Section 1 –
Registrant’s Business and Operations
Item 1.01 Entry into a
Material Definitive Agreement.
On
September 30, 2008, Digital Angel Corporation (“Company”) and
certain subsidiaries of the Company entered into a Letter Agreement
(“Amendment”) with Laurus Master Fund, LTD (“Laurus”),
Kallina Corporation (“Kallina”), Valens U.S. SPV I, LLC,
Valens Offshore SPV I Ltd., Valens Offshore SPV II Corp.
(“Valens”) and Psource Structured Debt Limited (the last four
parties collectively referred to as the “Lenders”) to amend the
Securities Purchase Agreement dated August 31, 2007 (“2007
Agreement”) originally between Kallina and the Company to, among other
things, increase the amount of the non-convertible debt financing by $2,000,000.
As one of the
assignees of Kallina’s rights and interests in the 2007 Agreement, Valens
will loan the Company an additional $2,000,000 in cash under the terms of the
Amendment. In return, the Company will issue Valens 1,500,000 shares of the
Company’s common stock (“Shares”) and pay certain expenses
and fees of Valens in connection with the Amendment.
The Amendment also
amends other provisions of the 2007 Agreement and related agreements as well as
the Securities Purchase Agreement dated August 24, 2006 originally between
Laurus and the Company (“2006 Agreement”) and related agreements,
which rights and interests in such agreements were assigned to one or more of
the Lenders. The Lenders are the Company’s current senior secured lenders
and are affiliated with Kallina and Laurus. Such amendments include reductions
in scheduled principal payments of the applicable notes of approximately
$1.2 million from November 1, 2008 through April 1, 2009. The
Company intends to use such savings to fund its previously announced
restructuring program.
On October 2,
2008, the Company and Valens closed on the additional financing, and the
Company issued Valens the Shares and a senior secured non-convertible term note
in the principal amount of $2,000,000 (“2008 Note”). The 2008 Note
accrues interest at the rate of 12% and matures on February 1, 2010. The
2008 Note also contains certain events of default, whereby, in the event of
default, Valens is entitled to an additional 1% interest on the outstanding
principal balance of the 2008 Note and on all outstanding obligations under the
2008 Note and the related agreements until the event of default is cured. The
2008 Note is secured by the same security interests, stock pledges and
subsidiary guarantees as provided for under the 2007 Agreement and related
agreements, as each has been amended by the Amendment, including the pledge of
additional shares of VeriChip Corporation owned by the Company.
In connection with
the Shares, the Company and Valens entered into an agreement that restricts the
resale of the Shares for six months. The agreement also provides Valens certain
registration rights after the six month holding period expires if Valens is
unable to resell the Shares pursuant to an exemption from registration.
The foregoing
descriptions of the transactional documents do not purport to be complete and
are qualified in their entirety by reference to the complete text of the
transactional documents, copies of which are filed as Exhibits 10.1, 10.2 and
10.3, respectively to this Current Report on Form 8-K and are incorporated
herein by reference.
On October 3,
2008, the Company issued a press release regarding the Amendment. A copy of the
press release is attached hereto as Exhibit 99.1, which is being furnished
and shall not be deemed “filed” for the purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that section. The information in Exhibit 99.1 shall not be
incorporated by reference into any filing under the Securities Exchange Act of
1934 or the Securities Act of 1933, as amended, except as expressly set forth
by specific reference in such a filing.
Section 2 – Financial
Information
Item 2.03 Creation of a
Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant.
The information set
forth in Item 1.01 is incorporated by reference herein.
Section 3 – Securities
and Trading Markets
Item 3.02 Unregistered Sales
of Equity Securities.
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The information set
forth in Item 1.01 is incorporated by reference herein.
The consideration
paid for the 2008 Note and the Shares was an aggregate of $2,000,000 in cash,
before the deduction of fees to Valens and an affiliate of Valens in the
aggregate sum of $70,000.
The securities were
issued to Valens in a transaction exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
Section 9 — Financial
Statements and Exhibits
Item 9.01 Financial
Statements and Exhibits.
(d) Exhibits.
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99.1
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Press Release dated October 3, 2008
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10.1
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Letter Agreement dated September 30, 2008
between Digital Angel Corporation, Laurus Master Fund, LTD, Kallina
Corporation, Valens U.S. SPV I, LLC, Valens Offshore SPV I Ltd.,
Valens Offshore SPV II Corp. and Psource Structured Debt Limited and
consented to by Destron Fearing Corporation, Digital Angel Technology
Corporation, Digital Angel International, Inc. and Fearing Manufacturing Co.
Inc.
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10.2
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Secured Term Note dated September 30, 2008
payable by Digital Angel Corporation to Valens Offshore SPV II Corp.
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10.3
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Agreement dated September 30, 2008 between
Digital Angel Corporation and Valens Offshore SPV II Corp.
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