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Fisheries (hereinafter called the "Director"), all sealskins delivered to it by the Government. The Contractor will receive all such sealskins at St. Louis, Missouri, and will at the time of delivery assume possession, custody, and absolute liability for loss of or damage to all such sealskins. The Contractor shall maintain insurance coverage against loss of or damage to all such sealskins, with the Government as a named insured, in an amount and on terms acceptable to the Director. It is mutually understood that ownership of the sealskins remains with the United States at all times until the same are sold at auction as provided herein.

2. Grading and Rejection

All sealskins delivered to the Contractor shall be sorted and graded by the Contractor prior to processing. The Contractor shall thereupon notify the Director of the number of sealskins rejected as unsuitable for processing. The Contractor may also reject, subject to the approval of the Director, sealskins which are determined during processing to be unsuitable for further processing. The Contractor shall dispose of all such rejected sealskins as directed by the Director, including on request, return to the Government for disposal as the Government sees fit.

3. Facilities for Processing

The Contractor shall maintain facilities for the processing of and process, all sealskins which are delivered to it by the Government which are suitable for such processing, to a finished state suitable for sale at public auction to the luxury fur trade, in accordance with the terms and conditions of this Agreement. The Contractor shall have such suitable sealskins available for an auction in the fall of 1964, unless otherwise mutually agreed by the Parties. The Contractor will develop by January 1, 1964, and maintain, a capacity to process a minimum of 50,000 Government-owned sealskins per year, and the ability to expand capacity up to 80,000 sealskins per year within six months upon request of the Director.

In order to accomplish the above objectives, the Contractor shall either:

(a) Lease a building, which will be especially built for the purposes of this Agreement, under a lease the provisions of which shall have been approved by the Secretary of the Interior; or, in the event that a satisfactory lease cannot be negotiated,

(b) The Contractor will obtain other space on terms acceptable to the Secretary of the Interior.

4. Auctions

The Contractor shall conduct public auctions for the sale of all Governmentowned sealskins processed by it. Such auctions shall be held twice each year at such times, places, and under such terms and conditions as may be approved by the Director. The numbers of sealskins to be sold at each auction shall be determined by the Director, taking into consideration the recommendations of the Contractor. The Contractor shall classify and grade all the finished sealskins according to size, color, quality, blemish or damage. The sealskins will then be put into lots of suitable quantities in readiness for sale.

5. Promotion and Advertising

The Contractor will develop the market for processed sealskins through the use of, but not limited to, merchandising and promotional work with brokers, dealers, manufacturers, wholesalers, and retailers, and will conduct market surveys, lectures, and general visits with the trade with a view to promoting greater understanding, consumer acceptance, and interest in the use of processed sealskins. Such promotion and development also will include recognized methods of advertising and means and methods designed to create and stimulate the interest and the sponsorship of fashion designers, couturiers, and editors, both in this country and abroad, in order to develop further the use of the product in its finished form. The Contractor's general program of advertising and promotion will be reviewed by the Director at his request from time to time, and the Contractor's annual advertising and promotion budget shall be subject to the approval of the Director.

6. Quality Requirement

The Contractor, in its processing of sealskins, shall not permit, with due regard for accepted variations, the recognized standards in respect to quality of materials and workmanship, which it employs in such processing, to fall below the

recognized high standards of quality of materials and workmanship expected by the fur industry from past experience, except as the same may be direct result of the condition of the raw skins as furnished by the Government, and the Contractor will exercise all of its energy, ingenuity, and resources in developing and improving, through research, experimentation, and other means, the processing of sealskins.

7. Production Schedules

The Contractor will maintain adequate production schedules to permit the processing of all sealskins delivered to it by the Government within such periods of time as the Director shall request. Production schedules recommended by the Contractor shall be subject to the approval of the Director, who shall give consideration to the availability of raw sealskins and the needs of the Contractor for adequate notice to insure its ability to fulfill its obligations under this section. Adequate notice shall be deemed to be six months, except where clearly inappropriate. In the event that the Contractor fails to meet production schedules as determined by the Director, the Contractor shall, on request of the Director, return to the Government's custody such number of unprocessed sealskins as represents the difference between the number processed and the number scheduled for processing, for disposition as the Government sees fit. The Government account shall at all times be given priority over all other work which the Contractor may undertake.

8. Reports

The Contractor shall render to the Director on request just and proper accounts of any and all sealskins and monies for which it is responsible. In addition, the following regular reports shall be rendered:

(a) Quarterly-inventory and processing records.

(b) Annually-research and development, including inventions as required under Section 13.

(c) Semi-annually-market development and outlook.

(d) Semi-annually-disposal of by-products, including quantities, prices received, and purchaser.

(e) Promptly after each auction-accounting of any and all sales of sealskins, showing all advances and payments or charges that the Contractor is authorized to deduct from proceeds of sales.

(f) Annually-the financial and cost statements and reports covering its operations which it customarily obtains from certified public accountants. Such statements will be in a form specified by the Director after consultation with the Contractor.

(g) Semi-annually-projected production and sales schedules for a three-year period.

9. Payment to Government

As soon as practicable, but in any event within 30 calendar days after each auction, the Contractor will pay, by remittance drawn payable to the United States Department of the Interior, Bureau of Commercial Fisheries, an amount equal to the gross amount of the sales of that auction less the Contractor's participation in the proceeds of the sale.

10. Bond Requirement

The Contractor shall furnish a bond with such surety or sureties as shall be satisfactory to the Director in the sum of $200,000, conditioned upon the faithful performance of each and every covenant and agreement to be performed by the Contractor under the provisions of this Agreement. If any surety upon any bond furnished in connection with this Agreement becomes unacceptable to the Government, or if any such surety fails to furnish reports as to his financial condition from time to time as requested by the Government, the Contractor shall promptly furnish such additional security as may be required from time to time to protect the interests of the Government and of persons supplying labor or materials in the prosecution of the work contemplated by this Agreement. Failure to furnish such additional security shall be deemed a default. 11. Organization and Basic Contracts

(a) The Government conditions this Agreement upon the approval by the Secretary of the Interior and continued existence of a Joint Venture Agreement. which shall constitute the basic organizational document of the Contractor. Any amendments to said Joint Venture Agreement shall be submitted to the

Government and shall be valid only when approved by the Secretary of the Interior. The Government agrees that in the event a Successor Joint Venture is created pursuant to the Joint Venture Agreement, that such Successor Joint Venture shall succeed to all of the rights, privileges, obligations and powers of the Contractor under this Agreement as if it had been the original Contracting Party hereto.

(b) The Government conditions this Agreement upon the approval by the Secretary of the Interior and continued existence of an Employment Agreement between the Contractor and the National Superior Fur Dressing & Dyeing Company, Not Inc. of Chicago, Illinois, a Partnership (hereinafter designated as "National"), Superior Fur Dyeing Company Not Inc. of Brooklyn, New York (hereinafter referred to as the "Corporation") for technical skills, know-how, secret processes, supervision of processing, supervision of dyeing of sealskins, and general administrative activities. Any amendments to such an agreement shall be submitted to the Government and shall be valid only when approved by the Secretary of the Interior.

(c) The Contractor shall not pay to National, Superior, and the Corporation for technical skills, know-how, secret processes, supervision of processing, supervision of dyeing of sealskins, general administrative activities, or other services as set forth in the Employment Agreement, a combined amount in any year which exceeds $222,000, except that whenever the gross annual sales of sealskins is more or less than $4,440,000, the maximum allowable combined payments to National, Superior and the Corporation shall be increased or decreased, as appropriate, by 2% of the difference between $4,440,000 and the actual amount of the gross annual sales of sealskins.

(d) In the event that the Contractor shall employ National, Superior, or the Corporation for services in connection with sealskin processing accounts other than the Government account, the charges of National, Superior, and the Corporation under this Agreement shall not be allowed in excess of their charges for like services to others.

(e) The Contractor shall not pay any salary or wage for the performance of functions or the rendering of services for which National, Superior, or the Corporation are being compensated by the payments allowed by Section 11(c) of this Agreement. The Contractor shall submit an accounting of all salaries proposed to be paid, and payment of such salaries shall be subject to the Director's determination that they are for the performance of functions or the rendering of services for which no compensation is being paid National, Superior, or the Corporation, and that the amount is proper. On request of the Director the Contractor will likewise submit an accounting of any wages paid, and further payment of such a wage shall be subject to the Director's determination that it is for the performance of functions or the rendering of services for which no compensation is being paid National, Superior, or the Corporation, and that the amount is proper.

12. Contracts with Joint Venturer

The Contractor shall not enter into any contract with any of its joint venturers for the payment of rent or any other item which will be treated as an expense without the prior approval of the terms of such a contract by the Secretary of the Interior, and no such contract shall be approved which contemplates a separate profit to any of the joint venturers.

13. Patents

(a) As used in this patent section, the following terms have the definitions given herein.

(1) The terms "Subcontract" and "Subcontractor" mean any subcontract or subcontractor of the Contractor, and any lower-tier subcontract or subcontractor under this Agreement. Except as otherwise provided in this Agreement, the term "subcontracts" includes purchase orders under this Agreement.

(2) The term "Subject Invention" means any invention, discovery, improvement, or development (whether or not patentable) conceived or first actually reduced to practice, in the performance of the work called for or required under this Agreement.

(3) The term "Scientific and Technical Personnel" means any person employed by or working under contract with the Contractor (other than a subcontractor whose responsibilities with respect to rights occurring to the Government in inventions arising under subcontracts are set forth in

subparagraph (b) of this Section) who by reason of the nature of his duties in connection with the performance of his contract might reasonably make inventions.

(b) The Contractor agrees that it will promptly disclose to the Government all subject inventions relating to the processing of sealskins, with the sole exception of the formulae for dyes, and that it will assign and transfer to the Government, as represented for this purpose by the Secretary of the Interior, full and entire right, title and interest in and to such subject inventions. The Contractor warrants that it has or will have full authority to make such assignments by reason of agreements with all of its scientific and technical personnel who will be engaged in work under this contract to assign to the Contractor all discoveries and inventions made within the scope of their employment. The Contractor shall require the inclusion of a patent rights section containing paragraphs (a), (b), and (f) of this patent rights section in the Employment Agreement and in any other subcontract hereunder, except subcontracts for the purchase of supplies.

(c) The Government hereby gives its authorization and consent (without prejudice to its rights of idemnification) for all use and manufacture, in the performance of this Agreement or any part thereof or any amendment hereto or any subcontract hereunder (including any lower-tier subcontract), of any invention described in and covered by a patent of the United States (i) embodied in the structure or composition of any article the delivery of which is accepted by the Government under this Agreement, or (ii) utilized in the machinery, tools, or methods the use of which necessarily results from compliance by the Contractor or the using subcontractor with (a) specifications or written provisions now or hereafter forming a part of this Agreement, or (b) specific written instructions given by the Director directing the manner of performance. The Contractor's entire liability to the Government for infringement of a patent of the United States shall be determined solely by the provisions of the indemnity clause included in this Agreement and the Government assumes liability for all other infringement to the extent of the authorization and consent hereinabove granted.

(d) The Contractor shall indemnify the Government and its officers, agents, and employees against liability, including costs, for infringement of any United States letters patent (except letters patent issued upon an application which is now or may hereafter be kept secret or otherwise withheld from issue by order of the Government) arising out of or in the course of the performance of this Agreement. The foregoing indemnity shall not apply unless the Contractor shall have been informed as soon as practicable by the Government of the suit or action alleging such infringement, and shall have been given such opportunity as is afforded to applicable laws, rules, or regulations to participate in the defense thereof; and further, such indemnity shall not apply if: (i) the infringement results from compliance with specific written instructions of the Director directing a specific change in the supplies to be delivered or in the materials or equipment to be used, or directing a specific manner of performance of this Agreement not normally used by the Contractor; or (ii) the infringement results from addition to, or change in, such supplies or components furnished or construction work performed which addition or change was made subsequent to delivery of performance by the Contractor; or (iii) the claimed infringement is settled without the consent of the Contractor, unless required by final decree of a court of competent jurisdiction.

(e) The Contractor shall report to the Director, promptly and in reasonable written detail, each notice or claim of patent infringement based on the performance of this Agreement of which the Contractor has knowledge. In the event of litigation against the Government on account of any claim of patent infringement arising out of the performance of this Agreement or out of the use of any supplies furnished or work or service performed hereunder, the Contractor shall furnish to the Government, upon request, all evidence and information in possession of the Contractor pertaining to such litigation. Such evidence and information shall be furnished at the expense of the Government except in those cases in which the Contractor has agreed to indemnify the Government against the claim being asserted.

(f) The Contractor shall annually submit to the Government a report listing all subject inventions. If to the best of the Contractor's knowledge and belief no subject inventions have resulted from work performed during the reporting period, the Contractor shall so certify.

14. Location Requirement

The Contractor shall process all sealskins delivered to it by the Government in or in the vicinity of St. Louis, Missouri, and in no other place, excepting such sealskins as may be made available to the Contractor prior to the completion of its plant, for research purposes or as a preliminary to a marketing program.

15. Pribilof Operations

On the request of the Director the Contractor shall make available, at its own expense, one or two of its employees to observe Bureau of Commercial Fisheries operations on the Pribilof Islands during the annual harvest of furseals and to maintain liaison with Bureau of Commercial Fisheries employees responsible for the conduct of the annual harvest. Such liaison shall include advising Bureau personnel as to aspects and techniques of the operations of interest to the Contractor. The Government shall furnish suitable accommodations, food and medical services for said Contractor employees on the Pribilof Islands, provided, that if and when the medical services policy of the Government provides that charges be made for medical services to individuals in the status of the Contractor's employees, the Contractor shall pay for medical services rendered as provided in the appropriate regulations.

DUTIES OF THE GOVERNMENT

16. Harvest Fur-Seals

Consistent with the proper conservation and development of the fur-seal herd or herds under its administration, subject to many factors not within the control of man, and with a view to promoting the optimum utilization of such fur-seal herds as a natural resource, the Government will each year harvest in the Pribilof Islands or elsewhere such numbers of fur-seals as are consistent with the purposes of the Act. Because of fluctuations in the size of annual harvests, a minimum number of sealskins is not guarantied, and the failure to harvest any particular quantity of fur-seals shall not constitute a breach of this Agreement by the Government.

17. Delivery

The Government shall ship and deliver to the Contractor at St. Louis, Missouri, on Government bills of lading, in proper shipping containers, at least 95% of the total number of sealskins harvested each year. In the event that any sealskins withheld from delivery to the Contractor are to be sold and enter the luxury fur market, the Government will utilize the services of the Contractor for such a sale.

18. Sealskins for Contractor Use

(a) The Government will permit the Contractor to select not to exceed 200 finished sealskins annually for use by the Contractor in carrying out its obligations to develop the market for sealskins and for educational or experimental purposes. Additional numbers of sealskins may be withdrawn for the same purposes upon the approval of the Director. Unless otherwise determined by the Director, the value of such sealskins shall be determined on the basis of the prices established for sealskins of corresponding color, size, and grade at the last previous auction sale, and payment of the amount so determined shall be made by the Contractor to the Government in the same manner and at the time other amounts due the Government are accounted for.

(b) The Government will permit, on approval of the Director, the Contractor to use not to exceed 50 raw sealskins annually for experimental and research purposes. No charge shall be made to the Contractor for any such sealskins rendered unsaleable by such experimentation and research. Sealskins rendered unsaleable by such experimentation and research shall be disposed of by the Contractor in such manner as the Director directs.

19. Termination

GENERAL PROVISIONS

(a) This Agreement shall apply to all sealskins delivered to the Contractor by the Government for its own account subsequent to the date of this Agreement, and shall continue thereafter until terminated as provided herein. This Agreement may not be terminated by either party, except for cause as specified herein, prior to January 1, 1974. Subsequently this Agreement may be terminated

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