UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
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Filed by a Party other than the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Digital Angel Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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TABLE OF CONTENTS
Digital Angel Corporation
490 Villaume Avenue
South St. Paul, Minnesota 55075
September 15, 2008
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders which will be held on
October 30, 2008, at 9:00 a.m. Eastern Daylight Time, at the Hilton Fort Lauderdale Airport hotel,
1870 Griffin Road, Dania Beach, Florida 33004.
A notice of the Special Meeting, a form of proxy and a proxy statement containing information
about the matters to be acted on at the Special Meeting are enclosed.
Your vote is important regardless of the number of shares you own. We encourage you to vote
by proxy so that your shares will be represented and voted at the Special Meeting even if you
cannot attend. All stockholders can vote by written proxy card. Many stockholders also can vote
by proxy via a touch-tone telephone from the U.S. and Canada, using the toll-free number on your
proxy card or via the Internet using the instructions on your proxy card. In addition,
stockholders may vote in person at the special meeting as described above.
The Board of Directors and management look forward to seeing you at the Special Meeting.
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Sincerely,
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/s/ Joseph J. Grillo
JOSEPH J. GRILLO
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Chief Executive Officer and President
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held October 30, 2008
TO THE STOCKHOLDERS OF DIGITAL ANGEL CORPORATION:
A special meeting of stockholders of Digital Angel Corporation, a Delaware corporation, or the
Company, whose headquarters are temporarily located in South St. Paul, Minnesota, will be held at
the Hilton Fort Lauderdale Airport hotel, 1870 Griffin Road, Dania Beach, Florida 33004, on October
30, 2008, at 9:00 a.m., Eastern Daylight Time, for the following purposes:
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To approve an amendment to the Companys Certificate of
Incorporation, as amended, to effect a one-for-eight
reverse stock split of the Companys common stock by
proportionately decreasing the authorized number of shares
of common stock without changing the par value of the stock
(Proposal 1).
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2.
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Subject to the approval of Proposal 1, to approve an
amendment to the Companys Certificate of Incorporation, as
amended, to increase the number of authorized shares of
common stock from 23,750,000 to 35,000,000.
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A form of proxy and a proxy statement containing more detailed information about the matters
to be acted on at the special meeting accompany this notice.
Only stockholders of record at the close of business on September 17, 2008 and their proxies
will be entitled to notice of and to vote, or exercise voting rights through a voting trust, as the
case may be, at the special meeting and any adjournment or postponement of the special meeting.
The list of holders of record of the Companys common stock as of the close of business on
September 17, 2008 will be available for inspection during normal business hours at the Companys
offices at 490 Villaume Avenue, South St. Paul, Minnesota 55075 for ten business days prior to the
special meeting. This list will also be available at the special meeting.
All stockholders are invited to attend the special meeting in person. If you plan to attend
the special meeting, please mark the appropriate box on your proxy card to help us plan for the
special meeting. For admission to the special meeting, you will need to bring an admission card to
the special meeting. If your shares are registered in your name, you are the stockholder of record
and your admission card is attached to your proxy card. If your shares are registered in the name
of a broker or bank, your shares are held in street name and you will need to ask your broker or
bank for an admission card in the form of a legal proxy. If you do not receive the legal proxy in
time, please bring your brokerage statement with you to the special meeting so that we can verify
your ownership of the Companys stock on the record date and admit you to the special meeting.
However, you will not be able to vote your shares at the special meeting without a legal proxy.
Whether or not a stockholder plans to attend the special meeting in person, each stockholder
is urged to vote promptly by signing and returning the enclosed proxy card, using the telephone
voting system as indicated on the proxy card or accessing the website indicated on the proxy card
to vote via the Internet. If a stockholder decides to attend the special meeting, he or she may
revoke the proxy and vote the shares in person at the special meeting.
If there is an insufficient number of votes for a quorum or to approve the foregoing proposal
at the time of the special meeting, the special meeting may be adjourned or postponed to allow
further solicitation of proxies by the Company.
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By Order of the Board of Directors,
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/s/ Joseph J. Grillo
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JOSEPH J. GRILLO
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Chief Executive Officer and President
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South St. Paul, Minnesota
September 15, 2008
Digital Angel Corporation
490 Villaume Avenue, South St. Paul
Minnesota 33445
PROXY STATEMENT
For The Special Meeting Of Stockholders
To Be Held On October 30, 2008
This document is being furnished to the stockholders of Digital Angel Corporation, a Delaware
corporation (Company), as part of the solicitation of proxies by the Companys Board of Directors
for use at the special meeting of stockholders to be held at the Hilton Fort Lauderdale Airport
hotel, 1870 Griffin Road, Dania Beach, Florida 33004, on October 30, 2008 at 9:00 a.m., Eastern
Daylight Time. The Company expects to mail this proxy statement and the accompanying form of proxy
on or about September 24, 2008 to stockholders of record.
Purpose of the Special Meeting
The special meeting is being held to vote on the following proposals, which were previously
approved by the Companys Board of Directors:
1. To approve an amendment to the Companys Certificate of Incorporation, as amended, to
effect a one-for-eight reverse stock split of the Companys common stock by proportionately
decreasing the authorized number of shares of common stock without changing the par value of the
stock (Proposal 1).
2. Subject to the approval of Proposal 1, to approve an amendment to the Companys Certificate
of Incorporation, as amended, to increase the number of authorized shares of common stock from
23,750,000 to 35,000,000 (Proposal 2).
Record Date and Share Ownership
Stockholders of record of shares of the Companys common stock at the close of business on
September 17, 2008 (Record Date) will be entitled to vote at the special meeting or adjournments
or postponements thereof. Each stockholder of record on the Record Date is entitled to one vote
for each share of common stock so held.
As of the close of business on August 12, 2008, there were 125,508,896 shares of common stock
outstanding. Based on this amount, the Company anticipates that as of the Record Date, there will
be approximately 125,508,896 shares of common stock outstanding and entitled to vote at the special
meeting (all such shares being referred to herein as the shares and all holders thereof being
referred to as our stockholders). A majority of the shares must be present, in person or by
proxy, to conduct business at the special meeting.
1
For information regarding security ownership by management and the beneficial owners of more
than 5% of the Companys common stock, see Security Ownership of Certain Beneficial Owners and
Management.
All share numbers in this proxy statement do not take into account the effect of the proposed
amendments to the Companys Certificate of Incorporation, as amended, unless otherwise expressly
indicated.
Quorum
A quorum, consisting of a majority of the outstanding shares of the Companys common stock
entitled to vote at the special meeting, must be present in person or by proxy before any action
can be taken by the stockholders at the special meeting.
If a stockholder has returned a valid proxy or attends the special meeting in person, the
stockholders shares will be counted for the purpose of determining whether there is a quorum, even
if the stockholder wishes to abstain from voting on the either or both of the proposals at the
special meeting. Abstentions and broker non-votes (shares held by a broker, bank or other
nominee that does not have authority, either express or discretionary, to vote on a particular
matter) are counted for determining whether there is a quorum.
Voting
Stockholders of record may vote their shares either in person by ballot at the special meeting
or by proxy. The procedures that permit stockholders to submit proxies by telephone or via the
Internet are designed to authenticate stockholders identities, to allow stockholders to vote their
shares and to confirm that their instructions have been properly recorded. Specific instructions
to be followed by stockholders interested in voting via the telephone or the Internet are set forth
on the proxy card.
All properly executed written proxies and all properly completed proxies voted by telephone or
via the Internet and delivered pursuant to this solicitation (and not revoked later) will be voted
at the special meeting in accordance with the instructions of the stockholder. Below is a list of
the different ways stockholders may vote at the special meeting pursuant to this solicitation:
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in favor of a proposal,
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against a proposal, or
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abstain from voting on a proposal.
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Please note that Proposal 2 is conditioned on the approval of Proposal 1. Therefore, if
Proposal 1 is not approved by the stockholders, Proposal 2 will automatically be deemed to have not
been approved by the stockholders, regardless of the number of shares actually voted for Proposal
2.
Stockholders should specify their choice of vote on both Proposal 1 and Proposal 2 on the
proxy. If no specific instructions are given, the shares will be voted FOR the approval of
Proposal 1 and Proposal 2. In addition, if other matters properly come before the special meeting,
such as a vote to adjourn the special meeting, the persons named in the accompanying form of proxy
will vote in accordance with their best judgment with respect to such matters.
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Revocability of Proxies
A stockholder submitting a proxy has the power to revoke it at any time prior to its exercise
by voting in person at the special meeting, by giving the Companys proxy tabulator written notice
bearing a later date than the proxy or by giving a later dated proxy. Any written notice revoking
a proxy should be sent to the Companys proxy tabulator: Broadridge Financial Solutions (formerly
ADP Investor Communication Services, Inc.), 51 Mercedes Way, Edgewood, NY 11717.
Attendance at the special meeting will not, in and of itself, constitute a revocation of a
proxy.
Required Vote
Approval of the proposals will require the affirmative vote of a majority of the outstanding
shares of the Companys common stock entitled to vote at the special meeting. Abstentions and, if
applicable, broker non-votes are not counted as votes for or against the proposals.
Solicitation Expenses
The expense of solicitation of proxies will be borne by the Company. As of September 15,
2008, the Company has not retained a proxy solicitor to solicit proxies, however the Company may
choose to do so prior to the special meeting. Proxies may also be solicited by certain of the
Companys directors, officers and other employees without additional compensation, personally or by
written communication, telephone or other electronic means. The Company is required to request
brokers and nominees who hold stock in their name to furnish the Companys proxy material to
beneficial owners of the stock and will reimburse such brokers and nominees for their reasonable
out-of-pocket expenses in so doing.
Forward-Looking Statements regarding the Proposals
This proxy statement includes forward-looking statements including statements regarding the
Companys intent to solicit approval of Proposal 1 to effect a reverse stock split by
proportionately reducing the number of authorized shares of common stock, the timing of the
proposed reverse stock split, the potential benefits of a reverse stock split, including but not
limited to increased investor interest, continued listing on the Nasdaq Capital Market and the
potential for a higher stock price, intent to solicit approval of Proposal 2 to increase the number
of authorized shares of common stock and the timing and effects of the proposed amendments to the
Certificate of Incorporation, as amended. The words believe, expect, will, may and similar
phrases are intended to identify such forward-looking statements. Such statements reflect the
current views and assumptions of the Company, and are subject to various risks and uncertainties
that could cause actual results to differ materially from expectations. These risks include but
are not limited to risks relating to the volatility of the Companys stock price, general market
and economic conditions and risks related to the development of the Companys business model. For
a discussion of these and other risk factors that could affect the Companys business, see RISK
FACTORS in the Companys filings with the Securities and Exchange Commission, including its Form
10-K for the year ended December 31, 2007.
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PROPOSAL 1
APPROVAL OF AN AMENDMENT TO THE COMPANYS CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT
A ONE-FOR-EIGHT REVERSE STOCK SPLIT OF THE COMPANYS COMMON STOCK BY PROPORTIONATELY DECREASING
THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK WITHOUT CHANGING THE PAR VALUE OF THE STOCK.
Overview of Proposal 1
The Board of Directors has adopted a resolution approving, declaring advisable and
recommending to the Companys stockholders for their approval Proposal 1 to amend the Companys
Certificate of Incorporation, as amended, to effect a one-for-eight reverse stock split of the
Companys common stock by proportionately decreasing the authorized number of shares of common
stock without changing the par value of the stock.
If the Companys stockholders approve Proposal 1 as outlined above, the Company will file a
Certificate of Amendment to its Certificate of Incorporation, as amended, with the Secretary of
State of the State of Delaware on or about, or with an effective date of, November 10, 2008
(Effective Date) reducing the number of shares of its authorized common stock from 190,000,000
shares to 23,750,000 shares but will not affect the par value of the common stock. Such reduction
in the number of authorized common stock represents a proportional reduction in authorized shares
based upon the actual reverse stock split ratio.
The amendment to the Certificate of Incorporation, as amended, and the reverse stock split
will not change the number of authorized shares of preferred stock or the par value of the
preferred stock. Therefore, the Company will continue to have 5,000,000 authorized but unissued
and undesignated shares of preferred stock, par value $10.00 per share. Presently, there are no
outstanding shares of preferred stock.
As a result of the reverse stock split, each outstanding share of common stock on the date of
the reverse stock split will be converted into one-eighth share of common stock, as more fully
described below. Except for adjustments that may result from the treatment of fractional shares as
described below, each stockholder will hold the same percentage of common stock outstanding
immediately following the reverse stock split as that stockholder held immediately before the
reverse stock split. The rights and preferences of the issued and outstanding shares of the
Companys common stock will remain the same after the reverse stock split. Each share of common
stock issued pursuant to the reverse stock split will be fully paid and nonassessable.
The form of Certificate of Amendment is attached to this proxy statement as Appendix A. The
following discussion is qualified in its entirety by the full text of the Certificate of Amendment,
which is hereby incorporated by reference.
Reasons for the Reverse Stock Split
The Companys Board of Directors approved the proposed amendment to effect a reverse stock
split and is seeking stockholder approval of Proposal 1. The large number of outstanding and
authorized shares is a result, in part, of the Companys past acquisitions, including its merger
with Destron Fearing Corporation on December 28, 2007. One of the Boards reasons to reverse split
the stock is to raise the per share trading price of the Companys common stock on the Nasdaq
Capital Market. The Board believes that a higher per share trading price would better enable the
Company to maintain the listing of its common stock on the Nasdaq Capital Market and generate
greater investor interest in the Company.
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The Companys common stock is listed on the Nasdaq Capital Market, and has been trading in
this market since November 12, 2002. On December 6, 2007, the Company received notice from the
Nasdaq Stock Market indicating that the Company was not in compliance with the $1.00 minimum bid
price per share requirement set forth under NASDAQ Marketplace Rule 4310(c)(4) for continued
listing on the Nasdaq Capital Market. The Company was provided 180 calendar days, or until June 2,
2008 to regain compliance. On June 3, 2008, the Company had not regained compliance but because
the Company met all the initial inclusion criteria for the Nasdaq Capital Market (except for the
bid price), the Company was provided an additional 180 calendar day compliance period. In order
for the Companys common stock to continue to be listed on the Nasdaq Capital Market, the Company
must regain a minimum bid price of its common stock of least $1.00 per share for a minimum of ten
(10) consecutive trading days on or before December 1, 2008 as well as continue to comply with the
other applicable listing requirements.
The Board of Directors believes that maintaining the listing of its common stock on the Nasdaq
Capital Market is in the best interest of the Company and its stockholders. If the common stock
was delisted from the Nasdaq Capital Market, trading in the Companys common stock, if any, would
have to be conducted on the OTC Bulletin Board or in the non-Nasdaq over-the-counter market (or
pink sheet market). The Board believes that as a result, the liquidity in the trading market for
the common stock would be significantly decreased, which could reduce the trading price, result in
greater fluctuations in trading price and increase the transaction costs of trading shares of the
Companys common stock. The Board believes that the reverse stock split will facilitate regaining
compliance with the Nasdaq Capital Market minimum bid price listing requirement by causing an
increase in the minimum bid price of the Companys common stock to above the $1.00 per share
minimum. However, despite the approval of the reverse stock split by the stockholders and the
implementation of the reverse stock split, the Companys common stock may nonetheless be delisted
from the Nasdaq Capital Market due to the Companys failure to comply with one or more of the
NASDAQ Marketplace Rules.
The Board further believes that an increased stock price may encourage investor interest and
improve the marketability of the common stock to a broader range of investors, and thus enhance
liquidity. Many institutional investors have policies prohibiting them from holding lower-priced
stocks in their own portfolios, which reduces the number of potential buyers of the Companys
common stock. In addition, analysts at many brokerage firms are reluctant to recommend
lower-priced stocks to their clients or monitor the activity of lower-priced stocks. A variety of
brokerage house policies and practices also tend to discourage individual brokers within those
firms from dealing in lower-priced stocks. Some of those policies and practices pertain to the
payment of brokers commissions and to time-consuming procedures that function to make the handling
of lower-priced stocks unattractive to brokers from an economic standpoint. The Board believes
that if the reverse stock split has the effect of raising the trading price of the Companys common
stock, this may increase the attractiveness of the Companys common stock to the investment
community and enable institutional investors and brokerage firms with such policies and practices
to invest in the Companys common stock.
Possible Disadvantages of the Reverse Stock Split
Even though the Company believes that the potential advantages of a reverse stock split
outweigh any disadvantages that might results, there are possible disadvantages of a reverse stock
split:
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The reduced number of shares of the Companys common stock resulting from a reverse
stock split could adversely affect the liquidity of the common stock.
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A reverse stock split could result in a significant devaluation of the Companys market
capitalization and the trading price of its common stock, on an actual or an as-adjusted
basis. In many cases, the total market capitalization of a company following a reverse
stock split is lower than the total market capitalization before the reverse stock split.
The Company cannot assure
you that the reverse stock split will not adversely impact the market price of the Companys
common stock.
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There can be no assurance that the market price of the Companys common stock
immediately after the Effective Date of the proposed reverse stock split would be
maintained for any period of time or that such market price would approximate the multiple
of the stock split ratio times the market price of the Companys common stock before the
reverse stock split. Accordingly, the total market capitalization of the Companys common
stock after the proposed reverse stock split may be lower than the total market
capitalization before the proposed reverse stock split and, in the future, the market price
of the Companys common stock following the reverse stock split may not exceed or remain
higher than the current market price on an actual or an as adjusted basis.
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A reverse stock split may leave certain stockholders with one or more odd lots, which
are stock holdings in amounts of fewer than 100 shares of common stock. These odd lots may
be more difficult to sell than shares of common stock in even multiples of 100.
Additionally, any reduction in brokerage commissions resulting from the reverse stock
split, as discussed above, may be offset, in whole or in part, by increased brokerage
commissions required to be paid by stockholders selling odd lots created by the reverse
stock split.
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If the reverse stock split is accomplished and the market price of the Companys common stock
declines, the percentage decline may be greater than would occur in the absence of a reverse stock
split. However, the market price of the Companys common stock also will be based on the Companys
performance and other factors that are unrelated to the number of shares outstanding.
In addition, the Company cannot assure you that the reverse stock split will result in a per
share price that will attract institutional investors and brokers. While the Companys Board of
Directors believes that a higher stock price may help generate investor interest, there can be no
assurance that the reverse stock split will result in a per share price that will attract
institutional investors and brokers.
Implementation and Effects of Reverse Stock Split
If the Companys stockholders approve Proposal 1, the reverse stock split would have the
following effects:
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Every eight shares of the Companys common stock owned by a stockholder will
automatically be changed into and become one new share of the Companys common stock.
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The number of shares of the Companys common stock authorized and issued and outstanding
will be reduced proportionately.
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Each stockholders proportionate ownership of the Companys outstanding shares of common
stock would remain the same, except that stockholders that would otherwise receive
fractional shares as a result of the reverse stock split will receive cash payments in lieu
of fractional shares.
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Because the par value per share of the Companys common stock will not change, the
reduction in the number of outstanding shares of common stock will cause the Companys
stated capital account to be reduced, and the additional paid in capital to be increased by
an equivalent amount. Total stockholders equity will remain unchanged.
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Proportionate adjustments will be made to the per share exercise price and the number of
shares issuable upon the exercise of all outstanding options and warrants entitling the
holders thereof to purchase shares of the Companys common stock, which will result in
approximately the same aggregate price being required to be paid for such options or
warrants upon exercise of such options or warrants immediately preceding the reverse stock
split.
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If applicable, proportionate adjustments will be made to the conversion price and the
number of shares issuable upon conversion of any outstanding convertible securities
entitling the holders thereof to acquire shares of the Companys common stock, which will
result in approximately the same conversion price to be used upon conversion of such
convertible securities immediately preceding the reverse stock split.
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The number of shares reserved for issuance under the Companys existing stock option
plans, employee stock purchase plans and severance agreements will be reduced
proportionately based on the reverse stock split ratio.
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The reverse stock split will affect all of the Companys common stockholders uniformly, and
will not affect any common stockholders percentage ownership interests in the Company, except to
the extent that the reverse stock split results in any of the Companys stockholders owning a
fractional share. As described below, stockholders holding fractional shares will receive cash
payments in lieu of such fractional shares. Such cash payments will reduce the number of
post-split common stockholders to the extent there are stockholders presently holding fewer shares
than eight shares of common stock. However, this is not a reason why the Company is effecting the
reverse stock split.
The Company will continue to be subject to the periodic reporting requirements of the
Securities and Exchange Act of 1934, as amended.
Fractional Shares
No scrip or fractional share certificates will be issued in connection with the reverse stock
split. Stockholders who otherwise would be entitled to receive a fractional share because they
hold a number of shares of the Companys common stock not evenly divisible by the exchange ratio
will receive, upon surrender of certificate(s) representing such shares, a cash payment in lieu
thereof. The cash payment will equal the product obtained by multiplying (a) the fraction of a
share to which the stockholder would otherwise be entitled by (b) the per share closing sales price
of the Companys common stock on the Effective Date of the reverse stock split as reported on the
Nasdaq Capital Market (on a post-reverse-split basis). The ownership of a fractional share will
not give the holder thereof any voting, dividend or other rights except to receive payment for such
fractional share as described above.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where
stockholders reside, where the Company is domiciled and where the funds will be deposited, sums due
for fractional shares that are not timely claimed after the effective time may be required to be
paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise
entitled to receive such funds may have to seek to obtain them directly from the state to which
they were paid.
Accounting Matters
The par value of the Companys common stock will not change as a result of the reverse stock
split. Therefore, the Companys stated capital, which consists of the par value per share of
common stock multiplied by the aggregate number of shares of common stock issued and outstanding,
will be reduced proportionately on the Effective Date of the reverse stock split. Correspondingly,
the Companys
additional paid-in capital, which consists of the difference between the Companys stated
capital and the aggregate amount paid to the Company upon issuance of all currently outstanding
shares of common stock, will be increased by a number equal to the decrease in stated capital.
Further, net income/loss per share and book value per share will be increased as a result of the
reverse stock split because there will be fewer shares of common stock outstanding.
7
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the stockholders approve Proposal 1, the Company will file a Certificate of Amendment to
the Companys Certificate of Incorporation, as amended, with the Secretary of State of the State of
Delaware to implement the reverse stock split. The reverse stock split will become effective when
the Certificate of Amendment is filed or at the time specified in the Certificate of Amendment,
which will be on or about November 10, 2008. Beginning on the Effective Date, each certificate
representing shares of the Companys common stock before the reverse stock split will automatically
be deemed for all corporate purposes to evidence ownership based on the one-for-eight stock split
ratio of the Companys common stock after the reverse stock split. All shares issuable upon
exercise or conversion of outstanding options, warrants or other securities will automatically be
adjusted.
As soon as practicable after the Effective Date, stockholders will be notified that the
reverse stock split has been effected. The Company expects that its transfer agent, The Registrar
& Transfer Co., will act as exchange agent for purposes of implementing the exchange of stock
certificates. Stockholders of record will receive a letter of transmittal requesting that they
surrender the old stock certificates they currently hold for new stock certificates reflecting the
adjusted number of shares as a result of the reverse stock split. No new certificates will be
issued to a stockholder until the stockholder has surrendered the stockholders old stock
certificate(s) together with the properly completed and executed letter of transmittal to the
exchange agent. Until surrender, each old stock certificate representing shares of common stock
before the reverse stock split will be deemed canceled and only represents the number of whole
shares of post-reverse common stock to which the holder is entitled. Stockholders should not
destroy any stock certificate and should not submit any certificates until they receive a letter of
transmittal.
Persons who hold their shares in brokerage accounts or street name will not be required to
take any further actions to effect the exchange of their certificates. No stockholder will be
required to pay a transfer or other fee to exchange the stockholders old stock certificates.
Any old stock certificates submitted for exchange, whether because of sale, transfer or other
disposition of stock, will automatically be exchanged for new stock certificates. If an old stock
certificate has a restrictive legend on the back, the new stock certificate will be issued with the
same restrictive legend.
If a stockholder is entitled to a payment in lieu of any fractional share, such payment will
be made as described above under Fractional Shares.
No Dissenters Rights
The holders of shares of the Companys common stock will have no dissenters rights of
appraisal under Delaware law, the Companys Certificate of Incorporation, as amended, or the
Companys Bylaws with respect to Proposal 1, and the Company will not independently provide
stockholders with any such right.
8
Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material United States federal income tax consequences
of the reverse stock split. It does not purport to be a complete discussion of all of the possible
United States federal income tax consequences of the reverse stock split and is included for
general information only. Further, it does not address any state, local or foreign income or other
tax consequences. This discussion does not address the tax consequences to holders that are
subject to special tax rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and
tax-exempt entities. The discussion is based on the provisions of the United States federal income
tax law as of the date hereof, which are subject to change retroactively as well as prospectively.
This summary also assumes that the shares of the Companys common stock held by stockholders before
the reverse stock split were, and the shares of common stock held after the reverse stock split
will be, held as capital assets, as defined in the Internal Revenue Code of 1986, as amended, or
the Code (i.e., generally, property held for investment). The tax treatment of a stockholder may
vary depending upon the particular facts and circumstances of such stockholder. Each stockholder
is urged to consult with such stockholders own tax advisor with respect to the tax consequences of
the reverse stock split.
Other than the cash payments for fractional shares discussed below, no gain or loss will be
recognized by a stockholder upon such stockholders exchange of shares held before the reverse
stock split for shares after the reverse stock split. The aggregate tax basis of the shares of the
Companys common stock received in the reverse stock split (including any fraction of a share
deemed to have been received) will be the same as the stockholders aggregate tax basis in the
shares of common stock exchanged therefor. In general, stockholders who receive cash instead of
their fractional share interests in the shares of common stock as a result of the reverse stock
split will recognize gain but not loss based on the difference between their adjusted basis in the
fractional share interests and the cash received. The stockholders holding period for the shares
of common stock after the reverse stock split will include the period during which the stockholder
held the shares of common stock surrendered in the reverse stock split.
This summary of certain material United States federal income tax consequence of the reverse
stock split is not binding on the Internal Revenue Service or the courts. Accordingly, each
stockholder should consult with his or her own tax advisor with respect to all of the potential tax
consequences to him or her of the reverse stock split.
Required Vote
The affirmative vote of the majority of the outstanding shares of the Companys common stock
outstanding on the Record Date is required to approve Proposal 1.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR Proposal 1.
9
PROPOSAL 2
SUBJECT TO THE APPROVAL OF PROPOSAL 1, APPROVAL OF AN AMENDMENT TO THE COMPANYS CERTIFICATE
OF INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
23,750,000 TO 35,000,000.
If Proposal 1 is appropriately approved by the stockholders, the amendment to the Companys
Certificate of Incorporation, as amended, to effect the reverse stock split would proportionately
reduce the number of authorized shares of common stock from 190,000,000 to 23,750,000 shares. Under
Proposal 2, which is conditioned on Proposal 1 being approved, the proposed amendment to the
Companys Certificate of Incorporation, as amended, would then increase the number of authorized
shares of common stock from 23,750,000 to 35,000,000. Although the amendments under both proposals
reflect a reduction in the overall number of authorized shares of common stock of 190,000,000, the
proposed amendment under Proposal 2 represents an increase of 11,250,000 shares over the number of
shares of common stock that would have been authorized if all shares of common stock, whether or
not issued and outstanding, had been equally adjusted based on the reverse stock split ratio.
The authorized but unissued shares of common and preferred stock would be available for
issuance from time to time for corporate purposes such as raising additional capital, acquisitions
of companies or assets, sales of stock or securities convertible into common stock or issuance
under employee plans. The Company believes that the availability of the authorized unissued shares
will provide it with the flexibility to meet business needs as they arise, to take advantage of
favorable opportunities and to respond to a changing corporate environment. If the Company issues
additional shares, the ownership interests of holders of the Companys common stock may be diluted.
Also, if the Company issues shares of its preferred stock, the issued shares may have rights,
preferences and privileges senior to those of its common stock. The Company has no present plans
for use of such additional authorized shares, and such additional authorized shares are not a
requirement of any agreement to which the Company is a party.
Each additional share of common stock authorized by the proposed amendment under Proposal 2
would have the same rights and privileges under the Companys Certificate of Incorporation, as
amended, as each share of common stock currently authorized. Stockholders have no preemptive rights
with respect to common stock and the issuance of common stock, other than on a pro-rata basis,
would result in dilution to a stockholders interest.
If the Companys stockholders approve both Proposal 1 and Proposal 2 as outlined above, the
Company will file with the Secretary of State of the State of Delaware the form of Certificate of
Amendment to its Certificate of Incorporation, as amended, attached to this proxy statement as
Appendix A but which will reflect the increase in the number of authorized shares of common stock
from 23,750,000 to 35,000,000 and increase the number of authorized capital to reflect the increase
in the number of authorized shares of common stock. Such form of Certificate of Amendment will be
filed with Delaware on or about, or with an effective date of, November 10, 2008. The above
discussion is qualified in its entirety by the full text of such Certificate of Amendment, which is
hereby incorporated by reference.
No Dissenters Rights
The holders of shares of the Companys common stock will have no dissenters rights of
appraisal under Delaware law, the Companys Certificate of Incorporation, as amended, or the
Companys Bylaws with respect to Proposal 2, and the Company will not independently provide
stockholders with any such right.
Required Vote
Proposal 2 is conditioned on the approval of Proposal 1. If Proposal 1 is appropriately
approved, the affirmative vote of the majority of the outstanding shares of the Companys common
stock outstanding on the Record Date is required to approve Proposal 2.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR Proposal 2.
10
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of the Companys
common stock by (i) each person known by the Company to beneficially own more than 5% of the
Companys common stock, (ii) each of the Companys directors, (iii) the Companys principal
executive officer, principal financial officer and three other most highly compensated executive
officers, and (iv) all the directors and executive officers as a group. Ownership information is
based upon information furnished by the respective individuals or entities, as the case may be.
The calculation of the percentage of outstanding shares is based on 125,508,896 shares of our
common stock outstanding on September 12, 2008, adjusted, where appropriate, for shares of stock
beneficially owned but not yet issued. Except as otherwise indicated, each stockholder named has
sole voting and investment power with respect to such stockholders shares.
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Aggregate Number of Shares
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Percent of
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Name of Beneficial Owner
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Beneficially Owned
(1)
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Outstanding Shares
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Five Percent Stockholders:
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Valens Capital Management, LLC
(2)
c/o Valens Capital Management,
LLC, 335
Madison Avenue,
10th Floor, New York, NY
10017
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6,225,781
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|
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5.0
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%
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|
|
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Executive Officers and Directors:
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|
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Joseph J. Grillo
(3)
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1,217,546
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1.0
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%
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Lorraine M. Breece
(3)
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289,549
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*
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|
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|
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Parke H. Hess
(3)
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275,262
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*
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John R. Block
(3)
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875,000
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*
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Daniel E. Penni
(3)
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526,013
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*
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Dennis G. Rawan
(3)
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229,200
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*
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|
|
|
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|
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Constance K. Weaver
(3)
|
|
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537,921
|
|
|
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*
|
|
|
|
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|
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Michael S. Zarriello
(3)
|
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1,199,051
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1.0
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%
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|
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|
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Michael E. Krawitz
(3)(4)
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4,502,793
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3.6
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%
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Evan C. McKeown
(3)(5)
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355,000
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*
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|
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|
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All current directors and executive
officers as a group (8 persons)
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5,149,542
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4.1
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%
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11
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*
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Represents less than 1% of the issued and outstanding shares of common stock of the Company.
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(1)
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This table includes presently exercisable stock options and options that are exercisable
within sixty days of August 27, 2008, in accordance with Rule 13d-3(d) under the Exchange Act.
The following directors and executive officers hold the number of exercisable options set forth
following their respective names: Joseph J. Grillo 0; Lorraine M. Breece 288,025; Parke H.
Hess 0; John R. Block 875,000; Daniel E. Penni 457,800; Dennis G. Rawan 155,000;
Constance K. Weaver 438,930; Michael S. Zarriello 1,140,000; Michael E. Krawitz 983,663;
Evan C. McKeown 355,000; and all current directors and officers as a group 3,354,755.
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(2)
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Valens Capital Management, LLC has shared voting power and dispositive power with Laurus
Capital Management, LLC, a Delaware limited liability company, Valens U.S. SPV I, LLC, a
Delaware limited liability company (Valens US), Valens Offshore SPV I, Ltd., an exempted
company incorporated with limited liability under the laws of the Cayman Islands (Valens SPV
I), Laurus Master Fund, Ltd., an exempted company incorporated with limited liability under the
laws of the Cayman Islands (Laurus), Kallina Corporation, a Delaware corporation (Kallina),
and PSource Structured Debt Limited, a closed-ended company incorporated with limited liability
in Guernsey (PSource), Eugene Grin and David Grin.
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(3)
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Unless otherwise indicated, all of these individuals share the same business address: 490
Villaume Avenue, South St. Paul, Minnesota 55075.
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(4)
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|
Mr. Krawitz was terminated as the Companys president and chief executive officer effective
December 31, 2007 and resigned as a member of the Companys Board of Directors on December 28,
2007.
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(5)
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Mr. McKeown was terminated as the Companys chief financial officer effective March 9, 2007.
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STOCKHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS
Pursuant to the applicable rules under the Exchange Act, some stockholder proposals may be
eligible for inclusion in the Companys 2009 proxy statement. Proposals by stockholders intended
to be included in the Companys 2009 proxy statement must comply with all applicable requirements
of Rule 14a-8 promulgated under the Exchange Act and must be submitted in writing to the Secretary
of the Company no later than January 5, 2009, or a reasonable time before the Company begins to
print and mail its proxy materials. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regard to the detailed requirements of such
securities rules. Stockholder proposals to be presented at the Companys 2009 annual meeting (but
not intended to be included in our 2009 proxy statement) must be submitted in writing to the
Companys Secretary no earlier than April 1, 2009, but no later than May 1, 2009, in accordance
with the Companys bylaws. Otherwise, the proxies named by the Companys Board of Directors may
exercise discretionary voting authority with respect to the stockholder proposal, without any
discussion of the proposal in the Companys proxy materials.
The form of Proxy and this Proxy Statement have been approved by the Board of Directors and
are being mailed and delivered to stockholders by its authority.
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/s/ Joseph J. Grillo
Joseph J. Grillo
Chief Executive Officer and President
South St. Paul, Minnesota
September 15, 2008
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12
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
DIGITAL ANGEL CORPORATION
Joseph J. Grillo and Lorraine M. Breece, or either of them, are appointed by the undersigned
as proxies, or the proxies, each with power of substitution, to represent and vote the shares of
stock of Digital Angel Corporation, or the Company, which the undersigned would be entitled to vote
at the special meeting of stockholders of the Company to be held on October 30, 2008, at 9:00 a.m.,
Eastern Daylight Time, at the Hilton Fort Lauderdale Airport hotel, 1870 Griffin Road, Dania Beach,
Florida 33004, and at any postponements or adjournments thereof as if the undersigned were present
and voting at the special meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS SET FORTH BELOW
AND, WHERE NO DIRECTIONS ARE GIVEN, SUCH SHARES WILL BE VOTED FOR THE PROPOSAL REFERRED TO BELOW.
VOTE
BY INTERNET
www.proxyvote.com
Use the internet to transmit your voting instructions for electronic delivery of information
through 11:59 P.M. Eastern Daylight Time on October 29, 2008. Have your proxy card in hand when
you access the web site and follow the instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you would like to reduce costs incurred by the Company in mailing proxy materials, you can
consent to receiving all future proxy statements, proxy cards and annual reports electronically via
e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above
to vote using the Internet and, when prompted, indicate that you agree to receive or access
stockholder communications electronically in future years.
VOTE BY PHONE 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions through 11:59 P.M. Eastern
Daylight Time on October 29, 2008. Have your proxy card in hand when you call and then follow the
instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or
return it to Digital Angel Corporation, c/o Broadridge Financial Solutions, 51 Mercedes Way,
Edgewood, NY 11717.
1.
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|
Approval of an amendment to the
Companys Certificate of
Incorporation, as amended, to
effect a one-for-eight reverse
stock split of the Companys
common stock by proportionately
decreasing the authorized number
of shares of common stock
without changing the par value
of the stock (Proposal 1).
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FOR
o
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AGAINST
o
|
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ABSTAIN
o
|
2.
|
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Subject to the approval of
Proposal 1, approval of an
amendment to the Companys
Certificate of Incorporation, as
amended, to increase the number
of authorized shares of common
stock from 23,750,000 to
35,000,000.
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FOR
o
|
|
AGAINST
o
|
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ABSTAIN
o
|
Please sign, date and return this proxy in the enclosed envelope. Joint Owners should each sign
this proxy. Attorneys-in-fact, executors, administrators, trustees, guardians or corporation
officers should give their full title.
Please indicate if you plan to attend this meeting. YES
o
NO
o
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Signature [PLEASE SIGN WITHIN
THE BOX]
|
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Date
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Signature (Joint Owners)
|
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Date
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1
APPENDIX A
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
DIGITAL ANGEL CORPORATION
Digital Angel Corporation, a corporation organized and existing under the laws of the State of
Delaware, hereby certifies as follows:
1. The name of the corporation (hereinafter called the Corporation) is Digital Angel
Corporation.
2. At a meeting of the Board of Directors of the Corporation, resolutions were duly adopted
declaring the advisability of an amendment to the Certificate of Incorporation, as follows, and
providing that:
Article Three of the Certificate of Incorporation of the Corporation shall be hereby amended
and restated to read as follows:
ARTICLE THREE
The aggregate number of shares of all classes of stock which the Corporation shall have
authority to issue is
[If only Proposal 1 is approved: Twenty-Eight Million Seven Hundred and Fifty
Thousand (28,750,000) shares] [If Proposal 1 and 2 is approved: Forty Million (40,000,000) shares]
of which Five Million (5,000,000) shares shall be preferred stock (Preferred Stock) having a par
value of $10.00 per share and
[If only Proposal 1 is approved: Twenty-Three Million Seven Hundred
and Fifty Thousand (23,750,000) shares] [If Proposal 1 and 2 is approved: Thirty-Five Million
(35,000,000) shares]
shall be common stock (Common Stock) having a par value of $.01 per share.
A statement of the preferences, qualifications, limitations, restrictions, and the special or
relative rights, including convertible rights, in respect of the shares of each class is as
follows:
A. Preferred Stock.
Subject to the requirements of the laws of the State of Delaware, authority is hereby vested
in the Board of Directors from time to time to issue 5,000,000 shares of Preferred Stock in one or
more series and by resolution or resolutions as to each series:
(a) to fix the distinctive serial designation of the shares of such series;
(b) to fix the rate per annum at which the holders of the shares of such series shall be
entitled to receive dividends, the dates on which said dividends shall be payable, and, if the
directors determine that the dividends with respect to said series shall be cumulative, the date or
dates from which such dividends shall be cumulative;
(c) to determine whether the shares of such series shall have voting power, and, if so, the
extent and definition of such voting power;
(d) to fix the price or prices at which the shares of such series may be redeemed, and to
determine whether the shares of such series may be redeemed in whole or in part or only as a whole;
1
(e) to fix the amounts payable on the shares of such series in the event of liquidation,
dissolution, or winding up of the Corporation;
(f) to determine whether or not the shares of any such series shall be made convertible
into or exchangeable for shares of any other class or classes of stock of the Corporation or of any
other series of Preferred Stock and the conversion price or prices, or the rate or rates of
exchange at which such conversion or exchange may be made;
(g) to determine the amount of the sinking fund, purchase fund, or any analogous fund, if
any, to be provided with respect to each such series; and
(h) to fix preferences and relative, participating, optional, or other special rights, and
qualifications, limitations or restrictions thereof, applicable to each such series.
B. Common Stock.
Each share of Common Stock shall be identical with each other share of Common Stock, except as
the holders thereof shall otherwise expressly agree in writing. Subject to the prior rights of the
Preferred Stock from time to time issued and outstanding, as hereinbefore set forth, the holders of
Common Stock shall be entitled to receive such sums as the Board of Directors may from time to time
declare as dividends thereon, or authorize as distributions thereon, out of any sums available to
be distributed as dividends and to receive any balance remaining in case of the dissolution,
liquidation or winding up of the Corporation after satisfying the prior rights of the Preferred
Stock, if any be then outstanding. Each share of Common Stock shall have one vote for all
corporate purposes.
On November 10, 2008 (the Effective Date), each share of Common Stock, par value $.01 per
share (the Old Common Stock), issued and outstanding immediately prior to the Effective Date,
shall be, and hereby is, reclassified as and changed into one-eighth (1/8) of a share of Common
Stock, par value $.01 per share (the New Common Stock). Each outstanding stock certificate which
immediately prior to the Effective Date represented one or more shares of Old Common Stock shall
thereafter, automatically and without the necessity of surrendering the same for exchange,
represent the number of whole shares of New Common Stock determined by multiplying the number of
shares of Old Common Stock represented by such certificate immediately prior to the Effective Date
by one-eighth (1/8) and rounding such number down to the nearest whole integer, and shares of Old
Common Stock held in uncertificated form shall be treated in the same manner. The Corporation
shall not be required to issue or deliver any fractional shares of New Common Stock. Each holder
of such New Common Stock shall be entitled to receive for such fractional interest, and at the
Effective Date any such fractional interest in such shares of New Common Stock shall be converted
into the right to receive, an amount in cash, without interest, determined by multiplying (i) such
fractional share interest to which the holder would otherwise be entitled by (ii) the closing sale
price of the Common Stock (on a post-reverse-split basis as adjusted for the amendment effected
hereby) on the Effective Date on The NASDAQ Stock Market. Shares of Common Stock that were
outstanding prior to the Effective Date and that are not outstanding after the Effective Date shall
resume the status of authorized but unissued shares of Common Stock.
3. Pursuant to a resolution of its Board of Directors, a meeting of stockholders of the
Corporation was duly called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
4. The foregoing amendment was duly adopted at such meeting of the stockholders in accordance
with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
2
5. The effective date of this Certificate of Amendment to the Certificate of Incorporation
shall be November 10, 2008.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Secretary
as of the
day of
, 2008.
3
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