Product Supply And Distribution Agreement

Exhibit 10.1 ****CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION. ASTERISKS DENOTE SUCH OMISSIONS. Execution Copy AMENDMENT NO. 1
TO THE
PRODUCT SUPPLY AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
DIGITAL ANGEL CORPORATION
AND
SCHERING-PLOUGH HOME AGAIN LLC This AMENDMENT NO. 1 (this " Amendment No. 1" ) dated as of this 5 th day of January, 2008 (the " Amendment Effective Date" ), to the Product Supply and Distribution Agreement dated February 13, 2007 (" Agreement" ), is made by and between DIGITAL ANGEL CORPORATION (" Digital Angel" ) and SCHERING-PLOUGH HOME AGAIN LLC (" Schering" ). Recitals: WHEREAS, Schering and Digital Angel (referred to collectively as " Parties" and individually as " Party" ) entered into the Agreement to, among other things, provide for the distribution of Products within the Territory;WHEREAS, Schering and Digital Angel entered into Agreed Contract Amendment Terms on July 20, 2007 (" July Contract Terms" ), pursuant to which the Parties agreed to enter in a formal amendment to the Agreement to reflect and memorialize the terms set forth in such July Contract Terms;****WHEREAS, the Parties desire to **** and memorialize the July Contract Terms by amending the Agreement in accordance with Section 11.5(b) thereof in order to, among other things, (a) expand the market within which Schering may sell specific quantities of RFID Biotherm Products under the Agreement, (b) provide for certain minimum purchases of Products by Schering, (c) reduce the prices payable by Schering for Products and Readers, (d) add obligations for each Party with respect to new ISO Readers and the conversion from the existing Reader technology to the new ISO 134 kHz standard, and (e) ****; andNOW, THEREFORE, Schering and Digital Angel hereby agree to amend the Agreement as follows:


1. Defined Terms . Unless otherwise defined herein, each of the capitalized terms used in this Amendment No. 1 shall have the meaning ascribed to it in the Agreement.2. Amendments to Article I .(a) Article I of the Agreement is hereby amended and supplemented by adding the following new defined terms:" Designated Animals" shall mean (a) horses, (b) parrots and other birds (to the extent not included in the definition of Companion Animals, including poultry and exotics), (c) animals typically found or maintained in a zoo, aquarium or research facility, (d) rodents, primates and other mammals (to the extent not included in the definition of Companion Animals), (e) reptiles, (f) wild game, including wild game that is ranch-raised for hunting or for food, and (g) any other species for which Digital Angel does not, as of the Amendment Effective Date, have an exclusive supply agreement with any Person as indicated in Schedule A, which is attached hereto and made a part hereof; provided , however , that this term shall not include humans, cattle, swine, and sheep." Designated Animal Territory" shall mean all countries of the world (including the countries in the Territory), but excluding those countries listed in Schedule A." Universal Reader" shall mean a Reader that is capable of reading, translating and displaying Transponders at 125 kHz, 128 kHz and 134 kHz, which shall include the capability to read, translate and display using the Trovan and Avid technologies via version 74 software. For the avoidance of doubt, Universal Readers include any make or model of Basic Readers, Read/Write Readers, Biothem Readers and Biotherm Read/Write Readers capable of reading, translating and displaying Transponders at 125 kHz, 128 kHz and 134 kHz. (b) Section 1.39 of the Agreement (definition of Readers) is hereby amended and supplemented by adding the words " and (e) Universal Readers" after the phrase " Biotherm Read/Write Readers," and such section shall read in its entirety as follows:" Readers" shall mean (a) Basic Readers, including the Worldscan Reader for veterinary clinics and Worldscan PLUS Reader for animal shelters, (b) Read/Write Readers, (c) Biothem Readers, (d) Biotherm Read/Write Readers, and (e) Universal Readers. (c) Section 1.45 of the Agreement (definition of RFID Product) is hereby deleted in its entirety and replaced with the following:" RFID Product" shall mean (a) an injectable sterile glass encapsulated radio frequency microtransponder (frequency as specified by Schering) that stores and transmits RFID identification information together with an anti-migration cap, preloaded in a sterilized 12 gauge microtransponder syringe with plunger used to deposit the transponder subcutaneously, (b) registration form content/artwork as specified by Schering, (c) shrink-wrapped package containing (a) and (b) above as well as inserts, tags, and administration instruction headercard, and (d) when ordered in quantities, the multiple unit boxes (25 units per package) and related packaging, master shipping carton and labels containing all of the forgoing components, in each case (Section 1.45(a) through (c)) produced in accordance with the Specifications.


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(d) Section 1.48 of the Agreement (definition of Specification) is hereby deleted in its entirety and replaced with the following:" Specifications" shall mean the written specifications for the manufacture, quality control testing, and delivery of a Product, including details of the finished packaging components for each Product, as set forth on Exhibit A-1 to Amendment No. 1 or as added to after the Amendment Effective Date pursuant to Section 4.02(a), which is attached hereto and made a part hereof, and as may be amended from time to time by written agreement of the Parties. 3. Amendments to Article III .(a) The first sentence of Section 3.01(a) of the Agreement is hereby deleted in its entirety, and such section shall read in its entirety as follows: During the Term, Digital Angel shall exclusively manufacture, supply, and sell to Schering, and Schering shall exclusively purchase from Digital Angel, (i) the quantities of the Products specified in Part I of Schedule B, which is attached hereto and made a part hereof for the periods specified in Part I of Schedule B and (ii) such additional quantities of the Products as Schering may specify from time to time, pursuant to Section 3.03 of this Agreement. The purchase and sale of Products is subject to the additional terms and conditions set forth in Part II of Schedule B. Digital Angel shall not manufacture, supply or sell the Products to any Person in the Territory, other than Schering. If, at any time during the Initial Term, Schering exits the pet recovery business entirely, the rights granted in this Section 3.01(a) and Section 3.01(b) shall become non-exclusive. (b) The first sentence of Section 3.01(b) of the Agreement is hereby amended and supplemented by adding the words " and Designated Animal market in the Designated Animal Territory" after the phrase " Companion Animal market in the Territory" and before the phrase " both as to Schering and to any downstream purchaser." The second sentence of Section 3.01(b) is hereby amended and supplemented by adding the words " and Designated Animal market in the Designated Animal Territory" after the phrase " Companion Animal market in the Territory." The third sentence of Section 3.01(b) is hereby amended and supplemented by adding the words " Designated Animal" before the word " Territory," and such section shall read in its entirety as follows:


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Digital Angel' s sales of Products and Readers to Schering are intended to be unconditional and to fully exhaust Digital Angel' s rights in such Products and Readers under the Patent Rights in the Companion Animal market in the Territory and Designated Animal market in the Designated Animal Territory, both as to Schering and any downstream purchaser or user of Products or Readers sold by Schering, including any rights of Digital Angel in any apparatus, method or system claims within the Patent Rights. To the extent that the patent exhaustion doctrine (as set forth in United States v. Univis Lens Co., Inc. 316 U.S. 241 (1942) and subsequent case law) is found not to exhaust Digital Angel' s rights in such Products and Readers under the Patent Rights, Digital Angel hereby grants Schering the right to use the Patent Rights and Digital Angel' s other Intellectual Property Rights relating to the Products and Readers solely in connection with the distribution, marketing and sale of the Products and Readers in the Companion Animal market in the Territory and Designated Animal market in the Designated Animal Territory. Schering shall have the right to grant sublicenses in connection with its distribution, marketing, and sale of the Products and Readers in the Designated Animal Territory. (c) Section 3.02(a) of the Agreement is hereby amended and supplemented by deleting the second sentence and adding a new second sentence, and such section shall read in its entirety as follows:: Digital Angel hereby grants exclusive distribution, marketing and sale rights to all of Digital Angel' s RFID products (including the Products) in the Companion Animal market in the Territory. Digital Angel hereby grants Schering non-exclusive distribution, marketing and sale rights to Digital Angel' s RFID Biotherm Product in the Designated Animal market in the Designated Animal Territory subject to a maximum of **** units of such RFID Biotherm Products. Upon exhaustion of such quantity (**** such units having been shipped to, and accepted by, Schering as of this Amendment Effective Date), all rights in the Designated Animal market in the Designated Animal Territory shall expire and Schering shall have no further rights in such Designated Animal market in the Designated Animal Territory. (d) Section 3.02 of the Agreement is hereby amended and supplemented by adding the following new subsection (e): During the Term, Digital Angel shall manufacture, supply, and sell to Schering, and Schering shall purchase from Digital Angel, (i) the quantities of the Universal Readers specified in Part II of Schedule C, which is attached hereto and made a part hereof for the periods specified in Part II of Schedule C and (ii) such additional quantities of the Universal Readers as Schering may specify from time to time. The purchase and sale of Universal Readers is subject to the additional terms and conditions set forth in Parts I and III of Schedule C. (e) Section 3.02 of the Agreement is hereby amended and supplemented by adding the following new subsection (f): Digital Angel shall match Schering donations of up to 12,500 HomeAgain sterile syringe assemblies in both 2007 and 2008 based upon a Schering proposal.


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(f) Section 3.02 of the Agreement is hereby amended and supplemented by adding the following new subsection (g): Schering shall have the option (but not the obligation) to convert some or all of the older Readers that are currently in inventory or in the marketplace into newer Universal Readers. If Schering elects to convert Readers, Digital Angel shall replace or refit the older Readers with Universal Readers in accordance with the pricing and other terms set forth in Part IV of Schedule C, and Attachments A, B and C to Amendment No. 1 shall apply. (i) Section 3.03 of the Agreement is hereby amended and supplemented by adding the following new subsection (d): (d) For the avoidance of doubt, Schering shall have no obligation to submit to Digital Angel forecasts or purchase orders for Products for the Designated Animal market in the Designed Animal Territory. 4. Amendments to Article IV .(a) The first sentence of Section 4.01(a) of the Agreement is hereby amended and supplemented by adding the words " and Designated Animal market in the Designated Animal Territory" after the phrase " Companion Animal market in the Territory." The second sentence of Section 4.01(a) is hereby deleted in its entirety and replaced with a new second sentence, and such section shall read in its entirety as follows: Digital Angel hereby appoints Schering as a distributor with non-exclusive rights to market, distribute, and sell Readers throughout the Companion Animal market in the Territory and Designated Animal market in the Designated Animal Territory. Schering may order Readers from Digital Angel using the procedures set forth in Section 3.03(c) and (d). (b) Section 4.04(c) of the Agreement is hereby deleted in its entirety and replaced with the following: Schering may, but shall not be obligated to, promote, market and sell (i) Readers to its customers in the Territory and Designated Animal Territory, and (ii) Digital Angel' s RFID Biotherm Products (subject to the limitations set forth in 3.02(a)) in the Designated Animal market in the Designated Animal Territory. 5. Amendments to Article V .(a) Section 5.01(a) of the Agreement is hereby amended and supplemented by adding a second sentence, and shall read ...