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.
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(Name of Issuer)
Common Stock - $0.005 par value
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(Title of Class of Securities)
58449P 10 1
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(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
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
June 1, 2004
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(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)
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Name of Reporting Person:
1 Applied Digital Solutions, Inc. ("ADS")
I.R.S. Identification No. of Above Person (entity only)
43-1641533
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2 Check the Appropriate Box if a Member of a Group*
(a) /X/
(b) / /
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SEC use only
3
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Source of Funds*
4
OO - Other - Funds of reporting person in capital stock
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Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e)
5 / /
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Citizenship or Place of Organization
6
Missouri
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Sole voting power
7 7,850,000 shares (1)
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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)
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Shared dispositive power
10 15,453,506 shares (2)
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Aggregate Amount Beneficially Owned by Each Reporting Person
11 23,303,506 shares (1)
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Check box if the Aggregate Amount in Row (11) Excludes
Certain Shares* / /
12
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Percent of Class Represented by Amount in Row (11) / /
13 69.2% (1)
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Type of Reporting Person*
14 CO
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(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
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Name of Reporting Person:
1 Digital Angel Share Trust
I.R.S. Identification No. of Above Person (entity only)
45-6117433
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2 Check the Appropriate Box if a Member of a Group*
(a) /X/
(b) / /
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SEC use only
3
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Source of Funds*
4
OO - Other - Funds of ADS - in ADS capital stock
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Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(d) or 2(e)
5 / /
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Citizenship or Place of Organization
6
Delaware
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Sole voting power
7 -0-
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Number of shares Shared voting power
beneficially 8 14,703,506 shares
Owned by each -----------------------------------------------------
Reporting person Sole dispositive power
with 9 -0-
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Shared dispositive power
10 14,703,506 shares
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Aggregate Amount Beneficially Owned by Each Reporting Person
11 14,703,506 shares
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Check box if the Aggregate Amount in Row (11) Excludes
Certain Shares* / /
12
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Percent of Class Represented by Amount in Row (11) / /
13 43.7% (2)
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Type of Reporting Person*
14 OO
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(2) Includes 1,000,000 warrants issued to ADS in connection with a Share
Exchange Agreement.
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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
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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
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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.
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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
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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)
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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
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Total shares beneficially owned by ADS 23,303,506
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(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.
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(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
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SIGNATURE
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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
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Name: Evan C. McKeown
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Title: Senior Vice President and Chief Financial Officer
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Digital Angel Share Trust
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By: Wilmington Trust Company, Trustee
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By: /s/ Lorraine M. Breece
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Name: Lorraine M. Breece
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Attorney-in-Fact and Authorized Agent
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8
APPENDIX A
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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