Document:

Filed by Bowne Pure Compliance

 

Exhibit 10.3

MASTER SECURITY AGREEMENT

			
	To:	 	LV Administrative Services, Inc., as Agent

c/o Valens Capital Management, LLC

335 Madison Avenue, 10th Floor

New York, NY 10017

Date: February 29, 2008

To Whom It May Concern:

1. To secure the payment of all Obligations (as hereafter defined), VERICHIP CORPORATION, a
Delaware corporation (“CHIP”), XMARK CORPORATION, a Canada corporation (“MARK” and
together with CHIP, each a “Company” and collectively the “Companies”), and each
other entity (other than the Agent (as defined below)) that is required to enter into this Master
Security Agreement (each an “Assignor” and, collectively, the “Assignors”) hereby
assigns and grants to the Agent, for the ratable benefit of the Creditor Parties (as defined in the
Securities Purchase Agreement referred to below), a continuing security interest in all of the
following property now owned or at any time hereafter acquired by such Assignor, or in which such
Assignor now has or at any time in the future may acquire any right, title or interest (the
“Collateral”): all cash, cash equivalents, accounts, accounts receivable, deposit accounts
(including, without limitation, the Lockbox Deposit Accounts (as hereafter defined), inventory,
equipment, goods, fixtures, documents, instruments (including, without limitation, promissory
notes), contract rights, commercial tort claims set forth on Schedule B attached hereto,
general intangibles (including, without limitation, payment intangibles and an absolute right to
license on terms no less favorable than those current in effect among such Assignor’s affiliates),
chattel paper, supporting obligations, investment property (including, without limitation, all
partnership interests, limited liability company membership interests and all other equity
interests owned by such Assignor), letter-of-credit rights, trademarks, trademark applications,
tradestyles, patents, patent applications, copyrights, copyright applications and other
intellectual property in which such Assignor now has or hereafter may acquire any right, title or
interest, all proceeds and products thereof (including, without limitation, proceeds of insurance)
and all additions, accessions and substitutions thereto or therefor. Except as otherwise defined
herein, all capitalized terms used herein shall have the meanings provided such terms in that
certain Securities Purchase Agreement dated as of the date hereof (as amended, restated, modified
and/or supplemented from time to time, the “Purchase Agreement”) by and among the
Companies, the Purchasers party thereto and LV Administrative Services, Inc., as administrative and
collateral agent for the Purchasers (the “Agent”).

 

 

 

All items of Collateral which are
defined in the UCC shall have the meanings set forth in the UCC. For purposes hereof, the term
“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in
the State of New York; provided, that in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of, or remedies with respect to, the Agent’s
security interest in any Collateral is governed by the Uniform Commercial Code (or comparable
statute (including, for certainty, the Personal Property Security Act (Ontario)) as in effect in a
jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform
Commercial Code (or comparable statute (including, for certainty, the
Personal Property Security Act (Ontario))as in effect in such other jurisdiction for purposes
of the provisions of this Agreement relating to such attachment, perfection, priority or remedies
and for purposes of definitions related to such provisions; provided further, that to the extent
that the UCC is used to define any term herein and such term is defined differently in different
Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9
shall govern. Notwithstanding the foregoing, the term “Collateral” shall not include the following
(“Excluded Collateral”): any rights or interests in any lease, license, contract, or
agreement, as such, if under the terms of such lease, license, contract or agreement, or applicable
law with respect thereto, the valid grant of a security interest or lien therein to the Agent is
prohibited or would result in a default thereunder and such prohibition or default has not been or
is not waived or the consent of the other party to such lease, license, contract or agreement has
not been or is not otherwise obtained or under applicable law such prohibition or default cannot be
waived; provided, that the foregoing exclusion shall in no way be (i) construed to apply if any
such prohibition or default would be rendered ineffective under the UCC or other applicable law
(including the United States Bankruptcy Code) or principles of equity, (ii) construed so as to
limit, impair or otherwise affect the Agent’s unconditional continuing security interests in and
liens upon any rights or interests of Assignors in or to the proceeds thereof, including monies due
or to become due under any such lease, license, contract or agreement (including any accounts), or
(iii) construed to apply at such time as the condition causing such prohibition or default shall be
remedied and, to the extent severable.

2. The term “Obligations” as used herein shall mean and include all debts, liabilities
and obligations owing by each Assignor to any Creditor Party arising under, out of, or in
connection with: (i) the Purchase Agreement and (ii) the Related Agreements (the Purchase Agreement
and the Related Agreements, as each may be amended, modified, restated or supplemented from time to
time, collectively, the “Documents”), and in connection with any documents, instruments or
agreements relating to or executed in connection with the Documents or any documents, instruments
or agreements referred to therein or otherwise, and in connection with any other indebtedness,
obligations or liabilities of each such Assignor to any Creditor Party, whether now existing or
hereafter arising, direct or indirect, liquidated or unliquidated, absolute or contingent, due or
not due and whether under, pursuant to or evidenced by a note, agreement, guaranty, instrument or
otherwise, including, without limitation, obligations and liabilities of each Assignor for
post-petition interest, fees, costs and charges that accrue after the commencement of any case by
or against such Assignor under any bankruptcy, insolvency, reorganization or like proceeding
(collectively, the “Debtor Relief Laws”) in each case, irrespective of the genuineness,
validity, regularity or enforceability of such Obligations, or of any instrument evidencing any of
the Obligations or of any collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of the Obligations in any
case commenced by or against any Assignor under any Debtor Relief Law. Notwithstanding anything to
the contrary contained herein, upon payment of the Obligations under the Note in full in
immediately available funds, this Agreement shall automatically terminate and be without further
force or effect (except for Assignors’ obligations under paragraph 12 of this Master Security
Agreement which shall survive the termination of this Master Security Agreement); provided,
however, that such indemnity obligations shall not be greater than the indemnity obligations of
Assignors under the Purchase Agreement).

 

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3. Except as set forth in any disclosure schedules to the Purchase Agreement or in the
Exchange Act Filings with respect to those representations and warranties set forth below that have
parallel representations and warranties set forth in the Purchase Agreement which permit exceptions
as set forth in any disclosure schedules to the Purchase Agreement and/or the Exchange Act Filings,
each Assignor hereby jointly and severally represents, warrants and covenants, as applicable, to
Agent, for the benefit of the Creditor Parties, that:

	 	(a)	 	it is a corporation, partnership or limited liability company,
as the case may be, validly existing, in good standing and formed under the
respective laws of its jurisdiction of formation set forth on Schedule
A, and each Assignor will provide the Agent thirty (30) days’ prior written
notice of any change in any of its respective jurisdiction of formation;

	 
	 	(b)	 	its legal name is as set forth in its Certificate/Articles of
Incorporation or other organizational document (as applicable) as amended
through the date hereof and as set forth on Schedule A attached hereto,
and it will provide the Agent thirty (30) days’ prior written notice of any
change in its legal name;

	 
	 	(c)	 	its organizational identification number (if applicable) is as
set forth on Schedule A hereto, and it will provide the Agent thirty
(30) days’ prior written notice of any change in its organizational
identification number;

	 
	 	(d)	 	it is the lawful owner of its Collateral and it has the sole
right to grant a security interest therein and will defend the Collateral
against all claims and demands of all persons and entities;

	 
	 	(e)	 	it will keep its Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind and
nature except Permitted Encumbrances;

	 
	 	(f)	 	it will, at its and the other Assignors’ joint and several cost
and expense, keep the Collateral in good state of repair (ordinary wear and
tear excepted) and will not waste or destroy the same or any part thereof other
than ordinary course discarding of items no longer used or useful in its or
such other Assignors’ business;

	 
	 	(g)	 	it will not, without the Agent’s prior written consent, sell,
exchange, lease or otherwise dispose of any Collateral, whether by sale, lease
or otherwise, (unless the proceeds of such sale, exchange, lease or disposal
shall be used to repay then outstanding Obligations), except for

	 	(i)	 	the payment of trade payables and other working
capital expenses in the ordinary course of business;

	 
	 	(ii)	 	the sale of inventory in the ordinary course of
business;

 

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	 	(iii)	 	the disposition or transfer in the ordinary
course of business during any fiscal year of obsolete and worn-out
equipment or equipment no longer necessary for its ongoing needs,
having an aggregate fair market value of not more than U.S. $100,000
(or the Canadian dollar equivalent) and only to the extent that the
proceeds of each such disposition are used to acquire replacement
Collateral which is subject to the Agent’s first priority perfected
security interest, to repay then outstanding Obligations or to pay
general corporate expenses; or following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to
the Agent to be held as cash collateral for the Obligations;

	 
	 	(iv)	 	the licensing, on a non-exclusive basis, of any
intellectual property;

	 
	 	(v)	 	arms-length transfers of assets between the
Companies; or

	 
	 	(vi)	 	any other disposition of assets permitted by
the Purchase Agreement.

	 	(h)	 	(i) it will insure or cause the Collateral to be insured in the
Agent’s name against loss or damage by fire, flood, sprinkler leakage, theft,
burglary, pilferage, loss in transit and other risks customarily insured
against by companies in similar business similarly situated as such Assignor
and such other hazards in amounts and under insurance policies and bonds by
insurers consistent with current practice and reasonably acceptable to the
Agent. All premiums thereon shall be paid by such Assignor, the policies shall
be delivered to the Agent if requested by the Agent and each such policy shall
be endorsed in the Agent’s name as an additional insured and lender loss
payee, with an appropriate loss payable endorsement by each Assignor in form
and substance satisfactory to the Agent. If any Assignor fails to obtain the
insurance and in such amounts of coverage as otherwise required pursuant to
this clause (h), the Agent may procure such insurance and the cost thereof
shall be promptly reimbursed by the Assignor, jointly and severally, and shall
constitute Obligations.;

	 	(ii)	 	it will expressly agree that if additional loss
payees and/or lender loss payees, other than the Agent, are named to
the Collateral, the Agent will always be assigned to first lien
position until all Obligations have been satisfied;

	 	(i)	 	it will permit any representatives designated by the Agent (or
any successor of the Agent), upon reasonable notice and during normal business
hours, at such person’s expense and accompanied by a representative of such
Assignor (provided that no such prior notice shall be required to be given and
no such representative of such Assignor shall
be required to accompany the Agent in the event the Agent reasonably
believes such access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an Event of Default
(as defined in each Note)), to visit and inspect any of the properties of
such Assignor;

 

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	 	(j)	 	such Assignor (jointly and severally with each other Assignor)
hereby indemnifies and saves the Agent and each other Creditor Party harmless
from all loss, costs, damage, liability and/or expense, including reasonable
attorneys’ fees, that the Agent and each other Creditor Party may sustain or
incur to enforce payment, performance or fulfillment of any of the Obligations
and/or in the enforcement of this Master Security Agreement or in the
prosecution or defense of any action or proceeding either against the Agent,
any other Creditor Party or any Assignor concerning any matter growing out of
or in connection with this Master Security Agreement, and/or any of the
Obligations and/or any of the Collateral except to the extent caused by the
Agent’s or any Creditor Party’s own gross negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final and non-appealable
decision);

	 
	 	(k)	 	all commercial tort claims (as defined in the Uniform
Commercial Code as in effect in the State of New York) held by any Assignor
are set forth on Schedule B to this Master Security Agreement; each Assignor
hereby agrees that it shall promptly, and in any event within five (5) Business
Days after the same is acquired by it, notify the Agent of any commercial tort
claim acquired by it and unless otherwise consented to in writing by the Agent,
it shall enter into a supplement to this Master Security Agreement granting to
the Agent a security interest for the ratable benefit of the Creditor Parties
in such commercial tort claim, securing the Obligations; and

	 
	 	(l)	 	all invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of any
Account of any Assignor or any other amount constituting Collateral shall
conspicuously direct that all payments be made to the lockboxes maintained by
such Assignor (the “Lockboxes”) with Citibank, N.A., Royal Bank of
Canada or such other financial institution accepted by the Agent in writing as
may be selected by such Assignor (the “Lockbox Bank”) or such other
address as the Agent may direct in writing. The Lockbox Bank shall agree to
deposit the proceeds of such payments immediately upon receipt thereof in that
certain deposit account maintained at the Lockbox Bank by the applicable
Assignor or such other deposit account accepted by the Agent in writing (the
“Lockbox Deposit Account”).

 

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	 	 	 	On or prior to the Closing Date, each
Assignor shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to the Agent pursuant to which, among other things,
the Lockbox Bank agrees to, following notification by the Agent (which
notification the
Agent shall only give following the occurrence and during the continuance of
an Event of Default), comply only with the instructions or other directions
of the Agent concerning the Lockbox and the Lockbox Deposit Account. If any
Assignor receives any payments, such Assignor shall immediately remit such
payments to the Lockbox Deposit Account in their original form with all
necessary endorsements. Until so remitted, the Assignors shall hold all
such payments in trust for and as the property of the Agent, for the ratable
benefit of the Creditor Parties, and shall not commingle such payments with
any of its other funds or property.

4. The occurrence of either of the following events shall constitute an event of default under
this Master Security Agreement (each, an “Event of Default”): (a) (i) the occurrence of an
Event of Default (as defined in each Note); or (b) any material portion of the Collateral shall be
damaged, destroyed or otherwise lost and such damage, destruction or loss is not covered by
insurance.

5. In case an Event of Default shall have occurred and is continuing, the Agent may (to the
extent permitted by and subject to any requirements of applicable law): (i) transfer any or all of
the Collateral into its name, or into the name of its nominee or nominees; (ii) exercise all
corporate rights with respect to the Collateral including, without limitation, all rights of
conversion, exchange, subscription or any other rights, privileges or options pertaining to any
shares of the Collateral as if it were the absolute owner thereof, including, but without
limitation, the right to exchange, at its discretion, any or all of the Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment of any Assignor thereof, or
upon the exercise by any Assignor of any right, privilege or option pertaining to any of the
Collateral, and, in connection therewith, to deposit and deliver any and all of the Collateral with
any committee, depository, transfer agent, registrar or other designated agent upon such terms and
conditions as it may determine, all without liability except to account for property actually
received by it; and (iii) sell, assign and deliver the whole or, from time to time, any part of the
Collateral at the time held by the Agent, at any private sale or at public auction, with or without
demand, advertisement or notice of the time or place of sale or adjournment thereof or otherwise
(all of which are hereby waived, except such notice as is required by applicable law and cannot be
waived), for cash or credit or for other property for immediate or future delivery, and for such
price or prices and on such terms as the Agent in its sole discretion may determine, or as may be
required by applicable law. Each Assignor hereby waives and releases any and all right or equity of
redemption, whether after sale hereunder. At any such sale, unless prohibited by applicable law,
the Agent may bid for and purchase the whole or any part of the Collateral so sold free from any
such right or equity of redemption. All moneys received by Agent hereunder, whether upon sale of
the Collateral or any part thereof or otherwise, shall be held by Agent and applied by it in
repayment of the Obligations as set forth herein. No failure or delay on the part of the Agent in
exercising any rights hereunder shall operate as a waiver of any such rights nor shall any single
or partial exercise of any such rights preclude any other or future exercise thereof or the
exercise of any other rights hereunder. The Agent shall have no duty as to the collection or
protection of the Collateral or any income thereon nor any duty as to preservation of any rights
pertaining thereto, except to apply the funds in accordance with the requirements of Section
10 hereof. Except as required by, and unwaiveable under, the UCC, the Agent may exercise its
rights with respect to property held hereunder without resort to other security for or sources of
reimbursement for the Obligations. In addition to the foregoing, the Agent shall have all of
the rights, remedies and privileges of a secured party under the Uniform Commercial Code of New
York (the “UCC”) regardless of the jurisdiction in which enforcement hereof is sought.

 

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Notwithstanding anything else herein to the contrary, in the event that any Assignor enters
into a Control Agreement with Agent and a third party holding an account of such Assignor, then
Agent agrees as follows:

	 	(i)	 	the Agent shall not deliver a notice (a
“Notice”) to such third party asserting the right to direct the
disposition of funds contained in such account unless an Event of
Default has occurred and is continuing or as otherwise permitted by the
Documents; and

	 
	 	(ii)	 	in the event Agent delivers a Notice to the
third party in contravention hereof, Agent will promptly notify the
third party that the Notice is terminated and Agent shall not have the
right to send an additional Notice except as provided in Section (i)
above.

For purposes of the foregoing, Control Agreement shall mean an agreement entered into among a
debtor, secured party and third party pursuant in which the intent is, in part, to evidence the
control of the secured party for purposes of perfecting its security interest in the account
subject to such Control Agreement under Article 9 of the UCC.

6. Upon the occurrence of and during the continuance of any Event of Default and to the extent
permitted by and subject to any requirements of applicable law, the Agent may appoint or reappoint
by instrument in writing, any person or persons, whether an officer or officers or an employee or
employees of any Creditor Party or not, to be an interim receiver, receiver or receivers
(hereinafter called a “Receiver”, which term when used herein shall include a receiver and
manager) of any Collateral of any Assignor (including any interest, income or profits therefrom)
and may remove any Receiver so appointed and appoint another in his/her/its stead. Any such
Receiver shall, so far as concerns responsibility for his/her/its acts, be deemed the agent of the
relevant Assignor and not the Agent, and the Agent shall not be in any way responsible for any
misconduct, negligence or non-feasance on the part of any such Receiver or his/her/its servants,
agents or employees. Subject to the provisions of the instrument appointing him/her/it and to the
extent permitted by and subject to any requirements of applicable law, any such Receiver shall have
power to take possession of Collateral, to preserve Collateral or its value, to carry on or concur
in carrying on all or any part of the business of the relevant Assignor and to sell, lease, license
or otherwise dispose of or concur in selling, leasing, licensing or otherwise disposing of
Collateral. To facilitate the foregoing powers, any such Receiver may, to the exclusion of all
others, including the Assignors, enter upon, use and occupy all premises owned or occupied by the
relevant Assignor wherein Collateral may be situate, maintain Collateral upon such premises, borrow
money on a secured or unsecured basis and use Collateral directly in carrying on the relevant
Assignor’s business or as security for loans or advances to enable the Receiver to carry on the
relevant Assignor’s business or otherwise, as such Receiver shall, in its discretion, determine.
Except as may be otherwise directed by the Agent, and subject to applicable law, all money received
from time to time by such Receiver in carrying out his/her/its appointment shall be received in
trust for and be paid over to the Agent. Every such
Receiver may, in the discretion of the Agent, be vested with all or any of the rights and
powers of the Agent.

 

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7. Upon and during the continuance of any Event of Default, the Agent may, either directly or
through its agents or nominees, exercise any or all of the powers and rights given to a Receiver by
virtue of Section 6.

8. If any Assignor defaults in the performance or fulfillment of any of the terms, conditions,
promises, covenants, provisions or warranties on such Assignor’s part to be performed or fulfilled
under or pursuant to this Master Security Agreement, the Agent may, at its option without waiving
its right to enforce this Master Security Agreement according to its terms, immediately or at any
time thereafter and without notice to any Assignor, perform or fulfill the same or cause the
performance or fulfillment of the same for each Assignor’s joint and several account and at each
Assignor’s joint and several cost and expense, and the cost and expense thereof (including
reasonable attorneys’ fees) shall be added to the Obligations and shall be payable on demand with
interest thereon at the highest rate set forth in the Notes, or, at the Agent’s option, debited by
the Agent from any other deposit accounts in the name of any Assignor and controlled by the Agent.

9. Each Assignor hereby appoints the Agent, or any other Person whom the Agent may designate
as such Assignor’s attorney, with power to: (a)(i) execute any security related documentation on
such Assignor’s behalf and to supply any omitted information and correct patent errors in any
documents executed by such Assignor or on such Assignor’s behalf; (ii) to sign such Assignor’s name
on and file any financing statements or other public record against such Assignor covering the
Collateral (and, in connection with the filing of any such financing statements, describe the
Collateral as “all assets and all personal property, whether now owned and/or hereafter acquired”
(or any substantially similar variation thereof)); and (iii) to do all other things the Agent deems
necessary to reasonably carry out the terms of Section 1 of this Master Security Agreement,
any other Related Agreement and all other related documents and (b) upon the occurrence and during
the continuance of an Event of Default; (i) endorse such Assignor’s name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may come into the
Agent’s possession; (ii) sign such Assignor’s name on any invoice or bill of lading relating to any
accounts receivable, drafts against account debtors, schedules and assignments of accounts
receivable, notices of assignment, verifications of accounts receivable and notices to or from
account debtors; (iii) verify the validity, amount or any other matter relating to any accounts
receivable by mail, telephone, telegraph or otherwise with account debtors; and (iv) notify the
post office authorities to change the address for delivery of such Assignor’s mail to an address
designated by the Agent, and to receive, open and dispose of all mail addressed to such Assignor.
Each Assignor hereby ratifies and approves all acts of the attorney and neither the Agent nor the
attorney will be liable for any acts of commission or omission, nor for any error of judgment or
mistake of fact or law other than gross negligence or willful misconduct (as determined by a court
of competent jurisdiction in a final and non-appealable decision). This power being coupled with
an interest, is irrevocable so long as any Obligations remains unpaid.

 

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10. The proceeds of any collection, recovery, receipt, appropriation, realization, sale or
other disposition of the Collateral shall be applied by Agent as follows:

	 	(a)	 	First, to the payment of all costs, reasonable expenses and
charges of the Agent or any Receiver and to the reimbursement of the Agent or
any Receiver for the prior payment of such costs, reasonable expenses and
charges incurred in connection with the care and safekeeping of the Collateral
(including, without limitation, the reasonable expenses of any sale or any
other disposition of any of the Collateral), reasonable attorneys’ fees and
reasonable expenses, court costs, any other fees or expenses incurred or
expenditures or advances made by the Agent or any Receiver in the protection,
enforcement or exercise of its rights, powers or remedies hereunder;

	 
	 	(b)	 	Second, to the payment of the Obligations, in whole or in part,
in such order as the Agent may elect, whether or not such Obligations is then
due;

	 
	 	(c)	 	Third, to such persons, firms, corporations or other entities
as required by applicable law including, without limitation, Section
9-615(a)(3) of the UCC; and

	 
	 	(d)	 	Fourth, to the extent of any surplus, to the Assignors or as a
court of competent jurisdiction may direct.

In the event that the proceeds of any collection, recovery, receipt, appropriation,
realization or sale are insufficient to satisfy the Obligations, the Assignors shall be liable for
the deficiency plus the costs and reasonable fees of any attorneys employed by Agent to collect
such deficiency

11. No delay or failure on the Agent’s part in exercising any right, privilege or option
hereunder shall operate as a waiver of such or of any other right, privilege, remedy or option, and
no waiver whatever shall be valid unless in writing, signed by the Agent and then only to the
extent therein set forth, and no waiver by the Agent of any default shall operate as a waiver of
any other default or of the same default on a future occasion. The Creditor Parties’ books and
records containing entries with respect to the Obligations shall be admissible in evidence in any
action or proceeding. The Agent shall have the right to enforce any one or more of the remedies
available to the Agent, successively, alternately or concurrently. Each Assignor agrees to join
with the Agent in executing such documents or other instruments to the extent required by the UCC
in form satisfactory to the Agent and in executing such other documents or instruments as may be
required or deemed necessary by the Agent for purposes of affecting or continuing the Agent’s
security interest in the Collateral.

12. The Assignors shall jointly and severally pay all of the Agent’s and each other Creditor
Party’s reasonable charges, fees, out-of-pocket costs and expenses, including reasonable fees and
disbursements of in-house or outside counsel and appraisers (“Expenses”), in connection
with the preparation, execution and delivery of the Documents as set forth in the Purchase
Agreement, and Expenses in connection with the prosecution or defense of any action, contest,
dispute, suit or proceeding concerning any matter in any way arising out of, related to or
connected with any Document.

 

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The Assignors shall also jointly and severally pay all of the
Agent’s, any Receiver’s and each other Creditor Party’s Expenses, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment thereto or consent proposed
or executed in connection with the transactions contemplated by the Documents, (b) the Agent’s
obtaining performance of the Obligations under the Documents, including, but not limited to the
enforcement or defense of the Agent’s security interests, assignments of rights and liens hereunder
as valid perfected security interests, (c) any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any Collateral, (d) any appraisals or re appraisals of any
property (real or personal) pledged to the Agent by any Assignor as Collateral for, or any other
Person as security for, the Obligations hereunder and (e) any consultations in connection with any
of the foregoing. The Assignors shall also jointly and severally pay the Agent’s and each other
Creditor Party’s customary bank charges for all bank services (including wire transfers) performed
or caused to be performed by the Agent or any other Creditor Party for any Assignor at any
Assignor’s request or in connection with any Assignor’s loan account (if any) with the Agent or any
other Creditor Party. All such costs and expenses together with all filing, recording and search
fees, taxes and interest payable by the Assignors to the Agent shall be payable on demand and shall
be secured by the Collateral. If any tax by any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government (each, a
“Governmental Authority”) is or may be imposed on or as a result of any transaction between
any Assignor, on the one hand, and the Agent and/or any other Creditor Party on the other hand,
which the Agent and/or any other Creditor Party is or may be required to withhold or pay, the
Assignors hereby jointly and severally indemnify and hold the Agent and each other Creditor Party
harmless in respect of such taxes, and the Assignors will repay to the Agent or such other Creditor
Party the amount of any such taxes which shall be charged to the Assignors’ account; and until the
Assignors shall furnish the Agent and such other Creditor Party with indemnity therefor (or supply
the Agent and such other Creditor Party with evidence satisfactory to it that due provision for the
payment thereof has been made), the Creditor Parties may hold without interest any balance standing
to each Assignor’s credit (if any) and the Agent shall retain its liens in any and all Collateral.

13. THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. All of the rights, remedies,
options, privileges and elections given to the Agent hereunder shall inure to the benefit of the
Agent’s successors and assigns. The term “Agent” as herein used shall include the Agent,
any parent of the Agent’s, any of the Agent’s subsidiaries and any co-subsidiaries of the Agent’s
parent, whether now existing or hereafter created or acquired, and all of the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure to the benefit of each
of the foregoing, and shall bind the representatives, successors and assigns of each Assignor.

 

10

 

14. Each Assignor hereby consents and agrees that the state and federal courts located in the
County of New York, State of New York shall have exclusive jurisdiction to hear and determine any
claims or disputes between any Assignor, on the one hand, and the Agent and/or any other Creditor
Party, on the other hand, pertaining to this Master Security Agreement or to any matter arising out
of or related to this Master Security Agreement, provided, that the Agent, each other Creditor
Party and each Assignor acknowledges that any appeals from those courts
may have to be heard by a court located outside of the County of New York, State of New York,
and further provided, that nothing in this Master Security Agreement shall be deemed or operate to
preclude the Agent from bringing suit or taking other legal action in any other jurisdiction to
collect, the Obligations, to realize on the Collateral or any other security for the Obligations,
or to enforce a judgment or other court order in favor of the Agent. Each Assignor expressly
submits and consents in advance to such jurisdiction in any action or suit commenced in any such
court, and each Assignor hereby waives any objection which it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens. Each Assignor hereby
waives personal service of the summons, complaint and other process issues in any such action or
suit and agrees that service of such summons, complaint and other process may be made by registered
or certified mail addressed to such assignor at the address set forth on the signature lines hereto
and that service so made shall be deemed completed upon Assignor’s actual receipt thereof.

The parties desire that their disputes be resolved by a judge applying such applicable laws.
Therefore, to achieve the best combination of the benefits of the judicial system and of
arbitration, the parties hereto waive all rights to trial by jury in any action, suite, or
proceeding brought to resolve any dispute, whether arising in contract, tort, or otherwise between
the Agent and/or any other Creditor Party, and/or any Assignor arising out of, connected with,
related or incidental to the relationship established between them in connection with this Master
Security Agreement or the transactions related hereto.

15. This Master Security Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which shall constitute one instrument. Any signature
delivered by a party by facsimile or electronic transmission shall be deemed to be an original
signature hereto.

16. It is understood and agreed that any person or entity that desires to become an Assignor
hereunder, or is required to execute a counterpart of this Master Security Agreement after the date
hereof pursuant to the requirements of any Document, shall become an Assignor hereunder by (x)
executing a Joinder Agreement in form and substance satisfactory to the Agent, (y) delivering
supplements to such exhibits and annexes to such Documents as the Agent shall reasonably request
and (z) taking all actions as specified in this Master Security Agreement as would have been taken
by such Assignor had it been an original party to this Master Security Agreement, in each case with
all documents required above to be delivered to the Agent and with all documents and actions
required above to be taken to the reasonable satisfaction of the Agent.

 

11

 

17. All notices from the Agent to any Assignor shall be sufficiently given if mailed or
delivered to such Assignor’s address set forth below.

	 	 	 	 	 
	 	Very truly yours,

VERICHIP CORPORATION

 	 
	 	By:  	/s/ William J. Caragol
 	 
	 	 	Name:  	William J. Caragol 	 
	 	 	Title:  	President and Chief Financial Officer 	 

	 	 	 	 	 
	 	 	Address:

1690 South Congress Avenue, Suite 200

Delray Beach, FL 33445

Attention: William J. Caragol

Facsimile No.:561-805-8001
 	 

	 	 	 	 	 
	 	XMARK CORPORATION

 	 
	 	By:  	/s/ William J. Caragol
 	 
	 	 	Name:  	William J. Caragol 	 
	 	 	Title:  	Chief Financial Officer and Secretary 	 

	 	 	 	 	 
	 	 	Address:

1690 South Congress Avenue, Suite 200

Delray Beach, FL 33445

Attention: William J. Caragol

Facsimile No.:561-805-8001

 	 
	 	 	 
	 	 	 
	 	 	 
	 

AGREED AND ACKNOWLEDGED:

	 	 	 	 	 
	LV ADMINISTRATIVE SERVICES, INC.,

as Agent	 	 
	 
	 	 	 	 
	By:

	 	/s/ Scott Bluestein
 

Name: Scott Bluestein
	 	 
	 

	 	Title: Authorized Signatory	 	 

signature page to

master security agreement

 

 

 

SCHEDULE A

	 	 	 	 	 
	 	 	 	 	Organizational
	Entity	 	Jurisdiction of Formation	 	Identification Number
	 
	 	 	 	 
	VERICHIP CORPORATION
	 	Delaware	 	3414073
	 
	 	 	 	 
	XMARK CORPORATION
	 	Ontario	 	446052-9

 

 

 

SCHEDULE B

COMMERCIAL TORT CLAIMS

NONEFiled by Bowne Pure Compliance

 

Exhibit 10.4

STOCK PLEDGE AGREEMENT

This Stock Pledge Agreement (this “Agreement”), dated as of February 29, 2008, among
LV ADMINISTRATIVE SERVICES INC., as administrative and collateral agent for the Creditor Parties
(as defined below) (the “Pledgee”), VERICHIP CORPORATION, a Delaware corporation
(“VeriChip”), XMARK CORPORATION, a Canada corporation (“Xmark” together with
VeriChip, each a “Company” and collectively, the “Companies”), and each of the
other parties that become a party hereto pursuant to Section 16(h) (the Companies and each such
other undersigned party, a “Pledgor” and collectively, the “Pledgors”).

BACKGROUND

The Companies have entered into a Securities Purchase Agreement, dated as of the date hereof
(as amended, modified, restated or supplemented from time to time, the “Securities Purchase
Agreement”), pursuant to which the Creditor Parties (as defined in the Securities Purchase
Agreement) will provide certain financial accommodations to the Companies.

In order to induce the Creditor Parties to provide or continue to provide the financial
accommodations described in the Securities Purchase Agreement, each Pledgor has agreed to pledge
and grant a security interest in the collateral described herein to the Pledgee, for the ratable
benefit of the Creditor Parties, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration
the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms. All capitalized terms used herein which are not defined shall have
the meanings given to them in the Securities Purchase Agreement.

2. Pledge and Grant of Security Interest. To secure the full and punctual payment and
performance of (the following clauses (a) and (b), collectively, the “Obligations”) (a) all
obligations owing to Pledgee and the other Creditor Parties under the Securities Purchase Agreement
and the Related Agreements referred to in the Securities Purchase Agreement (the Securities
Purchase Agreement and the Related Agreements, as each may be amended, restated, modified and/or
supplemented from time to time, collectively, the “Documents”) and (b) all other
obligations and liabilities of each Pledgor to the Pledgee and the other Creditor Parties whether
now existing or hereafter arising, direct or indirect, liquidated or unliquidated, absolute or
contingent, due or not due and whether under, pursuant to or evidenced by a note, agreement,
guaranty, instrument or otherwise (in each case, irrespective of the genuineness, validity,
regularity or enforceability of such Obligations, or of any instrument evidencing any of the
Obligations or of any collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of such in any case
commenced by or against any Pledgor under Title 11, United States Code (or any comparable statute
of any other relevant jurisdiction), including, without limitation, obligations of each Pledgor for
post-petition interest, fees, costs and charges that would have accrued or been added to the
Obligations but for the commencement of such case), each Pledgor hereby pledges, assigns,
hypothecates, transfers and grants a security interest to the Pledgee, for the ratable
benefit of the Creditor Parties, in all of its right, title and interest in and to the
following (the “Collateral”):

 

 

 

(a) the shares of stock or other equity interests set forth on Schedule A annexed
hereto and expressly made a part hereof (together with any additional shares of stock or other
equity interests acquired by any Pledgor, the “Pledged Stock”), the certificates
representing the Pledged Stock and all dividends, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Stock;

(b) all additional shares of stock or other equity interests of any issuer (each, an
“Issuer”) of the Pledged Stock from time to time acquired by any Pledgor in any manner,
including, without limitation, stock dividends or a distribution in connection with any increase or
reduction of capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split, spin-off or split-off (which shares shall be deemed to be part of the
Collateral), and the certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares; and

(c) all options and rights, whether as an addition to, in substitution of or in exchange for
any shares of any Pledged Stock and all dividends, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or in exchange for
any or all such options and rights.

3. Delivery of Collateral. All certificates representing or evidencing the Pledged
Stock shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be
accompanied by duly executed instruments of transfer or assignments in blank, all in form and
substance satisfactory to the Pledgee. Each Pledgor hereby authorizes the Issuer upon demand by
the Pledgee to deliver any certificates, instruments or other distributions issued in connection
with the Collateral directly to the Pledgee, in each case to be held by the Pledgee, subject to the
terms hereof. Upon the occurrence and during the continuance of an Event of Default (as defined
below) and to the extent permitted by applicable law, the Pledgee shall have the right, during such
time in its discretion and without notice to the Pledgor, to transfer to or to register in the name
of the Pledgee or any of its nominees any or all of the Pledged Stock. In addition, the Pledgee
shall have the right at such time to exchange certificates or instruments representing or
evidencing Pledged Stock for certificates or instruments of smaller or larger denominations.

4. Representations and Warranties of the Pledgors. Except as set forth in the
disclosure schedules to the Securities Purchase Agreement or in the Exchange Act Filings with
respect to those representations and warranties set forth below that have parallel representations
and warranties set forth in the Securities Purchase Agreement which permit exceptions as set forth
in the disclosure schedules and/or the Exchange Act Filings, each Pledgor represents and warrants
to the Pledgee that:

(a) the execution, delivery and performance by such Pledgor of this Agreement and the pledge
of the Collateral hereunder do not and will not result in any violation of any agreement,
indenture, instrument, license, judgment, decree, order, law, statute, ordinance
or other governmental rule or regulation applicable to such Pledgor which violation has or
could reasonably be expected to have, either individually or in the aggregate, a Material Adverse
Effect;

 

2

 

(b) this Agreement constitutes the legal, valid, and binding obligation of each Pledgor
enforceable against such Pledgor in accordance with its terms, except:

(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights; and

(ii) as limited by general principles of equity that restrict the availability of
equitable or legal remedies;

(c) (i) all Pledged Stock owned by each Pledgor is set forth on Schedule A hereto and
(ii) each Pledgor is the legal and beneficial owner of the Pledged Stock as set forth on
Schedule A;

(d) all of the shares of the Pledged Stock have been duly authorized, validly issued and are
fully paid and non-assessable;

(e) no consent or approval of any person, corporation, governmental body, regulatory authority
or other entity, is or will be necessary for (i) the execution, delivery and performance of this
Agreement, (ii) the exercise by the Pledgee of any rights with respect to the Collateral or (iii)
the pledge and assignment of, and the grant of a security interest in, the Collateral hereunder;

(f) there are no pending or, to each of Pledgor’s knowledge, threatened actions or proceedings
before any court, judicial body, administrative agency or arbitrator which would have, or could
reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect
on the Collateral;

(g) each Pledgor has the requisite power and authority to enter into this Agreement and to
pledge and assign the Collateral to the Pledgee, for the ratable benefit of the Creditor Parties,
in accordance with the terms of this Agreement;

(i) each Pledgor owns each item of the Collateral and the Collateral shall be, immediately
following the closing of the transactions contemplated by the Documents, free and clear of any
other security interest, mortgage, pledge, claim, lien, charge, hypothecation, assignment, offset
or encumbrance whatsoever (collectively, “Liens”), other than Permitted Encumbrances;

(h) there are no restrictions on transfer of the Pledged Stock contained in the certificate of
incorporation or by-laws (or equivalent organizational documents) of the Issuer or otherwise which
have not otherwise been enforceably and legally waived or consented to by the necessary parties;
and

 

3

 

(i) none of the Pledged Stock has been issued or transferred in violation of the securities
registration, securities disclosure or similar laws of any jurisdiction to which such issuance or
transfer may be subject.

5. Covenants. Each Pledgor covenants that, until the Obligations shall be
indefeasibly satisfied in full:

(a) Such Pledgor will not sell, assign, transfer, convey, or otherwise dispose of its rights
in or to the Collateral or any interest therein; nor will such Pledgor create, incur or permit to
exist any Lien whatsoever with respect to any of the Collateral or the proceeds thereof other than
that created hereby.

(b) Such Pledgor will, at its expense, defend the Pledgee’s right, title and security interest
in and to the Collateral against the claims of any other party.

(c) Such Pledgor shall at any time, and from time to time, upon the written request of the
Pledgee, execute and deliver such further documents and do such further acts and things as the
Pledgee may reasonably request in order to effectuate the purposes of this Agreement including, but
without limitation, delivering to the Pledgee, upon the occurrence of an Event of Default,
irrevocable proxies in respect of the Collateral in form satisfactory to the Pledgee. Until
receipt thereof, upon an Event of Default that has occurred and is continuing beyond any applicable
grace period, this Agreement shall constitute such Pledgor’s proxy to the Pledgee or its nominee to
vote all shares of Collateral then registered in such Pledgor’s name.

(d) Notwithstanding anything to the contrary in this Agreement, each Pledgor expressly
acknowledges and agrees that all dividends and distributions declared by any Issuer in respect of
the Collateral and otherwise payable to such Pledgor shall be applied toward prepayment of the
Notes, and such Pledgor shall not receive any such dividends or distributions, except to the extent
necessary to satisfy such Pledgor’s income tax obligations with respect thereto. No Pledgor will
consent to or approve the issuance of (i) any additional shares of any class of capital stock or
other equity interests of any Issuer; or (ii) any securities convertible either voluntarily by the
holder thereof or automatically upon the occurrence or nonoccurrence of any event or condition
into, or any securities exchangeable for, any such shares, unless, in either case such capital
stock issued or issuable to such Pledgor as a result of such transaction are pledged and delivered
to Pledgee as Collateral pursuant to this Agreement in such proportion as shall be determined by
multiplying the amount of Pledged Stock of such Issuer by a fraction, the numerator of which shall
be the number of shares of capital stock of such Issuer pledged to Pledgee hereunder immediately
prior to such event and the denominator of which shall be the number of shares of Common Stock of
such issuer issued or issuable to such Pledgor immediately after such event. The product so
obtained shall thereafter be the number of additional shares of such Issuer’s capital stock that
shall immediately be pledged and delivered to Pledgee as additional Pledged Stock and Collateral
pursuant to this Agreement.

 

4

 

6. Voting Rights and Dividends.

(a) So long as no Event of Default occurs and remains continuing:

(i) Each Pledgor shall be entitled to exercise any and all voting and other consensual
rights pertaining to the Collateral, or any part thereof, for any purpose not inconsistent
with the terms of this Agreement; provided, however, without the prior
written consent of the Pledgee, that such Pledgor shall not exercise, or shall refrain from
exercising, any such right if it would result in an Event of Default. Following the
occurrence of an Event of Default, all rights of each Pledgor to vote and to give consents,
waivers and ratifications in respect of the Collateral shall cease.

(ii) Any and all dividends or distributions declared in respect of the Collateral shall
be applied toward payment of the Notes.

(b) In addition to the Pledgee’s rights and remedies set forth in Section 8 hereof, in case an
Event of Default shall have occurred and be continuing, beyond any applicable cure period, the
Pledgee shall (i) be entitled to vote the Collateral, (ii) be entitled to give consents, waivers
and ratifications in respect of the Collateral (each Pledgor hereby irrevocably constituting and
appointing the Pledgee, with full power of substitution, the proxy and attorney-in-fact of such
Pledgor for such purposes) and (iii) be entitled to collect and receive for its own use cash
dividends paid on the Collateral. Unless and until there shall have occurred and be continuing an
Event of Default, each Pledgor shall be permitted to exercise or refrain from exercising any voting
rights or other powers; provided that, in each case, no vote shall be cast or any consent, waiver
or ratification given or any action taken or omitted to be taken if, in the reasonable judgment of
the Pledgee, such action would have a material adverse effect on the value of the Collateral or any
part thereof; and, provided, further, that such Pledgor shall give at least five
(5) days’ written notice of the manner in which such Pledgor intends to exercise, or the reasons
for refraining from exercising, any voting rights or other powers other than with respect to any
election of directors and voting with respect to any incidental matters. Following the occurrence
of an Event of Default, all rights of each Pledgor to vote and to give consents, waivers and
ratifications shall cease and all dividends and all other distributions in respect of any of the
Collateral, shall be delivered to the Pledgee to hold as Collateral and shall, if received by any
Pledgor, be received in trust for the benefit of the Pledgee, be segregated from the other property
or funds of any other Pledgor, and be forthwith delivered to the Pledgee as Collateral in the same
form as so received (with any necessary endorsement).

7. Event of Default. An “Event of Default” under this Agreement shall occur
upon the happening of any of the following events:

(a) An “Event of Default” under the Documents shall have occurred and be continuing
beyond any applicable cure period;

(b) Any representation or warranty of the Pledgors made herein, in the Securities Purchase
Agreement or the Notes shall be false or misleading in any material respect as of the date hereof
or as the date made if such date is not the date hereof;

(c) Any portion of the Collateral is subjected to a material post-judgment levy of execution,
attachment, distraint or other judicial process or any portion of the Collateral is the subject of
a claim (other than by the Pledgee) of a Lien or other right or interest in or to the
Collateral and such levy or claim shall not be cured, disputed or stayed within a period of
thirty (30) business days after the occurrence thereof; or

 

5

 

(d) Any Pledgor shall (i) apply for, consent to, or suffer to exist the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or other fiduciary of itself or
of all or a substantial part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to
take advantage of any other law providing for the relief of debtors, (vi) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any involuntary case
under such bankruptcy laws, or (vii) take any action for the purpose of effecting any of the
foregoing.

8. Remedies. In case an Event of Default shall have occurred and is continuing, the
Pledgee may:

(a) Transfer any or all of the Collateral into its name, or into the name of its nominee or
nominees;

(b) Exercise all corporate rights with respect to the Collateral including, without
limitation, all rights of conversion, exchange, subscription or any other rights, privileges or
options pertaining to any shares of the Collateral as if it were the absolute owner thereof,
including, but without limitation, the right to exchange, at its discretion, any or all of the
Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment
of the Issuer thereof, or upon the exercise by such Issuer of any right, privilege or option
pertaining to any of the Collateral, and, in connection therewith, to deposit and deliver any and
all of the Collateral with any committee, depository, transfer agent, registrar or other designated
agent upon such terms and conditions as it may determine, all without liability except to account
for property actually received by it; and

(c) Subject to any requirement of applicable law, sell, assign and deliver the whole or, from
time to time, any part of the Collateral at the time held by the Pledgee, at any private sale or at
public auction, with or without demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (all of which are hereby waived, except such notice as is required
by applicable law and cannot be waived), for cash or credit or for other property for immediate or
future delivery, and for such price or prices and on such terms as the Pledgee in its sole
discretion may determine, or as may be required by applicable law.

Each Pledgor hereby waives and releases any and all right or equity of redemption, whether
before or after sale hereunder. At any such sale, unless prohibited by applicable law, the Pledgee
may bid for and purchase the whole or any part of the Collateral so sold free from any such right
or equity of redemption. All moneys received by the Pledgee hereunder, whether upon sale of the
Collateral or any part thereof or otherwise, shall be held by the Pledgee and applied by it as
provided in Section 10 hereof. No failure or delay on the part of the Pledgee in exercising any
rights hereunder shall operate as a waiver of any such rights nor shall any single or partial
exercise of any such rights preclude any other or future exercise thereof or the exercise of any
other rights hereunder.

 

6

 

The Pledgee shall have no duty as to the
collection or protection of the Collateral or any income thereon nor any duty as to
preservation of any rights pertaining thereto, except to apply the funds in accordance with the
requirements of Section 10 hereof. The Pledgee may exercise its rights with respect to property
held hereunder without resort to other security for or sources of reimbursement for the
Obligations. In addition to the foregoing, Pledgee shall have all of the rights, remedies and
privileges of a secured party under the Uniform Commercial Code of New York (the “UCC”)
regardless of the jurisdiction in which enforcement hereof is sought.

9. Private Sale. Each Pledgor recognizes that the Pledgee may be unable to effect (or
to do so only after delay which would adversely affect the value that might be realized from the
Collateral) a public sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act, and may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor agrees that any such private sale may be at prices and on terms less
favorable to the seller than if sold at public sales and that such private sales shall be deemed to
have been made in a commercially reasonable manner. Each Pledgor agrees that the Pledgee has no
obligation to delay sale of any Collateral for the period of time necessary to permit the Issuer to
register the Collateral for public sale under the Securities Act.

(a) Proceeds of Sale. The proceeds of any collection, recovery, receipt,
appropriation, realization or sale of the Collateral shall be applied by the Pledgee as set forth
in Section 10 of the Master Security Agreement.

In the event that the proceeds of any collection, recovery, receipt, appropriation,
realization or sale are insufficient to satisfy the Obligations, the Pledgors shall be jointly and
severally liable for the deficiency plus the costs and fees of any attorneys employed by the
Pledgee to collect such deficiency.

10. Waiver of Marshaling. Each Pledgor hereby waives any right to compel any
marshaling of any of the Collateral.

11. No Waiver. Any and all of the Pledgee’s rights with respect to the Liens granted
under this Agreement shall continue unimpaired, and each Pledgor shall be and remain obligated in
accordance with the terms hereof, notwithstanding (a) the bankruptcy, insolvency or reorganization
of such Pledgor, (b) the release or substitution of any item of the Collateral at any time, or of
any rights or interests therein, or (c) any delay, extension of time, renewal, compromise or other
indulgence granted by the Pledgee in reference to any of the Obligations. Each Pledgor hereby
waives all notice of any such delay, extension, release, substitution, renewal, compromise or other
indulgence, and hereby consents to be bound hereby as fully and effectively as if such Pledgor had
expressly agreed thereto in advance. No delay or extension of time by the Pledgee in exercising
any power of sale, option or other right or remedy hereunder, and no failure by the Pledgee to give
notice or make demand, shall constitute a waiver thereof, or limit, impair or prejudice the
Pledgee’s right to take any action against such Pledgor or to exercise any other power of sale,
option or any other right or remedy.

 

7

 

12. Expenses. The Collateral shall secure, and the Pledgors shall pay, on demand, all
reasonable costs and expenses, (including but not limited to, reasonable attorneys’ fees and costs,
taxes, and all transfer, recording, filing and other charges) of, or incidental to, the custody,
care, transfer, administration of the Collateral or any other collateral, or in any way relating to
the enforcement, protection or preservation of the rights or remedies of the Pledgee under this
Agreement.

13. The Pledgee Appointed Attorney-In-Fact and Performance by the Pledgee. If an
Event of Default shall have occurred and is continuing, each Pledgor hereby irrevocably constitutes
and appoints the Pledgee as such Pledgor’s true and lawful attorney-in-fact, with full power of
substitution, to execute, acknowledge and deliver any instruments and to do in such Pledgor’s name,
place and stead, all such acts, things and deeds for and on behalf of and in the name of such
Pledgor, which such Pledgor could or might do or which the Pledgee may deem necessary, desirable or
convenient to accomplish the purposes of this Agreement, including, without limitation, to execute
such instruments of assignment or transfer or orders and to register, convey or otherwise transfer
title to the Collateral into the Pledgee’s name. Each Pledgor hereby ratifies and confirms all
that said attorney-in-fact may so do and hereby declares this power of attorney to be coupled with
an interest and irrevocable. If any Pledgor fails to perform any agreement herein contained, upon
the occurrence and during the continuance of an Event of Default, the Pledgee may itself perform or
cause performance thereof, and any costs and expenses of the Pledgee incurred in connection
therewith shall be paid by the Pledgors as provided in Section 10 hereof.

14. Recapture. Notwithstanding anything to the contrary in this Agreement, if the
Pledgee or any other Creditor Party receives any payment or payments on account of the Obligations,
which payment or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver, or any
other party under the United States Bankruptcy Code, as amended, or any other federal, state or
provincial bankruptcy, reorganization, moratorium or insolvency law relating to or affecting the
enforcement of creditors’ rights generally, common law or equitable doctrine, then to the extent of
any sum not finally retained by the Pledgee or such other Creditor Party, the Pledgors’ obligations
to the Pledgee and the other Creditor Parties shall be reinstated and this Agreement shall remain
in full force and effect (or be reinstated) until payment shall have been made to the Pledgee and
the other Creditor Parties, which payment shall be due on demand.

15. Waivers. THE PARTIES HERETO DESIRES THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN PLEDGEE, AND/OR ANY PLEDGOR ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER DOCUMENT
OR THE TRANSACTIONS RELATED HERETO OR THERETO.

 

8

 

16. Termination. Immediately following the payment in full in cash of the
Obligations, Pledgee shall deliver to Pledgors the Collateral pledged by Pledgors at the time
subject to this Agreement and all instruments of assignment executed in connection therewith, free
and clear of the Liens hereof and, except as otherwise provided herein, all of each Pledgor’s
obligations hereunder shall at such time terminate.

17. Captions. All captions in this Agreement are included herein for convenience of
reference only and shall not constitute part of this Agreement for any other purpose.

18. Miscellaneous.

(a) This Agreement constitutes the entire and final agreement among the parties with respect
to the subject matter hereof and may not be changed, terminated or otherwise varied except by a
writing duly executed by the parties hereto.

(b) No waiver of any term or condition of this Agreement, whether by delay, omission or
otherwise, shall be effective unless in writing and signed by the party sought to be charged, and
then such waiver shall be effective only in the specific instance and for the purpose for which
given.

(c) In the event that any provision of this Agreement or the application thereof to any
Pledgor or any circumstance in any jurisdiction governing this Agreement shall, to any extent, be
invalid or unenforceable under any applicable statute, regulation, or rule of law, such provision
shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform to such statute, regulation or rule of law, and the remainder of this Agreement
and the application of any such invalid or unenforceable provision to parties, jurisdictions, or
circumstances other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby, nor shall same affect the validity or enforceability of any other provision of
this Agreement.

(d) This Agreement shall be binding upon each Pledgor, and the Pledgors’ successors and
assigns, and shall inure to the benefit of the Pledgee and its successors and assigns for the
ratable benefit of the Creditor Parties.

(e) Any notice or other communication required or permitted pursuant to this Agreement shall
be given in accordance with the Securities Purchase Agreement.

(f) THIS AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

9

 

(g) EACH PLEDGOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN SUCH PLEDGOR, ON THE ONE HAND, AND THE PLEDGEE AND/OR ANY OTHER CREDITOR
PARTY, ON THE OTHER HAND,
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, PROVIDED, THAT EACH PLEDGOR
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PLEDGEE OR ANY OTHER CREDITOR PARTY FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE INDEBTEDNESS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE INDEBTEDNESS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF THE PLEDGEE. EACH PLEDGOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PLEDGOR
HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. EACH PLEDGOR HEREBY WAIVES PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH PLEDGOR AT THE ADDRESS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PLEDGOR’S ACTUAL RECEIPT THEREOF.

(h) It is understood and agreed that any person or entity that desires to become a Pledgor
hereunder, or is required to execute a counterpart of this Agreement after the date hereof pursuant
to the requirements of any Document, shall become a Pledgor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to the Pledgee, (y) delivering supplements to such
exhibits and annexes to such Documents as the Pledgee shall reasonably request and/or set forth in
such Joinder Agreement and (z) taking all actions as specified in this Agreement as would have been
taken by such Pledgor had it been an original party to this Agreement, in each case with all
documents required above to be delivered to the Pledgee and with all documents and actions required
above to be taken to the reasonable satisfaction of the Pledgee.

(i) This Agreement may be executed in one or more counterparts, each of which shall be deemed
an original and all of which when taken together shall constitute one and the same agreement. Any
signature delivered by a party by facsimile or electronic transmission shall be deemed an original
signature hereto.

[Remainder of Page Intentionally Left Blank]

 

10

 

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first
written above.

	 	 	 	 	 
	 	VERICHIP CORPORATION

 	 
	 	By:  	/s/ William J. Caragol
 	 
	 	 	Name:  	William J. Caragol 	 
	 	 	Title:  	President and Chief Financial Officer 	 
	 

	 	 	 	 	 
	 	XMARK CORPORATION

 	 
	 	By:  	/s/ William J. Caragol
 	 
	 	 	Name:  	William J. Caragol 	 
	 	 	Title:  	Chief Financial Officer and Secretary 	 
	 

	 	 	 	 	 
	 	LV ADMINISTRATIVE SERVICES INC.,

as Agent

 	 
	 	By:  	/s/ Scott Bluestein
 	 
	 	 	Name:  	Scott Bluestein 	 
	 	 	Title:  	Authorized Signatory 	 
	 

signature page to

stock pledge agreement

 

 

 

SCHEDULE A

Pledged Stock

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Stock	 	 	 	% of
	 	 	 	 	Class of	 	Certificate	 	Number of	 	Outstanding
	Pledgor	 	Issuer	 	Stock	 	Number	 	Shares	 	Shares
	VeriChip
	 	Xmark	 	 	 	 	 	 	 	 
	Corporation
	 	Corporation
	 	Common
	 	1
	 	10,265,178
	 	100%

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