Document:

Exhibit 10.48

 

MODIFICATION, EXTENSION AND RENEWAL OF PROMISSORY NOTE

 

	
  $1,000,000.00

  	
   

  	
  August 8, 2003

  

 

For value
received, the undersigned (the “Makers,” whether one or more), promise to pay
to the order of JOHN C. WOOLEY AND JEFFREY J. WOOLEY (the “Payee”),
at 203 Colorado, Austin, Travis County, Texas 78701, or such other
location as the Payee designates to the Makers in writing, the principal sum of
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), or the outstanding principal
amount advanced hereunder, whichever is less, in legal and lawful money of the
United States of America, with interest thereon from the date hereof through
the maturity date of this Note (whether by acceleration or otherwise) (the
“Maturity Date”) at the rate of six percent (6.0%) per annum (calculated on the
basis of the actual number of days elapsed but computed as if each year
consisted of 360 days), the interest being payable as hereinafter
specified.  After the Maturity Date
until paid, unpaid principal and accrued unpaid interest shall bear interest at
a rate per annum equal to the lesser of (i) eighteen percent (18%), or
(ii) the Maximum Lawful Rate.  As used
herein, the term “Maximum Lawful Rate” shall mean the greater of (i) the highest
non-usurious rate of interest permitted by applicable United States law, or
(ii) a rate per annum equal to the applicable weekly ceiling described in
Chapter 303 of the Texas Finance Code, as amended, as such indicated rate
ceiling is in effect from time to time, but in no event greater than twenty-four
(24.0%) per annum.  Unless precluded by
law, changes in the Maximum Lawful Rate created by statute or governmental
action during the term of this Note shall be immediately applicable to this
Note on the effective date of such changes. 
If the applicable law ceases to provide for a Maximum Lawful Rate, the
Maximum Lawful Rate shall be equal to eighteen percent (18%) per annum, unless
the loan evidenced by this Note is subject to Regulation Z of the Board of
Governors of the Federal Reserve System, 12 C. F. R. §226 and is secured by a
dwelling, in which case the Maximum Lawful Rate shall be equal to twenty-four
percent (24.0%) per annum.

 

Notwithstanding
the foregoing, if, at any time, the rate of interest applicable to this Note
(but for the limitation thereof to the Maximum Lawful Rate) exceeds the Maximum
Lawful Rate, the rate of interest to accrue on this Note shall be limited to
the Maximum Lawful Rate, but any subsequent reductions in such rate of interest
applicable to this Note (but for the limitation thereof to the Maximum Lawful
Rate) shall not reduce the rate of interest to accrue on this Note below the
Maximum Lawful Rate until the total amount of interest which would have accrued
if a varying rate per annum equal to the rate of interest applicable to this
Note (but for the limitation thereof to the Maximum Lawful Rate) had at all
times been in effect.

 

If the Maximum
Lawful Rate is increased by statute or other governmental action subsequent to
the date hereof, then the Makers agree that the new Maximum Lawful Rate will be
applicable hereto from the effective date of the new Maximum Lawful Rate,
unless such application is precluded by statute or governmental action or by
the general law of the jurisdiction governing the transaction evidenced hereby.

 

This Note is
in renewal, extension and modification of that one certain Promissory Note in
the original principal amount of $1,000,000.00 between Maker and Payee dated
effective April 8, 2003.  The only
change the parties wish to make to the original note is to extend the maturity
date from August 8, 2003 to October 31, 2003. 
The parties intend all other terms to remain the same.

 

 

TERMS OF PAYMENT:

 

The accrued
interest on this Note shall be due and payable in monthly installments,
commencing on May 8, 2003, and continuing regularly thereafter on the same day
of each calendar month until October 31, 2003, when the entire amount of this
Note, principal and accrued interest then remaining unpaid, shall be due and
payable.  Interest shall be calculated
on the unpaid principal to the date each installment is paid and each such
payment shall be credited to the discharge of the interest accrued, the
reduction of principal, and other authorized charges, if any, in such manner
and order as the Payee shall determine in its sole discretion.

 

PAYMENT ON NON-BUSINESS DAYS:

 

If any payment
hereunder falls due on a Saturday, Sunday or public holiday on which commercial
banks in Austin, Texas are permitted or required by law to be closed, the time
for such payment shall be extended to the next day on which the Payee is open
for business, and such extension of time shall be included in the calculation
of interest accruing and payable hereunder.

 

PREPAYMENT:

 

The Makers
reserve the right to prepay this Note in any amount at any time prior to
maturity without penalty.  Interest
shall be calculated on the unpaid principal to the date of any prepayment and
any such prepayment shall be applied first toward the payment of accrued interest
and next to the principal installments of this Note in the inverse order of
maturity.

 

SECURITY FOR PAYMENT:

 

Payment of
this Note is secured by, and this Note is entitled to the benefits of, all
security agreements, assignments, deeds of trust, mortgages and lien
instruments executed by the Makers (or any of them), or other similar
instruments, guaranties, endorsements or other agreements, executed by any
other person or entity (the “Collateral Agreements,” whether one or more) to
secure, guarantee or otherwise provide for the payment hereof, in favor of or
for the benefit of the Payee, including any previously executed and any now or
hereafter executed.  Without limiting
the foregoing, the Collateral Agreements include Security Agreement dated of even
date herewith executed by the Makers and Payee covering certain of the Makers’
personal property.

 

USE OF PROCEEDS:

 

This Note
represents funds advanced to the Makers at the Makers’ special instance and
request and used to provide working capital for the Makers.

 

REPRESENTATIONS AND WARRANTIES:

 

The Makers
expressly represent and warrant to the Payee that it is a corporation duly
organized and existing under the laws of the State of Texas; that it possesses
full power and authority to own its property and to conduct its business as now
conducted and as presently proposed to be conducted; that the execution and
delivery of this Note will not contravene any

 

2

 

provisions of its articles
incorporation, bylaws or any other agreement relating to its form of entity;
that the officer executing this Note is the legally qualified and acting
officer of said corporation and is expressly authorized to execute this Note by
appropriate resolution of the Board of Directors of said corporation.

 

LIMITATION OF INTEREST:

 

All agreements
and transactions among the Makers and the Payee, whether now existing or
hereafter arising, whether contained herein or in any other instrument, and
whether written or oral, are hereby expressly limited so that in no contingency
or event whatsoever, whether by reason of acceleration of the maturity hereof,
late payment, prepayment, or otherwise, shall the amount of interest contracted
for, charged or received by the Payee from the Makers for the use, forbearance,
or detention of the principal indebtedness or interest hereof, which remains
unpaid from time to time, exceed the Maximum Lawful Rate, it particularly being
the intention of the parties hereto to conform strictly to the applicable usury
laws of the State of Texas (or applicable United States law to the extent that
it permits the Payee to contract for, charge or receive a greater amount of
interest than under Texas law).  Any
interest payable hereunder or under any other instrument relating to the
indebtedness evidenced hereby that is in excess of the Maximum Lawful Rate,
shall, in the event of acceleration of maturity, late payment, prepayment, or
otherwise, be applied to a reduction of the unrepaid indebtedness hereunder and
not to the payment of interest, or if such excessive interest exceeds the
unpaid balance of such unrepaid indebtedness, such excess shall be refunded to
the Makers.  To the extent not
prohibited by applicable law, determination of the Maximum Lawful Rate shall at
all times be made by amortizing, prorating, allocating and spreading in equal
parts during the full term of this loan, all interest at any time contracted
for, charged or received from the Makers in connection with this loan, so that
the actual rate of interest on account of such indebtedness is uniform
throughout the term thereof.

 

SUCCESSORS AND ASSIGNS:

 

As used
herein, the term “Payee” shall include the successors and assigns of the Payee
and any subsequent owner and holder of this Note, and the term “Makers” shall
include co-makers, endorsers, guarantors, sureties and their respective
successors and assigns.

 

DEFAULT AND COLLECTION:

 

Subject to the
express notice and cure provisions contained in this Note, it is expressly
provided that, upon default in the punctual payment of this Note, or any part
hereof, principal or interest, as the same shall become due and payable, or
upon default in the performance of or compliance with any of the terms of any
of the Collateral Agreements, or if the Payee deems the Payee insecure, either
because the prospect of timely payment of this Note becomes impaired, or
because the prospect of timely performance of any of the Collateral Agreements
becomes impaired, at the option of the Payee, the entire indebtedness evidenced
hereby shall be matured, and in the event default is made in the prompt payment
of this Note when due or declared due, and the same is placed in the hands of
an attorney for collection, or suit is brought on the same, or the same is
collected through probate, bankruptcy or other judicial proceedings, then the
Makers jointly and severally agree and promise to pay all reasonable attorney’s
fees, court costs and collection costs incurred by the Payee.

 

3

 

NOTICE AND CURE RIGHTS:

 

In the event of any default under the Collateral Agreements or this
Note, the Makers and each Guarantors named below shall be entitled to receive
written notice of any such default and a period of fifteen (15) days after such
notice is sent by the Payee within which to cure such default prior to the
Payee’s being entitled to exercise any remedy which may arise due to the
occurrence of such default, other than the right to withhold making further
advances of funds during the period any such default remains uncured.  However, nothing herein shall obligate the
Payee to give the Makers more than one (1) notice of default during any ninety
(90) day period.  The provisions of this
paragraph shall control over any inconsistent provision in any of the
Collateral Agreements; and any right to accelerate the maturity of this Note
contained in any of the Collateral Agreements is subject to prior compliance
with this paragraph.

 

WAIVERS AND CONSENTS:

 

Subject to the
express notice and cure provisions contained in this Note, each of the Makers
waives presentment for payment, notice of intent to accelerate, notice of
acceleration, protest and notice of protest, dishonor and diligence in
collecting and the bringing of suit against any other party, and agrees to all
renewals, extensions, partial payments, releases and substitutions of security,
in whole or in part, with or without notice, before or after maturity.  The Payee may remedy any default, without
waiving the same, or may waive any default without waiving any prior or
subsequent default.

 

GOVERNING LAWS AND VENUE:

 

This Note is
governed by and is to be construed and enforced in accordance with the laws of
the State of Texas and of the United States. 
The Makers agree and consent to the jurisdiction of the District Courts
of Travis County, Texas, and of the United States District Court for the
Western District of Texas (Austin Division) and acknowledge that such courts
shall constitute proper and convenient forums for the resolution of any actions
among the Makers and the Payee with respect to the subject matter hereof, and
agree that such courts shall be the exclusive forums for the resolution of any
actions among the Makers and the Payee with respect to the subject matter
hereof.

 

 

	
   

  	
  Schlotzsky’s,
  Inc.,

  
	
   

  	
  a Texas
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RICHARD
  H. VALADE

  	
   

  
	
   

  	
   

  	
  Richard H.
  Valade,

  
	
   

  	
   

  	
  Executive
  Vice President

  

 

4Exhibit 10.2

 

 

DIGITAL ANGEL CORPORATION

 

SECURITIES PURCHASE AGREEMENT

 

July 31, 2003

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  PURCHASE AND SALE OF NOTE AND WARRANT.

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Purchase of Note and Warrant

  	
   

  	
   

  
	
   

  	
  1.2

  	
  The Closing Date

  	
   

  	
   

  
	
   

  	
  1.3

  	
  Form of Payment

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  REPRESENTATIONS AND WARRANTIES OF THE
  COMPANY.

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Organization,
  Good Standing and Qualification

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Subsidiaries

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Capitalization; Voting Rights.

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Authorization; Binding Obligations

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Liabilities

  	
   

  	
   

  
	
   

  	
  2.6

  	
  Agreements; Action

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Obligations to Related Parties

  	
   

  	
   

  
	
   

  	
  2.8

  	
  Changes

  	
   

  	
   

  
	
   

  	
  2.9

  	
  Title to Properties and Assets; Liens,
  Etc.

  	
   

  	
   

  
	
   

  	
  2.10

  	
  Intellectual Property.

  	
   

  	
   

  
	
   

  	
  2.11

  	
  Compliance with Other Instruments

  	
   

  	
   

  
	
   

  	
  2.12

  	
  Litigation

  	
   

  	
   

  
	
   

  	
  2.13

  	
  Tax Returns and Payments

  	
   

  	
   

  
	
   

  	
  2.14

  	
  Employees

  	
   

  	
   

  
	
   

  	
  2.15

  	
  Registration Rights and Voting Rights

  	
   

  	
   

  
	
   

  	
  2.16

  	
  Compliance with Laws; Permits

  	
   

  	
   

  
	
   

  	
  2.17

  	
  Environmental and Safety Laws

  	
   

  	
   

  
	
   

  	
  2.18

  	
  Valid Offering

  	
   

  	
   

  
	
   

  	
  2.19

  	
  Full Disclosure

  	
   

  	
   

  
	
   

  	
  2.20

  	
  Insurance

  	
   

  	
   

  
	
   

  	
  2.21

  	
  SEC
  Reports

  	
   

  	
   

  
	
   

  	
  2.22

  	
  No Market Manipulation

  	
   

  	
   

  
	
   

  	
  2.23

  	
  Listing

  	
   

  	
   

  
	
   

  	
  2.24

  	
  No Integrated Offering

  	
   

  	
   

  
	
   

  	
  2.25

  	
  Stop Transfer

  	
   

  	
   

  
	
   

  	
  2.26

  	
  Dilution

  	
   

  	
   

  
	
   

  	
  2.27

  	
  Material Agreements

  	
   

  	
   

  
	
   

  	
  2.28

  	
  ERISA

  	
   

  	
   

  
	
   

  	
  2.29

  	
  Solvency

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  REPRESENTATIONS AND WARRANTIES OF THE
  PURCHASER.

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Requisite Power and Authority

  	
   

  	
   

  
						

 

1

 

	
   

  	
  3.2

  	
  Investment Representations

  	
   

  	
   

  
	
   

  	
  3.3

  	
  Purchaser Bears Economic Risk

  	
   

  	
   

  
	
   

  	
  3.4

  	
  Acquisition for Own Account

  	
   

  	
   

  
	
   

  	
  3.5

  	
  Purchaser Can Protect Its Interest

  	
   

  	
   

  
	
   

  	
  3.6

  	
  Accredited Investor

  	
   

  	
   

  
	
   

  	
  3.7

  	
  Legends.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  COVENANTS OF THE COMPANY.

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Stop-Orders

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Listing

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Market Regulations

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Reporting Requirements

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Use
  of Funds

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Access to Facilities

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Offering Restrictions

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Insurance

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Intellectual Property

  	
   

  	
   

  
	
   

  	
  4.10

  	
  Financial Information

  	
   

  	
   

  
	
   

  	
  4.11

  	
  Reservation of Shares

  	
   

  	
   

  
	
   

  	
  4.12

  	
  Confidentiality

  	
   

  	
   

  
	
   

  	
  4.13

  	
  Corporate Existence

  	
   

  	
   

  
	
   

  	
  4.14

  	
  Reissuance of Securities

  	
   

  	
   

  
	
   

  	
  4.15

  	
  Priority of Notes

  	
   

  	
   

  
	
   

  	
  4.16

  	
  Expenses and Other Payments

  	
   

  	
   

  
	
   

  	
  4.17

  	
  Transfer and Depositary Agent Instructions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  CONDITIONS TO THE COMPANY’S OBLIGATION
  TO SELL.

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Execution

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Payment

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Representations and Warranties

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS TO THE PURCHASER’S
  OBLIGATION TO PURCHASE.

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Execution

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Exchange Listing

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Representations and Warranties

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Legal Opinion

  	
   

  	
   

  
	
   

  	
  6.5

  	
  Delivery of Securities

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Board Resolutions

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Reservation of Shares

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Transfer Agent Instructions

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Good Standing Certificates

  	
   

  	
   

  
	
   

  	
  6.10

  	
  Secretary’s Certificate

  	
   

  	
   

  
	
   

  	
  6.11

  	
  Filings

  	
   

  	
   

  
	
   

  	
  6.12

  	
  Security Agreement

  	
   

  	
   

  
	
   

  	
  6.13

  	
  Other Transaction Documents

  	
   

  	
   

  
						

 

2

 

	
  7.

  	
  COVENANTS OF THE COMPANY AND THE
  PURCHASER REGARDING INDEMNIFICATION.

  
	
   

  	
  7.1

  	
  Company Indemnification

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Purchaser’s Indemnification

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Procedures

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  MISCELLANEOUS.

  
	
   

  	
   

  
	
   

  	
  8.1

  	
  Governing Law

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Survival

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Successors and Assigns

  	
   

  	
   

  
	
   

  	
  8.4

  	
  Entire Agreement

  	
   

  	
   

  
	
   

  	
  8.5

  	
  Severability

  	
   

  	
   

  
	
   

  	
  8.6

  	
  Amendment and Waiver.

  	
   

  	
   

  
	
   

  	
  8.7

  	
  Delays or Omissions

  	
   

  	
   

  
	
   

  	
  8.8

  	
  Notices

  	
   

  	
   

  
	
   

  	
  8.9

  	
  Titles and Subtitles

  	
   

  	
   

  
	
   

  	
  8.10

  	
  Facsimile Signatures; Counterparts

  	
   

  	
   

  
	
   

  	
  8.11

  	
  Broker’s
  Fees

  	
   

  	
   

  
	
   

  	
  8.12

  	
  Construction

  	
   

  	
   

  
						

 

3

 

DIGITAL
ANGEL CORPORATION

 

SECURITIES
PURCHASE AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

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

 

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

 

AGREEMENT

 

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

 

 

1.              PURCHASE AND SALE OF NOTE AND WARRANT.

 

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

 

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

 

1.3                               Form of Payment. Pursuant to a Funds Escrow Agreement
(the “Funds Escrow Agreement”), on the Closing Date, (i) the Purchaser shall
pay the Purchase Price to the Company for the Note and the Warrant by wire
transfer of immediately available funds in accordance with the Company’s
written wire instructions, less any amount withheld for expenses and other
payments pursuant to Section 4.16, and (ii) the Company shall deliver to the
Purchaser the Note representing the principal amount of the Note that the
Purchaser is then purchasing hereunder along with the Warrant, duly executed on
behalf of the Company and registered in the name of the Purchaser or its
designee.

 

2.              REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

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

 

2.1                               Organization, Good Standing and Qualification.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is qualified to do business and in good standing in each
other jurisdiction in which the ownership or leasing of its properties or the
nature of its business requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect.  As used in this
Agreement, “Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations, financial
condition or prospects of the Company, or on the transactions contemplated
hereby, or by the other documents, instruments or the agreements to be entered
into in connection herewith, or on the authority or ability of the Company to
perform its obligations under the Offering Documents.

 

2.2                               Subsidiaries. 
Schedule 2.2 hereto sets forth each subsidiary of the Company, showing
the jurisdiction of its incorporation or organization and showing the
percentage of each person’s ownership of the outstanding stock or other
interests of such subsidiary.  For the purposes
of this Agreement, “subsidiary” shall mean any corporation or other entity of
which at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of
directors or other persons

 

2

 

performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. 
All of the outstanding shares of capital stock of each subsidiary have
been duly authorized and validly issued, and are fully paid and
nonassessable.  There are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon any subsidiary for the purchase or acquisition of
any shares of capital stock of any subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to subscribe for
any shares of such capital stock. 
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible securities,
rights, warrants or options of the type described in the preceding sentence.  Neither the Company nor any subsidiary is
party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any subsidiary.

 

2.3                               Capitalization; Voting Rights.

 

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

 

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

 

(c)                                  All issued and outstanding shares of the
Company’s Common Stock (i) have been duly authorized and validly issued and are
fully paid and nonassessable and (ii) together with the offer and sale of all
convertible securities, rights, warrants, or options of the Company, were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities, and no stockholder has a right of rescission or damages
against the Company with respect thereto.

 

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

 

3

 

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

 

2.4                               Authorization;
Binding Obligations.  All corporate action on the part of the
Company necessary for the authorization of this Agreement, the Note, the
Warrant, the Registration Rights Agreement, the Funds Escrow Agreement and the
Security Agreement (collectively, the “Transaction Documents”), the performance of
all obligations of the Company hereunder at the applicable Closing, and the
authorization, sale, issuance and delivery of the Note and Warrant has been
taken or will be taken prior to the Closing and no further consent or
authorization of the Company, its board of directors or stockholders is
required.  This Agreement and the other
Transaction Documents, when executed and delivered and to the extent that the
Company is a party thereto, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, and (b) general
principles of equity that restrict the availability of equitable or legal
remedies.  The sale of the Note and the
subsequent conversion of the Note into Conversion Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The issuance of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.  The
Note and the Warrant, when executed and delivered in accordance with the terms
of this Agreement, will be valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, and (b) general
principles of equity that restrict the availability of equitable or legal
remedies.

 

2.5                               Liabilities. 
The Company has no material liabilities and, to the best of its
knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the ordinary course of business and liabilities disclosed
in the Company’s most recent Exchange Act Filing.

 

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

 

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

 

4

 

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

 

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

 

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

 

2.7                               Obligations
to Related Parties.  Except as set forth in Schedule 2.7, there
are no obligations of the Company to officers, directors, stockholders or
employees of the Company other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company, (c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company) and (d)
obligations listed in the Company’s financial statements or disclosed in any of
its Exchange Act Filings.  Except as
described above or set forth on Schedule 2.7, none of the officers, directors
or, to the best of the Company’s knowledge, key employees or stockholders of
the Company or any members of their immediate families, are indebted to the
Company, individually or in the aggregate, in excess of $50,000 or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company, other than passive
investments in publicly traded companies (representing less than 1% of such
company) which may compete with the Company. 
Except as described above, no officer, director or stockholder, or any
member of their immediate families, is, directly or indirectly, interested in
any material contract with the Company and no agreements, understandings or
proposed transactions are contemplated between the Company and any such
person.  Except as set forth on Schedule
2.7, the Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.

 

2.8                               Changes.  Since
December 31, 2002, except as disclosed in any Schedule to this Agreement
or to any of the other Transaction Documents, there has not been:

 

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

 

5

 

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

 

(b)                                  Any resignation or termination of any
officer, key employee or group of employees of the Company;

 

(c)                                  Any material change, except in the
ordinary course of business, in the contingent obligations of the Company by
way of guaranty, endorsement, indemnity, warranty or otherwise;

 

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

 

(e)                                  Any waiver by the Company of a valuable
right or of a material debt owed to it;

 

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

 

(g)                                 Any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;

 

(h)                                 Any declaration or payment of any
dividend or other distribution of the assets of the Company;

 

(i)                                    Any labor organization activity related
to the Company;

 

(j)                                    Any debt, obligation or liability
incurred, assumed or guaranteed by the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;

 

(k)                                Any sale, assignment or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets;

 

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

 

(m)                              Any other event or condition of any
character that, either individually or cumulatively, has or may materially and
adversely affect the business, assets, liabilities, financial condition,
prospects or operations of the Company; or

 

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

 

6

 

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

 

2.10                        Intellectual
Property.

 

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

 

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

 

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

 

2.11                        Compliance
with Other Instruments.  The Company is not in violation or default
of any term of its Charter or its bylaws as currently in effect (the “Bylaws”),
or of any material provision of any mortgage, indenture, contract, agreement,
instrument or contract to which it is party or by which it is bound or of any
judgment, decree, order or writ.  The
execution, delivery and performance of and compliance with this Agreement and
the other Transaction Documents to which it is a party, and the issuance and
sale of the Note and Warrant by the Company and the other Securities by the
Company each pursuant hereto and thereto, will not, with or without the passage
of time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.

 

7

 

2.12                        Litigation. 
There is no action, suit, proceeding or investigation pending or, to the
Company’s knowledge, currently threatened against the Company or any subsidiary
that prevents the Company to enter into this Agreement or the other Transaction
Documents, or to consummate the transactions contemplated hereby or
thereby.  Except as set forth on
Schedule 2.12 hereto, there is no action, suit, proceeding or investigation
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary of the Company or any of their respective
properties or assets which individually or in the aggregate would have a
Material Adverse Effect. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. 
There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company intends to initiate.

 

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

 

2.14                        Employees.  Except as set
forth on Schedule 2.14, the Company has no collective bargaining agreements
with any of its employees.  There is no
labor union organizing activity pending or, to the Company’s knowledge,
threatened with respect to the Company. 
The Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement.  To the Company’s
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to
the Company’s knowledge the continued employment by the Company of its present
employees, and the performance of the Company’s contracts with its independent
contractors, will not result in any such violation.  The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the
Company.  The Company has not received
any notice alleging that any such violation has occurred.  Except for employees who have a current
effective employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the
Company.  The Company is not aware that
any officer, key employee or group of employees intends to terminate his, her
or their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group of
employees.

 

8

 

2.15                        Registration Rights and Voting Rights.  Except as set forth in Schedule 2.15, the
Company is presently not under any obligation, and has not granted any rights,
or a party to any agreement, to register any of the Company’s presently
outstanding securities or any of its securities that may hereafter be
issued.  To the Company’s knowledge, and
except as set forth in Schedule 2.3(b), no stockholder of the Company has
entered into any agreement with respect to the voting or transfer of any equity
securities of the Company.

 

2.16                        Compliance
with Laws; Permits.  To its knowledge, the Company is not in
violation in any material respect of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company.  No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. 
The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the business,
properties, prospects or financial condition of the Company.

 

2.17                        Environmental
and Safety Laws.  The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.  No Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company’s knowledge, by any other person or entity on any
property owned, leased or used by the Company. 
For the purposes of the preceding sentence, “Hazardous Materials” shall
mean (a) materials which are listed or otherwise defined as “hazardous”
or “toxic”
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials, or (b) any petroleum products or nuclear materials.

 

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

 

2.19                        Full Disclosure. 
The Company has provided the Purchaser with all information requested by
the Purchaser in connection with its decision to purchase the Note and Warrant,
including all information the Company believes is reasonably necessary to make
such investment decision.  Neither this
Agreement, the exhibits and schedules hereto, the other

 

9

 

Transaction
Documents nor any other document delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.  Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company’s experience in the industry and on assumptions of fact
and opinion as to future events which the Company, at the date of the issuance
of such projections or estimates, believed to be reasonable.  As of the date hereof, no facts have come to
the attention of the Company that would, in its opinion, require the Company to
revise or amplify in any material respect the assumptions underlying such
projections and other estimates or the conclusions derived therefrom.

 

2.20                        Insurance.  The Company has
general commercial, product liability, fire and casualty insurance policies
with coverage customary for companies similarly situated to the Company in the
same or similar business.

 

2.21                        SEC Reports. 
The Common Stock of the Company is registered pursuant to Section 12(b)
or 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) and, since
January 1, 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, except for its Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002. 
The Company has furnished the Purchaser with copies of (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, (ii) its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003
and (iii) its Proxy Statement filed with the SEC on April 17, 2003
(collectively, the “SEC Reports”).  The Company is eligible to file a registration statement on Form
S-3 with the SEC.  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 SEC or other applicable rules and regulations with respect
thereto.  Such financial statements have
been prepared in accordance with United States 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 of the Company and its
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).

 

2.22                        No Market
Manipulation.  The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price
of the Common Stock of the Company to facilitate the sale or resale of any of
the Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.

 

10

 

2.23                        Listing.  The Company’s
Common Stock is listed for trading 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 and the Company do not meet all requirements for the continuation
of such listing.

 

2.24                        No
Integrated Offering.  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
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under the 1933 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 Securities to be integrated with other
offerings.

 

2.25                        Stop Transfer. 
The Securities are restricted securities 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 Securities at such time as the Securities are registered for public sale,
whether as a result of the Registration Rights Agreement or otherwise, or an
exemption from registration is available, except as required by federal
securities laws.

 

2.26                        Dilution.  The Company
understands the nature of the Securities being sold hereby and recognizes that
they may have a potential dilutive effect. 
The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note and exercise of the Warrant
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.

 

2.27                        Material
Agreements.  There is no agreement that has not been
filed with the SEC as an exhibit to a registration statement or other
applicable form the breach of which could have a material adverse effect as to
the Company and its subsidiaries, or would prohibit or otherwise interfere with
the ability of the Company to enter into and perform and of its obligations
under this Agreement in any material respect.

 

2.28                        ERISA.  Based upon the
Employee Retirement Income Security Act of 1974 (“ERISA”), and the regulations
and published interpretations thereunder: (i) the Company has not engaged in
any Prohibited Transactions as defined in Section 406 of ERISA and Section 4975
of the Internal Revenue Code, as amended; (ii) the Company has met all
applicable minimum funding requirements under Section 302 of ERISA in respect
of its plans; (iii) the Company does not have any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) the Company does not have any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than Companies’ employees; and (v) the Company has not withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.

 

11

 

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

 

3.              REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

 

The Purchaser hereby represents and warrants to the Company as
follows:

 

3.1                               Requisite
Power and Authority.  The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Transaction Documents and to carry out their provisions.  All corporate action on Purchaser’s part
required for the lawful execution and delivery of this Agreement and the
Transaction Documents have been or will be effectively taken prior to the
Closing.  Upon their execution and
delivery, this Agreement and the other Transaction Documents will be valid and
binding obligations of the Purchaser, enforceable in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights, and (b) as limited by general principles of
equity that restrict the availability of equitable and legal remedies.

 

3.2                               Investment
Representations. The Purchaser
understands that the Securities are being offered and sold pursuant to an
exemption from registration contained in the 1933 Act based in part upon the
Purchaser’s representations contained in this Agreement, including, without
limitation, that the Purchaser is an “accredited investor” within the meaning
of Regulation D. The Purchaser has had an opportunity to ask questions and
receive answers from the Company regarding the Company’s business, management
and financial affairs and the terms and conditions of the offering and the
Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.

 

3.3                               Purchaser
Bears Economic Risk.  The Purchaser has substantial experience in evaluating
and investing in private placement transactions of securities in companies
similar to the Company so that it is capable of evaluating the merits and risks
of its investment in the Company and has the capacity to protect its own
interests.  The Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to (i)
an effective registration statement under the 1933 Act, or (ii) an exemption
from registration is available.

 

3.4                               Acquisition
for Own Account.  The Purchaser is acquiring the Note and the
Warrant for its own account for investment only, and not as a nominee or agent
and not with a view towards or for resale in connection with their
distribution.

 

3.5                               Purchaser
Can Protect Its Interest.  The Purchaser represents that by reason of
its, or of its management’s, business and financial experience, the Purchaser
has the capacity to evaluate the merits and risks of its investment in the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement, and the other Transaction Documents.  Further, the Purchaser is aware of no
publication of any advertisement

 

12

 

in connection
with the transactions contemplated in the Agreement or the other Transaction
Documents.

 

3.6                               Accredited
Investor.  The Purchaser represents that it is an
accredited investor within the meaning of Regulation D.

 

3.7                               Legends.

 

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

 

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

 

(b)                                  The Warrant shall bear substantially the
following legend:

 

“THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO DIGITAL ANGEL CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

4.              COVENANTS
OF THE COMPANY.

 

The Company covenants and agrees with the Purchaser as follows:

 

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

 

13

 

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

 

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

 

4.3                               Market
Regulations.  The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.

 

4.4                               Reporting
Requirements.  The Company will
timely file with the SEC all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination.  Within twenty-five (25) days after the end
of each month, the Company will deliver to the Purchaser unaudited trial
balances as at the end of such month.

 

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

 

4.6                               Access to
Facilities.  The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), upon
reasonable notice and during normal business hours, at such person’s expense
and accompanied by a representative of the Company, to (a) visit and inspect
any of the properties of the Company, (b) examine the corporate and financial
records of the Company (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom and (c) discuss the affairs, finances and accounts of any such
corporations with the directors, officers and independent accountants of the
Company.

 

4.7                               Offering
Restrictions.  Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings; or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement; or as disclosed in Schedule 2.3(b) (these
exceptions hereinafter referred to as the “Excepted Issuances”), the Company will not
issue any securities with a variable/floating conversion feature which are or

 

14

 

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

 

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

 

4.9                               Intellectual
Property.  The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.

 

4.10                        Financial
Information.  The Company agrees to send the following to
the Purchaser:  (i) unless the following
are filed with the SEC through EDGAR and are available to the public through EDGAR,
within one (1) day after the filing thereof with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act;  (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, unless available through
Bloomberg Financial Markets (or any successor thereto) contemporaneously with
the release; and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.

 

4.11                        Reservation
of Shares.  The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 110% of the number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares upon conversion of the entire outstanding
Note (without regard to any limitations on conversions) and 110% of the number
of shares of Common Stock needed to provide for the issuance of the Warrant
Shares upon exercise of all outstanding Warrant (without regard to any limitations
on exercises).

 

4.12                        Confidentiality. 
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.  The Purchaser agrees that it will not
disclose and will maintain as confidential all information it receives under or
pursuant to the Transaction Documents, unless it is or becomes generally
available to the public other than as a result of disclosure by Purchaser, it
is disclosed pursuant to a court order or the requirement of any governmental
authority, or is required to be disclosed by law, regulation or legal process
or is otherwise compelled in litigation.

 

4.13                        Corporate
Existence.  So long as the Purchaser beneficially owns
any of the Securities, the Company shall maintain its corporate existence and
shall not sell all or

 

15

 

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

 

4.14                        Reissuance
of Securities.  The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as (a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the 1933 Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the 1933 Act.  The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions or such
transfer agent instructions necessary to allow such resales provided the
Company and its counsel receive reasonably requested representations from the
selling Purchaser and broker, if any.

 

4.15                        Priority of Notes.  For so long as the Note is outstanding, in
the event that the Company or any of its Subsidiaries issues or incurs any
Indebtedness (as defined in the Note), it shall, or it shall cause any
Subsidiary to, first enter into, and cause the lender to enter into, a
Subordination Agreement, containing terms and conditions acceptable to the
Purchaser.

 

4.16                        Expenses
and Other Payments. The Company
shall reimburse the Purchaser for its reasonable legal fees for services
rendered to the Purchaser in preparation of this Agreement and the other
Transaction Documents, and reasonable expenses in connection with the
Purchaser’s due diligence review of the Company and relevant matters.  Amounts payable hereunder and under Section
6.10 of the Note shall be withheld by the Purchaser from the Purchase Price to
be paid at Closing.

 

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

 

16

 

Purchaser and
without any restrictive legend.  The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchaser by vitiating the intent and purpose of
the transaction contemplated hereby. 
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 4.18 will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 4.18, that the Purchaser shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

 

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

 

The obligation of the Company to issue and sell the Note and the
Warrant to the Purchaser at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Purchaser with
prior written notice thereof:

 

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

 

5.2                               Payment. The Purchaser shall have delivered to the Company the
Purchase Price (less the amounts withheld pursuant to Section 4.16) by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Company.

 

5.3                               Representations
and Warranties. The
representations and warranties of the Purchaser shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such date), and the Purchaser shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing Date.

 

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

 

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

 

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

 

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

 

17

 

or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market; and the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise of the Notes and the related Warrants, as the case may
be, shall be listed upon the Principal Market.

 

6.3                               Representations
and Warranties. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.  The Purchaser shall have received a certificate, executed by
either the Chief Executive Officer or the Chief Financial Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Purchaser.

 

6.4                               Legal Opinion. The Purchaser shall have received a
legal opinion, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Purchaser and in substantially the form of
Exhibit F attached hereto.

 

6.5                               Delivery
of Securities. The Company
shall have executed and delivered to the Purchaser the Note and the Warrant (in
such denominations as such Buyer shall request) for the Note and the Warrant
being purchased by the Purchaser at the Closing.

 

6.6                               Board
Resolutions. The Board of
Directors of the Company shall have adopted resolutions consistent with Section
2.4 above and in a form reasonably acceptable to the Purchaser (the
“Resolutions”).

 

6.7                               Reservation
of Shares. As of the Closing
Date, the Company shall have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Note and the
exercise of the Warrant, at least the number of shares of Common Stock as set
forth in Section 4.11 hereof.

 

6.8                               Transfer
Agent Instructions. The Irrevocable
Transfer Agent Instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent and the Company shall deliver a copy
thereof to the Purchaser.

 

6.9                               Good
Standing Certificates. The Company
shall have delivered to the Purchaser a certificate evidencing the incorporation
and good standing of the Company and each Subsidiary in such entity’s state of
incorporation or organization issued by the Secretary of State of such state of
incorporation or organization as of the Closing Date.

 

6.10                        Secretary’s
Certificate. The Company
shall have delivered to the Purchaser a secretary’s certificate, dated as of
the Closing Date, certifying as to (A) the Resolutions, (B) the Charter,
certified as of the Closing Date, by the Secretary of State of the State of
Delaware and (C) the Bylaws, each as in effect at the Closing.

 

18

 

6.11                        Filings. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.

 

6.12                        Security
Agreement. The Company
shall have delivered to the Purchaser an executed copy of the Security
Agreement.

 

6.13                        Other
Transaction Documents. The Company
shall have delivered to the Purchaser such other documents relating to the
transactions contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.

 

7.              COVENANTS OF THE COMPANY AND THE PURCHASER REGARDING
INDEMNIFICATION.

 

7.1                               Company
Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser’s officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the the Purchaser which results, arises out of or is based upon the
negotiation, execution or performance of this Agreement including but not
limited to (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any exhibits or schedules attached hereto or
any Transaction Document, or (ii) any breach or default in performance by
Company of any covenant or undertaking to be performed by Company hereunder, or
any other agreement entered into by the Company and the Purchaser relating
hereto.

 

7.2                               Purchaser’s
Indemnification.  The Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company’s officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon any breach of
the representations of the Purchaser contained in Section 3 of this Agreement.

 

7.3                               Procedures. Promptly after receipt by an
indemnified party pursuant to the provisions of Section 7.1 or 7.2 of
notice of the commencement of any action involving the subject matter of the
foregoing indemnity provisions such indemnified party will, if a claim thereof
is to be made against the indemnifying party pursuant to the provisions of
Section 7.1 or 7.2, promptly notify the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise
under this Section except to the extent the defense of the claim is
prejudiced.  In case such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, provided, however,
if counsel for the indemnifying party concludes that a single counsel cannot
under applicable legal and ethical considerations, represent both the
indemnifying party and the indemnified party, the indemnified party or parties
have the right to

 

19

 

select
separate counsel to participate in the defense of such action on behalf of such
indemnified party or parties; provided that there shall be no more than one
such separate counsel.  After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said Section 7.1 or 7.2 for any
legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence,
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after the notice of the commencement of the action or
(iii) the indemnifying party has, in its sole discretion, authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.

 

8.              MISCELLANEOUS.

 

8.1                               Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws.  Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York.  Both parties and the individual signing this
Agreement on behalf of the Company agree to submit to the jurisdiction of such
courts.  The prevailing party shall be
entitled to recover from the other party its reasonable attorneys’ fees and
costs.  In the event that any provision
of this Note 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 Note. In
the event that any provision of this Agreement or any other agreement delivered
in connection herewith 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 enforceability of any other provision of any agreement.

 

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

 

8.3                               Successors
and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.  The

 

20

 

Purchaser may
assign and/or grant participations (in whole or in part) in this Agreement and
the other Transaction Documents.

 

8.4                               Entire
Agreement.  This Agreement, the exhibits and schedules
hereto, the other Transaction Documents and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof, including, but not
limited to, the purchase and sale of the Note and Warrant and the subsequent
issuance of the Conversion Shares and the Warrant Shares.  No party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.  The Purchaser shall not be deemed to have
made any representation or warranty to the Company other than as expressly made
by the Purchaser in Section 3 hereof. 
Without limiting the generality of the foregoing, and notwithstanding
any otherwise express representations and warranties made by the Purchaser in
Section 3 hereof, the Purchaser makes no representation or warranty to the
Company with respect to the timing or the manner in which the Company’s Common
Stock will be sold.

 

8.5                               Severability. 
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

8.6                               Amendment
and Waiver.

 

(a)                                  This Agreement may be amended or modified
only upon the written consent of the Company and the Purchaser.

 

(b)                                  The obligations of the Company and the
rights of the Purchaser under this Agreement may be waived only with the
written consent of the Purchaser.

 

8.7                               Delays or
Omissions.  It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or non-compliance by another party under this Agreement or the
Transaction Documents, shall impair any such right, power or remedy, nor shall
it be construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring.  All
remedies, either under this Agreement, the Note, the Warrant or the other
Transaction Documents, by law or otherwise afforded to any party, shall be
cumulative and not alternative.

 

8.8                               Notices. 
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to
be notified, (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day, (c)
five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All
communications shall be sent to the Company at the address as set forth on the
signature page hereof, with a copy to Michele D. Vaillancourt, Esq., Winthrop
& Weinstine, P.A., Suite 3500, 225 South Sixth Street, Minneapolis, MN
55402, facsimile number (612) 604-6800, and to the Purchaser at the address set
forth on the signature page hereto for such Purchaser, with a

 

21

 

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

 

8.9                               Titles and
Subtitles.  The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

 

8.10                        Facsimile
Signatures; Counterparts.  This Agreement may be executed by facsimile
signatures and in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.

 

8.11                        Broker’s Fees.  Except as described in Schedule 8.11, each
party hereto represents and warrants that, except as each party may have
notified the other in writing on or prior to the date hereof, no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker’s or finder’s fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein.  Each party hereto
further agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this Section
8.11 being untrue.

 

8.12                        Construction. 
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Agreement to favor any party
against the other.

 

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

 

 

	
  COMPANY:

  	
   

  	
  PURCHASER:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DIGITAL
  ANGEL CORPORATION

  	
   

  	
  LAURUS
  MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
  Address:

  	
   

  
	
  Address:

  490 Villaume Ave.

  South St. Paul, MN  55075

  	
   

  	
  c/o
  Ironshore Corporate Services Ltd.

  P.O. Box 1234 G.T., Queensgate House, South

  Church Street

  Grand Cayman, Cayman Islands

  	
   

  
						

 

22

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