**Exhibit 10.2**

 

 

**DIGITAL ANGEL CORPORATION**

 

**SECURITIES PURCHASE AGREEMENT**

 

**July 31, 2003**

 

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**TABLE OF CONTENTS**

 
| 1.     | PURCHASE AND SALE OF NOTE AND WARRANT.            |                                           |   |
|--------|---------------------------------------------------|------------------------------------------------|--------|
|   | 1.1                                               | Purchase of Note and Warrant                   |   |   |
|   | 1.2                                               | The Closing Date                               |   |   |
|   | 1.3                                               | Form of Payment                                |   |   |
|   |                                              |                                           |   |   |
| 2.     | REPRESENTATIONS AND WARRANTIES OF THE  COMPANY.   |                                           |   |
|   | 2.1                                               | Organization,  Good Standing and Qualification |   |   |
|   | 2.2                                               | Subsidiaries                                   |   |   |
|   | 2.3                                               | Capitalization; Voting Rights.                 |   |   |
|   | 2.4                                               | Authorization; Binding Obligations             |   |   |
|   | 2.5                                               | Liabilities                                    |   |   |
|   | 2.6                                               | Agreements; Action                             |   |   |
|   | 2.7                                               | Obligations to Related Parties                 |   |   |
|   | 2.8                                               | Changes                                        |   |   |
|   | 2.9                                               | Title to Properties and Assets; Liens,  Etc.   |   |   |
|   | 2.10                                              | Intellectual Property.                         |   |   |
|   | 2.11                                              | Compliance with Other Instruments              |   |   |
|   | 2.12                                              | Litigation                                     |   |   |
|   | 2.13                                              | Tax Returns and Payments                       |   |   |
|   | 2.14                                              | Employees                                      |   |   |
|   | 2.15                                              | Registration Rights and Voting Rights          |   |   |
|   | 2.16                                              | Compliance with Laws; Permits                  |   |   |
|   | 2.17                                              | Environmental and Safety Laws                  |   |   |
|   | 2.18                                              | Valid Offering                                 |   |   |
|   | 2.19                                              | Full Disclosure                                |   |   |
|   | 2.20                                              | Insurance                                      |   |   |
|   | 2.21                                              | SEC  Reports                                   |   |   |
|   | 2.22                                              | No Market Manipulation                         |   |   |
|   | 2.23                                              | Listing                                        |   |   |
|   | 2.24                                              | No Integrated Offering                         |   |   |
|   | 2.25                                              | Stop Transfer                                  |   |   |
|   | 2.26                                              | Dilution                                       |   |   |
|   | 2.27                                              | Material Agreements                            |   |   |
|   | 2.28                                              | ERISA                                          |   |   |
|   | 2.29                                              | Solvency                                       |   |   |
|   |                                              |                                           |   |   |
| 3.     | REPRESENTATIONS AND WARRANTIES OF THE  PURCHASER. |                                           |   |
|   | 3.1                                               | Requisite Power and Authority                  |   |   |
|        |                                                   |                                                |        |  |  |

 

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|   | 3.2                                                         | Investment Representations                 |   |   |
|--------|-------------------------------------------------------------|--------------------------------------------|--------|--------|
|   | 3.3                                                         | Purchaser Bears Economic Risk              |   |   |
|   | 3.4                                                         | Acquisition for Own Account                |   |   |
|   | 3.5                                                         | Purchaser Can Protect Its Interest         |   |   |
|   | 3.6                                                         | Accredited Investor                        |   |   |
|   | 3.7                                                         | Legends.                                   |   |   |
|   |                                                        |                                       |   |   |
| 4.     | COVENANTS OF THE COMPANY.                                   |                                       |   |
|   | 4.1                                                         | Stop-Orders                                |   |   |
|   | 4.2                                                         | Listing                                    |   |   |
|   | 4.3                                                         | Market Regulations                         |   |   |
|   | 4.4                                                         | Reporting Requirements                     |   |   |
|   | 4.5                                                         | Use  of Funds                              |   |   |
|   | 4.6                                                         | Access to Facilities                       |   |   |
|   | 4.7                                                         | Offering Restrictions                      |   |   |
|   | 4.8                                                         | Insurance                                  |   |   |
|   | 4.9                                                         | Intellectual Property                      |   |   |
|   | 4.10                                                        | Financial Information                      |   |   |
|   | 4.11                                                        | Reservation of Shares                      |   |   |
|   | 4.12                                                        | Confidentiality                            |   |   |
|   | 4.13                                                        | Corporate Existence                        |   |   |
|   | 4.14                                                        | Reissuance of Securities                   |   |   |
|   | 4.15                                                        | Priority of Notes                          |   |   |
|   | 4.16                                                        | Expenses and Other Payments                |   |   |
|   | 4.17                                                        | Transfer and Depositary Agent Instructions |   |   |
|   |                                                        |                                       |   |   |
| 5.     | CONDITIONS TO THE COMPANY’S OBLIGATION  TO SELL.       |                                       |   |
|   | 5.1                                                         | Execution                                  |   |   |
|   | 5.2                                                         | Payment                                    |   |   |
|   | 5.3                                                         | Representations and Warranties             |   |   |
|   |                                                        |                                       |   |   |
| 6.     | CONDITIONS TO THE PURCHASER’S  OBLIGATION TO PURCHASE. |                                       |   |
|   | 6.1                                                         | Execution                                  |   |   |
|   | 6.2                                                         | Exchange Listing                           |   |   |
|   | 6.3                                                         | Representations and Warranties             |   |   |
|   | 6.4                                                         | Legal Opinion                              |   |   |
|   | 6.5                                                         | Delivery of Securities                     |   |   |
|   | 6.6                                                         | Board Resolutions                          |   |   |
|   | 6.7                                                         | Reservation of Shares                      |   |   |
|   | 6.8                                                         | Transfer Agent Instructions                |   |   |
|   | 6.9                                                         | Good Standing Certificates                 |   |   |
|   | 6.10                                                        | Secretary’s Certificate               |   |   |
|   | 6.11                                                        | Filings                                    |   |   |
|   | 6.12                                                        | Security Agreement                         |   |   |
|   | 6.13                                                        | Other Transaction Documents                |   |   |
|        |                                                             |                                            |        |        |  |

 

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| 7.     | COVENANTS OF THE COMPANY AND THE  PURCHASER REGARDING INDEMNIFICATION. |
|--------|------------------------------------------------------------------------|
|   | 7.1                                                                    | Company Indemnification |   |   |
|   | 7.2                                                                    | Purchaser’s Indemnification |   |   |
|   | 7.3                                                                    | Procedures |   |   |
|   |                                                                   |   |   |   |
| 8.     | MISCELLANEOUS.                                                         |
|   |                                                                   |
|   | 8.1                                                                    | Governing Law |   |   |
|   | 8.2                                                                    | Survival |   |   |
|   | 8.3                                                                    | Successors and Assigns |   |   |
|   | 8.4                                                                    | Entire Agreement |   |   |
|   | 8.5                                                                    | Severability |   |   |
|   | 8.6                                                                    | Amendment and Waiver. |   |   |
|   | 8.7                                                                    | Delays or Omissions |   |   |
|   | 8.8                                                                    | Notices |   |   |
|   | 8.9                                                                    | Titles and Subtitles |   |   |
|   | 8.10                                                                   | Facsimile Signatures; Counterparts |   |   |
|   | 8.11                                                                   | Broker’s  Fees |   |   |
|   | 8.12                                                                   | Construction |   |   |
|        |                                                                        |  |  |  |  |

 

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**DIGITALANGEL CORPORATION**

** **

**SECURITIESPURCHASE AGREEMENT**

** **

**THIS SECURITIES PURCHASE AGREEMENT**(the “**Agreement**”) is made and entered into as ofJuly 31, 2003, by and among Digital Angel Corporation, a Delawarecorporation (the “**Company**”), and Laurus Master Fund, Ltd.(the “**Purchaser**”).

 

**RECITALS**

 

**Whereas**,the Company and the Purchaser are executing and delivering this Agreement inreliance upon the exemption from securities registration afforded by Rule 506of Regulation D (“**Regulation D**”) as promulgated by the UnitedStates Securities and Exchange Commission (the “**SEC**”) under the SecuritiesAct of 1933, as amended (the “**1933 Act**”);

 

**Whereas**,the Company desires to sell and the Purchaser desires to purchase, upon theterms and conditions stated in this Agreement, (i) a secured convertible noteof the Company substantially in the form attached as Exhibit A in the principalamount of $2,000,000 (together with any secured convertible notes issued inexchange therefor or replacement thereof in accordance with the terms thereof,the “**Note**”)and (ii) a warrant substantially in the form attached as Exhibit B (the “**Warrant**”)to acquire 125,000 shares of the Company’s common stock (the “**WarrantShares**”);

 

**Whereas**,the Note shall be convertible into shares of the Company’s common stock (the “**ConversionShares**”), in accordance with the terms of the Note (the Note, theWarrant, the Conversion Shares and the Warrant Shares are referred to hereincollectively as the “**Securities**”); and

 

**Whereas**,contemporaneously with the execution and delivery of this Agreement, theparties hereto are executing and delivering a Registration Rights Agreementsubstantially in the form attached as Exhibit C (the “**Registration Rights Agreement**”)pursuant to which the Company has agreed to provide certain registration rightsunder the 1933 Act and the rules and regulations promulgated thereunder, andapplicable state securities laws.

 

**Whereas**,contemporaneously with the execution and delivery of this Agreement, theparties hereto are executing and delivering a Security Agreement substantiallyin the form attached as Exhibit D (the “**Security Agreement**”) pursuant to which theCompany has agreed to provide the Purchaser with a security interest in certainassets of the Company.

 

**AGREEMENT**

 

**NOW, THEREFORE**, in consideration of the foregoing recitals and the mutual promises,representations, warranties and covenants hereinafter set forth and for othergood and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties hereto agree as follows:

 

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# **1.**              PURCHASE AND SALE OF NOTE AND WARRANT.

# ** **

## **1.1****                               Purchaseof Note and Warrant**.  Subject to the satisfaction (or waiver) ofthe conditions set forth in Sections 5 and 6 below, the Company shall issue andsell to the Purchaser and the Purchaser agrees to purchase from the Company theNote and the Warrant.  The purchaseprice (the “**Purchase Price**”) of the Note and the Warrant at the closing(the “**Closing**”)shall be equal to $1.00 for each $1.00 of principal amount of the Notepurchased (representing an aggregate Purchase Price of $2,000,000).

##  

## **1.2****                               The ClosingDate**.  The date and time of the Closing (the “**Closing Date**”)shall be at such time and place as is mutually agreed to by the Company and thePurchaser, subject to the satisfaction (or waiver) of all of the conditions tothe Closing set forth in Sections 5 and 6.

##  

## **1.3****                               Form of Payment**. Pursuant to a Funds Escrow Agreement(the “Funds Escrow Agreement”), on the Closing Date, (i) the Purchaser shallpay the Purchase Price to the Company for the Note and the Warrant by wiretransfer of immediately available funds in accordance with the Company’swritten wire instructions, less any amount withheld for expenses and otherpayments pursuant to Section 4.16, and (ii) the Company shall deliver to thePurchaser the Note representing the principal amount of the Note that thePurchaser is then purchasing hereunder along with the Warrant, duly executed onbehalf of the Company and registered in the name of the Purchaser or itsdesignee.

##  

# **2.**              REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

# ** **

The Company hereby represents and warrants to the Purchaser as ofthe date of this Agreement as set forth below except as disclosed in theCompany’s filings under the Securities Exchange Act of 1934 (collectively, the“**ExchangeAct Filings**”) or the Schedules hereto.

 

## **2.1****                              ****Organization****, Good Standing and Qualification**.  The Company is a corporation duly organized,validly existing and in good standing under the laws of the jurisdiction of itsincorporation and is qualified to do business and in good standing in eachother jurisdiction in which the ownership or leasing of its properties or thenature of its business requires such qualification, except to the extent thatthe failure to be so qualified or be in good standing would not have a MaterialAdverse Effect.  As used in thisAgreement, “**Material Adverse Effect**” means any material adverse effect onthe business, properties, assets, operations, results of operations, financialcondition or prospects of the Company, or on the transactions contemplatedhereby, or by the other documents, instruments or the agreements to be enteredinto in connection herewith, or on the authority or ability of the Company toperform its obligations under the Offering Documents.

##  

## **2.2****                               Subsidiaries**. Schedule 2.2 hereto sets forth each subsidiary of the Company, showingthe jurisdiction of its incorporation or organization and showing thepercentage of each person’s ownership of the outstanding stock or otherinterests of such subsidiary.  For the purposesof this Agreement, “subsidiary” shall mean any corporation or other entity ofwhich at least a majority of the securities or other ownership interest havingordinary voting power (absolutely or contingently) for the election ofdirectors or other persons

 

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performingsimilar functions are at the time owned directly or indirectly by the Companyand/or any of its other subsidiaries. All of the outstanding shares of capital stock of each subsidiary havebeen duly authorized and validly issued, and are fully paid andnonassessable.  There are no outstandingpreemptive, conversion or other rights, options, warrants or agreements grantedor issued by or binding upon any subsidiary for the purchase or acquisition ofany shares of capital stock of any subsidiary or any other securitiesconvertible into, exchangeable for or evidencing the rights to subscribe forany shares of such capital stock. Neither the Company nor any subsidiary is subject to any obligation(contingent or otherwise) to repurchase or otherwise acquire or retire anyshares of the capital stock of any subsidiary or any convertible securities,rights, warrants or options of the type described in the preceding sentence.  Neither the Company nor any subsidiary isparty to, nor has any knowledge of, any agreement restricting the voting ortransfer of any shares of the capital stock of any subsidiary.

##  

## **2.3****                               Capitalization; Voting Rights**.

##  

#### **(a)****                                 **The authorized capital stock of theCompany, as of June 30, 2003, consists of (i)1,000,000 shares of preferredstock, par value $1.75 per share, no shares of which are issued andoutstanding, and (ii) 95,000,000 shares of common stock, par value $.005 pershare (the “**Common Stock**”), 26,858,239 shares of which are issued andoutstanding.

####  

#### **(b)****                                 **Except as disclosed on Schedule 2.3(b),other than (i) the shares reserved for issuance under the Company’s stockoption plans; and (ii) shares which may be granted pursuant to this Agreementand the Transaction Documents, there are no outstanding options, warrants,rights (including preemptive rights and rights of first refusal) to subscribeto, call or commitment of any character whatsoever relating to, or securitiesor rights convertible into, any shares of capital stock of the Company (suchSchedule 2.3 shall provide the exercise or conversion term, exercise orconversion price, vesting period, holders of such options, warrants orconvertible securities and the amount granted or issued to each holder).  Except as described in Schedule 2.3(b),there exists no proxy or stockholder agreements, or arrangements or agreementsof any kind, for the purchase or acquisition from the Company of any of itssecurities.  Neither the offer, issuanceor sale of any of the Note or Warrant, or the issuance of any of the ConversionShares or Warrant Shares, nor the consummation of any transaction contemplatedhereby, will result in a change in the price or number of any securities of theCompany outstanding, under anti-dilution or other similar provisions containedin or affecting any such securities.

####  

#### **(c)****                                 **All issued and outstanding shares of theCompany’s Common Stock (i) have been duly authorized and validly issued and arefully paid and nonassessable and (ii) together with the offer and sale of allconvertible securities, rights, warrants, or options of the Company, wereissued in compliance with all applicable state and federal laws concerning theissuance of securities, and no stockholder has a right of rescission or damagesagainst the Company with respect thereto.

####  

#### **(d)****                                 **The rights, preferences, privileges andrestrictions of the shares of the Common Stock are as stated in the Company’sCertificate of Incorporation, as amended to the date of this Agreement (the “**Charter**”).  The Conversion Shares and Warrant Shareshave been duly and validly reserved for issuance.  When issued in compliance with the provisions of

 

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this Agreement and the Company’s Charter,the Securities will be validly issued, fully paid and nonassessable, and willbe free of any liens or encumbrances, other than those that may be created withrespect to the Purchaser or its property; *provided, however*, that the Securities maybe subject to restrictions on transfer under state and/or federal securitieslaws as set forth herein or as otherwise required by such laws at the time atransfer is proposed, except to the extent that such restrictions shall beeliminated by virtue of the Registration Rights Agreement.

####  

## **2.4****                               Authorization;Binding Obligations**.  All corporate action on the part of theCompany necessary for the authorization of this Agreement, the Note, theWarrant, the Registration Rights Agreement, the Funds Escrow Agreement and theSecurity Agreement (collectively, the “**Transaction Documents**”), the performance ofall obligations of the Company hereunder at the applicable Closing, and theauthorization, sale, issuance and delivery of the Note and Warrant has beentaken or will be taken prior to the Closing and no further consent orauthorization of the Company, its board of directors or stockholders isrequired.  This Agreement and the otherTransaction Documents, when executed and delivered and to the extent that theCompany is a party thereto, will be valid and binding obligations of theCompany enforceable in accordance with their terms, except (a) as limited byapplicable bankruptcy, insolvency, reorganization, moratorium or other laws ofgeneral application affecting enforcement of creditors’ rights, and (b) generalprinciples of equity that restrict the availability of equitable or legalremedies.  The sale of the Note and thesubsequent conversion of the Note into Conversion Shares are not and will notbe subject to any preemptive rights or rights of first refusal that have notbeen properly waived or complied with. The issuance of the Warrant and thesubsequent exercise of the Warrant for Warrant Shares are not and will not besubject to any preemptive rights or rights of first refusal that have not beenproperly waived or complied with.  TheNote and the Warrant, when executed and delivered in accordance with the termsof this Agreement, will be valid and binding obligations of the Company,enforceable in accordance with their respective terms, except (a) as limited byapplicable bankruptcy, insolvency, reorganization, moratorium or other laws ofgeneral application affecting enforcement of creditors’ rights, and (b) generalprinciples of equity that restrict the availability of equitable or legalremedies.

##  

## **2.5****                               Liabilities**. The Company has no material liabilities and, to the best of itsknowledge, knows of no material contingent liabilities, except currentliabilities incurred in the ordinary course of business and liabilities disclosedin the Company’s most recent Exchange Act Filing.

##  

## **2.6****                               Agreements;Action**.  Except as set forth on Schedule 2.6:

##  

#### **(a)****                                 **There are no agreements, understandings,instruments, contracts, proposed transactions, judgments, orders, writs ordecrees to which the Company is a party or to its knowledge by which it isbound which may involve (i) obligations (contingent or otherwise) of, orpayments to, the Company in excess of $50,000 (other than obligations of, orpayments to, the Company arising from purchase or sale agreements entered intoin the ordinary course of business), or (ii) the transfer or license of anypatent, copyright, trade secret or other proprietary right to or from theCompany (other than licenses arising from the purchase of “off the shelf” orother standard products), or (iii) provisions restricting the development,manufacture or

 

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distribution of the Company’s products orservices, or (iv) indemnification by the Company with respect to infringementsof proprietary rights.

####  

#### **(b)****                                 **The Company has not (i) declared or paidany dividends, or authorized or made any distribution upon or with respect toany class or series of its capital stock, (ii) incurred any indebtedness formoney borrowed or any other liabilities individually in excess of $50,000 or,in the case of indebtedness and/or liabilities individually less than $50,000,in excess of $150,000 in the aggregate, (iii) made any loans or advances to anyperson or entity in excess, individually or in the aggregate, of $100,000, otherthan ordinary advances for travel expenses, or (iv) sold, exchanged orotherwise disposed of any of its assets or rights, other than the sale of itsinventory in the ordinary course of business. Except as disclosed in Schedule 2.6(b), neither the Company nor anysubsidiary is in default with respect to any indebtedness.

####  

#### **(c)****                                 **For the purposes of subsections (a) and(b) above, all indebtedness, liabilities, agreements, understandings,instruments, contracts and proposed transactions involving the same person orentity (including persons or entities the Company has reason to believe areaffiliated therewith) shall be aggregated for the purpose of meeting theindividual minimum dollar amounts of such subsections.

####  

## **2.7****                               Obligationsto Related Parties**.  Except as set forth in Schedule 2.7, thereare no obligations of the Company to officers, directors, stockholders oremployees of the Company other than (a) for payment of salary for servicesrendered, (b) reimbursement for reasonable expenses incurred on behalf of theCompany, (c) for other standard employee benefits made generally available toall employees (including stock option agreements outstanding under any stockoption plan approved by the Board of Directors of the Company) and (d)obligations listed in the Company’s financial statements or disclosed in any ofits Exchange Act Filings.  Except asdescribed above or set forth on Schedule 2.7, none of the officers, directorsor, to the best of the Company’s knowledge, key employees or stockholders ofthe Company or any members of their immediate families, are indebted to theCompany, individually or in the aggregate, in excess of $50,000 or have anydirect or indirect ownership interest in any firm or corporation with which theCompany is affiliated or with which the Company has a business relationship, orany firm or corporation which competes with the Company, other than passiveinvestments in publicly traded companies (representing less than 1% of suchcompany) which may compete with the Company. Except as described above, no officer, director or stockholder, or anymember of their immediate families, is, directly or indirectly, interested inany material contract with the Company and no agreements, understandings orproposed transactions are contemplated between the Company and any suchperson.  Except as set forth on Schedule2.7, the Company is not a guarantor or indemnitor of any indebtedness of anyother person, firm or corporation.

##  

## **2.8****                               Changes**.  SinceDecember 31, 2002, except as disclosed in any Schedule to this Agreementor to any of the other Transaction Documents, there has not been:

##  

#### **(a)****                                 **Any change in the assets, liabilities,financial condition, prospects or operations of the Company, other than changesin the ordinary course of business, none of which individually or in theaggregate has had or is reasonably expected to have a material

 

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adverse effect on such assets,liabilities, financial condition, prospects or operations of the Company;

####  

#### **(b)****                                 **Any resignation or termination of anyofficer, key employee or group of employees of the Company;

####  

#### **(c)****                                 **Any material change, except in theordinary course of business, in the contingent obligations of the Company byway of guaranty, endorsement, indemnity, warranty or otherwise;

####  

#### **(d)****                                 **Any damage, destruction or loss, whetheror not covered by insurance, materially and adversely affecting the properties,business or prospects or financial condition of the Company;

####  

#### **(e)****                                 **Any waiver by the Company of a valuableright or of a material debt owed to it;

####  

#### **(f)****                                   **Any direct or indirect material loansmade by the Company to any stockholder, employee, officer or director of theCompany, other than advances made in the ordinary course of business;

####  

#### **(g)****                                **Any material change in any compensationarrangement or agreement with any employee, officer, director or stockholder;

####  

#### **(h)****                                **Any declaration or payment of anydividend or other distribution of the assets of the Company;

####  

#### **(i)****                                   **Any labor organization activity relatedto the Company;

####  

#### **(j)****                                   **Any debt, obligation or liabilityincurred, assumed or guaranteed by the Company, except those for immaterialamounts and for current liabilities incurred in the ordinary course ofbusiness;

####  

#### **(k)****                               **Any sale, assignment or transfer of anypatents, trademarks, copyrights, trade secrets or other intangible assets;

####  

#### **(l)****                                   **Any change in any material agreement towhich the Company is a party or by which it is bound which may materially andadversely affect the business, assets, liabilities, financial condition,operations or prospects of the Company;

####  

#### **(m)****                             **Any other event or condition of anycharacter that, either individually or cumulatively, has or may materially andadversely affect the business, assets, liabilities, financial condition,prospects or operations of the Company; or

####  

#### **(n)****                                **Any arrangement or commitment by theCompany to do any of the acts described in subsection (a) through (m) above.

 

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## **2.9****                               Titleto Properties and Assets; Liens, Etc.** The Company has good and marketabletitle to its properties and assets, and good title to its leasehold estates, ineach case subject to no mortgage, pledge, lien, lease, encumbrance or charge,other than (a) those resulting from taxes which have not yet become delinquent,(b) minor liens and encumbrances which do not materially detract from the valueof the property subject thereto or materially impair the operations of theCompany, and (c) those that have otherwise arisen in the ordinary course ofbusiness.  All facilities, machinery,equipment, fixtures, vehicles and other properties owned, leased or used by theCompany are in good operating condition and repair and are reasonably fit andusable for the purposes for which they are being used.  The Company is in compliance with allmaterial terms of each lease to which it is a party or is otherwise bound.

##  

## **2.10****                        IntellectualProperty.**

##  

#### **(a)****                                 **The Company owns or possesses sufficientlegal rights to all patents, trademarks, service marks, trade names,copyrights, trade secrets, licenses, information and other proprietary rightsand processes necessary for its business as now conducted and to the Company’sknowledge as presently proposed to be conducted (the “**Intellectual Property**”),without any known infringement of the rights of others.  There are no outstanding options, licensesor agreements of any kind relating to the foregoing proprietary rights, nor isthe Company bound by or a party to any options, licenses or agreements of any kindwith respect to the patents, trademarks, service marks, trade names,copyrights, trade secrets, licenses, information and other proprietary rightsand processes of any other person or entity other than such licenses oragreements arising from the purchase of “off the shelf” or standard products.

####  

#### **(b)****                                 **The Company has not received anycommunications alleging that the Company has violated any of the patents,trademarks, service marks, trade names, copyrights or trade secrets or otherproprietary rights of any other person or entity, nor is the Company aware ofany basis therefor.

####  

#### **(c)****                                 **The Company does not believe it is orwill be necessary to utilize any inventions, trade secrets or proprietaryinformation of any of its employees made prior to their employment by theCompany, except for inventions, trade secrets or proprietary information thathave been rightfully assigned to the Company.

####  

## **2.11****                        Compliancewith Other Instruments**.  The Company is not in violation or defaultof any term of its Charter or its bylaws as currently in effect (the “**Bylaws**”),or of any material provision of any mortgage, indenture, contract, agreement,instrument or contract to which it is party or by which it is bound or of anyjudgment, decree, order or writ.  Theexecution, delivery and performance of and compliance with this Agreement andthe other Transaction Documents to which it is a party, and the issuance andsale of the Note and Warrant by the Company and the other Securities by theCompany each pursuant hereto and thereto, will not, with or without the passageof time or giving of notice, result in any such material violation, or be inconflict with or constitute a default under any such term or provision, orresult in the creation of any mortgage, pledge, lien, encumbrance or chargeupon any of the properties or assets of the Company or the suspension,revocation, impairment, forfeiture or nonrenewal of any permit, license,authorization or approval applicable to the Company, its business or operationsor any of its assets or properties.

 

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## **2.12****                        Litigation**. There is no action, suit, proceeding or investigation pending or, to theCompany’s knowledge, currently threatened against the Company or any subsidiarythat prevents the Company to enter into this Agreement or the other TransactionDocuments, or to consummate the transactions contemplated hereby orthereby.  Except as set forth onSchedule 2.12 hereto, there is no action, suit, proceeding or investigationpending or, to the knowledge of the Company, threatened, against or involvingthe Company, any subsidiary of the Company or any of their respectiveproperties or assets which individually or in the aggregate would have aMaterial Adverse Effect. The Company is not a party or subject to theprovisions of any order, writ, injunction, judgment or decree of any court orgovernment agency or instrumentality. There is no action, suit, proceeding or investigation by the Companycurrently pending or which the Company intends to initiate.

##  

## **2.13****                        TaxReturns and Payments**.  The Company has timely filed all tax returns(federal, state and local) required to be filed by it of which the failure tofile would have a material adverse effect. All taxes shown to be due and payable on such returns, any assessmentsimposed, and to the Company’s knowledge all other taxes due and payable by theCompany on or before the Closing, have been paid or will be paid prior to thetime they become delinquent.  TheCompany has not been advised (a) that any of its returns, federal, state orother, have been or are being audited as of the date hereof, or (b) of anydeficiency in assessment or proposed judgment to its federal, state or othertaxes.  The Company has no knowledge ofany liability of any tax to be imposed upon its properties or assets as of thedate of this Agreement that is not adequately provided for.

##  

## **2.14****                        Employees**.  Except as setforth on Schedule 2.14, the Company has no collective bargaining agreementswith any of its employees.  There is nolabor union organizing activity pending or, to the Company’s knowledge,threatened with respect to the Company. The Company is not a party to or bound by any currently effectiveemployment contract, deferred compensation arrangement, bonus plan, incentiveplan, profit sharing plan, retirement agreement or other employee compensationplan or agreement.  To the Company’sknowledge, no employee of the Company, nor any consultant with whom the Companyhas contracted, is in violation of any term of any employment contract,proprietary information agreement or any other agreement relating to the rightof any such individual to be employed by, or to contract with, the Companybecause of the nature of the business to be conducted by the Company; and tothe Company’s knowledge the continued employment by the Company of its presentemployees, and the performance of the Company’s contracts with its independentcontractors, will not result in any such violation.  The Company is not aware that any of its employees is obligatedunder any contract (including licenses, covenants or commitments of any nature)or other agreement, or subject to any judgment, decree or order of any court oradministrative agency, that would interfere with their duties to theCompany.  The Company has not receivedany notice alleging that any such violation has occurred.  Except for employees who have a currenteffective employment agreement with the Company, no employee of the Company hasbeen granted the right to continued employment by the Company or to anymaterial compensation following termination of employment with theCompany.  The Company is not aware thatany officer, key employee or group of employees intends to terminate his, heror their employment with the Company, nor does the Company have a presentintention to terminate the employment of any officer, key employee or group ofemployees.

 

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## **2.15****                        Registration Rights and Voting Rights**.  Except as set forth in Schedule 2.15, theCompany is presently not under any obligation, and has not granted any rights,or a party to any agreement, to register any of the Company’s presentlyoutstanding securities or any of its securities that may hereafter beissued.  To the Company’s knowledge, andexcept as set forth in Schedule 2.3(b), no stockholder of the Company hasentered into any agreement with respect to the voting or transfer of any equitysecurities of the Company.

##  

## **2.16****                        Compliancewith Laws; Permits**.  To its knowledge, the Company is not inviolation in any material respect of any applicable statute, rule, regulation,order or restriction of any domestic or foreign government or anyinstrumentality or agency thereof in respect of the conduct of its business orthe ownership of its properties which violation would materially and adverselyaffect the business, assets, liabilities, financial condition, operations orprospects of the Company.  Nogovernmental orders, permissions, consents, approvals or authorizations arerequired to be obtained and no registrations or declarations are required to befiled in connection with the execution and delivery of this Agreement and theissuance of any of the Securities, except such as has been duly and validlyobtained or filed, or with respect to any filings that must be made after theClosing, as will be filed in a timely manner. The Company has all material franchises, permits, licenses and anysimilar authority necessary for the conduct of its business as now beingconducted by it, the lack of which would materially and adversely affect the business,properties, prospects or financial condition of the Company.

##  

## **2.17****                        Environmentaland Safety Laws**.  The Company is not in violation of anyapplicable statute, law or regulation relating to the environment oroccupational health and safety, and to its knowledge, no material expendituresare or will be required in order to comply with any such existing statute, lawor regulation.  No Hazardous Materials(as defined below) are used or have been used, stored, or disposed of by theCompany or, to the Company’s knowledge, by any other person or entity on anyproperty owned, leased or used by the Company. For the purposes of the preceding sentence, “**Hazardous Materials**” shallmean (a) materials which are listed or otherwise defined as “**hazardous**”or “**toxic**”under any applicable local, state, federal and/or foreign laws and regulationsthat govern the existence and/or remedy of contamination on property, theprotection of the environment from contamination, the control of hazardouswastes, or other activities involving hazardous substances, including buildingmaterials, or (b) any petroleum products or nuclear materials.

##  

## **2.18****                        Valid Offering**. Assuming the accuracy of the representations and warranties of thePurchaser contained in this Agreement, the offer, sale and issuance of theSecurities will be exempt from the registration requirements of the 1933 Act,and will have been registered or qualified (or are exempt from registration andqualification) under the registration, permit or qualification requirements ofall applicable state securities laws. Neither the Company nor any of its affiliates, nor any person acting onits or their behalf, has engaged in any form of general solicitation or generaladvertising (within the meaning of Regulation D) in connection with the offeror sale of the Securities.

##  

## **2.19****                        Full Disclosure**. The Company has provided the Purchaser with all information requested bythe Purchaser in connection with its decision to purchase the Note and Warrant,including all information the Company believes is reasonably necessary to makesuch investment decision.  Neither thisAgreement, the exhibits and schedules hereto, the other

 

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TransactionDocuments nor any other document delivered by the Company to Purchaser or itsattorneys or agents in connection herewith or therewith or with thetransactions contemplated hereby or thereby, contain any untrue statement of amaterial fact nor omit to state a material fact necessary in order to make the statementscontained herein or therein, in light of the circumstances in which they aremade, not misleading.  Any financialprojections and other estimates provided to the Purchaser by the Company werebased on the Company’s experience in the industry and on assumptions of factand opinion as to future events which the Company, at the date of the issuanceof such projections or estimates, believed to be reasonable.  As of the date hereof, no facts have come tothe attention of the Company that would, in its opinion, require the Company torevise or amplify in any material respect the assumptions underlying suchprojections and other estimates or the conclusions derived therefrom.

##  

## **2.20****                        Insurance**.  The Company hasgeneral commercial, product liability, fire and casualty insurance policieswith coverage customary for companies similarly situated to the Company in thesame or similar business.

##  

## **2.21****                        SEC Reports**. The Common Stock of the Company is registered pursuant to Section 12(b)or 12(g) of the Securities Exchange Act of 1934 (the “**Exchange Act**”) and, sinceJanuary 1, 2002, the Company has timely filed all proxy statements,reports, schedules, forms, statements and other documents required to be filedby it under the Exchange Act, except for its Quarterly Report on Form 10-Q forthe quarter ended March 31, 2002. The Company has furnished the Purchaser with copies of (i) its AnnualReport on Form 10-K for the fiscal year ended December 31, 2002, (ii) itsQuarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003and (iii) its Proxy Statement filed with the SEC on April 17, 2003(collectively, the “**SEC Reports**”).  The Company is eligible to file a registration statement on FormS-3 with the SEC.  Each SEC Report was,at the time of its filing, in substantial compliance with the requirements ofits respective form and none of the SEC Reports, nor the financial statements(and the notes thereto) included in the SEC Reports, as of their respectivefiling dates, contained any untrue statement of a material fact or omitted tostate a material fact required to be stated therein or necessary to make thestatements therein, in light of the circumstances under which they were made,not misleading.  The financial statementsof the Company included in the SEC Reports comply as to form in all materialrespects with applicable accounting requirements and the published rules andregulations of the SEC or other applicable rules and regulations with respectthereto.  Such financial statements havebeen prepared in accordance with United States generally accepted accountingprinciples (“**GAAP**”) applied on a consistent basis during the periodsinvolved (except (i) as may be otherwise indicated in such financial statementsor the notes thereto or (ii) in the case of unaudited interim statements, tothe extent they may not include footnotes or may be condensed) and fairlypresent in all material respects the financial position of the Company and itssubsidiaries as of the dates thereof and the results of operations and cashflows for the periods then ended (subject, in the case of unaudited statements,to normal year-end audit adjustments).

##  

## **2.22****                        No MarketManipulation**.  The Company has not taken, and will nottake, directly or indirectly, any action designed to, or that might reasonablybe expected to, cause or result in stabilization or manipulation of the priceof the Common Stock of the Company to facilitate the sale or resale of any ofthe Securities being offered hereby or affect the price at which any of theSecurities being offered hereby may be issued.

 

10

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## **2.23****                        Listing**.  The Company’sCommon Stock is listed for trading on the American Stock Exchange and satisfiesall requirements for the continuation of such listing.  The Company has not received any notice thatits Common Stock will be delisted from the American Stock Exchange or that theCommon Stock and the Company do not meet all requirements for the continuationof such listing.

##  

## **2.24****                        NoIntegrated Offering**.  Neither the Company, nor any of itsaffiliates, nor any person acting on its or their behalf, has directly orindirectly made any offers or sales of any security or solicited any offers tobuy any security under circumstances that would cause the offering of theSecurities pursuant to this Agreement to be integrated with prior offerings bythe Company for purposes of the 1933 Act which would prevent the Company fromselling the Securities pursuant to Rule 506 under the 1933 Act, or anyapplicable exchange-related stockholder approval provisions, nor will theCompany or any of its affiliates or subsidiaries take any action or steps thatwould cause the offering of the Securities to be integrated with otherofferings.

##  

## **2.25****                        Stop Transfer**. The Securities are restricted securities as of the date of thisAgreement.  The Company will not issueany stop transfer order or other order impeding the sale and delivery of any ofthe Securities at such time as the Securities are registered for public sale,whether as a result of the Registration Rights Agreement or otherwise, or anexemption from registration is available, except as required by federalsecurities laws.

##  

## **2.26****                        Dilution**.  The Companyunderstands the nature of the Securities being sold hereby and recognizes thatthey may have a potential dilutive effect. The Company specifically acknowledges that its obligation to issue theshares of Common Stock upon conversion of the Note and exercise of the Warrantis binding upon the Company and enforceable regardless of the dilution suchissuance may have on the ownership interests of other shareholders of theCompany.

##  

## **2.27****                        MaterialAgreements**.  There is no agreement that has not beenfiled with the SEC as an exhibit to a registration statement or otherapplicable form the breach of which could have a material adverse effect as tothe Company and its subsidiaries, or would prohibit or otherwise interfere withthe ability of the Company to enter into and perform and of its obligationsunder this Agreement in any material respect.

##  

## **2.28****                        ERISA**.  Based upon theEmployee Retirement Income Security Act of 1974 (“**ERISA**”), and the regulationsand published interpretations thereunder: (i) the Company has not engaged inany Prohibited Transactions as defined in Section 406 of ERISA and Section 4975of the Internal Revenue Code, as amended; (ii) the Company has met allapplicable minimum funding requirements under Section 302 of ERISA in respectof its plans; (iii) the Company does not have any knowledge of any event oroccurrence which would cause the Pension Benefit Guaranty Corporation toinstitute proceedings under Title IV of ERISA to terminate any employee benefitplan(s); (iv) the Company does not have any fiduciary responsibility forinvestments with respect to any plan existing for the benefit of persons otherthan Companies’ employees; and (v) the Company has not withdrawn, completely orpartially, from any multi-employer pension plan so as to incur liability underthe Multiemployer Pension Plan Amendments Act of 1980.

 

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## **2.29****                        Solvency**.  The Company issolvent, able to pay its debts as they mature, has capital sufficient to carryon its business and all businesses in which such Company is about to engage andthe fair saleable value of its assets (calculated on a going concern basis) isin excess of the amount of its liabilities.

##  

# **3.**              REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

# ** **

The Purchaser hereby represents and warrants to the Company asfollows:

 

## **3.1****                               RequisitePower and Authority**.  The Purchaser has all necessary power andauthority under all applicable provisions of law to execute and deliver thisAgreement and the Transaction Documents and to carry out their provisions.  All corporate action on Purchaser’s partrequired for the lawful execution and delivery of this Agreement and theTransaction Documents have been or will be effectively taken prior to theClosing.  Upon their execution anddelivery, this Agreement and the other Transaction Documents will be valid andbinding obligations of the Purchaser, enforceable in accordance with theirterms, except (a) as limited by applicable bankruptcy, insolvency,reorganization, moratorium or other laws of general application affectingenforcement of creditors’ rights, and (b) as limited by general principles ofequity that restrict the availability of equitable and legal remedies.

##  

## **3.2****                               InvestmentRepresentations**. The Purchaserunderstands that the Securities are being offered and sold pursuant to anexemption from registration contained in the 1933 Act based in part upon thePurchaser’s representations contained in this Agreement, including, withoutlimitation, that the Purchaser is an “accredited investor” within the meaningof Regulation D. The Purchaser has had an opportunity to ask questions andreceive answers from the Company regarding the Company’s business, managementand financial affairs and the terms and conditions of the offering and theSecurities and to obtain additional information (to the extent the Companypossessed such information or could acquire it without unreasonable effort orexpense) necessary to verify any information furnished to the Purchaser or towhich the Purchaser had access.

##  

## **3.3****                               PurchaserBears Economic Risk**.  The Purchaser has substantial experience in evaluatingand investing in private placement transactions of securities in companiessimilar to the Company so that it is capable of evaluating the merits and risksof its investment in the Company and has the capacity to protect its owninterests.  The Purchaser must bear theeconomic risk of this investment until the Securities are sold pursuant to (i)an effective registration statement under the 1933 Act, or (ii) an exemptionfrom registration is available.

##  

## **3.4****                               Acquisitionfor Own Account**.  The Purchaser is acquiring the Note and theWarrant for its own account for investment only, and not as a nominee or agentand not with a view towards or for resale in connection with theirdistribution.

##  

## **3.5****                               PurchaserCan Protect Its Interest**.  The Purchaser represents that by reason ofits, or of its management’s, business and financial experience, the Purchaserhas the capacity to evaluate the merits and risks of its investment in theSecurities and to protect its own interests in connection with the transactionscontemplated in this Agreement, and the other Transaction Documents.  Further, the Purchaser is aware of nopublication of any advertisement

 

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in connectionwith the transactions contemplated in the Agreement or the other TransactionDocuments.

##  

## **3.6****                               AccreditedInvestor**.  The Purchaser represents that it is anaccredited investor within the meaning of Regulation D.

##  

## **3.7****                               Legends**.

##  

#### **(a)****                                 **The Conversion Shares and the WarrantShares, if not issued by DWAC system (as hereinafter defined), shall bear alegend which shall be in substantially the following form until such shares arecovered by an effective registration statement filed with the SEC:

####  

“THESHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE SECURITIES LAWS.THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED INTHE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACTAND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TODIGITAL ANGEL CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

#### **(b)****                                 **The Warrant shall bear substantially thefollowing legend:

####  

“THISWARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANTHAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, ORAPPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SHARES OF COMMON STOCKISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENTAS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT ANDAPPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLYSATISFACTORY TO DIGITAL ANGEL CORPORATION THAT SUCH REGISTRATION IS NOTREQUIRED.”

 

# **4.**              COVENANTSOF THE COMPANY.

# ** **

The Company covenants and agrees with the Purchaser as follows:

 

## **4.1****                               Stop-Orders**. The Company will advise the Purchaser,promptly after it receives notice of issuance by the SEC, any state securitiescommission or any other regulatory authority of any stop order or of any orderpreventing or suspending any offering of any

 

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securities ofthe Company, or of the suspension of the qualification of the Common Stock ofthe Company for offering or sale in any jurisdiction, or the initiation of anyproceeding for any such purpose.

##  

## **4.2****                               Listing**. The Company will maintain the listing of its Common Stock on the theNasdaq Stock Market, American Stock Exchange or New York Stock Exchange (a “**PrincipalMarket**”), and will comply in all material respects with theCompany’s reporting, filing and other obligations under the bylaws or rules ofthe National Association of Securities Dealers, Inc. (“**NASD**”) and such exchanges, asapplicable.  The Company will providethe Purchaser copies of all notices it receives notifying the Company of thethreatened and actual delisting of the Common Stock from any Principal Market.

##  

## **4.3****                               MarketRegulations**.  The Company shall notify the SEC, NASD andapplicable state authorities, in accordance with their requirements, of thetransactions contemplated by this Agreement, and shall take all other necessaryaction and proceedings as may be required and permitted by applicable law, ruleand regulation, for the legal and valid issuance of the Securities to thePurchaser and promptly provide copies thereof to the Purchaser.

##  

## **4.4****                               ReportingRequirements. **The Company willtimely file with the SEC all reports required to be filed pursuant to theExchange Act and refrain from terminating its status as an issuer required bythe Exchange Act to file reports thereunder even if the Exchange Act or therules or regulations thereunder would permit such termination.  Within twenty-five (25) days after the endof each month, the Company will deliver to the Purchaser unaudited trialbalances as at the end of such month.

##  

## **4.5****                               Use of Funds**.  The Company agrees that it will use theproceeds of the sale of the Note and Warrant for general corporate purposesonly and that it will not use any of such proceeds to repay any indebtedness toany current executive officers, directors or principal stockholders of theCompany.

##  

## **4.6****                               Access toFacilities**.  The Company will permit any representativesdesignated by the Purchaser (or any transferee of the Purchaser), uponreasonable notice and during normal business hours, at such person’s expenseand accompanied by a representative of the Company, to (a) visit and inspectany of the properties of the Company, (b) examine the corporate and financialrecords of the Company (unless such examination is not permitted by federal,state or local law or by contract) and make copies thereof or extractstherefrom and (c) discuss the affairs, finances and accounts of any suchcorporations with the directors, officers and independent accountants of theCompany.

##  

## **4.7****                               OfferingRestrictions**.  Except as previously disclosed in the SECReports or in the Exchange Act Filings; or stock or stock options granted toemployees or directors of the Company; or equity or debt issued in connectionwith an acquisition of a business or assets by the Company; or the issuance bythe Company of stock in connection with the establishment of a joint venturepartnership or licensing arrangement; or as disclosed in Schedule 2.3(b) (theseexceptions hereinafter referred to as the “**Excepted Issuances**”), the Company will notissue any securities with a variable/floating conversion feature which are or

 

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could be (byconversion or registration) free-trading securities (i.e. common stock subjectto a registration statement) prior to the full repayment or conversion of theNote.

##  

## **4.8****                               Insurance**. The Company will keep its assets which are of an insurable characterinsured by financially sound and reputable insurers against loss or damage byfire, explosion and other risks customarily insured against by companies insimilar business similarly situated as the Company; and the Company willmaintain, with financially sound and reputable insurers, insurance againstother hazards and risks and liability to persons and property to the extent andin the manner customary for companies in similar business similarly situated asthe Company and to the extent available on commercially reasonable terms.

##  

## **4.9****                               IntellectualProperty**.  The Company shall maintain in full force andeffect its corporate existence, rights and franchises and all licenses andother rights to use Intellectual Property owned or possessed by it and reasonablydeemed to be necessary to the conduct of its business.

##  

## **4.10****                        FinancialInformation**.  The Company agrees to send the following tothe Purchaser:  (i) unless the followingare filed with the SEC through EDGAR and are available to the public through EDGAR,within one (1) day after the filing thereof with the SEC, a copy of its AnnualReport on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports onForm 8-K and any registration statements (other than on Form S-8) or amendmentsfiled pursuant to the 1933 Act;  (ii) onthe same day as the release thereof, facsimile copies of all press releasesissued by the Company or any of its Subsidiaries, unless available throughBloomberg Financial Markets (or any successor thereto) contemporaneously withthe release; and (iii) copies of any notices and other information madeavailable or given to the stockholders of the Company generally,contemporaneously with the making available or giving thereof to thestockholders.

##  

## **4.11****                        Reservationof Shares**.  The Company shall take all action necessaryto at all times have authorized, and reserved for the purpose of issuance, noless than 110% of the number of shares of Common Stock needed to provide forthe issuance of the Conversion Shares upon conversion of the entire outstandingNote (without regard to any limitations on conversions) and 110% of the numberof shares of Common Stock needed to provide for the issuance of the WarrantShares upon exercise of all outstanding Warrant (without regard to any limitationson exercises).

##  

## **4.12****                        Confidentiality**. The Company agrees that it will not disclose, and will not include inany public announcement, the name of the Purchaser, unless expressly agreed toby the Purchaser or unless and until such disclosure is required by law orapplicable regulation, and then only to the extent of such requirement.  The Purchaser agrees that it will notdisclose and will maintain as confidential all information it receives under orpursuant to the Transaction Documents, unless it is or becomes generallyavailable to the public other than as a result of disclosure by Purchaser, itis disclosed pursuant to a court order or the requirement of any governmentalauthority, or is required to be disclosed by law, regulation or legal processor is otherwise compelled in litigation.

##  

## **4.13****                        CorporateExistence**.  So long as the Purchaser beneficially ownsany of the Securities, the Company shall maintain its corporate existence andshall not sell all or

 

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substantiallyall of the Company’s assets, except in the event of a merger or consolidationor sale or transfer of all or substantially all of the Company’s assets wherethe surviving or successor entity in such transaction (i) assumes the Company’sobligations hereunder and the Transaction Documents and (ii) is a publiclytraded company whose common stock is quoted or listed on a Principal Market.

##  

## **4.14****                        Reissuanceof Securities**.  The Company agrees to reissue certificatesrepresenting the Securities without the legends set forth in Section 5.7 aboveat such time as (a) the holder thereof is permitted to dispose of suchSecurities pursuant to Rule 144(k) under the 1933 Act, or (b) upon resalesubject to an effective registration statement after such Securities areregistered under the 1933 Act.  TheCompany agrees to cooperate with the Purchaser in connection with all resalespursuant to Rule 144(d) and Rule 144(k) and provide legal opinions or suchtransfer agent instructions necessary to allow such resales provided theCompany and its counsel receive reasonably requested representations from theselling Purchaser and broker, if any.

##  

## **4.15****                       ****Priority of Notes**.  For so long as the Note is outstanding, inthe event that the Company or any of its Subsidiaries issues or incurs anyIndebtedness (as defined in the Note), it shall, or it shall cause anySubsidiary to, first enter into, and cause the lender to enter into, aSubordination Agreement, containing terms and conditions acceptable to thePurchaser.

##  

## **4.16****                        Expensesand Other Payments**. The Companyshall reimburse the Purchaser for its reasonable legal fees for servicesrendered to the Purchaser in preparation of this Agreement and the otherTransaction Documents, and reasonable expenses in connection with thePurchaser’s due diligence review of the Company and relevant matters.  Amounts payable hereunder and under Section6.10 of the Note shall be withheld by the Purchaser from the Purchase Price tobe paid at Closing.

##  

## **4.17****                        Transfer and Depositary Agent Instructions**. The Companyshall issue irrevocable instructions to its transfer agent in the form attachedhereto as Exhibit E (the “**Irrevocable Transfer Agent Instructions**”),and any subsequent transfer agent, to issue certificates, registered in thename of the Purchaser or its respective nominee(s), for the Conversion Sharesand the Warrant Shares in such amounts as specified from time to time by thePurchaser to the Company upon conversion of the Note or exercise of theWarrant.  Prior to registration of theConversion Shares and the Warrant Shares under the 1933 Act, all suchcertificates shall bear the restrictive legend specified in Section 3.7.  The Company warrants that no instructionother than the Irrevocable Transfer Agent Instructions referred to in thisSection 4.18 will be given by the Company to its transfer agent and that theSecurities shall otherwise be freely transferable on the books and records ofthe Company as and to the extent provided in this Agreement and theRegistration Rights Agreement.  If thePurchaser provides the Company with an opinion of counsel, in a generallyacceptable form, to the effect that a public sale, assignment or transfer ofthe Securities may be made without registration under the 1933 Act or thePurchaser provides the Company with reasonable assurances that the Securitiescan be sold pursuant to Rule 144 without any restriction as to the number ofsecurities acquired as of a particular date that can then be immediately sold,the Company shall permit the transfer, and, in the case of the ConversionShares and the Warrant Shares, promptly instruct its transfer agent to issueone or more certificates in such name and in such denominations as specified bythe

 

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Purchaser andwithout any restrictive legend.  TheCompany acknowledges that a breach by it of its obligations hereunder willcause irreparable harm to the Purchaser by vitiating the intent and purpose ofthe transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for abreach of its obligations under this Section 4.18 will be inadequate andagrees, in the event of a breach or threatened breach by the Company of theprovisions of this Section 4.18, that the Purchaser shall be entitled, inaddition to all other available remedies, to an order and/or injunctionrestraining any breach and requiring immediate issuance and transfer, withoutthe necessity of showing economic loss and without any bond or other securitybeing required.

##  

# **5.**              CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

# ** **

The obligation of the Company to issue and sell the Note and theWarrant to the Purchaser at the Closing is subject to the satisfaction, at orbefore the Closing Date, of each of the following conditions, provided thatthese conditions are for the Company’s sole benefit and may be waived by theCompany at any time in its sole discretion by providing the Purchaser withprior written notice thereof:

 

## **5.1****                               Execution**. The Purchaser shall have executed each of the TransactionDocuments to which it is a party and delivered the same to the Company.

##  

## **5.2****                               Payment**. The Purchaser shall have delivered to the Company thePurchase Price (less the amounts withheld pursuant to Section 4.16) by wiretransfer of immediately available funds pursuant to the wire instructionsprovided by the Company.

##  

## **5.3****                               Representationsand Warranties**. Therepresentations and warranties of the Purchaser shall be true and correct as ofthe date when made and as of the Closing Date as though made at that time(except for representations and warranties that speak as of a specific date,which shall be true and correct as of such date), and the Purchaser shall haveperformed, satisfied and complied with the covenants, agreements and conditionsrequired by the Transaction Documents to be performed, satisfied or compliedwith by the Purchaser at or prior to the Closing Date.

##  

# **6.**              CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE.

# ** **

The obligation of the Purchaser hereunder to purchase the Note andthe Warrant from the Company at the Closing is subject to the satisfaction, ator before the Closing Date, of each of the following conditions, provided thatthese conditions are for the Purchaser’s sole benefit and may be waived by thePurchaser at any time in its sole discretion by providing the Company withprior written notice thereof:

 

## **6.1****                               Execution**. The Company shall have executed each ofthe Transaction Documents and delivered the same to the Purchaser.

##  

## **6.2****                               ExchangeListing**. The Common Stock(x) shall be designated for quotation or listed on the Principal Market and (y)shall not have been suspended by the SEC or the Principal Market from tradingon the Principal Market nor shall suspension by the SEC or the Principal Markethave been threatened either (A) in writing by the SEC or the Principal Market

 

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or (B) byfalling below the minimum listing maintenance requirements of the PrincipalMarket; and the Conversion Shares and the Warrant Shares issuable uponconversion or exercise of the Notes and the related Warrants, as the case maybe, shall be listed upon the Principal Market.

##  

## **6.3****                               Representationsand Warranties**. Therepresentations and warranties of the Company shall be true and correct as ofthe date when made and as of the Closing Date as though made at that time(except for representations and warranties that speak as of a specific date,which shall be true and correct as of such date) and the Company shall haveperformed, satisfied and complied with the covenants, agreements and conditionsrequired by the Transaction Documents to be performed, satisfied or compliedwith by the Company at or prior to the Closing Date.  The Purchaser shall have received a certificate, executed byeither the Chief Executive Officer or the Chief Financial Officer of theCompany, dated as of the Closing Date, to the foregoing effect and as to suchother matters as may be reasonably requested by the Purchaser.

##  

## **6.4****                               Legal Opinion**. The Purchaser shall have received alegal opinion, dated as of the Closing Date, in form, scope and substancereasonably satisfactory to the Purchaser and in substantially the form ofExhibit F attached hereto.

##  

## **6.5****                               Deliveryof Securities**. The Companyshall have executed and delivered to the Purchaser the Note and the Warrant (insuch denominations as such Buyer shall request) for the Note and the Warrantbeing purchased by the Purchaser at the Closing.

##  

## **6.6****                               BoardResolutions**. The Board ofDirectors of the Company shall have adopted resolutions consistent with Section2.4 above and in a form reasonably acceptable to the Purchaser (the“Resolutions”).

##  

## **6.7****                               Reservationof Shares**. As of the ClosingDate, the Company shall have reserved out of its authorized and unissued CommonStock, solely for the purpose of effecting the conversion of the Note and theexercise of the Warrant, at least the number of shares of Common Stock as setforth in Section 4.11 hereof.

##  

## **6.8****                               TransferAgent Instructions**. The IrrevocableTransfer Agent Instructions shall have been delivered to and acknowledged inwriting by the Company’s transfer agent and the Company shall deliver a copythereof to the Purchaser.

##  

## **6.9****                               GoodStanding Certificates**. The Companyshall have delivered to the Purchaser a certificate evidencing the incorporationand good standing of the Company and each Subsidiary in such entity’s state ofincorporation or organization issued by the Secretary of State of such state ofincorporation or organization as of the Closing Date.

##  

## **6.10****                        Secretary’sCertificate**. The Companyshall have delivered to the Purchaser a secretary’s certificate, dated as ofthe Closing Date, certifying as to (A) the Resolutions, (B) the Charter,certified as of the Closing Date, by the Secretary of State of the State ofDelaware and (C) the Bylaws, each as in effect at the Closing.

 

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## **6.11****                        Filings**. The Company shall have made all filings under allapplicable federal and state securities laws necessary to consummate theissuance of the Securities pursuant to this Agreement in compliance with suchlaws.

##  

## **6.12****                        SecurityAgreement**. The Companyshall have delivered to the Purchaser an executed copy of the SecurityAgreement.

##  

## **6.13****                        OtherTransaction Documents**. The Companyshall have delivered to the Purchaser such other documents relating to thetransactions contemplated by this Agreement as the Purchaser or its counsel mayreasonably request.

##  

# **7.**              COVENANTS OF THE COMPANY AND THE PURCHASER REGARDINGINDEMNIFICATION.

# ** **

## **7.1****                               CompanyIndemnification**.  The Company agrees to indemnify, holdharmless, reimburse and defend the Purchaser, each of the Purchaser’s officers,directors, agents, affiliates, control persons, and principal shareholders,against any claim, cost, expense, liability, obligation, loss or damage(including reasonable legal fees) of any nature, incurred by or imposed uponthe the Purchaser which results, arises out of or is based upon thenegotiation, execution or performance of this Agreement including but notlimited to (i) any misrepresentation by Company or breach of any warranty byCompany in this Agreement or in any exhibits or schedules attached hereto orany Transaction Document, or (ii) any breach or default in performance byCompany of any covenant or undertaking to be performed by Company hereunder, orany other agreement entered into by the Company and the Purchaser relatinghereto.

##  

## **7.2****                               Purchaser’sIndemnification**.  The Purchaser agrees to indemnify, holdharmless, reimburse and defend the Company and each of the Company’s officers,directors, agents, affiliates, control persons and principal shareholders, atall times against any claim, cost, expense, liability, obligation, loss ordamage (including reasonable legal fees) of any nature, incurred by or imposedupon the Company which results, arises out of or is based upon any breach ofthe representations of the Purchaser contained in Section 3 of this Agreement.

##  

## **7.3****                               Procedures**. Promptly after receipt by anindemnified party pursuant to the provisions of Section 7.1 or 7.2 ofnotice of the commencement of any action involving the subject matter of theforegoing indemnity provisions such indemnified party will, if a claim thereofis to be made against the indemnifying party pursuant to the provisions ofSection 7.1 or 7.2, promptly notify the indemnifying party of the commencementthereof; but the omission to so notify the indemnifying party will not relieveit from any liability which it may have to any indemnified party otherwiseunder this Section except to the extent the defense of the claim isprejudiced.  In case such action isbrought against any indemnified party and it notifies the indemnifying party ofthe commencement thereof, the indemnifying party shall have the right toparticipate in, and, to the extent that it may wish, jointly with any otherindemnifying party similarly notified, to assume the defense thereof, withcounsel reasonably satisfactory to such indemnified party, provided, however,if counsel for the indemnifying party concludes that a single counsel cannotunder applicable legal and ethical considerations, represent both theindemnifying party and the indemnified party, the indemnified party or partieshave the right to

 

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selectseparate counsel to participate in the defense of such action on behalf of suchindemnified party or parties; provided that there shall be no more than onesuch separate counsel.  After noticefrom the indemnifying party to such indemnified party of its election so toassume the defense thereof, the indemnifying party will not be liable to suchindemnified party pursuant to the provisions of said Section 7.1 or 7.2 for anylegal or other expense subsequently incurred by such indemnified party inconnection with the defense thereof other than reasonable costs ofinvestigation, unless (i) the indemnified party shall have employedcounsel in accordance with the provisions of the preceding sentence,(ii) the indemnifying party shall not have employed counsel reasonablysatisfactory to the indemnified party to represent the indemnified party withina reasonable time after the notice of the commencement of the action or(iii) the indemnifying party has, in its sole discretion, authorized theemployment of counsel for the indemnified party at the expense of theindemnifying party.

##  

# **8.**              MISCELLANEOUS.

# ** **

## **8.1****                               Governing Law**. This Agreement shall be governed by andconstrued in accordance with the laws of the State of New York, without regardto principles of conflicts of laws.  Anyaction brought by either party against the other concerning the transactionscontemplated by this Agreement shall be brought only in the state courts of NewYork or in the federal courts located in the state of New York.  Both parties and the individual signing thisAgreement on behalf of the Company agree to submit to the jurisdiction of suchcourts.  The prevailing party shall beentitled to recover from the other party its reasonable attorneys’ fees andcosts.  In the event that any provisionof this Note is invalid or unenforceable under any applicable statute or ruleof law, then such provision shall be deemed inoperative to the extent that itmay conflict therewith and shall be deemed modified to conform with suchstatute or rule of law.  Any suchprovision which may prove invalid or unenforceable under any law shall notaffect the validity or unenforceability of any other provision of this Note. Inthe event that any provision of this Agreement or any other agreement deliveredin connection herewith is invalid or unenforceable under any applicable statuteor rule of law, then such provision shall be deemed inoperative to the extentthat it may conflict therewith and shall be deemed modified to conform withsuch statute or rule of law.  Any suchprovision which may prove invalid or unenforceable under any law shall notaffect the validity or enforceability of any other provision of any agreement.

##  

## **8.2****                               Survival**. The representations, warranties, indemnities, agreements,covenants and other statements of the Company made herein shall surviveexecution of this Agreement and delivery of the Note and Warrant for a periodof two years. All statements as to factual matters contained in any certificateor other instrument delivered by or on behalf of the Company pursuant hereto inconnection with the transactions contemplated hereby shall be deemed to berepresentations and warranties by the Company hereunder solely as of the dateof such certificate or instrument.

##  

## **8.3****                               Successorsand Assigns**.  Except as otherwise expressly providedherein, the provisions hereof shall inure to the benefit of, and be bindingupon, the successors, assigns, heirs, executors and administrators of theparties hereto and shall inure to the benefit of and be enforceable by eachperson who shall be a holder of the Securities from time to time.  The

 

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Purchaser mayassign and/or grant participations (in whole or in part) in this Agreement andthe other Transaction Documents.

##  

## **8.4****                               EntireAgreement**.  This Agreement, the exhibits and scheduleshereto, the other Transaction Documents and the other documents deliveredpursuant hereto constitute the full and entire understanding and agreementbetween the parties with regard to the subjects hereof, including, but notlimited to, the purchase and sale of the Note and Warrant and the subsequentissuance of the Conversion Shares and the Warrant Shares.  No party shall be liable or bound to anyother in any manner by any representations, warranties, covenants andagreements except as specifically set forth herein and therein.  The Purchaser shall not be deemed to havemade any representation or warranty to the Company other than as expressly madeby the Purchaser in Section 3 hereof. Without limiting the generality of the foregoing, and notwithstandingany otherwise express representations and warranties made by the Purchaser inSection 3 hereof, the Purchaser makes no representation or warranty to theCompany with respect to the timing or the manner in which the Company’s CommonStock will be sold.

##  

## **8.5****                               Severability**. In case any provision of the Agreement shall be invalid, illegal orunenforceable, the validity, legality and enforceability of the remainingprovisions shall not in any way be affected or impaired thereby.

##  

## **8.6****                               Amendmentand Waiver**.

##  

#### **(a)****                                 **This Agreement may be amended or modifiedonly upon the written consent of the Company and the Purchaser.

####  

#### **(b)****                                 **The obligations of the Company and therights of the Purchaser under this Agreement may be waived only with thewritten consent of the Purchaser.

####  

## **8.7****                               Delays orOmissions**.  It is agreed that no delay or omission toexercise any right, power or remedy accruing to any party, upon any breach,default or non-compliance by another party under this Agreement or theTransaction Documents, shall impair any such right, power or remedy, nor shallit be construed to be a waiver of any such breach, default or noncompliance, orany acquiescence therein, or of or in any similar breach, default ornoncompliance thereafter occurring.  Allremedies, either under this Agreement, the Note, the Warrant or the otherTransaction Documents, by law or otherwise afforded to any party, shall becumulative and not alternative.

##  

## **8.8****                               Notices**. All notices required or permitted hereunder shall be in writing andshall be deemed effectively given: (a) upon personal delivery to the party tobe notified, (b) when sent by confirmed facsimile if sent during normalbusiness hours of the recipient, if not, then on the next business day, (c)five days after having been sent by registered or certified mail, returnreceipt requested, postage prepaid, or (d) one day after deposit with anationally recognized overnight courier, specifying next day delivery, withwritten verification of receipt.  Allcommunications shall be sent to the Company at the address as set forth on thesignature page hereof, with a copy to Michele D. Vaillancourt, Esq., Winthrop& Weinstine, P.A., Suite 3500, 225 South Sixth Street, Minneapolis, MN55402, facsimile number (612) 604-6800, and to the Purchaser at the address setforth on the signature page hereto for such Purchaser, with a

 

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copy in thecase of the Purchaser to John Tucker, Esq., 152 West 57th Street, 4th Floor,New York, NY 10019, facsimile number (212) 541-4434, or at such other addressas the Company or the Purchaser may designate by ten days advance writtennotice to the other parties hereto.

##  

## **8.9****                               Titles andSubtitles**.  The titles of the sections and subsectionsof the Agreement are for convenience of reference only and are not to beconsidered in construing this Agreement.

##  

## **8.10****                        FacsimileSignatures; Counterparts**.  This Agreement may be executed by facsimilesignatures and in any number of counterparts, each of which shall be an original,but all of which together shall constitute one instrument.

##  

## **8.11****                        Broker’s Fees**.  Except as described in Schedule 8.11, eachparty hereto represents and warrants that, except as each party may havenotified the other in writing on or prior to the date hereof, no agent, broker,investment banker, person or firm acting on behalf of or under the authority ofsuch party hereto is or will be entitled to any broker’s or finder’s fee or anyother commission directly or indirectly in connection with the transactionscontemplated herein.  Each party heretofurther agrees to indemnify each other party for any claims, losses or expensesincurred by such other party as a result of the representation in this Section8.11 being untrue.

##  

## **8.12****                        Construction**. Each party acknowledges that its legal counsel participated in thepreparation of this Agreement and, therefore, stipulates that the rule ofconstruction that ambiguities are to be resolved against the drafting partyshall not be applied in the interpretation of this Agreement to favor any partyagainst the other.

##  

**IN WITNESS WHEREOF**, the parties hereto have executed this Securities PurchaseAgreementas of the date set forth in the first paragraph hereof.

 

 
| COMPANY:                                                    |   | PURCHASER:                                                                                                                       |   |
|-------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                        |   |                                                                                                                             |   |   |
| DIGITAL  ANGEL CORPORATION                                  |   | LAURUS  MASTER FUND, LTD.                                                                                                        |   |
|                                                        |   |                                                                                                                             |   |   |
| By:                                                         |   |                                                                                                                             | By:    |   |   |
| Name:                                                       |   | Name:                                                                                                                            |   |
| Title:                                                      |   | Address:                                                                                                                         |   |
| Address:  490 Villaume Ave.  South St. Paul, MN  55075 |   | c/o  Ironshore Corporate Services Ltd.  P.O. Box 1234 G.T., Queensgate House, South  Church Street  Grand Cayman, Cayman Islands |   |
|                                                             |        |                                                                                                                                  |        |  |  |

 

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