**Exhibit 10.1**

 

**SUPPLYAGREEMENT**

 

Dated:  April 26, 2006

 

BETWEEN:

 

(1)           DigitalAngel Corporation 490 Villaume Avenue, South St. Paul, MN 55075-2443 USA(hereinafter called DAC)

(2)           Raytheon Microelectronics Espana, S.A.Parque Tecnologico de Andalucia, Avda. Juan Lopez de Penalver, 12 Malaga.(hereinafter called RME)

 
| WHEREAS: | RME and DAC are parties to a Supply  Agreement dated June 19, 2003 which expires on June 30, 2006 (the  “2003 Agreement”), and the parties want to negotiate a new agreement that  reflects the changes to the business since the execution of the 2003  Agreement; and                                                                            |
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| WHEREAS: | The parties desire to assure that the sale  of the Products pursuant to this Agreement includes the right for DAC and the  subsequent purchasers and users of the Products to use for the intended  purpose(s) Intellectual Property that may be owned by RME or its Affiliates  that relates exclusively to the design, manufacture or distribution of the  Products. |

 

IT IS AGREED:

 

1.             Definitions

 

**1.1****        “Affiliate”**means any person, partnership, joint venture, corporation or other form ofenterprise, domestic or foreign, including but not limited to subsidiaries,that directly or indirectly, control, are controlled by, or are under commoncontrol with a party.

 

**1.2****        “ConfidentialInformation”** means nonpublic information that RME or DAC (“Disclosing Party”)designates as being confidential at the time of disclosure, by suitable legend tothe party that receives such information (“Receiving Party”) that has or couldhave commercial value in the business or prospective business of DisclosingParty, or which, under the circumstances surrounding disclosure ought to betreated as confidential by the Receiving Party. “Confidential Information” includes, without limitation, information intangible or intangible form relating to and/or including released or unreleasedDisclosing Party technology, software or hardware products, the marketing orpromotion of any Disclosing Party product, Disclosing Party’s businesspolicies, financial information, contracts, records, or practices, andinformation received from others that Disclosing Party is obligated to treat asconfidential.  Except as otherwiseindicated in this Agreement, the term “Disclosing Party” also includes all Affiliatesof the Disclosing Party and, except as otherwise indicated, the term “ReceivingParty” also includes all Affiliates of the Receiving Party.  An “Affiliate” means any person, partnership,joint venture, corporation or other form of enterprise, domestic or foreign,including but not limited to subsidiaries, that directly or indirectly,control, are controlled by, or are under common control with a party.    Confidential Information shall not includeany information, however designated, that: (i) is or subsequently becomes publicly available without ReceivingParty’s breach of any obligation owed Disclosing Party; (ii) became knownto Receiving Party prior to Disclosing Party’s disclosure of such informationto Receiving Party pursuant to the terms of this Agreement; (iii) becameknown to

 

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Receiving Party from a source other thanDisclosing Party other than by the breach of an obligation of confidentialityowed to Disclosing Party; or (iv) is independently developed by Receiving Party.

 

**1.3****        “IntellectualProperty”** means any and all intellectual property held by a party or any Affiliateof a party, including but not limited to patents, licenses of patentedtechnology, trademarks, **exclusively** copyrights,trade secrets, and know-how to the extent that such Intellectual Property relatesto the manufacture or distribution of the Products.

 

**1.4****        “Products”**means glass encapsulated, syringe-implantable transponders, regardless ofoperating frequency for use in animals, human beings and inanimate objectscarried on or worn by animals and human beings

 

**1.5****        “Specifications”**means all documentation related to the operating performance, design,manufacture or use of the Products, whether developed by RME or DAC.

 

2.             Termsand Conditions of Supply

 

2.1           DACshall purchase products in accordance with the terms set forth in Clause 3below****and RME shall manufacture and supplythe products , in accordance with the Specifications in existence at the timeof the order release RME shall ensure that the materials procured by RME and RME’smanufacturing of the Products shall remain competitive with regard to price,quality and other terms.

2.2           ThisAgreement shall be effective from April 26, 2006 and except as provided byclause 17 below, shall continue until June 30th 2010.

2.3           Anymodification to this Agreement shall be made by written agreement between DACand RME.

2.4           RMEwill be DAC’s preferred supplier of the Products for the duration of thisagreement provided RME’s pricing remains market competitive.  Notwithstanding the foregoing, DAC reservesthe right to purchase components for the Products from any supplier/vendorincluding RME’s suppliers/vendors.

2.5           DACmay review and audit the components used by RME and/or its suppliers forcompliance with the terms and conditions of this Agreement.  In connection with any such audit, DAC shallbe provided with copies of any documents reasonably requested by DAC.

 

3.             Ordersand Forecast

 

3.1           Inthe last week of each calendar month, DAC shall send RME a 12 month non-bindingrolling forecast.

3.2           DACwill place orders covering at least 90 days horizon.

3.3           Atthe time of receiving the rolling forecast, RME will also order long lead timeparts needed to cover the quantity indicated in the forecast for the fourth monthforward +/- 25%.

3.4           DACis committed to lead times as agreed between the parties and will thereforebear responsibility for the long lead materials defined in 3.3 above if notconsumed as forecasted

3.5           RMEwill do its best to manage requested changes in the 90 days horizon to reflectDAC’s demand changes.

 

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4.             Suppliers

 

4.1           RMEand DAC will set a formal vendor approval process with the participation ofboth parties.

4.2           Thevendor approval process shall endeavor to establish that DAC representativeswill have full access to the facilities of RME/DAC approved suppliers.

 

5.             Production

 

5.1           RMEshall operate a quality system to the requirements of EN ISO 9001 or agreedequivalent.

5.2           RMEshall operate a first in first out policy on all components used in theProducts manufactured for DAC.

5.3           RMEshall be responsible for implementing the Specification to manufacture theProducts and ensuring the Products comply with the Specification.

5.3.1        RMEwill strive to improve the yield of all of the assembly processes involved inthe manufacturing of DAC products.  Anyyield improvement below 4% will be shared equally between RME and DAC.

 

6.             RMEsupport

 

6.1           RMEwill continue supporting DAC prototype build and new product introduction.

6.2           RMEwill continue supporting and collaborating with DAC Engineering on a dailybasis to improve product performance and design and process development.

6.3           Aproject team including at least a program manager, 2 process engineers, a testengineer, a quality engineer and a supply chain engineer will be in charge ofthe whole program.

6.4           Theprogram manager assigned to the project will be in charge of the coordination,monitoring and daily activities for the operations and in dealing withsuppliers.

6.5           RMEwill provide DAC with bills of materials and general process flow informationfor DAC internal use and to be submitted to DAC Head Office at St Paul MN whenrequired.  These documents and itscontent are covered by the Confidentiality requirements in article 18 aswell**as** signed off RME-DAC non-disclosureagreement and cannot be transferred to others.

6.6           RMEwill provide a customer advocate in order to communicate DAC’s desires to theappropriate RME personnel, as required.

 

7.             EngineeringChange Orders “ECOs”

 

7.1           RMEwill not make any changes to the Specifications without DAC writtenauthorization.

7.2           IfDAC issues a written Engineering Change Order (“ECO”) to the Specifications,RME will apply such ECO to the relevant Products for all subsequent deliveries.

7.3           DACwill be responsible to RME for the cost of components specific to DAC productsmade obsolete as a consequence of an ECO. If components affected by ECO are already assembled into product, DACwill accept those products already manufactured.

7.4           RMEwill use its reasonable endeavours to mitigate such cost.  All such costs shall be agreed prior toimplementation of the ECO.

7.5           RMEmay request changes to the Specification (“ECR”).  ECRs will be accompanied by an evaluation ofcost impact and all other relevant data. ECRs will not be binding on DAC until expressly accepted in writing byDAC as an ECO.

 

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8.             Materials

 

8.1           DACshall have the right, at its discretion, to provide components to RME at cost andinvoice RME for such components; in turn RME will invoice DAC at the same costplus 5.5% charge as described in paragraph 11.3 , thereby incorporating thesupplied component costs within the total unit cost charged to DAC. It isacknowledged and agreed that DAC will bear complete responsibility for thecomponents that it provides and that RME will be excused and compensated forany non-conformance, including but not limited to delays in delivery, scrap,yield or quality issues as a result of any components that are provided by DAC,or which fail to be provided to RME in a timely manner. This situation onlycould happen for new products at prototype or new product introduction stages.This situation will not apply to the current products.

 

8.2           Exceptto the extent that DAC provides components to RME pursuant to Clause 8.1 above,RME will have full responsibility on the supply of the parts of all the currenttransponder Products.

 

9.             DACAutomated equipment and tooling provided to or by RME

 

9.1           Schedule 9.1sets forth the automated equipment and tooling, used in the production of the Products,that are owned by DAC but located in the RME facilities (the “DAC-OwnedEquipment”).  Schedule 9.1 setsforth the automated equipment and tooling, used in the production of the Productsthat are owned by RME (the RME-Owned Equipment”).

9.2           TheDAC-Owned Equipment shall remain the property of DAC at all times and can berecovered from RME provided ten day’s notice is given and further provided thatsuch removal will not impact RME’s current production obligations for theProducts

9.3           RMEshall pay DAC the replacement cost of all lost of damaged DAC-Owned Equipment.

9.4           RMEshall keep the DAC-Owned Equipment properly maintained and calibrated at DAC’scost (such cost to be the direct cost incurred by RME for parts and suppliesand other mutually agreeable items, but excluding labor costs) provided thatRME provide DAC with a written quotation and obtain DAC’s prior writtenapproval before calibration is carried out. DAC will ensure such calibration is carried out in a timely manner toensure production output is not delayed.

9.5           DAC-OwnedEquipment shall not be removed from RME’s premises without DAC’s writtennotice.

9.6           DAC-OwnedEquipment shall not be used for manufacturing products or subassemblies forthird parties without DAC’s prior written approval.

9.7           Upontermination of this Agreement, DAC shall have the right, having given 10 day’snotice in writing to enter RME premises, to remove any DAC-Owned Equipment notreturned to DAC when requested.

 

10.           Outsourcingdecisions

 

RME may outsource the assembly of all Productscovered by this agreement with the exception of Products incorporating theSuper 12 technology, provided the subcontractors are approved by both RME andDAC, and provided such subcontractor has signed a non compete andconfidentiality agreement acceptable to RME and DAC prior to the performance ofany work.

 

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11.           Price

 

11.1         RMEmaterial purchasing cost will be reported to DAC at any time that it isrequested.

11.2         RMEwill strive to continually get the best competitive pricing from all thesuppliers and to develop the highest quality and competitive suppliers.

11.3         Atthe time of taking over responsibility on the supply of all the components ofthe bill of material of DAC products including coils and circuits, RME willinclude in the price of the finished Product the actual cost to RME ofcomponents for the Products, labor costs incurred by RME plus a fee equal to 5.5%of the actual cost of the components for the Products purchased by DAC.  This 5.5% percentage includes a current 4.5%material scrap cost carried by DAC and has been set considering materialfreight cost, material duties, material inventory cost, material overhead costand financial cost arising from changes in the payment terms.

11.4         Thepricing of each Product shall be set forth in the purchase orders submitted byDAC based on the prices currently agreed between DAC and RME; provided,however, that the parties shall from time to time negotiate in good faith anychanges in price for existing Products as a result of agreed changes to theProducts or for future Products, and shall update this Agreement as necessary toreflect the current price of each Product.

 

12.           Payment

 

12.1         RMEshall invoice DAC for Products delivered on or after delivery.

12.2         DACshall pay RME within 30 days after the date of Product is delivered to DAC.

12.3         DACproducts shall be priced and paid for in US$ currency.

 

13.           QualityTests

 

RME is responsible for testing all Productsand ensuring they perform in accordance with the specification and agree not toship any product not meeting specification with DAC prior written consent.

 

14.           Otherproducts and rest of the transponder value chain

 

14.1         DACand RME will work together to develop and evaluate the feasibility of a win-winproposal in order for RME be in charge of the whole transponder value chainincluding custom packaging for different DAC customers.

14.2         DACwill provide RME with the information needed to quote other electronicproducts, including current price and target price to be successful so RMEcould get their suppliers involved to develop a win-win proposal.

 

15.           Warranty

 

RME warrants that for 12 months from thedelivery date, Products supplied will conform to the applicable Specificationsand be free from defects in material and workmanship.  DAC will provide a monthly report to RME ofall warranty claims for the Products within the prior month.  Within 30 days of receipt of the aboveinformation, which must include itemized serial numbers, productidentification, description of failure, and cost of warranty, RME shall creditDAC 100% of the purchase cost of the original product where the serial numberidentifies the age of the

 

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product to be equal to or less than 12 monthsfrom delivery date and RME reasonably determines that the Products aredefective, based on product failures identified through standard manufacturingtestes performed by RME, within ten (10) business days after receipt ofthe Products.  If no determination ismade within such ten (10) business day period, then the Products shall bedeemed defective and covered by the warranty.

 

16.           Liability

 

16.1         Theliability of either party to the other, if any, and the sole and exclusiveremedy for damages for any claim of any kind whatsoever made by one partyagainst the other with respect to the supply of products under this Agreementor default in respect of such supply shall be limited to an amount equal to thevalue of purchases made by DAC from RME in the immediately preceding twelvemonths.  Under no circumstances willeither party be liable to the other for any indirect, special, incidental, orconsequential damages arising out of any breach of this agreement whether suchdamages are labeled in tort, contract, or indemnity, even if the relevant partyhas been advised of the possibility of such damage.

 

17.           Termination

 

17.1         Eitherparty shall be entitled to terminate this agreement immediately if the other:

(i)            commitsany breach of this Agreement which cannot be remedied within 30 days afternotification;

(ii)           commitsa breach which can be remedied but which is not remedied within 30 days ofreceipt of written notice requiring the breach to be remedied;

(iii)          ceasesor threatens to cease trading, becomes insolvent or has a receiver,administrative receiver appointed over the whole or any part of its assets, orenters into composition with is creditors or has a resolution passed or ordermade for it to be wound up (other than for purpose of a solvent amalgamation orreconstruction);

 

17.2         Terminationshall not affect any rights which have accrued in favour of either party priorto the date of termination.

 

18.           Confidentiality

 

18.1         ReceivingParty shall:

 

(i)      Refrainfrom disclosing any Confidential Information of the Disclosing Party to thirdparties for three (three) years following the date that Disclosing Party firstdiscloses such Confidential Information to Receiving Party, except as expresslyprovided in Sections 2(b) and 2(c) of this Agreement;

 

(ii)     Takereasonable security precautions, at least as great as the precautions it takesto protect its own **C**onfidential **I**nformation, but no less than reasonable care, to keepconfidential the Confidential Information of the Disclosing Party;

 

(iii)    Refrainfrom disclosing, reproducing, summarizing and/or distributing ConfidentialInformation of the Disclosing Party except in pursuance of

 

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Receiving Party’s business relationship withDisclosing Party, and only as otherwise provided hereunder; and

 

(iv)    Refrainfrom reverse engineering, decompiling or disassembling any software code and/orhardware devices disclosed by Disclosing Party to Receiving Party under theterms of this Agreement, except as expressly permitted by applicable law.

 

18.2      Receiving Party may discloseConfidential Information of Disclosing Party in accordance with a judicial orother governmental order, provided that Receiving Party either (i) givesthe undersigned Disclosing Party reasonable notice prior to such disclosure toallow Disclosing Party a reasonable opportunity to seek a protective order orequivalent, or (ii) obtains written assurance from the applicable judicialor governmental entity that it will afford the Confidential Information thehighest level of protection afforded under applicable law or regulation.  Notwithstanding the foregoing, the ReceivingParty shall not disclose any computer source code that contains ConfidentialInformation of the Disclosing Party in accordance with a judicial or othergovernmental order unless it complies with the requirement set forth in sub-section (i) ofthis Section 2(b).

 

18.3      The undersigned ReceivingParty may disclose Confidential Information only to Receiving Party’s employeesand consultants on a need-to-know basis. The undersigned Receiving Party will have executed or shall executeappropriate written agreements with third parties sufficient to enableReceiving Party to enforce all the provisions of this Agreement.

 

18.4      Receiving Party shall notifythe undersigned Disclosing Party immediately upon discovery of any unauthorizeduse or disclosure of Confidential Information or any other breach of thisAgreement by Receiving Party and its employees and consultants, and willcooperate with Disclosing Party in every reasonable way to help DisclosingParty regain possession of the Confidential Information and prevent its furtherunauthorized use or disclosure.

 

18.5      Receiving Party shall, atDisclosing Party’s request, return all originals, copies, reproductions andsummaries of Confidential Information and all other tangible materials anddevices provided to the Receiving Party as Confidential Information, or atDisclosing Party’s option, certify destruction of the same. 

 

18.6.     Remedies.  The parties acknowledge that monetarydamages may not be a sufficient remedy for unauthorized disclosure ofConfidential Information and that Disclosing Party shall be entitled, withoutwaiving any other rights or remedies, to such injunctive or equitable relief asmay be deemed proper by a court of competent jurisdiction. 

 

18.7.     Miscellaneous

 

(a)           All ConfidentialInformation is and shall remain the property of Disclosing Party.  By disclosing Confidential Information toReceiving Party, Disclosing Party does not grant any express or implied rightto Receiving Party to or under any patents, copyrights, trademarks, or trade secretinformation except as otherwise provided herein.  Disclosing Party reserves without prejudicethe ability to protect its rights under any such patents, copyrights,trademarks, or trade secrets except as otherwise provided herein.

 

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(b)           The terms ofconfidentiality under this Agreement shall not be construed to limit either theDisclosing Party or the Receiving Party’s right to independently develop oracquire products without use of the other party’s ConfidentialInformation.  However, this sub-paragraphshall not be deemed to grant to the Receiving Party a license under theDisclosing Party’s copyrights or patents. 

 

19.           Waiver

 

The failure of either party at any time ortimes to enforce any provisions within this Agreement shall not affect itsright to enforce such provision at a later date.

 

20.           Law

 

This Agreement shall be governed by the lawsof the state of Minnesota, USA.

 

21.           Assignmentor Transfer.  RME will not, withoutprior consent in writing, assign, transfer or sub-contract, or in any way makeover its obligations of this agreement without DAC’s consent.

 

22.           Amendments,Assignment, and Entire Agreement. This Agreement may not be modified, amended, or supplemented except byan agreement in writing signed by both parties. This Agreement and the rights and obligations hereunder shall not beassignable without the express written consent of the nonassigning party.  Subject to the restrictions against transferor assignment as herein set forth, the provisions of this Agreement shall inureto the benefit of, and shall be binding on, the permitted successors andassigns of each of the parties hereto. This Agreement shall constitute the entire agreement between the partieshereto with respect to the transactions contemplated hereby and shall supersedeall prior or contemporaneous discussions, negotiations, understandings andagreements.  There are norepresentations, agreements, arrangements, or understandings, oral or written,between or among the parties hereto relating to the subject matter of thisAgreement that are not fully expressed herein.

 

23.           Counterparts.  This Agreement may be executed in variouscounterparts or copies, all of which, when taken together, shall constitute theentire agreement.

 

24.           Waiver.  The failure of any party to insist, in anyone or more instances, upon performance of any of the terms, covenants, orconditions of this Agreement shall not be construed as a waiver or arelinquishment of any right or claim granted or arising hereunder or of thefuture performance of any such term, covenant, or condition, and such failureshall in no way affect the validity of this Agreement or the rights andobligations of the parties hereto.  Nowaiver of any provision or condition of this Agreement shall be valid unlessexecuted in writing and signed by the party to be bound thereby, and then onlyto the extent specified in such waiver. No waiver of any provision or condition of this Agreement shall beconstrued as a waiver of any other provision or condition of this Agreement,and no present waiver of any provision or condition of this Agreement shall beconstrued as a future waiver of such provision or condition.

 

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25.           Invalidity

 

If any provision of this agreement is held byany court or other competent authority to be void or unenforceable in whole orin part, the other provisions of this agreement and the remainder of theaffected provisions shall continue to be valid.

 

26.           IntellectualProperty.

 

26.1         Licensegrants from DAC to RME.  During theterm of this Agreement, DAC hereby grants to RME a non-exclusive, royalty freelicense to use DAC’s Intellectual Property in connection with the manufactureof the Products, which license specifically excludes any right to distributethe Products to third parties or to create any derivative works from theProducts.  Except as provided in Clause10 herein, RME shall have no right to grant sublicenses to any of DAC’sIntellectual Property to third parties.

 

26.2         Licensegrant from RME to DAC.  Inconsideration of the sale of the Products to DAC, whether such Products aremanufactured by RME or by a third party pursuant to the provisions of Clause 10herein, DAC and any person acquiring title to any Product through DAC shall bedeemed to have been granted a non-exclusive, royalty free license to any andall Intellectual Property held by RME or its Affiliates related to themanufacture, distribution or use of the Products; provided, however, that suchlicense shall be considered as part of each Product and shall not be licensed,sublicensed or conveyed separately from the Product to which such licenserelates.  RME represents and warrantsthat prior to the effective date of this Agreement, neither RME nor its Affiliates(i) have used the Intellectual Property to commercializesyringe-implantable transponders for use in humans or animals other thanthrough DAC or (ii) assigned or otherwise granted any rights in the IntellectualProperty to any third parties.

 

26.3         Exclusivity.  So long as DAC purchases not less than theaggregate quantity of Products purchased by DAC in calendar year 2005 from RME(the “Annual Minimum Purchase Amount”), RME shall not, without the priorwritten consent of DAC in each instance, (i) manufacture or sell anyProducts (or Products competitive with the Products) to third parties or (ii) knowinglylicense any Intellectual Property of RME or its Affiliates to any third partyfor use in manufacture or distribution of the Products or products competitiveto the Products.  In the event that RMEis unable or unwilling to manufacture the quantities of any Product requestedby DAC and does not acquire such Products from third parties pursuant to Clause10 herein, DAC shall have the right to purchase Products from third parties,and (i) such purchases shall be treated as having been purchased from RMEfor the purpose of calculating the Annual Minimum Purchase Amount, and (ii) thelicense of Intellectual Property of RME and its Affiliates referred to insubparagraph (c) above shall be deemed to extend to all such Productsmanufactured by third parties.  RME shallhave the right, on not less than 90 days prior notice, to advise DAC of itswillingness to again produce the quantities of Product requested by DAC, andupon delivery of such Products, DAC shall not have the right to treat purchasesfrom third parties against the Annual Minimum Purchase Amount.

 

26.4         Noother interest in Intellectual Property. Except as expressly provided herein, the parties acknowledge thatneither party has, nor shall such party acquire, any interest in the otherparty’s Intellectual Property.

 

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27            ForceMajeure.  Any delay or failure of RMEto perform its obligations hereunder shall be excused to the extent that it iscaused by an event or occurrence beyond its reasonable control such as, by theway of example and not by way of limitation, acts of god, actions by anygovernmental authority (whether valid or invalid), fires, floods, windstorms,explosions, riots, natural disasters, wars, sabotage, labor problems (includinglockouts, strikes, and slowdowns) at RME’s facility, its source plant orsuppliers, inability to obtain power, material, labor, equipment, or transportation,or court injunction or order.

 

 

The parties or their duly authorized representatives have executed thisAgreement on the date shown at its head.’

 
| Signed for and on behalf of       | Signed for and on behalf of            |
|-----------------------------------|----------------------------------------|
| Digital Angel Corporation         | Raytheon Microelectronics Espana, S.A. |
|                              |                                   |
|                              |                                   |
| /s/ James P. Santelli             |                                   | /s/ Ignacio Galnares |   |
|                              |                                   |
| Sr. Vice President James Santelli | Managing Director Ignacio Galnares     |
|                              |                                   |
| Dated:                            | April 26, 2006                         |   | Dated: | April 28, 2006 |   |
|                                   |                                        |  |  |  |  |

 

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