Exhibit
10.3
SECURITY
AGREEMENT
SECURITY
AGREEMENT (the “Agreement”) made December 27, 2005 by
and between VeriChip Corporation, a Delaware corporation with a
principal place of business at 1690 South Congress Avenue, Suite
200, Delray Beach, Florida 33445 (the “Debtor”), and
Applied Digital Solutions, Inc., a Missouri corporation located at
1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445
(the “Secured Party”).
WITNESSETH:
WHEREAS,
pursuant to a Commercial Loan Agreement of even date (the
“Loan Agreement”), Secured Party has granted to Debtor
Eight Million Five Hundred Thousand Dollars ($8,500,000.00) in a
Working Capital Revolving Line of Credit (the “Loan”);
and
WHEREAS, the
obligation of the Secured Party to make the Loan to the Debtor is
subject to the condition, among others, that the Debtor shall
execute and deliver this Agreement and grant the security interests
hereinafter described. Terms not otherwise defined herein shall
have the meanings ascribed to them in the Loan
Agreement.
NOW, THEREFORE,
in consideration of the willingness of the Secured Party to make
the Loan to the Debtor and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Security
Interest . As security for the Secured Obligations described in
Section 2 hereof, the Debtor hereby grants to the Secured Party a
first priority security interest in and lien on all of the property
described below (hereinafter referred to collectively as the
“Collateral”):
a. All equipment, including machinery, motor
vehicles, office equipment, furniture, fixtures, along with all
other parts, tools, trade-ins, repairs, accessories, accessions,
modifications and replacements, whether now owned or subsequently
acquired, constructed or attached or added to or placed in, the
foregoing (collectively, the “Equipment”);
b. All inventory, wherever located, including
goods, merchandise and other personal property, held for sale or
lease or furnished or to be furnished under a contract of service,
or constituting raw materials, work in process or materials used or
consumed in the Debtor’s business, or consigned to others or
held by others for return to the Debtor, whether now owned or
subsequently acquired or manufactured and wherever located
(collectively, the “Inventory”);
c. All accounts receivable, including, without
limitation, accounts, contracts, contract rights, chattel paper,
instruments, rents, deposits, general intangibles and any other
obligations of any kind, whether now existing or hereafter arising
out of or in connection, with the sale or lease of goods or the
rendering of services and all rights now or hereafter existing in
and to all security agreements, notes, leases, licenses,
franchises, supply agreements and other contracts securing or
otherwise relating to any such accounts, contracts, contract
rights, chattel paper, instruments, rents, deposits, general
intangibles or obligations (any and all such accounts, contracts,
contract rights, chattel paper, instruments, rents, deposits,
general intangibles and obligations being the
“Receivables” and any and all such security agreements,
notes, leases, licenses, franchises, supply agreements and other
contracts being the “Related Contracts”);
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d. All general intangibles, including, but not
limited to, corporate names, trade names, trademarks, trade
secrets, books and records, customer lists, blue prints and plans,
computer programs, tapes and related electronic data, processing
software and all corporate ledgers;
e. Any and all additions, accessions,
substitutions or replacements to or for any of the
foregoing;
f. Any and all products and proceeds of any or
all of the foregoing, including, without limitation, cash, cash
equivalents, tax refunds and the proceeds of insurance policies
providing coverage against the loss or destruction of or damage to
any of the Collateral, or any indemnity, warranty or guarantee
payable by reason of loss or damage to or otherwise with respect to
any of the Collateral (whether or not the Secured Party is the loss
payee thereof);
g. All of the Debtor’s after-acquired
property of the kinds and types described in paragraphs (a) - (f)
herein;
h. All records and data relating to any of the
property described above, whether in the form of a writing,
photograph, microfilm, microfiche or electronic media, together
with all of the Debtor’s right, title and interest in and to
all computer software required to utilize, create, maintain and
process any of such records or data or electronic media; and also
in (i) all checks, money, securities, bank accounts, deposit
accounts and other accounts in the possession of or held by the
Secured Party whether in the name of the Debtor or in the name of
the Secured Party, and (ii) all other property given by the Debtor
to the Secured Party pursuant to this agreement. The property
described in (i) and (ii) above are held in the possession of the
Secured Party by agreement of Debtor and Secured Party. All of the
said Collateral (which throughout this Agreement includes
after-acquired Collateral) is to secure the payment and performance
of all of the Secured Obligations.
2. Secured
Obligations . The security interest hereby granted shall secure
the following (the “Secured Obligations”):
a. The Debtor’s repayment of the principal
amount of the Loan, together with interest, late charges and any
other applicable charges to the Secured Party pursuant to the
Loan;
b. The Debtor’s payment or performance of
its obligations under the Loan Agreement and under the other Loan
Documents (as defined, described and identified in the Loan
Agreement, hereinafter the “Loan Documents”), as the
same may be amended, modified, extended, renewed, replaced or
restated; and
c. The payment of all other sums with interest
and charges thereon advanced in accordance herewith to protect the
validity, security and priority of this Agreement, the Loan
Agreement or the Loan Documents.
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3.
Warranties and Representations of the Debtor . Debtor hereby
makes the following representations and warranties that shall
survive the execution and delivery of this Agreement and shall be
continuing representations and warranties as long as any Secured
Obligations remains outstanding:
a. All representations and warranties made in
the Loan Agreement and the Loan Documents relating to the Debtor
and the Collateral are true, accurate and complete in all material
respects;
b. The Debtor’s principal place of
business is located at 1690 South Congress Avenue, Suite 200,
Delray Beach, Florida; the Debtor’s executive offices and the
office where its books and records are kept and are to be kept
concerning the Receivables, Related Contracts, and other Collateral
are at the aforesaid address; and the Debtor has no other places of
business except those set forth on Schedule I hereto;
c. The Debtor conducts business only under and
through the business and trade name “VeriChip
Corporation.”
d. No material authorization, approval or other
action by, and no notice to or filing with, any governmental
authority or other person is required either (i) for the grant by
the Debtor of the security interests granted hereby or for the
execution, delivery or performance of this Agreement by the Debtor,
or (ii) for the perfection of or the remedies hereunder, except the
filing of financing statements;
e. The Debtor has good and marketable title to
all of the Collateral pledged by it hereunder, free and clear of
any liens, security interests, encumbrances or interests or claims
of any other person or entity, except those set forth on Schedule
II hereto and there are no sums owed with respect to the
Collateral.
f. Upon the filing of UCC-1 financing statements
being delivered at or prior to the execution hereof, the Secured
Party will have a valid, perfected first security interest in all
of the Collateral;
g. The Debtor has not performed any acts which
might prevent the Secured Party from enforcing any of the material
terms and conditions of this Agreement or which would limit any of
them in any such enforcement;
h. Schedule III attached hereto sets forth the
description and location of all Collateral not located at the
Debtor’s principal place of business, together with a list of
the record owners of and record holders of liens against the real
estate on which such Collateral is located; and
i. No effective financing statements or other
similar instrument in effect covering all or any part of the
Collateral is on file in any recording office, except as may have
been filed in favor of Secured Party relating to this
Agreement.
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4.
Affirmative Covenants of the Debtor .
a. The Debtor shall promptly notify and provide
the Secured Party with a complete description of the opening of any
new places of business, the closing of any existing places of
business, the conduct of business under any names or through any
entities other than those set forth herein, the relocation of any
of the Collateral to any new place of business or any other act
which would affect the financing statements filed by the Secured
Party;
b. The Debtor shall continuously take all steps
that are necessary or prudent to protect the security interests of
the Secured Party in the Collateral;
c. The Debtor shall defend the Collateral
against the claims and demands of all persons;
d. The Debtor shall deliver and pledge to the
Secured Party, endorsed or accompanied by instruments of assignment
or transfer satisfactory to the Secured Party, any Instruments,
documents and chattel paper which the Secured Party may reasonably
specify;
e. The Debtor shall comply, in all material
respects, with all governmental regulations applicable to the
Collateral or any part thereof or to the operation of the
Debtor’s business; provided, however, that the Debtor may
contest any governmental regulation in any reasonable manner which
shall not, in the reasonable opinion of the Secured Party,
adversely affect the Secured Party’s rights or the first
priority of its security interest in the Collateral;
f. The Debtor shall pay promptly when due, all
taxes, assessments and governmental charges or levies imposed upon
the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind, except that no such charge need be
paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve
any danger of the sale, forfeiture or loss of any of the Collateral
or any interest therein; and (iii) such charge is adequately
reserved against in accordance with the generally accepted
accounting principles;
g. The Debtor shall cause the Equipment to be
maintained and preserved in the same condition, repair and working
order as when new and shall make all repairs, replacements,
additions and other improvements necessary to maintain the
Equipment in such good condition;
h. The Debtor shall maintain Inventory
sufficient to meet the needs of its business;
i. The Debtor shall preserve all beneficial
Related Contracts;
j. The Debtor shall take all commercially
reasonable steps necessary to collect the Receivables;
k. The Debtor shall assure that (i) no
Receivable is or shall be subject to any defense, offset,
counterclaim, discount or allowance, (ii) no agreement under which
any deduction, discount, credit or allowance of any kind may be
granted or allowed shall have been or shall thereafter be made by
Debtor with any account party without the consent of Secured Party,
(iii) all statements
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made and all
unpaid balances appearing in the invoices, documents and agreements
relating to each Receivable are and shall be true, genuine, and
correct in all respects, and (iv) no Receivable shall be converted
to a note or other instrument unless the same shall be delivered to
the possession of the Secured Party within ten (10) days of the
date of execution of such note or instrument;
l. The Debtor shall, with respect to any
Collateral which consists of trucks, automobiles or other motor
vehicles, or any other Collateral required to be titled, deliver
all titles thereto to the Secured Party to be held by the Secured
Party and shall make, execute and deliver any and all applications,
and take such other action to assure that the Secured Party is
listed of record as a lienholder on all title
certificates;
m. Debtor shall keep accurate and complete
records listing and describing the Collateral and, when requested
by Secured Party, Debtor shall give Secured Party a certificate
listing and describing the Collateral and setting forth the total
value of the Inventory, the total value of the Equipment, the
amount of the Receivables designating how many dates the
Receivables are from the date of invoice, the face value of any
instruments, and any other information Secured Party may request.
Upon reasonable notice, Secured Party shall have the right at any
time to inspect the Collateral and to audit and make copies of any
records or other writings that relate to the Collateral or the
general financial condition of Debtor. Bank shall use its best
efforts to commence such inspections during reasonable business
hours. Secured Party may remove such records and writings for the
purpose of having copies made thereof;
n. The Debtor shall advise the Secured Party
promptly, in reasonable
