Document:

Exhibit 10.5

    
      

    

    Exhibit
      10.5

     

    VERICHIP
      CORPORATION

    

    3,100,000
      Shares of Common Stock

    (Par
      Value $0.01 Per Share) 

    

     

    UNDERWRITING
      AGREEMENT

     

    

    
      	 	
              San
                Francisco, California

            
	 	
              February
                9, 2007

            

    

    

     

    Merriman
      Curhan Ford & Co.

    C.E.
      Unterberg, Towbin, LLC

    Kaufman
      Bros., L.P.

    c/o
      Merriman Curhan Ford & Co.

    600
      California Street, 9th Floor

    San
      Francisco, CA 94108

    

    

    Dear
      Sirs:

    

    VeriChip
      Corporation, a Delaware corporation (the “Company”), proposes to issue and sell
      to the several underwriters named in Schedule
      A
      hereto
      (the “Underwriters”), pursuant to this underwriting agreement
      (the “Agreement”), an aggregate of Three Million One Hundred Thousand
      (3,100,000) shares of common stock of the Company, par value $0.01 per share
      (the “Common Stock”). In addition, the stockholder of the Company named in
      Schedule B hereto (the “Selling Stockholder”) has granted to the Underwriters
      the option referred to in Section 3(d) hereof to purchase an aggregate of not
      more than an additional Four Hundred Sixty Five Thousand (465,000) shares of
      Common Stock, if requested by the Underwriters in accordance with Section 3(d)
      hereof. It is understood that the Underwriters propose to offer the “Shares” (as
      hereinafter defined) to be purchased hereunder to the public upon the terms
      and
      conditions set forth in the “Registration Statement” (as defined below) after
      the “Effective Date” (as defined below) of the Registration Statement. As used
      in this Agreement, (a) the term “Firm Shares” shall mean the Firm Shares, to be
      issued and sold to the Underwriters at the “First Closing Date” (as defined in
      Section 3(b) below); (b) the term “Option Shares” shall mean any of the
      additional up to Four Hundred Sixty Five Thousand (465,000) shares of Common
      Stock purchased pursuant to the option referred to in Section 3(d) hereof;
      and
      (c) the term “Shares” shall mean the Firm Shares and the Option Shares
      collectively.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    As
      the
      representative of the Underwriters, Merriman Curhan Ford & Co. has informed
      the Company and the Selling Stockholder that Merriman Curhan Ford & Co. is
      authorized to enter into this Agreement on behalf of the several Underwriters,
      and that the several Underwriters are willing, on the basis of the
      representations, warranties and agreements of the Company and the Selling
      Stockholder herein contained, and upon the terms but subject to the conditions
      herein set forth, acting severally and not jointly, to purchase the number
      of
      Firm Shares set forth opposite their respective names in Schedule A hereto,
      plus
      their pro rata portion of the Option Shares if Merriman Curhan Ford & Co.
      elects to exercise the over-allotment option in whole or in part for the account
      of the several Underwriters.

     

    As
      the
      representative of the Underwriters, Merriman Curhan Ford & Co. has also
      informed the Company and the Selling Stockholder that (i) the Underwriters
      have
      or will orally provide the pricing information set forth in Schedule 1(b)(i)
      to
      prospective purchasers prior to confirming sales of the Shares, and (ii) each
      Underwriter has represented and agreed that, without the prior written consent
      of the Company and Merriman Curhan Ford & Co., it has not made and will not
      make any offer relating to the Shares that would constitute a free writing
      prospectus, and any such free writing prospectus, the use of which has been
      consented to by the Company and Merriman Curhan Ford & Co., is listed in
      Schedule 1(b) hereto.

     

    The
      Company and the Selling Stockholder hereby confirm their respective agreements
      with respect to the purchase of the Shares by the Underwriters as
      follows:

     

    1.    Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to, and agrees with, the Underwriters
      that, as of the Effective Date, the First Closing Date and each Option Closing
      Date (as defined below): 

     

    (a)    A
      registration statement on Form S-1 (File No. 333-130754) relating to the
      offering of the Shares has been prepared by the Company in conformity with
      the
      requirements of the Securities Act of 1933, as amended (the “Act”), and the
      rules and regulations of the United States Securities and Exchange Commission
      (the “Commission”) promulgated pursuant to the Act (the “Rules and
      Regulations”), and said registration statement has been filed with the
      Commission under the Act. Amendments to said registration statement have been
      similarly prepared and filed with the Commission covering the registration
      of
      the Shares under the Act including the related preliminary prospectus or
      preliminary prospectuses (each being hereinafter referred to as a “Preliminary
      Prospectus” as further defined below), each of which has been furnished to the
      Underwriters. Each Preliminary Prospectus was endorsed with the legend required
      by Item 501(b) of Regulation S-K. As used in this Agreement and unless the
      context indicates otherwise, the term “Registration Statement” refers to and
      means said registration statement, all exhibits, financial statements and
      schedules included therein and the Prospectus included therein, as finally
      amended and revised on or prior to the Effective Date (as defined below) and,
      in
      the event of any post-effective amendment thereto or if any Rule 462(b)
      Registration Statement becomes effective prior to the Closing Date (as
      hereinafter defined), shall also mean such registration statement as so amended
      or such Rule 462(b) Registration Statement, as the case may be, and shall also
      include any Rule 430A Information (as defined below) to be included in the
      Prospectus included therein at the Effective Date, as provided by Rule 430A.
      The
      term “Effective Date” shall mean each date and time that the Registration
      Statement, any post-effective amendment or amendments thereto and any Rule
      462(b) Registration Statement became or becomes effective. The term “Preliminary
      Prospectus” refers to and means a preliminary prospectus filed with the
      Commission and included in said Registration Statement before the Effective
      Date
      and any preliminary prospectus included in the Registration Statement at the
      Effective Date that omits Rule 430A Information; the term “Pricing Prospectus”
shall mean the Preliminary Prospectus included in the Registration Statement
      immediately prior to the Applicable Time; the term “Applicable Time” shall mean
      9:15 New York time on the date of this Agreement; the term “Issuer Free Writing
      Prospectus” shall mean any “issuer free writing prospectus” as defined in Rule
      433 under the Act; the term “Rule 430A Information” shall mean information with
      respect to the Shares and the offering thereof permitted to be omitted from
      the
      Registration Statement when it becomes effective pursuant to Rule 430A; and,
      the
      term “Prospectus” refers to and means the prospectus relating to the Shares that
      is first filed pursuant to Rule 424(b) or, if no filing pursuant to Rule 424(b)
      is required, shall mean the form of final prospectus relating to the Shares
      included in the Registration Statement at the Effective Date. If the
      Registration Statement is amended or such Prospectus is supplemented after
      the
      Effective Date and prior to the Option Closing Date, then the terms
“Registration Statement” and “Prospectus” shall include such documents as so
      amended or supplemented. Each Preliminary Prospectus and the Prospectus
      delivered to the Underwriters for use in connection with the offer and sale
      of
      the Shares was identical to the electronic version filed with the Commission
      via
      EDGAR, except to the extent permitted by Regulation S-T.

     

    
      
        
        

      

      
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    (b)    (i) The
      Pricing Prospectus as supplemented by any Issuer Free Writing Prospectus, other
      documents and pricing information listed in Schedule 1(b)(i) hereto, taken
      together (collectively, the “Pricing Disclosure Package”) as of the Applicable
      Time did not include any untrue statement of a material fact or omit to state
      any material fact necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made,
      not
      misleading, (ii) each Issuer Free Writing Prospectus listed in Schedule
1(b)(i)
      hereto
      does not conflict
      with
      the information contained in the Registration Statement, the Pricing Prospectus
      or the Prospectus, and each such Issuer Free Writing Prospectus, as supplemented
      by and taken together with the Pricing Disclosure Package as of the Applicable
      Time, did not include any untrue statement of a material fact or omit to state
      any material fact necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading; provided, however,
      that the foregoing representations and warranties shall not apply to statements
      or omissions made in the Pricing Prospectus or in an Issuer Free Writing
      Prospectus in reliance upon and conformity with written information furnished
      to
      the Company through Merriman Curhan Ford & Co. by or on behalf of any
      Underwriter expressly for inclusion therein. Each of the Registration Statement,
      any Rule 462(b) Registration Statement and any post-effective amendment to
      the Registration Statement or the Rule 462(b) Registration Statement, as the
      case may be, at the time it became effective and at all subsequent times,
      complied and will comply in all material respects with the Act and the
      applicable Rules and Regulations and did not and will not contain any untrue
      statement of a material fact or omit to state a material fact required to be
      stated therein or necessary to make the statements therein not misleading.
      Each
      Preliminary Prospectus, as of its date, and the Prospectus, as amended or
      supplemented, as of its date and at all subsequent times through the First
      Closing Date and the Option Closing Date, did not and will not contain any
      untrue statement of a material fact or omit to state a material fact necessary
      in order to make the statements therein, in the light of the circumstances
      under
      which they were made, not misleading. The representations and warranties set
      forth in the two immediately preceding paragraphs do not apply to statements
      in
      or omissions from the Registration Statement, any Rule 462(b) Registration
      Statement, or any post-effective amendment to the Registration Statement or
      the
      Rule 462(b) Registration Statement, as the case may be, or the Prospectus,
      or
      any amendments or supplements thereto, made in reliance upon and in conformity
      with information furnished to the Company in writing through Merriman Curhan
      Ford & Co. by or on behalf of any of the Underwriters expressly for
      inclusion therein. 

     

    
      
        
        

      

      
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    (c)    Neither
      the Commission nor any state regulatory authority has issued an order preventing
      or suspending the use of any Preliminary Prospectus nor has the Commission
      or
      any such authority instituted or, to the Knowledge of the Company (as defined
      below), threatened to institute any proceedings with respect to such an order.
      When representations or warranties in this Agreement are qualified to the
“Knowledge of the Company,” they are given by the Company to the extent of and
      qualified in all respects by the facts actually known to any of the executive
      officers or directors of the Company, with an obligation of reasonable inquiry
      on the part of such executive officers and directors, prior to the date such
      representations or warranties are made. 

     

    (d)    The
      Company has delivered to the Underwriters one complete conformed copy of the
      Registration Statement and of each consent and certificate of experts filed
      as a
      part thereof, and conformed copies of the Registration Statement (without
      exhibits) and Preliminary Prospectus, any Issuer Free Writing Prospectus and
      the
      Prospectus, as amended or supplemented, in such quantities and at such places
      as
      the Underwriters have reasonably requested.

     

    (e)    The
      Company has not distributed and will not distribute, prior to the later of
      the
      Option Closing Date and the completion of the Underwriters’ distribution of the
      Shares, any offering material in connection with the offering and sale of the
      Shares other than a Preliminary Prospectus, the Prospectus, the Registration
      Statement or, following receipt of written consent of Merriman Curhan Ford
&
Co., which shall not be unreasonably withheld or delayed, any Issuer Free
      Writing Prospectus.

     

    (f)    
This
      Agreement has been duly authorized, executed and delivered by, and assuming
      due
      authorization, execution and delivery by the other parties hereto, is a valid
      and binding agreement of, the Company, enforceable against the Company in
      accordance with its terms, except as rights to indemnification and contribution
      hereunder may be limited by applicable law and except as the enforcement hereof
      may be limited by bankruptcy, insolvency, reorganization, moratorium or other
      similar laws relating to or affecting the rights and remedies of creditors
      or by
      general equitable principles.

     

    
      
        
        

      

      
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    (g)    The
      Company has been duly incorporated and is now, and at the First Closing Date
      (as
      defined below) and each Option Closing Date (as defined below) will be, validly
      existing as a corporation and in good standing under the laws of the State
      of
      Delaware, and has the corporate power and authority (i) to own or lease, as
      the
      case may be, its properties, whether tangible or intangible, and conduct its
      business as presently conducted and as described in the Pricing Prospectus
      (the “Business”) and (ii) to execute, deliver and perform this Agreement
      and consummate the transactions contemplated hereby and thereby. The Company
      has
      no subsidiaries other than those subsidiaries set forth on Exhibit 21.1 of
      the
      Registration Statement (each, a “Subsidiary” and collectively, the
“Subsidiaries”). Each of the Subsidiaries has been duly incorporated and is now,
      and at the Closing Dates (as defined below) will be, validly existing as a
      corporation in good standing under the laws of its respective jurisdiction
      as
      set forth on such Exhibit. Each of the Subsidiaries has the corporate power
      and
      authority to own or lease, as the case may be, its properties, whether tangible
      or intangible, and to conduct its business as presently conducted and described
      in the Pricing Prospectus. Each of the Company and its Subsidiaries is duly
      qualified as a foreign corporation to transact business and is in good standing
      in each jurisdiction in which the nature of the business transacted by it or
      the
      character or location of its properties, in each case taken as a whole, makes
      such qualification necessary, except where the failure to so qualify or be
      in
      good standing would not reasonably be expected to have a material adverse effect
      upon the condition (financial or otherwise), results of operations, income,
      shareholders’ equity, net worth, business, assets, or properties of the Company
      and the Subsidiaries, taken as a whole (a “Material Adverse Effect”). The
      Company owns, directly or indirectly, all of the issued and outstanding shares
      of capital stock or other equity and ownership and/or voting interests of each
      of the Subsidiaries, free and clear of any security interests, liens,
      encumbrances, claims and charges other than as disclosed in the Registration
      Statement and the Pricing Prospectus, and all of such shares or other interests
      have been duly authorized and validly issued and are fully paid and
      non-assessable. There are no options or warrants for the purchase of, or other
      rights to purchase or acquire, or outstanding securities convertible into or
      exchangeable for, any capital stock or other securities or interests of the
      Subsidiaries. Other than the Subsidiaries, the Company has no equity interests
      in any entity. Each of the Company and its Subsidiaries holds such permits,
      licenses, certifications, registrations, approvals, consents, orders, franchises
      and other authorizations (collectively, “Permits”) from state, federal, foreign
      or other regulatory authorities necessary for the conduct of its Business and
      is
      in compliance with all laws and regulations and all orders and decrees
      applicable to it or to such Business, except where the failure to hold such
      Permits or comply with such laws, regulations, orders or decrees would not
      reasonably be expected to result in a Material Adverse Effect, and there are
      no
      proceedings pending or, to the Knowledge of the Company, threatened, seeking
      to
      cancel, terminate or limit such Permits. 

     

    (h)    The
      consolidated financial statements of the Company and the financial statements
      of
      its Subsidiaries, including the schedules and related notes, filed with the
      Commission as part of the Registration Statement and included in the Pricing
      Prospectus are correct in all material respects and fairly present the financial
      position of the Company and its Subsidiaries, or that of the applicable
      Subsidiary, as the case may be, as of and at the respective dates thereof and
      the results of operations and cash flows of the Company or that of the
      applicable Subsidiary, as the case may be, for the respective periods indicated
      therein and comply as to form in all material respects with the applicable
      accounting requirements included in Regulations S-K and S-X, as well as any
      other applicable Rules and Regulations. Such financial statements have been
      prepared in accordance with generally accepted accounting principles applied
      in
      the United States (“GAAP”) applied on a consistent basis throughout the periods
      involved, except as otherwise stated in the Registration Statement and the
      Pricing Prospectus; provided, however, that financial statements that are
      unaudited are subject to year-end adjustments and do not contain footnotes
      required under GAAP. The selected consolidated financial data set forth in
      the
      Registration Statement and the Pricing Prospectus fairly present the information
      shown therein at the respective dates thereof and for the respective periods
      covered thereby and have been presented on a basis consistent with that of
      the
      audited and unaudited financial statements included in the Registration
      Statement and the Pricing Prospectus. Except as included in the Registration
      Statement and the Pricing Prospectus, no other financial statement or supporting
      schedules are required to be included in the Registration
      Statement.

     

    
      
        
        

      

      
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    (i)
    The
      accounting firm of Eisner LLP, which has audited certain of the financial
      statements filed and to be filed with the Commission as part of the Registration
      Statement and Pricing Prospectus, are registered independent public accountants
      with the Public Company Accounting Oversight Board as required by the Act and
      the Rules and Regulations, and the Securities Exchange Act of 1934, as amended
      (the “1934 Act”) and the rules and regulations thereunder. Except as described
      in the Pricing Prospectus and as pre-approved in accordance with the
      requirements set forth in Section 10A of the 1934 Act, Eisner LLP has not
      been engaged by the Company to perform any “prohibited activities” (as defined
      in Section 10A of the 1934 Act).

     

    (j)
    Subsequent
      to the respective dates as of which information is given in the Registration
      Statement and the Pricing Prospectus and the Company’s latest financial
      statements filed with the Commission as a part thereof, and except as described
      in the Registration Statement and the Pricing Prospectus, (i) neither the
      Company nor any Subsidiary has incurred any material liability or obligation,
      direct or contingent, or entered into any material transactions whether or
      not
      incurred in the ordinary course of business; (ii) neither the Company nor any
      Subsidiary has sustained any material loss or interference with its business
      from fire, storm, explosion, flood or other casualty (whether or not such loss
      is insured against), or from any labor dispute or court or governmental action,
      order or decree; (iii) there have not been, and through and including the First
      Closing Date, there will not be, any changes in the capital stock or any
      material increases in the long-term debt or other securities of the Company;
      (iv) the Company has not paid or declared any dividend or other distribution
      on
      its Common Stock or its other securities or redeemed or repurchased any of
      its
      Common Stock or other securities, and (v) no change, event, development or
      circumstance has occurred which would reasonably be expected to result in a
      Material Adverse Effect.

     

    (k)    No
      Permits of or filing with any government or governmental instrumentality,
      agency, body or court, except as have been obtained or made under the Act,
      the
“blue sky” or securities laws of any state or the rules of the National
      Association of Securities Dealers, Inc. (“NASD”) (including approval of
      underwriting compensation) or in connection with the listing of the Common
      Stock
      on the NASDAQ Global Market, are required (i) for the valid authorization,
      issuance, sale and delivery of the Firm Shares and the Option Shares to the
      Underwriters pursuant to this Agreement, and (ii) the consummation by the
      Company of the transactions contemplated by this Agreement.

     

    (l)    
Except
      as
      disclosed in the Registration Statement and Pricing Prospectus, there is neither
      pending nor, to the Knowledge of the Company, threatened in writing, against
      the
      Company or any Subsidiary any claim, action, suit, or proceeding at law or
      in
      equity, arbitration, investigation or inquiry to which the Company or any of
      its
      respective officers, key employees, directors or 5% or greater securityholders
      is a party and involving the Company’s or any Subsidiary’s properties or
      businesses, before or by any court, arbitration tribunal or governmental
      instrumentality, agency, or body.

     

    
      
        
        

      

      
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    (m)    There
      is
      no contract or other document which is required by the Act or by the Rules
      and
      Regulations to be described in the Registration Statement or the Pricing
      Prospectus or to be filed as an exhibit to the Registration Statement which
      has
      not been so described or filed as required and each contract or document which
      has been described in the Registration Statement and Pricing Prospectus has
      been
      described accurately, in all material respects, and presents fairly, in all
      material respects, the information required to be described and each such
      contract or document which is filed as an exhibit to the Registration Statement
      is and shall be in full force and effect at the Closing Date or shall have
      been
      terminated in accordance with its terms or as set forth in the Registration
      Statement and Pricing Prospectus, and no party to any such contract has given
      notice to the Company or any Subsidiary of the cancellation of or, to the
      Knowledge of the Company, has threatened to cancel, any such contract, and
      except as described in the Registration Statement and Pricing Prospectus,
      neither the Company nor any Subsidiary is in material default thereunder. Except
      as described in the Registration Statement and the Pricing Prospectus, there
      is
      no voting or other stockholder agreement between the Company and any of its
      stockholders or, to the Knowledge of the Company, between or by and among any
      stockholders of the Company. There are and, as of the Closing Date, there will
      be, no loans to the Company from any officers, directors, securityholders or
      consultants, or any affiliates thereof, except as described in the Registration
      Statement and Pricing Prospectus. 

     

    (n)    The
      Company and the Subsidiaries do not own any real property. Each of the Company
      and the Subsidiaries has good title to all of its personal property (tangible
      and intangible) and assets reflected as owned in the financial statements
      referred to in Section 1(h) above, including any licenses, trademarks and
      copyrights, described in the Registration Statement and Pricing Prospectus
      as
      owned by it, free and clear of all security interests, liens, charges,
      mortgages, encumbrances and restrictions other than as disclosed in the
      Registration Statement and the Pricing Prospectus and other than such security
      interests, liens, charges, mortgages, encumbrances and restrictions that do
      not
      materially affect the value of such property or materially interfere with the
      use made or proposed to be made of such property by the Company or its
      Subsidiaries. The material leases, subleases and licenses under which the
      Company or a Subsidiary is entitled to lease, hold or use any real or personal
      property, are valid and enforceable by the Company and the Subsidiaries, all
      rentals, royalties or other payments accruing thereunder which became due prior
      to the date of this Agreement have been duly paid and none of the Company,
      any
      Subsidiary, or, to the Knowledge of the Company, any other party, is in default
      in respect of any of the terms or provisions of any such material leases,
      subleases and licenses and no claim of any sort has been asserted by anyone
      against the Company or any Subsidiary under any such leases, subleases or
      licenses affecting or questioning the rights of the Company or any Subsidiary
      to
      the continued use or enjoyment of the rights and property covered thereby.
      Neither the Company nor any Subsidiary has received notice of any violation
      of
      any applicable law, ordinance, regulation, order or requirement relating to
      its
      owned or leased properties, except for any such violation that would not
      reasonably be expected to result in a Material Adverse Effect. Each of the
      Company and each Subsidiary owns or leases all such properties as are necessary
      to its operations as now conducted and as proposed to be conducted as set forth
      in the Registration Statement and Prospectus.

     

    
      
        
        

      

      
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    (o)    Each
      of
      the Company and its Subsidiaries has filed with the appropriate federal, state
      and local governmental agencies, and all appropriate foreign countries and
      political subdivisions thereof, all tax returns, including franchise tax
      returns, which are required to be filed by it or has duly obtained extensions
      of
      time for the filing thereof and has paid all material taxes required to be
      paid
      by it as shown on such returns and all other material assessments against it,
      to
      the extent that the same have become due and are not being contested in good
      faith; and the provisions for income taxes payable, if any, shown on the
      financial statements filed with or as part of the Registration Statement and
      the
      Pricing Prospectus are sufficient for all accrued and unpaid foreign and
      domestic taxes, whether or not disputed, and for all periods to and including
      the dates of such consolidated financial statements. None of the Company nor
      any
      Subsidiary has executed or filed with any taxing authority, foreign or domestic,
      any agreement extending the period for assessment or collection of any income
      taxes and, to the Knowledge of the Company, is not a party to any pending action
      or proceeding by any foreign or domestic governmental agency for assessment
      or
      collection of material taxes; and no claims for material assessment or
      collection of material taxes have been asserted in writing against the Company.
      To the Company’s Knowledge, there is no material tax deficiency that has been or
      might be asserted or threatened against the Company or its
      Subsidiaries.

     

    (p)    Each
      of
      the Company and its Subsidiaries are insured by recognized, financially sound
      and reputable institutions with policies in such amounts, with such deductibles
      and covering such risks as reasonably adequate and customary, in the Company’s
      judgment, for their businesses including, but not limited to, policies covering
      real and personal property owned or leased by the Company and its Subsidiaries
      against theft, damage, destruction, acts of vandalism, general liability and
      directors and officers liability. The Company has no reason to believe that
      it
      or any Subsidiary will not be able (i) to renew its existing insurance
      coverage as and when such policies expire or (ii) to obtain comparable
      coverage from similar institutions as may be necessary or appropriate to conduct
      its business as now conducted without incurring a material additional cost
      to
      the Company. Neither of the Company nor any Subsidiary has been denied any
      insurance coverage which it has sought or for which it has applied. To the
      Knowledge of the Company, there are no facts or circumstances which would
      require it or a Subsidiary to notify its insurers of any material claim of
      which
      notice has not been made or will not be made in a timely manner. To the
      Knowledge of the Company, there are no facts or circumstances under any of
      its
      or any Subsidiary’s existing insurance policies which would relieve any insurer
      of its obligation to satisfy in full any existing valid claim of the Company
      or
      a Subsidiary under any such policies.

     

    
      
        
        

      

      
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    (q)    Except
      as
      disclosed in the Registration Statement and the Pricing Prospectus, each of
      the
      Company and its Subsidiaries owns or otherwise possesses adequate, and to the
      Knowledge of the Company, enforceable, and unrestricted rights to use all
      patents, patent applications, patent rights, licenses, inventions, collaborative
      research agreements, trade secrets, know-how, trademarks, trademark
      registrations, service marks, service mark registrations, trade names,
      copyrights, works of authorship, formulae, customer lists, designs, technical
      data and other proprietary rights and intellectual property (including other
      unpatented and/or unpatentable proprietary or confidential information, systems
      or procedures) which are necessary to or used in the conduct of its businesses
      as now conducted or as proposed to be conducted as described in the Registration
      Statement and Pricing Prospectus (collectively, the “Intellectual Property”).
      Except as set forth in Schedule 1(q) or as described in the Registration
      Statement and Pricing Prospectus, (i) the Company or one of its Subsidiaries
      is
      the beneficial and record owner of all right, title and interest in, to and
      under the Intellectual Property, free and clear of all liens, security
      interests, charges, encumbrances or other adverse claims and has the right
      to
      use the Intellectual Property without payment to a third party; (ii) there
      is no
      pending or, to the Knowledge of the Company, threatened action, suit, proceeding
      or claim by others challenging the Company’s or any Subsidiary’s rights in or
      to, or the validity or scope of, any Intellectual Property, nor, to the
      Knowledge of the Company, do there exist any facts which would form a reasonable
      basis for any such claim; (iii) to the Knowledge of the Company, neither the
      Company nor any Subsidiary has infringed, is infringing upon, or is otherwise
      in
      conflict with the intellectual property rights of others; (iv) none of the
      Company nor any Subsidiary has received any notice that it has or may have
      infringed, is infringing upon, or is in conflict with the intellectual property
      rights of others; (v) there is no pending or, to the Knowledge of the Company,
      threatened action, suit, proceeding or claim by others alleging that the Company
      or any Subsidiary infringes, is in conflict with, or otherwise violates any
      patent, trademark, copyright, trade secret or other proprietary rights of
      others, nor, to the Knowledge of the Company, do there exist any facts which
      would form a reasonable basis for any such claim; (vi) to the Knowledge of
      the
      Company, no others have infringed upon the Intellectual Property of the Company
      or any Subsidiary; (vii) neither the Company nor any Subsidiary is obligated
      or
      under any liability whatsoever to make any payment by way of royalties, fees
      or
      otherwise to any owner or licensee of, or other claimant to, intellectual
      property rights not owned or controlled by the Company or such Subsidiary or
      in
      connection with the conduct of the Business; (viii) the expiration of any
      patents, patent rights, trade secrets, trademarks, service marks, trade names
      or
      copyrights would not result in a Material Adverse Effect that is not otherwise
      disclosed in the Pricing Prospectus; (ix) none of the patents owned or licensed
      by either the Company or any Subsidiary is unenforceable or invalid, and the
      Company and its Subsidiaries are unaware of any facts which would form a
      reasonable basis for any claim that the patent applications owned or licensed
      by
      the Company would be unenforceable or invalid if issued as patents; (x) the
      Company has taken reasonable security measures to protect the secrecy,
      confidentiality and value of all material proprietary technical information
      developed by and belonging to the Company which has not been patented; (xi)
      neither the Company nor its Subsidiaries is obligated to pay a royalty, grant
      a
      license or provide other consideration to any third person in connection with
      the Intellectual Property; and (xii) neither the Company nor its Subsidiaries
      has granted or assigned to any other person or entity any right to manufacture,
      have manufactured, assemble or sell the current products and services of the
      Company or those products and services described in the Registration Statement
      and the Pricing Prospectus.

     

    (r)    Except
      as
      described in the Registration Statement and Pricing Prospectus, neither the
      Company nor any officer, director or any other affiliate of the Company (as
      such
      term is defined in Rule 405 promulgated under the Rules and Regulations) has
      incurred any liability for or entered into any agreement providing for a
      finder’s fee or similar fee in connection with the transactions contemplated by
      this Agreement. 

     

    (s)    Neither
      the Company nor any of its officers, directors, to the Knowledge of the Company,
      other affiliates (as such term is defined in Rule 405 promulgated under the
      Rules and Regulations) has taken, and each officer or director has agreed that
      he will not take, and the Company has used reasonable efforts to cause each
      of
      its affiliates not to have taken or take, directly or indirectly, any action
      designed to constitute or which has constituted or which might cause or result
      in the stabilization or manipulation of the price of any security of the Company
      or other violation under Regulation M promulgated under the 1934 Act or
      otherwise, to facilitate the sale or resale of the Shares.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (t)    Except
      as
      disclosed in the Registration Statement and Pricing Prospectus under the caption
      “Certain Relationships and Related Party Transactions,” no person related to the
      Company as described in Item 404(a) of Regulation S-K promulgated
      under the Act has or has had during the past three (3) fiscal years of the
      Company, either directly or indirectly, (i) a material interest in any person
      or
      entity which (A) furnishes or sells products which are furnished or sold or
      are
      proposed to be furnished or sold by the Company or any Subsidiary, or (B)
      purchases from or sells or furnishes to the Company or any Subsidiary any goods
      or services, or (ii) a beneficial interest in any contract or agreement to
      which
      the Company or any Subsidiary is a party or by which it may be bound or
      affected. There are no existing agreements, arrangements, or transactions,
      between or among the Company or any Subsidiary and any officer, director of
      the
      Company or any Subsidiary which are required to be described in the Registration
      Statement and the Pricing Prospectus under the caption “Certain Relationships
      and Related Party Transactions” and which are not so described.

     

    (u)   The
      minute books of the Company have been provided to the Underwriters through
      Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
      Underwriters (“Underwriters’ Counsel”) and contain accurate summaries of all
      meetings and actions of the directors, all committees of the Board of Directors
      and stockholders of the Company since February 5, 2002, and reflect all
      transactions referred to in such minutes accurately in all material respects.
      The
      minute books of each Subsidiary have been provided to the Underwriters through
      Underwriters’ Counsel and contain accurate summaries of all meetings and actions
      of the directors, all committees of the board of directors and stockholders
      of
      such Subsidiary since February 5,
      2002,
      and reflect all transactions referred to in such minutes accurately in all
      material respects.

     

    (v)    The
      Company had at the date or dates indicated in the Registration Statement and
      Pricing Prospectus a duly authorized, issued and outstanding capitalization
      as
      set forth in the Registration Statement and the Pricing Prospectus. Based on
      the
      assumptions stated in the Registration Statement and the Pricing Prospectus,
      the
      Company will have on the Closing Date the as-adjusted stock capitalization
      set
      forth therein. Except as set forth in the Registration Statement or the Pricing
      Prospectus, on the Effective Date and on the Closing Date, there will be no
      options to purchase, warrants or other rights to subscribe for, or any
      securities or obligations convertible into, or any contracts or commitments
      or
      preemptive rights or rights of first refusal to issue or sell shares of the
      Company’s or any Subsidiary’s capital stock or any such warrants, convertible
      securities or obligations. Except as set forth in the Registration Statement
      or
      the Pricing Prospectus, no holder of any of the Company’s securities has any
      rights, “demand,” “piggyback” or otherwise, to have such securities registered
      under the Act, and all holders with any such rights have agreed not to exercise
      such rights with respect to the Registration Statement. The Company has the
      right under the terms of its agreements with the holders of its securities
      to
      exclude from the Registration Statement (by amendment or otherwise) any
      securities held by such holders. 

     

    (w)    The
      Shares and the other securities of the Company conform in all material respects
      to all descriptions and statements in relation thereto in the Registration
      Statement and Pricing Prospectus; the outstanding shares of Common Stock of
      the
      Company have been duly authorized and validly issued and are fully paid and
      non-assessable; the outstanding options and warrants to purchase Common Stock
      have been duly authorized and validly issued and constitute the valid and
      binding obligations of the Company, and none of such outstanding shares of
      Common Stock or outstanding warrants or options to purchase Common Stock were
      issued in violation of the pre-emptive rights, rights of first refusal or
      similar rights to subscribe for or purchase securities of the Company of any
      stockholder of the Company. The offers and sales of the outstanding Common
      Stock
      and outstanding options and warrants to purchase Common Stock since
      February 5, 2002 were at all relevant times either registered under the Act
      and the applicable state securities or “blue sky” laws or exempt from such
      registration requirements. None of the offers and sales of the outstanding
      Common Stock or outstanding options or warrants to purchase Common Stock are
      required to be integrated (within the meaning of the Act) with the offered
      sale
      of the Shares. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (x)    The
      issuance and sale of the Shares to be purchased by the Underwriters from the
      Company have been duly authorized and, upon delivery against payment therefor
      as
      contemplated by this Agreement, will be validly issued, fully paid and
      non-assessable and will conform to the description of the Shares contained
      in
      the Pricing Prospectus.

     

    (y)    Except
      as
      set forth in Schedule 1(y), each officer and director of the Company and each
      owner of record of capital stock or options or warrants to acquire capital
      stock
      of the Company has agreed to sign an agreement substantially in the form
      attached hereto either as Exhibit
      A-1
      or
Exhibit
      A-2
      (the
“Lock-up Agreements”). The Company has provided to Underwriters’ Counsel true,
      accurate and complete copies of all of the Lock-up Agreements presently in
      effect or effected hereby. 

     

    (z)    Neither
      the Company, nor any Subsidiary or any agent of the Company or any Subsidiary,
      acting on behalf of the Company, has at any time (i) made any contributions
      to
      any candidate for political office in violation of law, or failed to disclose
      fully any such contributions in violation of law, (ii) made any payment to
      any
      state, Federal or foreign governmental officer or official, or any other person
      charged with similar public or quasi-public duties, other than payments required
      or allowed by applicable law or (iii) made any payment of funds of the
      Company or any Subsidiary or received or retained any funds in violation of
      any
      law, rule or regulation and under circumstances requiring the disclosure of such
      payment, receipt or retention of funds in the Registration Statement and Pricing
      Prospectus. The Company’s and the Subsidiaries’ internal accounting controls and
      procedures are sufficient to cause the Company and the Subsidiaries to comply
      in
      all material respects with the Foreign Corrupt Practices Act of 1977, as
      amended.

     

    (aa)  
        The
      Company is not an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
      as amended. After giving effect to the offering and sale of the Shares and
      the
      application of the proceeds thereof as described in the Registration Statement
      and Pricing Prospectus, the Company will not be an “investment company” within
      the meaning of the Investment Company Act of 1940, as amended, and the rules
      and
      regulations of the Commission thereunder.

     

    (bb)  
        The
      confidentiality agreements between the Company or the Subsidiaries and their
      officers, employees and consultants are binding and enforceable obligations
      upon
      the other parties thereto in accordance with their terms, except to the extent
      enforceability may be limited by any applicable bankruptcy, insolvency,
      reorganization, fraudulent conveyance, moratorium or similar laws affecting
      creditors’ rights generally and to the extent that the remedy of specific
      performance and injunction or other forms of equitable relief may be subject
      to
      equitable defenses and the discretion of the court before which any proceeding
      therefor may be brought. 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (cc)  
        Except
      as
      set forth in the Registration Statement and Pricing Prospectus, none of the
      Company or any Subsidiary has employee benefit plans (including, without
      limitation, profit sharing and welfare benefit plans) or deferred compensation
      arrangements that are subject to the provisions of the United States Employee
      Retirement Income Security Act of 1974 (“ERISA”), it being understood that
      neither the Registration Statement nor the Pricing Prospectus disclose that
      such
      employee benefit plans are subject to ERISA. The Company has fulfilled its
      obligations, if any, under the minimum funding standards of Section 302 of
      ERISA
      and the regulations and published interpretations thereunder with respect to
      each “plan” (as defined in Section 3(3) of ERISA and such regulations and
      published interpretations) in which employees of the Company or any Subsidiary
      are eligible to participate and each such plan subject to ERISA is in compliance
      in all material respects with the presently applicable provisions of ERISA
      and
      such regulations and published interpretations. None of the Company or any
      Subsidiary has incurred any unpaid liability to the Pension Benefit Guaranty
      Corporation (other than for the payment of premiums in the ordinary course)
      or
      to any such plan under Title IV of ERISA.

     

    (dd)  
        The
      Company has filed a registration statement on Form 8-A with respect to its
      Common Stock under Section 12(b) of the 1934 Act and such registration statement
      has been declared effective by the Commission. The Company has filed listing
      applications with respect to its Common Stock with The NASDAQ Stock Market
      (“NASDAQ”), such listing applications have been accepted by, and the Shares have
      been approved for listing on, the NASDAQ Global Market, subject to
      official notices of issuance.
      The
      Company has taken no action designed to, or likely to have the effect of,
      terminating the registration of the Common Stock under the 1934 Act, nor has
      the
      Company received any notification that the Commission or NASDAQ is contemplating
      terminating such registration or listing.

     

    (ee)  
        None
      of
      the Company nor any Subsidiary is involved in any labor disputes with any of
      its
      employees and, to the Knowledge of the Company, no employee has threatened
      the
      commencement of any labor disputes with the Company or any Subsidiary, which,
      in
      either case, would reasonably be expected to result in a Material Adverse
      Effect, nor has the Company or any Subsidiary received any notice of any
      bankruptcy, labor disturbance or other event affecting any of its principal
      suppliers or customers, which would reasonably be expected to result in a
      Material Adverse Effect. Each of the Company and each Subsidiary is in
      compliance in all material respects with all federal, state, local, and foreign
      laws and regulations respecting employment and employment practices, terms
      and
      conditions of employment and wages and hours that are applicable to them.
      Neither the Company nor any Subsidiary has received notice of any pending
      investigations involving the Company or any Subsidiary, by the U.S. Department
      of Labor or any other governmental agency responsible for the enforcement of
      such federal, state, local, or foreign laws and regulations. There is no unfair
      labor practice charge or complaint against the Company or any Subsidiary pending
      before the National Labor Relations Board or, to the Knowledge of the Company,
      any strike, picketing, boycott, labor dispute, slowdown or stoppage pending
      or
      threatened against or involving the Company or any Subsidiary and none has
      ever
      occurred. No collective bargaining representation question exists respecting
      the
      employees of the Company or any Subsidiary, and no collective bargaining
      agreement or modification thereof is currently being negotiated by the Company
      or any Subsidiary. Neither the Company nor any Subsidiary has received notice
      that any grievance or arbitration proceeding is pending under any expired or
      existing collective bargaining agreements of the Company or any
      Subsidiary.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (ff)   The
      Company has provided to Underwriters’ Counsel, complete and accurate copies of
      all agreements, certificates, correspondence and other items, documents and
      information requested by such counsel, including in such counsel’s due diligence
      requests of (A) September 30, 2005, as supplemented thereafter, and (B)
      January 10, 2007.

     

    (gg)
          The
      Company's board of directors has validly appointed an audit committee whose
      composition satisfies the requirements of the 1934 Act and the rules and
      regulations of the Commission adopted thereunder, and Rules 4200 and 4350
      of the rules of NASDAQ. The Company's audit committee has adopted a charter
      that
      satisfies the 1934 Act and the rules and regulations of the Commission adopted
      thereunder, and Rules 4200 and 4350 of NASDAQ.

     

    (hh)  
        The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions
      are executed in accordance with management's general or specific authorizations;
      (ii) transactions are recorded as necessary to permit preparation of
      financial statements in conformity with GAAP and to maintain asset
      accountability; (iii) access to assets is permitted only in accordance with
      management's general or specific authorization; and (iv) the recorded
      accountability for assets is compared with the existing assets at reasonable
      intervals and appropriate action is taken with respect to any
      differences. The
      Company has taken all necessary actions to ensure that, upon and at all times
      after effectiveness of the Registration Statement, it will establish and
      maintain disclosure controls and procedures (as such term is defined in Rule
      13a-15 and 15d-15 under the 1934 Act) that: (A) are designed to ensure that
      material information relating to the Company, including its consolidated
      subsidiaries, is made known to the Company’s principal executive officer and its
      principal financial officer by others within those entities, particularly during
      the periods in which the periodic reports required under the 1934 Act will
      be
      prepared; and (B) are effective to perform the functions for which they are
      established. The
      Company is not aware of (x) any significant deficiency or material weakness
      in the design or operation of internal controls over financial reporting; or
      (y) any fraud, whether or not material, that involves management or other
      employees who have a significant role in the Company's internal controls over
      financial reporting. Since
      the
      date of the Company’s most recent audited fiscal year, there has been no change
      in the Company's internal controls that has materially adversely
      affected,
      or is reasonably likely to materially adversely affect, the Company's internal
      controls, including any corrective actions with regard to significant
      deficiencies and material weaknesses.

     

    (ii)    The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 and the rules and regulations promulgated by the Commission thereunder
      (the "Sarbanes-Oxley Act") that are applicable, or will be applicable as of
      the
      date of payment for and delivery of the Firm Shares pursuant hereto, to the
      Company.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (jj)    Except
      as
      set forth in the Registration Statement and Pricing Prospectus (exclusive of
      any
      supplement thereto), the Company and each of the Subsidiaries (A) are in
      compliance with any and all applicable foreign, federal, state and local laws
      and regulations relating to the protection of human health and safety, the
      environment or hazardous or toxic substances or wastes, pollutants or
      contaminants applicable to its Business (“Environmental Laws”), except where any
      non-compliance would not reasonably be expected to result in a Material Adverse
      Effect, (B) have received and is in compliance with all Permits required under
      applicable Environmental Laws to conduct its Business, except where failure
      to
      receive or any non-compliance would not reasonably be expected to result in
      a
      Material Adverse Effect, and (C) have not received notice of any actual or
      potential liability for the investigation or remediation of any disposal or
      release of hazardous or toxic substances or wastes, pollutants or contaminants.
      The Company has not received written notice and, to the Knowledge of the
      Company, has not been named as a “potentially responsible party” under the
      Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
      as amended.

     

    (kk)   
        In
      the
      ordinary course of its Business, the Company and each of the Subsidiaries
      conduct a periodic review of the effect of Environmental Laws on the Business,
      operations and properties of the Company and its Subsidiaries, in the course
      of
      which it identifies and evaluates associated costs and liabilities (including,
      without limitation, any capital or operating expenditures required for clean-up,
      closure of properties or compliance with Environmental Laws or any Permit,
      any
      related constraints on operating activities and any potential liabilities to
      third parties). On the basis of such review and the amount of its established
      reserves, the Company has reasonably concluded that such associated costs and
      liabilities would not, individually or in the aggregate, result in a material
      expenditure by the Company or any Subsidiary.

     

    (ll)    Except
      as
      set forth in the Registration Statement and the Pricing Prospectus, the Company,
      each of its Subsidiaries and, to the Knowledge of the Company, the distributors
      responsible for placing the Company’s products in the market in the European
      Union, are in material compliance with European Directive 2002/96/EC on waste
      electrical and electronic equipment and European Directive 2002/95/EC on the
      restriction of the use of certain hazardous substances in electrical and
      electronic equipment. 

     

    (mm) 
        To
      the
      Knowledge of the Company, after reasonable investigation under the
      circumstances, there are no affiliations or associations between any member
      of
      the NASD and any Company officer, director or holder of five percent (5%) or
      more of the Company’s securities, except as set forth in the Registration
      Statement and the Pricing Prospectus. 

     

    (nn)  
        There
      are
      no material off-balance sheet arrangements (as defined in Item 303 of Regulation
      S-K) that have or are reasonably likely to have a current or future effect
      on
      the Company’s financial condition, changes in financial condition, results of
      operations, liquidity, capital expenditures or capital resources or components
      or revenue or expenses.

     

    (oo)  
        Any
      certificate signed by an officer of the Company in his capacity as such and
      delivered to the Underwriters or Underwriters’ Counsel pursuant to this
      Agreement shall be deemed a representation and warranty by the Company to the
      Underwriters as to the matters set forth in such certificate.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (pp)  
        The
      issue
      and sale of the Shares and the compliance by the Company with this Agreement
      and
      the consummation of the transactions herein contemplated will not conflict
      with
      or result in a breach or violation of any of the terms or provisions of, or
      constitute a default under (i) any indenture, mortgage, deed of trust, loan
      agreement or other agreement or instrument to which the Company or any of its
      Subsidiaries is a party or by which the Company or any of its Subsidiaries
      is
      bound or to which any of the property or assets of the Company or any of its
      Subsidiaries is subject; (ii) the provisions of the Second Amended and
      Restated Certificate of Incorporation or Amended and Restated By-laws of the
      Company; or (iii) any statute or any order, rule or regulation of any court
      or governmental agency or body having jurisdiction over the Company or any
      of
      its Subsidiaries or any of their properties, except, in the case of clauses
      (i)
      and (iii) above, for such conflicts, breaches or violations as would not,
      individually or in the aggregate, be reasonably expected to result in a Material
      Adverse Effect.

     

    (qq)  
        Neither
      the Company nor any of its Subsidiaries is (i) in violation of its charter
      or
      by-laws or (ii) in default in the performance or observance of any material
      obligation, agreement, covenant or condition contained in any indenture,
      mortgage, deed of trust, loan agreement, lease or other agreement or instrument
      to which it is a party or by which it or any of its properties may be
      bound.

     

    (rr)    The
      Company and the Subsidiaries have materially complied with, are not in material
      violation of, and have not received any written notices of violation with
      respect to, any statutes, rules, or regulations applicable to the ownership,
      testing, development, manufacture, packaging, processing, use, distribution,
      marketing, labeling, promotion, sale, offer for sale, reimbursement, storage,
      import, export or disposal of any product manufactured or distributed by the
      Company or the Subsidiaries ("Applicable Laws"), or any license, certificate,
      approval, clearance, authorization, permit, supplement or amendment required
      by
      any Applicable Laws ("Authorizations"). The Company and the Subsidiaries possess
      all material Authorizations and such material Authorizations are in full force
      and effect. The Company and the Subsidiaries are, and their products are, in
      compliance in all material respects with all Authorizations and Applicable
      Laws,
      including, but not limited to, all laws, statutes, rules, regulations, or orders
      administered, issued or enforced by the Federal Food and Drug Administration
      (the "FDA") or any other federal or foreign governmental authority having
      authority over the Company or any of its products ("Governmental Authority").
      Except as described in the Registration Statement and the Prospectus, the
      Company or the Subsidiaries have not received from the FDA or any other
      Governmental Authority any notice of adverse findings, regulatory letters,
      notices of violations, Warning Letters, criminal proceeding notices under
      Section 305 of the U.S. Federal Food, Drug, and Cosmetic Act, or other similar
      communication from the FDA alleging or asserting material noncompliance with
      Applicable Laws or any Authorizations, and there have been no seizures conducted
      or, to the Knowledge of the Company, threatened by the FDA, and no recalls,
      market withdrawals, field notifications, notifications of misbranding or
      adulteration, safety alerts or similar actions relating to the safety or
      efficacy of the Company's or the Subsidiaries’ products conducted, requested or
      threatened by the FDA or other Governmental Authority relating to the products
      sold by the Company or the Subsidiaries. Except as described in the Prospectus
      and the Registration Statement, the Company and the Subsidiaries have not,
      either voluntarily or involuntarily, initiated, conducted, or issued or caused
      to be initiated, conducted or issued, any recall, market withdrawal, safety
      alert, "dear doctor" letter, or other similar notice or action relating to
      the
      alleged lack of safety or efficacy of any of the Company's or Subsidiaries’
products or any alleged product defect or violation, and to the Knowledge of
      the
      Company, no Governmental Authority has initiated, conducted or intends to
      initiate any such notice or action. The Company and the Subsidiaries have not
      received notice of any claim, action, suit, proceeding, hearing, enforcement,
      investigation, arbitration or other similar action from any Governmental
      Authority alleging that any product operation or activity is in material
      violation of any Applicable Laws or Authorizations and, to the Knowledge of
      the
      Company, no such Governmental Authority is considering any such claim,
      litigation, arbitration, action, suit, investigation or proceeding. Each
      regulatory submission for the Company's or the Subsidiaries’ products has been
      filed, cleared, approved and maintained in compliance in all material respects
      with all Applicable Laws and Authorizations, including without limitation
      applicable federal statutes, rules, regulations or orders administered or
      promulgated by the FDA, and all laboratory and clinical studies, and tests
      that
      support clearance or approval of its products have been conducted in all
      material respects in compliance with accepted professional scientific standards
      and all Applicable Laws and Authorizations in all material respects. No filing
      or submission to the FDA or any other Governmental Authority, intended to be
      the
      basis for any Authorization, contains any material omission or material false
      information, and neither the Company nor the Subsidiaries have received any
      notices or correspondence from any Governmental Authority (including, but not
      limited to, the FDA) requiring suspension of any studies, tests, or clinical
      trials conducted by or on behalf of the Company. To the Knowledge of the
      Company, except as would not be reasonably expected to result in a Material
      Adverse Effect, there are no facts which are reasonably likely to cause (A)
      the
      withdrawal, or recall of any products sold or intended to be sold by the Company
      or the Subsidiaries, (B) a change in the marketing classification or labeling
      of
      any such products, (C) a termination or suspension of marketing clearance of
      any
      such products, or (D) a suspension or revocation of any of the Company's or
      Subsidiaries Authorizations. The Company or the Subsidiaries have not received
      notice (whether complete or pending) of any proceeding seeking recall,
      suspension or seizure of any products sold or intended to be sold by the Company
      or the Subsidiaries. Excepted from the representations in this paragraph is
      the
      November 2002 Warning Letter sent by FDA to the Applied Digital Solutions,
      Inc.
      alleging that the human-implantable microchip transponder was a misbranded
      and
      adulterated medical device because it lacked FDA clearance or approval, it
      being
      acknowledged that this matter was resolved upon the Company’s receipt of 510(k)
      clearance of the transponder on October 12, 2004. 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    2.    Representations
      and Warranties of the Selling Stockholder.
      The
      Selling Stockholder hereby represents and warrants to, and agrees with, the
      Underwriters that, as of the Effective Date, the First Closing Date and each
      Option Closing Date (as defined below): 

     

    (a)    To
      the
      Knowledge of the Selling Stockholder (as defined below), the Selling Stockholder
      has no reason to believe that the representations and warranties of the Company
      contained in Section 1 are not true and correct. When representations or
      warranties in this Agreement are qualified to the “Knowledge of the Selling
      Stockholder,” they are given by the Selling Stockholder to the extent of and
      qualified in all respects by the facts actually known to any of the executive
      officers or directors of the Selling Stockholder, with an obligation of
      reasonable inquiry on the part of such executive officers and directors, prior
      to the date such representations or warranties are made. To the Knowledge of
      the
      Selling Stockholder, there is no material fact, condition or information not
      disclosed in the Registration Statement or the Pricing Prospectus that has
      had,
      or would reasonably be expected to have, a Material Adverse
      Effect.

    
      
        
        

      

      
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    (b)    Representatives
      of the Selling Stockholder have participated in conferences and telephone
      conversations with representatives of the Company, special intellectual property
      and regulatory counsel to the Company, representatives of the independent public
      accountants for the Company, representatives of the Underwriters and
      representatives of the Underwriters’ counsel, during which conferences and
      conversations the contents of the Registration Statement and the Pricing
      Prospectus and related matters were discussed. The Selling Stockholder has
      reviewed the Registration Statement and the Pricing Prospectus and to the
      Knowledge of the Selling Stockholder, there are no facts that would cause the
      Selling Stockholder to believe that (i)
      the
      Pricing Disclosure Package, as of the Applicable Time, included any untrue
      statement of a material fact or omitted to state any material fact necessary
      to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading; (ii) any Issuer Free Writing Prospectus listed on Schedule
      1(a) hereto conflicts with the information contained in the Registration
      Statement, the Pricing Prospectus or the Prospectus and each such Issuer Free
      Writing Prospectus, as supplemented by and taken together with the Pricing
      Disclosure Package as of the Applicable Time, included any untrue statement
      of a
      material fact or omitted to state any material fact necessary in order to make
      the statements therein, in light of the circumstances under which they were
      made, not misleading, (iii) each of the Registration Statement, any Rule 462(b)
      Registration Statement and any post-effective amendment thereto, at the time
      it
      became effective and at all subsequent times, contained or contains any untrue
      statement of a material fact or omitted or omits to state a material fact
      required to be stated therein or necessary to make the statements therein not
      misleading, and (iv) each Preliminary Prospectus, as of its date, and the
      Prospectus, as amended or supplemented, as of its date and at all subsequent
      times through the First Closing Date and the Option Closing Date, contained
      or
      contains any untrue statement of a material fact or omitted or omits to state
      a
      material fact necessary to make the statements therein, in light of the
      circumstances under which they were made, not misleading. The representations
      and warranties set forth in this Section 2(b) do not apply to statements in,
      or
      omissions from, the Registration Statement, any 462(b) Registration Statement,
      or any post-effective amendment thereto, or the Prospectus, each Preliminary
      Prospectus or amendment or supplement thereto, or any Issuer Free Writing
      Prospectus, in reliance upon and in conformity with written information
      furnished to the Company through Merriman Curhan Ford & Co. by or on behalf
      of any Underwriter expressly for inclusion therein. The
      Selling Stockholder is not prompted to sell the Shares to be sold by the Selling
      Stockholder by any information concerning the Company which is not set forth
      in
      the Registration Statement or the Prospectus.

    

    (c)    This
      Agreement has been duly authorized, executed and delivered by or on behalf
      of
      the Selling Stockholder and is a valid and binding agreement of the Selling
      Stockholder, enforceable in accordance with its terms, except as rights to
      indemnification hereunder may be limited by applicable law and except as the
      enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
      moratorium or other similar laws relating to or affecting the rights and
      remedies of creditors or by general equitable principles.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (d)    The
      Custody Agreement signed by the Selling Stockholder and the Company, as
      custodian (the “Custodian”), relating to the deposit of the Shares to be sold by
      the Selling Stockholder (the “Custody Agreement”) has been duly authorized,
      executed and delivered by the Selling Stockholder and is a valid and binding
      agreement of the Selling Stockholder, enforceable in accordance with its terms,
      except as rights to indemnification thereunder may be limited by applicable
      law
      and except as the enforcement thereof may be limited by bankruptcy, insolvency,
      reorganization, moratorium or other similar laws relating to or affecting the
      rights and remedies of creditors or by general equitable principles. The Selling
      Stockholder agrees that the Shares to be sold by the Selling Stockholder on
      deposit with the Custodian is subject to the interests of the Underwriters,
      that
      the arrangements made for such custody are to that extent irrevocable, and
      that
      the obligations of the Selling Stockholder hereunder shall not be terminated,
      except as provided in this Agreement or in the Custody Agreement, by any act
      of
      the Selling Stockholder, by operation of law or by the occurrence of any other
      event. If any such other event should occur before the delivery of the Shares
      to
      be sold by the Selling Stockholder hereunder, the documents evidencing the
      Shares to be sold by the Selling Stockholder then on deposit with the Custodian
      shall be delivered by the Custodian in accordance with the terms and conditions
      of this Agreement as if such other event had not occurred, regardless of whether
      or not the Custodian shall have received notice thereof.

     

    (e)    The
      Selling Stockholder is the lawful owner of the Shares to be sold by the Selling
      Stockholder hereunder and upon sale and delivery of, and payment for, such
      Shares, as provided herein, the Selling Stockholder will convey good and
      marketable title to such Shares, free and clear of all liens, encumbrances,
      equities and claims whatsoever.

     

    (f)
    The
      Selling Stockholder has, and on each Closing Date will have, good and valid
      title to all of the Shares which may be sold by the Selling Stockholder pursuant
      to this Agreement on such date and the legal right and power, and all
      authorizations and approvals required by law and under its charter or by-laws,
      to enter into this Agreement and its Custody Agreement, to sell, transfer and
      deliver all of the Shares which may be sold by the Selling Stockholder pursuant
      to this Agreement and to comply with its other obligations hereunder and
      thereunder.

     

    (g)    No
      consent, approval, authorization or order of any court or governmental agency
      or
      body is required for the consummation by the Selling Stockholder of the
      transactions contemplated herein, except such as may have been obtained under
      the Act and such as may be required under the blue sky laws of any jurisdiction
      and from the NASD in connection with the purchase and distribution of the Shares
      by the Underwriters and such other approvals as have been obtained.

     

    (h)    Neither
      the sale of the Shares being sold by the Selling Stockholder nor the
      consummation of any other of the transactions herein contemplated by the Selling
      Stockholder or the fulfillment of the terms hereof by the Selling Stockholder
      will conflict with, result in a breach or violation of, or constitute a default
      under any law or the terms of any indenture or other agreement or instrument
      to
      which the Selling Stockholder is party or bound, any judgment, order or decree
      applicable to the Selling Stockholder or any court or regulatory body,
      administrative agency, governmental body or arbitrator having jurisdiction
      over
      the Selling Stockholder.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (i)    
The
      Selling Stockholder does not have any registration or other similar rights
      to
      have any equity or debt securities registered for sale by the Company under
      the
      Registration Statement or included in the offering contemplated by this
      Agreement.

     

    (j)    
The
      Selling Stockholder does not have, or has waived prior to the date hereof,
      any
      preemptive right, co-sale right or right of first refusal or other similar
      right
      to purchase any of the Shares that are to be sold by the Company to the
      Underwriters pursuant to this Agreement; and the Selling Stockholder does not
      own any warrants, options or similar rights to acquire, and does not have any
      right or arrangement to acquire, any capital stock, right, warrants, options
      or
      other securities from the Company, other than those described in the
      Registration Statement and the Prospectus.

     

    (k)    All
      information furnished by or on behalf of the Selling Stockholder in writing
      expressly for use in the Registration Statement and Prospectus is, and on each
      Closing Date will be, true, correct, and complete in all material respects,
      and
      does not, and on each Closing Date will not, contain any untrue statement of
      a
      material fact or omit to state any material fact necessary to make such
      information not misleading. The Selling Stockholder confirms as accurate the
      number of Shares set forth opposite the Selling Stockholder’s name in the
      Prospectus under the caption “Principal and Selling Stockholders” (both prior to
      and after giving effect to the sale of the Shares).

     

    (l)    
The
      Selling Stockholder has not taken and will not take, directly or indirectly,
      any
      action designed to or that might cause or result in stabilization or
      manipulation of the price of the Common Stock to facilitate the sale or resale
      of the Shares.

     

    (m)   There
      are
      no transfer taxes or other similar fees or charges under Federal law or the
      laws
      of any state, or any political subdivision thereof, required to be paid in
      connection with the execution and delivery of this Agreement or the sale by
      the
      Selling Stockholder of the Shares.

     

    (n)    The
      Selling Stockholder has not distributed and will not distribute, prior to the
      later of the Option Closing Date and the completion of the Underwriters’
distribution of the Shares, any offering material in connection with the
      offering and sale of the Shares by the Selling Stockholder other than a
      Preliminary Prospectus, the Prospectus or the Registration
      Statement.

     

    (o)    Any
      certificate signed by an officer of the Selling Stockholder in his capacity
      as
      such and delivered to the Underwriters or Underwriters’ Counsel pursuant to this
      Agreement shall be deemed a representation and warranty by the Selling
      Stockholder to the Underwriters as to the matters set forth in such
      certificate

     

    3.    Purchase,
      Delivery and Sale of the Shares.

     

    (a)    Upon
      the
      basis of the representations and warranties of Merriman Curhan Ford & Co.
      herein contained, and subject to the terms and conditions herein set forth,
      the
      Company agrees to issue and sell to the several Underwriters the respective
      number of Firm Shares set forth opposite the name of such Underwriter in
Schedule
      A
      hereto.
      On the basis of the representations, warranties and agreements of the Company
      and the Selling Stockholder herein contained, and upon the terms but subject
      to
      the conditions herein set forth, the Underwriters agree, severally and not
      jointly, to purchase from the Company the respective number of Firm Shares
      set
      forth opposite their names on Schedule A,
      subject
      to adjustment in accordance with Section 9 hereof. The purchase price per Share
      to be paid by the several Underwriters to the Company shall be U.S.$6.045 per
      share.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    Payment
      for the Firm Shares to be sold by the Company shall be made at the First Closing
      Date (and, in the case of the Option Shares, if applicable, at the Option
      Closing Date) by wire transfer of immediately available funds to the order
      of
      the Company. 

     

    (b)    Delivery
      by the Company of the Firm Shares to be purchased by the Underwriters and
      payment therefor by the Underwriters shall be made by the Company and the
      Underwriters at 9:00 a.m. New York time, at the offices of Holland & Knight
      LLP, 195 Broadway, 24th
      Floor,
      New York, NY 10007 (the “H&K New York Office”), or at such other place as
      may be agreed upon among the Underwriters and the Company, on the third (3rd)
      full business day following the date of this Agreement, or, if this Agreement
      is
      executed and delivered after 1:30 P.M., New York time, on the fourth (4th)
      full
      business day following the date of this Agreement, or at such other time and
      date not later than seven (7) full business days following the first day that
      Shares are traded as the Underwriters and the Company may determine (or at
      such
      time and date to which payment and delivery shall have been postponed pursuant
      to this Section 3), such time and date of payment and delivery being herein
      called the “First Closing Date”; provided, however, that if the Company has not
      made available to the Underwriters copies of the Prospectus within the time
      provided in this Agreement, the Underwriters may, in their sole discretion,
      postpone the Closing Date until no later than two (2) full business days
      following delivery of copies of the Prospectus to the Underwriters.

     

    (c)    The
      Company shall deliver, or cause to be delivered, a credit representing the
      Firm
      Shares to an account or accounts at The Depository Trust Company
      (“DTC”)
      for the
      accounts of the Underwriters at the First Closing Date, against the irrevocable
      release of a wire transfer of immediately available funds for the amount of
      the
      purchase price therefor. The Company shall also deliver, or cause to be
      delivered, a credit representing the Option Shares to an account or accounts
      at
      DTC for the accounts of the Underwriters, at the First Closing Date or the
      Option Closing Date, as the case may be, against the irrevocable release of
      a
      wire transfer of immediately available funds for the amount of the purchase
      price therefor. Time shall be of the essence, and delivery at the time and
      place
      specified in this Agreement is a further condition to the obligations of the
      Underwriters. Not later than 12:00 noon on the second business day following
      the
      date the Shares are released by the Underwriters for sale to the public, the
      Company shall deliver or cause to be delivered copies of the Prospectus in
      such
      quantities and at such places as the Underwriters shall request.

     

    (d)    Subject
      to the terms and conditions of this Agreement, and on the basis of the
      representations, warranties and agreements contained herein, for the purposes
      of
      covering any over-allotments in connection with the distribution and sale of
      the
      Firm Shares as described in the Registration Statement and Pricing Prospectus,
      the Underwriters are hereby granted an option to purchase all or any part of
      the
      Option Shares from the Selling Stockholder. The purchase price to be paid per
      share for the Option Shares will be the same price as the price per Firm Share
      set forth in Section 3(a) hereof. The option granted hereby may be exercised
      by
      notice from the Underwriters to the Company,
      the
      Custodian and the Selling Stockholder in
      accordance with Section 3(e) hereof solely by the Underwriters as to all or
      any
      part of the Option Shares at any time within thirty (30) days after the
      Effective Date. The Underwriters will not be under any obligation to purchase
      any Option Shares prior to the exercise by the Underwriters of such option
      in
      accordance with Section 3(e) hereof.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (e)    The
      option granted pursuant to Section 3(d) hereof may be exercised by Merriman
      Curhan Ford & Co. by giving notice to the Company, the Custodian and the
      Selling Stockholder, which must be confirmed by a letter or facsimile setting
      forth the number of Option Shares to be purchased by the Underwriters, the
      date
      and time for delivery of and payment for the Option Shares to be purchased
      and
      stating that the Option Shares referred to therein are to be used for the sole
      purpose of covering over-allotments in connection with the distribution and
      sale
      of the Firm Shares by the Underwriters. If such notice is given prior to the
      First Closing Date, the date set forth therein for such delivery and payment
      will be the First Closing Date. If such notice is given on or after the First
      Closing Date, the date set forth therein for such delivery and payment will
      not
      be earlier than two (2) full business days thereafter. In either event, the
      date
      so set forth will not be more than fifteen (15) full business days after the
      date of such notice. The date and time set forth in such notice is herein called
      the “Option Closing Date.” Upon exercise of such option, through the
      Underwriters’ delivery of the aforementioned notice, the Custodian will become
      obligated to convey to the Underwriters, and, subject to the terms and
      conditions set forth in this Section 3(e), the Underwriters will become
      obligated to purchase, the number of Option Shares specified in such notice.
      If
      any Option Shares are to be purchased, (i) each Underwriter agrees,
      severally and not jointly, to purchase the number of Option Shares (subject
      to
      such adjustments to eliminate fractional shares as the Underwriters may
      determine) that bears the same proportion to the total number of Option Shares
      to be purchased as the number of Firm Shares set forth on Schedule A
      opposite
      the name of such Underwriter bears to the total number of Firm Shares, subject
      to any adjustment in accordance with Section 9 hereof and (ii) the Selling
      Stockholder agrees to sell in the aggregate up to the number of Option Shares
      set forth on Schedule B. The Underwriters may cancel the option at any time
      prior to its expiration by giving written notice of such cancellation to the
      Custodian.

     

    (f)
    Payment
      for any Option Shares purchased will be made to the Custodian by wire transfer
      in immediately-available funds to the order of the Company, against delivery
      of
      the Option Shares purchased by the Underwriters at the H&K New York Office
      (or at such other location as the Underwriters and the Custodian may agree).
      

     

    (g)    Unless
      the Shares are to be delivered by a “fast” transfer, the Company and the Selling
      Stockholder will make the certificates for the Shares to be purchased by the
      Underwriters hereunder available to the Underwriters for inspection, checking
      and packaging at the office of the Company’s transfer agent or correspondent in
      San Francisco, CA, not less than one (1) full business day prior to the First
      Closing Date and the Option Closing Date, as the case may be (both of which
      are
      collectively referred to herein as the “Closing Dates”). The certificates
      representing the Shares shall be in such names and denominations as the
      Underwriters may request at least two (2) full business days prior to the
      respective Closing Dates. In the event that the Underwriters determine to
      utilize DTC, the parties will use their best efforts to make the offering of
      the
      Shares “DTC eligible” and to comply with the procedures thereof. 

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    4.    Public
      Offering by the Underwriters.
      The
      Underwriters agree to cause the Shares to be offered to the public initially
      at
      the price and under the terms set forth in the Registration Statement and
      Prospectus as soon, on or after the effective date of this Agreement, as the
      Underwriters deem advisable, but no more than five (5) full business days after
      such effective date. The Company is advised by the Underwriters that the Shares
      are to be offered to the public initially at U.S.$6.50 a share (the “Public
      Offering Price”).

     

    5.    (A)
      Agreements
      of the Company.
      The
      Company covenants and agrees with the Underwriters that:

     

    (a)    If
      the
      Registration Statement has not been declared effective prior to the time of
      execution of this Agreement, the Company will use its best efforts to cause
      the
      Registration Statement to become effective as promptly as possible, or, if
      the
      procedure in Rule 430A of the Act is followed, to prepare and timely file
      with the Commission under Rule 424(b) under the Act a Prospectus in a form
      approved by the Underwriters containing information previously omitted at the
      time of effectiveness of the Registration Statement in reliance on
      Rule 430A of the Act, and will not at any time, whether before or after the
      Effective Date, file any amendment or supplement to the Registration Statement,
      (i) which shall not have been previously submitted to, and approved by, the
      Underwriters or the Underwriters’ Counsel within a reasonable time prior to the
      filing thereof, (ii) to which the Underwriters or the Underwriters’ Counsel
      shall have reasonably objected as not being in compliance with the Act or the
      Rules and Regulations or (iii) which is not in compliance with the Act or the
      Rules and Regulations. If the Company elects to rely on Rule 462(b) under
      the Act, the Company shall file a Rule 462(b) Registration Statement with
      the Commission in compliance with Rule 462(b) under the Act prior to the
      time confirmations are sent or given, as specified by Rule 462(b)(2) under
      the Act, and shall pay the applicable fees in accordance with Rule 111
      under the Act. The Company further agrees to file promptly all material required
      to be filed by the Company with the Commission pursuant to Rule 433(d) under
      the
      Act.

     

    (b)    The
      Company will, promptly after it shall have received notice, notify the
      Underwriters, (i) of the receipt of any comments on, or requests for
      amendment of, the Registration Statement, for supplement of the Prospectus,
      or
      for additional or supplemental information, by or from the Commission, and
      (ii) of the time and date when the Registration Statement or any
      post-effective amendment thereto has become effective or any supplement to
      the
      Prospectus has been filed.

     

    (c)    The
      Company will advise the Underwriters promptly of any request of the Commission
      for an amendment or supplement to the Registration Statement or the Prospectus,
      or for any additional information, or of the issuance by the Commission of
      any
      stop order suspending the effectiveness of the Registration Statement, or of
      any
      judgment, order, injunction or decree preventing or suspending the use of any
      Preliminary Prospectus or the Prospectus, or of the institution of any
      proceedings for any of such purposes, of which it has Knowledge, and will use
      its best efforts to prevent the issuance of any stop order, and, if issued,
      to
      obtain as promptly as possible the lifting thereof.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (d)    If
      at any
      time when a Prospectus relating to the Shares is required, in the opinion of
      Underwriters’ Counsel, to be delivered under the Act by the Underwriters (the
“Prospectus Delivery Period”), any event shall have occurred as a result of
      which, in the reasonable opinion of counsel for the Company or the Underwriters’
Counsel, the Prospectus, as then amended or supplemented, includes an untrue
      statement of a material fact or omits to state any material fact required to
      be
      stated therein or necessary to make the statements therein, in the light of
      the
      circumstances under which they were made when the Prospectus is delivered,
      not
      misleading, or if it is necessary at any time to amend the Prospectus to comply
      with the Act, the Company will notify the Underwriters promptly and, at the
      request of Merriman Curhan Ford & Co., prepare and file with the Commission
      an appropriate amendment or supplement in accordance with Section 10 of the
      Act,
      which will correct such statement or omission, or effect such compliance, each
      such amendment or supplement to be reasonably satisfactory to the Underwriters’
Counsel, and the Company will furnish to the Underwriters copies of such
      amendment or supplement as soon as available and in such quantities as the
      Underwriters may reasonably request, provided that, if any Underwriter is
      required to deliver a Prospectus in connection with sales of Shares at any
      time
      more than nine (9) months after the date hereof, all costs and expenses in
      connection with the furnishing of copies of such amended or supplemented
      Prospectus will be at the expense of such Underwriter.

     

    (e)    Within
      the Prospectus Delivery Period, or pursuant to the undertakings of the Company
      in the Registration Statement, the Company, at its own expense, will comply
      in
      all material respects with all requirements imposed upon it by the Act, the
      Rules and Regulations, the 1934 Act and the rules and regulations of the
      Commission promulgated under the 1934 Act, each as now or hereafter amended
      or
      supplemented, and by any order of the Commission so far as necessary to permit
      the continuance of sales of, or dealings in, the Shares.

     

    (f)    
The
      Company will furnish to the Underwriters, without charge, a signed copy of
      the
      Registration Statement and of any amendment or supplement thereto which has
      been
      filed prior to the date of this Agreement, together with each exhibit filed
      therewith, and three (3) conformed copies of such Registration Statement and
      as
      many amendments thereto (unsigned and exclusive of exhibits) as the Underwriters
      may reasonably request. The signed copies of the Registration Statement so
      furnished to the Underwriters will include signed copies of any and all consents
      and reports of the independent public auditors as to the financial statements
      included in the Registration Statement and Pricing Prospectus, and signed copies
      of any and all consents and certificates of any other person whose profession
      gives authority to statements made by them and who are named in the Registration
      Statement or Pricing Prospectus as having prepared, certified or reviewed any
      parts thereof.

     

    (g)    The
      Company will deliver to the Underwriters, without charge, (i) prior to the
      Effective Date, copies of each Preliminary Prospectus filed with the Commission
      bearing in red ink the statement required by Item 501 of Regulation S-K of
      the
      Rules and Regulations; (ii) on and from time to time after the Effective
      Date, copies of the Prospectus; and (iii) as soon as they are available, and
      from time to time thereafter, copies of each amended or supplemented Prospectus,
      and the number of copies to be delivered in each such case will be such as
      the
      Underwriters may reasonably request. The Company has consented and hereby
      consents to the use of each Preliminary Prospectus for the purposes permitted
      by
      the Act and the Rules and Regulations. The Company authorizes the Underwriters
      to use the Prospectus in connection with the sale of the Shares during the
      Prospectus Delivery Period. Notwithstanding the foregoing, the Underwriters
      shall not use any Preliminary Prospectus or the Prospectus if the Company has
      given the Underwriters written notice of the occurrence, or imminently potential
      occurrence, of any development that could cause such Preliminary Prospectus
      or
      Prospectus, as the case may be, to include an untrue statement of a material
      fact or to omit to state any material fact required to be stated therein or
      necessary to make the statements therein, in the light of the circumstances,
      not
      misleading.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (h)    The
      Company shall promptly from time to time take such action as the Underwriters
      may reasonably request to qualify or register the Shares for offering and sale
      under (or obtain exemptions from the application of) the securities laws of
      such
      U.S. jurisdictions as the Underwriters may request and comply with such laws
      so
      as to permit the continuance of sales and dealings therein in such jurisdictions
      for as long as may be necessary to complete the distribution of the Shares;
      provided that, notwithstanding the foregoing, the Company will not be required
      to (i) qualify generally to do business in any jurisdiction where it would
      not
      otherwise be required to qualify but for this paragraph or where it would be
      subject to taxation as a foreign corporation, or (ii) consent to general service
      of process in any such jurisdiction. The Company will advise Merriman Curhan
      Ford &Co. promptly of the suspension of the qualification or registration of
      (or any such exemption relating to) the Shares for offering, sale or trading
      in
      any jurisdiction or any initiation of threat of any proceeding for any such
      purpose, and in the event of the issuance of any order suspending such
      qualification, registration or exemption, the Company shall use its reasonable
      best efforts to obtain the withdrawal thereof at the earliest possible
      date.

     

    (i)    
During
      the period commencing on the date hereof and ending 180 days after the date
      of
      the Prospectus (the “Lock-Up Period”), the Company shall not (1) offer, pledge,
      sell, contract to sell, sell any option or contract to purchase, purchase any
      option or contract to sell, grant any option, right or warrant to purchase,
      lend, or otherwise transfer or dispose of, directly or indirectly, any shares
      of
      Common Stock or any securities convertible into or exercisable or exchangeable
      for Common Stock, or (2) enter into any swap or other arrangement that transfers
      to another, in whole or in part, any of the economic consequences of ownership
      of the Common Stock, whether any such transaction described in clause (1) or
      (2)
      above is to be settled by delivery of Common Stock or such other securities,
      in
      cash or otherwise, without the prior written consent of Merriman Curhan Ford
      & Co. (such consent not to be unreasonably withheld) and the prior consent
      of a majority of the Company’s independent directors. 

     

    The
      foregoing paragraph shall not apply to the issuance of securities pursuant
      to
      the Company’s stock option plans in the form and amount approved for issuance as
      described in the Registration Statement and the Prospectus or the exercise
      of
      options or warrants or the conversion of a security outstanding on the date
      of
      the Prospectus and which is described in the Registration Statement; provided,
      however, that the Company agrees that such issuances shall be made subject
      to
      the terms of the form of Lock-Up Agreement attached hereto as Exhibit
      A-1.
      The
      Company also agrees that during such period, the Company will not file any
      registration statement, preliminary prospectus or prospectus, or any amendment
      or supplement thereto, under the Act for any such transaction or which
      registers, or offers for sale, Common Stock or any securities convertible into
      or exercisable or exchangeable for Common Stock, except for a registration
      statement on Form S-8 relating to employee benefit plans. The Company agrees
      that if (a) during the last 18 days of the Lock-Up Period, the Company issues
      an
      earnings release or material news or a material event relating to the Company
      occurs, or (b) prior to the expiration of the Lock-Up Period, the Company
      announces that it will release earnings results during the 16-day period
      beginning on the last day of the Lock-Up Period, the restrictions set forth
      herein shall continue to apply until the expiration of the 19-day period
      beginning on the issuance of the earnings release or the occurrence of the
      material news or material event, as applicable, unless Merriman Curhan
      Ford & Co. waives, in writing, such extension. 

    
      
        
        

      

      
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    (j)    
As
      soon
      as practicable, but in any event not later than forty five (45) days after
      the
      end of the 12-month period beginning on the day after the end of the fiscal
      quarter of the Company during which the effective date of the Registration
      Statement is deemed to occur pursuant to Rule 158(c), the Company will make
      generally available to its security holders (within the meaning of Section
      11(a)
      of the Act) an earnings statement of the Company meeting the requirements of
      Rule 158(a) under the Act covering a period of at least twelve (12) months
      beginning after the Effective Date, and advise the Underwriters that such
      statement has been so made available.

     

    (k)    The
      Company will apply the net proceeds (“Proceeds”) it realizes from the sale of
      the Shares in the manner set forth under the caption “Use of Proceeds” in the
      Pricing Prospectus. 

     

    (l)    
During
      the course of the distribution of the Shares, the Company will not and the
      Company will cause its officers and directors not to take, directly or
      indirectly, any action designed to or which might, in the future, cause or
      result in stabilization or manipulation of the price of the Shares.

     

    (m)   The
      Company will use its best efforts, at its cost and expense, to take all
      necessary and appropriate action to list the Shares on the NASDAQ and maintain
      such listing for as long as the Shares are so qualified. 

     

    (n)    The
      Company will file with the Commission such information on Form 10-Q or Form
      10-K
      as may be required by Rule 463 under the Act.

     

    (o)    The
      Company will, upon request of any Underwriter, furnish, or cause to be
      furnished, to such Underwriter an electronic version of the Company’s
      trademarks, servicemarks and corporate logo for use on the website, if any,
      operated by such Underwriter for the purpose of facilitating the on-line
      offering of the Shares (the “License”); provided,
      however,
      that
      the License shall be used solely for the purpose described above, shall be
      granted without any fee and shall not be assigned or transferred.

     

    (p)    On
      the
      Closing Dates, all transfer or other taxes (other than income taxes) which
      are
      required to be paid in connection with the sale and transfer of the Shares
      will
      have been fully paid by the Company and all laws imposing such taxes, if any,
      will have been fully complied with.

     

    (q)    Subsequent
      to the dates as of which information is given in the Registration Statement
      and
      Pricing Prospectus and prior to the Closing Dates, except as disclosed in or
      contemplated by the Registration Statement and Pricing Prospectus, (i) the
      Company will not have incurred any liabilities or obligations, direct or
      contingent, or entered into any material transactions other than in the ordinary
      course of business; (ii) there shall not have been any change in the capital
      stock, funded debt (other than regular repayments of principal and interest
      on
      existing indebtedness) or other securities of the Company (except as
      contemplated in the Registration Statement), or any Material Adverse Effect;
      and
      (iii) the Company shall not have paid or declared any dividend or other
      distribution on its Common Stock or its other securities or redeemed or
      repurchased any of its Common Stock or other securities.

     

    
      
        
        

      

      
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    (r)    
The
      Company agrees that it has not made and, without the prior written consent
      of
      Merriman Curhan Ford & Co., it will not make any offer relating to the
      Shares that would constitute a “free writing prospectus” as defined in Rule 433
      under the Act.

     

    (s)    The
      Company has complied with and will comply with the requirements of Rule 433
      under the Act applicable to any Issuer Free Writing Prospectus, including timely
      filing with the Commission or retention where required and
      legending.

     

    (t)    
The
      Company agrees that if at any time following issuance of an Issuer Free Writing
      Prospectus any event occurred or occurs as a result of which such Issuer Free
      Writing Prospectus would conflict with the information in the Registration
      Statement, the Pricing Prospectus or the Prospectus or would include an untrue
      statement of material fact or omit to state any material fact necessary in
      order
      to make the statements therein, in light of the circumstances then prevailing,
      not misleading, the Company will give prompt notice thereof to Merriman Curhan
      Ford & Co., will prepare and furnish without charge to each Underwriter an
      Issuer Free Writing Prospectus that will correct such statement or omission.
      

     

    (u)    Prior
      to
      the latest of the Option Closing Date, the Company will not issue any press
      release or other communication directly or indirectly or hold any press
      conference with respect to the Company, its condition, financial or otherwise,
      or earnings, business affairs or business prospects (except for routine oral
      communications in the ordinary course of business and consistent with past
      practices of the Company and of which Merriman Curhan Ford & Co. are
      notified in advance), without the prior written consent of Merriman Curhan
      Ford
& Co., unless in the judgment of the Company and its counsel, and after
      notification of Merriman Curhan Ford & Co., such press release or
      communication is required by law.

     

    (v)    The
      Company agrees that it has not and, without the prior written consent of
      Merriman Curhan Ford & Co., it will not waive any provision of any of the
      lock-up agreements substantially in the form as set forth in Exhibit
      A-2.

     

    Merriman
      Curhan Ford & Co., on behalf of the several Underwriters, may, in its sole
      discretion, waive in writing the performance by the Company of any one or more
      of the foregoing covenants or extend the time for their performance.
      Notwithstanding the foregoing, Merriman Curhan Ford & Co., for the benefit
      of each of the other Underwriters, agrees not to consent to any action proposed
      to be taken by the Company or any other holder of the Company’s securities that
      would otherwise be prohibited by, or to waive compliance by the Company or
      any
      such other security holder with the provisions of, any Lock-Up Agreement
      delivered in accordance with Section 5(i) hereof without giving each of the
      other Underwriters at least 17 days prior notice (or such shorter notice as
      each
      of the other Underwriters may deem acceptable to permit compliance with
      applicable provisions of NASD Conduct Rule 2711(f) restricting publication
      and
      distribution of research and public appearance by research analysts before
      and
      after the expiration, waiver or termination of a lock-up
      agreement).

    
      
        
        

      

      
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    (B)  Covenants
      of the Selling Stockholder.
      The
      Selling Stockholder further covenants and agrees with each
      Underwriter:

     

    (a)    The
      Selling Stockholder acknowledges that it has signed a Lock-up Agreement and
      such
      Lock-Up agreement has been delivered to the Underwriters and agrees to be bound
      by the terms and conditions therein. 

     

    (b)    To
      deliver to the Underwriters prior to the First Closing Date a properly completed
      and executed United States Treasury Department Form W-8 (if the Selling
      Stockholder is a non-United States person) or Form W-9 (if the Selling
      Stockholder is a United States Person).

     

    (c)    If,
      at
      any time prior to the date on which the distribution of the Common Stock as
      contemplated herein and in the Prospectus has been completed, as determined
      by
      the Underwriters, the Selling Stockholder has knowledge of the occurrence of
      any
      event as a result of which the Prospectus or the Registration Statement, in
      each
      case as then amended or supplemented, would include an untrue statement of
      a
      material fact or omit to state any material fact necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading, the Selling Stockholder will promptly notify the Company and
      the
      Underwriters.

     

    6.    Indemnity
      and Contribution by the Company, the Selling Stockholder and the
      Underwriters.
      

     

    (a)    The
      Company shall indemnify, defend and hold harmless each Underwriter and any
      person who controls any Underwriter within the meaning of Section 15 of the
      Act
      or Section 20 of the 1934 Act, from and against any loss, expense, liability,
      damage or claim (including the reasonable cost of investigation) which the
      Underwriters or any such controlling person may incur insofar as such loss,
      expense, liability, damage or claim arises out of or, is based upon (i) any
      untrue statement or alleged untrue statement of a material fact contained in
      the
      Registration Statement (or in the Registration Statement as amended by any
      post-effective amendment thereof by the Company) or the Prospectus (the term
      Prospectus for the purpose of this Section 6 being deemed to include any
      Preliminary Prospectus, Pricing Prospectus, Issuer Free Writing Prospectus,
      the
      Prospectus and any Prospectus supplements, in each case as amended or
      supplemented by the Company), (ii) any application or other document, or any
      amendment or supplement thereto, executed by the Company or based upon written
      information furnished by or on behalf of the Company filed in any jurisdiction
      (domestic or foreign) in order to qualify the Shares under the securities or
      “blue sky” laws thereof or filed with the Commission or any securities
      association or securities exchange (each an “Application”), or (iii) any
      omission or alleged omission to state a material fact required to be stated
      in
      any such Registration Statement, Prospectus or Application or necessary to
      make
      the statements made therein in light of the circumstances under which they
      were
      made, not misleading; except, in the case of each of clauses (i), (ii) or (iii),
      to the extent that any such loss, expense, liability, damage or claim arises
      out
      of or is based upon (x) any such untrue statement or omission of a material
      fact
      contained in and in conformity with information furnished in writing by or
      on
      behalf of the Underwriters to the Company and the Selling Stockholder expressly
      for use in such Registration Statement or such Prospectus or (y) sales to any
      person asserting any such loss, expense, liability, damage or claim incurred
      from purchasing the Shares, if a copy of the Pricing Disclosure Package or
      the
      Prospectus (in each case, as then amended or supplemented if the Company shall
      have timely furnished any amendments or supplements thereto) was not sent or
      given by or on behalf of such Underwriter to such person, if required by law
      to
      have been delivered, at or prior to the written confirmation of the sale of
      the
      Shares to such person, and if the Pricing Disclosure Package or the Prospectus
      (in each case, as so amended or supplemented), as applicable, would have cured
      the defect giving rise to such loss, expense, liability, damage or claim, unless
      such failure is the result of noncompliance by the Company.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    (b)    The
      Selling Stockholder agrees to indemnify and hold harmless the Company, its
      directors, its officers who sign the Registration Statement and each person,
      if
      any, who controls the Company within the meaning of either Section 15 of
      the Act or Section 20 of the 1934 Act and each Underwriter and any person
      who controls any Underwriter within the meaning of either Section 15 of the
      Act or Section 20 of the 1934 Act, from and against any loss, expense,
      liability, damage or claim (including the reasonable cost of investigation)
      caused by any untrue statement or alleged untrue statement of a material fact
      contained in the Registration Statement (or in the Registration Statement as
      amended by any post-effective amendment thereof by the Company) or the
      Prospectus (as amended or supplemented if the Company shall have furnished
      any
      amendments or supplements thereto), or caused by any omission or alleged
      omission to state a material fact required to be stated in any such Registration
      Statement or Prospectus or necessary to make the statements made therein not
      misleading, but only with reference to information relating to such Selling
      Stockholder furnished in writing by or on behalf of such Selling Stockholder
      expressly for use in the Registration Statement, any Preliminary Prospectus,
      the
      Prospectus or any amendments or supplements thereto; and provided,
      however,
      that
      the aggregate liability of each Selling Stockholder under this Section 6 shall
      not exceed an amount equal to the Public Offering Price of the Shares sold
      by
      such Selling Stockholder, less the aggregate underwriting discounts and
      commissions applicable to such Shares, as set forth on the front cover page
      of
      the Prospectus. 

     

    (c)    Each
      of
      the Underwriters shall, severally and not jointly, indemnify, defend and hold
      harmless the Company and its directors, officers, employees and agents, each
      person who controls the Company, as the case may be, within the meaning of
      Section 15 of the Act or Section 20 of the 1934 Act and the Selling Stockholder
      from and against any loss, expense, liability, damage or claim (including the
      reasonable cost of investigation) which, jointly or severally, the Company,
      or
      any such person may incur but only insofar as such loss, expense, liability,
      damage or claim arises out of or is based upon (i) any untrue statement of
      a
      material fact contained in the Registration Statement (or in the Registration
      Statement as amended by any post-effective amendment thereof by the Company)
      or
      the Prospectus in reliance upon and in conformity with information furnished
      in
      writing by or on behalf of such Underwriter to the Company and the Selling
      Stockholder expressly for inclusion in the Registration Statement (or in the
      Registration Statement as amended by any post-effective amendment thereof by
      the
      Company) or the Prospectus, as specified in the last sentence of this Section
      6(c), or (ii) any omission to state a material fact regarding such Underwriter
      required to be stated in such Registration Statement or the Prospectus or
      necessary to make such statement not misleading. The obligation of each of
      the
      Underwriters to indemnify the Company (including any director, officer,
      employee, agent or control person thereof) and the Selling Stockholder shall
      only relate to any untrue statement or omission which applies to the
      Underwriter. The Company, the Selling Stockholder and the Underwriters
      acknowledge that the information set forth (x) on the cover page of the
      Prospectus concerning the Underwriters, relating to the delivery of the Shares,
      (y) under the caption “Underwriting” in the Prospectus with respect to passive
      market and stabilization activities by the Underwriters, and (z) under the
      caption “Information Regarding Merriman Curhan Ford & Co.” in the
      Prospectus, constitute the only information furnished by or on behalf of the
      Underwriters to the Company and the Selling Stockholder for purposes of this
      Section 6.

     

    
      
        
        

      

      
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    (d)    Promptly
      after receipt by an indemnified party under subsection (a), (b) or (c) above
      of
      notice of any claims or the commencement of any action, such indemnified party
      shall, if a claim in respect thereof is to be made against the indemnifying
      party under such subsection, notify in writing each party against whom
      indemnification is to be sought of the claim or the commencement thereof (but
      the failure so to notify an indemnifying party shall not (i) relieve the
      indemnifying party from any liability which it may have under this Section
      6, to
      the extent that it did not otherwise learn of such action and such failure
      does
      not materially prejudice the indemnifying party as a result thereof, and
      (ii) in any event shall not relieve it from any liability that such
      indemnifying party may have otherwise than on account of the indemnity agreement
      hereunder). The indemnifying party shall be entitled to appoint counsel of
      the
      indemnifying party’s choice at the indemnifying party’s expense to represent the
      indemnified party in any action for which indemnification is sought (in which
      case the indemnifying party shall not thereafter be responsible for the fees
      and
      expenses of any separate counsel retained by the indemnified party or parties
      except as set forth below); provided, however, that such counsel shall be
      reasonably satisfactory to the indemnified party. The indemnifying party may
      participate in the defense of such action at its own expense, and to the extent
      it may elect, by written notice delivered to the indemnified party promptly
      after receiving the aforesaid notice from such indemnified party, the
      indemnifying party may assume the defense thereof with counsel reasonably
      satisfactory to such indemnified party; provided, however, that counsel to
      the
      indemnifying party shall not (except with the written consent of the indemnified
      party) also be counsel to the indemnified party. Notwithstanding the foregoing,
      the indemnified party or parties shall have the right to employ its or their
      own
      counsel in any such case, but the fees and expenses of such counsel shall be
      at
      the expense of such indemnified party or parties unless (i) the employment
      of such counsel shall have been authorized in writing by one of the indemnifying
      parties in connection with the defense of such action, (ii) the indemnifying
      parties shall not have employed reasonably satisfactory counsel to have charge
      of the defense of such action within a reasonable time after notice of
      commencement of the action, (iii) the indemnifying party does not diligently
      defend the action after assumption of the defense, or (iv) such indemnified
      party or parties shall have reasonably concluded based on the advice of the
      advice of counsel that there may be defenses available to it or them which
      are
      different from or additional to those available to one or all of the
      indemnifying parties (in which case the indemnifying parties shall not have
      the
      right to direct the defense of such action on behalf of the indemnified party
      or
      parties), in any of which events the fees and expenses of one counsel selected
      by all of the indemnified parties to represent them all (in addition to one
      local counsel selected by all of the indemnified parties to represent them
      all
      in each applicable jurisdiction) shall be borne by the indemnifying parties.
      In
      the case of any separate counsel for the Company and its officers, directors
      and
      control persons, such counsel shall be designated in writing by the Company.
      In
      the case of any separate counsel for the Selling Stockholder and its officers,
      directors and control persons, such counsel shall be designated in writing
      by
      the Selling Stockholder. In the case of any separate counsel for the
      Underwriters and their respective officers, directors and control persons,
      such
      counsel shall be designated in writing by Merriman Curhan Ford & Co. No
      indemnifying party shall, without the prior written consent of the indemnified
      parties, effect any settlement or compromise of, or consent to the entry of
      judgment with respect to, any litigation, or any investigation or proceeding
      by
      any governmental agency or body, commenced or threatened, or any claim
      whatsoever in respect of which indemnification or contribution could have been
      sought under this Section 6 (whether or not the indemnified parties are actual
      or potential parties thereto), unless (x) such settlement, compromise or consent
      (I) includes an unconditional release of the indemnified party from all
      liability arising out of such litigation, investigation, proceeding or claim
      and
      (II) does not include a statement as to, or an admission of, fault, culpability
      or a failure to act, by or on behalf of the indemnified party, and (y) the
      indemnifying party reaffirms its indemnification obligations pursuant to this
      Agreement. 

     

    
      
        
        

      

      
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    (e)    If
      the
      indemnification provided for in this Section 6 is unavailable to an indemnified
      party under subsections (a), (b) or (c) of this Section 6 in respect of any
      losses, expenses, liabilities, damages or claims referred to therein, then
      each
      applicable indemnifying party, in lieu of indemnifying such indemnified party,
      shall contribute to the amount paid or payable by such indemnified party as
      a
      result of such losses, expenses, liabilities, damages or claims (i) in such
      proportion as is appropriate to reflect the relative benefits received by the
      Company and
      the
      Selling Stockholder on
      the
      one hand and the Underwriters on the other hand from the offering of the Shares
      or (ii) if (but only if) the allocation provided by clause (i) above is not
      permitted by applicable law, in such proportion as is appropriate to reflect
      not
      only the relative benefits referred to in clause (i) above but also the relative
      fault of the Company and the Selling Stockholder on the one hand and the
      Underwriters on the other with respect to the statements or omissions which
      resulted in such losses, expenses, liabilities, damages or claims, as well
      as
      any other relevant equitable considerations. The relative benefits received
      by
      the Company and the Selling Stockholder on the one hand and the Underwriters
      on
      the other with respect to such offering shall be deemed to be in the same
      proportion as the total proceeds (net of underwriting discounts and commissions
      but before deducting expenses) received by the Company and the Selling
      Stockholder from the Shares sold under this Agreement, on the one hand, and
      the
      total underwriting discounts and commissions received by the Underwriters with
      respect to the Shares purchased under this Agreement, on the other hand, bear
      to
      the total gross proceeds from the offering of the Shares under this Agreement,
      in each case as set forth in the table on the cover page of the Prospectus.
      The
      relative fault of the Company and the Selling Stockholder on the one hand and
      the Underwriters on the other shall be determined by reference to, among other
      things, (i) whether the untrue statement or alleged untrue statement of a
      material fact or omission or alleged omission relates to information supplied
      by
      the Company and the Selling Stockholder or by the Underwriters, (ii) the
      intent of the parties, and (iii) their relative knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      The amount paid or payable by a party as a result of the losses, claims, damages
      and liabilities referred to above shall be deemed to include any legal or other
      fees or expenses reasonably incurred by such party in connection with
      investigating or defending any claim or action.

     

    
      
        
        

      

      
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    (f)    
The
      Company, the Selling Stockholder and the Underwriters agree that it would not
      be
      just and equitable if contribution pursuant to Section 6(e) were determined
      by
      pro rata allocation or by any other method of allocation which does not take
      account of the equitable considerations referred to in Section 6(e)(i) and,
      if
      applicable, Section 6(e)(ii), above. Notwithstanding the provisions of this
      Section 6, (i) none of the Underwriters shall be required to contribute any
      amount in excess of the underwriting discounts and commissions applicable to
      the
      Shares purchased by the Underwriters and, (ii) no person guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the Act) shall be
      entitled to contribution from any person who was not guilty of such fraudulent
      misrepresentation. The Underwriters’ obligations in Section 6(e) shall be
      several in proportion to their respective underwriting obligations and not
      joint.

     

    The
      indemnity and contribution contained in this Section 6 shall remain operative
      and in full force and effect regardless of (i) any termination of this Agreement
      and (ii) any investigation made by or on behalf of the Underwriters or the
      Company, the Selling Stockholder or the Subsidiaries and such party’s officers
      or directors or any person controlling such parties. 

    

    7.    Survival
      of Agreements, etc.
      All
      statements contained in any certificate delivered by or on behalf of the parties
      in connection with this Agreement shall be deemed to be representations and
      warranties hereunder. Notwithstanding any investigations made by or on behalf
      of
      the parties to this Agreement, all representations, warranties, indemnities
      and
      agreements made by the parties to this Agreement or pursuant hereto shall remain
      in full force and effect and will survive delivery of and payment for the
      Shares. The provisions of Sections 5, 6, 12 and 16 shall survive the termination
      or cancellation of this Agreement. 

     

    8.    Conditions
      of Underwriters’ Obligations.
      The
      respective obligations of the Underwriters to purchase and pay for the Firm
      Shares as provided herein on the First Closing Date and, with respect to the
      Option Shares, the Option Closing Date, shall be subject to the accuracy of
      the
      representations and warranties on the part of the Company set forth in
      Section 1 hereof and the Selling Stockholder set forth in Section 2 hereof
      as of the date hereof and as of the First Closing Date as though then made
      and,
      with respect to the Option Shares, as of the Option Closing Date as though
      then
      made, to the timely performance by the Company and the Selling Stockholder
      of
      their respective covenants and obligations hereunder, and to each of the
      following additional conditions:

     

    (a)    The
      Registration Statement shall have become effective prior to the execution of
      this Agreement, or at such later date as shall be consented to in writing by
      the
      Underwriters; no stop order suspending the effectiveness thereof shall have
      been
      issued and no proceedings for that purpose shall have been initiated or, to
      the
      Knowledge of the Company or any Underwriter, threatened by the Commission;
      any
      request of the Commission for additional information (to be included in the
      Registration Statement, any Preliminary Prospectus, any Pricing Prospectus,
      the
      Prospectus or otherwise) shall have been complied with to the satisfaction
      of
      Underwriters’ Counsel; the NASD shall have raised no objection to the fairness
      and reasonableness of the underwriting terms and arrangements; and no amendment
      to the Registration Statement, any Preliminary Prospectus, any Pricing
      Prospectus, or the Prospectus to which the Underwriters or the Underwriters’
Counsel shall have reasonably objected, after having received reasonable notice
      of a proposal to file the same, shall have been filed.

     

    
      
        
        

      

      
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    (b)    All
      corporate proceedings and other legal matters in connection with this Agreement,
      the form of Registration Statement, any Preliminary Prospectus, any Pricing
      Prospectus, and the Prospectus and the registration, authorization, issue,
      sale
      and delivery of the Shares, shall have been reasonably satisfactory to
      Underwriters’ Counsel, and such counsel shall have been furnished with such
      papers and information as they may reasonably have requested to enable them
      to
      pass upon the matters referred to in this Section 8.

     

    (c)    Subsequent
      to the execution and delivery of this Agreement and prior to the First Closing
      Date, and on the Option Closing Date, as the case may be, there shall not have
      been any Material Adverse Effect which, in the sole judgment of Merriman Curhan
      Ford & Co., is material and adverse and that makes it, in the sole judgment
      of Merriman Curhan Ford & Co., impracticable or inadvisable to proceed with
      the public offering of the Shares as contemplated by the
      Prospectus.

     

    (d)    At
      the
      First Closing Date and on the Option Closing Date, as the case may be, the
      Underwriters shall have received from each of Holland & Knight LLP and
      Steptoe & Johnson LLP, co-counsel for the Company (“Company Co-Counsel”), a
      signed opinion dated as of such Closing Date, reasonably satisfactory to the
      Underwriters’ Counsel, in the form and substance of Exhibit B-1 annexed hereto,
      including a signed negative assurance statement dated as of such Closing Date,
      reasonably satisfactory to the Underwriters’ Counsel, in the form and substance
      reflected in Exhibit B-1.

     

    (e)    At
      the
      First Closing Date and on the Option Closing Date, as the case may be, the
      Underwriters shall have received from each of Thompson
      Coburn LLP and Holland & Knight LLP,
      counsel
      for the Selling Stockholder: (i) a signed opinion dated as of such Closing
      Date,
      in a form and substance reasonably satisfactory to the Underwriters’
Counsel.

     

    (f)
    At
      the
      First Closing Date and on the Option Closing Date, as the case may be, the
      Underwriters shall have received from Getz Prince Wells LLP, Canadian counsel
      for each of the Subsidiaries (“Canadian Subsidiary Counsel”), a signed opinion
      dated as of such Closing Date, in a form and substance reasonably satisfactory
      to the Underwriters’ Counsel. 

     

    (g)    At
      the
      First Closing Date, and on the Option Closing Date, as the case may be, the
      Underwriters shall have received from Underwriters’ Counsel a signed opinion
      dated as of such Closing Date in a form and substance reasonably satisfactory
      to
      the Underwriters.

     

    (h)    The
      Underwriters shall have received, on each of the date hereof and the Closing
      Date, a letter dated the date hereof or the Closing Date, as the case may be,
      in
      form and substance satisfactory to the Underwriters, from Eisner
      LLP, independent public accountants,
      containing statements and information of the type ordinarily included in
      accountants' "comfort letters" with respect to the financial statements and
      certain financial information contained in the Registration Statement, any
      Preliminary Prospectus, any Pricing Prospectus, and the Prospectus; provided,
      however, that the letter delivered on the Closing Date shall use a "cut-off
      date" not earlier than two business days before the Closing Date. 

     

    
      
        
        

      

      
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    (i)    
The
      Underwriters shall have received, on each of the date hereof and the Closing
      Date, a letter dated the date hereof or the Closing Date, as the case may be,
      in
      form and substance satisfactory to the Underwriters, from each of KPMG LLP,
      Deloitte & Touche USA LLP,
      and
      Meyers Norris Penny LLP, independent
      public accountants, containing statements and information of the type ordinarily
      included in accountants' "comfort letters" with respect to the certain Company
      acquisitions, as discussed in the Registration Statement, any Preliminary
      Prospectus, any Pricing Prospectus, and the Prospectus; provided that the letter
      delivered on the Closing Date shall use a "cut-off date" not earlier than two
      business days before the Closing Date. 

     

    (j)    
The
      Underwriters shall have received on the First Closing Date and on the Option
      Closing Date, as the case may be, a certificate of the Company, dated the First
      Closing Date or the Option Closing Date, as the case may be, signed by the
      Chief
      Executive Officer and Chief Financial Officer of the Company the effect that,
      and Merriman Curhan Ford & Co. shall be satisfied that:

     

    (i)
    The
      representations and warranties of the in this Agreement are true and correct,
      as
      if made on and as of the First Closing Date or the Option Closing Date, as
      the
      case may be, and the Company has complied with all the agreements and satisfied
      all the conditions on its part to be performed or satisfied at or prior to
      the
      First Closing Date or the Option Closing Date, as the case may be;

     

    (ii)    When
      the
      Registration Statement became effective and at all times subsequent thereto
      up
      to the delivery of such certificate, the Registration Statement, the Pricing
      Prospectus and the Prospectus, and any amendments or supplements thereto,
      contained all material information required to be included therein by the Act
      and the applicable rules and regulations of the Commission thereunder, as the
      case may be, and in all material respects conformed to the requirements of
      the
      Act and the applicable Rules and Regulations thereunder, and the Registration
      Statement,
      any
      Preliminary Prospectus, any Pricing Prospectus,
      and the
      Prospectus, and any amendments or supplements thereto, did not and does not
      include any untrue statement of a material fact or omit to state a material
      fact
      required to be stated therein or necessary to make the statements therein,
      in
      light of the circumstances under which they were made (except with respect
      to
      the Registration Statement), not misleading; and, since the effective date
      of
      the Registration Statement, there has occurred no event required to be set
      forth
      in an amended or supplemented Prospectus which has not been so set forth;
      and

     

    (iii)   Subsequent
      to the respective dates as of which information is given in the Registration
      Statement,
      any
      Preliminary Prospectus, any Pricing Prospectus,
      and the
      Prospectus, there has not been or occurred, as the case may be: (A) any
      Material Adverse Effect; (B) any transaction that is material to the
      Company and its Subsidiaries considered as a whole, except transactions entered
      into in the ordinary course of business; (C) any obligation, direct or
      contingent, that is material to the Company and its Subsidiaries considered
      as a
      whole, incurred by the Company or its subsidiaries, except obligations incurred
      in the ordinary course of business; (D) any change in the capital stock or
      outstanding indebtedness of the Company or any of its Subsidiaries that is
      material to the Company and its Subsidiaries considered as a whole; (E) any
      dividend or distribution of any kind declared, paid or made on the capital
      stock
      of the Company or any of its Subsidiaries; or (F) any loss or damage
      (whether or not insured) to the property of the Company or any of its
      Subsidiaries which has been sustained or will have been sustained which has
      a
      Material Adverse Effect.

     

    
      
        
        

      

      
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    (k)    The
      Underwriters shall have received on the First Closing Date, and on the Option
      Closing Date, as the case may be, a certificate of the Selling Stockholder,
      dated the First Closing Date or the Option Closing Date, as the case may be,
      signed by the Chief Executive Officer and Chief Financial Officer of the Selling
      Stockholder, to the effect that, and Merriman Curhan Ford & Co. shall be
      satisfied that:

     

    (i)    
The
      representations and warranties of the Selling Stockholder in this Agreement
      are
      true and correct, as if made on and as of the First Closing Date or the Option
      Closing Date, as the case may be, and the Selling Stockholder has complied
      with
      all the agreements and satisfied all the conditions on its part to be performed
      or satisfied at or prior to the First Closing Date or the Option Closing Date,
      as the case may be;

     

    (ii)    No
      information has come to the Selling Stockholder’s attention that causes the
      Selling Stockholder to believe that (i) the Registration
      Statement,
      any
      Preliminary Prospectus, any Pricing Prospectus,
      and the
      Prospectus, and any amendments or supplements thereto, includes any untrue
      statement of a material fact or omits to state a material fact therein to make
      the statements therein, in light of the circumstances under which they were
      made
      (except with respect to the Registration Statement), not misleading; and (ii),
      since the effective date of the Registration Statement, there has occurred
      any
      event required to be set forth in an amended or supplemented Prospectus which
      has not been so set forth; and

     

    (iii)   Subsequent
      to the respective dates as of which information is given in the Registration
      Statement,
      any
      Preliminary Prospectus, any Pricing Prospectus,
      and the
      Prospectus, no information has come to the Selling Stockholder’s attention that
      would cause the Selling Stockholder to believe that there has been or occurred,
      as the case may be: (a) any Material Adverse Effect; (b) any
      transaction that is material to the Company and its Subsidiaries considered
      as a
      whole, except transactions entered into in the ordinary course of business,
      (c) any obligation, direct or contingent, that is material to the Company
      and its Subsidiaries considered as a whole, incurred by the Company or its
      Subsidiaries, except obligations incurred in the ordinary course of business,
      (d) any change in the capital stock or outstanding indebtedness of the
      Company or any of its Subsidiaries that is material to the Company and its
      Subsidiaries considered as a whole, (e) any dividend or distribution of any
      kind declared, paid or made on the capital stock of the Company or any of its
      Subsidiaries, or (f) any loss or damage (whether or not insured) to the
      property of the Company or any of its Subsidiaries which has been sustained
      or
      will have been sustained which has a Material Adverse Effect.

     

    (l)    
Except
      as
      set forth in Schedule 1(y), the Company shall have obtained and delivered to
      the
      Underwriters an agreement, substantially in the form of either Exhibit
      A-1
      or
Exhibit
      A-2
      attached
      hereto, from each officer and director of the Company, each owner of record
      of
      capital stock or options or warrants to acquire capital stock of the Company.
      All of the certificates representing the Shares shall have been tendered for
      delivery in accordance with the terms and provisions of this Agreement.

     

    (m)   The
      Shares shall be listed on the NASDAQ Global Market, subject only to official
      notice of issuance.

     

    
      
        
        

      

      
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    (n)    The
      Company shall have complied with the provisions of this Agreement with respect
      to the furnishing of Prospectuses.

     

    (o)    On
      or
      before each of the First Closing Date and the Option Closing Date, as the case
      may be, the Underwriters and Underwriters’ Counsel shall have received such
      information, documents and opinions as they may reasonably require for the
      purposes of enabling them to pass upon the issuance and sale of the Shares
      as
      contemplated herein, or in order to evidence the accuracy of any of the
      representations and warranties, or the satisfaction of any of the conditions
      or
      agreements, herein contained.

     

    (p)    At
      least
      three business days prior to the date hereof, the Company and the Selling
      Stockholder shall have furnished for review by the Underwriters copies of the
      Custody Agreement executed by the Selling Stockholder and such further
      information, certificates and documents as the Underwriters may reasonably
      request.

     

    If
      any
      condition specified in this Section 8 is not satisfied when and as required
      to be satisfied, this Agreement may be terminated by the Underwriters by written
      notice to the Company and the Selling Stockholder at any time on or prior to
      the
      First Closing Date and, with respect to the Option Shares, at any time prior
      to
      the Option Closing Date, which termination shall be without liability on the
      part of any party to any other party, except for the expenses described in
      Section 12 of this Agreement. 

     

    9.    Default
      of One or More of the Underwriters.
      Subject
      to Sections 8 and 11 hereof, if, on the First Closing Date or the Option Closing
      Date, as the case may be, any one or more of the Underwriters shall fail or
      refuse to purchase Shares that it or they have agreed to purchase hereunder
      on
      such date, and the aggregate number of Shares which such defaulting Underwriter
      or Underwriters agreed but failed or refused to purchase does not exceed 10%
      of
      the aggregate number of the Shares to be purchased on such date, the other
      Underwriters shall be obligated, severally, in the proportions that the number
      of Firm Shares set forth opposite their respective names on Schedule A
      bears to
      the aggregate number of Firm Shares set forth opposite the names of all such
      non-defaulting Underwriters, to purchase the Shares which such defaulting
      Underwriter or Underwriters agreed but failed or refused to purchase on such
      date. If, on the First Closing Date or the Option Closing Date, as the case
      may
      be, any one or more of the Underwriters shall fail or refuse to purchase Shares
      and the aggregate number of Shares with respect to which such default occurs
      exceeds 10% of the aggregate number of Shares to be purchased on such date,
      and
      arrangements satisfactory to the Company and the other Underwriters for the
      purchase of such Shares are not made within 48 hours after such default, this
      Agreement shall terminate without liability of any non-defaulting Underwriter
      or
      the Company, Selling Stockholder or the Subsidiaries, except that the provisions
      of Section 6, 12 and 16 shall at all times be effective and shall survive
      such termination. In any such case either the Underwriters or the Company shall
      have the right to postpone the First Closing Date or the Option Closing Date,
      as
      the case may be, but in no event for longer than seven (7) days in order that
      the required changes, if any, to the Registration Statement and the Prospectus
      or any other documents or arrangements may be effected.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    As
      used
      in this Agreement, the term “Underwriter” shall be deemed to include any person
      substituted for a defaulting Underwriter under this Section 9. Any action
      taken under this Section 8 shall not relieve any defaulting Underwriter
      from liability in respect of any default of such Underwriter under this
      Agreement.

     

    10.   Effective
      Date.
      This
      Agreement will become effective upon the later of when (i) the Underwriters
      and the Company shall have received notification of the effectiveness of the
      Registration Statement or (ii) the execution of this Agreement. 

     

    11.   Termination.

     

    The
      Underwriters shall have the right by written notice to the Company and the
      Selling Stockholder (which may be delivered electronically through email or
      facsimile) to terminate this Agreement at any time prior to the First Closing
      Date or, with respect to the obligations of the Underwriters to purchase the
      Option Shares, at any time prior to the Option Closing Date, as the case may
      be,
      if (i) the Company or the Selling Stockholder shall have failed or refused
      to
      fully perform or comply with any of the provisions of this Agreement on its
      part
      to be performed and complied with by it prior to the applicable Closing Date;
      (ii) any of the conditions of Underwriters’ obligations as set forth in Section
      8 herein shall not have been satisfied on or prior to the
      First
      Closing Date or the Option Closing Date, as the case may be;
      (iii) trading in securities generally on the New York Stock Exchange,
the
      American Stock Exchange or NASDAQ, will
      have
      been suspended; (iv) minimum or maximum prices will have been established on
      such exchanges by the Commission or the NASD; (v) a general banking moratorium
      will have been declared either by federal or New York state authorities; (vi)
      any other restrictions on transactions in securities materially affecting the
      free market for securities or the payment for such securities or adversely
      affecting the distribution of the Firm Shares or the Option Shares, as the
      case
      may be, will be established by any of such exchanges, by the Commission, by
      any
      other federal or state agency, by action of the Congress or by Executive Order;
      (vii) the Company will have sustained a material loss, whether or not insured,
      by reason of fire, flood, accident or other calamity of such character as in
      the
      sole judgment of Merriman Curhan Ford & Co. may
      interfere materially with the conduct of the Business and operations of the
      Company or make it impracticable to proceed with the offering, sale and delivery
      of the Firm Shares or the Option Shares, as the case may be, on the terms
      contemplated by any
      Preliminary Prospectus, any Pricing Prospectus,
      or the
      Prospectus; (viii) any action has been taken by the government of the United
      States or any department or agency thereof which, in the sole judgment of
      Merriman Curhan Ford & Co., has had a material adverse effect upon the
      general market for securities and has made it impracticable to proceed with
      the
      offering, sale and delivery of the Firm Shares or the Option Shares, as the
      case
      may be, on the terms set forth in
      any
      Preliminary Prospectus, any Pricing Prospectus,
      or the
      Prospectus; (ix) there shall have occurred the outbreak of any new war or any
      other event or calamity, including without limitation as a result of
      terrorist
      activities,
      which,
      in the sole judgment of Merriman Curhan Ford & Co., materially disrupts
      the financial markets of the United States and makes it impracticable to proceed
      with the offering, sale and delivery of the Firm Shares or the Option Shares,
      as
      the case may be, on the terms set forth in the Prospectus; (x) the general
      market for securities or political, legal or financial conditions should
      deteriorate so materially from that in effect on the date of this Agreement
      that, in the sole judgment of Merriman Curhan Ford & Co., it becomes
      impracticable for the Underwriters to commence or proceed with the public
      offering of the Shares and with the payment for or acceptance thereof; (xi)
      trading of any securities of the Company shall have been suspended, halted
      or
      delisted on any exchange or in any over-the-counter market or by the Commission;
      or (xii) in the sole judgment of Merriman Curhan Ford & Co., any change that
      could result in a Material Adverse Effect shall have occurred since the date
      as
      of which information is given in the Registration Statement,
      any
      Preliminary Prospectus, any Pricing Prospectus,
      or the
      Prospectus. Notwithstanding any contrary provision contained in this Agreement,
      any election hereunder or any termination of this Agreement, and whether or
      not
      this Agreement is otherwise carried out, the provisions of Sections 6, 12 and
      16
      hereof shall not be in any way affected by such election or termination or
      failure to carry out the terms of this Agreement or any part
      hereof.

    
      
        
        

      

      
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    12.   Expenses.

     

    (a)    Whether
      or not the offering of the Shares is consummated, the Company and, unless
      otherwise paid by the Company, the Selling Stockholder, agree to pay all costs
      and expenses incident to the performance of the obligations of the Company
      hereunder, including without limiting the generality of the foregoing: (i)
      the
      preparation, printing, filing with the Commission, and copying of the
      Registration Statement, each Preliminary Prospectus, the Prospectus, this
      Agreement and other underwriting documents, if any, and any drafts, amendments
      or supplements thereto, including the cost of all copies thereof supplied to
      the
      Underwriters in such quantities as reasonably requested by the Underwriters
      and
      the costs of mailing Prospectuses to offerees and purchasers of the Shares;
      (ii)
      the printing, engraving, issuance and delivery of certificates representing
      the
      Shares, including any transfer or other taxes payable thereon; (iii) the
      reasonable fees, expenses and other costs related to the registration or
      qualification of the Shares under state securities or “blue sky” laws, in
      accordance with the provisions of Section 12(c) below; (iv) the reasonable
      fees,
      costs and disbursements of Underwriters’ Counsel in connection with the review
      and analysis of certain “blue sky” matters related to the offering; (v) all
      reasonable fees and expenses of the Company’s Co-Counsel, Canadian Subsidiary
      Counsel and accountants; (vi) $150,000 of the fees and expenses of
      Underwriters’ Counsel, inclusive of all NASD filing fees, costs and expenses
      incurred in connection with the offering and all fees and disbursements of
      Underwriters’ Counsel in connection with obtaining clearance of the offering
      with the NASD; (vii) all costs and expenses of any listing of the Shares on
      the
      NASDAQ Global Market or any other stock exchange or over-the-counter market,
      or
      in Standard and Poor’s Corporation Records or any other securities manuals;
      (viii) the cost of “tombstone” advertisements to be placed in one or more daily
      or weekly periodicals as the Underwriter may request; (ix) travel expenses
      of
      the Company in connection with the “road show” presentations; (x) all other
      costs and expenses incident to the performance of the Company’s obligations
      hereunder which are not otherwise specifically provided for in this Section
      12(a). The Company shall be the primary obligor with respect to all costs,
      fees
      and expenses to be paid by the Company and by the Selling Stockholder. The
      obligations of the Company and the Selling Stockholder under this Section 12(a)
      shall survive any termination or cancellation of this Agreement.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    (b)    In
      addition to the responsibility of the Company and the Selling Stockholder for
      payment of the foregoing expenses, the Company and, unless otherwise paid by
      the
      Company, the Selling Stockholder, shall pay to the Underwriters a
      non-accountable expense allowance equal to $253,000.00 of the gross proceeds
      of
      the offering of the Firm Shares, excluding in such amount the proceeds from
      any
      exercise of the Underwriters’ over-allotment option. The non-accountable expense
      allowance due shall be paid at the First Closing Date and any Option Closing
      Date, as applicable. Merriman Curhan Ford & Co. hereby acknowledges prior
      receipt from the Company of $0.00, which amount shall be applied to the
      non-accountable expense allowance due when, and if, such offering is closed.
      If
      the sale of the Firm Shares provided for herein is not consummated because
      the
      Underwriters elect to terminate this Agreement in accordance with clauses (i)
      or
      (ii) of Section 11(a) hereof, then the Company, or if not paid by the Company,
      the Selling Stockholder, shall reimburse the Underwriters in full for their
      actual accountable out-of-pocket expenses incurred in connection with the
      proposed purchase and sale of the Firm Shares (including, without limitation,
      the fees and disbursements of Underwriters’ Counsel) inclusive of the $0.00
      previously paid on account. Notwithstanding the foregoing, in the event the
      offering is terminated, each Underwriter will not be entitled to retain or
      receive more than an amount equal to its actual accountable out-of-pocket
      expenses and shall reimburse the Company for the remainder, if any. The
      Underwriters hereby acknowledge and agree that their expenses in connection
      with
      the “road show” presentations shall be paid from the non-accountable expense
      allowance.

     

    (c)    Subject
      to Section 5(h) hereof, the Underwriters shall determine in which states or
      jurisdictions the Shares shall be registered or qualified for sale.

     

    13.   Notices.
      Any
      notice hereunder shall be in writing, unless otherwise expressly provided
      herein, and if to the respective persons indicated, will be sufficient if mailed
      by certified mail, return receipt requested, postage prepaid, delivered by
      national overnight courier service or hand delivered, addressed as respectively
      indicated or to such other address as will be indicated by a written notice
      similarly given, to the following persons: 

     

    (a)    If
      to the
      Underwriters - addressed to Merriman Curhan Ford & Co., 600 California
      Street, 9th Floor, San Francisco, CA 94108, Attn: Craig Sultan, Managing
      Director; with a copy to Wilson Sonsini Goodrich & Rosati, Professional
      Corporation, 650 Page Mill Road, Palo Alto, CA 94304, Attention: Donna
      Petkanics, Esq.; provided, however, that such copy to Wilson Sonsini Goodrich
      & Rosati shall not constitute notice delivered to the
      Underwriters.

     

    (b)    If
      to the
      Company - addressed to VeriChip Corporation, 1690 South Congress Avenue, Suite
      200, Delray Beach, FL 33445, Attention: Scott R. Silverman, Chief Executive
      Officer, with a copy to Holland & Knight LLP. 701 Brickell Avenue, Suite
      3000, Miami, FL 33131, Attn: Harvey A. Goldman, Esq. and to Holland & Knight
      LLP, 195 Broadway, 24th Floor, New York, NY 10007, Attn: James M. Lurie, Esq.
      and to Steptoe & Johnson LLP, 1330 Connecticut Avenue, N.W., Washington,
      D.C. 20036, Attn: Donald H. Meiers, Esq.; provided, however, that such copies
      to
      Holland & Knight LLP and Steptoe & Johnson LLP shall not constitute
      notice delivered to the Company.

     

    (c)    If
      to the
      Selling Stockholder - addressed to Applied Digital Solutions Inc., 1690 South
      Congress Avenue, Suite 200, Delray Beach, FL 33445, Attention: Michael E.
      Krawitz, Chief Executive Officer, with a copy to Holland & Knight LLP, 701
      Brickell Avenue, Suite 3000, Miami, FL 33131, Attn: Harvey A. Goldman, Esq.;
      provided, however, that such copy to Holland & Knight LLP shall not
      constitute notice delivered to the Selling Stockholder.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    14.   Successors.
      This
      Agreement will inure to the benefit of and be binding upon the Underwriters,
      the
      Company, the Selling Stockholder, and their respective successors and assigns.
      Nothing expressed or mentioned in this Agreement is intended, or will be
      construed, to give any person, corporation or other entity other than the
      controlling persons, directors, officers, employees and agents referred to
      in
      Section 6 hereof (to the extent provided for in Section 6), and their respective
      successors and assigns, any legal or equitable right, remedy, or claim under
      or
      in respect to this Agreement or any provisions herein contained, this Agreement
      and all conditions and provisions hereof being intended to be and being for
      the
      sole and exclusive benefit of such persons and for the benefit of no other
      persons. Notwithstanding anything contained herein to the contrary, no purchaser
      of any of the Shares from the Underwriters will be deemed a successor or assign
      solely because of such purchase. 

     

    15.   Finders
      and Holders of First Refusal Rights.

     

    (a)    Each
      of
      the Company and the Selling Stockholder, jointly and severally, hereby
      represents and warrants to the Underwriters that it has not paid any
      compensation for services as a finder in connection with any prior financing
      of
      the Company during the twelve-month period immediately preceding the date hereof
      and that no person is entitled, directly or indirectly, to compensation for
      services as a finder in connection with the proposed transactions. The Company
      further represents and warrants, that no person holds a right of first refusal
      or similar right in connection with the proposed offering which has not been
      waived. In addition, the Company hereby agrees to indemnify and hold harmless
      the Underwriters, their officers, directors, agents and each person, if any,
      who
      controls such Underwriters within the meaning of Section 15 of the Act, from
      and
      against any loss, liability, claim, damage or expense whatsoever arising out
      of
      a claim by an alleged finder or alleged holder of a right of first refusal
      or
      similar right in connection with the proposed offering by the Company, insofar
      as such loss, liability, claim, damage or expense arises out of any action
      or
      alleged action of the Company, as the case may be.

     

    (b)    Each
      of
      the Underwriters hereby represents and warrants to the Company and the Selling
      Stockholder that no person is entitled, directly or indirectly, to compensation
      for services as a finder in connection with the proposed transactions
      contemplated by this Agreement; and the Underwriters hereby agree to indemnify
      and hold harmless, severally and not jointly, the Company and the Selling
      Stockholder, and each of its respective officers, directors and agents, from
      and
      against any loss, liability, claim, damage or expense whatsoever arising out
      of
      a claim by an alleged finder in connection with the proposed offering, insofar
      as such loss, liability, claim, damage or expense arises out of any action
      or
      alleged action of the Underwriters. 

     

    
      
        
        

      

      
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    16.   Applicable
      Law.
      This
      Agreement shall be a deemed to be a contract made under the laws of the State
      of
      New York and for all purposes shall be governed by and construed in accordance
      with the laws of said State applicable to contracts made and to be performed
      entirely within such State. Each of the Company, the Selling Stockholder and
      the
      Underwriters (i) agrees that any legal suit, action or proceeding arising out
      of
      or relating to this Agreement shall be instituted exclusively in the State
      courts of the State of New York, County of New York, or in the United States
      District Court for the Southern District of New York, (ii) waives any objection
      which the Company or the Underwriters, as the case may be, may have now or
      hereafter to the venue of any such suit, action or proceeding, and (iii)
      irrevocably consents to the jurisdiction of the State courts of the State of
      New
      York, County of New York, or in the United States District Court for the
      Southern District of New York in any such suit, action or proceeding. Each
      of
      the Company, the Selling Stockholder and the Underwriters further agrees to
      accept and acknowledge service of any and all process which may be served in
      any
      suit, action or proceeding in the State courts of the State of New York, County
      of New York, or in the United States District Court for the Southern District
      of
      New York, and agrees that service of process upon the Company, the Selling
      Stockholder or the Underwriters, as the case may be, mailed by certified mail
      to
      such party’s address as set forth in Section 13 hereof shall be deemed in every
      respect effective service of process upon such party in any such suit, action
      or
      proceeding. In the event of litigation between the parties arising hereunder,
      the prevailing party shall be entitled to costs and reasonable attorney’s fees.

     

    17.   No
      Fiduciary Duty.
      The
      Company hereby acknowledges that (a) the Underwriters are acting as
      principals and not as agents or fiduciaries of the Company and (b) the
      Company’s engagement of the Underwriters in connection with the offering of
      Shares contemplated by the Prospectus is as independent contractors and not
      in
      any other capacity. Furthermore, the Company agrees that it is solely
      responsible for making its own judgments in connection with the offering of
      Shares contemplated by the Prospectus (irrespective of whether the Underwriters
      have advised or is currently advising the Company on related or other
      matters).

     

    18.   Headings.
      The
      headings in this Agreement are for purposes of reference only and shall not
      limit or otherwise affect any of the terms or provisions hereof.

     

    19.   Counterparts.
      This
      Agreement may be executed in any number of counterparts which, taken together,
      shall constitute one and the same instrument. 

     

    20.   Entire
      Agreement.
      This
      Agreement sets forth the entire agreement and understanding between the
      Underwriters and the Company with respect to the subject matter hereof, and
      supersedes all prior agreements, arrangements and understandings, written or
      oral, between them. 

     

    21.   Terminology.
      All
      personal pronouns used in this Agreement, whether used in the masculine,
      feminine or neuter gender, shall include all other genders and the singular
      shall include the plural, and vice versa. 

     

    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    If
      the
      foregoing correctly sets forth our understanding, please indicate the
      Underwriters’ acceptance thereof, as of the day and year first above written, in
      the spaces provided below for that purpose, whereupon this letter with the
      Underwriters’ acceptance shall constitute a binding agreement among
      us.

     

    
      
        
          
            	 	
                    Very
                      truly yours,

                  
	 	
                    VERICHIP
                      CORPORATION

                  
	 	 	 	 
	 	 	 	 
	 	
                    By:
                      

                  	
                    /s/
                      Scott R. Silverman

                  	 
	 	 	
                    Name:
                      Scott R. Silverman

                  
	 	 	
                    Title:  
                      Chief Executive Officer

                  
	 	 
	 	 
	 	
                    APPLIED
                      DIGITAL SOLUTIONS, INC.

                  
	 	 	 	 
	 	 	 	 
	 	
                    By:
                      

                  	
                    /s/
                      Michael E. Krawitz

                  	 
	 	 	
                    Name:
                      Michael E. Krawitz

                  
	 	 	
                    Title:  
                      Chief Executive
                      Officer

                  

          

        

      

    

     

     

    [Signature
      Page to Underwriting Agreement]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Confirmed
      and accepted on the

    day
      and
      year first above written.

    

    
      	 	
              THE
                UNDERWRITERS: 

            
	 	 
	 	
              MERRIMAN
                CURHAN FORD & CO.

            
	 	 
	 	
              Acting
                severally on behalf of itself and as representative of the several
                Underwriters

            
	 	 
	 	
              By: 
                MERRIMAN CURHAN FORD & CO.

            
	 	 	 
	 	 	 	 
	 	
              By:
                

            	
              /s/
                Steven R. Foland

            	 
	 	 	
              Name:
                Steven R. Foland

            
	 	 	
              Title:
                Managing Director

            

    

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A-1

    (Lock-Up
      Letter Agreement)

     

    

    ___________
      ____, 2006

    

    Merriman
      Curhan Ford & Co.

    C.E.
      Unterberg, Towbin, LLC

    Kaufman
      Bros., L.P.

    c/o
      Merriman Curhan Ford & Co.

    600
      California Street, 9th
      Floor

    San
      Francisco, CA 94108

    Re:
      Lock-Up Agreement (the “Agreement”)

    

    

    Ladies
      and Gentlemen:

     

    The
      undersigned is an owner of record or beneficially of certain shares of common
      stock, $0.001 par value per share (the “Common
      Stock”),
      of
      VeriChip Corporation, a Delaware corporation (the “Company”),
      or
      securities convertible into or exchangeable or exercisable for Common Stock.
      The
      undersigned understands that Merriman Curhan Ford & Co., proposes to enter
      into an underwriting agreement with the Company (the “Underwriting
      Agreement”)
      providing for a public offering of the Common Stock of the Company by the
      several underwriters, including Merriman Curhan Ford & Co. (the
“Underwriters”)
      pursuant to a Registration Statement on Form S-1 to be filed with the Securities
      and Exchange Commission (the “Public
      Offering”).
      The
      undersigned recognizes that the Public Offering will be of benefit to the
      undersigned and will benefit the Company by, among other things, raising
      additional capital for its operations. The undersigned acknowledges the
      Underwriters are relying on the representations and agreements of the
      undersigned contained in this letter in carrying out the Public Offering and
      in
      entering into underwriting arrangements with the Company with respect to the
      Public Offering.

     

    To
      induce
      the Underwriters that may participate in the Public Offering to continue their
      efforts in connection with the Public Offering, the undersigned hereby agrees
      that, without the prior written consent of Merriman Curhan Ford & Co. on
      behalf of the Underwriters (which consent may be withheld in its sole
      discretion), it will not, during the period (the “Restricted
      Period”)
      commencing on the date hereof and ending 180 days after the date of the final
      prospectus relating to the Public Offering (the “Prospectus”),
      (1) offer, pledge, sell, contract to sell, sell any option or contract to
      purchase, purchase any option or contract to sell, grant any option, right
      or
      warrant to purchase, lend, or otherwise transfer or dispose of, directly or
      indirectly, any shares of Common Stock or any securities convertible into or
      exercisable or exchangeable for Common Stock, or (2) enter into any swap or
      other arrangement that transfers to another, in whole or in part, any of the
      economic consequences of ownership of the Common Stock, whether any such
      transaction described in clause (1) or (2) above is to be settled by delivery
      of
      Common Stock or such other securities, in cash or otherwise. The foregoing
      sentence shall not apply to the exercise of options or warrants or the
      conversion of a security outstanding on the date of the Prospectus and which
      is
      described in the Company’s registration statement on Form S-1, as amended and
      supplemented, filed with the Securities and Exchange Commission; provided,
      however, that the undersigned agrees that the foregoing sentence shall apply
      to
      any securities issued by the Company to the undersigned upon such an exercise
      or
      conversion. In addition, the undersigned agrees that, without the prior written
      consent of Merriman Curhan Ford & Co. on behalf of the Underwriters (which
      consent may be withheld in its sole discretion), it will not, during the period
      commencing on the date hereof and ending 180 days after the date of the
      Prospectus, make any demand for or exercise any right with respect to, the
      registration of any shares of Common Stock or any security convertible into
      or
      exercisable or exchangeable for Common Stock. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      undersigned agrees that if (a) during the last 18 days of the Restricted Period,
      the Company issues an earnings release or material news or a material event
      relating to the Company occurs; or (b) prior to the expiration of the Restricted
      Period, the Company announces that it will release earnings results during
      the
      16-day period beginning on the last day of the Restricted Period, the
      restrictions set forth herein shall continue to apply until the expiration
      of
      the 19-day period beginning on the issuance of the earnings release or the
      occurrence of the material news or material event, as applicable, unless
      Merriman Curhan Ford & Co. waives, in writing, such extension. The
      undersigned hereby acknowledges and agrees that written notice of any extension
      of the Restricted Period pursuant to this paragraph will be delivered by
      Merriman Curhan Ford & Co. to the Company (in accordance with the
      Underwriting Agreement) and that any such notice properly delivered will be
      deemed to have been given to, and received by, the undersigned.

     

    With
      respect to the Public Offering, the undersigned waives any registration rights
      relating to registration under the Securities Act of 1933, as amended, or
      otherwise, of any Common Stock owned either of record or beneficially by the
      undersigned, including any rights to receive notice of the Public
      Offering.

     

    The
      foregoing restrictions are expressly agreed to preclude the undersigned from
      engaging in any hedging or other transaction which is designed to or reasonably
      expected to lead to or result in a sale or disposition of the Common Stock
      even
      if such Common Stock would be disposed of by someone other than the undersigned.
      Such prohibited hedging or other transactions would include without limitation
      any short sale or any purchase, sale or grant of any right (including without
      limitation any put option or put equivalent position or call option or call
      equivalent position) with respect to any of the Common Stock or with respect
      to
      any security that includes, relates to, or derives any significant part of
      its
      value from such Common Stock.

     

    Notwithstanding
      the foregoing, the undersigned may transfer shares of Common Stock (i) as a
      bona fide gift or gifts, provided that the donee or donees thereof agree to
      be
      bound by the restrictions set forth herein, (ii) to any trust for the
      direct or indirect benefit of the undersigned or the immediate family of the
      undersigned, provided that the trustee of the trust agrees to be bound by the
      restrictions set forth herein, and provided further that any such transfer
      shall
      not involve a disposition for value, (iii) to the Underwriters pursuant to
      the Underwriting Agreement, or (iv) in transactions relating to shares of
      Common Stock acquired by the undersigned in open market transactions after
      the
      completion of the Public Offering; provided,
      however, that in cases (i) and (ii) above, it shall be a condition to such
      transfer that Merriman Curhan Ford & Co. receives prior written notice of
      the transfer and a copy of the agreement of the donee or trustee, as the case
      may be, to be bound by the restrictions set forth herein, and there shall be
      no
      further transfer of such shares except in accordance with this
      letter.
      For
      purposes of this Agreement, “immediate family” shall mean any relationship by
      blood, marriage or adoption, not more remote than first cousin. In addition,
      notwithstanding the foregoing, if the undersigned is a corporation, partnership,
      limited liability company or other form of business entity, the undersigned
      may
      transfer the capital stock of the Company to any wholly-owned subsidiary,
      partner or member of the undersigned or to an affiliate of the undersigned;
      provided, however, that in any such case, it shall be a condition to the
      transfer that Merriman Curhan Ford & Co. receive prior written notice
      thereof and that the transferee execute an agreement stating that the transferee
      is receiving and holding such capital stock subject to the provisions of this
      Agreement and there shall be no further transfer of such capital stock except
      in
      accordance with this Agreement, and provided further that any such transfer
      shall not involve a disposition for value.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      undersigned understands that whether or not the Public Offering actually occurs
      depends on a number of factors, including stock market conditions. The Public
      Offering will only be made pursuant to an Underwriting Agreement, the terms
      of
      which are subject to negotiation among the Company and the
      Underwriters.

     

    The
      undersigned agrees and consents to the entry of stop transfer instructions
      with
      the Company’s transfer agent and registrar against, and authorizes the Company
      to cause the transfer agent and registrar to decline, the transfer of shares
      of
      Common Stock or securities convertible into or exchangeable or exercisable
      for
      Common Stock held by the undersigned except in compliance with the foregoing
      restrictions.

     

    This
      Agreement shall lapse and become null and void upon the earlier of (i) the
      close
      of business on March 31, 2007, if the closing (excluding the closing of any
      over-allotment option granted to the Underwriters pursuant to the Underwriting
      Agreement relating to the Public Offering) of the Public Offering shall not
      have
      occurred on or before such time and (ii) the withdrawal by the Company of the
      Registration Statement on Form S-1 filed in connection with the Public
      Offering.

     

    The
      undersigned hereby represents and warrants that the undersigned has full power
      and authority to enter into the agreements set forth herein.

     

    The
      undersigned further understands that this agreement is irrevocable, and that
      all
      authority herein conferred or agreed to be conferred shall survive death or
      incapacity of the undersigned and will be binding on the undersigned and the
      respective successors, heirs, personal representatives, and assigns of the
      undersigned.

     

    
      	 	
              Very
                truly yours,

            
	 	 
	 	 
	 	
              Signature

            
	 	 
	 	 
	 	
              Name
                (Please print)

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A-2

    (Lock-Up
      Letter Agreement)

     

    

    January
      24, 2007

    

    VeriChip
      Corporation

    1690
      South Congress Ave. #200

    Delray
      Beach, FL 33445

    

    Re:
      Lock-Up Agreement (the “Agreement”)

    

    Ladies
      and Gentlemen:

    

    The
      undersigned is an owner of record or beneficially of certain shares of common
      stock, $0.01 par value per share (the “Common
      Stock”),
      of
      VeriChip Corporation, a Delaware corporation (the “Company”),
      or
      securities convertible into or exchangeable or exercisable for Common Stock.
      The
      undersigned understands that the Company is preparing for a public offering
      of
      the Common Stock of the Company by the several underwriters, including Merriman
      Curhan Ford & Co. (the “Underwriters”)
      pursuant to a Registration Statement on Form S-1 to be filed with the Securities
      and Exchange Commission (the “Public
      Offering”).
      The
      undersigned recognizes that the Public Offering will be of benefit to the
      undersigned and will benefit the Company by, among other things, raising
      additional capital for its operations. The undersigned acknowledges the Company
      is relying on the representations and agreements of the undersigned contained
      in
      this letter in carrying out the Public Offering and in entering into
      underwriting arrangements with the Company with respect to the Public
      Offering.

    

    To
      facilitate the Company’s dealings with the Underwriters (and therefore benefit
      the Company) that may participate in the Public Offering, the undersigned hereby
      agrees that, without the prior written consent of the Company (which consent
      may
      be granted or withheld in its sole discretion), it will not, during the period
      (the “Restricted
      Period”)
      commencing on the date hereof and ending 180 days after the date of the final
      prospectus relating to the Public Offering (the “Prospectus”),
      (1) offer, pledge, sell, contract to sell, sell any option or contract to
      purchase, purchase any option or contract to sell, grant any option, right
      or
      warrant to purchase, lend, or otherwise transfer or dispose of, directly or
      indirectly, any shares of Common Stock or any securities convertible into or
      exercisable or exchangeable for Common Stock, or (2) enter into any swap or
      other arrangement that transfers to another, in whole or in part, any of the
      economic consequences of ownership of the Common Stock, whether any such
      transaction described in clause (1) or (2) above is to be settled by delivery
      of
      Common Stock or such other securities, in cash or otherwise. The foregoing
      sentence shall not apply to the exercise of options or warrants or the
      conversion of a security outstanding on the date of the Prospectus and which
      is
      described in the Company’s registration statement on Form S-1, as amended and
      supplemented, filed with the Securities and Exchange Commission; provided,
      however, that the undersigned agrees that the foregoing sentence shall apply
      to
      any securities issued by the Company to the undersigned upon such an exercise
      or
      conversion. In addition, the undersigned agrees that, without the prior written
      consent of the Company (which consent may be granted or withheld in its sole
      discretion), it will not, during the period commencing on the date hereof and
      ending 180 days after the date of the Prospectus, make any demand for or
      exercise any right with respect to, the registration of any shares of Common
      Stock or any security convertible into or exercisable or exchangeable for Common
      Stock. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      undersigned agrees that if (a) during the last 18 days of the Restricted Period,
      the Company issues an earnings release or material news or a material event
      relating to the Company occurs; or (b) prior to the expiration of the Restricted
      Period, the Company announces that it will release earnings results during
      the
      16-day period beginning on the last day of the Restricted Period, the
      restrictions set forth herein shall continue to apply until the expiration
      of
      the 19-day period beginning on the issuance of the earnings release or the
      occurrence of the material news or material event, as applicable, unless the
      Company waives, in writing, such extension. The undersigned hereby acknowledges
      and agrees that written notice of any extension of the Restricted Period
      pursuant to this paragraph will be delivered by the Company.

    

    With
      respect to the Public Offering, the undersigned waives any registration rights
      relating to registration under the Securities Act of 1933, as amended, or
      otherwise, of any Common Stock owned either of record or beneficially by the
      undersigned, including any rights to receive notice of the Public
      Offering.

    

    The
      foregoing restrictions are expressly agreed to preclude the undersigned from
      engaging in any hedging or other transaction which is designed to or reasonably
      expected to lead to or result in a sale or disposition of the Common Stock
      even
      if such Common Stock would be disposed of by someone other than the undersigned.
      Such prohibited hedging or other transactions would include without limitation
      any short sale or any purchase, sale or grant of any right (including without
      limitation any put option or put equivalent position or call option or call
      equivalent position) with respect to any of the Common Stock or with respect
      to
      any security that includes, relates to, or derives any significant part of
      its
      value from such Common Stock.

    

    Notwithstanding
      the foregoing, the undersigned may transfer shares of Common Stock (i) as a
      bona fide gift or gifts, provided that the donee or donees thereof agree to
      be
      bound by the restrictions set forth herein, (ii) to any trust for the
      direct or indirect benefit of the undersigned or the immediate family of the
      undersigned, provided that the trustee of the trust agrees to be bound by the
      restrictions set forth herein, and provided further that any such transfer
      shall
      not involve a disposition for value, (iii) to the Underwriters pursuant to
      the Underwriting Agreement, (iv) in transactions relating to shares of
      Common Stock acquired by the undersigned in open market transactions after
      the
      completion of the Public Offering; or (v) upon death pursuant to the
      undersigned’s will or applicable law; provided,
      however, that in cases (i) and (ii) above, it shall be a condition to such
      transfer that the Company receive prior written notice of the transfer and
      a
      copy of the agreement of the donee or trustee, as the case may be, to be bound
      by the restrictions set forth herein, and there shall be no further transfer
      of
      such shares except in accordance with this letter.
      For
      purposes of this Agreement, “immediate family” shall mean any relationship by
      blood, marriage, domestic partnership or adoption, not more remote than first
      cousin. 

    

    The
      undersigned understands that whether or not the Public Offering actually occurs
      depends on a number of factors, including stock market conditions. The Public
      Offering will only be made pursuant to an Underwriting Agreement, the terms
      of
      which are subject to negotiation among the Company and the
      Underwriters.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      undersigned agrees and consents to the entry of stop transfer instructions
      with
      the Company’s transfer agent and registrar against, and authorizes the Company
      to cause the transfer agent and registrar to decline, the transfer of shares
      of
      Common Stock or securities convertible into or exchangeable or exercisable
      for
      Common Stock held by the undersigned except in compliance with the foregoing
      restrictions.

    

    This
      Agreement shall lapse and become null and void upon the earlier of (i) the
      close
      of business on February 28, 2007, if the closing (excluding the closing of
      any
      over-allotment option granted to the Underwriters pursuant to the Underwriting
      Agreement relating to the Public Offering) of the Public Offering shall not
      have
      occurred on or before such time and (ii) the withdrawal by the Company of the
      Registration Statement on Form S-1 filed in connection with the Public Offering.
      Notwithstanding anything herein to the contrary, the Restricted Period shall
      end
      if the undersigned is no longer an employee of the Company or its
      affiliates.

    

    The
      undersigned hereby represents and warrants that the undersigned has full power
      and authority to enter into the agreements set forth herein. The Company
      represents and warrants that it has full power and authority to enter into
      the
      agreements set forth herein, and has entered into no agreements that limit
      its
      authority to grant or withhold any consents referred to herein.

    

    The
      undersigned further understands that this agreement is irrevocable, and that
      all
      authority herein conferred or agreed to be conferred shall survive death or
      incapacity of the undersigned and will be binding on the undersigned and the
      respective successors, heirs, personal representatives, and assigns of the
      undersigned.

     

     

    
      	 	
              Very
                truly yours,

            
	 	 
	 	 
	 	
              Signature

            
	 	 
	 	 
	 	
              Name
                (Please print)

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B-1

    (Form
      of
      Opinion of Company Co-Counsel)

     

    1.
    The
      Company validly exists as a corporation in good standing under the laws of
      the
      State of Delaware. The Company has the requisite corporate power and authority
      to own its property and to conduct its business as described in the Prospectus.
      The Company is qualified to do business or licensed as a foreign corporation
      and
      is in good standing under the laws of each jurisdiction listed on Schedule
      [ ]
      hereto.

    

    2.
    Each
      of
      the subsidiaries of the Company identified in Schedule [ ] hereto is qualified
      to do business and is in good standing under the laws of the jurisdictions
      listed opposite such subsidiary’s name in Schedule [ ] hereto. 

    

    3.
    The
      Company has authorized and issued capital stock as set forth in the Registration
      Statement and the Prospectus and the shares of capital stock of the Company
      issued and outstanding immediately prior to the issuance of the Firm Shares,
      including the Option Shares, have been duly authorized and validly issued,
      and
      are fully paid and non-assessable.

    

    4.
    The
      Firm
      Shares to be issued and sold by the Company on the date hereof have been duly
      authorized by the Company and, when issued and sold by the Company, and
      delivered by the Company to, and paid for by, the Underwriters in accordance
      with the terms of the Underwriting Agreement, will be validly issued, fully
      paid
      and non-assessable.

    

    5.
    No
      stockholder of the Company or any other person has any preemptive right, right
      of first refusal or other similar right to subscribe for or purchase securities
      of the Company arising (i) by operation of the Second Amended and Restated
      Certificate of Incorporation or the Amended and Restated By-Laws of the Company,
      or (ii) under the Delaware General Corporation Law.

    

    6.
    Except
      as
      disclosed in the Prospectus, to our knowledge, there are no contractual
      preemptive rights that have not been waived with respect to the Shares to be
      issued and sold by the Company on the date hereof.

    

    7.
    Except
      as
      disclosed in the Prospectus, to our knowledge (i) there are no outstanding
      securities of the Company convertible into or exchangeable or exercisable for
      or
      evidencing the right to purchase or subscribe for any shares of capital stock
      of
      the Company, and (ii) there are no outstanding or authorized options, warrants
      or rights of any character obligating the Company to issue any shares of its
      capital stock or any securities convertible or exchangeable into or evidencing
      the right to purchase or subscribe for any shares of such capital stock. Except
      as described in the Prospectus, to our knowledge, no holder of any securities
      of
      the Company has the right, which has not been satisfied or effectively waived,
      to have any shares of common stock or other securities of the Company included
      in the Registration Statement or the right, as a result of the filing of the
      Registration Statement, to require registration under the Securities Act of
      any
      shares of common stock or other securities of the Company.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    8.
    The
      Company has taken all necessary corporate action to authorize it to (i) issue
      the Firm Shares, (ii) execute, deliver and perform all of its other obligations
      under the terms and provisions of the Underwriting Agreement, and (iii)
      consummate the transactions contemplated thereby.

    

    9.
    The
      execution and delivery of the Underwriting Agreement by the Company does not,
      and the consummation of the transactions contemplated by the Underwriting
      Agreement by the Company, including the issuance and sale of the Firm Shares,
      will not: (a) result in any breach or default under (nor constitute any event
      that, with notice, lapse of time or both, would result in any breach or default
      under) (i) any provision of the Second Amended and Restated Certificate of
      Incorporation or the Amended and Restated By-Laws of the Company or (ii) any
      provision of any agreement or instrument filed as an exhibit to the Registration
      Statement; or (b) violate (i) any provision of any applicable federal law,
      New
      York State commercial law or the Delaware General Corporation Law, in each
      case
      known to us to be customarily applicable to transactions of the nature
      contemplated by the Underwriting Agreement, or (ii) any
      judgment, decree or order known to us of any court or any public governmental
      or
      regulatory agency or body having jurisdiction over the Company.

    

    10.    No
      consent, approval, authorization or order of, or qualification with, any federal
      or state governmental or regulatory commission, board, body, authority or agency
      is required to be obtained or made by the Company in connection with the
      issuance and/or sale of the Shares, and the consummation by the Company of
      the
      transactions contemplated by the Underwriting Agreement, other than such as
      have
      previously been obtained on or prior to the date hereof and are in full force
      and effect, including, without limitation, registration of the Shares under
      the
      Securities Act and of the common stock of the Company under the Exchange Act;
      provided,
      however,
      that we
      express no opinion as to (a) state securities or “blue sky” laws or foreign
      securities laws of the various jurisdictions in which the Shares are being
      offered by the Underwriters, and (b) the approval of the National Association
      of
      Securities Dealers, Inc. of the terms and conditions of the Underwriting
      Agreement.

    

    11.    To
      our
      knowledge, there are no contracts, licenses, agreements or other documents
      that
      are required to be described in the Prospectus or to be filed as exhibits to
      the
      Registration Statement by the Rules and Regulations which have not been
      described or filed as required. 

    

    12.    We
      have
      read the statements in the Prospectus under the captions “Risk Factors,” the
      risk factors, “Regulation of products and services that collect
      personally-identifiable information or otherwise monitor an individual’s
      activities may make the provision of our services more difficult or expensive
      and could jeopardize our growth prospects.” and “If we fail to comply with
      anti-kickback and false claims laws, we could be subject to costly and time
      consuming litigation and possible fines or other penalties.”, “Our Business -
      Intellectual Property,” “Our Business - Government Regulation” (other than those
      statements under the subcaption “Industry Canada Regulations”), “Description of
      Capital Stock,” “Shares Eligible for Future Sale” and “Material
      United States Tax Considerations for Non-United States Holders,” and
      in
      Items 14 and 15 of Part II of the Registration Statement, and, in each case,
      insofar as such statements constitute a summary of the legal matters, documents
      or proceedings referred to therein or refer to statements of law or legal
      conclusions, such statements fairly summarize, in all material respects, the
      matters referred to therein.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    13.    The
      Registration Statement [and the Rule 462(b) Registration Statement, if any,]
      has
      been declared effective by the Commission under the Securities Act and, to
      our
      knowledge, no stop order suspending the effectiveness of the Registration
      Statement [or the Rule 462(b) Registration Statement, if any] has been issued
      by
      the Commission nor, to our knowledge, is a proceeding for that purpose pending
      before or contemplated by the Commission. Any required filing of the Prospectus
      pursuant to Rule 424 under the Securities Act has been made in the manner and
      within the time period required by such Rule 424.

    

    14.    The
      Company is not, and after giving effect to the offering and sale of the Firm
      Shares and application of the proceeds thereof as described in the Prospectus
      will not be, required to register as an “investment company” within the meaning
      of the Investment Company Act of 1940, as amended.

    

    15.    To
      our
      knowledge, there are no legal or governmental proceedings pending or threatened
      to which the Company or any of its subsidiaries is a party that are of a
      character required to be described in the Registration Statement and the
      Prospectus that have not been described therein.

    

    In
      addition to the foregoing opinions, we advise you supplementally that we have
      participated in conferences with officers and other representatives of the
      Company, representatives of the independent public accountants for the Company,
      representatives of the Underwriters and representatives of Underwriters’
counsel, during which conferences the contents of the Registration Statement,
      the Pricing Disclosure Package and the Prospectus and related matters were
      discussed. Although we are not passing upon and do not assume any responsibility
      for the accuracy, completeness or fairness of the statements contained in the
      Registration Statement, the Pricing Disclosure Package or the Prospectus (other
      than as specified in Paragraphs 5 and 12 above), on the basis of the information
      we gained during the course of performing the services referred to above, we
      confirm to you that: (a) we are of the opinion that the Registration Statement,
      the Prospectus [and any Issuer Free Writing Prospectus listed on Schedule [
      ]
      hereto] (except as to the financial statements, schedules, notes, other
      financial and accounting data, and statistical data, included therein or derived
      therefrom, and information about internal control over financial reporting,
      as
      to which we express no opinion), at the time it was filed with the Commission,
      complied as to form in all material respects with the requirements of the
      Securities Act and the rules and regulations thereunder; and (b) nothing has
      come to the attention of those lawyers in our firm who have participated in
      the
      representation of the Company in connection with the offering, including the
      diligence process, and preparation of the Registration Statement, the Pricing
      Disclosure Package and the Prospectus, that has led us to believe that (i)
      the
      Registration Statement, at the time it was declared effective, contained an
      untrue statement of a material fact required to be stated therein or omitted
      to
      state a material fact necessary in order to make the statements therein not
      misleading, (ii) the Pricing Disclosure Package, at the Applicable Time,
      contained an untrue statement of a material fact or omitted to state a material
      fact necessary in order to make the statements therein, in light of the
      circumstances under which they were made, not misleading, or (iii) the
      Prospectus, at the time the Prospectus was filed with the Commission or at
      the
      date hereof, contained or contains an untrue statement of a material fact or
      omitted or omits to state a material fact necessary in order to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading (in each case, it being understood that we do not express any
      belief with respect to the financial statements, schedules, notes, other
      financial and accounting data, and statistical data, included therein or derived
      therefrom, and information about internal control over financing reporting,
      included in the Registration Statement, the Pricing Disclosure Package or the
      Prospectus).

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      A

    

    

    Underwriters

    

    

    
      	
              Name
                of Underwriter

            	
              Number
                of Firm Shares Purchased

            
	
              Merriman
                Curhan Ford & Co.

            	
              1,813,500

            
	
              C.E.
                Unterberg, Towbin, LLC

            	
              697,500

            
	
              Kaufman
                Bros., LP

            	
              279,000

            
	
              Jesup
                & Lamont Securities Corporation

            	
              155,000

            
	
              LaSalle
                St. Securities, L.L.C.

            	
              155,000

            
	
              Total

            	
              3,100,000

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      B

    

    Selling
      Stockholders

    

    

    
      	
              Name
                of Selling Stockholder

            	
              Number
                of Option Shares to be Sold

            
	
              Applied
                Digital 

            	
              465,000

            
	
              Total

            	
              465,000

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1(a)

    (List
      of
      Issuer Free Writing Prospectuses and Other Supplemental Materials)

     

     

    Pricing
      Information

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1(q)

    

     

    Exceptions
      to

    Statements
      in the Company’s Representation and Warranty in Section 1(q) of the Underwriting
      Agreement 

     

    
      	
              Note:
                

            	
              The
                information below supplements disclosure in the Prospectus relevant
                to the
                Company’s representation and warranty in Section 1(q) of the Underwriting
                Agreement. 

            

    

     

    
      	
              (i)

            	
              The
                Company or one of its Subsidiaries is the beneficial and record owner
                of
                all right, title and interest in, to and under the Intellectual Property,
                free and clear of all liens, security interests, charges, encumbrances
                or
                other adverse claims, and has the right to use the Intellectual Property
                without payment to a third party except as set forth
                below:

            

    

     

    Security
      Interests in Patents; License

     

    
      	
              Nature
                of Conveyance

            	
              Patent
                No.

            	
              Assignor

            	
              Assignee

            
	
              Security
                Agreement

            	
              US
                5,374,921

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Agreement

            	
              US
                5,014,040

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Agreement

            	
              US
                5,977,877

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Agreement

            	
              US
                D417,667

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Agreement

            	
              US
                D414,178

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              License

            	
              US
                5,374,921

            	
              Instantel
                Inc.

            	
              BI,
                Incorporated

            

    

     

    
      	
            	*	
              The
                security interests reflected in the above table were granted under
                the
                terms of a loan and security Agreement, as amended and restated,
                between
                Instantel Inc., as borrower, and Fifth Third Bank. The indebtedness
                incurred thereunder was extinguished under the terms of a payoff
                agreement, dated June 8, 2005, between Instantel Inc. and Fifth Third
                Bank. However, the parties failed to make the necessary arrangements
                to
                record the release of these security
                interests.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Security
      Interests in Trademarks

     

    
      	
              Nature
                of Conveyance

            	
              Trademark/

              Registration

              Number

            	
              Assignor

            	
              Assignee

            
	
              Security
                Interest

               

            	
              Blastmate

              US
                1,628,968

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Instantel

              US
                1,637,432

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Watchmate

              US
                1,823,615

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              FindIt

              US
                2,292,993

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Hugs

              US
                2,390,878

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Perceptis

              US
                2,444,667

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              KeepIt

              US
                2,833,459

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Heartbeat

              US
                2,833,540

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            
	
              Security
                Interest

               

            	
              Kisses

              US
                2,844,176

            	
              Instantel
                Inc.

            	
              Fifth
                Third Bank*

            

    

     

    
      	
              *

            	
              The
                security interests reflected in the above table were granted under
                the
                terms of a loan and security Agreement, as amended and restated,
                between
                Instantel Inc., as borrower, and Fifth Third Bank. The indebtedness
                incurred thereunder was extinguished under the terms of a payoff
                agreement, dated June 8, 2005, between Instantel Inc. and Fifth Third
                Bank. However, the parties failed to make the necessary arrangements
                to
                record the release of these security
                interests.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

      
        	
                (ii)

              	
                There
                  is no pending or, to the Knowledge of the Company, threatened action,
                  suit, proceeding or claim by others challenging the Company’s or any
                  Subsidiary’s rights in or to, or the validity or scope of, any
                  Intellectual Property, nor, to the Knowledge of the Company, do
                  there
                  exist any facts which would form a reasonable basis for any such
                  claim
                  except as set forth below:

              

      

      

      With
        respect to U.S. Patent No. 5,211,129, Syringe-Implantable Identification
        Transponder, Digital Angel has filed legal actions, and may file additional
        actions, to enforce such patent, including the following:

      

      Digital
        Angel Corporation v. Datamars, Inc., et al., Civ. No. 2004-4544 (D.
        Minn.)

      

      In
        the
        course of the above-captioned action, the defendant has asserted that this
        patent is invalid and/or not enforceable. In the event of any additional
        action,
        the defendant(s) may similarly assert that the patent is invalid and/or
        unenforceable. 

      

      
        	
                (iii)

              	
                To
                  the Knowledge of the Company, neither the Company nor any Subsidiary
                  has
                  infringed, is infringing upon, or is otherwise in conflict with
                  the
                  intellectual property rights of
                  others.

              

      

      

      On
        August
        19, 2004, one or more employees of Instantel received what appeared to be
        a
        mass-e-mail from William Robinson at Sovereign Tracking Systems, LLC. The
        email
        asserts:

      

      “If
        you
        have an RFID or RTLS application and if you tag either assets or personnel
        with
        an RFID or RTLS tag and the Tracking, Location and/or Monitoring of the tagged
        object is displayed in Real-Time as a graphical layout, floor plan, map,
        etc. on
        a display monitor, i.e. computer screen, then that product, or integration
        of
        that product maybe covered by our patent. The patent has no bounds regarding
        frequency and covers applications described above regardless of the specific
        technology used.”

      

      The
        e-mail further suggests that the e-mail recipients should consider licensing
        his
        patent if they have products using the described technologies. The e-mail
        makes
        no specific claims regarding Instantel’s products or overt threats of
        litigation. Instantel has taken no action on the basis that it believes it
        has
        prior art for all similar products.

      

      
        	
                (iv)

              	
                None
                  of the Company nor any Subsidiary has received any notice that
                  it has or
                  may have infringed, is infringing upon, or is in conflict with
                  the
                  intellectual property rights of others except as set forth
                  below:

              

      

      

      See
        the
        exception with respect to statement (iii) above.

      

      
        	
                (v)

              	
                There
                  is no pending or, to the Knowledge of the Company, threatened action,
                  suit, proceeding or claim by others alleging that the Company or
                  any
                  Subsidiary infringes, is in conflict with, or otherwise violates
                  any
                  patent, trademark, copyright, trade secret or other proprietary
                  rights of
                  others, nor, to the Knowledge of the Company, do there exist any
                  facts
                  which would form a reasonable basis for any such
                  claim.

              

      

      

      See
        the
        exception with respect to statement (iii) above.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
                (vi)

              	
                To
                  the Knowledge of the Company, no others have infringed upon the
                  Intellectual Property.

              

      

      

      An
        internal analysis performed by the Instantel determined that two competitors,
        Pro Tech Monitoring and RF Code/Avery Dennison, may be infringing U.S. patent
        #5,374,921. Instantel has taken no action against any of the
        parties.

      

      Competitors
        Visonics and RF Technologies may be infringing Instantel’s global exclusive
        healthcare license of licensed U.S. Patents Nos. 4,952,913 and 4,885,571.
        Instantel has taken no action against either of the parties.

      

      
        	
                (vii)

              	
                None
                  of the Company or any Subsidiary is obligated or under any liability
                  whatsoever to make any payment by way of royalties, fees or otherwise
                  to
                  any owner or licensee of, or other claimant to, intellectual property
                  rights not owned or controlled by the Company or such Subsidiary
                  or in
                  connection with the conduct of the
                  Business.

              

      

       

      None

      

      
        	
                (viii)

              	
                The
                  expiration of any patents, patent rights, trade secrets, trademarks,
                  service marks, trade names or copyrights would not result in a
                  Material
                  Adverse Effect.

              

      

       

      The
        expiration of any patent or patent right would result in the technology claimed
        in the patent entering the public domain, thereby allowing competitors to
        freely
        utilize the claimed technology.

      

      
        	
                (ix)

              	
                None
                  of the patents owned or licensed by the Company is unenforceable
                  or
                  invalid, and the Company and its Subsidiaries are unaware of any
                  facts
                  which would form a reasonable basis for any claim that the patent
                  applications owned or licensed by the Company would be unenforceable
                  or
                  invalid if issued as patents.

              

      

       

      None

      

      
        	
                (x)

              	
                The
                  Company has taken reasonable security measures to protect the secrecy,
                  confidentiality and value of all material proprietary technical
                  information developed by and belonging to the Company which has
                  not been
                  patented except as set forth below:

              

      

       

      None

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
                (xi)

              	
                Neither
                  the Company nor its Subsidiaries is obligated to pay a royalty,
                  grant a
                  license or provide other consideration to any third person in connection
                  with the Intellectual Property.

              

      

      

      None

      

      
        	
                (xii)

              	
                Neither
                  the Company nor its Subsidiaries has granted or assigned to any
                  other
                  person or entity any right to manufacture, have manufactured, assemble
                  or
                  sell the current products and services of the Company or those
                  products
                  and services described in the Registration Statement and the Pricing
                  Prospectus.

              

      

      

      With
        respect to U.S. Patent No. 5,211,129, Destron Fearing Corporation, a predecessor
        company to Digital Angel Corporation, submitted a letter to the International
        Standards Organization (ISO) that states, “Destron is willing to license
        manufacturers of syringe-implantable transponders to manufacture, use and
        sell
        transponders covered by the ‘129 patent on a global basis so long as such
        transponders comply with ISO 11784/5 as specified in the conformance clause
        of
        ISO 11785. However, Destron will not license manufacturers of transponders
        to
        make, use or sell products which are not in compliance with ISO 11784/5
        standard, including those described in the Annex to ISO 11785.”

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      SCHEDULE
        1(y)

      

      The
        following entities have not executed Lock-Up Agreements:

      

      
        	 	
                ·

              	
                Satellite
                  Strategic Finance Associates, LLC

              

      

      
        	 	
                ·

              	
                Satellite
                  Strategic Finance Partners, Ltd.

              

      

      
        	 	
                ·

              	
                Eduardo
                  Alarcon

              

      

      
        	 	
                ·

              	
                Lori
                  Alexander

              

      

      
        	 	
                ·

              	
                Jerome
                  Artigliere

              

      

      
        	 	
                ·

              	
                Brent
                  Ballard

              

      

      
        	 	
                ·

              	
                John
                  Block

              

      

      
        	 	
                ·

              	
                Keith
                  Bolton

              

      

      
        	 	
                ·

              	
                Karen
                  Clement

              

      

      
        	 	
                ·

              	
                Tom
                  Cuneo

              

      

      
        	 	
                ·

              	
                Alan
                  Foster

              

      

      
        	 	
                ·

              	
                Richard
                  Friedland

              

      

      
        	 	
                ·

              	
                Angela
                  Fulcher

              

      

      
        	 	
                ·

              	
                Randolph
                  Geissler

              

      

      
        	 	
                ·

              	
                Terri
                  Granger

              

      

      
        	 	
                ·

              	
                Jack
                  Gray

              

      

      
        	 	
                ·

              	
                Gary
                  Gray

              

      

      
        	 	
                ·

              	
                Kirstin
                  Gulbransen

              

      

      
        	 	
                ·

              	
                Kim
                  Hetrick

              

      

      
        	 	
                ·

              	
                Nurez
                  Khimji

              

      

      
        	 	
                ·

              	
                Frank
                  Lalley

              

      

      
        	 	
                ·

              	
                Michael
                  May

              

      

      
        	 	
                ·

              	
                Sameer
                  Mehta

              

      

      
        	 	
                ·

              	
                Mpact
                  Communications

              

      

      
        	 	
                ·

              	
                Jonathan
                  Musher

              

      

      
        	 	
                ·

              	
                Amanda
                  Mushrush

              

      

      
        	 	
                ·

              	
                Arthur
                  Noterman

              

      

      
        	 	
                ·

              	
                Ovations
                  International

              

      

      
        	 	
                ·

              	
                John
                  Reap

              

      

      
        	 	
                ·

              	
                Luke
                  Rivara

              

      

      
        	 	
                ·

              	
                Greg
                  Sadowski

              

      

      
        	 	
                ·

              	
                Kristi
                  Shackelford

              

      

      
        	 	
                ·

              	
                Angela
                  Sullivan

              

      

      
        	 	
                ·

              	
                Richard
                  Sullivan

              

      

      
        	 	
                ·

              	Allison
                Tomek

        	 	
                ·

              	
                Howard
                  Weintraub

              

      

      
        	 	
                ·

              	
                Kevin
                  Wiley

              

      

      
        	 	
                ·

              	
                Hal
                  Williams

              

      

      
        	 	
                ·

              	
                Michael
                  Zarrielo

              

      

      
        	 	
                ·

              	
                Peter
                  ZhouExhibit 10.24

THIS SHAREHOLDERS' AGREEMENT made this 13th day of February, 2007.

AMONG:

                           SHANNON INTERNATIONAL INC.

                                                               OF THE FIRST PART

                                     - and -

                                 EB HOLDING INC.

                                                              OF THE SECOND PART

                                     - and -

                          LOGICAL SEQUENCE INCORPORATED

                                                               OF THE THIRD PART

The parties agree as follows:

1    Definitions and Interpretation

1.1  Where used in this Agreement, unless there is something in the context or
     the subject matter inconsistent therewith, the following terms shall have
     the following meanings respectively:

     (a)  "Affiliate" of a body corporate (the first body corporate) means a
          body corporate which is directly or indirectly controlled by the first
          body corporate, or directly or indirectly controls the first body
          corporate or is directly or indirectly controlled by a body corporate
          which also directly or indirectly controls the first body corporate;

     (b)  "Agreement" means this agreement and any instrument supplemental
          hereto, the expressions "Article", "section", "subsection" and
          "clause" followed by a number and/or a letter number mean and refer to
          a specified Article, section, subsection or clause of this Agreement;

     (c)  "Board" means the board of directors of the Company;

     (d)  "Business Day" means any day other than a Saturday or a Sunday or a
          statutory or civic holiday;

     (e)  "Company" means Logical Sequence Incorporated, a body corporate
          incorporated under the laws of Ontario;

     (f)  "Common Shares" means the common shares in the capital of the Company;

<PAGE>
     (g)  "Control" means, in the case of a corporation, ownership, directly or
          indirectly through ownership by other persons of at least 50% plus one
          of all of the voting rights attached to all voting shares (exclusive
          of shares that are voting only in certain events, unless such events
          have occurred and are continuing) and in the case of any other person,
          ownership, directly or indirectly, through ownership by any persons,
          of at least 50% of the beneficial equity interests therein;

     (h)  "Fair Market Value" means fair market value of the Shares as
          determined in accordance with Article 10;

     (i)  "EB" means EB Holding Inc., a body corporate incorporated under the
          laws of Nova Scotia;

     (j)  "Person" includes an individual, a firm, a corporation, a syndicate, a
          partnership, a trust, an association, a joint venture, an
          unincorporated organization and every other legal or business entity
          whatsoever;

     (k)  "Related Party" means either an Affiliate of a Shareholder or a person
          with whom a Shareholder is related or affiliated within the meaning of
          the Income Tax Act (Canada);

     (l)  "SII" means Shannon International Inc., a body corporate incorporated
          under the laws of Nevada;

     (m)  "Shares" means all or any of the issued shares in the capital stock of
          the Company;

     (n)  "Shareholders" means collectively EB and SII as long as each of these
          continue to own Shares and in each case includes any future owner of
          such Shares; and

     (o)  "Transfer" of a Share includes any sale, exchange, transfer,
          assignment, gift, pledge, encumbrance, hypothecation, alienation or
          other transaction, whether voluntary, involuntary or by operation of
          law, by which the legal or beneficial ownership of, or any security
          interest or other interest in the Share, passes from one Person to
          another, or to the same Person in a different capacity, whether or not
          for value, and any changing control of the legal or beneficial owner
          of the Share or any Person that controls, directly or indirectly, in
          any manner whatsoever, such legal or beneficial owner of the Share,
          other than an involuntary change of control resulting from the
          transmission of the securities from a deceased or incompetent
          Shareholder to its estate or legal personal representative for so long
          as the securities continue to be held by the estate or such legal
          personal representative, and "to transfer", "transferred" and similar
          expressions shall have corresponding meanings.

1.2  Words importing the singular number only shall include the plural and vice
     versa, and words importing the use of any gender shall include both
     genders.

1.3  The Article and section headings in this Agreement are included herein for
     convenience of reference only, and shall not constitute a part of this
     Agreement for any other purpose.

1.4  This Agreement and all documents ancillary hereto shall be governed by and
     interpreted in accordance with the laws of the Province of Nova Scotia and
     the federal laws of Canada applicable therein.

1.5  If any act is required hereunder to be done, any notices required in order
     to be given, or any period of time is to expire hereunder on any day that
     is not a Business Day, any such act shall be required to be done or notice
     shall be required to be given or time shall expire on the next succeeding
     Business Day.

<PAGE>
1.6  The provisions of this Agreement shall apply mutatis mutandis to any shares
     or securities of any nature into which the Shares or any of them may be
     converted, exchanged, reclassified, redivided, redesignated, subdivided or
     consolidated, to any shares or securities of any nature that are received
     by a Shareholder as a stock dividend or distribution payable in shares,
     securities, warrants, rights or options of any nature of the Company, to
     any shares, securities, warrants, rights or options of any nature of the
     Company or any successor, continuing company or corporation of the Company
     that may be received by a Shareholder on a reorganization, amalgamation,
     arrangement, consolidation or merger, statutory or otherwise, and to any
     shares, securities, warrants, rights or options hereafter issued or
     allotted by the Company to a Shareholder, all of which shares, securities,
     warrants, rights or options shall be deemed to be Shares for the purposes
     of this Agreement.

2    Purpose

2.1  The Shareholders of the Company are desirous of entering into this
     Agreement for the purpose of regulating their share holdings and affairs of
     the Company in the circumstances herein provided for.

2.2  As of the date of this Agreement, the shares of the Company are held as
     follows:

     (a)  EB - 544,983 Common Shares;
     (b)  SII - 5,100,000 Common Share; and
     (c)  Others - 4,355,017 Common Shares.

3    Management

3.1  Subject as hereinafter provided, the Shareholders agree to exercise any and
     all voting rights attaching to the Shares and to otherwise exercise their
     influence that, unless the Shareholders otherwise agree in writing, at all
     times while this Agreement is in effect:

     (a)  The Board shall consist of five (5) directors. SII and EB shall each
          be entitled to nominate one (1) director;

     (b)  The Company agrees to appoint William Clements as the President of the
          Company on terms to their mutual satisfaction. The remaining officers
          of the Company shall be as selected from time to time;

     (c)  A quorum for meetings of the Board, except as herein provided, will be
          all of the directors, present in person or by means of conference
          telephone or other communications equipment whereby all persons
          participating in the meeting can hear each other, provided that the
          Directors nominated by each of the Shareholders are present at all
          times (except that where any director is unavailable to attend any
          directors meeting as provided in this Agreement, the Shareholder who
          nominated the director in question may designate another person to
          perform the obligations of the unavailable director), unless the party
          whose representatives were not in attendance subsequently consents in
          writing to the business conducted at the meeting. If at any meeting
          (the "Initial Directors' Meeting") any one of the Directors nominated
          by each Shareholder is not present or ceases to be present the
          Directors present may adjourn the meeting to the same time and place
          five Business Days later (the "Adjourned Directors' Meeting"). Notice
          of the Adjourned Directors' Meeting shall be delivered in accordance
          with the provisions of section 13.2 as soon as possible to the
          Shareholder whose nominees were not present or ceased to be present at
          the Initial Directors' Meeting. A quorum of directors at the Adjourned
          Directors' Meeting will consist of those directors who are present in
          person or by telephone, and such quorum, notwithstanding the other
          provisions of this Agreement, shall be authorized to conduct all of
          the business of the Company;

     (d)  Subject to section 3.2, all matters or questions requiring action or
          decision at a meeting of the Board shall be determined by a majority
          of votes cast at the meeting and each Shareholder agrees that there
          shall be no casting vote with respect to any of the proceedings of the
          Shareholders or the Directors of the Company; and

<PAGE>
     (e)  A quorum for meetings of the Shareholders of the Company shall not
          exist unless there is at least one representative from each
          Shareholder present in person or by proxy, unless the party whose
          representative was not in attendance subsequently consents in writing
          to the business conducted at the meeting. If at any meeting (the
          "Initial Shareholders' Meeting") a representative of each Shareholder
          is not present or ceases to be present, the Shareholder remaining
          present may adjourn the meeting to the same time and place five
          Business days later (the "Adjourned Meeting"). Notice of the Adjourned
          Shareholders' Meeting shall be delivered in accordance with the
          provisions of section 13.2 as soon as possible to the Shareholder who
          was not present or ceased to be present at the Initial Shareholders'
          Meeting. A quorum of Shareholders at the Adjourned Shareholders'
          Meeting will consist of those Shareholders present in person or by
          proxy, and such quorum, notwithstanding the other provisions of this
          Agreement, shall be authorized to conduct all of the business of the
          Company.

3.2  Notwithstanding anything contained in the Articles and By-Laws of the
     Company, unless otherwise expressly agreed in writing by each of the
     Shareholders, regardless of any action taken or purported to be taken at
     any meeting of the Board or Shareholders, no obligation of the Company will
     be created or action taken by the Company with respect to or concerning any
     of the following matters without the prior consent of Shareholders holding
     an aggregate 66 2/3% of the votes attaching to the outstanding issued
     Shares which carry a right to vote in all circumstances:

     (a)  changes in the Articles or By-Laws of the Company;

     (b)  the creation or issue of shares of the Company or of any security
          exchangeable or convertible into shares of the Company except as
          expressly provided for in this Agreement;

     (c)  the conversion, exchange, reclassification, redesignation,
          subdivision, consolidation or other change to any shares of the
          Company;

     (d)  the redemption or purchase for cancellation of any shares in the
          capital of the Company, except as expressly herein permitted;

     (e)  the amalgamation, continuance, merger, consolidation or reorganization
          of the Company, or the approval or effecting of any plan of
          arrangement in each case, whether statutory or otherwise;

     (f)  the choice and terms of appointment of bankers, auditors, lawyers and
          other major consultants of the Company;

     (g)  except in the ordinary course of business, all matters relating to the
          borrowing of money, financing and refinancing and giving security upon
          the assets of the Company;

     (h)  changes in the size of the Board;

     (i)  the loaning of any amount to any shareholder, officer or director of
          the Company or the repayment of any shareholder's loans to the
          Company;

     (j)  any significant change in the nature of the business of the Company or
          any significant decision affecting its operation;

     (k)  the sale or disposition by the Company of a substantial portion of its
          assets or undertaking or the liquidation, dissolution or winding-up of
          the Company;

<PAGE>
     (l)  any change in the authorized signing officers of the Company in
          respect of legal documents or other bank or financial institutions;
          and

     (m)  except as otherwise expressly permitted hereunder, the payment of any
          salary, bonuses, and other payments to the Shareholders of the Company
          or their Affiliates except in the ordinary course of business.

3.3  Each Shareholder agrees that any transactions between the Company, any
     Shareholder and any Related Party to a Shareholder shall take place at fair
     market rates.

3.4  Each Shareholder agrees that it, acting by itself or in concert with or
     through any Related Party, shall not derive any benefit or seek any benefit
     from any contract or arrangement arising from or related to the business of
     the Company from time to time without first disclosing such opportunity to
     the other Shareholders in writing. Upon the execution of this Agreement,
     each Shareholder shall disclose to the other Shareholders all such
     contracts or arrangements as may have been entered into by such Shareholder
     prior to the execution of this Agreement.

3.5  Each Shareholder covenants and agrees that it will not at any time during
     the term of this Agreement and for a period of two years following the
     termination of this Agreement in any manner whatsoever (including, without
     limitation, either individually or in partnership or jointly or in
     conjunction with any person or persons, firm, association, syndicate,
     company or corporation, as principal, agent, shareholder, employee,
     consultant, trustee or in any other manner whatsoever), whether directly or
     indirectly, carry on or be engaged in or establish or acquire control of
     any person, firm, corporation or other entity which operates, or advise,
     lend money to, guarantee the debts or obligations of, or permit its, his or
     her name or any part thereof to be used or employed by or associated with,
     any person or persons, firm, association, syndicate, company or corporation
     carrying on or engaged in, the business of the Company. Nothing herein
     shall prevent any Shareholder from owning, as a passive investor, less than
     five percent (5%) of any class of securities of a corporation which may be
     a competitor of the Company whose securities are trading- 1 -

on   a recognized stock exchange.

4    Restrictions on Transfer

4.1.1 Except as expressly provided in this Agreement, no Shareholder shall
     Transfer any of his right, title or interest in or to any Shares now or
     hereafter owned on record or beneficially by it without the express written
     consent of all Shareholders first being obtained.

4.1.2 Any Shareholder (including an Affiliate of any Shareholder that becomes a
     shareholder), may at any time, or from time to time, transfer all or a
     portion of his Shares, to an Affiliate of such Shareholder or in the case
     of an individual shareholder to a company controlled by such Shareholder;
     provided, however, that as a condition precedent to any transfer in
     accordance with the provisions of this section 6.2, the transferee (a
     "Permitted Transferee") shall execute and deliver an acknowledgment to the
     parties to this Agreement whereby the Permitted Transferee agrees to be
     bound by the provisions hereof as if the Permitted Transferee were an
     original party hereto. Thereupon, the Permitted Transferee shall have the
     same rights, and shall be subject to the same obligations and restrictions,
     as the transferor (the "Transferor") under this Agreement.

     Notwithstanding any transfer permitted pursuant to this section 6.2, the
     Transferor shall continue to be liable to the other party or parties to
     this Agreement for any default in performance by the Permitted Transferee
     of his obligations hereunder and the Transferor shall indemnify the other
     parties hereto against any loss, cost, damage or expense suffered or
     incurred as a result of any failure by the Permitted Transferee to comply
     with the provisions of this Agreement.

<PAGE>
4.1.3 In the event of any transfer pursuant to section 4.1.2 hereof or for the
     purposes of the provisions of Articles 4, 5 or 6 inclusive, of this
     Agreement:

4.1.4 Any notice required to be given to SII or a Permitted Transferee
     (including successive Permitted Transferees pursuant to section 4.1.2) need
     only be given to SII and Shares held by SII or any such Permitted
     Transferees shall be deemed for all such purposes to be held by SII any
     rights or obligations of SII or such Permitted Transferees shall be deemed
     to be those of SII and all actions taken by SII in connection therewith
     shall be effective and binding upon SII or all such Permitted Transferees
     as if made by them, respectively; and

4.1.5 Any notice required to be given to EB or a Permitted Transferee (including
     successive Permitted Transferees pursuant to section 4.1.2) need only be
     given to EB, any Shares held by EB or any such Permitted Transferees shall
     be deemed for all such purposes to be held by EB, any rights or obligations
     of EB or such Permitted Transferees shall be deemed to be those of EB and
     all actions taken by EB in connection therewith shall be effective and
     binding upon EB or all such Permitted Transferees as if made by them,
     respectively;

     Nothing herein contained shall restrict the ability of any Shareholder and
     his Permitted Transferees from entering into such agreements as they may
     determine to be necessary or desirable to govern, as between themselves,
     the matters arising from the operation of this Article 4 of this Agreement.

4.2  All certificates representing Shares shall bear the following legend:

     "The Shares represented by this Certificate are subject to the provisions
     of a shareholder agreement made as of the ____ day of ________, 2007 which
     contains restrictions on the right to transfer, pledge, vote and otherwise
     deal with such shares, a copy of which agreement is available for
     inspection from the Secretary of the Company. Notice of such restrictions
     and the other provisions of such agreements is hereby given."

4.2.1 The Company shall not accept for registration in its relevant books of
     record, any transfer of Shares not made in accordance with the provisions
     of this Agreement.

4.2.2 Any transfer of Shares contemplated to be made other than in accordance
     with the provisions of this Agreement shall be void and have no effect.

5    Right of First Refusal

5.1  If any Shareholder (the "Offeror") desires to transfer all but not less
     than all of the Shares owned by him (the "Offered Shares"), the Offeror
     shall first deliver a notice in writing (the "Sale Notice") to the other
     Shareholders (the "Offeree") whereby the Offeror offers to sell the Offered
     Shares to the Offeree for the price per Share, payable in cash on closing,
     set out in the Sale Notice and subject to such other terms and conditions
     as are set forth in that notice (the price, terms and conditions being
     hereinafter collectively referred to as the "Sale Terms").

5.2  The delivery by an Offeror of a Sale Notice shall be irrevocable, and if
     the Offeree delivers an Acceptance Notice within the Acceptance Period, the
     Offeror shall be bound to sell, and the Offeree shall be bound to purchase,
     the Offered Shares in accordance with the Sale Terms.

<PAGE>
5.3  If the Offeree does not accept the Sale Notice as provided in section 5.2,
     the Offeror may thereafter sell the Offered Shares to any person (a "Third
     Party") with whom the Offeror deals at arm's length as that term in defined
     in the Income Tax Act (Canada) at a price not less than the price set forth
     in the Sale Notice and on terms not more favourable to the Third Party than
     the Sale Terms except that any such third party purchaser must agree to
     enter into this Agreement at or before the time it acquires the Shares. If
     no such sale is completed by the Offeror within 120 days following the
     expiration of the Acceptance Period, the Offeror shall not complete any
     transfer of the Shares to any Third Party without again complying with the
     provisions of this Article 5.

5.4  If an Offeror proposes to sell the Offered Shares to a Third Party pursuant
     to section 5.3, the Offeror shall within 90 days following the expiry of
     the Acceptance Period, give written notice (the "Follow Up Notice") to the
     Offeree of the identity of Third Party and the price and other terms of the
     transaction. The Offeree may, not later than 5 Business Days after receipt
     of the Follow Up Notice, deliver to the Offeror, a written notice (the
     "Follow Up Demand") requiring the Third Party to acquire the Offeree's
     Shares on the same terms and conditions as the Third Party has agreed to
     acquire the Offeror's Shares. The delivery by the Offeree of a Follow Up
     Demand shall be irrevocable and shall bind the Offeree to sell all, but not
     less than all, of the Offeree's Shares (the "Follow Up Shares") to the
     Third Party. If the Offeree delivers a Follow Up Demand, then before
     completing any sale, the Offeror shall cause the Third Party, as a
     condition of acquiring the Offeror's Shares, to deliver to such Offeree a
     bona fide offer in writing (the "Follow Up Offer") to purchase from such
     Offeree the Follow Up Shares. The Follow Up Offer will be binding upon the
     Third Party and shall contain only such terms and conditions as are
     identical to those upon which the Offeror proposes to sell to the Third
     Party the Offered Shares pursuant to section 7.4. The closing date and
     other closing arrangements for the purchase and sale transaction between
     the Offeree and the Third Party shall be specified in the Follow Up Offer
     and shall be the same, mutatis mutandis, as those specified between the
     Third Party and the Offeror.

5.5  Where any Shareholder acquires, in any manner, 75% of all the outstanding
     classes of shares of the Company measured in votes and equity valuation,
     they may, within 90 days of so acquiring, deliver to all remaining
     shareholders a written notice (the "Drag Along Demand") requiring all
     remaining shareholders to sell all, but not less than all, of the Shares
     owned by each shareholders at a price not less than the highest price per
     share paid by the acquiring shareholder during the two year period ending
     on the date of the Drag Along Demand and on terms and conditions not less
     favourable to the remaining shareholders than the most favorable terms and
     conditions for each class of shares as agreed to by the acquiring
     shareholder for any acquisitions of the Company's shares during the two
     year period ending on the date of the Drag Along Demand. The delivery by
     the acquiring shareholder of a Drag Along Demand shall be irrevocable and
     shall bind all remaining shareholders to sell all, but not less than all,
     of their Company shares (the "Drag Along Shares") to the acquiring
     shareholder. The closing date and other closing arrangements for the
     purchase and sale transaction between the remaining shareholders and the
     acquiring shareholder shall be specified in the Drag Along Demand.

5.6  Where any of the Shareholders is a body corporate (the "Holding Company"),
     a change in control of the Holding Company shall be deemed to be a transfer
     of the Shares owned by that Shareholder and the provisions of this
     Agreement applicable to a transfer of any Shares shall apply to such
     transfer.

6    Bankruptcy

6.1  In the event of the bankruptcy of any Shareholder (the "Defunct
     Shareholder"), the other Shareholders (the "Active Shareholders") shall
     have the right, but not the obligation, exercisable at any time during the
     period of 6 months following the date on which the Defunct Shareholder
     becomes bankrupt to purchase all the Shares owned, directly or indirectly,
     by the Defunct Shareholder or over which any such Defunct Shareholder
     exercises control or direction, by delivery of notice to the Defunct
     Shareholder within such 6 month period, for a purchase price equal to 100%
     of the Fair Market Value of the Defunct Shareholder's Shares, (which notice
     shall state the time and place of the closing, such time not to be more
     than 60 days from the date of the notice). The Active Shareholders shall be
     entitled to purchase the Defunct Shareholder's Shares in proportion to
     their respective ownership of Shares, or in such other proportion as they
     may agree.

<PAGE>
7    Death of a Shareholder

7.1  The following definitions shall apply to this section:

7.1.1 "Deceased" means the individual Shareholder who has died;

7.1.2 "Deceased's Shares" means all the Shares at the time of the Deceased's
     Death beneficially owned by the Deceased or by a body corporate controlled
     by the Deceased (the "Deceased's Holding Company");

7.1.3 "Deceased's Spouse" means the legal or common-law spouse of the Deceased
     at the time of the Deceased's death;

7.1.4 "Personal Representative" means such one or more persons as are the
     executors, administrators or representatives of the estate of the Deceased
     acting in such capacity;

7.1.5 "Prescribed Consideration" in respect of Shares means an amount in lawful
     money of Canada equal to the Fair Market Value thereof as determined in
     accordance with this Agreement; and

7.1.6 "Survivor" means the individual Shareholder other than the Deceased;

7.2  Subject to the provisions hereinafter contained, upon the death of the
     Deceased, the Survivor shall have the right to purchase the Deceased's
     Shares as hereinafter set out.

7.3  The right referred to in paragraph 7.2 may be exercised by the Survivor
     giving notice in writing to the Personal Representative and the Company on
     or before the date 120 days following the death of the Deceased.

7.4  Within Thirty (30) days of the exercise of a right referred to in paragraph
     7.2, the Survivor shall purchase, and the Personal Representative shall
     sell, transfer, assign and otherwise convey to the Survivor, the Deceased's
     Shares for a purchase price equal to the Prescribed Consideration thereof.
     The Survivor shall, at the time of purchase of the Deceased's Shares, pay
     to the Personal Representative the amount of at least 25% of the Prescribed
     Consideration and shall give a non-interest bearing promissory note to the
     Personal Representative in an amount equal to the remainder of the purchase
     price of the Deceased's Shares (the "Remaining Balance"). Such promissory
     note shall be due and payable to the extent of one third of the Remaining
     Balance on the next three anniversary dates of the delivery of the
     promissory note. Upon receipt of such promissory note, the Personal
     Representative shall immediately cause the respective Deceased's Shares to
     be transferred to the Survivor.

7.5  Upon the death of the Deceased, the Company shall, immediately following
     purchase of the Deceased's Shares as aforesaid, should such a right be
     exercised, repay to the Personal Representative the amount of any unpaid
     loans or other indebtedness owing to the Deceased and/or the Deceased's
     Holding Company by the Company.

7.6  If a Shareholder shall become missing, such Shareholder shall be deemed to
     be conclusively presumed dead upon being missing for one (1) full year.

7.7  In the event no executor or administrator is appointed as the Personal
     Representative within Ninety (90) days after his death, the Survivor shall
     be considered a creditor of the estate of the Deceased with all the rights
     conferred upon a creditor of the estate of the Deceased by the place of his
     domicile, including, without limitation, the right to cause an executor or
     administrator to be appointed, provided such right shall be recognized by
     applicable law. Upon such appointment of an executor or administrator, the
     Survivor's rights pursuant to this Agreement shall again take effect.

<PAGE>
7.8  For greater certainty, any reference to any action by a Personal
     Representative shall include such action on behalf of the Deceased and also
     on behalf of the Deceased's Holding Company, as appropriate.

8    Determination of Fair Market Value

8.1  For the purposes of this Agreement, "Fair Market Value" means the fair
     market value of all of the Shares as the case may be determined without
     reference to a minority discount or control block premium as determined by
     agreement of the relevant parties, or, in the absence of such agreement, as
     determined by the Valuator or arbitration in accordance with the subsequent
     provisions of this Article 8.

8.2  If the Shareholders who will be party to the purchase and sale are unable
     to agree on the Fair Market Value of the Shares within 30 days from the
     date of receipt by the other Shareholders of a request in writing from a
     Shareholder to determine this value, any party may deliver to the other
     Shareholders a notice setting forth a list of three firms with substantial
     experience in business valuation in Nova Scotia, each of which shall be a
     firm which is either a nationally recognized Canadian chartered accountant
     firm, an investment dealer carrying on business in one of the provinces of
     Canada or a firm specializing in business valuation and in each case
     specifying the particular individual within such firm to have
     responsibility for the determination of the Fair Market Value of the
     Shares. The Shareholders acting reasonably shall then attempt to identify
     one of the firms on the list as the valuator for the purposes of
     determining Fair Market Value in accordance with this Article within 10
     days from the date of receiving the list of valuators from the selecting
     Shareholder, failing which any party may thereafter apply to a judge of the
     Supreme Court of Nova Scotia to select a valuator. The firm identified as
     the firm selected in accordance with the foregoing shall be referred to as
     the "Valuator".

8.3  The Shareholders shall jointly retain the Valuator to determine the Fair
     Market Value, as at the date that the relevant notice was given or relevant
     event occurred (the "Relevant Date") of all of the issued and outstanding
     Shares, applying such principles of valuation as the Valuator considers
     appropriate in the circumstances.

8.4  The Valuator, in its discretion, may engage the services of such
     professional valuators or appraisers as the Valuator considers necessary or
     desirable. Each Shareholder agrees to fully cooperate with the Valuator in
     the determination of the Fair Market Value. If the Valuator specifies a
     range of values for the Fair Market Value, the Fair Market Value shall be
     the midpoint of the range.

8.5  The parties agree to provide the Valuator with such information as it may
     require to proceed with the valuation with all reasonable dispatch so as to
     provide a prompt and timely decision. The closing date with respect to any
     such transfer shall be 30 days after the date upon which the Valuator
     provides the parties a written decision on the valuation.

8.6  All fees, disbursements and other costs and expenses of the Valuator shall
     be equally divided between the Shareholders participating in the
     transaction of purchase and sale.

8.7  If any of the Shareholders disagrees with the determination of Fair Market
     Value made by the valuator in accordance with section 10.5, such
     Shareholder may submit the matter to arbitration in accordance with the
     provisions of Article 10.

9    General Sale Provisions

9.1  Except as may otherwise be provided in this Agreement, or unless
     specifically waived in writing by the selling Shareholder, the provisions
     of this Article shall apply to any sale of the Shares notwithstanding
     anything herein or in any agreement referred to in Articles 4, 5, 6 and 7
     to the contrary. Unless otherwise specified, the place of the closing will
     be the registered office of the Company and the time of closing will be
     2:00 p.m. local time.

9.2  At the time of closing, the vendor, or vendors, as the case may be,
     (hereinafter in this Article 11 referred to as the "Vendor") of the Shares
     (the "Purchased Shares") shall:

<PAGE>
9.2.1 Deliver to the Company, respectively, signed resignations of the Vendor
      or its nominees, as a director, officer and employee of the Company,
      respectively, as the case may be;

9.2.2 Deliver to the purchaser thereof (the "Purchaser") the certificates
      representing the Purchased Shares duly endorsed for transfer to the
      Purchaser together with a representation and warranty of the Vendor
      that the Vendor legally and beneficially owns the Purchased Shares with
      good and marketable title thereto free and clear of all encumbrances
      and claims of any kind;

9.2.3 Deliver to the Purchaser all such assignments and transfers or other
      documents to transfer to the Purchaser all indebtedness and any
      security therefor owed by the Company, to the Vendor or any party
      related to the Vendor (the Purchased Loans"), free and clear of all
      encumbrances and claims of any kind or to otherwise comply with the
      terms or intent of this Agreement (each of which shall be in form and
      content satisfactory to the Purchaser);

9.2.4 Do all other things required in order to deliver good and marketable
      title to the Purchased Shares and Purchased Loans to the Purchaser free
      and clear of any claims, liens and encumbrances whatsoever, including
      without limitation, the delivery of any governmental releases and
      declarations of transmission;

9.2.5 Provide the Purchaser with evidence reasonably satisfactory to the
      Purchaser that the Vendor is not then a "non-resident" of Canada within
      the meaning of the Income Tax Act (Canada);

9.2.6 Pay to the Company the amount of all indebtedness of the Vendor to the
      Company.

9.3  At the time of closing, the Purchaser shall deliver to the Vendor:

9.3.1 A release of any guarantee, security or covenant provided by the
      Vendor, or any person acting on that Shareholder's behalf, in respect
      of any obligation of the Company, respectively; and

9.3.2 Cash, a bank draft or certified cheque in the amount of the purchase
      price of the Purchased Shares, plus an amount equal to the amount of
      the Purchased Loans.

9.4  In addition, at the time of closing the Vendor and the Company shall, and
     the Vendor shall cause its Related Parties, if applicable, to take all
     necessary action to terminate, and release the Vendor, its Related Parties
     and the Company from, the terms of any management, consulting or employment
     agreement or like agreement between either the Company, the Vendor or any
     Related Party of the Vendor, except for any provisions of any such
     agreement that are intended to prohibit the Vendor or any Related Party
     from competing with the Company following the term of such agreement or are
     otherwise expressed to survive the sale by the Vendor of its Shares in the
     Company.

9.5  If the Vendor is not present at the place of closing at the time of
     closing, or is present but fails for any reason whatsoever to comply with
     the provisions of this Agreement, the Vendor irrevocably constitutes and
     appoints the Purchaser, with full power of substitution, as his true and
     lawful attorney in fact, and as agent for, in the name of and on behalf of
     the Vendor, to execute and deliver in the name of the Vendor, all such
     assignments, transfers, deeds and instruments as may be necessary to
     effectively transfer and assign to the Purchaser or its nominee or nominees
     on the books of the Company, the Purchased Shares and Purchased Loans. Such
     appointment and power of attorney, being coupled with an interest, shall
     not be revoked by the insolvency, bankruptcy, or incapacity of the Vendor,
     and the Vendor hereby ratifies and confirms and agrees to ratify and
     confirm all that the Purchaser may lawfully do or cause to be done by
     virtue of the provisions of this section 11.5.

<PAGE>
9.6  If, at the time of closing, the Vendor fails to complete the subject
     transaction as herein provided, the Purchaser shall have the right, if not
     in default under this Agreement, without prejudice to any other rights
     which he may have, upon payment of the amount payable to the Vendor at the
     time of closing (for greater certainty, after deducting the amount of any
     adjustments or set offs contemplated hereunder) to purchase in the name of
     the Vendor at the main branch of the Company's bankers from time to time, a
     term deposit in an amount equal to the amounts payable to the Vendor
     pursuant to the terms of this Agreement, for such term as the Purchaser in
     his discretion deems advisable. The Purchaser may instruct the lending
     institution to communicate with the Vendor at the address for the Vendor
     herein provided, and to continue to renew the term deposit for similar
     terms unless otherwise instructed by the Vendor. Upon making such
     arrangements the Vendor shall cease to be a Shareholder of the Company and
     its sole remedy with respect to the Purchased Shares and the Purchased
     Loans shall be to collect the amount of the term deposit as herein
     provided.

10   Arbitration

10.1  Any dispute, controversy or claim arising out of or relating to this
      Agreement, or the breach, termination or invalidity of this Agreement,
      shall be settled by arbitration before an arbitrator acceptable to each of
      the Shareholders in accordance with the Commercial Arbitration Act (Nova
      Scotia). If the Shareholders are unable to agree on an arbitrator, each of
      EB and SII shall appoint an arbitrator which arbitrators shall in turn
      appoint a third arbitrator to chair the panel. The decision of the
      arbitrator or arbitrators shall be final and binding upon the parties
      hereto. Each of the parties to the arbitration shall bear their respective
      costs of the arbitration. The arbitrator or arbitrators shall have the
      discretion to determine which of the parties to the arbitration, if any,
      shall pay the costs of the arbitrator or arbitrators and the proportion
      thereof.

10.2  The place of arbitration shall be Halifax, Nova Scotia, unless the parties
      to the dispute mutually agree upon another location.

10.3 Time shall be of the essence in any arbitration proceeding.

11   General

11.1  This Agreement shall come into force and effect as of and from the date
      hereof and shall continue in force until the earliest of:

     The date upon which one Shareholder shall have acquired all of the
     outstanding Shares; or

     the date upon which this Agreement is terminated by written agreement among
     all of the parties hereto.

11.2  Any notice or other document required or permitted to be given to any
      party hereunder shall be validly given if delivered personally (including
      by courier service) or mail by prepaid registered mail, return receipt
      requested, or sent by facsimile transmittal addressed to the addressee
      thereof at the following respective addresses:

11.2.1            If to SII , at:

                  238A Brownlow Avenue, Suite 100
                  Dartmouth, Nova Scotia B3B 2B4

11.2.2            If to EB, at:

                  Box 629 780 Central Avenue
                  Greenwood  NS  B0P 1N0

11.2.3            If to the Company, at:

                  238A Brownlow Avenue, Suite 100
                  Dartmouth, Nova Scotia B3B 2B4
                  Attention: Mr. J. William Clements, President
                  Fax: (902) 481-7224

<PAGE>
11.3  Any notice or other document so mailed shall be deemed to have been
      received by and given to the addressee on the fourth Business Day
      following the date of mailing; if delivered, shall be deemed to have been
      received by and given to the addressee on the date of delivery; and if
      given by facsimile transmittal, shall be deemed to have been received by
      and given to the addressee on the next Business Day following the day of
      sending. Any party may at any time given notice in writing to the others
      of any change of address for these purposes. In the event of any actual or
      threatened postal interruption in Canada, no such notice shall be deemed
      to have been received until it has in fact been received by the party for
      whom it is intended.

11.3.1 Each of the parties shall from time to time execute and deliver all
       such further documents and instruments and do or cause to be done all
       such acts and things as any party may reasonably consider necessary to
       carry out effectively or better evidence or perfect the full intent and
       meaning of this Agreement, including the exercise of their respective
       votes as Shareholders in connection with any amendment which may be
       required to the Articles or By-Laws of the Company.

11.3.2 This Agreement may be executed in any number of counterparts by one or
       more of the parties to be bound hereby. Each executed counterpart shall
       be deemed to be an original and such counterparts shall together
       constitute one and the same agreement and shall be as valid and binding
       as if all parties had attended at the same place and at the same time
       and affixed their signatures to one instrument.

11.4  For all purposes of this Agreement and other documents and agreements
      contemplated hereby, the signature of any party hereto or thereto,
      evidenced by a telecopy showing such signature or other electronically
      transmitted version of such signature, shall constitute conclusive proof
      for all purposes of the signature of such person to such documents and
      agreements, to the same extent in all respects as a copy of such documents
      and agreements showing the original signature of such party. Any party
      delivering a document with such electronically reproduced signature shall
      provide a copy bearing original signature as soon as reasonably possible
      thereafter.

11.5  The performance of the obligations of EB pursuant to this Agreement is
      personally guaranteed by Mr. Ed Reagh.

11.6  Time shall be of the essence of this Agreement and every part thereof.

11.7  This Agreement may only be amended or altered in any of its provisions by
      the mutual agreement of the parties hereto, such amendments or alterations
      to become effective when reduced to writing and signed by all the parties
      hereto.

11.10 This Agreement expresses the final agreement between the parties hereto
     with respect to all matters herein and its execution has not been induced,
     nor do any of the parties hereto rely upon or regard as material, any
     representations or promises whatsoever not incorporated herein or made a
     part hereof, and any alteration, amendment or qualification thereof shall
     be null and void and shall not be binding upon any such party unless made
     and recorded as aforesaid.

11.11 Except as expressly otherwise provided in this Agreement, this Agreement
     may not be assigned by a party without the written consent of the other
     parties and shall enure to the benefit of and be binding upon the parties
     and their respective successors, heirs, executors, administrators, personal
     representatives and permitted assigns.

11.12 The Company joins in this Agreement for the purpose of acknowledging the
     existence of this Agreement and covenants to fulfill any obligations set
     out herein as being an obligation of the Company.

<PAGE>

11.13 Notwithstanding section 11.1, this agreement shall terminate 90 days after
     its effective date, provided however, that if 66 2/3% of all the
     shareholders of the company (measured by voting rights and equity
     valuation) become a party to this agreement or a substantially similar
     agreement (a declaration by the contracting parties, contained in an
     agreement, is conclusive evidence that the agreement is substantially
     similar) then this agreement will terminate as provided in Section 11.1. If
     any party to this agreement is or becomes bankrupt or insolvent during the
     90 day period in the preceding sentence, then the reference to 90 days
     shall be struck and 120 days inserted.

IN WITNESS WHEREOF the parties have properly executed this Agreement.

SIGNED SEALED AND DELIVERED                      )   EB HOLDINGS INC.
in the presence of                               )
                                                 )
                                                 ) By: /s/ Ed Reagh
/s/ Denise Daigle
Witness                                          )
                                                 )
                                                 )
                                                 ) LOGICAL SEQUENCE
                                                     INCORPORATED.
                                                 )
                                                 )
                                                 )
                                                 ) By: /s/ Ed McNamara
/s/ Jim MacKinnon
Witness                                          )
                                                 )
                                                 )
                                                 )

                                                 )
                                                 )     SHANNON
                                                   INTERNATIONAL INC.
                                                 )
                                                 )

                                                 ) By: /s/ J. William Clements
/s/ Petro Sukhin                                 )
Witness                                          )
                                                 )
                                                 )
                                                 ) And:

Witness                                          )
                                                 ) By: /s/ Dennis Brovarone

<PAGE>

                   DATED     February 13, 2007

                   AMONG:

                             SHANNON INTERNATIONAL INC.

                                                        OF THE FIRST PART

                             - and -

                             EB HOLDINGS LIMITED

                                                        OF THE SECOND PART

                             - and -

                             LOGICAL SEQUENCE INCORPORATED

                                                        OF THE THIRD PART

                                           SHAREHOLDERS' AGREEMENT

<PAGE>

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