Filed by Bowne Pure Compliance





EXHIBIT 10.3




Valens Offshore SPV II, Corp

c/o Valens Capital Management, LLC

335 Madison Avenue, 10th Floor

New York, New York 10017




September 30, 2008




Digital Angel Corporation

490 Villaume Avenue

South St. Paul, MN 55075

Attention: President




Gentlemen:



Reference is hereby made to the 1,500,000 shares of the Company’s common stock, par value $.01
per share (“Common Stock”) issued by Digital Angel Corporation (the “Company”) to Valens Offshore
SPV II, Corp. (“Valens Offshore II”) on or about the date hereof.



Without the prior written consent of the Company, Valens Offshore II hereby agrees not to
sell, offer to sell, contract to sell, grant any option to purchase or otherwise transfer or
dispose of, pledge, hypothecate or otherwise transfer any of the shares of Common Stock for the
period commencing on the date hereof and ending on the date which occurs six (6) months from the
date the Common Stock is issued to Valens Offshore II (other than to donees and affiliates who
agree to be similarly bound). Notwithstanding anything contained herein to the contrary, the
foregoing restrictions shall not be applicable and shall have no further force or effect (a)
following the occurrence and during the continuance of an Event of Default under and as defined in
the Secured Term Note dated as of the date hereof from the Company in favor of Valens Offshore II
in the original principal amount of $2,000,000 (as amended, modified and supplemented from time to
time) or (b) in the event the Company shall effect a reorganization, consolidate with or merge into
any other entity or transfer all or substantially all of its properties or assets.



In the event that Valens Offshore II or any assignee of Valens Offshore II attempts to sell
any of the Common Stock after the date which is six (6) months from the date such Common Stock was
issued to Valens Offshore II and is unable, for any reason, to do so pursuant to an exemption to
registration under Rule 144, the Company shall, upon demand of Valens Offshore II or any assignee
of the Common Stock, file a registration statement within ten (10) days of such demand covering
such Common Stock and use its best efforts to have such registration statement become effective
within sixty (60) days of its filing and enter into a registration rights agreement in favor of
Valens Offshore II and any and all assignees of the Common Stock in substantially the form of the
Registration Rights Agreement dated August 31, 2007 between VeriChip Corporation and Kallina
Corporation.



This letter agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns and shall be governed by and construed in accordance with
the laws of the State of New York.



[Remainder of Page Intentionally Left Blank]



 


1









 





This letter agreement may be executed by the parties hereto in one or more counterparts, each
of which shall be deemed an original and all of which when taken together shall constitute one and
the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed
to be an original signature hereto.



	 	 	 	 	 
	 	Very truly yours,





VALENS OFFSHORE SPV II, CORP.

 	 
	 	By:  	Valens Capital Management, LLC, its investment manager
 	 
	 	 	 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	                                                   /s/ Scott Bluestein
 	 
	 	 	Name:  	Scott Bluestein 	 
	 	 	Title:  	Authorized Signatory 	 
	 




ACKNOWLEDGED AND AGREED TO:



DIGITAL ANGEL CORPORATION



	 	 	 	 	 
	By:

	 	/s/ Joseph J. Grillo
 

Name: Joseph J. Grillo
	 	 
	 

	 	Title: Chief Executive Officer