**Exhibit 10.37****INTELLECTUAL PROPERTY SECURITY AGREEMENT**THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (the “Agreement”), dated as of August31, 2007, is made by each of DIGITAL ANGEL CORPORATION, a Delaware corporation (“DOC”),DIGITAL ANGEL TECHNOLOGY CORPORATION, a Minnesota corporation (“DATC”) and FEARINGMANUFACTURING CO., INC. (“FMC” and together with DOC and DATC, the “Grantors” and each, a“Grantor”), in favor of KALLINA CORPORATION (“Lender”).WHEREAS, pursuant to that certain Security Agreement dated as of the date hereof by andbetween Grantors (collectively, the “Borrowers”) and Lender (as from time to time amended,restated, supplemented or otherwise modified, the “Security Agreement”), Lender has agreedto provide financial accommodations to the Borrowers;WHEREAS, Lender is willing to enter into the Security Agreement, but only upon the condition,among others, that each Grantor shall have executed and delivered to Lender this Agreement;NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and forother good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, each Grantor hereby agrees as follows:Section 1. DEFINED TERMS.(a) When used herein the following terms shall have the following meanings:“Copyrights” means all copyrights arising under the laws of the United States, anyother country or any political subdivision thereof, whether registered or unregistered and whetherpublished or unpublished, all registrations and recordings thereof, and all applications inconnection therewith, including all registrations, recordings and applications in the United StatesCopyright Office, and the right to obtain all renewals of any of the foregoing.“Copyright Licenses” means all written agreements naming any Grantor as licensor orlicensee, granting any right under any Copyright, including the grant of rights to manufacture,distribute, exploit and sell materials derived from any Copyright.“General Intangibles” shall have the meaning provided thereto in Section 9-102 of theUCC, as amended, restated or otherwise modified from time to time.“Obligations” Loans, all advances, debts, liabilities, obligations, covenants andduties owing by each Company and each of its Eligible Subsidiaries to Lender (or any corporationthat directly or indirectly controls or is controlled by or is under common control with Lender),other than those arising under the Registration Rights Agreement or the Warrant, of every kind anddescription (whether or not evidenced by any note or other instrument and whether or not for thepayment of money or the performance or non-performance of any act), direct or indirect,
 
 

 
absolute or contingent, due or to become due, contractual or tortious, liquidated orunliquidated, whether existing by operation of law or otherwise now existing or hereafter arisingincluding any debt, liability or obligation owing from any Company and/or each of its EligibleSubsidiaries to others which Lender may have obtained by assignment or otherwise and furtherincluding all interest (including interest accruing at the then applicable rate provided in theSecurity Agreement after the maturity of the Loans and interest accruing at the then applicablerate provided in the Security Agreement after the filing of any petition in bankruptcy, or thecommencement of any insolvency, reorganization or like proceeding, whether or not a claim forpost-filing or post-petition interest is allowed or allowable in such proceeding), charges or anyother payments each Company and each of its Eligible Subsidiaries is required to make by law orotherwise arising under or as a result of the Security Agreement, the Ancillary Agreements (otherthan the Registration Rights Agreement or the Warrant) or otherwise, together with all reasonableexpenses and reasonable attorneys’ fees chargeable to the Companies’ or any of their EligibleSubsidiaries’ accounts or incurred by Lender in connection therewith.“Patents” means (a) all letters patent of the United States, any other country or anypolitical subdivision thereof, and all reissues and extensions of such letters patent, (b) allapplications for letters patent of the United States or any other county and all divisions,continuations and continuations-in-part thereof, and (c) all rights to obtain any reissues orextensions of the foregoing.“Patent Licenses” means all agreements, whether written or oral, providing for thegrant by or to any Grantor of any right to manufacture, use or sell any invention covered in wholeor in part by a Patent.“Trademarks” means (a) all trademarks, trade names, corporate names, business names,fictitious business names, trade styles, services marks, logos and other source or businessidentifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired,all registrations and recordings thereof, and all applications in connection therewith, whether inthe United States Patent and Trademark Office or in any similar office or agency of the UnitedStates, any State thereof or any other country or political subdivision thereof, or otherwise, andall common-law rights thereto, and (b) the right to obtain all renewals thereof.“Trademark Licenses” means, collectively, each agreement, whether written or oral,providing for the grant by or to any Grantor of any right to use any Trademark.“UCC” shall have the meaning provided thereto in the Security Agreement.(b) All capitalized terms used but not otherwise defined herein have the meanings given tothem in the Security Agreement.Section 2. GRANT OF SECURITY INTEREST IN INTELLECTUAL PROPERTY COLLATERAL. To securethe complete and timely payment of all the Obligations of such Grantor now or hereafter existingfrom time to time, each Grantor hereby grants to Lender a continuing first priority securityinterest in all of such Grantor’s right, title and interest in, to and under the following, whetherpresently existing or hereafter created or acquired (collectively, the “Collateral”):
 
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(a) all of its Patents and Patent Licenses to which it is a party includingthose referred to on Schedule I hereto;(b) all of its Trademarks and Trademark Licenses to which it is a partyincluding those referred to on Schedule II hereto;(c) all of its Copyrights and Copyright Licenses to which it is a partyincluding those referred to on Schedule III hereto;(d) all of the Patents, Trademarks and Copyrights identified in ScheduleI, Schedule II and Schedule III, respectively, that are materialto its business or operations, as referred to on Schedule IV hereto, saidSchedule IV, together with updated Schedules I, II and III, to be providedto Lender within 45 days of the execution of this Agreement;(e) all reissues, continuations or extensions of the foregoing;(f) all goodwill of the business connected with the use of, and symbolized by,each Patent, each Patent License, each Trademark, each Trademark License, eachCopyright and each Copyright License; and(g) all products and proceeds of the foregoing, including, without limitation,any claim by such Grantor against third parties for past, present or future (i)infringement or dilution of any Patent or Patent licensed under any Patent License,(ii) injury to the goodwill associated with any Patent or any Patent licensed underany Patent License, (iii) infringement or dilution of any Trademark or Trademarklicensed under any Trademark License, (iv) injury to the goodwill associated withany Trademark or any Trademark licensed under any Trademark License, (v)infringement or dilution of any Copyright or Copyright licensed under any CopyrightLicense, and (vi) injury to the goodwill associated with any Copyright or anyCopyright licensed under any Copyright License.Section 3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants thatGrantor does not have any interest in, or title to, any Patent, Trademark or Copyright except asset forth in Schedule I, Schedule II and Schedule III, respectively,hereto. Grantor’s Patents, Trademarks and Copyrights are valid and enforceable, are solely ownedby Grantor and there is no claim that the use of any of them violates the rights of any thirdperson. This Agreement is effective to create a valid and continuing lien on and perfectedsecurity interests in favor of Lender in all of Grantor’s Patents, Trademarks and Copyrights andsuch perfected security interests are enforceable as such as against any and all creditors of, andpurchasers from, Grantor. Upon filing of this Intellectual Property Security Agreement with theUnited States Patent and Trademark Office and the United States Copyright Office and the filing ofappropriate financing statements, all action necessary or desirable to protect and perfect Lender’sLien on each Grantor’s Patents, Trademarks and Copyrights shall have been duly taken, includingclearing up any gaps or inaccuracies in the chain of title in the Patents, Trademarks andCopyrights identified in Schedules I, II and III, respectively, at the sole cost of Grantor, whichaction shall take place within 45 days of the execution of this Agreement.
 
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Section 4. COVENANTS. Each Grantor covenants and agrees with Lender that from andafter the date of this Agreement:(a) Grantor shall notify Lender immediately if it knows or has reason to knowthat any application or registration relating to any Patent, Trademark or Copyright(now or hereafter existing) that is material to the conduct of its business oroperations may become abandoned or dedicated, or of any adverse determination ordevelopment (including the institution of, or any such determination or developmentin, any proceeding in the United States Patent and Trademark Office, the UnitedStates Copyright Office or any similar foreign office or agency or any court)regarding Grantor’s ownership of any Patent, Trademark or Copyright that is materialto the conduct of its business or operations, its right to register the same, or tokeep and maintain the same.(b) In the event Grantor, either directly or through any agent, employee,licensee or designee, files an application for the registration of any Patent,Trademark or Copyright with the United States Patent and Trademark Office or theUnited States Copyright Office or any similar office or agency after the effectivedate of this Agreement, Grantor shall provide Lender written notice thereof, and,upon request of Lender, Grantor shall execute and deliver a supplement hereto (inform and substance satisfactory to Lender) to evidence Lender’s lien on such Patent,Trademark or Copyright, and the General Intangibles of Grantor relating thereto orrepresented thereby.(c) Grantor shall take all commercially reasonable actions necessary orrequested by Lender to maintain and pursue each application, to obtain the relevantregistration and to maintain the registration of each of the Patents or Trademarks(now or hereafter existing) which applications and registrations are material to theconduct of its business or operations, including, but not limited to, the filing ofapplications for renewal, affidavits of use, affidavits of noncontestability andopposition and interference and cancellation proceedings. Grantor shall also, uponLender’s request, execute any necessary documents to evidence Lender’s lien onGrantor’s Patents, Trademarks and Copyrights.(d) In the event that any of the Intellectual Property that is material to theconduct of its business or operations is infringed upon, or misappropriated ordiluted by a third party, Grantor shall notify Lender promptly after Grantor learnsthereof. Grantor shall take all commercially reasonable actions to protect suchIntellectual Property and to seek any and all damages for such infringement,misappropriation or dilution..Section 5. SECURITY AGREEMENT. The security interests granted pursuant to thisAgreement are granted in conjunction with the security interests granted to Lender by each Grantorpursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms that the rightsand remedies of Lender with respect to the security interest in the Collateral made and grantedhereby are more fully set forth in the Security Agreement, the terms and provisions of which areincorporated by reference herein as if fully set forth herein.
 
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Section 6. REINSTATEMENT. This Agreement shall remain in full force and effect andcontinue to be effective should any petition be filed by or against any Grantor for liquidation orreorganization, should any Grantor become insolvent or make an assignment for the benefit of anycreditor or creditors or should a receiver or trustee be appointed for all or any significant partof such Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be,if at any time payment and performance of the Obligations, or any part thereof, is, pursuant toapplicable law, rescinded or reduced in amount, or must otherwise be restored or returned by anyobligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” orotherwise, all as though such payment or performance had not been made. In the event that anypayment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall bereinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored orreturned.Section 7. INDEMNIFICATION. (A) Each Grantor assumes all responsibility and liabilityarising from the use of the Patents, Trademarks and/or Copyrights and each Grantor herebyindemnifies and holds Lender harmless from and against any claim, suit, loss, damage or expense(including reasonable attorneys’ fees) arising out of such Grantor’s operations of its businessfrom the use of the Patents, Trademarks and/or Copyrights. (B) In any suit, proceeding or actionbrought by Lender under any Patent License, Trademark License or Copyright License for any sumowing thereunder, or to enforce any provisions of such license, such Grantor will indemnify andkeep Lender harmless from and against all expense, loss or damage suffered by reason of anydefense, set off, counterclaim, recoupment or reduction or liability whatsoever of the obligeethereunder, arising out of a breach of any Grantor of any obligation thereunder or arising out ofany other agreement, indebtedness or liability at any time owing to or in favor of such obligee orits successors from such Grantor, and all such obligations of any Grantor shall be and remainenforceable against and only against such Grantor and shall not be enforceable against Lender.Section 8. NOTICES. Whenever it is provided herein that any notice, demand, request,consent, approval, declaration or other communication shall or may be given to or served upon anyof the parties by any other party, or whenever any of the parties desires to give and serve uponany other party any communication with respect to this Agreement, each such notice, demand,request, consent, approval, declaration or other communication shall be in writing and shall begiven in the manner, and deemed received, as provided for in the Security Agreement.Section 9. TERMINATION OF THIS AGREEMENT. Subject to Section 6 hereof, thisAgreement shall terminate upon payment in full in cash of all Obligations and irrevocabletermination of the Security Agreement.Section 10. COUNTERPARTS. This Agreement may be executed in any number ofcounterparts, each of which shall be an original, but all of which shall constitute one instrument.It is understood and agreed that if facsimile copies of this Agreement bearing facsimilesignatures are exchanged between the parties hereto, such copies shall in all respects have thesame weight, force and legal effect and shall be fully as valid, binding, and enforceable as ifsuch signed facsimile copies were original documents bearing original signature.
 
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[Signature Page to Follow]
 
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IN WITNESS WHEREOF, Grantor has caused this Intellectual Property Security Agreement to beexecuted and delivered by its duly authorized officer as of the date first set forth above.      DIGITAL ANGEL CORPORATION