Document:

Exhibit 10.6

    
      

    

    Exhibit
      10.6

     

    REGISTRATION
      RIGHTS AGREEMENT

    

    

    This
      REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
      dated
      as of February 6, 2007, is by and between DIGITAL ANGEL CORPORATION, a Delaware
      corporation (the “Company”),
      and
      each of the entities whose names appear on the signature pages hereof. Such
      entities are each referred to herein as an “Investor”
and,
      collectively, as the “Investors”.

    

    The
      Company has agreed, on the terms and subject to the conditions set forth in
      the
      Securities Purchase Agreement, dated as of the date hereof (the “Securities
      Purchase Agreement”),
      to
      issue and sell to each Investor named therein (A) one or more 10.25% Senior
      Secured Debentures in the form attached to the Securities Purchase Agreement
      (each, a “Debenture”
and,
      collectively, the “Debentures”)
      and
      (B) a Warrant in the form attached to the Securities Purchase Agreement (each,
      a
“Warrant”
and,
      collectively, the “Warrants”).

    

    Upon
      the
      satisfaction or waiver of certain conditions, the Company is permitted to pay
      the principal and interest on the Debentures in shares (the “Stock
      Option Shares”)
      of its
      common stock, par value $0.005 per share (the “Common
      Stock”).
      The
      Warrants are exercisable into shares of Common Stock (the “Warrant
      Shares”)
      in
      accordance with their terms. 

    

    In
      order
      to induce each Investor to enter into the Securities Purchase Agreement, the
      Company has agreed to provide certain registration rights under the Securities
      Act of 1933, as amended (the “Securities
      Act”),
      and
      under applicable state securities laws. 

    

    In
      consideration of each Investor entering into the Securities Purchase Agreement,
      and other good and valuable consideration, the receipt and sufficiency of which
      are hereby acknowledged, the parties agree as follows:

    

    1.    
DEFINITIONS.

    

    For
      purposes of this Agreement, the following terms shall have the meanings
      specified:

    

    “Effective
      Date”
means
      the date on which the Registration Statement is declared effective by the
      Commission.

    

    “Filing
      Deadline”
means
      the forty-fifth (45th) calendar day following the Closing Date.

    

    “Holder”
means
      any person owning or having the right to acquire, under the Debentures or
      through exercise of the Warrants or otherwise, Registrable Securities, including
      initially each Investor and thereafter any permitted assignee
      thereof.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Registrable
      Securities”
means
      the Stock Option Shares, the Warrant Shares and any other shares of Common
      Stock
      (or other securities) issued or issuable pursuant to the terms of the Debentures
      or the Warrants, and any shares of capital stock issued or issuable from time
      to
      time (with any adjustments) in replacement of, in exchange for or otherwise
      in
      respect of the Stock Option Shares and the Warrant Shares.

    

    “Registration
      Deadline”
means
      the ninetieth (90th)
      calendar day following the Closing Date; provided,
      however,
      that if
      the Commission reviews and has written comments to the filed Registration
      Statement that would require the filing of a pre-effective amendment thereto
      with the Commission, the Registration Deadline shall mean the one hundred thirty
      fifth (135th)
      calendar day following the Closing Date.

    

    “Registration
      Period”
has
      the
      meaning set forth in Section
      2(b)
      of this
      Agreement.

    

    “Registration
      Statement”
means
      a
      registration statement or statements prepared in compliance with the Securities
      Act and pursuant to Rule 415 under the Securities Act (“Rule
      415”)
      or any
      successor rule providing for the offering of securities on a continuous or
      delayed basis.

    

    Capitalized
      terms used herein and not otherwise defined shall have the respective meanings
      specified in the Securities Purchase Agreement. 

    

    All
      definitions contained in this Agreement are equally applicable to the singular
      and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import contained in this Agreement refer to
      this Agreement as a whole and not to any particular provision of this
      Agreement.

    

    2.    
REGISTRATION.

    

    (a)    Filing
      of Registration Statement.
      On or
      before the Filing Deadline, the Company shall prepare and file with the
      Commission a Registration Statement on Form S-3 as a “shelf” registration
      statement under Rule 415 covering the resale of a number of shares of
      Registrable Securities equal to two hundred percent (200%) of the sum of (i)
      the
      number of Stock Option Shares that would be issuable if the Debentures were
      then
      repaid in full in Stock Option Shares (and not in cash) plus
      (ii)
      the
      number of Warrant Shares that would be issuable if the Warrants were then
      exercised in full; in each such case, without regard to any limitation or
      restriction on (x) the issuance of such Registrable Securities or (y) the
      exercise of any Warrants. Such Registration Statement shall state, to the extent
      permitted by Rule 416 under the Securities Act, that it also covers such
      indeterminate number of additional shares of Common Stock as may become issuable
      upon the repayment of the Debentures and exercise of the Warrants in order
      to
      prevent dilution resulting from stock splits, stock dividends or similar
      events.

    
      
        
        

      

      
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    (b)    Effectiveness.
      The
      Company shall use its best efforts to cause the Registration Statement to become
      effective as soon as practicable following the filing thereof, but in no event
      later than the Registration Deadline. The Company shall respond promptly to
      any
      and all comments made by the staff of the Commission with respect to a
      Registration Statement, and shall submit to the Commission, within two (2)
      Business Days after the Company learns that no review of such Registration
      Statement will be made by the staff of the Commission or that the staff of
      the
      Commission has no further comments on such Registration Statement, as the case
      may be, a request for acceleration of the effectiveness of such Registration
      Statement to a time and date not later than two (2) Business Days after the
      submission of such request. The Company will maintain the effectiveness of
      each
      Registration Statement filed pursuant to this Agreement until the earlier to
      occur of (i) the date on which all of the Registrable Securities eligible for
      resale thereunder have been publicly sold pursuant to the Registration Statement
      or Rule 144, and (ii) the date on which all of the Registrable Securities
      remaining to be sold under such Registration Statement (in the reasonable
      opinion of counsel to the Company) may be immediately sold to the public under
      Rule 144(k) under the Securities Act (“Rule
      144(k)”)
      or any
      successor provision (the period beginning on the Registration Deadline and
      ending on the earliest to occur of clause
      (i)
      or
(ii)
      above
      being referred to herein as the “Registration
      Period”)
      or
      until such later date as the Company shall determine.

    

    (c)    Registration
      Default.
      If (i)
      the Registration Statement is not filed on or before the Filing Deadline or
      declared effective by the Commission on or before the Registration Deadline,
      (ii) after a Registration Statement has been declared effective by the
      Commission, sales of Registrable Securities (other than such Registrable
      Securities as are then freely saleable pursuant to Rule 144(k)) cannot be made
      by a Holder under a Registration Statement for any reason not within the
      exclusive control of such Holder or (iii) an amendment or supplement to a
      Registration Statement, or a new registration statement, required to be filed
      pursuant to the terms of Section
      3(j),
      is not
      filed on or before the date required thereby (each of the foregoing clauses
      (i),
      (ii)
      and
(iii)
      being
      referred to herein as a “Registration
      Default”),
      the
      Company shall, no later than two (2) Business Days after the date on which
      such
      Registration Default occurs, make a cash payment to each Holder equal to such
      Holder’s pro
      rata
      share
      (based on the number of Registrable Securities then held by or issuable to
      such
      Holder as compared to the number of Registrable Securities then held by or
      issuable to all Holders; in each case, without regard to any limitation or
      restriction on (x) the issuance of such Registrable Securities or (y) the
      exercise of any Warrants) of one percent (1%) of the aggregate Purchase Price
      paid by all Holders (such amount, the “Registration
      Default Payment Amount”).
      In
      addition to the foregoing payment, the Company shall, for each calendar month
      in
      which a Registration Default occurred and/or existed, make an additional cash
      payment to each Holder equal to such Holder’s pro
      rata
      share of
      the Registration Default Payment Amount (pro
      rated
      for
      partial months), and the payment for each such calendar month shall be due
      on
      the last day of such calendar month; provided,
      however,
      that if
      the applicable Registration Default is cured prior to the end of a calendar
      month, then the cash payment for such month shall be made no later than two
      (2)
      Business Days after the date on which such Registration Default was cured.
      Notwithstanding the foregoing, the total amount of liquidated damages payable
      by
      the Company pursuant to this Section
      2(c) shall
      be
      capped at an aggregate amount of nine percent (9%) of the aggregate Purchase
      Price paid by all Holders. Any such payment shall be in addition to any other
      remedies available to each Holder at law or in equity, whether pursuant to
      the
      terms hereof, under any of the other Transaction Documents or otherwise.

    
      
        
        

      

      
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    (d)    Allocation
      of Registered Shares.
      The
      initial number of Stock Option Shares and Warrant Shares included in any
      Registration Statement and each increase in the number thereof included therein
      shall be allocated pro
      rata
      among
      the Holders based on the number of Registrable Securities then held by or
      issuable to such Holder as compared to the number of Registrable Securities
      then
      held by or issuable to all Holders (in each case, without regard to any
      limitation or restriction on (x) the issuance of such Registrable Securities
      or
      (y) the exercise of any Warrants). In the event that a Holder sells or otherwise
      transfers any of such Holder’s Registrable Securities, each transferee shall be
      allocated the portion of the then remaining number of Registrable Securities
      included in such Registration Statement and allocable to such
      Holder.

    

    (e)    Registration
      of Other Securities.
      During
      the period beginning on the date hereof and ending on the Effective Date, the
      Company shall refrain from filing any registration statement (other than (i)
      a
      Registration Statement filed hereunder or that otherwise includes the
      Registrable Securities or (ii) a registration statement on Form S-8 with respect
      to stock option plans and agreements and stock plans currently in effect and
      disclosed in the Securities Purchase Agreement or the schedules thereto). In
      no
      event shall the Company include any securities other than Registrable Securities
      on any Registration Statement filed by the Company on behalf of the Holders
      pursuant to the terms hereof.

     

    3.    OBLIGATIONS
      OF THE COMPANY.

    

    In
      addition to performing its obligations hereunder, including, without limitation,
      those pursuant to Section
      2
      above,
      the Company shall, with respect to each Registration Statement:

    

    (a)    prepare
      and file with the Commission such amendments and supplements to such
      Registration Statement and the prospectus used in connection with such
      Registration Statement as may be necessary to comply with the provisions of
      the
      Securities Act or to maintain the effectiveness of such Registration Statement
      during the Registration Period, or as may be reasonably requested by a Holder
      in
      order to incorporate information concerning such Holder or such Holder’s
      intended method of distribution; 

    

    (b)    as
      soon
      as practicable following the Closing, take all steps necessary and otherwise
      use
      its best efforts to secure the listing on the Principal Market of all
      Registrable Securities issuable under the Debentures and upon exercise of the
      Warrants, and at any Holder’s request, provide such Holder with reasonable
      evidence thereof;

    

    (c)    so
      long
      as a Registration Statement is effective covering the resale of the applicable
      Registrable Securities owned by a Holder, furnish to each Holder such number
      of
      copies of the prospectus included in such Registration Statement, including
      a
      preliminary prospectus, in conformity with the requirements of the Securities
      Act, and such other documents as such Holder may reasonably request in order
      to
      facilitate the disposition of such Holder’s Registrable Securities;

    

    (d)    use
      commercially reasonable efforts to register or qualify the Registrable
      Securities under the securities or “blue sky” laws of such jurisdictions within
      the United States as shall be reasonably requested from time to time by a
      Holder, and do any and all other acts or things which may reasonably be
      necessary or advisable to enable such Holder to consummate the public sale
      or
      other disposition of the Registrable Securities in such jurisdictions;
provided
      that the
      Company shall not be required in connection therewith or as a condition thereto
      to qualify to do business or to file a general consent to service of process
      in
      any such jurisdiction;

    
      
        
        

      

      
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    (e)    notify
      each Holder immediately after becoming aware of the occurrence of any event
      (but
      shall not, without the prior written consent of such Holder, disclose to such
      Holder any facts or circumstances constituting material non-public information)
      as a result of which the prospectus included in such Registration Statement,
      as
      then in effect, contains an untrue statement of material fact or omits to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading, and as promptly as practicable prepare and file with the
      Commission and furnish to each Holder a reasonable number of copies of a
      supplement or an amendment to such prospectus as may be necessary so that such
      prospectus does not contain an untrue statement of material fact or omit to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then existing;
      

    

    (f)    use
      commercially reasonable efforts to prevent the issuance of any stop order or
      other order suspending the effectiveness of such Registration Statement and,
      if
      such an order is issued, to use commercially reasonable efforts to obtain the
      withdrawal thereof at the earliest possible time and to notify each Holder
      in
      writing of the issuance of such order and the resolution thereof;

    

    (g)   furnish
      to each Holder, on the date that such Registration Statement, or any successor
      registration statement, becomes effective, a letter, dated such date, signed
      by
      outside counsel to the Company and addressed to such Holder, confirming such
      effectiveness and, to the knowledge of such counsel, the absence of any stop
      order;

    

    (h)   [Reserved]

    

    (i)    permit
      counsel for each Holder to review such Registration Statement and all amendments
      and supplements thereto, and any comments made by the staff of the Commission
      and the Company’s responses thereto, within three Business Days prior to the
      filing thereof with the Commission (or, in the case of comments made by the
      staff of the Commission, within a reasonable period of time following the
      receipt thereof by the Company); and

    

    (j)    in
      the
      event that, at any time, the number of shares available under the Registration
      Statement is insufficient to cover one hundred and twenty-five percent (125%)
      of
      the Registrable Securities issued or issuable to the Holders under the
      Debentures and the Warrants (such number to be determined (x) using 92% of
      the
      VWAP or the Exercise Price, as applicable, in effect at such time and (y)
      without regard to any limitation or restriction on (1) the issuance of such
      Registrable Securities or (2) the exercise of any Warrants) the Company shall
      promptly amend such Registration Statement or file a new registration statement,
      in any event as soon as practicable, but not later than the tenth
      (10th)
      day
      following notice from a Holder of the occurrence of such event, so that such
      Registration Statement or such new registration statement, or both, covers
      no
      less than two hundred percent (200%) of the Registrable Securities issued or
      issuable to the Holders under the Debentures and the Warrants (such number
      to be
      determined (x) using 92% of the VWAP or the Exercise Price, as applicable,
      in
      effect at such time and (y) without regard to any limitation or restriction
      on
      (1) the issuance of such Registrable Securities or (2) the exercise of any
      Warrants). The Company shall use its best efforts to cause such amendment and/or
      new Registration Statement to become effective as soon as practicable following
      the filing thereof. Any Registration Statement filed pursuant to this
Section
      3(j)
      shall
      state that, to the extent permitted by Rule 416 under the Securities Act, such
      Registration Statement also covers such indeterminate number of additional
      shares of Common Stock as may become issuable under the Debentures and the
      Warrants in order to prevent dilution resulting from stock splits, stock
      dividends or similar events. Unless and until such amendment or new Registration
      Statement becomes effective, each Holder shall have the rights described in
      Section
      2(c)
      of this
      Agreement. 

    
      
        
        

      

      
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              4.

            	
              OBLIGATIONS
                OF EACH HOLDER.

            

    

    

    In
      connection with the registration of Registrable Securities pursuant to a
      Registration Statement, each Holder shall: 

    

    (a)    within
      three
      (3) Business Days after receipt of written request from the Company, furnish
      to
      the Company in writing such information regarding itself and the intended method
      of disposition of such Registrable Securities as the Company shall reasonably
      request in order to effect the registration thereof; 

    

    (b)    upon
      receipt
      of any notice from the Company of the happening of any event of the kind
      described in Sections
      3(e) or
      3(f)
      of
      this
      Agreement, immediately discontinue any sale or other disposition of such
      Registrable Securities pursuant to such Registration Statement until the filing
      of an amendment or supplement as described in such Section
      3(e) or
      withdrawal of the stop order referred to in such Section
      3(f),
      and use
      commercially reasonable efforts to maintain the confidentiality of such notice
      and its contents; 

    

    (c)    to
      the extent
      required by applicable law, deliver a prospectus to the purchaser of such
      Registrable Securities; 

    

    (d)    promptly
      notify the Company when it has sold all of the Registrable Securities
      beneficially owned by it; and

    

    (e)    notify
      the
      Company in the event that any information supplied by such Holder in writing
      for
      inclusion in such Registration Statement or related prospectus contains an
      untrue statement of material fact or omits to state a material fact required
      to
      be stated therein or necessary to make such information not misleading in light
      of the circumstances then existing; and immediately discontinue any sale or
      other disposition of such Registrable Securities pursuant to such Registration
      Statement until the filing of an amendment or supplement to such prospectus
      as
      may be necessary so that such prospectus does not contain an untrue statement
      of
      material fact or omit to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading in light of the
      circumstances then existing.

     

    
      	
              5.

            	
              INDEMNIFICATION.

            

    

    

    In
      the
      event that any Registrable Securities are included in a Registration Statement
      under this Agreement:

    
      
        
        

      

      
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    (a)    the
      Company shall indemnify and hold harmless each Holder, the officers, directors,
      employees, agents and representatives of such Holder, and each person, if any,
      who controls such Holder within the meaning of the Securities Act or the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      against any losses, claims, damages, liabilities or reasonable out-of-pocket
      expenses (whether joint or several) (collectively, including reasonable legal
      expenses or other expenses reasonably incurred in connection with investigating
      or defending same, “Losses”),
      insofar as any such Losses arise out of or are based upon (i) any untrue
      statement or alleged untrue statement of a material fact contained in such
      Registration Statement under which such Registrable Securities were registered,
      including any preliminary prospectus or final prospectus contained therein
      or
      any amendments or supplements thereto, or (ii) the omission or alleged omission
      to state therein a material fact required to be stated therein, or necessary
      to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading. Subject to the provisions of Section
      5(c)
      of this
      Agreement, the Company will reimburse such Holder, and each such officer,
      director, employee, agent, representative or controlling person, for any
      reasonable legal expenses or other out-of-pocket expenses (promptly as such
      expenses are incurred) by any such entity or person in connection with
      investigating or defending any Loss; provided,
      however,
      that
      the foregoing indemnity shall not apply to amounts paid in settlement of any
      Loss if such settlement is effected without the consent of the Company (which
      consent shall not be unreasonably withheld), nor shall the Company be obligated
      to indemnify any person for any Loss to the extent that such Loss arises out
      of
      or is based upon (i) any omission to state a material fact required to be stated
      therein or necessary to make statements therein not misleading that conforms
      in
      all material respects to written information furnished by such person expressly
      for use in such Registration Statement or (ii) a failure of such person to
      deliver or cause to be delivered the final prospectus contained in the
      Registration Statement and made available by the Company, if such delivery
      is
      required by applicable law.

    

    (b)    each
      Holder who is named in such Registration Statement as a selling shareholder,
      acting severally and not jointly, shall indemnify and hold harmless the Company,
      the officers, directors, employees, agents and representatives of the Company,
      and each person, if any, who controls the Company within the meaning of the
      Securities Act or the Exchange Act, against any Losses to the extent (and only
      to the extent) that any such Losses arise out of or are based upon any untrue
      statement or alleged untrue statement of a material fact stated therein or
      any
      omission to state a material fact required to be stated therein or necessary
      to
      make statements therein not misleading that conforms in all material respects
      to
      written information furnished by such person expressly for use in such
      Registration Statement. Subject to the provisions of Section
      5(c)
      of this
      Agreement, such Holder will reimburse any reasonable legal or other expenses
      (promptly as such expenses are incurred) by the Company and any such officer,
      director, employee, agent, representative, or controlling person, in connection
      with investigating or defending any such Loss; provided,
      however,
      that
      the foregoing indemnity shall not apply to amounts paid in settlement of any
      such Loss if such settlement is effected without the consent of such Holder
      (which consent shall not be unreasonably withheld); and provided,
      further,
      that,
      in no event shall any indemnity under this Section
      5(b)
      exceed
      the amount of the net proceeds resulting from the sale of Registrable Securities
      by such Holder under such Registration Statement.

    
      
        
        

      

      
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    (c)    Promptly
      after receipt by an indemnified party under this Section
      5
      of
      notice of the commencement of any action or proceeding (including any
      governmental action or proceeding), such indemnified party will, if a claim
      in
      respect thereof is to be made against any indemnifying party under this
Section 5,
      promptly deliver to the indemnifying party a written notice of the commencement
      thereof and the indemnifying party shall have the right to participate in and
      to
      assume the defense thereof with counsel selected by the indemnifying party
      and
      reasonably acceptable to the indemnified party; provided,
      however,
      that an
      indemnified party shall have the right to retain its own counsel, with the
      reasonably incurred fees and expenses of such counsel to be paid by the
      indemnifying party, if representation of such indemnified party by the counsel
      retained by the indemnifying party would be inappropriate under applicable
      standards of professional conduct due to actual or potential conflicting
      interests between such indemnified party and any other party represented by
      such
      counsel in such action or proceeding. The failure by an indemnified party to
      notify the indemnifying party within a reasonable time following the
      commencement of any action or proceeding of which the indemnified party is
      aware, to the extent materially prejudicial to such indemnifying party’s ability
      to defend such action, shall relieve such indemnifying party of any liability
      to
      the indemnified party under this Section
      5
      with
      respect to such action or proceeding, but the omission so to deliver written
      notice to the indemnifying party will not relieve it of any liability that
      it
      may have to any indemnified party otherwise than under this Section
      5
      or with
      respect to any other action or proceeding.

    

    (d)    In
      the
      event that the indemnity provided in Sections
      5(a) or
      5(b)
      is
      unavailable or insufficient to hold harmless an indemnified party for any
      reason, the Company and each Holder agree, severally and not jointly, to
      contribute to the aggregate Losses to which the Company or such Holder (or
      its
      respective officers, directors, employees, agents, representatives or
      controlling persons), may be subject in such proportion as is appropriate to
      reflect the relative fault of the Company and such Holder in connection with
      the
      statements or omissions which resulted in such Losses; provided,
      however,
      that in
      no case shall such Holder be responsible for any amount in excess of the net
      proceeds resulting from the sale of Registrable Securities under the
      Registration Statement. Relative fault shall be determined by reference to
      whether any alleged untrue statement or omission relates to information provided
      by the Company or by such Holder. The Company and each Holder agree that it
      would not be just and equitable if contribution were determined by pro
      rata
      allocation or any other method of allocation which does not take account of
      the
      equitable considerations referred to above. Notwithstanding the provisions
      of
      this Section
      5(d),
      no
      person guilty of fraudulent misrepresentation (within the meaning of Section
      11(f) of the Securities Act) shall be entitled to contribution from any person
      who is not guilty of such fraudulent misrepresentation. For purposes of this
      Section
      5,
      each
      person who controls a Holder within the meaning of either the Securities Act
      or
      the Exchange Act and each officer, director, employee, agent or representative
      of such Holder shall have the same rights to contribution as such Holder, and
      each person who controls the Company within the meaning of either the Securities
      Act or the Exchange Act and each officer, director, employee, agent or
      representative of the Company shall have the same rights to contribution as
      the
      Company, subject in each case to the applicable terms and conditions of this
      Section
      5(d).

    

    (e)    The
      obligations of the Company and each Holder under this Section 5
      shall
      survive the repayment of the Debentures and exercise of the Warrants in full,
      the completion of any offering or sale of Registrable Securities pursuant to
      a
      Registration Statement under this Agreement, or otherwise.

    
      
        
        

      

      
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              6.

            	
              REPORTS.

            

    

    

    With
      a
      view to making available to each Holder the benefits of Rule 144 and any other
      similar rule or regulation of the Commission that may at any time permit such
      Holder to sell securities of the Company to the public without registration,
      the
      Company agrees to:

    

    (a)    make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144;

    

    (b)    file
      with
      the Commission in a timely manner all reports and other documents required
      of
      the Company under the Exchange Act; and

    

    (c)    furnish
      to such Holder, so long as such Holder owns any Registrable Securities, promptly
      upon written request (i) a written statement by the Company, if true, that
      it
      has complied with the reporting requirements of Rule 144 and the Exchange Act,
      (ii) to the extent not publicly available through the Commission’s EDGAR
      database, a copy of the most recent annual or quarterly report of the Company
      and such other reports and documents so filed by the Company with the
      Commission, and (iii) such other information as may be reasonably requested
      by
      such Holder in connection with such Holder’s compliance with any rule or
      regulation of the Commission which permits the selling of any such securities
      without registration.

    

    
      	
              7.

            	
              MISCELLANEOUS.

            

    

    

    (a)    Expenses
      of Registration.
      Except
      as otherwise provided in the Securities Purchase Agreement, all reasonable
      expenses, other than underwriting discounts and commissions and fees and
      expenses of counsel and other advisors to each Holder, incurred in connection
      with the registrations, filings or qualifications described herein, including
      (without limitation) all registration, filing and qualification fees, printers’
and accounting fees, the fees and disbursements of counsel for the Company,
      and
      the fees and disbursements incurred in connection with the letter described
      in
Section
      3(g)
      of this
      Agreement, shall be borne by the Company.

     

    (b)    Amendment;
      Waiver.
      Except
      as
      expressly provided herein, neither this Agreement nor any term hereof may be
      amended or waived except pursuant to a written instrument executed by the
      Company and the Holders of at least two-thirds (2/3) of the Registrable
      Securities then held by or issuable to all Holders (without regard to any
      limitation or restriction on (i) the issuance of such Registrable Securities
      or
      (ii) the exercise of any Warrants).
      Any
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given.

    

    (c)    Notices.
      Any
      notice, demand or request required or permitted to be given by the Company
      or a
      Holder pursuant to the terms of this Agreement 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 and (ii) on the next Business Day after timely delivery to a
      reputable overnight courier, addressed as follows:

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    If
      to
      the Company:

    

    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

            

    

    

    and
      if to
      a 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(c).

    

    (d)    Assignment.
      Upon
      the transfer of any Debenture, Warrant or Registrable Securities by a Holder,
      the rights of such Holder hereunder with respect to such securities so
      transferred shall be assigned automatically to the transferee thereof, and
      such
      transferee shall thereupon be deemed to be a “Holder” for purposes of this
      Agreement, as long as: (i) the Company is, within a reasonable period of time
      following such transfer, furnished with written notice of the name and address
      of such transferee, (ii) the transferee agrees in writing with the Company
      to be
      bound by all of the provisions hereof, and (iii) such transfer is made in
      accordance with the applicable law and the requirements of the Securities
      Purchase Agreement, the Debentures or the Warrants, as applicable.

     

    (e)    Counterparts.
      This
      Agreement may be executed in counterparts, each of which shall be deemed an
      original, and all of which together shall be deemed one and the same instrument.
      This Agreement, once executed by a party, may be delivered to any other party
      hereto by facsimile transmission.

     

    (f)    Governing
      Law.
      This
      Agreement 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)   Holder
      of Record.
      A
      person is deemed to be a Holder whenever such person owns or is deemed to own
      of
      record such Registrable Securities. If the Company receives conflicting
      instructions, notices or elections from two or more persons with respect to
      the
      same Registrable Securities, the Company shall act upon the basis of
      instructions, notice or election received from the record owner of such
      Registrable Securities.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (h)    Entire
      Agreement.
      This
      Agreement and the other Transaction Documents constitute the entire agreement
      among the parties hereto with respect to the subject matter hereof and thereof,
      superseding all prior agreements and understandings, whether written or oral,
      between or among the parties hereto.

     

    (i)    
Headings.
      The
      headings in this Agreement are for convenience only and are not to be considered
      in construing or interpreting this Agreement.

     

    (j)    Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    

    [Signature
      Page to Follow]

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Registration Rights
      Agreement as of the date first-above written.

    

    
      	
              DIGITAL
                ANGEL CORPORATION

            
	 	 	 	 
	 	 	 	 
	
              By:

            	
              /s/
                Kevin N. McGrath

            	 
	 	
              Name:
                Kevin N. McGrath

            
	 	
              Title:  
                President and Chief Executive Officer

            
	 	 	 	 
	 	 	 	 
	
              IMPERIUM
                MASTER FUND, LTD.

            
	 	 	 	 
	
              By:
                

            	
              Imperium
                Advisers, LLC

            
	 	 	 	 
	 	 	 	 
	 	
              By:

            	
              /s/
                Maurice Hryshko

            	 
	 	 	
              Name:
                Maurice Hryshko

            
	 	 	
              Title:  
                Counsel

            

    

     

     

    12WWW.EXFILE.COM, INC. -- 14909 -- NETWORK-1 SECURITY SOLUTIONS, INC. -- EXHIBIT 4.2 TO FORM S-8

    EXHIBIT
      4.2

    
 

    STOCK
      OPTION AGREEMENT

     

    STOCK
      OPTION AGREEMENT, dated as of
      [                                ],
      (this "Stock
      Option Agreement")
      by and
      between Network-1 Security Solutions, Inc., a Delaware corporation with
      principal executive offices at 445 Park Avenue, Suite 1028, New York, New York
      10022 ("Network-1"),
      [                                                                                                                   ].

     

    WHEREAS,
      [                ]
      has served Network-1 as a
      [                                ];
      and

     

    WHEREAS,
      the board of directors of Network-1 has approved the grant of an option to
      purchase                 
      shares
      of its common stock to
      [                ]
      for his service               
                                     .

     

    NOW
      THEREFORE, in consideration of the premises and of the mutual covenants,
      representations, warranties and agreements contained herein, and intending
      to be
      legally bound hereby, the parties hereto agree as follows:

     

    1.  Grant
      of Option.

     

    Network-1
      hereby grants to
      [                ]
      an option (the "Option")
      to
      purchase, out of its authorized but unissued shares of Common Stock,
               
      shares
      of Common Stock (the shares of Common Stock purchased or purchasable pursuant
      to
      the Option, subject to adjustment as set forth herein, being referred to as
      the
      "Option
      Shares"),
      at an
      exercise price per share equal to          
      (such
      exercise price, subject to adjustment as set forth herein, being referred to
      as
      the "Exercise
      Price",
      or in
      the aggregate, the "Aggregate Exercise Price").
      [                ]
      and/or his permitted transferees or assigns are hereinafter referred to as
      "Holder".
      

     

    2.  Vesting;
      Term and Exercise of Option.
      

     

    (a)  The
      Option Shares shall vest                                  .

     

    (b)  The
      Option granted hereby may be exercised in whole or in part as to any or all
      vested Option Shares at any time from [                              ]
      through
      [                 ]
      (the "Expiration
      Date")
      by
      Holder’s presentation of this Option, with the Exercise Form attached hereto
      duly executed, at Network-1’s office (or such office or agent of Network-1 as it
      may designate in writing to the Holder hereof by notice pursuant to Section
      13
      hereof), specifying the number of Option Shares as to which the Option is being
      exercised.

     

    3.  Issuance
      of Option Shares

     

    (a)  Upon
      surrender of the Option and payment of the Exercise Price as provided herein,
      Network-1 shall issue and deliver with all reasonable dispatch the
      certificate(s) for the Option Shares to or upon the written order of the Holder
      and in such name or names as the Holder may designate. Such certificate(s)
      shall
      represent the number of Option Shares issuable upon the exercise of the Option,
      together with a cash amount in respect of any fraction of a share otherwise
      issuable upon such exercise.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)  Unless
      otherwise provided herein, for purposes of any computations made in this Stock
      Option Agreement, "Market Price" per share of shares of Common Stock on any
      date
      shall be: (i) if the shares of Common Stock are listed or admitted for trading
      on any national securities exchange, the last reported sales price as reported
      on such national securities exchange; (ii) if the shares of Common Stock are
      not
      listed or admitted for trading on any national securities exchange, the average
      of the last reported closing bid and asked quotation for the shares of Common
      Stock as reported on the Nasdaq Stock Market’s National Market ("NNM") or Nasdaq
      Stock Market’s Small Cap Market ("NSM") or a comparable service if NNM or NSM
      are not reporting such information; (iii) if the shares of Common Stock are
      not
      listed or admitted for trading on any national securities exchange, NNM or
      NSM
      or a comparable system, the average of the last reported bid and asked quotation
      for the shares of Common Stock as quoted by a market maker in the shares of
      Common Stock (or if there is more than one market maker, the bid and asked
      quotation shall be obtained from two market makers and the average of the lowest
      bid and highest asked quotation shall be the "Market Price"); or (iv) if the
      shares of Common Stock are not listed or admitted for trading on any national
      securities exchange or NNM or quoted by NSM and there is no market maker in
      the
      shares of Common Stock, the fair market value of such shares as determined
      in
      good faith by the Board of Directors of Network-1.

     

    (c)  Certificates
      representing the Option Shares shall be deemed to have been issued and the
      person so designated to be named therein shall be deemed to have become a holder
      of record of such Option Shares as of the date of the surrender of the Option
      and payment of the Aggregate Exercise Price as provided herein; notwithstanding
      that the transfer books for the Option Shares or other classes of stock
      purchasable upon the exercise of the Option shall then be closed or the
      certificate(s) for the Option Shares in respect of which the Option is then
      exercised shall not then have been actually delivered to the Holder. As soon
      as
      practicable after each such exercise of the Option, Network-1 shall issue and
      deliver the certificate(s) for the Option Shares issuable upon such exercise,
      registered as requested. In the event that only a portion of the Option is
      exercised at any time prior to the close of business on the Expiration Date,
      a
      new option shall be issued to the Holder for the remaining number of Option
      Shares purchasable pursuant hereto. Network-1 shall cancel the Option when
      they
      are surrendered upon exercise.

     

    (d)  Prior
      to
      due presentment for registration of transfer of the Option, Network-1 shall
      deem
      and treat the Holder as the absolute owner of the Option (notwithstanding any
      notation of ownership or other writing on this Option Agreement made by anyone
      other than Network-1) for the purpose of any exercise hereof or any distribution
      to the Holder and for all other purposes, and Network-1 shall not be affected
      by
      any notice to the contrary.

     

    4.  Lost,
      Stolen, or Mutilated Option

     

    In
      case
      this Option shall be mutilated, lost, stolen or destroyed, Network-1 shall
      issue
      and deliver, in exchange and substitution for and upon cancellation of the
      mutilated Option, or in lieu of and substitution for the Option lost, stolen
      or
      destroyed, a new Option of like tenor and representing an equivalent number
      of
      Option Shares purchasable upon exercise, but only upon receipt of evidence
      reasonably satisfactory to Network-1 of such mutilation, loss, theft or
      destruction of such Option and reasonable indemnity, if requested, also
      reasonably satisfactory to 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Network-1.
      No bond or other security shall be required from Holder in connection with
      the
      replacement by Network-1 of a lost, stolen or mutilated warrant
      certificate.

     

    5.  Rights
      Upon Expiration

     

    Unless
      the Option is surrendered and payment made for the Option Shares as herein
      provided before the close of business on the Expiration Date, this Option will
      become wholly void and all rights evidenced hereby will terminate after such
      time.

     

    6.  Exchange
      of Option

     

    This
      Option may be exchanged for a number of Options of the same tenor as this Option
      for the purchase in the aggregate of the same number of Option Shares of
      Network-1 as are purchasable upon the exercise of this Option, upon surrender
      hereof at the office of Network-1 with written instructions as to the
      denominations of the Options to be issued in exchange.

     

    7.  Adjustment
      for Certain Events

     

    (a)  In
      case
      Network-1 shall at any time after the date hereof (i) declare a dividend on
      its
      shares of Common Stock payable in shares of Network-1's capital stock (whether
      in shares of Common Stock or of capital stock of any other class), (ii)
      subdivide its outstanding shares of Common Stock, (iii) reverse split its
      outstanding shares of Common Stock into a smaller number of shares, or (iv)
      issue any shares of Network-1's capital stock in a reclassification of shares
      of
      Common Stock (including any such reclassification in connection with a
      consolidation or merger in which Network-1 is the continuing corporation),
      then,
      in each case, the Exercise Price in effect at the time of the record date for
      such dividend or of the effective date of such subdivision, reverse split or
      reclassification, and/or the number and kind of shares of capital stock issuable
      upon exercise of the Option on such date, shall be proportionately adjusted
      so
      that the holder of the Option exercised after such time shall be entitled to
      receive the aggregate number and kind of securities which, if such Option had
      been exercised immediately prior to such date, such Holder would have owned
      upon
      such exercise and been entitled to receive by virtue of such dividend,
      subdivision, reverse split or reclassification. Such adjustment shall be made
      successively whenever any event listed above shall occur.

     

    (b)  In
      case
      Network-1 shall fix a record date for the making of a distribution to all
      holders Common Stock (including any such distribution made in connection with
      a
      consolidation or merger in which Network-1 is the continuing corporation) of
      evidences of indebtedness or assets (other than cash dividends or cash
      distributions payable out of earnings, consolidated earnings, if Network-1
      shall
      have one or more subsidiaries, or earned surplus, or dividends payable in Common
      Stock) or rights, options or warrants to subscribe for or purchase Common Stock,
      then, in each case, the Exercise Price to be in effect after such record date
      shall be determined by multiplying the Exercise Price in effect immediately
      prior to such record date by a fraction, of which the numerator shall be the
      current Market Price for one share of Common Stock on such record date less
      the
      fair market value of the portion of the assets or evidences of indebtedness
      so
      to be distributed or of such subscription rights, options or warrants applicable
      to one share of Common Stock, and of which the denominator shall be the current
      Market Price for one share of Common Stock. In the event that Network-1 and
      the
      Holder cannot agree as to such 

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    fair
      market value, such determination of fair market value shall be made by an
      appraiser who shall be mutually selected by Network-1 and the Holder, and the
      reasonable costs of such appraiser shall be borne by Network-1. Such adjustment
      shall be made successively whenever such a record date is fixed, and in the
      event that such distribution is not so made, the Exercise Price shall again
      be
      adjusted to be the Exercise Price which would then be in effect if such record
      date had not been fixed.

     

    (c)  No
      adjustment in the Exercise Price shall be required unless such adjustment would
      require a decrease of at least one cent ($0.01) in such price; provided,
      however, that any adjustment which by reason of this Section 7(c) is not
      required to be made shall be carried forward and taken into account in any
      subsequent adjustment. All calculations under this Section 7 shall be made
      to
      the nearest cent or to the nearest one-hundredth of a share, as the case may
      be,
      but in no event shall Network-1 be obligated to issue fractional shares of
      Common Stock or fractional portions of any securities issuable upon the exercise
      of the Option.

     

    (d)  In
      the
      event that at any time, as a result of an adjustment made pursuant to Section
      7
      hereof, the Holder of the Option thereafter exercised shall become entitled
      to
      receive any shares of capital stock, options, warrants or other securities
      of
      Network-1 other than the shares of Common Stock, thereafter the number of such
      other shares of capital stock, options, warrants or other securities so
      receivable upon exercise of this Option shall be subject to adjustment from
      time
      to time in a manner and on terms as nearly equivalent as practicable to the
      provisions with respect to the shares of Common Stock contained in this Section
      7, and the provisions of this Option Agreement with respect to the shares of
      Common Stock shall apply, to the extent applicable, on like terms to any such
      other shares of capital stock, options or warrants or other
      securities.

     

    (e)  Upon
      each
      adjustment of the Exercise Price as a result of calculations made in this
      Section 7, the Option outstanding immediately prior to the making of such
      adjustment shall thereafter evidence the right to purchase, at the adjusted
      Exercise Price, that number of Option Shares (calculated to the nearest
      hundredth), obtained by (i) multiplying the number of Option Shares purchasable
      upon exercise of the Option immediately prior to such adjustment of the Exercise
      Price by the Exercise Price in effect immediately prior to such adjustment
      and
      (ii) dividing the product so obtained by the Exercise Price in effect
      immediately after such adjustment of the Exercise Price.

     

    (f)  In
      case
      of any capital reorganization of Network-1 or of any reclassification of shares
      of Common Stock (other than as a result of subdivision or combination) or in
      case of the consolidation of Network-1 with, or the merger of Network-1 into,
      any other corporation (other than a consolidation or merger in which Network-1
      is the continuing corporation) or of the sale of the properties and assets
      of
      Network-1 as, or substantially as, an entirety, the Option shall, after such
      reorganization, reclassification, consolidation, merger or sale, be exercisable,
      upon the terms and conditions specified herein, for the number of shares of
      Common Stock or other capital stock, options or warrants or other securities
      or
      property to which a Holder (at the time of such reorganization,
      reclassification, consolidation, merger or sale) upon exercise of such Option
      would have been entitled upon such reorganization, reclassification,
      consolidation, merger or sale; and in any such case, if necessary, the
      provisions set forth in this Section 7(f) with respect to the rights and
      interests thereafter of the Holder shall be appropriately adjusted so as to
      be

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    applicable,
      as nearly as may reasonably be, to any shares of Common Stock or other capital
      stock or options, warrants or other securities or property thereafter
      deliverable upon the exercise of the Option. The subdivision, reverse split
      or
      combination of shares of Common Stock at any time outstanding into a greater
      or
      lesser number of shares shall not be deemed to be a reclassification of the
      Common Stock for the purposes of this Section 7(f).

     

    (g)  In
      any
      case in which this Section 7 shall require that an adjustment in the Exercise
      Price be made effective as of a record date for a specified event, Network-1
      may
      elect to defer until the occurrence of such event issuing to the Holder, if
      such
      Holder exercised any portion of this Option after such record date, shares
      of
      capital stock or other securities of Network-1, if any, issuable upon such
      exercise over and above the shares of Common Stock or other securities issuable,
      on the basis of the Exercise Price in effect prior to such adjustment; provided,
      however, that Network-1 shall deliver to the holder a due bill or other
      appropriate instrument evidencing such Holder's right to receive such shares
      of
      Common Stock or other securities upon the occurrence of the event requiring
      such
      adjustment.

     

    8.  Fractional
      Shares

     

    Upon
      exercise of the Option, Network-1 shall not be required to issue fractional
      shares of Common Stock or other capital stock. In lieu of such fractional
      shares, the Holder shall receive an amount in cash equal to the same fraction
      of
      the (i) current Market Price of one whole share of Common Stock if clause (i),
      (ii) or (iii) in the definition of Market Price in Section 3(c) hereof is
      applicable or (ii) book value of one whole shares of Common Stock as reported
      in
      Network-1's most recent audited financial statements if clause (iv) in the
      definition of Market Price in Section 3 above is applicable. All calculations
      under this Section 8 shall be made to the nearest cent.

     

    9.  Securities
      Act Legend

     

    The
      Holder shall not be entitled to any rights of a stockholder of Network-1 with
      respect to any Option Shares purchasable upon the exercise of this Option,
      including voting, dividend or dissolution rights, until such Option Shares
      have
      been paid for in full. As soon as practicable after such exercise, Network-1
      shall deliver a certificate or certificates for the securities issuable upon
      such exercise, all of which shall be fully paid and nonassessable, to the person
      or persons entitled to receive the same; provided, however, that, if the Option
      Shares are not registered under the Securities Act, such certificate or
      certificates delivered to the Holder of the surrendered Option shall bear a
      legend reading substantially as follows:

     

    "These
      securities have not been registered under the Securities Act of 1933, as
      amended, or the securities laws of any state and may not be sold or transferred
      in the absence of such registration or any exemption therefrom under such Act
      and laws, if applicable. Network-1, prior to permitting a transfer of these
      securities, may require an opinion of counsel or other assurances satisfactory
      to it as to compliance with or exemption from such Act and laws."

     

    10.  Transfer

     

    This
      Option is not transferable except to a permitted transferee as provided in
      Network-1’s 1996 Stock Option Plan, as amended, or by will or the laws of
      descent and 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    distribution.
      With respect to any such transfer, sale or assignment, Holder shall execute
      and
      deliver to Network-1 the Form of Assignment attached hereto.

     

    11.  Taxes;
      Expenses

     

    Network-1
      shall pay all taxes and expenses that may be payable in connection with the
      preparation, issuance and delivery of Options Shares under this Stock Option
      Agreement.

     

    12.  Notice
      of Adjustment

     

    (a)  Upon
      any
      adjustment of the Exercise Price pursuant to Section 7 hereof, Network-1, within
      30 calendar days thereafter, shall have on file for inspection by the Holder
      a
      certificate of the Board of Directors of Network-1 setting forth the Exercise
      Price after such adjustment, the method of calculation thereof in reasonable
      detail, the facts upon which such calculations were based and the number of
      Option Shares issuable upon exercise of the Option after such adjustment in
      the
      Exercise Price, which certificate shall be conclusive evidence of the
      correctness of the matters set forth therein.

     

    (b)  In
      case:

     

    (i)  Network-1
      shall authorize the issuance to all holders of shares of Common Stock of rights,
      options, warrants or other securities to subscribe for or purchase capital
      stock
      of Network-1 or of any other subscription rights, options, warrants or other
      securities; or

     

    (ii)  Network-1
      shall authorize the distribution to all holders of shares of Common Stock of
      evidences of its indebtedness or assets; or

     

    (iii)  of
      any
      consolidation or merger to which Network-1 is a party and for which approval
      of
      any stockholders of Network-1 is required, of the conveyance or transfer of
      the
      properties and assets of Network-1 substantially as an entirety or of any
      capital reorganization or any reclassification of the shares of Common Stock;
      or

     

    (iv)  of
      the
      voluntary or involuntary dissolution, liquidation or winding up of Network-1;
      or

     

    (v)  Network-1
      proposes to take any other action which would require an adjustment of the
      Exercise Price pursuant to Section 7 above;

     

    then,
      in
      each such case, Network-1 shall give to the Holder at its address appearing
      below at least 20 calendar days prior to the applicable record date hereinafter
      specified in (A), (B), or (C) below, by first class mail, postage prepaid,
      a
      written notice stating (A) the date as of which the holders of record of shares
      of Common Stock entitled to receive any such rights, options, warrants or
      distribution are to be determined or (B) the date on which any such
      consolidation, merger, conveyance, transfer, reorganization, reclassification,
      dissolution, liquidation or winding up is expected to become effective, and
      the
      date as of which it is expected that holders of record of shares of Common
      Stock
      shall be entitled to exchange such shares for securities or other 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    property,
      if any, deliverable upon such consolidation, merger, conveyance, transfer,
      reorganization, reclassification, dissolution, liquidation or winding up or
      (C)
      the date of such action which would require an adjustment of the Exercise Price.
      The failure to give the notice required by this Section 12 or any defect therein
      shall not affect the legality or validity of any such issuance, distribution,
      consolidation, merger, conveyance, transfer, reorganization, reclassification,
      dissolution, liquidation, winding up or other action or the vote upon any such
      action.

     

    Except
      as
      provided herein, nothing contained herein shall be construed as conferring
      upon
      Holder the right to vote on any matter submitted to the stockholders of
      Network-1 for their vote or to receive notice of meetings of stockholders or
      the
      election of directors of Network-1 or any other proceedings of Network-1, or
      any
      rights whatsoever as a stockholder of Network-1.

     

    13.  Notices

     

    Any
      notice, request, demand or other communication pursuant to the terms of this
      Stock Option Agreement shall be in writing and shall be sufficiently given
      or
      made when delivered or mailed by first class or registered mail,
      postage-prepaid, to the following addresses:

     

    If
      to
      Network-1:

    
       

      Network-1
        Security Solutions, Inc.

      445
        Park
        Avenue, Suite 1028

      New
        York,
        New York 10022

       

    

    with
      a
      copy to:

     

    
      Eiseman
        Levine Lehrhaupt & Kakoyiannis, P.C.

      
        805
          Third
          Avenue, 10th Floor

        
          New
            York,
            New York 10022

          
            Attn:
              Sam
              Schwartz, Esq. 

             

          

        

      

    

    If
      to
      Holder:

     

    
      	 	
              [

            
	 	 
	 	
                                                                                    ]

            

    

     

    14.  Miscellaneous

     

    (a)  Waiver.
      At any
      time the parties hereto may (a) extend the time for the performance of any
      of
      the obligations or other acts of the other parties hereto, (b) waive any
      inaccuracies in the representations and warranties contained herein by the
      other
      party or (c) waive compliance with any of the agreements or conditions contained
      herein. No failure on the part of any party to exercise any power, right,
      privilege or remedy under this Stock Option Agreement, and no delay on the
      part
      of any party in exercising any power, right, privilege or remedy under this
      Stock Option 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    Agreement,
      shall operate as a waiver of such power, right, privilege or remedy; and no
      single or partial exercise of any such power, right, privilege or remedy shall
      preclude any other or further exercise thereof or of any other power, right,
      privilege or remedy. No party shall be deemed to have waived any claim arising
      out of this Stock Option Agreement, or any power, right, privilege or remedy
      under this Stock Option Agreement, unless the waiver of such claim, power,
      right, privilege or remedy is expressly set forth in a written instrument duly
      executed and delivered on behalf of such party; and any such waiver shall not
      be
      applicable or have any effect except in the specific instance in which it is
      given.

     

    (b)  Entire
      Agreement.
      Except
      as otherwise set forth in this Stock Option Agreement and the other documents
      referred to herein, collectively contain the entire understanding of the parties
      hereto with respect to the subject matter contained herein and supersede all
      prior agreements and understandings, oral and written, with respect
      thereto.

     

    (c)  Binding
      Effect; Benefit.
      This
      Stock Option Agreement shall inure to the benefit of and be binding upon the
      parties hereto and nothing in this Stock Option Agreement, expressed or implied,
      is intended to confer on any person or entity other than the parties hereto
      or
      their respective successors and permitted assigns, any rights, remedies,
      obligations or liabilities under or by reason of this Stock Option Agreement.
      

     

    (d)  Amendment
      and Modification.
      Subject
      to applicable law, this Stock Option Agreement may only be amended, modified
      and
      supplemented by a written agreement duly executed the parties hereto.

     

    (e)  Further
      Actions.
      Network-1 shall use its best efforts to take, or cause to be taken, all
      appropriate action, and to do, or cause to be done, all things necessary, proper
      or advisable under applicable laws and regulations to consummate and make
      effective the transactions contemplated hereunder and to carry out the interest
      and purposes of this Stock Option Agreement, including, without limitation,
      using its reasonable best efforts to obtain all licenses, permits, consents,
      approvals, authorizations, qualifications and orders of governmental entities.
      

     

    (f)  Applicable
      Law.
      This
      Stock Option Agreement and the legal relations between the parties hereto shall
      be governed by, and construed in accordance with, the laws of the State of
      New
      York, without regard to the conflicts of laws rules thereof.

     

    (g)  Dispute
      Resolution.
      The
      parties hereto will use their best efforts to resolve by mutual agreement any
      disputes, controversies or differences that may arise from, under, out of or
      in
      connection with this Agreement. If any such disputes, controversies or
      differences cannot be settled between the parties hereto, they will be finally
      settled by final and binding arbitration to be conducted by an arbitration
      tribunal in New York City, New York, pursuant to the rules of the American
      Arbitration Association. The arbitration tribunal will consist of three
      arbitrators. The decision or award of the arbitration tribunal will be final,
      and judgment upon such decision or award may be entered in any competent court
      or application may be made to any competent court for judicial acceptance of
      such decision or award and an order of enforcement. In the event of any
      procedural matter not covered by the aforesaid rules, the procedural law of
      New
      York will 

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    govern.
      The prevailing party in arbitration shall be entitled to receive a reasonable
      sum for its attorneys' fees and all other reasonable costs and expenses incurred
      in such action or suit.

     

    (h)  Severability.
      Any
      term or provision of this Stock Option Agreement that is invalid or
      unenforceable in any situation in any jurisdiction shall not affect the validity
      or enforceability of the remaining terms and provisions hereof or the validity
      or enforceability of the offending term or provision in any other situation
      or
      in any other jurisdiction. If the final judgment of a court of competent
      jurisdiction declares that any term or provision hereof is invalid or
      unenforceable, the parties hereto agree that the court making the determination
      of invalidity or unenforceability shall have the power to reduce the scope,
      duration or area of the term or provision, to delete specific words or phrases
      or to replace any invalid or unenforceable term or provision with a term or
      provision that is valid and enforceable and that comes closest to expressing
      the
      intention of the invalid or unenforceable term or provision, and this Stock
      Option Agreement shall be enforceable as so modified after the expiration of
      the
      time within which the judgment may be appealed.

     

    (i)  Non-exclusivity.
      The
      rights and remedies of Network-1 and Holder under this Stock Option Agreement
      are not exclusive of or limited by any other rights or remedies which either
      of
      them may have, whether at law, in equity, by contract or otherwise, all of
      which
      shall be cumulative and not alternative. 

     

    
 

     

     

     

     

     

     

     

     

     

    
 

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      an
      authorized officer of Network-1 has signed and delivered this Option as of
      the
      date first written above.

     

    
      	 	 	 
	 	
              NETWORK-1
                SECURITY SOLUTIONS, INC.

            
	 
 	 
 	 
 
	 	By:  	 
	 	
              

              Corey M.
                Horowitz, Chief Executive Officer

            
	 	 

    

    

    

    

     

    

    

    

    

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    ELECTION
      TO EXERCISE

     

    (To
      be
      executed by the registered holder if such holder desires to exercise the within
      Option)

     

    
      	To:	
              NETWORK-1
                SECURITY SOLUTIONS, INC.

            

    

    445
      Park
      Avenue, Suite 1028

    New
      York,
      New York 10022

     

    

     

    The
      undersigned hereby (1) irrevocably elects to exercise its right to exercise
      _____ shares of Common Stock covered by the within Option, (2) makes payment
      in
      full of the Exercise Price by enclosure of a certified check or (3) requests
      that certificates for such shares be issued in the name of:

     

    Please
      print name, address and Social Security or Tax Identification
      Number:

     

    
      

    

     

    
      
        

      

       

      
        

      

    

     

    and
      (5)
      if said number of shares shall not be all the shares evidenced by the within
      Option, requests that a new Option Agreement for the balance of the shares
      covered by the within Option be registered in the name of, and delivered
      to:

     

    Please
      print name and address:

     

    
      
        

      

    

    
       

      
        

      

    

    
       

      
        

      

    

     

    In
      lieu
      of receipt of fractional shares of Common Stock, the undersigned will receive
      a
      check representing payment therefor.

     

     

    
      
        	
                Dated:

                
                  

                

                 

              	 
	 	
                By: 

                
                  

                

                 

                
                  
                    

                  

                

                 

              

      

    

          

    

    
      
         

      

      
        11

        
          

        

      

      
         

    

    FORM
      OF
      ASSIGNMENT

     

    FOR
      VALUE RECEIVED                             ,
      hereby sells, assigns and transfers to
                        
(Social Security or I.D. No.
                       
) the within Option, or that portion of this Option purchasable for ________
      shares of Common Stock together with all rights, title and interest therein,
      and
      does hereby irrevocably constitute and appoint ______________ attorney to
      transfer such Option on the register of Network-1 Security Solutions, Inc.,
      with
      full power and substitution.

     

     

    
      	 	
              
                

              

              (Signature) 

            

    

     

    Dated:
      ___________, 20__

     

    Signature
      Guaranteed:

     

    

     

    ____________________

     

     

    
      
         

      

      
        12

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