SECURITIES PURCHASE AGREEMENT

Exhibit 10.19

Execution Copy

SECURITIES PURCHASE AGREEMENT

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

A.            The Company wishes to sell to each Investor, and each Investor wishes to purchase, upon the terms and subject to the conditions set forth in this Agreement, (i) a 10.25% Senior Secured Debenture in the form attached hereto as Exhibit A (a " Debenture " and, collectively with the other Debentures issued hereunder, the " Debentures ") and (ii) a warrant in the form attached hereto as Exhibit B (a " Warrant " and, collectively with the other Warrants issued hereunder, the " Warrants ").  The Debentures may be repaid or redeemed upon the satisfaction of certain conditions with shares of the Company’s common stock, $0.005 par value per share (the " Common Stock ").  The shares of Common Stock with which the Debentures may be repaid or redeemed are referred to herein as the " Stock Option Shares " and the shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the " Warrant Shares ".  The Debentures, the Stock Option Shares, the Warrants and the Warrant Shares are collectively referred to herein as the " Securities ".

B.            The Warrants will (i) entitle the Investors to purchase an aggregate 699,600 Warrant Shares, (ii) have an exercise price equal to $2.973, subject to adjustment as provided therein, and (iii) expire on the fifth (5th) anniversary of the Closing Date, subject to extension as provided therein.

C.            The Company’s obligations under the Debentures, including without limitation its obligation to make payments of principal thereof and interest thereon, are guaranteed by certain of the Company’s subsidiaries pursuant to a Subsidiary Guarantee in the form attached hereto as Exhibit C (the " Subsidiary Guarantee "), and are secured pursuant to the terms of a Security Agreement in the form attached hereto as Exhibit D (the " U.S. Security Agreement ") and, with respect to Signature, the terms of an additional security agreement that comports with the laws of the United Kingdom (the " Signature Security Agreement " and, together with the U.S. Security Agreement, the " Security Agreement ").

D.            The Company has agreed to effect the registration of the Stock Option Shares and the Warrant Shares for resale by the holders thereof under the Securities Act of 1933, as amended (the " Securities Act "), pursuant to a Registration Rights Agreement in the form attached hereto as Exhibit E (the " Registration Rights Agreement ").

E.             The sale of the Debentures and the Warrants by the Company to the Investors will be effected in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (" Regulation D "), as promulgated by the Commission (as defined below) under the Securities Act.

In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Investor hereby agree as follows:

1.              PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

1.1           Closing .  Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and each Investor agrees to purchase (i) a Debenture (a " Debenture ") with a principal amount equal to the amount set forth below such Investor’s name on the signature pages hereof and (ii) a Warrant exercisable into the number of shares of Common Stock set forth below such Investor’s name on the signature pages hereof.  The date on which the closing of such purchase and sale occurs (the " Closing ") is hereinafter referred to as the " Closing Date ". The Closing will be deemed to occur at the offices of Mazzeo Song LLP, 708 Third Avenue, 19 ^th Floor, New York, New York 10017 when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and each Investor, (B) each of the conditions to the Closing described in this Agreement has been satisfied or waived as specified therein and (C) payment of each Investor’s Purchase Price (as defined below) payable with respect to the Debenture and Warrant being purchased by such Investor at the Closing has been made by wire transfer of immediately available funds.  At the Closing, the Company shall deliver to each Investor duly executed instruments representing the Debenture and Warrant purchased by such Investor at the Closing.

1.2           Certain Definitions .  When used herein, the following terms shall have the respective meanings indicated:

• • " Additional Debt " means the Bank Facility and the St. Paul Facility.

    " Affiliate " means, as to any Person (the " subject Person "), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes of this definition, " control " when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.

    " Affiliate Transaction " has the meaning specified in Section 4.5(a) of this Agreement.

    " Allocation Amount " has the meaning specified in Section 4.16 of this Agreement.

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• • " Amendment " means an amendment to, or an amendment and restatement of, the certificate of incorporation, bylaws and any other applicable organizational documents of the Company necessary to permit the Company to issue Common Stock, and/or securities convertible into or exercisable for shares of Common Stock, for non-cash consideration or cash consideration less than fair market value; in each such case, without any stockholder consent or approval.

    " Bank Facility " means the credit facility to be obtained by the Company from Greater Bay Business Funding or such other similar commercial lending institution; provided that (i) the maximum amount of Debt that the Company is permitted to incur under such facility shall not exceed $8,000,000; and (ii) such facility shall be secured only by the accounts receivable of the Company and Outerlink Corporation, and the security interest granted to the Investors under the U.S. Security Agreement with respect to the accounts receivable of the Company and Outerlink Corporation shall be subordinated to such security interest granted to such bank.

    " Board of Directors " means the Company’s board of directors.

    " Business Day " means any day other than a Saturday, a Sunday or a day on which the Principal Market is closed or on which banks in the City of New York are required or authorized by law to be closed.

    " Cap Amount " means 19.99% of the aggregate number of shares of Common Stock outstanding immediately prior to the Closing (subject to adjustment upon a stock split, stock dividend, recapitalization, reorganization, reclassification or other event that subdivides all of the outstanding shares of Common Stock).

    " Closing " and " Closing Date " have the respective meanings specified in Section 1.1 of this Agreement.

    " Commission " means the Securities and Exchange Commission, and any successor regulatory agency.

    " Common Stock " has the meaning specified in the recitals to this Agreement.

    " Company Subsidiaries " means the Subsidiaries of the Company set forth on Schedule 1.2(a) and such other Subsidiaries of the Company that become party to the Subsidiary Guarantee and/or the Security Agreement.

    " Debt " means, as to any Person at any time, without duplication: (a) all indebtedness, liabilities and obligations of such Person for borrowed money; (b) all indebtedness, liabilities and obligations of such Person to pay the deferred purchase price of Property or services (except trade accounts payable of such Person arising in the ordinary course of business that are (i) not past due by more than 90 days or (ii) being contested in good faith by such Person); (c) all capital lease obligations of such Person; (d) all Debt of others guaranteed by such Person; (e) all indebtedness, liabilities and obligations secured by a Lien existing on Property owned by such Person, whether or not

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• • the indebtedness, liabilities or obligations secured thereby have been assumed by such Person or are non-recourse to such Person; (f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; and (g) all liabilities and obligations of such Person to redeem or retire shares of capital stock of such Person .

    " Disclosure Documents " means all SEC Documents filed with the Commission at least five (5) Business Days prior to the Execution Date.

    "Dollars" or " $ " means U.S. Dollars.

    " DTC " means The Depositary Trust Company (and any successor entity).

    " Effective Date " has the meaning specified in the Registration Rights Agreement.

    " Environmental Law " means any federal, state, provincial, local or foreign law, statute, code or ordinance, principle of common law, rule or regulation, as well as any Permit, order, decree, judgment or injunction issued, promulgated, approved or entered thereunder, relating to pollution or the protection, cleanup or restoration of the environment or natural resources, or to the public health or safety, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, discharge or disposal of hazardous materials.

    " ERISA " means the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder.

    " Event of Default " has the meaning specified in the Debentures.

    " Exchange Act " means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations promulgated thereunder (or respective successors thereto).

    " Excluded Securities " means (i) the Debentures and Warrants; (ii) the Stock Option Shares, Warrant Shares and any other securities issued upon the conversion or exercise of any other options, warrants, convertible securities or any other agreements outstanding as of the Issue Date and disclosed on Schedule 3.5(i) hereto; (iii) shares of Common Stock issuable or issued to employees from time to time upon the exercise of options or other awards or purchase rights granted or to be granted in the discretion of the Board of Directors pursuant to one or more employee stock option plans or restricted stock plans in effect as of the Issue Date or new plans or amendments to existing plans adopted after the Issue Date by the independent members of the Board of Directors; and (iv) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization of the Company.

    " Execution Date " means the date of this Agreement.

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• • " GAAP " means U.S. generally accepted accounting principles, applied on a consistent basis.  Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

    " Governmental Authority " means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any stock exchange, securities market or self-regulatory organization.

    " Governmental Requirement " means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

    " Intellectual Property " means the collective reference to all existing rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

    " Investment Company Act " has the meaning specified in Section 3.25 of this Agreement.

    " Investor Party " has the meaning specified in Section 4.9 of this Agreement.

    " Key Employee " has the meaning specified in Section 3.16 of this Agreement.

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• • " Lien " means, with respect to any Property, any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, tax lien, financing statement, pledge, charge, or other lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing).

    " Listing Deadline Date " has the meaning specified in Section 4.20 of this Agreement.

    " Material Adverse Effect " means an effect that is material and adverse to (i) the consolidated business, properties, assets, operations, results of operations, financial condition, credit worthiness or prospects of the Company and the Company Subsidiaries taken as a whole, (ii) the ability of the Company or any Company Subsidiary to perform its material obligations under this Agreement or the other Transaction Documents or (iii) the rights and benefits to which an Investor is entitled under this Agreement or any of the other Transaction Documents.

    " Material Contracts " means, as to the Company and the Company Subsidiaries, any agreement required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K, as applicable, promulgated under the Securities Act to be filed as an exhibit to any report, schedule, registration statement or definitive proxy statement filed or required to be filed by the Company with the Commission under the Exchange Act or any rule or regulation promulgated thereunder, and any and all material amendments, modifications, supplements, renewals or restatements thereof.

    " McMurdo Transaction " means the contemplated acquisition of certain assets of McMurdo Limited’s marine electronics business pursuant to the Asset Sale and Purchase Agreement, dated December as of 14, 2006, between Signature Industries Limited and McMurdo Limited.

    " Pension Plan " means an employee pension benefit plan (as defined in ERISA) maintained by the Company for employees of the Company or any of its Affiliates.

    " Permitted Debt " means the following:

    (a)           the Debentures;

    (b)           Debt outstanding on the Execution Date and disclosed on Schedule 3.5(iv) hereto;

    (c)           Subordinated Debt;

    (d)           Debt consisting of capitalized lease obligations and purchase money indebtedness incurred in connection with acquisition of capital assets and obligations under sale-leaseback or similar arrangements provided in each case that such

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• • obligations are not secured by Liens on any assets of the Company or the Company Subsidiaries other than the assets so leased; and

    (e)           the Additional Debt.

    " Permitted Liens " means each of the following:

    (a)           Liens in existence on the Execution Date and disclosed on Schedule 3.5(v) hereto;

    (b)           encumbrances consisting of easements, rights-of-way, zoning restrictions or other restrictions on the use of real Property or imperfections to title that do not (individually or in the aggregate) materially impair the ability of the Company or any Company Subsidiary to use such Property in its businesses, and none of which is violated in any material respect by existing or proposed structures or land use;

    (c)           Liens for taxes, assessments or other governmental charges (including without limitation in connection with workers’ compensation and unemployment insurance) that are not delinquent or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, and for which adequate reserves (as determined in accordance with GAAP) have been established;

    (d)           Liens of mechanics, materialmen, warehousemen, carriers, landlords or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, for which adequate reserves (as determined in accordance with GAAP) have been established;

    (e)           mortgages on real Property in existence on the Execution Date and disclosed on Schedule 3.22 hereto, and any replacements thereof, securing amounts not greater than the amounts secured thereby on the Execution Date; and.

    (f)            Liens on the accounts receivable of the Company and Outerlink Corporation securing solely the Company’s obligations under the Bank Facility.

    " Person " means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.

    " Principal Market " means the American Stock Exchange or such other principal exchange, market or quotation system on which the Common Stock is listed, traded or quoted.

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• • " Property " means property and/or assets of all kinds, whether real, personal or mixed, tangible or intangible (including, without limitation, all rights relating thereto).

    " Pro Rata Share " means, with respect to an Investor, the ratio determined by dividing (i) the principal amount of the Debenture purchased hereunder by such Investor at the Closing by (ii) the aggregate principal amount of all Debentures purchased hereunder by all of the Investors at the Closing.

    " Purchase Price " means, with respect to Securities purchased at the Closing, the original principal amount of the Debenture purchased at the Closing.

    " Registration Rights Agreement " has the meaning specified in the recitals to this Agreement.

    " Registration Statement " has the meaning specified in the Registration Rights Agreement.

    " Registrable Securities " has the meaning specified in the Registration Rights Agreement.

    " Regulation D " has the meaning specified in the recitals to this Agreement.

    " Reserved Amount " has the meaning specified in Section 4.3 of this Agreement.

    " Restricted Payment " means (a) any dividend or other distribution (whether in cash, Property or obligations), direct or indirect, on account of (or the setting apart of money for a sinking or other analogous fund for the benefit of) any shares of any class of capital stock of the Company or the Company Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to all of the holders of that class; (b) any redemption, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of the Company or any of its Affiliates now or hereafter outstanding, except the Securities; (c) any prepayment of principal of, premium, if any, or interest on, or any redemption, conversion, exchange, purchase, retirement, sinking fund or defeasance of, any Debt (whether upon acceleration of such Debt or otherwise) other than the Securities (it being understood that regularly scheduled payments of principal and interest shall not be deemed a Restricted Payment); and (d) any loan, advance or payment to any officer, director or stockholder of the Company or any of its Affiliates, exclusive of reasonable compensation and reimbursements paid to officers or directors in the ordinary course of business or pursuant to any contract in existence on the date of this Agreement or approved by the independent members of the Board of Directors.

    " Rule 144 " means Rule 144 under the Securities Act or any successor provision.

    " SEC Documents " means all reports, schedules, registration statements and definitive proxy statements filed (or required to be filed) by the Company with the Commission from and after December 31, 2005.

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• • " Securities " means the Debentures, the Stock Option Shares, the Warrants and the Warrant Shares.

    " Securities Act " has the meaning specified in the recitals of this Agreement.

    " Short Sales " means all "short sales" as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

    " Signature " means Signature Industries Limited, a Company Subsidiary.

    " St. Paul Facility " means the contemplated refinancing of the Company’s St. Paul facility; provided that (i) the refinancing, including any additional Debt that the Company incurs under such refinancing (collectively, the " Refinancing ") shall be supported by a proper valuation of the facility; (ii) the assets securing the Refinancing shall be limited to the same assets securing the existing Debt on the facility on the date hereof; and (iii) the Company and the Company Subsidiaries shall be in compliance with the terms of this Agreement, including Section 4.10(b) , after giving effect to the Refinancing.

    " Stock Option Shares " has the meaning specified in the recitals to this Agreement.

    " Stockholder Amendment Approval "means the affirmative vote by the holders of sixty-six and two-thirds percent of the votes cast (including sixty-six and two-thirds percent of the votes cast by each class entitled to vote as a separate class) at a meeting of the Company’s stockholders approving  the Amendment.

    " Stockholder Cap Approval "means the affirmative vote by the holders of a majority of the votes cast (including a majority of the votes cast by each class entitled to vote as a separate class) at a meeting of the Company’s stockholders approving the issuance of Common Stock in excess of the Cap Amount.

    " Stockholder Amendment Approval Date " means the first date on which (i) the Stockholder Amendment Approval has been duly obtained and (ii) the Amendment with respect to the Company’s certificate of incorporation has been accepted for filing by the Secretary of State of the State of Delaware and is in full force and effect.

    " Subordinated Debt " means Debt of the Company which meets each of the following requirements: (a) such Debt is wholly unsecured; (b) such Debt is contractually subordinated, as to payment and liquidation, to the payment in full of the Debentures on such terms and pursuant to written agreements in such form and substance as are reasonably acceptable to the holders of a majority in principal amount of the Debentures, that restrict the Company from pre-paying any amounts in respect of the principal of such

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• • Debt (upon acceleration or otherwise) prior to the scheduled maturity thereof, and that restrict the subordinated creditor from commencing any judicial or other collection efforts or exercising any other remedies prior to the date that is ninety-one (91) days following the payment in full of the Debentures; and (c) such Debt does not mature prior to the date that is ninety-one (91) days following the latest Maturity Date (as defined in the Debentures) of the Debentures then outstanding.

    "Subsequent Placement " means any issuance, sale or exchange by the Company or any Company Subsidiary at any time after the Closing Date, or any agreement or obligation of the Company or any Company Subsidiary to issue, sell or exchange, at any time after the Closing Date, (i) any shares of common stock of the Company or any Company Subsidiary, (ii) any other equity security of the Company or any Company Subsidiary, including without limitation preferred stock, (iii) any other security of the Company or any Company Subsidiary which by its terms is convertible into or exchangeable or exercisable for any equity security of the Company or any Company Subsidiary, (iv) any option, warrant or other right to subscribe for, purchase or otherwise acquire any such security described in the foregoing clauses (i) through (iii) , or (v) any debt instruments or securities, including promissory notes and convertible debt instruments; provided, however , that the term " Subsequent Placement " shall not be deemed to include any issuance, sale or exchange of Excluded Securities.

    " Subsidiary " means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries.

    " Termination Date " means the first date on which there are no Debentures outstanding.

    " Trading Day " means any day on which shares of Common Stock are purchased and sold on the Principal Market.

    " Transaction Documents " means (i) this Agreement, (ii) the Debentures, (iii) the Warrants, (iv) the Registration Rights Agreement, (v) the Security Agreement, (vi) the Subsidiary Guarantee and (vi) all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or any of its officers at the Closing.

    " Transfer Agent " has the meaning specified in Section 2.5 of this Agreement.

    " U.S. Company Subsidiaries " means the Company Subsidiaries that are domiciled in the United States.

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• • " VWAP " on a Trading Day means the volume weighted average price of the Common Stock for such Trading Day on the Principal Market as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the Investors and reasonably satisfactory to the Company.  If the VWAP cannot be calculated for the Common Stock on such Trading Day on any of the foregoing bases, then the Company shall submit such calculation to an independent investment banking firm of national reputation reasonably acceptable to the Investors holding a majority of the Registrable Securities then outstanding, and shall cause such investment banking firm to perform such determination and notify the Company and the Investors of the results of determination no later than two (2) Business Days from the time such calculation was submitted to it by the Company.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, reverse stock split or other similar transaction during such period.

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

2.             REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR .

Each Investor (with respect to itself only) hereby represents and warrants to the Company and agrees with the Company that, as of the Execution Date:

2.1           Authorization; Enforceability .  Such Investor is duly and validly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization as set forth below such Investor’s name on the signature page hereof with the requisite corporate power and authority to purchase the Debentures and Warrants to be purchased by it hereunder and to execute and deliver this Agreement and the other Transaction Documents to which it is a party.  This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which such Investor is a party will constitute, such Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity.

2.2           Accredited Investor .  Such Investor (i) is an "accredited investor" as that term is defined in Rule 501 of Regulation D, (ii) was not formed or organized for the specific purpose of making an investment in the Company, and (iii) is acquiring the Securities solely for its own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act; provided, however, that in making such representation, such Investor does not agree to hold the Securities for any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the Securities at any time in accordance with the provisions of this Agreement and with Federal and state securities laws applicable to such sale, transfer or disposition. Such Investor can bear the economic risk of a total loss of its investment in the Securities and has

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such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.

2.3           Information .  The Company has, prior to the Execution Date, provided such Investor with information regarding the business, operations and financial condition of the Company and has, prior to the Execution Date, granted to such Investor the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company in order for such Investor to make an informed decision with respect to its investment in the Securities. Neither such information nor any other investigation conducted by such Investor or any of its representatives shall modify, amend or otherwise affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

2.4           Limitations on Disposition .  Such Investor acknowledges that, except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom.

2.5           Legend .  Such Investor understands that the certificates representing the Securities may bear at issuance a restrictive legend in substantially the following form:

• • • • "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, and may not be offered for sale or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with respect thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale.  These securities [and the securities issuable upon exercise hereof] (i) may be pledged or hypothecated in connection with a bona fide margin account or other financing secured by such securities or (ii) may be transferred or assigned to an affiliate of the holder hereof without the necessity of an opinion of counsel or the consent of the issuer hereof."

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request.  The Company shall execute and deliver written instructions to the transfer agent for its Common Stock (the " Transfer Agent ") as may be necessary to satisfy any request by an Investor for removal of such legends no later than the close of business on the third (3 rd ) Business Day following the receipt of the request from an Investor to the extent such legends may be removed in accordance with this Section 2.5 .

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2.6           Reliance on Exemptions .  Such Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of such Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of such Investor to acquire the Securities. Such Investor acknowledges that it did not purchase the Securities based upon any advertisement in any publication of general circulation. Such Investor is relying on the representations, acknowledgements and agreements made by the Company in Section 3 and elsewhere in this Agreement in making investing, trading and/or other decisions concerning the Company’s securities.

2.7           Non-Affiliate Status; Common Stock Ownership .  Such Investor is not an Affiliate of the Company or of any other Investor and is not acting in association or concert with any other Person in regard to its purchase of the Securities or otherwise in respect of the Company.  Such Investor’s investment in the Securities is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

2.8           Fees . Such Investor has not agreed to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.

2.9           No Conflicts .  The execution and performance of this Agreement and the other Transaction Documents to which it is a party do not conflict in any material respect with any agreement to which such Investor is a party or is bound, any court order or judgment applicable to such Investor, or the constituent documents of such Investor.

2.10         No Governmental Review .  Such Investor understands that no U.S. federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of an investment in the Securities nor have such authorities passed upon the accuracy of any information provided to such Investor or made any findings or determinations as to the merits of the offering of the Securities.

2.11         Certain Trading Activities .  Such Investor has not, in violation of the securities laws, directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the time that such Investor was first contacted by the Company or Kaufman Bros. L.P. regarding the investment in the Company contemplated by the Transaction Documents.  Such Investor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed pursuant to Section 4.1(c) .

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY .  The Company hereby represents and warrants to each Investor and agrees with each Investor that, as of the Execution Date:

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3.1           Organization, Good Standing and Qualification .  Each of the Company and the Company Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted.  Each of the Company and the Company Subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which it conducts business except where the failure so to qualify has not had or would not reasonably be expected to have a Material Adverse Effect.

3.2           Authorization; Consents .  The Company has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents, to issue and sell the Debentures and the Warrants to the Investors in accordance with the terms hereof and thereof, and to issue the Stock Option Shares under the Debentures and the Warrant Shares upon exercise of the Warrants. Each Company Subsidiary has the requisite power and authority to enter into and perform its obligations under the Subsidiary Guarantee and the Security Agreement. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, its Board of Directors, stockholders, any Governmental Authority or any other Person (other than (i) such approval as may be required under the Securities Act and applicable state laws in respect of the Registration Rights Agreement, (ii) the listing approval from the American Stock Exchange for the issuance of the Warrant Shares and the Stock Option Shares, (iii) the Stockholder Amendment Approval, and (iv) if 70% of the Cap Amount is reached, the Stockholder Cap Approval) is required (pursuant to any rule of the Principal Market or otherwise). All corporate action on the part of each Company Subsidiary by its officers, directors, stockholders, members or governors necessary for the authorization, execution and delivery of, and the performance by such Company Subsidiary of its obligations under the Subsidiary Guarantee and the Security Agreement has been taken.  The Board of Directors has determined that the sale and issuance of the Securities, and the consummation of the other transactions contemplated hereby and by the other Transaction Documents, are in the best interests of the Company.

3.3           Enforcement .  This Agreement has been duly executed and delivered by the Company, and at the Closing, each of the Company and the Company Subsidiaries will have duly executed and delivered each of the other Transaction Documents to which such entity is a party.  This Agreement constitutes, and at the Closing, each of the other Transaction Documents to which the Company or any of the Company Subsidiaries is a party will constitute, the valid and legally binding obligations of the Company and the Company Subsidiaries, enforceable against the Company and the Company Subsidiaries in accordance with their respective terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity.

3.4           Disclosure Documents; Agreements; Financial Statements; Other Information .  The Company is subject to the reporting requirements of the Exchange Act and, except as described on Schedule 3.4(i) , the Company has filed with the Commission all SEC Documents that the Company was required to file with the Commission on or after December 31, 2005.  The Company is not

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aware of any event occurring or expected to occur on or prior to the Closing Date (other than the transactions effected hereby or ongoing sales efforts that could result in a material contract) that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after the Closing.  Each SEC Document filed on or after December 31, 2005, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the Execution Date, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act or Exchange Act, as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the Execution Date, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not, contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  All documents required to be filed as exhibits to the SEC Documents filed on or after December 31, 2005 have been filed as required.  Except as set forth in the Disclosure Documents, the Company has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business which, under GAAP, are not required to be reflected in the financial statements included in the Disclosure Documents and which, individually or in the aggregate, are not material to the consolidated business or financial condition of the Company and the Company Subsidiaries taken as a whole.  As of their respective dates, the financial statements of the Company included in the SEC Documents filed on or after December 31, 2005 complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in accordance with GAAP consistently applied at the times and 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 adjustments).  The Company will prepare the financial statements to be included in any reports, schedules, registration statements and definitive proxy statements that the Company is required to file or files with the Commission after the date hereof in accordance with GAAP (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements).

3.5           Capitalization; Debt Schedule .  The capitalization of the Company, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company’s stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Warrants) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon exercise of the Warrants, is set forth on Schedule 3.5(i) hereto.  All outstanding shares of capital stock of the Company have been, or upon issuance will be, validly issued, fully paid and non-assessable. Except as disclosed on Schedule 3.5(ii) hereto, no Subsidiary of the Company other than the Company Subsidiaries possesses or owns assets having a fair market value in excess of $50,000. Except as disclosed on Schedule 3.5(iii) hereto, the Company or a Company Subsidiary owns all of the capital stock of each Company Subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Company or any Company Subsidiary are subject to preemptive

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rights or any other similar rights of the stockholders of the Company or any such Company Subsidiary or any Liens created by or through the Company or any such Company Subsidiary.  Except as disclosed on Schedule 3.5(i) or as contemplated herein, 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 or exercisable or exchangeable for, any shares of capital stock of the Company or any Company Subsidiary, or arrangements by which the Company or any Company Subsidiary is or may become bound to issue additional shares of capital stock of the Company or any Company Subsidiary (whether pursuant to anti-dilution, "reset" or other similar provisions). Schedule 3.5(iv) identifies all Liabilities (as defined in Section 4.10(b) hereof) of the Company and/or the Company Subsidiaries currently outstanding in excess of $50,000 as of the date hereof, and Schedule 3.5(v) identifies all Liens encumbering any of the assets of the Company and/or the Company Subsidiaries as of the date hereof.

3.6           Due Authorization; Valid Issuance .  The Debentures are duly authorized and, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, free and clear of any Liens imposed by or through the Company. The Warrants are duly authorized and, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, free and clear of any Liens imposed by or through the Company. The Stock Option Shares issuable under the Debentures and the Warrant Shares issuable under the Warrants are duly authorized and reserved for issuance.  Assuming the accuracy of each Investor’s representations contained herein, the issuance and sale of the Debentures and Warrants under this Agreement will be effected in compliance with all applicable Federal and state securities laws.

3.7           Form S-3 .  The Company is eligible to register the Stock Option Shares and Warrant Shares for resale in a secondary offering by each Investor on a registration statement on Form S-3 under the Securities Act. To the Company’s knowledge, as of the date hereof and as of the Closing Date, there exist no facts or circumstances (including without limitation any required approvals or waivers of any circumstances that may delay or prevent the obtaining of accountant’s consents) that could reasonably be expected to prohibit or delay the preparation, filing or effectiveness of such registration statement on Form S-3.

3.8           No Conflict .  Neither the Company nor any Company Subsidiary is in violation of any provisions of its charter, bylaws or any other governing document.  Except as set forth on Schedule 3.8 , neither the Company nor any Company Subsidiary is in violation of or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any instrument or contract to which it is a party or by which it or any of its Property is bound, or in violation of any provision of any Governmental Requirement applicable to the Company or any Company Subsidiary, except for any violation or default that has not had or would not reasonably be expected to have a Material Adverse Effect.  (i) The execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) (A) the consummation of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Debentures and the Warrants, the reservation for issuance of the Stock Option Shares and the Warrant Shares and, prior to th