EXHIBIT 10.6
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of June 30,
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2003, made by Applied Digital Solutions, Inc., a Missouri corporation (the
"Pledgor"), in favor of the investors set forth on the Collateral Schedule
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attached hereto, each in its capacity as agent with respect to the
collateral pledged to it hereunder (each, a "Pledgee" only with respect to
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the collateral pledged to it hereunder, and collectively, the "Pledgees").
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WHEREAS:
A. The Pledgor and the Pledgees are parties to a
Securities Purchase Agreement, dated as of the date hereof (as amended or
otherwise modified from time to time, the "Securities Purchase Agreement");
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B. Pursuant to the Securities Purchase Agreement, the
Pledgees, severally but not jointly, have agreed to purchase certain 8.5%
Convertible Exchangeable Debentures (the "Debentures") from the Pledgor,
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which, among other things, are exchangeable by each Pledgee for up to an
aggregate number of shares (collectively, the "DOC Shares") of the common
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stock, par value $.005 per share, of Digital Angel Corporation ("DOC"), set
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forth opposite such Pledgee's name on the Collateral Schedule attached
hereto; and
C. It is a condition precedent to the purchase of the
Debentures by the Pledgees pursuant to the Securities Purchase Agreement
that the Pledgor shall have executed and delivered to the Pledgees a pledge
agreement providing for the pledge to the Pledgees of, and the grant to the
Pledgees of a security interest in the DOC Shares pledged to each Pledgee as
specified in the Collateral Schedule (the "Pledged Shares");
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NOW, THEREFORE, in consideration of the premises and the
agreements herein contained and in order to induce the Pledgees to enter
into the Securities Purchase Agreement, the Pledgor hereby agrees with the
Pledgees as follows:
SECTION 1. Definitions. All terms used in this Agreement
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which are defined in the Securities Purchase Agreement or in Article 8 or
Article 9 of the Uniform Commercial Code (the "UCC") currently in effect in
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the State of New York and which are not otherwise defined herein shall have
the same meanings herein as set forth therein; provided, that terms used
herein which are defined in the UCC as in effect in the State of New York on
the date hereof shall continue to have the same meaning notwithstanding any
replacement or amendment of such statute.
SECTION 2. Pledge and Grant of Security Interest. As
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collateral security for all of the Obligations (as defined in Section 3
hereof), the Pledgor hereby pledges and assigns to each Pledgee, and grants
to each Pledgee a continuing security interest in, the Pledgor's right,
title and interest in and to such Pledgee's Pledged Shares, the certificates
representing such Pledged Shares, all options and other rights, contractual
or otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and other property (including but
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not limited to, any stock dividend and any distribution in connection with a
stock split) from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the Pledged Shares
(collectively, the "Pledged Collateral").
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SECTION 3. Security for Obligations. The security interest
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created hereby in the Pledged Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or
hereafter incurred (the "Obligations"):
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(a) the prompt payment by the Pledgor to each Pledgee, as
and when due and payable (by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of all amounts from
time to time owing by it in respect of interest, principal and
other charges of the Debentures and the other Transaction Documents
(including, without limitation, all interest that accrues after the
commencement of any case, proceeding or other action relating to
bankruptcy, insolvency or reorganization of the Pledgor whether or
not the payment of such interest is unenforceable or is not
allowable due to the existence of such case, proceeding or other
action), all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due to the
Pledgees under the Transaction Documents; and
(b) the delivery to each Pledgee of its Pledged Shares
upon exchange of such Pledgee's Debenture or upon exercise of such
Pledgee's Warrants.
SECTION 4. Delivery of the Pledged Collateral.
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(a) The Trustee shall continue of hold the Pledged Shares
in the name of the Trust for the benefit of the Pledgees pursuant
to the Trust Agreement. The Pledgor further agrees to execute such
other documents and to take such other actions as any Pledgee deems
reasonably necessary or desirable to create and perfect the
security interests intended to be created hereunder, to effect the
foregoing and to permit such Pledgee to exercise any of its rights
and remedies hereunder.
(b) If the Pledgor shall receive, by virtue of its being
or having been an owner of any Pledged Collateral, any (i) stock
certificate (including, without limitation, any certificate
representing a stock dividend or distribution in connection with
any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split,
spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in
exchange for, any Pledged Collateral, or otherwise, (iii) dividends
or interest payable in cash or in securities or other property,
(iv) dividends, interest and other distributions paid or payable
other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect
of or in exchange for, any Pledged Collateral, (v) dividends or
other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, or (vi) cash paid,
payable or otherwise distributed in redemption of, or in exchange
for, any Pledged Collateral, such stock certificate, promissory
note, instrument, option, right, property, payment or distribution
constituting Pledged Collateral shall be, and shall forthwith be
delivered to the Trustee to hold as, Pledged Collateral and shall,
if received by the
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Pledgor, be received in trust for the benefit of the Pledgees, shall
be segregated from the Pledgor's other property and shall be
delivered forthwith to the Trustee in the exact form received, with
any necessary endorsement and/or appropriate stock powers duly
executed in blank, to be held by the Trustee as Pledged Collateral
and as further collateral security for the Obligations.
SECTION 5. Representations and Warranties. The Pledgor
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represents and warrants as follows:
(a) The execution, delivery and performance by the Pledgor
of this Agreement and the exercise by the Pledgees of any of their
rights and remedies in accordance with the terms of this Agreement
and applicable securities law will not contravene any law or any
contractual restriction binding on or affecting the Pledgor or any
of its properties and do not and will not result in or require the
creation of any Lien upon or with respect to any of its properties
other than pursuant to this Agreement.
(b) The Pledgor is and will be at all times the beneficial
owner of the Pledged Collateral free and clear of any Lien or
option except for the security interest created by this Agreement.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or other
regulatory body is required for the grant by the Pledgor, or the
perfection, of the security interest purported to be created hereby
in the Pledged Collateral or the exercise by the Pledgees of any of
their rights and remedies hereunder, except as may be required in
connection with any sale of any Pledged Collateral by laws
affecting the offering and sale of securities generally, including
the foreclosure procedures sanctioned under the interpretations of
the securities laws.
(d) This Agreement creates a valid security interest in
favor of the Pledgees in the Pledged Collateral, as security for
the Obligations. Such security interest is, or in the case of
Pledged Collateral in which the Pledgor obtains rights after the
date hereof, will be, a perfected, first priority security
interest. All action necessary to perfect and protect such security
interest has been duly taken, except for each Pledgee's having
possession of security certificates constituting Pledged Collateral
after the date hereof and obtaining control of uncertificated
securities and security entitlements constituting Pledged
Collateral after the date hereof.
SECTION 6. Covenants as to the Pledged Collateral. So long
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as any of the Obligations shall remain outstanding, the Pledgor will, unless
Purchasers' Representative shall otherwise consent in writing:
(a) keep adequate records concerning the Pledged
Collateral and permit each Pledgee or any agents or representatives
thereof at any reasonable time and from time to time to examine and
make copies of and abstracts from such records;
(b) at its expense, promptly deliver to Purchasers'
Representative a copy of each notice or other communication
received by it in respect of the Pledged Collateral;
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(c) at its expense, defend each Pledgee's right, title and
security interest in and to the Pledged Collateral against the
claims of any Person;
(d) at its expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents
and take all further action that may be necessary or desirable or
that any Pledgee may reasonably request in order to (i) perfect and
protect the security interest purported to be created hereby, or
(ii) enable such Pledgee to exercise and enforce its rights and
remedies hereunder in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise),
transfer, exchange or otherwise dispose of any Pledged Collateral
or any interest therein;
(f) not create or suffer to exist any Lien upon or with
respect to any Pledged Collateral except for the security interest
created hereby;
(g) not make or consent to any amendment or other
modification or waiver with respect to any Pledged Collateral or
enter into any agreement or permit to exist any restriction with
respect to any Pledged Collateral other than pursuant hereto;
(h) not take or fail to take any action which would in any
manner impair the value or enforceability of each Pledgee's
security interest in any Pledged Collateral; and
(i) in the event that any Pledgee exercises its rights
under any of the Transaction Documents as to any of such Pledgee's
Pledged Shares in compliance with applicable securities laws and
interpretations thereof, the Pledgor shall cause, at its expense,
its legal counsel to issue an opinion (provided that the requisite
legal and factual criteria for issuing such an opinion are present
in the transaction) addressed to DOC and DOC's transfer agent,
providing that such Pledgee's Pledged Shares can be reissued
without legends or any other restriction on the transfer thereof.
SECTION 7. Voting Rights, Etc. in Respect of the Pledged
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Collateral.
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(a) So long as no Event of Default or event which, with
the giving of notice or lapse of time or both, would constitute an
Event of Default, shall have occurred and be continuing:
(i) the Pledgor may exercise any and all voting
and other consensual rights pertaining to any Pledged
Collateral for any purpose not inconsistent with the terms
of the Transaction Documents; and
(ii) each Pledgee will execute and deliver (or
cause to be executed and delivered) to the Pledgor all
such proxies and other instruments as the Pledgor may
reasonably request for the purpose of enabling the Pledgor
to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph Section 7(a)(i)
hereof.
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(b) Upon the occurrence and during the continuance of an
Event of Default or an event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default:
(i) all rights of the Pledgor to exercise the
voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section
7(a)(i) hereof shall cease, and all such rights shall
thereupon become vested pro rata in the Pledgees which
shall thereupon have the sole right to exercise such
voting and other consensual rights; and
(ii) without limiting the generality of the
foregoing, each Pledgee may at its option exercise any and
all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any of
such Pledgee's Pledged Collateral as if it were the
absolute owner thereof, including, without limitation, the
right to exchange, in its discretion, any and all of such
Pledgee's Pledged Collateral upon the merger,
consolidation, reorganization, recapitalization or other
adjustment of DOC, or upon the exercise by DOC of any
right, privilege or option pertaining to any Pledged
Collateral, and, in connection therewith, to deposit and
deliver any and all of the Pledged Collateral with any
committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as it may
determine.
SECTION 8. Additional Provisions Concerning the Pledged
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Collateral.
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(a) The Pledgor hereby authorizes each Pledgee to file,
without the signature of the Pledgor where permitted by law, one or
more financing or continuation statements, and amendments thereto,
relating to the Pledged Collateral.
(b) The Pledgor hereby irrevocably appoints each Pledgee
the Pledgor's attorney-in-fact and proxy, with full authority,
exercisable only during the existence of an Event of Default, in
the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in such Pledgee's discretion, to
take any action and to execute any instrument which such Pledgee
may deem necessary or advisable to accomplish the purposes of this
Agreement (subject to the rights of the Pledgor under Section 7(a)
hereof), including, without limitation, to receive, endorse and
collect all instruments made payable to the Pledgor representing
any dividend or other distribution in respect of any of such
Pledgee's Pledged Collateral and to give full discharge for the
same. This power is coupled with an interest and is irrevocable
until all of the Obligations are satisfied in full.
(c) If the Pledgor fails to perform any agreement or
obligation contained herein, each Pledgee itself may perform, or
cause performance of, such agreement or obligation with respect to
such Pledgee's Pledged Collateral, and the expenses of such Pledgee
incurred in connection therewith shall be payable by the Pledgor
pursuant to Section 10 hereof and shall be secured by the Pledged
Collateral.
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SECTION 9. Remedies Upon Default. If any Event of Default
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shall have occurred and be continuing:
(a) The Pledgee may exercise in respect of such Pledgee's
Pledged Collateral its rights as a third-party beneficiary under
the Trust Agreement.
(b) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to
which the applicable Pledgee is legally entitled, the Pledgor shall
be liable for the deficiency, together with interest thereon at the
highest rate specified in such Pledgee's Debenture for interest on
overdue principal thereof or such other rate as shall be fixed by
applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by such Pledgee to
collect such deficiency.
SECTION 10. Indemnity and Expenses.
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(a) The Pledgor agrees to indemnify and hold harmless each
Pledgee and all of their respective stockholders, partners,
members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
from and against any and all third-party claims, damages, losses,
liabilities, obligations, penalties, costs and expenses (including,
without limitation, reasonable attorney's fees and disbursements)
to the extent that they arise out of or otherwise result from this
Agreement (including, without limitation, enforcement of this
Agreement), except, as to any such indemnified Person, claims,
losses or liabilities resulting solely and directly from such
Person's gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction and except to
the extent that such claims, losses or liabilities result from
failure of such indemnified Persons to comply with the securities
laws.
(b) The Pledgor will pay to each Pledgee upon demand the
amount of any and all costs and expenses, including the fees and
disbursements of such Pledgee's counsel and of any experts and
agents, which such Pledgee may incur in connection with (i) the
custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of such Pledgee's
Pledged Collateral, (ii) the exercise or enforcement of any of the
rights of such Pledgee hereunder or (iii)the failure by the Pledgor
to perform or observe any of the provisions hereof.
SECTION 11. Notices. Whenever notice is required to be
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given under this Agreement, unless otherwise provided herein, such notice
shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.
SECTION 12. Security Interest Absolute. To the extent
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permitted by law, all rights of the Pledgees and the Pledgor hereunder shall
be absolute and unconditional irrespective of: (i) any lack of validity or
enforceability of any Transaction Document or any other agreement or
instrument relating thereto, (ii) any change in the time, manner or place of
payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from any guaranty, for all or any of the Obligations, or (iii) any other
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circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations. All authorizations
and agencies contained herein with respect to any of the Pledged Collateral
are irrevocable and powers coupled with an interest.
SECTION 13. Miscellaneous.
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(a) No amendment of any provision of this Agreement shall
be effective unless it is in writing and signed by the Pledgor and
Purchasers' Representative, and no waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor
therefrom, shall be effective unless it is in writing and signed by
Purchasers' Representative, and then such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given.
(b) No failure on the part of any Pledgee to exercise, and
no delay in exercising, any right hereunder or under any
Transaction Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other
or further exercise thereof or the exercise of any other right. The
rights and remedies of the Pledgees provided herein and in the
Transaction Documents are cumulative and are in addition to, and
not exclusive of, any rights or remedies provided by law. The
rights of the Pledgees under any Transaction Document against any
party thereto are not conditional or contingent on any attempt by a
Pledgee to exercise any of its rights under any other document
against such party or against any other Person.
(c) 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 portions hereof
or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (i) remain in full
force and effect until the satisfaction in full or release of the
Obligations and (ii) be binding on the Pledgor and its successors
and assigns and shall inure, together with all rights and remedies
of the Pledgees hereunder, to the benefit of the Pledgees and their
respective successors, transferees and assigns; provided that no
such transfer or assignement shall be valid if it is in violation
of applicable securities laws. Without limiting the generality of
clause (ii) of the immediately preceding sentence, subject to
compliance with the applicable securities laws and applicable
provisions of the Transaction Documents, any Pledgee may assign or
otherwise transfer all or any portion of the Debentures, and its
rights under the Transaction Documents, to any other Person, and
such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to such Pledgee herein or
otherwise unless such benefit is unavailable due to the status of
such transferee or otherwise under applicable law. Upon any such
permitted assignment or transfer, all references in this Agreement
to a Pledgee shall mean the assignee of such Pledgee. None of the
rights or obligations of the Pledgor hereunder may be assigned or
otherwise transferred without the prior written consent of
Purchasers' Representative.
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(e) Upon the satisfaction in full of the Obligations, (i)
this Agreement and the security interest created hereby shall
terminate and all rights to the Pledged Collateral, if any shall be
remaining, shall revert to the Pledgor, and (ii) the Pledgees will,
upon the Pledgor's request and at the Pledgor's expense, (A) return
to the Pledgor such of the Pledged Collateral as shall not have
been sold or otherwise disposed of, dealt with or applied pursuant
to the terms hereof and of the Transaction Documents and (B)
execute and deliver to the Pledgor, without recourse,
representation or warranty, such documents as the Pledgor shall
reasonably request to evidence such termination. Notwithstanding
the foregoing, the Pledged Collateral shall decrease by any shares
of DOC Common Stock that have been transferred to Pledgee in
connection with an exercise of Warrants or the conversion or
payment of interest or the mandatory redemption under the
Debentures.
(f) All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of this Agreement, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its
attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
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IN WITNESS WHEREOF, the Pledgor has caused this Pledge
Agreement to be executed and delivered by its officer thereunto duly
authorized, as of the date first above written.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Scott Silverman
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Name: Scott Silverman
Title: CEO
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COLLATERAL SCHEDULE
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PLEDGE AGREEMENT
Pledged Shares
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Name of Pledgee Number of Pledged Shares Class Certificate No(s).
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Common Stock
Common Stock
Common Stock
Common Stock
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