Document:

exv4w2

Exhibit 4.2

APPLIED DIGITAL SOLUTIONS, INC.

NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

	 	 	 
	OPTIONEE:

	 	David Sullivan
	GRANT DATE:

	 	March 25, 2008
	NUMBER OF OPTION SHARES:

	 	37,500
	EXERCISE PRICE PER SHARE:

	 	$5.36
	EXPIRATION DATE:

	 	March 25, 2018

     THIS AGREEMENT is made as of the Grant Date set forth above by and between Applied Digital
Solutions, Inc., a Delaware corporation (the “Company”), and the Optionee named above, who provides
services to the Company or an Affiliate of the Company as an Employee and as a member of the Board
of Directors (the “Optionee”).

     The Company desires, by affording the Optionee an opportunity to purchase shares of its Common
Stock, par value $0.01 per share (the “Common Stock”), as hereinafter provided, to carry out the
purpose of the Applied Digital Solutions, Inc., 2003 Flexible Stock Plan (the “Plan”).

     The option granted herein is not being awarded pursuant to the Plan, however the rules and
terms of the Plan shall be incorporated herein and apply to this option as if it were being granted
under the Plan (except to the extent the Plan conflicts with this agreement, in which case this
Agreement shall govern).

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other
good and valuable consideration, the parties hereby agree as follows:

     1. Grant of Option. The Company hereby grants to the Optionee the right and option (the
“Option”) to purchase all or any part of the aggregate number of shares of Common Stock set forth
above (the “Option Shares”) (such number being subject to adjustment as provided in Section 9
hereof) on the terms and subject to the conditions set forth in this Agreement. This Option is not
intended to be an “incentive stock option” within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”).

     2. Purchase Price. The per share purchase price of the Option Shares shall be the Exercise
Price Per Share set forth above (such Exercise Price Per Share being subject to adjustment as
provided in Section 9 hereof).

 

 

     3. Term and Exercise of Option.

          (a) The term of this Option shall commence on the Grant Date set forth above and shall
continue until the Expiration Date set forth above, unless earlier terminated as provided herein.

          (b) This Option will become exercisable as to 20% of the Option Shares on each of the first,
second, third, fourth, and fifth annual annivaersary of the grant date set forth above, but only if
the Optionee is an Employee or Director of the Company on each of such dates.

          (c) To exercise this Option, the Optionee shall give written notice to the Company, to the
attention of its Chief Financial Officer or other designated agent, in substantially the form
attached hereto as Exhibit A, and the Optionee shall deliver payment in full for the Option
Shares with respect to which this Option is then being exercised, as provided in Section 4(a)
below.

          (d) Neither the Optionee nor the Optionee’s legal representatives, legatees or distributees,
as the case may be, will be, or will be deemed to be, a holder of any Option Shares for any purpose
unless and until certificates for such Option Shares are issued to the Optionee or the Optionee’s
legal representatives, legatees or distributees under the terms of the Option Plan.

     4. Limitations on Exercise of Option.

          (a) The exercise of this Option will be contingent upon receipt from the Optionee (or the
purchaser acting under Section 7 below) of the full Exercise Price of such Option Shares. Payment
of the Exercise Price shall be made in cash or by a certified or cashier’s check. No Option Shares
will be issued until full payment therefore has been made and the Optionee has executed any and all
agreements that the Company may require the Optionee to execute.

          (b) The issuance of Option Shares upon the exercise of this Option shall be subject to all
applicable laws, rules, and regulations. If, in the opinion of the Committee, (i) the listing,
registration, or qualification of the Option Shares upon any securities exchange or under any state
or federal law, (ii) the consent or approval of any regulatory body, or (iii) an agreement of the
Optionee with respect to the disposition of the Option Shares, is necessary or desirable as a
condition to the issuance or sale of the Option Shares, this Option shall not be exercised and/or
Option Shares shall not be sold unless and until such listing, registration, qualification,
consent, approval or agreement is effected or obtained in form satisfactory to the Committee.

     5. Nontransferability of Option. This Option shall not be transferable by the Optionee other
than by will or the laws of descent and distribution, and during the lifetime of the Optionee, this
Option shall be exercisable only by the Optionee.

     6. Termination of Employment or Other Services. Unless otherwise determined in the sole
discretion of the Committee and except as set forth below, upon termination of the Optionee’s
employment or other relationship with the Company or with an Affiliate as a result of Disability,
by the Optionee for Good Reason, or by the Company without Cause, all as defined and described in
that certain Employment Agreement between Company and Optionee dated as of January 1, 2008, as such
may be amended from time to time (the “Employment Agreement”), which termination of employment
occurs at least six months after this Option Grant Date, the Option granted herein shall
immediately vest and be fully exercisable for a period of three (3) years after the effective date
of such termination, but in no case later than the Expiration Date set forth above.

          Notwithstanding the foregoing, termination of the Optionee’s employment or other relationship
with the Company or with an Affiliate by the Company for Cause or by the Optionee without Good
Reason, or any termination of employment within six months following the Grant Date for any reason,
all as set forth in the Employment Agreement, shall result in the immediate termination and
forfeiture of this Option Agreement and

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Optionee shall have no right to exercise any unvested portion of this Option and shall have
ninety (90) days from the effective date of such termination to exercise any vested portion of this
Option. The determination of the Committee as to the existence of “cause” or “without good reason”
will be conclusive on the Optionee and the Company.

          The Committee shall be permitted to extend the period of exercise for a period not to exceed
the Expiration Date set forth above or three (3) years, whichever is shorter, provided the
Committee determines in its sole discretion that: (i) such extension to be appropriate, and (ii)
termination did not occur by the Company for “cause”, and in each case, Optionee agrees in writing
to not pursue employment at a competing business as defined by the Committee and with such
additional terms as the Committee determines is adequate in its sole discretion. Nothing herein
shall require an extension of the period of exercise by the Committee.

     7. Death of Optionee. Unless otherwise determined in the sole discretion of the Committee, if
the Optionee dies while employed by or otherwise providing services to the Company or an Affiliate,
this Option may be exercised to the same extent that the Optionee would have been entitled to
exercise it at the date of death and may be exercised within a period of three (3) years after the
date of death, but in no case later than the Expiration Date set forth above. In such event, this
Option shall be exercisable only by the executors or administrators of the Optionee or by the
person or persons to whom the Optionee’s rights under the Option shall pass by the Optionee’s will
or the laws of descent and distribution. Any portion of an Option that is not exercisable at the
time of an Optionee’s death shall automatically terminate.

     8. No Right to Continue to Provide Services. This Option does not and will not confer upon
the Optionee any right to continue providing services to the Company or an Affiliate of the Company
as an Employee, nor will it affect or interfere in any way with the Company’s right or the
Affiliate’s right to terminate the Optionee’s employment or other services at any time.

     9. Adjustments. In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend, stock split, reverse stock split, reclassification, combination,
exchange of shares, or other similar recapitalization of the Company, the Committee shall make an
appropriate and proportionate adjustment to the number of Option Shares and the per share Exercise
Price Per Share hereunder so that the Optionee then shall receive for the aggregate Exercise Price
paid by the Optionee upon exercise of this Option the number of shares the Optionee would have
received if this Option had been exercised before such recapitalization event occurred. No
adjustment shall be made under this Section 10 upon the issuance by the Company of any warrants,
rights, or options to acquire additional Common Stock or of securities convertible into Common
Stock unless such warrants, rights, options or convertible securities are issued to all
shareholders of the Company on a proportionate basis.

     10. Change of Control. In the event of a Change in Control, as defined in the Employment
Agreement, this Option shall become fully vested and shall immediately become fully exercisable.

     11. Limitation on Payments and Benefits. Notwithstanding anything in this Agreement to the
contrary, if any of the payments or benefits to be made or provided in connection with this
Agreement, together with any other payments, benefits or awards which the Optionee has the right to
receive from the Company, or any corporation which is a member of an “affiliated group” (as defined
in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company
is a member (“Affiliate”), constitute an “excess parachute payment” (as defined in Section 280G(b)
of the Code), such payments, benefits or awards to be made or provided in connection with this
Agreement, or any other agreement between the Optionee and the Company or its Affiliates, may be
reduced, eliminated, modified or waived to the extent necessary to prevent all, or any portion, of
such payments, benefits or awards from becoming “excess parachute payments” and therefore subject
to the excise tax imposed under Section 4999 of the Code. The Optionee will have the sole right
and discretion to determine whether the payments, benefits or awards to be made or provided in
connection with this Agreement, or any other agreement between the Optionee and the Company, should
be reduced, and whether or not such other agreement with the Company or an Affiliate expressly
addresses the potential application of Section 280G or Section 4999 of the Code (including, without
limitation, that “payments” under such agreement be reduced). The Optionee will also have the
right to designate the particular payments, benefits or awards that are to be reduced, eliminated,
modified or waived; provided that no such adjustment will be made if it results in additional
expense to the Company in excess of expenses the Company would have experienced if no adjustment
had been made. The determination as to whether any such decrease in the payments or benefits is
necessary must be made in good faith by legal counsel or a certified public accountant selected by
the Optionee and reasonably acceptable to the

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Company, and such determination will be conclusive and binding upon the Optionee and the
Company. Unless otherwise determined in the sole discretion of the Committee, the Optionee shall
pay any and all fees, costs and expenses of the counsel or accountant selected by the Optionee to
make the determinations under this Section 12.

     12. Interpretation. The interpretation and construction of any provision of the Option Plan
and this Option shall be made by the Committee and shall be final, conclusive and binding on the
Optionee and all other persons.

     13. Definitions; Option Plan Governs. Any capitalized term used herein that is not expressly
defined herein shall have the meaning ascribed to it in the Option Plan. As set forth above, this
Option is not awarded pursuant to the Plan, but the rules and terms of the Plan shall be
incorporated herein and apply to this Grant as if this award were made thereunder.

(The remainder of this page was intentionally left blank.)

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[Signature Page to Non-Statutory Stock Option Agreement]

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name
by its duly authorized officer, and the Optionee has executed this Agreement as of the Grant Date
set forth above.

	 	 	 	 	 
	COMPANY:	Applied Digital Solutions, Inc.

 	 
	 	By:  	/s/ Kay E. Langsford	 
	 	 	Kay E. Langsford, Secretary 	 
	 
	OPTIONEE:	 	 
	 	/s/
David Sullivan 	 
	 	David Sullivan 	 
	 

5

 

	 	 	 	 	 

EXHIBIT A

NOTICE OF EXERCISE OF

STOCK OPTION

TO:

FROM:

DATE:

	RE:	 	Exercise of Stock Option

     I hereby exercise my option to purchase                      shares of Common Stock at $                     per share (total
exercise price of $                    ). This notice is given in accordance with the terms of my Non-Qualified Stock
Option Award Agreement (“Agreement”) dated                     . The option price and vested amount is
in accordance with Sections 2 and 3 of the Agreement. Enclosed is cash, or a cashier’s or
certified check payable to Applied Digital Solutions, Inc. (the “Company”) for the total exercise
price of the shares being purchased.

     Please prepare the stock certificate in the following name(s):

	 	 
	Sincerely,
	 
	 
	 
	 	 
	(Signature)
	 
	 
	 
	 	 
	(Print or Type Name)
	 
	 
	 
	Letter and consideration
	 
	received on

	 
	(effective date of exercise)exv4w3

Exhibit 4.3

NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER THE

DIGITAL ANGEL CORPORATION (f/k/a APPLIED DIGITAL SOLUTIONS, INC.)

2003 FLEXIBLE STOCK PLAN, AS AMENDED

Name of Option Recipient: Jeremy Harrison

On December 12, 2008, the Company awarded you a stock option. You were granted an option to buy
7,000 Shares of the Common Stock at the price of $0.52 per Share. Your right to exercise the
option granted vests on or after the dates shown in the following schedule:

	 	 	 
	Vesting Date	 	Number of Shares Vested
	December 12, 2009
	 	2,333
	December 12, 2010
	 	2,333
	December 12, 2011
	 	2,334

You must exercise any vested option pursuant to this option grant no later than December 12, 2018,
(the “Option Expiration Date”).

IMPORTANT: By signing below, you agree to be bound by, and acknowledge receipt of, the attached
Terms and Conditions of this Non-Qualified Stock Option Award and the Digital Angel Corporation
2003 Flexible Stock Plan, as amended.

	 	 	 	 	 
	 	DIGITAL ANGEL CORPORATION

 	 
	 	/s/ Lorraine Breece 	 
	 	Lorraine Breece 	 
	 	Chief Financial Officer 	 
	 

Read and agreed to this

30th day of
March 2009.

/s/ Jeremy Harrison                   

Jeremy Harrison

 

 

TERMS AND CONDITIONS

NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER

DIGITAL ANGEL CORPORATION

(f/k/a APPLIED DIGITAL SOLUTIONS, INC.)

2003 FLEXIBLE STOCK PLAN

1. Definitions

	 	 	 	 	 
	(a)

	 	Committee
	 	The Committee (or, in certain cases, its
designees) who administers the Stock Option Plan.
	 
	 	 	 	 
	(b)

	 	Company
	 	Digital Angel Corporation, a Delaware corporation.
	 
	 	 	 	 
	(c)

	 	Option
	 	The option granted by the Option Award.
	 
	 	 	 	 
	(d)

	 	Option Award
	 	The Non-Qualified Stock Option Award to which
these Terms and Conditions are attached, except
where the context requires otherwise.
	 
	 	 	 	 
	(e)

	 	Participant
	 	The recipient of an Option Award.
	 
	 	 	 	 
	(f)

	 	Stock Option Plan
	 	Digital Angel Corporation (f/k/a Applied Digital
Solutions, Inc.) 2003 Flexible Stock Plan, as
amended.

All capitalized terms not otherwise defined herein shall have the meanings given to such terms by
the Stock Option Plan.

2. Evidence of Option Grant and Option; not an Incentive Stock Option

The Option Award evidences a grant to the Participant of an Option to purchase that number of
Shares (“Optioned Shares”) of the par value $.01 per share Common Stock of the Company (“Stock”)
set forth on the Option Award. The Participant may exercise the Option as shown on the Option
Award. In no event shall the Option or any part of the Option be exercisable after the Option
Expiration Date. The Option shall not be treated as an “Incentive Stock Option”, as defined in
Section 422 of the Internal Code of 1986, as amended (“Code”), notwithstanding the fact that
certain provisions of these Terms and Conditions incorporate portions of Code Section 422 and/or
comply with the requirements of such section.

3. Exercise of Option

Option shall be exercised by the Participant delivering a written notice of exercise to the
Company’s office at 490 Villaume Avenue; South St. Paul, MN 55075-2445. This notice shall specify
the number of Optioned Shares the Participant then desires to purchase.

4. Payment of Option Price

Payment for the Shares purchased under the Option shall be made to the Company in cash (including
wire transfer, cashier’s check, bank draft or money order) or “net exercise” in which case Optionee
shall receive shares of Company common stock for the value of the option on the date of exercise.
[For example, if Optionee holds an option to purchase 100 shares exercisable at $1.00 per share and
the market price on the date of exercise is $2.00, then on the date of net exercise, the Optionee
would receive 50 shares of common stock on full exercise of the option, less applicable required
withholdings.]

 

 

In addition to the foregoing methods of payment, payment of the Option price may also be made by
“cashless exercise” or any other form determined by the Committee in its discretion at the time of
exercise to be acceptable, including payment, at the discretion of the Committee, be made in whole
or in part in other property, rights and credits, including the Participant’s promissory note.

5. Form of Notice of Exercise

The Participant’s notice as required by Section 3 shall be signed by the Participant and shall be
in substantially the following form with appropriate adjustments depending on how the Option price
is paid:

“I hereby exercise my Option to purchase                      Shares in accordance with my Option
Award dated         ,
                   , granted under the Company’s 2003 Flexible Stock Plan, as amended.

The aggregate Option price of the Shares I am purchasing is $                    . I hereby tender
in payment of such price by wire transfer, cashier’s check, bank draft or money order made
payable to the Company in the amount of $                    . [or] I request “net exercise” of my
Option.

If the Shares purchased have not been registered under the Securities Act of 1933, I
hereby further represent to the Company that I am acquiring the                      Shares that I am
purchasing solely for investment and solely for my own account and that I have no present
intention of selling or offering for sale any of such Shares to any other person or
persons.”

6. Stock Certificates

Upon the exercise of the Option solely for cash or cash and property (other than Stock), rights
and/or credits specifically permitted by the Committee, the Participant shall be entitled to one
Stock certificate evidencing the Shares acquired upon exercise.

7. Legends on Certificates

The certificate or certificates to be issued under Section 6 shall be issued as soon as
practicable. Such certificate or certificates shall contain thereon a legend in substantially the
following form if the Shares evidenced by such certificate have not been registered under the
Securities Act of 1933, as amended:

“The shares represented by this certificate have not been registered under the Securities
Act of 1933 or any applicable state law. They may not be offered for sale, sold,
transferred or pledged without (1) registration under the Securities Act of 1933 and any
applicable state law, or (2) at holder’s expense, an opinion (satisfactory to the Company)
that registration is not required.”

The certificates shall also contain such other legends as may be appropriate or required by law,
such as a legend relating to any shareholders agreement that may apply to the Shares.

8. Termination of Employment; Nonassignability

     8.1 Voluntary Quit or Termination for Cause After Option is Vested. If, on or after
the date that the Option shall have first become exercisable, the Participant’s employment shall be
terminated by the Participant prior to age 65, or by the Employer for “Cause”, as defined below,
then the Participant’s full interest in the Option shall terminate on the date of such termination
of employment and all rights thereunder shall cease. Whether a Participant’s employment is
terminated for Cause shall be determined by the Committee. Cause shall include, but not be limited
to gross negligence, willful misconduct, flagrant or repeated violations of the Employer’s
policies, rules or ethics, a material breach by the Participant of any employment agreement between
the Participant and the Employer, intoxication, substance abuse, sexual or other unlawful
harassment, disclosure of confidential or proprietary information, engaging in a business
competitive with the Employer, or dishonest, illegal or immoral conduct.

 

 

     8.2 Other Termination After Option is Vested. If, on or after the date that the
Option shall first have become exercisable, the Participant’s employment shall be terminated for
disability (as such term is defined at Section 422(c)(6) of the Code), death, or termination by
the Participant after he has attained age 65, the Participant or his personal representative and/or
beneficiary, as the case may be, shall have the right to exercise such Option within a period of
three (3) years after the date of such termination, but in no case later than the Option Expiration
Date to the extent that such Option or any installment thereof shall have accrued at the date of
such termination of employment and shall not have been exercised.

Unless otherwise determined in the sole discretion of the Committee, upon termination of the
Participant’s employment or other relationship with the Company or with an Affiliate by the
Employer without Cause, this Option shall be come immediately vested in full and Participant shall
have the right to exercise this Option for the remainder of the term.

     8.3 Option Not Vested. If the Participant’s employment shall terminate before the
Option shall have first become exercisable, then the Participant’s full interest in the Option
shall terminate and all rights thereunder shall cease.

     8.4 Director Options. The employment of a member of the board of directors of an
Employer (“Director”) shall be terminated when he ceases to be a Director. If a Participant is
both a Director and an Employee, his employment shall not be deemed to have been terminated as long
as he remains a Director or an Employee, as the case may be.

The employment of a Director shall be deemed to have been terminated by the Employer without Cause
if the Participant ceases to serve in such position solely due to the failure to be reelected or
reappointed, as the case may be, and such failure is not a result of an act or omission which would
constitute Cause.

     8.5 Non-Transferability of Rights; Designation of Beneficiaries. The Option shall not
be transferable by the Participant otherwise than by will or the laws of descent and distribution
or as provided in this Section 8.4. During the lifetime of the Participant the Option shall be
exercisable only by the Participant. The Participant, however, may file with the Company a written
designation of a beneficiary or beneficiaries to exercise, in the event of death of the
Participant, the Option granted hereunder, subject to all of the provisions of this Section 8. A
Participant may from time to time revoke or change any such designation of beneficiary and any
designation of beneficiary under the Plan shall be controlling over any other disposition,
testamentary or otherwise; provided, however, that if the Committee shall be in doubt as to the
right of any such beneficiary to exercise the Option, the Committee may determine to recognize only
an exercise by the personal representative of the estate of the Participant, in which case the
Company, the Committee and the members thereof shall not be under any further liability to anyone.

     8.6 Deemed Termination of Employment and Transfer. If the Employer that employs the
Participant (or of which the Participant is a Director) ceases to be an Employer, the Participant’s
employment shall be deemed to have been terminated by such Employer without Cause as of the date
that it ceases to be an Employer. The transfer of a Participant’s employment (or a Director’s
service as a Director) from one Employer to another Employer shall not be deemed a termination of
employment.

9. Withholding

The Company or any Affiliate that employs the Participant shall have the right to deduct any sums
that federal, state or local tax law requires to be withheld with respect to the exercise of the
Option, or as otherwise may be required by such laws. The Company or any such Affiliate may
require as a condition to issuing Stock upon the exercise of the Option that the Participant or
other person exercising the Option pay any sum that federal, state or local tax law requires to be
withheld with respect to such exercise. In the alternative, the Participant or other person
exercising the Option, may elect to pay such sums to the Company or the Affiliate delivering
written notice of that election to the Company’s office at 490 Villaume Avenue; South St. Paul, MN
55075-2445, prior to or concurrently with exercise. Such payment shall be made in cash or through
surrender of shares to be obtained on exercise. There is no obligation that the Participant be
advised of the existence of the tax or the amount which the employer corporation will be so
required to withhold.

 

 

10. Right to Exercise Acceleration

On or before the Option Expiration Date, the Option shall be immediately exercisable in full upon a
Change of Control or upon the occurrence of any of the following events:

	 	(a)	 	the acquisition with the approval of the Board by any person or entity other than the
Company or a related entity of more than 50% of the combined voting securities of the
Company on a fully diluted and/or converted basis through a tender offer, exchange offer or
otherwise;
	 
	 	(b)	 	the sale or disposition of all or substantially all of the Company’s assets unless
shareholders of the Company prior to such sale or disposition own at least 50% of the
voting stock on a fully diluted and/or converted basis of the purchaser and the purchaser
assumes the Option on a financially equivalent basis;
	 
	 	(c)	 	a merger or consolidation involving the Company where shareholders of the Company do
not own at least 50% of the voting stock of the surviving entity on a fully diluted and/or
converted basis; or
	 
	 	(d)	 	any time during any two year period in which individuals who constituted the Board at
the start of such period (or, except for a transaction described in (a) or (c), whose
election was approved by at least two-thirds of the then members of the Board who were
members at the start of the two year period, do not constitute at least 50% of the Board
for any reason.

11. Stock Option Plan Controls

The Option Award and these Terms and Conditions are subject to all terms and provisions of the
Stock Option Plan which is incorporated herein by reference. In the event of any conflict, the
Stock Option Plan shall control over the Option Award and these Terms and Conditions.

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