STANDBY EQUITY DISTRIBUTION AGREEMENT

Exhibit 4.1

STANDBY EQUITY DISTRIBUTION AGREEMENT

THIS AGREEMENT dated as of the  _____  day of July 2009 (this “ Agreement ”) between YA GLOBAL MASTER SPV LTD. , a Cayman Islands exempt limited partnership (the “ Investor ”), and DIGITAL ANGEL CORPORATION , a corporation organized and existing under the laws of the State of Delaware (the “ Company ”).

WHEREAS , the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to $5,000,000 of the Company’s common stock, par value $0.01 per share (the “ Common Stock ”); and

WHEREAS , the offer and sale of the shares of Common Stock issuable hereunder will be registered under the Securities Act on the Company’s registration statement on Form S-3 (File No. 333-159880), as supplemented or amended from time to time as set forth herein.

NOW , THEREFORE , the parties hereto agree as follows:

Article I. Certain Definitions

Section 1.01 “ Advance ” shall mean the portion of the Commitment Amount requested by the Company in the Advance Notice.

Section 1.02 “ Advance Date ” shall mean the 1 ^st Trading Day after expiration of the applicable Pricing Period for each Advance.

Section 1.03 “ Advance Notice ” shall mean a written notice in the form of Exhibit A attached hereto to the Investor executed by an officer of the Company and setting forth the Advance amount that the Company requests from the Investor.

Section 1.04 “ Advance Notice Date ” shall mean each date the Company delivers (in accordance with Section 2.01(b) of this Agreement) to the Investor an Advance Notice requiring the Investor to advance funds to the Company, subject to the terms of this Agreement.

Section 1.05 “ Affiliate ” shall have the meaning set forth in Section 3.04.

Section 1.06 “ Base Prospectus ” shall mean the Company’s prospectus accompanying the Registration Statement.

Section 1.07 “ By-laws ” shall have the meaning set forth in Section 4.03.

Section 1.08 “ Certificate of Incorporation ” shall have the meaning set forth in Section 4.03.

Section 1.09 “ Commitment Amount” shall mean the aggregate amount of up to $5,000,000 which the Investor has agreed to provide to the Company in order to purchase the Shares pursuant to the terms and conditions of this Agreement provided that, the Company shall not effect any sales under this Agreement and the Investor shall not have the obligation to purchase shares of Common Stock under this Agreement to the extent that after giving effect to such purchase and sale the aggregate number of shares of Common Stock issued under this Agreement (including any Commitment Shares) would exceed 3,578,299 shares of Common Stock (which is less than 20% of the 17,891,495 outstanding shares of Common Stock as of the date of this Agreement) except that such limitation shall not apply in the event that the Company (i) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for the Common Stock for issuances of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Investor.

Section 1.10 “ Commitment Fee ” shall have the meaning set forth in Section 12.04.

Section 1.11 “ Commitment Period ” shall mean the period commencing on the Effective Date, and expiring upon the termination of this Agreement in accordance with Section 10.02.

Section 1.12 “ Commitment Shares ” shall have the meaning set forth in Section 12.04.

Section 1.13 “ Common Stock ” shall have the meaning set forth in the recitals of this Agreement.

Section 1.14 “ Company Indemnitees ” shall have the meaning set forth in Section 5.02.

Section 1.15 “ Condition Satisfaction Date ” shall have the meaning set forth in Section 7.01.

Section 1.16 “ Consolidation Event ” shall have the meaning set forth in Section 6.06.

Section 1.17 “ Damages ” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses of expert witnesses and investigation).

Section 1.18 “ Effective Date ” shall mean the date hereof.

Section 1.19 “ Environmental Laws ” shall have the meaning set forth in Section 4.10.

Section 1.20 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Section 1.21 “ Indemnified Liabilities ” shall have the meaning set forth in Section 5.01.

Section 1.22 “ Initial Disclosure ” shall have the meaning set forth in Section 6.14.

Section 1.23 “ Investor Indemnitees ” shall have the meaning set forth in Section 5.01.

Section 1.24 “ Market Price ” shall mean the lowest daily VWAP of the Common Stock during the relevant Pricing Period.

Section 1.25 “ Material Adverse Effect ” shall mean any condition, circumstance, or situation that may result in, or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of this Agreement or the transactions contemplated herein, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement, provided that none of the following shall constitute a Material Adverse Effect for the purposes of subsections (i) and (ii) of this definition: (a) any change in conditions in the United States, foreign or global economy or capital or financial markets generally, including any change in interest and exchange rates, (b) any change in conditions (including any change in general legal, regulatory, political, economic or business conditions) in the industry in which the Company conducts business, or (c) to the extent they do not have a materially disproportionate effect on the Company taken as a whole, any natural disaster or calamity, or act of terrorism, sabotage, military action or war or any escalation or worsening thereof (in each case, threatened, pending or declared).

Section 1.26 “ Maximum Advance Amount ” shall be the lesser of (i) $500,000, (ii) 125% of the average of the Daily Value Traded for each of the 10 Trading Days prior to the Advance Notice Date where “Daily Value Traded” is the product obtained by multiplying the daily trading volume for such day by the VWAP for such day, or such other amount as may be agreed upon by the mutual consent of the parties.

Section 1.27 “ Ownership Limitation ” shall have the meaning set forth in Section 2.01(a).

Section 1.28 “ Person ” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Section 1.29 “ Pricing Period ” shall mean the 5 consecutive Trading Days after the Advance Notice Date.

Section 1.30 “ Principal Market ” shall mean the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, New York Stock Exchange, the NYSE Amex, or the Over the Counter Bulletin Board, whichever is at the time the principal trading exchange or market for the Common Stock.

Section 1.31 “ Prospectus ” shall mean the Base Prospectus, as supplemented by any Prospectus Supplement.

Section 1.32 “ Prospectus Supplement ” shall mean any prospectus supplement to the Base Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act, including, without limitation, the Prospectus Supplement required pursuant to Section 6.04 hereof.

Section 1.33 “ Purchase Price ” shall be set at 96% of the Market Price during the Pricing Period.

Section 1.34 “ Registration Statement ” shall mean the Company’s shelf-registration statement filed by the Company with the SEC under the Securities Act on Form S-3 (Registration Number 333-159880), as amended by the Pre-Effective Amendment No. 1 on Form S-3/A, with respect to common shares to be offered and sold by the Company, as such Registration Statement may be further amended and supplemented from time to time and including any information deemed to be a part thereof pursuant to Rule 430B under the Securities Act.

Section 1.35 “ SEC ” shall mean the Securities Exchange Commission.

Section 1.36 “ SEC Documents ” shall have the meaning set forth in Section 4.05.

Section 1.37 “ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Section 1.38 “ Settlement Document ” shall have the meaning set forth in Section 2.02(a).

Section 1.39 “ Shares ” shall mean the shares of Common Stock to be issued from time to time hereunder pursuant to Advances and the Commitment Shares.

Section 1.40 “ Trading Day ” shall mean any day during which the Principal Market shall be open for business.

Section 1.41 “ VWAP ” means, for any date, the daily volume weighted average price of the Common Stock for such date on the Principal Market as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)).

Article II. Advances

Section 2.01 Advances; Mechanics . Subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Article VII hereof), the Company, at its sole and exclusive option, may issue and sell to the Investor, and the Investor shall purchase from the Company, shares of Common Stock on the following terms:

Section 2.02 Closings . Each Closing shall take place as soon as practicable after each Advance Date in accordance with the procedures set forth below. In connection with each Closing, the Company and the Investor shall fulfill each of its obligations as set forth below:

Section 2.03 Hardship . In the event the Investor sells shares of the Company’s Common Stock after receipt of an Advance Notice and the Company fails to perform its obligations as mandated in Section 2.02, the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Article V hereto and in addition to any other remedy to which the Investor is entitled at law or in equity, including, without limitation, specific performance, it will hold the Investor harmless against any loss, claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and acknowledges that irreparable damage would occur in the event of any such default. It is accordingly agreed that the Investor shall be entitled to an injunction or injunctions to prevent such breaches of this Agreement and to specifically enforce, without the posting of a bond or other security, the terms and provisions of this Agreement.

Article III. Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof:

Section 3.01 Organization and Authorization . The Investor is duly organized, validly existing and in good standing under the laws of the Cayman Islands and has all requisite power and authority to purchase and hold the Shares. The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments on behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

Section 3.02 Evaluation of Risks . The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction. It recognizes that its investment in the Company involves a high degree of risk.

Section 3.03 No Legal Advice From the Company . The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of the Company’s representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.04 Not an Affiliate . The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “ Affiliate ” of the Company (as that term is defined in Rule 405 of the Securities Act).

Section 3.05 Trading Activities . The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Common Stock is listed or traded. Neither the Investor nor any affiliate of the Investor has an open short position in the Common Stock, the Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of the Common Stock provided that the Company acknowledges and agrees that upon receipt of an Advance Notice the Investor has the right to sell the shares to be issued to the Investor pursuant to the Advance Notice prior to receiving such shares.

Article IV. Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents, the Company hereby represents and warrants to the Investor that the following are true and correct as of the date hereof:

Section 4.01 Organization and Qualification . The Company is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power to own its properties and to carry on its business as now being conducted. Each of the Company and its United States subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

Section 4.02 Authorization, Enforcement, Compliance with Other Instruments . (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement and assuming the execution and delivery thereof and acceptance by the Investor, any related agreements, constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

Section 4.03 Capitalization . The authorized capital stock of the Company consists of 35,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock (“ Preferred Stock ”), of which 17,891,495 shares of Common Stock and no shares of Preferred Stock are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in the SEC Documents or as set forth on Schedule 4.03, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities ( iii) there are no outstanding registration statements and (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to this Agreement). Except as disclosed in the SEC Documents or as set forth on Schedule 4.03, there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein. The Company has furnished or made available to the Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “ Certificate of Incorporation ”), and the Company’s By-laws, as in effect on the date hereof (the “ By-laws ”), and as set forth on Schedule 4.03, the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

Section 4.04 No Conflict . Except as disclosed in the SEC Documents, the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect. Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof or thereof except as such consent, authorization or order has been obtained prior to the date hereof. The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

Section 4.05 SEC Documents; Financial Statements . The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the Exchange Act for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (all of the foregoing filed within the two years preceding the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “ SEC Documents ”) on timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension. The Company has delivered to the Investors or their representatives, or made available through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, 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 exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made and not misleading.

Section 4.06 No Default . Except as disclosed in the SEC Documents, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect.

Section 4.07 Absence of Events of Default . Except for matters described in the SEC Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect.

Section 4.08 Intellectual Property Rights . The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

Section 4.09 Employee Relations . Except as disclosed in the SEC Documents or as set forth on Schedule 4.09, neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. Except as disclosed on Schedule 4.09, none of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

Section 4.10 Environmental Laws . The Company and its subsidiaries are (i) in compliance with any and all applicable material fo