Filed by Bowne Pure Compliance





EXHIBIT 10.1




STOCK PURCHASE AGREEMENT




by and between




Sterling Hallmark, Inc.

(“Purchaser”)




and




Digital Angel Corporation

(“Seller”)




July 10, 2008



 


 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	1.
	 	PURCHASE AND SALE OF THE SHARES	 	 	1	 
	 
	 	 	 	 	 	 
	2.
	 	CONSIDERATION	 	 	1	 
	2.1
	 	Purchase Price	 	 	1	 
	 
	 	 	 	 	 	 
	3.
	 	CLOSING	 	 	1	 
	3.1
	 	Closing	 	 	1	 
	 
	 	 	 	 	 	 
	4.
	 	TAXES AND PREPAID ITEMS	 	 	2	 
	 
	 	 	 	 	 	 
	5.
	 	REPRESENTATIONS AND WARRANTIES OF SELLER	 	 	2	 
	5.1
	 	Organization and Corporate Power	 	 	2	 
	5.2
	 	Due Authorization; Effect of Transaction	 	 	2	 
	5.3
	 	Financial Statements	 	 	2	 
	5.4
	 	Accounts Receivable	 	 	3	 
	5.5
	 	Liabilities	 	 	3	 
	5.6
	 	Capitalization	 	 	3	 
	5.7
	 	Dividends and Distributions	 	 	3	 
	5.8
	 	Subsidiaries	 	 	3	 
	5.9
	 	Real Property	 	 	4	 
	5.10
	 	Leases	 	 	4	 
	5.11
	 	Personal Properties	 	 	4	 
	5.12
	 	Employment Arrangements	 	 	4	 
	5.13
	 	Material Contracts and Arrangements	 	 	5	 
	5.14
	 	Ordinary Course of Business	 	 	5	 
	5.15
	 	Litigation and Compliance with Laws	 	 	6	 
	5.16
	 	Tax Returns	 	 	6	 
	5.17
	 	Environmental Matters	 	 	7	 
	5.18
	 	Trademarks, Licenses, Etc	 	 	7	 
	5.19
	 	Insurance Policies	 	 	8	 
	5.20
	 	Extraordinary Events	 	 	8	 
	5.21
	 	Adverse Restrictions	 	 	8	 
	5.22
	 	Material Information	 	 	8	 
	5.23
	 	Omitted	 	 	9	 
	5.24
	 	Certain Transactions	 	 	9	 
	5.25
	 	No Governmental Authorizations or Approvals Required	 	 	9	 
	5.26
	 	Employee Benefit Plans	 	 	9	 
	5.27
	 	Continuing Representations	 	 	10	 
	 
	 	 	 	 	 	 
	6.
	 	REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF PURCHASER	 	 	10	 





 


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	6.1
	 	Organizational and Corporate Power	 	 	10	 
	6.2
	 	Due Authorization: Effect of Transaction	 	 	10	 
	6.3
	 	Sufficient Funds	 	 	11	 
	6.4
	 	Continuing Representation	 	 	11	 
	 
	 	 	 	 	 	 
	7.
	 	COVENANTS AND AGREEMENTS	 	 	11	 
	7.1
	 	Seller's Covenants and Agreements Pending Closing	 	 	11	 
	 
	 	 	 	 	 	 
	8.
	 	CONDITIONS OF PURCHASER'S OBLIGATIONS	 	 	12	 
	8.1
	 	Opinion of Seller's Counsel	 	 	12	 
	8.2
	 	No Opposition	 	 	12	 
	8.3
	 	Noncompetition Agreement	 	 	13	 
	8.4
	 	Permits, Etc.	 	 	13	 
	8.5
	 	Insurance	 	 	13	 
	8.6
	 	Representations and Covenants	 	 	13	 
	8.7
	 	Satisfaction of Counsel	 	 	13	 
	8.8
	 	Instruments of Transfer	 	 	13	 
	8.9
	 	Taxes	 	 	13	 
	8.10
	 	Verizon Settlement	 	 	14	 
	8.11
	 	Intercompany Loans	 	 	14	 
	8.12
	 	Diligence	 	 	14	 
	8.13
	 	Releases	 	 	14	 
	8.14
	 	Consents	 	 	14	 
	8.15
	 	Terminations	 	 	15	 
	 
	 	 	 	 	 	 
	9.
	 	CONDITIONS OF SELLER'S OBLIGATIONS	 	 	15	 
	9.1
	 	Representations and Covenants	 	 	15	 
	9.2
	 	No Opposition	 	 	15	 
	9.3
	 	Noncompetition Agreement	 	 	15	 
	9.4
	 	Consent	 	 	15	 
	9.5
	 	Verizon	 	 	15	 
	 
	 	 	 	 	 	 
	10.
	 	INDEMNIFICATION	 	 	15	 
	10.1
	 	Indemnification by Seller	 	 	15	 
	10.2
	 	Indemnification by Purchaser	 	 	16	 
	10.3
	 	Notice of Claim	 	 	16	 
	10.4
	 	Set-Off or Reimbursement	 	 	17	 
	10.5
	 	Limitations	 	 	17	 
	11.
	 	OMITTED	 	 	17	 
	12.
	 	BROKERAGE FEE	 	 	17	 
	13.
	 	AMENDMENTS; WAIVERS	 	 	18	 
	14.
	 	ASSIGNMENT; SUCCESSORS AND ASSIGNS	 	 	18	 





 


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	15.
	 	SEVERABILITY	 	 	18	 
	16.
	 	COUNTERPARTS	 	 	19	 
	17.
	 	SECTION AND OTHER HEADINGS	 	 	19	 
	18.
	 	NOTICES	 	 	19	 
	19.
	 	GENDER	 	 	20	 
	20.
	 	LAW TO GOVERN	 	 	20	 
	21.
	 	COURTS	 	 	20	 
	22.
	 	ATTORNEYS FEES	 	 	20	 






EXHIBITS




A INTENTIONALLY OMITTED

B ENVIRONMENTAL DEFINITIONS

C OPINION OF COUNSEL

D NONCOMPETITION AGREEMENT

E VERIZON SETTLEMENT DOCUMENTS

F PROMISSORY NOTE

G SECURITY AGREEMENT



 


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STOCK PURCHASE AGREEMENT




THIS STOCK PURCHASE AGREEMENT (this “Agreement”), entered into this 10th
day of July, 2008, by and between Sterling Hallmark, Inc., a California corporation
(“Purchaser”), and Digital Angel Corporation, dba Digital Angel, a Delaware corporation
(“Seller”).



W I T N E S S E T H T H A T:




WHEREAS, Purchaser desires to purchase and Seller desires to sell and convey to Purchaser all
of the issued and outstanding stock of Computer Equity Corporation, a Delaware corporation (“CEC”)
consisting of one hundred shares of $.001 par value common stock (the “Shares”) upon the terms and
subject to the conditions set forth herein;



WHEREAS, Government Telecommunications, Inc., a Virginia corporation (“GTI”), is a
wholly owned subsidiary CEC; and



NOW, THEREFORE, in consideration of the agreements of the parties hereto, and intending to be
legally bound hereby, the parties hereto agree as follows:



1. PURCHASE AND SALE OF THE SHARES.



Subject to the terms and conditions of this Agreement and in reliance upon the representations
and warranties of the parties set forth herein, the Seller hereby agrees to sell to Purchaser, and
Purchaser hereby agrees to purchase from the Seller, the Shares on the Closing Date (as defined in
Section 3) for the consideration set forth in Section 2.



2. CONSIDERATION.



2.1 Purchase Price. The purchase price shall be Six Hundred Thousand Dollars
($600,000) (the “Purchase Price”). The Purchase Price shall be payable as follows:




(a) At the Closing, Purchaser shall tender to Seller the sum of $400,000.00 in cash.



(b) The balance of the Purchase Price of $200,000 shall be payable according to a promissory
note (the “Promissory Note”) executed by Purchaser in the form attached hereto as Exhibit F.



(c) Contemporaneous with Closing, Purchaser shall, as security for Purchaser’s payment
obligations arising under the Promissory Note, execute a security agreement, a copy of which is
attached hereto as Exhibit G, pledging the Shares being acquired hereunder as collateral.



2.2 Intentionally Omitted.


 


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3. CLOSING.



3.1 Closing. The closing of the sale and purchase (the “Closing”) shall take
place at the offices of Weintraub Law Group PC, 12687 Carroll Canyon Road, Suite 230, San Diego, CA
92131, at 10:00 a.m. on July 10, 2008, or at such other time and place as may be mutually agreed
upon (the “Closing Date”).



4. TAXES AND PREPAID ITEMS.



Except as otherwise provided herein, Seller will pay all sales, use, franchise, and other
taxes and charges, including, without limitation, ad valorem, or other taxes on any real estate
owned by CEC and GTI, which may become payable in connection with the sale of the Shares pursuant
to the terms of this Agreement, and any and all other taxes and charges accruing out of the
operation of CEC or GTI’s businesses prior to the Closing Date.



5. REPRESENTATIONS AND WARRANTIES OF SELLER.




Seller represents, warrants, covenants and agrees that:



5.1 Organization and Corporate Power. Seller, CEC and GTI are corporations duly
organized, validly existing, and in good standing under the laws of their jurisdictions of
incorporation and is duly qualified and in good standing as foreign corporations in each other
jurisdiction in which it owns or leases properties, conducts operations, or maintains a stock of
goods, with full power and authority (corporate and other) to carry on the business in which it is
engaged (a true and correct list of each such jurisdiction is set forth in Schedule 5.1 of
the Disclosure Schedule) except where the failure to be so qualified would not have a material
adverse effect on Seller, CEC or GTI, and to execute and deliver and carry out the transactions
contemplated by this Agreement.



5.2 Due Authorization; Effect of Transaction. No provisions of the Certificate of
Incorporation or Bylaws of CEC or GTI, or of any agreement, instrument, or understanding, or any
judgment, decree, rule, or regulation, to which Seller, CEC or GTI is a party or by which Seller,
CEC or GTI are bound, has been or will be violated by the execution and delivery by Seller of this
Agreement or the performance or satisfaction of any agreement or condition herein contained upon
its part to be performed or satisfied, and all requisite corporate and other authorizations for
such execution, delivery, performance, and satisfaction have been duly obtained. Upon execution
and delivery, this Agreement will be a legal, valid, and binding obligation of Seller, enforceable
in accordance with its terms, except to the extent that enforceability may be limited
by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting any rights, powers, privileges, remedies and interests of creditors generally, (ii)
principles of equity affecting the enforcement of obligations generally (regardless of whether
enforceability is considered in a proceeding in equity, at law or otherwise), or (iii) the
discretionary power of the court or other authority before which may be brought any proceeding
seeking equitable or other remedies, including (without limitation) specific performance,
injunctive relief and indemnification. Seller, CEC and GTI are not in default in the performance,
observance, or fulfillment of any of the terms or conditions of its Certificate of Incorporation or
Bylaws.


 


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5.3 Financial Statements. Except as set forth on Schedule 5.3 of the
Disclosure Schedule, Seller has delivered to Purchaser consolidated balance sheets of GTI as at the
close of its fiscal year for each of the three years ending December 31, 2005, 2006 and 2007,
respectively, together with related consolidated statements of operations, consolidated statements
of changes in stockholders’ equity, and consolidated statements of cash flows for the respective
years then ended. Seller has also delivered to Purchaser the consolidated trial balance for the
month of March 2008 for GTI.



The financial statements specified above, including in each case the notes to such financial
statements, are hereinafter sometimes collectively referred to as the “Financial
Statements.” All of the Financial Statements are true, correct, and complete, in all material
respects, have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods (except as set forth in such notes or statements) and
fairly present the financial condition of GTI and the results of their operations as at the dates
thereof and throughout the periods covered thereby. The Financial Statements reflect or provide
for all claims against, and all debts and liabilities of, GTI, fixed or contingent, as at the dates
thereof, and there has not been any change between the date of the most recent Financial Statements
and the date of this Agreement that has materially or adversely affected the business or
properties or condition or prospects, financial or other, or results of operations of GTI, and no
fact or condition exists or is contemplated or threatened, which might cause any such change at any
time in the future.



5.4 Accounts Receivable. Except as set forth in Schedule 5.4 of the
Disclosure Schedule, subject to the bad debt reserve shown in the Financial Statements, all
customer and trade notes and accounts receivable owned by CEC and GTI on the date of the most
recent balance sheet included in the Financial Statements are fully collectible in the aggregate,
to the extent of the aggregate face value thereof as indicated on such balance sheet. Since April
30, 2008 to the Closing Date, the Seller has remitted to GTI one hundred (100%) percent of GTI’s
Accounts Receivable received on behalf of GTI in a lock-box account administered by the Seller.



5.5 Liabilities. Except as set forth in Schedule 5.5 of the Disclosure
Schedule, CEC and GTI have no liabilities of any nature, whether absolute, contingent, or
otherwise, except as set forth in the most recent balance sheet included in the Financial Statements, other than liabilities subsequently incurred in the ordinary course of
business. CEC and GTI are not in material breach or default or in arrears in respect of the terms
or conditions of any such liabilities and no waiver or forbearance has been granted by any holder
of any such liability with respect to any such liability. Except as set forth in Schedule
5.5 of the Disclosure Schedule, all liabilities of CEC and GTI will be paid in full on or
before the Closing Date.


 


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5.6 Capitalization. The capitalization of CEC and GTI are as set forth in
Schedule 5.6 of the Disclosure Schedule; and all of the outstanding capital stock of CEC
and GTI are duly authorized and validly issued, fully paid, and nonassessable.



5.7 Dividends and Distributions. From the end of its most recent fiscal year to the
date hereof, CEC and GTI have not declared or paid any dividend or declared or made any
distribution whatsoever to its stockholders, either in cash, stock, or other property, through
purchases or redemptions of stock or otherwise.



5.8 Subsidiaries. CEC and GTI do not own except for CEC owning all of the issued and
outstanding shares of GTI), directly or indirectly, any of the capital stock of any corporation,
association, trust or similar entity, any interest in the equity of any partnership or similar
entity, any share in any joint venture, or any other equity or proprietary interest in any entity
or enterprise, however organized and however such interest may be denominated or evidenced.




5.9 Real Property. Neither CEC nor GTI own any real property.



5.10 Leases. The leases listed and described in Schedule 5.10 of the
Disclosure Schedule constitute all the leases of real or personal property under which CEC and GTI
are bound or to which CEC and GTI are parties. Each lease listed in Schedule 5.10 of the
Disclosure Schedule is valid, binding, subsisting, and enforceable in accordance with its terms,
and neither CEC or GTI nor any landlord or lessor is in default or in arrears in the performance or
satisfaction of any agreement or condition on its part to be performed or satisfied thereunder, and
no waiver or indulgence has been granted by any of the landlords or lessors under those leases.
Seller is not the landlord or lessor under any leases of real or personal property relating to
GTI’s business.



5.11 Personal Properties. CEC and GTI own and have good and marketable title to all
the tangible and intangible personal property and assets, other than the leaseholds referred to in
Schedule 5.10 of the Disclosure Schedule, reflected upon the most recent balance sheet
included in the Financial Statements or used by CEC and GTI in its business if not so reflected,
free and clear of all mortgages, liens, encumbrances, equities, claims, and obligations to other
persons, of whatever kind and character, except as set forth in Schedule 5.11 of the Disclosure Schedule. Schedule 5.11 of
the Disclosure Schedule contains an identification of certain major items of fixed assets and
machinery and equipment. The fixed assets and machinery and equipment, taken as a whole, are in a
state of good repair and maintenance and are in good operating condition, normal wear and tear
excepted; inventory is up to normal commercial standards and no inventory that is obsolete or
unmarketable is reflected in the most recent balance sheets included in the Financial Statements.
All items included in such inventory are covered on the books of CEC and GTI, and are valued on the
Financial Statements at the lower of cost or market and, in any event, at not greater than their
net realizable value, on an item by item basis.


 


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5.12 Employment Arrangements. Except as set forth Schedule 5.12 of the
Disclosure Schedule, CEC and GTI have no obligation, contingent or otherwise, under any employment
agreement, collective bargaining or other labor agreement, any agreement containing severance or
termination pay arrangements, deferred compensation agreement, retainer or consulting arrangements,
pension or retirement plan, bonus or profit-sharing plan, stock option or purchase plan, or other
employee contract or non-terminable arrangement (whether or not that arrangement imposes a penalty
for termination), group life, health, medical or hospitalization insurance plan or program, or
other employee or fringe benefit plan, including vacation plans or programs and sick leave plans or
programs. CEC and GTI or its employees are not now and for the past five years have not been
subject to or involved in or, to the best of Seller’s knowledge, threatened with any union
elections, petitions therefor or other organizational activities. CEC and GTI have performed all
obligations required to be performed under all such written agreements, plans, and arrangements and
is not in breach of or in default or arrears under the terms thereof in any material respect.



5.13 Material Contracts and Arrangements. Except as set forth in Schedule
5.13 of the Disclosure Schedule, CEC and GTI have no contract or arrangement, including,
without limitation, any commitments or obligations, contingent or otherwise, under any contract or
arrangement (i) for the purchase or sale of inventory in excess of $15,000 in any one instance,
(ii) for the purchase or sale of supplies, services or other items in excess of $15,000 in any one
instance, (iii) for the purchase, sale or lease of any equipment or machinery, (iv) for the
performance of service for others in excess of $15,000 in any one instance, or (v) extending beyond
December 31, 2008. Each of such contracts and arrangements is valid, binding, subsisting, and
enforceable in accordance with its terms and CEC and GTI have performed in all material respects
all obligations required to be performed under any such contract or arrangement and is not in
breach or default or in arrears in any material respect or in any other respect that would permit
the other party to cancel such contract or arrangement under the terms thereof. To the best
knowledge of Seller, after due inquiry, each of the contracts, if any, set forth in Schedule
5.13 of the Disclosure Schedule calling for the performance of services or the sale of
inventory can be satisfied or performed by CEC and GTI without any material loss to them.



5.14 Ordinary Course of Business. CEC and GTI, from the date of the balance sheet
(excluding the consolidated trial balance sheet of March 31, 2008) contained in the most recent Financial Statements to the date
hereof,




(a) have operated its business in the normal, usual, and customary manner in the
ordinary and regular course of business;




(b) have not sold or otherwise disposed of any of its properties or assets, other than
inventory sold in the ordinary course of business;




(c) except in each case in the ordinary course of business,




(i) have not amended or terminated any outstanding lease, contract, or
agreement; and


 


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(ii) have not incurred any obligations or liabilities (fixed, contingent, or
other).




(d) have not made any transactions outside the ordinary course of business in its
inventory or any additions to its property or any purchases of machinery or equipment,
except for normal maintenance and replacements;




(e) have not discharged or satisfied any lien or encumbrance or paid any obligation or
liability (absolute or contingent) other than current liabilities or obligations under
contracts then existing or thereafter entered into in the ordinary course of business, and
commitments under leases existing on that date or incurred since that date in the ordinary
course of business;




(f) have not mortgaged, pledged, or subjected to lien or any other encumbrances, any of
its assets, tangible or intangible;




(g) have not sold or transferred any tangible asset or cancelled any debts or claims
except in each case in the ordinary course of business;




(h) have not sold, assigned, or transferred any patents, trademarks, trade names, trade
secrets, copyrights, or other intangible assets;




(i) have not increased the compensation payable or to become payable to any of its
officers, employees, or agents;




(j) have not suffered any material damage, destruction, or loss (whether or not covered
by insurance) or any acquisition or taking of property by any governmental authority;




(k) have not waived any rights that individually or in the aggregate exceed $5,000;




(l) have not experienced any organized work stoppage or industrial action; or




(m) have not entered into any other transaction or transactions that individually or in
the aggregate are material to CEC or GTI, other than in the ordinary course of business.


 


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5.15 Litigation and Compliance with Laws. Schedule 5.15 of the Disclosure
Schedule contains a brief description of all pending litigation or legal or other actions, suits,
proceedings, or investigations, at law or in equity or admiralty, or before any federal, state,
municipal, or other governmental department (including, without limitation, the National Labor
Relations Board), commission, board, agency, or instrumentality, domestic or foreign, in which CEC
and GTI or any of its officers or directors, in such capacity, is engaged, or, to the knowledge and
belief of Seller, with which CEC and GTI or any of its officers or directors is threatened in
connection with the business or affairs or properties or assets of CEC and GTI. CEC and GTI are in
compliance in all material respects with all laws and governmental rules and regulations, domestic
and foreign, and all requirements of insurance carriers, applicable to its business or affairs or
properties or assets, including, without limitation, those relating to environmental protection,
water or air pollution, and similar matters.



5.16 Tax Returns. Except as set forth on Schedule 5.16 of the Disclosure
Schedule, CEC and GTI have filed, in accordance with applicable law, all federal, state, county,
and local income and franchise tax returns and all real and personal property tax returns that are
required to be filed, and the provision for taxes shown on the most recent balance sheet included
in the Financial Statements is sufficient to satisfy all taxes of any kind of CEC and GTI,
including interest and penalties in respect thereof, whether disputed or not, and whether accrued,
due, absolute, contingent, or other for all periods ended on or prior to the date of such balance
sheet. As of the date hereof no tax liabilities have been assessed or proposed that remain unpaid,
and CEC and GTI have not signed any extension agreement with the Internal Revenue Service or any
state or local taxing authority, except as relating to those income tax returns listed on Schedule
5.16. CEC and GTI have paid all taxes that have become due pursuant to such returns and have paid
all installments of estimated taxes due. All taxes and other assessments and levies that CEC and
GTI are required by law to withhold or to collect have been duly withheld and collected, and have
been paid over to the proper governmental authorities to the extent due and payable. From the end
of its most recent fiscal year to the date hereof CEC and GTI have not made any payment of or on
account of any federal, state, or local income, franchise, or any real or personal property taxes,
other than state taxes imposed from time to time under $5,000 in the aggregate. Seller is not
aware of any basis upon which any assessment for a material amount of additional federal income
taxes could be made. The information shown on the federal income tax returns of CEC and GTI
heretofore delivered to Purchaser is true, accurate, and complete and fairly presents the
information purported to be shown.




5.17 Environmental Matters. Without limiting the generality of Section 5.15:




(i) CEC and GTI are in compliance in all material respects with all applicable
Environmental Laws (as such term is defined in Exhibit B hereto);




(ii) CEC and GTI have obtained all material permits and approvals required under
Environmental Laws, including, without limitation, all material environmental, health and
safety permits, licenses, approvals, authorizations, variances, agreements, and waivers of
federal, state, and local governmental authorities (“Permits”) necessary for the
conduct of its business and the operation of its facilities, and all such Permits are in
good standing and CEC and GTI are in compliance with all terms and conditions of such
Permits;




(iii) There are no conditions or circumstances associated with the currently owned or
leased properties or operations of CEC and GTI that may give rise to Remedial Action.


 


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(iv) CEC and GTI have not received any written notice or claim to the effect that it
is or is reasonably expected to be liable to any person as a result of a Release (as such
term is defined in Exhibit B hereto) or threatened Release or any notice letter or
request for information under CERCLA (as such term is defined in Exhibit B hereto);
and




(v) No Environmental Lien (as such term is defined in Exhibit B hereto) and no
unrecorded Environmental Lien of which Seller, CEC and GTI have written notice has attached
to any property of CEC and GTI.



5.18 Trademarks, Licenses, Etc. Schedule 5.18 of the Disclosure Schedule sets
forth all of the trademarks, trade names, service marks, patents, copyrights, registrations, or
applications with respect thereto, and licenses, other than off-the-shelf licenses, or rights under
them owned, used, or intended to be acquired or used by CEC and GTI, and, to the extent indicated
in Schedule 5.18 of the Disclosure Schedule, they have been duly registered or an
application has been filed in such offices as are indicated therein. CEC and GTI are the sole and
exclusive owner of the trademarks, trade names, service marks, and copyrights, the holder of the
full record title to the trademark registrations and the sole owner of the inventions covered by
the patents and patent applications, all as set forth in Schedule 5.18 of the Disclosure
Schedule. CEC and GTI have the sole and exclusive right, to the extent listed in Schedule
5.18 of the Disclosure Schedule, to use such trademarks, trade names, service marks, patents
and copyrights, and, except to the extent set forth in Schedule 5.18 of the Disclosure
Schedule, all of them are free and clear of any mortgages, liens, encumbrances, equities, licenses,
claims, and obligations to other persons of whatever kind and character.



5.19 Insurance Policies. The insurance policies listed and described briefly in
Schedule 5.19 of the Disclosure Schedule constitute all of the policies in force and effect
in respect of the business, properties and assets, including, without limitation, insurance on
personnel, of CEC and GTI. CEC and GTI are not in material default under any such policy. The
insurance policies so listed and identified are sufficient in nature, scope, and amounts to insure
adequately (and, in any event, in amounts sufficient to prevent CEC and GTI from becoming a
co-insurer within the terms of such policies) the business, properties, and assets of CEC and GTI.
CEC and GTI has not been refused insurance by any insurance carrier to which it has applied for
insurance.



5.20 Extraordinary Events. From the end of its most recent fiscal year to the date
hereof, neither the business nor properties nor condition, financial or other, nor results of
operations of CEC and GTI have been materially and adversely affected in any way as the result of
any fire, explosion, accident, casualty, labor disturbance, requisition, or taking of property by
any governmental body or agency, flood, embargo, or Act of God or the public enemy, or cessation,
interruption, or diminution of operations, whether or not covered by insurance.


 


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5.21 Adverse Restrictions. Except as set forth on Schedule 5.21, the
execution and delivery of this Agreement and the consummation of the transactions contemplated
hereby are not events that of themselves or with the giving of notice or the passage of time or
both, could constitute, on the part of CEC and GTI, a violation of or conflict with or result in
any breach of, or default under the terms, conditions, or provisions of, any judgment, law, or
regulation, or of the Certificate of Incorporation or Bylaws of CEC and GTI, any agreement or
instrument to which CEC and GTI are parties or by which it is bound, or result in the creation or
imposition of any lien, charge, or encumbrance of any nature whatsoever on the property or assets
of CEC and GTI and no such event of itself or with the giving of notice or the passage of time or
both will result in the acceleration of the due date of any obligation of CEC or GTI.



5.22 Material Information. Neither the Financial Statements nor this Agreement
(including the Schedules and Exhibits hereto) nor any certificate or other information or document
furnished or to be furnished by Seller to Purchaser contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements herein or therein not misleading.




5.23 Omitted.



5.24 Certain Transactions. None of the officers, directors, or employees of CEC and
GTI are presently a party to any transaction with Seller, CEC and GTI (other than for services as
officers, directors, and employees), including, without limitation, any contract, agreement, or
other arrangement providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from, any officer, director, any such employee,
any member of a family of any officer, director, or such employee or any corporation, partnership,
trust, or other entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee, or partner.



5.25 No Governmental Authorizations or Approvals Required. Except as set forth in
Schedule 5.25 of the Disclosure Statement, no authorization or approval of, or filing with,
any governmental agency, authority, or other body will be required in connection with the execution
and delivery of this Agreement or the consummation of the transactions contemplated hereby.




5.26 Employee Benefit Plans.


 


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Schedule 5.26 of the Disclosure Schedule contains a true, correct, and complete list
of all pension, profit sharing, retirement, deferred compensation, welfare, insurance disability,
bonus, vacation pay, severance pay, and other similar plans, programs, or agreements, and every
material personnel policy, whether reduced to writing or not, relating to any persons employed by
CEC and GTI and maintained at any time by CEC and GTI or by any other member (hereinafter,
“Affiliate”) of a controlled group of corporations, group of trades, or businesses under
common control or affiliated service group that includes CEC and GTI (as defined for purposes of
Section 414(b), (c), and (m) of the Code) (collectively, the “Plans”). Seller has made
available to Purchaser true, correct, and complete copies of all Plans that have been reduced to
writing, together with all documents establishing or constituting any related trust, annuity
contract, insurance contract, or other funding instrument, and true, correct, and complete written
summaries of those that have not been reduced to writing. For each “defined benefit plan,” Seller
has made available a copy of the latest annual actuarial report, and for all Plans the latest Forms
5500. Except as set forth in Schedule 5.26 of the Disclosure Schedule, neither CEC and GTI
nor any Affiliate has any obligation or other employee benefit plan liability under applicable law;
nor has CEC or GTI or any Affiliate ever been obligated to contribute to any “multi-employer plan,”
as defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”). Neither CEC or GTI nor any Affiliate has incurred any “withdrawal liability”
calculated under Section 4211 of ERISA and there has been no event or circumstance that would cause
them to incur any such liability. Neither CEC and GTI nor any Affiliate has ever maintained a Plan
providing health or life insurance benefits to former employees. No plan previously maintained by
CEC and GTI or its Affiliates that was subject to ERISA has been terminated; no proceedings to
terminate any such plan have been instituted within the meaning of Subtitle C of Title IV of ERISA;
and no reportable event within the meaning of Section 4043 of Subtitle C has occurred with respect
to any such Plan, and no liability to the Pension Benefit Guaranty Corporation has been incurred.
For each Plan, CEC and GTI and every Affiliate are in compliance, in all material respects, with
all requirements prescribed by all statutes, regulations, orders, or rules currently in effect, and
they have in all material respects performed all obligations required to be performed by them.
Neither CEC and GTI nor any Affiliate, nor any of their directors, officers, employees, or agents,
nor any trustee or administrator of any trust created under the Plans, have engaged in or been a
party to any “prohibited transaction” as defined in Section 4975 of the Code and Section 406 of ERISA that could
subject CEC and GTI or Purchaser or their affiliates, directors, or employees or the Plans or the
trusts relating thereto or any party dealing with any of the Plans or trusts to any tax or penalty
on “prohibited transactions” imposed by Section 4975 of the Code. Except as set forth in
Schedule 5.26 of the Disclosure Schedule, neither the Plans nor the trusts created
thereunder have incurred any “accumulated funding deficiency,” as such term is defined in Section
412 of the Code and regulations issued thereunder, whether or not waived.



Each Plan intended to qualify under Section 401(a) of the Code has been determined by the
Internal Revenue Service to so qualify, and the trusts created thereunder have been determined to
be exempt from tax under Section 501(a) of the Code; copies of all determination letters have been
delivered to Purchaser; and nothing has occurred since the date of such determination letters that
might cause the loss of such qualification or exemption. For each funded defined benefit plan, the
present value of the actuarial accrued liability, determined on a plan termination basis, does not
exceed the fair market value of the assets held under such Plan, and there is no unpaid
contribution for any Plan year ended prior to the Closing Date as required under Section 412 of the
Code. For each Plan that is a qualified profit sharing or stock bonus plan, all employer
contributions accrued for plan years ending prior to the Closing Date under the Plan terms and
applicable law have been made.



Except as set forth in Schedule 5.26 of the Disclosure Schedule, all of the
liabilities with respect to all of the Plans are accurately reflected in the Financial Statements
and CEC’s and GTI’s Balance Sheets.


 


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5.27 Continuing Representations. The representations and warranties of Seller herein
contained (a) shall survive the Closing for a period of eighteen (18) months and (b) relating to
Sections 5.2, 5.16 and 5.17 shall survive the Closing for the applicable statute of
limitations.



6. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF PURCHASER.




Purchaser represents and warrants as follow:



6.1 Organization and Corporate Power. Purchaser is a limited liability company duly
organized, validly existing, and in good standing under the laws of its jurisdiction of formation.



6.2 Due Authorization; Effect of Transaction. No provision of Purchaser’s Certificate
of Incorporation or Bylaws, or of any agreement, instrument, or understanding, or any judgment,
decree, rule, or regulation, to which Purchaser is a party or by which it is bound, has been, or
will be violated by the execution by Purchaser of this Agreement or the performance or satisfaction
of any agreement or condition herein contained upon its part to be performed or satisfied, and all requisite corporate and other
authorizations for such execution, delivery, performance, and satisfaction have been duly obtained.
Upon execution and delivery, this Agreement will be a legal, valid, and binding obligation of
Purchaser, enforceable in accordance with its terms. Purchaser is not in default in the
performance, observance, or fulfillment of any of the terms or conditions of its Certificate of
Incorporation or Bylaws.



6.3 Sufficient Funds. The Purchaser currently has sufficient immediately available
funds in cash and will at the Closing have sufficient immediately available funds, in cash, to pay
the cash portion of the purchase price and to pay any other amounts payable pursuant to this
Agreement. The Purchaser will ensure that the Purchaser and any lender to the Purchaser, or
subsidiary of the Purchaser, in connection with the transactions contemplated by this Agreement,
comply with the policies and procedures for the assignment of claims under the Assignment of Claims
Act of 1940, as amended, and Federal Acquisition Regulation subpart 32.8, 52.232-23 and 52.232-33.



6.4 Continuing Representations. The representations and warranties of Purchaser
herein contained shall survive the Closing for a period of three (3) years.



7. INTENTIONALLY OMITTED.



8. CONDITIONS OF PURCHASER’S OBLIGATIONS.



The obligations of Purchaser hereunder are subject to the fulfillment to the reasonable
satisfaction of the Purchaser, prior to or at the Closing, of each of the following conditions:



8.1 Opinion of Seller’s Counsel. Seller shall have furnished Purchaser with an
opinion, dated the Closing Date, of Holland & Knight, LLP, counsel for Seller, in form and
substance reasonably satisfactory to the Purchaser and its counsel, attached hereto as Exhibit C.


 


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8.2 No Opposition. No suit, action, or proceeding shall be pending or threatened at
any time prior to or on the Closing Date before or by any court or governmental body (a) seeking to
restrain or prohibit, or to obtain damages or other relief in connection with, the execution and
delivery of this Agreement or the consummation of the transactions contemplated hereby; or (b) that
might materially and adversely affect the business or properties or condition, financial or other,
or results of operations of CEC and GTI.



8.3 Noncompetition Agreement. The Seller shall have executed and delivered to
Purchaser a Noncompetition Agreement, in substantially the form of Exhibit D hereto.



8.4 Permits, Etc. Purchaser shall have obtained, all such permits, licenses,
approvals, authorizations, variances, agreements, and warranties from federal, state, and local
governmental authorities, which Purchaser shall, in the exercise of its sole discretion, deem
necessary or desirable for the operation by Purchaser of the businesses of CEC and GTI after the
Closing.



8.5 Insurance. CEC and GTI shall have obtained appropriate binders or consents as to
policies of insurance to be assigned to Purchaser hereunder.



8.6 Representations and Covenants. The representations and warranties of Seller
contained in this Agreement or otherwise made in writing by it or him or on its or his behalf
pursuant hereto or otherwise made in connection with the transactions contemplated hereby shall be
true and correct at and as of the Closing Date with the same force and effect as though made on and
as of such date; each and all of the covenants, agreements, and conditions to be performed or
satisfied by Seller hereunder at or prior to the Closing Date shall have been duly performed or
satisfied; and Seller shall have furnished Purchaser with such certificates and other documents
evidencing the truth of such representations and warranties and the performance and satisfaction of
such covenants, agreements, and conditions as Purchaser shall have reasonably requested.



8.7 Satisfaction of Counsel. The validity of all transactions herein mentioned, as
well as the form and substance of all opinions, bills of sale, assignments, deeds, stock powers,
certificates, documents, and other instruments hereunder, shall be satisfactory in all reasonable
respects to Weintraub Law Group PC, counsel to Purchaser.




8.8 Intentionally Omitted.




8.9 Taxes.




(a) Seller shall be responsible for the payment of all federal, state and local income,
payroll and franchise taxes (“Taxes”) of GTE and CEC incurred through the Closing Date,
included, but not limited to, the taxes incurred as a result of the elimination of
intercompany loans as set forth in Section 8.11. To the extent that Taxes have not
been paid as of the Closing Date, the parties shall adjust the Purchase Price accordingly.


 


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(b) Straddle Period. In the case of any taxable period that includes (but does not end
on) the Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured by
income or receipts of CEC and GTI for the Pre-Closing Tax Period shall be determined based
on an interim closing of the books as of the close of business on the Closing and the amount
of other Taxes of GTE and CEC for a Straddle Period that relates to the Pre-Closing Tax
Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the
number of days in such Straddle Period.




(c) Responsibility for Filing Tax Returns. Purchaser shall prepare or cause to be
prepared and file or cause to be filed all Tax Returns for CEC and GTI that are filed after
the Closing Date except for those income tax returns included on Schedule 5.16. Purchaser
shall permit Sellers to review and comment on each such Tax Return described in the
preceding sentence prior to filing.



8.10 Verizon Settlement. Verizon Federal, Inc., the Seller and GTI shall have
executed the Amendment to the Settlement Agreement, the Promissory Note in the amount of $250,000,
the Promissory Note in the amount of $750,000 and the Verizon Security Agreement, collectively
attached hereto as Exhibit E.



8.11 Intercompany Loans. All intercompany loans between CEC, GTI and Seller shall
have been forgiven in full, and each of Seller, CEC and GTI shall have released all security
interests it may have in any of the assets of CEC and GTI. Seller shall be responsible for all
taxes incurred as a result of the transactions set forth in this Section 8.11, and such
transactions shall be deemed to have occurred prior to the Closing Date. To the extent that a tax
liability is to be recognized, the Seller shall pay to GTI from the Purchase Price the amount of
such tax liability.



8.12 Diligence. Purchaser shall have completed its diligence review of the business,
properties, assets, and liabilities of Seller, CEC and GTI, with results satisfactory to Purchaser.



8.13 Releases. Seller, CEC and GTI shall have obtained releases of all issued and
outstanding shares of GTI and CEC that have been pledged to (i) Kallina Corporation, or its
affiliates and assigns, pursuant to that certain Stock Pledge Agreement dated August 31, 2007 among
Kallina Corporation, Seller, CEC, Digital Angel Corporation and Digital Angel Technology
Corporation, and (ii) Laurus Master Fund, Ltd., or its affiliates and assigns, pursuant to that
certain Stock Pledge Agreement dated August 24, 2006 among Laurus Master Fund, Ltd., Seller and
CEC. Seller, CEC and GTI shall have received releases of UCC-1 filing statements of Citizens
Leasing Corp. and Elliot International, L.P., Midsummer Investment, Ltd., Elliott Associates, L.P.,
Omicron Master Trust, Islandia, L.P. and Portside Growth and Opportunity Fund.


 


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8.14 Consents. Seller, CEC and GTI shall have received a written consent to transfer
the Deed of Lease Agreement dated July 31, 1989, as amended, supplemented or modified from time to
time, between Brit-Southgate LLC and GTI for real property located at the Southgate Business
Center, 4500 Southgate Place, Chantilly, Virginia 20151.



8.15 Terminations. The GTI 2008 Executive Team Bonus Plan, the GTI Non-management
Bonus Plan and the CEC/GTI Employee Handbook have been terminated as of the Closing Date and will
have no force or affect after the Closing Date.



9. CONDITIONS OF SELLER’S OBLIGATIONS.



The obligations of Seller hereunder are subject to the fulfillment to the reasonable
satisfaction of Seller prior to or at the Closing of each of the following conditions:



9.1 Representations and Covenants. The representations and warranties of Purchaser
contained in this Agreement or otherwise made in writing by it or on its behalf pursuant hereto or
otherwise made in connection with the transactions contemplated hereby shall be true and correct at
and as of the Closing Date with the same force and effect as though made on and as of such date;
each of the covenants, agreements, and conditions to be performed or satisfied by Purchaser
hereunder at or prior to the Closing Date shall have been duly performed or satisfied; and
Purchaser shall have furnished Seller with such certificates or other documents evidencing the
truth of such representations and warranties and the performance and satisfaction of such
covenants, agreements, and conditions as Seller shall have reasonably requested.



9.2 No Opposition. No suit, action, or proceeding shall be pending or threatened on
the Closing Date before or by any court or governmental authority seeking to restrain or prohibit
the execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby.



9.3 Promissory Note and Security Agreement. Purchaser shall have executed and
delivered to Seller a Promissory Note and Security Agreement, in substantially the forms of
Exhibit F and Exhibit G hereto.



9.4 Consent. Seller shall have received a full consent from its third party lender
for all transactions contemplated hereby.



9.5 Verizon. Purchaser shall have wire transferred, simultaneously with the Close,
the sum of One Million Five Hundred Thousand Dollars ($1,500,000) to Verizon Federal, Inc. and
received a full release from Verizon Federal of any and all obligations relating to that certain
Confidential Settlement Agreement and Release effective as of December 19, 2007, between Seller,
Verizon and GTI.



10. INDEMNIFICATION .


 


14









 






10.1 Indemnification by Seller.




(a) Seller hereby agrees to indemnify, defend, and hold Purchaser and its officers,
directors, employees, attorneys and accountants (collectively with Purchaser, the “Purchasing Parties”) harmless from and against the amount of any actual damage,
loss, cost, or expense (including reasonable attorneys’ fees and settlement costs)
(collectively “Loss”) to Purchasing Parties occasioned or caused by, resulting from, or
arising out of:




(i) Any failure by Seller to perform, abide by, or fulfill any of the
agreements, covenants, or obligations set forth in or entered into, in connection
with this Agreement to be so performed or fulfilled by Seller.




(ii) Any material inaccuracy in or breach of any of the Seller’s
representations or warranties set forth in this Agreement, or any certificate or
Schedule or other writing furnished pursuant hereto.




(iii) Any liability or obligation for any tort or any breach or violation of
any contractual, quasi-contractual, legal, fiduciary, or equitable duty by Seller,
whether before, at, or after the Closing.




The amount of any Loss shall be the amount of cash reimbursement or set-off that, when
received by the Purchaser incurring such loss, shall place the Purchaser in the same
financial position it or they would have been in if such Loss has not occurred.




10.2 Indemnification by Purchaser.




(a) Purchaser hereby agrees to indemnify, defend, and hold Seller and its
officers, directors, employees, attorneys and accountants harmless from and against any Loss
occasioned or caused by, resulting from, or arising out of:




(i) Any failure by Purchaser to perform, abide by, or fulfill any of the
agreements, covenants, or obligations set forth in or entered into, in connection
with this Agreement to be so performed or fulfilled by Purchaser;




(ii) Any inaccuracy in or breach of any of the Purchaser’s representations or
warranties set forth in this Agreement, or any certificate or Schedule or other
writing furnished pursuant hereto; or




(iii) the ownership, use or operations of CEC and GTI from and after the
Closing.


 


15









 





10.3 Any party entitled to indemnification pursuant to Article 10 (the “Indemnitee”) shall
give prompt written notice to the party from whom such indemnification is sought (the
“Indemnitors”) of any claim (actual or threatened) or other event that in the judgment of the
Indemnitee might result or has resulted in a Loss by the Indemnitee hereunder, and the Indemnitor
shall have the right to assume the defense of such claim or any litigation resulting therefrom;
provided that counsel for the Indemnitor, who shall conduct the defense of such claim
(actual or threatened) or litigation, shall be reasonably satisfactory to the Indemnitee, and the
Indemnitee may participate in such defense at their expense, and provided, further, that
the omission by the Indemnitee to give notice as provided herein shall not relieve the Indemnitor
of its obligations hereunder except to the extent that the omission results in a failure of actual
notice to the Indemnitor and the Indemnitor is damaged solely as a result of the failure to give
notice. The Indemnitor, in the defense of any such claim or litigation, shall not, except with the
consent of the Indemnitee, consent to the entry of any judgment or decree or enter into any
settlement that does not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnitor of a release from all liability in respect to such claim or litigation,
and the Indemnitee shall not have liability with respect to any payment made by the Indemnitor in
connection with the settlement, satisfaction, or compromise of any claim unless the Indemnitee
shall have approved thereof in advance in writing, which approval shall not unreasonably be
withheld or delayed. If the Indemnitee shall not have received notice that the Indemnitor shall
assume the defense of such claim within twenty (20) days after the notice is sent to the Indemnitor
of the existence of such claim, the Indemnitee shall be free to proceed with the defense of such
claim. Each such notice shall be accompanied (or followed as promptly as is reasonably practicable
after the amount of such Loss becomes determinable) by a certificate signed by an officer of the
Indemnitee or the attorney for the Indemnitee, as the case may be, and setting forth in reasonable
detail the calculation of the amount of such Loss in accordance with the provisions hereof, and
accompanied by copies of all relevant documents and records. The omission to give such notice or
provide such certificate by the Indemnitee shall not relieve the Indemnitor of its obligation under
this Section 10.2 except to the extent such omission results in a failure of actual notice
to the Indemnitor and the Indemnitor is damaged solely by such failure to give notice. No Loss
shall be considered to have occurred with respect to any payment made by any Indemnitee in
settlement, satisfaction, or compromise of any claim unless the Indemnitor shall have approved
thereof in advance and in writing.



10.4 Set-Off or Reimbursement. The Indemnitee shall have the right to set-off against
any payments due and payable by the Indemnitee to the Indemnitor as provided for herein (or, if
such amounts have theretofore been paid, then to receive prompt reimbursement from the Indemnitor
of an amount equal to) the amount of all Losses incurred by the Indemnitee. The Indemnitee shall
deliver to the Indemnitor a written notice explaining the nature and amount of each such set-off or
required reimbursement as promptly as is reasonably practicable after the Indemnitee shall have
determined to make such set-off or to require such reimbursement. The Indemnitee may make such
set-offs or require such reimbursements in any order they choose.


 


16









 





10.5 Limitations. The aggregate maximum total liability of Seller for all Loss under
this Article 10 shall be six hundred thousand dollars ($600,000.00). The foregoing
limitation on liability shall not apply to Loss relating, arising or resulting from fraud,
intentional misconduct or bad faith of Seller in which a court of competent jurisdiction issues a
judgment, order or decree concluding that such party’s action or inaction constituted fraud,
intentional misconduct or bad faith. Seller shall not be required pursuant to Article 10
of this Agreement to indemnify the Purchasing Parties for any Loss until the aggregate amount of
the Loss under Article 10 exceeds twenty five thousand dollars ($25,000) (the “Basket
Amount”), after which Seller shall be obligated for any and all Loss up to the aggregate maximum total liability of Seller,
including the Basket Amount.



11. OMITTED.



12. BROKERAGE FEE.



Seller and Purchaser each represent that no broker has been involved in this transaction and
each party agrees to indemnify and hold the others harmless from payment of any brokerage fee,
finder’s fee, or commission claimed by any party who claims to have been involved because of
association with such party.



13. AMENDMENTS; WAIVERS.



This Agreement constitutes the entire agreement of the parties related to the subject matter
of this Agreement, supersedes all prior or contemporary agreements, representations, warranties,
covenants, and understandings of the parties. This Agreement may not be amended, nor shall any
waiver, change, modification, consent, or discharge be affected, except by an instrument in writing
executed by or on behalf of the party against whom enforcement of any amendment, waiver, change,
modification, consent, or discharge is sought.



Any waiver of any term or condition of this Agreement, or of the breach of any covenant,
representation, or warranty contained herein, in any one instance, shall not operate as or be
deemed to be or construed as a further or continuing waiver of such term, condition, or breach of
covenant, representation, or warranty, nor shall any failure at any time or times to enforce or
require performance of any provision hereof operate as a waiver of or affect in any manner such
party’s right at a later time to enforce or require performance of such provision or of any other
provision hereof; and no such written waiver, unless it, by its own terms, explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or for any other
purpose or impair the right of the party against whom such waiver is claimed in all other instances
or for all other purposes to require full compliance with such provision.



14. ASSIGNMENT; SUCCESSORS AND ASSIGNS.



This Agreement shall not be assignable by any party without the written consent of the others.
This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.



15. SEVERABILITY.


 


17









 





If any provision or provisions of this Agreement shall be, or shall be found to be, invalid,
inoperative, or unenforceable as applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision
with any constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions in question
invalid, inoperative, or unenforceable in any other jurisdiction or in any other case or
circumstance or of rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to the extent that such other provisions are not themselves actually
in conflict with such constitution, statute, or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid, inoperative, or
unenforceable provision had never been contained herein and such provision reformed so that it
would be valid, operative, and enforceable to the maximum extent permitted in such jurisdiction or
in such case.



16. COUNTERPARTS.



This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument, and in pleading
or proving any provision of this Agreement it shall not be necessary to produce more than one such
counterpart. Facsimile transmission (which shall be deemed to include the e-mail delivery of
documents in Adobe pdf or similar static image format) of any signed original counterpart and
retransmission of any signed facsimile transmission shall be deemed the same as the delivery of an
original.



17. SECTION AND OTHER HEADINGS.



The headings contained in this Agreement are for reference purposes only and shall not in any
way effect the meaning or interpretation of this Agreement.



18. NOTICES.



All notices, requests, demands, and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid, certified mail,
return receipt requested:




	 	(a)	 	TO SELLER: If to Seller:

	 
	 	 	 	Digital Angel Corporation

1690 S. Congress Avenue, Suite 201

Delray Beach, Florida 33445

Attn: Lorraine Breece, CFO

Email: lbreece@digitalangel.com

Facsimile: 561-276-0977





 


18









 






	 	 	 	With a copy to:

	 
	 	 	 	Patricia Petersen at the same address and fax number above

Email: ppetersen@digitalangelcorp.com

	 
	 	(b)	 	TO PURCHASER: If to Purchaser:

	 
	 	 	 	Sterling Hallmark, Inc.

27131 Calle Arroyo, Suite 1705

San Juan Capistrano, California 92675

Attn: Kevin Kelly

Email: pkkelly1@cox.net

Facsimile: 949-248-8926

	 
	 	 	 	with a copy to:

	 
	 	 	 	Weintraub Law Group PC

10085 Carroll Canyon Road

Suite 230

San Diego, California 92131

Attn: Richard A. Weintraub, Esq.

Email: rick@weintraublawgroup.com

Facsimile: 858-566-7015







and/or to such other person(s) and address(es) as either party shall have specified in
writing to the other.



19. GENDER.



Whenever used herein, the singular number shall include the plural, the plural shall include
the singular, and the use of any gender shall include all genders.



20. LAW TO GOVERN.



This Agreement shall be governed by and construed and enforced in accordance with the law
(other than the law governing conflict of law questions) of Delaware.



21. COURTS.



Any action to enforce, arising out of, or relating in any way to, any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located in Orange County,
California as is provided by law; and the parties consent to the jurisdiction of the court or
courts located in Orange County, California and to service of process by registered mail, return
receipt requested, or in any other manner provided by law.


 


19









 





22. ATTORNEYS FEES.



In the event of any controversy, including, but not limited to, any arbitration or litigation
in a court of law or equity between the parties hereof, the prevailing shall be entitled to
reasonable attorney’s fees and costs incurred therein.



[This space left intentionally blank. Signature page follows.]



 


20









 





IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be executed as of the
date first above written.



	 	 	 	 	 
	 	 	STERLING HALLMARK, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Kevin Kelly
	 

	 	 	 	 
	 

	 	Name:
	 	Kevin Kelly
	 

	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	DIGITAL ANGEL CORPORATION
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Lorraine M. Breece
	 

	 	 	 	 
	 

	 	Name:
	 	Lorraine M. Breece
	 

	 	 	 	 
	 

	 	Title:
	 	Senior Vice President and Chief Financial Officer
	 

	 	 	 	 





 


 









 





EXHIBIT B

Certain Defined Terms




“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. Section 9601 et seq.), as amended or supplemented from time to time.



“Contaminant” means any waste, pollutant, hazardous material, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum, or petroleum-derived substance or
waste, including, without limitation, any pollutant material, substance, or waste regulated under
any Environmental Law.



“Environmental Laws” means all federal, state, local, and foreign laws or regulations,
codes, orders, decrees, judgments, or injunctions issued, promulgated, approved, or entered
thereunder relating to pollution or protection of the environment, including, releases or
threatened releases of contaminants (including, without limitation, oil, asbestos, and radiation)
into the environment (including, without limitation, ambient air, surface water, ground water, land
surface, or subsurface strata) or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of pollutants, contaminants.
Environmental Laws shall include, without limitation, CERCLA, the Hazardous Material Transportation
Act (49 U.S.C. Section 1801 et seq.), the Solid Waste Disposal Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act
(42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et
seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Food, Drug, and
Cosmetic Act (21 U.S.C. Section 301 et seq.), the Medical Waste Tracking Act of 1988, Pub. L. No.
100-582, 102 Stat. 2950 (1988), as such laws have been amended or supplemented from time to time,
and any analogous local, or foreign, statutes, ordinances, or bylaws.



“Environmental Liabilities and Costs” means, as to CEC and GTI, all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential
damages, treble damages, costs, and expenses (including, without limitation, all reasonable fees,
disbursements and expenses of counsel, expert and consulting fees, and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any corporation, partnership, trust, individual, or other entity (“Person”),
arising from environmental, health, or safety conditions or a Release or threatened Release
resulting from the past operations of CEC and GTI, or for which CEC and GTI are responsible under
any Environmental Law.



“Environmental Lien” means any lien or similar interest in favor of any federal,
state, or local governmental authority for Environmental Liabilities and Costs.



“Release” means, as to the Seller, any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, pouring, emptying, escaping, dumping,
discarding, leaching, or migration of a Contaminant into the indoor or outdoor environment or
into or out of any property while owned, leased, or controlled by Seller, including, without
limitation, the movement of Contaminants through or in the air, soil, surface water, groundwater,
or property, including, without limitation, the abandonment or discarding of barrels, containers,
and other closed receptacles containing any contaminant.


 


 









 





“Remedial Action” means all actions necessary to (i) clean up, remove, treat, or in
any other way address Contaminants in the indoor or outdoor environment, (ii) prevent a Release or
condition that is reasonably likely to result in a Release or minimize further release of
Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment, or (iii) perform pre-remedial studies and investigations and
post-remedial monitoring and care.



"Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, customs
duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other Person.



"Tax Return” means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.