Product Supply & Distribution Agreement

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. a7 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 Angel92s 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, attorneys92 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 Party92s 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 Angel92s 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 Angel92s 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 Schering92s 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 Agreement92s terms, except as enforceability may be limited by bankruptcy, insolvency, and other laws affecting creditors92 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 Schering92s 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 Angel92s 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 Agreement92s terms, except as enforceability may be limited by bankruptcy, insolvency, and other laws affecting creditors92 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 Angel92s 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. a7 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 Angel92s 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 Angel92s 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 Companio ...