Document:

Exhibit 10.5

 

REGISTRATION
RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”)
is made and entered into as of August 28, 2003, by and between Digital Angel
Corporation, a Delaware corporation (the “Company”), and Laurus Master Fund,
Ltd. (the “Purchaser”).

 

This Agreement is made pursuant to the Security
Agreement, dated as of the date hereof, between the Purchaser and the Company
(the “Security Agreement”), and pursuant to the “Notes” and the “Warrant” (as
defined below).

 

The Company and the Purchaser hereby agree as follows:

 

1.             Definitions.  Capitalized terms used and not otherwise defined herein that are
defined in the Security Agreement shall have the meanings given such terms in
the Security Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

 

“Commission” means the U.S. Securities
and Exchange Commission.

 

“Effectiveness
Date” means the 90th day following the applicable Filing
Date.

 

“Effectiveness
Period” shall have the meaning set forth in Section 2(a).

 

“Exchange Act” means the federal Securities Exchange
Act of 1934, as amended.

 

“Filing
Date” means, with respect to each Registration Statement
required to be filed hereunder, no later than (1)  December 28, 2003 or (2) thirty (30) days following the date of
issuance of each $1,000,000 tranche of Loans evidenced by a Minimum Borrowing
Note thereafter.

 

“Holder”
or “Holders”
means the Purchaser or any of its affiliates or transferees to the extent any
of them hold Registrable Securities.

 

“Indemnified
Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying
Party” shall have the meaning set forth in Section 5(c).

 

“Losses”
shall have the meaning set forth in Section 5(a).

 

“Notes”
has the meaning set forth in the Security Agreement.

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

 

“Prospectus”
means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted 

 

 

from a prospectus filed as part of an effective registration statement
in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable
Securities” means the shares of Common Stock issued upon the
conversion of  each Note and issuable
upon exercise of the Warrants.

 

“Registration
Statement” means each registration statement required to be
filed hereunder, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all materials incorporated by reference
or deemed to be incorporated by reference in such registration statement.

 

“Rule
144” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

 

“Rule
415” means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

 

“Rule
424” means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

 

“Securities Act” means the federal Securities Act of
1933, as amended.

 

“Trading Days” means a day upon which the American
Stock Exchange is open for business.

 

“Warrants”
means the Common Stock purchase warrants issued pursuant to the Security
Agreement.

 

2.             Registration.

 

(a)           On
or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415.  Each Registration Statement shall be on Form
S-3 (except if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith). 
The Company shall cause each Registration Statement to become effective
and remain effective as provided herein. 
The Company shall use its reasonable commercial efforts to cause each
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event no later than
the Effectiveness Date, and shall keep each Registration Statement continuously
effective under the 

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Securities Act until the date which is the earlier date of when (i) all
Registrable Securities have been sold or (ii) all Registrable Securities may be
sold immediately without registration under the Securities Act and without
volume restrictions pursuant to Rule 144(k) under the Securities Act, as
determined by the counsel to the Company pursuant to a written opinion letter
to such effect, addressed and acceptable to the Company’s transfer agent and
the affected Holders (the “Effectiveness Period”).

 

(b)           If:
(i) any Registration Statement is not filed on or prior to the applicable
Filing Date; (ii) a Registration Statement filed hereunder is not declared
effective by the Commission by the Effectiveness Date; (iii) after a
Registration Statement is filed with and declared effective by the Commission,
such Registration Statement ceases to be effective (by suspension or otherwise)
as to all Registrable Securities to which it is required to relate at any time
prior to the expiration of the Effectiveness Period (without being succeeded
immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year or more than 20 consecutive calendar days (defined as a period of 365 days
commencing on the date such Registration Statement is declared effective); or
(iv) the Common Stock is not listed or quoted, or is suspended from trading on
any Trading Market (defined below) for a period of three (3) consecutive
Trading Days (provided the Company shall not have been able to cure such
trading suspension within 30 days of the notice thereof or list the Common
Stock on any of the NASD OTC Bulletin Board, BBX Exchange, NASDAQ SmallCap
Market, the Nasdaq National Market, American Stock Exchange or New York Stock
Exchange (the “Trading Market”)) (any such failure or breach being referred to
as an “Event,” and for purposes of clause (i), (ii) or (v), the date on which
such Event occurs, or for purposes of clause (iii), the date which such 30 day
or 20 consecutive day period (as the case may be) is exceeded, or for purposes
of clause (iv), the date on which such three (3) Trading Day period is
exceeded, being referred to as “Event Date”), then until the applicable Event
is cured, the Company shall pay to each Holder an amount in cash, as liquidated
damages and not as a penalty, equal to 2.0% for each thirty (30) day period
(prorated for partial periods) on a daily basis of the original principal
amount of each applicable Note.  Such
liquidation damages shall be paid not less than each thirty (30) days during an
Event and within three (3) days following the date on which such Event has been
cured by the Company.

 

3.             Registration Procedures.  If and whenever the Company is required by
the provisions hereof to effect the registration of the Registrable Securities
under the Act, the Company will, as expeditiously as possible:

 

(a)           prepare
and file with the SEC a registration statement with respect to such securities,
promptly as possible respond to any comments received from the SEC and use its
best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby (determined
as herein provided), and promptly provide to the Purchaser copies of all
filings and SEC letters of comment;

 

(b)           prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by the registration statement and to keep
such registration statement effective until the earlier of: (i) six months
after the latest exercise period of the Warrants; (ii) four years after the 

 

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Closing Date; or (iii) the date on which the Purchaser has disposed of
all of the Registrable Securities covered by such registration statement in
accordance with the Purchaser’s intended method of disposition set forth in
such registration statement for such period;

 

(c)           furnish
to the Purchaser such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as the
Purchaser reasonably may request to facilitate the public sale or disposition
of the securities covered by such registration statement;

 

(d)           use
its commercially reasonable  efforts to
register or qualify the Purchaser’s Registrable Securities covered by such
registration statement under the securities or “blue sky” laws of such
jurisdictions as the Purchaser may reasonably request; provided, however, that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;

 

(e)           list
the Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed;

 

(f)            immediately
notify the Purchaser at any time when a prospectus relating thereto is required
to be delivered under the Securities Act of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits 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; and

 

(g)           make
available for inspection by the Purchaser and any attorney, accountant or other
agent retained by the Purchaser all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the attorney, accountant or agent of the Purchaser.

 

4.             Registration Expenses.  All expenses relating to the Company’s
compliance with Sections 2 and 3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
(including reasonable counsel fees) incurred in connection with complying with
state securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Holders, and costs of insurance are called “Registration
Expenses”. All selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to the
Holders beyond those included in Registration Expenses, are called “Selling
Expenses.”   The Company shall be
responsible for all Registration Expenses.

 

5.             Indemnification.

 

(a)           In
the event of a registration of any Registrable Securities under the Securities
Act pursuant to this Agreement, the Company will indemnify and hold harmless
the 

 

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Purchaser, and its officers, directors and each other person, if any,
who controls the Purchaser within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which the
Purchaser or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act pursuant to this Agreement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Purchaser, and each such person
for any reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of the Purchaser or any such person in writing specifically for use in
any such document.

 

(b)           In
the event of a registration of the Registrable Securities under the Securities
Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless
the Company, and its officers, directors and each other person, if any, who
controls the Company within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact which was furnished in writing by or on behalf
of the Purchaser to the Company expressly for use in (and such information is
contained in) the registration statement under which such Registrable
Securities were registered under the Securities Act pursuant to this Agreement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished in writing to the Company by or on
behalf of the Purchaser specifically for use in any such document.  Notwithstanding the provisions of this
paragraph, the Purchaser shall not be required to indemnify any person or
entity in excess of the amount of the aggregate net proceeds received by the
Purchaser of Registrable Securities in connection with any such registration
under the Securities Act.

 

(c)           Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party hereunder, notify the indemnifying
party in writing thereof, but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to such indemnified
party other than under this Section 5(c) and shall only relieve it 

 

5

 

from any liability which it may have to such indemnified party under
this Section 5(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 5(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel; provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.

 

(d)           In
order to provide for just and equitable contribution in the event of joint
liability under the Securities Act in any case in which either (i) the
Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification pursuant to this Section 5(c) but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 5(c) provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 5(c); then, and in
each such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will
not be required to contribute any amount in excess of the public offering price
of all such securities offered by it pursuant to such registration statement;
and (B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

 

6.             Representations and Warranties.

 

(a)           The
Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act and, since January 1, 2002, except for the Company’s Quarterly
Report on From 10-Q for the quarter ended March 31, 2002, the Company has
timely filed all proxy statements, reports, schedules, forms, statements and
other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report
on Form 10-K

 

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for the fiscal year ended December 31, 2002 and (ii) its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 2003 and June 30,
2003 (collectively, the “SEC Reports”). 
Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted 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.  The financial statements of the Company included
in the SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles (“GAAP”) applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes
or may be condensed) and fairly present in all material respects the financial
position,  the results of operations and
the cash flows of the Company and its subsidiaries, on a consolidated basis, as
of, and for, the periods presented in each such SEC Report (subject, in the
case of unaudited statements, to normal year-end adjustments).

 

(b)           The
Company Common Stock is listed on the American Stock Exchange and satisfies all
requirements for the continuation of such listing.  The Company has not received any notice that its Common Stock
will be delisted from the American Stock Exchange  or that the Common Stock does not meet all requirements for the
continuation of such listing.

 

(c)           Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Registrable Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Common Stock pursuant to
Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions;  nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Registrable Securities to be
integrated with other offerings.

 

(d)           The
Registrable Securities are restricted securities under the Securities Act as of
the date of this Agreement.  The Company
will not issue any stop transfer order or other order impeding the sale and
delivery of any of the Registrable Securities at such time as the Registrable
Securities are registered for public sale or an exemption from registration is
available, except as required by federal or state securities laws.

 

(e)           The
Company understands the nature of the Registrable Securities issuable upon the
conversion of each Note and the exercise of each Warrant and recognizes that
the Registrable Securities may have a potential dilutive effect.  The Company specifically acknowledges that
its obligation to issue the Registrable Securities is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.

 

7

 

(f)            Except
for agreements made in the ordinary course of business, there is no agreement
that has not been filed with the SEC as an exhibit to a registration statement
or to a form required to be filed by the Company under the Exchange Act the
breach of which could have a material and adverse effect on the Company and its
subsidiaries, or would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement
in any material respect.

 

(g)           The
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of each Note and exercise of
each Warrant.

 

7.             Miscellaneous.

 

(a)           Remedies.  In the event of a breach by the Company or
by a Holder of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.

 

(b)           No Piggyback
on Registrations.  Except as
and to the extent specified in Schedule 7(b) hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in any Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right for inclusion of
shares in the Registration Statement to any of its security holders. Except as
and to the extent specified in Schedule 7(b) hereto, the Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that has not been fully
satisfied.

 

(c)           Compliance.  Each Holder covenants and agrees that it
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

 

(d)           Discontinued
Disposition.  Each Holder
agrees by its acquisition of such Registrable Securities that, upon receipt of
a notice from the Company of the occurrence of a Discontinuation Event (defined
below), such Holder will forthwith discontinue disposition of such Registrable
Securities under the applicable Registration Statement until such Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus
or Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. For purposes of this Section 7(d), a
“Discontinuation Event” shall mean (i) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement and whenever
the Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); (ii) any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
such 

 

8

 

Registration Statement or Prospectus or for additional information;
(iii) the issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that purpose;
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) the occurrence of any
event or passage of time that makes the financial statements included in such
Registration Statement ineligible for inclusion therein or any statement made
in such Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to such Registration Statement, Prospectus or
other documents so that, in the case of such Registration Statement or
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any 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.

 

(e)           Piggy-Back
Registrations.  If at any
time during the Effectiveness Period, there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
fifteen (15) calendar days after receipt of such notice, any such Holder shall so
request in writing, the Company shall include in such registration statement
all or any part of such Registrable Securities such holder requests to be
registered, subject to customary underwriter cutbacks applicable to all holders
of registration rights and subject to the consent of any selling stockholder(s)
under such registration statement.

 

(f)            Amendments
and Waivers.  The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

 

(g)           Notices.  Any notice or request hereunder may be given
to the Company or Purchaser at the respective addresses set forth below or as
may hereafter be specified in a notice designated as a change of address under
this Section 7(g).  Any notice or
request hereunder shall be given by registered or certified mail, return
receipt requested, hand delivery, overnight mail or telecopy (confirmed by
mail).  Notices and requests shall be,
in the case of those by hand delivery, deemed to have been given when delivered
to any officer of the party to

 

9

 

whom it is addressed, in the case of those by mail or overnight mail,
deemed to have been given when deposited in the mail or with the overnight mail
carrier, and, in the case of a telecopy, when confirmed.  The address for such notices and
communications shall be as follows:

 

	
  If to
  the Company:

  	
   

  	
  Digital
  Angel Corporation

  490 Villaume Avenue

  South St. Paul, Minnesota  55075

  Attention: Mr. James P. Santelli

  Facsimile: (651) 455-0217

  
	
   

  	
   

  	
   

  
	
  With a
  copy to:

  	
   

  	
   

  
	
   

  	
   

  	
  Michele
  D. Vaillancourt

  Winthrop & Weinstine, P.A.

  Suite 3500

  225 South Sixth Street

  Minneapolis, Minnesota  55402

  Facsimile: (612) 604-6800

  
	
   

  	
   

  	
   

  
	
  If to
  a Purchaser:

  	
   

  	
  To
  the address set forth under

  such Purchaser name on the

  signature pages hereto.

  
	
   

  	
   

  	
   

  
	
  If to
  any other Person who is then the registered Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  To
  the address of such Holder as it

  appears in the stock transfer books

  of the Company

  

 

 

or such other address as may be designated in writing
hereafter, in the same manner, by such Person.

 

(h)           Successors
and Assigns.  This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of each Holder.
The Company may not assign its rights or obligations hereunder without the
prior written consent of each Holder. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the Notes
with the prior written consent of the Company, which consent shall not be
unreasonably withheld.

 

(i)            Execution
and Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.

 

(j)            Governing
Law.   THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN 

 

10

 

SUCH
STATE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. COMPANY HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF
NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND PURCHASER PERTAINING TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED,
THAT PURCHASER AND COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE PURCHASER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF PURCHASER.  COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.   COMPANY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY’S ACTUAL RECEIPT THEREOF
OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS.  THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT,
OR OTHERWISE BETWEEN PURCHASER AND COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS
RELATED THERETO.   THE PREVAILING PARTY
SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ITS REASONABLE ATTORNEY’S
FEES AND COSTS.  IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE
STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE
EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM
WITH SUCH STATUTE OR RULE OF LAW.   ANY
SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR UNENFORCEABILITY OF ANY OTHER PROVISION OF THIS
AGREEMENT.   NOTHING CONTAINED HEREIN
SHALL BE DEEMED OR OPERATE TO PRECLUDE PURCHASER FROM BRINGING SUIT OR TAKING
OTHER 

 

11

 

LEGAL ACTION AGAINST THE BORROWER IN ANY OTHER JURISDICTION TO COLLECT
ON THECOMPANY’S OBLIGATIONS TO PURCHASER, TO REALIZE ON ANY COLLATERAL OR ANY
OTHER SECURITY FOR SUCH OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF PURCHASER.

 

(k)           Cumulative
Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

 

(l)            Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

(m)          Headings.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

 

12

 

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

 

	
   

  	
  DIGITAL ANGEL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: James P. Santelli

  
	
   

  	
   

  	
  Title:Vice President,
  Finance and CFO

  
					

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF PURCHASER TO FOLLOW]

 

13

 

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

 

	
   

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
  152 West 57th
  Street

  
	
   

  	
  New York, New York
  10019

  
					

 

14EXHIBIT 4.1

                        WRITTEN CONSENT OF THE DIRECTORS
                                       OF
                       P.D.C. INNOVATIVE INDUSTRIES, INC.

     The undersigned, constituting all of the directors of P.D.C. Innovative
Industries, Inc., a Nevada corporation, (the "Corporation"), hereby adopts the
following resolutions pursuant to Section 78.315 of the Nevada General
Corporation Law:

     WHEREAS, in accordance with applicable Nevada corporate law, the Board of
Directors deems it to be in the best interests of the Corporation to authorize:
(i) the issuance of 400,000 shares of the Corporation's common stock to a
certain employee of the Corporation in lieu of salary for having provided and
continuing to provide services to the Corporation as an employee of a
non-capital raising nature; (ii) the issuance of 1,300,000 shares of the
Corporation's common stock to legal counsel to the Corporation for having
provided and continuing to provide legal consulting services to the Corporation
of a non-capital raising nature and (iii) the issuance of 300,000 shares of the
Corporation's common stock to a consultant for the Corporation who has provided,
and continues to provide financial printing services to the Corporation (all of
such shares, aggregating 2,000,000, are collectively referred to herein as the
"Shares");

     NOW, THEREFORE, BE IT RESOLVED, that the Corporation cause the issuance of
the Shares to such persons pursuant to a Form S-8 Registration Statement to be
filed by the Corporation's legal counsel with the U.S. Securities and Exchange
Commission; and that each and every officer of the Corporation is authorized to
do and perform, or cause to be done and performed, any and all actions and
things which may be necessary, desirable or convenient to effectuate the
purposes and intents of the foregoing resolution.

Dated as of August 1, 2003

                                                     /s/ Sandra Sowers
                                                     ---------------------------
                                                     Sandra Sowers, Director

                                                     /s/ Fern Marlene Kennedy
                                                     ---------------------------
                                                     Fern Marlene Kennedy

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