--------------------------------------------------------------------------------

Exhibit 10.5
 
VERICHIP CORPORATION

3,100,000 Shares of Common Stock
(Par Value $0.01 Per Share)

 
UNDERWRITING AGREEMENT
 

 
San Francisco, California
 
February 9, 2007

 
Merriman Curhan Ford & Co.
C.E. Unterberg, Towbin, LLC
Kaufman Bros., L.P.
c/o Merriman Curhan Ford & Co.
600 California Street, 9th Floor
San Francisco, CA 94108

Dear Sirs:

VeriChip Corporation, a Delaware corporation (the “Company”), proposes to issue
and sell to the several underwriters named in Schedule A hereto (the
“Underwriters”), pursuant to this underwriting agreement (the “Agreement”), an
aggregate of Three Million One Hundred Thousand (3,100,000) shares of common
stock of the Company, par value $0.01 per share (the “Common Stock”). In
addition, the stockholder of the Company named in Schedule B hereto (the
“Selling Stockholder”) has granted to the Underwriters the option referred to in
Section 3(d) hereof to purchase an aggregate of not more than an additional Four
Hundred Sixty Five Thousand (465,000) shares of Common Stock, if requested by
the Underwriters in accordance with Section 3(d) hereof. It is understood that
the Underwriters propose to offer the “Shares” (as hereinafter defined) to be
purchased hereunder to the public upon the terms and conditions set forth in the
“Registration Statement” (as defined below) after the “Effective Date” (as
defined below) of the Registration Statement. As used in this Agreement, (a) the
term “Firm Shares” shall mean the Firm Shares, to be issued and sold to the
Underwriters at the “First Closing Date” (as defined in Section 3(b) below); (b)
the term “Option Shares” shall mean any of the additional up to Four Hundred
Sixty Five Thousand (465,000) shares of Common Stock purchased pursuant to the
option referred to in Section 3(d) hereof; and (c) the term “Shares” shall mean
the Firm Shares and the Option Shares collectively.
 

--------------------------------------------------------------------------------

As the representative of the Underwriters, Merriman Curhan Ford & Co. has
informed the Company and the Selling Stockholder that Merriman Curhan Ford & Co.
is authorized to enter into this Agreement on behalf of the several
Underwriters, and that the several Underwriters are willing, on the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholder herein contained, and upon the terms but subject to the conditions
herein set forth, acting severally and not jointly, to purchase the number of
Firm Shares set forth opposite their respective names in Schedule A hereto, plus
their pro rata portion of the Option Shares if Merriman Curhan Ford & Co. elects
to exercise the over-allotment option in whole or in part for the account of the
several Underwriters.
 
As the representative of the Underwriters, Merriman Curhan Ford & Co. has also
informed the Company and the Selling Stockholder that (i) the Underwriters have
or will orally provide the pricing information set forth in Schedule 1(b)(i) to
prospective purchasers prior to confirming sales of the Shares, and (ii) each
Underwriter has represented and agreed that, without the prior written consent
of the Company and Merriman Curhan Ford & Co., it has not made and will not make
any offer relating to the Shares that would constitute a free writing
prospectus, and any such free writing prospectus, the use of which has been
consented to by the Company and Merriman Curhan Ford & Co., is listed in
Schedule 1(b) hereto.
 
The Company and the Selling Stockholder hereby confirm their respective
agreements with respect to the purchase of the Shares by the Underwriters as
follows:
 
1.    Representations and Warranties of the Company. The Company hereby
represents and warrants to, and agrees with, the Underwriters that, as of the
Effective Date, the First Closing Date and each Option Closing Date (as defined
below):
 
(a)    A registration statement on Form S-1 (File No. 333-130754) relating to
the offering of the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the “Act”), and the
rules and regulations of the United States Securities and Exchange Commission
(the “Commission”) promulgated pursuant to the Act (the “Rules and
Regulations”), and said registration statement has been filed with the
Commission under the Act. Amendments to said registration statement have been
similarly prepared and filed with the Commission covering the registration of
the Shares under the Act including the related preliminary prospectus or
preliminary prospectuses (each being hereinafter referred to as a “Preliminary
Prospectus” as further defined below), each of which has been furnished to the
Underwriters. Each Preliminary Prospectus was endorsed with the legend required
by Item 501(b) of Regulation S-K. As used in this Agreement and unless the
context indicates otherwise, the term “Registration Statement” refers to and
means said registration statement, all exhibits, financial statements and
schedules included therein and the Prospectus included therein, as finally
amended and revised on or prior to the Effective Date (as defined below) and, in
the event of any post-effective amendment thereto or if any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so amended
or such Rule 462(b) Registration Statement, as the case may be, and shall also
include any Rule 430A Information (as defined below) to be included in the
Prospectus included therein at the Effective Date, as provided by Rule 430A. The
term “Effective Date” shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or becomes effective. The term “Preliminary
Prospectus” refers to and means a preliminary prospectus filed with the
Commission and included in said Registration Statement before the Effective Date
and any preliminary prospectus included in the Registration Statement at the
Effective Date that omits Rule 430A Information; the term “Pricing Prospectus”
shall mean the Preliminary Prospectus included in the Registration Statement
immediately prior to the Applicable Time; the term “Applicable Time” shall mean
9:15 New York time on the date of this Agreement; the term “Issuer Free Writing
Prospectus” shall mean any “issuer free writing prospectus” as defined in Rule
433 under the Act; the term “Rule 430A Information” shall mean information with
respect to the Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A; and, the
term “Prospectus” refers to and means the prospectus relating to the Shares that
is first filed pursuant to Rule 424(b) or, if no filing pursuant to Rule 424(b)
is required, shall mean the form of final prospectus relating to the Shares
included in the Registration Statement at the Effective Date. If the
Registration Statement is amended or such Prospectus is supplemented after the
Effective Date and prior to the Option Closing Date, then the terms
“Registration Statement” and “Prospectus” shall include such documents as so
amended or supplemented. Each Preliminary Prospectus and the Prospectus
delivered to the Underwriters for use in connection with the offer and sale of
the Shares was identical to the electronic version filed with the Commission via
EDGAR, except to the extent permitted by Regulation S-T.
 
2

--------------------------------------------------------------------------------

(b)    (i) The Pricing Prospectus as supplemented by any Issuer Free Writing
Prospectus, other documents and pricing information listed in Schedule 1(b)(i)
hereto, taken together (collectively, the “Pricing Disclosure Package”) as of
the Applicable Time did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (ii) each Issuer Free Writing Prospectus listed in Schedule 1(b)(i)
hereto does not conflict with the information contained in the Registration
Statement, the Pricing Prospectus or the Prospectus, and each such Issuer Free
Writing Prospectus, as supplemented by and taken together with the Pricing
Disclosure Package as of the Applicable Time, did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing
representations and warranties shall not apply to statements or omissions made
in the Pricing Prospectus or in an Issuer Free Writing Prospectus in reliance
upon and conformity with written information furnished to the Company through
Merriman Curhan Ford & Co. by or on behalf of any Underwriter expressly for
inclusion therein. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment to the Registration
Statement or the Rule 462(b) Registration Statement, as the case may be, at the
time it became effective and at all subsequent times, complied and will comply
in all material respects with the Act and the applicable Rules and Regulations
and did not and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. Each Preliminary Prospectus, as of its date,
and the Prospectus, as amended or supplemented, as of its date and at all
subsequent times through the First Closing Date and the Option Closing Date, did
not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
paragraphs do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement or the Rule 462(b) Registration
Statement, as the case may be, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
furnished to the Company in writing through Merriman Curhan Ford & Co. by or on
behalf of any of the Underwriters expressly for inclusion therein.
 
3

--------------------------------------------------------------------------------

(c)    Neither the Commission nor any state regulatory authority has issued an
order preventing or suspending the use of any Preliminary Prospectus nor has the
Commission or any such authority instituted or, to the Knowledge of the Company
(as defined below), threatened to institute any proceedings with respect to such
an order. When representations or warranties in this Agreement are qualified to
the “Knowledge of the Company,” they are given by the Company to the extent of
and qualified in all respects by the facts actually known to any of the
executive officers or directors of the Company, with an obligation of reasonable
inquiry on the part of such executive officers and directors, prior to the date
such representations or warranties are made.
 
(d)    The Company has delivered to the Underwriters one complete conformed copy
of the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and Preliminary Prospectus, any Issuer Free Writing
Prospectus and the Prospectus, as amended or supplemented, in such quantities
and at such places as the Underwriters have reasonably requested.
 
(e)    The Company has not distributed and will not distribute, prior to the
later of the Option Closing Date and the completion of the Underwriters’
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a Preliminary Prospectus, the
Prospectus, the Registration Statement or, following receipt of written consent
of Merriman Curhan Ford & Co., which shall not be unreasonably withheld or
delayed, any Issuer Free Writing Prospectus.
 
(f)     This Agreement has been duly authorized, executed and delivered by, and
assuming due authorization, execution and delivery by the other parties hereto,
is a valid and binding agreement of, the Company, enforceable against the
Company in accordance with its terms, except as rights to indemnification and
contribution hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
 
4

--------------------------------------------------------------------------------

(g)    The Company has been duly incorporated and is now, and at the First
Closing Date (as defined below) and each Option Closing Date (as defined below)
will be, validly existing as a corporation and in good standing under the laws
of the State of Delaware, and has the corporate power and authority (i) to own
or lease, as the case may be, its properties, whether tangible or intangible,
and conduct its business as presently conducted and as described in the Pricing
Prospectus (the “Business”) and (ii) to execute, deliver and perform this
Agreement and consummate the transactions contemplated hereby and thereby. The
Company has no subsidiaries other than those subsidiaries set forth on Exhibit
21.1 of the Registration Statement (each, a “Subsidiary” and collectively, the
“Subsidiaries”). Each of the Subsidiaries has been duly incorporated and is now,
and at the Closing Dates (as defined below) will be, validly existing as a
corporation in good standing under the laws of its respective jurisdiction as
set forth on such Exhibit. Each of the Subsidiaries has the corporate power and
authority to own or lease, as the case may be, its properties, whether tangible
or intangible, and to conduct its business as presently conducted and described
in the Pricing Prospectus. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character or location of its properties, in each case taken as a whole, makes
such qualification necessary, except where the failure to so qualify or be in
good standing would not reasonably be expected to have a material adverse effect
upon the condition (financial or otherwise), results of operations, income,
shareholders’ equity, net worth, business, assets, or properties of the Company
and the Subsidiaries, taken as a whole (a “Material Adverse Effect”). The
Company owns, directly or indirectly, all of the issued and outstanding shares
of capital stock or other equity and ownership and/or voting interests of each
of the Subsidiaries, free and clear of any security interests, liens,
encumbrances, claims and charges other than as disclosed in the Registration
Statement and the Pricing Prospectus, and all of such shares or other interests
have been duly authorized and validly issued and are fully paid and
non-assessable. There are no options or warrants for the purchase of, or other
rights to purchase or acquire, or outstanding securities convertible into or
exchangeable for, any capital stock or other securities or interests of the
Subsidiaries. Other than the Subsidiaries, the Company has no equity interests
in any entity. Each of the Company and its Subsidiaries holds such permits,
licenses, certifications, registrations, approvals, consents, orders, franchises
and other authorizations (collectively, “Permits”) from state, federal, foreign
or other regulatory authorities necessary for the conduct of its Business and is
in compliance with all laws and regulations and all orders and decrees
applicable to it or to such Business, except where the failure to hold such
Permits or comply with such laws, regulations, orders or decrees would not
reasonably be expected to result in a Material Adverse Effect, and there are no
proceedings pending or, to the Knowledge of the Company, threatened, seeking to
cancel, terminate or limit such Permits.
 
(h)    The consolidated financial statements of the Company and the financial
statements of its Subsidiaries, including the schedules and related notes, filed
with the Commission as part of the Registration Statement and included in the
Pricing Prospectus are correct in all material respects and fairly present the
financial position of the Company and its Subsidiaries, or that of the
applicable Subsidiary, as the case may be, as of and at the respective dates
thereof and the results of operations and cash flows of the Company or that of
the applicable Subsidiary, as the case may be, for the respective periods
indicated therein and comply as to form in all material respects with the
applicable accounting requirements included in Regulations S-K and S-X, as well
as any other applicable Rules and Regulations. Such financial statements have
been prepared in accordance with generally accepted accounting principles
applied in the United States (“GAAP”) applied on a consistent basis throughout
the periods involved, except as otherwise stated in the Registration Statement
and the Pricing Prospectus; provided, however, that financial statements that
are unaudited are subject to year-end adjustments and do not contain footnotes
required under GAAP. The selected consolidated financial data set forth in the
Registration Statement and the Pricing Prospectus fairly present the information
shown therein at the respective dates thereof and for the respective periods
covered thereby and have been presented on a basis consistent with that of the
audited and unaudited financial statements included in the Registration
Statement and the Pricing Prospectus. Except as included in the Registration
Statement and the Pricing Prospectus, no other financial statement or supporting
schedules are required to be included in the Registration Statement.
 
5

--------------------------------------------------------------------------------

(i)     The accounting firm of Eisner LLP, which has audited certain of the
financial statements filed and to be filed with the Commission as part of the
Registration Statement and Pricing Prospectus, are registered independent public
accountants with the Public Company Accounting Oversight Board as required by
the Act and the Rules and Regulations, and the Securities Exchange Act of 1934,
as amended (the “1934 Act”) and the rules and regulations thereunder. Except as
described in the Pricing Prospectus and as pre-approved in accordance with the
requirements set forth in Section 10A of the 1934 Act, Eisner LLP has not been
engaged by the Company to perform any “prohibited activities” (as defined in
Section 10A of the 1934 Act).
 
(j)     Subsequent to the respective dates as of which information is given in
the Registration Statement and the Pricing Prospectus and the Company’s latest
financial statements filed with the Commission as a part thereof, and except as
described in the Registration Statement and the Pricing Prospectus, (i) neither
the Company nor any Subsidiary has incurred any material liability or
obligation, direct or contingent, or entered into any material transactions
whether or not incurred in the ordinary course of business; (ii) neither the
Company nor any Subsidiary has sustained any material loss or interference with
its business from fire, storm, explosion, flood or other casualty (whether or
not such loss is insured against), or from any labor dispute or court or
governmental action, order or decree; (iii) there have not been, and through and
including the First Closing Date, there will not be, any changes in the capital
stock or any material increases in the long-term debt or other securities of the
Company; (iv) the Company has not paid or declared any dividend or other
distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities, and (v) no change,
event, development or circumstance has occurred which would reasonably be
expected to result in a Material Adverse Effect.
 
(k)    No Permits of or filing with any government or governmental
instrumentality, agency, body or court, except as have been obtained or made
under the Act, the “blue sky” or securities laws of any state or the rules of
the National Association of Securities Dealers, Inc. (“NASD”) (including
approval of underwriting compensation) or in connection with the listing of the
Common Stock on the NASDAQ Global Market, are required (i) for the valid
authorization, issuance, sale and delivery of the Firm Shares and the Option
Shares to the Underwriters pursuant to this Agreement, and (ii) the consummation
by the Company of the transactions contemplated by this Agreement.
 
(l)     Except as disclosed in the Registration Statement and Pricing
Prospectus, there is neither pending nor, to the Knowledge of the Company,
threatened in writing, against the Company or any Subsidiary any claim, action,
suit, or proceeding at law or in equity, arbitration, investigation or inquiry
to which the Company or any of its respective officers, key employees, directors
or 5% or greater securityholders is a party and involving the Company’s or any
Subsidiary’s properties or businesses, before or by any court, arbitration
tribunal or governmental instrumentality, agency, or body.
 
6

--------------------------------------------------------------------------------

(m)    There is no contract or other document which is required by the Act or by
the Rules and Regulations to be described in the Registration Statement or the
Pricing Prospectus or to be filed as an exhibit to the Registration Statement
which has not been so described or filed as required and each contract or
document which has been described in the Registration Statement and Pricing
Prospectus has been described accurately, in all material respects, and presents
fairly, in all material respects, the information required to be described and
each such contract or document which is filed as an exhibit to the Registration
Statement is and shall be in full force and effect at the Closing Date or shall
have been terminated in accordance with its terms or as set forth in the
Registration Statement and Pricing Prospectus, and no party to any such contract
has given notice to the Company or any Subsidiary of the cancellation of or, to
the Knowledge of the Company, has threatened to cancel, any such contract, and
except as described in the Registration Statement and Pricing Prospectus,
neither the Company nor any Subsidiary is in material default thereunder. Except
as described in the Registration Statement and the Pricing Prospectus, there is
no voting or other stockholder agreement between the Company and any of its
stockholders or, to the Knowledge of the Company, between or by and among any
stockholders of the Company. There are and, as of the Closing Date, there will
be, no loans to the Company from any officers, directors, securityholders or
consultants, or any affiliates thereof, except as described in the Registration
Statement and Pricing Prospectus.
 
(n)    The Company and the Subsidiaries do not own any real property. Each of
the Company and the Subsidiaries has good title to all of its personal property
(tangible and intangible) and assets reflected as owned in the financial
statements referred to in Section 1(h) above, including any licenses, trademarks
and copyrights, described in the Registration Statement and Pricing Prospectus
as owned by it, free and clear of all security interests, liens, charges,
mortgages, encumbrances and restrictions other than as disclosed in the
Registration Statement and the Pricing Prospectus and other than such security
interests, liens, charges, mortgages, encumbrances and restrictions that do not
materially affect the value of such property or materially interfere with the
use made or proposed to be made of such property by the Company or its
Subsidiaries. The material leases, subleases and licenses under which the
Company or a Subsidiary is entitled to lease, hold or use any real or personal
property, are valid and enforceable by the Company and the Subsidiaries, all
rentals, royalties or other payments accruing thereunder which became due prior
to the date of this Agreement have been duly paid and none of the Company, any
Subsidiary, or, to the Knowledge of the Company, any other party, is in default
in respect of any of the terms or provisions of any such material leases,
subleases and licenses and no claim of any sort has been asserted by anyone
against the Company or any Subsidiary under any such leases, subleases or
licenses affecting or questioning the rights of the Company or any Subsidiary to
the continued use or enjoyment of the rights and property covered thereby.
Neither the Company nor any Subsidiary has received notice of any violation of
any applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties, except for any such violation that would not
reasonably be expected to result in a Material Adverse Effect. Each of the
Company and each Subsidiary owns or leases all such properties as are necessary
to its operations as now conducted and as proposed to be conducted as set forth
in the Registration Statement and Prospectus.
 
7

--------------------------------------------------------------------------------

(o)    Each of the Company and its Subsidiaries has filed with the appropriate
federal, state and local governmental agencies, and all appropriate foreign
countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed by it or has duly obtained
extensions of time for the filing thereof and has paid all material taxes
required to be paid by it as shown on such returns and all other material
assessments against it, to the extent that the same have become due and are not
being contested in good faith; and the provisions for income taxes payable, if
any, shown on the financial statements filed with or as part of the Registration
Statement and the Pricing Prospectus are sufficient for all accrued and unpaid
foreign and domestic taxes, whether or not disputed, and for all periods to and
including the dates of such consolidated financial statements. None of the
Company nor any Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and, to the Knowledge of the Company, is not a
party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of material taxes; and no
claims for material assessment or collection of material taxes have been
asserted in writing against the Company. To the Company’s Knowledge, there is no
material tax deficiency that has been or might be asserted or threatened against
the Company or its Subsidiaries.
 
(p)    Each of the Company and its Subsidiaries are insured by recognized,
financially sound and reputable institutions with policies in such amounts, with
such deductibles and covering such risks as reasonably adequate and customary,
in the Company’s judgment, for their businesses including, but not limited to,
policies covering real and personal property owned or leased by the Company and
its Subsidiaries against theft, damage, destruction, acts of vandalism, general
liability and directors and officers liability. The Company has no reason to
believe that it or any Subsidiary will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted without incurring a material additional cost to
the Company. Neither of the Company nor any Subsidiary has been denied any
insurance coverage which it has sought or for which it has applied. To the
Knowledge of the Company, there are no facts or circumstances which would
require it or a Subsidiary to notify its insurers of any material claim of which
notice has not been made or will not be made in a timely manner. To the
Knowledge of the Company, there are no facts or circumstances under any of its
or any Subsidiary’s existing insurance policies which would relieve any insurer
of its obligation to satisfy in full any existing valid claim of the Company or
a Subsidiary under any such policies.
 
8

--------------------------------------------------------------------------------

(q)    Except as disclosed in the Registration Statement and the Pricing
Prospectus, each of the Company and its Subsidiaries owns or otherwise possesses
adequate, and to the Knowledge of the Company, enforceable, and unrestricted
rights to use all patents, patent applications, patent rights, licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, works of authorship, formulae, customer lists, designs,
technical data and other proprietary rights and intellectual property (including
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) which are necessary to or used in the conduct of its
businesses as now conducted or as proposed to be conducted as described in the
Registration Statement and Pricing Prospectus (collectively, the “Intellectual
Property”). Except as set forth in Schedule 1(q) or as described in the
Registration Statement and Pricing Prospectus, (i) the Company or one of its
Subsidiaries is the beneficial and record owner of all right, title and interest
in, to and under the Intellectual Property, free and clear of all liens,
security interests, charges, encumbrances or other adverse claims and has the
right to use the Intellectual Property without payment to a third party; (ii)
there is no pending or, to the Knowledge of the Company, threatened action,
suit, proceeding or claim by others challenging the Company’s or any
Subsidiary’s rights in or to, or the validity or scope of, any Intellectual
Property, nor, to the Knowledge of the Company, do there exist any facts which
would form a reasonable basis for any such claim; (iii) to the Knowledge of the
Company, neither the Company nor any Subsidiary has infringed, is infringing
upon, or is otherwise in conflict with the intellectual property rights of
others; (iv) none of the Company nor any Subsidiary has received any notice that
it has or may have infringed, is infringing upon, or is in conflict with the
intellectual property rights of others; (v) there is no pending or, to the
Knowledge of the Company, threatened action, suit, proceeding or claim by others
alleging that the Company or any Subsidiary infringes, is in conflict with, or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, nor, to the Knowledge of the Company, do there
exist any facts which would form a reasonable basis for any such claim; (vi) to
the Knowledge of the Company, no others have infringed upon the Intellectual
Property of the Company or any Subsidiary; (vii) neither the Company nor any
Subsidiary is obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, intellectual property rights not owned or controlled by the Company
or such Subsidiary or in connection with the conduct of the Business; (viii) the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not result in a Material Adverse Effect
that is not otherwise disclosed in the Pricing Prospectus; (ix) none of the
patents owned or licensed by either the Company or any Subsidiary is
unenforceable or invalid, and the Company and its Subsidiaries are unaware of
any facts which would form a reasonable basis for any claim that the patent
applications owned or licensed by the Company would be unenforceable or invalid
if issued as patents; (x) the Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all material proprietary
technical information developed by and belonging to the Company which has not
been patented; (xi) neither the Company nor its Subsidiaries is obligated to pay
a royalty, grant a license or provide other consideration to any third person in
connection with the Intellectual Property; and (xii) neither the Company nor its
Subsidiaries has granted or assigned to any other person or entity any right to
manufacture, have manufactured, assemble or sell the current products and
services of the Company or those products and services described in the
Registration Statement and the Pricing Prospectus.
 
(r)    Except as described in the Registration Statement and Pricing Prospectus,
neither the Company nor any officer, director or any other affiliate of the
Company (as such term is defined in Rule 405 promulgated under the Rules and
Regulations) has incurred any liability for or entered into any agreement
providing for a finder’s fee or similar fee in connection with the transactions
contemplated by this Agreement.
 
(s)    Neither the Company nor any of its officers, directors, to the Knowledge
of the Company, other affiliates (as such term is defined in Rule 405
promulgated under the Rules and Regulations) has taken, and each officer or
director has agreed that he will not take, and the Company has used reasonable
efforts to cause each of its affiliates not to have taken or take, directly or
indirectly, any action designed to constitute or which has constituted or which
might cause or result in the stabilization or manipulation of the price of any
security of the Company or other violation under Regulation M promulgated under
the 1934 Act or otherwise, to facilitate the sale or resale of the Shares.
 
9

--------------------------------------------------------------------------------

(t)    Except as disclosed in the Registration Statement and Pricing Prospectus
under the caption “Certain Relationships and Related Party Transactions,” no
person related to the Company as described in Item 404(a) of Regulation
S-K promulgated under the Act has or has had during the past three (3) fiscal
years of the Company, either directly or indirectly, (i) a material interest in
any person or entity which (A) furnishes or sells products which are furnished
or sold or are proposed to be furnished or sold by the Company or any
Subsidiary, or (B) purchases from or sells or furnishes to the Company or any
Subsidiary any goods or services, or (ii) a beneficial interest in any contract
or agreement to which the Company or any Subsidiary is a party or by which it
may be bound or affected. There are no existing agreements, arrangements, or
transactions, between or among the Company or any Subsidiary and any officer,
director of the Company or any Subsidiary which are required to be described in
the Registration Statement and the Pricing Prospectus under the caption “Certain
Relationships and Related Party Transactions” and which are not so described.
 
(u)   The minute books of the Company have been provided to the Underwriters
through Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for
the Underwriters (“Underwriters’ Counsel”) and contain accurate summaries of all
meetings and actions of the directors, all committees of the Board of Directors
and stockholders of the Company since February 5, 2002, and reflect all
transactions referred to in such minutes accurately in all material respects.
The minute books of each Subsidiary have been provided to the Underwriters
through Underwriters’ Counsel and contain accurate summaries of all meetings and
actions of the directors, all committees of the board of directors and
stockholders of such Subsidiary since February 5, 2002, and reflect all
transactions referred to in such minutes accurately in all material respects.
 
(v)    The Company had at the date or dates indicated in the Registration
Statement and Pricing Prospectus a duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Pricing
Prospectus. Based on the assumptions stated in the Registration Statement and
the Pricing Prospectus, the Company will have on the Closing Date the
as-adjusted stock capitalization set forth therein. Except as set forth in the
Registration Statement or the Pricing Prospectus, on the Effective Date and on
the Closing Date, there will be no options to purchase, warrants or other rights
to subscribe for, or any securities or obligations convertible into, or any
contracts or commitments or preemptive rights or rights of first refusal to
issue or sell shares of the Company’s or any Subsidiary’s capital stock or any
such warrants, convertible securities or obligations. Except as set forth in the
Registration Statement or the Pricing Prospectus, no holder of any of the
Company’s securities has any rights, “demand,” “piggyback” or otherwise, to have
such securities registered under the Act, and all holders with any such rights
have agreed not to exercise such rights with respect to the Registration
Statement. The Company has the right under the terms of its agreements with the
holders of its securities to exclude from the Registration Statement (by
amendment or otherwise) any securities held by such holders.
 
(w)    The Shares and the other securities of the Company conform in all
material respects to all descriptions and statements in relation thereto in the
Registration Statement and Pricing Prospectus; the outstanding shares of Common
Stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; the outstanding options and warrants to purchase Common
Stock have been duly authorized and validly issued and constitute the valid and
binding obligations of the Company, and none of such outstanding shares of
Common Stock or outstanding warrants or options to purchase Common Stock were
issued in violation of the pre-emptive rights, rights of first refusal or
similar rights to subscribe for or purchase securities of the Company of any
stockholder of the Company. The offers and sales of the outstanding Common Stock
and outstanding options and warrants to purchase Common Stock since February 5,
2002 were at all relevant times either registered under the Act and the
applicable state securities or “blue sky” laws or exempt from such registration
requirements. None of the offers and sales of the outstanding Common Stock or
outstanding options or warrants to purchase Common Stock are required to be
integrated (within the meaning of the Act) with the offered sale of the Shares.
 
10

--------------------------------------------------------------------------------

(x)    The issuance and sale of the Shares to be purchased by the Underwriters
from the Company have been duly authorized and, upon delivery against payment
therefor as contemplated by this Agreement, will be validly issued, fully paid
and non-assessable and will conform to the description of the Shares contained
in the Pricing Prospectus.
 
(y)    Except as set forth in Schedule 1(y), each officer and director of the
Company and each owner of record of capital stock or options or warrants to
acquire capital stock of the Company has agreed to sign an agreement
substantially in the form attached hereto either as Exhibit A-1 or Exhibit A-2
(the “Lock-up Agreements”). The Company has provided to Underwriters’ Counsel
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby.
 
(z)    Neither the Company, nor any Subsidiary or any agent of the Company or
any Subsidiary, acting on behalf of the Company, has at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, Federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law or (iii) made any payment of
funds of the Company or any Subsidiary or received or retained any funds in
violation of any law, rule or regulation and under circumstances requiring the
disclosure of such payment, receipt or retention of funds in the Registration
Statement and Pricing Prospectus. The Company’s and the Subsidiaries’ internal
accounting controls and procedures are sufficient to cause the Company and the
Subsidiaries to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
 
(aa)     The Company is not an “investment company” or a company “controlled” by
an “investment company,” within the meaning of the Investment Company Act of
1940, as amended. After giving effect to the offering and sale of the Shares and
the application of the proceeds thereof as described in the Registration
Statement and Pricing Prospectus, the Company will not be an “investment
company” within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations of the Commission thereunder.
 
(bb)     The confidentiality agreements between the Company or the Subsidiaries
and their officers, employees and consultants are binding and enforceable
obligations upon the other parties thereto in accordance with their terms,
except to the extent enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors’ rights generally and to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought.
 
11

--------------------------------------------------------------------------------

(cc)     Except as set forth in the Registration Statement and Pricing
Prospectus, none of the Company or any Subsidiary has employee benefit plans
(including, without limitation, profit sharing and welfare benefit plans) or
deferred compensation arrangements that are subject to the provisions of the
United States Employee Retirement Income Security Act of 1974 (“ERISA”), it
being understood that neither the Registration Statement nor the Pricing
Prospectus disclose that such employee benefit plans are subject to ERISA. The
Company has fulfilled its obligations, if any, under the minimum funding
standards of Section 302 of ERISA and the regulations and published
interpretations thereunder with respect to each “plan” (as defined in
Section 3(3) of ERISA and such regulations and published interpretations) in
which employees of the Company or any Subsidiary are eligible to participate and
each such plan subject to ERISA is in compliance in all material respects with
the presently applicable provisions of ERISA and such regulations and published
interpretations. None of the Company or any Subsidiary has incurred any unpaid
liability to the Pension Benefit Guaranty Corporation (other than for the
payment of premiums in the ordinary course) or to any such plan under Title IV
of ERISA.
 
(dd)     The Company has filed a registration statement on Form 8-A with respect
to its Common Stock under Section 12(b) of the 1934 Act and such registration
statement has been declared effective by the Commission. The Company has filed
listing applications with respect to its Common Stock with The NASDAQ Stock
Market (“NASDAQ”), such listing applications have been accepted by, and the
Shares have been approved for listing on, the NASDAQ Global Market, subject to
official notices of issuance. The Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the 1934 Act, nor has the Company received any notification that the
Commission or NASDAQ is contemplating terminating such registration or listing.
 
(ee)     None of the Company nor any Subsidiary is involved in any labor
disputes with any of its employees and, to the Knowledge of the Company, no
employee has threatened the commencement of any labor disputes with the Company
or any Subsidiary, which, in either case, would reasonably be expected to result
in a Material Adverse Effect, nor has the Company or any Subsidiary received any
notice of any bankruptcy, labor disturbance or other event affecting any of its
principal suppliers or customers, which would reasonably be expected to result
in a Material Adverse Effect. Each of the Company and each Subsidiary is in
compliance in all material respects with all federal, state, local, and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours that are applicable to them.
Neither the Company nor any Subsidiary has received notice of any pending
investigations involving the Company or any Subsidiary, by the U.S. Department
of Labor or any other governmental agency responsible for the enforcement of
such federal, state, local, or foreign laws and regulations. There is no unfair
labor practice charge or complaint against the Company or any Subsidiary pending
before the National Labor Relations Board or, to the Knowledge of the Company,
any strike, picketing, boycott, labor dispute, slowdown or stoppage pending or
threatened against or involving the Company or any Subsidiary and none has ever
occurred. No collective bargaining representation question exists respecting the
employees of the Company or any Subsidiary, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or any Subsidiary. Neither the Company nor any Subsidiary has received notice
that any grievance or arbitration proceeding is pending under any expired or
existing collective bargaining agreements of the Company or any Subsidiary.
 
12

--------------------------------------------------------------------------------

(ff)   The Company has provided to Underwriters’ Counsel, complete and accurate
copies of all agreements, certificates, correspondence and other items,
documents and information requested by such counsel, including in such counsel’s
due diligence requests of (A) September 30, 2005, as supplemented thereafter,
and (B) January 10, 2007.
 
(gg)     The Company's board of directors has validly appointed an audit
committee whose composition satisfies the requirements of the 1934 Act and the
rules and regulations of the Commission adopted thereunder, and Rules 4200 and
4350 of the rules of NASDAQ. The Company's audit committee has adopted a charter
that satisfies the 1934 Act and the rules and regulations of the Commission
adopted thereunder, and Rules 4200 and 4350 of NASDAQ.
 
(hh)     The Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has taken all necessary actions to ensure that, upon and at all times
after effectiveness of the Registration Statement, it will establish and
maintain disclosure controls and procedures (as such term is defined in Rule
13a-15 and 15d-15 under the 1934 Act) that: (A) are designed to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company’s principal executive officer and its
principal financial officer by others within those entities, particularly during
the periods in which the periodic reports required under the 1934 Act will be
prepared; and (B) are effective to perform the functions for which they are
established. The Company is not aware of (x) any significant deficiency or
material weakness in the design or operation of internal controls over financial
reporting; or (y) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls over financial reporting. Since the date of the Company’s most recent
audited fiscal year, there has been no change in the Company's internal controls
that has materially adversely affected, or is reasonably likely to materially
adversely affect, the Company's internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
 
(ii)    The Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the
Commission thereunder (the "Sarbanes-Oxley Act") that are applicable, or will be
applicable as of the date of payment for and delivery of the Firm Shares
pursuant hereto, to the Company.
 
13

--------------------------------------------------------------------------------

(jj)    Except as set forth in the Registration Statement and Pricing Prospectus
(exclusive of any supplement thereto), the Company and each of the Subsidiaries
(A) are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants applicable to its Business (“Environmental Laws”), except where
any non-compliance would not reasonably be expected to result in a Material
Adverse Effect, (B) have received and is in compliance with all Permits required
under applicable Environmental Laws to conduct its Business, except where
failure to receive or any non-compliance would not reasonably be expected to
result in a Material Adverse Effect, and (C) have not received notice of any
actual or potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes, pollutants or
contaminants. The Company has not received written notice and, to the Knowledge
of the Company, has not been named as a “potentially responsible party” under
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended.
 
(kk)      In the ordinary course of its Business, the Company and each of the
Subsidiaries conduct a periodic review of the effect of Environmental Laws on
the Business, operations and properties of the Company and its Subsidiaries, in
the course of which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Permit, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review and the amount of its
established reserves, the Company has reasonably concluded that such associated
costs and liabilities would not, individually or in the aggregate, result in a
material expenditure by the Company or any Subsidiary.
 
(ll)    Except as set forth in the Registration Statement and the Pricing
Prospectus, the Company, each of its Subsidiaries and, to the Knowledge of the
Company, the distributors responsible for placing the Company’s products in the
market in the European Union, are in material compliance with European Directive
2002/96/EC on waste electrical and electronic equipment and European Directive
2002/95/EC on the restriction of the use of certain hazardous substances in
electrical and electronic equipment.
 
(mm)    To the Knowledge of the Company, after reasonable investigation under
the circumstances, there are no affiliations or associations between any member
of the NASD and any Company officer, director or holder of five percent (5%) or
more of the Company’s securities, except as set forth in the Registration
Statement and the Pricing Prospectus.
 
(nn)     There are no material off-balance sheet arrangements (as defined in
Item 303 of Regulation S-K) that have or are reasonably likely to have a current
or future effect on the Company’s financial condition, changes in financial
condition, results of operations, liquidity, capital expenditures or capital
resources or components or revenue or expenses.
 
(oo)     Any certificate signed by an officer of the Company in his capacity as
such and delivered to the Underwriters or Underwriters’ Counsel pursuant to this
Agreement shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters set forth in such certificate.
 
14

--------------------------------------------------------------------------------

(pp)     The issue and sale of the Shares and the compliance by the Company with
this Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under (i) any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets of the Company
or any of its Subsidiaries is subject; (ii) the provisions of the Second Amended
and Restated Certificate of Incorporation or Amended and Restated By-laws of the
Company; or (iii) any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
Subsidiaries or any of their properties, except, in the case of clauses (i) and
(iii) above, for such conflicts, breaches or violations as would not,
individually or in the aggregate, be reasonably expected to result in a Material
Adverse Effect.
 
(qq)     Neither the Company nor any of its Subsidiaries is (i) in violation of
its charter or by-laws or (ii) in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties may be
bound.
 
(rr)    The Company and the Subsidiaries have materially complied with, are not
in material violation of, and have not received any written notices of violation
with respect to, any statutes, rules, or regulations applicable to the
ownership, testing, development, manufacture, packaging, processing, use,
distribution, marketing, labeling, promotion, sale, offer for sale,
reimbursement, storage, import, export or disposal of any product manufactured
or distributed by the Company or the Subsidiaries ("Applicable Laws"), or any
license, certificate, approval, clearance, authorization, permit, supplement or
amendment required by any Applicable Laws ("Authorizations"). The Company and
the Subsidiaries possess all material Authorizations and such material
Authorizations are in full force and effect. The Company and the Subsidiaries
are, and their products are, in compliance in all material respects with all
Authorizations and Applicable Laws, including, but not limited to, all laws,
statutes, rules, regulations, or orders administered, issued or enforced by the
Federal Food and Drug Administration (the "FDA") or any other federal or foreign
governmental authority having authority over the Company or any of its products
("Governmental Authority"). Except as described in the Registration Statement
and the Prospectus, the Company or the Subsidiaries have not received from the
FDA or any other Governmental Authority any notice of adverse findings,
regulatory letters, notices of violations, Warning Letters, criminal proceeding
notices under Section 305 of the U.S. Federal Food, Drug, and Cosmetic Act, or
other similar communication from the FDA alleging or asserting material
noncompliance with Applicable Laws or any Authorizations, and there have been no
seizures conducted or, to the Knowledge of the Company, threatened by the FDA,
and no recalls, market withdrawals, field notifications, notifications of
misbranding or adulteration, safety alerts or similar actions relating to the
safety or efficacy of the Company's or the Subsidiaries’ products conducted,
requested or threatened by the FDA or other Governmental Authority relating to
the products sold by the Company or the Subsidiaries. Except as described in the
Prospectus and the Registration Statement, the Company and the Subsidiaries have
not, either voluntarily or involuntarily, initiated, conducted, or issued or
caused to be initiated, conducted or issued, any recall, market withdrawal,
safety alert, "dear doctor" letter, or other similar notice or action relating
to the alleged lack of safety or efficacy of any of the Company's or
Subsidiaries’ products or any alleged product defect or violation, and to the
Knowledge of the Company, no Governmental Authority has initiated, conducted or
intends to initiate any such notice or action. The Company and the Subsidiaries
have not received notice of any claim, action, suit, proceeding, hearing,
enforcement, investigation, arbitration or other similar action from any
Governmental Authority alleging that any product operation or activity is in
material violation of any Applicable Laws or Authorizations and, to the
Knowledge of the Company, no such Governmental Authority is considering any such
claim, litigation, arbitration, action, suit, investigation or proceeding. Each
regulatory submission for the Company's or the Subsidiaries’ products has been
filed, cleared, approved and maintained in compliance in all material respects
with all Applicable Laws and Authorizations, including without limitation
applicable federal statutes, rules, regulations or orders administered or
promulgated by the FDA, and all laboratory and clinical studies, and tests that
support clearance or approval of its products have been conducted in all
material respects in compliance with accepted professional scientific standards
and all Applicable Laws and Authorizations in all material respects. No filing
or submission to the FDA or any other Governmental Authority, intended to be the
basis for any Authorization, contains any material omission or material false
information, and neither the Company nor the Subsidiaries have received any
notices or correspondence from any Governmental Authority (including, but not
limited to, the FDA) requiring suspension of any studies, tests, or clinical
trials conducted by or on behalf of the Company. To the Knowledge of the
Company, except as would not be reasonably expected to result in a Material
Adverse Effect, there are no facts which are reasonably likely to cause (A) the
withdrawal, or recall of any products sold or intended to be sold by the Company
or the Subsidiaries, (B) a change in the marketing classification or labeling of
any such products, (C) a termination or suspension of marketing clearance of any
such products, or (D) a suspension or revocation of any of the Company's or
Subsidiaries Authorizations. The Company or the Subsidiaries have not received
notice (whether complete or pending) of any proceeding seeking recall,
suspension or seizure of any products sold or intended to be sold by the Company
or the Subsidiaries. Excepted from the representations in this paragraph is the
November 2002 Warning Letter sent by FDA to the Applied Digital Solutions, Inc.
alleging that the human-implantable microchip transponder was a misbranded and
adulterated medical device because it lacked FDA clearance or approval, it being
acknowledged that this matter was resolved upon the Company’s receipt of 510(k)
clearance of the transponder on October 12, 2004.
 
15

--------------------------------------------------------------------------------

2.    Representations and Warranties of the Selling Stockholder. The Selling
Stockholder hereby represents and warrants to, and agrees with, the Underwriters
that, as of the Effective Date, the First Closing Date and each Option Closing
Date (as defined below):
 
(a)    To the Knowledge of the Selling Stockholder (as defined below), the
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1 are not true and correct. When
representations or warranties in this Agreement are qualified to the “Knowledge
of the Selling Stockholder,” they are given by the Selling Stockholder to the
extent of and qualified in all respects by the facts actually known to any of
the executive officers or directors of the Selling Stockholder, with an
obligation of reasonable inquiry on the part of such executive officers and
directors, prior to the date such representations or warranties are made. To the
Knowledge of the Selling Stockholder, there is no material fact, condition or
information not disclosed in the Registration Statement or the Pricing
Prospectus that has had, or would reasonably be expected to have, a Material
Adverse Effect.

16

--------------------------------------------------------------------------------

(b)    Representatives of the Selling Stockholder have participated in
conferences and telephone conversations with representatives of the Company,
special intellectual property and regulatory counsel to the Company,
representatives of the independent public accountants for the Company,
representatives of the Underwriters and representatives of the Underwriters’
counsel, during which conferences and conversations the contents of the
Registration Statement and the Pricing Prospectus and related matters were
discussed. The Selling Stockholder has reviewed the Registration Statement and
the Pricing Prospectus and to the Knowledge of the Selling Stockholder, there
are no facts that would cause the Selling Stockholder to believe that (i) the
Pricing Disclosure Package, as of the Applicable Time, included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; (ii) any Issuer Free Writing Prospectus listed on Schedule
1(a) hereto conflicts with the information contained in the Registration
Statement, the Pricing Prospectus or the Prospectus and each such Issuer Free
Writing Prospectus, as supplemented by and taken together with the Pricing
Disclosure Package as of the Applicable Time, included any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, (iii) each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iv) each Preliminary Prospectus, as of its date, and the
Prospectus, as amended or supplemented, as of its date and at all subsequent
times through the First Closing Date and the Option Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representations
and warranties set forth in this Section 2(b) do not apply to statements in, or
omissions from, the Registration Statement, any 462(b) Registration Statement,
or any post-effective amendment thereto, or the Prospectus, each Preliminary
Prospectus or amendment or supplement thereto, or any Issuer Free Writing
Prospectus, in reliance upon and in conformity with written information
furnished to the Company through Merriman Curhan Ford & Co. by or on behalf of
any Underwriter expressly for inclusion therein. The Selling Stockholder is not
prompted to sell the Shares to be sold by the Selling Stockholder by any
information concerning the Company which is not set forth in the Registration
Statement or the Prospectus.

(c)    This Agreement has been duly authorized, executed and delivered by or on
behalf of the Selling Stockholder and is a valid and binding agreement of the
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
 
17

--------------------------------------------------------------------------------

(d)    The Custody Agreement signed by the Selling Stockholder and the Company,
as custodian (the “Custodian”), relating to the deposit of the Shares to be sold
by the Selling Stockholder (the “Custody Agreement”) has been duly authorized,
executed and delivered by the Selling Stockholder and is a valid and binding
agreement of the Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles. The Selling
Stockholder agrees that the Shares to be sold by the Selling Stockholder on
deposit with the Custodian is subject to the interests of the Underwriters, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of the Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Custody Agreement, by any act of
the Selling Stockholder, by operation of law or by the occurrence of any other
event. If any such other event should occur before the delivery of the Shares to
be sold by the Selling Stockholder hereunder, the documents evidencing the
Shares to be sold by the Selling Stockholder then on deposit with the Custodian
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such other event had not occurred, regardless of whether
or not the Custodian shall have received notice thereof.
 
(e)    The Selling Stockholder is the lawful owner of the Shares to be sold by
the Selling Stockholder hereunder and upon sale and delivery of, and payment
for, such Shares, as provided herein, the Selling Stockholder will convey good
and marketable title to such Shares, free and clear of all liens, encumbrances,
equities and claims whatsoever.
 
(f)     The Selling Stockholder has, and on each Closing Date will have, good
and valid title to all of the Shares which may be sold by the Selling
Stockholder pursuant to this Agreement on such date and the legal right and
power, and all authorizations and approvals required by law and under its
charter or by-laws, to enter into this Agreement and its Custody Agreement, to
sell, transfer and deliver all of the Shares which may be sold by the Selling
Stockholder pursuant to this Agreement and to comply with its other obligations
hereunder and thereunder.
 
(g)    No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Selling Stockholder of
the transactions contemplated herein, except such as may have been obtained
under the Act and such as may be required under the blue sky laws of any
jurisdiction and from the NASD in connection with the purchase and distribution
of the Shares by the Underwriters and such other approvals as have been
obtained.
 
(h)    Neither the sale of the Shares being sold by the Selling Stockholder nor
the consummation of any other of the transactions herein contemplated by the
Selling Stockholder or the fulfillment of the terms hereof by the Selling
Stockholder will conflict with, result in a breach or violation of, or
constitute a default under any law or the terms of any indenture or other
agreement or instrument to which the Selling Stockholder is party or bound, any
judgment, order or decree applicable to the Selling Stockholder or any court or
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over the Selling Stockholder.
 
18

--------------------------------------------------------------------------------

(i)     The Selling Stockholder does not have any registration or other similar
rights to have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering contemplated by
this Agreement.
 
(j)     The Selling Stockholder does not have, or has waived prior to the date
hereof, any preemptive right, co-sale right or right of first refusal or other
similar right to purchase any of the Shares that are to be sold by the Company
to the Underwriters pursuant to this Agreement; and the Selling Stockholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, right, warrants, options
or other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
 
(k)    All information furnished by or on behalf of the Selling Stockholder in
writing expressly for use in the Registration Statement and Prospectus is, and
on each Closing Date will be, true, correct, and complete in all material
respects, and does not, and on each Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make such information not misleading. The Selling Stockholder confirms as
accurate the number of Shares set forth opposite the Selling Stockholder’s name
in the Prospectus under the caption “Principal and Selling Stockholders” (both
prior to and after giving effect to the sale of the Shares).
 
(l)     The Selling Stockholder has not taken and will not take, directly or
indirectly, any action designed to or that might cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
 
(m)   There are no transfer taxes or other similar fees or charges under Federal
law or the laws of any state, or any political subdivision thereof, required to
be paid in connection with the execution and delivery of this Agreement or the
sale by the Selling Stockholder of the Shares.
 
(n)    The Selling Stockholder has not distributed and will not distribute,
prior to the later of the Option Closing Date and the completion of the
Underwriters’ distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by the Selling Stockholder other than a
Preliminary Prospectus, the Prospectus or the Registration Statement.
 
(o)    Any certificate signed by an officer of the Selling Stockholder in his
capacity as such and delivered to the Underwriters or Underwriters’ Counsel
pursuant to this Agreement shall be deemed a representation and warranty by the
Selling Stockholder to the Underwriters as to the matters set forth in such
certificate
 
3.    Purchase, Delivery and Sale of the Shares.
 
(a)    Upon the basis of the representations and warranties of Merriman Curhan
Ford & Co. herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the several Underwriters the
respective number of Firm Shares set forth opposite the name of such Underwriter
in Schedule A hereto. On the basis of the representations, warranties and
agreements of the Company and the Selling Stockholder herein contained, and upon
the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on Schedule A, subject to
adjustment in accordance with Section 9 hereof. The purchase price per Share to
be paid by the several Underwriters to the Company shall be U.S.$6.045 per
share.
 
19

--------------------------------------------------------------------------------

Payment for the Firm Shares to be sold by the Company shall be made at the First
Closing Date (and, in the case of the Option Shares, if applicable, at the
Option Closing Date) by wire transfer of immediately available funds to the
order of the Company.
 
(b)    Delivery by the Company of the Firm Shares to be purchased by the
Underwriters and payment therefor by the Underwriters shall be made by the
Company and the Underwriters at 9:00 a.m. New York time, at the offices of
Holland & Knight LLP, 195 Broadway, 24th Floor, New York, NY 10007 (the “H&K New
York Office”), or at such other place as may be agreed upon among the
Underwriters and the Company, on the third (3rd) full business day following the
date of this Agreement, or, if this Agreement is executed and delivered after
1:30 P.M., New York time, on the fourth (4th) full business day following the
date of this Agreement, or at such other time and date not later than seven (7)
full business days following the first day that Shares are traded as the
Underwriters and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to this Section 3), such
time and date of payment and delivery being herein called the “First Closing
Date”; provided, however, that if the Company has not made available to the
Underwriters copies of the Prospectus within the time provided in this
Agreement, the Underwriters may, in their sole discretion, postpone the Closing
Date until no later than two (2) full business days following delivery of copies
of the Prospectus to the Underwriters.
 
(c)    The Company shall deliver, or cause to be delivered, a credit
representing the Firm Shares to an account or accounts at The Depository Trust
Company (“DTC”) for the accounts of the Underwriters at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, a credit representing the Option Shares to an
account or accounts at DTC for the accounts of the Underwriters, at the First
Closing Date or the Option Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters. Not later than 12:00 noon on
the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Underwriters shall request.
 
(d)    Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties and agreements contained herein, for the
purposes of covering any over-allotments in connection with the distribution and
sale of the Firm Shares as described in the Registration Statement and Pricing
Prospectus, the Underwriters are hereby granted an option to purchase all or any
part of the Option Shares from the Selling Stockholder. The purchase price to be
paid per share for the Option Shares will be the same price as the price per
Firm Share set forth in Section 3(a) hereof. The option granted hereby may be
exercised by notice from the Underwriters to the Company, the Custodian and the
Selling Stockholder in accordance with Section 3(e) hereof solely by the
Underwriters as to all or any part of the Option Shares at any time within
thirty (30) days after the Effective Date. The Underwriters will not be under
any obligation to purchase any Option Shares prior to the exercise by the
Underwriters of such option in accordance with Section 3(e) hereof.
 
20

--------------------------------------------------------------------------------

(e)    The option granted pursuant to Section 3(d) hereof may be exercised by
Merriman Curhan Ford & Co. by giving notice to the Company, the Custodian and
the Selling Stockholder, which must be confirmed by a letter or facsimile
setting forth the number of Option Shares to be purchased by the Underwriters,
the date and time for delivery of and payment for the Option Shares to be
purchased and stating that the Option Shares referred to therein are to be used
for the sole purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares by the Underwriters. If such notice is
given prior to the First Closing Date, the date set forth therein for such
delivery and payment will be the First Closing Date. If such notice is given on
or after the First Closing Date, the date set forth therein for such delivery
and payment will not be earlier than two (2) full business days thereafter. In
either event, the date so set forth will not be more than fifteen (15) full
business days after the date of such notice. The date and time set forth in such
notice is herein called the “Option Closing Date.” Upon exercise of such option,
through the Underwriters’ delivery of the aforementioned notice, the Custodian
will become obligated to convey to the Underwriters, and, subject to the terms
and conditions set forth in this Section 3(e), the Underwriters will become
obligated to purchase, the number of Option Shares specified in such notice. If
any Option Shares are to be purchased, (i) each Underwriter agrees, severally
and not jointly, to purchase the number of Option Shares (subject to such
adjustments to eliminate fractional shares as the Underwriters may determine)
that bears the same proportion to the total number of Option Shares to be
purchased as the number of Firm Shares set forth on Schedule A opposite the name
of such Underwriter bears to the total number of Firm Shares, subject to any
adjustment in accordance with Section 9 hereof and (ii) the Selling Stockholder
agrees to sell in the aggregate up to the number of Option Shares set forth on
Schedule B. The Underwriters may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Custodian.
 
(f)     Payment for any Option Shares purchased will be made to the Custodian by
wire transfer in immediately-available funds to the order of the Company,
against delivery of the Option Shares purchased by the Underwriters at the H&K
New York Office (or at such other location as the Underwriters and the Custodian
may agree).
 
(g)    Unless the Shares are to be delivered by a “fast” transfer, the Company
and the Selling Stockholder will make the certificates for the Shares to be
purchased by the Underwriters hereunder available to the Underwriters for
inspection, checking and packaging at the office of the Company’s transfer agent
or correspondent in San Francisco, CA, not less than one (1) full business day
prior to the First Closing Date and the Option Closing Date, as the case may be
(both of which are collectively referred to herein as the “Closing Dates”). The
certificates representing the Shares shall be in such names and denominations as
the Underwriters may request at least two (2) full business days prior to the
respective Closing Dates. In the event that the Underwriters determine to
utilize DTC, the parties will use their best efforts to make the offering of the
Shares “DTC eligible” and to comply with the procedures thereof.
 
21

--------------------------------------------------------------------------------

4.    Public Offering by the Underwriters. The Underwriters agree to cause the
Shares to be offered to the public initially at the price and under the terms
set forth in the Registration Statement and Prospectus as soon, on or after the
effective date of this Agreement, as the Underwriters deem advisable, but no
more than five (5) full business days after such effective date. The Company is
advised by the Underwriters that the Shares are to be offered to the public
initially at U.S.$6.50 a share (the “Public Offering Price”).
 
5.    (A) Agreements of the Company. The Company covenants and agrees with the
Underwriters that:
 
(a)    If the Registration Statement has not been declared effective prior to
the time of execution of this Agreement, the Company will use its best efforts
to cause the Registration Statement to become effective as promptly as possible,
or, if the procedure in Rule 430A of the Act is followed, to prepare and timely
file with the Commission under Rule 424(b) under the Act a Prospectus in a form
approved by the Underwriters containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Act, and will not at any time, whether before or after the Effective Date,
file any amendment or supplement to the Registration Statement, (i) which shall
not have been previously submitted to, and approved by, the Underwriters or the
Underwriters’ Counsel within a reasonable time prior to the filing thereof, (ii)
to which the Underwriters or the Underwriters’ Counsel shall have reasonably
objected as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations. If
the Company elects to rely on Rule 462(b) under the Act, the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) under the Act prior to the time confirmations are sent or given, as
specified by Rule 462(b)(2) under the Act, and shall pay the applicable fees in
accordance with Rule 111 under the Act. The Company further agrees to file
promptly all material required to be filed by the Company with the Commission
pursuant to Rule 433(d) under the Act.
 
(b)    The Company will, promptly after it shall have received notice, notify
the Underwriters, (i) of the receipt of any comments on, or requests for
amendment of, the Registration Statement, for supplement of the Prospectus, or
for additional or supplemental information, by or from the Commission, and
(ii) of the time and date when the Registration Statement or any post-effective
amendment thereto has become effective or any supplement to the Prospectus has
been filed.
 
(c)    The Company will advise the Underwriters promptly of any request of the
Commission for an amendment or supplement to the Registration Statement or the
Prospectus, or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or of any judgment, order, injunction or decree preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or of the
institution of any proceedings for any of such purposes, of which it has
Knowledge, and will use its best efforts to prevent the issuance of any stop
order, and, if issued, to obtain as promptly as possible the lifting thereof.
 
22

--------------------------------------------------------------------------------

(d)    If at any time when a Prospectus relating to the Shares is required, in
the opinion of Underwriters’ Counsel, to be delivered under the Act by the
Underwriters (the “Prospectus Delivery Period”), any event shall have occurred
as a result of which, in the reasonable opinion of counsel for the Company or
the Underwriters’ Counsel, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made when the Prospectus
is delivered, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Underwriters
promptly and, at the request of Merriman Curhan Ford & Co., prepare and file
with the Commission an appropriate amendment or supplement in accordance with
Section 10 of the Act, which will correct such statement or omission, or effect
such compliance, each such amendment or supplement to be reasonably satisfactory
to the Underwriters’ Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may reasonably request, provided that, if any
Underwriter is required to deliver a Prospectus in connection with sales of
Shares at any time more than nine (9) months after the date hereof, all costs
and expenses in connection with the furnishing of copies of such amended or
supplemented Prospectus will be at the expense of such Underwriter.
 
(e)    Within the Prospectus Delivery Period, or pursuant to the undertakings of
the Company in the Registration Statement, the Company, at its own expense, will
comply in all material respects with all requirements imposed upon it by the
Act, the Rules and Regulations, the 1934 Act and the rules and regulations of
the Commission promulgated under the 1934 Act, each as now or hereafter amended
or supplemented, and by any order of the Commission so far as necessary to
permit the continuance of sales of, or dealings in, the Shares.
 
(f)     The Company will furnish to the Underwriters, without charge, a signed
copy of the Registration Statement and of any amendment or supplement thereto
which has been filed prior to the date of this Agreement, together with each
exhibit filed therewith, and three (3) conformed copies of such Registration
Statement and as many amendments thereto (unsigned and exclusive of exhibits) as
the Underwriters may reasonably request. The signed copies of the Registration
Statement so furnished to the Underwriters will include signed copies of any and
all consents and reports of the independent public auditors as to the financial
statements included in the Registration Statement and Pricing Prospectus, and
signed copies of any and all consents and certificates of any other person whose
profession gives authority to statements made by them and who are named in the
Registration Statement or Pricing Prospectus as having prepared, certified or
reviewed any parts thereof.
 
(g)    The Company will deliver to the Underwriters, without charge, (i) prior
to the Effective Date, copies of each Preliminary Prospectus filed with the
Commission bearing in red ink the statement required by Item 501 of Regulation
S-K of the Rules and Regulations; (ii) on and from time to time after the
Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be such as the Underwriters may reasonably request. The Company has
consented and hereby consents to the use of each Preliminary Prospectus for the
purposes permitted by the Act and the Rules and Regulations. The Company
authorizes the Underwriters to use the Prospectus in connection with the sale of
the Shares during the Prospectus Delivery Period. Notwithstanding the foregoing,
the Underwriters shall not use any Preliminary Prospectus or the Prospectus if
the Company has given the Underwriters written notice of the occurrence, or
imminently potential occurrence, of any development that could cause such
Preliminary Prospectus or Prospectus, as the case may be, to include an untrue
statement of a material fact or to omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances, not misleading.
 
23

--------------------------------------------------------------------------------

(h)    The Company shall promptly from time to time take such action as the
Underwriters may reasonably request to qualify or register the Shares for
offering and sale under (or obtain exemptions from the application of) the
securities laws of such U.S. jurisdictions as the Underwriters may request and
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Shares; provided that, notwithstanding the foregoing, the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph or where it would be subject to taxation as a foreign corporation, or
(ii) consent to general service of process in any such jurisdiction. The Company
will advise Merriman Curhan Ford &Co. promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Shares
for offering, sale or trading in any jurisdiction or any initiation of threat of
any proceeding for any such purpose, and in the event of the issuance of any
order suspending such qualification, registration or exemption, the Company
shall use its reasonable best efforts to obtain the withdrawal thereof at the
earliest possible date.
 
(i)     During the period commencing on the date hereof and ending 180 days
after the date of the Prospectus (the “Lock-Up Period”), the Company shall not
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise, without the prior
written consent of Merriman Curhan Ford & Co. (such consent not to be
unreasonably withheld) and the prior consent of a majority of the Company’s
independent directors.
 
The foregoing paragraph shall not apply to the issuance of securities pursuant
to the Company’s stock option plans in the form and amount approved for issuance
as described in the Registration Statement and the Prospectus or the exercise of
options or warrants or the conversion of a security outstanding on the date of
the Prospectus and which is described in the Registration Statement; provided,
however, that the Company agrees that such issuances shall be made subject to
the terms of the form of Lock-Up Agreement attached hereto as Exhibit A-1. The
Company also agrees that during such period, the Company will not file any
registration statement, preliminary prospectus or prospectus, or any amendment
or supplement thereto, under the Act for any such transaction or which
registers, or offers for sale, Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock, except for a registration
statement on Form S-8 relating to employee benefit plans. The Company agrees
that if (a) during the last 18 days of the Lock-Up Period, the Company issues an
earnings release or material news or a material event relating to the Company
occurs, or (b) prior to the expiration of the Lock-Up Period, the Company
announces that it will release earnings results during the 16-day period
beginning on the last day of the Lock-Up Period, the restrictions set forth
herein shall continue to apply until the expiration of the 19-day period
beginning on the issuance of the earnings release or the occurrence of the
material news or material event, as applicable, unless Merriman Curhan Ford &
Co. waives, in writing, such extension.

24

--------------------------------------------------------------------------------

(j)     As soon as practicable, but in any event not later than forty five (45)
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement is deemed to occur pursuant to Rule 158(c), the Company
will make generally available to its security holders (within the meaning of
Section 11(a) of the Act) an earnings statement of the Company meeting the
requirements of Rule 158(a) under the Act covering a period of at least twelve
(12) months beginning after the Effective Date, and advise the Underwriters that
such statement has been so made available.
 
(k)    The Company will apply the net proceeds (“Proceeds”) it realizes from the
sale of the Shares in the manner set forth under the caption “Use of Proceeds”
in the Pricing Prospectus.
 
(l)     During the course of the distribution of the Shares, the Company will
not and the Company will cause its officers and directors not to take, directly
or indirectly, any action designed to or which might, in the future, cause or
result in stabilization or manipulation of the price of the Shares.
 
(m)   The Company will use its best efforts, at its cost and expense, to take
all necessary and appropriate action to list the Shares on the NASDAQ and
maintain such listing for as long as the Shares are so qualified.
 
(n)    The Company will file with the Commission such information on Form 10-Q
or Form 10-K as may be required by Rule 463 under the Act.
 
(o)    The Company will, upon request of any Underwriter, furnish, or cause to
be furnished, to such Underwriter an electronic version of the Company’s
trademarks, servicemarks and corporate logo for use on the website, if any,
operated by such Underwriter for the purpose of facilitating the on-line
offering of the Shares (the “License”); provided, however, that the License
shall be used solely for the purpose described above, shall be granted without
any fee and shall not be assigned or transferred.
 
(p)    On the Closing Dates, all transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and transfer of
the Shares will have been fully paid by the Company and all laws imposing such
taxes, if any, will have been fully complied with.
 
(q)    Subsequent to the dates as of which information is given in the
Registration Statement and Pricing Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and Pricing
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company (except as contemplated in the Registration Statement), or any Material
Adverse Effect; and (iii) the Company shall not have paid or declared any
dividend or other distribution on its Common Stock or its other securities or
redeemed or repurchased any of its Common Stock or other securities.
 
25

--------------------------------------------------------------------------------

(r)     The Company agrees that it has not made and, without the prior written
consent of Merriman Curhan Ford & Co., it will not make any offer relating to
the Shares that would constitute a “free writing prospectus” as defined in Rule
433 under the Act.
 
(s)    The Company has complied with and will comply with the requirements of
Rule 433 under the Act applicable to any Issuer Free Writing Prospectus,
including timely filing with the Commission or retention where required and
legending.
 
(t)     The Company agrees that if at any time following issuance of an Issuer
Free Writing Prospectus any event occurred or occurs as a result of which such
Issuer Free Writing Prospectus would conflict with the information in the
Registration Statement, the Pricing Prospectus or the Prospectus or would
include an untrue statement of material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
then prevailing, not misleading, the Company will give prompt notice thereof to
Merriman Curhan Ford & Co., will prepare and furnish without charge to each
Underwriter an Issuer Free Writing Prospectus that will correct such statement
or omission.
 
(u)    Prior to the latest of the Option Closing Date, the Company will not
issue any press release or other communication directly or indirectly or hold
any press conference with respect to the Company, its condition, financial or
otherwise, or earnings, business affairs or business prospects (except for
routine oral communications in the ordinary course of business and consistent
with past practices of the Company and of which Merriman Curhan Ford & Co. are
notified in advance), without the prior written consent of Merriman Curhan Ford
& Co., unless in the judgment of the Company and its counsel, and after
notification of Merriman Curhan Ford & Co., such press release or communication
is required by law.
 
(v)    The Company agrees that it has not and, without the prior written consent
of Merriman Curhan Ford & Co., it will not waive any provision of any of the
lock-up agreements substantially in the form as set forth in Exhibit A-2.
 
Merriman Curhan Ford & Co., on behalf of the several Underwriters, may, in its
sole discretion, waive in writing the performance by the Company of any one or
more of the foregoing covenants or extend the time for their performance.
Notwithstanding the foregoing, Merriman Curhan Ford & Co., for the benefit of
each of the other Underwriters, agrees not to consent to any action proposed to
be taken by the Company or any other holder of the Company’s securities that
would otherwise be prohibited by, or to waive compliance by the Company or any
such other security holder with the provisions of, any Lock-Up Agreement
delivered in accordance with Section 5(i) hereof without giving each of the
other Underwriters at least 17 days prior notice (or such shorter notice as each
of the other Underwriters may deem acceptable to permit compliance with
applicable provisions of NASD Conduct Rule 2711(f) restricting publication and
distribution of research and public appearance by research analysts before and
after the expiration, waiver or termination of a lock-up agreement).

26

--------------------------------------------------------------------------------

(B)  Covenants of the Selling Stockholder. The Selling Stockholder further
covenants and agrees with each Underwriter:
 
(a)    The Selling Stockholder acknowledges that it has signed a Lock-up
Agreement and such Lock-Up agreement has been delivered to the Underwriters and
agrees to be bound by the terms and conditions therein.
 
(b)    To deliver to the Underwriters prior to the First Closing Date a properly
completed and executed United States Treasury Department Form W-8 (if the
Selling Stockholder is a non-United States person) or Form W-9 (if the Selling
Stockholder is a United States Person).
 
(c)    If, at any time prior to the date on which the distribution of the Common
Stock as contemplated herein and in the Prospectus has been completed, as
determined by the Underwriters, the Selling Stockholder has knowledge of the
occurrence of any event as a result of which the Prospectus or the Registration
Statement, in each case as then amended or supplemented, would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the Selling Stockholder will promptly notify the Company
and the Underwriters.
 
6.    Indemnity and Contribution by the Company, the Selling Stockholder and the
Underwriters.
 
(a)    The Company shall indemnify, defend and hold harmless each Underwriter
and any person who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the 1934 Act, from and against any loss, expense,
liability, damage or claim (including the reasonable cost of investigation)
which the Underwriters or any such controlling person may incur insofar as such
loss, expense, liability, damage or claim arises out of or, is based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or the Prospectus (the term
Prospectus for the purpose of this Section 6 being deemed to include any
Preliminary Prospectus, Pricing Prospectus, Issuer Free Writing Prospectus, the
Prospectus and any Prospectus supplements, in each case as amended or
supplemented by the Company), (ii) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
(domestic or foreign) in order to qualify the Shares under the securities or
“blue sky” laws thereof or filed with the Commission or any securities
association or securities exchange (each an “Application”), or (iii) any
omission or alleged omission to state a material fact required to be stated in
any such Registration Statement, Prospectus or Application or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading; except, in the case of each of clauses (i), (ii) or (iii),
to the extent that any such loss, expense, liability, damage or claim arises out
of or is based upon (x) any such untrue statement or omission of a material fact
contained in and in conformity with information furnished in writing by or on
behalf of the Underwriters to the Company and the Selling Stockholder expressly
for use in such Registration Statement or such Prospectus or (y) sales to any
person asserting any such loss, expense, liability, damage or claim incurred
from purchasing the Shares, if a copy of the Pricing Disclosure Package or the
Prospectus (in each case, as then amended or supplemented if the Company shall
have timely furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law to
have been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Pricing Disclosure Package or the Prospectus
(in each case, as so amended or supplemented), as applicable, would have cured
the defect giving rise to such loss, expense, liability, damage or claim, unless
such failure is the result of noncompliance by the Company.
 
27

--------------------------------------------------------------------------------

(b)    The Selling Stockholder agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either
Section 15 of the Act or Section 20 of the 1934 Act and each Underwriter and any
person who controls any Underwriter within the meaning of either Section 15 of
the Act or Section 20 of the 1934 Act, from and against any loss, expense,
liability, damage or claim (including the reasonable cost of investigation)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state a material fact required to be stated in any such Registration
Statement or Prospectus or necessary to make the statements made therein not
misleading, but only with reference to information relating to such Selling
Stockholder furnished in writing by or on behalf of such Selling Stockholder
expressly for use in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendments or supplements thereto; and provided, however, that
the aggregate liability of each Selling Stockholder under this Section 6 shall
not exceed an amount equal to the Public Offering Price of the Shares sold by
such Selling Stockholder, less the aggregate underwriting discounts and
commissions applicable to such Shares, as set forth on the front cover page of
the Prospectus.
 
(c)    Each of the Underwriters shall, severally and not jointly, indemnify,
defend and hold harmless the Company and its directors, officers, employees and
agents, each person who controls the Company, as the case may be, within the
meaning of Section 15 of the Act or Section 20 of the 1934 Act and the Selling
Stockholder from and against any loss, expense, liability, damage or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company, or any such person may incur but only insofar as such loss,
expense, liability, damage or claim arises out of or is based upon (i) any
untrue statement of a material fact contained in the Registration Statement (or
in the Registration Statement as amended by any post-effective amendment thereof
by the Company) or the Prospectus in reliance upon and in conformity with
information furnished in writing by or on behalf of such Underwriter to the
Company and the Selling Stockholder expressly for inclusion in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or the Prospectus, as specified in the last
sentence of this Section 6(c), or (ii) any omission to state a material fact
regarding such Underwriter required to be stated in such Registration Statement
or the Prospectus or necessary to make such statement not misleading. The
obligation of each of the Underwriters to indemnify the Company (including any
director, officer, employee, agent or control person thereof) and the Selling
Stockholder shall only relate to any untrue statement or omission which applies
to the Underwriter. The Company, the Selling Stockholder and the Underwriters
acknowledge that the information set forth (x) on the cover page of the
Prospectus concerning the Underwriters, relating to the delivery of the Shares,
(y) under the caption “Underwriting” in the Prospectus with respect to passive
market and stabilization activities by the Underwriters, and (z) under the
caption “Information Regarding Merriman Curhan Ford & Co.” in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters to
the Company and the Selling Stockholder for purposes of this Section 6.
 
28

--------------------------------------------------------------------------------

(d)    Promptly after receipt by an indemnified party under subsection (a), (b)
or (c) above of notice of any claims or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify in writing each party against
whom indemnification is to be sought of the claim or the commencement thereof
(but the failure so to notify an indemnifying party shall not (i) relieve the
indemnifying party from any liability which it may have under this Section 6, to
the extent that it did not otherwise learn of such action and such failure does
not materially prejudice the indemnifying party as a result thereof, and (ii) in
any event shall not relieve it from any liability that such indemnifying party
may have otherwise than on account of the indemnity agreement hereunder). The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party’s choice at the indemnifying party’s expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be reasonably
satisfactory to the indemnified party. The indemnifying party may participate in
the defense of such action at its own expense, and to the extent it may elect,
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, the indemnifying party may
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, that counsel to the indemnifying party
shall not (except with the written consent of the indemnified party) also be
counsel to the indemnified party. Notwithstanding the foregoing, the indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by one of the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties shall
not have employed reasonably satisfactory counsel to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, (iii) the indemnifying party does not diligently defend the action after
assumption of the defense, or (iv) such indemnified party or parties shall have
reasonably concluded based on the advice of the advice of counsel that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the fees and expenses of one counsel selected by all of the indemnified parties
to represent them all (in addition to one local counsel selected by all of the
indemnified parties to represent them all in each applicable jurisdiction) shall
be borne by the indemnifying parties. In the case of any separate counsel for
the Company and its officers, directors and control persons, such counsel shall
be designated in writing by the Company. In the case of any separate counsel for
the Selling Stockholder and its officers, directors and control persons, such
counsel shall be designated in writing by the Selling Stockholder. In the case
of any separate counsel for the Underwriters and their respective officers,
directors and control persons, such counsel shall be designated in writing by
Merriman Curhan Ford & Co. No indemnifying party shall, without the prior
written consent of the indemnified parties, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could have been sought under this Section 6 (whether or not the
indemnified parties are actual or potential parties thereto), unless (x) such
settlement, compromise or consent (I) includes an unconditional release of the
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (II) does not include a statement as to,
or an admission of, fault, culpability or a failure to act, by or on behalf of
the indemnified party, and (y) the indemnifying party reaffirms its
indemnification obligations pursuant to this Agreement.
 
29

--------------------------------------------------------------------------------

(e)    If the indemnification provided for in this Section 6 is unavailable to
an indemnified party under subsections (a), (b) or (c) of this Section 6 in
respect of any losses, expenses, liabilities, damages or claims referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, expenses, liabilities, damages or
claims (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if (but
only if) the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Selling Stockholder on the one hand and the Underwriters on
the other with respect to the statements or omissions which resulted in such
losses, expenses, liabilities, damages or claims, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total proceeds (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and the Selling Stockholder from the
Shares sold under this Agreement, on the one hand, and the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, on the other hand, bear to the total
gross proceeds from the offering of the Shares under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholder on the one hand and the
Underwriters on the other shall be determined by reference to, among other
things, (i) whether the untrue statement or alleged untrue statement of a
material fact or omission or alleged omission relates to information supplied by
the Company and the Selling Stockholder or by the Underwriters, (ii) the intent
of the parties, and (iii) their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any claim or action.
 
30

--------------------------------------------------------------------------------

(f)     The Company, the Selling Stockholder and the Underwriters agree that it
would not be just and equitable if contribution pursuant to Section 6(e) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in Section
6(e)(i) and, if applicable, Section 6(e)(ii), above. Notwithstanding the
provisions of this Section 6, (i) none of the Underwriters shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by the Underwriters and, (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters’ obligations in Section 6(e)
shall be several in proportion to their respective underwriting obligations and
not joint.
 
The indemnity and contribution contained in this Section 6 shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement and (ii) any investigation made by or on behalf of the Underwriters or
the Company, the Selling Stockholder or the Subsidiaries and such party’s
officers or directors or any person controlling such parties.

7.    Survival of Agreements, etc. All statements contained in any certificate
delivered by or on behalf of the parties in connection with this Agreement shall
be deemed to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and payment for the Shares. The provisions of Sections 5, 6,
12 and 16 shall survive the termination or cancellation of this Agreement.
 
8.    Conditions of Underwriters’ Obligations. The respective obligations of the
Underwriters to purchase and pay for the Firm Shares as provided herein on the
First Closing Date and, with respect to the Option Shares, the Option Closing
Date, shall be subject to the accuracy of the representations and warranties on
the part of the Company set forth in Section 1 hereof and the Selling
Stockholder set forth in Section 2 hereof as of the date hereof and as of the
First Closing Date as though then made and, with respect to the Option Shares,
as of the Option Closing Date as though then made, to the timely performance by
the Company and the Selling Stockholder of their respective covenants and
obligations hereunder, and to each of the following additional conditions:
 
(a)    The Registration Statement shall have become effective prior to the
execution of this Agreement, or at such later date as shall be consented to in
writing by the Underwriters; no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the Knowledge of the Company or any Underwriter, threatened by
the Commission; any request of the Commission for additional information (to be
included in the Registration Statement, any Preliminary Prospectus, any Pricing
Prospectus, the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters’ Counsel; the NASD shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements;
and no amendment to the Registration Statement, any Preliminary Prospectus, any
Pricing Prospectus, or the Prospectus to which the Underwriters or the
Underwriters’ Counsel shall have reasonably objected, after having received
reasonable notice of a proposal to file the same, shall have been filed.
 
31

--------------------------------------------------------------------------------

(b)    All corporate proceedings and other legal matters in connection with this
Agreement, the form of Registration Statement, any Preliminary Prospectus, any
Pricing Prospectus, and the Prospectus and the registration, authorization,
issue, sale and delivery of the Shares, shall have been reasonably satisfactory
to Underwriters’ Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this Section 8.
 
(c)    Subsequent to the execution and delivery of this Agreement and prior to
the First Closing Date, and on the Option Closing Date, as the case may be,
there shall not have been any Material Adverse Effect which, in the sole
judgment of Merriman Curhan Ford & Co., is material and adverse and that makes
it, in the sole judgment of Merriman Curhan Ford & Co., impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
 
(d)    At the First Closing Date and on the Option Closing Date, as the case may
be, the Underwriters shall have received from each of Holland & Knight LLP and
Steptoe & Johnson LLP, co-counsel for the Company (“Company Co-Counsel”), a
signed opinion dated as of such Closing Date, reasonably satisfactory to the
Underwriters’ Counsel, in the form and substance of Exhibit B-1 annexed hereto,
including a signed negative assurance statement dated as of such Closing Date,
reasonably satisfactory to the Underwriters’ Counsel, in the form and substance
reflected in Exhibit B-1.
 
(e)    At the First Closing Date and on the Option Closing Date, as the case may
be, the Underwriters shall have received from each of Thompson Coburn LLP and
Holland & Knight LLP, counsel for the Selling Stockholder: (i) a signed opinion
dated as of such Closing Date, in a form and substance reasonably satisfactory
to the Underwriters’ Counsel.
 
(f)     At the First Closing Date and on the Option Closing Date, as the case
may be, the Underwriters shall have received from Getz Prince Wells LLP,
Canadian counsel for each of the Subsidiaries (“Canadian Subsidiary Counsel”), a
signed opinion dated as of such Closing Date, in a form and substance reasonably
satisfactory to the Underwriters’ Counsel.
 
(g)    At the First Closing Date, and on the Option Closing Date, as the case
may be, the Underwriters shall have received from Underwriters’ Counsel a signed
opinion dated as of such Closing Date in a form and substance reasonably
satisfactory to the Underwriters.
 
(h)    The Underwriters shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to the Underwriters, from Eisner LLP,
independent public accountants, containing statements and information of the
type ordinarily included in accountants' "comfort letters" with respect to the
financial statements and certain financial information contained in the
Registration Statement, any Preliminary Prospectus, any Pricing Prospectus, and
the Prospectus; provided, however, that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than two business days before the Closing
Date.
 
32

--------------------------------------------------------------------------------

(i)     The Underwriters shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to the Underwriters, from each of
KPMG LLP, Deloitte & Touche USA LLP, and Meyers Norris Penny LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" with respect to the certain Company
acquisitions, as discussed in the Registration Statement, any Preliminary
Prospectus, any Pricing Prospectus, and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than two
business days before the Closing Date.
 
(j)     The Underwriters shall have received on the First Closing Date and on
the Option Closing Date, as the case may be, a certificate of the Company, dated
the First Closing Date or the Option Closing Date, as the case may be, signed by
the Chief Executive Officer and Chief Financial Officer of the Company the
effect that, and Merriman Curhan Ford & Co. shall be satisfied that:
 
(i)     The representations and warranties of the in this Agreement are true and
correct, as if made on and as of the First Closing Date or the Option Closing
Date, as the case may be, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or
prior to the First Closing Date or the Option Closing Date, as the case may be;
 
(ii)    When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement, the Pricing Prospectus and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be included
therein by the Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, and in all material respects conformed to the
requirements of the Act and the applicable Rules and Regulations thereunder, and
the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus,
and the Prospectus, and any amendments or supplements thereto, did not and does
not include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made (except with respect to
the Registration Statement), not misleading; and, since the effective date of
the Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been so set forth; and
 
(iii)   Subsequent to the respective dates as of which information is given in
the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus,
and the Prospectus, there has not been or occurred, as the case may be: (A) any
Material Adverse Effect; (B) any transaction that is material to the Company and
its Subsidiaries considered as a whole, except transactions entered into in the
ordinary course of business; (C) any obligation, direct or contingent, that is
material to the Company and its Subsidiaries considered as a whole, incurred by
the Company or its subsidiaries, except obligations incurred in the ordinary
course of business; (D) any change in the capital stock or outstanding
indebtedness of the Company or any of its Subsidiaries that is material to the
Company and its Subsidiaries considered as a whole; (E) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its Subsidiaries; or (F) any loss or damage (whether or not
insured) to the property of the Company or any of its Subsidiaries which has
been sustained or will have been sustained which has a Material Adverse Effect.
 
33

--------------------------------------------------------------------------------

(k)    The Underwriters shall have received on the First Closing Date, and on
the Option Closing Date, as the case may be, a certificate of the Selling
Stockholder, dated the First Closing Date or the Option Closing Date, as the
case may be, signed by the Chief Executive Officer and Chief Financial Officer
of the Selling Stockholder, to the effect that, and Merriman Curhan Ford & Co.
shall be satisfied that:
 
(i)     The representations and warranties of the Selling Stockholder in this
Agreement are true and correct, as if made on and as of the First Closing Date
or the Option Closing Date, as the case may be, and the Selling Stockholder has
complied with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the First Closing Date or the Option
Closing Date, as the case may be;
 
(ii)    No information has come to the Selling Stockholder’s attention that
causes the Selling Stockholder to believe that (i) the Registration Statement,
any Preliminary Prospectus, any Pricing Prospectus, and the Prospectus, and any
amendments or supplements thereto, includes any untrue statement of a material
fact or omits to state a material fact therein to make the statements therein,
in light of the circumstances under which they were made (except with respect to
the Registration Statement), not misleading; and (ii), since the effective date
of the Registration Statement, there has occurred any event required to be set
forth in an amended or supplemented Prospectus which has not been so set forth;
and
 
(iii)   Subsequent to the respective dates as of which information is given in
the Registration Statement, any Preliminary Prospectus, any Pricing Prospectus,
and the Prospectus, no information has come to the Selling Stockholder’s
attention that would cause the Selling Stockholder to believe that there has
been or occurred, as the case may be: (a) any Material Adverse Effect; (b) any
transaction that is material to the Company and its Subsidiaries considered as a
whole, except transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to the Company and
its Subsidiaries considered as a whole, incurred by the Company or its
Subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its Subsidiaries that is material to the Company and its Subsidiaries
considered as a whole, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its Subsidiaries, or
(f) any loss or damage (whether or not insured) to the property of the Company
or any of its Subsidiaries which has been sustained or will have been sustained
which has a Material Adverse Effect.
 
(l)     Except as set forth in Schedule 1(y), the Company shall have obtained
and delivered to the Underwriters an agreement, substantially in the form of
either Exhibit A-1 or Exhibit A-2 attached hereto, from each officer and
director of the Company, each owner of record of capital stock or options or
warrants to acquire capital stock of the Company. All of the certificates
representing the Shares shall have been tendered for delivery in accordance with
the terms and provisions of this Agreement.
 
(m)   The Shares shall be listed on the NASDAQ Global Market, subject only to
official notice of issuance.
 
34

--------------------------------------------------------------------------------

(n)    The Company shall have complied with the provisions of this Agreement
with respect to the furnishing of Prospectuses.
 
(o)    On or before each of the First Closing Date and the Option Closing Date,
as the case may be, the Underwriters and Underwriters’ Counsel shall have
received such information, documents and opinions as they may reasonably require
for the purposes of enabling them to pass upon the issuance and sale of the
Shares as contemplated herein, or in order to evidence the accuracy of any of
the representations and warranties, or the satisfaction of any of the conditions
or agreements, herein contained.
 
(p)    At least three business days prior to the date hereof, the Company and
the Selling Stockholder shall have furnished for review by the Underwriters
copies of the Custody Agreement executed by the Selling Stockholder and such
further information, certificates and documents as the Underwriters may
reasonably request.
 
If any condition specified in this Section 8 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Underwriters
by written notice to the Company and the Selling Stockholder at any time on or
prior to the First Closing Date and, with respect to the Option Shares, at any
time prior to the Option Closing Date, which termination shall be without
liability on the part of any party to any other party, except for the expenses
described in Section 12 of this Agreement.
 
9.    Default of One or More of the Underwriters. Subject to Sections 8 and 11
hereof, if, on the First Closing Date or the Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase does not exceed 10% of the aggregate
number of the Shares to be purchased on such date, the other Underwriters shall
be obligated, severally, in the proportions that the number of Firm Shares set
forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Option Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Shares and the
aggregate number of Shares with respect to which such default occurs exceeds 10%
of the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Company and the other Underwriters for the purchase of such
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any non-defaulting Underwriter or the Company,
Selling Stockholder or the Subsidiaries, except that the provisions of
Section 6, 12 and 16 shall at all times be effective and shall survive such
termination. In any such case either the Underwriters or the Company shall have
the right to postpone the First Closing Date or the Option Closing Date, as the
case may be, but in no event for longer than seven (7) days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
 
35

--------------------------------------------------------------------------------

As used in this Agreement, the term “Underwriter” shall be deemed to include any
person substituted for a defaulting Underwriter under this Section 9. Any action
taken under this Section 8 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
 
10.   Effective Date. This Agreement will become effective upon the later of
when (i) the Underwriters and the Company shall have received notification of
the effectiveness of the Registration Statement or (ii) the execution of this
Agreement.
 
11.   Termination.
 
The Underwriters shall have the right by written notice to the Company and the
Selling Stockholder (which may be delivered electronically through email or
facsimile) to terminate this Agreement at any time prior to the First Closing
Date or, with respect to the obligations of the Underwriters to purchase the
Option Shares, at any time prior to the Option Closing Date, as the case may be,
if (i) the Company or the Selling Stockholder shall have failed or refused to
fully perform or comply with any of the provisions of this Agreement on its part
to be performed and complied with by it prior to the applicable Closing Date;
(ii) any of the conditions of Underwriters’ obligations as set forth in Section
8 herein shall not have been satisfied on or prior to the First Closing Date or
the Option Closing Date, as the case may be; (iii) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or NASDAQ,
will have been suspended; (iv) minimum or maximum prices will have been
established on such exchanges by the Commission or the NASD; (v) a general
banking moratorium will have been declared either by federal or New York state
authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities or adversely affecting the distribution of the Firm Shares or the
Option Shares, as the case may be, will be established by any of such exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) the Company will have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity of such character as in the sole judgment of Merriman Curhan Ford & Co.
may interfere materially with the conduct of the Business and operations of the
Company or make it impracticable to proceed with the offering, sale and delivery
of the Firm Shares or the Option Shares, as the case may be, on the terms
contemplated by any Preliminary Prospectus, any Pricing Prospectus, or the
Prospectus; (viii) any action has been taken by the government of the United
States or any department or agency thereof which, in the sole judgment of
Merriman Curhan Ford & Co., has had a material adverse effect upon the general
market for securities and has made it impracticable to proceed with the
offering, sale and delivery of the Firm Shares or the Option Shares, as the case
may be, on the terms set forth in any Preliminary Prospectus, any Pricing
Prospectus, or the Prospectus; (ix) there shall have occurred the outbreak of
any new war or any other event or calamity, including without limitation as a
result of terrorist activities, which, in the sole judgment of Merriman Curhan
Ford & Co., materially disrupts the financial markets of the United States and
makes it impracticable to proceed with the offering, sale and delivery of the
Firm Shares or the Option Shares, as the case may be, on the terms set forth in
the Prospectus; (x) the general market for securities or political, legal or
financial conditions should deteriorate so materially from that in effect on the
date of this Agreement that, in the sole judgment of Merriman Curhan Ford & Co.,
it becomes impracticable for the Underwriters to commence or proceed with the
public offering of the Shares and with the payment for or acceptance thereof;
(xi) trading of any securities of the Company shall have been suspended, halted
or delisted on any exchange or in any over-the-counter market or by the
Commission; or (xii) in the sole judgment of Merriman Curhan Ford & Co., any
change that could result in a Material Adverse Effect shall have occurred since
the date as of which information is given in the Registration Statement, any
Preliminary Prospectus, any Pricing Prospectus, or the Prospectus.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Sections 6, 12 and 16
hereof shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.

36

--------------------------------------------------------------------------------

 
12.   Expenses.
 
(a)    Whether or not the offering of the Shares is consummated, the Company
and, unless otherwise paid by the Company, the Selling Stockholder, agree to pay
all costs and expenses incident to the performance of the obligations of the
Company hereunder, including without limiting the generality of the foregoing:
(i) the preparation, printing, filing with the Commission, and copying of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriters in such quantities as reasonably requested by the Underwriters and
the costs of mailing Prospectuses to offerees and purchasers of the Shares; (ii)
the printing, engraving, issuance and delivery of certificates representing the
Shares, including any transfer or other taxes payable thereon; (iii) the
reasonable fees, expenses and other costs related to the registration or
qualification of the Shares under state securities or “blue sky” laws, in
accordance with the provisions of Section 12(c) below; (iv) the reasonable fees,
costs and disbursements of Underwriters’ Counsel in connection with the review
and analysis of certain “blue sky” matters related to the offering; (v) all
reasonable fees and expenses of the Company’s Co-Counsel, Canadian Subsidiary
Counsel and accountants; (vi) $150,000 of the fees and expenses of Underwriters’
Counsel, inclusive of all NASD filing fees, costs and expenses incurred in
connection with the offering and all fees and disbursements of Underwriters’
Counsel in connection with obtaining clearance of the offering with the NASD;
(vii) all costs and expenses of any listing of the Shares on the NASDAQ Global
Market or any other stock exchange or over-the-counter market, or in Standard
and Poor’s Corporation Records or any other securities manuals; (viii) the cost
of “tombstone” advertisements to be placed in one or more daily or weekly
periodicals as the Underwriter may request; (ix) travel expenses of the Company
in connection with the “road show” presentations; (x) all other costs and
expenses incident to the performance of the Company’s obligations hereunder
which are not otherwise specifically provided for in this Section 12(a). The
Company shall be the primary obligor with respect to all costs, fees and
expenses to be paid by the Company and by the Selling Stockholder. The
obligations of the Company and the Selling Stockholder under this Section 12(a)
shall survive any termination or cancellation of this Agreement.
 
37

--------------------------------------------------------------------------------

(b)    In addition to the responsibility of the Company and the Selling
Stockholder for payment of the foregoing expenses, the Company and, unless
otherwise paid by the Company, the Selling Stockholder, shall pay to the
Underwriters a non-accountable expense allowance equal to $253,000.00 of the
gross proceeds of the offering of the Firm Shares, excluding in such amount the
proceeds from any exercise of the Underwriters’ over-allotment option. The
non-accountable expense allowance due shall be paid at the First Closing Date
and any Option Closing Date, as applicable. Merriman Curhan Ford & Co. hereby
acknowledges prior receipt from the Company of $0.00, which amount shall be
applied to the non-accountable expense allowance due when, and if, such offering
is closed. If the sale of the Firm Shares provided for herein is not consummated
because the Underwriters elect to terminate this Agreement in accordance with
clauses (i) or (ii) of Section 11(a) hereof, then the Company, or if not paid by
the Company, the Selling Stockholder, shall reimburse the Underwriters in full
for their actual accountable out-of-pocket expenses incurred in connection with
the proposed purchase and sale of the Firm Shares (including, without
limitation, the fees and disbursements of Underwriters’ Counsel) inclusive of
the $0.00 previously paid on account. Notwithstanding the foregoing, in the
event the offering is terminated, each Underwriter will not be entitled to
retain or receive more than an amount equal to its actual accountable
out-of-pocket expenses and shall reimburse the Company for the remainder, if
any. The Underwriters hereby acknowledge and agree that their expenses in
connection with the “road show” presentations shall be paid from the
non-accountable expense allowance.
 
(c)    Subject to Section 5(h) hereof, the Underwriters shall determine in which
states or jurisdictions the Shares shall be registered or qualified for sale.
 
13.   Notices. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, delivered by national overnight courier service or hand delivered,
addressed as respectively indicated or to such other address as will be
indicated by a written notice similarly given, to the following persons:
 
(a)    If to the Underwriters - addressed to Merriman Curhan Ford & Co., 600
California Street, 9th Floor, San Francisco, CA 94108, Attn: Craig Sultan,
Managing Director; with a copy to Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, CA 94304, Attention: Donna
Petkanics, Esq.; provided, however, that such copy to Wilson Sonsini Goodrich &
Rosati shall not constitute notice delivered to the Underwriters.
 
(b)    If to the Company - addressed to VeriChip Corporation, 1690 South
Congress Avenue, Suite 200, Delray Beach, FL 33445, Attention: Scott R.
Silverman, Chief Executive Officer, with a copy to Holland & Knight LLP. 701
Brickell Avenue, Suite 3000, Miami, FL 33131, Attn: Harvey A. Goldman, Esq. and
to Holland & Knight LLP, 195 Broadway, 24th Floor, New York, NY 10007, Attn:
James M. Lurie, Esq. and to Steptoe & Johnson LLP, 1330 Connecticut Avenue,
N.W., Washington, D.C. 20036, Attn: Donald H. Meiers, Esq.; provided, however,
that such copies to Holland & Knight LLP and Steptoe & Johnson LLP shall not
constitute notice delivered to the Company.
 
(c)    If to the Selling Stockholder - addressed to Applied Digital Solutions
Inc., 1690 South Congress Avenue, Suite 200, Delray Beach, FL 33445, Attention:
Michael E. Krawitz, Chief Executive Officer, with a copy to Holland & Knight
LLP, 701 Brickell Avenue, Suite 3000, Miami, FL 33131, Attn: Harvey A. Goldman,
Esq.; provided, however, that such copy to Holland & Knight LLP shall not
constitute notice delivered to the Selling Stockholder.
 
38

--------------------------------------------------------------------------------

14.   Successors. This Agreement will inure to the benefit of and be binding
upon the Underwriters, the Company, the Selling Stockholder, and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended, or will be construed, to give any person, corporation or
other entity other than the controlling persons, directors, officers, employees
and agents referred to in Section 6 hereof (to the extent provided for in
Section 6), and their respective successors and assigns, any legal or equitable
right, remedy, or claim under or in respect to this Agreement or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other persons. Notwithstanding anything contained herein
to the contrary, no purchaser of any of the Shares from the Underwriters will be
deemed a successor or assign solely because of such purchase.
 
15.   Finders and Holders of First Refusal Rights.
 
(a)    Each of the Company and the Selling Stockholder, jointly and severally,
hereby represents and warrants to the Underwriters that it has not paid any
compensation for services as a finder in connection with any prior financing of
the Company during the twelve-month period immediately preceding the date hereof
and that no person is entitled, directly or indirectly, to compensation for
services as a finder in connection with the proposed transactions. The Company
further represents and warrants, that no person holds a right of first refusal
or similar right in connection with the proposed offering which has not been
waived. In addition, the Company hereby agrees to indemnify and hold harmless
the Underwriters, their officers, directors, agents and each person, if any, who
controls such Underwriters within the meaning of Section 15 of the Act, from and
against any loss, liability, claim, damage or expense whatsoever arising out of
a claim by an alleged finder or alleged holder of a right of first refusal or
similar right in connection with the proposed offering by the Company, insofar
as such loss, liability, claim, damage or expense arises out of any action or
alleged action of the Company, as the case may be.
 
(b)    Each of the Underwriters hereby represents and warrants to the Company
and the Selling Stockholder that no person is entitled, directly or indirectly,
to compensation for services as a finder in connection with the proposed
transactions contemplated by this Agreement; and the Underwriters hereby agree
to indemnify and hold harmless, severally and not jointly, the Company and the
Selling Stockholder, and each of its respective officers, directors and agents,
from and against any loss, liability, claim, damage or expense whatsoever
arising out of a claim by an alleged finder in connection with the proposed
offering, insofar as such loss, liability, claim, damage or expense arises out
of any action or alleged action of the Underwriters.
 
39

--------------------------------------------------------------------------------

16.   Applicable Law. This Agreement shall be a deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by and construed in accordance with the laws of said State applicable to
contracts made and to be performed entirely within such State. Each of the
Company, the Selling Stockholder and the Underwriters (i) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in the State courts of the State of New York, County of
New York, or in the United States District Court for the Southern District of
New York, (ii) waives any objection which the Company or the Underwriters, as
the case may be, may have now or hereafter to the venue of any such suit, action
or proceeding, and (iii) irrevocably consents to the jurisdiction of the State
courts of the State of New York, County of New York, or in the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. Each of the Company, the Selling Stockholder and the Underwriters
further agrees to accept and acknowledge service of any and all process which
may be served in any suit, action or proceeding in the State courts of the State
of New York, County of New York, or in the United States District Court for the
Southern District of New York, and agrees that service of process upon the
Company, the Selling Stockholder or the Underwriters, as the case may be, mailed
by certified mail to such party’s address as set forth in Section 13 hereof
shall be deemed in every respect effective service of process upon such party in
any such suit, action or proceeding. In the event of litigation between the
parties arising hereunder, the prevailing party shall be entitled to costs and
reasonable attorney’s fees.
 
17.   No Fiduciary Duty. The Company hereby acknowledges that (a) the
Underwriters are acting as principals and not as agents or fiduciaries of the
Company and (b) the Company’s engagement of the Underwriters in connection with
the offering of Shares contemplated by the Prospectus is as independent
contractors and not in any other capacity. Furthermore, the Company agrees that
it is solely responsible for making its own judgments in connection with the
offering of Shares contemplated by the Prospectus (irrespective of whether the
Underwriters have advised or is currently advising the Company on related or
other matters).
 
18.   Headings. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect any of the terms or provisions
hereof.
 
19.   Counterparts. This Agreement may be executed in any number of counterparts
which, taken together, shall constitute one and the same instrument.
 
20.   Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the Underwriters and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
 
21.   Terminology. All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders and
the singular shall include the plural, and vice versa.
 
[SIGNATURE PAGE FOLLOWS]
 
40

--------------------------------------------------------------------------------

If the foregoing correctly sets forth our understanding, please indicate the
Underwriters’ acceptance thereof, as of the day and year first above written, in
the spaces provided below for that purpose, whereupon this letter with the
Underwriters’ acceptance shall constitute a binding agreement among us.
 

 
Very truly yours,
 
VERICHIP CORPORATION
                 
By:
/s/ Scott R. Silverman
     
Name: Scott R. Silverman
   
Title:   Chief Executive Officer
         
APPLIED DIGITAL SOLUTIONS, INC.
                 
By:
/s/ Michael E. Krawitz
     
Name: Michael E. Krawitz
   
Title:   Chief Executive Officer

 
 
[Signature Page to Underwriting Agreement]
 

--------------------------------------------------------------------------------

Confirmed and accepted on the
day and year first above written.

 
THE UNDERWRITERS:
     
MERRIMAN CURHAN FORD & CO.
     
Acting severally on behalf of itself and as representative of the several
Underwriters
     
By:  MERRIMAN CURHAN FORD & CO.
               
By:
/s/ Steven R. Foland
     
Name: Steven R. Foland
   
Title: Managing Director

 
42

--------------------------------------------------------------------------------

EXHIBIT A-1
(Lock-Up Letter Agreement)
 

___________ ____, 2006

Merriman Curhan Ford & Co.
C.E. Unterberg, Towbin, LLC
Kaufman Bros., L.P.
c/o Merriman Curhan Ford & Co.
600 California Street, 9th Floor
San Francisco, CA 94108
Re: Lock-Up Agreement (the “Agreement”)

Ladies and Gentlemen:
 
The undersigned is an owner of record or beneficially of certain shares of
common stock, $0.001 par value per share (the “Common Stock”), of VeriChip
Corporation, a Delaware corporation (the “Company”), or securities convertible
into or exchangeable or exercisable for Common Stock. The undersigned
understands that Merriman Curhan Ford & Co., proposes to enter into an
underwriting agreement with the Company (the “Underwriting Agreement”) providing
for a public offering of the Common Stock of the Company by the several
underwriters, including Merriman Curhan Ford & Co. (the “Underwriters”) pursuant
to a Registration Statement on Form S-1 to be filed with the Securities and
Exchange Commission (the “Public Offering”). The undersigned recognizes that the
Public Offering will be of benefit to the undersigned and will benefit the
Company by, among other things, raising additional capital for its operations.
The undersigned acknowledges the Underwriters are relying on the representations
and agreements of the undersigned contained in this letter in carrying out the
Public Offering and in entering into underwriting arrangements with the Company
with respect to the Public Offering.
 
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Merriman Curhan Ford &
Co. on behalf of the Underwriters (which consent may be withheld in its sole
discretion), it will not, during the period (the “Restricted Period”) commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to the exercise of
options or warrants or the conversion of a security outstanding on the date of
the Prospectus and which is described in the Company’s registration statement on
Form S-1, as amended and supplemented, filed with the Securities and Exchange
Commission; provided, however, that the undersigned agrees that the foregoing
sentence shall apply to any securities issued by the Company to the undersigned
upon such an exercise or conversion. In addition, the undersigned agrees that,
without the prior written consent of Merriman Curhan Ford & Co. on behalf of the
Underwriters (which consent may be withheld in its sole discretion), it will
not, during the period commencing on the date hereof and ending 180 days after
the date of the Prospectus, make any demand for or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.

--------------------------------------------------------------------------------

 
The undersigned agrees that if (a) during the last 18 days of the Restricted
Period, the Company issues an earnings release or material news or a material
event relating to the Company occurs; or (b) prior to the expiration of the
Restricted Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Restricted Period, the
restrictions set forth herein shall continue to apply until the expiration of
the 19-day period beginning on the issuance of the earnings release or the
occurrence of the material news or material event, as applicable, unless
Merriman Curhan Ford & Co. waives, in writing, such extension. The undersigned
hereby acknowledges and agrees that written notice of any extension of the
Restricted Period pursuant to this paragraph will be delivered by Merriman
Curhan Ford & Co. to the Company (in accordance with the Underwriting Agreement)
and that any such notice properly delivered will be deemed to have been given
to, and received by, the undersigned.
 
With respect to the Public Offering, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended, or
otherwise, of any Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
 
The foregoing restrictions are expressly agreed to preclude the undersigned from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a sale or disposition of the Common Stock even
if such Common Stock would be disposed of by someone other than the undersigned.
Such prohibited hedging or other transactions would include without limitation
any short sale or any purchase, sale or grant of any right (including without
limitation any put option or put equivalent position or call option or call
equivalent position) with respect to any of the Common Stock or with respect to
any security that includes, relates to, or derives any significant part of its
value from such Common Stock.
 
Notwithstanding the foregoing, the undersigned may transfer shares of Common
Stock (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound by the restrictions set forth herein, (ii) to any
trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that the trustee of the trust agrees to be
bound by the restrictions set forth herein, and provided further that any such
transfer shall not involve a disposition for value, (iii) to the Underwriters
pursuant to the Underwriting Agreement, or (iv) in transactions relating to
shares of Common Stock acquired by the undersigned in open market transactions
after the completion of the Public Offering; provided, however, that in cases
(i) and (ii) above, it shall be a condition to such transfer that Merriman
Curhan Ford & Co. receives prior written notice of the transfer and a copy of
the agreement of the donee or trustee, as the case may be, to be bound by the
restrictions set forth herein, and there shall be no further transfer of such
shares except in accordance with this letter. For purposes of this Agreement,
“immediate family” shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin. In addition, notwithstanding the foregoing,
if the undersigned is a corporation, partnership, limited liability company or
other form of business entity, the undersigned may transfer the capital stock of
the Company to any wholly-owned subsidiary, partner or member of the undersigned
or to an affiliate of the undersigned; provided, however, that in any such case,
it shall be a condition to the transfer that Merriman Curhan Ford & Co. receive
prior written notice thereof and that the transferee execute an agreement
stating that the transferee is receiving and holding such capital stock subject
to the provisions of this Agreement and there shall be no further transfer of
such capital stock except in accordance with this Agreement, and provided
further that any such transfer shall not involve a disposition for value.

--------------------------------------------------------------------------------

 
The undersigned understands that whether or not the Public Offering actually
occurs depends on a number of factors, including stock market conditions. The
Public Offering will only be made pursuant to an Underwriting Agreement, the
terms of which are subject to negotiation among the Company and the
Underwriters.
 
The undersigned agrees and consents to the entry of stop transfer instructions
with the Company’s transfer agent and registrar against, and authorizes the
Company to cause the transfer agent and registrar to decline, the transfer of
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock held by the undersigned except in compliance with
the foregoing restrictions.
 
This Agreement shall lapse and become null and void upon the earlier of (i) the
close of business on March 31, 2007, if the closing (excluding the closing of
any over-allotment option granted to the Underwriters pursuant to the
Underwriting Agreement relating to the Public Offering) of the Public Offering
shall not have occurred on or before such time and (ii) the withdrawal by the
Company of the Registration Statement on Form S-1 filed in connection with the
Public Offering.
 
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into the agreements set forth herein.
 
The undersigned further understands that this agreement is irrevocable, and that
all authority herein conferred or agreed to be conferred shall survive death or
incapacity of the undersigned and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
 

 
Very truly yours,
         
Signature
         
Name (Please print)

 

--------------------------------------------------------------------------------

EXHIBIT A-2
(Lock-Up Letter Agreement)
 

January 24, 2007

VeriChip Corporation
1690 South Congress Ave. #200
Delray Beach, FL 33445

Re: Lock-Up Agreement (the “Agreement”)

Ladies and Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of
common stock, $0.01 par value per share (the “Common Stock”), of VeriChip
Corporation, a Delaware corporation (the “Company”), or securities convertible
into or exchangeable or exercisable for Common Stock. The undersigned
understands that the Company is preparing for a public offering of the Common
Stock of the Company by the several underwriters, including Merriman Curhan Ford
& Co. (the “Underwriters”) pursuant to a Registration Statement on Form S-1 to
be filed with the Securities and Exchange Commission (the “Public Offering”).
The undersigned recognizes that the Public Offering will be of benefit to the
undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges the Company
is relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Public Offering and in entering into
underwriting arrangements with the Company with respect to the Public Offering.

To facilitate the Company’s dealings with the Underwriters (and therefore
benefit the Company) that may participate in the Public Offering, the
undersigned hereby agrees that, without the prior written consent of the Company
(which consent may be granted or withheld in its sole discretion), it will not,
during the period (the “Restricted Period”) commencing on the date hereof and
ending 180 days after the date of the final prospectus relating to the Public
Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to the exercise of options or warrants or the
conversion of a security outstanding on the date of the Prospectus and which is
described in the Company’s registration statement on Form S-1, as amended and
supplemented, filed with the Securities and Exchange Commission; provided,
however, that the undersigned agrees that the foregoing sentence shall apply to
any securities issued by the Company to the undersigned upon such an exercise or
conversion. In addition, the undersigned agrees that, without the prior written
consent of the Company (which consent may be granted or withheld in its sole
discretion), it will not, during the period commencing on the date hereof and
ending 180 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.

--------------------------------------------------------------------------------

The undersigned agrees that if (a) during the last 18 days of the Restricted
Period, the Company issues an earnings release or material news or a material
event relating to the Company occurs; or (b) prior to the expiration of the
Restricted Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Restricted Period, the
restrictions set forth herein shall continue to apply until the expiration of
the 19-day period beginning on the issuance of the earnings release or the
occurrence of the material news or material event, as applicable, unless the
Company waives, in writing, such extension. The undersigned hereby acknowledges
and agrees that written notice of any extension of the Restricted Period
pursuant to this paragraph will be delivered by the Company.

With respect to the Public Offering, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended, or
otherwise, of any Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.

The foregoing restrictions are expressly agreed to preclude the undersigned from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a sale or disposition of the Common Stock even
if such Common Stock would be disposed of by someone other than the undersigned.
Such prohibited hedging or other transactions would include without limitation
any short sale or any purchase, sale or grant of any right (including without
limitation any put option or put equivalent position or call option or call
equivalent position) with respect to any of the Common Stock or with respect to
any security that includes, relates to, or derives any significant part of its
value from such Common Stock.

Notwithstanding the foregoing, the undersigned may transfer shares of Common
Stock (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound by the restrictions set forth herein, (ii) to any
trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that the trustee of the trust agrees to be
bound by the restrictions set forth herein, and provided further that any such
transfer shall not involve a disposition for value, (iii) to the Underwriters
pursuant to the Underwriting Agreement, (iv) in transactions relating to shares
of Common Stock acquired by the undersigned in open market transactions after
the completion of the Public Offering; or (v) upon death pursuant to the
undersigned’s will or applicable law; provided, however, that in cases (i) and
(ii) above, it shall be a condition to such transfer that the Company receive
prior written notice of the transfer and a copy of the agreement of the donee or
trustee, as the case may be, to be bound by the restrictions set forth herein,
and there shall be no further transfer of such shares except in accordance with
this letter. For purposes of this Agreement, “immediate family” shall mean any
relationship by blood, marriage, domestic partnership or adoption, not more
remote than first cousin.

The undersigned understands that whether or not the Public Offering actually
occurs depends on a number of factors, including stock market conditions. The
Public Offering will only be made pursuant to an Underwriting Agreement, the
terms of which are subject to negotiation among the Company and the
Underwriters.

--------------------------------------------------------------------------------

The undersigned agrees and consents to the entry of stop transfer instructions
with the Company’s transfer agent and registrar against, and authorizes the
Company to cause the transfer agent and registrar to decline, the transfer of
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock held by the undersigned except in compliance with
the foregoing restrictions.

This Agreement shall lapse and become null and void upon the earlier of (i) the
close of business on February 28, 2007, if the closing (excluding the closing of
any over-allotment option granted to the Underwriters pursuant to the
Underwriting Agreement relating to the Public Offering) of the Public Offering
shall not have occurred on or before such time and (ii) the withdrawal by the
Company of the Registration Statement on Form S-1 filed in connection with the
Public Offering. Notwithstanding anything herein to the contrary, the Restricted
Period shall end if the undersigned is no longer an employee of the Company or
its affiliates.

The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into the agreements set forth herein. The Company
represents and warrants that it has full power and authority to enter into the
agreements set forth herein, and has entered into no agreements that limit its
authority to grant or withhold any consents referred to herein.

The undersigned further understands that this agreement is irrevocable, and that
all authority herein conferred or agreed to be conferred shall survive death or
incapacity of the undersigned and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
 
 

 
Very truly yours,
         
Signature
         
Name (Please print)

 

--------------------------------------------------------------------------------

EXHIBIT B-1
(Form of Opinion of Company Co-Counsel)
 
1.     The Company validly exists as a corporation in good standing under the
laws of the State of Delaware. The Company has the requisite corporate power and
authority to own its property and to conduct its business as described in the
Prospectus. The Company is qualified to do business or licensed as a foreign
corporation and is in good standing under the laws of each jurisdiction listed
on Schedule [ ] hereto.

2.     Each of the subsidiaries of the Company identified in Schedule [ ] hereto
is qualified to do business and is in good standing under the laws of the
jurisdictions listed opposite such subsidiary’s name in Schedule [ ] hereto.

3.     The Company has authorized and issued capital stock as set forth in the
Registration Statement and the Prospectus and the shares of capital stock of the
Company issued and outstanding immediately prior to the issuance of the Firm
Shares, including the Option Shares, have been duly authorized and validly
issued, and are fully paid and non-assessable.

4.     The Firm Shares to be issued and sold by the Company on the date hereof
have been duly authorized by the Company and, when issued and sold by the
Company, and delivered by the Company to, and paid for by, the Underwriters in
accordance with the terms of the Underwriting Agreement, will be validly issued,
fully paid and non-assessable.

5.     No stockholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company arising (i) by operation of the Second
Amended and Restated Certificate of Incorporation or the Amended and Restated
By-Laws of the Company, or (ii) under the Delaware General Corporation Law.

6.     Except as disclosed in the Prospectus, to our knowledge, there are no
contractual preemptive rights that have not been waived with respect to the
Shares to be issued and sold by the Company on the date hereof.

7.     Except as disclosed in the Prospectus, to our knowledge (i) there are no
outstanding securities of the Company convertible into or exchangeable or
exercisable for or evidencing the right to purchase or subscribe for any shares
of capital stock of the Company, and (ii) there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares of such capital
stock. Except as described in the Prospectus, to our knowledge, no holder of any
securities of the Company has the right, which has not been satisfied or
effectively waived, to have any shares of common stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the
Securities Act of any shares of common stock or other securities of the Company.

--------------------------------------------------------------------------------

8.     The Company has taken all necessary corporate action to authorize it to
(i) issue the Firm Shares, (ii) execute, deliver and perform all of its other
obligations under the terms and provisions of the Underwriting Agreement, and
(iii) consummate the transactions contemplated thereby.

9.     The execution and delivery of the Underwriting Agreement by the Company
does not, and the consummation of the transactions contemplated by the
Underwriting Agreement by the Company, including the issuance and sale of the
Firm Shares, will not: (a) result in any breach or default under (nor constitute
any event that, with notice, lapse of time or both, would result in any breach
or default under) (i) any provision of the Second Amended and Restated
Certificate of Incorporation or the Amended and Restated By-Laws of the Company
or (ii) any provision of any agreement or instrument filed as an exhibit to the
Registration Statement; or (b) violate (i) any provision of any applicable
federal law, New York State commercial law or the Delaware General Corporation
Law, in each case known to us to be customarily applicable to transactions of
the nature contemplated by the Underwriting Agreement, or (ii) any judgment,
decree or order known to us of any court or any public governmental or
regulatory agency or body having jurisdiction over the Company.

10.    No consent, approval, authorization or order of, or qualification with,
any federal or state governmental or regulatory commission, board, body,
authority or agency is required to be obtained or made by the Company in
connection with the issuance and/or sale of the Shares, and the consummation by
the Company of the transactions contemplated by the Underwriting Agreement,
other than such as have previously been obtained on or prior to the date hereof
and are in full force and effect, including, without limitation, registration of
the Shares under the Securities Act and of the common stock of the Company under
the Exchange Act; provided, however, that we express no opinion as to (a) state
securities or “blue sky” laws or foreign securities laws of the various
jurisdictions in which the Shares are being offered by the Underwriters, and (b)
the approval of the National Association of Securities Dealers, Inc. of the
terms and conditions of the Underwriting Agreement.

11.    To our knowledge, there are no contracts, licenses, agreements or other
documents that are required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement by the Rules and Regulations which have
not been described or filed as required.

12.    We have read the statements in the Prospectus under the captions “Risk
Factors,” the risk factors, “Regulation of products and services that collect
personally-identifiable information or otherwise monitor an individual’s
activities may make the provision of our services more difficult or expensive
and could jeopardize our growth prospects.” and “If we fail to comply with
anti-kickback and false claims laws, we could be subject to costly and time
consuming litigation and possible fines or other penalties.”, “Our Business -
Intellectual Property,” “Our Business - Government Regulation” (other than those
statements under the subcaption “Industry Canada Regulations”), “Description of
Capital Stock,” “Shares Eligible for Future Sale” and “Material United States
Tax Considerations for Non-United States Holders,” and in Items 14 and 15 of
Part II of the Registration Statement, and, in each case, insofar as such
statements constitute a summary of the legal matters, documents or proceedings
referred to therein or refer to statements of law or legal conclusions, such
statements fairly summarize, in all material respects, the matters referred to
therein.

--------------------------------------------------------------------------------

13.    The Registration Statement [and the Rule 462(b) Registration Statement,
if any,] has been declared effective by the Commission under the Securities Act
and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement [or the Rule 462(b) Registration Statement, if any] has
been issued by the Commission nor, to our knowledge, is a proceeding for that
purpose pending before or contemplated by the Commission. Any required filing of
the Prospectus pursuant to Rule 424 under the Securities Act has been made in
the manner and within the time period required by such Rule 424.

14.    The Company is not, and after giving effect to the offering and sale of
the Firm Shares and application of the proceeds thereof as described in the
Prospectus will not be, required to register as an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.

15.    To our knowledge, there are no legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is a party that
are of a character required to be described in the Registration Statement and
the Prospectus that have not been described therein.

In addition to the foregoing opinions, we advise you supplementally that we have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the Company,
representatives of the Underwriters and representatives of Underwriters’
counsel, during which conferences the contents of the Registration Statement,
the Pricing Disclosure Package and the Prospectus and related matters were
discussed. Although we are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, the Pricing Disclosure Package or the Prospectus (other
than as specified in Paragraphs 5 and 12 above), on the basis of the information
we gained during the course of performing the services referred to above, we
confirm to you that: (a) we are of the opinion that the Registration Statement,
the Prospectus [and any Issuer Free Writing Prospectus listed on Schedule [ ]
hereto] (except as to the financial statements, schedules, notes, other
financial and accounting data, and statistical data, included therein or derived
therefrom, and information about internal control over financial reporting, as
to which we express no opinion), at the time it was filed with the Commission,
complied as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder; and (b) nothing has
come to the attention of those lawyers in our firm who have participated in the
representation of the Company in connection with the offering, including the
diligence process, and preparation of the Registration Statement, the Pricing
Disclosure Package and the Prospectus, that has led us to believe that (i) the
Registration Statement, at the time it was declared effective, contained an
untrue statement of a material fact required to be stated therein or omitted to
state a material fact necessary in order to make the statements therein not
misleading, (ii) the Pricing Disclosure Package, at the Applicable Time,
contained an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) the
Prospectus, at the time the Prospectus was filed with the Commission or at the
date hereof, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (in each case, it being understood that we do not express any
belief with respect to the financial statements, schedules, notes, other
financial and accounting data, and statistical data, included therein or derived
therefrom, and information about internal control over financing reporting,
included in the Registration Statement, the Pricing Disclosure Package or the
Prospectus).

--------------------------------------------------------------------------------

SCHEDULE A

Underwriters

Name of Underwriter
Number of Firm Shares Purchased
Merriman Curhan Ford & Co.
1,813,500
C.E. Unterberg, Towbin, LLC
697,500
Kaufman Bros., LP
279,000
Jesup & Lamont Securities Corporation
155,000
LaSalle St. Securities, L.L.C.
155,000
Total
3,100,000

 

--------------------------------------------------------------------------------

SCHEDULE B

Selling Stockholders

Name of Selling Stockholder
Number of Option Shares to be Sold
Applied Digital
465,000
Total
465,000

 

--------------------------------------------------------------------------------

SCHEDULE 1(a)
(List of Issuer Free Writing Prospectuses and Other Supplemental Materials)
 
 
Pricing Information
 

--------------------------------------------------------------------------------

SCHEDULE 1(q)

 
Exceptions to
Statements in the Company’s Representation and Warranty in Section 1(q) of the
Underwriting Agreement 
 
Note:
The information below supplements disclosure in the Prospectus relevant to the
Company’s representation and warranty in Section 1(q) of the Underwriting
Agreement.

 
(i)
The Company or one of its Subsidiaries is the beneficial and record owner of all
right, title and interest in, to and under the Intellectual Property, free and
clear of all liens, security interests, charges, encumbrances or other adverse
claims, and has the right to use the Intellectual Property without payment to a
third party except as set forth below:

 
Security Interests in Patents; License
 
Nature of Conveyance
Patent No.
Assignor
Assignee
Security Agreement
US 5,374,921
Instantel Inc.
Fifth Third Bank*
Security Agreement
US 5,014,040
Instantel Inc.
Fifth Third Bank*
Security Agreement
US 5,977,877
Instantel Inc.
Fifth Third Bank*
Security Agreement
US D417,667
Instantel Inc.
Fifth Third Bank*
Security Agreement
US D414,178
Instantel Inc.
Fifth Third Bank*
License
US 5,374,921
Instantel Inc.
BI, Incorporated

 

*
The security interests reflected in the above table were granted under the terms
of a loan and security Agreement, as amended and restated, between Instantel
Inc., as borrower, and Fifth Third Bank. The indebtedness incurred thereunder
was extinguished under the terms of a payoff agreement, dated June 8, 2005,
between Instantel Inc. and Fifth Third Bank. However, the parties failed to make
the necessary arrangements to record the release of these security interests.

--------------------------------------------------------------------------------

Security Interests in Trademarks
 
Nature of Conveyance
Trademark/
Registration
Number
Assignor
Assignee
Security Interest
 
Blastmate
US 1,628,968
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Instantel
US 1,637,432
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Watchmate
US 1,823,615
Instantel Inc.
Fifth Third Bank*
Security Interest
 
FindIt
US 2,292,993
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Hugs
US 2,390,878
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Perceptis
US 2,444,667
Instantel Inc.
Fifth Third Bank*
Security Interest
 
KeepIt
US 2,833,459
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Heartbeat
US 2,833,540
Instantel Inc.
Fifth Third Bank*
Security Interest
 
Kisses
US 2,844,176
Instantel Inc.
Fifth Third Bank*

 
*
The security interests reflected in the above table were granted under the terms
of a loan and security Agreement, as amended and restated, between Instantel
Inc., as borrower, and Fifth Third Bank. The indebtedness incurred thereunder
was extinguished under the terms of a payoff agreement, dated June 8, 2005,
between Instantel Inc. and Fifth Third Bank. However, the parties failed to make
the necessary arrangements to record the release of these security interests.

 

--------------------------------------------------------------------------------

(ii)
There is no pending or, to the Knowledge of the Company, threatened action,
suit, proceeding or claim by others challenging the Company’s or any
Subsidiary’s rights in or to, or the validity or scope of, any Intellectual
Property, nor, to the Knowledge of the Company, do there exist any facts which
would form a reasonable basis for any such claim except as set forth below:

With respect to U.S. Patent No. 5,211,129, Syringe-Implantable Identification
Transponder, Digital Angel has filed legal actions, and may file additional
actions, to enforce such patent, including the following:

Digital Angel Corporation v. Datamars, Inc., et al., Civ. No. 2004-4544 (D.
Minn.)

In the course of the above-captioned action, the defendant has asserted that
this patent is invalid and/or not enforceable. In the event of any additional
action, the defendant(s) may similarly assert that the patent is invalid and/or
unenforceable.

(iii)
To the Knowledge of the Company, neither the Company nor any Subsidiary has
infringed, is infringing upon, or is otherwise in conflict with the intellectual
property rights of others.

On August 19, 2004, one or more employees of Instantel received what appeared to
be a mass-e-mail from William Robinson at Sovereign Tracking Systems, LLC. The
email asserts:

“If you have an RFID or RTLS application and if you tag either assets or
personnel with an RFID or RTLS tag and the Tracking, Location and/or Monitoring
of the tagged object is displayed in Real-Time as a graphical layout, floor
plan, map, etc. on a display monitor, i.e. computer screen, then that product,
or integration of that product maybe covered by our patent. The patent has no
bounds regarding frequency and covers applications described above regardless of
the specific technology used.”

The e-mail further suggests that the e-mail recipients should consider licensing
his patent if they have products using the described technologies. The e-mail
makes no specific claims regarding Instantel’s products or overt threats of
litigation. Instantel has taken no action on the basis that it believes it has
prior art for all similar products.

(iv)
None of the Company nor any Subsidiary has received any notice that it has or
may have infringed, is infringing upon, or is in conflict with the intellectual
property rights of others except as set forth below:

See the exception with respect to statement (iii) above.

(v)
There is no pending or, to the Knowledge of the Company, threatened action,
suit, proceeding or claim by others alleging that the Company or any Subsidiary
infringes, is in conflict with, or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, nor, to the
Knowledge of the Company, do there exist any facts which would form a reasonable
basis for any such claim.

See the exception with respect to statement (iii) above.

--------------------------------------------------------------------------------

(vi)
To the Knowledge of the Company, no others have infringed upon the Intellectual
Property.

An internal analysis performed by the Instantel determined that two competitors,
Pro Tech Monitoring and RF Code/Avery Dennison, may be infringing U.S. patent
#5,374,921. Instantel has taken no action against any of the parties.

Competitors Visonics and RF Technologies may be infringing Instantel’s global
exclusive healthcare license of licensed U.S. Patents Nos. 4,952,913 and
4,885,571. Instantel has taken no action against either of the parties.

(vii)
None of the Company or any Subsidiary is obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, intellectual property rights not
owned or controlled by the Company or such Subsidiary or in connection with the
conduct of the Business.

 
None

(viii)
The expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not result in a Material Adverse Effect.

 
The expiration of any patent or patent right would result in the technology
claimed in the patent entering the public domain, thereby allowing competitors
to freely utilize the claimed technology.

(ix)
None of the patents owned or licensed by the Company is unenforceable or
invalid, and the Company and its Subsidiaries are unaware of any facts which
would form a reasonable basis for any claim that the patent applications owned
or licensed by the Company would be unenforceable or invalid if issued as
patents.

 
None

(x)
The Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all material proprietary technical information
developed by and belonging to the Company which has not been patented except as
set forth below:

 
None

--------------------------------------------------------------------------------

(xi)
Neither the Company nor its Subsidiaries is obligated to pay a royalty, grant a
license or provide other consideration to any third person in connection with
the Intellectual Property.

None

(xii)
Neither the Company nor its Subsidiaries has granted or assigned to any other
person or entity any right to manufacture, have manufactured, assemble or sell
the current products and services of the Company or those products and services
described in the Registration Statement and the Pricing Prospectus.

With respect to U.S. Patent No. 5,211,129, Destron Fearing Corporation, a
predecessor company to Digital Angel Corporation, submitted a letter to the
International Standards Organization (ISO) that states, “Destron is willing to
license manufacturers of syringe-implantable transponders to manufacture, use
and sell transponders covered by the ‘129 patent on a global basis so long as
such transponders comply with ISO 11784/5 as specified in the conformance clause
of ISO 11785. However, Destron will not license manufacturers of transponders to
make, use or sell products which are not in compliance with ISO 11784/5
standard, including those described in the Annex to ISO 11785.”

--------------------------------------------------------------------------------

SCHEDULE 1(y)

The following entities have not executed Lock-Up Agreements:

 
·
Satellite Strategic Finance Associates, LLC

 
·
Satellite Strategic Finance Partners, Ltd.

 
·
Eduardo Alarcon

 
·
Lori Alexander

 
·
Jerome Artigliere

 
·
Brent Ballard

 
·
John Block

 
·
Keith Bolton

 
·
Karen Clement

 
·
Tom Cuneo

 
·
Alan Foster

 
·
Richard Friedland

 
·
Angela Fulcher

 
·
Randolph Geissler

 
·
Terri Granger

 
·
Jack Gray

 
·
Gary Gray

 
·
Kirstin Gulbransen

 
·
Kim Hetrick

 
·
Nurez Khimji

 
·
Frank Lalley

 
·
Michael May

 
·
Sameer Mehta

 
·
Mpact Communications

 
·
Jonathan Musher

 
·
Amanda Mushrush

 
·
Arthur Noterman

 
·
Ovations International

 
·
John Reap

 
·
Luke Rivara

 
·
Greg Sadowski

 
·
Kristi Shackelford

 
·
Angela Sullivan

 
·
Richard Sullivan

 
·
Allison Tomek

 
·
Howard Weintraub

 
·
Kevin Wiley

 
·
Hal Williams

 
·
Michael Zarrielo

 
·
Peter Zhou

--------------------------------------------------------------------------------