Exhibit 10.1
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 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
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