Document:

Exhibit 4.6

 

STOCK PLEDGE AGREEMENT

 

STOCK
PLEDGE AGREEMENT (“Agreement”) entered into as of the 24th day of July 2006
by and among John Fife (the “Secured Party”), and the person identified on the
signature page hereof (the “Pledgor”).

 

RECITALS

 

A.                                   The
Pledgor has agreed to pledge certain shares as security for: (i) the
performance by National Storm Management, Inc., a Nevada corporation, of
its obligations under its Original Issue Discount Secured Note in an aggregate
face amount of up to One Million Six Hundred Fifty Thousand and 00/100 Dollars
($1,650,000.00) payable to the Secured Party (the “Note”) and (ii) the
performance by Pledgor of its Guaranty delivered to Secured Party of even date
herewith. Capitalized terms in this Agreement which are not identified herein
will have the meanings given such terms in the Note.

 

B.                                     The
Secured Party is willing to accept the Note from the Company only upon
receiving Pledgor’s Guaranty and pledge of certain stock as set forth in this
Agreement.

 

NOW,
THEREFORE, in consideration of the premises, the mutual covenants and
conditions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

 

1.                                       Grant
of Security Interest.  Pledgor hereby
pledges to the Secured Party as collateral and security for the Secured
Obligations (as defined in paragraph 2) the securities initially set forth on
the attached Schedule 1 of this Agreement, (the “Pledged Shares”).
Within five (5) business days of the date of this Agreement, the Pledgor shall deliver to the Secured
Party certificate(s) representing the Pledged Shares, along with a stock
transfer power duly executed in blank by the Pledgor and stamped with a bank
medallion guarantee. If on any monthly anniversary during the term of
the Note, the market value of the Collateral then held by the escrow agent,
does not equal or exceed 300% of the principal amount of the Note, then within
five (5) business days after receipt of notice from the Secured Party, the
Pledgor shall deliver to be held under the terms of this Agreement a
certificate or certificates for additional shares and necessary stock powers
equal to not less than 300% of the principal amount of the Note (the “True-up Shares”).
If the Pledgor fails to deliver the True-up Shares to the Secured Party within
five business days after receipt of notice by the Secured Party therefore, the
Pledgor shall pay to the Secured Party, in cash, Two Hundred Fifty ($250)
Dollars per business day until such certificates are delivered. Unless
otherwise set forth on Schedule 1 of this Agreement, Pledgor is the
beneficial and record owner of the Pledged Shares set forth opposite such
Pledgor’s name on such Schedule. Such Pledged Shares, together with any
additions, replacements, accessions and substitutes therefore, or proceeds
thereof, are hereinafter referred to collectively as the “Collateral.”
Market Value means the average closing bid price for the ten trading days prior
to the date on which the Collateral is valued for purposes of this Section 1.

 

2.                                       Secured
Obligations.  During the term hereof,
the Collateral shall secure the following:

 

a.               The
performance by the Company of its obligations, covenants, and agreements under
the Note.

 

b.              The
performance by the Pledgor of its obligations, covenants, and agreements under
the Guaranty.

 

The obligations,
covenants and agreements described in clause (a) and (b) are the “Secured
Obligations.”

 

3.                                       Perfection
of Security Interests.  (a) 
Upon execution of this Agreement by each Pledgor, such Pledgor shall deliver
the Pledge Shares, together with Stock Powers (with Medallion Guarantees
annexed).

 

(b)                                 The
Company and each Pledgor will, at its expense, cause to be searched the public
records with respect to the Collateral and will execute, deliver, file and
record (in such manner and form as each Secured Party may require), or permit
each Secured Party to file and record, as its attorney in fact, any financing
statements, any carbon, photographic or other reproduction of a financing
statement or this Agreement (which shall be sufficient as a financing statement
hereunder), any specific assignments or other paper that may be reasonably
necessary or desirable, or that such Secured 
Party may request, in order to create, preserve, perfect or validate any

 

 

Security Interest or to enable such Secured Party to exercise and
enforce its rights hereunder with respect to any of the Collateral.  The Company and the Pledgor hereby appoint
the Secured Party as the Company’s or Pledgor’s attorney-in-fact to execute in
the name and behalf of the Company or Pledgor, as the case may be, such
additional financing statements as such Secured Party may request.

 

4.                                       Assignment.  In connection with the transfer of the Note in
accordance with their terms, a Secured Party may assign or transfer the whole
or any part of its security interest granted hereunder, and may transfer as
collateral security the whole or any part of Secured Party’s security interest
in the Collateral.  Any transferee of the
Collateral shall be vested with all of the rights and powers of Secured Party
hereunder with respect to the Collateral.

 

5.                                       Pledgor’s
Warranty.  (A) Title. The
Pledgor represents and warrants hereby to the Secured Party as follows with
respect to the Pledged Shares set forth opposite such Pledgor’s name on Schedule 2
to this Agreement:

 

(i)                                     that
the Collateral is free and clear of any encumbrances of every nature
whatsoever, and such Pledgor is the sole owner of the Pledged Shares;

 

(ii)                                  Such
Pledgor further agree not to grant or create, any security interest, claim,
lien, pledge or other encumbrance with respect to such Collateral or attempt to
sell, transfer or otherwise dispose of the Collateral, until the Secured
Obligations have been paid in full or this Agreement terminates; and

 

(iii)                               this
Agreement constitutes a legal, valid and binding obligation of such Pledgor
enforceable in accordance with its terms (except as the enforcement thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, and similar laws, now or hereafter in effect),

 

B.                                     Other:               (i) Pledgor
has made necessary inquiries of the Company and believes that the Company fully
intends to fulfill and has the capability of fulfilling the Secured Obligations
to be performed by the Company in accordance with the terms of the Notes.

 

(ii)                                  The
Pledgor is not acting, and has not agreed to act, in any plan to sell or
dispose of any Shares in a manner intended to circumvent the registration requirements
of the Securities Act of 1933, as amended, or any applicable state law.

 

(iii)                               Pledgor
has been advised by counsel of the elements of a bona-fide pledge for purposes
of Rule 144(d)(3)(iv) under the Securities Act of 1933, as amended,
including the relevant SEC interpretations and affirm the pledge of shares by
each of the undersigned pursuant to this Pledge Agreement will constitute a
bona-fide pledge of such shares for purposes of such Rule.

 

6.                                       Collection
of Dividends and Interest.  During the
term of this Agreement and so long as Pledgor is not in default under the Note,
Pledgor is authorized to collect all dividends, distributions, interest
payments, and other amounts that may be, or may become, due on any of the
Collateral.

 

7.                                       Voting
Rights.  During the term of this
Agreement and until such time as this Agreement has terminated or Secured Party
has exercised its rights under this Agreement to foreclose its security
interest in the Collateral, Pledgor shall have the right to exercise any voting
rights evidenced by, or relating to, the Collateral.

 

8.                                       Warrants
and Options.  In the event that,
during the term of this Agreement, subscription, spin-off, warrants, dividends,
or any other rights or option shall be issued in connection with  the Collateral, such warrants, dividends,
rights and options shall be immediately delivered to Secured Party to be held
under the terms hereof in the same manner as the Collateral.

 

9.                                       Preservation
of the Value of the Collateral. 
Pledgor shall pay all taxes, charges, and assessments against the
Collateral and do all acts necessary to preserve and maintain the value
thereof.

 

10.                                 Secured
Party as Pledgor’s Attorney-in-Fact.

 

(a)                                  Pledgor
hereby irrevocably appoints Secured Party as Pledgor’s attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time at Secured Party’s discretion, to take
any action and to execute any instrument that Secured Party may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(i) upon the occurrence and 

 

 

during the continuance of an Event of Default, to receive, indorse, and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms; (ii) to
arrange for the transfer of the Collateral on the books of any of the Company
or any other Person to the name of Secured Party or to the name of Secured
Party’s nominee.

 

(b)                                 In
addition to the designation of Secured Party as Pledgor’s attorney-in-fact in
subsection (a), Pledgor hereby irrevocably appoints Secured Party as
Pledgor’s agent and attorney-in-fact to make, execute and deliver any and all
documents and writings which may be necessary or appropriate for approval of,
or be required by, any regulatory authority located in any city, county, state
or country where Pledgor or any of the Company engage in business, in order to
transfer or to more effectively transfer any of the Pledged Interests or
otherwise enforce Secured Party’s rights hereunder.

 

11.                                 Remedies
upon Default.

 

Upon
the occurrence and during the continuance of an Event of Default under the Note
and/or the Guaranty “Event of Default”):

 

(a)                                  Secured
Party may exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Code (irrespective of
whether the Code applies to the affected items of Collateral), and Secured
Party may also without notice (except as specified below) sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any
exchange, broker’s board or at any of Secured Party’s offices or elsewhere, for
cash, on credit or for future delivery, at such time or times and at such price
or prices and upon such other terms as Secured Party may deem commercially
reasonable, irrespective of the impact of any such sales on the market price of
the Collateral. To the maximum extent permitted by applicable law, Secured
Party may be the purchaser of any or all of the Collateral at any such sale and
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply all or any part of the Secured Obligations as a
credit on account of the purchase price of any Collateral payable at such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Pledgor, and Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay, or appraisal that
it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Pledgor agrees that, to the extent
notice of sale shall be required by law, at least ten (10) calendar days
notice to Pledgor of the time and place of any public sale or the time after
which a private sale is to be made shall constitute reasonable notification.
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the maximum extent permitted by law,
Pledgor hereby waives any claims against Secured Party arising because the
price at which any Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale, even if
Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree.

 

(b)                                 Notwithstanding
the foregoing, the Secured Party hereby acknowledges that the total number of
shares of stock that may be sold pursuant to Section 11(a) of this
Agreement shall not exceed, on any given trading day, the greater of: (i) 3%
of the aggregate trading volume during the previous five (5) trading days,
including that day; (ii) 15% of the trading volume on that day; or (iii) such
number of shares as yield proceeds (net of commissions) of $50,000.

 

(c)                                  Secured
Party hereby agrees that, upon delivery of an opinion of counsel stating that
the rights of the Secured Party will not be affected thereby, other shares of
the Borrower’s common stock may at any time be substituted for all or a portion
of the Pledged Shares;

 

(d)                                 Pledgor
hereby agrees that any sale or other disposition of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance companies,
or other financial institutions in the city and state where Secured Party is
located in disposing of property similar to the Collateral shall be deemed to
be commercially reasonable.

 

(e)                                  Pledgor
hereby acknowledges that the sale by Secured Party of any Collateral pursuant
to the terms hereof in compliance with the Securities Act of 1933 as now in
effect or as hereafter amended, or any similar statute hereafter adopted with
similar purpose or effect (the “Securities Act”), as well as applicable “Blue
Sky” or 

 

 

other state securities laws, may require strict limitations as to the
manner in which Secured Party or any subsequent transferee of the Collateral
may dispose thereof. Pledgor acknowledges and agrees that in order to protect
Secured Party’s interest it may be necessary to sell the Collateral at a price
less than the maximum price attainable if a sale were delayed or were made in
another manner, such as a public offering under the Securities Act. Pledgor has
no objection to sale in such a manner and agrees that Secured Party shall have
no obligation to obtain the maximum possible price for the Collateral. Without
limiting the generality of the foregoing, Pledgor agrees that, upon the
occurrence and during the continuation of an Event of Default, Secured Party
may, subject to applicable law, from time to time attempt to sell all or any
part of the Collateral by a private placement, restricting the bidders and
prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, Secured
Party may solicit offers to buy the Collateral or any part thereof for cash,
from a limited number of investors reasonably believed by Secured Party to be institutional
investors or other accredited investors who might be interested in purchasing
the Collateral. If Secured Party shall solicit such offers, then the acceptance
by Secured Party of one of the offers shall be deemed to be a commercially
reasonable method of disposition of the Collateral.

 

(f)                                    If
Secured Party shall determine to exercise its right to sell all or any portion
of the Collateral pursuant to this Section, Pledgor agrees that, upon request
of Secured Party, Pledgor will, at its own expense:

 

(i)                                     execute
and deliver, or cause the officers and directors of the Company to execute and
deliver, to any person, entity or governmental authority as Secured Party may
choose, any and all documents and writings which, in Secured Party’s reasonable
judgment, may be necessary or appropriate for approval, or be required by, any
regulatory authority located in any city, county, state or country where
Pledgor or the Company engage in business, in order to transfer or to more
effectively transfer the Pledged Interests or otherwise enforce Secured Party’s
rights hereunder; and

 

(ii)                                  do
or cause to be done all such other acts and things as may be necessary to make
such sale of the Collateral or any part thereof valid and binding and in
compliance with applicable law; and

 

(iii)                               cause
the Company to timely file all periodic reports required to be filed by the
Company under the Securities Exchange Act of 1934.

 

Pledgor
acknowledges that there is no adequate remedy at law for failure by it to
comply with the provisions of this Section and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.

 

(g)                                 PLEDGOR
EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY LAW: (i) ANY
CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE TIME SECURED
PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN THIS
SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT IT NOW HAS
OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW
EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN SUBSECTION (a) OF
THIS SECTION 11, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR
SALE.

 

12.                                 (a) Term
of Agreement.  This Agreement shall
continue in full force and effect until the payment in full of the Note.  If the Note is paid in full, the security
interests in the relevant Collateral shall be deemed released, and any portion
of the Collateral not transferred to or sold by any one or more Secured Parties
shall be returned to the Pledgor (and for such purpose, delivery to Darrin
Ocasio, Esq., of Sichenzia Ross Friedman Ference LLP of New York, NY shall
deemed to comply with such return requirement). 
Upon termination of this Pledge Agreement, the relevant Collateral shall
be returned within five (5) Trading Days to Debtor or to the Pledgor, as
contemplated above.

 

(b) Application
of Proceeds.  Upon the occurrence and
during the continuance of an Event of Default, any cash held by Secured Party
as Collateral and all cash Proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in Section 9 shall be applied from time to
time by the Secured Part as provided in the Note.

 

 

13.                                 Indemnity
and Expenses.

 

Pledgor
agrees:

 

(a)                                  To
indemnify and hold harmless Secured Party and each of its directors, officers,
employees, agents and affiliates from and against any and all claims, damages,
demands, losses, obligations, judgments and liabilities (including, without
limitation, reasonable attorneys’ fees and expenses) in any way arising out of
or in connection with this Agreement or the Secured Obligations, except to the
extent the same shall arise as a result of the gross negligence or willful
misconduct of the party seeking to be indemnified; and

 

(b)                                 To
pay and reimburse Secured Party upon demand for all reasonable costs and
expenses (including, without limitation, reasonable attorneys’ fees and
expenses) that Secured Party may incur in connection with (i) the custody,
use or preservation of, or the sale of, collection from or other realization
upon, any of the Collateral, including the reasonable expenses of re-taking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Collateral, (ii) the exercise or enforcement of any
rights or remedies granted hereunder, under the Note or otherwise available to
it (whether at law, in equity or otherwise), or (iii) the failure by
Pledgor to perform or observe any of the provisions hereof. The provisions of
this Section shall survive the execution and delivery of this Agreement,
the repayment of any of the Secured Obligations, the termination of the
commitments of Secured Party under the Note and the termination of this
Agreement.

 

14.                                 Duties
of Secured Party.

 

The
powers conferred on Secured Party hereunder are solely to protect its interests
in the Collateral and shall not impose on it any duty to exercise such powers.
Except as provided in Section 9-207 of the Code, Secured Party shall have
no duty with respect to the Collateral or any responsibility for taking any
necessary steps to preserve rights against any Persons with respect to any
Collateral.

 

15.                                 Choice
of Law and Venue; Submission to Jurisdiction; Service of Process.

 

(a)                                  THE
VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT,
AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS (WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF). THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN COOK COUNTY,
STATE OF ILLINOIS OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY OTHER COURT
IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.

 

(b)                                 PLEDGOR
HEREBY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.

 

(c)                                  PLEDGOR
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, OR OTHER PROCESS
ISSUED IN ANY ACTION OR PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT, OR OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO PLEDGOR AT ITS ADDRESS FOR NOTICES IN ACCORDANCE WITH THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF PLEDGOR’S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE UNITED
STATES MAILS, PROPER POSTAGE PREPAID.

 

(d)                                 NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF SECURED
PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY SECURED PARTY OF ANY JUDGMENT OR ORDER OBTAINED IN
SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

 

16.                                 Amendments;
etc.

 

No
amendment or waiver of any provision of this Agreement nor consent to any
departure by Pledgor herefrom shall in any event be effective unless the same
shall be in writing and signed by Secured Party, and then 

 

 

such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure on the part of Secured
Party to exercise, and no delay in exercising any right under this Agreement,
any other Credit Document, or otherwise with respect to any of the Secured
Obligations, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Agreement, any other Credit Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided for in this Agreement or otherwise with respect to any of the Secured
Obligations are cumulative and not exclusive of any remedies provided by law.

 

17.                                 Notices.

 

Unless
otherwise specifically provided herein, all notices shall be in writing
addressed to the respective party as set forth below: and may be personally
served, faxed, telecopied or sent by overnight courier service or United States
mail:

 

If to
Pledgor:

 

Terry
Kiefer

2062
Azalea

Irving,
TX 75063

 

With
copies to:

 

Darrin
M. Ocasio, Esq.

Sichenzia
Ross Friedman Ference LLP

1065
Avenue of the Americas

New
York, NY 10018

Fax
No.:     212-930-9725

 

If to
Secured Party:

 

John
Fife

303
East Wacker Drive

Suite 301

Chicago,
IL 60601

 

Any
notice given pursuant to this section shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by fax, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. at the
place of receipt or, if not, on the next succeeding Business Day; (c) if
delivered by overnight courier, two (2) days after delivery to such
courier properly addressed; or (d) if by United States mail, four (4) Business
Days after depositing in the United States mail, with postage prepaid and
properly addressed. Any party hereto may change the address or fax number at
which it is to receive notices hereunder by notice to the other party in
writing in the foregoing manner.

 

18.                                 Continuing
Security Interest.

 

This
Agreement shall create a continuing security interest in the Collateral and
shall: (a) remain in full force and effect until the indefeasible payment
in full of the Secured Obligations, including the cash collateralization,
expiration, or cancellation of all Secured Obligations, if any, consisting of
letters of credit, and the full and final termination of any commitment to
extend any financial accommodations under the Credit Agreement; (b) be
binding upon Pledgor and its successors and assigns; and (c) inure to the
benefit of Secured Party and its successors, transferees, and assigns. Upon the
indefeasible payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of any
commitment to extend any financial accommodations under the Credit Agreement,
the security interests granted herein shall automatically terminate and all
rights to the Collateral shall revert to Pledgor. Upon any such termination,
Secured Party will, at Pledgor’s expense, execute and deliver to Pledgor such
documents as Pledgor shall reasonably request to evidence such termination.
Such documents shall be prepared by Pledgor and shall be in form and substance
reasonably satisfactory to Secured Party.

 

 

19.                                 Security
Interest Absolute.

 

To the
maximum extent permitted by law, all rights of Secured Party, all security
interests hereunder, and all obligations of Pledgor hereunder, shall be
absolute and unconditional irrespective of:

 

(a)                                  any
lack of validity or enforceability of any of the Secured Obligations or any
other agreement or instrument relating thereto, including any of the Credit
Documents;

 

(b)                                 any
change in the time, manner, or place of payment of, or in any other term of,
all or any of the Secured Obligations, or any other amendment or waiver of or
any consent to any departure from any of the Credit Documents, or any other
agreement or instrument relating thereto;

 

(c)                                  any
exchange, release, or non-perfection of any other collateral, or any release or
amendment or waiver of or consent to departure from any guaranty for all or any
of the Secured Obligations; or

 

(d)                                 any
other circumstances that might otherwise constitute a defense available to, or
a discharge of, Pledgor.

 

20.                                 Headings.

 

Section and
subsection headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement or be given
any substantive effect.

 

21.                                 Severability.

 

In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

 

22.                                 Counterparts;
Telefacsimile Execution.

 

This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, or binding effect
hereof.

 

23.                                 Waiver
of Marshaling.

 

Each
of Pledgor and Secured Party acknowledges and agrees that in exercising any
rights under or with respect to the Collateral: (a) Secured Party is under
no obligation to marshal any Collateral; (b) may, in its absolute
discretion, realize upon the Collateral in any order and in any manner it so
elects; and (c) may, in its absolute discretion, apply the proceeds of any
or all of the Collateral to the Secured Obligations in any order and in any
manner it so elects. Pledgor and Secured Party waive any right to require the
marshaling of any of the Collateral.

 

24.                                 Waiver
of Jury Trial.

 

PLEDGOR
AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR
AND SECURED PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

 

IN
WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be
duly executed and delivered by their officers thereunto duly authorized as of
the date first written above.

 

 

	
   

  	
  TERRY KIEFER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TERRY KIEFER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JOHN FIFE

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN FIFE

  	
   

  
					

 

 

Schedule 1 - Pledged Interests

 

Pledged Interests:
17,000,000 shares of common stock of National Storm Management, Inc.

 

Name of Issuer: National
Storm Management, Inc.

 

Jurisdiction of
Organization: Nevada

 

Type of Interest: Shares
of common stock

 

Number of Shares/Units
(if applicable): see above

 

Certificate Numbers :
322, 323, 324, 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 336, 337, &
338

 

Date of Issuance: February 24,
2005

 

Percentage of Outstanding
Interests in Issuer: approximately 55%

 

Date of certificates: July 18,
2006

 

Schedule 2 - Pledgor Information

 

For Pledgor That Is a
Registered Organization

	
  Jurisdiction of
  Organization:

  	
   

  
	
   

  	
   

  
	
  Type of
  Organization:

  	
   

  
	
   

  	
   

  
	
  Organizational
  ID Number (if any):

  	
   

  
					

 

For Pledgor That Is An
Individual: Terry Kiefer

 

Address of Principal
Residence: See Notice section

 

For Pledgor That
Is Neither a Registered Organization nor an Individual:

 

	
  Type of
  Organization:Exhibit 10.1

 

AMENDED
AND RESTATED

SUPPLY, LICENSE, AND DEVELOPMENT AGREEMENT

THIS AMENDED AND
RESTATED SUPPLY, LICENSE AND DEVELOPMENT AGREEMENT (this “Agreement”),
is dated as of the 27th day of December, 2005 by and between DIGITAL
ANGEL CORPORATION, a Delaware corporation (“Company”), and VERICHIP CORPORATION, a Delaware
corporation (“VeriChip”).

RECITALS

WHEREAS, Company and VeriChip
(hereinafter referred to collectively as the “Parties”, and individually as a “Party”)
previously entered into that certain Supply and License Agreement dated March
4, 2002 (the “Original Supply and License Agreement”), relating to the use of
the Developed Products (as defined herein) in humans for security, financial,
emergency identification and other applications;

WHEREAS, the U.S. Food and Drug
Administration (“FDA”) has (i) cleared the Developed Products for human patient
identification and health information (the “Approved Medical Uses”) and (ii)
has provided the Company with a letter dated
October 17, 2002 which states that FDA approval will not be required for
non-healthcare related uses of the
Developed Products in humans, as previously provided to VeriChip (the “Approved
Non-Medical Uses”);

 WHEREAS, Company desires to supply VeriChip
with the Developed Products and VeriChip desires to buy the Developed Products
for both the Approved Medical Uses and
the Approved Non-Medical Uses in humans only;

WHEREAS, Company desires to notify
VeriChip of the development of New Products and VeriChip desires to have the
right to buy, market and sell New Products, as more specifically described
herein; and

WHEREAS, the Parties desire to
clarify the circumstances under which VeriChip may have the ability to
manufacture or have manufactured the Developed Products and in connection therewith
have access to certain of the Company’s Intellectual Property.

NOW THEREFORE, in consideration of
the mutual covenants and obligations hereinafter set forth, and other
consideration, the adequacy and sufficiency of which are hereby acknowledged,
Company and VeriChip agree to be legally bound as follows:

AGREEMENT

1.             Definitions. In addition to
the terms defined in the Recitals of this Agreement, the following terms used
in this Agreement shall have the following meanings:

(a)           The
“Act” means the U.S. Food, Drug and Cosmetic Act as amended from time to time
and any foreign equivalents.

 

 

 

(b)           “Affiliate”
of a Party means a person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with,
said Party.

(c)           “Applicable
Laws” shall mean (a) all laws, statutes, constitutions, treaties, rules,
regulations, ordinances, codes, guidance, common law, and (b) all judicial,
executive, legislative, administrative or military orders, directives, decrees,
injunctions, judgments, Permits, agreements, and other legal requirements of,
with, or adopted or imposed by any Governmental Authority, now or hereafter in
effect and, in each case, as amended from time to time, including, without
limitation, any such legal requirements that relate to or govern (i) the
manufacture or quality of the Developed Products, (ii) health, safety,
industrial hygiene, sanitation, or (iii) conditions on, under, about, or
affecting any real property (including the environment).

(d)           “Confidential
Information” means any information, not generally known, and proprietary to
either Party or to a third party, including but not limited to any trade secret
information, information relating to pricing, research, customer lists,
diagrams, schematics, product development, manufacturing, purchasing,
accounting, marketing, merchandising, selling, leasing, finance and business
systems and techniques. The term “Confidential
Information” does not include information:
(i) that by reliable documentary evidence can be shown to have been
already lawfully in the possession of the receiving Party through independent
means at the time of disclosure thereof; (ii) is or later becomes part of the
public domain through no fault of receiving Party; (iii) that by reliable documentary evidence can be shown to have been
lawfully received by the receiving Party from a third party having no
obligations of confidentiality to the disclosing Party; (iv) is required to be
disclosed by law, by order of a governmental agency, or by a court of competent
jurisdiction provided that the
Party required to disclose such information pursuant to such law or legal
process takes reasonable steps to provide the originally disclosing Party with
the opportunity to contest such law, order or legal process; or (v) that by reliable documentary evidence can be
shown to have been independently developed by the receiving Party its
agents or employees having no access to the information otherwise constituting
Confidential Information.

(e)           The “Developed
Products” means the radio frequency identification (RFID) transponder
invention, together with related devices, labeling, packaging, and/or reader
equipment described on Schedule 1, whether or not such transponder is
injected or implanted, and including any Improvements developed during the
Term, but not including any New Products, unless such New Products are added to
this Agreement as contemplated in Section 3(e) of this Agreement, in which case
such New Products will be deemed to be included in the Developed Products.

(f)              “Documentation” means existing and any
later-developed technical information, know-how and documents associated with
the Intellectual Property relating to the Developed Products including, without
limitation, manufacturing instructions, schematic diagrams, printed circuit
board layouts, parts lists, communication protocol specifications, design
specifications (including design logic and flowcharts), technical data, testing
specifications, code, user guides, and the like.

 2
 

 

 

(g)           The “Exclusive
Market” means all applications in which the Developed Products are used for the primary purpose of secure human identification, including, but not
limited to, those used as an implantable device.

(h)           The “Excluded
Market” means applications of Developed Products other than for secure human identification
or for any use in a country not included in the Territory.

(i)            “Force
Majeure Event” means and includes, with respect to each of the Parties, Acts of
God, acts or omissions of civil or military authority, fires, strikes, floods,
epidemics, riot, war, acts of terrorism, quarantine restrictions, delays in
transportation, inability to obtain equipment if not due to the acts or failure
to act of a Party or its subcontractors, and prolonged shortage of energy or
other supplies beyond the reasonable control of either Party which prevents, in
whole or in material part, the performance by one of the Parties of its
obligations hereunder or which renders the performance of such obligations so
difficult or costly as to make such performance commercially unreasonable.

(j)            “Governmental
Approvals” means any and all approvals required from a Governmental Authority
in accordance with any Applicable Law.

(k)           “Governmental
Authority” shall mean any federal, state, commonwealth, provincial, local or
foreign governmental authority, entity, body, branch, agency, department,
bureau, board, commission, officer, official, court, adjudicator, tribunal or
other entity, including any agent thereof, exercising executive, legislative,
judicial, regulatory, or administrative authority over the manufacture,
marketing, pricing, use, or sale of any Developed Product (including any
Improvements thereto) including, without limitation, any and all state,
commonwealth, provincial, local and foreign equivalents.

(l)            “Improvements”
means any and all upgrades, enhancements or other improvements made by the
Company to the Developed Products during the Term which are associated with the
use of the Developed Products in human tissue for the purpose of secure
identification.

(m)          “Intellectual
Property” means all know-how, ideas, concepts, trade secrets, Confidential
Information, proprietary information, research, developments, mask works, moral
rights, design rights, industrial property rights, rights in and to inventions, Improvements, and
as-yet-undeveloped ideas, patent rights, patent applications, patents and any
other intellectual property rights in any jurisdiction in the Territory
including modifications and other applications using or based upon the
resulting technology or required for the use of such technology wherever such
concepts, designs, design changes, modifications, research, and developments
might apply and which are created, developed, conceived, discovered, collected
or prepared pursuant or related to the Developed Products including, but not
limited to, patents set forth on Schedule 4 to this Agreement.

(n)           “New
Products” means microchip products developed by the Company which are primarily
intended for use in applications other than secure identification, such as

 3
 

 

biometric sensing capabilities, and for which any
identification capabilities are ancillary to the primary intended use.

(o)           “Term”
shall have the meaning set forth in Section 5 of this Agreement.

(p)           “Territory”
shall mean the World.

2.             Supply
and Purchase Requirements. During the Term, and with respect to the
Exclusive Market, Company shall manufacture the Developed Products exclusively
for, and shall sell the Developed Products exclusively to, VeriChip and any VeriChip
resellers or other nominees within VeriChip’s control (the “VeriChip Group”),
and the Company shall use its best efforts to supply,
at the time(s) required, all of the requirements of VeriChip and the VeriChip
Group for the Developed Products with respect to the Exclusive Market.  In the event that Company is unable or
unwilling to meet VeriChip’s requirements for Developed Products, Company shall
permit VeriChip to obtain additional suppliers and shall permit such additional
suppliers to use the Intellectual Property for the sole purpose of meeting
VeriChip’s supply requirements, subject to the provisions of Section 11(d) of
this Agreement.

All reseller agreements shall contain provisions requiring such resellers
to materially comply with provisions corresponding to those set forth in
Sections 4, 7, 9, 10, 12 and 15 of this
Agreement. In the event that VeriChip requests material changes to the
foregoing, or desires to enter into a reseller agreement which does not contain
provisions materially corresponding to those set forth in Sections 4, 7, 9, 10,
12 and 15 of this Agreement, VeriChip
shall obtain the prior written consent of the Company to such changes or such
arrangements, as applicable. During the Term, and with respect to the Exclusive
Market, VeriChip shall purchase from Company and cause members of the VeriChip
Group and any other resellers to purchase from the Company all of their
respective requirements for the Developed Products with respect to the
Exclusive Market. Except as otherwise provided below, the cost of each unit of
the Developed Products during the Term and the ordering and payment terms shall
be as set forth on Schedule 2. 
During the Term, Company shall not sell any Developed Product, New
Product or any product whose principal use is for secure identification
applications (either individually or otherwise) to any party other than a
member of the VeriChip Group if the Company knows or should know that such
party intends to use, market or otherwise sell or provide such products in the
Exclusive Market. Company agrees that the covenant contained in the preceding
sentence and its exclusive supply obligations as defined herein are conditions
precedent to VeriChip’s obligations as defined in this paragraph. VeriChip
shall be entitled to seek appropriate
injunctive relief (without the requirement of proving actual damages or
irreparable harm) if Company breaches its exclusivity obligations.

Each Party shall notify the other Party if such Party learns of (i) any
person or entity other than a member of the VeriChip Group marketing the
Developed Products in the Exclusive Market or (ii) any party who is or may be
infringing upon any of the Intellectual Property. In either such event, the
Company shall have an affirmative duty to prosecute and/or defend such
violation of this Agreement or infringement, and only if Company refuses to
pursue such person or entity, VeriChip shall be entitled to take any and all
actions against such persons or entities that are marketing, selling or
promoting the sale of Developed Products in violation of this Agreement,

 4
 

 

 

and Company shall provide VeriChip such non-financial assistance as may be
necessary to pursue such persons or entities, including the right to bring suit
in the name of Company either directly or as co-plaintiff.

In
addition to the obligations set forth in the preceding paragraph above, if
during the Term, to Verichip’s knowledge and upon providing reasonable notice
and documentation to the Company, a third party (a “VeriChip Competitor”)
makes, uses, sells or offers for sale any product or service * (a “Competitive
Product”), then in order to permit VeriChip to more effectively compete against
such Competitive Product, the price of the applicable Developed Products shall
be adjusted as follows:

(i)    If the parties can determine the wholesale
price paid by the VeriChip Competitor (based on VeriChip’s knowledge and
reasonable documentation thereof) for the Competitive Product, the Company
shall reduce its price for the corresponding Developed Products *.

(ii)   If the parties are unable to determine the
wholesale price paid by the VeriChip Competitor for a Competitive Product), the
Company shall reduce its price for the corresponding Developed Products *.

(iii)   If the parties cannot agree on the appropriate
price reduction pursuant to clauses (i) and (ii) above, the parties shall
submit the matter to binding arbitration in the manner set forth in Section 18
below.

(iv)   The price reduction referred to in clauses
(i) or (ii) above shall remain in place so long as  *; provided, however,
that in the event that the Company obtains an injunction against the Competing
Product or otherwise prevents the Competing Product from being offered within
such territory, the price of the Developed Product shall return to the level in
effect prior to the introduction of the Competing Product and, provided that
Company (1)  engages in legal action to
enjoin or prevent such infringement and (2) uses all commercially reasonable
efforts to recover the aggregate price reduction granted by the Company
pursuant to this paragraph as damages from the VeriChip Competitor, VeriChip
shall reimburse the Company for * the aggregate price reduction granted by the
Company pursuant to this paragraph which the Company is unable to recover as damages
from such VeriChip Competitor.

(v)   In consideration of the price adjustments set
forth in this paragraph, the liability of the Company for breaches of
representations and warranties set forth in Paragraph 8(a)(i) below related to
the ownership of the patents set forth on Schedule 4 shall not exceed the
profits generated by the Company from sales to VeriChip or the VeriChip Group
for the applicable Developed Products.

3.             Improvements
and New Products.

(a)           The
Company shall use commercially reasonable efforts to make Improvements to the
Developed Products. All such Improvements shall be promptly disclosed to
VeriChip. Any such Improvements shall be deemed to be associated with a
Developed Product for purposes hereof and the provisions of this Agreement with
respect to the Developed Products shall mean the Developed Products together
with any Improvements.

 

* Confidential Treatment has been requested, the
portion indicated has been redacted and the redacted portion has been
separately filed with the Securities and Exchange Commission.

 

 5
 

 

 

The pricing for any such Improvement shall be negotiated in good faith by
the parties hereto using the following criteria only: (i) the increase or
decrease in cost of production to Company, (ii) Company’s direct and demonstrable
research and development costs of developing the Improvements, (iii) a profit
margin consistent with the Developed Products, and (iv) reimbursement for any
payments required to be made by the Company to third party licensors if the
Company is required to license technology to develop the Improvement.

(b)           In the event Company makes any
Improvements to the Developed Products which are not requested by VeriChip,
Company shall continue to manufacture and supply to VeriChip the previous
(unimproved) iteration of the Developed Products.

(c)           VeriChip
may from time-to-time request that Company make Improvements to the Developed
Products including, without limitation, changes to packaging, labeling,
transponder color, and the like. The Company shall use commercially reasonable
efforts to incorporate the Improvements requested by VeriChip into the
Developed Products; provided, however, that (a) VeriChip shall reimburse the
Company promptly for all reasonable out-of-pocket expenses (including FDA
costs) incurred by the Company in making Improvements as requested by VeriChip,
and (b) the Company shall not make any Improvements that are inconsistent with
then applicable FDA authorizations without obtaining any required FDA
approvals.  In the event that Company is
unable or unwilling to make an Improvement to meet VeriChip’s request, Company
shall permit VeriChip to obtain additional suppliers and shall permit such
additional suppliers to use the Intellectual Property for the sole purpose of
meeting VeriChip’s requirement for Improvements, subject to the provisions of
Section 11(d) of this Agreement.  In such
event, (i)VeriChip shall have the right to seek any required Governmental
Approvals for such Improvement, and (ii) any Improvement so developed shall be
the property of VeriChip, provided that VeriChip will make any such Improvement
available to Company for license in non-human applications on reasonable and
non-discriminatory terms.

(d)           If
VeriChip desires to use the Company’s transponder other than for implantation
into human tissue, VeriChip shall provide not less than 120 days written notice
to the Company, and the Company shall have the ability to make changes to the
Developed Products necessary for VeriChip’s intended use, which changes will
not affect the Developed Products’ functionality.

(e)           If
VeriChip desires to use the Developed Products for applications in humans other
than the Approved Medical Uses or Approved Non-Medical Uses (the “New Uses”),
VeriChip shall so notify the Company, and the Company shall use all
commercially reasonable efforts to obtain any required Governmental Approvals
for such uses, if any. VeriChip shall not use the Developed Products for New
Uses unless all required Governmental Approvals have been obtained or the
Company has notified VeriChip that no Governmental Approvals are required.
VeriChip shall cooperate with the Company in performing all acts related to
obtaining required Governmental Approvals, including but not limited to
providing marketing and other information related

 6
 

 

 

to the New Uses to the Company and joining the Company in
the development and implementation of any required clinical studies. VeriChip
shall promptly reimburse the Company for all out-of-pocket
expenses incurred by the Company in connection with obtaining any Governmental
Approvals required for VeriChip’s New Uses. 
In the event that the Company refuses to seek any required Governmental
Approvals, VeriChip shall notify the Company in writing of its desire to seek
such Governmental Approvals directly or through its agents, appointees or other
third parties, and unless the Company commences the steps necessary to obtain
such required Governmental Approvals within thirty (30) days from the date of
such notice, VeriChip shall have the right to seek and obtain such required
Governmental Approvals in its own name and through use of its own resources,
including the use of sub-licensees, OEM manufacturers and other third parties,
as may be applicable, provided that VeriChip also agrees to share with the
Company any information submitted in connection with obtaining such
Governmental Approvals.

(f)            Except
as provided herein, the license granted by this Agreement to VeriChip shall not
apply to New Products. The Company shall promptly disclose any New Products to
VeriChip, and if VeriChip desires to market and sell said New Products, the
Parties shall negotiate in good faith the terms on which VeriChip shall have
the opportunity to market and sell such New Products. For purposes of such
negotiation, the Parties acknowledge and agree that the pricing applicable to
all New Products should be determined in good faith on the same terms set forth
in Section 3(a) with respect to Improvements. 
In the event the Parties are unable to agree on the terms under which
VeriChip shall have the right to market and sell such New Products within 90
days after the Company first notifies VeriChip of the existence of any such New
Product, the Company shall have the right to
market or sell such New Product, either directly or indirectly, provided that
in the event that Company elects to market such New Product through any third
party, and such third party offers pricing which is lower than the price last
offered by VeriChip, Company shall again offer VeriChip the exclusive right to
market the New Product on the terms proposed by the third party.  Otherwise, the Company shall have no further
obligation to VeriChip.  Notwithstanding
the foregoing, for so long as VeriChip retains its exclusive right to market
the Developed Products in the Exclusive Market, the Company will not authorize
the use of New Products for applications which would violate the Exclusive
Market.

(g)           VeriChip
shall have the right to design and build (or cause to be designed and built)
its own readers which readers may, but shall not be required to, read Company’s
transponders or tags in humans.  Company
hereby grants VeriChip a fully-paid, royalty-free, perpetual, non-exclusive
license to utilize Company’s U.S. Patent Number 5,952,935 for the purpose of
designing and constructing, using, selling and offering to sell readers for
human applications only.

4.                 Market and Other
Restrictions. VeriChip shall not, either directly or indirectly, promote,
rent, lease, sell or authorize the rental, lease or sale of Developed Products,
Improvements or New Products in the Excluded Market, but shall not be
restricted from licensing its own intellectual property. VeriChip agrees that
it will observe the territorial/market restrictions and end user limitations
set forth herein for all products covered by this Agreement. 

 7
 

 

 

VeriChip
shall not sell any Developed Product, Improvements or New Product or other
product covered by this Agreement (either individually or otherwise) to any
party if it knows or should know that such party intends to use, market or
otherwise sell or provide such products in the Excluded Market. Further,
VeriChip shall not sell any Developed Product, Improvements or New Product to
any party if it knows or should know that such party intends to use, market, or
otherwise sell or provide such Developed Product, Improvements or New Product
for human applications other than for
Approved Medical Uses or Approved Non-Medical Uses. VeriChip shall notify the Company if VeriChip
learns of any person or entity marketing the Developed Products in the Excluded
Market. Company shall be entitled to appropriate injunctive relief if VeriChip
breaches its obligations in this paragraph with respect to the Excluded Market
and such breach remains uncured following written notice thereof from Company.
Notwithstanding anything to the contrary herein, at any time, VeriChip and
members of the VeriChip Group shall have the right to purchase, develop, use,
have developed, or sell, for themselves and others, products competitive with
the Developed Products, provided that such products do not infringe upon the
Company’s Intellectual Property.

5.                 Term and Termination; Loss
of Exclusivity — Entire Territory.

(a)           The term
of this Agreement shall commence on the date of execution and shall continue
until March 4, 2013 (the “Term”). Provided that VeriChip continues to meet its
purchase obligations hereunder, the Term shall thereafter be automatically
renewed on an annual basis until the expiration of the last patents covering
any of the Developed Products.  Notwithstanding
the foregoing, either Party hereto may terminate this Agreement if (i) the
other Party shall default in the performance of any obligations hereunder
including the payment of money and shall not cure such default within 90 days
after receipt of written notice thereof; (ii) a petition of bankruptcy shall be
filed by the other Party; or (iii) a petition of bankruptcy shall be filed
against the other Party and such petition shall not have been discharged within
30 days after the filing thereof. In the event of any termination as a result
of breach by VeriChip hereunder, VeriChip shall be required to immediately pay
for any units of the Developed Products that have been ordered, delivered, and
not yet paid for.

(b)           VeriChip
shall retain its exclusive right to distribute the Developed Products for the
Term in the Territory provided that the VeriChip Group takes delivery and pays
for a minimum number of transponders within each year referenced below (a “Minimum
Unit Commitment”) at least equal to the unit levels set forth in Schedule 5
attached hereto:

If during any year VeriChip and the VeriChip
Group purchase in excess of the Minimum Unit Commitment for the applicable
year, such excess purchases shall be credited towards the Minimum Unit
Commitment for the following year or years. Notwithstanding anything contained
herein, if VeriChip fails to purchase and pay for the volumes of transponders
as indicated above, but is otherwise in compliance with the material terms of
this Agreement, Company shall have the option, upon 60 days written notice, to
terminate the exclusivity of this Agreement unless within 30 days after such
written notice, VeriChip makes sufficient purchases to meet said transponder
unit volumes.

 8
 

 

 

The following shall be credited
against the Minimum Unit Commitment: (a) Developed Products purchased by the
VeriChip Group from the Company, (b) Developed Products purchased by VeriChip
from third parties on which VeriChip pays the royalty described in Section
11(d) of this Agreement, and (c) Developed Products purchased by VeriChip from
third parties while the payment of royalties is suspended because of the
Company’s inability to supply VeriChip’s requirements.

6.                 Sales Reports. VeriChip shall provide the Company with
reports of its sales and marketing activities regarding the Developed Products
in the Territory in such detail and with such frequency as is reasonably agreed
between the Parties. In addition, VeriChip shall keep and maintain records of
its sales of Developed Products. Such records shall be open to inspection from
time to time, at reasonable times, as requested by the Company, as soon as
practicable after such request and in any event within fifteen (15) business
days after such request, by the Company and its officers, agents and other
representatives. In addition, the Company will have the right to make or cause
to be made an independent examination and/or audit of the books and records of
VeriChip relating to its sales of Developed Products. Any such inspection shall
be made at the Company’s expense. The records required by this paragraph shall
be maintained and available for inspection during the Term.  All of the foregoing information shall be
deemed to be Confidential Information as described hereinafter.

7.                 Confidentiality

 

(a)           In furtherance of this Agreement and performance of
the duties and obligations arising under this Agreement, each party may make
Confidential Information available to the other. During the Term of this Agreement and for a period of three (3) years
thereafter, (i) neither Party will use for its own benefit or the benefit of
any other person or entity any Confidential Information of the other Party; and
(ii) each Party will use all reasonable care, but in no event less care than it
takes to protect its own Confidential Information of similar importance, to
protect the Confidential Information of the other Party from unauthorized use,
disclosure and publication.

(b)           The
Parties acknowledge that each Party’s Confidential Information is a valuable,
special, and unique asset of the
respective Party’s business. Each Party hereby further acknowledges that such
Confidential Information is the sole and exclusive property of the respective
Party, absolutely and forever, and the other Party agrees not to use, copy,
disclose, make available or divulge such Confidential Information to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever.

(c)           Each of
VeriChip and Company respectively assumes full liability hereunder for the
actions, statements and representations of its employees, officers, agents and
representatives; and agrees to inform each of them of the provisions of this
Section 7 and enforce its provisions against each of them.

(d)           The
Parties mutually agree that the rights protected by this Section 7 are unique
and not adequately protected or compensated for by liquidated damages. In the
event of a breach, the harmed Party shall be entitled to obtain injunctive
relief against the breaching 

 9
 

 

party and otherwise enjoin the breaching party from the use
or dissemination of such Confidential Information.

(e)           The
provisions of this Section shall survive the termination or expiration of this
Agreement as provided above.

(f)            The
Parties agree that all property of one
Party that is in the possession of the
other Parties at the time of termination of this Agreement, including without
limitation, all designs, schematics, documents, reports, manuals, memoranda,
computer print-outs, customer lists, and Confidential Information shall be immediately
returned to the Parties providing such
information.

8.                 Product Warranties,
Limitation of Liability and Indemnification Provisions.

(a)           Company hereby
warrants that (i) the Company is the owner of the patents set forth on Schedule
4 to this Agreement; (ii) during the term of the patents set forth on
Schedule 4 to this Agreement, the Company has not entered into any agreement
with any third party which is inconsistent with the terms of this Agreement;
(iii) to the best of the Company’s knowledge, the patents set forth on Schedule
4 to this Agreement are valid and enforceable in the Exclusive Market; (iv)
to the best of the Company’s knowledge, neither the Company nor its affiliates
has rights to any Intellectual Property necessary to the design, development,
manufacturing, use, sale or offer for sale of the Developed Products in the
Exclusive Market which have not been granted to VeriChip herein, and (v) to the
best of the Company’s knowledge, no third party is currently infringing the
rights of the Company in any of the patents set forth on Schedule 4 by engaging
in sales in the Exclusive Market.

(b)           The Developed
Products sold by Company to VeriChip (X) shall be free from defects in design,
workmanship and materials under normal use and service for a period of 24 months from the date of shipment by
Company, and (Y) with respect to Developed Products intended for use in
Approved Medical Uses, have been manufactured at a facility that complied in
all material respects with the applicable Quality System Regulations under the
Act as amended from time to time; provided that in no event shall Company be
responsible for rules in relation to Quality System Regulations with respect to
labeling, installing and servicing of Developed Products, all such activities being
the responsibility of VeriChip.

(c)           Company’s sole
obligation under the foregoing warranty shall be, at Company’s option, to
either repair or replace any Developed Product which fails during this period
(and any batch of Products from which such defective Developed Product came, if
Company believes other Developed Products within such batch are defective),
provided VeriChip has promptly reported the failure to Company in writing, and
Company has upon inspection found that such product is, in fact, defective.
VeriChip shall obtain instructions and a return material authorization from
Company for the return of any item under this warranty provision. Compliance
with such instructions shall be a condition precedent to Company’s repair or
replacement obligation hereunder. Subject to subsection (d) below, if Company
finds the product to be within the warranty period and

 10
 

 

defective, Company will reimburse VeriChip for the freight cost in
returning the product from VeriChip.

(d)           The warranties set
forth in this Section 8 are contingent upon proper use in the application for
which the Developed Products were intended and do not cover Developed Products
which have been modified without Company’s approval or which have been
subjected to unusual physical or electrical stress or on which the original
identification marks have been removed or altered except with VeriChip’s own
private label as long as such change does not otherwise alter or affect the
Developed Products. This warranty will not apply if adjustment, repair or parts
replacement is required due to accident, neglect, misuse of electric power, air
conditioners, humidity control, transportation or causes other than ordinary
use.

(e)           EXCEPT FOR THE
EXPRESS WARRANTY STATED ABOVE, COMPANY DISCLAIMS ALL WARRANTIES WITH REGARD TO
DEVELOPED PRODUCTS SOLD HEREUNDER, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND THE STATED EXPRESS
WARRANTIES ARE IN LIEU OF ALL OBLIGATIONS OR LIABILITIES ON THE PART OF COMPANY
FOR DAMAGES. COMPANY SHALL NOT BE LIABLE TO ANY PARTY FOR ANY SPECIAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED UPON LOST GOODWILL, LOST RESALE PROFITS,
WORK STOPPAGE, OR IMPAIRMENT OF OTHER GOODS OR ARISING OUT OF BREACH OF
WARRANTY, BREACH OF CONTRACT, STRICT LIABILITY, OR NEGLIGENCE.

(f)            Company shall indemnify and hold
harmless VeriChip and the VeriChip Group and their respective agents,
directors, officers and employees from and against only those losses,
liabilities, judgments, awards, settlements, damages and costs (including
reasonable legal fees and expenses), whether based upon tort, breach of
contract, breach of warranty (either express or implied) or strict liability
(collectively “Damages”) resulting from any claim: (i) for personal injury
(including death) or property damage, caused by or arising from defects in
design, materials or workmanship of any Developed Product, (ii) that the use,
sale, offer for sale and manufacture of any
Developed Product or any sub system or part thereof and the methods used to design
or manufacture any Developed Product infringe upon or misappropriate the U.S.
patent, or any copyright, trademark or trade secret of any third party, (iii)
that any Developed Product intended for
Approved Medical Uses was manufactured at a facility which did not comply in all material respects with Applicable
Laws, (iv) Company’s breach of its obligations, representations, or warranties
under this Agreement, and (v) Company’s negligence, errors, or omissions, provided
that in no event shall Company’s indemnity obligation extend to claimed
non-compliance or non-compliance in fact in relation to Applicable Laws with respect to labeling, installing and
servicing of Products, all such activities being the responsibility of
VeriChip. Notwithstanding any provision herein to the contrary, Company shall
never be responsible, and shall have no indemnity obligation, for any other
claims relating to the Developed Products.

 

 11

 

 

(g)           VeriChip
shall indemnify and hold harmless Company and its agents, directors, officers
and employees from and against any and all Damages resulting from: (i) a claim
for personal injury (including death) or property damage, caused by or arising
from the use of Developed Products in humans, unless the claim arises from a
defect in materials or workmanship of the Developed Products, (ii) a claim that
the use or sale of any Developed Product does not comply with Applicable Law,
(iii) VeriChip’s breach of its obligations, representations, or warranties
under this Agreement, and (iv) VeriChip’s
negligence, errors, or omissions.

(h)           The
party desiring indemnification in accordance with Sections 8(b)(iii), (g) or
(h) (the “Indemnified Party”) shall promptly notify the other party (the “Indemnifying
Party”) of all claims that may be subject to indemnification by it under such
Section. If the Indemnified Party fails to provide such notice, the
Indemnifying Party will be excused from its indemnity obligation but only to
the extent that its position is materially prejudiced by such failure. The
Indemnifying Party shall have an affirmative duty to provide a defense to the
Indemnified Party.  The Indemnified Party
will give all reasonable cooperation to the Indemnifying Party in defending or
otherwise resolving any such claim. The Indemnifying Party will have full
control of the defense of all such claims; provided it is conducting such
defense with reasonable diligence. Before settling any such claim, the
Indemnifying Party shall obtain the written consent of the Indemnified Party;
provided, however, the Indemnifying Party shall have full authority to enter
into any settlement or compromise on behalf of the Indemnified Party without
the prior written consent of the Indemnified Party if such settlement or
compromise (i) involves only the payment by the Indemnifying Party of cash
consideration and (ii) does not constitute an admission of liability,
culpability or the like as to the Indemnified Party, or otherwise create precedent
unreasonably adverse to the Indemnified Party.

9.                 Marketing and Trademarks.
During the Term of this Agreement, VeriChip is hereby granted a license to
Company’s trademarks and trade dress so
as to assist it in selling the Developed
Products and other products that may come within the scope of this Agreement.
VeriChip shall not make any statements, claims, representations or warranties
regarding the Developed Products that are false, misleading or which violate
any Applicable Law. VeriChip acknowledges that in order to avoid the
dissemination of unapproved marketing or promotional information, including use
of the Company’s trademarks and trade dress, the Company has established a
standard operating procedure with respect to the review and approval of
labeling and advertising materials (the “Promotional SOP”), a copy of which is
attached hereto as Exhibit A and incorporated herein by reference. The
Company shall have the right to amend the Promotional SOP from time to time (provided that any such amendment to the Promotional
SOP shall not impose additional limitations which adversely affect VeriChip’s
ability to market the Developed Products except to the extent necessary to
conform to applicable law), and shall promptly provide a copy of such
revised SOP to VeriChip. Upon receipt of a revised Promotional SOP by VeriChip,
such revised Promotional SOP shall be deemed to be incorporated into this
Agreement for all purposes. VeriChip shall provide to Company all advertising
and printed materials regarding VeriChip’s sale and marketing of the Developed
Products prior to dissemination thereof by submitting Promotional Material
Review and Approval Form in the manner contemplated by the Promotional SOP. The Company will

 12
 

 

promptly
review the proposed materials in accordance with the Promotional SOP and will
advise VeriChip of its determination whether such proposed materials are
acceptable for release, and if the Company determines that such materials are
not acceptable for release in the form submitted, shall advise VeriChip in as
much detail as practicable of the reasons why such materials are unacceptable.
Further, Company shall have the right to review and approve VeriChip’s website
materials pertaining to the Developed Products. 
VeriChip shall maintain ownership of those Intellectual Property rights
relating to its Website. VeriChip retains all rights in and to, and Company
shall have no right to use, display or refer to, VeriChip’s marks (including
the designation “VeriChip”) without VeriChip’s advance written approval, which
approval shall not be unreasonably withheld or delayed.

10.                Publicity.
If either Party wishes to make a public disclosure concerning this Agreement or
the relationship established hereunder and such disclosure mentions the other
Party by name or description, such other Party shall be provided with an
advance copy of the disclosure and shall have five (5) business days within
which to approve or disapprove such use of its name or description (including
mention of the name of the Developed Product). Approval shall not be
unreasonably withheld or delayed by either Party. Absent approval, no public
disclosure shall use the name of or otherwise describe such Party except to the
extent required by law, or to the extent that the description of the other
party is limited to public information about the availability of the Developed
Product. Notwithstanding the foregoing, each party acknowledges that the other
Party is or is affiliated with, a publicly-traded company, and hereby consents
to its disclosure of this Agreement and its relationship with the other Party
in its filings with the Securities and Exchange Commission and its disclosures
to stockholders; provided, however, that each Party shall use commercially
reasonable efforts not to disclose the specific financial terms and conditions
of this Agreement except when such disclosure is required by law.

11.                The
Intellectual Property License.

(a)          
Subject to the terms of Section 5 hereof, Company hereby grants VeriChip, for
the Term, an irrevocable exclusive license to use and market the Developed
Products and the related Intellectual Property with respect to the Exclusive
Market. All rights in the Developed Products and any of the Company’s related
designs, technology or Intellectual Property, other than those granted by this
Agreement, are hereby reserved by Company. 
Upon execution of this Amended and Restated Agreement, Company shall
enter into a third party escrow arrangement providing for the escrow of a
complete copy of the Documentation, in substantially the form attached hereto
as Exhibit B.  VeriChip agrees
that it will not (i) manufacture the Developed Products, (ii) sublicense the
Intellectual Property, or (iii) otherwise transfer its interest in the
Intellectual Property to any person or entity other than an Affiliate without
prior consent, so long as there has been no Event of Default (as defined
below).

 13
 

 

 

(b)           VeriChip’s license
of Company’s Intellectual Property shall include the right, except as to the
Company, to use the Documentation to manufacture or have manufactured, use,
sell and offer to sell the Developed Products for the Exclusive Market (i) upon
an Event of Default, until such time as the underlying Event of Default has
been cured or until expiration of the Term, (ii) in the event of a Force
Majeure Event, but only so long as that event continues or so long as Company
is unable to supply Developed Products as a result of said Force Majeure Event
or until expiration of the Term, whichever occurs first, or (iii) upon its
prior written notice, upon the terms set forth in subsection (d) below.  Except as set forth in Section 8, the Company
makes no warranties and shall have no indemnification or other obligations with
respect to the products produced pursuant to this manufacturing license.

(c)           For purposes of this
Section 11, an “Event of Default” shall be: (i) material breach by Company of
the provisions of Section 2 of this Agreement (Supply and Purchase
Requirements) which breach is not cured within 90 days of receiving written notice
thereof, or (ii) Company files a petition in bankruptcy, applies for or
consents to the appointment of a receiver or trustee, makes an assignment for
the benefit of creditors, becomes subject to an attachment of, execution upon,
or other judicial seizure of, all or substantially all of its assets, or
becomes subject to involuntary proceedings under any bankruptcy or insolvency
law (which proceedings are not dismissed within sixty (60) days); provided,
however, that, if (x) Company’s breach was due to a Force Majeure Event or (y)
Company cures (or in the case of breaches which cannot be cured within such 90
day period, fails to take such steps as are reasonably necessary to commence
such cure) such breach within such 90 day period, then there shall be no Event
of Default.

(d)           In the event that
VeriChip desires to have a third party manufacture Developed Products,
Improvements or New Products, VeriChip shall have the right to do so upon
providing the Company at least ninety (90) days’ prior written notice.  In such event, (a) VeriChip shall pay the
Company a royalty (the “Royalty”) on each product manufactured by the third
party(ies) which would otherwise infringe a valid and enforceable claim of the
Company’s patented Intellectual Property in an amount equal to the lesser of:
(i) *, and (ii) if the price of the Developed Product is reduced in accordance
with of the provisions of Section 2 above, an amount equal to the Company’s
gross margin on the Developed Product following such price reduction (but only during
such period of price reduction pursuant to Section 2), (b) VeriChip shall
require the third party to sign a confidentiality agreement which shall govern
such third party’s use of the Intellectual Property materially consistent with
the confidentiality terms contained in Section 7 of this Agreement, (c)
VeriChip shall require the third party to periodically report to the Company
its manufacturing activities and to permit the Company to inspect the third
party’s records from time to time as requested by
the Company to verify compliance with the Intellectual Property license, this
Agreement and the payment of Royalties, as soon as practicable after such
request and in any event within fifteen (15) business days after such request, and
(d) VeriChip shall indemnify the Company for any infringements upon or

 

* Confidential Treatment has been requested, the portion indicated has
been redacted and the redacted portion has been separately filed with the
Securities and Exchange Commission.

 

 14
 

 

 

disclosures of the Company’s Intellectual Property by such third
party(ies).  In consideration of the
Royalty, the Company shall provide the same database services for Developed
Products manufactured by third parties as for the Developed Products supplied
by the Company.

(e)           In the event
VeriChip is required to incur costs and expenses as a result of any
interruption of supply of Developed Products, or Event of Default as
aforesasid, then VeriChip may, upon request, obtain reimbursement of said costs
or expenses from the Company, provided that (i) VeriChip shall have an
affirmative duty to mitigate its damages, and (ii) if VeriChip desires to
engage a third party to manufacture the Developed Products, VeriChip shall (x)
notify the Company in advance, (y) require such third party to agree to be
bound by the confidentiality and market restrictions set forth in this
Agreement, and (z) ensure that such third party’s use of the Intellectual
Property is limited solely to manufacturing the Developed Products exclusively
for VeriChip. VeriChip shall assist Company, to the extent reasonably requested
by Company, and at Company’s expense, in the procurement of any protection or
defense of any of Company’s rights to (i) trademarks, (ii) copyrights, and
(iii) patents owned by Company that relate to the Developed Products produced
pursuant to this Agreement. Company shall assist VeriChip, to the extent
reasonably requested by VeriChip, and at VeriChip’s expense, in the procurement
of any protection or defense of any of VeriChip’s rights to (i) trademarks,
(ii) copyrights, or (iii) patents licensed by VeriChip pursuant hereto. Except
as set forth in Section 8, if there shall be an Event of Default and VeriChip
shall produce Developed Products pursuant hereto, VeriChip shall assume all
responsibility for the Developed Products so produced.

(f)             In addition to its indemnification obligations
hereunder, in the event the Developed Products, including without limitation
any sub system or part thereof, becomes the subject of any claim, action, or allegation
of the type specified in Section  8 (g)(ii),
the Company shall promptly use all reasonable efforts at its expense: (i) to procure for VeriChip the right
to continue using the applicable Developed Products (or the applicable sub
system or part thereof); or (ii) if such continued use cannot be so procured,
to modify it to become non infringing without adversely affecting its
performance or capability; or (iii) if such modification cannot be so
implemented at a reasonable cost, to provide substitute products of similar
performance and capability acceptable to and approved by VeriChip (which
approval shall not be unreasonably withheld or delayed).

(g)           Except as
set forth in Section 8 of this Agreement, in no event shall VeriChip be liable
to the Company for any amounts pursuant to this Agreement or any related
maintenance or license agreement for the maintenance or license of the
Developed Products, or any sub system or part thereof, after the date, if any,
that VeriChip is no longer legally permitted to use the Developed Products..

12.               Regulatory
Matters.

(a)           VeriChip shall have
the right, upon reasonable notice to Company and not more frequently than once
in any 90 day period and during regular business hours, to inspect and audit
the facilities being used by Company (or any third party) for production of the

 15
 

 

Developed Products to assure compliance by Company with current GMP (21
CFR Part 820) and applicable FDA, ISO 13485, and other rules and regulations
and with other provisions of this Agreement. Company shall notify VeriChip
immediately of any existing or proposed FDA or other government regulatory
inspections or actions relative to products or services supplied to VeriChip by
Company. Company shall maintain on file all manufacturing and inspection records
of all products supplied to VeriChip for a minimum of seven (7) years unless
otherwise agreed in writing. Company shall within ten (10) business days remedy
or cause the remedy of any deficiencies which may be noted in any such audit
or, if any such deficiencies cannot reasonably be remedied within such ten (10)
day period, present to VeriChip a written plan to remedy such deficiencies as
soon as possible; and the failure by Company to remedy or cause the remedy of
any such deficiencies within such ten (10) day period or to present such a plan
within such ten (10) day period and then use its best efforts to remedy or
cause the remedy of such deficiencies in accordance with such written plan, as
the case may be, shall be deemed a material breach of this Agreement. Company
acknowledges that the provisions of this Section 12 granting VeriChip certain
audit rights shall in no way relieve Company of any of its obligations under
this Agreement, nor shall such provisions require VeriChip to conduct any such
audits.

(b)           VeriChip and the
VeriChip Group will keep and maintain accurate distribution records and other
relevant information regarding the customers to whom the Developed Products
were sold, including batch numbers and such other information as the Company
may reasonably request from time to time. VeriChip shall maintain on file such
distribution records for a minimum of seven (7) years
unless otherwise agreed in writing, and shall make such records reasonably
accessible to Company during such timeframe. Company recognizes and agrees that
such documents relating to distribution and sales of products by VeriChip to
third parties constitutes Confidential
Information of VeriChip and that any such information regarding its customers
belongs solely to VeriChip. In the event such information is needed for FDA or
other traceability purposes, VeriChip retains the option to either disclose the
information to Company so that the Company can effectuate such recall or other
FDA action, or implement such recall procedures itself as it relates to its own
customers at the Company’s sole cost and expense.

(c)           VeriChip, at its
sole cost and expense, will investigate all complaints relating to the
Developed Products, and shall provide the Company with all documentation regarding
any such complaint and VeriChip’s response thereto. Company shall maintain all
required complaint files relating to the Developed Products.

(d)           Company will
immediately communicate to VeriChip verbally and in writing any technical or
medical reason that might result in a correction, removal or systematic recall
of a Developed Product supplied to VeriChip.

(e)           VeriChip
shall notify Company promptly of any inspection by any federal, state or local
regulatory representative concerning any Developed Products and shall provide
Company with a summary of the results of such inspection and such actions, if
any, taken to remedy conditions cited in such inspections.

 16
 

 

 

(f)            Each party agrees
to inform the other party promptly (but in no event later than forty-eight
(48) hours after becoming aware of same) of any information concerning any
complaint involving a Developed Product or any adverse event as defined in 21 CFR Part 803 and 804)
associated with the medical use of the Developed Products, whether or not
considered related to the Developed Products. A complaint is any written,
electronic or oral communication that alleges deficiencies related to the
safety, effectiveness, identity, labeling quality, durability, reliability or
performance of a Developed Product after it is released for commercial
distribution.

(g)           If the adverse
reaction is serious, as defined in 21 CFR 314.80 (including an adverse reaction
that is fatal or life-threatening, is permanently disabling, requires inpatient
hospitalization, or is a congenital anomaly, cancer or overdose), then each
party shall notify the other party within twenty-four (24) hours. All
notifications to either party shall be by facsimile and on such party’s
designated adverse event forms.

(h)           If there is a recall
or withdrawal of a Developed Product within a particular jurisdiction within
the Territory, then VeriChip agrees to stop shipping recalled lots to that
jurisdiction immediately, and in no event later than twenty-four (24)
hours after VeriChip receives written notification of such recalls or
withdrawal. VeriChip shall cooperate fully in any such recall or withdrawal.

(i)            VeriChip agrees to cooperate, at its sole cost and
expense, with any inspection of a Developed Product shipment conducted by a
Governmental Authority.

(j) The Company shall conduct such product
recalls and withdrawals as are reasonably requested by VeriChip, at the Company’s
expense.  In the event that VeriChip determines to conducts any product recalls
or withdrawals, VeriChip shall be responsible for its own costs and expenses
(including reasonable attorneys’ fees).

(k) VeriChip shall at all times during the Term of the
Agreement comply, in all material respects, with all federal and state laws,
regulations and orders applicable to its operations as a wholesale and/or
retail distributor.

(l) VeriChip agrees not to sponsor or support any
clinical study involving Developed Products for
applications other than secure, human identification without Company’s prior
written consent. VeriChip will inform Company in writing of any research it
supports or sponsors involving the Developed Products. Any adverse event that
occurs during a clinical study shall be promptly reported by VeriChip to
Company.

(m) VeriChip shall
participate in annual GMP/Quality Systems training and shall maintain
appropriate records of such training.

(n)           VeriChip
will not sell any Developed Products for Approved Medical Uses where the shelf
life of such Developed Products has expired; provided, however, that VeriChip
may return such Developed Products to Company for refurbishment and then sell
such refurbished Products for Approved Medical Uses.  The cost of refurbishing Developed Products
will be Company’s current cost, which is * per unit based on a minimum

 

* Confidential Treatment has been requested, the portion indicated has
been redacted and the redacted portion has been separately filed with the
Securities and Exchange Commission.

 17
 

 

 

of 3,000 units, provided that
Company will use commercially reasonable efforts to reduce this cost.

13.                Data
Collection, Warehousing and Management. Company shall set up and operate a
computer database to provide data collection, storage, manipulation for a
complete identification and retrieval service to the Exclusive Market. If
requested by VeriChip, for any, some or all of VeriChip’s customers, Company
shall provide data collection, storage, manipulation and retrieval using the
standards as described on Schedule 3 and any modifications thereto that
are commercially reasonable in light of advancements in technology and changes
in the manner in which VeriChip markets the Developed Products. With respect to
VeriChip’s customers for which Company provides this service, VeriChip shall
pay Company a monthly fee equal to 50% of the Services Gross Profit per subscriber.
The “Services Gross Profit” means the amount collected by VeriChip from such
customers specifically for such data storage, manipulation and retrieval minus
VeriChip’s costs of providing such services to such customers (VeriChip may
include in its costs the salaries of those VeriChip employees whose sole
responsibility is to provide such services). Within 45 days following the end
of each fiscal quarter, VeriChip shall send Company such fee for such quarter
and a report detailing: (i) the amount collected during such quarter from the
VeriChip customers for whom the Company is warehousing data and (ii) VeriChip’s
costs in providing the collection, warehousing and retrieval of such data for
such customers. The report shall not be required if the Company is not
providing any such warehousing services. The Company will have the right to
make or cause to be made an independent examination and/or audit of the books
and records of VeriChip relating to its Services Gross Profit. Any such
inspection shall be made at the Company’s expense, unless such examination
and/or audit discloses a shortfall in excess of 5% in the amount paid by
VeriChip to the Company, in which case VeriChip shall be responsible for the
costs of the examination and/or audit. The records required by this paragraph
shall be maintained and available for inspection during the Term.

Notwithstanding anything to the contrary in this Section 13, VeriChip shall
have the option, exercisable at any time during the term of this Agreement, to
provide written notice to Company that VeriChip wishes to operate the database
itself and cease Company’s provision of the database services described
herein.  Upon transfer of the database to
VeriChip, Company shall be relieved of all liability associated with the
database and VeriChip hereby agrees to indemnify and hold harmless Company and
its agents, directors, officers and employees from and against any and all
Damages resulting from VeriChip’s use of the database.

14.                No
Agency. Neither Party is the agent, legal representative, partner or a
joint venturer of the other Party for any purpose and the employees of one
Party are not and shall not be deemed employees of the other Party for any
purpose.

15.                Assignment.
Neither Party may assign its rights hereunder without the written consent of
the other Party, provided that, even without such written consent, a Party may
assign its rights hereunder to an Affiliate of such Party, provided that such
Affiliate agrees to be bound by all of the provisions of this Agreement, and
provided further that in the event said Affiliate ceases to be an Affiliate of
the assigning Party, this Agreement shall revert to the original (assigning)
Party without any action of the Parties. This Agreement shall remain in full
force and effect in the event of a “change of control” of either Party.  For purposes herein “change of control” shall

 18
 

 

 

mean
(i) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), other than any affiliate of such Party, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of fifty-one percent (51%) or more of the then outstanding shares of common
stock of such Party; (ii) consummation of a reorganization, merger or
consolidation or sale (in each case where substantially all of the assets or
stock of the Party are transferred) or other disposition of all or
substantially all of the assets of such Party; (iii) approval by the
shareholders of such Party of a complete liquidation or dissolution of such
Party; or (iv) the filing of a bankruptcy petition, or similar act, voluntarily
or involuntarily.

16.                Notices. Any notice required or
permitted to be given with respect to this Agreement shall be deemed given (a)
upon receipt when delivered personally, by registered mail return receipt
requested or by reputably overnight courier or (b) on completion of apparently
successful transmission by a facsimile transmission device that conforms to
industry standards applicable at the time and generates automatically a printed
diagnostic report with respect to each attempted transmission, in each case
directed to the addressee in accordance with the following, provided that the
preferred method of providing notice shall be that set forth in clause (a)
above:

 

	
  If to Company:

  	
   

  	
  Digital Angel Corporation
490 East Villaume
South St. Paul, Minnesota 55075
Attn: CEO
Facsimile Number: 612-455-0413

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to:

  
Winthrop & Weinstine, P.A.
225 South Sixth Street
Suite 3500
Minneapolis, MN 55404
Attention: Philip T. Colton
Facsimile Number: 612-604-6800

  
	
   

  	
   

  	
   

  
	
  If to VeriChip:

  	
   

  	
  VeriChip Corporation
1690 South Congress Ave.

  Suite 200
Delray Beach, Florida 33445
Attention: Chief Financial Officer
Facsimile Number:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to:

  
Applied Digital Solutions, Inc.
1690 South Congress Ave.
Suite 200
Delray Beach, Florida 33445
Attention: General Counsel
Facsimile Number: 561-805-8001

  

 

 19
 

 

 

Either party may change its address
for notices or copies of notice by notice to the other party in accordance with
the provisions of this Section.

17.                Governing Law and Language; Jurisdiction
and Venue.

(a)           This Agreement shall
be governed by and construed in accordance with the laws of the State of
Minnesota.

(b)           Any claim or action
for breach of this Agreement shall be brought in the state or federal courts in
the State of Minnesota.

(c)           The United Nations
Convention on Contracts for the International Sale of Goods shall not apply in
construing or interpreting this Agreement, a breach of this Agreement or the
relationship between the parties.

18.                Dispute
Resolution. 

(a)           Any
question, difference or dispute which may arise concerning any matter arising
out of or in connection with this Agreement, including, without limitation, (i)
the construction, meaning or effect of this Agreement, (ii) to matters where “mutual
agreement” or “good faith” or “reasonableness” is required, or (iii) concerning
the rights and liabilities of the Parties hereunder shall first be submitted to
the then acting Chief Executive Officer of VeriChip and the then acting Chief
Executive Officer of the Company who may call on others to advise them as they
see fit.

(b)            If the
discussions under section (a) above should fail to resolve the question,
difference or dispute within thirty (30) days, the Parties agree to try in good
faith to settle the matter by mediation before a mediator agreed to by the
parties. The place of mediation shall be Minnesota. The mediation shall take
place not later than thirty days after the failure to resolve the matter
pursuant to section (a) above.

(c)           Any
controversy or claim which cannot be resolved as aforesaid shall be settled by
arbitration to be held in the City of St. Paul, Minnesota, administered by the
American Arbitration Association (“AAA”) under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. 
The Arbitration Panel shall consist of three arbitrators.  Each party shall select one arbitrator within
thirty (30) days from the date of filing of any demand for arbitration and the
third arbitrator shall be appointed by the first two arbitrators.  It is the parties’ desire that all
arbitration be concluded speedily, with the hearing to take place and the award
to be made within ninety (90) days of the filing of any demand for
arbitration.  Judgment upon the award of
a majority of the arbitrators shall be binding upon the parties hereto and may
be entered in any court having jurisdiction. 
Specific performance and injunctive relief may be ordered by the
award.  Costs and attorneys’ fees shall
be paid as the arbitrators’ award shall specify.  As the sole exception to arbitration, each
party shall have the right to obtain injunctive relief, only, from any court
having jurisdiction so as to preserve that party’s rights for resolution in any
pending or imminent arbitration proceedings; but no such injunction shall
prohibit or postpone such arbitration

 20
 

 

 

proceedings, and any such injunction may be modified or
vacated as a result of the arbitration award.

(d)           Notwithstanding
the foregoing, and notwithstanding anything to the contrary in this Agreement,
any Party may seek immediate injunctive or other interim relief from any court
of competent jurisdiction with respect to any matter for which monetary damages
would not adequately protect such Party’s interests or otherwise to enforce and
protect intellectual property rights owned or licensed to such Party.

19.                Amendment.
This Agreement may be amended or modified only by a written modification signed
by the parties hereto.

20.                Unenforceability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced under any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect.

21. Entire Agreement. This Agreement sets forth the entire agreement of the parties concerning
the subject matter hereto and supersedes and replaces any and all other
agreements or understandings, written or oral, between the parties concerning
the subject matter hereof, including without limitation any letters of intent
or letters of understanding.

22. Remedies Cumulative. The rights and remedies herein expressly provided are cumulative and not
exclusive of any rights or remedies that a party would otherwise have.

23. 
Counterparts. This Agreement may be executed in a number of
counterparts, all of which together shall for all purpose constitute one
Agreement, binding on both parties hereto, notwithstanding that both parties
may not have signed the same counterpart.

24. 
Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns.

(The remainder of this page is intentionally left blank.)

 21
 

 

 

25. 
Heading;
Disclaimer. The headings or captions
used in this Agreement are for reference purposes only and are not intended to
be used or relied upon in interpreting or enforcing this Agreement.

IN
WITNESS WHEREOF, this Agreement has been executed as of the day and year first
above written.

	
  

  	
   

  	
  DIGITAL ANGEL CORPORATION,
a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Kevin N. McGrath 

  	
   

  
	
   

  	
   

  	
  Title:CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  VERICHIP CORPORATION,
a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Kevin H. McLaughlin 

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 22

 

 

SCHEDULE 1

DEVELOPED PRODUCTS

(Attached to and forming a part of the Agreement)

	
  Product

  	
   

  	
  DA price to

  VeriChip each

  in quantities of 1

  
	
  VeriChip TXQ400L 12mm RF/ID tag:
  128 bit data capacity, factory encoded unique 16-digit
  number, introducer, reply card, bar code label, sterile packaged for human
  applications*

  	
   

  	
  **

  
	
  Pocket Reader EX

  	
   

  	
  **

  
	
  2100 Portable Reader

  	
   

  	
  **

  
	
  Custom-manufactured portal readers

  	
   

  	
  Quote

  

 

*
Including the injectable radio frequency transponder for which Company has
obtained United States Patent No 5,211,129.

Pocket Reader EX Specifications

	
  Operating Frequency

  	
   

  	
  125 kHz or ISO 134.2 kHz

  
	
  Case

  	
   

  	
   

  
	
  ·  Size:

  	
   

  	
  285 mm L x 80 mm W x 32 mm H

  
	
  ·  Weight:

  	
   

  	
  406 g

  
	
  ·  Color:

  	
   

  	
  RAL 7032

  
	
  ·  Material:

  	
   

  	
  ABS Plastic

  
	
  Operating Temperature:

  	
   

  	
  0°-50°C or 32°-122°F

  
	
  Humidity:

  	
   

  	
  10 – 90% (non-condensing)

  
	
  Storage Temperature:

  	
   

  	
  -20° to 65°C or –4° to 149°F

  
	
  Batteries:

  	
   

  	
  4 size AAA 1.5-volt alkaline
  batteries

  
	
  Display:

  	
   

  	
  18-character LCD

  
	
  Output Port:

  	
   

  	
  Serial field-programmable port

  
	
  RS 232 Port

  	
   

  	
  Industry Compatible (PC, for
  example)

  

 

** Confidential Treatment
has been requested, the portion indicated has been redacted and the redacted
portion has been separately filed with the Securities and Exchange Commission.

 1
 

 

 

Long-Range Handheld Reader
Specifications

	
  Operating Frequency

  	
   

  	
  134.2 kHz

  
	
  2001F Case

  	
   

  	
   

  
	
  ·  Weight:

  	
   

  	
  5.0 lbs. 2.3 Kg

  
	
  ·  Color:

  	
   

  	
  Yellow/Black

  
	
  ·  Material:

  	
   

  	
  Aluminum/Polyurethane

  
	
  Tabletop Antenna

  	
   

  	
   

  
	
  ·  Weight:

  	
   

  	
  2.1 lbs. .96 Kg

  
	
  ·  Color:

  	
   

  	
  Yellow

  
	
  ·  Material:

  	
   

  	
  Polyurethane

  
	
  Racket Antenna

  	
   

  	
   

  
	
  ·  Weight:

  	
   

  	
  1.3 lbs. .6 Kg

  
	
  ·  Color:

  	
   

  	
  Yellow

  
	
  ·  Material:

  	
   

  	
  Polyurethane

  
	
  Operating Temperature:

  	
   

  	
  -5° to 50°C or 23°-122°F

  
	
  Humidity:

  	
   

  	
  10 – 90% (non-condensing)

  
	
  Storage Temperature:

  	
   

  	
  -20° to 65°C or –4° to 149°F

  
	
  Batteries:

  	
   

  	
  Nickel-metal-hydride 10 cells (12
  Vdc)

  
	
  Display:

  	
   

  	
  2 lines by 16 characters backlight
  LCD display

  
	
  RS 232 Port

  	
   

  	
  User defineable COM port baud rate
  setting at 2400, 9600, 19200 or 57600 BPS

  

 

This
equipment has been tested and complies with the limits for a “Class A’’ digital
device. pursuant to part 15 of the FCC rules and has CE approval where
applicable, UL Information: Battery Charger and power supply are UL approved
(110 VAC)

 

 2

 

 

SCHEDULE 2

PRICE AND TERMS SCHEDULE

(Attached to and forming
a part of the Agreement)

 

1.                                       ORDERS

1.1                                 All orders shall each be for not less than US $1,500
total sales value, excluding any applicable taxes.

1.2                                 All orders for Developed Products shall be in writing
and given not less than one (1) month before the date of expected shipment. If
production of the quantity ordered is not possible during the time ordered, (i)
Company shall immediately notify VeriChip and shall use its best efforts to
satisfy the order as quickly as possible, and (ii) Company shall increase its
production ability so that if such quantity is ordered thereafter, such order
can be produced and delivered. All orders shall be deemed to be upon the terms
and conditions of this Agreement which may not be modified by the conditions
stated on the orders themselves.

1.3                                 Any queries concerning an order shall be raised by
Company before proceeding to execute the order.

2.                                       PRICES

2.1                                 See Schedule 1. Prices for Improvements shall
be determined as set forth in Section 3 of the Agreement.

2.2                                 Except as provided herein, VeriChip shall be liable
for all customs duties, sales taxes, and insurance. VeriChip shall not be
responsible for any business taxes levied upon Company.

2.3                                 Pricing is based on FOB Company’s point of shipment.
All freight expenses shall be the responsibility of VeriChip.

3.                                       PACKAGING

Company
shall ensure proper packaging of Developed Products to ensure delivery of such
products in good order and condition.

4.                                       EXPORT

At
VeriChip’s expense and if required, Company shall apply for any necessary
approvals or licenses for the export of Developed Products from the United
States and Company shall do all such things and sign all such applications or
documents as may be necessary to obtain such approvals or licenses.

 

 

5.                                       DELIVERY

5.1                                 Company shall procure the delivery of Developed
Products F.O.B. Company’s point of shipment to airfreight shipment within four
(4) months after the receipt of the order, or the scheduled delivery as
specified, whichever is longer.

5.2                                 VeriChip shall bear all proper costs including
freight and insurance in respect of the delivery of Developed Products to
VeriChip. Such method of delivery to be in a proper and suitable manner and in
accordance with the proper requirements for carriers.

6.                                       TITLE AND RISK OF LOSS

Title
to and risk of loss of the Developed Products shall pass to VeriChip at the
time of delivery to the designated carrier.

7.                                       INVOICES

Company
shall on shipping of Developed Products mail to VeriChip an invoice for such
product. Each invoice shall specify the contents of each package against
separate package numbers.

8.                                       RETURN OF PRODUCTS

Upon the authorized return of any Developed Products in the same condition
as shipped F.O.B. Company’s point of shipment, Company shall reimburse or
credit VeriChip for any amounts paid by VeriChip for the purchase price of
returned products.

9.                                       PAYMENTS

9.1                                 Payment terms are net 60 days after date of invoice
(the “Net Due Date”). Payments must be received by Company on or before the Net
Due Date and at the location specified on the invoice. In the event VeriChip
fails to pay in full the balance due in accordance with the invoice on or
before the Net Due Date, Company at its option may suspend further deliveries.

9.2                                 Under no circumstances will Company be responsible
for failure to ship Developed Products due to a Force Majeure Event. Should any
such delay occur, Company will use its best efforts to complete the shipment as
soon as practicable.

10.                                 PRODUCT LIABILITY

10.1                           At VeriChip’s expense, VeriChip shall maintain
product liability insurance with a limit of not less than $1,000,000.00 per
occurrence and not less than $ 3,000.000.00 in
the annual aggregate, and the Company shall be named as an additional insured.
The Company shall be notified in writing at the anniversary of the renewal of
such liability insurance policy.

 

 

10.2                           At Company’s expense, Company shall maintain product
liability insurance with a limit of not less than $1,000,000.00 per occurrence
and not less than $ 3,000.000.00 in the
annual aggregate, and VeriChip shall be
named as an additional insured. VeriChip shall be notified in writing at the
anniversary of the renewal of such liability insurance policy.

 

 

SCHEDULE 3

DATA WAREHOUSING

(Attached to and forming
a part of the Agreement)

 

Global VeriChip Subscriber Registry
Hosting Facility

Demonstration
System Hosting

	
  Hosting Facility Requirements

  	
   

  	
  Min. Config.

  
	
  Server System

  	
   

  	
   

  
	
  Internet Connectivity SQL Server 2000

  	
   

  	
   

  
	
  Microsoft Internet Information Server

  	
   

  	
   

  
	
  GVS Registry Software (provided by VeriChip)

  	
   

  	
   

  

 

Production
System Hosting

	
  Hosting Facility Requirements

  	
   

  	
  Min. Config.

  
	
  Server system (Facility and Server HIPPA-Certified, FDA-Compliant)

  	
   

  	
  Dedicated Server

  
	
  Internet Connectivity

  	
   

  	
  T1

  
	
  SQL Server 2000

  	
   

  	
  Storage for up to 30 million
  customer transactions

  
	
  Microsoft Internet Information Server

  	
   

  	
   

  
	
  GVS Registry Software (provided by VeriChip)

  	
   

  	
   

  

 

 

 

SCHEDULE 4

PATENTS

(Attached
to and forming a part of the Agreement)

 

	
  1.

  	
   

  	
  5,211,129

  	
   

  	
  Syringe-Implantable Identification
  Transponder

  
	
  2.

  	
   

  	
  5,952,935

  	
   

  	
  Programmable Channel Search Reader

  
	
  3.

  	
   

  	
  6,400,338

  	
   

  	
  Passive Integrated Transponder
  with Unitary Antenna Core

  
	
  4.

  	
   

  	
  US2002/0154065 A1

  	
   

  	
  Continuation of Passive Integrated
  Transponder with Unitary Antenna Core

  

 

 

 

SCHEDULE
5

MINIMUM
PURCHASE COMMITMENTS

(to and forming a part of the Agreement)

 

	
  Calendar Year 2006

  	
   

  	
  No minimum

  
	
  Calendar Year 2007

  	
   

  	
  *

  
	
  Calendar Year 2008

  	
   

  	
  *

  
	
  Calendar Year 2009

  	
   

  	
  *

  
	
  Calendar Year 2010

  	
   

  	
  *

  

 

Unless the Parties agree to a different Minimum Unit
Commitment for Calendar Years 2011 and after, the Minimum Unit Commitment
applicable to Calendar Years 2011 and after shall be * units per year.

 

* Confidential
Treatment has been requested, the portion indicated has been redacted and the
redacted portion has been separately filed with the Securities and Exchange
Commission.

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