Exhibit 10.4


    
      

    


    Exhibit
      10.4

    


    AMENDED
      AND RESTATED 

    SUPPLY,
      LICENSE, AND DEVELOPMENT AGREEMENT

     

    THIS
      AMENDED
      AND RESTATED SUPPLY, LICENSE AND DEVELOPMENT AGREEMENT
      (this
“Agreement”), is dated as of the 28th day of December,
      2005
      by and
      between DIGITAL
      ANGEL CORPORATION,
      a
      Delaware corporation (“Company”), and VERICHIP
      CORPORATION,
      a
      Delaware corporation (“VeriChip”). 

     

    RECITALS

     

    WHEREAS,
      Company and VeriChip (hereinafter referred to collectively as the “Parties”, and
      individually as a “Party”) previously entered into that certain Supply and
      License Agreement dated March 4, 2002 (the “Original Supply and License
      Agreement”), relating to the use of the Developed Products (as
      defined herein) in
      humans
      for security, financial, emergency identification and other
      applications;

     

    WHEREAS,
      the U.S. Food and Drug Administration (“FDA”) has (i) cleared the Developed
      Products for human patient identification and health information (the “Approved
      Medical Uses”) and (ii) has provided the Company with a letter dated
      October
      17, 2002 which
      states that FDA approval will not be required for non-healthcare
      related uses
      of
      the Developed Products in
      humans, as previously provided to VeriChip (the “Approved Non-Medical
      Uses”);

     

    WHEREAS,
      Company desires to supply VeriChip with the Developed Products
      and
      VeriChip desires to buy the Developed Products for both
      the
      Approved Medical Uses and the Approved Non-Medical Uses
      in
      humans only;

     

    WHEREAS,
      Company desires to notify VeriChip of the development of New Products and
      VeriChip desires to have the right to buy, market and sell New Products, as
      more
      specifically described herein; and

     

    WHEREAS,
      the Parties desire to clarify the circumstances under which VeriChip may have
      the ability to manufacture or have manufactured the Developed Products and
      in
      connection therewith have access to certain of the Company’s Intellectual
      Property. 

     

    NOW
      THEREFORE, in consideration of the mutual covenants and obligations hereinafter
      set forth, and other consideration, the adequacy and sufficiency of which are
      hereby acknowledged, Company and VeriChip agree to be legally bound as
      follows:

     

    AGREEMENT

     

    1. Definitions.
      In
      addition to the terms defined in the Recitals of this Agreement, the following
      terms used in this Agreement shall have the following meanings:

     

    (a) The
“Act”
      means the U.S. Food, Drug and Cosmetic Act as amended from time to time and
      any
      foreign equivalents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) “Affiliate”
      of a Party means a person that directly or indirectly, through one or more
      intermediaries, controls or is controlled by or is under common control with,
      said Party. 

     

    (c) “Applicable
      Laws” shall mean (a) all laws, statutes, constitutions, treaties, rules,
      regulations, ordinances, codes, guidance, common law, and (b) all judicial,
      executive, legislative, administrative or military orders, directives, decrees,
      injunctions, judgments, Permits, agreements, and other legal requirements of,
      with, or adopted or imposed by any Governmental Authority, now or hereafter
      in
      effect and, in each case, as amended from time to time, including, without
      limitation, any such legal requirements that relate to or govern (i) the
      manufacture or quality of the Developed Products, (ii) health, safety,
      industrial hygiene, sanitation, or (iii) conditions on, under, about, or
      affecting any real property (including the environment).

     

    (d) “Confidential
      Information” means any information, not generally known, and proprietary to
      either Party or to a third party, including but not limited to any trade secret
      information, information relating to pricing, research, customer lists,
      diagrams, schematics, product development, manufacturing, purchasing,
      accounting, marketing, merchandising, selling, leasing, finance and business
      systems and techniques. The
      term
“Confidential
      Information”
does
      not include information: (i) that by reliable documentary evidence can be shown
      to have been
      already
      lawfully in the possession of the receiving Party through independent means
      at
      the time of disclosure thereof; (ii) is or later becomes part of the public
      domain through no fault of receiving Party; (iii)
      that by
      reliable documentary evidence can be shown
      to have
      been lawfully received by the receiving Party from a third party having no
      obligations of confidentiality to the disclosing Party; (iv) is required to
      be
      disclosed by law, by order of a governmental agency, or by a court of competent
      jurisdiction provided
      that the
      Party required to disclose such information pursuant to such law or legal
      process takes reasonable steps to provide the originally disclosing Party with
      the opportunity to contest such law, order or legal process; or (v)
      that by
      reliable documentary evidence can be shown
      to have
      been independently developed by the receiving Party its agents or employees
      having no access to the information otherwise constituting Confidential
      Information.

     

    (e) The
      “Developed Products” means the radio frequency identification (RFID) transponder
      invention, together with related devices, labeling, packaging, and/or reader
      equipment described on Schedule
      1,
      whether
      or not such transponder is injected or implanted, and including any Improvements
      developed during the Term, but not including any New Products, unless such
      New
      Products are added to this Agreement as contemplated in Section 3(e)
      of this
      Agreement, in which case such New Products will be deemed to be included in
      the
      Developed Products. 

     

    (f) “Documentation”
      means existing and any later-developed technical information, know-how and
      documents associated with the Intellectual Property relating to the Developed
      Products including, without limitation, manufacturing instructions, schematic
      diagrams, printed circuit board layouts, parts lists, communication protocol
      specifications, design specifications (including design logic and flowcharts),
      technical data, testing specifications, code, user guides, and the like.


     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (g) The
      “Exclusive Market” means all applications in which the Developed Products are
used
      for
      the
      primary purpose of secure
      human
      identification, including, but not limited to, those used as an implantable
      device. 

    


    (h) The
      “Excluded Market” means applications of Developed Products other than for
secure
      human
      identification
      or
      for any
      use in a country not included in the Territory.

    


    (i) “Force
      Majeure Event” means and includes, with respect to each of the Parties, Acts of
      God, acts or omissions of civil or military authority, fires, strikes, floods,
      epidemics, riot, war, acts of terrorism, quarantine restrictions, delays in
      transportation,
      inability to obtain equipment if not due to the acts or failure to act of a
      Party or its subcontractors, and prolonged shortage of energy or other supplies
      beyond the reasonable control of either Party which prevents, in whole or in
      material part, the performance by one of the Parties of its obligations
      hereunder or which renders the performance of such obligations so difficult
      or
      costly as to make such performance commercially unreasonable.

    


    (j) “Governmental
      Approvals” means any and all approvals required from a Governmental Authority in
      accordance with any Applicable Law.

    


    (k) “Governmental
      Authority” shall mean any federal, state, commonwealth, provincial, local or
      foreign governmental authority, entity, body, branch, agency, department,
      bureau, board, commission, officer, official, court, adjudicator, tribunal
      or
      other entity, including any agent thereof, exercising executive, legislative,
      judicial, regulatory, or administrative authority over the manufacture,
      marketing, pricing, use, or sale of any Developed Product (including any
      Improvements thereto) including, without limitation, any and all state,
      commonwealth, provincial, local and foreign equivalents.

    


    (l) “Improvements”
      means any and all upgrades, enhancements or other improvements made by the
      Company to the Developed Products during the Term which are associated with
      the
      use of the Developed Products in human tissue for the purpose of secure
      identification.

     

    (m) “Intellectual
      Property” means all know-how,
      ideas, concepts, trade secrets, Confidential Information, proprietary
      information, research, developments, mask works, moral rights, design rights,
      industrial property rights, rights in and to inventions,
      Improvements,
      and as-yet-undeveloped ideas, patent rights, patent applications, patents and
      any other intellectual property rights in any jurisdiction in the Territory
      including modifications and other applications using or based upon the resulting
      technology or required for the use of such technology wherever such concepts,
      designs, design changes, modifications, research, and developments might apply
      and which are created, developed, conceived, discovered, collected or prepared
      pursuant or related to the Developed Products including,
      but not limited to, patents set forth on Schedule
      4 to this Agreement.

    


    (n) “New
      Products” means microchip products developed by the Company which are primarily
      intended for use in applications other than secure identification, such
      as

     

    
      
        
        

      

      
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    biometric
      sensing capabilities, and for which any identification capabilities are
      ancillary to the primary intended use.

    


    (o) “Term”
      shall have the meaning set forth in Section 5 of this Agreement.

    


    (p) “Territory”
      shall mean the World.

    


    2. Supply
      and Purchase Requirements.
      During
      the Term, and with respect to the Exclusive Market, Company shall manufacture
      the Developed Products exclusively for, and shall sell the Developed Products
      exclusively to, VeriChip and any VeriChip resellers or other nominees within
      VeriChip’s control (the “VeriChip Group”), and the Company shall use its best
      efforts to supply,
      at the time(s) required, all of the requirements of VeriChip and the VeriChip
      Group for the Developed Products with respect to the Exclusive Market. In the
      event that Company is unable or unwilling to meet VeriChip’s requirements for
      Developed Products, Company shall permit VeriChip to obtain additional suppliers
      and shall permit such additional suppliers to use the Intellectual Property
      for
      the sole purpose of meeting VeriChip’s supply requirements, subject to the
      provisions of Section 11(d) of this Agreement. 

    


    All
      reseller agreements shall contain provisions requiring such resellers to
      materially comply with provisions corresponding to those set forth in Sections
      4,
      7, 9,
      10, 12 and 15 of
      this
      Agreement. In the event that VeriChip requests material changes to the
      foregoing, or desires to enter into a reseller agreement which does not contain
      provisions materially corresponding to those set forth in Sections 4, 7, 9,
      10,
      12 and 15 of
      this
      Agreement, VeriChip shall obtain the prior written consent of the Company to
      such changes or such arrangements, as applicable. During the Term, and with
      respect to the Exclusive Market, VeriChip shall purchase from Company and cause
      members of the VeriChip Group and any other resellers to purchase
      from the
      Company
      all of
      their respective requirements for
      the
      Developed Products with respect to the Exclusive Market. Except as otherwise
      provided below, the cost of each unit of the Developed Products during the
      Term
      and the ordering and payment terms shall be as set forth on Schedule
      2.
      During
      the Term, Company shall not sell any Developed Product, New Product or any
      product whose principal use is for secure identification applications (either
      individually or otherwise) to any party other than a member of the VeriChip
      Group if the Company knows or should know that such party intends to use, market
      or otherwise sell or provide such products in the Exclusive Market. Company
      agrees that the covenant contained in the preceding sentence and its exclusive
      supply obligations as defined herein are conditions precedent to VeriChip’s
      obligations as defined in this paragraph. VeriChip
      shall be entitled
      to
seek
      appropriate
      injunctive relief (without the requirement of proving actual damages or
      irreparable harm) if Company breaches its exclusivity obligations.

    


    Each
      Party shall notify the other Party if such Party learns of (i) any person or
      entity other than a member of the VeriChip Group marketing the Developed
      Products in the Exclusive Market or (ii) any party who is or may be infringing
      upon any of the Intellectual Property. In either such event, the Company shall
      have an affirmative duty to prosecute and/or defend such violation of this
      Agreement or infringement, and only if Company refuses to pursue such person
      or
      entity, VeriChip shall be entitled to take any and all actions against such
      persons or entities that are marketing, selling or promoting the sale of
      Developed Products in violation of this Agreement,

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    and
      Company shall provide VeriChip such non-financial assistance as may be necessary
      to pursue such persons or entities, including the right to bring suit in the
      name of Company either directly or as co-plaintiff.

    


    In
      addition to the obligations set forth in the preceding paragraph above, if
      during the Term, to Verichip’s knowledge and upon providing reasonable notice
      and documentation to the Company, a third party (a “VeriChip Competitor”) makes,
      uses, sells or offers for sale any product or service * (a “Competitive
      Product”), then in order to permit VeriChip to more effectively compete against
      such Competitive Product, the price of the applicable Developed Products shall
      be adjusted as follows:

     

    (i) If
      the
      parties can determine the wholesale price paid by the VeriChip Competitor (based
      on VeriChip’s knowledge and reasonable documentation thereof) for the
      Competitive Product, the Company shall reduce its price for the corresponding
      Developed Products.*

    


    (ii) If
      the
      parties are unable to determine the wholesale price paid by the VeriChip
      Competitor for a Competitive Product), the Company shall reduce its price for
      the corresponding Developed Products.*

    


    (iii) 
      If the
      parties cannot agree on the appropriate price reduction pursuant to clauses
      (i)
      and (ii) above, the parties shall submit the matter to binding arbitration
      in
      the manner set forth in Section 18 below.

    


    (iv) 
      The
      price reduction referred to in clauses (i) or (ii) above shall remain in place
      so long as *; provided, however, that in the event that the Company obtains
      an
      injunction against the Competing Product or otherwise prevents the Competing
      Product from being offered within such territory, the price of the Developed
      Product shall return to the level in effect prior to the introduction of the
      Competing Product and, provided that Company (1) engages
      in legal action to enjoin or prevent such infringement
      and (2)
      uses all commercially reasonable efforts to recover the aggregate price
      reduction granted by the Company pursuant to this paragraph as damages from
      the
      VeriChip Competitor, VeriChip shall reimburse the Company for * the aggregate
      price reduction granted by the Company pursuant to this paragraph which the
      Company is unable to recover as damages from such VeriChip Competitor.


    


    (v) In
      consideration of the price adjustments set forth in this paragraph, the
      liability of the Company for breaches of representations and warranties set
      forth in Paragraph 8(a)(i) below* shall not exceed the profits generated by
      the
      Company from sales to VeriChip or the VeriChip Group for the applicable
      Developed Products.

    


    3. Improvements
      and New Products.
      

    


    (a) The
      Company shall use commercially reasonable efforts to make Improvements to the
      Developed Products. All such Improvements shall be promptly disclosed to
      VeriChip. Any such Improvements shall be deemed to be associated with a
      Developed Product for purposes hereof and the provisions of this Agreement
      with
      respect to the Developed Products shall mean the Developed Products together
      with any Improvements. 
      The
      pricing for any such Improvement shall be negotiated in good faith by the
      parties

     

    *
      Confidential treatment requested.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    hereto
      using the following criteria only: (i) the increase or decrease in cost of
      production to Company, (ii) Company’s direct and demonstrable research and
      development costs of developing the Improvements, (iii) a profit margin
      consistent with the Developed Products, and (iv) reimbursement for any payments
      required to be made by the Company to third party licensors if the Company
      is
      required to license technology to develop the Improvement.

     

    (b) In
      the
      event Company makes any Improvements to the Developed Products which are not
      requested by VeriChip, Company shall continue to manufacture and supply to
      VeriChip the previous (unimproved) iteration of the Developed Products.


    


    (c) VeriChip
      may from time-to-time request that Company make Improvements to the Developed
      Products including, without limitation, changes to packaging, labeling,
      transponder color, and the like. The Company shall use commercially reasonable
      efforts to incorporate the Improvements requested by VeriChip into the Developed
      Products; provided, however, that (a) VeriChip shall reimburse the Company
      promptly for all reasonable out-of-pocket expenses (including FDA costs)
      incurred by the Company in making Improvements as requested by VeriChip, and
      (b)
      the Company shall not make any Improvements that are inconsistent with then
      applicable FDA authorizations without obtaining any required FDA approvals.
      In
      the event that Company is unable or unwilling to make an Improvement to meet
      VeriChip’s request, Company shall permit VeriChip to obtain additional suppliers
      and shall permit such additional suppliers to use the Intellectual Property
      for
      the sole purpose of meeting VeriChip’s requirement for Improvements, subject to
      the provisions of Section 11(d) of this Agreement. In such event, (i)VeriChip
      shall have the right to seek any required Governmental Approvals for such
      Improvement, and (ii) any Improvement so developed shall be the property of
      VeriChip, provided that VeriChip will make any such Improvement available to
      Company for license in non-human applications on reasonable and
      non-discriminatory terms.

     

    (d) If
      VeriChip desires to use the Company’s transponder other than for implantation
      into human tissue, VeriChip shall provide not less than 120 days written notice
      to the Company, and the Company shall have the ability to make changes to the
      Developed Products necessary for VeriChip’s intended use, which changes will not
      affect the Developed Products’ functionality.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    



    (e) If
      VeriChip desires to use the Developed Products for applications in humans other
      than the Approved Medical Uses or Approved Non-Medical Uses (the “New Uses”),
      VeriChip shall so notify the Company, and the Company shall use all commercially
      reasonable efforts to obtain any required Governmental Approvals for such uses,
      if any. VeriChip shall not use the Developed Products for New Uses unless all
      required Governmental Approvals have been obtained or the Company has notified
      VeriChip that no Governmental Approvals are required. VeriChip shall cooperate
      with the Company in performing all acts related to obtaining required
      Governmental Approvals, including but not limited to providing marketing and
      other information related to the New Uses to the Company and joining the Company
      in the development and implementation of any required clinical studies. VeriChip
      shall promptly reimburse the Company for all out-of-pocket
      expenses incurred by the Company in connection with obtaining any Governmental
      Approvals required for VeriChip’s New Uses. In the event that the Company
      refuses to seek any required Governmental Approvals, VeriChip shall notify
      the
      Company in writing of its desire to seek such Governmental Approvals directly
      or
      through its agents, appointees or other third parties, and unless the Company
      commences the steps necessary to obtain such required Governmental Approvals
      within thirty (30) days from the date of such notice, VeriChip shall have the
      right to seek and obtain such required Governmental Approvals in its own name
      and through use of its own resources, including the use of sub-licensees, OEM
      manufacturers and other third parties, as may be applicable, provided that
      VeriChip also agrees to share with the Company any information submitted in
      connection with obtaining such
      Governmental Approvals.

     

    
      (f) Except
        as
        provided herein, the license granted by this Agreement to VeriChip shall
        not
        apply to New Products. The Company shall promptly disclose any New Products
        to
        VeriChip, and if VeriChip desires to market and sell said New Products, the
        Parties shall negotiate in good faith the terms on which VeriChip shall have
        the
        opportunity to market and sell such New Products. For purposes of such
        negotiation, the Parties acknowledge and agree that the pricing applicable
        to
        all New Products should be determined in good faith on the same terms set
        forth
        in Section 3(a) with respect to Improvements. In the event the Parties are
        unable to agree on the terms under which VeriChip shall have the right to
        market
        and sell such New Products within 90
        days
        after the Company first notifies VeriChip of the existence of any such New
        Product, the Company shall have the right to
        market
        or sell such New Product, either directly or indirectly, provided that in
        the
        event that Company elects to market such New Product through any third party,
        and such third party offers pricing which is lower than the price last offered
        by VeriChip, Company shall again offer VeriChip the exclusive right to market
        the New Product on the terms proposed by the third party. Otherwise, the
        Company
        shall have no further obligation to VeriChip. Notwithstanding the foregoing,
        for
        so long as VeriChip retains its exclusive right to market the Developed Products
        in the Exclusive Market, the Company will not authorize the use of New Products
        for applications which would violate the Exclusive Market.

       

      (g) VeriChip
        shall have the right to design and build (or cause to be designed and built)
        its
        own readers which readers may, but shall not be required to, read Company’s
        transponders or tags in humans. Company hereby grants VeriChip a fully-paid,
        royalty-

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      free,
        perpetual,
        non-exclusive license to utilize Company’s
        U.S. Patent Number 5,952,935 for the purpose of designing and
        constructing,
        using,
        selling and offering to sell
        readers
        for
        human applications only.
        

      


      4. Market
        and Other Restrictions.
        VeriChip shall not, either directly or indirectly, promote, rent, lease,
        sell or
        authorize the rental, lease or sale of Developed Products, Improvements or
        New
        Products in the Excluded Market, but shall not be restricted from licensing
        its
        own intellectual property. VeriChip agrees that it will observe the
        territorial/market restrictions and end user limitations set forth herein
        for
        all products covered by this Agreement. VeriChip shall not sell any Developed
        Product, Improvements or New Product or other product covered by this Agreement
        (either individually or otherwise) to any party if it knows or should know
        that
        such party intends to use, market or otherwise sell or provide such products
        in
        the Excluded Market. Further, VeriChip shall not sell any Developed Product,
        Improvements or New Product to any party if it knows or should know that
        such
        party intends to use, market, or otherwise sell or provide such Developed
        Product, Improvements or New Product for human applications
        other
        than for Approved Medical Uses or Approved Non-Medical Uses. VeriChip
        shall notify the Company if VeriChip learns of any person or entity marketing
        the Developed Products in the Excluded Market. Company shall be entitled
        to
        appropriate injunctive relief if VeriChip breaches its obligations in this
        paragraph with respect to the Excluded Market and such breach remains uncured
        following written notice thereof from Company. Notwithstanding anything to
        the
        contrary herein, at any time, VeriChip and members of the VeriChip Group
        shall
        have the right to purchase, develop, use, have developed, or sell, for
        themselves and others, products competitive with the Developed Products,
        provided that such products do not infringe upon the Company’s Intellectual
        Property. 

       

    

    5.  Term
      and Termination; Loss of Exclusivity - Entire Territory.
      

    


    (a) The
      term
      of this Agreement shall commence on the date of execution and shall continue
      until March 4, 2013 (the “Term”). Provided that VeriChip continues to meet its
      purchase obligations hereunder, the Term shall thereafter be automatically
      renewed on an annual basis until the expiration of the last patents covering
      any
      of the Developed Products. Notwithstanding the foregoing, either Party hereto
      may terminate this Agreement if (i) the other Party shall default in the
      performance of any obligations hereunder including the payment of money and
      shall not cure such default within 90 days after receipt of written notice
      thereof; (ii) a petition of bankruptcy shall be filed by the other Party; or
      (iii) a petition of bankruptcy shall be filed against the other Party and such
      petition shall not have been discharged within 30 days after the filing thereof.
      In the event of any termination as a result of breach by VeriChip hereunder,
      VeriChip shall be required to immediately pay for any units of the Developed
      Products that have been ordered, delivered, and not yet paid for.

     

    (b) VeriChip
      shall retain its exclusive right to distribute the Developed Products for the
      Term in the Territory provided that the VeriChip Group takes delivery and pays
      for a minimum number of transponders within each year referenced below (a
“Minimum Unit Commitment”) at least equal to the unit levels set forth
      in
      Schedule 5 attached hereto:

     

    
      
        
        

      

      
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    If
      during
      any year VeriChip and the VeriChip Group purchase in excess of the Minimum
      Unit
      Commitment for the applicable year, such excess purchases shall be credited
      towards the Minimum Unit Commitment for the following year or years.
      Notwithstanding anything contained herein, if VeriChip fails to purchase and
      pay
      for the volumes of transponders as indicated above, but is otherwise in
      compliance with the material terms of this Agreement, Company shall have the
      option, upon 60 days written notice, to terminate the exclusivity of this
      Agreement unless within 30 days after such written notice, VeriChip makes
      sufficient purchases to meet said transponder unit volumes. 

     

    The
      following shall be credited against the Minimum Unit Commitment: (a) Developed
      Products purchased by the VeriChip Group from the Company, (b) Developed
      Products purchased by VeriChip from third parties on which VeriChip pays the
      royalty described in Section 11(d) of this Agreement, and (c) Developed Products
      purchased by VeriChip from third parties while the payment of royalties is
      suspended because of the Company’s inability to supply VeriChip’s
      requirements.

    


    6. Sales
      Reports.
      VeriChip
      shall provide the Company with reports of its sales and marketing activities
      regarding the Developed Products in the Territory in such detail and with such
      frequency as is reasonably agreed between the Parties. In addition, VeriChip
      shall keep and maintain records of its sales of Developed Products. Such records
      shall be open to inspection from time to time, at reasonable times, as requested
      by the Company, as soon as practicable after such request and in any event
      within fifteen (15) business days after such request, by the Company and its
      officers, agents and other representatives. In addition, the Company will have
      the right to make or cause to be made an independent examination and/or audit
      of
      the books and records of VeriChip relating to its sales of Developed Products.
      Any such inspection shall be made at the Company’s expense. The records required
      by this paragraph shall be maintained and available for inspection during the
      Term. All of the foregoing information shall be deemed to be Confidential
      Information as described hereinafter.

    


    7. Confidentiality

     

    (a) In
      furtherance of this Agreement and performance of the duties and obligations
      arising under this Agreement, each party may make Confidential Information
      available to the other. During
      the
      Term of this Agreement and for a period of three (3) years thereafter, (i)
      neither Party will use for its own benefit or the benefit of any other person
      or
      entity any Confidential Information of the other Party; and (ii) each Party
      will
      use all reasonable care, but in no event less care than it takes to protect
      its
      own Confidential Information of similar importance, to protect the Confidential
      Information of the other Party from unauthorized use, disclosure and
      publication.

    


    (b) 
      The
      Parties acknowledge that each Party’s Confidential Information is a valuable,
      special,
      and unique asset of the respective Party’s business. Each Party hereby further
      acknowledges that such Confidential Information is the sole and exclusive
      property of the respective Party, absolutely and forever, and the other Party
      agrees not to use, copy, disclose, make available or divulge such Confidential
      Information to any person, firm, corporation, association, or other entity
      for
      any reason or purpose whatsoever.

    


    
      
        
        

      

      
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    (c) Each
      of
      VeriChip and Company respectively assumes full liability hereunder for the
      actions, statements and representations of its employees, officers, agents
      and
      representatives; and agrees to inform each of them of the provisions of this
      Section 7 and enforce its provisions against each of them.

    


    (d)  The
      Parties mutually agree that the rights protected by this Section 7 are unique
      and not adequately protected or compensated for by liquidated damages. In the
      event of a breach, the harmed Party shall be entitled to obtain injunctive
      relief against the breaching party and otherwise enjoin the breaching party
      from
      the use or dissemination of such Confidential Information.

    


    (e)  The
      provisions of this Section shall survive the termination or expiration of this
      Agreement as provided above.

    


    (f) 
      The
      Parties agree
      that all property of one Party that
      is
      in the possession of the other Parties
      at the time of termination of this Agreement, including without limitation,
      all
      designs, schematics, documents, reports, manuals, memoranda, computer
      print-outs, customer lists, and Confidential Information shall be immediately
      returned to the Parties providing
      such information. 

    


    8. Product
      Warranties, Limitation of Liability and Indemnification
      Provisions.

     

    (a) Company
      hereby warrants that (i) the Company is the owner of the patents set forth
      on
Schedule
      4
      to this
      Agreement; (ii) during the term of the patents set forth on Schedule 4 to this
      Agreement, the Company has not entered into any agreement with any third party
      which is inconsistent with the terms of this Agreement;
      (iii)
      to the best of the Company’s knowledge, the
      patents set forth on Schedule
      4
      to this
      Agreement are valid and enforceable in the Exclusive Market; (iv)
      to the
      best of the Company’s knowledge, neither the Company nor its affiliates has
      rights to any Intellectual Property necessary to the design, development,
      manufacturing,
      use,
      sale or offer for sale
      of the
      Developed Products in the Exclusive Market which have not been granted to
      VeriChip herein, and (v) to the best of the Company’s knowledge, no third party
      is currently infringing the rights of the Company in any of the patents set
      forth on Schedule 4 by engaging in sales in the Exclusive Market.

     

    (b) The
      Developed Products sold by Company to VeriChip (X) shall be free from defects
      in
      design, workmanship and materials under normal use and service for a period
      of
      24
      months
      from the date of shipment by Company, and (Y) with respect to Developed Products
      intended for use in Approved Medical Uses, have been manufactured at a facility
      that complied in all material respects with the applicable Quality System
      Regulations under the Act as amended from time to time; provided that in no
      event shall Company be responsible for rules in relation to Quality System
      Regulations with respect to labeling, installing and servicing of Developed
      Products, all such activities being the responsibility of VeriChip.

     

    
      
        
        

      

      
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    (c) Company’s
      sole obligation under the foregoing warranty shall be, at Company’s option, to
      either repair or replace any Developed Product which fails during this period
      (and any batch of Products from which such defective Developed Product came,
      if
      Company believes other Developed Products within such batch are defective),
      provided VeriChip has promptly reported the failure to Company in writing,
      and
      Company has upon inspection found that such product is, in fact, defective.
      VeriChip shall obtain instructions and a return material authorization from
      Company for the return of any item under this warranty provision. Compliance
      with such instructions shall be a condition precedent to Company’s repair or
      replacement obligation hereunder. Subject to subsection (d) below, if Company
      finds the product to be within the warranty period and defective, Company will
      reimburse VeriChip for the freight cost in returning the product from
      VeriChip.

     

    (d) The
      warranties set forth in this Section 8 are contingent upon proper use in the
      application for which the Developed Products were intended and do not cover
      Developed Products which have been modified without Company’s approval or which
      have been subjected to unusual physical or electrical stress or on which the
      original identification marks have been removed or altered except with
      VeriChip’s own private label as long as such change does not otherwise alter or
      affect the Developed Products. This warranty will not apply if adjustment,
      repair or parts replacement is required due to accident, neglect, misuse of
      electric power, air conditioners, humidity control, transportation or causes
      other than ordinary use.

     

    (e) EXCEPT
      FOR THE EXPRESS WARRANTY STATED ABOVE, COMPANY DISCLAIMS ALL WARRANTIES WITH
      REGARD TO DEVELOPED PRODUCTS SOLD HEREUNDER, INCLUDING ALL IMPLIED WARRANTIES
      OF
      MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND THE STATED EXPRESS
      WARRANTIES ARE IN LIEU OF ALL OBLIGATIONS OR LIABILITIES ON THE PART OF COMPANY
      FOR DAMAGES. COMPANY SHALL NOT BE LIABLE TO ANY PARTY FOR ANY SPECIAL OR
      CONSEQUENTIAL DAMAGES, WHETHER BASED UPON LOST GOODWILL, LOST RESALE PROFITS,
      WORK STOPPAGE, OR IMPAIRMENT OF OTHER GOODS OR ARISING OUT OF BREACH OF
      WARRANTY, BREACH OF CONTRACT, STRICT LIABILITY, OR NEGLIGENCE.

     

    (f) Company
      shall indemnify and hold harmless VeriChip and the VeriChip Group and their
      respective agents, directors, officers and employees from and against only
      those
      losses, liabilities, judgments, awards, settlements, damages and costs
      (including reasonable legal fees and expenses), whether based upon tort, breach
      of contract, breach of warranty (either express or implied) or strict liability
      (collectively “Damages”) resulting from any claim: (i) for personal injury
      (including death) or property damage, caused by or arising from defects in
      design, materials or workmanship of any Developed Product, (ii) that the use,
      sale, offer for sale and manufacture of any
      Developed Product or any sub system or part thereof and the methods used to
      design or manufacture any Developed Product infringe upon or misappropriate
      the
      U.S. patent, or any copyright, trademark or trade secret of any third party,
      (iii)
      that any
      Developed Product intended for Approved Medical Uses was manufactured
      at a facility which did not comply
      in
      all

     

    
      
        
        

      

      
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    material
      respects with Applicable
      Laws, (iv) Company’s breach of its obligations, representations, or warranties
      under this Agreement, and (v)
      Company’s
      negligence, errors, or omissions, provided
      that in no event shall Company’s indemnity obligation extend to claimed
      non-compliance or non-compliance in fact in relation to Applicable Laws
with
      respect to labeling,
      installing and servicing of Products, all such activities being the
      responsibility of VeriChip. Notwithstanding any provision herein to the
      contrary, Company shall never be responsible, and shall have no indemnity
      obligation, for any other claims relating to the Developed
      Products.

    


    (g) VeriChip
      shall indemnify and hold harmless Company and its agents, directors, officers
      and employees from and against any and all Damages resulting from: (i) a claim
      for personal injury (including death) or property damage, caused by or arising
      from the use of Developed Products in humans, unless the claim arises from
      a
      defect in materials or workmanship of the Developed Products, (ii) a claim
      that
      the use or sale of any Developed Product does not comply with Applicable Law,
      (iii) VeriChip’s breach of its obligations, representations, or warranties under
      this Agreement, and (iv)
      VeriChip’s negligence, errors, or omissions. 

    


    (h) The
      party
      desiring indemnification in accordance with Sections 8(b)(iii), (g) or (h)
      (the
“Indemnified Party”) shall promptly notify the other party (the “Indemnifying
      Party”) of all claims that may be subject to indemnification by it under such
      Section. If the Indemnified Party fails to provide such notice, the Indemnifying
      Party will be excused from its indemnity obligation but only to the extent
      that
      its position is materially
      prejudiced
      by such failure. The Indemnifying Party shall have an affirmative duty to
      provide a defense to the Indemnified Party. The Indemnified Party will give
      all
      reasonable cooperation to the Indemnifying Party in defending or otherwise
      resolving any such claim. The Indemnifying Party will have full control of
      the
      defense of all such claims; provided it is conducting such defense with
      reasonable diligence. Before settling any such claim, the Indemnifying Party
      shall obtain the written consent of the Indemnified Party; provided, however,
      the Indemnifying Party shall have full authority to enter into any settlement
      or
      compromise on behalf of the Indemnified Party without the prior written consent
      of the Indemnified Party if such settlement or compromise (i) involves only
      the
      payment by the Indemnifying Party of cash consideration and (ii) does not
      constitute an admission of liability, culpability or the like as to the
      Indemnified Party, or otherwise create precedent unreasonably adverse to the
      Indemnified Party.

    


    9. Marketing
      and Trademarks.
      During
      the Term of this Agreement, VeriChip is hereby granted a license to Company’s
trademarks and
      trade
      dress so as to assist it in selling the Developed
      Products and other products that may come within the scope of this Agreement.
      VeriChip shall not make any statements, claims, representations or warranties
      regarding the Developed Products that are false, misleading or which violate
      any
      Applicable Law. VeriChip acknowledges that in order to avoid the dissemination
      of unapproved marketing or promotional information, including use of the
      Company’s trademarks and trade dress, the Company has established a standard
      operating procedure with respect to the review and approval of labeling and
      advertising materials (the “Promotional SOP”), a copy of which is attached
      hereto as Exhibit
      A
      and
      incorporated herein by reference. The Company shall have the right to amend
      the

     

    
      
        
        

      

      
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    Promotional
      SOP from time to time (provided
      that any such amendment to the Promotional SOP shall not impose additional
      limitations which adversely affect VeriChip’s ability to market the Developed
      Products except to the extent necessary to conform to applicable law),
and
      shall
      promptly provide a copy of such revised SOP to VeriChip. Upon receipt of a
      revised Promotional SOP by VeriChip, such revised Promotional SOP shall be
      deemed to be incorporated into this Agreement for all purposes. VeriChip shall
      provide to Company all advertising and printed materials regarding VeriChip’s
      sale and marketing of the Developed Products prior to dissemination thereof
      by
      submitting Promotional Material Review and Approval Form in the manner
      contemplated by the Promotional SOP. The Company
      will promptly review the proposed materials in accordance with the Promotional
      SOP and will advise VeriChip of its determination whether such proposed
      materials are acceptable for release, and if the Company determines that such
      materials are not acceptable for release in the form submitted, shall advise
      VeriChip in as much detail as practicable of the reasons why such materials
      are
      unacceptable. Further, Company shall have the right to review and approve
      VeriChip’s website materials pertaining to the Developed Products. VeriChip
      shall maintain ownership of those Intellectual Property rights relating to
      its
      Website. VeriChip retains all rights in and to, and Company shall have no right
      to use, display or refer to, VeriChip’s marks (including the designation
“VeriChip”) without VeriChip’s advance written approval, which approval shall
      not be unreasonably withheld or delayed.

    


    10.  Publicity.
      If
      either Party wishes to make a public disclosure concerning this Agreement or
      the
      relationship established hereunder and such disclosure mentions the other Party
      by name or description, such other Party shall be provided with an advance
      copy
      of the disclosure and shall have five (5) business days within
      which to approve or disapprove such use of its name or description (including
      mention of the name of the Developed Product). Approval shall not be
      unreasonably withheld or delayed by either Party. Absent approval, no public
      disclosure shall use the name of or otherwise describe such Party except to
      the
      extent required by law, or to the extent that the description of the other
      party
      is limited to public information about the availability of the Developed
      Product. Notwithstanding the foregoing, each party acknowledges that the other
      Party is
      or is
      affiliated with, a
      publicly-traded company, and hereby consents to its disclosure of this Agreement
      and its relationship with the other Party in its filings with the Securities
      and
      Exchange Commission and its disclosures to stockholders; provided, however,
      that
      each Party shall use commercially
      reasonable efforts not to disclose the specific financial terms and conditions
      of this Agreement except when such disclosure is required by law.

    


    11.  The
      Intellectual Property License.
      

    


    (a)  Subject
      to the terms of Section 5 hereof, Company hereby grants VeriChip, for the Term,
      an irrevocable exclusive license to use and market the Developed Products and
      the related Intellectual Property with respect to the Exclusive Market. All
      rights in the Developed Products and any of the Company’s related designs,
      technology or Intellectual Property, other than those granted by this Agreement,
      are hereby reserved by Company. Upon
      execution of this Amended and Restated Agreement, Company shall enter into
      a
      third party escrow arrangement providing for the escrow of a complete copy
      of
      the Documentation, in substantially the form attached hereto as Exhibit
      B.
      VeriChip agrees that it will not (i) manufacture the Developed Products, (ii)
      sublicense the Intellectual 

    
 

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    Property,
      or (iii) otherwise transfer its interest in the Intellectual Property to any
      person or entity other than an Affiliate without prior consent, so long as
      there
      has been no Event of Default (as defined below).

     

    (b) VeriChip’s
      license of Company’s Intellectual Property shall include the right, except as to
      the Company, to use the Documentation to manufacture or have manufactured,
      use,
      sell and offer to sell the Developed Products for the Exclusive Market (i)
      upon
      an Event of Default, until such time as the underlying Event of Default has
      been
      cured or until expiration of the Term, (ii) in the event of a Force Majeure
      Event, but only so long as that event continues or so long as Company is unable
      to supply Developed Products as a result of said Force Majeure Event or until
      expiration of the Term, whichever occurs first, or (iii) upon its prior written
      notice, upon the terms set forth in subsection (d) below. Except as set forth
      in
      Section 8, the Company makes no warranties and shall have no indemnification
      or
      other obligations with respect to the products produced pursuant to this
      manufacturing license.

     

    (c) For
      purposes of this Section 11, an “Event of Default” shall be: (i) material breach
      by Company of the provisions of Section 2 of this Agreement (Supply and Purchase
      Requirements) which breach is not cured within 90 days of receiving written
      notice thereof, or (ii) Company files a petition in bankruptcy, applies for
      or
      consents to the appointment of a receiver or trustee, makes an assignment for
      the benefit of creditors, becomes subject to an attachment of, execution upon,
      or other judicial seizure of, all or substantially all of its assets, or becomes
      subject to involuntary proceedings under any bankruptcy or insolvency law (which
      proceedings are not dismissed within sixty (60) days); provided, however, that,
      if (x) Company’s breach was due to a Force Majeure Event or (y) Company cures
      (or in the case of breaches which cannot be cured within such 90 day period,
      fails to take such steps as are reasonably necessary to commence such cure)
      such
      breach within such 90 day period, then there shall be no Event of
      Default.

     

    (d) In
      the
      event that VeriChip desires to have a third party manufacture Developed
      Products, Improvements or New Products, VeriChip shall have the right to do
      so
      upon providing the Company at least ninety (90) days’ prior written notice. In
      such event, (a) VeriChip shall pay the Company a royalty (the “Royalty”) on each
      product manufactured by the third party(ies) which would otherwise infringe
      a
      valid and enforceable claim of the Company’s patented Intellectual Property in
      an amount equal to the lesser of: (i) ,* and (ii) if the price of the Developed
      Product is reduced in accordance with of the provisions of Section 2 above,
      an
      amount equal to the Company’s gross margin on the Developed Product following
      such price reduction (but only during such period of price reduction pursuant
      to
      Section 2), (b) VeriChip shall require the third party to sign a confidentiality
      agreement which shall govern such third party’s use of the Intellectual Property
      materially consistent with the confidentiality terms contained in Section 7
      of
      this Agreement, (c) VeriChip shall require the third party to periodically
      report to the Company its manufacturing activities and to permit the Company
      to
      inspect the third party’s records
      from time to time as requested by the Company to verify compliance with the
      Intellectual Property license, this Agreement and the payment of Royalties,
      as
      soon as practicable after such request and in any event within fifteen (15)
      business days after such request, and
      (d)
      VeriChip shall indemnify the Company for any infringements upon or 

     

    *
      Confidential
      Treatment requested.

    
      
        
        

      

      
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    disclosures
      of the Company’s Intellectual Property by such third party(ies). In
      consideration of the Royalty, the Company shall provide the same database
      services for Developed Products manufactured by third parties as for the
      Developed Products supplied by the Company.

     

    (e) In
      the
      event VeriChip is required to incur costs and expenses as a result of any
      interruption of supply of Developed Products, or Event of Default as aforesasid,
      then VeriChip may, upon request, obtain reimbursement of said costs or expenses
      from the Company, provided that (i) VeriChip shall have an affirmative duty
      to
      mitigate its damages, and (ii) if VeriChip desires to engage a third party
      to
      manufacture the Developed Products, VeriChip shall (x) notify the Company in
      advance, (y) require such third party to agree to be bound by the
      confidentiality and market restrictions set forth in this Agreement, and (z)
      ensure that such third party’s use of the Intellectual Property is limited
      solely to manufacturing the Developed Products exclusively for VeriChip.
      VeriChip shall assist Company, to the extent reasonably requested by Company,
      and at Company’s expense, in the procurement of any protection or defense of any
      of Company’s rights to (i) trademarks, (ii) copyrights, and (iii) patents owned
      by Company that relate to the Developed Products produced pursuant to this
      Agreement. Company shall assist VeriChip, to the extent reasonably requested
      by
      VeriChip, and at VeriChip’s expense, in the procurement of any protection or
      defense of any of VeriChip’s rights to (i) trademarks, (ii) copyrights, or (iii)
      patents licensed by VeriChip pursuant hereto. Except as set forth in Section
      8,
      if there shall be an Event of Default and VeriChip shall produce Developed
      Products pursuant hereto, VeriChip shall assume all responsibility for the
      Developed Products so produced.

     

    (f)  In
      addition to its indemnification obligations hereunder, in the event the
      Developed Products, including without limitation any sub system or part thereof,
      becomes the subject of any claim, action, or allegation of the type specified
      in
      Section  8 (g)(ii),
      the Company shall promptly use all reasonable efforts at its expense:
      (i) to procure for VeriChip the right to continue using the applicable Developed
      Products (or the applicable sub system or part thereof); or (ii) if such
      continued use cannot be so procured, to modify it to become non infringing
      without adversely affecting its performance or capability; or (iii) if such
      modification cannot be so implemented at a reasonable cost, to provide
      substitute products of similar performance and capability acceptable to and
      approved by VeriChip (which approval shall not be unreasonably withheld or
      delayed).

    


    (g) Except
      as
      set forth in Section 8 of this Agreement, in no event shall VeriChip be liable
      to the Company for any amounts pursuant to this Agreement or any related
      maintenance or license agreement for the maintenance or license of the Developed
      Products, or any sub system or part thereof, after the date, if any, that
      VeriChip is no longer legally permitted to use the Developed Products.


    


    12. Regulatory
      Matters.

    


    (a) VeriChip
      shall have the right, upon reasonable notice to Company and not more frequently
      than once in any 90 day period and during regular business hours, to inspect
      and
      audit the facilities being used by Company (or any third party) for production
      of the

     

    
      
        
        

      

      
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    Developed
      Products to assure compliance by Company with current GMP (21 CFR Part 820)
      and
      applicable FDA, ISO 13485, and other rules and regulations and with other
      provisions of this Agreement. Company shall notify VeriChip immediately of
      any
      existing or proposed FDA or other government regulatory inspections or actions
      relative to products or services supplied to VeriChip by Company. Company shall
      maintain on file all manufacturing and inspection records of all products
      supplied to VeriChip for a minimum of seven (7) years unless otherwise agreed
      in
      writing. Company shall within ten (10) business days remedy or cause the remedy
      of any deficiencies which may be noted in any such audit or, if any such
      deficiencies cannot reasonably be remedied within such ten (10) day period,
      present to VeriChip a written plan to remedy such deficiencies as soon as
      possible; and the failure by Company to remedy or cause the remedy of any such
      deficiencies within such ten (10) day period or to present such a plan within
      such ten (10) day period and then use its best efforts to remedy or cause the
      remedy of such deficiencies in accordance with such written plan, as the case
      may be, shall be deemed a material breach of this Agreement. Company
      acknowledges that the provisions of this Section 12 granting VeriChip certain
      audit rights shall in no way relieve Company of any of its obligations under
      this Agreement, nor shall such provisions require VeriChip to conduct any such
      audits.

     

    (b) VeriChip
      and the VeriChip Group will keep and maintain accurate distribution records
      and
      other relevant information regarding the customers to whom the Developed
      Products were sold, including batch numbers and such other information as the
      Company may reasonably request from time to time. VeriChip shall maintain on
      file such distribution records for a minimum of seven (7) years
      unless otherwise agreed in writing, and shall make such records reasonably
      accessible to Company during such timeframe. Company recognizes and agrees
      that
      such documents relating to distribution and sales of products by VeriChip to
      third parties constitutes Confidential
      Information of VeriChip and that any such information regarding its customers
      belongs solely to VeriChip. In the event such information is needed for FDA
      or
      other traceability purposes, VeriChip retains the option to either disclose
      the
      information to Company so that the Company can effectuate such recall or other
      FDA action, or implement such recall procedures itself as it relates to its
      own
      customers at the Company’s sole cost and expense. 

     

    (c) VeriChip,
      at its sole cost and expense, will investigate all complaints relating to the
      Developed Products, and shall provide the Company with all documentation
      regarding any such complaint and VeriChip’s response thereto. Company shall
      maintain all required complaint files relating to the Developed
      Products.

     

    (d) Company
      will immediately communicate to VeriChip verbally and in writing any technical
      or medical reason that might result in a correction, removal or systematic
      recall of a Developed Product supplied to VeriChip.

     

    (e) VeriChip
      shall notify Company promptly of any inspection
      by any federal, state or local regulatory representative concerning any
      Developed Products and shall provide Company with a summary of the results
      of
      such inspection and such actions, if any, taken to remedy conditions cited
      in
      such inspections.

    
 

    
      
        
        

      

      
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    (f) Each
      party agrees to inform the other party promptly (but in no event later than
      forty-eight (48) hours after becoming aware of same) of any information
      concerning any complaint involving a Developed Product or any adverse
event as
      defined in 21 CFR Part 803 and 804) associated with the medical use of the
      Developed Products, whether or not considered related to the Developed Products.
      A complaint is any written, electronic or oral communication that alleges
      deficiencies related to the safety, effectiveness, identity, labeling quality,
      durability, reliability or performance of a Developed Product after it is
      released for commercial distribution.

     

    (g) If
      the
      adverse reaction is serious, as defined in 21 CFR 314.80 (including an adverse
      reaction that is fatal or life-threatening, is permanently disabling, requires
      inpatient hospitalization, or is a congenital anomaly, cancer or overdose),
      then
      each party shall notify the other party within twenty-four (24) hours. All
      notifications to either party shall be by facsimile and on such party’s
      designated adverse event forms.

     

    (h) If
      there
      is a recall or withdrawal of a Developed Product within a particular
      jurisdiction within the Territory, then VeriChip agrees to stop shipping
      recalled lots to that jurisdiction immediately, and in no event later than
      twenty-four (24) hours after VeriChip receives written notification of such
      recalls or withdrawal. VeriChip shall cooperate fully in any such recall or
      withdrawal.

     

    (i) VeriChip
      agrees to cooperate, at its sole cost and expense, with any inspection of a
      Developed Product shipment conducted by a Governmental Authority.

     

    (j)
      The
      Company shall conduct such product recalls and withdrawals as are reasonably
      requested by VeriChip, at the Company’s expense. In the event that VeriChip
      determines to conducts any product recalls or withdrawals, VeriChip shall be
      responsible for its own costs and expenses (including reasonable attorneys’
fees).

     

    (k)
      VeriChip
      shall at all times during the Term of the Agreement comply, in all material
      respects, with all federal and state laws, regulations and orders applicable
      to
      its operations as a wholesale and/or retail distributor.

     

    (l)
      VeriChip
      agrees not to sponsor or support any clinical study involving Developed
      Products for
      applications other than secure, human identification
      without
      Company’s prior written consent. VeriChip will inform Company in writing of any
      research it supports or sponsors involving the Developed Products. Any adverse
      event that occurs during a clinical study shall be promptly reported by VeriChip
      to Company.

     

    (m)
      VeriChip
      shall participate in annual GMP/Quality Systems training and shall maintain
      appropriate records of such training.

     

    (n) VeriChip
      will not sell any Developed Products for Approved Medical Uses where the shelf
      life of such Developed Products has expired; provided, however, that VeriChip
      may return such Developed Products to Company for refurbishment and then sell
      such refurbished Products for Approved Medical Uses. The cost of refurbishing
      Developed Products will be Company’s current cost, which is * per unit based on
      a minimum 

     

    *
      Confidential
      Treatment requested.

    
      
        
        

      

      
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    of
      3,000
      units, provided that Company will use commercially reasonable efforts to reduce
      this cost.

     

    13.  Data
      Collection, Warehousing and Management.
      Company
      shall set up and operate a computer database to provide data collection,
      storage, manipulation for a complete identification and retrieval service to
      the
      Exclusive Market. If requested by VeriChip, for any, some or all of VeriChip’s
      customers, Company shall provide data collection, storage, manipulation and
      retrieval using the standards as described on Schedule
      3
      and any
      modifications thereto that are commercially reasonable in light of advancements
      in technology and changes in the manner in which VeriChip markets the Developed
      Products. With respect to VeriChip’s customers for which Company provides this
      service, VeriChip shall pay Company a monthly fee equal to 50% of the Services
      Gross Profit per subscriber. The “Services Gross Profit” means the amount
      collected by VeriChip from such customers specifically for such data storage,
      manipulation and retrieval minus VeriChip’s costs of providing such services to
      such customers (VeriChip may include in its costs the salaries of those VeriChip
      employees whose sole responsibility is to provide such services). Within 45
      days
      following the end of each fiscal quarter, VeriChip shall send Company such
      fee
      for such quarter and a report detailing: (i) the amount collected during such
      quarter from the VeriChip customers for whom the Company is warehousing data
      and
      (ii) VeriChip’s costs in providing the collection, warehousing and retrieval of
      such data for such customers. The report shall not be required if the Company
      is
      not providing any such warehousing services. The Company will have the right
      to
      make or cause to be made an independent examination and/or audit of the books
      and records of VeriChip relating to its Services Gross Profit. Any such
      inspection shall be made at the Company’s expense, unless such examination
      and/or audit discloses a shortfall in excess of 5% in the amount paid by
      VeriChip to the Company, in which case VeriChip shall be responsible for the
      costs of the examination and/or audit. The records required by this paragraph
      shall be maintained and available for inspection during the Term.

     

    Notwithstanding
      anything to the contrary in this Section 13, VeriChip shall have the option,
      exercisable at any time during the term of this Agreement, to provide written
      notice to Company that VeriChip wishes to operate the database itself and cease
      Company’s provision of the database services described herein. Upon transfer of
      the database to VeriChip, Company shall be relieved of all liability associated
      with the database and VeriChip hereby agrees to indemnify and hold harmless
      Company and its agents, directors, officers and employees from and against
      any
      and all Damages resulting from VeriChip’s use of the database.

    


    14.  No
      Agency.
      Neither
      Party is the agent, legal representative, partner or a joint venturer of the
      other Party for any purpose and the employees of one Party are not and shall
      not
      be deemed employees of the other Party for any purpose.

    


    15.  Assignment.
      Neither
      Party may assign its rights hereunder without the written consent of the other
      Party, provided that, even without such written consent, a Party may assign
      its
      rights hereunder to an Affiliate of such Party, provided that such Affiliate
      agrees to be bound by all of the provisions of this Agreement, and provided
      further that in the event said Affiliate ceases to be an Affiliate of the
      assigning Party, this Agreement shall revert to the original (assigning) Party
      without any action of the Parties. This Agreement shall remain in full force
      and
      effect in the event of a “change
      of control” of either Party. For purposes herein “change of control”
shall

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    mean
      (i)
      the acquisition by any individual, entity or group (within the meaning of
      Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”)), other than any affiliate of such Party, of beneficial
      ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
      Act)
      of fifty-one percent (51%) or more of the then outstanding shares of common
      stock of such Party; (ii) consummation of a reorganization, merger or
      consolidation or sale (in each case where substantially all of the assets or
      stock of the Party are transferred) or other disposition of all or substantially
      all of the assets of such Party; (iii) approval by the shareholders of such
      Party of a complete liquidation or dissolution of such Party; or (iv) the filing
      of a bankruptcy petition, or similar act, voluntarily or
      involuntarily.

    


    16.  Notices.
      Any
      notice required or permitted to be given with respect to this Agreement shall
      be
      deemed given (a) upon receipt when delivered personally, by registered mail
      return receipt requested or by reputably overnight courier or (b) on completion
      of apparently successful transmission by a facsimile transmission device that
      conforms to industry standards applicable at the time and generates
      automatically a printed diagnostic report with respect to each attempted
      transmission, in each case directed to the addressee in accordance with the
      following, provided that the preferred method of providing notice shall be
      that
      set forth in clause (a) above:

    


    
      	
              If
                to Company:

            	
              Digital
                Angel Corporation

              490
                East Villaume

              South
                St. Paul, Minnesota 55075

              Attn:
                CEO

              Facsimile
                Number: 612-455-0413

            
	 	 
	 	
              With
                a copy to:

               

              Winthrop
                & Weinstine, P.A.

              225
                South Sixth Street

              Suite
                3500

              Minneapolis,
                MN 55404

              Attention:
                Philip T. Colton

              Facsimile
                Number: 612-604-6800

            
	 	 
	
              If
                to VeriChip:

            	
              VeriChip
                Corporation

              1690
                South Congress Ave.

              Suite
                200

              Delray
                Beach, Florida 33445

              Attention:
                Chief Financial Officer

              Facsimile
                Number: 

            
	 	 
	 	
              With
                a copy to:

               

              Applied
                Digital Solutions, Inc.

              1690
                South Congress Ave.

              Suite
                200

              Delray
                Beach, Florida 33445

              Attention:
                General Counsel 

              Facsimile
                Number: 561-805-8001

            


    

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    Either
      party may change its address for notices or copies of notice by notice to the
      other party in accordance with the provisions of this Section.

     

    17.  Governing
      Law and Language; Jurisdiction and Venue.

     

    (a) This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Minnesota.

     

    (b) Any
      claim
      or action for breach of this Agreement shall be brought in the state or federal
      courts in the State of Minnesota.

     

    (c) The
      United Nations Convention on Contracts for the International Sale of Goods
      shall
      not apply in construing or interpreting this Agreement, a breach of this
      Agreement or the relationship between the parties.

     

    18.  Dispute
      Resolution. 

     

    (a) Any
      question, difference or dispute which may arise concerning any matter arising
      out of or in connection with this Agreement, including, without limitation,
      (i)
      the construction, meaning or effect of this Agreement, (ii) to matters where
      “mutual agreement” or “good faith” or “reasonableness” is required, or (iii)
      concerning the rights and liabilities of the Parties hereunder shall first
      be
      submitted to the then acting Chief Executive Officer of VeriChip and the then
      acting Chief Executive Officer of the Company who may call on others to advise
      them as they see fit.

    


    (b) 
      If the
      discussions under section (a) above should fail to resolve the question,
      difference or dispute within thirty (30) days, the Parties agree to try in
      good
      faith to settle the matter by mediation before a mediator agreed to by the
      parties. The place of mediation shall be Minnesota. The mediation shall take
      place not later than thirty days after the failure to resolve the matter
      pursuant to section (a) above.

    


    (c) Any
      controversy or claim which cannot be resolved as aforesaid shall be settled
      by
      arbitration to be held in the City of St. Paul, Minnesota, administered by
      the
      American Arbitration Association (“AAA”) under its Commercial Arbitration Rules,
      and judgment on the award rendered by the arbitrator(s) may be entered in any
      court having jurisdiction thereof. The Arbitration Panel shall consist of three
      arbitrators. Each party shall select one arbitrator within thirty (30) days
      from
      the date of filing of any demand for arbitration and the third arbitrator shall
      be appointed by the first two arbitrators. It is the parties’ desire that all
      arbitration be concluded speedily, with the hearing to take place and the award
      to be made within ninety (90) days of the filing of any demand for arbitration.
      Judgment upon the award of a majority of the arbitrators shall be binding upon
      the parties hereto and may be entered in any court having jurisdiction. Specific
      performance and injunctive relief may be ordered by the award. Costs and
      attorneys’ fees shall be paid as the arbitrators’ award shall specify. As the
      sole exception to arbitration, each party shall have the right to obtain
      injunctive relief, only, from any court having jurisdiction so as to preserve
      that party’s rights for resolution in any pending or imminent arbitration
      proceedings; but no such injunction shall prohibit or postpone such
      arbitration

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    proceedings,
      and any such injunction may be modified or vacated as a result of the
      arbitration award.

    


    (d) Notwithstanding
      the foregoing, and notwithstanding anything to the contrary in this Agreement,
      any Party may seek immediate injunctive or other interim relief from any court
      of competent jurisdiction with respect to any matter for which monetary damages
      would not adequately protect such Party’s interests or otherwise to enforce and
      protect intellectual property rights owned or licensed to such
      Party.

    


    19.  Amendment.
      This
      Agreement may be amended or modified only by a written modification signed
      by
      the parties hereto.

    


    20.  Unenforceability.
      If any
      term or other provision of this Agreement is invalid, illegal or incapable
      of
      being enforced under any rule of law or public policy, all other conditions
      and
      provisions of this Agreement shall nevertheless remain in full force and
      effect.

    


    21.
      Entire
      Agreement.
      This
      Agreement sets forth the entire agreement of the parties concerning the subject
      matter hereto and supersedes and replaces any and all other agreements or
      understandings, written or oral, between the parties concerning the subject
      matter hereof, including without limitation any letters of intent or letters
      of
      understanding.

    


    22.
      Remedies
      Cumulative.
      The
      rights and remedies herein expressly provided are cumulative and not exclusive
      of any rights or remedies that a party would otherwise have.

    


    23.
      Counterparts.
      This
      Agreement may be executed in a number of counterparts, all of which together
      shall for all purpose constitute one Agreement, binding on both parties hereto,
      notwithstanding that both parties may not have signed the same
      counterpart.

     

    24.
      Binding
      Effect.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns.

    


    (The
      remainder of this page is intentionally left blank.)

     

    
 

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    25.
      Heading;
      Disclaimer.
      The
      headings or captions used in this Agreement are for reference purposes only
      and
      are not intended to be used or relied upon in interpreting or enforcing this
      Agreement.

    


    


    IN
      WITNESS WHEREOF, this Agreement has been executed as of the day and year first
      above written.

     

    
      	 	
               

              DIGITAL
                ANGEL CORPORATION,

              a
                Delaware corporation

               

               

               

              By:
                /s/
                Kevin N.
                McGrath                             
                 

              Title:
                 CEO

            
	 	 
	 	
               

              VERICHIP
                CORPORATION,

              a
                Delaware corporation

               

               

               

              By:
                /s/
                Kevin H.
                McLaughlin                          

              Title:
                CEO

            


    

    


    
 

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    


    SCHEDULE
      1

    DEVELOPED
      PRODUCTS

    
      	
              (Attached
                to and forming a part of the Agreement)

            
	
              Product

            	
              DA
                price to VeriChip each in quantities of 1

            
	
              VeriChip
                TXQ400L 12mm RF/ID tag: 128 bit data capacity, factory encoded unique
                16-digit
                number, introducer,
                reply card, bar code label, sterile packaged for human applications*

            	
              **

            
	
              Pocket
                Reader EX

            	
              **

            
	
              2100
                Portable Reader

            	
              **

            
	
              Custom-manufactured
                portal readers

            	
              Quote

            


    

    


    *
      Including the injectable radio frequency transponder for which Company has
      obtained United States Patent No 5,211,129.

    


    Pocket
      Reader EX Specifications

    
      	
               

            	 
	
              Operating
                Frequency

            	
              125
                kHz or ISO 134.2 kHz

            
	
              Case

            	 
	
              ·
                Size:

            	
              285
                mm L x 80 mm W x 32 mm H

            
	
              ·
                Weight:

            	
              406
                g

            
	
              ·
                Color:

            	
              RAL
                7032

            
	
              ·
                Material:

            	
              ABS
                Plastic

            
	
              Operating
                Temperature:

            	
              0°-50°C
                or 32°-122°F

            
	
              Humidity:

            	
              10
                - 90% (non-condensing)

            
	
              Storage
                Temperature:

            	
              -20°
                to 65°C or -4° to 149°F

            
	
              Batteries:

            	
              4
                size AAA 1.5-volt alkaline batteries

            
	
              Display:

            	
              18-character
                LCD

            
	
              Output
                Port:

            	
              Serial
                field-programmable port

            
	
              RS
                232 Port

            	
              Industry
                Compatible (PC, for example)

            


    

    


    Schedule
      1 / Page 1

     

    
      **
        Confidential
        Treatment requested.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Long-Range
      Handheld Reader Specifications

    
      	 	 
	
              Operating
                Frequency

            	
              134.2
                kHz

            
	
              2001F
                Case

            	 
	
              ·
                Weight:

            	
              5.0
                lbs. 2.3 Kg

            
	
              ·
                Color:

            	
              Yellow/Black

            
	
              ·
                Material:

            	
              Aluminum/Polyurethane

            
	
              Tabletop
                Antenna

            	 
	
              ·
                Weight:

            	
              2.1
                lbs. .96 Kg

            
	
              ·
                Color:

            	
              Yellow

            
	
              ·
                Material:

            	
              Polyurethane

            
	
              Racket
                Antenna

            	 
	
              ·
                Weight:

            	
              1.3
                lbs. .6 Kg

            
	
              ·
                Color:

            	
              Yellow

            
	
              ·
                Material:

            	
              Polyurethane

            
	
              Operating
                Temperature:

            	
              -5°
                to 50°C or 23°-122°F

            
	
              Humidity:

            	
              10
                - 90% (non-condensing)

            
	
              Storage
                Temperature:

            	
              -20°
                to 65°C or -4° to 149°F

            
	
              Batteries:

            	
              Nickel-metal-hydride
                10 cells (12 Vdc)

            
	
              Display:

            	
              2
                lines by 16 characters backlight LCD display

            
	
              RS
                232 Port

            	
              User
                defineable COM port baud rate setting at 2400, 9600, 19200 or 57600
                BPS

            


    

    


    This
      equipment has been tested and complies with the limits for a “Class A’’ digital
      device. pursuant to part 15 of the FCC rules and has CE approval where
      applicable, UL Information: Battery Charger and power supply are UL approved
      (110 VAC)

     

    Schedule
      1 / Page 2


     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2

    PRICE
      AND TERMS SCHEDULE

    (Attached
      to and forming a part of the Agreement)

    1. ORDERS

     

    1.1 All
      orders shall each be for not less than US $1,500 total sales value, excluding
      any applicable taxes.

     

    1.2 All
      orders for Developed Products shall be in writing and given not less than one
      (1) month before the date of expected shipment. If production of the quantity
      ordered is not possible during the time ordered, (i) Company shall immediately
      notify VeriChip and shall use its best efforts to satisfy the order as quickly
      as possible, and (ii) Company shall increase its production ability so that
      if
      such quantity is ordered thereafter, such order can be produced and delivered.
      All orders shall be deemed to be upon the terms and conditions of this Agreement
      which may not be modified by the conditions stated on the orders
      themselves.

     

    1.3 Any
      queries concerning an order shall be raised by Company before proceeding to
      execute the order.

     

    2. PRICES

     

    2.1 See
      Schedule
      1.
      Prices
      for Improvements shall be determined as set forth in Section 3 of the
      Agreement.

     

    2.2 Except
      as
      provided herein, VeriChip shall be liable for all customs duties, sales taxes,
      and insurance. VeriChip shall not be responsible for any business taxes levied
      upon Company.

     

    2.3 Pricing
      is based on FOB Company’s point of shipment. All freight expenses shall be the
      responsibility of VeriChip.

     

    3. PACKAGING

     

    Company
      shall ensure proper packaging of Developed Products to ensure delivery of such
      products in good order and condition.

     

    4. EXPORT

     

    At
      VeriChip’s expense and if required, Company shall apply for any necessary
      approvals or licenses for the export of Developed Products from the United
      States and Company shall do all such things and sign all such applications
      or
      documents as may be necessary to obtain such approvals or licenses.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5. DELIVERY

     

    5.1 Company
      shall procure the delivery of Developed Products F.O.B. Company’s point of
      shipment to airfreight shipment within four (4) months after the receipt of
      the
      order, or the scheduled delivery as specified, whichever is longer.

     

    5.2 VeriChip
      shall bear all proper costs including freight and insurance in respect of the
      delivery of Developed Products to VeriChip. Such method of delivery to be in
      a
      proper and suitable manner and in accordance with the proper requirements for
      carriers.

     

    6. TITLE
      AND RISK OF LOSS

     

    Title
      to
      and risk of loss of the Developed Products shall pass to VeriChip at the time
      of
      delivery to the designated carrier.

     

    7. INVOICES

     

    Company
      shall on shipping of Developed Products mail to VeriChip an invoice for such
      product. Each invoice shall specify the contents of each package against
      separate package numbers.

     

    8. RETURN
      OF PRODUCTS

     

    Upon
      the
      authorized return of any Developed Products in the same condition as shipped
      F.O.B. Company’s point of shipment, Company shall reimburse or credit VeriChip
      for any amounts paid by VeriChip for the purchase price of returned
      products.

     

    9. PAYMENTS

     

    9.1 Payment
      terms are net 60 days after date of invoice (the “Net Due Date”). Payments must
      be received by Company on or before the Net Due Date and at the location
      specified on the invoice. In the event VeriChip fails to pay in full the balance
      due in accordance with the invoice on or before the Net Due Date, Company at
      its
      option may suspend further deliveries.

     

    9.2 Under
      no
      circumstances will Company be responsible for failure to ship Developed Products
      due to a Force Majeure Event. Should any such delay occur, Company will use
      its
      best efforts to complete the shipment as soon as practicable.

     

    10. PRODUCT
      LIABILITY

     

    10.1 At
      VeriChip’s expense, VeriChip shall maintain product liability insurance with a
      limit of not less than $1,000,000.00 per occurrence and not less than
      $ 3,000.000.00
      in
      the
      annual aggregate, and the Company shall be named as an additional insured.
      The
      Company shall be notified in writing at the anniversary of the renewal of such
      liability insurance policy.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.2 At
      Company’s expense, Company shall maintain product liability insurance with a
      limit of not less than $1,000,000.00 per occurrence and not less than
      $ 3,000.000.00
      in
      the
      annual aggregate, and
      VeriChip shall be named as an additional insured. VeriChip shall be notified
      in
      writing at the anniversary of the renewal of such liability insurance
      policy.

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      3

    DATA
      WAREHOUSING

    (Attached
      to and forming a part of the Agreement)

    


    Global
      VeriChip Subscriber Registry Hosting Facility

     

    Demonstration
      System Hosting

    
      	 	 
	
              Hosting
                Facility Requirements

            	
              Min.
                Config.

            
	
              Server
                System

            	 
	
              Internet
                Connectivity SQL Server 2000

            	 
	
              Microsoft
                Internet Information Server

            	 
	
              GVS
                Registry Software (provided by VeriChip)

            	 


    

    


    Production
      System Hosting

    
      	 	 
	
              Hosting
                Facility Requirements

            	
              Min.
                Config.

            
	
              Server
                system (Facility and Server HIPPA-

              Certified,
                FDA-Compliant)

            	
              Dedicated

              Server

            
	
              Internet
                Connectivity

            	
              T1

            
	
              SQL
                Server 2000

            	
              Storage
                for

              up
                to

              30
                million customer transactions

            
	
              Microsoft
                Internet Information Server

            	 
	
              GVS
                Registry Software (provided by VeriChip)

            	 


    

    


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    SCHEDULE
      4

    PATENTS

    (Attached
      to and forming a part of the Agreement)

     

    
      	
              1.

            	
              5,211,129

            	
              Syringe-Implantable
                Identification Transponder

            
	
              2.

            	
              5,952,935

            	
              Programmable
                Channel Search Reader

            
	
              3.

            	
              6,400,338

            	
              Passive
                Integrated Transponder with Unitary Antenna Core

            
	
              4.

            	
              US2002/0154065
                A1 

            	
              Continuation
                of Passive Integrated Transponder with
                Unitary Antenna Core

            


    

    


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    SCHEDULE
      5

     

    MINIMUM
      PURCHASE COMMITMENTS

    (to
      and
      forming a part of the Agreement)

    


     

     

    
      	
              Calendar
                Year 2006

               

            	
              no
                minimum

               

            
	
              Calendar
                Year 2007

               

            	
              *

               

            
	
              Calendar
                Year 2008 

               

            	
              *

               

            
	
              Calendar
                Year 2009

               

            	
              *

               

            
	
              Calendar
                Year 2010 

               

            	
              *

               

            


    

    


     

    Unless
      the Parties agree to a different Minimum Unit Commitment for Calendar Years
      2011
      and after,
      the Minimum Unit Commitment applicable to Calendar Years 2011 and after shall
      be
*
      units
      per year.

     

    
 

    *
      Confidential
      Treatment requested.