
this Agreement and of signature pages by facsimile (fax) in accordance with
Section 12.09 shall constitute effective execution and delivery of this
Agreement as to the Parties and may be used in lieu of the original Agreement
for all purposes.  Signatures of the
Parties transmitted by facsimile (fax) shall be deemed to be the original
signatures for all purposes.


 


27

















 


(c)                                  Construction.  Except where the
context otherwise requires, wherever used, the singular form shall include the
plural; the plural form, the singular; and the use of any pronoun shall include
the corresponding masculine, feminine, and neuter forms.  In interpreting any provision of this
Agreement, no weight shall be given to, nor shall any construction or
interpretation be influenced by, the fact that counsel for one of the Parties
drafted this Agreement, each Party recognizing that it and its counsel have had
an opportunity to review this Agreement and have contributed to the final form
of the same.  Any reference in this
Agreement to a “day” or a number of “days” (without the explicit qualification
of “business”) shall be interpreted to mean a reference to a calendar day or
number of calendar days.


 


12.09                     Notices.  All notices required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, courier, or express mail service (with written
confirmation of receipt), (b) sent by means of facsimile (with provision for
assurance of receipt in a manner typical with respect to communications of that
type), or (c) mailed by registered or certified first class mail, return
receipt requested, at the address or facsimile (fax) number set forth below (or
to such other Person, address, or facsimile (fax) number as a Party may, from
time to time, designate by written notice):


 


	
   

  	
  (i)

  	
  if to Schering:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Schering-Plough Animal Health Corporation

  
	
   

  	
   

  	
  1095 Morris Avenue

  
	
   

  	
   

  	
  Union, New Jersey 07083

  
	
   

  	
   

  	
  Attention: 
  Vice President, Global Companion Animals

  
	
   

  	
   

  	
  Fax: 
  908.629.3306;

  
	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
  if to Digital Angel:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Digital Angel Corporation

  
	
   

  	
   

  	
  490 Villaume Avenue

  
	
   

  	
   

  	
  South St. Paul, Minnesota
  55075

  
	
   

  	
   

  	
  Attention: 
  President

  
	
   

  	
   

  	
  Fax: 
  651.455.0413

  



 


12.10                     Further
Assurances.  Each of the Parties
shall perform such acts, execute and deliver such instruments and documents,
and do all such other things as may be reasonably necessary to accomplish the
transactions contemplated under this Agreement.


 


12.11                     Independent
Contractor.  Nothing contained in
this Agreement shall be construed to constitute either Party as a partner or
agent of the other Party or to create any other form of legal association that
would impose liability upon a Party for any act or omission of the other Party
or provide a Party with the right, power, or authority to create or impose any
duty or obligation on the other Party, it being intended that each Party shall
remain an independent contractor acting in its own name and for its own
account.


 


12.12                     Entire
Agreement.  This Agreement
(including its Exhibits) represents and contains the full and complete
understanding and agreement of the Parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements, understandings,


 


28

















 


statements, clauses, and conditions with respect to the transactions
contemplated by this Agreement or which may be contained in any other form or
document, including, without limitation, Schering’s purchase order form.


 


IN WITNESS
WHEREOF, the Parties have caused this Agreement to be duly executed as of the
date first above written.


 


	
  SCHERING-PLOUGH ANIMAL HEALTH

  CORPORATION

  	
  DIGITAL ANGEL CORPORATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
  Raul Kohan

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
  President

  	
  Title:

  	
   

  	
   

  
						



 


29

















 


EXHIBIT
A


 


 


SPECIFICATIONS


 


(See Attached)


 


Specification of
Temperature-Sensing Transponders


 


Specifications:


 


	
  Measurement range:

  	
  25 °C
  to 50 °C

  
	
   

  	
   

  
	
  Resolution:

  	
  0.1°C

  
	
   

  	
   

  
	
  Accuracy:

  	
  ±0.5
  °C

  
	
   

  	
   

  
	
  Dimension:

  	
  14mm x 2mm

  
	
   

  	
   

  
	
  Weight:

  	
  0.23 g

  
	
   

  	
   

  
	
  Housing:

  	
  Bio-compatible glass

  
	
   

  	
   

  
	
  Cap:

  	
  Patented BioBond anti-migration cap

  
	
   

  	
   

  
	
  Operating frequency:

  	
  125 kHz

  
	
   

  	
   

  
	
  Power:

  	
  Passive device (no battery needed), energized using
  an ISO compliant reader

  
	
   

  	
   

  
	
  ID number compliance:

  	
  ISO 11784 and ISO 11785

  
	
   

  	
   

  
	
  Storage temperature:

  	
  -25 °C
  to 50 °C [ -13 °F
  to 122 °F ]

  
	
   

  	
   

  
	
  Packaging:

  	
  To be determined

  



 

















 


DIGITAL ANGEL


NEW SYRINGE NEEDLE ASSEMBLY


 


	
  Department: Quality

  	
  Number

  	
  Release Date

  
	
   

  	
  QI032-1

  	
  5-2-2002

  
	
  Subject: Instruction for Assembly and Packaging of
  New Syringe Needle Assembly

  	
  Page 1 of 2

  	
  Revision

  
	
   

  	
   

  	
  Original

  
	
  Approved by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  For internal use only.

  	
  Make no distribution of this document outside of
  Destron Fearing without the prior consent of an authorized representative of
  the originating organization.

  
				



 


ISO9001 facility preferred but not mandatory.


 


1.0 
OBJECTIVE


 


To establish a consistent method of assembling and packaging New
Syringe needle assemblies.


 


2.0 
SCOPE


 


Instructions to assembly and package Home Again syringe.


 


3.0  ASSEMBLY PROCEDURE (Fig. 1)


 




	
  Parts List:

  	
   

  	
  Equipment:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Antimigration Cap

  	
   

  	
  Needle Housing

  	
   

  	
  Thermolyne Hot Plate

  
	
  Transponder

  	
   

  	
  Plunger

  	
   

  	
  Incubator

  
	
  12 Gauge Needle

  	
   

  	
  Needle Assembly Pouch

  	
   

  	
  Audion Heat Scaler

  
	
  Protective Needle Cap

  	
   

  	
   

  	
   

  	
  Needle Insertion Tool

  
	
  Hub (Collar)

  	
   

  	
   

  	
   

  	
   

  






 


3.1                                 Place
Needle Hub (Collar) into Poly Containers and place into incubator.


Incubator set at 45°C±5°C.


 


3.2                                 Place
an Antimigration Cap onto the Transponder and set aside. The cap over the coil
side of transponder.


 


CAUTION: DO NOT USE THE ANTIMIGRATION
CAP IF IT SPLITS OPEN WHILE PLACING ONTO THE TRANSPONDER.


 


3.3         Place the capped
transponder into the 12 Gauge Needle, from the BLUNT side of needle. the capped end of the transponder
must be placed into the Needle first.


 


CAUTION: THE NEEDLE WILL HAVE TO BE
TURNED UPSIDE DOWN TO INSTALL TRANSPONDER AND CAP, IT IS IMPERATIVE THAT
THE NEEDLE POINT IS NOT DAMAGED.


 

















 


CAUTION: USE OF PROPER FORCE IS
IMPORTANT, IF TRANSPONDER ASSEMBLY IS TIGHT GOING INTO NEEDLE DO NOT FORCE AS
IT COULD CAUSE THE GLASS ENCLOSURE TO BREAK.


 


3.5                                 Turn
on Hot Plates and set at 130°C±10°C.


 


3.6                                 Fill
the containers with Needle Hub (Collar) from the incubator and place onto the
hot plates.


 


3.7                                 Place
the 12 Gauge Needle containing the Transponder into the warmed Needle Hub using
the Needle Insertion Tool provided by Digital Angel. Inspect for plastic
shavings at base of needle.


 


3.8                   Place the
Protective Needle Cap on the 12 Gauge Needle.


 


3.8                   Attach Needle
Hub onto Syringe body


 


3.9                   Insert Plunger
into Syringe body to a depth of 27.5mm.


 


3.10             Transponder and Cap
should not extend beyond the bevel heel.


 


3.11             Inspect piece parts
and final assembly for damage.


 


4.0                 PACKAGING


 


4.1                   Visually
inspect product and pouch for foreign material.


 


4.2                   Place 110
blistered syringe assemblies into intermediate carton.


 


4.3                   Place 4 intermediate
cartons in shipping carton. There should be 440 blistered syringe assemblies in
one shipping carton.


 


 


Label outside of shipping carton with: Digital Angel, P/N(800-0680-00)


PO
number, and Quantity.


 

















 


Product Descriptions and
Specifications


 


I.              LifechipTM Needle
Assembly in a Sterile Pouch


 


A.                                   Transponder
- 125 kHz, 11 mm x 2.1 mm, Schott Glass 8350


 





 


[Picture of transponder]


 


B.                                     BioBondTM
- Polypropylene sheath covering one end of the transponder made out of ProFax
PF-531 medical grade polymer, which promotes tissue to bond to the sheath
holding the transponder in injection site area.


 


C.                                     Needle
- is a 12 g, 11⁄2” needle constructed of stainless steel. The needle is to be
extremely sharp.


 


D.                                    Applicator
- Plastic applicator is designed to deposit
the transponder underneath the skin of the animal.


 


E.                                      Sterile
Pouch, Tyvek 1059B - contains the assembled parts of items A through D outlined
above. The pouch is sealed with a seal width of at least 6mm and the product is
sterilized with Ethylene Oxide. The pouch has a shelf life of 24 months. Twenty
four-month dating and a lot number will be printed on the pouch. The following
are diagrams of the sterile pouch:


 


FRONT VIEW


W/ CONTENTS


 





 


BACK VIEW


 





 


 


	
  Number

  	
   

  	
  Part Number

  	
   

  	
  Description

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  473-0083-00

  	
   

  	
  Antimigration Cap

  
	
  2

  	
   

  	
  TX 1400 L

  	
   

  	
  125 kHz transponder

  
	
  3

  	
   

  	
  445-0020-00

  	
   

  	
  12 gauge needle

  
	
  4

  	
   

  	
  473-0088-00

  	
   

  	
  Protective needle cap

  
	
  5

  	
   

  	
  473-0089-00

  	
   

  	
  L-shaped drive pin

  
	
  6

  	
   

  	
  473-0090-00

  	
   

  	
  Needle housing

  
	
  7

  	
   

  	
  473-0091-00

  	
   

  	
  Thumb slide applicator

  
	
  8

  	
   

  	
  473-0087-00

  	
   

  	
  Applicator handle

  



 

















 


II.            Registration Form


 


A.                                   Registration
form will be supplied by the National Registry.


 


B.                                     Each
form will be barcoded by Destron and folded.


 


III.           Return Envelope


 


A.                                   Supplied
by the National Registry.


 


B.                                     Each
envelope will be postage paid and printed with the return address.


 


IV.           ID Tags


 


A.                                   Tags
are molded Polyurethane plastic 85A material.


1. The tag front will be printed with the words “Home
Again Companion Animal Retrieval System”.


2. The back of the tag will have the words as shown in
the example below:


 





 


V.            Fastener O-Ring


 


A.                                   The
fastener O-ring will be included to fasten the ID tag to the collar of the pet.


 


VI.           Header Card/Vet File
Card


 


A.                                   The
card front will include:


1.             Product
Name


2.             Administration


3.             Precautions


 

















 


EXHIBIT B


 


PRODUCT
EXPERIENCE FORM


 


VETERINARY ADVERSE DRUG REACTION,


LACK OF EFFECTIVENESS AND


PRODUCT DEFECT REPORT


 


 


	
  COMPLETE THE FORM AND SEND BY FAX TO:

  SCHERING-PLOUGH ANIMAL HEALTH REGULATORY AFFAIRS AT

  908.629.3395

  
	
   

  
	
  1.

  	
  NAME, ADDRESS AND PHONE NO. OF REPORT
  SOURCE

  (Mfr.,
  Distr.)  

  	
  2.

  	
  DATE REPORT RECEIVED

  (MO./DAY/YEAR)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Street:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  City:

  	
   

  	
   

  	
  State:

  	
   

  	
    Zip:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Phone No. 
  

  	
  (                )

  	
   

  	
  -

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  NAME, ADDRESS AND PHONE NO. OF ATTENDING
  VETERINARIAN

  (In
  confidence)

  	
  4.

  	
  NAME OR CASE IDENTIFICATION OF OWNER

  (In
  confidence)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Street:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  City:

  	
   

  	
   

  	
  State:

  	
   

  	
    Zip:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Phone No. 
  

  	
  (                )

  	
   

  	
  -

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  TRADE
  NAME AND GENERIC NAME(S) OF ACTIVE INGREDIENT(S)

  (Include
  dosage form and strength - Ex., tab, 500 mg.)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  LOT
  NUMBER(S)

  	
  7.

  	
  DOSAGE
  ADMINISTERED AND ROUTE

  (Ex.,
  250 mg., q 12 h, p.o.)

  	
   

  	
  8.

  	
  DATE(S)
  OF ADMINISTRATION (MO./DAY/YEAR)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  ILLNESS/REASON
  FOR USE OF THIS DRUG

  	
   

  	
  10.

  	
  DRUG
  WAS ADMINISTERED BY

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o VETERINARIAN, STAFF 

  	
     o OWNER 

  	
  o OTHER

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  NUMBER OF ANIMALS IN THIS INCIDENT

  	
   

  	
  12.

  	
  REACTING ANIMALS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11a.

  	
  TREATED WITH DRUG

  	
  11b. 
  REACTED

  	
  11c. 
  DIED

  	
   

  	
  12a.

  	
  SPECIES

  	
  12b. 
  BREED

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  12c.

  	
  AGE

  	
  12d. 
  WEIGHT

  
	
  13.

  	
  OTHER MEDICAL PROBLEMS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  12e.

  	
  SEX/NUMBER

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o FEMALE/

  	
  o MALE/

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o PREGNANT/

  	
  o NEUTERED/

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  OVERALL
  STATE OF HEALTH AT TIME OF REACTION/NUMBER

  	
   

  	
  15.

  	
  DID ANY NEW ILLNESS DEVELOP OR DID INITIAL
  DIAGNOSIS CHANGE AFTER SUSPECT DRUG STARTED?

  
																							



 

















 


	
   

  	
  o GOOD/

  	
  o  FAIR/

  	
   

  	
  o
  NO       o YES (Explain)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o POOR/

  	
  o  CRITICAL/

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  OTHER
  DRUGS ADMINISTERED

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ROUTE

  	
   

  	
  DOSAGE
  REGIMEN

  	
  DATE(S)
  OF ADMINISTRATION

  



 


2

















 


	
  REACTION
  DATA

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  DESCRIBE SUSPECTED ADVERSE REACTION:
  INCLUDE ALL SIGNS, RESULTS OF PERTINENT LAB TESTS, NECROPSY RESULTS, POSSIBLE
  CONTRIBUTING FACTORS, ETC. ALSO, INCLUDE IN THIS SECTION PRODUCT
  INEFFECTIVENESS AND PRODUCT DEFECTS SUCH AS CRACKED TABLETS, CLOUDY SOLUTION,
  ETC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  18a.

  	
  ATTENDING VETERINARIAN’S LEVEL OF
  SUSPICION THAT DRUG CAUSED REACTION

  	
   

  	
  18b.

  	
   

  	
  WAS
  THERE EXTRA LABEL USE (ELU) INVOLVED?

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o HIGH

  	
  o MEDIUM

  	
  o LOW

  	
  o NO ATTENDING VET.

  	
   

  	
   

  	
   

  	
  o NO

  	
  o YES (Explain)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  LENGTH OF TIME BETWEEN LAST ADMINISTRATION
  OF SUSPECT DRUG AND CAUSED REACTION

  	
   

  	
  20.

  	
   

  	
  DATE OF ONSET

  (MO./DAY/YEAR)

  	
  21.

  	
  DURATION
  OF REACTION

  (HOURS/DAYS/ETC.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
  WAS
  THE ADVERSE REACTION TREATED?

  	
   

  	
  23.

  	
   

  	
  OUTCOME OF REACTION TO DATE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o NO

  	
  o YES (Describe treatment)

  	
   

  	
   

  	
   

  	
  o DIED (Give date)       /     /     

  	
  o RECOVERED

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o REMAINS UNDER TREATMENT

  	
  o UNKNOWN

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  o ALIVE WITH SEQUELAE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
  WHEN REACTION APPEARED, TREATMENT WITH
  SUSPECT DRUG:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  o HAD ALREADY BEEN COMPLETED

  	
   

  	
  AND THE

  	
   

  
	
   

  	
  o DISCONTINUED DUE TO THE REACTION

  	
   

  	
  REACTION

  	
   

  
	
   

  	
  o DISCONTINUED, REPLACE WITH ANOTHER DRUG

  	
   

  	
   

  	
   

  	
   

  	
  o CONTINUED

  
	
   

  	
  o DISCONTINUED, REINTRODUCED LATER

  	
   

  	
   

  	
   

  	
   

  	
  o STOPPED

  
	
   

  	
  o CONTINUED AT ALTERED DOSE

  	
   

  	
   

  	
   

  	
   

  	
  o RECURRED

  
	
   

  	
  o OTHER (Explain)

  	
   

  	
   

  	
   

  	
   

  	
  o OTHER (Explain)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
  HAD
  ANIMAL(S) BEEN PREVIOUSLY EXPOSED TO THIS DRUG?

  	
   

  	
  o NO

  	
  o YES

  	
  o UNKNOWN

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  26.

  	
  DID
  ANIMAL(S) PREVIOUSLY REACT TO THIS DRUG?

  	
   

  	
  o NO

  	
  o YES

  	
  o UNKNOWN

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  27.

  	
  HAD
  ANIMAL(S) PREVIOUSLY REACTED TO OTHER DRUGS?

  	
   

  	
  o NO

  	
  o YES

  	
  o UNKNOWN

  	
   

  
	
   

  	
   

  	
   

  	
  (If yes, give drug(s) and reaction if known)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  28.

  	
  HAS THE ATTENDING VETERINARIAN SEEN
  SIMILAR REACTIONS TO THIS DRUG IN ANY OTHER ANIMALS?

  
	
   

  	
   

  
	
   

  	
  o NO

  	
  o YES (Describe treatment)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  29.

  	
  NAME
  AND TITLE OF INDIVIDUAL RESPONSIBLE FOR ACCURACY OF REPORTED INFORMATION (Type or
  print)

  	
   

  	
  30.

  	
   

  	
  SIGNATURE OF INDIVIDUAL RESPONSIBLE FOR
  ACCURACY OF REPORTED INFORMATION

  
																						



 


3

















 


EXHIBIT C


 


COUNTRIES


 


	
  Albania

  
	
  Andorra

  
	
  Austria

  
	
  Australia

  
	
  Belarus

  
	
  Belgium

  
	
  Bosnia and Herzegovina

  
	
  Bulgaria

  
	
  Canada

  
	
  Crete

  
	
  Croatia

  
	
  Cyprus

  
	
  Czech Republic

  
	
  Denmark

  
	
  Estoria

  
	
  Finland

  
	
  France

  
	
  Germany

  
	
  Greece

  
	
  Hungary

  
	
  Iceland

  
	
  Ireland)

  
	
  Italy

  
	
  Japan

  
	
  Latvia

  
	
  Liechtenstein

  
	
  Lithuania

  
	
  Luxembourg

  
	
  Macedonia

  
	
  Malta

  
	
  Moldova

  
	
  Monaco

  
	
  Netherlands

  
	
  Norway

  
	
  Poland

  
	
  Portugal

  
	
  Romania

  
	
  Russia

  
	
  San Marino

  
	
  Singapore

  
	
  Slovakia

  
	
  Slovenia

  
	
  South Africa

  
	
  Spain

  
	
  Sweden

  
	
  Switzerland

  
	
  Turkey

  
	
  Ukraine

  
	
  United Kingdom

  
	
  Vatican City

  
	
  Yugoslavia (Serbia and Montenegro)