Under the agreement, Applied Digital and Digital Angel would come together to create a streamlined company focused on extending its global leadership in the markets it serves. This proposed transaction will create the world’s leading provider of identification, location and wellness monitoring systems for people and animals. The combination will be effected by Applied Digital acquiring the remaining 45% minority interest it does not currently own in Digital Angel. In the transaction, Digital Angel stockholders other than Applied Digital will receive 1.4 shares of Applied Digital common stock for every share of Digital Angel common stock held, representing a premium of 21% over the average closing price of Digital Angel and Applied Digital shares for the last 20 trading days. Upon completion of the transaction, Digital Angel’s common stock will no longer be listed for trading on the American Stock Exchange. After the transaction, the combined entity will trade on the Nasdaq Capital Market. The companies intend to announce a new CEO at the completion of the transaction.
Transaction Highlights:
• Combines complementary assets from Applied Digital and Digital Angel
• Strips away unnecessary corporate overhead and holding company structure, allowing significant streamlining of operations and reduction of costs, expected to be in excess of $2 million per year
• Enhances technology transfer between the two companies, sharpening the focus on core businesses and facilitating the divestiture, at appropriate times, of non-core assets. Proceeds from the sale of these non-core businesses will then be reinvested in the growth engines of the new company
• Gives Applied Digital stockholders a direct ownership position in Digital Angel
• Gives Digital Angel stockholders ownership in VeriChip Corporation
• Enables the new company to be a stronger U.S. based global competitor
Michael Krawitz, Chief Executive Officer of Applied Digital, commented: “In a single transaction, we will create a financially stronger, more robust and better capitalized company, and substantially reduce overhead costs. We also eliminate Applied Digital’s majority ownership overhang position in Digital Angel, which has created uncertainty among investors and customers.”
Each of the boards of directors of Applied Digital and Digital Angel unanimously approved the merger agreement, based on the unanimous recommendation of the special committee of independent directors of the applicable company. The special committees for Applied Digital and Digital Angel each retained independent legal and financial advisors to advise its respective committee. Digital Angel hired Seven Hills Partners LLC and Applied Digital hired Duff & Phelps, LLC to provide fairness opinions in connection with the transaction.
As a result of the transaction, each outstanding share of Digital Angel’s common stock not currently owned by Applied Digital will be converted into 1.4 shares of common stock of Applied Digital. This conversion ratio reflects a premium of 21% over the average closing price of Applied Digital’s and Digital Angel’s stock over the last 20 trading days. The average closing trading price of Digital Angel over the last 20 trading days was $1.468. The average closing trading price of Applied Digital over the last 20 trading days was $1.267. It is anticipated that the transaction will be tax-free to Applied Digital and Digital Angel, and the receipt of Applied Digital shares by Digital Angel stockholders will also be tax free. Upon completion of the transaction, which is expected to be before the end of the year, it is anticipated that Applied Digital stockholders will own approximately 70%, and that Digital Angel stockholders will own approximately 30% of the outstanding Applied Digital stock. Consummation of the transaction remains subject to customary conditions, including the approval of the issuance of shares in connection with the merger by the stockholders of Applied Digital, approval of the agreement by a majority of the stockholders of Digital Angel and by a majority of the minority stockholders of Digital Angel, and a registration statement being declared effective by the Securities and Exchange Commission.
Effective as of August 6, 2007, Digital Angel has appointed Barry M. Edelstein, a current Board member, as its interim Chief Executive Officer and President while it conducts a search for a new CEO. Edelstein will manage all aspects of Digital Angel’s operations including a focus on bottom-line profitability and facilitating the merger between Digital Angel and Applied Digital. Edelstein will be responsible for maximizing Digital Angel’s leadership role in RFID technologies for animal applications including livestock and pets, leveraging its leading position in the military and commercial search and rescue beacon markets, and capitalizing on McMurdo’s leading position in the emergency position-indicating rescue beacon (EPIRB) market. Edelstein succeeds Kevin N. McGrath, who will assist with the transition for Digital Angel over the next 30 days. McGrath and the Digital Angel Board have determined that new leadership is in the best interests of Digital Angel.
Edelstein has been a board member of Digital Angel since June 2005, and is President and Chief Executive Officer of ScentSational Technologies, Inc. He brings significant experience to Digital Angel in operations management and sales and marketing. From 2000 to 2002, Edelstein was Vice President, Sales and Sales Operations for Comcast Business Communications Inc. where he managed the integration of Comcast Telecommunications Inc. with two other subsidiaries and led a team that oversaw the sales, marketing, customer care, billing operations and supplier management function of the company. From 1997 to 2000, he was Vice President, Sales and Marketing for Comcast Telecommunications Inc., a provider of long distance, internet and private network services in the mid-Atlantic region of the U.S. From 1992 to 1997, he was President and Co-Founding Principal of GlobalCom Telecommunications, a regional reseller of long distance, private network and internet services which was sold to Comcast in June 1997. Prior to that, he was an associate at Rubin, Shapiro & Wiese, a Philadelphia law firm specializing in real estate and corporate commercial litigation. Edelstein has a bachelor’s degree in business administration from Drexel University and received his law degree from Widener University School of Law, Wilmington, Delaware.
Scott R. Silverman will remain Chairman of the Board of Directors of Digital Angel until completion of the transaction, at which time he intends to step down from the Board. Krawitz intends to remain CEO of Applied Digital and a member of the Applied Digital Board through completion of the transaction and will then assume a position on the Board of the combined company.
“This transaction simplifies the capital structure, streamlines operations and should make Digital Angel more attractive for investors,” said Edelstein. “This transaction also gives Applied Digital stockholders direct ownership in Digital Angel and gives Digital Angel stockholders a significant interest in VeriChip Corporation, a compelling, high-growth business and majority-owned subsidiary of Applied Digital, which recently went public.
“We are excited about delivering high-quality RFID and GPS solutions to some of the largest markets in the world. With more capital available to be deployed into our business, we envision extending our leading positions in the areas we serve best,” said Edelstein.
Edelstein concluded, “From a financial perspective, Digital Angel stockholders will receive a 21% premium on their shares without requiring them to give up ownership in the businesses we currently own.”
Krawitz commented, “This transaction unmasks our great technologies and our substantially improved performance. Our current holding company structure adds unnecessary expense, and we can improve results by eliminating that. Moreover, our stockholders appreciate the value of Digital Angel but didn’t have a direct ownership of that business. This transaction allows our stockholders to increase their ownership from approximately 55% today to approximately 70% post-transaction.”
Applied Digital and Digital Angel expect the proposed transaction to save the companies in excess of $2 million a year over the next three years. Almost all of the reduced costs will come from the consolidation of facilities and operations, the reduction of accounting, insurance and other public company costs and the elimination of duplicate corporate functions.-Applied Digital
