EXHIBIT 10.1


 


CHANGE OF CONTROL AGREEMENT


 


This
Change of Control Agreement is made December 2, 2004, between Digital Angel
Company, a Company organized and existing under the laws of Delaware, with its
principal office located at 490 Villuame Avenue, St. Paul, Ramsey County,
Minnesota (the “Company”), and Kevin N. McGrath, the Company’s Chief Executive
Officer and President (“Executive”).


 


RECITALS


 


A.                                   The Agreement is being put into place in
consideration for the continued efforts after the date hereof of Executive and
in lieu of executing a long term written employment agreement.


 


In
consideration of the above and other good and valuable consideration, and of
the mutual benefits and obligations set forth in this agreement, the parties
agree as follows:


 


SECTION ONE


 


TERM OF AGREEMENT


 


This
Agreement shall commence on the date hereof and shall continue in effect so
long as Executive remains employed by the Company.


 


SECTION TWO


 


CHANGE IN CONTROL PAYMENT


 


A.                                   Upon a Change in Control, Executive shall be
entitled to receive the Change in Control Compensation, as hereafter defined.


 


B.                                     For all purposes of this Agreement, a Change
in Control shall be deemed to occur if: (i) any person or entity (or
persons or entities acting as a group) other than Applied Digital Solutions,
Inc. (“Applied Digital”) acquires stock of the Company that, together with
stock then held by such person, entity or group, results in such person, entity
or group holding more than fifty (50%) percent of the fair market value or
total voting power of the Company; or, (ii) a member of the Board of Directors
of the Company is replaced by a director (or added to the Company’s Board of
Directors) and such director was not nominated and approved by the Board of
Directors; or, (iii) a change of control occurs at Applied Digital Solutions,
Inc. as such term is defined in the employment agreement between the Company’s
current Chairman of the Board, Scott R. Silverman, and Applied Digital
Solutions, Inc.


 


C.                                     For all purposes of this Agreement, the Term Change
in Control Compensation shall mean the sum of: (i) any and all earned but
unpaid base salary and earned but unpaid bonus compensation as of the date of
the Change in Control; (ii) three (3) times the base salary; and


 


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(iii) three (3) times
the average bonus paid by the Company to Executive for the three (3) full
calendar years immediately prior to the Change in Control or the number of
calendar years that were completed prior to the Change in Control if less than
three (3) calendar years.  The Change in
Control Compensation shall be paid to Executive within ten (10) days of the
Change in Control.  In addition, any
outstanding stock options held by Executive as of the Change in Control shall
become vested and exercisable as of such date, and shall remain exercisable as
of the life of the option (or, in the case of an acquisition of all of the
common stock of the Company, such options shall vest prior to such closing so
that the shares issuable upon such exercise may be sold in the Change of
Control transaction).  Further, the
Company shall continue to pay any lease payments on any vehicle then used by
Executive, which vehicle is being leased by the Company for use by Executive.


 


The
Company shall also pay to you all legal fees and expenses incurred by Executive
in any proceeding to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Internal Revenue
Code of 1986, as amended (the “Code”) to any payment or benefit provided
under this Agreement.


 


D.                                    If you are a “disqualified individual” within
the meaning of Section 280G of the Code, the parties agree that the
payments described in this Section and all other payments to you under any
other agreements or arrangements with any persons that constitute “parachute
payments” within the meaning of Section 28OG of the Code are collectively
subject to an overall maximum limit. The maximum limit shall be one dollar less
than the aggregate amount that would otherwise cause any such payments to be
considered a “parachute payment” within the meaning of Section 280G of the
Code, as determined by the Company. Accordingly, to the extent that the
payments would be considered a “parachute payment” with respect to you, then
the portions of such payments shall be reduced or eliminated in the following
order until the remaining change of control termination payments with respect
to you is within the maximum described in this paragraph D:


 


1.                                       First, any cash payment to you;


 


2.                                       Second, any change of control termination
payments not described in this agreement; and


 


3.                                       Third, any forgiveness of indebtedness of
yours to the Company.


 


You
irrevocably waive any and all rights to receive any change of control
termination payments that exceed the maximum limit described in this paragraph
D.


 


SECTION THREE


 


SUCCESSORS; BINDING AGREEMENT


 


This
Agreement shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, heirs, distributees, and
legatees. If you should die


 


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while any amount would still
be payable to you if you had continued to live, all such amounts shall be paid
in accordance with the terms of this Agreement to your legatee or other
designee or, if there is no such designee, to your estate.


 


SECTION FOUR


 


MISCELLANEOUS


 


No
provision of this Agreement may be modified, waived, or discharged unless the
waiver, modification, or discharge is agreed to in writing and signed by you
and such officer as may be specifically designated by the Board. No waiver by
either party to this Agreement at any time of any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement have been made by either party
that are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of Minnesota.  Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state, or local law.


 


SECTION FIVE


 


VALIDITY


 


The
invalidity or enforceability of any provision of this Agreement shall not
affect the validity or unenforceability of any other provision of this
Agreement, which shall remain in full force and effect.


 


SECTION SIX


 


COUNTERPARTS


 


This
Agreement may be executed in several counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.


 


SECTION SEVEN


 


ARBITRATION


 


Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Minnesota in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator’s award in any court having jurisdiction.


 


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SECTION EIGHT


 


ENTIRE AGREEMENT


 


This
Agreement sets forth the entire understanding of the parties with respect to
its subject matter and supersedes all prior written or oral agreements or
understandings with respect to the subject matter.


 


The
parties have executed this Agreement on the day and year first above written.


 


	
  DIGITAL
  ANGEL CORPORATION

  
	
   

  
	
   

  
	
  /s/ James P.
  Santelli

  	
   

  
	
  By:

  	
  James P. Santelli

  	
   

  
	
  Its:

  	
  Vice President

  	
   

  
	
   

  
	
   

  
	
  /s/ Kevin N. McGrath

  	
   

  
	
  Kevin N. McGrath

  
	
  (address)

  	
   

  
	
   

  	
   

  



 


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