Applied Digital Solutions 1690 South Congress Avenue, Suite 201 Delray Beach, FL 33445
Exhibit
10.4
Applied Digital Solutions
0000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
0000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
May 15, 2008
VeriChip Corporation
0000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
0000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Gentlemen:
This letter agreement (this “Letter Agreement”) confirms certain agreements between
Applied Digital Solutions, Inc. doing business as Digital Angel, a Delaware corporation
(“Stockholder”) and VeriChip Corporation, a Delaware corporation (the “Company”)
with respect to the matters described herein.
The Company has informed Stockholder that, subject to certain conditions including, but not
limited to, the approval of a majority of the outstanding common stock of the Company’s
stockholders, the Company will sell to The Xxxxxxx Works, a Connecticut corporation (the
“Purchaser”), all of the outstanding capital stock of Xmark Corporation, a corporation
governed under the laws of Canada and a wholly-owned subsidiary of the Company (the “Xmark
Transaction”) pursuant to that certain Stock Purchase Agreement, dated as of May 15, 2008,
between the Company and the Purchaser, a true and correct copy of which is attached hereto as
Exhibit A (the “Stock Purchase Agreement”).
The consummation of the Xmark Transaction constitutes an Event of Default (as defined in the
Commercial Loan Agreement) by the Company of that certain (i) Commercial Loan Agreement dated
December 27, 2005, as amended, between the Company and the Stockholder (the “Commercial Loan
Agreement”), (ii) Security Agreement dated December 27, 2005, as amended, between the Company
and the Stockholder, and (iii) Third Amended and Restated Revolving Line of Credit Note dated as of
February 8, 2007, as amended, from the Stockholder in favor of the Company (collectively, the
“Loan Transaction Documents”).
In addition, the Company has informed Stockholder that, as a condition to entering into the
Stock Purchase Agreement, Purchaser has required that Stockholder enter into a Voting Agreement, by
and between the Stockholder and the Purchaser (the “Voting Agreement”) and a Guarantee, by
the Stockholder in favor of the Purchaser (the “Guarantee”).
In consideration of Stockholder (i) granting its consent to the Xmark Transaction under the
Loan Transaction Documents and (ii) entering into the Voting Agreement and the Guarantee, and for
other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged,
and intending to be legally bound hereby, the parties hereto do hereby agree as
follows, the Stockholder and the Company (each, a “Party,” and together, the
“Parties”) acknowledge and agree as follows:
1. Consent.
(a) Upon satisfaction by the Company of all of the provisions hereof, the Stockholder shall
thereupon be deemed to have consented to the Xmark Transaction and that the consummation of the
Xmark Transaction shall thereupon not constitute an Event of Default under the Loan Transaction
Documents.
(b) The Company shall have complied with paragraph numbered 4 of that certain Letter Agreement
regarding Agreement to Subordinate Loans and Repayment of Loans dated February 29, 2008 from the
Stockholder to, and acknowledged by, the Company, a true and correct copy of which is attached
hereto as Exhibit B (the “Digital Angel Letter Agreement”), including, without
limitation, paying such portion of the Excess Amount (as defined in the Digital Angel Letter
Agreement) as required, pursuant to the Digital Angel Letter Agreement, to be paid directly pro
rata to the Laurus Note Holders to be applied against the Laurus Indebtedness, and to the Xxxxxxx
Note Holders to be applied against the Xxxxxxx Indebtedness (as such terms are defined in the
Digital Angel Letter Agreement).
2. Board of Directors.
(a) From and after the date of the closing of the Xmark Transaction (the “Xmark Closing
Date”), the Stockholder shall be entitled to designate up to three (3) members of the Company’s
Board of Directors (the “Board Designees”), all of which shall be independent with the
exception of Xx. Xxxxxx X. Xxxxxx. Notwithstanding the foregoing, if prior to the Xmark Closing
Date, the Company, in the reasonable judgment of Stockholder, has breached any of its obligations
under this Letter Agreement, the Stockholder shall be entitled to designate up to three (3) Board
Designees from the date of the breach. Upon any breach, the Stockholder will provide written
notice of such breach to the Company and the Company shall have five (5) days to cure such breach
from its receipt of such notice before Stockholder may designate its Board Designees. The
Stockholder presently intends to nominate Xx. Xxxxxx X. Xxxxxx, the President and Chief Executive
Officer of the Stockholder, as its one designee from and after the Xmark Closing Date, and the
Company hereby agrees to have Xx. Xxxxxx serve as Chairman of the Board of Directors. The
Stockholder does not have any current intentions to nominate any additional Board Designees.
(b) If any Board Designee shall be elected or appointed as a member of the Board of Directors
but shall thereafter cease to serve as a member of the Board of Directors (whether as a result of
his or her death or resignation or for any other reason) prior to the expiration of his or her term
of office, the Stockholder shall have the right to designate another person to fill the resulting
vacancy in the Board of Directors. The Company shall use its best efforts and take all action
within its power to cause each Board Designee to be elected or appointed to serve as a member of
the Board of Directors as promptly as practicable after the date upon which he or she has been so
designated. Without limiting the generality of the foregoing, the Company shall take
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any of the following actions if required in order to effect the election or appointment of a
Board Designee:
(i) If there exists a vacancy on the Board of Directors, the Company shall take all
necessary action within its power to cause such vacancy to be filled through the appointment
of such Board Designee. If no such vacancy exists, the Company shall solicit and use its
best efforts to obtain the resignation of one or more members of the Board of Directors so
as to allow for the appointment of such Board Designee.
(ii) If the Board of Directors is authorized by law to increase the number of members
of the Board of Directors without approval of the stockholders of the Company, the Company
shall take all necessary action within its power to increase the size of the Board of
Directors and cause each newly created directorship to be filled by the appointment of a
Board Designee.
(iii) The Company shall nominate such Board Designee for election as a member of the
Board of Directors at the next meeting of the stockholders at which members of the Board of
Directors are to be elected and, in connection therewith, shall (w) name such Board
Designee as a nominee of management in the form of proxy sent by management to the
stockholders of the Company prior to such meeting, (x) include all required information
regarding such Board Designee in the proxy statement sent by management of the Company to
the stockholders of the Company prior to such meeting (which information shall, upon
request, be furnished to management by the Stockholder), (y) recommend to the stockholders
of the Company the election of such Board Designee and (z) vote in favor of such Board
Designee all legally effective proxies received from stockholders of the Company that
authorize or direct any officer or director of the Company, as proxy holder, to vote in the
election of directors for such Board Designee or which grant to any officer or director of
the Company the power to exercise his or her discretion in voting in the election of
directors.
(c) The Company hereby agrees to limit the number of directors on its Board of Directors to
seven (7) directors as a maximum and shall maintain that minimum number of directors as is
necessary to prevent Stockholder’s Board Designees from constituting a majority of directors at any
time.
3. Dividend. Promptly after the Xmark Closing Date, and in accordance with the Second
Amended and Restated Certificate of Incorporation of the Company, the Amended and Restated By-Laws
of the Company and all applicable laws, the Company shall pay a special dividend to all of its
stockholders in an aggregate amount of not less than $15,000,000. The Company hereby confirms that
after payment of the special dividend, the Company believes it will have sufficient assets to carry
on its business and to provide for future liabilities and sufficient surplus under applicable
Delaware law with which to pay the special dividend. In addition, promptly after the release of
the Escrow Amount (as defined in the Stock Purchase Agreement), the Company shall pay a second
special dividend to all of its stockholders, reflecting the release of the Escrow Amount and any
other amounts from the sale of the
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Company’s VeriMed business or the Company’s other assets (the date of the payment of the
second dividend, the “Second Dividend Date”).
4. Employee Matters.
(a) The Company has today entered into that certain Separation Agreement by and between the
Company and Xxxxx X. Xxxxxxxxx (the “Xxxxxxxxx Separation Agreement”), a true and correct
copy of which is attached hereto as Exhibit C, and such agreement shall continue in full
force and effect and shall not be modified, rescinded or amended without the prior written consent
of the Stockholder.
(b) Other than as provided under the Xxxxxxxxx Separation Agreement and as set forth in the
letter provided by the Company to Stockholder on the date hereto (the “Side Letter”), there
are no agreements, written or oral, regarding any special payment, bonus, incentive payment,
success fee, retention payment, consulting, management, finder, broker or similar fee or other
payment (collectively “Bonus Arrangements”) related to the Xmark Transaction, the potential
sale of the VeriMed business or the other assets of the Company or the other transactions
contemplated herein. From the date hereof until the Second Dividend Date, the Company agrees (i)
to adhere to and make no changes to the Company’s existing employment agreements and arrangements,
including those set forth in the Side Letter, and (ii) not to enter into or adopt any Bonus
Arrangements, in each case, without the prior written consent of the Stockholder.
5. Access. From the date hereof until the Second Dividend Date, the Company will
permit Stockholder and its designated representatives to access such information relating to the
Company, including financial information, as Stockholder may reasonably request. Without limiting
the generality of the foregoing, such information shall include the items set forth on Exhibit
D. The Company shall make its officers available during normal business hours to meet with
Stockholder’s designated representative to discuss such information upon the reasonable request of
Stockholder.
6. Insurance. Prior to the Xmark Closing Date, the Company will use commercially
reasonably efforts to procure prepaid “tail” policies at no less than current limits on (i) the
Company’s existing directors’ and officers’ liability insurance policy and (ii) the Company’s
existing general and products liability insurance policy. The Stockholder will be named as an
additional insured on such coverage. The Company and the Stockholder will cooperate and consult
regarding the purchase of this coverage, including consulting on such matters as the appropriate
limits and correct insureds and such other matters as the Parties shall mutually agree.
7. Representations and Warranties. Each Party represents and warrants to the other
Party as follows:
(a) It has all requisite power, legal capacity and authority to execute, deliver and perform
its obligations under this Letter Agreement.
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(b) This Letter Agreement has been duly and validly authorized, executed and delivered by it,
and constitutes a valid and binding obligation of it, enforceable against it in accordance with its
terms except to the extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors’ rights generally.
(c) The execution, delivery and performance of this Letter Agreement by it does not (i)
violate, conflict with, or constitute a breach of or default under its organizational documents, if
any, or any material agreement to which it is a Party or by which it is bound or (ii) violate any
law, regulation, order, writ, judgment, injunction or decree applicable to it.
(d) It is not a Party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with any provision of this Letter Agreement or the rights of any Party hereunder.
(e) The consummation by the Party of the transactions contemplated by this Letter Agreement
have been duly and validly authorized by all necessary corporate, partnership or other action on
the part of the Party.
8. Miscellaneous.
(a) Each Party will pay its own costs and expenses in connection with the transactions
contemplated herein, except that, upon the Xmark Closing Date, the Company will pay to the
Stockholder (i) $250,000 as consideration for the execution of the Guarantee and (ii) the
Stockholder’s actual expenses (the “Transaction Expenses”) incurred or reasonably expected
to be incurred by Stockholder in connection with the transactions described in this Letter
Agreement, which Transaction Expenses shall not exceed $250,000 in the aggregate.
(b) This Letter Agreement shall be governed by the law of the State of Florida, excluding its
conflict and choice of law principles. No modification or waiver of the terms of this Agreement
shall be effective unless it appears in a writing signed by the Parties.
(c) This Letter Agreement shall terminate upon the Second Dividend Date; provided,
however, that if the Stock Purchase Agreement is terminated in accordance with Section 7.1
of the Stock Purchase Agreement, this Letter Agreement shall terminate on such earlier date of
termination, and the obligations of the Parties under this Letter Agreement shall terminate, except
for the obligations of each Party under Section 8 (provided that in Section 8(a) the Company shall
pay only the Transaction Expenses to Stockholder).
(d) This Letter Agreement and the Side Letter constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, between the Parties with respect to
the subject matter hereof. This Letter Agreement is not intended to confer on any person other
than the Parties hereto any rights or remedies hereunder.
(e) The Parties shall be entitled to enforce its rights under this Letter Agreement
specifically, to recover damages by reason of any breach of any provision of this Letter Agreement
and to exercise all other rights existing in their favor. The Parties agree and
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acknowledge that money damages may not be an adequate remedy for any breach of the provisions
of this Letter Agreement, and that either party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance and/or injunctive relief (without
posting a bond or other security) in order to enforce or prevent any violation of the provisions of
this Letter Agreement.
(f) The Company agrees to notify Stockholder within one (1) business day of its receipt of a
Claim Notice (as defined in Section 8.2(a) of the Stock Purchase Agreement) relating to a matter
covered by Section 8.1(a)(iii) of the Stock Purchase Agreement. In the event of a Third-Party
Claim (as defined in Section 8.2(a) of the Stock Purchase Agreement) against Xxxxxxx for claims
arising under Section 8.1(a)(iii) of the Stock Purchase Agreement, the Company agrees not to settle
or compromise any such claim without Stockholder’s prior written consent (which shall not be
unreasonably withheld or delayed). In the event of a Third-Party Claim against Xxxxxxx for claims
arising under Section 8.1(a)(iii) of the Stock Purchase Agreement, the Company further agrees to
assume control of the defense as is provided for under Section 8.2(b) of the Stock Purchase
Agreement. The Company shall keep Stockholder fully informed on a current basis regarding all
developments in respect of any such Third-Party Claim and shall consult with Stockholder in
connection with the defense of the claim. Stockholder may also participate, at its own expense and
through legal counsel of its choice, in any such Proceeding (as defined in the Stock Purchase
Agreement) related to such Third-Party Claim. On or after the Cut-Off Date (as defined in the
Stock Purchase Agreement) and upon the request of Stockholder, the Company will assign its rights
under any provision of the Stock Purchase Agreement, including under Section 8.2 of the Agreement.
The Company shall pay when due all amounts required to be paid to Purchaser under Section
8.1(a)(iii) of the Stock Purchase Agreement. If the Company fails to pay when due any such amounts
required to be paid to Purchaser under Section 8.1(a)(iii) of the Stock Purchase Agreement, and
Stockholder pays such amounts to Purchaser, all such amounts paid by Stockholder shall be
considered a debt obligation of the Company to Stockholder, to be paid upon demand of Stockholder.
(g) This Letter Agreement may be executed in one or more counterpartes, each of which shall be
deemed an original, but all of which shall constitute one and the same instrument. Furthermore,
signatures delivered via facsimile transmission shall have the same force and effect as the
original thereof.
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If the foregoing correctly reflects your understanding of our agreement, please so indicate by
signing and returning a copy of this letter to us today.
| Very truly yours, | ||||||
| APPLIED DIGITAL SOLUTIONS, INC.: | ||||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||||
| Name: | ||||||
| Title: | ||||||
| AGREED AND ACCEPTED As of the date first written above: |
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| VERICHIP CORPORATION: | ||||
By: |
/s/ Xxxxx X. Xxxxxxxxx | |||
Name:
|
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Title:
|
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