Document:

Exhibit 10.3

    
      

    

    Exhibit
      10.3

     

    SECURITY
      AGREEMENT 

     

    SECURITY
      AGREEMENT (the “Agreement”) made December 27, 2005 by and between VeriChip
      Corporation, a Delaware corporation with a principal place of business at 1690
      South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Debtor”),
      and Applied Digital Solutions, Inc., a Missouri corporation located at 1690
      South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Secured
      Party”). 

     

    WITNESSETH:
      

     

    WHEREAS,
      pursuant to a Commercial Loan Agreement of even date (the “Loan Agreement”),
      Secured Party has granted to Debtor Eight Million Five Hundred Thousand Dollars
      ($8,500,000.00) in a Working Capital Revolving Line of Credit (the “Loan”); and

     

    WHEREAS,
      the obligation of the Secured Party to make the Loan to the Debtor is subject
      to
      the condition, among others, that the Debtor shall execute and deliver this
      Agreement and grant the security interests hereinafter described. Terms not
      otherwise defined herein shall have the meanings ascribed to them in the Loan
      Agreement. 

     

    NOW,
      THEREFORE, in consideration of the willingness of the Secured Party to make
      the
      Loan to the Debtor and for other good and valuable consideration, the receipt
      and sufficiency of which is hereby acknowledged, the parties agree as follows:
      

     

    1.
      Security
      Interest.
      As
      security for the Secured Obligations described in Section 2 hereof, the Debtor
      hereby grants to the Secured Party a first priority security interest in and
      lien on all of the property described below (hereinafter referred to
      collectively as the “Collateral”): 

     

    a.
      All
      equipment, including machinery, motor vehicles, office equipment, furniture,
      fixtures, along with all other parts, tools, trade-ins, repairs, accessories,
      accessions, modifications and replacements, whether now owned or subsequently
      acquired, constructed or attached or added to or placed in, the foregoing
      (collectively, the “Equipment”); 

     

    b.
      All
      inventory, wherever located, including goods, merchandise and other personal
      property, held for sale or lease or furnished or to be furnished under a
      contract of service, or constituting raw materials, work in process or materials
      used or consumed in the Debtor’s business, or consigned to others or held by
      others for return to the Debtor, whether now owned or subsequently acquired
      or
      manufactured and wherever located (collectively, the “Inventory”); 

     

    c.
      All
      accounts receivable, including, without limitation, accounts, contracts,
      contract rights, chattel paper, instruments, rents, deposits, general
      intangibles and any other obligations of any kind, whether now existing or
      hereafter arising out of or in connection, with the sale or lease of goods
      or
      the rendering of services and all rights now or hereafter existing in and to
      all
      security agreements, notes, leases, licenses, franchises, supply agreements
      and
      other contracts securing or otherwise relating to any such accounts, contracts,
      contract rights, chattel paper, instruments, rents, deposits, general
      intangibles or obligations (any and all such accounts, contracts, contract
      rights, chattel paper, instruments, rents, deposits, general intangibles and
      obligations being the “Receivables” and any and all such security agreements,
      notes, leases, licenses, franchises, supply agreements and other contracts
      being
      the “Related Contracts”); 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    d.
      All
      general intangibles, including, but not limited to, corporate names, trade
      names, trademarks, trade secrets, books and records, customer lists, blue prints
      and plans, computer programs, tapes and related electronic data, processing
      software and all corporate ledgers; 

     

    e.
      Any
      and all additions, accessions, substitutions or replacements to or for any
      of
      the foregoing; 

     

    f.
      Any
      and all products and proceeds of any or all of the foregoing, including, without
      limitation, cash, cash equivalents, tax refunds and the proceeds of insurance
      policies providing coverage against the loss or destruction of or damage to
      any
      of the Collateral, or any indemnity, warranty or guarantee payable by reason
      of
      loss or damage to or otherwise with respect to any of the Collateral (whether
      or
      not the Secured Party is the loss payee thereof); 

     

    g.
      All of
      the Debtor’s after-acquired property of the kinds and types described in
      paragraphs (a) - (f) herein; 

     

    h.
      All
      records and data relating to any of the property described above, whether in
      the
      form of a writing, photograph, microfilm, microfiche or electronic media,
      together with all of the Debtor’s right, title and interest in and to all
      computer software required to utilize, create, maintain and process any of
      such
      records or data or electronic media; and also in (i) all checks, money,
      securities, bank accounts, deposit accounts and other accounts in the possession
      of or held by the Secured Party whether in the name of the Debtor or in the
      name
      of the Secured Party, and (ii) all other property given by the Debtor to the
      Secured Party pursuant to this agreement. The property described in (i) and
      (ii)
      above are held in the possession of the Secured Party by agreement of Debtor
      and
      Secured Party. All of the said Collateral (which throughout this Agreement
      includes after-acquired Collateral) is to secure the payment and performance
      of
      all of the Secured Obligations. 

     

    2.
      Secured
      Obligations.
      The
      security interest hereby granted shall secure the following (the “Secured
      Obligations”): 

     

    a.
      The
      Debtor’s repayment of the principal amount of the Loan, together with interest,
      late charges and any other applicable charges to the Secured Party pursuant
      to
      the Loan; 

     

    b.
      The
      Debtor’s payment or performance of its obligations under the Loan Agreement and
      under the other Loan Documents (as defined, described and identified in the
      Loan
      Agreement, hereinafter the “Loan Documents”), as the same may be amended,
      modified, extended, renewed, replaced or restated; and 

     

    c.
      The
      payment of all other sums with interest and charges thereon advanced in
      accordance herewith to protect the validity, security and priority of this
      Agreement, the Loan Agreement or the Loan Documents. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    3.
      Warranties
      and Representations of the Debtor.
      Debtor
      hereby makes the following representations and warranties that shall survive
      the
      execution and delivery of this Agreement and shall be continuing representations
      and warranties as long as any Secured Obligations remains outstanding:

     

    a.
      All
      representations and warranties made in the Loan Agreement and the Loan Documents
      relating to the Debtor and the Collateral are true, accurate and complete in
      all
      material respects; 

     

    b.
      The
      Debtor’s principal place of business is located at 1690 South Congress Avenue,
      Suite 200, Delray Beach, Florida; the Debtor’s executive offices and the office
      where its books and records are kept and are to be kept concerning the
      Receivables, Related Contracts, and other Collateral are at the aforesaid
      address; and the Debtor has no other places of business except those set forth
      on Schedule I hereto; 

     

    c.
      The
      Debtor conducts business only under and through the business and trade name
      “VeriChip Corporation.” 

     

    d.
      No
      material authorization, approval or other action by, and no notice to or filing
      with, any governmental authority or other person is required either (i) for
      the
      grant by the Debtor of the security interests granted hereby or for the
      execution, delivery or performance of this Agreement by the Debtor, or (ii)
      for
      the perfection of or the remedies hereunder, except the filing of financing
      statements; 

     

    e.
      The
      Debtor has good and marketable title to all of the Collateral pledged by it
      hereunder, free and clear of any liens, security interests, encumbrances or
      interests or claims of any other person or entity, except those set forth on
      Schedule II hereto and there are no sums owed with respect to the Collateral.
      

     

    f.
      Upon
      the filing of UCC-1 financing statements being delivered at or prior to the
      execution hereof, the Secured Party will have a valid, perfected first security
      interest in all of the Collateral; 

     

    g.
      The
      Debtor has not performed any acts which might prevent the Secured Party from
      enforcing any of the material terms and conditions of this Agreement or which
      would limit any of them in any such enforcement; 

     

    h.
      Schedule III attached hereto sets forth the description and location of all
      Collateral not located at the Debtor’s principal place of business, together
      with a list of the record owners of and record holders of liens against the
      real
      estate on which such Collateral is located; and 

     

    i.
      No
      effective financing statements or other similar instrument in effect covering
      all or any part of the Collateral is on file in any recording office, except
      as
      may have been filed in favor of Secured Party relating to this Agreement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    4.
      Affirmative
      Covenants of the Debtor.
      

     

    a.
      The
      Debtor shall promptly notify and provide the Secured Party with a complete
      description of the opening of any new places of business, the closing of any
      existing places of business, the conduct of business under any names or through
      any entities other than those set forth herein, the relocation of any of the
      Collateral to any new place of business or any other act which would affect
      the
      financing statements filed by the Secured Party; 

     

    b.
      The
      Debtor shall continuously take all steps that are necessary or prudent to
      protect the security interests of the Secured Party in the Collateral;

     

    c.
      The
      Debtor shall defend the Collateral against the claims and demands of all
      persons; 

     

    d.
      The
      Debtor shall deliver and pledge to the Secured Party, endorsed or accompanied
      by
      instruments of assignment or transfer satisfactory to the Secured Party, any
      Instruments, documents and chattel paper which the Secured Party may reasonably
      specify; 

     

    e.
      The
      Debtor shall comply, in all material respects, with all governmental regulations
      applicable to the Collateral or any part thereof or to the operation of the
      Debtor’s business; provided, however, that the Debtor may contest any
      governmental regulation in any reasonable manner which shall not, in the
      reasonable opinion of the Secured Party, adversely affect the Secured Party’s
      rights or the first priority of its security interest in the Collateral;

     

    f.
      The
      Debtor shall pay promptly when due, all taxes, assessments and governmental
      charges or levies imposed upon the Collateral or in respect of its income or
      profits therefrom, as well as all claims of any kind, except that no such charge
      need be paid if (i) the validity thereof is being contested in good faith by
      appropriate proceedings, (ii) such proceedings do not involve any danger of
      the
      sale, forfeiture or loss of any of the Collateral or any interest therein;
      and
      (iii) such charge is adequately reserved against in accordance with the
      generally accepted accounting principles; 

     

    g.
      The
      Debtor shall cause the Equipment to be maintained and preserved in the same
      condition, repair and working order as when new and shall make all repairs,
      replacements, additions and other improvements necessary to maintain the
      Equipment in such good condition; 

     

    h.
      The
      Debtor shall maintain Inventory sufficient to meet the needs of its business;
      

     

    i.
      The
      Debtor shall preserve all beneficial Related Contracts; 

     

    j.
      The
      Debtor shall take all commercially reasonable steps necessary to collect the
      Receivables; 

     

    k.
      The
      Debtor shall assure that (i) no Receivable is or shall be subject to any
      defense, offset, counterclaim, discount or allowance, (ii) no agreement under
      which any deduction, discount, credit or allowance of any kind may be granted
      or
      allowed shall have been or shall thereafter be made by Debtor with any account
      party without the consent of Secured Party, (iii) all statements

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    made
      and
      all unpaid balances appearing in the invoices, documents and agreements relating
      to each Receivable are and shall be true, genuine, and correct in all respects,
      and (iv) no Receivable shall be converted to a note or other instrument unless
      the same shall be delivered to the possession of the Secured Party within ten
      (10) days of the date of execution of such note or instrument; 

     

    l.
      The
      Debtor shall, with respect to any Collateral which consists of trucks,
      automobiles or other motor vehicles, or any other Collateral required to be
      titled, deliver all titles thereto to the Secured Party to be held by the
      Secured Party and shall make, execute and deliver any and all applications,
      and
      take such other action to assure that the Secured Party is listed of record
      as a
      lienholder on all title certificates; 

     

    m.
      Debtor
      shall keep accurate and complete records listing and describing the Collateral
      and, when requested by Secured Party, Debtor shall give Secured Party a
      certificate listing and describing the Collateral and setting forth the total
      value of the Inventory, the total value of the Equipment, the amount of the
      Receivables designating how many dates the Receivables are from the date of
      invoice, the face value of any instruments, and any other information Secured
      Party may request. Upon reasonable notice, Secured Party shall have the right
      at
      any time to inspect the Collateral and to audit and make copies of any records
      or other writings that relate to the Collateral or the general financial
      condition of Debtor. Bank shall use its best efforts to commence such
      inspections during reasonable business hours. Secured Party may remove such
      records and writings for the purpose of having copies made thereof;

     

    n.
      The
      Debtor shall advise the Secured Party promptly, in reasonable detail, (i) of
      any
      lien, security interest, encumbrance or claim made or asserted against any
      of
      the Collateral, (ii) of any material change, substantial loss or depreciation
      in
      the composition of the Collateral, and (iii) of the occurrence of any other
      material adverse effect on the aggregate value, enforceability or collectibility
      of the Collateral or on the security interests created hereunder; 

     

    o.
      The
      Debtor shall give, execute, deliver and file or record in the proper
      governmental offices any instrument, paper or document, including, but not
      limited to, one or more financing statements under the Uniform Commercial Code,
      reasonably satisfactory to the Secured Party or take any action which the
      Secured Party may deem necessary or desirable in order to create, preserve,
      perfect, extend, continue, modify, terminate or otherwise effect any security
      interest granted pursuant hereto, or to enable the Secured Party to exercise
      or
      enforce any of its rights hereunder; and 

     

    5.
      Negative
      Covenants of the Debtor.
      Except
      as otherwise provided in the Loan Agreement, without the prior written consent
      of the Secured Party, the Debtor shall not: 

     

    a.
      Transfer, sell or assign any of the Collateral other than in the ordinary course
      of business; 

     

    b.
      Allow
      or permit any other security interest or lien to attach to any of the Collateral
      (other than the Maytag subordinated debt); 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    c.
      File,
      authorize or permit to be filed in any jurisdiction any financing statement
      relating to any of the Collateral unless the Secured Party is named as sole
      secured party; 

     

    d.
      Permit
      any of the Collateral to be levied upon under any legal process; 

     

    e.
      Permit
      anything to be done that may materially impair the value of any of the
      Collateral or the security therein intended to be afforded hereby; or

     

    f.
      Use
      the Collateral in violation of any law or in any manner inconsistent with any
      policy of insurance thereon. 

     

    6.
      Fixtures.
      It is
      the intention of the parties hereto that none of the Collateral shall become
      fixtures. Without limiting the generality of the foregoing, the Debtor will,
      if
      requested by the Secured Party, obtain waivers of lien, in form satisfactory
      to
      the Secured Party, from each mortgagee or lessor of real property (other than
      the Secured Party) on which any of the Collateral is or is to be located.

     

    7.
      Insurance.
      Debtor
      shall, at its own expense, maintain insurance covering the Collateral against
      such risks, with such insurers, in such form and in such amounts as shall,
      from
      time to time, be required by Secured Party, but in any event, in such amounts
      and with such coverage as is customary in Debtor’s type of business. All
      insurance policies shall be written so as to be payable in the event of loss
      to
      Secured Party and shall provide for thirty (30) days written notice to Secured
      Party of cancellation or modification. At the request of Secured Party, all
      insurance policies shall be furnished to and held by Secured Party. Debtor
      hereby assigns to Secured Party return premiums, dividends and other amounts
      which may be or become due upon cancellation of any such policies for any reason
      whatsoever and directs the insurers to pay Secured Party any sums so due.
      Secured Party is hereby appointed as attorney irrevocable to collect return
      premiums, dividends and other amounts due on any insurance policy and the
      proceeds of such insurance, to settle any claim with the insurers in the event
      of loss or damage, to endorse settlement drafts and, upon occurrence of an
      Event
      of Default (as defined hereinbelow), to cancel, assign or surrender any
      insurance policies. If, while any Secured Obligations are outstanding, any
      return premiums, dividends, other amounts or proceeds are paid to Secured Party
      under such policies, Secured Party may, at Secured Party’s option, take either
      or both of the following actions: (i) apply such return premiums, dividends,
      other amounts and proceeds in whole or in part to the payment or satisfaction
      of
      any of the Secured Obligations in whatever order Secured Party determines;
      or
      (ii) pay over such return premiums, dividends, other amounts and proceeds in
      whole or in part to Debtor for the purpose of repairing or replacing the
      Collateral destroyed or damaged, any return premiums, dividends, other amounts
      and proceeds so paid over by Secured Party to be secured by this Agreement.
      

     

    8.
      Receivables.
      Debtor
      agrees that Secured Party may communicate with account debtors in order to
      verify the existence, amount, and terms of any Receivables. Secured Party may
      notify account debtors of the security interests established herein and require
      that payments on Receivables be made directly to Secured Party, and upon the
      request of Secured Party, Debtor shall notify account debtors and indicate
      on
      all billings that payments and returns are to be made directly to Secured Party.
      In furtherance of the foregoing, Debtor hereby appoints Secured Party attorney
      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    irrevocable
      with full power to collect, compromise, endorse, sell or otherwise deal with
      the
      Receivables or proceeds thereof and to perform the terms of any contract in
      order to create Receivables in Secured Party’s name or in the name of Debtor.
      This Agreement may be, but need not be, supplemented by separate assignment
      of
      Receivables and contract rights and, if such assignments are given, the rights
      and security interests given thereby shall be in addition to and not in
      limitation of the rights and security interests granted by this Agreement.
      

     

    9.
      Events
      of Default.
      The
      following events shall be deemed “Events of Default” hereunder: 

     

    a.
      An
      Event of Default under the Loan Agreement or any of the Loan Documents;

     

    b.
      Any
      representation or warranty or statement of fact made to Secured Party at any
      time by Debtor is false or misleading or becomes false or misleading in any
      material respect; 

     

    c.
      Debtor
      fails to materially observe or perform any covenant, warranty or agreement
      required to be observed or performed by it under this Agreement; 

     

    d.
      Debtor
      shall be in default under any obligation undertaken by Debtor which default
      has
      a material adverse effect on the financial condition of Debtor or on the value
      of the Collateral; 

     

    e.
      Uninsured loss, theft, damage or destruction of any substantial portion of
      any
      of the Collateral; or 

     

    f.
      Debtor
      or any guarantor of any of the Secured Obligations is or becomes insolvent
      or is
      involved in any financial difficulty as evidenced by (i) an assignment,
      composition or similar device for the benefit of creditors, (ii) general failure
      to pay debts when due, (iii) attachment or receivership of assets not dissolved
      within thirty (30) days, (iv) the appointment of a custodian, trustee or
      receiver for a substantial portion of any of their respective properties, (v)
      the liquidation or sale of all or substantially all of their respective
      properties, (vi) the filing by Debtor or any guarantor of a petition under
      any
      Chapter of the United States Bankruptcy Code or the institution of any other
      proceeding under any law relating to bankruptcy, bankruptcy reorganization,
      insolvency or relief of Debtors, or (vii) the filing against Debtor or any
      guarantor of an involuntary petition under any Chapter of the United States
      Bankruptcy Code or the institution of any other proceeding under any law
      relating to bankruptcy, bankruptcy reorganization, insolvency or relief of
      debtors where such proceeding is not dismissed within sixty (60) days from
      the
      date on which it is filed or instituted. 

     

    10.
      Rights
      and Remedies of Secured Party on Default.
      Upon
      the occurrence of any Event of Default, Secured Party shall have, by way of
      example and not of limitation, the following rights and remedies: 

     

    a.
      Secured Party may declare the Secured Obligations, or any of them, to be
      immediately due and payable without presentment, demand, protest or notice
      of
      any kind, all of which are hereby expressly waived; 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    b.
      In
      addition to all other rights and remedies contained in this Agreement, the
      Loan
      Agreement, and in the Loan Documents, Secured Party may exercise the rights
      and
      remedies accorded Secured Party by the Uniform Commercial Code or by any other
      applicable law, all of which rights and remedies shall be cumulative and
      non-exclusive to the extent permitted by law; 

     

    c.
      Secured Party shall have the right to enter and/or remain upon the Premises
      of
      Debtor, or any other place or places where any of the Collateral is located
      and
      kept, without any obligation to pay rent to Debtor or others, and remove
      Collateral therefrom to the premises of the Secured Party or any agent of
      Secured Party for such time as Secured Party may desire in order to maintain,
      collect, sell and/or prepare the Collateral for sale, liquidation or collection;
      

     

    d.
      Secured Party may require the Debtor at Debtor’s cost to assemble the Collateral
      and make it available to Secured Party at a place designated by Secured Party;
      

     

    e.
      Secured Party may take possession of and use and operate the Collateral in
      the
      manner and for the purposes as set forth in Section 11 hereinbelow;

     

    f.
      Secured Party may sell, lease or otherwise dispose of the Collateral as set
      forth in Section 12 hereinbelow; 

     

    g.
      Secured Party shall have the right to set-off, without notice to the Debtor,
      any
      and all deposits or other sums at any time or times credited or due from Secured
      Party to Debtor, whether in a special account or other account or represented
      by
      a certificate of deposit (whether or not matured); which deposit and other
      sums
      shall, at all times, constitute additional security for the Secured Obligations;
      

     

    h.
      Secured Party may perform any warranty, covenant or agreement which Debtor
      has
      failed to perform under this Agreement; and 

     

    i.
      Secured Party may take any other action that Secured Party deems necessary
      or
      desirable to protect the Collateral or the security interests granted herein.
      

     

    11.
      Rights
      of Secured Party to Use and Operate Collateral.
      Upon
      the occurrence of any Event of Default, but subject to the provisions of the
      Uniform Commercial Code or other applicable law, the Secured Party shall have
      the right and power to take possession of all or any part of the Collateral,
      and
      to exclude the Debtor and all persons claiming under the Debtor wholly or partly
      therefrom, and thereafter to hold, store and/or use, operate, manage and control
      the same. Upon any such taking of possession, the Secured Party may, from time
      to time, at the expense of the Debtor, make all such repairs, replacements,
      alterations, additions and improvements to and of the Collateral as the Secured
      Party may reasonably deem proper. In any such case, subject as aforesaid, the
      Secured Party shall have the right to manage and control the Collateral and
      to
      carry on the business and to exercise all rights and powers of the Debtor in
      respect thereto as the Secured Party shall deem best, including the right to
      enter into any and all such agreements with respect to the leasing and/or
      operation of the Collateral or any part thereof as the Secured Party may see
      fit; and the Secured Party shall be entitled to collect and receive all rents,
      issues, profits, fees, revenues and other income of the same and every part
      thereof. Such rents, issues, profits, fees, revenues and 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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    other
      income shall be applied to pay the expenses of holding and operating the
      Collateral and of conducting the business thereof and of all maintenance,
      repairs, replacements, alterations, additions and improvements and to make
      all
      payments which the Secured Party may be required or may elect to make, if any,
      for taxes, assessments, insurance and other charges upon the Collateral or
      any
      part thereof and all other payments which the Secured Party may be required
      or
      authorized to make under any provision of this Agreement (including reasonable
      legal costs and attorneys’ fees). The remainder of such rents, issues, profits,
      fees, revenues and other income shall be applied to the payment of the Secured
      Obligations in such order of priority as the Secured Party shall determine
      and
      any surplus shall be returned to the Debtor. Without limiting the generality
      of
      the foregoing, the Secured Party shall have the right to apply for and have
      a
      receiver appointed by a court of competent jurisdiction in any action taken
      by
      the Secured Party to enforce its rights and remedies hereunder in order to
      manage, protect and preserve the Collateral and continue the operation of the
      business of the Debtor and to collect all revenues and profits thereof and
      apply
      the same to the payment of all expenses and other charges of such receivership
      including the compensation of the receiver and to the payment of the Secured
      Obligations as aforesaid until a sale or other disposition of such Collateral
      shall be finally made and consummated. 

     

    12.
      Rights
      of Secured Party to Sell Collateral.
      Upon
      ten (10) days prior written notice by registered or certified mail by Secured
      Party to Debtor at the address of the Debtor set forth above (or at such other
      address or addresses as the Debtor shall specify in writing by like notice
      to
      the Secured Party) of the time and place of any intended disposition of
      Collateral, then Secured Party shall have the right and power to sell, assign,
      lease or otherwise dispose of the Collateral from any business premises of
      the
      Debtor, either at public auction or private sale, by liquidation sale or other
      disposition, or as if the sale was being made in the ordinary course of Debtor’s
      business, with or without notice to the public that the said sale or disposition
      is for the benefit of the Secured Party; provided, however, that if the
      Collateral is perishable or threatens to decline speedily in value or is of
      a
      type customarily sold on a recognized market, then Secured Party shall have
      the
      right and power to dispose of the Collateral without prior notice to Debtor
      and
      Debtor expressly waives any rights to notice under such circumstances. The
      notices described above shall be deemed to meet any requirement hereunder or
      under any applicable law (including the Uniform Commercial Code) that reasonable
      notification be given of the time and place of such sale or other disposition.
      After deducting all costs and expenses of collection, storage, custody, sale
      or
      other disposition and delivery (including reasonable legal costs and attorneys’
fees) and all other charges against the Collateral, the residue of the proceeds
      of any such sale or disposition shall be applied to the payment of the Secured
      Obligations in such order of priority as the Secured Party shall determine
      and
      any surplus shall be returned to the Debtor. In the event the proceeds of any
      sale, lease or other disposition of the Collateral hereunder are insufficient
      to
      pay all of the Secured Obligations in full, the Debtor will be liable for the
      deficiency, together with interest thereon at the maximum rate provided in
      the
      Loan Agreement and the cost and expenses of collection of such deficiency,
      including, without limitation, reasonable fees of attorneys, experts and agents,
      expenses and disbursements. 

     

    13.
      Attorney-in-Fact.
      The
      Secured Party is hereby appointed the attorney-in-fact, with full power of
      substitution, of the Debtor for the purpose of carrying out the provisions
      of
      this Agreement and taking any action and executing any instruments (including,
      without limitation, financing or continuation statements, conveyances,
      assignments and transfers) which the Secured 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Page
      10

     

    Party
      may
      deem necessary or advisable to accomplish the purposes hereof, which appointment
      as attorney-in-fact is coupled with an interest and is irrevocable. The Debtor
      shall indemnify and hold harmless the Secured Party from and against any
      liability or damage that it may incur in the exercise and performance, in good
      faith, of the Secured Party’s powers and duties as such attorney-in-fact.

     

    14.
      Waiver,
      etc.
      The
      Debtor hereby waives presentment, demand, notice, protest and, except as is
      otherwise provided herein, all other demands and notices in connection with
      this
      Agreement or the enforcement of the Secured Party’s rights hereunder or in
      connection with any Secured Obligations or any Collateral. The Debtor further
      consents to and waives notice of the granting of renewals, extensions of time
      for payment or other indulgences to the Debtor or to any account debtor in
      respect of any Receivable, substitution, release or surrender of any Collateral,
      addition or release of persons primarily or secondarily liable on any Secured
      Obligation or on any Receivable or other Collateral, or the acceptance of
      partial payments on any Secured Obligation or on any account receivable or
      other
      Collateral and/or the settlement or compromise thereof. No delay or omission
      on
      the part of the Secured Party in exercising any right hereunder shall operate
      as
      a waiver of such right or of any other right hereunder. Any waiver of any such
      right on any one occasion shall not be construed as a bar to or waiver of any
      such right on any such future occasion. 

     

    15.
      Termination;
      Assignments, etc.
      This
      Agreement and the security interest in the Collateral created hereby shall
      terminate when all of the Secured Obligations have been paid, performed and
      finally discharged in full. In the event of a sale or assignment by the Secured
      Party of all or any of the Secured Obligations held by it, such Secured Party
      may assign or transfer its rights and interests under this Agreement in whole
      or
      in part to the purchaser or purchasers of such Secured Obligations, whereupon
      such purchaser or purchasers shall become vested with all of the powers and
      rights of such Secured Party hereunder, and such Secured Party shall thereafter
      be forever released and fully discharged from any liability or responsibility
      hereunder, with respect to the rights and interests so assigned. 

     

    16.
      Notices.
      All
      notices, requests, demands and other communications provided for hereunder
      shall
      be in writing (including telegraphic communication) and shall be either mailed
      by certified mail, return receipt requested, or delivered by overnight courier
      service to the applicable party at the following addresses: 

     

    
      	 	 	 
	
              If to the Debtor:

            	
                

            	
              VeriChip
                Corporation

            
	
               

            	
                

            	
              1690
                South Congress Avenue, Suite 200

            
	
               

            	
                

            	
              Delray
                Beach, Florida 33445

            
	 	 
	
              If to the Secured Party:

            	
                

            	
              Applied
                Digital Solutions, Inc.

            
	
               

            	
                

            	
              1690
                South Congress Avenue, Suite 200

            
	
               

            	
                

            	
              Delray
                Beach, Florida 33445

            
	 	 
	
              with
                a copy to:

            	
                

            	
              Patricia
                K. Mellor, Esquire

            
	
               

            	
                

            	
              Merra,
                Kanakis, Creme & Mellor, PC

            
	
               

            	
                

            	
              60
                Main Street

            
	
               

            	
                

            	
              Nashua,
                New Hampshire 03060

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Page
      11

     

    or,
      as to
      each party, at such other address as shall be designated by such parties in
      a
      written notice to the other party complying as to delivery with the terms of
      this Section. All such notices, requests, demands and other communication shall
      be effective on the date of first attempted delivery. 

     

    17.
      Miscellaneous.
      

     

    a.
      The
      powers conferred on the Secured Party hereunder are solely to protect its
      interest in the Collateral and shall not impose any duty upon it to exercise
      any
      such powers. Except for the safe custody of any Collateral in its possession
      and
      the accounting for monies actually received by it hereunder, the Secured Party
      shall not have any duty as to any Collateral or as to the taking of any
      necessary steps to parties pertaining to any Collateral; 

     

    b.
      No
      provision hereof shall be amended except by a writing signed by the Secured
      Party and the Debtor; 

     

    c.
      Any
      provision of this Agreement that is prohibited or unenforceable shall be
      ineffective to the extent of such prohibition or unenforceability without
      invalidating the remaining provisions hereof; 

     

    d.
      This
      Agreement shall be binding upon and shall inure to the benefit of the successors
      and assigns of the Secured Party and the Debtor; 

     

    e.
      No
      delay, failure to enforce, or single or partial exercise on the part of the
      Secured Party in connection with any of its rights hereunder shall constitute
      an
      estoppel or waiver thereof, or preclude other or further exercises or
      enforcement thereof and no waiver of any default hereunder shall be a waiver
      of
      any subsequent default; and 

     

    f.
      This
      Agreement shall be governed as to its validity, interpretation and effect in
      accordance with the laws of the State of New Hampshire. 

     

    IN
      WITNESS WHEREOF, the undersigned have set their hands and seals to this
      Agreement all as of the day and year first above written. 

     

    
      	 	 	 	 	 
	
               

            	
                

            	
              VeriChip
                Corporation

            
	 	 	 
	
              /s/
                Brian
                Murphy                                       
                

            	
                

            	
              By:

            	
               

            	
              /s/
                Kevin
                McLaughlin                                           
                

            
	
              Witness

            	
                

            	
              Name:

            	
               

            	
              Kevin
                McLaughlin

            
	
               

            	
                

            	
              Title:

            	
               

            	
              Chief
                Executive Officer

            
	 	 
	
               

            	
                

            	
              Applied
                Digital Solutions, Inc.

            
	 	 	 
	
              
                /s/
                  Brian
                  Murphy                                    
                      

              

            	
                

            	
              By:

            	
               

            	
              /s/
                Evan
                McKeown                                               
                

            
	
              Witness

            	
                

            	
              Name:

            	
               

            	
              Evan
                McKeown

            
	
               

            	
                

            	
              Title:

            	
               

            	
              Chief
                Financial Officer

              Senior
                Vice PresidentExhibit 10.4

    
      

    

    Exhibit
      10.4 

     

    REVOLVING
      LINE OF CREDIT NOTE 

    WORKING
      CAPITAL 

     

    
      	 	 	 
	
              $8,500,000.00
                U.S.

            	
               

            	
              December 27, 2005

            

    

     

    FOR
      VALUE
      RECEIVED, the undersigned, VeriChip Corporation, a Delaware corporation with
      a
      principal place of business at 1690 South Congress Avenue, Suite 200, Delray
      Beach, Florida 33445 (the “Borrower”), hereby promises to pay to the order of
      Applied Digital Solutions, Inc., a Missouri corporation located at 1690 South
      Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Lender”), at such
      address, or such other place or places as the holder hereof may designate in
      writing from time to time hereafter, the maximum principal sum of Eight Million
      Five Hundred Thousand Dollars ($8,500,000.00), or, if less, so much thereof
      as
      may be advanced or readvanced by the Lender to the Borrower pursuant to the
      terms of the Loan Agreement (as hereinafter defined), together with interest
      as
      provided for hereinbelow, in lawful money of the United States of America.
      

     

    Interest
      shall be calculated and charged daily on the basis of actual days elapsed over
      a
      three hundred sixty (360) day banking year, on the unpaid principal balance
      outstanding from time to time at a variable rate equal to the Prime Rate of
      interest (the “Prime Rate”), expressed as a percentage as it exists from time to
      time. The Prime Rate means the highest Prime Rate of interest as published
      in
      the Wall Street Journal from time to time. 

     

    The
      Borrower shall make a balloon payment of principal, interest and any fees or
      expenses outstanding on December 27, 2010 (the “Maturity Date”) unless a
      change of ownership or management occurs, as defined in Section IX. C. of the
      Loan Agreement as defined below, or an initial public offering of the Borrower’s
      common stock is consummated, in which case the Borrower shall, within two
      business days of such event, repay in full all principal, interest and any
      fees
      or expenses outstanding hereunder. 

     

    The
      Note
      is issued under, and is subject to, the Commercial Loan Agreement of even date
      between the Borrower and the Lender, as it may be amended from time to time
      (the
“Loan Agreement”). The holder of this Note is entitled to all of the benefits
      and rights of the Lender under the Loan Agreement. However, neither this
      reference to the Loan Agreement nor any provision thereof shall impair the
      absolute and unconditional obligation of the undersigned to pay the principal
      and interest on this Note as herein provided. Any capitalized term used in
      this
      Note that is not otherwise expressly defined herein shall have the meaning
      ascribed thereto in the Loan Agreement. 

     

    The
      holder may impose upon the undersigned a delinquency charge of $35.00 or five
      percent (5.00%) of the amount of the principal and/or interest payment not
      paid on or before the thirtieth (30th) day after such installment is due,
      whichever is greater. The entire principal balance hereof, together with accrued
      interest, shall after maturity, whether by demand, acceleration or otherwise,
      bear interest at the contract rate of this Note plus an additional three percent
      (3.00%) per annum. Upon default by Borrower under the terms of this Note or
      any other Loan Documents, interest shall accrue at a variable rate equal to
      the
      contract rate of this Note plus three percent (3.00%). 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Page
      2

     

    The
      undersigned agrees to pay on demand all reasonable out-of-pocket costs of
      collection hereof, including court costs, service fees, and reasonable
      attorney’s fees, whether or not any foreclosure or other action is instituted by
      the holder in its discretion. 

     

    The
      word
“holder”, as used in this Note, shall mean the payee or endorsee of this Note
      who is in possession of it, or the bearer, if this Note is at that time payable
      to the bearer. 

     

    The
      indebtedness evidenced by this Note is secured by the Loan Documents as defined
      in the Loan Agreement. Any default by the undersigned under the Loan Documents
      shall constitute a default under this Note entitling the holder to declare
      the
      entire principal amount of the indebtedness evidenced hereby, together with
      all
      accrued interest thereon, immediately due and payable. 

     

    No
      delay
      or omission on the part of the holder in exercising any right, privilege or
      remedy shall impair such right, privilege or remedy or be construed as a waiver
      thereof or of any other right, privilege or remedy. No waiver of any right,
      privilege or remedy or any amendment to this Note shall be effective unless
      made
      in writing and signed by the holder. Under no circumstances shall an effective
      waiver of any right, privilege or remedy on any one occasion constitute or
      be
      construed as a bar to the exercise of or a waiver of such right, privilege
      or
      remedy on any future occasion. The acceptance by the holder hereof of any
      payment after any default hereunder shall not operate to extend the time of
      payment of any amount then remaining unpaid hereunder or constitute a waiver
      of
      any rights of the holder hereof under this Note. 

     

    All
      rights and remedies of the holder, whether granted herein or otherwise, shall
      be
      cumulative and may be exercised singularly or concurrently, and the holder
      shall
      have, in addition to all other rights and remedies, the rights and remedies
      of a
      secured party under the Uniform Commercial Code of New Hampshire. The holder
      shall have no duty as to the collection or protection of the Collateral or
      of
      any income thereon, or as to the preservation of any rights pertaining thereto
      beyond the safe custody thereof. Surrender of this Note, upon payment or
      otherwise, shall not affect the right of the holder to retain the Collateral
      as
      security for the payment and performance of any other liability of the
      undersigned to the holder. 

     

    Every
      maker, endorser, or guarantor of this Note, or the obligations represented
      by
      this Note, waives all exemption rights, valuation and appraisement, presentment,
      protest and demand, demand for payment, notice of dishonor and protest and
      all
      other demands and notices in connection with the delivery, acceptance,
      performance, default or enforcement of this Note, and assents to any extension
      or postponement of the time of payment or any other indulgence, to any
      substitution, exchange or release of Collateral, and/or to the addition or
      release of any other party or person primarily or secondarily liable.

     

    This
      Note
      may be prepaid in whole or in part without penalty. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Page
      3

     

    This
      Note
      and the provisions hereof shall be binding upon the undersigned and the
      undersigned’s heirs, administrators, executors, successors, legal
      representatives and assigns and shall inure to the benefit of the holder, the
      holder’s heirs, administrators, executors, successors, legal representatives and
      assigns. 

     

    This
      Note
      may not be amended, changed or modified in any respect except by a written
      document that has been executed by each party. This Note constitutes a New
      Hampshire sealed instrument and contract to be governed by the laws of such
      state and to be paid and performed therein. 

     

    
      	 	 	 	 	 
	
              IN
                THE PRESENCE OF:

            	
               

            	
               

            
	 	 
	
               

            	
               

            	
              VeriChip
                Corporation

            
	 	 	 
	
              /s/
                Keevin
                Vanloo                                                   
                

            	
               

            	
              By:

            	
               

            	
              /s/
                Nurez
                Khimji                                                            
                

            
	
               

            	
               

            	
              Name:

            	
               

            	
              Nurez
                Khimji

            
	
               

            	
               

            	
              Title:

            	
               

            	
              Chief
                Financial Officer

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