Document:

Exhibit 10.4

    
      
        

      

      Exhibit
        10.4

       

      EXCHANGE
        AGREEMENT 

       

      This
        EXCHANGE AGREEMENT (this “Agreement”), dated as of June 9, 2005, by and between
        Applied Digital Solutions, Inc., a Missouri corporation (the “Company”) and
        VeriChip Corporation, a Delaware corporation (“VeriChip”).

       

      WITNESSETH
        :

       

      WHEREAS,
        the Company is engaged in the business of developing innovative security
        products for consumer, commercial and government sectors worldwide;

      

      WHEREAS,
        VeriChip, a subsidiary of the Company, is engaged in the business of developing
        and marketing VeriChipTM,
        a
        sub-dermal radio frequency identification micro transponder that can be used
        in
        a variety of security, financial, emergency identification and healthcare
        applications (the “VeriChip Business”);

      

      WHEREAS,
        Digital Angel Corporation, a Delaware corporation (“Digital Angel”), a
        majority-owned subsidiary of the Company, is an advanced technology company
        in
        the field of rapid and accurate identification, location tracking, and condition
        monitoring of high-value assets (the “Digital Angel Business”); 

      

      WHEREAS,
        VeriChip and Digital Angel are parties to that certain Supply and License
        Agreement dated March 4, 2002, as amended from time to time (the “Supply and
        License Agreement”), whereby Digital Angel granted VeriChip the exclusive right
        to market and sell injectable radio frequency transponders for use on or
        in
        humans, and the reading equipment relating thereto (the “Developed
        Products”);

      

      WHEREAS,
        VeriChip is currently negotiating an amendment to the Supply and License
        Agreement with Digital Angel whereby VeriChip shall have the right to assign
        its
        rights under the Supply and License Agreement to the Company and the Company
        shall have the right to sublicense the Supply and License Agreement to VeriChip
        (the “Amended Supply and License Agreement”);

      

      WHEREAS,
        on March 31, 2005, the Company acquired all of the outstanding capital stock
        of
        VeriChip Inc. f/k/a eXI Wireless Inc., a Canadian company (“eXI”) (the “eXI
        Transaction”);

       

      WHEREAS,
        the Company believes eXI will be able to provide VeriChip with access to
        hospitals and other medical facilities through eXI’s existing distribution
        channels, which may open up opportunities for VeriChip revenue
        generation;

       

      WHEREAS,
        the Company desires to transfer its ownership in eXI to VeriChip pursuant
        to the
        terms and conditions contained herein so that eXI will become a wholly-owned
        subsidiary of VeriChip (the “Transfer”); and

       

      WHEREAS,
        as consideration for the Transfer, VeriChip will give the Company five million
        newly issued shares of its common stock (the “VeriChip Stock”) and will consent
        to the assignment of the Amended Supply and License Agreement to the
        Company;

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      WHEREAS,
        upon the assignment of the Amended Supply and License Agreement to the Company,
        the Company agrees to sublicense all of the right, title, and interest in
        and to
        the Developed Products as reflected on Exhibit
        A
        (the
“Intellectual Property”) to VeriChip, and VeriChip agrees to license the use of
        the Intellectual Property from the Company pursuant to the terms of a sublicense
        agreement to be entered into by the parties.

       

      NOW,
        THEREFORE,
        for and
        in consideration of the premises, the mutual covenants and agreements contained
        in this Agreement, and for other good and valuable consideration, the receipt,
        legal sufficiency, and reasonably equivalent value of which, are hereby mutually
        acknowledged, the parties, intending to be legally bound, agree as
        follows:

       

      
        1. Transfer
          of eXI Stock.
          Subject
          to the terms and conditions set forth in this Agreement, after the closing
          of
          the eXI Transaction (the “Exchange Date”), the Company agrees to transfer all of
          the issued and outstanding capital stock of eXI (the “Shares”) to VeriChip,
          whereby eXI will become a wholly-owned subsidiary of VeriChip. On the Exchange
          Date, the
          Company shall transfer and deliver to VeriChip good and valid title to
          the
          Shares, free and clear of all claims, liens, agreements, restrictions,
          and
          encumbrances, and the Company shall deliver to VeriChip stock certificates
          representing the Shares duly endorsed to VeriChip.

      

       

      
        2. Transfer
          of the VeriChip Stock.
          On the
          Exchange Date, VeriChip
          shall transfer and deliver to the Company good and valid title to the VeriChip
          Stock, free and clear of all claims, liens, agreements, restrictions, and
          encumbrances.

      

       

      
        3. Sublicense
          Agreement.
          VeriChip agrees to negotiate in good faith and enter into the Amended Supply
          and
          License Agreement within 14 days of the Exchange Date. Upon VeriChip’s
          assignment of the Amended Supply and License Agreement to the Company,
          the
          Company agrees to grant VeriChip a sublicense to use the Intellectual Property,
          and VeriChip agrees to license the use of the Intellectual Property from
          the
          Company pursuant to the terms of a sublicense agreement to be entered into
          by
          the parties. The parties agree to negotiate in good faith and enter into
          the
          sublicense agreement within 14 days of the Exchange Date. 

      

       

      
        4. Representations
          and Warranties of the Company.
          The
          Company hereby represents and warrants to VeriChip that:

      

       

      a. Ownership
        of the Shares.
        The
        Company is the record and beneficial owner of the Shares, free and clear
        of any
        claims, liens or encumbrances. The Shares represent one hundred percent (100%)
        of the issued and outstanding shares of capital stock of eXI.

      

      b. Execution
        and Effect of Agreement.
        The
        Company has the full right, power and authority to enter into and perform
        this
        Agreement. This Agreement has been duly authorized, executed and delivered
        by
        the Company, and is a legal, valid and binding obligation of the Company,
        enforceable in accordance with its terms.

      

      c. No
        Breach.
        The
        execution, delivery and performance of this Agreement will not conflict with
        or
        result in any breach of any of the terms, conditions or provisions of, or
        constitute a default under any indenture, mortgage, deed of trust, agreement
        or
        other instrument to which the Company is a party or its properties may be
        bound
        or affected, or any law, statute, rule, ordinance or governmental
        regulation.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
        	5.  	
                Representations
                  and Warranties of VeriChip.
                  VeriChip represents, warrants and agrees
                  that:

              

      

       

      
        a. Execution
          and Effect of Agreement.
          VeriChip has the full right, power and authority to enter into and perform
          this
          Agreement. This Agreement has been duly authorized, executed and delivered
          by
          VeriChip, and is a legal, valid and binding obligation of VeriChip, enforceable
          in accordance with its terms.

      

       

      
        b. Capitalization.
          The
          authorized capital stock of VeriChip consists of 35,000,000 shares of common
          stock, par value $.001 per share, 20,000,000 of which are duly authorized,
          validly issued and outstanding, fully paid and nonassessable and were issued
          free of preemptive rights in compliance with applicable corporate and securities
          laws and all of which are owned by the Company. Except for 8,280,000 stock
          options granted to officers, directors, employees, and consultants of VeriChip,
          8,080,000 of which were granted pursuant to the VeriChip 2002
          Flexible Stock Option Plan and 200,000 of which were granted outside of
          a
          plan,
          and
          1,849,000 warrants granted to IBM Credit LLC, there are no options, warrants
          or
          other rights, agreements, arrangements or commitments of any character
          relating
          to the issued or unissued capital stock of Verchip or obligating VeriChip
          to
          issue or sell any shares of capital stock of, or other equity interests
          in
          VeriChip. The VeriChip Stock, when issued to the Company, will be duly
          authorized, validly issued, fully paid and non-assessable.

         

        
          c. No
            Breach.
            The
            execution, delivery and performance of this Agreement will not conflict
            with or
            result in any breach of any of the terms, conditions or provisions of,
            or
            constitute a default under any indenture, mortgage, deed of trust, agreement
            or
            other instrument to which VeriChip is a party or its properties may be
            bound or
            affected, or any law, statute, rule, ordinance or governmental
            regulation.

        

      

       

      
        d. Compliance
          with Laws.
          VeriChip is and has been in substantial compliance with all laws, regulations
          and orders applicable to it, its properties and assets (in each case, owned
          or
          used by it now or in the past) and the Verichp Business and operations
          (as
          conducted by it now and in the past).

      
        e.
          Licenses and Permits.
          VeriChip possesses all licenses and required governmental or official approvals,
          permits or authorizations (the “Permits”) for the VeriChip Business and
          operations. All such Permits are valid and in full force and effect, and
          VeriChip is in compliance in all material respects with the respective
          requirements thereof and no proceeding is pending or threatened to revoke
          or
          amend any of them. None of the Permits is or will be impaired or in any
          way
          affected by the execution and delivery of this Agreement or the consummation
          of
          the transactions contemplated hereby.

      

      

      
        	6.  	
                Conveyances
                  on the Exchange Date.

              

      

       

      a. Deliveries
        by VeriChip.
        On the
        Exchange Date, VeriChip shall deliver or cause to be delivered to the Company
        and/or VeriChip, as applicable, the following: 

       

      (i) a
        stock
        certificate representing the VeriChip Stock; and

       

      (ii) copies
        of
        resolutions adopted by the independent members of the Board of Directors
        of
        VeriChip authorizing the transactions contemplated by this
        Agreement.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      b. Deliveries
        by the Company.
        On the
        Exchange Date, the Company shall deliver or cause to be delivered to
VeriChip,
        as applicable, the following:

       

      (i)
         stock
        certificates representing the Shares, together with a stock power, duly endorsed
        to VeriChip; 

       

      (ii) copies
        of
        resolutions adopted by the independent members of the Board of Directors
        of the
        Company authorizing the transactions contemplated by this Agreement;
        and

       

      (iii)
         such
        other instruments of transfer reasonably requested by VeriChip to transfer
        to
        and vest in VeriChip all of the Company’s right, title and interest in and to
        the Shares.

       

      
        7.  Notices.
          All
          notices and other communications provided for herein shall be in writing
          and
          shall be deemed to have been duly given when delivered personally or sent
          by
          telex or telecopy or three business days after being mailed by registered
          or
          certified mail, return receipt requested, postage prepaid, to the party
          to whom
          it is directed or one business day after being sent via a nationally recognized
          courier service for next business day delivery, to the party to whom it
          is
          directed at the following addresses (or such other addresses as shall be
          subsequently provided in writing to the other parties):

      

       

      
        	
                To
                  the Company:

              	
                Applied
                  Digital Solutions, Inc.

                1690
                  South Congress Avenue, Suite 200

                Delray
                  Beach, Florida 33445

                Fax:
                  (561) 805-8002

                Attention:
                  Michael Krawitz

              
	
                 

                With
                  a copy to:

              	
                 

                Holland
                  & Knight LLP

                701
                  Brickell Avenue, Suite 3000

                Miami,
                  Florida 33131

                Fax:
                  305-374-8500

                Attention:
                  Harvey Goldman

              
	
                 

                To
                  VeriChip:

              	
                 

                VeriChip
                  Corporation

                1690
                  South Congress Avenue, Suite 200

                Delray
                  Beach, Florida 33445

                Fax:
                  805-8002

                Attention:
                  Michael
                  Krawitz

              

      

       

      8. Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        be
        deemed an original, but such counterparts together shall constitute one and
        the
        same instrument.

       

      
        9. Section
          Headings.
          The
          section headings of this Agreement are for convenience of reference only
          and
          shall not be deemed to limit or affect any of the provisions
          hereof.

      

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

        
          10.  Further Assurances.
            The
            parties shall cooperate and take such actions, and execute such other
            documents,
            as either may reasonably request in order to carry out the provisions
            or purpose
            of this Agreement.

        

         

      

      
        11.  Amendments;
          No Waivers.
          Any
          provision of this Agreement may be waived or amended if, and only if, such
          amendment or waiver is in writing and signed by all of the parties. No
          failure
          by any party hereto to insist upon the strict performance of any covenant,
          duty,
          agreement or condition of this Agreement, or to exercise any right or remedy
          consequent upon a breach hereof, shall constitute a waiver of any such
          breach or
          any other covenant, duty, agreement or condition hereof.

      

       

      
        12.  Entire
          Agreement.
          This
          Agreement (including the Exhibits hereto and any amendments
          hereto) constitutes the entire Agreement and understanding of the
          parties
          hereto and supersedes all prior agreements and understandings, both written
          and
          oral, among the parties hereto with respect to the subject matter hereof.
          

      

       

      
        13.  Governing
          Law; Venue.
          This
          Agreement shall be governed by and construed in accordance with the Laws
          of the
          State of Florida (without regard to the choice of law provisions thereof).
          The
          parties hereto agree that any action, proceeding or lawsuit arising under
          or in
          connection with this Agreement shall be brought solely and exclusively
          in the
          court of Palm Beach County, Florida, and each of the parties hereto consents
          to
          personal jurisdiction is such sole and exclusive forums. 

      

       

      
        14.  Severability.
          If it
          is determined by a court of competent jurisdiction that any provision of
          this
          Agreement is invalid under applicable law, such provision shall be ineffective
          only to the extent of such invalidity, without invalidating the remainder
          of
          this Agreement.

      

       

      
        15. Parties
          in Interest.
          This
          Agreement shall be binding upon and inure to the benefit of each party
          hereto,
          and nothing in this Agreement, express or implied, is intended to confer
          upon
          any other Person any rights or remedies of any nature whatsoever under
          or by
          reason of this Agreement. 

      

       

      
        16.  Fees
          and Expenses.
          Except
          as expressly set forth herein, each party shall be responsible for its
          own
          legal, accounting, and other fees and expenses incurred in connection with
          the
          Agreement.

      

       

      

       

      [Remainder
        of page intentionally left blank]

       

      
        
          
             

          

          
          

        

        
          5

          
            

          

        

        
          
          

          
          

        

      

      IN
        WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
        executed as of the date first above written:

       

      

      

      APPLIED
        DIGITAL SOLUTIONS, INC. 

      

      By:
        /s/
        Evan C. McKeown

      Name:
        Evan C. McKeown

      Title:
        SVP, CFO

      

      

      

      VERICHIP
        CORPORATION

      

      By:/s/
        Kevin McLaughlin

      Name:
        Kevin McLaughlin 

      Title:
        CEO

      

      

      

      

      
        
          
             

          

          
          

        

        
          6Exhibit 10.5

    

      
        
          

        

      Exhibit
        10.5

       

      

      SECURITIES
        PURCHASE AGREEMENT

      

      

      SECURITIES
        PURCHASE AGREEMENT (this “Agreement”),
        dated
        as of June 9, 2005, by and between Applied
        Digital Solutions, Inc.,
        a
        Missouri corporation (the “Company”),
        and
        each of the entities whose names appear on the signature pages hereof (each,
        an
“Investor”
        and,
        collectively, the “Investors”).
        

      

      A. The
        Company wishes to sell to each Investor, and each Investor wishes to purchase,
        on the terms and subject to the conditions set forth in this Agreement, (i)
        shares (the “Initial
        Preferred Shares”)
        of the
        Company’s Series D Convertible Preferred Stock (the “Preferred
        Stock”)
        having
        the rights and privileges set forth in the form of Certificate of Designation
        attached hereto as Exhibit
        A
        (the
“Certificate
        of Designation”),
        (ii)
        a Warrant to purchase shares of Common Stock (as defined below) in the form
        attached hereto as Exhibit
        B
        (each, a
“Warrant”
        and,
        collectively, the “Warrants”),
        and
        (iii) a Senior Unsecured Note in the form attached hereto as Exhibit
        C
        (each a
“Note”
        and,
        collectively, the “Notes”).
        At
        maturity, the Company may, under certain conditions, exchange the Notes (an
        “Exchange”)
        for
        additional shares of Preferred Stock (the “Subsequent
        Preferred Shares”).
        The
        Initial Preferred Shares and the Subsequent Preferred Shares are collectively
        referred to herein as the “Preferred
        Shares”.

      

      B. The
        Preferred Stock will be convertible into shares (the “Conversion
        Shares”)
        of the
        Company’s Common Stock at the Conversion Price (as defined below). The Warrant
        issued to an Investor will entitle such Investor to purchase a number of
        shares
        of Common Stock (the “Warrant
        Shares”)
        equal
        to thirty-five percent (35%) of the number of Conversion Shares into which
        the
        Preferred Shares purchased by such Investor at the Closing (as defined below)
        would be convertible assuming for such purpose that the Conversion Price
        is
        equal to the Market Price on the Closing Date (as such terms are defined
        below)
        (without regard to any limitation on such conversion contained herein or
        in the
        Certificate of Designation), and will be exercisable at an exercise price
        equal
        to 110%
        of
        the Market Price on the Closing Date.
        

      

      C. As
        an
        inducement for each Investor to execute and deliver this Agreement, the Company
        has agreed to cause VeriChip Corporation (“VeriChip”)
        to
        issue to such Investor a warrant in the form attached hereto as Exhibit
        E
        that
        will entitle such Investor to purchase one hundred and fifty thousand (150,000)
        shares of the common stock of VeriChip at an exercise price equal to eight
        dollars ($8.00), subject to adjustment as provided therein, and will expire
        on
        the one (1) year anniversary of the date on which VeriChip completes an initial
        public offering of its common stock or (ii) if VeriChip does not commence
        an
        initial public offering of its common stock on or before the two (2) year
        anniversary of the Closing Date, on such two year anniversary.

      

      D. The
        Preferred Shares (including without limitation any Preferred Shares purchased
        pursuant to an Exchange), the Notes, the Conversion Shares, the Warrants,
        the
        Warrant Shares, the VeriChip Warrant and the shares of VeriChip common stock
        issuable upon exercise of the VeriChip Warrant (“VeriChip
        Warrant Shares”)
        are
        collectively referred to herein as the “Securities”.

      

      E. The
        Company has agreed to effect the registration of the Conversion Shares and
        the
        Warrant Shares under the Securities Act of 1933, as amended (the “Securities
        Act”),
        pursuant to a

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Registration
        Rights Agreement in the form attached hereto as Exhibit
        D
        (the
“Registration
        Rights Agreement”).
        The
        sale of the Securities by the Company to the Investors will be effected in
        reliance upon the exemption from securities registration afforded by the
        provisions of Section 4(2) of the Securities Act or Regulation D (“Regulation
        D”)
        promulgated by the Securities and Exchange Commission (the “Commission”)
        thereunder.

      

      In
        consideration of the mutual promises made herein and other good and valuable
        consideration, the receipt and sufficiency of which are hereby acknowledged,
        the
        Company and each Investor hereby agree as follows:

      

      
        	
                1.

              	
                PURCHASE
                  AND SALE OF PREFERRED
                  SHARES, NOTES AND WARRANTS.

              

      

      

      1.1 Closing
        of Purchase and Sale; Purchase Price.
        Upon
        the terms and subject to the satisfaction or waiver of the conditions set
        forth
        herein, the Company agrees to sell and each Investor agrees to purchase (i)
        the
        number of Preferred Shares set forth below such Investor’s name on the signature
        pages hereof, (ii) a Note with a face amount equal to such Investor’s Pro Rata
        Share (as defined below) of $5,350,455, and (iii) a Warrant. The purchase
        price
        for the Preferred Shares, Note and Warrant being purchased by each Investor
        at
        the Closing (collectively, the “Purchased
        Securities”)
        shall
        be equal to the sum of (x) the aggregate Stated Value of such Preferred Shares
        plus
        (y)
        93.45% of the face amount of such Note (the “Purchase
        Price”).
        The
        closing of the purchase and sale of the Purchased Securities (the “Closing”)
        will
        be deemed to occur at the offices of Duval & Stachenfeld, LLP, 300 East
        42nd
        Street,
        New York, New York 10017, when (A) this Agreement and the other Transaction
        Documents (as defined below) have been executed and delivered by the Company
        and, to the extent applicable, by each Investor, (B) each of the conditions
        to
        Closing described in Article
        5
        hereof
        has been satisfied or waived by the Company or each Investor, as the case
        may be
        and (C) each Investor shall have delivered the Purchase Price to the Company
        by
        wire transfer of immediately available funds against physical delivery of
        duly
        executed certificates representing the Purchased Securities being purchased
        by
        such Investor. The date on which the Closing occurs is referred to herein
        as the
“Closing
        Date”.

      

      1.2  Certain
        Definitions.
        When
        used herein, the following terms shall have the respective meanings
        indicated:  

      

      “Affiliate”
        means,
        as to any Person (the “subject
        Person”),
        any
        other Person (a) that directly or indirectly through one or more
        intermediaries controls or is controlled by, or is under direct or indirect
        common control with, the subject Person, (b) that directly or indirectly
        beneficially owns or holds ten percent (10%) or more of any class of voting
        equity of the subject Person, or (c) ten percent (10%) or more of
        the
        voting equity of which is directly or indirectly beneficially owned or held
        by
        the subject Person. For the purposes of this definition, “control”
        when
        used with respect to any Person means the power to direct the management
        and
        policies of such Person, directly or indirectly, whether through the ownership
        of voting securities, through representation on such Person’s Board of Directors
        or other management committee or group, by contract or otherwise. 

      

      “Agreement”
        has the
        meaning specified in the preamble
        to this Agreement.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Business
        Day” 
        means
        any
        day other
        than a Saturday, a Sunday or a day on which the New York Stock Exchange or
        commercial banks located in New York City are authorized or permitted by
        law to
        close.

      

      “Certificate
        of Designation” 
        has
        the
        meaning specified in the preamble
        to this Agreement.

      

      “Closing”
        and
“Closing
        Date”
        have
        the respective meanings specified in Section
        1.1
        hereof.

      

      “Commission”
        has the
        meaning specified in the preamble to this Agreement.

      

      “Common
        Stock”
        means
        the common stock, par value $0.01 per share, of the Company. 

      

      “Company”
        has the
        meaning specified in the preamble
        to this Agreement.

      

      “Conversion
        Price” 
        has
        the
        meaning specified in the Certificate of Designation.

      

      “Conversion
        Shares” 
        has
        the
        meaning specified in the preamble
        to this Agreement.

      

      “Current
        Violation”
        has the
        meaning specified in Section
        3.7
        hereof.

      

      “Debt”
        means,
        as to the Company and any Subsidiary that is not a Public Subsidiary at any
        time: (a) all indebtedness, liabilities and obligations of the Company or
        any
        such Subsidiary for borrowed money; (b) all indebtedness, liabilities and
        obligations of the Company or any such Subsidiary to pay the deferred purchase
        price of Property or services, except trade accounts payable of such Person
        arising in the ordinary course of business that are not past due by more
        than 90
        days; (c) all capital lease obligations of the Company or any such Subsidiary;
        (d) all indebtedness, liabilities and obligations of others guaranteed by
        the
        Company or any such Subsidiary; (e) all indebtedness, liabilities and
        obligations secured by a Lien existing on Property owned by the Company or
        any
        such Subsidiary, whether or not the indebtedness, liabilities or obligations
        secured thereby have been assumed by such Person or are non-recourse to such
        Person; (f) all reimbursement obligations of the Company or any such Subsidiary
        (whether contingent or otherwise) in respect of letters of credit, bankers’
        acceptances, surety or other bonds and similar instruments; and (g) all
        indebtedness, liabilities and obligations of such Person to redeem or retire
        shares of capital stock of the Company or any such Subsidiary. 

      

      “Disclosure
        Documents”
        means
        all SEC Documents filed by the Company at least three (3) Business Days prior
        to
        the Execution Date via the Commission’s Electronic Data Gathering, Analysis and
        Retrieval system (EDGAR) in accordance with the requirements of Regulation
        S-T
        under the Exchange Act.

      

      “DTC”
        has the
        meaning specified in Section
        4.6
        hereof.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      “Effective
        Date”
        has the
        meaning specified in the Registration Rights Agreement.

      

      “Embargoed
        Person”
        has the
        meaning specified in Section
        3.28
        hereof.

      

      “Environmental
        Law”
        means
        any federal, state, provincial, local or foreign law, statute, code or
        ordinance, principle of common law, rule or regulation, as well as any Permit,
        order, decree, judgment or injunction issued, promulgated, approved or entered
        thereunder, relating to pollution or the protection, cleanup or restoration
        of
        the environment or natural resources, or to the public health or safety,
        or
        otherwise governing the generation, use, handling, collection, treatment,
        storage, transportation, recovery, recycling, discharge or disposal of hazardous
        materials.

      

      “ERISA”
        means
        the Employee Retirement Income Security Act of 1974, as amended, and the
        regulations and published interpretations thereunder.

      

      “Exchange
        Act”
        means
        the Securities Exchange Act of 1934, as amended (or any successor act), and
        the
        rules and regulations thereunder (or respective successors
        thereto).

      

      “Execution
        Date”
        means
        the date on which this Agreement has been executed and delivered by the Company
        and the Investors.

      

      “Excluded
        Securities” 
        means
        (A)
        securities purchased under this Agreement; (B) securities issued or issuable
        pursuant to the terms of the Certificate of Designations or upon exercise
        of the
        Warrants or the VeriChip Warrant; (C) the 2004 Warrants and securities issued
        or
        issuable thereunder; (D) shares of Common Stock (or the common stock of any
        Subsidiary) issuable or issued to (x) employees or directors of the Company
        or
        any such Subsidiary from time to time either directly or upon the exercise
        of
        options, in such case granted or to be granted in the discretion of the
        Company’s or such Subsidiary’s Board of Directors (or a duly authorized
        committee thereof) as an inducement to join the Company or such Subsidiary
        or
        pursuant to one or more stock option plans, restricted stock plans or stock
        purchase plans in effect as of the Execution Date or adopted after the Execution
        Date by the Company’s or such Subsidiary’s Board of Directors (or a duly
        authorized committee thereof) or by the Company’s or such Subsidiary’s
        shareholders, (y) vendors, service providers or consultants, either directly
        or
        pursuant to options or warrants to purchase Common Stock that are outstanding
        on
        the Execution Date or issued thereafter, provided such issuances are approved
        by
        the Company’s or such Subsidiary’s Board of Directors (or a duly authorized
        committee thereof) or by the Company’s or such Subsidiary’s shareholders, or (z)
        third parties, either directly or pursuant to options or warrants to purchase
        Common Stock, in connection with the settlement of a bona fide litigation
        approved by the Company’s or such Subsidiary’s Board of Directors; (E) shares of
        Common Stock issued in connection with any stock split, stock dividend or
        recapitalization of the Company or any of its Subsidiaries; (F) shares of
        Common
        Stock issued in connection with the acquisition by the Company or any Subsidiary
        of any corporation or other entity occurring after the Effective Date; (G)
        shares of Common Stock issued pursuant to the terms of any
        convertible securities of the Company that are outstanding on the Execution
        Date
        and disclosed on Schedule
        3.5
        hereof;
        (H)
        shares issued to Persons with whom the Company or any of its Subsidiaries
        is
        entering into a joint venture, strategic alliance or other commercial
        relationship in

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      connection
        with the operation of the Company’s or such Subsidiary’s business and not in
        connection with a transaction the primary purpose of which is to raise equity
        capital; and (I) shares issued to a Subsidiary pursuant to a share
        exchange.

      

      “FAST”
        has the
        meaning specified in Section
        4.6
        hereof.

      

      “GAAP”
        means
        generally accepted accounting principles, applied on a consistent basis,
        as set
        forth in (i) opinions of the Accounting Principles Board of the American
        Institute of Certified Public Accountants, (ii) statements of the Financial
        Accounting Standards Board and (iii) interpretations of the Commission and
        the
        Staff of the Commission. Accounting principles are applied on a “consistent
        basis” when the accounting principles applied in a current period are comparable
        in all material respects to those accounting principles applied in a preceding
        period.

      

      “Governmental
        Authority”
        means
        any nation or government, any state, provincial or political subdivision
        thereof
        and any entity exercising executive, legislative, judicial, regulatory or
        administrative functions of or pertaining to government, including without
        limitation any stock exchange, securities market or self-regulatory
        organization.

      

      “Governmental
        Requirement”
        means
        any law, statute, code, ordinance, order, rule, regulation, judgment, decree,
        injunction, franchise, license or other directive or requirement of any federal,
        state, county, municipal, parish, provincial or other Governmental Authority
        or
        any department, commission, board, court, agency or any other instrumentality
        of
        any of them.

      

      “Initial
        Preferred Shares”
        has the
        meaning specified in the preamble
        to this Agreement.  

      

      “Initial
        Filing Deadline”
        has the
        meaning specified in Registration Rights Agreement.

      

      “Initial
        Registration Statement”
        has the
        meaning specified in Registration Rights Agreement.

      

      “Intellectual
        Property”
        means
        any U.S. or foreign patents, patent rights, patent applications, trademarks,
        trade names, service marks, brand names, logos and other trade designations
        (including unregistered names and marks), trademark and service mark
        registrations and applications, copyrights and copyright registrations and
        applications, inventions, invention disclosures, protected formulae,
        formulations, processes, methods, trade secrets, computer software, computer
        programs and source codes, manufacturing research and similar technical
        information, engineering know-how, customer and supplier information, assembly
        and test data drawings or royalty rights.

      

      “Investment
        Certificate”
        has the
        meaning specified in Section
        4.8
        hereof.

      

      “Investment
        Company Act”
        has the
        meaning specified in Section
        3.25
        hereof.

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      “Investor”
        and
“Investors”
        have
        the respective meanings specified in the preamble
        to this Agreement.

      

      “Key
        Employee”
        has the
        meaning specified in Section
        3.16
        hereof.

      

      “Lien”
        means,
        with respect to any Property, any mortgage or mortgages, pledge, hypothecation,
        assignment, deposit arrangement, security interest, tax lien, financing
        statement, pledge, charge, or other lien, charge, easement, encumbrance,
        preference, priority or other security agreement or preferential arrangement
        of
        any kind or nature whatsoever on or with respect to such Property (including,
        without limitation, any conditional sale or other title retention agreement
        having substantially the same economic effect as any of the
        foregoing).

      

      “Market
        Price” 
        means,
        as
        of a particular date, the
        lesser of (i) the average of the daily VWAP for the Common Stock on each
        Trading
        Day occurring during the ten (10) Trading Day period ending on (and including)
        the Trading Day immediately preceding
        such
        date
        and (ii)
        the
daily
        VWAP for
        the
        Common Stock on
        the
        Trading Day immediately preceding such date.
        

      

      “Material
        Adverse Effect”
        means
        an effect that is material and adverse to
        (i)
        the consolidated business, operations, properties, financial condition or
        results of operations of the Company and its Subsidiaries taken as a whole,
        or
        (ii) the transactions contemplated by the Certificate of Designation, this
        Agreement or the other Transaction Documents, or (iii) the Company’s ability to
        perform its obligations under the Certificate of Designation, this Agreement
        and
        the other Transaction Documents.

       

      “Material
        Contracts”
        means,
        as to the Company, any agreement
        required pursuant to Item 601 of Regulation S-B or Item 601, as applicable,
        of
        Regulation S-K under the Securities Act to be filed as an exhibit to any
        report,
        schedule, registration statement or definitive proxy statement filed or required
        to be filed by the Company with the Commission under
        the
        Exchange Act or any rule or regulation promulgated thereunder,
        and any
        and all amendments, modifications, supplements, renewals or restatements
        thereof.

      

      “NASD”
        means
        the National Association of Securities Dealers, Inc.

      

      “Nasdaq
        Stock Market”
        has the
        meaning specified in Section
        3.24
        hereof.

      

      “Note”
        and
“Notes”
        have
        the meanings specified in the preamble
        to this Agreement.

      

      “Outstanding
        Registrable Securities”
        means,
        at any time, all Registrable Securities that at such time are either issued
        and
        outstanding or issuable. 

       

      “Pension
        Plan”
        means
        an employee benefit plan (as defined in ERISA) maintained by the Company
        for
        employees of the Company or any of its Affiliates.

      

      “Permitted
        Debt”
        means
        the following:

      

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      (a) Debt
        that
        is outstanding on the Execution Date and disclosed on Schedule
        3.5
        hereto,
        and any replacement of such Debt consisting of revolving working capital
        credit
        facilities or lines of credit obtained from commercial lending institutions
        on
        commercially reasonable terms and secured only by the Company’s and/or its
        Subsidiaries’ accounts receivable and/or inventory; provided,
        however,
        that in
        no event shall the amount of Debt outstanding at any time exceed the sum
        of (i)
        the amount of Debt outstanding on the Execution Date and disclosed on
Schedule
        3.5
        hereto
plus
        (ii)
        $10,000,000;

      

      (b) Debt
        consisting of capitalized lease obligations and purchase money indebtedness
        incurred in connection with acquisition of capital assets and obligations
        under
        sale-leaseback or similar arrangements provided in each case that such
        obligations are not secured by Liens on any assets of the Company or its
        Subsidiaries other than the assets so leased; 

      

      (c) Debt
        assumed or incurred in connection with the acquisition by the Company or
        its
        Subsidiaries of all or substantially all of the capital stock or other equity
        interests in, or all or substantially all of the assets (constituting a business
        unit) of, any Person; provided, that the total amount of Debt assumed or
        incurred in connection with any such acquisition shall not exceed the product
        of
        (i) two (2) times
        (ii) the
        amount of the acquired entity’s or business unit’s total earnings before
        interest, taxes, depreciation and amortization (as determined in accordance
        with
        GAAP) for the twelve (12) full calendar months immediately prior to such
        acquisition; 

      

      (d) Debt
        incurred between the Company and a Subsidiary that is not a Public Subsidiary
        or
        between Subsidiaries that are not Public Subsidiaries; and 

      

      (e)
         Debt
        incurred by the Company that is used to redeem all outstanding Preferred
        Stock
        and Notes and to pay in full any then existing monetary obligations
        thereunder.

       

      “Permitted
        Liens”
        means
        the following:

      

      (a) encumbrances
        consisting of easements, rights-of-way, zoning restrictions or other
        restrictions on the use of real Property or imperfections to title that do
        not
        (individually or in the aggregate) materially impair the ability of the Company
        or any of its Subsidiaries to use such Property in its businesses, and none
        of
        which is violated in any material respect by existing or proposed structures
        or
        land use;

      

      (b) Liens
        for
        taxes, assessments or other governmental charges that are not delinquent
        or
        which are being contested in good faith by appropriate proceedings, which
        proceedings have the effect of preventing the forfeiture or sale of the Property
        subject to such Liens,
        and for which adequate reserves (as determined in accordance with GAAP) have
        been established; 
        

        (c) Liens
          of
          mechanics, materialmen, warehousemen, carriers, landlords or other similar
          statutory Liens securing obligations that are not yet due and are incurred
          in
          the ordinary course of business or which are being contested in good faith
          by
          appropriate proceedings, which proceedings have the effect of preventing
          the
          forfeiture or sale of the Property subject to such 

      

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      Liens,
        for which adequate reserves (as determined in accordance with GAAP) have
        been
        established; 

      

      (d) any
        interest or title of a lessor under any capitalized lease obligation provided
        that such Liens do not extend to any property or assets which is not leased
        property subject to such capitalized lease obligation; and

      

      (e) purchase
        money Liens to finance property or assets of the Company or any Subsidiary
        of
        the Company acquired in the ordinary course of business; provided,
        however,
        that
        (A) the related purchase money Debt shall not exceed the cost of such property
        or assets (including the cost of design, development, improvement, production,
        acquisition, construction, installation and integration) and shall not be
        secured by any property or assets of the Company or any Subsidiary of the
        Company other than the property and assets so acquired or constructed (and
        any
        improvements) and (B) the Lien securing such purchase money Debt shall be
        created within ten (10) days of such acquisition, construction or improvement;
        

      

      (f) mortgages
        on real Property in existence on the Execution Date and disclosed on
Schedule
        3.22
        hereto,
        and any replacements thereof, securing amounts not greater than the amounts
        secured thereby on the Execution Date; and

      

      (g) Liens
        in
        existence on the Execution Date and listed on Schedule
        3.5
        and
Schedule
        3.5.1
        hereto.

      

      “Person”
        means
        any individual, corporation, trust, association, company, partnership, joint
        venture, limited liability company, joint stock company, Governmental Authority
        or other entity. 

      

      “Preferred
        Shares”
        and
“Preferred
        Stock”
        have
        the respective meanings specified in the preamble
        to this Agreement.

      

      “Property”
        means
        property and/or assets of all kinds, whether real, personal or mixed, tangible
        or intangible (including, without limitation, all rights relating
        thereto).

      

      “Pro
        Rata Share”
        means,
        with respect to an Investor, the ratio determined by dividing (i) the number
        of
        Preferred Shares purchased by such Investor on the Closing Date by (ii) the
        aggregate number of Preferred Shares purchased by all of the Investors on
        the
        Closing Date.

      

      “Public
        Subsidiary”
        means
        any Subsidiary that has a class of equity securities registered pursuant
        to
        Section 12 of the Exchange Act.

      

      “Purchase
        Price”
        has the
        meaning specified in Section
        1.1
        hereof.

       

      “Purchased
        Securities”
        has the
        meaning specified in Section
        1.1
        hereof.

      

      “Registrable
        Securities” 
        means
        the
        Conversion Shares and the Warrant Shares, any other shares of Common Stock
        issuable pursuant to the terms of the Certificate of

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      Designations
        or the Warrants, and any shares of capital stock issued or issuable from
        time to
        time (with any adjustments) in replacement of, in exchange for or otherwise
        in
        respect of the Conversion Shares or the Warrant Shares or such other shares
        of
        Common Stock; provided,
        however,
        that
“Registrable
        Securities”
        shall
        not include any such shares that have been sold to the public pursuant to
        a
        Registration Statement or Rule 144.

      

      “Registration
        Rights Agreement”
        has the
        meaning specified in the preamble to this Agreement. 

      

      “Registration
        Statement”
        has the
        meaning specified in the Registration Rights Agreement.

      

      “Regulation
        D”
        has the
        meaning specified in the preamble to this Agreement.

      

      “Reserved
        Amount”
        has the
        meaning specified in Section
        4.3
        hereof.

      

      “Restricted
        Period”
        means
        each of (i) the period beginning on the Initial Filing Deadline and ending
        on
        the date on which the Initial Registration Statement is declared effective
        by
        the Commission and (ii) the period beginning on Subsequent Filing Deadline
        and
        ending on the date on which the Subsequent Registration Statement is declared
        effective by the Commission; provided, however, that each Restricted Period
        shall be deemed to end on the first Business Day on which the Registrable
        Securities covered by the related Restricted Period may be sold pursuant
        to Rule
        144(k).

      

      “Rule
        144”
        means
        Rule 144 under the Securities Act, or any successor provision.

      

      “Satellite”
        has the
        meaning specified in Section
        6.10
        hereof.

       

      “SEC
        Documents”
        has the
        meaning specified in Section
        3.4
        hereof.

      

      “Securities”
        has the
        meaning specified in the preamble to this Agreement.

      

      “Securities
        Act”
        has the
        meaning specified in the preamble to this Agreement.

       

      “Stated
        Value”
        means
        $1,000, subject to proportionate adjustment in the event of a stock split
        or
        similar event.

      

      “Shareholder
        Approval”
        has the
        meaning specified in the Certificate of Designation.

      

      “Subsequent
        Issuance”
        means
        the issuance, sale, exchange, or agreement or obligation to issue, sell or
        exchange or reserve, or agreement to or set aside for issuance, sale or
        exchange, (1) shares of Common Stock, (2) any other equity security of the
        Company or any Subsidiary that is not a Public Subsidiary, including without
        limitation shares of preferred stock, (3) any other security of the Company
        or
        any such Subsidiary which by its terms is convertible into or

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      exchangeable
        or exercisable for any equity security of the Company or any such Subsidiary,
        or
        (4) any option, warrant or other right to subscribe for, purchase or otherwise
        acquire any such security described in the foregoing clauses (1) through
        (3);
provided,
        however,
        that
        the issuance or sale, or agreement to issue or sell, Excluded Securities
        shall
        not constitute a Subsequent Issuance.

      

      “Subsequent
        Filing Deadline”
        has the
        meaning specified in Registration Rights Agreement.

      

      “Subsequent
        Preferred Shares”
        has the
        meaning specified in the preamble
        to this Agreement.

       

      “Subsidiary”
        means
        any corporation or other entity (other than an entity having no material
        operations or business during the twelve month period immediately preceding
        the
        Execution Date) of which at least a majority of the outstanding shares of
        stock
        or other ownership interests having by the terms thereof ordinary voting
        power
        to elect a majority of the board of directors (or Persons performing similar
        functions) of such corporation or entity (regardless of whether, in the case
        of
        a corporation, stock of any other class or classes of such corporation shall
        or
        might have voting power by reason of the happening of any contingency) is
        at the
        time, directly or indirectly, owned or controlled by the Company and/or one
        or
        more of its Affiliates.

      

      “Termination
        Date”
        means
        the first date on which the Notes have been paid in full and there are no
        Preferred Shares outstanding.

       

      “Transaction
        Documents”
        means
(i)
        this
        Agreement, (ii) the Notes, (iii) the Warrants, (v) the Registration Rights
        Agreement, (iv) the VeriChip Warrants and (v) all other agreements, documents
        and other instruments executed and delivered by or on behalf of the Company
        or
        any of its officers at the Closing.

      

      “Transfer
        Agent”
        has the
        meaning specified in Section
        4.6
        hereof.

      

      “2004
        Warrants” 
        means,
        collectively, the Series B Warrants and Series D Warrants issued by the Company
        pursuant to the Securities Purchase Agreement, dated as of April 13, 2004,
        and
        the Securities Purchase Agreement, dated as of October 21, 2004, respectively.
        

      

      “VeriChip”,
        “VeriChip
        Warrant”
        and
(“VeriChip
        Warrant Shares”)
        have
        the
        respective meanings specified in the preamble to this Agreement.

      

      “VWAP”
        on a
        Trading Day means the volume weighted average price of the Common Stock for
        such
        Trading Day on the Principal Market as reported by Bloomberg Financial Markets
        or, if Bloomberg Financial Markets is not then reporting such prices, by
        a
        comparable reporting service of national reputation selected by the Investors
        and reasonably satisfactory to the Company. If VWAP cannot be calculated
        for the
        Common Stock on such Trading Day on any of the foregoing bases, then the
        Company
        shall submit such calculation to an independent investment banking firm of
        national reputation reasonably acceptable to the Investors, and shall cause
        such
        investment banking firm to perform such determination and notify the Company
        and
        the Investors of the results of determination no later than two (2) Business
        Days from the time such calculation

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      was
        submitted to it by the Company. All such determinations shall be appropriately
        adjusted for any stock dividend, stock split or other similar transaction
        during
        such period.

      

      “Warrants”
        has
the
        meaning specified in the preamble
        to this Agreement.

      

      “Warrant
        Shares”
        has
the
        meaning specified in the preamble
        to this Agreement.

      

      “Wholly-Owned
        Subsidiary”
        means
        any Subsidiary of which all of the outstanding shares of stock or other
        ownership interests having by the terms thereof ordinary voting power to
        elect a
        majority of the board of directors (or Persons performing similar functions)
        of
        such corporation or entity (regardless of whether, in the case of a corporation,
        stock of any other class or classes of such corporation shall or might have
        voting power by reason of the happening of any contingency) is at the time,
        directly or indirectly, owned by the Company.

      

      

      1.3 Other
        Definitional Provisions.
        All
        definitions contained in this Agreement are equally applicable to the singular
        and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import referring to this Agreement refer to
        this Agreement as a whole and not to any particular provision of this
        Agreement.

      

      2.    REPRESENTATIONS
        AND WARRANTIES OF THE INVESTORS.

      

      Each
        Investor (with respect to itself only) hereby represents and warrants to
        the
        Company and agrees with the Company that, as of the Execution Date:

      

      2.1 Authorization;
        Enforceability.
        Such
        Investor is duly and validly organized, validly existing and in good standing
        under the laws of the jurisdiction of its incorporation or organization with
        the
        requisite corporate power and authority to purchase the Purchased Securities
        and
        to execute and deliver this Agreement and the other Transaction Documents
        to
        which it is a party. This Agreement and the other Transaction Documents to
        which
        such Investor is a party have been duly executed and delivered by such Investor
        and each constitutes such Investor’s valid and legally binding obligation,
        enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
        insolvency, fraudulent transfer, reorganization, moratorium or other similar
        laws of general application relating to or affecting the enforcement of
        creditors’ rights generally and (ii) general principles of equity.

      

      2.2 Accredited
        Investor.
        Such
        Investor (i) is an “accredited investor” as that term is defined in Rule 501 of
        Regulation D; (ii) is acquiring the Securities solely for its own account
        and
        not with a present view to the public resale or distribution of all or any
        part
        thereof, except pursuant to sales that are registered under the Securities
        Act
        or are exempt from the registration requirements of the Securities Act;
provided,
        however,
        that,
        in making such representation, such Investor does not agree to hold the
        Securities for any minimum or specific term and reserves the right to sell,
        transfer or otherwise dispose of the Securities at any time in accordance
        with
        the provisions of this Agreement and with Federal and state securities laws
        applicable to such sale, transfer or disposition; and (iii) understands that
        an
        investment in the Company is speculative and involves a high degree of risk
        of
        loss.

      

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      2.3 Information.
        The
        Company has, prior to the Execution Date, provided such Investor with
        information regarding the business, operations and financial condition of
        the
        Company, and has, prior to the Execution Date, granted to such Investor the
        opportunity to ask questions of and receive satisfactory answers from
        representatives of the Company, its officers, directors, employees and agents
        concerning the Company and materials relating to the terms and conditions
        of the
        purchase and sale of the Purchased Securities hereunder, and based thereon
        believes it can make an informed decision with respect to its investment
        in the
        Securities. Neither such information nor any other investigation conducted
        by
        such Investor or its representatives shall modify, amend or otherwise affect
        such Investor’s right to rely on the Company’s representations and warranties
        contained in this Agreement.

      

      2.4 Limitations
        on Disposition.
        Such
        Investor acknowledges that, except as provided in the Registration Rights
        Agreement, the Securities have not been and are not being registered under
        the
        Securities Act and may not be transferred or resold without registration
        under
        the Securities Act or unless pursuant to an exemption therefrom. By executing
        this Agreement, such Investor represents that it has no agreement or
        understanding with any Person (other than a Person to whom such Investor
        has
        granted investment discretion over its assets) to sell, transfer and/or grant
        rights in any of the Securities.

      

      2.5 Legend.
        Such
        Investor understands that the certificates representing the Securities may
        bear
        at issuance a restrictive legend in substantially the following
        form:

      

      
        	 	 	
                “The
                  securities represented by this certificate have not been registered
                  under
                  the Securities Act of 1933, as amended (the “Securities Act”), or the
                  securities laws of any state, and may not be offered or sold unless
                  a
                  registration statement under the Securities Act and applicable
                  state
                  securities laws shall have become effective with regard thereto,
                  or an
                  exemption from registration under the Securities Act and applicable
                  state
                  securities laws is available in connection with such offer or
                  sale.”

              

      

      

              Notwithstanding
        the
        foregoing, it is agreed that, as long as (A) the resale or transfer (including
        without limitation a pledge) of any of the Securities is registered pursuant
        to
        an effective registration statement, (B) such Securities have been sold pursuant
        to Rule 144, subject to receipt by the Company of customary documentation
        in
        connection therewith, or (C) such Securities are eligible for resale under
        Rule
        144(k) or any successor provision and the holder thereof represents in writing
        to the Company that it is eligible to use such rule for public resales of
        such
        Securities, the certificates representing such Securities shall be issued
        without any legend or other restrictive language and, with respect to Securities
        upon which such legend is stamped, the Company shall issue new certificates
        without such legend to the holder upon request. 

      

      2.6 Reliance
        on Exemptions.
        Such
        Investor understands that the Securities are being offered and sold to it
        in
        reliance upon specific exemptions from the registration requirements of federal
        and state securities laws and that the Company is relying on the truth and
        accuracy of the representations and warranties of such
        Investor
        set
        forth in this Article
        2
        in order
        to determine the availability of such exemptions and the eligibility of
such
        Investor
        to
        acquire the Securities.

       

      2.7 Non-Affiliate
        Status; Common Stock Ownership.
        Such
        Investor is not an Affiliate of the Company. Such Investor’s investment in
        Purchased Securities is not for the purpose of acquiring, directly or
        indirectly, control of, and it has no intent to acquire or exercise control
        of,
        the Company or to influence the decisions or policies of the Company’s Board of
        Directors. 

      

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      2.8
         Fees.
        Such
        Investor is not obligated to pay any commissions, compensation or other fee,
        cost or related expenditure to any underwriter, broker, agent or other
        representative in connection with the transactions contemplated hereby, other
        than legal fees to its counsel. Such Investor will indemnify and hold harmless
        the Company from and against any claim by any Person alleging that, as a
        result
        of any agreement or arrangement between such Person and such Investor, the
        Company is obligated to pay any such commissions, compensations, fee, cost
        or
        related expenditure in connection with the transactions completed
        hereby.

       

      3.    REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY. The
        Company hereby represents and warrants to each Investor as of the Execution
        Date
        (except that, to the extent that any representation or warranty relates to
        a
        particular date, the Company hereby makes such representation or warranty
        as of
        that particular date), and agrees with such Investor, as follows:

      

      3.1 Organization,
        Good Standing and Qualification.
        Each of
        the Company and the Subsidiaries is duly organized, validly existing and
        in good
        standing under the laws of the jurisdiction of its incorporation or organization
        and has all requisite power and authority to carry on its business as now
        conducted. Each of the Company and the Subsidiaries is duly qualified to
        transact business and is in good standing in each jurisdiction in which it
        conducts business except where the failure so to qualify has not had or would
        not reasonably be expected to have a Material Adverse Effect.

      

      3.2 Authorization;
        Consents.
        The
        Company has the requisite corporate power and authority to adopt and file
        the
        Certificate of Designation and perform its obligations thereunder and to
        enter
        into and perform its obligations under this Agreement, the Notes and the
        other
        Transaction Documents, including without limitation its obligation to issue
        and
        sell the Securities to such Investor in accordance with the terms hereof
        and
        thereof and to issue the Conversion Shares and Warrant Shares upon conversion
        of
        the Preferred Shares or exercise of the Warrants, as the case may be. All
        corporate action on the part of the Company by its officers, directors and
        shareholders necessary for the authorization, execution and delivery of,
        and the
        performance by the Company of its obligations under, the Certificate of
        Designation, this Agreement, the Notes and the other Transaction Documents
        has
        been taken, and no further consent or authorization of the Company, its Board
        of
        Directors, shareholders, any Governmental Authority or organization (other
        than
        such approval as may be required under the Securities Act and applicable
        state
        securities laws in respect of the Registration Rights Agreement), or any
        other
        person or entity is required (pursuant to any rule of the NASD or
        otherwise).
        The
        Company’s Board of Directors has determined, at a duly convened meeting or
        pursuant to a unanimous written consent, that the issuance and sale of the
        Securities, and the consummation of the transactions contemplated by the
        Certificate of Designation, this Agreement,
        the
        Notes
        and the
        other Transaction Documents (including without limitation the issuance of
        the
        Conversion Shares and the Warrant Shares), are in the best interests of the
        Company.

      

      3.3  Enforcement.
        This
        Agreement has been duly executed and delivered by the Company, and each other
        Transaction Document, upon the execution and delivery thereof at or prior
        to the
        Closing, will be duly executed and delivered by the Company. This Agreement
        constitutes, and upon the execution and delivery thereof, each other Transaction
        Document will constitute, the valid and legally binding obligation of the
        Company, enforceable against it in accordance with its terms, subject to
        (i)
        applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
        reorganization or other

       

      
        
          
          

        

        
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      similar
        laws of general application relating to or affecting the enforcement of
        creditors’ rights generally and (ii) general principles of equity. 

      

      3.4 SEC
        Documents; Agreements; Financial Statements; Other Information.
        The
        Company is subject to the reporting requirements of the Exchange Act and
        has
        filed with the Commission all reports, schedules, registration statements
        and
        definitive proxy statements that the Company was required to file with the
        Commission on or after December 31, 2003 (collectively, the “SEC
        Documents”).
        The
        Company is not aware of any event occurring on or prior to the Closing Date
        (other than the transactions effected hereby) that would require the filing
        of,
        or with respect to which the Company intends to file, a Current Report on
        Form
        8-K after the Closing. Each SEC Document, as of the date of the filing thereof
        with the Commission, complied in all material respects with the requirements
        of
        the Securities Act or Exchange Act, as applicable, and the rules and regulations
        promulgated thereunder and, as of the date of such filing (or if amended
        or
        superseded by a filing prior to the Execution Date, then on the date of such
        filing), such SEC Document (including all exhibits and schedules thereto
        and
        documents incorporated by reference therein) did not contain an untrue statement
        of material fact or omit to state a material fact required to be stated therein
        or necessary to make the statements therein, in light of the circumstances
        under
        which they were made, not misleading. All documents required to be filed
        as
        exhibits to the SEC Documents have been filed as required. Except as set
        forth
        in the SEC Documents or any schedule or exhibit attached hereto, the Company
        has
        no liabilities, contingent or otherwise, other than liabilities incurred
        in the
        ordinary course of business which, under GAAP, are not required to be reflected
        in the financial statements included in the SEC Documents and which,
        individually or in the aggregate, are not material to the consolidated business
        or financial condition of the Company and the Subsidiaries taken as a whole.
        The
        financial statements included in the SEC Documents have been prepared in
        accordance with GAAP consistently applied at the times and during the periods
        involved (except (i) as may be otherwise indicated in such financial statements
        or the notes thereto, or (ii) in the case of unaudited interim statements,
        to
        the extent they may exclude footnotes or may be condensed or summary statements)
        and fairly present in all material respects the financial position of the
        Company as of the dates thereof and the results of its operations and cash
        flows
        for the periods then ended (subject, in the case of unaudited statements,
        to
        normal year-end adjustments). 

       

      3.5 Capitalization;
        Debt
        Schedule.
        The
        capitalization of the Company as of the date hereof, including its authorized
        capital stock, the number of shares issued and outstanding, the number of
        shares
        issuable and reserved for issuance pursuant to the Company’s stock option plans
        and agreements, the number of shares issuable and reserved for issuance pursuant
        to securities (other than the Preferred Shares and Warrants) exercisable
        for, or
        convertible into or exchangeable for any shares of Common Stock and the number
        of shares initially to be reserved for issuance upon conversion of the Preferred
        Shares and exercise of the Warrants is set forth on Schedule
        3.5
        hereto.
        All issued and outstanding shares of capital stock of the Company have been
        validly issued and are fully paid and non-assessable, and all shares of capital
        stock issued by any Subsidiary and held by the Company have been validly
        issued
        and are fully paid and non-assessable, free and clear of all Liens other
        than
        Permitted Liens. All outstanding shares of capital stock of the Company were
        issued, sold and delivered in full compliance with all applicable Federal
        and
        state securities laws. No shares of the capital stock of the Company are
        subject
        to preemptive rights or any other similar rights of security holders of the
        Company or any Liens created by or through the Company. Except as set forth
        or
Schedule
        3.7,
        there
        are no outstanding options, warrants, scrip, rights to subscribe to, calls
        or
        commitments of any character

       

      
        
          
          

        

        
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      whatsoever
        relating to, or securities or rights convertible into or exercisable or
        exchangeable for, any shares of capital stock of the Company, or arrangements
        by
        which the Company is or may become bound to issue additional shares of capital
        stock of the Company or any of the Subsidiaries (whether
        pursuant to anti-dilution, “reset” or other similar provisions).
        Except
        as described on Schedule
        3.5
        hereto,
        the Company or a Wholly-Owned Subsidiary owns all of the capital stock of
        each
        Wholly-Owned Subsidiary. Except as described on Schedule
        3.5
        hereto,
        neither the
        Company nor any of the Subsidiaries has any material Debt outstanding as
        of the
        date hereof.

      

      3.6 Due
        Authorization; Valid Issuance.
        The
        Preferred Shares are duly authorized and, when issued, sold and delivered
        in
        accordance with the terms of the Certificate of Designation and the terms
        hereof
        or the terms of the Notes, as the case may be, (i) will be duly and validly
        issued, fully paid and nonassessable, free and clear of any Liens imposed
        by or
        through the Company, (ii) assuming the accuracy of each Investor’s
        representations in this Agreement, will be issued, sold and delivered in
        compliance with all applicable Federal and state securities laws and (iii)
        will
        be entitled to all rights, preferences and privileges described in the
        Certificate of Designation. The Notes, the Warrants, the Conversion Shares
        and
        the Warrant Shares are duly authorized and, when issued, sold and delivered
        in
        accordance with the terms this Agreement, the Warrants, or the Certificate
        of
        Designation, as the case may be, will be duly and validly issued, fully paid
        and
        non-assessable, free and clear of any Liens imposed by or through the Company
        and, assuming the accuracy of such Investor’s representations in this Agreement,
        will be issued, sold and delivered in compliance with all applicable Federal
        and
        state securities laws. The VeriChip Warrants and the VeriChip Warrant Shares
        are
        duly authorized and, when issued, sold and delivered in accordance with the
        terms this Agreement or the VeriChip Warrants, as the case may be, will be
        duly
        and validly issued, fully paid and non-assessable, free and clear of any
        Liens
        imposed by or through the Company and, assuming the accuracy of such Investor’s
        representations in this Agreement, will be issued, sold and delivered in
        compliance with all applicable Federal and state securities laws.

       

      3.7 No
        Conflict with Other Instruments.
        Neither
        the Company nor any of the Subsidiaries is in violation of any provisions
        of its
        Certificate of Incorporation, Bylaws or any other governing document or in
        default (and no event has occurred which, with notice or lapse of time or
        both,
        would constitute a default) under any provision of any material instrument
        or
        material contract to which it is a party or by which it or any of its Property
        is bound, or in violation of any provision of any Governmental Requirement
        applicable to it, except for violations of any provision of a Governmental
        Requirement that has not had or would not reasonably be expected to have
        a
        Material Adverse Effect (any such violation or default, a “Current
        Violation”).
        The
        execution, delivery and performance of this Agreement and the other Transaction
        Documents, and the consummation of the transactions contemplated hereby and
        thereby (including without limitation, the filing of the Certificate of
        Designation, the issuance of the Preferred Shares and Warrants and the
        reservation and issuance of the Conversion Shares and Warrant Shares) will
        not
        result in a Current Violation or result in the creation of any Lien upon
        any
        assets of the Company or of any of the Subsidiaries or the triggering of
        any
        preemptive or, except as disclosed
        on Schedule
        3.7,
        anti-dilution rights (including
        without limitation pursuant to any “reset” or similar provisions) or
        rights
        of first refusal or first offer,
        or
        any
        other rights that would allow or permit the holders of the Company’s securities
        or other Persons to purchase shares of Common Stock or other securities of
        the
        Company (whether
        pursuant to a shareholder rights plan provision or otherwise).
        Existing Missouri control share acquisition or business combination statutory
        provisions are inapplicable to the Company or to the issuance and delivery
        of
        the Securities to the

       

      
        
          
          

        

        
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      Investors
        as contemplated by the Transaction Documents.

      

      3.8 Financial
        Condition; Taxes; Litigation.

      

      3.8.1
        The
        consolidated financial condition of the Company and the Subsidiaries is,
        in all
        material respects, as described in the Disclosure Documents, except for changes
        in the ordinary course of business and normal year-end adjustments that are
        not,
        in the aggregate, materially adverse to the consolidated business or financial
        condition of the Company and the Subsidiaries taken as a whole. There has
        occurred no (i) material adverse change to the Company’s business, operations,
        properties, financial condition, or results of operations since the date
        of the
        Company’s most recent audited financial statements contained in the Disclosure
        Documents or (ii) change by the Company in its accounting principles, policies
        and methods except as required by changes in GAAP or applicable
        law.

      

      3.8.2
        Each of
        the Company and the Subsidiaries (i) has prepared in good faith and duly
        and
        timely filed all tax returns required to be filed by it and such returns
        are
        complete and accurate in all material respects and (ii) has paid all taxes
        required to have been paid by it, except for taxes which it reasonably disputes
        in good faith or the failure of which to pay has not had or would not reasonably
        be expected to have a Material Adverse Effect, and has no liability with
        respect
        to accrued taxes in excess of the amounts that are described as accrued in
        the
        most recent financial statements included in the Disclosure Documents.

      

      3.8.3
        Except
        as described in Schedule
        3.8.3,
        neither
        the Company nor any of the Subsidiaries is the subject of any pending or,
        to the
        Company’s knowledge, threatened inquiry, investigation or administrative or
        legal proceeding by the Internal Revenue Service, the taxing authorities
        of any
        state or local jurisdiction (other than with respect to taxes which it
        reasonably disputes in good faith or the failure of which to pay has not
        had or
        would not reasonably be expected to have a Material Adverse Effect), the
        Commission, the NASD, any state securities commission or other Governmental
        Authority. 

      

      3.8.4
        Except
        as described in Schedule
        3.8.4,
        there
        is no material claim, litigation or administrative proceeding pending or,
        to the
        Company’s knowledge, threatened or contemplated, against the Company or any of
        the Subsidiaries, or, to the Company’s knowledge, against any officer, director
        or employee of the Company or any such Subsidiary in connection with such
        person’s employment therewith. Neither the Company nor any of the Subsidiaries
        is a party to or subject to the provisions of, any order, writ, injunction,
        judgment or decree of any court or Governmental Authority which has had or
        would
        reasonably be expected to have a Material Adverse Effect.

      

      3.9 Form
        S-3.
        The
        Company is eligible to register the Registrable Securities for resale by
        such
        Investor on a registration statement on Form S-3 under the Securities
        Act.
        To the
        Company’s knowledge, there exist no facts or circumstances (including without
        limitation any required approvals or waivers of any circumstances that may
        delay
        or prevent the obtaining of accountant’s consents) that could reasonably be
        expected to prohibit or delay the preparation, filing or effectiveness of
        such
        registration statement.

      

      3.10  Acknowledgement
        of Dilution.
        The
        Company acknowledges that the issuance of the Conversion Shares upon conversion
        of the Preferred Shares and issuance of Warrant Shares upon

       

      
        
          
          

        

        
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      exercise
        of the Warrants may result in dilution of the outstanding shares of Common
        Stock, which dilution may be substantial under certain market conditions.
        The
        Company further acknowledges that its obligation to issue Conversion Shares
        upon
        conversion of the Preferred Shares and Warrant Shares upon exercise of the
        Warrants in accordance with the terms thereof is unconditional regardless
        of the
        effect of any such dilution. The Company further acknowledges that each Investor
        may enter into short sales and engage in other hedging activity with respect
        to
        the Preferred Shares, the Conversion Shares, the Warrants and the Warrant
        Shares
        and, assuming such activity complies in all material respects with applicable
        Governmental Requirements, the Company hereby waives any claim against any
        Investor alleging that such activity constitutes a breach of such Investor’s
        contractual or other obligations.

      

      3.11 Intellectual
        Property.
        The
        Company and the Subsidiaries each owns or possesses, licenses or can acquire
        or
        make use of, without undue expense, all
        Intellectual Property that is necessary
        for
        the
        operation of its businesses as presently conducted and as proposed to be
        conducted, without any known conflict with the rights of others. The
        consummation of the transactions contemplated by this Agreement and the other
        Transaction Documents will not materially alter or impair, individually or
        in
        the aggregate, any of such rights of the Company. To the Company’s
        knowledge,
        (i)
none
        of
        its current products or services infringes upon any Intellectual Property
        of any
        other Person, and no claim or litigation is pending or, to the knowledge
        of the
        Company, threatened against the Company contesting its right to sell or
        otherwise use any product or material or service which has
        had
        or would reasonably be expected to have a
        Material Adverse Effect and (ii) the use by the Company of any Intellectual
        Property does not infringe the rights of any third party to such Intellectual
        Property. There is no violation by the Company with respect to any Intellectual
        Property owned or used by the Company and
        the
        Company’s rights to such Intellectual Property are valid and enforceable and no
        registration relating thereto has lapsed, expired or terminated or is the
        subject of any claim or proceeding that could result in any such lapse,
        expiration or termination. The Company and the Subsidiaries each has complied
        in
        all material respects with its obligations pursuant to any agreement relating
        to
        Intellectual Property rights that are the subject of licenses granted by
        third
        parties, except for any non-compliance that has not had or would not
        reasonably be expected to have a Material Adverse Effect.

      

      3.12 Registration
        Rights.
        Except
        as described on Schedule
        3.12
        hereto,
        the Company has not granted or agreed to grant to any person or entity any
        rights (including “piggy-back” registration rights) to have any securities of
        the Company registered with the Commission or any other governmental authority
        which has not been satisfied in full prior to the date hereof.

      

      3.13 No
        Solicitation; Other Issuances of Securities.
        Except
        as described on Schedule
        3.13
        hereto,
        either the Company nor any of its Subsidiaries or Affiliates, nor any person
        acting on its or their behalf, (i) has engaged in any form of general
        solicitation or general advertising (within the meaning of Regulation D)
        in
        connection with the offer or sale of the Securities, or (ii) has, directly
        or
        indirectly, made any offers or sales of any security or the right to purchase
        any security, or solicited any offers to buy any security or any such right,
        under circumstances that would require registration of the Securities under
        the
        Securities Act or that would cause this offering of Securities to be integrated
        with any prior offering of securities of the Company for purposes of the
        Securities Act or the listing criteria of the Nasdaq Stock Market.

      

      
        
          
          

        

        
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      3.14 Fees.
        The
        Company is not obligated to pay any compensation or other fee, cost or related
        expenditure to any underwriter, broker, agent or other representative in
        connection with the transactions contemplated hereby. The Company will indemnify
        and hold harmless such Investor from and against any claim by any person
        or
        entity alleging that,
        as a
        result of any agreement or arrangement between such Person and the
        Company,
        such
        Investor is obligated to pay any such compensation, fee, cost or related
        expenditure in connection with the transactions contemplated
        hereby.

      

      3.15 Foreign
        Corrupt Practices.
        Neither
        the Company, nor to the Company’s knowledge any of the Subsidiaries nor to the
        Company’s knowledge any director, officer, agent, employee or other person
        acting on behalf of the Company or any Subsidiary, has (i) used any corporate
        funds for any unlawful contribution, gift, entertainment or other unlawful
        expenses relating to political activity, (ii) made any direct or indirect
        unlawful payment to any foreign or domestic government official or employee
        (including without limitation any bribe, rebate, payoff, influence payment,
        kickback or other unlawful payment), or (iii) violated any provision of the
        Foreign Corrupt Practices Act of 1977, as amended.

      

      3.16 Key
        Employees.
        Each of
        the Company’s executive officers (as
        defined in Rule 501(f) of the Securities Act) (each,
        a
“Key
        Employee”)
        is
        currently serving in the capacity indicated in Schedule
        3.16
        hereto.
        The Company has no knowledge of any fact or circumstance (including without
        limitation (i) the terms of any agreement to which such person is a party
        or any
        litigation in which such person is or may become involved and (ii) any illness
        or medical condition that could reasonably be expected to result in the
        disability or incapacity of such person) that would limit or prevent any
        such
        person from serving in such capacity on a full-time basis in the foreseeable
        future, or of any intention on the part of any such person to limit or terminate
        his or her employment with the Company. No Key Employee has borrowed money
        pursuant to a currently outstanding loan that is secured by Common Stock
        or any
        right or option to receive Common Stock. 

       

      3.17 Employee
        Matters.
        There
        is no strike, labor dispute or union organization activities pending or,
        to the
        knowledge of the Company, threatened between it and its employees (or between
        any of the Subsidiaries and such Subsidiary’s employees). No employees of the
        Company belong to any union or collective bargaining unit. The Company has
        complied in all material respects with all applicable federal and state equal
        opportunity and other laws related to employment.

       

      3.18 Environment.
        To the
        Company’s knowledge, neither the Company nor any of the Subsidiaries has any
        current liability under any Environmental Law, nor, to the knowledge of the
        Company, do any factors exist that are reasonably likely to give rise to
        any
        such liability that, individually or in the aggregate, has
        had
        or would reasonably be expected to have a
        Material Adverse Effect. To the Company’s knowledge, neither the Company nor any
        of the Subsidiaries has violated any Environmental Law applicable to it now
        or
        previously in effect, other than such violations or infringements that,
        individually or in the aggregate, have not had and would not reasonably be
        expected to have a Material Adverse Effect.

       

      3.19 ERISA.
        Except
        as described on Schedule
        3.19,
        neither
        the Company nor any of the Subsidiaries maintains or contributes to, or has
        any
        obligation under, any Pension Plan. The Company and each of the Subsidiaries
        is
        in compliance in all material respects with the presently applicable provisions
        of ERISA and the United States Internal Revenue Code of 1986, as
        amended,

       

      
        
          
          

        

        
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      except
        for matters that, individually or in the aggregate, have not had, and would
        not
        reasonably be expected to have, a Material Adverse Effect.

      

      3.20 Disclosure.
        No
        written statement, information, report, representation or warranty made by
        the
        Company in this Agreement or any other Transaction Document or furnished
        to such
        Investor by or on behalf of the Company or any of the Subsidiaries in connection
        with the Transaction Documents or such Investor’s due diligence investigation of
        the Company contains any untrue statement of a material fact or omits to
        state
        any material fact necessary to make the statements herein or therein, in
        light
        of the circumstances in which made, not misleading. Following
        the issuance of the press release and Current Report on Form 8-K in accordance
        with Section
        4.1(c)
        hereof,
        such Investor will not, to the Company’s knowledge, possess any material
        non-public information concerning the Company. The Company acknowledges that
        such Investor is relying on the representations, acknowledgements and agreements
        made by the Company in this Section
        3.20
        and
        elsewhere in this Agreement in making trading and other decisions concerning
        the
        Company’s securities.

      

      3.21 Insurance.
        The
        Company and each Subsidiary maintains insurance for itself and the Subsidiaries
        in such amounts and covering such losses and risks as the Company believes
        to be
        reasonably prudent in relation to the businesses in which the Company and
        the
        Subsidiaries are engaged. No notice of cancellation has been received for
        any of
        such policies and the Company reasonably believes that is in compliance with
        all
        of the terms and conditions thereof. The Company has no reason to believe
        that
        it will not be able to renew any existing insurance coverage as and when
        such
        coverage expires or to obtain similar coverage from similar insurers as may
        be
        necessary to continue doing business as currently conducted without a
        significant increase in cost. Without limiting the generality of the foregoing,
        the Company maintains Director’s and Officer’s insurance in an amount not less
        than $10 million for each covered occurrence and in the aggregate.

      

      3.22
         Property.
        Except
        as set forth in Schedule
        3.22,
        the
        Company and the Subsidiaries have good and marketable title to all personal
        Property and good and marketable title in fee simple to all of its real property
        owned by them which, individually or in the aggregate, is material to the
        business of the Company and the Subsidiaries, in each such case free and
        clear
        of all Liens except for Permitted Liens. Any Property held under lease by
        the
        Company and the Subsidiaries is held by them under valid, subsisting and
        enforceable leases with such exceptions as are not material and do not interfere
        with the use made or proposed to be made of such Property by the Company
        and the
        Subsidiaries. 

      

      3.23 Regulatory
        Permits.
        The
        Company and the Subsidiaries possess all material certificates, authorizations
        and permits issued by the appropriate federal, state or foreign regulatory
        authorities necessary to conduct their respective businesses other than where
        the failure to possess such certificates, authorizations or permits,
        individually or in the aggregate, has not had and would not reasonably be
        expected to have a Material Adverse Effect. Neither the Company nor any such
        Subsidiary has received any notice or otherwise become aware of any proceedings,
        inquiries or investigations relating to the revocation or modification of
        any
        such certificate, authorization or permit.

       

      3.24 Exchange
        Act Registration; Listing.
        The
        Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
        Act and is listed on the Nasdaq SmallCap Market or the Nasdaq National Market
        (collectively, the “Nasdaq
        Stock Market”).
        The
        Company currently meets the continuing eligibility requirements for listing
        on
        the Nasdaq Stock Market and has not received

       

      
        
          
          

        

        
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      any
        notice from the Nasdaq Stock Market that it may not currently satisfy such
        requirements or that such continued listing is in any way threatened. The
        Company has taken no action designed to, or which, to the knowledge of the
        Company, may have the effect of, terminating the registration of the Common
        Stock under the Exchange Act or delisting the Common Stock from the Nasdaq
        Stock
        Market. 

      

      3.25 Investment
        Company Status.
        The
        Company is not, and immediately after receipt of the Purchase Price for the
        Purchased Securities issued under this Agreement will not be, an “investment
        company”
        or an
        entity “controlled”
        by an
“investment
        company”
        within
        the meaning of the Investment Company Act of 1940, as amended (the “Investment
        Company Act”),
        and
        shall conduct its business in a manner so that it will not become subject
        to the
        Investment Company Act.

      

      3.26 Transfer
        Taxes.
        No
        stock transfer or other taxes (other than income taxes) are required to be
        paid
        in connection with the issuance and sale of any of the Securities, other
        than
        such taxes for which the Company has established appropriate reserves and
        intends to pay in full on or before the Closing.

      

      3.27 Internal
        Controls and Procedures.
        The
        Company maintains internal accounting controls, policies and procedures as
        certified by the Company’s Chief Executive Officer and Chief Financial Officer
        in the SEC Documents.

      

      3.28
         Embargoed
        Person.
        None of
        the funds or other assets of the Company or its Subsidiaries constitutes
        property of, or is beneficially owned, directly or indirectly, by any person
        subject to trade restrictions under United States law, including, but not
        limited to, the International Emergency Economic Powers Act, 50 U.S.C.
        § 1701 et seq.,
        The
        Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
        and any
        Executive Orders or regulations promulgated under any such United States
        laws
        (each, an “Embargoed
        Person”),
        with
        the result that the investments evidenced by the Securities are or would
        be in
        violation of law. No Embargoed Person shall have any interest of any nature
        whatsoever in the Company with the result that the investments evidenced
        by the
        Securities are or would be in violation of law. None of the funds or other
        assets of the Company shall be derived from any unlawful activity with the
        result that the investments evidenced by the Securities are or would be in
        violation of law.

      

      3.29 Sarbanes-Oxley
        Act; Internal Controls and Procedures.
        The
        Company is in compliance in all material respects with all applicable
        requirements of the Sarbanes-Oxley Act of 2002 and all applicable rules and
        regulations promulgated by the SEC thereunder that are effective as of the
        date
        hereof, except for instances of noncompliance that would not reasonably be
        expected to have, individually or in the aggregate, a Material Adverse Effect.
        The Company maintains internal accounting controls, policies and procedures,
        and
        such books and records as are reasonably designed to provide reasonable
        assurance that (i) all transactions to which the Company or any Subsidiary
        is a
        party or by which its properties are bound are effected by a duly authorized
        employee or agent of the Company, supervised by and acting within the scope
        of
        the authority granted by the Company’s senior management; (ii) the recorded
        accounting of the Company’s consolidated assets is compared with existing assets
        at regular intervals; and (iii) all transactions to which the Company or
        any
        Subsidiary is a party, or by which its properties are bound, are recorded
        (and
        such records maintained) in accordance with all Government Requirements and
        as
        may be

       

      
        
          
          

        

        
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      necessary
        or appropriate to ensure that the financial statements of the Company are
        prepared in accordance with GAAP, except, in any individual case or in the
        aggregate, has not had, and would not reasonably be expected to have, a Material
        Adverse Effect.

      

      3.30 Solvency.
        (i) The
        fair saleable value of the Company’s assets exceeds the amount that will be
        required to be paid on or in respect of the Company’s existing Debt as such Debt
        matures or is otherwise payable; (ii) the Company’s assets do not constitute
        unreasonably small capital to carry on its business for the current fiscal
        year
        as now conducted and as proposed to be conducted taking into account the
        current
        and projected capital requirements of the business conducted by the Company
        and
        projected capital availability; and (iii) the current cash flow of the Company,
        together with the proceeds the Company would receive upon liquidation of
        its
        assets, after taking into account all anticipated uses of such amounts, would
        be
        sufficient to pay all Debt when such Debt is required to be paid. The Company
        does not intend to incur Debt beyond its ability to pay such Debt as it matures.
        The Company has no knowledge of any facts or circumstances which lead it
        to
        believe that it will be required to file for reorganization or liquidation
        under
        the bankruptcy or reorganization laws of any jurisdiction, and has no present
        intention to so file. 

      

      3.31 Transactions
        with Interested Person.
        Except
        as set forth in Schedule 3.31, no officer, director or employee of the Company
        or any of its Subsidiaries is or has taken any steps to become a party to
        any
        transaction with the Company or any Subsidiary (other than for services as
        employees, officers and directors) that could reasonably be considered material
        to the Company or such individual, including any contract, agreement or other
        arrangement providing for the furnishing of services to or by, providing
        for
        rental of real or personal property to or from, or otherwise requiring payments
        to or from any officer, director or such employee or, to the knowledge of
        the
        Company, any entity in which any officer, director, or any such employee
        has a
        substantial interest or is an officer, director, trustee or
        partner.

      

      3.32 Customers;
        Suppliers.
        The
        relationships of the Company and its Subsidiaries with their respective
        customers and suppliers are maintained on commercially reasonable terms.
        Since
        December 31, 2004, no customer or supplier of the Company or its Subsidiaries
        has canceled, materially modified, or otherwise terminated its relationship
        with
        the Company or its Subsidiaries or decreased materially its usage or purchase
        or
        supply of the services or products of the Company or its Subsidiaries, except
        for such modifications and terminations which, individually and in the
        aggregate, have not had, and cannot reasonably be expected to have, a Material
        Adverse Effect, nor does any customer or supplier have, to the Company’s
        knowledge, any plan or intention to do any of the foregoing. The Company
        has no
        reason to believe that any of its or its Subsidiaries’ suppliers will experience
        a manufacturing disruption, a failure to dedicate adequate resources to the
        production, assembly or testing of the Company’s or its Subsidiaries’ products,
        or financial instability, or that any such supplier will be unable to
        successfully transition its manufacturing capabilities to the future needs
        of
        the Company and its Subsidiaries.

       

      4. COVENANTS
        OF THE COMPANY AND THE INVESTORS.

      

      4.1 The
        Company agrees with each Investor that it will:

       

      
        
          
          

        

        
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      (a) file
        a
        Form D with the Commission and any applicable state securities department
        with
        respect to the Securities issued at the Closing as and when required under
        Regulation D and provide a copy thereof to each Investor promptly after such
        filing; 

       

      (b) take
        such
        action as the Company reasonably determines upon the advice of counsel is
        necessary to qualify the Securities for sale under applicable state or
“blue-sky” laws or obtain an exemption therefrom, and shall provide evidence of
        any such action to each Investor at the Closing; and

       

      (c) (i)
        on or
        prior to 8:30 a.m. (eastern time) on the Business Day immediately following
        the
        Execution Date, issue a press release disclosing the material terms of the
        Certificate of Designation, the Notes, this Agreement and the other Transaction
        Documents and the transactions contemplated hereby and thereby and (ii) on
        or
        prior to 5:00 p.m. (eastern time) on the Business Day immediately following
        the Execution
        Date,
        file with the Commission a Current Report on Form 8-K disclosing the material
        terms of the
        Certificate of Designation, this
        Agreement and the other Transaction Documents and the transactions contemplated
        hereby and thereby and including as exhibits the Certificate of Designation,
        the
        Notes, this
        Agreement and the other Transaction Documents;
        provided,
        however,
        that
        each Investor shall have a reasonable opportunity to review and comment on
        any
        such press release or Current Report on Form 8-K prior to the issuance or
        filing
        thereof.
        Thereafter, the Company shall timely file any filings and notices required
        by
        the Commission or applicable law with respect to the transactions contemplated
        hereby.

       

      4.2 The
        Company agrees that it will, during the period beginning on the Execution
        Date
        and ending on the Termination Date:

       

      (a) maintain
        its corporate existence in good standing;

      

      (b) maintain,
        keep and preserve all of its Properties necessary in the proper conduct of
        its
        businesses in good repair, working order and condition (ordinary wear and
        tear
        excepted) and make all necessary repairs, renewals and replacements and
        improvements thereto, except where the failure to do so would not reasonably
        be
        expected to have, individually or in the aggregate, a Material Adverse
        Effect;

      

      (c) pay
        or
        discharge before becoming delinquent (a) all taxes, levies, assessments
        and
        governmental charges imposed on it or its income or profits or any of its
        Property and (b) all lawful claims for labor, material and supplies,
        which,
        if unpaid, might become a Lien upon any of its Property, except where the
        failure to do so would not reasonably be expected to have, individually or
        in
        the aggregate, a Material Adverse Effect; provided,
        however,
        that
        the Company shall not be required to pay or discharge any tax, levy, assessment
        or governmental charge, or claim for labor, material or supplies, whose amount,
        applicability or validity is being contested in good faith by appropriate
        proceedings being diligently pursued and for which adequate reserves have
        been
        established under GAAP;

      

      (d) comply
        with all Governmental Requirements applicable to the operation of its business,
        except for instances of noncompliance that would not reasonably be expected
        to
        have, individually or in the aggregate, a Material Adverse Effect; provided,
        however,
        that
        the Company shall not be required to comply with any Governmental Requirements,
        the

       

      
        
          
          

        

        
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      applicability
        or validity of which is being contested in good faith by appropriate proceedings
        being diligently pursued and for which adequate reserves have been established
        under GAAP;

      

      (e)
         comply
        with all agreements, documents and instruments binding on it or affecting
        its
        Properties or business, including, without limitation, all Material Contracts,
        except for instances of noncompliance that would not reasonably be expected
        to
        have, individually or in the aggregate, a Material Adverse Effect;

      

      (f) provide
        each Investor with copies of all materials sent to the Company’s shareholders,
        in each such case at the same time as such materials are delivered to such
        shareholders;

       

      (g) timely
        file with the Commission all reports required to be filed pursuant to the
        Exchange Act and refrain from terminating its status as an issuer required
        by
        the Exchange Act to file reports thereunder even if the Exchange Act or the
        rules or regulations thereunder would permit such termination; 

       

      (h) during
        any Restricted Period, restrict Key Employees from selling shares of Common
        Stock, other than pursuant to any 10b-5(1) trading plans in effect on the
        Execution Date and acceptable to the Investors , it being presumed that any
        such
        plan is acceptable to the Investors if it provides for sales of Common Stock
        only at per share prices that exceed one hundred and fifty percent (150%)
        of the
        Conversion Price; and

       

      (i) maintain
        adequate insurance coverage (including D&S insurance) for the
        Company and each Subsidiary.

       

      4.3 Reservation
        of Common Stock.
        The
        Company shall, on the Closing Date, have authorized and reserved for issuance,
        free from any preemptive rights, a number of shares of Common Stock (the
        “Reserved
        Amount”)
        that,
        on the Closing Date, is not less than one hundred twenty five percent (125%)
        of
        the maximum number of shares of Common Stock issuable (A) upon conversion
        of all
        of the Initial Preferred Shares at the Conversion Price then in effect, (B)
        upon
        exercise in full of the Warrants, in each case without regard to any limitation
        on such conversion or exercise that may otherwise be set forth in the
        Certificate of Designation or the Warrants, and (C) as Dividends (as defined
        in
        the Certificate of Designation) accruing on the Initial Preferred Shares
        through
        the second anniversary of the Issue Date (as defined in the Certificate of
        Designation). The Company shall, on the Exchange Date, have authorized and
        reserved for issuance, free from any preemptive rights, a number of shares
        of
        Common Stock that, on the Exchange Date (after giving effect to the Exchange),
        is not less than one hundred twenty five percent (125%) of the maximum number
        of
        shares of Common Stock issuable (A) upon conversion of all of the Preferred
        Shares at the Conversion Price then in effect, (B) upon exercise in full
        of the
        Warrants, in each case without regard to any limitation on such conversion
        or
        exercise that may otherwise be set forth in the Certificate of Designation
        or
        the Warrants, and (C) as Dividends (as defined in the Certificate of
        Designation) accruing on the Preferred Shares through the second anniversary
        of
        the Issue Date (as defined in the Certificate of Designation) for such Preferred
        Shares. If, on any date following the Closing Date, the Reserved Amount is
        insufficient (whether as a result of an anti-dilution adjustment, or otherwise)
        at any time to cover one hundred ten percent (110%) of the Issuable Amount,
        the
        Company shall use its best efforts (including without limitation holding
        a
        meeting of its shareholders) to increase the Reserved Amount to cover one
        hundred twenty five percent (125%) of the Issuable Amount, such increase
        to be
        effective not later than the thirtieth (30th) day (or

       

      
        
          
          

        

        
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      seventy-fifth
        (75th) day, in the event shareholder approval is required for such increase)
        following such date. Each increase in the Reserved Amount shall be allocated
        pro
        rata
        among
        the Investors based on the amount of Registrable Securities into which all
        of
        the Preferred Shares and Warrants held by such Investor at the time of such
        increase are convertible or exercisable (without regard to any limitation
        on
        such conversion or exercise). While any Preferred Shares or Warrants are
        outstanding, the Company shall not reduce the Reserved Amount without obtaining
        the prior written consent of each Investor. In the event that an Investor
        shall
        sell or otherwise transfer any portion of such Investor’s Preferred Shares or
        Warrants, each transferee shall be allocated a pro
        rata
        portion
        of the Reserved Amount.

      

      4.4 Use
        of
        Proceeds.
        The
        Company shall use the proceeds from the sale of the Purchased Securities
        solely
        to pay the purchase price for the acquisition of Instantel, Inc. and for
        no
        other purpose. 

      

      4.5
         Use
        of
        Investor Name.
        Except
        as may be required by applicable law and/or this Agreement, the Company shall
        not use, directly or indirectly, any Investor’s name or the name of any of its
        affiliates in any advertisement, announcement, press release or other similar
        communication unless it has received the prior written consent of such Investor
        for the specific use contemplated or as otherwise required by applicable
        law or
        regulation.

      

      4.6 Company’s
        Instructions to Transfer Agent.
        On or
        prior to each Closing Date, the Company shall execute and deliver irrevocable
        written instructions to the transfer agent for its Common Stock (the
“Transfer
        Agent”),
        and
        provide each Investor with a copy thereof, directing the Transfer Agent (i)
        to
        issue certificates representing Conversion Shares upon conversion of the
        Preferred Shares and receipt of a valid Conversion Notice (as defined in
        the
        Certificate of Designation) from an Investor, in the amount specified in
        such
        Conversion Notice, in the name of such Investor or its nominee, (ii) to issue
        certificates representing Warrant Shares upon exercise of the Warrants and
        (iii)
        to deliver such certificates to such Investor no later than the close of
        business on the third (3rd)
        business day following the related Conversion Date (as defined in the
        Certificate of Designation) or Exercise Date (as defined in the Warrant),
        as the
        case may be. Such certificates may bear legends pursuant to applicable
        provisions of this Agreement or applicable law. The Company shall instruct
        the
        transfer agent that, in lieu of delivering physical certificates representing
        shares of Common Stock to an Investor upon conversion of the Preferred Shares,
        or exercise of the Warrants, and as long as the Transfer Agent is a participant
        in the Depository Trust Company (“DTC”)
        Fast
        Automated Securities Transfer program (“FAST”)
        and
        the Conversion Shares are eligible to be delivered through the FAST system,
        and
        such Investor has not informed the Company that it wishes to receive physical
        certificates therefor, and no restrictive legend is required to appear on
        any
        physical certificate if issued, the transfer agent may effect delivery of
        Conversion Shares or Warrant Shares, as the case may be, by crediting the
        account of such Investor or its nominee at DTC for the number of shares for
        which delivery is required hereunder within the time frame specified above
        for
        delivery of certificates. The Company represents to and agrees with each
        Investor that it will not give any instruction to the Transfer Agent that
        will
        conflict with the foregoing instruction or otherwise restrict such Investor’s
        right to convert the Preferred Shares or to receive Conversion Shares in
        accordance with the terms of the Certificate of Designation or to exercise
        the
        Warrant or to receive Warrant Shares upon exercise of the Warrants. In the
        event
        that the Company’s relationship with the Transfer Agent should be terminated for
        any reason, the Company shall use its best efforts to cause the Transfer
        Agent
        to continue acting as transfer agent pursuant to the terms hereof until such
        time that a successor transfer agent is appointed by the Company and receives
        the instructions described above.

      

      
        
          
          

        

        
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      4.7  No
        Adverse Action.
        The
        Company and the Subsidiaries shall refrain, during the period beginning on
        the
        Execution Date and ending on the Termination Date, from taking any action
        or
        entering into any arrangement which in any way materially and adversely affects
        the provisions of the Certificate of Designation, this Agreement or
        any
        other Transaction Document. 

       

      4.8 Limitations
        on Disposition.
        No
        Investor shall sell, transfer, assign or dispose of any Securities,
        unless:

       

      (a) there
        is
        then in effect an effective registration statement under the Securities Act
        covering such proposed disposition and such disposition is made in accordance
        with such registration statement; or

      

      (b) such
        Investor has notified the Company in writing of any such disposition, received
        the Company’s written consent to such disposition and furnished the Company with
        an opinion of counsel, reasonably satisfactory to the Company, that such
        disposition will not require registration of such Securities under the
        Securities Act; provided,
        however,
        that no
        such consent or opinion of counsel will be required (A) if the sale,
        transfer or assignment complies with federal and state securities laws and
        is
        made to an Affiliate of such Investor which is also an “accredited investor” as
        that term is defined in Rule 501 of Regulation D, and such Affiliate delivers
        to
        the Company a duly executed Investment Representation Certificate in the
        form
        attached hereto as Exhibit
        F
        (an
“Investment
        Certificate”),
        (B)
        if the sale, transfer or assignment is made pursuant to Rule 144 and
        such
        Investor provides the Company with evidence reasonably satisfactory to the
        Company that the proposed transaction satisfies the requirements of Rule
        144 or
        (C) in connection with a bona
        fide
        pledge
        or hypothecation of any Securities under a margin arrangement with a
        broker-dealer or other financial institution. 

      

      4.9 Disclosure
        of Information.
        The
        Company agrees that it will not at any time following the Execution Date
        disclose material non-public information to any Investor without first receiving
        such Investor’s written consent to such receive such disclosure. If the Company
        breaches its obligations under this Section
        4.9,
        it
        shall promptly following a request by an Investor, and no later than one
        Business Day following such breach, make a public disclosure, in compliance
        with
        Regulation FD under the Exchange Act, of all such material non-public
        information theretofore disclosed to such Investor.

      

      4.10 Quotation
        on Nasdaq.
        The
        Company shall (i) promptly following the Closing, use its commercially
        reasonable efforts to include all of the Conversion Shares issuable upon
        conversion of the Preferred Shares (without regard to any limitation on such
        conversion) and all of the Warrant Shares issuable upon exercise of the Warrants
        (without regard to any limitation on such exercise) for designation and
        quotation on the Nasdaq Stock Market, and (ii) use its commercially reasonable
        efforts to maintain the designation and quotation, or listing, of the Common
        Stock on the Nasdaq SmallCap Market, the Nasdaq National Market or the New
        York
        Stock Exchange for a minimum of five (5) years following the Closing
        Date.

      

      4.11 Restrictions
        on Issuances of Securities.
        

      

      
        
          
          

        

        
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      (a) During
        the period beginning on the Execution Date and ending on the later to occur
        of
        (i) the ninetieth (90th) day following the Closing Date, and (ii) the thirtieth
        (30th) day following the last day of a Restricted Period, the Company shall
        not
        effect a Subsequent Issuance.

      

      (b) During
        the period beginning on the Execution Date and ending on the date on which
        the
        Company obtains Shareholder Approval, the Company shall not effect a Subsequent
        Issuance if, immediately following such Subsequent Issuance, as a result
        of the
        operation of anti-dilution or other adjustments provided for in the Preferred
        Shares or Warrants or otherwise, the sum of (i) number of Conversion Shares
        issued or issuable upon conversion of the Preferred Shares (including Preferred
        Shares issuable pursuant to an Exchange) (without
        regard to any limitation on conversion contained in the Certificate of
        Designation)
        and (ii)
        the number of Warrant Shares issued or issuable upon exercise of the Warrants
        (without
        regard to any limitation on exercise contained in the Warrants),
        would
        exceed the Cap Amount (as defined in the Certificate of
        Designation).

      

      (c) During
        the period beginning on the Execution Date and ending on the Termination
        Date,
        the Company shall not effect a Subsequent Issuance of (i) any Senior Securities
        or Pari Passu Securities (as such terms are defined in the Certificate of
        Designation), (ii) any other security of the Company which by its terms is
        convertible into or exchangeable or exercisable for any Senior Security or
        Pari
        Passu Security, or (iii) any option, warrant or other right to subscribe
        for,
        purchase or otherwise acquire any such security described in the foregoing
        clauses (i) and (ii); provided,
        however,
        that
        the foregoing shall not apply to the issuance of Permitted Debt.

      

      (d)
         Except
        as
        otherwise provided in this Section
        4.11,
        the
        Company shall have the right to effect a Subsequent Issuance.

      

      4.12 Limitation
        on Debt and Liens.
        During
        the period beginning on the Execution Date and ending on the Termination
        Date,
        the Company shall refrain, and shall ensure that each of its Subsidiaries
        that
        is not a Public Subsidiary refrains, (a) from incurring any Debt (including
        without limitation by issuing any Debt securities), other than Permitted
        Debt,
        or increasing the amount of any existing line of credit or other Debt facility
        beyond the amount outstanding on the date hereof, and (b) from granting,
        establishing or maintaining any Lien on any of its assets, including without
        limitation any pledge of securities owned or held by it (including without
        limitation any securities issued by any such Subsidiary), other than Permitted
        Liens.

      

      4.13
         Certain
        Transactions.
        During
        the period beginning on the Execution Date and ending on the Termination
        Date,
        and except as may be expressly permitted or required by the Certificate of
        Designation or the Transaction Documents and the Debt that is outstanding
        on the
        Execution Date and specifically disclosed on Schedule
        3.5
        hereto,
        the Company shall not, nor will it permit any of its Subsidiaries that is
        not a
        Public Subsidiary to, create or otherwise cause or permit to exist or become
        effective any consensual encumbrance or restriction of any kind on the ability
        of the Company or any such Subsidiary of the Company (a) to pay dividends
        or
        make any other distribution to the Company or any such Subsidiary of the
        Company
        in respect of capital stock or with respect to any other interest or
        participation in, or measured by, its profits, or (b) to pay any amounts
        that
        are or become payable under the Certificate of Designation or any of the
        Transaction Documents.

      

      
        
          
          

        

        
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      4.14 Transactions
        with Affiliates.
        The
        Company agrees that, during the period beginning on the Execution Date and
        ending on the Termination Date, any material transaction or arrangement between
        it or any of its Subsidiaries and any Affiliate or employee of the Company
        or
        any of its Subsidiaries shall be effected only on an arms’ length basis and
        shall be approved by the Board of Directors, including a majority of the
        Company’s directors not having an interest in such transaction.

      

      4.15 Indemnification
        of Investors.
        The
        Company will indemnify and hold each Investor and its directors, managers,
        officers, shareholders, members, partners, employees and agents (each, an
        “Investor Party”) harmless from any and all losses, liabilities, obligations,
        claims, contingencies, damages, costs and expenses, including all judgments,
        amounts paid in settlements, court costs and reasonable attorneys’ fees and
        costs of investigation that any such Investor Party may suffer or incur as
        a
        result of or relating to (a) any breach of any of the representations,
        warranties, covenants or agreements made by the Company in this Agreement
        or in
        the other Transaction Documents or (b) any action instituted against an
        Investor, or any of them or their respective Affiliates, by any shareholder
        of
        the Company who is not an Affiliate of such Investor, with respect to any
        of the
        transactions contemplated by the Transaction Documents (unless such action
        is
        based upon a breach by such Investor of such Investor’s representations,
        warranties or covenants under the Transaction Documents or any agreements
        or
        understandings such Investor may have with any such shareholder or any
        violations by such Investor of state or federal securities laws or any conduct
        by such Investor which constitutes fraud, gross negligence, willful misconduct
        or malfeasance). If any action shall be brought against any Investor Party
        in
        respect of which indemnity may be sought pursuant to this Agreement, such
        Investor Party shall promptly notify the Company in writing, and the Company
        shall have the right to assume the defense thereof with counsel of its own
        choosing and to control any settlement of the claim; provided, however, that
        the
        Company will not settle any claim unless it first obtains the consent of
        the
        relevant Investor Parties, which consent shall not be unreasonably withheld
        if
        such settlement (i) does not require the Investor Parties to make any payment
        that is not indemnified under this Agreement, (ii) does not impose any
        non-financial obligations on the Investor Parties and (iii) does not require
        an
        acknowledgment of wrongdoing on the part of the Investor Parties. Any Investor
        Party shall have the right to employ separate counsel in any such action
        and
        participate in the defense thereof, but the fees and expenses of such counsel
        shall be at the expense of such Investor Party except to the extent that
        (i) the
        employment thereof has been specifically authorized by the Company in writing,
        (ii) the Company has failed after a reasonable period of time to assume such
        defense and to employ counsel or (iii) in such action there is, in the
        reasonable opinion of such separate counsel, a material conflict on any material
        issue between the position of the Company and the position of such Investor
        Party. The Company will not be liable to any Investor Party under this Agreement
        (i) for any settlement by an Investor Party effected without the Company’s prior
        written consent, which shall not be unreasonably withheld or delayed (it
        being
        agreed that it shall not be unreasonable for the Company to withhold or delay
        such consent if the Company (x) has acknowledged in writing its obligation
        to
        indemnify such Investor Party with respect to such matter, (y) the Company
        has
        assumed and is actively and in good faith pursuing the defense of such matter
        as
        herein provided, and (z) provided to such Investor Party reasonably acceptable
        evidence that the Company is able to comply with its indemnification obligations
        hereunder); or (ii) to the extent, but only to the extent that a loss, claim,
        damage or liability is attributable to such

       

      
        
          
          

        

        
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      Investor
        Party’s wrongful actions or omissions, or gross negligence or to such Investor
        Party’s breach of any of the representations, warranties, covenants or
        agreements made by such Investor in this Agreement or in the other Transaction
        Documents. 

      

      5.    CONDITIONS
        TO CLOSING.

      

      5.1 Conditions
        to Investors’ Obligations at the Closing.
        Each
        Investor’s obligations to effect the Closing, including without limitation its
        obligation to purchase the Purchased Securities at the Closing, are conditioned
        upon the fulfillment (or waiver by such Investor in its sole and absolute
        discretion) of each of the following events as of the Closing Date:

      

      
        	 	 	
                5.1.1

              	 	
                the
                  representations and warranties of the Company set forth in this
                  Agreement
                  and in the other Transaction Documents shall be true and correct
                  in all
                  material respects as of such date as if made on such date (except
                  that to
                  the extent that any such representation or warranty relates to
                  a
                  particular date, in which case such representation or warranty
                  shall be
                  true and correct in all respects as of that particular date);
                  

              

      

      

      
        	 	 	
                5.1.2

              	 	
                the
                  Company shall have complied with or performed in all material respects
                  all
                  of the agreements, obligations and conditions set forth in this
                  Agreement
                  and in the other Transaction Documents that are required to be
                  complied
                  with or performed by the Company on or before the Closing;
                  

              

      

      

      
        	 	 	
                5.1.3

              	 	
                the
                  Company shall have filed the Certificate of Designation with the
                  Secretary
                  of State of the State of Missouri and delivered to such Investor
                  written
                  evidence of the acceptance of such
                  filing;

              

      

      

      
        	 	 	
                5.1.4

              	 	
                the
                  Closing Date shall occur on a date that is not later than June
                  10,
                  2005;

              

      

       

      
        
          	 	 	
                  5.1.5

                	 	
                  the
                    Company shall have delivered to such Investor a certificate,
                    signed by the
                    Chief Executive Officer and Chief Financial Officer of the Company,
                    certifying that the conditions specified in this Section
                    5.1
                    have been fulfilled as of the Closing, it being understood that
                    such
                    Investor may rely on such certificate as though it were a representation
                    and warranty of the Company made
                    herein;

                

        

        

        
          	 	 	
                  5.1.6

                	 	
                  the
                    Company shall have delivered to such Investor a certificate,
                    signed by the
                    Secretary or an Assistant Secretary of the Company, attaching
                    (i) the
                    Certificate of Incorporation and By-Laws of the Company, and
                    (ii)
                    resolutions passed by its Board of Directors to authorize the
                    transactions
                    contemplated hereby and by the other Transaction Documents, and
                    certifying
                    that such documents are true and complete copies of the originals
                    and that
                    such

                

        

      

      

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      
        
          	 	 	
                   

                	 	
                  resolutions
                    have not been amended or superseded, it being understood that
                    such
                    Investor may rely on such certificate as though it were a representation
                    and warranty of the Company made herein;

                

        

      

       

      
        	 	 	
                5.1.7

              	 	
                the
                  Company shall have delivered to such Investor one or more opinions
                  of
                  counsel for the Company, dated as of the Closing Date, in substantially
                  the form set forth on Exhibit 5.1.7 hereto;

              

      

      

      
        	 	 	
                5.1.8

              	 	
                the
                  Company shall have delivered to such Investor the duly executed
                  Note and
                  duly executed certificates representing the Preferred Shares Warrant
                  and
                  VeriChip Warrant being purchased by such
                  Investor;

              

      

       

      
        
          	 	 	
                  5.1.9

                	 	
                  the
                    Company shall have executed and delivered to such Investor the
                    Registration Rights Agreement;

                

        

      

      
        	 	 	
                5.1.10

              	 	
                the
                  Company shall have obtained the written agreement of each Key Employee
                  to
                  refrain from selling shares of Common Stock during any Restricted
                  Period,
                  except for sales made pursuant to a 10b-5(1) plan described in
                  Section
                  4.2(h);

              

      

      

      
        	 	 	
                5.1.11

              	 	
                there
                  shall have occurred no material adverse change in the Company’s
                  consolidated business or financial condition since the date of
                  the
                  Company’s most recent financial statements contained in the Disclosure
                  Documents; 

              

      

      

      
        	 	 	
                5.1.12

              	 	
                the
                  Common Stock shall be quoted and actively traded on the Nasdaq
                  Stock
                  Market; and

              

      

       

      
        	 	 	
                5.1.13

              	 	
                there
                  shall be no injunction, restraining order or decree of any nature
                  of any
                  court or Government Authority of competent jurisdiction that is
                  in effect
                  that restrains or prohibits the consummation of the transactions
                  contemplated hereby or by the other Transaction
                  Documents.

              

      

      

      5.2 Conditions
        to Company’s Obligations at the Closing.
        The
        Company’s obligations to effect the Closing with each Investor are conditioned
        upon the fulfillment (or waiver by the Company in its sole and absolute
        discretion) of each of the following events as of the Closing Date:

      

      
        	 	 	
                5.2.1

              	 	
                the
                  representations and warranties of such Investor set forth in this
                  Agreement and in the other Transaction Documents shall be true
                  and correct
                  in all material respects as of such date as if made on such date
                  (except
                  that to the extent that any such representation or warranty relates
                  to a
                  particular date, in which case such representation or warranty
                  shall be
                  true and correct in all respects as of that particular
                  date);

              

      

      

      
        	 	 	
                5.2.2

              	 	
                such
                  Investor shall have complied with or performed all of the agreements,
                  obligations and conditions set forth in this Agreement
                  and

              

      

       

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      
        
          	 	 	
                   

                	 	
                  in
                    the other Transaction Documents that are required to be complied
                    with or
                    performed by such
                    Investor
                    on
                    or before the Closing; 

                

        

         

      

      
        	 	 	
                5.2.3

              	 	
                there
                  shall be no injunction, restraining order or decree of any nature
                  of any
                  court or Government Authority of competent jurisdiction that is
                  in effect
                  that restrains or prohibits the consummation of the transactions
                  contemplated hereby or by the other Transaction Documents;

              

      

      

      
        	 	 	
                5.2.4

              	 	
                such
                  Investor shall have executed each Transaction Document to which
                  it is a
                  party and delivered the same to the Company;
                  and

              

      

       

      
        
          	 	 	
                  5.2.5

                	 	
                  such
                    Investor shall have delivered to the Company the Purchase Price
for
                    the Purchased Securities being purchased by it at the Closing
                    by wire
                    transfer of immediately available
                    funds.

                

        

      

      

      6.    MISCELLANEOUS.

      

      6.1 Survival;
        Severability.
        The
        representations, warranties, covenants and indemnities made by the parties
        herein and in the other Transaction Documents shall survive the Closing
        notwithstanding any due diligence investigation made by or on behalf of the
        party seeking to rely thereon; provided,
        however,
        that
        the representations and warranties made by the parties herein and in the
        other
        Transaction Documents shall survive only until the Termination Date. In the
        event that any provision of this Agreement becomes or is declared by a court
        of
        competent jurisdiction to be illegal, unenforceable or void, this Agreement
        shall continue in full force and effect without said provision; provided
        that in
        such case the parties shall negotiate in good faith to replace such provision
        with a new provision which is not illegal, unenforceable or void, as long
        as
        such new provision does not materially change the economic benefits of this
        Agreement to the parties.

      

      6.2 Successors
        and Assigns.
        The
        terms and conditions of this Agreement shall inure to the benefit of and
        be
        binding upon the respective successors and permitted assigns of the parties.
        Nothing in this Agreement, express or implied, is intended to confer upon
        any
        party other than the parties hereto or their respective successors and permitted
        assigns any rights, remedies, obligations or liabilities under or by reason
        of
        this Agreement, except as expressly provided in this Agreement. Each Investor
        may assign its rights and obligations hereunder, in connection with any private
        sale or transfer of the Purchased Securities in accordance with the terms
        hereof, as long as, as a condition precedent to such transfer, the transferee
        executes an acknowledgment agreeing to be bound by the applicable provisions
        of
        this Agreement, in which case the term “Investor” shall be deemed to refer to
        such transferee as though such transferee were an original signatory hereto.
        The
        Company may not assign its rights or obligations under this
        Agreement.

      

       6.3 No
        Reliance.
        Each
        party acknowledges that (i) it has such knowledge in business and financial
        matters as to be fully capable of evaluating this Agreement, the other
        Transaction Documents, and the transactions contemplated hereby and thereby,
        (ii) it is not relying on any advice or representation of any other party
        in
        connection with entering into this Agreement, the other Transaction Documents,
        or such transactions (other than the representations made in this

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

      Agreement
        or the other Transaction Documents), (iii) it has not received from such
        party
        any assurance or guarantee as to the merits (whether legal, regulatory, tax,
        financial or otherwise) of entering into this Agreement or the other Transaction
        Documents or the performance of its obligations hereunder and thereunder,
        and
        (iv) it has consulted with its own legal, regulatory, tax, business, investment,
        financial and accounting advisors to the extent that it has deemed necessary,
        and has entered into this Agreement and the other Transaction Documents based
        on
        its own independent judgment and on the advice of its advisors as it has
        deemed
        necessary, and not on any view (whether written or oral) expressed by such
        other
        party.  

      

      6.4 [Intentionally
        Omitted]
        

      

       6.5
         Injunctive
        Relief.
        The
        parties hereto acknowledge and agree that a breach by either of their
        obligations hereunder will cause irreparable harm the other party and that
        the
        remedy or remedies at law for any such breach will be inadequate and agrees,
        in
        the event of any such breach, in addition to all other available remedies,
        the
        non-breaching party shall be entitled to an injunction restraining any breach
        and requiring immediate and specific performance of such obligations without
        the
        necessity of showing economic loss.

      

      6.6 Governing
        Law; Jurisdiction.
        This
        Agreement shall be governed by and construed under the laws of the State
        of
        Delaware applicable to contracts made and to be performed entirely within
        the
        State of Delaware. Each party hereby irrevocably submits to the non-exclusive
        jurisdiction of the state and federal courts sitting in the
        City
        of New York in the borough of Manhattan (for any claims initiated by an
        Investor) or in Miami-Dade County (for any claims initiated by the
        Company),
        for the
        adjudication of any dispute hereunder or in connection herewith or with any
        transaction contemplated hereby, and hereby irrevocably waives, and agrees
        not
        to assert in any suit, action or proceeding involving an Investor or permitted
        assignee of an Investor, any claim that it is not personally subject to the
        jurisdiction of any such court, that such suit, action or proceeding is brought
        in an inconvenient forum or that the venue of such suit, action or proceeding
        is
        improper. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof to such party at the address in effect for notices
        to it
        under this Agreement and agrees that such service shall constitute good and
        sufficient service of process and notice thereof. Nothing contained herein
        shall
        be deemed to limit in any way any right to serve process in any manner permitted
        by law.

      

      6.7 Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        be
        deemed an original, and all of which together shall constitute one and the
        same
        instrument. This Agreement may be executed and delivered by facsimile
        transmission.

      

      6.8 Headings.
        The
        headings used in this Agreement are used for convenience only and are not
        to be
        considered in construing or interpreting this Agreement. 

      

      6.9 Notices.
        Any
        notice, demand or request required or permitted to be given by the Company
        or an
        Investor pursuant to the terms of this Agreement shall be in writing and
        shall
        be deemed delivered (i) when delivered personally or by verifiable facsimile
        transmission, unless such delivery is made on a day that is not a Business
        Day,
        in which case such delivery will be deemed to be made on the next succeeding
        Business Day, (ii) on the next Business Day after timely delivery
        to

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

      an
        overnight courier and (iii) on
        the
        Business Day actually received if deposited
        in the U.S. mail (certified or registered mail, return receipt requested,
        postage prepaid), addressed as follows:

      

      If
        to
        the Company:

      

      Applied
        Digital Solutions Inc

      1690
        S.
        Congress Avenue, Suite 200 

      Delray
        Beach, FL 33445

      Attn:  
        Scott
        R.
        Silverman

      Tel:   
        561-805-8000

      Fax:   561-805-0002 

       

      with
        a copy to:

       

      Holland
        & Knight LLP

      701
        Brickell Avenue, Suite 3000

      Miami,
        Florida 33131

      Mailing
        Address: P.O. Box 015441, Florida, 33101

      Attn:  
        Harvey
        A.
        Goldman, Esq.

      Tel:   
        305-374-8500

      Fax:  
        305-789-7799

      

      and
        if to
        an Investor, to such address for such Investor as shall appear on the signature
        page hereof executed by such Investor, or as shall be designated by such
        Investor in writing to the Company in accordance with this Section
        6.9.

      

      6.10 Expenses.
        The
        Company and each Investor shall pay all costs and expenses that it incurs
        in
        connection with the negotiation, execution, delivery and performance of this
        Agreement or the other Transaction Documents; provided,
        however,
        that
that
        the
        Company shall, at the Closing, pay (i) to the appropriate taxing authorities,
        all documentary stamp taxes that accrue with respect to the purchase and
        sale of
        the Securities and (ii)
        to
        Satellite Strategic Finance Associates, LLC (“Satellite”),
        $60,000.00 in immediately available funds for
        the
        out-of-pocket expenses (including without limitation the reasonable legal
        fees
        and expenses of Duval & Stachenfeld LLP) incurred by Satellite in connection
        its due diligence investigation of the Company and the negotiation, preparation,
        execution, delivery and performance of this Agreement and the other Transaction
        Documents (including
        fees and expenses estimated to be incurred for completion of the transaction
        and
        post-closing matters). At the Closing, such amount may
        be
        netted out of the Purchase Price payable by Satellite.
         Notwithstanding
        anything herein to the contrary, if
        the
        Closing
        does not
        occur
        otherwise than as a result of a breach of this Agreement by Satellite or
        the
        failure of Satellite to satisfy any closing conditions,
        the
        Company shall
        remain obligated to
        pay the
expenses
        of Satellite in the aggregate amount of $60,000.00.

       

      6.11 Entire
        Agreement; Amendments.
        This
        Agreement and the other Transaction Documents constitute the entire agreement
        between the parties with regard to the subject matter hereof and thereof,
        superseding all prior agreements or understandings, whether written or oral,
        between or among the parties. Except as expressly provided herein, neither
        this
        Agreement nor any term hereof

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

      may
        be
        amended except pursuant to a written instrument executed by the Company and
        the
        holders of at least two-thirds (2/3) of the number of Outstanding Registrable
        Securities,
        and no
        provision hereof may be waived other than by a written instrument signed
        by the
        party against whom enforcement of any such waiver is sought. Any waiver or
        consent shall be effective only in the specific instance and for the specific
        purpose for which given. 

      

      

      [Signature
        Pages to Follow]

      
        
          
            

          

          
          

        

        
          33

          
            

          

        

        
          
          

          
          

        

      

      
      

      IN
        WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
        first-above written.

       

      APPLIED
        DIGITAL SOLUTIONS, INC.

      

      

      By:
         
        /s/ Evan
        C. McKeown

             
        Name: Evan C. McKeown

             
        Title: SVP, CFO

      

      

      SATELLITE
        STRATEGIC FINANCE ASSOCIATES, LLC

      

      By:
         Satellite
        Asset Management, L.P., its Manager

      

      

      By: 
        /s/
        Simon Raykher

                           
        Name:
        Simon Raykher

                           
        Title:
        General Counsel

        

      ADDRESS:

      

      c/o
        Satellite Advisors, L.L.C.

      623
        Fifth
        Avenue, 20th Floor

      New
        York,
        New York 10022

      Tel:   
        212-209-2000 

      Fax:   212-209-2021

      

      With
        a copy to:

      

      Duval
        & Stachenfeld LLP

      300
        East
        42nd
        Street

      New
        York,
        New York 10017

      Attn:
         Robert
        L.
        Mazzeo, Esq.

      Tel:   
        212-883-1700

      Fax:  
        212-883-8883

      

      Number
        of
        Shares to be Purchased: 4,680  

      

      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
        first-above written.

       

      APPLIED
        DIGITAL SOLUTIONS, INC.

      

      

      By:
         
        /s/ Evan
        C. McKeown

             
Name:
        Evan C. McKeown

             
        Title: SVP, CFO

      

      

      SATELLITE
        STRATEGIC FINANCE PARTNERS, LTD.

      

      By:
         Satellite
        Asset Management, L.P., its Manager

      

      

      By: 
        /s/
        Simon Raykher

                           
        Name:
        Simon Raykher

                           
        Title:
        General Counsel

        

      ADDRESS:

      

      c/o
        Satellite Advisors, L.L.C.

      623
        Fifth
        Avenue, 20th Floor

      New
        York,
        New York 10022

      Tel:   
        212-209-2000 

      Fax:  
        212-209-2021

      

      With
        a copy to:

      

      Duval
        & Stachenfeld LLP

      300
        East
        42nd
        Street

      New
        York,
        New York 10017

      Attn:
         Robert
        L.
        Mazzeo, Esq.

      Tel:   
        212-883-1700

      Fax:  
        212-883-8883

      

      Number
        of
        Shares to be Purchased: 7,860

      

      
        
          
             

          

          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      EXHIBIT
        F

      INVESTMENT
        REPRESENTATION CERTIFICATE

      

      

      Purchaser:           
        ______________
        

       

      Company:           
        Applied
        Digital Solutions, Inc. (the “Company”)

       

      Security:  ______________
        

       

      Amount:  ______________
        

       

      Date:                  
        ______________
        

       

      In
        connection with the purchase of the above-listed securities (the “Securities”),
        the undersigned (the “Purchaser”) represents to the Company as
        follows:

       

      The
        Purchaser is aware of the Company’s business affairs and financial condition,
        and has acquired sufficient information about the Company to reach an informed
        and knowledgeable decision to acquire the Securities. The Purchaser is
        purchasing the Securities for its own account for investment purposes only
        and
        not with a view to, or for the resale in connection with, any “distribution”
        thereof for purposes of the Securities Act of 1933, as amended (the “Securities
        Act”).

       

      The
        Purchaser understands that the Securities have not been registered under
        the
        Securities Act in reliance upon a specific exemption therefor, which exemption
        depends upon, among other things, the bona fide nature of the Purchaser’s
        investment intent as expressed herein. In this connection, the Purchaser
        understands that, in the view of the Securities and Exchange Commission (“SEC”),
        the statutory basis for such exemption may be unavailable if the Purchaser’s
        representation was predicated solely upon a present intention to hold these
        Securities for the minimum capital gains period specified under tax statutes,
        for a deferred sale, for or until an increase or decrease in the market price
        of
        the Securities, or for a period of one year or any other fixed period in
        the
        future. The Purchaser is an “accredited investor” as that term is defined under
        Regulation D promulgated by the Securities and Exchange Commission under
        the
        Securities Act.

       

      The
        Purchaser further understands that the Securities must be held indefinitely
        unless subsequently registered under the Securities Act or unless an exemption
        from registration is otherwise available. In addition, the Purchaser understands
        that the certificate evidencing the Securities will be imprinted with the
        legend
        referred to in this Warrant under which the Securities are being
        purchased.

       

      The
        Purchaser is aware of the provisions of Rule 144, promulgated under
        the
        Securities Act, which, in substance, permit limited public resale of “restricted
        securities” acquired, directly or indirectly, from the issuer thereof (or from
        an affiliate of such issuer), in a non-public offering subject to the
        satisfaction of certain conditions, if applicable, including, among other
        things: (i) the availability of certain public information about the
        Company; (ii) the resale occurring not less than one (1) year
        after
        the party has purchased and paid for the securities to be sold (subject to
        certain “tacking” provisions); (iii) the resale being made through a broker
        in an unsolicited “broker’s transaction” or in transactions directly with a
        market maker (as said term is defined under the Securities Exchange Act of
        1934,
        as amended) and the amount of securities being sold during any three-month
        period not exceeding the specified limitations stated therein.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      The
        Purchaser further understands that at the time it wishes to sell the Securities
        there may be no public market upon which to make such a sale, and that, even
        if
        such a public market upon which to make such a sale then exists, notwithstanding
        the Company’s best efforts obligation to do so set forth in the Warrant, the
        Company may not be satisfying the current public information requirements
        of
        Rule 144, and that, in such event, the Purchaser may be precluded
        from
        selling the Securities under Rule 144 even if the one-year minimum
        holding
        period had been satisfied.

       

      The
        Purchaser further understands that in the event all of the requirements of
        Rule 144 are not satisfied, registration under the Securities Act
        or an
        exemption from registration will be required; and that, notwithstanding the
        fact
        that Rule 144 is not exclusive, the staff of the SEC has expressed
        its
        opinion that persons proposing to sell private placement securities other
        than
        in a registered offering and otherwise than pursuant to Rule 144 will
        have
        a substantial burden of proof in establishing that an exemption from
        registration is available for such offers or sales, and that such persons
        and
        their respective brokers who participate in such transactions do so at their
        own
        risk.

       

      

       

      Date:
        ___________________

       

      [PURCHASER]

       

       

      
        
          
            

          

        

      

    

     

     

     

     

     

     

     

    4

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