Exhibit 10.1


 


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


 


3





















 


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* 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.


 










* Confidential Treatment
requested.


 


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-free,


 


7





















 


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:


 


8





















 


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.


 


9





















 


(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.


 


10





















 


(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


 


11





















 


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


 


12





















 


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.


 


14





















 


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


 


15





















 


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.


 


16





















 


(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.


 


17





















 


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:

  	
   

  	
   

  
						



 


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)

  



 










**
Confidential Treatment requested.


 


1





















 


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)


 


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

  	
   

  	
   

  	
  *

  
	
   

  	
   

  	
   

  	
   

  
	
  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.