Document:

Exhibit
10.21

THIS
WARRANT (THIS “WARRANT”) AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN
CONNECTION WITH SUCH OFFER OR SALE. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF (I) MAY BE
PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN LOAN OR OTHER
FINANCING SECURED BY SUCH SECURITIES OR (II) MAY BE TRANSFERRED OR ASSIGNED TO
AN AFFILIATE OF THE HOLDER HEREOF WITHOUT THE NECESSITY OF AN OPINION OF
COUNSEL OR THE CONSENT OF THE ISSUER HEREOF.

WARRANT

TO PURCHASE COMMON STOCK

OF

DIGITAL
ANGEL CORPORATION

Issue
Date:  February 6, 2007                                                                                                                      Warrant No. 2007A

THIS
CERTIFIES that IMPERIUM MASTER FUND, LTD., or
any permitted subsequent holder hereof (the “Holder”),
has the right to purchase from DIGITAL ANGEL CORPORATION, a Delaware corporation (the “Company”),
up to 699,600 fully paid and nonassessable shares of the Company’s common
stock, par value $0.005 per share (the “Common Stock”),
subject to adjustment as provided herein, at a price per share equal to the
Exercise Price (as defined below), at any time and from time to time beginning
on the earlier of (i) March 2, 2007 (the “Listing Deadline Date”)
and (ii) the date on which the Company obtains listing approval from the
American Stock Exchange for the issuance of the Warrant Shares (the “Listing Date”) and ending at 5:00
p.m., New York City time (the “Expiration Time”),
on the Expiration Date (as defined below) or, if such day is not a Business
Day, on the next succeeding Business Day. 
As used herein, the term “Expiration Date”
means February 6, 2012; provided, however,
that if the Company has not obtained listing approval from the American Stock
Exchange for the issuance of the Warrant Shares by the Listing Deadline Date,
then the “Expiration Date” shall be
extended by a number days equal to the number of days between the Listing
Deadline Date and the Listing Date.

This
Warrant is issued pursuant to a Securities Purchase Agreement, dated as of the
date hereof (the “Securities Purchase Agreement”),
between the Company and the investors named therein.  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the
Securities Purchase Agreement.

1.             EXERCISE.

(a)           Right
to Exercise; Exercise Price.  The
Holder shall have the right to exercise this Warrant as to all or any part of
the shares of Common Stock covered hereby (the “Warrant
Shares”).  The “Exercise Price” for each Warrant
Share purchased by the Holder upon the exercise of this Warrant shall be $2.973, subject to adjustment for the
events specified in Section 6 of this
Warrant.  No issuances of Warrant Shares
hereunder shall be made in violation of Article 9 of the Company’s certificate
of incorporation unless and until the Stockholder Amendment Approval Date.

(b)           Exercise
Notice.  In order to exercise this
Warrant, the Holder shall (i) send by facsimile transmission at any time prior
to 5:00 p.m., New York City time, on the Business Day on which the Holder
wishes to effect such exercise (the “Exercise Date”),
to the Company an executed copy of the notice of exercise in the form attached
hereto as Exhibit A (the “Exercise Notice”) and (ii) in the
case of a Cash Exercise (as defined below), deliver on the Exercise Date the
Exercise Price to the Company by wire transfer of immediately available
funds.  The Holder shall promptly
thereafter deliver the original Warrant to the Company for cancellation (and
replacement with a new Warrant if exercised in part) pursuant to Section 1(d).  Subject to Section
8(d), the Exercise Notice shall also state the name or names in
which the Warrant Shares issuable on such exercise shall be issued if other
than the Holder.  In the case of a
dispute as to the calculation of the Exercise Price or the number of Warrant
Shares issuable hereunder (including, without limitation, the calculation of
any adjustment pursuant to Section 6),
the Company shall promptly issue to the Holder the number of Warrant Shares
that are not disputed, the Company and the Holder shall provide each other with
their respective calculations, and the Company shall submit the disputed
calculations to a certified public accounting firm of national recognition
(other than the Company’s independent accountants) within two (2) Business Days
following the later of the date on which the Holder delivers its calculations
to the Company and the date on which the Exercise Notice is delivered to the
Company. The Company shall use its best efforts to cause such accountant to
calculate the Exercise Price and/or the number of Warrant Shares issuable
hereunder and to notify the Company and the Holder of the results in writing no
later than two (2) Business Days following the day on which such accountant
received the disputed calculations (the “Dispute Procedure”).
Such accountant’s calculation shall be deemed conclusive absent manifest
error.  The fees of any such accountant
shall be borne by the party whose calculations were most at variance with those
of such accountant.

(c)           Holder
of Record.  The Holder shall, for all
purposes, be deemed to have become the holder of record of the Warrant Shares
specified in an Exercise Notice on the Exercise Date specified therein,
irrespective of the date of delivery of such Warrant Shares. Except as
specifically provided herein, nothing in this Warrant shall be construed as
conferring upon the Holder any rights as a stockholder of the Company prior to
the Exercise Date.

(d)           Cancellation
of Warrant.  This Warrant shall be
canceled upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the Holder
pursuant to such exercise as provided herein, issue a new warrant, and 

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deliver to the Holder a certificate representing such
new warrant, with terms identical in all respects to this Warrant (except that
such new warrant shall be exercisable into the number of shares of Common Stock
with respect to which this Warrant shall remain unexercised); provided, however, that the Holder shall be entitled to
exercise all or any portion of such new warrant at any time following the time
at which this Warrant is exercised, regardless of whether the Company has
actually issued such new warrant or delivered to the Holder a certificate
therefor.

2.             DELIVERY OF WARRANT SHARES UPON EXERCISE.

Upon receipt of an Exercise Notice and payment of the
Exercise Price, if applicable, pursuant to Section 1,
the Company shall, (A) in the case of a Cash Exercise (as defined below) no
later than the close of business on the later to occur of (i) the third (3rd)
Business Day following the Exercise Date set forth in such Exercise Notice and
(ii) the date on which the Company has received payment of the Exercise Price,
(B) in the case of a Cashless Exercise (as defined below), no later than the
close of business on the third (3rd) Business Day following the Exercise Date
set forth in such Exercise Notice, and (C) with respect to Warrant Shares that are
the subject of a Dispute Procedure, the close of business on the third (3rd)
Business Day following the determination made pursuant to Section
1(b) (each of the dates specified in the foregoing clauses (A), (B)
or (C) being referred to as a “Delivery Date”), issue and deliver
or cause to be delivered to the Holder the number of Warrant Shares as shall be
determined as provided herein. The Company shall use reasonable efforts to
effect delivery of Warrant Shares to the Holder, as long as the Company’s designated
transfer agent or co-transfer agent in the United States for the Common Stock
(the “Transfer Agent”) participates
in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer program (“FAST”), by
crediting the account of the Holder or its nominee at DTC (as specified in the
applicable Exercise Notice) with the number of Warrant Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that the Transfer Agent is not a participant in FAST, or if the Holder so
specifies in an Exercise Notice or otherwise in writing on or before the
Exercise Date, the Company shall use reasonable efforts to effect delivery of
Warrant Shares by delivering to the Holder or its nominee physical certificates
representing such Warrant Shares, no later than the close of business on such
Delivery Date.  If any exercise would
create a fractional Warrant Share, such fractional Warrant Share shall be
disregarded and the number of Warrant Shares issuable upon such exercise, in
the aggregate, shall be the nearest whole number of Warrant Shares.  Warrant Shares delivered to the Holder shall
not contain any restrictive legend unless such legend is required pursuant to
the terms of the Securities Purchase Agreement.

3.             FAILURE TO DELIVER WARRANT SHARES.

(a)           In the event that the Company fails
for any reason (other than as a result of the Holder’s failure, in the case of
a Cash Exercise (as defined below), to pay the aggregate Exercise Price for the
Warrant Shares being purchased) to deliver to the Holder the number of Warrant
Shares specified in the applicable Exercise Notice (without any restrictive
legend to the extent permitted by applicable law and the terms of the
Securities Purchase Agreement) on or before the Delivery Date therefor, or
fails to remove any restrictive legend from outstanding Warrant Shares at the
request of the Holder in accordance with Section 2.5 of the Securities Purchase
Agreement on or before the fifth (5th) Business Day following such request (an 

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“Exercise Default”), the Holder shall
have the right to receive from the Company an amount equal to (i) (N/365) multiplied by (ii) the aggregate Exercise Price of the
Warrant Shares which are the subject of such Exercise Default multiplied by (iii) the lower of eighteen percent (18%) and
the maximum rate permitted by applicable law or by the applicable rules or
regulations of any Governmental Agency (the “Default
Interest Rate”), where “N” equals the number of days elapsed
between the original Delivery Date of such Warrant Shares (or from such fifth
Business Day in the event of a failure to remove a legend from outstanding
Warrant Shares) and the date on which such Exercise Default has been
cured.  In the event that shares of
Common Stock are purchased by or on behalf of the Holder in order to make delivery on a sale effected in
anticipation of receiving Warrant Shares upon an exercise, and there is an
Exercise Default with respect to such exercise, the Holder shall have the right
to receive from the Company, in addition to the foregoing amounts, (i) the
aggregate amount paid by or on behalf of the Holder for such shares of Common
Stock minus (ii) the aggregate amount of net
proceeds, if any, received by the Holder from the sale of the Warrant Shares
issued by the Company pursuant to such exercise after such shares are actually
delivered to the Holder.  Amounts payable under this Section
3(a) shall be paid to
the Holder in immediately available funds on or before the second (2nd)
Business Day following written notice from the Holder to the Company.

(b)           In addition to its rights under Section 3(a), the Holder shall have
the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or injunctive
relief).

4.             EXERCISE LIMITATION.

(a)           In no event shall the Holder be
permitted to exercise this Warrant, or part thereof, if, upon such exercise,
the number of shares of Common Stock beneficially owned by the Holder (other
than shares which may be deemed beneficially owned except for being subject to
a limitation on exercise or exercise analogous to the limitation contained in
this Section 4), would exceed 4.99%
of the number of shares of Common Stock then issued and outstanding, it being
the intent of the Company and the Holder that the Holder not be deemed at any
time to have the power to vote or dispose of greater than 4.99% of the number
of shares of Common Stock issued and outstanding at any time. Nothing contained
herein shall be deemed to restrict the right of the Holder to exercise this
Warrant at such time as such exercise will not violate the provisions of this Section 4.  As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act.  To the extent
that the limitation contained in this Section
4 applies (and without
limiting any rights the Company may otherwise have), the submission of an
Exercise Notice by the Holder shall be deemed to be the Holder’s representation
that this Warrant is exercisable pursuant to the terms hereof, the Company may rely on the Holder’s
representation that this Warrant is exercisable pursuant to the terms
hereof, and the Company shall have no
obligation whatsoever to verify or confirm the accuracy of such representation.  The Company shall have no liability to any
person if the Holder’s determination of whether this Warrant is exercisable
pursuant to the terms hereof is incorrect.

(b)           Notwithstanding anything to the
contrary in this Warrant, the aggregate number of shares of Common Stock that
may be issued by the Company to the Holder pursuant to this Warrant shall be
subject to the shareholder cap limitations set forth in Section 4.16 of the
Securities Purchase Agreement.

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5.             PAYMENT OF THE EXERCISE PRICE; CASHLESS EXERCISE.

The
Holder may pay the Exercise Price in either of the following forms or, at the
election of Holder, a combination thereof:

(a)           through a cash exercise (a “Cash Exercise”) by delivering
immediately available funds, or

(b)           through a cashless exercise (a “Cashless Exercise”) but only if (i)
an effective Registration Statement is not available for the resale of all of
the Warrant Shares issuable hereunder at the time an Exercise Notice is
delivered to the Company, or (ii) if the Company in its discretion otherwise
consents in writing.  The Holder shall
effect a Cashless Exercise by surrendering this Warrant to the Company and
noting on the Exercise Notice that the Holder wishes to effect a Cashless
Exercise, upon which the Company shall issue to the Holder a number of Warrant
Shares determined as follows:

X = Y x (A-B)/A

where:                                                                                                             X
= the number of Warrant Shares to be issued to the Holder;

Y = the number of Warrant Shares with respect to which
this Warrant is being exercised;

A = the VWAP as of
the Exercise Date (or if the Exercise Date is not a Trading Day, then the VWAP
as of the Trading Day immediately preceding such Exercise Date); and

B = the Exercise
Price.

It is intended and
acknowledged that the Warrant Shares issued in a Cashless Exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares required by Rule 144 shall be deemed, subject to applicable
law, to have been commenced, on the Issue Date.

6.             ANTI-DILUTION ADJUSTMENTS;
DISTRIBUTIONS; OTHER EVENTS.

The
Exercise Price and the number of Warrant Shares issuable hereunder shall be
subject to adjustment from time to time as provided in this Section 6.

(a)           Stock Splits, Stock Interests, Etc.  If, at any time on or after the Issue Date,
the number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, reclassification or other similar event, the Exercise Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination,
reclassification or other similar event, the Exercise Price shall be
proportionately increased. In such event, the Company shall notify the Company’s
transfer agent of such change 

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on or before the
effective date thereof.

(b)           Major Transactions.  In the event of a merger, consolidation,
business combination, tender offer, exchange of shares, recapitalization,
reorganization, redemption or other similar event, as a result of which shares
of Common Stock shall be changed into the same or a different number of shares
of the same or another class or classes of stock or securities or other assets
of the Company or another entity or the Company shall sell all or substantially
all of its assets (each of the foregoing being a “Major
Transaction”), the Company will give the Holder at least ten
(10) Trading Days’ written notice prior to the earlier of (i) the closing or
effectiveness of such Major Transaction and (ii) the record date for the
receipt of such shares of stock or securities or other assets, and the Holder
shall be permitted to either (x) require the Company to repurchase this Warrant
for cash in an amount equal to the value of this Warrant calculated pursuant to
the Black-Scholes pricing model or (y) exercise this Warrant in whole or in
part at any time prior to, on or after the record date for the receipt of such
consideration and shall be entitled to receive, in lieu of the shares of Common
Stock otherwise issuable upon exercise of this Warrant, such shares of stock, securities
and/or other assets as would have been issued or payable upon such Major
Transaction with respect to or in exchange for the number of shares of Common
Stock which would have been issuable upon exercise of this Warrant had such
Major Transaction not taken place (without giving effect to any limitations on
such exercise contained in this Warrant or the Securities Purchase
Agreement).  If and to the extent that
the Holder retains this Warrant or any portion hereof following such record
date, the Company will cause the surviving or, in the event of a sale of
assets, purchasing entity, as a condition precedent to such Major Transaction,
to assume by written instrument (in form and substance reasonably satisfactory
to the Holder) the obligations of the Company with respect to this Warrant,
with such adjustments to the Exercise Price and the securities covered hereby
as may be necessary in order to preserve the economic benefits of this Warrant
to the Holder.

(c)           Distributions.  If, at any time after the Issue Date, the
Company declares or makes any distribution of cash or any other assets (or
rights to acquire such assets) to holders of Common Stock, including without
limitation any dividend or distribution to the Company’s stockholders in shares
(or rights to acquire shares) of capital stock of a subsidiary) (a “Distribution”), the Company
shall deliver written notice of such Distribution (a “Distribution Notice”) to the Holder at least ten (10)
Trading Days prior to the earlier to occur of (i) the record date for
determining stockholders entitled to such Distribution (the “Record Date”) and (ii) the date on
which such Distribution is made (the “Distribution Date”)
(the earlier of such dates being referred to as the “Determination
Date”).  Upon receipt of the
Distribution Notice, the Holder shall promptly (but in no event later than
three (3) Business Days) notify the Company whether it has elected (A) to
receive the same amount and type of assets (including, without limitation,
cash) being distributed as though the Holder were, on the Determination Date, a
holder of a number of shares of Common Stock into which this Warrant is
exercisable as of such Determination Date (such number of shares to be
determined without giving effect to any limitations on such exercise) or (B)
upon any exercise of this Warrant on or after the Distribution Date, to reduce
the Exercise Price in effect on the Business Day immediately preceding the
Record Date by an amount equal to the fair market value of the assets to be
distributed divided by the number of shares of
Common Stock as to which such Distribution is to be made, such fair market
value to be reasonably determined in good faith by the independent members of
the Company’s Board of Directors.  Upon
receipt of such election notice from the Holder, the 

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Company shall
timely effectuate the transaction or adjustment contemplated in the foregoing clause (A) or (B),
as applicable. If the Holder does not notify the Company of
its election pursuant to the preceding sentence on or prior to the
Determination Date, the Holder shall be deemed to have elected clause (A) of the preceding
sentence.

(d)           Dilutive Issuances.

(i)            Adjustment
Upon Dilutive Issuance.  If, at any
time after the Issue Date, the Company issues or sells, or in accordance with Section 6(d)(ii) is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Exercise Price on the date of such
issuance or sale (or deemed issuance or sale) (a “Dilutive Issuance”), then the Exercise Price shall be
adjusted so as to equal the consideration received or receivable by the Company
(on a per share basis) for the additional shares of Common Stock so issued,
sold or deemed issued or sold in such Dilutive Issuance (which, in the case of
a deemed issuance or sale, shall be calculated in accordance with Section 6(d)(ii)).  Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 6(d)(i)
if such adjustment would result in an increase in the Exercise Price.

(ii)           Effect
On Exercise Price Of Certain Events. 
For purposes of determining the adjusted Exercise Price under Section 6(d)(i), the following will
be applicable:

(A)          Issuance
Of Options.  If the Company issues or
sells any rights, warrants or options
to subscribe for, purchase or receive Common Stock or Convertible Securities
(any of the foregoing, “Options”),
whether or not immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options (and the price of
any conversion of Convertible Securities (as defined below), if applicable) is
less than the Exercise Price in effect on the date of issuance or sale of such
Options, then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Options (assuming full conversion, exercise or
exchange of Convertible Securities (as defined below), if applicable) shall, as
of the date of the issuance or sale of such Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” shall be determined
by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Options, plus,
in the case of Convertible Securities (as defined below) issuable upon the
exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion, exercise or exchange thereof
(determined in accordance with the calculation method set forth in Section 6(d)(ii)(B)) at the time
such Convertible Securities first become convertible, exercisable or
exchangeable, by (y) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable). No further
adjustment to the Exercise Price shall be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion, exercise
or exchange of Convertible Securities (as defined below) issuable upon exercise
of such Options. To the extent that shares of Common Stock or Convertible
Securities (as defined below) are not delivered pursuant to such Options, upon
the expiration or termination of such Options, the

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Exercise
Price shall be readjusted to the Exercise Price that would then be in effect
had the adjustments made upon the issuance of such Options been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered.

(B)           Issuance Of Convertible Securities.  If the Company issues or sells any stock or securities
(other than Options) of the Company convertible into or exercisable or
exchangeable for Common Stock (any of the foregoing, “Convertible Securities”), whether or
not immediately convertible, exercisable or exchangeable, and the price per
share for which Common Stock is issuable upon such conversion, exercise or
exchange is less than the Exercise Price in effect on the date of issuance or
sale of such Convertible Securities, then the maximum total number of shares of
Common Stock issuable upon the conversion, exercise or exchange of all such
Convertible Securities shall, as of the date of the issuance or sale of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. If the Convertible Securities so
issued or sold do not have a fluctuating conversion or exercise price or
exchange ratio, then for the purposes of the immediately preceding sentence,
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion, exercise or
exchange thereof (determined in accordance with the calculation method set
forth in this Section 6(d)(ii)(B)) at the
time such Convertible Securities first become convertible, exercisable or
exchangeable, by (B) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. If the Convertible Securities so issued or sold have a fluctuating
conversion or exercise price or exchange ratio (a “Variable Rate Convertible Security”), then for purposes
of the first sentence of this Section 6(d)(ii)(B),
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security
on the date of issuance or sale thereof were equal to the actual conversion
price on such date (or such higher minimum conversion price if such Variable
Rate Convertible Security is subject to a minimum conversion price) (the “Assumed Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this Section 6(d) with respect to any
Variable Rate Convertible Security, the Exercise Price in effect at such time
shall be readjusted to equal the Exercise Price which would have resulted if
the Assumed Variable Market Price at the time of issuance of the Variable Rate
Convertible Security had been equal to the actual conversion price of such
Variable Rate Convertible Security existing at the time of the adjustment
required by this sentence; provided, however,
that if the conversion or exercise price or exchange ratio of a Convertible
Security may fluctuate solely as a result of provisions designed to protect
against dilution, such Convertible Security shall not be deemed to be a
Variable Rate Convertible Security.  No
further adjustment to the Exercise Price shall be made upon the actual issuance
of such Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

(C)           Change In Option Price Or
Conversion Rate.  If there is a 

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change at any time
(including, without limitation, a change with respect to any Options or
Convertible Securities outstanding as of the Issue Date) in (x) the amount of
additional consideration payable to the Company upon the exercise of any
Options; (y) the amount of additional consideration, if any, payable to the
Company upon the conversion, exercise or exchange of any Convertible
Securities; or (z) the rate at which any Convertible Securities are convertible
into or exercisable or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution),
the Exercise Price in effect at the time of such change shall be readjusted to
the Exercise Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion, exercise or exchange rate, as
the case may be, at the time initially issued or sold.

(D)          Calculation Of Consideration
Received.  If any Common Stock, Options
or Convertible Securities are issued or sold for cash, the consideration
received therefor will be the amount received by the Company therefor. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company (including the net
present value of the consideration expected by the Company for the provided or
purchased services) shall be the fair market value of such consideration. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The independent members of the
Company’s Board of Directors shall calculate reasonably and in good faith,
using standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration.

(iii)          Exceptions
To Adjustment Of Exercise Price. 
Notwithstanding the foregoing, no adjustment to the Exercise Price shall
be made pursuant to this Section 6(d)
upon the issuance of any Excluded Securities.

(f)            Change of Control; Events of
Default.  If, at any time after the
Issue Date, a Change of Control (as defined in the Notes) or an Event of
Default (as defined in the Notes) occurs, then upon each such occurrence (and,
in the case of an Event of Default that is continuing, on the last day of each
calendar month during which such Event of Default remains uncured), the
Exercise Price shall be adjusted so as to equal the lowest of the following (i)
the average of the daily VWAP for each of
the ten (10) consecutive Trading Days occurring immediately prior to (but not
including) the date on which such Event of Default or Change of Control
occurred, (ii) the average of the
daily VWAP for each of the ten (10) consecutive Trading Days occurring on and
immediately after the date on which such Event of Default or Change of Control
occurred, and (iii) the Exercise Price in effect on the date on which such
Event of Default or Change of Control occurred.  Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 6(f)
if such adjustment would result in an increase in the Exercise Price.

(g)           Notice Of Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Exercise Price pursuant to this Section
6 resulting in a change in the Exercise Price by more than one
percent (1%), or any change in the number or type of stock, securities 

 9
 

and/or other
property issuable upon exercise of this Warrant, the Company, at its expense,
shall promptly compute such adjustment, readjustment or change and prepare and
furnish to the Holder a certificate setting forth such adjustment, readjustment
or change and showing in detail the facts upon which such adjustment,
readjustment or change is based.  The
Company shall, upon the written request at any time of the Holder, furnish to
the Holder a like certificate setting forth (x) such adjustment, readjustment
or change, (y) the Exercise Price at the time in effect and (z) the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon exercise of this Warrant.

(h)           Adjustments; Additional Shares,
Securities or Assets.  In the event
that at any time, as a result of an adjustment made pursuant to this Section 6, the Holder of this
Warrant shall, upon exercise of this Warrant, become entitled to receive
securities or assets (other than Common Stock) then, wherever appropriate, all
references herein to shares of Common Stock shall be deemed to refer to and
include such shares and/or other securities or assets; and thereafter the
number of such shares and/or other securities or assets shall be subject to
adjustment from time to time in a manner and upon terms as nearly equivalent as
practicable to the provisions of this Section 6.  Any adjustment made herein that results in a
decrease in the Exercise Price shall also effect a proportional increase in the
number of shares of Common Stock into which this Warrant is exercisable.

7.             MISCELLANEOUS.

(a)           Failure to Exercise Rights not
Waiver.  No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further exercise
thereof. All rights and remedies of the Holder hereunder are cumulative and not
exclusive of any rights or remedies otherwise available. In the event that the
Company breaches any of its obligations hereunder to issue Warrant Shares or
pay any amounts as and when due, the Company shall bear all costs incurred by
the Holder in collecting such amount, including without limitation reasonable legal
fees and expenses.

(b)           Notices.
Any notice, demand or request required or permitted to be given by the Company
or the Holder pursuant to the terms of this Warrant shall be in writing and
shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission, unless such delivery is made on a day that is not a
Business Day, in which case such delivery will be deemed to be made on the next
succeeding Business Day, (ii) on the next Business Day after timely delivery to
an overnight courier and (iii) on the Business Day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:

If to the Company:

Digital Angel Corporation

Suite 201

1690 South Congress

Delray Beach, Florida 33483

Attn:       Kevin
McGrath

 10
 

Tel:         (561)
276-0477

Fax:         (561)
805-8001

 

with a copy (which shall
not constitute notice) to:

Winthrop & Weinstine,
P.A.

Suite 3500

225 South 6th Street

Minneapolis, Minnesota
55402

Attn:       Philip T. Colton

Tel:         (612) 604-6729

Fax:         (612) 604-6929

 

and if to the
Holder, to such address for such party as shall appear on the signature page of
the Securities Purchase Agreement executed by such party, or as shall be
designated by such party in writing to the other parties hereto in accordance
this Section 7(b).

(c)           Amendments and Waivers.  No amendment, modification or other change
to, or waiver of any provision of, this Warrant or any other Warrant may be
made unless such amendment, modification or change, or request for waiver, is
(A) set forth in writing and is signed by the Company, (B) consented to in
writing by the holders of at least sixty-six percent (66%) of the Warrant
Shares underlying the Warrants then outstanding, and (C) applied to all of the
Warrants.  Upon the satisfaction of the
conditions described in (A), (B) and (C) above, this Warrant shall be deemed to
incorporate the amendment, modification, change or waiver effected thereby as
of the effective date thereof, even if the Holder did not consent to such
amendment, modification, change or waiver.
Notwithstanding the foregoing, the limitation on beneficial ownership set forth
in Section 4 may not be amended without the consent of the
holders of a majority of the shares of Common Stock then outstanding; provided, however, that
such limitation may be waived by the Holder upon sixty (60) days’ prior written
notice to the Company, and such waiver shall be valid and shall not require the
consent of the Company or any other holder of Common Stock or Warrants.

(d)           Transfer of Warrant.  The Holder may sell, transfer or otherwise
dispose of all or any part of this Warrant (including without limitation
pursuant to a pledge) to any person or entity as long as such sale, transfer or
disposition is the subject of an effective registration statement under the
Securities Act of 1933, as amended, and applicable state securities laws, or is
exempt from registration thereunder, and is otherwise made in accordance with
the applicable law and applicable provisions of the Securities Purchase
Agreement.  From and after the date of
any such sale, transfer or disposition, the transferee hereof shall be deemed
to be the holder of the portion of this Warrant acquired by such transferee, and
the Company shall upon notice, as promptly as practicable, issue and deliver to
such transferee a new Warrant identical in all respects to this Warrant, in the
name of such transferee. The Company shall be entitled to treat the original
Holder as the holder of this entire Warrant unless and until it receives
written notice of the sale, transfer or disposition hereof.

(e)           Lost or Stolen Warrant.  Upon receipt by the Company of evidence of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) 

 11
 

of indemnity or
security reasonably satisfactory to the Company, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver to the Holder a new Warrant identical in all respects to this Warrant.

(f)            Governing Law.  This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to contracts made and to be performed
entirely within the State of New York.

(g)           Successors
and Assigns.  The terms and
conditions of this Warrant shall inure to the benefit of and be binding upon
the respective successors (whether by merger or otherwise) and permitted
assigns of the Company and the Holder. The Company may not assign its rights or
obligations under this Warrant except as specifically required or permitted
pursuant to the terms hereof.

[Signature Page to Follow]

 12
 

IN WITNESS WHEREOF, the Company has duly executed and
delivered this Warrant as of the Issue Date.

	
  

  	
   

  	
  DIGITAL ANGEL CORPORATION

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Kevin N. McGrath

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Kevin N. McGrath

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 13
 

EXHIBIT A to WARRANT

EXERCISE NOTICE

The undersigned Holder hereby irrevocably exercises
the right to purchase             of
the shares of Common Stock (“Warrant Shares”) of DIGITAL ANGEL
CORPORATION evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.             Form
of Exercise Price.  The Holder intends
that payment of the Exercise Price shall be made as:

            
a Cash Exercise with respect to                      
Warrant Shares; and/or

            
a Cashless Exercise with respect to              
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.

2.             Payment of Exercise Price.  In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $                 
to the Company in accordance with the terms of the Warrant.

Date:                             

                                                    

Name of Registered Holder

By:                                                    

                Name:

                Title:

Holder Requests Delivery to be made: (check one)

o                                   By Delivery of Physical Certificates to the Above
Address

o                                   Through Depository Trust Corporation

(DWAC to                 
DTC #                             )

(FBO                                                          )

(Account #                                                 )

 

 14Exhibit
10.22

SECURITY AGREEMENT

THIS SECURITY
AGREEMENT, dated as of February 6, 2007 (this “Agreement”),
is by and among DIGITAL ANGEL CORPORATION, a Delaware corporation (the “Company”), each of the subsidiaries
of the Company that are signatories hereto (together with any other entity that
may become an additional party hereto, the “Company
Subsidiaries” and, collectively with
the Company, the “Debtors”), Imperium Advisers,
LLC, in its capacity as collateral agent (in such capacity, the “Collateral Agent”), for the benefit
of the undersigned holders (the “Holders”)of the Company’s Senior Secured
Debentures, dated as of the date hereof (the “Debentures”).  The Holders, Collateral Agent and their
endorsees, transferees and assigns are sometimes collectively referred to
herein as the “Secured Parties”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated
as of the date hereof, by and between the Company and the Secured Parties (the “Purchase Agreement”), the Company has
agreed to sell and the Secured Parties have severally agreed to purchase, the
Debentures; and

WHEREAS, pursuant to a certain Subsidiary Guarantee dated as of the
date hereof (the “Guarantee”), the Company
Subsidiaries have jointly and severally agreed to guaranty and act as surety
for satisfaction of all payment and other obligations of the Company arising
under the Debentures and the other Transaction Documents (as defined in the
Purchase Agreement); and

WHEREAS, it is a condition to the obligation of the Secured Parties to
enter into the transactions contemplated by the Purchase Agreement, the
Debentures and the other Transaction Documents, that the Debtors execute and
deliver to the Collateral Agent for the benefit of the Secured Parties this
Agreement and that the Debtors grant the Collateral Agent for the benefit of
each Secured Party, pari passu with
each of the other Secured Parties, a perfected security interest in the assets
and properties of the Debtors described herein, to secure the prompt payment,
performance and discharge in full of all of the Company’s obligations under the
Debentures and the other Transaction Documents.

NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:

1.                                       CERTAIN DEFINITIONS.

Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Purchase Agreement.  Terms used herein that are defined in Article
9 of the UCC but not otherwise defined in this Agreement (such as “account”, “chattel
paper”, “commercial tort claim”,
“deposit account”, “document”, “equipment”,
“fixtures”, “general
intangibles”, “goods”, “instruments”, “inventory”,
“investment property”, “letter-of-credit rights”, “proceeds” and “supporting
obligations”) shall have the respective meanings given such
terms in Article 9 of the 

UCC.
As used in this Agreement, the following terms shall have the meanings set
forth in this Section 1.

“Collateral” means all of the
Debtors’ respective rights, title and interest in and to the collateral in
which the Secured Parties are granted a security interest by this Agreement and
which shall include all assets and properties of the Debtors, including the
following personal property presently owned or hereafter acquired by the
Debtors, wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts
thereof, including, without limitation, all proceeds from the sale or transfer
of the Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest, cash, notes, securities,
equity interest or other property at any time and from time to time acquired,
receivable or otherwise distributed in respect of, or in exchange for, any or
all of the Pledged Securities (as defined below):

(i)                                     All goods, including, without limitation, (A)
all machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures, test and
quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and
all other items used and useful in connection with any Debtor’s businesses and
all improvements thereto; and (B) all inventory;

(ii)                                  All contract rights and other general
intangibles, including, without limitation, all partnership interests,
membership interests, stock or other securities, rights under any of the
Organizational Documents, agreements related to the Pledged Securities,
licenses, distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, Intellectual
Property, and income tax refunds;

(iii)                               All accounts, together with all instruments,
all documents of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks which any of the
same may represent, and all right, title, security and guaranties with respect
to each account, including any right of stoppage in transit;

(iv)                              All documents, letter-of-credit rights,
instruments and chattel paper;

(v)                                 All commercial tort claims;

(vi)                              All deposit accounts and all cash (whether or
not deposited in such deposit accounts);

(vii)                           All investment property;

(viii)                        All supporting obligations;

 2
 

(ix)                                All files, records, books of account,
business papers, and computer programs; and

(x)                                   the products and proceeds of all of the
foregoing Collateral set forth in clauses (i)-(ix)
above.

Without limiting the generality of the foregoing, the term “Collateral” shall include all
investment property and general intangibles respecting ownership and/or other
equity interests in each Company Subsidiary, including, without limitation, the
shares of capital stock and the other equity interests listed on Schedule 1 (as the same may be
modified from time to time pursuant to the terms hereof), and any other shares
of capital stock and/or other equity interests of any other direct or indirect
subsidiary of any Debtor obtained in the future, in each case, all certificates
representing such shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity interests that may
hereafter be received, receivable or distributed in respect of, or exchanged
for, any of the foregoing (all of the foregoing being referred to herein as the
“Pledged Securities”) and all rights
arising under or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.

Notwithstanding the foregoing, nothing herein shall be deemed to
constitute an assignment of any asset which, in the event of an assignment,
becomes void by operation of applicable law or the assignment of which is
otherwise prohibited by applicable law (in each case to the extent that such
applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the
UCC or other similar applicable law); provided, however,
that to the extent permitted by applicable law, this Agreement shall create a
valid security interest in such asset and, to the extent permitted by
applicable law, this Agreement shall create a valid security interest in the
proceeds of such asset.

“Event of Default” means the
occurrence of either of the following:  (i) an Event of Default (as defined in the
Debentures); or (ii) any provision of this Agreement shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by a Debtor, or a proceeding shall be commenced by a
Debtor, or by any governmental authority having jurisdiction over a Debtor,
seeking to establish the invalidity or unenforceability thereof, or a Debtor
shall deny that such Debtor has any liability or obligation purported to be
created under this Agreement.

“Intellectual Property” means the
collective reference to all existing rights, priorities and privileges relating
to intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published
or unpublished, all registrations and recordings thereof, and all applications
in connection therewith, including, without limitation, all registrations,
recordings and applications in the United States Copyright Office, (ii) all
letters patent of the United States, any other country or any political
subdivision thereof, all reissues and extensions thereof, and all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade dress, service 

 3
 

marks, logos, domain
names and other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in
the United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or any
political subdivision thereof, or otherwise, and all common law rights related
thereto, (iv) all trade secrets arising under the laws of the United States,
any other country or any political subdivision thereof, (v) all rights to
obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses
for any of the foregoing, and (vii) all causes of action for infringement of
the foregoing.

“Majority in Interest” shall
mean, at any time of determination, the majority in interest (based on
then-outstanding principal amounts of Debentures at the time of such
determination) of the Secured Parties.

“Necessary Endorsement” shall
mean undated stock powers endorsed in blank or other proper instruments of
assignment duly executed and such other instruments or documents as the Secured
Parties may reasonably request.

“Obligations” means all of the
Debtors’ obligations under this Agreement, all of the Company’s obligations
under the Debentures and the other Transaction Documents, and all of the
Company Subsidiaries’ obligations under the Subsidiary Guarantee, in each case,
whether now or hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion
of such obligations or liabilities that are paid, to the extent all or any part
of such payment is avoided or recovered directly or indirectly from any of the
Secured Parties as a preference, fraudulent transfer or otherwise as such
obligations may be amended, supplemented, converted, extended or modified from
time to time.  Without limiting the
generality of the foregoing, the term “Obligations”
shall include, without limitation: (i) principal of, and interest on the
Debentures and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with this Agreement, the Debentures, the
Subsidiary Guarantee or the other Transaction Documents; and (iii) all amounts
(including but not limited to post-petition interest) in respect of the
foregoing that would be payable but for the fact that the obligations to pay
such amounts are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Debtor.

“Organizational Documents”
means with respect to an entity, the documents by which such entity was
organized (such as a certificate of incorporation, certificate of limited
partnership or articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of preferred
equity) and which relate to the internal governance of such entity (such as
bylaws, a partnership agreement or an operating, limited liability or members
agreement).

“UCC” means the Uniform
Commercial Code of the State of New York and or any other applicable law of any
state or states which has jurisdiction with respect to all, or any portion of,
the Collateral or this Agreement, from time to time.  It is the intent of the parties that defined
terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be 

 4
 

construed
in its broadest sense.  Accordingly if
there are, from time to time, changes to defined terms in the UCC that broaden
the definitions, they are incorporated herein and if existing definitions in
the UCC are broader than the amended definitions, the existing ones shall be controlling.

2.                                       GRANT OF FIRST PRIORITY SECURITY
INTEREST.

As an inducement for the Secured Parties to provide the loans as
evidenced by the Debentures and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants
and hypothecates to the Collateral Agent, for the benefit of each Secured Party
pari passu with each of the other
Secured Parties, a continuing security interest in and to, a lien upon and a
right of set-off against all of their respective right, title and interest of
whatsoever kind and nature in and to, the Collateral (the “Security
Interest”).  The Security
Interest granted hereunder is a first priority lien and security interest
except with respect to Collateral encumbered by Permitted Liens.  Each Holder agrees, at the Debtors’ sole cost
and expense, (i) to execute and deliver to the Debtors such instruments and
documents reasonably requested by the Debtors and in a form and substance
reasonably satisfactory to such Holder, and (ii) to take such further action as
may be reasonably requested by the Debtors; in each case, as reasonably
necessary to subordinate its Security Interest in the accounts receivable of the
Company and Outerlink Corporation to a first priority lien on such accounts
receivable securing the Bank Facility.

3.                                       DELIVERY OF CERTAIN COLLATERAL.

Contemporaneously or prior to the execution of this Agreement, each
Debtor shall deliver or cause to be delivered to the Collateral Agent, for the
benefit of the Secured Parties (a) any and all certificates and other
instruments representing or evidencing the Pledged Securities, and (b) any and
all certificates and other instruments or documents representing any of the
other Collateral, in each case, together with all Necessary Endorsements.  The Debtors are, contemporaneously with the
execution hereof, delivering to the Collateral Agent, for the benefit of the
Secured Parties, or have previously delivered to the Secured Parties, a true
and correct copy of each Organizational Document governing any of the Pledged
Securities.

4.                                       REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS OF THE DEBTORS.

Each Debtor represents and warrants to, and covenants and agrees with,
the Collateral Agent, for the benefit of the Secured Parties, as follows:

4.1                                 Good Standing; Due Authorization;
Enforceability.

(a)                                  Each Debtor is duly organized and in good
standing in the jurisdiction of its formation. 
Each Debtor shall at all times preserve and keep in full force and
effect its valid existence and good standing and any rights and franchises
material to its business.

 5
 

(b)                                 Each Debtor has the requisite corporate,
partnership, limited liability company or other power and authority to enter
into this Agreement and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by each Debtor of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of such Debtor and no further action is required by such
Debtor.  This Agreement has been duly
executed and delivered by each Debtor.

(c)                                  This Agreement constitutes the legal, valid
and binding obligation of each Debtor, enforceable against each Debtor in accordance
with its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general application
relating to or affecting the rights and remedies of creditors and by general
principles of equity.

4.2                                 No Conflicts.                           The execution, delivery and performance of
this Agreement by the Debtors (other than any issuance by the Company of any
Stock Option Shares or Warrant Shares in violation of Article 9 of the Company’s
certificate of incorporation as in effect as of the date hereof) do not (i)
violate any of the provisions of any Organizational Documents of any Debtor or
any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing any Debtor’s debt or otherwise) or other
understanding to which any Debtor is a party or by which any property or asset
of any Debtor is bound or affected.  No
consent (including, without limitation, from stockholders or creditors of any
Debtor) is required for any Debtor to enter into and perform its obligations
hereunder (other than those consents that have already been obtained).

4.3                                 Debtor Information; Validity, Perfection and
Maintenance of Security Interests.

(a)                                  All of the information set forth on Schedule 4.3(a), including, without
limitation, each Debtor’s name, jurisdiction of organization and location of
Collateral, are true, correct and complete in all respects.  No Debtor shall change its name, type of
organization, jurisdiction of organization, organizational identification
number (if it has one), legal or corporate structure, or identity, or add any
new fictitious name unless it provides at least thirty (30) days’ prior written
notice to the Secured Parties of such change and, at the time of such written
notification, such Debtor provides any financing statements or fixture filings
necessary to perfect and continue perfected the perfected Security Interest
granted and evidenced by this Agreement.

(b)                                 This Agreement creates in favor of the
Secured Parties a valid security interest in the Collateral, securing the
payment and performance of the Obligations. 
With respect to each Debtor that is organized in the United States, upon
filing of UCC-1 financing statements, in the forms attached hereto as Exhibit A, with the secretary of
state’s office of the state in which such Debtor is organized(collectively, the “Financing Statements”), and payment
of the applicable filing fees, all security interests created hereunder in any
Collateral which may be perfected by filing UCC financing statements shall have
been duly perfected.  No consent of any
third parties and no authorization, approval or other action by, and no notice
to or filing with, any governmental 

 6
 

authority
or regulatory body is required for (i) the execution, delivery and performance
of this Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral, or (iii) the enforcement of the rights of
the Secured Parties hereunder.

(c)                                    Each
Debtor hereby authorizes the Collateral Agent, on behalf of the Secured
Parties, to file the Financing Statements and any other financing statements or
other documents under the UCC or under any other applicable law with respect to
the Security Interest with the proper filing and recording agencies in any U.S.
or foreign jurisdiction deemed proper by them. 
The Debtors shall, at the Debtors’ sole cost and expense, promptly execute
and/or deliver to the Collateral Agent, on behalf of the Secured Parties, such
further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and
take such further action as the Secured Parties may from time to time request
and may in their reasonable discretion deem necessary to perfect, protect or
enforce its security interest in the Collateral including, without limitation,
if applicable, (i) the execution and delivery of a separate security agreement
with respect to the Debtors’ Intellectual Property in which the Secured Parties
have been granted a security interest hereunder, and (ii) amending the
organizational documents of the Debtors’ to the extent necessary to permit a
pledge and/or transfer of the Pledged Securities hereunder; in each case, in a
form reasonably acceptable to the Secured Parties.

(d)                                 The Debtors shall at all times maintain the
liens and Security Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Collateral in favor of the Secured
Parties until this Agreement and the Security Interest hereunder shall be
terminated pursuant to Section 13;
provided, however, that notwithstanding
the foregoing, it shall not be a breach of this Agreement if the Security
Interest granted hereunder is not a first priority lien with respect to
Collateral encumbered by Permitted Liens. 
The Debtors hereby agree to defend the same against the claims of any
and all persons and entities.  The
Debtors shall obtain and furnish to the Collateral Agent, on behalf of the
Secured Parties, from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

4.4                                 Collateral.

(a)                                  Except as set forth on Schedule 3.22 of the
Purchase Agreement, the Debtors are the sole owner of the Collateral (except
for non-exclusive licenses granted by any Debtor in the ordinary course of
business), free and clear of any Liens (other than Permitted Liens), security
interests, encumbrances, rights or claims, and are fully authorized to grant
the Security Interest.  There has been no
adverse decision that would have a Material Adverse Effect on any Debtor’s
claim of ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to any Debtor’s right to keep and maintain such Collateral in
full force and effect, and there is no proceeding involving said rights pending
or, to the best knowledge of any Debtor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other governmental
authority in which an adverse decision would have a Material Adverse Effect.

(b)                                 The Debtors shall keep and preserve their
equipment, inventory and other tangible Collateral in good condition, repair
and order, ordinary wear and tear excepted. 
Each 

 7
 

Debtor
shall take all steps reasonably necessary to diligently pursue and seek to
preserve, enforce and collect any rights, claims, causes of action and accounts
receivable in respect of the Collateral.

(c)                                  Except with respect to the contemplated
relocations described on Schedule 4.4(c), each
Debtor shall at all times maintain its tangible Collateral at the locations set
forth under its name on Schedule 4.3(a)
and may not relocate such Collateral unless it delivers to the Secured Parties
at least 30 days prior to such relocation (i) written notice of such relocation
and the new location thereof (which must be within the United States) and (ii)
evidence that appropriate financing statements under the UCC and other
necessary documents have been filed and recorded and other steps have been
taken to perfect the Security Interest to create in favor of the Secured
Parties a valid, perfected and continuing perfected first priority lien in the
Collateral.  The Debtors shall not
transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of
any of the Collateral (except for non-exclusive licenses granted by a Debtor in
its ordinary course of business and sales of inventory or assets by such Debtor
in its ordinary course of business that do not exceed $50,000 per annum)
without the prior written consent of a Majority in Interest.  The Debtors shall not operate or locate any such
Collateral (or cause to be operated or located) in any area excluded from
insurance coverage.

(d)                                 Except with respect to the Permitted Liens,
there is not on file in any U.S. or foreign governmental or regulatory
authority, agency or recording office an effective financing statement,
security agreement, license or transfer or any notice of any of the foregoing
(other than those that will be filed in favor of the Secured Parties pursuant
to this Agreement) covering or affecting any of the Collateral.  So long as this Agreement shall be in effect,
the Debtors shall not execute and shall not knowingly permit to be on file in
any such office or agency any such financing statement or other document or
instrument (except to the extent filed or recorded in favor of the Secured
Parties pursuant to the terms of this Agreement).

(e)                                  The capital stock and other equity interests
listed on Schedule 1 represent all of
the capital stock and other equity interests (including stock options and
warrants) owned, directly or indirectly, by the Debtors.  All of the Pledged Securities are validly
issued, fully paid and nonassessable, and the Debtors are the legal and
beneficial owner of the Pledged Securities, free and clear of any lien,
security interest or other encumbrance except for the security interests
created by this Agreement.  The ownership
and other equity interests in partnerships and limited liability companies (if
any) included in the Pledged Securities (the “Pledged
Interests”) by their express terms do not provide that they are
securities governed by Article 8 of the UCC and are not held in a securities
account or by any financial intermediary. 
Each Debtor shall vote the Pledged Securities to comply with the
covenants and agreements set forth herein and the other Transaction Documents.

(f)                                    Each Debtor shall, within ten (10) days of
obtaining knowledge thereof, advise Collateral Agent, on behalf of the Secured
Parties, promptly, in sufficient detail, of any substantial change in the
Collateral, and of the occurrence of any event which would have a Material
Adverse Effect on the value of the Collateral or on the Secured Parties’
security interest therein.  Each Debtor
shall permit the Secured Parties and their representatives and agents to
inspect the Collateral at any time during normal business hours, upon
reasonable prior notice, and 

 8
 

to
make copies of records pertaining to the Collateral as may be requested by a
Secured Party from time to time.

(g)                                 All information heretofore, herein or
hereafter supplied to the Secured Parties by or on behalf of the Debtors with
respect to the Collateral is accurate and complete in all material respects as
of the date furnished.

4.5                                 Insurance.  Each Debtor shall maintain
with financially sound and reputable insurers, insurance with respect to the
Collateral against loss or damage of the kinds and in the amounts customarily
insured against by entities of established reputation having similar properties
similarly situated and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent for entities
engaged in similar businesses but in any event sufficient to cover the full
replacement cost thereof.  Each Debtor
shall cause each insurance policy issued in connection herewith to provide, and
the insurer issuing such policy to certify to the Collateral Agent, on behalf
of the Secured Parties, that (a) the Collateral Agent, on behalf of the Secured
Parties, will be named as lender loss payee and additional insured under each such
insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
the Collateral Agent, on behalf of the Secured Parties, and such cancellation
or change shall not be effective as to the Secured Parties for at least thirty
(30) days after receipt by the Collateral Agent, on behalf of the Secured
Parties, of such notice, unless the effect of such change is to extend or
increase coverage under the policy; and (c) the Secured Parties will have the
right (but no obligation) at its election to remedy any default in the payment
of premiums within thirty (30) days of notice from the insurer of such
default.  If no Event of Default (as
defined in the Debentures) exists and if the proceeds arising out of any claim
or series of related claims do not exceed $50,000, loss payments in each
instance will be applied by the applicable Debtor to the repair and/or
replacement of property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof remaining, to
the extent not so applied, shall be payable to the applicable Debtor; provided, however, that payments received by any Debtor
after an Event of Default occurs and is continuing or in excess of $50,000 for
any occurrence or series of related occurrences shall be paid to the Secured
Parties, on a pari passu basis with each of the
other Secured Parties, and, if received by such Debtor, shall be held in trust
for and immediately paid over to the Secured Parties unless otherwise directed
in writing by the Collateral Agent, on behalf of the Secured Parties.  Copies of such policies or the related
certificates, in each case, naming the Collateral Agent, on behalf of the
Secured Parties, as lender loss payee and additional insured shall be delivered
to the Collateral Agent, on behalf of the Secured Parties, at least annually
and at the time any new policy of insurance is issued.

4.6                                 Solvency.  Based on the financial condition of each Debtor
as of the date hereof, each Debtor’s fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of such Debtor’s
existing debts and other liabilities (including contingent liabilities) as they
mature.  Based on the financial condition of each Debtor as of the date hereof,
each Debtor’s assets do not constitute unreasonably small capital to carry out
its business as now conducted and as proposed to be conducted including such
Debtor’s capital needs taking into account the particular capital requirements
of the business conducted by such Debtor, and projected capital requirements
and capital availability thereof. 
No Debtor intends to incur debts beyond its ability to 

 9
 

pay
such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). 
Based on the financial condition of each Debtor as of the date hereof,
the Debtors believe that the current cash flow of such Debtor, were it to
liquidate all of its assets, would be
sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid.  No Debtor intends, or believes, that final judgments against it in actions for money damages will be
rendered at a time when, or in an amount such that, it will be unable to
satisfy any such judgments promptly in accordance with their terms (taking into
account the maximum reasonable amount of such judgments in any such actions and
the earliest reasonable time at which such judgments might be rendered).  Each Debtor believes that such Debtor’s cash flow
will at all times be sufficient to pay all such judgments promptly in
accordance with their terms.  As
of the date hereof, no Debtor is
subject to any bankruptcy, insolvency or similar proceeding.  Each Debtor acknowledges that it shall
receive fair and reasonably equivalent value from the Holders in exchange for
the grant to them of the Security Interest hereunder.

5.                                       EFFECT OF PLEDGE ON CERTAIN
RIGHTS.

If any of the Collateral subject to this Agreement consists of
nonvoting equity or ownership interests (regardless of class, designation,
preference or rights) that may be converted into voting equity or ownership
interests upon the occurrence of certain events (including, without limitation,
upon the transfer of all or any of the other stock or assets of the issuer), it
is agreed that the pledge of such equity or ownership interests pursuant to
this Agreement or the enforcement of any of the Secured Parties’ rights
hereunder shall not be deemed to be the type of event which would trigger such
conversion rights notwithstanding any provisions in the Organizational
Documents or agreements to which the Debtors or any of the Collateral is
subject or to which the Debtors are party.

6.                                       DUTY TO HOLD IN TRUST.

6.1                                 Cash and Payment Obligations.  Upon
the occurrence of an Event of Default and the acceleration of the Debentures in
accordance with the terms thereof, and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income, dividend, interest or other sums
subject to the Security Interest, whether payable pursuant to the Debentures or
otherwise, or of any check, draft, note, trade acceptance or other instrument
evidencing an obligation to pay any such sum, hold the same in trust for and on
behalf of and for the benefit of the Secured Parties, and shall forthwith
endorse and transfer any such sums or instruments, or both (to the extent
permitted by law), to the Collateral Agent for distribution to the Secured
Parties, pro-rata in proportion to their initial purchases of Debentures for
application to the satisfaction of the Obligations (and if any Debenture is not
outstanding, pro rata in proportion to the
initial purchases of the remaining Debentures).

6.2                                 Securities and Other Assets.  If a
Debtor shall become entitled to receive or shall receive any securities or
other property (including, without limitation, shares of Pledged Securities or
instruments representing Pledged Securities acquired after the date hereof, or
any options, warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of any of its direct or indirect
subsidiaries) in respect of the Pledged Securities (whether as an addition to,
in substitution of, or in exchange for, such Pledged 

 10
 

Securities
or otherwise), such Debtor agrees to (i) accept the same as the agent of the
Secured Parties; (ii) hold the same in trust on behalf of and for the benefit
of the Secured Parties; and (iii) to deliver any and all certificates or
instruments evidencing the same to the Collateral Agent, for the benefit of the
Secured Parties, on or before the close of business on the fifth business day
following the receipt thereof by such Debtor, in the exact form received
together with the Necessary Endorsements, to be held by the Collateral Agent
subject to the terms of this Agreement as Collateral.

7.                                       RIGHTS AND REMEDIES UPON DEFAULT.

7.1                                 Scope of Rights and Remedies.  Upon
the occurrence of any Event of Default and the acceleration of the Debentures
in accordance with the terms thereof, and at any time thereafter, the
Collateral Agent, for the benefit of the Secured Parties, acting through any
agent appointed by it for such purpose, shall have the right to exercise all of
the remedies conferred hereunder and under the Debentures, and the Collateral
Agent, for the benefit of the Secured Parties, shall have all the rights and
remedies of a secured party under the UCC. Without limitation, the Collateral
Agent shall have the following rights and powers:

(a)                                  The Collateral Agent shall have the right to
take possession of the Collateral and, for that purpose, enter, with the aid
and assistance of any person, any premises where the Collateral, or any part
thereof, is or may be placed and remove the same, and the Debtors shall
assemble the Collateral and make it available to the Collateral Agent at places
which the Collateral Agent shall reasonably select, whether at the Debtors’
premises or elsewhere, and make available to the Collateral Agent, without
rent, all of the Debtors’ premises and facilities for the purpose of the
Collateral Agent taking possession of, removing or putting the Collateral in
saleable or disposable form.

(b)                                 Upon notice to the Debtors by the Collateral
Agent, all rights of the Debtors to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise and all rights of the
Debtors to receive the dividends and interest which it would otherwise be
authorized to receive and retain, shall cease. 
Upon such notice, the Collateral Agent shall have the right to receive
any interest, cash dividends or other payments on the Collateral and, at the
option of the Collateral Agent, to exercise in the Collateral Agent’s
discretion all voting rights pertaining thereto.  Without limiting the generality of the
foregoing, the Collateral Agent shall have the right (but not the obligation)
to exercise all rights with respect to the Collateral as if it were the sole
and absolute owner thereof, including, without limitation, to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the Collateral or a Debtor or any of its
direct or indirect subsidiaries.

(c)                                  The Collateral Agent shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or any part of the
Collateral, at public or private sale or otherwise, either with or without
special conditions or stipulations, for cash or on credit or for future
delivery, in such parcel or parcels and at such time or times and at such place
or places, and upon such terms and conditions as the Collateral Agent may deem
commercially reasonable, all without (except as shall be required by applicable
statute and cannot be waived) advertisement or demand upon or

 11

notice to the Debtors or right of
redemption of the Debtors, which are hereby expressly waived.  Upon each such sale, lease, assignment or
other transfer of Collateral, the Collateral Agent may, unless prohibited by applicable
law which cannot be waived, purchase all or any part of the Collateral being
sold, free from and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and released, subject to the
application of proceeds in accordance with Section 8.

(d)           The Collateral Agent shall have the
right (but not the obligation) to notify any account debtors and any obligors
under instruments or accounts to make payments directly to the Collateral Agent
and to enforce the Debtors’ rights against such account debtors and obligors.

(e)           The Collateral Agent may (but is not
obligated to) direct any financial intermediary or any other person or entity
holding any investment property to transfer the same to the Collateral Agent or
its designee.

(f)            The Collateral Agent may (but is not
obligated to) transfer any or all Intellectual Property registered in the name
of any Debtor at the United States Patent and Trademark Office and/or Copyright
Office or and/or any similar foreign office into the name of the Collateral Agent
or any designee or any purchaser of any Collateral.

7.2           Disposition of Collateral.  The Collateral Agent shall comply with any
applicable law in connection with each disposition of Collateral and such
compliance will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. 
The Collateral Agent may sell the Collateral without giving any
warranties and may specifically disclaim such warranties.  If the Collateral Agent sells any of the
Collateral on credit, the Debtors will only be credited with payments actually
made by the purchaser.  In addition, each
Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Collateral Agent’s rights and remedies
hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights and remedies with respect thereto.

7.3           License to Use Intellectual
Property.  For the sole purpose of
enabling the Collateral Agent to further exercise rights and remedies under
this Section 7 or elsewhere provided by
agreement or applicable law, each Debtor hereby grants to the Collateral Agent
an irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to such Debtor) to use, license or sublicense following an
Event of Default and the acceleration of the Debentures in accordance with the
terms thereof, any Intellectual Property now owned or hereafter acquired by
such Debtor, and wherever the same may be located, and including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer software and programs used for the compilation or
printout thereof.

8.             APPLICATIONS OF PROCEEDS.

The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder shall be applied first, to the expenses of retaking, holding,
storing, processing and preparing for sale, selling, and the like (including,
without limitation, any taxes, fees and other costs incurred in

 12
 

connection
therewith) of the Collateral, to the reasonable attorneys’ fees and expenses
incurred by the Collateral Agent and Secured Parties in enforcing their rights
hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata
among the Secured Parties (based on then-outstanding principal amounts of
Debentures at the time of any such determination), and to the payment of any
other amounts required by applicable law, after which the Secured Parties shall
pay to the Debtors any surplus proceeds. 
If, upon the sale, license or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which the Secured
Parties are legally entitled, the Debtors will be liable for the deficiency,
together with interest thereon, at an interest rate equal to the lower of
eighteen percent (18%) and the maximum rate permitted by applicable law (the “Default Rate”), and the reasonable
fees of any attorneys employed by the Collateral Agent and the Secured Parties
to collect such deficiency.  To the
extent permitted by applicable law, each Debtor waives all claims, damages and
demands against the Collateral Agent and the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, except to the
extent due to the gross negligence or willful misconduct of the Collateral
Agent or the Secured Parties as determined by a final judgment (not subject to
further appeal) of a court of competent jurisdiction.

9.             SECURITIES LAW PROVISION.

Each Debtor
recognizes that the Collateral Agent may be limited in its ability to effect a
sale to the public of all or part of the Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or
state securities laws (collectively, the “Securities Laws”),
and may be compelled to resort to one or more sales to a restricted group of
purchasers who may be required to agree to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof.  Each Debtor agrees that
sales so made may be at prices and on terms less favorable than if the Pledged
Securities were sold to the public, and that the Secured Parties has no
obligation to delay the sale of any Pledged Securities for the period of time
necessary to register the Pledged Securities for sale to the public under the
Securities Laws.  Each Debtor shall
cooperate with the Collateral Agent in its attempt to satisfy any requirements
under the Securities Laws (including, without limitation, registration
thereunder if requested by the Collateral Agent) applicable to the sale of the
Pledged Securities by the Collateral Agent.

10.           COSTS AND EXPENSES.

Each Debtor
agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in
connection with any filing required hereunder, including, without limitation,
any financing statements pursuant to the UCC, continuation statements, partial
releases and/or termination statements related thereto or any expenses of any
searches reasonably required by the Secured Parties.  The Debtors shall also pay all other claims
and charges which in the reasonable opinion of the Secured Parties are
reasonably likely to prejudice, imperil or otherwise affect the Collateral or
the Security Interest therein.  The
Debtors will also, upon demand, pay to the Collateral Agent, for the benefit of
the Secured Parties, the amount of any and all reasonable expenses, including
the reasonable fees and expenses of its counsel and of any experts and agents,
which the Secured Parties may incur in connection with (i) the enforcement of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or

 13
 

(iii) the exercise or enforcement of any
of the rights of the Secured Parties under the Debentures or this
Agreement.  Until so paid, any fees
payable hereunder shall be added to the principal amount of the Debentures and
shall bear interest at the Default Rate.

11.           RESPONSIBILITY FOR COLLATERAL.

The Debtors
assume all liabilities and responsibility in connection with all Collateral,
and the Obligations shall in no way be affected or diminished by reason of the
loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  The
Collateral Agent agrees to act in accordance with commercially reasonable
standards and the UCC.  Without limiting
the generality of the foregoing, (a) no Secured Party (i) has any duty (either
before or after an Event of Default) to collect any amounts in respect of the
Collateral or to preserve any rights relating to the Collateral, or (ii) has
any obligation to clean-up or otherwise prepare the Collateral for sale, and
(b) each Debtor shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such Debtor
thereunder.  No Secured Party shall have
any obligation or liability under any such contract or agreement by reason of
or arising out of this Agreement or the receipt by any Secured Party of any
payment relating to any of the Collateral, nor shall the any Secured Party be
obligated in any manner to perform any of the obligations of any Debtor under
or pursuant to any such contract or agreement, to make inquiry as to the nature
or sufficiency of any payment received by any Secured Party in respect of the
Collateral or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to any Secured Party or to which it may be entitled at any time
or times.

12.           SECURITY INTEREST ABSOLUTE.

All rights of
the Collateral Agent and the Secured Parties and all obligations of the Debtors
hereunder, shall be absolute and unconditional, irrespective of: (a) any lack
of validity or enforceability of this Agreement, the Debentures or any
agreement entered into in connection with the foregoing, or any portion hereof
or thereof; (b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the
Debentures or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by any of the Secured Parties to obtain, adjust,
settle and cancel in its sole discretion any insurance claims or matters made
or arising in connection with the Collateral; or (e) any other circumstance
which might otherwise constitute any legal or equitable defense available to a
Debtor, or a discharge of all or any part of the Security Interest granted
hereby.  Until the Obligations shall have
been paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy.  Each Debtor expressly waives presentment,
protest, notice of protest, demand, notice of nonpayment and demand for
performance.  In the event that at any
time any transfer of any Collateral or any payment received by the Collateral
Agent for the benefit of any Secured Party hereunder shall be deemed by final
order of a court of competent jurisdiction to have

 14
 

been a voidable preference or fraudulent
conveyance under the bankruptcy or insolvency laws of the United States, or
shall be deemed to be otherwise due to any party other than the Secured
Parties, then, in any such event, each Debtor’s obligations hereunder shall
survive cancellation of this Agreement, and shall not be discharged or
satisfied by any prior payment thereof and/or cancellation of this Agreement,
but shall remain a valid and binding obligation enforceable in accordance with
the terms and provisions hereof.  Each
Debtor waives all right to require any Secured Party to proceed against any
other person or entity or to apply any Collateral which the Collateral Agent or
any Secured Parties may hold at any time, or to marshal assets, or to pursue
any other remedy.  Each Debtor waives any
defense arising by reason of the application of the statute of limitations to
any obligation secured hereby.

13.           TERM OF AGREEMENT.

This Agreement
and the Security Interest and any and all other rights granted hereby including
the right to use any Intellectual Property or licenses shall terminate on the
date on which all payments under the Debentures have been indefeasibly paid in
full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors
contained in this Agreement shall survive and remain operative and in full
force and effect regardless of the termination of this Agreement.

14.           POWER OF ATTORNEY.

Each Debtor
authorizes the Collateral Agent, and does hereby make, constitute and appoint
the Collateral Agent and its officers, agents, successors or assigns with full
power of substitution, as such Debtor’s true and lawful attorney-in-fact, with
power, in the name of the various Secured Parties or such Debtor, to, after the
occurrence and during the continuance of an Event of Default, (i) endorse any
note, checks, drafts, money orders or other instruments of payment (including
payments payable under or in respect of any policy of insurance) in respect of
the Collateral that may come into possession of the Secured Parties; (ii) to
sign and endorse any financing statement pursuant to the UCC or any invoice,
freight or express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
accounts, and other documents relating to the Collateral; (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (v) to transfer any Intellectual Property or provide licenses
respecting any Intellectual Property; and (vi) generally, at the option of the
Collateral Agent, and at the expense of the Debtors, at any time, or from time
to time, to execute and deliver any and all documents and instruments and to do
all acts and things which the Collateral Agent deems necessary to protect,
preserve and realize upon the Collateral and the Security Interest granted
therein in order to effect the intent of this Agreement and the Debentures all
as fully and effectually as the Debtors might or could do; and each Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof.  This power of attorney is
coupled with an interest and shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be
outstanding.  The designation set forth
herein shall be deemed to amend and supersede any inconsistent provision in the
Organizational Documents or other documents or agreements to which any Debtor
or any of the Pledged Securities is subject or to which any Debtor is a
party.  Without limiting the generality
of

 15
 

the foregoing, after the occurrence and
during the continuance of an Event of Default, the Collateral Agent is
specifically authorized to execute and file any applications for or instruments
of transfer and assignment of any patents, trademarks, copyrights or other
Intellectual Property with the United States Patent and Trademark Office and/or
the United States Copyright Office and/or any similar foreign office.  This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.

15.           OTHER SECURITY.

To the extent
that the Obligations are now or hereafter secured by property other than the
Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Collateral Agent shall have the
right, in its sole discretion, to pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way modifying or
affecting any of the Secured Parties’ rights and remedies hereunder.

16.           COLLATERAL AGENT.

16.1         Appointment, Resignation and Removal.  The Secured Parties hereby appoint Imperium
Advisers, LLC, to act as the Collateral Agent for purposes of exercising any
and all rights and remedies of the Secured Parties hereunder. Any person or
entity serving as the Collateral Agent may resign as Collateral Agent hereunder
at any time by giving written notice thereof to each Secured Party, and such
resignation shall become effective upon the effectiveness of the appointment of
a successor agent in accordance with Section 16.2.  Any person or entity serving as Collateral
Agent may be removed at any time or from time to time by the affirmative vote
of a Majority in Interest.

16.2         Successor
Agent.  Upon the resignation or
removal of a Collateral Agent, a successor agent may be appointed by the
Secured Parties by a Majority in Interest, and such appointment shall become
effective upon such successor agent accepting such appointment in writing.  If no successor agent shall have been so
appointed by the Secured Parties within thirty (30) days after receipt of a
resignation notice from the Collateral Agent, then the Collateral Agent shall
have the right to appoint a successor agent in its sole and absolute
discretion, and such successor agent shall commence serving as the Collateral
Agent hereunder upon such successor agent’s acceptance of such appointment in
writing.

16.3         Possession of Collateral Documents.  Upon receipt of the certificates and other
instruments representing or evidencing the Pledged Securities and other
Collateral, together with the Necessary Endorsements (collectively, the “Collateral Documents”), the
Collateral Agent shall hold the Collateral Documents in trust on behalf of the
Secured Parties and shall enforce its rights under the Collateral Documents
solely in accordance with the terms of this Agreement. Upon the termination of
this Agreement pursuant to Section 13, the Collateral Agent shall promptly
return all Collateral Documents, to the extent the rights to the Pledged
Securities and other Collateral were not exercised under this Agreement, to the
Debtors.

 16
 

16.4         Exculpation; Limitation and
Delegation of Duties.  Neither the
Collateral Agent nor any of its directors, officers, partners, agents,
representatives, advisors or employees (collectively, the “Collateral
Agent Parties”) shall be liable to any Secured Party for any
action taken or omitted to be taken by any of them hereunder, except for their
own gross negligence or willful misconduct. 
None of Collateral Agent Parties shall be responsible for, or have any
duty to ascertain the veracity, performance or satisfaction of, any
representation, warranty, covenant, agreement or condition made or contained in
this Agreement or any other Transaction Document.  The Collateral Agent may undertake any of its
duties as Collateral Agent hereunder by or through employees, agents, and
attorneys-in-fact and shall not be liable to any Secured Party for
the negligence or misconduct of any such agents or attorneys-in-fact
selected in good faith by the Collateral Agent.

16.5         Indemnification
by Secured Parties.  The Secured
Parties hereby indemnify each of the Collateral Agent Parties for any
losses, obligations, damages, penalties, actions, judgments, suits, costs,
expenses, disbursements and other liabilities of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the Collateral Agent
in any way relating to or arising out of Collateral Agent’s performance of its
obligations under this Agreement, except for (i) those costs that are actually
reimbursed by the Debtors under this Agreement, and (ii) liabilities directly
attributable to the gross negligence or willful misconduct of any Collateral
Agent Party.  The payment of any
indemnification obligation hereunder shall be made by each Secured Party on a
pro rata basis, based on the principal amount of the Debentures then owned by
such Secured Party as compared to the aggregate principal amount of the
Debentures then outstanding.

17.           INDEMNIFICATION.

The Debtors
shall jointly and severally indemnify, reimburse and hold harmless the
Collateral Agent and each of the Secured Parties and their respective partners,
members, shareholders, officers, directors, employees and agents (each, an “Indemnitee”) from and against any
and all losses, claims, liabilities, damages, penalties, suits, costs and
expenses, of any kind or nature, (including fees relating to the cost of
investigating and defending any of the foregoing) imposed on, incurred by or
asserted against such Indemnitee in any way related to or arising from or
alleged to arise from this Agreement or the Collateral, except any such losses,
claims, liabilities, damages, penalties, suits, costs and expenses which result
from the gross negligence or willful misconduct of the Indemnitee as determined
by a final, nonappealable decision of a court of competent jurisdiction.  This indemnification provision is in addition
to, and not in limitation of, any other indemnification provision in the
Debentures, the Purchase Agreement or any other Transaction Document.

18.           MISCELLANEOUS.

18.1         Severability.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that
in such case the parties shall negotiate in good faith to replace such
provision with a new provision which is not illegal, unenforceable or void, as
long as such new provision does not materially change the economic benefits of
this Agreement to the parties.

 17
 

18.2         Successors
and Assigns.  The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and permitted assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.  A
Secured Party may assign its rights hereunder in connection with any private
sale or transfer of its Debentures, in which case the term “Secured Party”
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto.  No Debtor may
assign its rights or obligations under this Agreement.

18.3         Injunctive Relief. 
Each Debtor acknowledges and agrees that a breach by it of its
obligations hereunder will cause irreparable harm to each Secured Party and
that the remedy or remedies at law for any such breach will be inadequate and
agrees, in the event of any such breach, in addition to all other available
remedies, such Secured Party shall be entitled to an injunction restraining any
breach and requiring immediate and specific performance of such obligations
without the necessity of showing economic loss or the posting of any bond.

18.4         Governing Law; Jurisdiction.  This Agreement shall be governed by and
construed under the laws of the State of New York applicable to contracts made
and to be performed entirely within the State of New York.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City and
County of New York for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.

18.5         Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.  This
Agreement may be executed and delivered by facsimile transmission.

18.6         Headings.  The
headings used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

18.7         Notices.  Any
notice, demand or request required or permitted to be given by the Debtor,
Collateral Agent or a Secured Party pursuant to the terms of this Agreement
shall be in writing and shall be deemed delivered (i) when delivered
personally, against written receipt therefor, or by verifiable facsimile
transmission, unless such delivery is made on a day that is not a Business Day,
in which case such delivery will be deemed to be made on the next succeeding
Business Day, (ii) on the next Business Day after timely delivery to a
nationally recognized overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:

 18
 

If to any Debtor:

c/o
Digital Angel Corporation

Suite 201

1690 South Congress

Delray Beach, Florida 33483

Attn: 
Kevin McGrath

Tel:         (561) 276-0477

Fax:         (561)
805-8001

with a copy
(which shall not constitute notice) to:

Winthrop & Weinstine, P.A.

Suite 3500

225 South 6th Street

Minneapolis, Minnesota 55402

Attn:       Philip T. Colton

Tel:         (612) 604-6729

Fax:         (612) 604-6929

If to the
Collateral Agent:

Imperium Advisers, LLC

153 East 53rd Street

29th Floor

New York, NY 10022

Attn:       Maurice
Hryshko, Esq.

Tel:         (212)
433-1360

Fax:         (212)
433-1361

and if to any Secured Party, to such address for such
party as shall appear on Exhibit A to the Purchase Agreement executed by such
party (or, in the case of a successor to a Secured Party in connection with a
valid transfer of a Debenture, the address of such successor designated in a notice
given to the Company and signed by the original secured party and such
successor), or as shall be designated by such party (or successor) in writing
to the other parties hereto in accordance with this Section
18.7. Written confirmation of receipt generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission shall be rebuttable evidence of
receipt by facsimile in accordance with clause (i)
above.

18.8         Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents constitute the entire agreement between the parties with regard to
the subject matter hereof and thereof, superseding all prior agreements or
understandings, whether written or oral, between or among the parties.  No (i) amendment to this Agreement or (ii)
waiver of any agreement or other obligation of a Debtor under this Agreement
may be made or given except pursuant to a written

 19
 

instrument executed by the
Debtors, the Collateral Agent and the holders of a majority of the aggregate
principal of the Debentures then outstanding.  Any
waiver given pursuant hereto shall be effective only in the specific instance
and for the specific purpose for which given.

[SIGNATURE PAGES FOLLOW]

 20
 

IN WITNESS WHEREOF, the parties hereto
have caused this Security Agreement to be duly executed on the day and year
first above written.

	
   

  	
  DIGITAL ANGEL CORPORATION, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	
  /s/ Kevin N. McGrath

  
	
   

  	
   

  	
   

  	
  Name: Kevin N. McGrath

  
	
   

  	
   

  	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DIGITAL ANGEL TECHNOLOGY CORPORATION, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  OUTERLINK CORPORATION, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DSD HOLDING A/S, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SIGNATURE INDUSTRIES LIMITED, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
						

 

 21
 

IN WITNESS
WHEREOF, the parties hereto have caused this Security Agreement to be duly
executed on the day and year first above written.

	
   

  	
  DIGITAL ANGEL
  INTERNATIONAL, INC., AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DIGITAL ANGEL HOLDINGS,
  LLC, AS DEBTOR

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Name: Patricia Petersen

  
	
   

  	
   

  	
   

  	
  Title: Assistant Secretary

  
						

 

 22
 

IN WITNESS
WHEREOF, the parties hereto have caused this Security Agreement to be duly
executed on the day and year first above written.

 

	
   

  	
  IMPERIUM ADVISERS, LLC, AS
  COLLATERAL AGENT

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
   

  	
  /s/ Maurice Hryshko

  
	
   

  	
   

  	
   

  	
  Name: Maurice Hryshko

  
	
   

  	
   

  	
   

  	
  Title: Counsel

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IMPERIUM MASTER FUND,
  LTD., AS SECURED PARTY

  	 

	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Maurice Hryshko

  
	
   

  	
   

  	
   

  	
  Name: Maurice
  Hryshko

  
	
   

  	
   

  	
   

  	
  Title: Counsel

  
						

 

 23

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