-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IHDjF9FGE4nnqEG9ij9tAzXQgHM27IBqzbVu7xKC/hQMacn76J420B0nX3Ixn6tW 79sP05In3Z7jeEIHn7wVow== 0001068800-04-000403.txt : 20040617 0001068800-04-000403.hdr.sgml : 20040617 20040616174116 ACCESSION NUMBER: 0001068800-04-000403 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20040617 GROUP MEMBERS: DIGITAL ANGEL SHARE TRUST SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL ANGEL CORP CENTRAL INDEX KEY: 0000771252 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 521233960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-58785 FILM NUMBER: 04867021 BUSINESS ADDRESS: STREET 1: 490 VILLAUME AVENUE CITY: SOUTH ST. PAUL STATE: MN ZIP: 55075 BUSINESS PHONE: 6514551621 MAIL ADDRESS: STREET 1: 490 VILLAUME AVENUE CITY: SOUTH ST. PAUL STATE: MN ZIP: 55075 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL ADVISORY SYSTEMS INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED DIGITAL SOLUTIONS INC CENTRAL INDEX KEY: 0000924642 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 431641533 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 400 ROYAL PALM WAY STREET 2: SUITE 410 CITY: PALM BEACH STATE: FL ZIP: 33480 BUSINESS PHONE: 5613664800 MAIL ADDRESS: STREET 1: 400 ROYAL PALM WAY STREET 2: SUITE 410 CITY: PALM BEACH STATE: FL ZIP: 33480 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED CELLULAR TECHNOLOGY INC DATE OF NAME CHANGE: 19940606 SC 13D/A 1 sched13d.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. 4) Digital Angel Corporation. - ------------------------------------------------------------------------------ (Name of Issuer) Common Stock - $0.005 par value - ------------------------------------------------------------------------------ (Title of Class of Securities) 58449P 10 1 - ------------------------------------------------------------------------------ (CUSIP Number) Michael Krawitz Applied Digital Solutions, Inc. 1690 South Congress Avenue, Suite 200 Delray Beach, Florida 33445 Tel: (561) 805-8000 Fax: (561) 805-8001 Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Tel: (302) 651-1000 Fax: (302) 636-4140 - ------------------------------------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 1, 2004 - ------------------------------------------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box / /. (Page 1 of 10 pages) - ------------------------------------------------------------------------------ Name of Reporting Person: 1 Applied Digital Solutions, Inc. ("ADS") I.R.S. Identification No. of Above Person (entity only) 43-1641533 - ------------------------------------------------------------------------------ 2 Check the Appropriate Box if a Member of a Group* (a) /X/ (b) / / - ------------------------------------------------------------------------------ SEC use only 3 - ------------------------------------------------------------------------------ Source of Funds* 4 OO - Other - Funds of reporting person in capital stock - ------------------------------------------------------------------------------ Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) 5 / / - ------------------------------------------------------------------------------ Citizenship or Place of Organization 6 Missouri - ------------------------------------------------------------------------------ Sole voting power 7 7,850,000 shares (1) ----------------------------------------------------- Number of shares Shared voting power beneficially 8 15,453,506 shares (2) Owned by each ----------------------------------------------------- Reporting person Sole dispositive power with 9 7,850,000 shares (1) ----------------------------------------------------- Shared dispositive power 10 15,453,506 shares (2) - ------------------------------------------------------------------------------ Aggregate Amount Beneficially Owned by Each Reporting Person 11 23,303,506 shares (1) - ------------------------------------------------------------------------------ Check box if the Aggregate Amount in Row (11) Excludes Certain Shares* / / 12 - ------------------------------------------------------------------------------ Percent of Class Represented by Amount in Row (11) / / 13 69.2% (1) - ------------------------------------------------------------------------------ Type of Reporting Person* 14 CO - ------------------------------------------------------------------------------ (1) Includes 1,000,000 warrants issued to ADS in connection with a Share Exchange Agreement. (2) ADS shares voting and dispositive power with respect to 750,000 of these shares with its majority-owned subsidiary, InfoTech USA, Inc., under the terms of a Stock Pledge Agreement, and 14,703,506 of these shares with the Digital Angel Share Trust under the terms of an Amended and Restated Trust Agreement. 2 - ------------------------------------------------------------------------------ Name of Reporting Person: 1 Digital Angel Share Trust I.R.S. Identification No. of Above Person (entity only) 45-6117433 - ------------------------------------------------------------------------------ 2 Check the Appropriate Box if a Member of a Group* (a) /X/ (b) / / - ------------------------------------------------------------------------------ SEC use only 3 - ------------------------------------------------------------------------------ Source of Funds* 4 OO - Other - Funds of ADS - in ADS capital stock - ------------------------------------------------------------------------------ Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) 5 / / - ------------------------------------------------------------------------------ Citizenship or Place of Organization 6 Delaware - ------------------------------------------------------------------------------ Sole voting power 7 -0- ----------------------------------------------------- Number of shares Shared voting power beneficially 8 14,703,506 shares Owned by each ----------------------------------------------------- Reporting person Sole dispositive power with 9 -0- ----------------------------------------------------- Shared dispositive power 10 14,703,506 shares - ------------------------------------------------------------------------------ Aggregate Amount Beneficially Owned by Each Reporting Person 11 14,703,506 shares - ------------------------------------------------------------------------------ Check box if the Aggregate Amount in Row (11) Excludes Certain Shares* / / 12 - ------------------------------------------------------------------------------ Percent of Class Represented by Amount in Row (11) / / 13 43.7% (2) - ------------------------------------------------------------------------------ Type of Reporting Person* 14 OO - ------------------------------------------------------------------------------ (2) Includes 1,000,000 warrants issued to ADS in connection with a Share Exchange Agreement. 3 ITEM 1. SECURITY AND ISSUER. This Amendment No. 4 to Schedule 13D relates to shares of common stock, par value $0.005 per share, of Digital Angel Corporation, a Delaware corporation (the "Issuer"), formerly Medical Advisory Systems, Inc. ("MAS"), and is being filed on behalf of the undersigned to amend the Schedule 13D, as amended (the "Schedule 13D"), which was originally filed on March 12, 2001. The address of the principal executive office of the Issuer is 790 Villaume Avenue, South St. Paul, Minnesota 55075. ITEM 2. IDENTITY AND BACKGROUND. (a-c) and (f). The persons filing this statement are Applied Digital ------------- Solutions, Inc. and Digital Angel Share Trust. Applied Digital Solutions, Inc., a Missouri corporation ("ADS"), is an advanced technology development company and has its principal place of business at 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445. The Digital Angel Share Trust is a Delaware statutory business trust. The trustee of the Digital Angel Share Trust is the Wilmington Trust Company, whose principal place of business is at Rodney Square North, 11 North Market Street, Wilmington, Delaware 19890-0001. The Digital Angel Share Trust is controlled by an advisory board. Mr. Scott R. Silverman, the chairman and chief executive officer of ADS is presently the sole advisory and voting board member of the Digital Angel Share Trust's Advisory Board. Information relating to the directors and executive officers of ADS is contained in Appendix A attached hereto and is incorporated herein by reference. (d) and (e). Neither of the Reporting Persons nor any of the persons ----------- listed in Appendix A have, during the last five years, (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, which has resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On August 14, 2003, ADS entered into a Share Exchange Agreement with the Issuer. The Share Exchange Agreement provided for ADS to purchase Three Million (3,000,000) shares of the Issuer's common stock and a warrant for the purchase of up to One Million (1,000,000) shares of the Issuer's common stock. The Issuer issued the 3,000,000 shares to ADS on March 1, 2004, in exchange for Nineteen Million Eight Hundred Thousand (19,800,000) shares of ADS' common stock, based upon a weighted average price of ADS' common stock of $0.40 per share. On April 5, 2004, ADS effectuated a 1-for-10 reverse stock split and accordingly the number of shares issued by ADS on a post-split basis is One Million Nine Hundred and Eighty Thousand (1,980,000) shares. The aggregate purchase price of $7,920,000 million for the 3,000,000 million shares of the Issuer's common stock was based on the closing price of $2.64 per share of the Issuer's common stock on June 30, 2003. This price was used because ADS and the Issuer felt that this was a fair price and because it reflected the market price of the Issuer's common stock before any impact that may have resulted from ADS' $10,500,000 aggregate principal balance of 8.5% Convertible Exchangeable Debenture (the "Debentures") as a result of the Debentures holders potentially hedging their position in the Issuer's common stock, and thereby affecting the market price of the Issuer's common stock. (The Debentures were exchangeable into shares of the Issuers common stock owned by ADS). The warrant is exercisable for five years commencing on February 1, 2004, payable in cash or in shares of ADS' common stock at an exercise price of $3.74 per share. No other financing was required to effect the transaction. 4 On June 1, 2004, ADS entered into a Letter Agreement by and among the Issuer, Laurus Master Fund, Ltd. ("Laurus") and ADS. On July 31, 2003, the Issuer issued to Laurus a Convertible Note in the amount of Two Million Dollars ($2,000,000), and on August 28, 2003, the Issuer issued to Laurus a Minimum Borrowing Convertible Note in the amount of One Million Five Hundred Thousand Dollars ($1,500,000). As of June 1, 2004, One Million Two Hundred and Nine Thousand Seventy One Dollars ($1,209,071) was outstanding under the Convertible Note including accrued interest. As of June 1, 2004, the maximum borrowing capacity under the Minimum Borrowing Convertible Note was $1,500,000. Under the terms of the Letter Agreement, Laurus agreed to convert (such conversion, the "Initial Conversion") a portion of the Issuer's Convertible Note that was equal to 150,000 shares of the Issuer's common stock at the fixed conversion price applicable to said Convertible Note, which price is $2.33 per share, and as promptly as practicable following such conversion, ADS agreed to purchase such shares of the Issuer's common stock from Laurus at a purchase price equal to the Volume Weighted Average Price ("VWAP") of the Issuer's common stock for the three (3) trading days immediately preceding the Initial Conversion. The Issuer issued the 150,000 shares to Laurus on June 8, 2004, and ADS intends to purchase such shares on or about June 17, 2004. In addition, pursuant to the terms of the Letter Agreement, Laurus agreed that with respect to each conversion by Laurus of an outstanding amount of the Convertible Note or the Minimum Borrowing Convertible Note into the Issuer's common stock occurring after the Initial Conversion, the Issuer and ADS shall have the right to purchase all of such common stock converted by Laurus at a price per share equal to the VWAP of the Issuer's common stock for the three (3) trading days immediately preceding such conversion, which right shall terminate at the end of the third (3rd) business hour (with a "business hour" consisting of any hour between 9 a.m. and 5 p.m., New York time) following provision by Laurus to the Issuer and ADS of written or email notification of such conversion. The conversion price to be paid by Laurus under the terms of the Minimum Borrowing Note is $2.64 per share, subject to adjustment upward. Based upon the terms of the Letter Agreement, and assuming that Laurus were to convert 100% of the outstanding balance of the Convertible Note as of June 1, 2004, and the full $1,500,000 capacity under the Minimum Borrowing Convertible Note, the maximum number of shares of the Issuer's common stock that ADS may be entitled to purchase, assuming that ADS were to purchase 100% of such shares and including the 150,000 shares discussed above, is One Million Eighty Seven Thousand Ninety Six (1,087,096) shares, subject to increases if the Issuer chooses to add accrued interest to the outstanding principal balance under the Convertible Note. No other financing was required to effect the transaction. ITEM 4. PURPOSE OF TRANSACTION. This Amendment to Schedule 13D is being filed to disclose the Share Exchange Agreement between the Issuer and ADS, and a Letter Agreement by and among ADS, the Issuer and Laurus. The Share Exchange Agreement, wherein the Issuer exchanged 3,000,000 shares of its common stock for 19,800,000 shares of ADS' common stock on a pre-split basis, represented a strategic investment by ADS, whereby it increased its ownership interest in the Issuer, as ADS desires to maintain a controlling interest in the Issuer. The Share Exchange Agreement and ADS' reverse stock split is more fully described in Item 3 above. The Letter Agreement, which is more fully described above in Item 3, was also entered into by ADS in order to facilitate ADS' ability to maintain a controlling interest in the Issuer. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) and (b). As of June 1, 2004, including the warrant to acquire 1,000,000 shares of the Issuer's common stock that was issued to ADS in connection with the Share Exchange Agreement and that has not been exercised by ADS, and excluding the shares that may be purchased by ADS under the terms of the Letter Agreement, ADS is the beneficial owner of 23,303,506 shares of the Issuer's common stock, or approximately 69.2% of the Issuer common stock outstanding, as adjusted for the shares that may be issued by the Issuer if ADS exercises the warrant. ADS shares voting and dispositive power with the Digital Angel Share Trust for 14,703,506 of the shares, or 43.7% of the 5 Issuer's common stock, ADS shares voting and dispositive power with InfoTech USA, Inc. for 750,000 of the shares, or 2.2% of the Issuer's common stock, and ADS has sole voting and dispositive power with respect to 7,850,000 of the shares, or 23.3% of the Issuer's common stock. Currently, ADS claims beneficial ownership with respect to all 23,303,506 shares for purposes of Section 13(d) of the Securities Exchange Act of 1934 or for any other purpose. The changes to the number of shares of the Issuer's common stock owned by ADS and the Digital Angel Share Trust from the amount reported in Amendment No. 3 to Schedule 13D, filed with the Securities and Exchange Commission (the "Commission") on April 26, 2002, are as follows: Shares held jointly by ADS and the Digital Angel Share Trust per Amendment No. 3 to Schedule 13D filed with the Commission on April 26, 2002 19,600,000 Shares transferred out of the Trust on August 29, 2003 (4,600,000) (1) Shares exchanged by ADS under the terms of its Debentures (296,494) (2) ----------------------------------------------------------------------- Total shares held jointly by ADS and the Digital Angel Share Trust 14,703,506 Shares transferred out of the Digital Angel Share Trust and pledged to InfoTech USA, Inc. 750,000 (3) Remaining shares transferred out of the Digital Angel Share Trust 3,850,000 Shares issued to ADS under the Share Exchange Agreement 3,000,000 Potential shares to be acquired by ADS under the warrant issued in connection with the Share Exchange Agreement 1,000,000 ----------------------------------------------------------------------- Total shares beneficially owned by ADS 23,303,506 ======================================================================= (1) Prior to June 30, 2003, ADS, the Digital Angel Share Trust and IBM Credit LLC were parties to a credit agreement. In connection with the credit agreement, and under the terms of a Trust Agreement, the Digital Angel Share Trust was established to own the 19,600,000 shares of the Issuer's common stock owned by ADS. As a result of the complete satisfaction of all of ADS' obligations to IBM Credit LLC on June 30, 2003, ADS and the Wilmington Trust Company, as Trustee, entered into an Amended and Restated Trust Agreement (the "Amended Trust Agreement") dated June 30, 2003. Under the Amended Trust Agreement, the Digital Angel Share Trust retained all of its rights, title and interest in 15,000,000 shares of the Issuer's common stock owned by ADS in order to secure and facilitate the payment of ADS' obligations under the Debentures. (2) Under the terms of the Debentures, which were issued on June 30, 2003, the Debenture holders were entitled to exchange principal amounts for shares of the Issuer's common stock owned by ADS. The Debenture holders exchanged principal amounts into 4,546 shares, 75,974 shares, and 215,974 shares of the Issuer's common stock on July 31, 2003, October 13, 2003 and November 14, 2004, respectively. The exchange price, per the terms of the Debentures, was $2.20 per share. On each of the exchange dates, the number of shares exchanged did not represent 1% or more of the outstanding common stock of the Issuer on such date. Pursuant to the terms of a Letter Agreement, the Debentures were repaid in full on November 19, 2003. No other financing was required to effect these exchanges. (3) On June 27, 2003, ADS borrowed One Million Dollars ($1,000,000) from InfoTech USA, Inc., its majority-owned subsidiary, under the terms of a commercial loan agreement and term note. Under the terms of a Stock Pledge Agreement, ADS pledged Seven Hundred Fifty Thousand (750,000) shares of the Issuer's common stock that it owns as collateral for the loan. Pursuant to the terms of the Stock Pledge Agreement, ADS and InfoTech USA, Inc. share voting and dispositive power with respect to the shares. No other financing was required to effect the transaction. 6 (c). On June 1, 2004, ADS entered into a Letter Agreement by and among the Issuer, Laurus and ADS. Under the terms of the Letter Agreement, Laurus agreed to convert a portion of the Issuer's Convertible Note that was equal to 150,000 shares of the Issuer's common stock at the fixed conversion price applicable to said Convertible Note, and as promptly as practicable following such conversion ADS agreed to purchase such shares of the Issuer's common stock. In addition, per the Letter Agreement, Laurus agreed that with respect to each conversion by Laurus of an outstanding amount of the Convertible Note or the Issuer's Minimum Borrowing Convertible Note into the Issuer's common stock, the Issuer and ADS shall have the right to purchase all of such common stock converted by Laurus. The terms of the Letter Agreement are more fully described in Item 3. above. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. On June 30, 2003, ADS and the Wilmington Trust Company, as Trustee, entered into the Amended Trust Agreement, which is more fully described in Item 5. above. The Amended Trust Agreement is attached hereto as Exhibit 2.7. On June 27, 2003, ADS and InfoTech USA, Inc., its majority-owned subsidiary, entered into a Stock Pledge Agreement. The Stock Pledge Agreement, which is more fully discussed in Item 5. above, is attached hereto as Exhibit 2.8. On August 14, 2003, ADS entered into a Share Exchange Agreement with the Issuer. The Share Exchange Agreement, which is more fully discussed in Item 3. above, is attached hereto as Exhibit 2.9. On June 1, 2004, ADS entered into a Letter Agreement by and among the Issuer, Laurus and ADS. The Letter Agreement, which is more fully described in Item 3. above, is attached hereto as Exhibit 2.10. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Attached hereto as exhibits are the following documents: Exhibit 2.7 Amended and Restated Trust Agreement between Wilmington Trust Company, as Trustee and Applied Digital Solutions, Inc. dated June 30, 2003* Exhibit 2.8 Stock Pledge Agreement between Applied Digital Solutions, Inc. and InfoTech USA, Inc. dated June 27, 2003* Exhibit 2.9 Share Exchange Agreement between Digital Angel Corporation and Applied Digital Solutions, Inc. dated August 14, 2003* Exhibit 2.10 Letter Agreement among Applied Digital Solutions, Inc., Digital Angel Corporation and Laurus Master Fund Ltd.* * Filed herewith 7 SIGNATURE --------- After reasonable inquiry and to the best of our knowledge and belief, we certify that the information set forth in this statement is true, complete and correct. Dated: June 16, 2004 Applied Digital Solutions, Inc. By: /s/ Evan C. McKeown ----------------------- Name: Evan C. McKeown ----------------------- Title: Senior Vice President and Chief Financial Officer -------------------------------------------------------- Digital Angel Share Trust - ------------------------- By: Wilmington Trust Company, Trustee ------------------------------------- By: /s/ Lorraine M. Breece -------------------------- Name: Lorraine M. Breece ------------------------ Attorney-in-Fact and Authorized Agent ------------------------------------- 8 APPENDIX A ---------------------------------------------------------------------------------------------------------------
NAME AND CURRENT BUSINESS PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT: ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS Scott R. Silverman Mr. Silverman, age 40, previously served since August 2001 as a special 1690 South Congress Avenue advisor to ADS' Board of Directors. In March 2002, he was appointed to Suite 200 ADS' Board of Directors and named ADS' President. In March 2003, he was Delray Beach, Florida 33445 appointed ADS' Chairman and Chief Executive Officer. J. Michael Norris Mr. Norris, age 57, was appointed a director of ADS on January 12, 2004, 1690 South Congress Avenue and serves as a member of the Audit Committee and as Chairman of the Suite 200 Technology Committee of ADS' Board of Directors. Mr. Norris served as Delray Beach, Florida 33445 the Chairman and Chief Executive Officer of Next Level Communications before it was acquired by Motorola in the spring of 2003. Daniel E. Penni Mr. Penni, age 56, has served as a director of ADS since March 1995, and 260 Eliot Street is Chairman of the Compensation Committee and serves as a member of the Ashland, MA 01721 Audit, Nominating and Compliance Committees of ADS' Board of Directors. Currently, he is an Area Senior Vice President for Arthur J. Gallagher & Co. (NYSE:AJG). Dennis G. Rawan Mr. Rawan, age 60, was appointed a director of ADS effective December 1690 South Congress Avenue 10, 2002, and serves as Chairman of the Nominating Committee and as Suite 200 Chairman of the Audit Committee of ADS' Board of Directors. Mr. Rawan Delray Beach, Florida 33445 was Chief Financial Officer of Expo International, Inc. ("Expo") from 1996 until his retirement in 2000. Constance K. Weaver Ms. Weaver, age 51, was elected a director of ADS in July 1998. She 295 North Maple Ave serves as a member of the Compensation, Nominating and Technology Basking Ridge, NJ 07920 Committees, and as Chairman of the Compliance Committee of ADS' Board of Directors. Ms. Weaver is Executive Vice President, Public Relations, Marketing Communications and Brand Management for AT&T Corporation (AT&T) (NYSE:T). Michael S. Zarriello Mr. Zarriello, age 54, was appointed a director of ADS effective May 9, 1690 South Congress Avenue 2003, and serves as a member of the Audit Committee and of the Suite 200 Nominating Committee of ADS' Board of Directors. Mr. Zarriello has Delray Beach, Florida 33445 served as a member of the board of directors of Digital Angel Corporation, since September 2003, and he currently serves as a member of the Compensation Committee of Digital Angel Corporation's board of directors. He has served as Senior Vice President and Chief Financial Officer for Rural/Metro Corporation in Scottsdale, Arizona since July 2003. Kevin H. McLaughlin Mr. McLaughlin, age 62, was appointed ADS' Chief Operating Officer in 1690 South Congress Avenue March 2003 and its President in May 2003. Mr. McLaughlin has served as Suite 200 a director of the Company's majority-owned subsidiary, Digital Angel Delray Beach, Florida 33445 Corporation, since September 2003. From April 2002 until the present Mr. McLaughlin has served as a director, and from April 2002 to March 2003, Mr. McLaughlin served as the Chief Executive Officer, President and Chief Operating Officer of InfoTech USA, Inc., the Company's 52.5% owned subsidiary. Michael E. Krawitz Mr. Krawitz, age 34, joined the Company as Assistant Vice President and 1690 South Congress Avenue General Counsel in April 1999, and was appointed Vice President and Suite 200 Assistant Secretary in December 1999, Senior Vice President in December Delray Beach, Florida 33445 2000, Secretary in March 2003 and Executive Vice President in April 2003. 9 Evan C. McKeown Mr. McKeown, age 45, joined the Company as Vice President, Chief 1690 South Congress Avenue Accounting Officer and Corporate Controller in March 2001. He was Suite 200 appointed Vice President and Chief Financial Officer in March 2002 and Delray Beach, Florida 33445 Senior Vice President in March 2003. Peter Zhou Dr. Zhou, age 64, joined ADS as Vice President and Chief Scientist in 5750 Division Street January 2000. Riverside CA 92506
10 EX-2.7 2 exh2p7.txt EXHIBIT 2.7 ----------- AMENDED AND RESTATED TRUST AGREEMENT ------------------------------------ This Amended and Restated Trust Agreement (the "Agreement") of the Digital Angel Share Trust, a Delaware statutory trust --------- (the "Trust") is made and entered into as of June 30, 2003, between ----- Wilmington Trust Company, a Delaware banking corporation (acting hereunder not in its individual capacity but solely as trustee hereunder, the "Trustee"), and Applied Digital Solutions, Inc., a corporation organized ------- under the laws of Missouri ("ADS"). --- RECITALS -------- A. This Agreement was originally entered into as of March 1, 2002 between the Trustee and ADS for the purpose of securing certain debt obligations of ADS and its affiliates to IBM Credit LLC. B. As of the date hereof, ADS has borrowed the sum of $10,500,000 from certain lenders described herein, for the purpose, in part, of repaying in full, the obligations of ADS and the Trust to IBM Credit. C. In consideration of such new loan, and in order to secure and facilitate the payment of the Obligations according to their terms, ADS has agreed to continue the deposit with the Trustee the MAS Stock, to continue to be held in trust hereunder on the terms and conditions set forth herein. AGREEMENT --------- NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- "Act" means the Delaware Business Trust Act, 12 Del. C. --- Sections 3801 et seq. -- --- "ADS" is defined in the introductory paragraph of this --- Agreement. "Advisory Board" means the Advisory Board prescribed by -------------- Section 4.01. "Advisory Board Member" means the member of the Advisory --------------------- Board. "Affiliate" of any Person means a Person that, directly or --------- indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management 1 and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise. "Bankruptcy Decision" means, with respect to a specified ------------------- entity, any of the following actions: (a) filing any voluntary petition in bankruptcy on behalf of such entity, (b) consenting to the filing of any involuntary petition in bankruptcy against such entity, (c) filing any petition seeking, or consenting to, reorganization or relief under any applicable federal, state or foreign law relating to bankruptcy or insolvency, on behalf of such entity, (d) consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such entity or a substantial part of the property of such entity, (e) making any assignment for the benefit of creditors on behalf of such entity, (f) admitting in writing the inability of such entity to pay its debts generally as they become due, or (g) taking any action by such entity in furtherance of any of the foregoing actions. "Certificate of Trust" means the Certificate of Trust of -------------------- the Trust filed under the Act with the Delaware Secretary of State on March 1, 2002, as such Certificate of Trust may be amended or restated from time to time. "Closing Date" is defined in the Securities Purchase ------------ Agreement. "Credit Documents" means the Securities Purchase ---------------- Agreement, the Debentures, the Warrants, the Registration Rights Agreement, the Pledge Agreement (each of the foregoing, as defined in the Securities Purchase Agreement) and all dated as of June 30, 2003, and any instruments, documents, guarantees, schedules of assignment, contracts and similar agreements, including schedules, attachments, exhibits and ancillary documentation or other supporting documents, executed by or on behalf of ADS, and delivered to any Purchaser, pursuant to the Securities Purchase Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time. "Delaware Secretary of State" means the office of the --------------------------- Secretary of State of the State of Delaware. "Fair Market Value" means, on any date specified, the ----------------- average of the daily Market Price of a share of MAS Stock during the 10 consecutive trading days before such date, except that, if on any such date the shares of MAS Stock are not listed or admitted for trading on any national securities exchange or quoted in the over-the-counter market, Fair Market Value shall be the Market Price on such date. "Final Payment Date" means the date on which all ------------------ Obligations have been paid and satisfied in full. "Final Payment Notice" means the written notice from each -------------------- Purchaser to the Trustee stating that the Final Payment Date has occurred. "IBM Credit" is defined in Recital A. ---------- "Indemnified Trustee Person(s)" is defined in Section 6.06. ----------------------------- 2 "Independent Agent" shall initially mean the law firm of ----------------- Feldman Weinstein LLP, New York, New York, and any successor law firm thereto, or any law firm located in New York, New York and designated as such in writing by all of the Purchasers who are then Holders of Debentures or Warrants, acting through any partner (or equivalent title) thereof. "Market Price" means, on any date specified, an amount per ------------ share of MAS Stock equal to (i) the last reported sale price of such MAS Stock, regular way, on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices thereof regular way on such date, in either case as officially reported on the principal national securities exchange on which such MAS Stock is then listed or admitted for trading, (ii) if such MAS Stock is not then listed or admitted for trading on any national securities exchange but is designated as a national market system security by the NASD, the last reported trading price of the MAS Stock on such date, (iii) if there shall have been no trading on such date or if the MAS Stock is not so designated, the average of the closing bid and asked prices of the MAS Stock on such date as shown by the NASD automated quotation system, or (iv) if such MAS Stock is not then listed or admitted for trading on any national exchange or quoted in the over-the-counter market, the fair value thereof (as of a date which is within 10 days of the date as of which the determination is to be made) determined in good faith by the Board of Directors of the issuer of such MAS Stock. "MAS" means Medical Advisory Systems, Inc., a Delaware --- corporation, subsequently re-named "Digital Angel Corporation". "MAS Stock" means the common stock, par value $.005 per --------- share, of MAS, and any stock into which such common stock shall have been changed, any stock resulting from any reclassification of such common stock, any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization), and all other stock of any class or classes (however designated) of MAS (or its successors) the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends or liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. "Merger Agreement" means that Agreement and Plan of Merger ---------------- by and among ADS, Digital Angel Corporation, a Delaware corporation, MAS, and Acquisition Subsidiary, Inc., a Delaware corporation, dated as of November 1, 2001. "Obligations" means the obligations of ADS under the ----------- Credit Documents to (i) pay interest as set forth in the Debentures, (ii) pay principal as set forth in the Debentures, (iii) honor conversion or exchange notices pursuant to the Debentures, (iv) honor Warrant exercises as set forth therein, and (v) otherwise perform ADS' covenants contained in the various Credit Documents. "Person" means an individual, a corporation, an ------ association, a partnership, an estate, a trust, a limited liability company and any other entity or organization, governmental or otherwise. 3 "Purchaser" means the Persons who are Holders of the --------- Debentures at any time ("Holder" as defined in the Debenture). "Registration Rights Agreement" means that certain ----------------------------- Registration Rights Agreement between MAS and ADS, dated as of March 27, 2002 and attached hereto as Exhibit A. --------- "Required Amount of Cash" means (a) the Trigger Amount or ----------------------- such other amount as is then due and payable by the Trust under the Credit Documents, minus (b) the amount of cash then in the Trust Estate, plus (c) the costs of liquidating sufficient shares of MAS Stock held in the Trust Estate to generate net proceeds equal to the amount produced by subtracting clause (b) from clause (a). "Trigger Amount" means the amount stated in a Trigger -------------- Notice as owed but not timely paid by ADS under the Credit Documents. "Trigger Event" means any Event of Default by ADS under ------------- the Debentures (or any of them) or the Pledge Agreement, as defined therein. "Trigger Notice" means a written notice from any Purchaser -------------- to the Trustee stating that there has been and is continuing a Trigger Event, specifying the Trigger Amount. "Trust" means the Delaware statutory business trust formed ----- pursuant to this Agreement and known as "Digital Angel Share Trust," which was formed as of March 1, 2002, under the Act pursuant to the filing of the Certificate of Trust. "Trustee" means Wilmington Trust Company, not in its ------- individual capacity, but solely as a trustee hereunder, and any successor trustee appointed in accordance with Section 3807 of the Act and Section 6.04. "Trust Estate" is defined in Article III. ------------ ARTICLE II. GENERAL Section 2.01 Formation of the Trust. ---------------------- (a) The Trust created hereby shall be known as "Digital Angel Share Trust," in which name the Trustee may conduct the affairs of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued on behalf of the Trust. ADS hereby appoints Wilmington Trust Company as trustee of the Trust effective as of the date hereof, to have all the rights, powers and duties set forth herein and in the Act. Wilmington Trust Company hereby agrees to hold the Trust Estate as Trustee on behalf of the Trust upon the terms and conditions set forth herein. The Trustee is hereby authorized to file the Certificate of Trust with the Delaware Secretary of State pursuant to Section 3810 of the Act. 4 (b) It is the intention of the parties hereto that the Trust constitute a business trust under the Act and that this Trust Agreement constitute the governing instrument of the Trust. Effective as of the date hereof, the Trustee shall have all rights, powers and duties set forth herein and in the Act with respect to accomplishing the purposes of the Trust. Section 2.02 Name, Principal Office, and Name and Address of ----------------------------------------------- Trustee as Agent for Service of Process. - --------------------------------------- (a) The principal place of business and office of the Trust shall be c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention: Corporate Trust Administration. The Trustee is hereby designated to accept service of process on behalf of the Trust at the address provided in the preceding sentence. The Trustee may change the address set forth in this Section 2.02 upon written notice to each Advisory Board Member. (b) The Trust shall be located and administered in, and all bank accounts of the Trust maintained in, the State of Delaware. Payments shall be received by the Trust only in the State of Delaware and payments will be made by the Trust only from the State of Delaware. Section 2.03 Purpose. The purpose of the Trust is to own, ------- vote (subject to Section 4.04) and dispose of the Trust Estate as directed in writing by the Advisory Board and with the ultimate objective of securing and facilitating the repayment and satisfaction of the Obligations in accordance with the terms and conditions of the Credit Documents. In furtherance of such purpose, the Trust shall act as pledgeholder under the Credit Documents, this Agreement and any other agreement, document or instrument necessary or incidental thereto, and shall make all filings required under Federal securities laws or otherwise in connection with its ownership of the MAS Stock held in the Trust Estate. Pursuant to specific instruction from ADS, or as otherwise provided in Article V hereof, the Trustee shall timely honor all requests for exchange of any principal amount of any Debenture into shares of MAS Stock and for the exercise of any Warrant into shares of MAS Stock. The Trust will not conduct activities other than those contemplated by this Section 2.03, and, except as required in furtherance of its purpose, the Trust shall not: (i) have any property, rights or interests, whether real or personal, tangible or intangible, (ii) incur any legal liability or obligation, whether fixed or contingent, matured or unmatured, or (iii) subject any of the Trust Estate to any mortgage, lien, security interest or other claim or encumbrance. Section 2.04 Certain Covenants Relating to the Separateness ---------------------------------------------- of the Trust. The Trust shall maintain its separate existence and, - ------------ specifically, shall conduct its affairs in accordance with, and ADS agrees that it will not take any actions in its dealings with the Trust or with other Persons (including creditors of ADS) that are inconsistent with, the following: (a) The Trust shall maintain its books, records and bank accounts separate from those of any other Person. (b) The Trust shall not commingle or pool any of its funds or other assets with those of any other Person, and it shall, through the Trustee, hold all of its assets in its own name. 5 (c) The Trust, through the Trustee, shall conduct its own business in its own name and shall not operate, or purport to operate, collectively as a single or consolidated business entity with respect to any Person. (d) The Trust has done, or caused to be done, and shall do, all things necessary to observe all Delaware statutory business trust formalities and other organizational formalities, and preserve its existence (subject to Article VII and the other express provisions hereof), and it shall not, nor will it permit any Affiliate or constituent party to, amend, modify or otherwise change this Agreement in a manner which would adversely affect the existence of the Trust as a special purpose entity. (e) The Trust shall not have any employees. (f) Except pursuant to the Credit Documents, the Trust does not, and shall not, (i) guarantee, become obligated for, or hold itself or its credit out to be responsible for or available to satisfy, the debts or obligations of any other Person or (ii) control the decisions or actions respecting the daily business or affairs of any other Person. (g) The Trust shall, at all times, hold itself out to the public as an entity separate and distinct from any other Person and shall correct any known misunderstanding regarding its separate identity. (h) The Trust shall not identify itself as a division or agent of any other Person. (i) The Trust shall maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person. (j) The Trust shall not use its separate existence to abuse creditors or to perpetrate a fraud, injury, or injustice on creditors in violation of applicable law. (k) The Trust shall not be consensually merged or legally consolidated with any other Person. Section 2.05 Creditors of ADS. Except pursuant to the Credit ---------------- Documents, to the fullest extent permitted by applicable law, no creditor of ADS or any of its Affiliates shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the Trust Estate. ARTICLE III. CONTRIBUTION Section 3.01 Continuation of Assignment. On the Closing Date, the -------------------------- Trust shall (a) retain all of its right, title and interest in 15,000,000 shares of MAS Stock, and (b) transfer the remaining 4,600,000 shares of MAS Stock which the Trust now owns of record in whatever manner it is directed in writing by ADS. The Trustee acknowledges its continuing record ownership and possession of the 15,000,000 shares of MAS Stock, which shall constitute the initial trust estate (including all income on and proceeds of such initial trust estate, the "Trust Estate"). The Trustee hereby declares that it will hold the Trust Estate in trust on the terms and 6 conditions set forth herein. For clarity, the same 15,000,000 shares of MAS Stock constituting the Trust Estate shall serve concurrently as the shares issuable to a Purchaser on exchange of a Debenture, issuable to a Purchaser as payment of interest on or principal of a Debenture, shares issuable to a Purchaser on exercise of a Warrant, and as collateral under the Pledge Agreement in the case of an Event of Default under a Debenture or the Pledge Agreement. Section 3.02 Legal Title to Trust Property. Legal title to the ----------------------------- Trust Estate shall be vested at all times in the Trust as a separate legal entity except where applicable law in any jurisdiction requires title to any part of the Trust Estate to be vested in a trustee or trustees, in which case legal title shall be deemed to be vested in the Trustee, a co-trustee and/or a separate trustee, as the case may be. Section 3.03 Beneficial Owner. ADS shall be deemed to be the ---------------- beneficial owner of the Trust Estate. ARTICLE IV. TRUST GOVERNANCE Section 4.01 Advisory Board. -------------- (a) General. The Trustee shall act upon and in accordance with ------- this Agreement and the written instructions of the Advisory Board, which shall initially consist of Scott Silverman, Chief Executive Officer of ADS, who shall be replaced when and if another Person shall become Chief Executive Officer of ADS, and thereafter such successor Chief Executive Officer shall become the Advisory Board Member, who shall be similarly replaced by the next successive Chief Executive Officer of ADS and so forth until the dissolution of this Trust. The Trustee shall be entitled to rely on the most recent public filing of ADS with the Securities and Exchange Commission as to the identity of the Chief Executive Officer, or may request and rely upon an incumbency certificate from the Secretary of ADS. (b) Meetings. The Advisory Board shall meet as needed. -------- (c) Action by Written Consent. Any action required or permitted ------------------------- to be taken at any meeting of the Advisory Board may be taken without a meeting if the requisite number of Advisory Board Members consents thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Advisory Board. (d) Compensation. The Advisory Board shall serve without ------------ compensation from the Trust. (e) Advisory Board Member Liability. To the full extent permitted ------------------------------- by applicable law currently or hereafter in effect, no Advisory Board Member will be personally liable, for breach of fiduciary duty or otherwise, to the Trust, the Trustee, any Purchaser or ADS for or with respect to any acts or omissions in the performance of his or her duties as an Advisory Board Member. No repeal or modification of this Section 4.01(e) will adversely affect any right or protection of an Advisory Board Member existing prior to such repeal or modification. 7 (f) Indemnification. Each person who is or was or had agreed to --------------- become an Advisory Board Member will be indemnified by the Trust to the full extent permitted by applicable law as currently or hereafter in effect and will be entitled to advancement of expenses in connection therewith. The right of indemnification and of advancement of expenses provided in this Section 4.01(f): (i) will not be exclusive of any other rights to which any Person seeking indemnification or advancement of expenses may otherwise be entitled, including without limitation pursuant to any contract approved by a majority of all Advisory Board Members (whether or not the Advisory Board Members approving such contract are or are to be parties to such contract or similar contracts), and (ii) will be applicable to matters otherwise within its scope whether or not such matters arose or arise before or after the date of this Agreement. Any amendment or repeal of, or addition of any provision inconsistent with, this Section 4.01(i) will not adversely affect any right or protection existing hereunder, or arising out of the facts occurring, prior to such amendment, repeal, or adoption and no such amendment, repeal, or adoption will affect the legality, validity, or enforceability of any contract entered into or right granted prior to the effective date of such amendment, repeal, or adoption. If so determined by the Advisory Board, the Trust may obtain insurance to support its indemnification obligations hereunder, the cost of which shall be paid from the Trust Estate. Section 4.02 Major Decisions. The following actions shall require --------------- the unanimous vote of the Advisory Board Members: (a) (i) filing any voluntary petition in bankruptcy on behalf of the Trust, (ii) consenting to the filing of any involuntary petition in bankruptcy against the Trust, (iii) filing any petition seeking, or consenting to, reorganization or relief under any applicable federal, state or foreign law relating to bankruptcy or insolvency, on behalf of the Trust, (iv) consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or a substantial part of the property of the Trust, (v) making any assignment for the benefit of creditors on behalf of the Trust, (vi) admitting in writing the Trust's inability to pay its debts generally as they become due, or (vii) taking any action by the Trust in furtherance of any of the foregoing actions; (b) determining to liquidate or dissolve the Trust; (c) approving the merger, consolidation, sale or transfer of all or a substantial amount of assets or other change in control transaction involving the Trust, provided that in no event may any of the aforementioned activities occur with any entity that may seek bankruptcy protection or if such merger, consolidation, sale or transfer would undermine the solvency of the Trust; (d) except as permitted or required pursuant to Article V, approving the payment or making of any distributions from the Trust; (e) approving amendments to the constituent documents of the Trust or the Credit Documents; or 8 (f) voting the MAS Stock in favor of a Bankruptcy Decision with respect to MAS or any of its direct or indirect subsidiaries if, at the time such Bankruptcy Decision is implemented or is to be implemented, (i) a Bankruptcy Decision has been made with respect to ADS or any of its direct or indirect subsidiaries, or (ii) any borrower under the Credit Documents is in default under or with respect to any obligation for borrowed money, including the Credit Documents, regardless of whether such default has been declared. Section 4.03. Voting Rights with Respect to the MAS Stock. Except ------------------------------------------- as otherwise specified in this Section, prior to such time as the MAS Stock has been sold or otherwise released by the Trust, the Trustee shall exercise the right to vote such MAS Stock as instructed in writing by the Advisory Board in accordance with the terms hereof. After delivery of the Final Payment Notice, ADS shall have the right to direct the Trustee with respect to the voting of all MAS Stock then in the Trust Estate. ARTICLE V. MAS STOCK LIQUIDATIONS; FINAL DISTRIBUTION Section 5.01. Release of MAS Stock Upon Exchange of Debentures or --------------------------------------------------- Exercise of Warrants. From time to time, when the Trustee receives a Notice - -------------------- of Exchange from a Purchaser with respect to a Debenture or a Notice of Exercise from a Purchaser with respect to a Warrant, the Trustee shall promptly take such actions as are requested by the Purchaser in such Notice as may be necessary to cause MAS and its transfer agent to transfer the requisite number of shares of MAS Stock from the Trust to the account designated by the Purchaser for such purpose, in accordance with the provisions of the Debentures and the Warrants via the Depository Trust Company DWAC system, if possible. The Trustee shall immediately notify ADS and the Independent Agent of such Notice of Exchange or Notice of Exercise. The Trustee shall act upon any such request upon receipt of a confirmatory instruction from the Independent Agent, and without the need for any such confirmatory instruction from ADS or the Advisory Board. The Trustee is further authorized to similarly transfer shares of MAS Stock from the Trust to the Purchasers upon the direction of ADS as payment of interest on, or repayment of principal of, the Debentures, at the discretion of ADS, but with ADS being subject to the various conditions precedent thereto as set forth in the Debentures. ADS shall immediately notify Purchasers' Representative of any such ADS notice. The Trustee shall be entitled to rely on any written notice from any Purchaser or ADS to take any such action which such notice states that all conditions precedent to such action have been met, without further inquiry of any Person, other than the Independent Agent with respect to any written notice from any Purchaser. Section 5.02. MAS Stock Liquidations. From time to time, when any ---------------------- sums are due and payable under the Credit Documents, upon receipt of a Trigger Notice and a confirmatory instruction from the Independent Agent, the Trustee shall promptly take action to liquidate the amount of MAS Stock held in the Trust Estate required in order to generate the Required Amount of Cash. Such action may include the sale of some or all of the MAS Stock held in the Trust Estate in private transactions or on a national stock exchange or quotation system, utilizing the registration rights available pursuant to the Registration Rights Agreement where necessary. In effecting such sale(s) of MAS Stock, the Trustee is authorized as pledgeholder under the Pledge Agreement to release a sufficient number of shares of MAS Stock to facilitate such sale and will endeavor not to sell shares of MAS Stock in a manner which would disrupt an orderly market or is reasonably likely to have an adverse impact on the market price of MAS Stock and will use commercially reasonable efforts to maximize the per share value realized for such MAS Stock. From the proceeds of such MAS Stock liquidations and all other cash then held in the Trust Estate, the Trustee shall (i) pay the fees and expenses incurred by it in accomplishing such 9 liquidations, and (ii) distribute to the Purchasers, pro-rata in accordance with the original principal amounts of their respective Debentures (except if one of the Debentures shall not then be outstanding, pro-rata to the remaining Purchasers) as set forth in the Securities Purchase Agreement (or in a certificate executed by all Purchasers and delivered to the Trustee for such purpose, in which case the distribution provisions of the latest dated such certificate shall control) the amounts due and payable under the Credit Documents. Any excess proceeds shall remain in the Trust Estate. The Trustee may rely, without investigation, on each Purchaser's written instructions to it as to the place and method of delivery to such Purchaser of any such funds. Section 5.03. Final Distribution. Upon receipt of the Final ------------------ Payment Notice, the Trust shall be dissolved pursuant to Article VII. Section 5.04. Trust Expenses. In the event ADS fails to pay the -------------- compensation or reimbursement due the Advisory Board Members pursuant to Section 4.01(d), any indemnification amount or expense advance payable pursuant to Section 4.01(f), the Trustee's fees and expenses as provided in Section 6.07, or any indemnification amount payable pursuant to Section 6.06 within 5 business days after demand, the Trustee is hereby authorized to liquidate such amount of MAS Stock held in the Trust Estate as is necessary to pay such amounts. Payment in satisfaction of the Trustee's fees and expenses as provided in Section 6.07 shall be made in full prior to any other payment or distribution permitted or required hereunder. ARTICLE VI. CONCERNING THE TRUSTEE AND THE INDEPENDENT AGENT Section 6.01. General. ------- (a) In the exercise or administration of the Trust hereunder, the Trustee, at the expense of ADS (paid as specified in Section 6.07), may (i) act directly or through agents or attorneys pursuant to agreements entered into with any of them, and the Trustee shall not be liable for the default or misconduct of such agents or attorneys if such agents or attorneys shall have been selected by the Trustee with reasonable care; and (ii) consult with counsel, accountants and other skilled Persons to be selected with reasonable care and employed by the Trustee, and it shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled Persons if such advice or opinion pertains to such matters as the Trustee may reasonably presume to be within the scope of such counsel's, accountant's or other skilled Person's area of expertise. (b) Except as expressly provided herein, (i) in accepting the Trust hereby created, Wilmington Trust Company acts solely as Trustee hereunder and not in its individual capacity, and (ii) all Persons having any claim against the Trustee or the Trust by reason of the transactions contemplated by this Agreement shall look only to the Trust's property for payment or satisfaction thereof. (c) The Trustee will administer the business and affairs of the Trust in accordance with the terms of the Act and this Agreement; provided, however, that the Trustee undertakes to 10 perform only such duties as are specifically set forth in this Agreement and as the Trustee may be duly directed from time to time in writing by the appropriate parties specified herein. The Trustee shall not have any duty or obligation to manage, control, use, sell, dispose of or otherwise deal with the Trust or to otherwise take or refrain from taking any action under this Agreement except as expressly required by the terms hereof or as expressly provided in written instructions from the appropriate parties specified herein, and no implied duties or obligations shall be read into this Agreement against the Trustee. Wilmington Trust Company nevertheless agrees that it will, at its own cost and expense (and not at the expense of the Trust), promptly take all action as may be necessary to discharge any liens on any part of the Trust Estate which are attributable to actions by or claims against Wilmington Trust Company that are not related to the ownership of any part of the Trust Estate or the administration of the Trust Estate or the transactions contemplated by this Agreement. (d) The Trustee shall not be required to take any action under this Agreement if the Trustee shall reasonably determine or shall have been advised by counsel that such action is contrary to the terms of this Agreement or is otherwise contrary to applicable law. (e) Whenever the Trustee is unable to decide between alternative courses of action permitted or required by the terms of this Agreement, or is unsure as to the application, intent, interpretation or meaning of any provision hereof, the Trustee may give notice (in such form as shall be appropriate under the circumstances) to the Advisory Board Members requesting written instructions as to the course of action to be adopted, and, to the extent the Trustee acts in good faith in accordance with any such appropriate instruction received, the Trustee shall not be liable on account of such action or inaction to any Person. If the Trustee shall not have received appropriate instructions within ten days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances), it may, but shall be under no duty to, take or refrain from taking such action which is consistent, in its view, with this Agreement and the Trust's purpose (as set forth in Section 2.03), and the Trustee shall have no liability to any Person for any such action or inaction. (f) In no event whatsoever shall the Trustee be liable for any representation, warranty, covenant, agreement, indebtedness or other obligation of the Trust; provided, however, the foregoing shall in no event whatsoever relieve the Trustee from any liability resulting from the Trustee's bad faith, willful misconduct or gross negligence. (g) The Trustee may rely upon and shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties. The Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any Person as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically prescribed herein, the Trustee may for all purposes hereof rely on a certificate, signed by the president or any vice president or by the treasurer or any assistant 11 treasurer or the secretary or any assistant secretary or any trust officer (or equivalent position) of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Trustee for any action taken or omitted to be taken by it in good faith reliance thereon. (h) The Trustee shall not be required to take any action that is inconsistent with the purposes of the Trust set forth in Section 2.03. (i) The Trustee shall not have any responsibility or liability for or with respect to the genuineness, value, sufficiency or validity of the Trust Estate. The Trustee shall in no event assume or incur any liability, duty or obligation to any Person other than as expressly provided for herein, and in no event shall the Trustee have any implied duties or obligations hereunder. (j) The Trustee shall incur no liability if, by reason of any provision of any future law or regulation thereunder, the Trustee shall be prevented or forbidden from doing or performing any act or thing which the terms of this Agreement provide shall or may be done or performed. (k) No provision of this Agreement shall require the Trustee to expend or risk its personal funds, or otherwise incur any financial liability in the performance of its rights or powers hereunder, if the Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it. (l) The Trustee shall not be liable for the default or misconduct of the Advisory Board and shall not be liable for any act or omission taken at the direction of the Advisory Board. (m) Every provision of this Agreement relating to the Trustee shall be subject to the provisions of this Section 6.01. Section 6.02. Acceptance of the Trust. The Trustee declares that ----------------------- it accepts the trust created hereunder and agrees to perform its duties under this Agreement and the Act but only upon the terms of this Agreement. Section 6.03. Authority and Duties of the Trustee. ----------------------------------- (a) The Trustee is authorized and directed to execute and deliver this Agreement, and to execute and deliver on behalf of the Trust, the Credit Documents and any other document or instrument attached as an Exhibit to, contemplated by, or necessary or incidental hereto, in such form as the Advisory Board shall approve, as evidenced conclusively by the Trustee's execution thereof. The execution and delivery of, and performance of the terms of any other document or instrument necessary or incidental hereto shall be deemed not to conflict with or constitute a breach or default under this Agreement. The Trustee shall have only such authority and shall perform such duties as are expressly set forth in this Agreement. 12 (b) Upon the written instruction of the appropriate party specified herein, the Trustee shall execute, acknowledge, deliver, file or record any document or instrument necessary or appropriate to carry out the provisions of this Agreement in such form as is provided to it. (c) The Trustee shall have the power and authority to execute, deliver, acknowledge and file all necessary documents and to maintain all necessary records of the Trust as required by the Act. (d) In the performance of its duties under this Agreement, the Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any such document, but the Trustee, in its discretion, may make further inquiry or investigation. (e) The Trustee shall cause to be prepared and filed such securities law and tax filings and returns relating to the Trust, and shall make such tax elections as may from time to time be required or appropriate under any applicable Federal, state or local tax statute or rule or regulation thereunder, in accordance with the Advisory Board's written instructions; provided that the Trustee shall not make any tax elections with respect to the Trust that are inconsistent with the income tax characterization of the Trust as stated in Section 9.06. (f) Subject to the provisions of any applicable confidentiality agreement to which the Trust is or becomes a party, the Trustee shall furnish to the Advisory Board, promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the Trustee hereunder; provided that the Trustee shall not be required to furnish the Advisory Board with a copy of any such materials if the Trustee determines that such Person has otherwise received such copies, unless such Person so requests. Section 6.04. Resignation of the Trustee. -------------------------- (a) The Trustee may resign by giving 30 days' prior written notice to the Advisory Board. In the case of the resignation of the Trustee, the Advisory Board shall appoint a Person to serve as successor Trustee, provided that such Person shall in all respects satisfy the requirements of Section 3807 of the Act, or any successor provision, and shall be a bank or trust company incorporated and doing business within the United States of America, whose business shall consist at least in part of serving as trustee in arrangements comparable to those contemplated hereby and having a combined capital and surplus of at least $50,000,000, if there be such an institution willing, able and legally qualified to perform the duties of the Trustee hereunder upon reasonable or customary terms. The appointment of the successor Trustee shall take effect concurrently with (i) the resignation of the former Trustee and (ii) the ratification of this Agreement, and no resignation of a Trustee shall be effective absent the concurrent appointment of a successor Trustee. (b) If a successor Trustee shall not have been appointed within 30 days after such notice of resignation, the Trustee or the Advisory Board may apply to any court of competent 13 jurisdiction to appoint a successor Trustee to act until such time as a successor shall have been appointed as above provided. (c) Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation to which substantially all the corporate trust business of the Trustee may be transferred, shall, subject to such corporation satisfying in all respects the requirements set forth in Section 6.04(a), be the Trustee hereunder without further action. (d) Upon the substitution of the Person serving as Trustee, the successor Trustee shall file an amendment to the Certificate of Trust with the Secretary of State in accordance with the provisions of Section 3810 of the Act, indicating the change in the Trustee. Section 6.05. Liability. --------- (a) The Trustee shall not be personally liable under any circumstances, except (i) for its own bad faith, willful misconduct or gross negligence, and (ii) for taxes, fees or other charges on, based on or measured by any fees, commissions or compensation received by the Trustee in connection with any of the transactions contemplated by this Agreement. (b) The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Trustee otherwise existing at law or in equity, replace such other duties or liabilities of the Trustee to the extent permissible under law or in equity. (c) The Trustee shall not be liable for the default or misconduct of the Advisory Board or ADS. (d) The Trustee shall not be liable for voting (or refraining from voting) the MAS Stock held in the Trust Estate so long as such shares are voted (or not voted) in accordance with and as required by Section 4.04. Section 6.06. Indemnification. ADS shall indemnify, pay, protect, --------------- and hold harmless each of the Trustee, its officers, directors, employees, shareholders and agents (collectively the "Indemnified Trustee Persons" or individually an "Indemnified Trustee Person") from and against any and all liabilities, obligations, losses, damages, claims, actions, judgments, suits, proceedings, taxes, costs, expenses and disbursements of any kind or nature whatsoever including, without limitation, all reasonable legal fees, third party costs and expenses of defense, appeal and settlement of any and all suits, actions, or proceedings instituted against such Indemnified Trustee Person and all reasonable third party costs of investigation in connection therewith that may be imposed on, incurred by, or asserted against an Indemnified Trustee Person relating to or arising out of any action or inaction on the part of the Trust or an Indemnified Trustee Person in respect of the Trust. If any action, suit, or proceeding shall be pending against one or more Indemnified Trustee Persons relating to or arising out of any action or inaction of the Indemnified Trustee Person or Indemnified Trustee Persons, ADS shall have the right to assume the defense of the Indemnified Trustee Person or Indemnified Trustee Persons in which case such defense shall be conducted by counsel chosen by ADS and reasonably satisfactory to the Indemnified Trustee Person or Indemnified Trustee Persons 14 and Purchasers' Representative; provided, however, that if an Indemnified Trustee Person is advised by its counsel that due to actual or potential conflicting interests representation by the same counsel would be inappropriate under applicable standards of professional conduct, such Indemnified Trustee Person may, at the expense of ADS, employ separate counsel of its choice with respect to all matters as to which such conflicting interests arise in any such action. The indemnities contained in this Section shall survive the resignation of the Trustee, termination of the Trust or the termination of this Agreement. Section 6.07. Fees and Expenses. The Trustee's fees (as detailed ----------------- on Exhibit D) and all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee, in its capacity as Trustee hereunder, including, without limitation, the costs and expenses of the winding up, liquidation and termination of the Trust, shall be paid by ADS promptly upon written request therefor. Section 6.08. Concerning the Independent Agent. The Independent -------------------------------- Agent shall be subject to the same rights and protections, subject to the same limitations thereon, as the Trustee pursuant to Section 6.01, 6.05(a), (b) or (c) (including at the end of (c) "any Purchaser") and 6.06, except that such indemnification shall be the joint and several liability of ADS and every Purchaser, as if every reference therein to the Trustee were to the Independent Agent. The Independent Agent shall be entitled to receive its customary hourly fees for its services hereunder, which shall be paid by ADS upon delivery of an invoice therefore, and failing such payment, by the Purchasers, jointly and severally. ARTICLE VII. DISSOLUTION AND LIQUIDATION OF THE TRUST ---------------------------------------- Section 7.01. Dissolution of the Trust. The Trust shall be ------------------------ dissolved, wound up and terminated upon delivery by the several Purchasers of the Final Payment Notice, as provided in Section 5.03. Section 7.02. Liquidation of the Trust. In connection with the ------------------------ dissolution of the Trust, the assets of the Trust shall be liquidated at the written direction of ADS and applied as follows: (i) first, to pay the costs and expenses of the winding up, liquidation and termination of the Trust, including all amounts owed to the Trustee, (ii) second, to establish reserves to the extent required by the Act and any applicable law, in each case, in the order of priority provided by law, and (iii) third, to ADS. Section 7.03. Termination of the Trust. ------------------------ (a) The Trust (and this Agreement) shall be deemed terminated when all of the Trust's assets shall have been disposed of and distributed as provided herein. (b) Upon the winding up of the Trust and its termination, the Trustee shall cause the Certificate of Trust to be canceled by filing a certificate of cancellation with the Delaware Secretary of State in accordance with the provisions of Section 3810 of the Act. 15 NOTICES Notices. All notices, demands, consents or requests required or permitted under this Agreement must be in writing, and shall be delivered by facsimile, courier or first class mail, postage prepaid, addressed as follows. Each notice hereunder must be delivered to the Trustee, ADS, each Advisory Board Member and Purchasers' Representative. If to the Trustee, as set forth in Section 2.01. If to ADS: Applied Digital Solutions, Inc. 400 Royal Palm Way, Suite 410 Palm Beach, Florida 33480 Attention: Debenture Department Facsimile: (561) 805-8002 with an e-mail copy to: debentures@adsx.com If to the Advisory Board Members: c/o ADS (iv) If to a Purchasers' Representative: Midsummer Capital 485 Madison Ave. 23rd Floor New York, NY 10022 Facsimile: 212-584-2142 Attention: Scott Kaufman 16 ARTICLE IX. MISCELLANEOUS PROVISIONS Section 9.01. Entire Agreement. This Agreement (including, without ---------------- limitation, the exhibits hereto) supercedes all prior agreements, written or oral, among the parties hereto relating to the transactions contemplated hereby, and each of the parties hereto represents and warrants to the others that this Agreement constitutes the entire agreement among the parties hereto relating to the transactions contemplated hereby. Section 9.02. Governing Law. ------------- (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES). (b) The parties hereto hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the parties hereto agrees (a) that this Agreement involves at least $100,000.00, and (b) that this Agreement has been entered into by the parties hereto in express reliance upon 6 Del. C. Section 2708. Each of the parties hereto hereby irrevocably and unconditionally agrees (a) to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, and (b)(1) to the extent such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such party's agent for acceptance of legal process, and (2) that, to the fullest extent permitted by applicable law, service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service, and that service made pursuant to (b)(1) or (2) above shall, to the fullest extent permitted by applicable law, have the same legal force and effect as if served upon such party personally within the State of Delaware. Section 9.03. Effect; Third Party Beneficiaries. Except as --------------------------------- otherwise specified herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and assigns. Each Purchaser (and their respective assignees) is an intended third party beneficiary hereof and shall be entitled to enforce this Agreement against the parties hereto as if it were a party hereto. Each present and former (and future) member of the Advisory Board is an intended third party beneficiary hereof and shall be entitled to enforce Sections 4.01 (e) and (f) of this Agreement against the parties hereto as if it were a party hereto. Section 9.04. Severability of Provisions. If any term, provision, -------------------------- covenant or condition of this Agreement, or the application thereof to either party or any circumstance, is held to be unenforceable, invalid or illegal (in whole or in part) for any reason (in any relevant jurisdiction), the remaining terms, provisions, covenants and conditions of this Agreement, modified by the deletion of the unenforceable, invalid or illegal portion (in any relevant jurisdiction), will continue in full force and effect, and such unenforceability, invalidity or illegality will not otherwise affect the enforceability, validity or legality of the remaining terms, provisions, covenants and conditions of this Agreement so long as this Agreement as so modified continues 17 to express, without material change, the original intentions of the parties as to the subject matter hereof and the deletion of such portion of this Agreement will not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited or unenforceable provision with a valid provision, the economic effect of which comes as close as possible to that of the prohibited or unenforceable provision. Section 9.05. Amendments, Waivers, Etc. This Agreement may not be ------------------------ amended, discharged or terminated nor may any provision hereof be waived unless such amendment, discharge, termination or waiver is in writing and signed by the Trustee and ADS, with the prior unanimous written consent of the Advisory Board. Section 9.06. Tax Characterization. -------------------- (a) Each of the parties hereto recognizes and intends that, for United States federal, state and local income tax purposes the Trust will not be treated as an association taxable as a corporation. (b) To the extent that any of the parties hereto is required to report any item of income, gain, loss, deduction or credit relating to the Trust for United States federal, state or local income tax purposes, such party shall report such item in a manner consistent with the characterization intended by this Section 9.06 and shall not take any contrary position on any tax return or report relating to the United States federal, state or local income taxes or take any other action that is inconsistent with such characterization. Section 9.07. Counterparts. This Agreement may be executed ------------ in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 18 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date above first written. WILMINGTON TRUST COMPANY as Trustee By: /s/ Mary St. Armand ------------------- Name: Mary St. Armand Title: Assistant Vice President APPLIED DIGITAL SOLUTIONS, INC., as Beneficial Owner By: /s/ Scott Silverman ------------------- Name: Scott Silverman Title: CEO 19 EX-2.8 3 exh2p8.txt EXHIBIT 2.8 ----------- STOCK PLEDGE AGREEMENT ---------------------- THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into on --------- June 27, 2003 between Applied Digital Solutions, Inc. ("Pledgor"), and ------- InfoTech USA, Inc. ("Pledgee"). ------- 1. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and as collateral security for and to secure the prompt payment and performance in full of the Secured Obligations (hereinafter defined), Pledgor hereby assigns to Pledgee and grants to Pledgee a continuing security interest in 750,000 issued and outstanding shares of capital stock of Digital Angel Corporation ("Company"), together ------- with all proceeds, products and increases thereof and substitutions and replacements therefor (collectively, the "Collateral"). ---------- As used in this Agreement, the term "Secured Obligations" ------------------- shall mean any and all obligations, liabilities and indebtedness of Pledgor to Pledgee, including all obligations, liabilities and indebtedness under that certain Loan Agreement dated the date hereof by and among Pledgee and Pledgor (as hereafter amended from time to time, the "Loan Agreement") and -------------- any and all extensions, renewals, modifications, increases and replacements of the foregoing. 2. Pledgor represents and warrants that after satisfaction of Pledgor's indebtedness to IBM Credit LLC: (i) Pledgor holds beneficial ownership of the Collateral, free and clear of all liens and encumbrances; and (ii) there are no restrictions upon the transfer of any of the Collateral, and Pledgor has held beneficial ownership of the Collateral for over one year, and (iii) the pledge, assignment and delivery of the Collateral pursuant to this Agreement creates a valid first lien on and a first priority security interest in the Collateral, and the proceeds thereof, subject to no prior lien or to any agreement purporting to grant to any third party a lien on the property or assets of the Pledgor which would include the Collateral. The Pledgor covenants and agrees that the Pledgor will defend the Pledgee's right, title and security interest in and to the Collateral and the proceeds thereof against the claims and demands of all Persons whomsoever; and covenants and agrees that the Pledgor will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the Pledgee's right thereto and security interest therein. 3. In furtherance of Pledgee's security interest in the Collateral, Pledgor agrees to deliver to Pledgee, within 10 business days of the date of this Agreement, 1 the stock certificates identified on Schedule I attached hereto, together ---------- with stock powers duly executed in blank by Pledgor, to hold as collateral security pursuant to the terms of this Agreement. 4. With respect to the Collateral and all proceeds, products and increases thereof and substitutions therefor, upon an Event of Default under the Secured Obligations Pledgor hereby appoints Pledgee its attorney-in-fact, to arrange for the transfer of the Collateral on the books of Company to the name of Pledgee for so long as any of the Secured Obligations are outstanding. However, Pledgee shall be under no obligation to do so. 5. During the term of this Agreement, provided no Event of Default has occurred and then exists hereunder, Pledgor shall have the right, where applicable, to vote the Collateral on all corporate questions, and Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor for this purpose. 6. Upon the occurrence of any Event of Default and during the continuance thereof, Pledgee may exercise all of the rights and privileges in connection with the Collateral to which a transferee may be entitled as the record holder thereof, together with the rights and privileges otherwise granted hereunder. Pledgee shall be under no obligation to exercise any of such rights or privileges. 7. If, with the consent of Pledgee, Pledgor shall substitute or exchange other securities in place of those herein mentioned, all of the rights and privileges of Pledgee and all of the obligations of Pledgor with respect to the securities originally pledged or held as Collateral hereunder shall be forthwith applicable to such substituted or exchanged securities. 8. Upon the occurrence of any Event of Default and during the continuance thereof, Pledgee shall be authorized to collect all dividends, interest payments, and other amounts (including amounts received or receivable upon redemption or repurchase) that may be, or become, due on any of the Collateral. If Pledgor receives any such dividends, payments or amounts after the occurrence and during the continuance of an Event of Default, it shall immediately endorse and deliver the same to Pledgee in the form received. All such amounts which Pledgee receives and retains in accordance with the terms of this paragraph 8 shall be applied to reduce the principal amount outstanding on the Secured Obligations in inverse order of maturity. Pledgee is, furthermore, authorized to give receipts in the name of Pledgor for any amounts so received. Pledgee shall be under no obligation to collect any such amounts. 9. In the event that, during the term of this Agreement, subscription warrants or any other rights or options shall be issued in connection with the Collateral, such warrants, rights, or options shall be immediately assigned, if 2 necessary, by Pledgor to Pledgee. If any such warrants, rights, or options are exercised by Pledgor, all new securities so acquired by Pledgor shall be immediately assigned to Pledgee, shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 10. In the event that, during the term of this Agreement, any share, dividend, reclassification, readjustment or other change is declared or made in the capital structure of Company, all new, substituted and additional shares, or other securities, issued by reason of any such change shall become part of the Collateral and shall be endorsed to, delivered to and held by Pledgee under the terms of this Agreement in the same manner as the securities originally pledged. 11. Pledgor authorizes Pledgee, without notice or demand, and without affecting the liability of Pledgor hereunder, from time to time to: (A) release any of the endorsers or guarantors of the Secured Obligations secured hereunder or any part thereof, or any other person whomsoever liable for or on account of such Secured Obligations; (B) on the transfer of all or any part of the Secured Obligations secured hereunder, Pledgee may assign all or any part of Pledgee's security interest in the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to the Collateral so transferred, provided that in no event shall Pledgee be liable for any act or omission or negligent act or negligent omission with respect to the Collateral, other than acts or omissions constituting gross negligence, willful misconduct or tortious breach of contract. The transferee of the Collateral shall be vested with the rights, powers and remedies of Pledgee hereunder, and with respect to any Collateral not so transferred, Pledgee shall retain all rights, powers and remedies hereby given; and (C) Pledgor hereby waives any right to require Pledgee to proceed against Pledgor, or any other person whomsoever, to proceed against or exhaust any collateral or any other security held by Pledgee, or to pursue any other remedy available to Pledgee. Pledgor further waives any defense arising by reason of any liability or other defense of Pledgor or of any other person. Pledgor shall have no right to require Pledgee to marshal collateral. 12. It shall not be necessary for Pledgee to inquire into the powers of Pledgor or the officers acting or purporting to act on behalf of Pledgor, and any obligations made or created in reliance on the professed exercise of such powers shall be secured hereunder. 3 13. To the extent permitted by applicable law, Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protest, or notices of dishonor in connection with the Secured Obligations. 14. The occurrence of any of the following events shall, at the option of Pledgee, constitute an "Event of Default" under this Agreement: ---------------- (A) the occurrence of an Event of Default, as such term is defined in the Loan Agreement; or (B) the default or nonperformance by Pledgor of any material term or condition of this Agreement. 15. Upon the occurrence and during the continuance of any Event of Default, the Secured Obligations shall, at the option of Pledgee, become immediately due and payable, and Pledgee shall have all the rights and remedies provided in the Uniform Commercial Code of New Jersey at the date of this Agreement and, in this connection, the Pledgee may, upon ten (10) days' notice to the Pledgor sent to the persons identified in and in the same manner as provided in the Loan Agreement, without liability for any diminution in value or price which may have occurred, sell all or any part of the Collateral in such manner and for such price as Pledgee may determine. At any public sale Pledgee shall be free to purchase all or any part of the Collateral. Pledgee shall receive the proceeds of any such sale or sales, and, after deducting therefrom any and all reasonable costs and expenses incurred in connection with the sale thereof, apply the net proceeds toward the payment of the Secured Obligations secured hereunder, including interest, reasonable attorneys' fees, and all other reasonable costs and expenses incurred by Pledgee hereunder and under any other agreement between Pledgor and Pledgee. If such proceeds be more than sufficient to pay the same, then in case of a surplus, such surplus shall be accounted for and paid over to Pledgor, provided Pledgor be not then indebted to Pledgee otherwise under this Agreement or any other Agreement or for any cause whatsoever. 16. Upon indefeasible repayment in full in cash of the Secured Obligations, Pledgee will promptly, at Pledgor's reasonable expense, deliver all of the Collateral to Pledgor along with all instruments of assignment executed in connection therewith, and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence Pledgee's release of its security interest hereunder. 17. For so long as the Secured Obligations remain outstanding, the Pledgor agrees that the Pledgor will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will the Pledgor create, incur or permit to exist any lien with respect to any of the Collateral, or any interest 4 therein, or any proceeds thereof, except for the lien provided for by this Agreement or in favor of the Pledgee or its designee. 18. The Pledgor agrees that at any time and from time to time upon the written request of the Pledgee, the Pledgor shall execute and deliver such further documents and do such further acts and things as the Pledgee may reasonably request in order to effect the purposes of this Agreement. The Pledgee agrees that at any time and from time to time upon the written request of the Pledgor, the Pledgee shall execute and deliver such further documents and do such further acts and things as the Pledgor may reasonably request in order to effect the purposes of this Agreement. 19. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 20. The Pledgee shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless executed and delivered in accordance with the provisions hereof, and then only to the extent therein set forth. A waiver by the Pledgee of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Pledgee would otherwise have on any future occasion. No failure to exercise nor any delay in exercising on the part of the Pledgee, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law. 21. This Agreement shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the local law of the State of New Jersey excluding any conflicts of law rule or principle that might otherwise refer construction or interpretation of this agreement to the substantive law of another jurisdiction. Each party, after consultation with counsel, waives trial by jury and consents to the jurisdiction of the state and federal courts of the State of New Jersey. IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as of the date first above written. 5 PLEDGOR: ------- APPLIED DIGITAL SOLUTIONS, INC. By: /s/ Scott Silverman ----------------------- Name: Scott Silverman --------------------- Title: CEO ---------- PLEDGEE: ------- INFOTECH USA, INC. By: /s/ J. Robert Patterson --------------------------- Name: J. Robert Patterson ------------------------- Title: CFO ---------- SCHEDULE I ---------- Company Number of Shares Certificate Number ------- ---------------- ------------------ Digital Angel Corporation 750,000 6 EX-2.9 4 exh2p9.txt EXHIBIT 2.9 ----------- STOCK PURCHASE AGREEMENT BETWEEN APPLIED DIGITAL SOLUTIONS, INC. AND DIGITAL ANGEL CORPORATION August 14, 2003 1 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement is entered into as of August 14, 2003, -- by Applied Digital Solutions, Inc., a Missouri corporation (the "Purchaser" --------- or "ADSX"), and its majority-owned subsidiary, Digital Angel Corporation, a ---- Delaware corporation ("Seller" or "DOC"). ------ --- PRELIMINARY STATEMENTS For strategic investment purposes, ADSX wishes to purchase from DOC and DOC wishes to sell to ADSX newly-issued shares of the common stock of DOC in consideration for newly-issued shares of the common stock of ADSX (which will be registered for resale pursuant to the provisions of the Securities Act of 1933, as amended) on the terms and subject to the conditions set forth in this Agreement. Agreement In consideration of the preliminary statements and the respective mutual covenants, representations and warranties herein contained, the parties hereto agree as set forth below. ARTICLE I Definitions In addition to terms defined elsewhere in this Agreement, the following terms when used in this Agreement shall have the meanings indicated below: "ADSX Common Stock" shall mean the common stock of ADSX, par value ----------------- $.001 per share. "ADSX VWAP" means, for any date, the daily volume weighted average --------- price of the ADSX Common Stock for such date as reported by Bloomberg Financial, L.P. (based on a Trading Day from 9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP (volume average price) function. "ADSX Warrant Exercise Shares" means the shares of ADSX Common Stock ---------------------------- which may be used as payment of the Warrant exercise price at the election of ADSX in accordance with Section 3(c) of the Warrant. "Agreement" shall mean this Stock Purchase Agreement together with --------- all exhibits and schedules referred to herein. "Agreement Effective Date" shall mean the date of execution of this ------------------------ Agreement. "Commission" shall mean the Securities and Exchange Commission. ---------- "DOC Common Stock" shall mean the common stock of DOC, par value ---------------- $.005 per share. 2 "DOC Registrable Shares" shall mean all of the DOC Shares and the ---------------------- Warrant Shares collectively. "DOC VWAP" means, for any date, the daily volume weighted average -------- price of the DOC Common Stock for such date as reported by Bloomberg Financial, L.P. (based on a Trading Day from 9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP (volume average price) function. "Effective Date" means the date the Registration Statement is first -------------- declared effective by the Commission. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. "Filing Date" means, with respect to the Registration Statement filed ----------- hereunder, the 60th calendar day following the Agreement Effective Date. "Person" shall mean any natural person, corporation, unincorporated ------ organization, partnership, association, joint stock company, joint venture, trust or government, or any agency or political subdivision of any government or any other entity. "Registration Rights Agreement" means that certain registration ----------------------------- rights agreement, dated June 30, 2003, between ADSX and the holders of its 8.5% Convertible Exchangeable Debentures. "Registration Statement" means the registration statement to be filed ---------------------- by ADSX hereunder by Section 8.1, subject to receipt of a certain waiver described herein, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SEC Reports" means all reports required to be filed by ADSX and DOC ----------- under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the one year preceding the date hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Trading Day" means a day on which the DOC Common Stock is traded on ----------- the American Stock Exchange and a day on which the ADSX Common Stock is traded on the Nasdaq SmallCap Market, or if the ADSX Common Stock is not listed on the Nasdaq SmallCap Market, a day on which the ADSX Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board or is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated. "Warrant" means the DOC Common Stock purchase warrant to purchase ------- 1,000,000 shares of DOC Common Stock, exercisable commencing February 1, 2004, for a period of five years, in the form of Exhibit A delivered to ADSX --------- on the Closing Date in accordance with Section 7.1. 3 "Warrant Shares" means the shares of DOC Common Stock issuable upon -------------- exercise of the Warrant. ARTICLE II Purchase of Securities; Consideration 2.1 Securities to be Purchased. On and subject to the terms and -------------------------- conditions set forth herein, on the Closing Date, DOC shall sell to ADSX, and ADSX shall purchase from DOC, all of DOC's right, title and interest in and to an aggregate of 3,000,000 shares of DOC Common Stock at $2.64 per share ("Fixed Price") (the "DOC Shares"). ----------- ---------- 2.2 Consideration. The purchase price for the DOC Shares shall be ------------- $7,920,000 ("Purchase Price"), payable by ADSX on the Closing Date (as -------------- defined hereunder) by delivery, in the aggregate, of the number of shares of ADSX Common Stock equal to the Purchase Price divided by the ADSX Per Share Exchange Price (as defined hereunder) (the "ADSX Exchange Shares"). -------------------- 2.3 Place of Closing; Closing Date. The closing of the purchase and ------------------------------ sale of the DOC Shares under this Agreement will take place at the offices of the Purchaser or other location as may be mutually agreed by Purchaser and Seller, and shall occur on the business day following the Effective Date (the "Closing Date"). ------------ 2.4 Closing Price. The per share exchange price for the ADSX Exchange ------------- Shares issuable under this Agreement on the Closing Date (the "ADSX Per -------- Share Exchange Price" or, the "Closing Price") shall equal the average of - -------------------- ------------- the ADSX VWAP for the ten (10) Trading Days immediately preceding (and not including) the Closing Date; provided, however, in the event that the ADSX ----------------- Per Share Exchange Price is less than $.40 (the "Floor Price"), then ADSX ----------- shall have the option, which may be exercised or waived in its sole discretion, to (x) postpone the Closing Date for a period not to exceed thirty calendar (30) days, such alternative closing date within the thirty (30) day postponement period as may be mutually agreed upon by ADSX and DOC, and with the express understanding that the Floor Price closing condition shall be applicable on such alternative closing date, or (y) to terminate this Agreement pursuant to Sections 2.5 and 9.1. 2.5 Termination Based Upon ADSX Per Share Exchange Price. ---------------------------------------------------- Notwithstanding anything herein to the contrary, if the ADSX Per Share Exchange Price on the Closing Date is calculated to be less than the Floor Price, then ADSX shall be entitled to terminate at its option any and all of its obligations under this Agreement by delivery of a written notice to DOC to such effect. 2.6 Deliveries of DOC Shares and ADSX Exchange Shares on the -------------------------------------------------------- Closing Date. Subject to the terms and conditions of this Agreement and - ------------ including but not limited to the closing requirements of Section 7.1, on the Closing Date: (i) DOC will deliver to ADSX via ADSX's DTC account through the Depository Trust Company DWAC system, that number of DOC Shares being purchased as calculated in Section 2.1, and (ii) ADSX will, upon receipt of the DOC Shares in the DWAC system, deliver to DOC via DOC's DTC account through the 4 Depository Trust Company DWAC system, that number of ADSX Exchange Shares being exchanged in consideration for the DOC Shares as calculated in Section 2.2. 2.7 Fractional Shares. DOC and ADSX shall receive a whole number of ----------------- shares of DOC Shares and ADSX Exchange Shares, respectively, and no fractional shares of DOC Shares and ADSX Exchange Shares shall be issued. In lieu of fractional shares, DOC and ADSX shall deliver to the other respective party, cash or a company check in the amount of the fractional share(s) otherwise issuable to ADSX or DOC by the other party based on the Closing Price or Fixed Price respectively. ARTICLE III Representations and Warranties of DOC In order to induce ADSX to enter into this Agreement and to consummate the transaction contemplated hereby, DOC makes the representations and warranties set forth below to ADSX. 3.1 Organization; Standing and Power. DOC is a corporation duly -------------------------------- incorporated, validly existing and in good standing under the laws of the State of Delaware with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. 3.2 Authorization; Enforceability. The execution, delivery and ----------------------------- performance of this Agreement by DOC and the consummation by DOC of the transactions contemplated hereby have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by DOC, and constitutes the legal, valid and binding obligation of DOC, enforceable in accordance with its terms, except to the extent that its enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally and by general principles of equity. 3.3 No Violation or Conflict. The execution, delivery and performance ------------------------ of this Agreement by DOC and the consummation by DOC of the transactions contemplated hereby: (a) do not and will not violate or conflict with any provision of law or regulation, or any writ, order, judgment or decree of any court or governmental or regulatory authority, or any provision of DOC's Certificate of Incorporation or Bylaws; and (b) do not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of DOC pursuant to any material instrument or agreement to which DOC is a party or by which DOC or its properties may be bound or affected, other than instruments or agreements as to which consent shall have been obtained at or prior to the Closing Date. 3.4 Consent of Governmental Authorities. Other than in connection ----------------------------------- with the Securities Act, the Exchange Act and the rules of the American Stock Exchange, no consent, approval or authorization of, or registration, qualification or filing with any federal, state or local governmental or regulatory authority is required to be made by DOC in connection with the 5 execution, delivery or performance by DOC of this Agreement or the consummation by DOC of the transactions contemplated hereby. 3.5 Validity of Securities. When issued in accordance with this ---------------------- Agreement, the DOC Shares, the Warrant, and the Warrant Shares shall be duly and validly authorized, legally issued and outstanding, fully paid and non-assessable, shall not have been issued in violation of the preemptive rights of any Person, and free and clear of all liens and encumbrances. 3.6 Absence of Material Adverse Changes; Disclosure of Material ----------------------------------------------------------- Non-Public Information; SEC Reports. Since the filing by DOC of its Annual - ----------------------------------- Report on Form 10-K for the fiscal year ended December 31, 2002 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, with the Commission, there have been no material adverse changes to the assets, liabilities, business or condition (financial or otherwise) of DOC, and all disclosures of material non-public information required pursuant to the Securities Act and the Exchange Act have been made accordingly. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, 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 light of the circumstances under which they were made, not misleading. ARTICLE IV Representations and Warranties of ADSX In order to induce DOC to enter into this Agreement and to consummate the transaction contemplated hereby, ADSX makes the representations and warranties set forth below to DOC. 4.1 Organization; Standing and Power. ADSX is a corporation duly -------------------------------- incorporated, validly existing and in good standing under the laws of the State of Missouri with the requisite corporate power and authority to own and use its properties and assets and to carry on it business as currently conducted. 4.2 Authorization; Enforceability. The execution, delivery and ----------------------------- performance of this Agreement by ADSX and the consummation by ADSX of the transactions contemplated hereby have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by ADSX, and constitutes the legal, valid and binding obligation of ADSX, enforceable in accordance with its terms, except to the extent that its enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally and by general principles of equity. 4.3 No Violation or Conflict. The execution, delivery and performance ------------------------ of this Agreement by ADSX and the consummation by ADSX of the transactions contemplated hereby: (a) do not and will not violate or conflict with any provision of law or regulation, or any writ, order, judgment or decree of any court or governmental or regulatory authority, or any provision of ADSX's Articles of Incorporation or Bylaws; and (b) do not and will not, with or without the 6 passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of ADSX pursuant to any material instrument or agreement to which ADSX is a party or by which ADSX or its properties may be bound or affected, other than instruments or agreements as to which consent shall have been obtained at or prior to the Closing Date. 4.4 Consent of Governmental Authorities. Other than in connection ----------------------------------- with the Securities Act, the Exchange Act and the rules of the Nasdaq SmallCap Market, no consent, approval or authorization of, or registration, qualification or filing with any federal, state or local governmental or regulatory authority is required to be made by ADSX in connection with the execution, delivery or performance by ADSX of this Agreement or the consummation by ADSX of the transactions contemplated hereby. 4.5 Validity of Securities. When issued in accordance with this ---------------------- Agreement, the ADSX Exchange Shares shall be duly and validly authorized, legally issued and outstanding, fully paid and non-assessable, shall not have been issued in violation of the preemptive rights of any Person, and free and clear of all liens and encumbrances. 4.6 Absence of Material Adverse Changes; Disclosure of Material ----------------------------------------------------------- Non-Public Information; SEC Reports. Since the filing by ADSX of its Annual - ----------------------------------- Report on Form 10-K for the fiscal year ended December 31, 2002, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and its Current Report on Form 8-K dated July 9, 2003, with the Commission, there have been no material adverse changes to the assets, liabilities, business or condition (financial or otherwise) of ADSX, and all disclosures of material non-public information required pursuant to the Securities Act and the Exchange Act have been made accordingly. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, 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 light of the circumstances under which they were made, not misleading. ARTICLE V Covenants 5.1 Confidentiality. Except as otherwise required in the performance --------------- of obligations under this Agreement and except as otherwise required by law, any nonpublic information received by a party or its advisors from the other party shall be kept confidential and shall not be used or disclosed for any purpose other than in furtherance of the transaction contemplated by this Agreement. The obligation of confidentiality shall not extend to information (a) which is or shall become generally available to the public other than as a result of an unauthorized disclosure by a party to this Agreement or a person to whom a party has provided such information, (b) which is or becomes known by or available to a party to this Agreement on a nonconfidential basis prior to its disclosure by one party to the other pursuant to this Agreement, or (c) which is or becomes 7 available to a party on a nonconfidential basis from a source other than a party to this Agreement. Upon termination of this Agreement, each party shall promptly return any confidential information received from the other party and, upon request, shall destroy any copies of such information in its possession. The covenants of the parties contained in this Section 5.1 shall survive any termination of this Agreement. 5.2 Notification. Each party to this Agreement shall promptly notify ------------ the other parties in writing of the occurrence, or pending or threatened occurrence, of any event that would constitute a breach or violation of this Agreement by any party or that would cause any representation or warranty made by the notifying party in this Agreement to be false or misleading in any respect. Any such notification shall not limit or alter any of the representations, warranties or covenants of the parties set forth in this Agreement nor any rights or remedies a party may have with respect to a breach of any representation, warranty or covenant. 5.3 Further Assurances. The parties hereto shall deliver any and all ------------------ other instruments or documents required to be delivered pursuant to, or necessary or proper in order to give effect to, all of the terms and provisions of this Agreement including, without limitation, all necessary stock powers and such other instruments of transfer as may be necessary or desirable to transfer ownership of the DOC Shares, the Warrant, the Warrant Shares and the ADSX Exchange Shares and to consummate the transactions contemplated by this Agreement. ARTICLE VI Additional Agreements 6.1 Survival of the Representations and Warranties. The ---------------------------------------------- representations and warranties of ADSX and of DOC set forth in this Agreement shall terminate immediately following the Closing Date (or any alternative closing date). 6.2 Investigation. The representations, warranties, covenants and ------------- agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. All statements contained herein or in any schedule, certificate, exhibit, list or other document delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties for purposes of this Agreement. 6.3 Arbitration. Any and all claims, disputes or matters in ----------- controversy arising under this Agreement which the parties are unable to settle by mutual agreement shall be resolved by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association as in force at the time ("AAA"). --- (a) A party which desires to submit a claim, dispute or controversy to binding arbitration under this Section 6.3 shall so notify the other parties, and if after 30 days from the date of such notice the claim, dispute or controversy remains unsettled, any party may petition 8 the AAA for arbitration of the claim, dispute or controversy. Matters submitted to arbitration shall be resolved in accordance with the decision of a panel of three arbitrators selected by the AAA. The arbitrators shall be experienced in the resolution of commercial disputes arising in the context of negotiated acquisitions of businesses, and the place of arbitration shall be West Palm Beach, Florida. (b) The three arbitrators shall investigate the facts and shall hold hearings at which the parties to this Agreement may present evidence and arguments, be represented by counsel and conduct cross-examination. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement and shall not have the power to add to, modify or change any of the provisions of this Agreement. The three arbitrators shall render a written decision upon the matter presented to them by a majority vote within 90 days after the date on which the hearings and presentation of evidence are concluded, unless a longer period is provided under the rules of the AAA. The decision rendered by the arbitrators shall be final and binding on, and unappealable by, the parties. Judgment upon the decision rendered in such arbitration may be entered by any court having jurisdiction thereof. No party to an arbitration proceeding shall be considered in default hereunder during the pendency of arbitration proceedings relating to a disputed default. If the three arbitrators fail to render a timely decision, then, to the extent permitted by law, any party shall have the right to institute an action or proceeding in such court as shall be appropriate in the circumstances, and, upon the institution of such action, the arbitration proceeding shall be terminated and shall be of no further force and effect. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators, and each party shall otherwise bear its own fees and expenses, including expenses of legal counsel and other advisors or consultants. It is the intention of the parties that arbitration as described above be the sole and exclusive means available to them for the resolution of claims, disputes or matters in controversy arising under this Agreement, other than claims, disputes and matters arising under those provisions referred to in the first sentence of this Section 6.3, and only in the event that the arbitrators fail to render a decision in accordance with the foregoing provisions shall a party have the right to institute legal action with respect to such claim, dispute or matter. Accordingly, it shall be a complete defense to any action instituted by a party with respect to a claim, dispute or matter in controversy under this Agreement that such claim, dispute or matter has not first been submitted to arbitration in accordance with the foregoing provisions. ARTICLE VII Closing; Conditions Precedent 7.1 Closing. All proceedings to be taken and all documents to be ------- executed on the Closing Date shall be deemed to have been taken, delivered and executed simultaneously, and no proceeding shall be deemed taken nor documents deemed executed or delivered until all have been taken, delivered and executed. On the Closing Date, DOC shall deliver to ADSX (i) the DOC Shares in accordance with the procedure described in Section 2.5, free and clear of any and all claims, liens, charges, security interests, pledges or encumbrances of any nature whatsoever 9 and together with all accrued benefits and rights attaching thereto; (ii) the Warrant executed by a duly authorized representative of DOC; (iii) certificate of the Secretary of State of Delaware as of a recent date as to the good standing of DOC and its Certificate of Incorporation; (iv) such other documents as may be specified, or required to satisfy the conditions set forth, in Sections 7.2 and 7.3; and (v) such other documents and instruments as ADSX may reasonably request. On the Closing Date, ADSX shall deliver to DOC (i) the ADSX Exchange Shares in accordance with the procedure described in Section 2.6, free and clear of any and all claims, liens, charges, security interests, pledges or encumbrances of any nature whatsoever and together with all accrued benefits and rights attaching thereto; (ii) certificate of the Secretary of State of Missouri as of a recent date as to the good standing of ADSX and its Articles of Incorporation, as amended; (iii) such other documents as may be specified, or required to satisfy the conditions set forth, in Sections 7.2 and 7.3; and (iv) such other documents and instruments as DOC may reasonably request. 7.2 Conditions Precedent to the Obligations of ADSX. All of the ----------------------------------------------- obligations of ADSX under this Agreement are subject to the satisfaction at or prior to the Closing Date (or any alternative closing date) of each and every one of the following conditions. (a) Representations and Warranties True. Each of the ----------------------------------- representations and warranties of DOC contained herein or in any certificate or other document delivered pursuant to this Agreement or in connection with the transaction contemplated hereby shall be true and correct in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true and correct in all respects) as of the Closing Date with the same force and effect as though made on and as of such date. (b) Performance. DOC shall have performed and complied in ----------- all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by them on or prior to the Closing Date. (c) Consents. DOC shall have obtained all material -------- authorizations, consents, waivers and approvals as may be required to consummate the transaction contemplated by this Agreement. (d) DOC Audit Committee and Board Approval. The Audit -------------------------------------- Committee and the Board of Directors of DOC shall have approved the execution, delivery and performance of this Agreement by DOC. (e) Seller's Certificate. DOC shall have delivered to ADSX -------------------- a certificate executed by DOC, dated the Closing Date, certifying in such detail as ADSX may reasonably request, that the conditions specified in Sections 7.2(a), (b) and (c) above have been fulfilled and as to such other matters as ADSX may reasonably request. 7.3 Conditions Precedent to the Obligations of DOC. All of the ---------------------------------------------- obligations of DOC under this Agreement are subject to the satisfaction at or prior to the Closing Date (or any alternative closing date) of each and every one of the following conditions. 10 (a) Representations and Warranties True. Each of the ----------------------------------- representations and warranties of ADSX contained herein or in any certificate or other document delivered pursuant to this Agreement or in connection with the transaction contemplated hereby shall be true and correct in all material respects (except for representations and warranties which are by their terms qualified by materiality, which shall be true and correct in all respects) as of the Closing Date with the same force and effect as though made on and as of such date. (b) Performance. ADSX shall have performed and complied in ----------- all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by it on or prior to the Closing Date. (c) Consents. ADSX shall have obtained all material --------- authorizations, consents, waivers and approvals as may be required to consummate the transaction contemplated by this Agreement. (d) ADSX Audit Committee and Board Approval. The Audit --------------------------------------- Committee and the Board of Directors of ADSX shall have approved the execution, delivery and performance of this Agreement by ADSX. (e) Purchaser's Certificate. ADSX shall have delivered to ----------------------- DOC a certificate executed by ADSX, dated the Closing Date, certifying in such detail as DOC may reasonably request, that the conditions specified in Sections 7.3(a), (b) and (c) above have been fulfilled and as to such other matters as DOC may reasonably request. ARTICLE VIII Registration 8.1 ADSX Exchange Shares' Registration Rights. On or prior to the ----------------------------------------- Filing Date, ADSX shall prepare and file with the Commission the Registration Statement covering the resale of the ADSX Exchange Shares for an offering to be made under the Securities Act, or include the ADSX Exchange Shares by piggyback on such other registration statement as may be filed by ADSX. The Registration Statement shall be on Form S-1 (noting that ADSX is not now eligible to register for resale the Securities on Form S-3) and shall contain a "Plan of Distribution" approved by both DOC and ADSX. Subject to the terms of this Agreement and the piggyback registration option described herein, ADSX shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date when all ADSX Exchange Shares covered by the Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by counsel to ADSX pursuant to a written opinion letter to such effect, addressed and acceptable to ADSX's transfer agent. ADSX shall notify DOC via facsimile or e-mail, followed by regular U.S. Mail, of the effectiveness of the Registration Statement immediately after ADSX receives notification of the effectiveness of such Registration Statement from the Commission; PROVIDED, HOWEVER, IN NO EVENT SHALL ADSX BE ----------------- REQUIRED TO FILE THE REGISTRATION STATEMENT BY THE FILING DATE UNLESS ADSX SHALL HAVE 11 RECEIVED A WRITTEN WAIVER ACCEPTABLE TO ADSX BY NO LATER THAN AUGUST 30, 2003, FROM THE HOLDERS OF THE ADSX 8.5% CONVERTIBLE EXCHANGEABLE DEBENTURES, OF SECTION 6(c) OF THE REGISTRATION RIGHTS AGREEMENT, AND SUCH FILING OF THE REGISTRATION STATEMENT SHALL NOT BE REQUIRED TO BE MADE HEREUNDER UNTIL SUCH DATE AS ADSX DETERMINES IN ITS SOLE DISCRETION THAT SUCH FILING IS ALLOWED BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT. 8.2 ADSX Warrant Exercise Shares' Piggyback Registration Rights. In ----------------------------------------------------------- the event that ADSX exercises its rights pursuant to Section 3(c) of the Warrant, and for a period of no more than twelve months commencing on the date of exercise of the Warrant, when ADSX proposes to file a registration statement ADSX will prior to such filing give written notice to DOC of its intention to do so and, upon the written request of DOC given within ten (10) days after ADSX provides such notice, ADSX shall use its good faith efforts to cause all ADSX Warrant Exercise Shares which ADSX has been requested by DOC to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of DOC. 8.3 DOC Registrable Shares' Registration Rights; Piggyback ------------------------------------------------------ Registration; Demand Registration. - --------------------------------- (a) At any time and from time to time after the date of this Agreement, whenever DOC proposes to file a registration statement DOC will prior to such filing give written notice to ADSX of its intention to do so and, upon the written request of ADSX given within ten (10) days after DOC provides such notice, DOC shall use its good faith efforts to cause all DOC Registrable Shares which DOC has been requested by ADSX to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of ADSX. (b) At any time and from time to time after the date of this Agreement, upon receipt of a written request from ADSX specifying the number of DOC Registrable Shares that ADSX desires to register for public sale, DOC promptly shall prepare and file with the Commission under the Securities Act within 120 days of the written request a registration statement covering a public offering of the DOC Registrable Shares and shall use all reasonable efforts to cause the registration statement to become effective as soon as is practicable. If permitted by the Securities Act, DOC shall use a Form S-3 registration statement (or any successor form) to register the DOC Registrable Shares pursuant to this Section 8.2(b). If it is ineligible to use a Form S-3 registration statement, DOC may use any other form of SEC registration statement that it considers appropriate, as long as DOC is eligible to use the form and the form does not impair in any way ADSX's ability to publicly offer and sell any DOC Registrable Shares compared to such ability if DOC were eligible to use Form S-3. ARTICLE IX Termination 9.1 Termination. This Agreement may be terminated as follows: (i) ----------- by mutual written consent of the parties at any time prior to the Closing Date; (ii) ADSX or DOC may terminate 12 this Agreement by giving written notice to the other party at any time prior to the Closing Date if either ADSX or DOC has breached any representation, warranty or covenant contained in this Agreement in any material respect; and (iii) ADSX may terminate this Agreement pursuant to Section 2.5. 9.2 Effect of Termination. If ADSX or DOC terminates this Agreement --------------------- pursuant to Section 9.1(ii) or if ADSX terminates this Agreement pursuant to 9.1(iii) above, all rights and obligations of the parties hereunder shall terminate without any liability of any party to the other party. ARTICLE X Miscellaneous 10.1 Notices. Any notice, demand, claim or other communication under ------- this Agreement shall be in writing and shall be delivered personally or sent by certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below their names on the signature pages of this Agreement (or at such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims and other communications shall be deemed given when actually received or, (a) in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery, (b) in the case of certified U.S. mail, five days after deposit in the U.S. mail, or (c) in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise. 10.2 Entire Agreement. This Agreement contains every obligation and ---------------- understanding between the parties relating to the subject matter hereof and merges all prior discussions, negotiations and agreements, if any, between them, and none of the parties shall be bound by any conditions, definitions, understandings, warranties or representations other than as expressly provided or referred to herein. 10.3 Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of the parties hereto and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns. 10.4 Assignment. This Agreement may not be assigned by any party ---------- without the written consent of the other party. 10.5 Waiver and Amendment. Any representation, warranty, covenant, -------------------- term or condition of this Agreement which may legally be waived, may be waived, or the time of performance thereof extended, at any time by the party hereto entitled to the benefit thereof, and any term, condition or covenant hereof (including, without limitation, the period during which any condition is to be satisfied or any obligation performed) may be amended by the parties hereto at any time. Any such waiver, extension or amendment shall be evidenced by an instrument in writing executed on behalf of the appropriate party by its Chairman, President or any Vice President or other person, who has been authorized by its Board of Directors to execute waivers, 13 extensions or amendments on its behalf. No waiver by any party hereto, whether express or implied, of its rights under any provision of this Agreement shall constitute a waiver of such party's rights under such provisions at any other time or a waiver of such party's rights under any other provision of this Agreement. No failure by any party hereto to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party's right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party. 10.6 Severability. In the event that any one or more of the ------------ provisions contained in this Agreement shall be declared invalid, void or unenforceable, the remainder of the provisions of this Agreement shall remain in full force and effect, and such invalid, void or unenforceable provision shall be interpreted as closely as possible to the manner in which it was written. 10.7 Expenses. Each party agrees to pay, without right of -------- reimbursement from the other party, the costs incurred by it incident to the performance of its obligations under this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, costs incident to the preparation of this Agreement, and the fees and disbursements of counsel, accountants and consultants employed by such party in connection herewith. 10.8 Headings. The section and other headings contained in this -------- Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement. 10.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 10.10 Time of Essence. Wherever time is specified for the doing or --------------- performance of any act hereunder, time shall be considered of the essence. 10.11 Litigation; Prevailing Party. If, notwithstanding the ---------------------------- provisions of Section 6.3 regarding arbitration hereunder, any litigation is instituted with regard to this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party and the non-prevailing party shall pay all reasonable fees and expenses of counsel for the prevailing party. 10.12 Injunctive Relief. It is possible that remedies at law may be ----------------- inadequate and, therefore, the parties hereto shall be entitled to equitable relief including, without limitation, injunctive relief, specific performance or other equitable remedies in addition to all other remedies provided hereunder or available to the parties hereto at law or in equity. 10.13 Remedies Cumulative. No remedy made available by any of the ------------------- provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. 14 10.14 Governing Law. This Agreement has been entered into and shall ------------- be construed and enforced in accordance with the laws of the State of Florida without reference to the choice of law principles thereof. 10.15 Jurisdiction and Venue. If, notwithstanding the provisions of ---------------------- Section 6.3 regarding arbitration hereunder, any litigation is instituted with regard to this Agreement, this Agreement shall be subject to the exclusive jurisdiction of the courts of Palm Beach County, Florida. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of Florida by virtue of a failure to perform an act required to be performed in the State of Florida and irrevocably and expressly agree to submit to the jurisdiction of the courts of the State of Florida for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in Palm Beach County, Florida, and further irrevocably waive any claim that any suit, action or proceeding brought in Palm Beach County, Florida has been brought in an inconvenient forum. 10.16 Participation of Parties. The parties hereto acknowledge that ------------------------ this Agreement and all matters contemplated herein, have been negotiated among all parties hereto and their respective legal counsel and that all such parties have participated in the drafting and preparation of this Agreement from the commencement of negotiations at all times through the execution hereof. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 10.17 Preliminary Statements. The parties hereto acknowledge that the ---------------------- preliminary statements contained herein shall be deemed part of this Agreement and shall be binding upon the parties. [signatures on following page] 15 IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written. APPLIED DIGITAL SOLUTIONS, INC. By: /s/ Scott Silverman -------------------- Name: Scott Silverman ------------------------- Title: Chief Executive Officer ------------------------ Address for Notice: ------------------ 400 Royal Palm Way Suite 410 Palm Beach, FL 33480 Attn: Scott R. Silverman, CEO Tel: (561) 805-8056 Fax: (561) 805-8001 With a copy to: Holland & Knight LLP 701 Brickell Avenue Suite 3000 Miami, FL 33131 Attn: Harvey Goldman, Esq. Tel: (305)789-7506 Fax: (305)789-7799 DIGITAL ANGEL CORPORATION By: /s/ Randolph K. Geissler ------------------------- Name: Randolph K. Geissler --------------------- Title: Chief Executive Officer ------------------------ Address for Notice: ------------------ 490 Villaume Corporation South St. Paul, MN 55075 Attn: Randolph K. Geissler Tel: (651) 455-1621 Fax: (651) 455-0413 With a copy to: Winthrop & Weinstine Suite 3500 225 South Sixth Street Minneapolis, MN 55402 Attn: Richard Hoel, Esq. Tel: (612) 604-6400 Fax: (612) 604-6800 16 Exhibit A --------- Form of Warrant 17 EX-2.10 5 exh2p10.txt EXHIBIT 2.10 ------------ [LAURUS logo] June 1, 2004 Via Telecopier (651) 445-0217 - ----------------------------- Digital Angel Corporation 490 Villaume Avenue South St. Paul MN 55075 Attention: James Santelli Re: Letter Agreement ---------------- Dear Mr. Santelli: Reference is hereby made to (i) that certain Securities Purchase Agreement dated July 31, 2003 by and between Digital Angel Corporation (the "Company") and Laurus Master Fund, Ltd. ("Laurus") (as amended, the "July 2003 Agreement"), (ii) the other Transaction Documents referred to in the July 2003 Agreement, (as amended, the "Related July 2003 Documents"), (iii) that certain Security Agreement dated August 28, 2003 by and between the Company and Laurus (as amended, the "August 2003 Agreement") and (iv) the Ancillary Agreements referred to in the August 2003 Agreement, (as amended, the "Related August 2003 Documents") (the July 2003 Agreement, the Related July 2003 Documents, the August 2003 Agreement and the Related August 2003 Documents, as each may be amended, restated, modified and/or supplemented from time to time, the "Documents"). Capitalized terms used but not defined herein shall have the meanings ascribed them in the July 2003 Agreement and the August 2003 Agreement, respectively. This letter sets forth below Laurus' understanding of the agreements reached with the Company and its parent corporation, Applied Digital Solutions Inc. ("ADSX"), as to certain amendments and agreements reached regarding the Documents and related issues. Notwithstanding anything to the contrary contained in the Documents, Laurus hereby agrees, and by the Company's signature below, the Company hereby agrees, and, by signature below, solely with respect to paragraphs 3 and 5 below, ADSX hereby agrees, in each case, as follows: 1. The Company shall not have the ability prior to maturity to optionally prepay in cash any outstanding principal amounts evidenced by the Note (as defined in the July 2003 Agreement) (the "July 2003 Note") or any Minimum Borrowing Note (as defined in the August 2003 Agreement). 2. Laurus hereby agrees, so long as the initial registration statement filed in connection with the August 2003 Agreement and the Related August 2003 1 Documents (the "August 2003 Agreement Registration Statement") becomes effective on or prior to 60 days after the date hereof, any and all fees alleged to be incurred by the Company and due to Laurus prior to the date of effectiveness of the August 2003 Agreement Registration Statement as a result of the failure of the Company to timely cause the registration statements referred to in the Documents (including certain registration rights agreements) to be filed or become effective with the Securities and Exchange Commission prior to the dates required by such Documents shall, in each case, be waived. 3. Within two (2) business days after the date hereof Laurus hereby agrees to convert (such conversion, the "Initial Conversion") a portion of the July 2003 Note equal to 150,000 shares of the Company's common stock at the fixed conversion price applicable to said Note and as promptly as practicable following such conversion, ADSX hereby agrees to purchase such shares of the Company's common stock from Laurus at a purchase price equal to the Volume Weighted Average Price (" VWAP") of the Company's common stock for the three (3) trading days immediately preceding the Initial Conversion. 4. Laurus hereby agrees that its conversions of the outstanding principal amount of the July 2003 Note, any Minimum Borrowing Note or any other outstanding note or other obligation issued by the Company to Laurus will not exceed twenty-five percent (25%) of the aggregate dollar trading volume of the Company's common stock for the thirty (30) day trading period immediately preceding a delivery by Laurus of a notice of conversion to the Company. 5. Laurus hereby agrees that with respect to each conversion by Laurus of an outstanding amount of the July 2003 Note or a Minimum Borrowing Note into the Company's common stock occurring after the Initial Conversion, the Company and ADSX shall have the right to purchase all of such common stock converted by Laurus at a price per share equal to the VWAP of the Company's common stock for the three (3) trading days immediately preceding such conversion, which right shall terminate (the "Termination Time") at the end of the third (3rd) business hour (with a "business hour" consisting of any hour between 9 a.m. and 5 p.m. New York time) following provision by Laurus to the Company and ADSX of written or email notification of such conversion (it being understood that the Company and ADSX shall, at the time of any such notification, determine among themselves the manner in which such purchase right shall be allocated between the Company and ADSX). Notice of any such conversion shall be made in the manner provided for in the Documents, but in addition, Laurus agrees to telecopy and email a copy of each such notice of conversion to: Mr. Kevin McGrath, kmcgrath@digitalangelcorp.com, 651-805-8001 Mr. James P. Santelli, jsantelli@digitalangelcorp.com, 651-455-0217 Mr. Philip Colton, pcolton@winthrop.com, 612-604-6929 Mr. Scott Silverman, ssilverman@adsx.com, 561-805-8001 Mr. Michael Krawitz, mkrawitz@adsx.com, 561-805-8001 2 In the event that the Company and/or ADSX has not informed Laurus in writing of its exercise of its right to purchase such converted common stock of the Company prior to the respective Termination Time, Laurus shall be permitted to transfer the shares of the Company's common stock referred to in this paragraph 5 in any manner which it so chooses. 6. Laurus hereby agrees that it will not convert into common stock of the Company any amount outstanding under the August 2003 Agreement or the Related August 2003 Documents prior to the repayment in full (either in cash or by way of conversion into common stock of the Company) of all obligations outstanding under the July 2003 Agreement and the Related July 2003 Documents. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. LAURUS MASTER FUND, LTD. By: /s/ David Grin --------------- David Grin Director Agreed and accepted on the date hereof: DIGITAL ANGEL CORPORATION By: /s/ James P. Santelli ---------------------- Name: James P. Santelli Its Chief Financial Officer APPLIED DIGITAL SOLUTIONS INC. By: /s/Evan C. McKeown ------------------- Name: Evan C. McKeown Title: Chief Financial Officer 3 -----END PRIVACY-ENHANCED MESSAGE-----