THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (B) AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
THIS NOTE IS
REGISTERED WITH THE HOLDER PURSUANT TO SECTION 10.4 OF THE PURCHASE
AGREEMENT (AS DEFINED BELOW). TRANSFER OF ALL OR ANY PORTION OF
THIS NOTE IS PERMITTED SUBJECT TO THE PROVISIONS SET FORTH IN SUCH
SECTION 10.4.
FOR VALUE RECEIVED, DIGITAL ANGEL CORPORATON, a
Delaware corporation f/k/a Applied Digital Solutions, Inc. (the
“ Company ”), promises to pay to VALENS OFFSHORE
SPV II, CORP. (the “ Holder ”) or its registered
assigns or successors in interest, the sum of Two Million Dollars
($2,000,000), together with any accrued and unpaid interest hereon,
on February 1, 2010 (the “ Maturity Date ”)
if not sooner indefeasibly paid in full.
Capitalized terms used herein without definition
shall have the meanings ascribed to such terms in that certain
Securities Purchase Agreement dated as of August 31, 2007
between the Company and Kallina Corporation (as amended, modified
and/or supplemented from time to time, the “ Purchase
Agreement ”).
The following
terms shall apply to this Secured Term Note (this “
Note ”):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate . Subject to
Sections 2.2 and 3.10, interest payable on the outstanding
principal amount of this Note (the “ Principal Amount
”) shall accrue at a rate per annum equal to twelve percent
(12.0%) (the “ Contract Rate ”). Interest shall
be (i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on
November 1, 2008, on the first business day of each
consecutive calendar month thereafter through and including the
Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
1.2 Principal Payments . The outstanding
Principal Amount together with any accrued and unpaid interest and
any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement
and/or any other Related Agreement shall be due and payable on the
Maturity Date.
1.3 Optional Redemption . The Company may
prepay this Note at any time, in whole or in part, without penalty
or premium (“ Optional Redemption ”). If within
six (6) months of the date of issue of this Note, the Company
prepays in full the Principal Amount outstanding at such time
together with accrued but unpaid interest thereon and any and all
other sums due, accrued or payable to the Holder arising under this
Note, the Purchase Agreement or any other Related Agreement
(collectively, the “ Redemption Amount ”), upon
receipt in full of the Redemption Amount in good funds, the Holder
will rebate to Company fifty percent (50%) of any fees it received
from the Company on the date of issue of this Note. The Company
shall deliver to the Holder a written notice of redemption (the
“ Notice of Redemption ”) specifying the date
for such Optional Redemption (the “ Redemption Payment
Date ”), which date shall be ten (10) business days
after the date of the Notice of Redemption (the “
Redemption Period ”). On the Redemption Payment Date,
the Redemption Amount must be paid in good funds to the Holder. In
the event the Company fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption
Notice will be null and void. In the event that the Redemption
Amount is paid to the Holder within six (6) months of the date
of issue of this Note, upon receipt in full of the Redemption
Amount in good funds, the Holder will rebate to Company fifty
percent (50%) of any fees it received from the Company on the date
of issue of this Note. If any Notes issued pursuant to the Purchase
Agreement, in addition to this Note, are outstanding (collectively,
the “ Outstanding Notes ”) and the Company
pursuant to this Section 1.3 elects to make an Optional
Redemption, then the Company shall take the same action with
respect to all Outstanding Notes and make such payments to all
holders of Outstanding Notes on a pro rata basis based upon the
Redemption Amount of each Outstanding Note.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default . The occurrence of
any of the following events set forth in this Section 3.1
shall constitute an event of default (“ Event of
Default ”) hereunder:
(a) The Company fails to pay when due any
installment of principal, interest or other invoiced fees hereon in
accordance herewith, or the Company fails to pay any of the other
Obligations (under and as defined in the Master Security Agreement)
when due, and, in any such case, such failure shall continue for a
period of five (5) business days following the date upon which
such payment was due. For purposes herein, “invoiced
fees” shall mean fees set forth on those regularly scheduled
monthly invoices received by the Company from the
Holder;
(b) The Company breaches any covenant or
any other term or condition of this Note in any material respect
and such breach, if subject to cure, continues for a period of
twenty (20) days following the occurrence thereof;
(c) Any material representation or warranty
made by the Company in this Note, the Purchase Agreement or any
other Related Agreement (other than the Registration Rights
Agreement) shall at any time be false or misleading in any material
respect on the date as of which made or deemed made;
(d) The occurrence of any material default
(or similar term) in the observance or performance of any other
agreement relating to any indebtedness or contingent obligation of
the Company or any of its Subsidiaries beyond the period of grace
(if any) or that is not waived, the effect of which default is to
cause, or permit the holder or holders of such indebtedness or
beneficiary or beneficiaries of such contingent obligation to
cause, such indebtedness to become due prior to its stated maturity
or such contingent obligation to become payable;
2
(e) The Company breaches any of their
material agreements (other than this Note, the Purchase Agreement,
the Related Agreements, and the agreements described in clause
(d) of this definition), and such breach could reasonably be
expected to have a Material Adverse Effect;
(f) The Company or any of its Subsidiaries
shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of
any other law providing for the relief of debtors,
(vi) acquiesce to, without challenge within ten (10) days
of the filing thereof, or failure to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (vii) take any action for
the purpose of effecting any of the foregoing;
(g) (i) Attachments or levies in
excess of $500,000 in the aggregate are made upon the Company or
any of its Subsidiary’s assets or (ii) a judgment is
rendered against the Company’s property involving a liability
of more than $500,000 which shall not have been paid, vacated,
discharged, stayed or bonded within thirty (30) days from the
entry thereof;
(h) The Company shall admit in writing its
inability, or be generally unable, to pay its debts as they become
due or cease operations of its present business;
(i) A Change of Control (as defined below)
shall occur with respect to the Company, unless Holder shall have
expressly consented to such Change of Control in writing. A
“Change of Control” shall mean any event or
circumstance as a result of which (i) any “Person”
or “group” (as such terms are defined in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof),
other than the Holder, is or becomes the “beneficial
owner” (as defined in Rules 13(d)-3 and 13(d)-5 under
the Exchange Act), directly or indirectly, of more than 50% on a
fully diluted basis of the then outstanding voting equity interest
of the Company, or (ii) the consolidation, merger or other
business combination of the Company with or into any other
entit
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