Non-exclusive Distributor Agreement

NON-EXCLUSIVE DISTRIBUTOR AGREEMENT


This Non-Exclusive Distributor Agreement ("this Agreement"), effective as of the date of the latest signature below (the "Effective Date") is entered into by SCOTT MEDICAL PRODUCTS ("Scott"), located at 6141 Easton Road, Plumsteadville, Pennsylvania 18949-0310, and ESCALON OPTHALMIC, INC. ("Escalon"), located at 351 Easton Conestoga Road, Wayne, PA 19087.


RECITALS


A. Scott and Escalon are parties to a Distributorship Agreement, dated as of
September 8, 1992 (the "Former Agreement"), which the parties desire to
terminate.


B. Scott and Escalon desire to enter into this Agreement to allow Escalon the
non-exclusive right to distribute products manufactured by Scott Medical
Products. The products covered in this agreement ("Products") are limited
to those products set forth in Exhibit A attached hereto and made a part
hereof, as amended from time to time pursuant to Section 2.7.


THEREFORE, in consideration of the mutual promises contained in the following provisions, and intending to be legally bound by this Agreement, the parties agree as follows:


ARTICLE I -- TERMINATION OF FORMER AGREEMENT


1.1 Termination. The Former Agreement is hereby terminated effective as of the
Effective Date. In connection with the termination of the Former Agreement,
the parties agree that:


(a.) Any products ordered by Escalon under the Former Agreement and not
shipped by Scott prior to the Effective Date shall be deemed to have
been ordered under this Agreement and shall be shipped by Scott and
paid for by Escalon in accordance with the terms of this Agreement.


(b.) Any products shipped by Scott under the Former Agreement and not
paid for by Escalon as of the Effective Date shall be paid for by
Escalon in accordance with the pricing and terms current at the time
the product was shipped.


1.2 Release. In consideration of the execution and delivery by Scott of this
Agreement, and the rights granted to Escalon in this Agreement, Escalon
does hereby, for itself, its affiliates, successors and assigns, release,
disclaim and discharge any and all manner of actions and causes of action,
suits, debts, accounts, covenants, contracts, agreements, damages, claims,
demands and liabilities whatsoever, of every name and nature, in law or
equity, or otherwise (any of the foregoing, a "Claim"), which any of them
ever had, now have, or which they hereafter can, shall or may have, against
Scott and its affiliates, officers, directors, shareholders, distributors
and customers under the Former Agreement or by reason of Scott's
development, manufacture and sale of products to Escalon or any other
person, or for infringement of any patents owned by, or licensed or
assigned to, Escalon or any of its affiliates (filed in the United States
or elsewhere) for, or relating to, 2
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ophthalmic gases, whether a Claim arises or arose out of any agreement, oral or written, a course of conduct or otherwise. Escalon covenants and agrees that it will forever refrain from, directly or indirectly, instituting, prosecuting, maintaining or pressing any Claim against Scott or any other person based upon any matter purported to be released hereby.


ARTICLE 2 - Supply of Products


2.1 General. Scott shall use commercially reasonable efforts to supply the Products to Escalon in accordance with Escalon's written purchase orders and the terms and conditions of this Agreement.


2.2 Estimated Purchases. Escalon will provide Scott at the beginning of each month with a rolling twelve (12) month forecast of its requirements for the Products, such forecasts to be considered good-faith estimates only, for planning purposes, and not to be considered as guarantees of the volumes or timing of such requirements; provided that the first three (3) months of such rolling forecast shall constitute a firm commitment unless modified by the parties by subsequent written agreement.


2.3 Exclusivity of Supplier. Scott shall be considered Escalon's exclusive supplier of the Products and Escalon agrees to purchase all of its requirements for the Products from Scott. If Scott is unable to meet the required demand for the Products for four consecutive calendar months, then Escalon will not be required to purchase all of its requirements for the Products from Scott and may purchase from an additional supplier the amount of Products not available from Scott. Escalon will resume purchasing all of its requirements of the Products once Scott has demonstrated that it once again has the ability to supply Escalon with the amount of the Products needed.


2.4 Specifications. All the Products that Scott supplies shall meet or exceed the relevant specifications set forth in Exhibit A (the "Specifications").


2.5 Manufacturing. All the Products that Scott supplies shall be manufactured in compliance with or pursuant to: (a) all applicable CGMP procedures; (b) all other applicable FDA regulations or requirements; (c) all other applicable federal, state, and local laws and regulations; and (e) all required FDA and other regulatory validations, permits, registrations, licenses, and approvals.


2.6 Manufacture of Finished Products by Escalon. Upon receipt of the Products from Scott, Escalon shall integrate the Products into finished products as components thereof. Escalon shall package and label the finished products in a manner mutually agreeable to the parties and in conformity with applicable law and governmental approvals.


2.6 Modifications to Products. From time to time Scott may modify, alter or improve the Products listed in Exhibit A in whole or in part. Any such modification, alteration or improvement of the Products shall only occur with the prior written consent of Escalon, except that Escalon's consent shall not be required if Scott determines that the modification, alteration or improvement is necessary in order to correct a defect in a Product or enhance the safety of a Product, or if the modification, alteration or improvement is required by any law or regulation or is in conformity with any administrative or regulatory order or standard. In the event Escalon fails to respond within 30 days of receipt of notice of a proposed modification, alteration or improvement,


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the modification, alteration or improvement shall be deemed approved by
Escalon. The term "Products" shall be deemed to include the modified,
altered or improved Products.


2.8 Price. The prices for all Products shall be as set forth in Exhibit B
attached hereto and made a part hereof. Such prices shall remain firm
for one year after the signing of the Agreement. Thereafter, these
prices shall be subject to adjustment at the discretion of Scott.


2.9 Escalon Purchase Orders. A specific commitment to purchase the Products
will be established by Escalon's issuance of a purchase order against
this Agreement. All Escalon purchase orders shall be deemed to
incorporate the pricing, delivery, Specification, and other terms and
conditions contained in this Agreement. None of the terms and
conditions set forth on any purchase or order form, invoice or like
document shall change or modify the provisions of this Agreement, unless
mutually agreed to by the parties in writing. Each purchase order shall
be considered firm, and shall not be subject to change or cancellation
without Scott's written consent and will be subject to Scott's normal
cancellation fees. A purchase order shall be deemed to have been issued
on the date that it bears if it is received by Scott no later than the
fourth business day following that date; if it is received later than
the fourth business day, it shall be considered to have been issued when
received by Scott.


2.10 Payment. Escalon's payment for all orders of the Products shall be due
net 30 days after shipment from Scott.


2.11 Interest. Interest shall accrue on any delinquent amounts owed by
Escalon for Products at the lesser of 10% per year, or the maximum rate
permitted by applicable law.


2.12 Shipment. Scott shall ship each order of the Products to the destination
specified in Escalon's purchase order. All shipments will be F.O.B.
Plumsteadville, PA. Escalon may specify in its purchase order the common
carrier to be used. If Escalon fails to specify a qualified common
carrier, Scott shall select the common carrier.


2.13 Risk of Loss. Title and all risk of loss of or damage to the Products
(other than loss or damage resulting from the acts or omissions of
Scott, including without limitation acts or omissions in packing the
Products) will pass to Escalon, or to such financing institution or
other party or parties as may have been designated to Scott by Escalon,
upon delivery by Scott to a mutually agreed upon carrier in accordance
with Section 2.9.


2.14 Partial Delivery. With Escalon's prior written consent, Scott may make
partial shipment of Escalon's orders, to be separately invoiced and paid
for when due.


2.15 Delivery Schedule; Delays. Scott will use commercially reasonable efforts
to meet Escalon's requested delivery schedules for the Products, but
Scott reserves the right to refuse, cancel or delay shipment to Escalon
when Escalon is delinquent in payments to Scott, or when Escalon has
failed to perform its obligations under this Agreement or any other
Agreement between Escalon and Scott. Reasonable delay in delivery of any
order shall not relieve Escalon of its obligation to accept the delivery.
Should orders for Products exceed Scott's available inventory, Scott will
allocate its available inventory among its customers on a pro rata basis
based upon orders for the preceding six months. In any event, Scott shall
not be liable for indirect, consequential, or special damages to


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Escalon for failure to deliver or for any delay or error in delivery of
Products for any reason whatsoever.


2.16 Sales and Use Tax. Escalon shall pay any and all applicable sales or use
taxes or any other assessment levied upon the sale, transportation,
delivery, use or consumption of the Products or upon the cylinders in
connection with any order of the Products.


2.17 Certificate of Analysis. Scott shall provide a certificate of compliance
for each lot produced for each item of the Products indicating that the
material has been produced and tested in accordance with the
Specifications. Scott agrees to provide Escalon (upon request) final
acceptance and in-process test data to indicate that the process used to
produce the Products is under control for each lot/batch supplied.


2.18 Acceptance of the Products by Escalon. Escalon shall perform and complete
its receiving and quality assurance tests and inspections for units of the
Products shipped to Escalon under this Agreement by no later than 30 days
after its receipt of such units of the Products from time to time, and
shall be conclusively deemed to have accepted such units of the Products
unless it gives written notice of rejection of any such units to Scott
within such 30 day period and returns the rejected units to Scott within 30
days after receiving a written return authorization from Scott. Scott shall
not unreasonably withhold its return authorization and will be deemed to
have authorized the return of rejected units if it fails to deny such
return authorization within ten days of receiving Escalon's notice of
rejection. All shipping charges on authorized returns shall be borne by
Scott. Escalon acknowledges that the Specification for the Products is as
set forth in Exhibit A to this Agreement. Escalon's acceptance of the
Products shall in no way relieve Scott of its obligations and/or warranties
hereunder.


2.19 Remedies for Failure to Comply with Specification. Should any failure of a
Product to conform with the Specification appear within the Product
Warranty Period (as discovered by Escalon) as a result of the testing
outlined in Section 2.18, and if Escalon gives written notice of such
failure to Scott within 30 days following discovery of the failure, Scott
shall replace the nonconforming Product or refund the purchase price
thereof within 90 days after Escalon's notice to Scott. The foregoing shall
constitute Escalon's sole remedy with respect to the non-conforming
Products.


ARTICLE 3 -- Escalon's Duties


3.1 No Additional Warranties. Escalon agrees that it will not make any
representations, guarantees or warranties (whether written or oral)
regarding the efficacy or any other characte ...