Document:

Exhibit
10.1

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (“Agreement”), made and entered into
effective as of the 28th day of February, 2005, by and among DIGITAL ANGEL
CORPORATION, a Delaware corporation (“Buyer”); and LASSE NORDFJELD, who holds
Shares under LANO Holding ApS (“L. Nordfjeld”) and TORSTEN NORDFJELD, who holds
Shares as an individual and holds Bonds (as defined below) under LATO Aps (“T.
Nordfjeld”) (L. Nordfjeld and T. Nordfjeld shall be collectively referred to
herein as the “Management Shareholders”), all the SHAREHOLDERS OF DSD Holding
A/S, a Danish corporation (the “Company”) as listed below (“Additional
Shareholders”) as well as those warrant holders (“Warrant Holders”) and bond
holders (“Bond Holders”) listed below that choose to exercise their rights to
acquire shares of the Company after the effective date of this Agreement,
hereafter listed on Exhibit 1.1 to this Agreement. (The Management
Shareholders, the Additional Shareholders, the Warrant Holders and the Bond
Holders shall be collectively referred to herein as the “Shareholders”).

 

W I T N E
S S E T H:

 

WHEREAS, the
Company and its Subsidiaries (as defined under paragraph 2.2 of this Agreement)
are involved in the business of electronic identification devices;

 

WHEREAS, the
Company has a share capital of DKK 5,548,500, the nominal value of DKK 50 per
share, currently issued and outstanding, all such issued and outstanding shares
being owned and held of record by the Shareholders as follows:

 

	
  Shareholder

  	
   

  	
  Share Capital

  	
   

  	
  Shares Owned

  	
   

  	
  Ownership

  Percentage

  	
   

  
	
   

  	
   

  	
  (DKK)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LANO Holding ApS

  	
   

  	
  3,430,000

  	
   

  	
  68,600 shs.

  	
   

  	
  61.82

  	
  %

  
	
  Torsten
  Nordfjeld

  	
   

  	
  556,000

  	
   

  	
  11,120 shs.

  	
   

  	
  10.02

  	
  %

  
	
  Vækstfonden

  	
   

  	
  312,500

  	
   

  	
  6,250 shs.

  	
   

  	
  5.63

  	
  %

  
	
  Parfait ApS

  	
   

  	
  1,250,000

  	
   

  	
  25,000 shs.

  	
   

  	
  22.53

  	
  %

  
	
  Total

  	
   

  	
  5,548,500

  	
   

  	
  110,970 shs.

  	
   

  	
  100

  	
  %

  

 

WHEREAS, the
Company has issued warrants to purchase an aggregate of 3,000 shares of the
Company’s stock (“Warrants”) exercisable at the price per share as indicated,
all such issued and outstanding Warrants being owned and held of record by the
Warrant Holders as follows:

 

 

	
  Warrant
  Holder

  	
   

  	
  Underlying Shares

  	
   

  	
  Exercise Price Per Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Torsten
  Nordfjeld

  	
   

  	
  3,000 shs

  	
   

  	
  DKK

  	
  200

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  3,000 shs.

  	
   

  	
  DKK

  	
   600,000

  	
   

  

 

WHEREAS, the
Company has issued certain bonds in the principal amounts indicated convertible
into shares of the Company’s stock (“Bonds”), all such issued and outstanding
Bonds being owned and held of record by the Bond Holders as follows:

 

	
  Bond
  Holder

  	
   

  	
  Principal Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LANO Holding ApS

  	
   

  	
  DKK

  	
  1,300,000

  	
   

  
	
  LATO ApS

  	
   

  	
  DKK

  	
  500,000

  	
   

  
	
  Gunnar Johan Sorensen

  	
   

  	
  DKK

  	
  50,000

  	
   

  
	
  Micheal Tezlaff

  	
   

  	
  DKK

  	
  100,000

  	
   

  
	
  Total

  	
   

  	
  DKK

  	
  1,950,000

  	
   

  

 

WHEREAS, the
Shareholders desire to sell to Buyer, and Buyer desires to buy from the
Shareholders, all of the issued and outstanding shares of the stock of the
Company on the terms and subject to the conditions indicated below.

 

NOW, THEREFORE,
in consideration of the foregoing recitals, the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

 

ARTICLE
1.

 

PURCHASE
OF STOCK

 

1.1          Purchase
and Sale of Shares.  On
the terms and subject to the conditions herein set forth, on the “Closing Date”
(as such term is hereinafter defined), the Shareholders hereby agree to sell,
transfer and deliver to Buyer, and Buyer hereby agrees to purchase and acquire
from the Shareholders, the number of shares of the issued and outstanding stock
of the Company set forth opposite each of the Shareholders names on Exhibit 1.1
attached hereto, as may be amended at the Closing Date to include those Warrant
Holders and Bond Holders that choose to exercise their rights to acquire shares
of the Company after the effective date of this Agreement (collectively, the “Shares”),
which constitutes, in the aggregate, all of the issued and outstanding stock of
the Company.

 

1.1.1       Division. On November 10, 2004, the
Shareholders of the Company decided to divide the Company’s assets and
liabilities between the Company and SFK Technology Holding A/S (the “Division”),
whereby DKK 5,567,500 of the Company’s share capital was redeemed and the
Company’s share capital of DKK 11,116,000 was reduced to DKK 5,548,500. In
connection with the Division, according to Article 46 of the Danish Companies
Act, the Company is required to insert a notification in the Danish Official

 

2

 

Gazette (“Statstidende”)
calling on the creditors who do not accept the capital reduction under the
Division to file their claims within 3 months of the date of such notification
(the “Claims”). The Company inserted the notification on December 1, 2004, and,
therefore, the capital reduction under the Division cannot be formally
registered before March 1, 2005 at the earliest. Further, the Danish law
provides that the capital reduction under the Division cannot be formally
registered as long as filed Claims due for payment have not been satisfied and
adequate security has not been provided for Claims that have not fallen due or
are in dispute. The Management Shareholders each hereby represent that no
Claims have been filed as of the date of this Agreement and do not expect that
any Claims will be filed on or before March 1, 2005. However, if any Claims are
filed, the Management Shareholders hereby agree to be responsible for the full
payment and settlement of any and all Claims.

 

1.2          Closing.  Closing on the
purchase and sale of the Shares shall take place at the offices of Lassen
Ricard on February 28, 2005 at 10:00 a.m., or by such other method, on such
other time and date and at such other location as may be mutually agreed upon
by the parties to this Agreement (such date is referred to in this Agreement as
the “Closing Date”).  The effective time
of the closing shall be as of 12:01 a.m. on the Closing Date (the “Closing”).

 

1.3          Purchase
Price.

 

1.3.1       The
aggregate consideration (the “Purchase Price”) to be paid by Buyer for the
Shares to the Shareholders, pro rata based on the number of Shares owned, shall
be as follows:

 

(i)            The
Purchase Price shall be Seven (7) times the average annual EBITDA of the
Company for the calendar years of 2005, 2006 and 2007 (“EBITDA Period”) minus
the outstanding Indebtedness of the Company as of December 31, 2007 (net
of any cash in excess of cash at Closing) and minus thirty percent (30%) of the
total compensation paid to L. Nordfjeld pursuant to the Employment Agreement
described under paragraph 5.2.4, all as determined as provided in paragraph
1.3.2 below. The Purchase Price shall be calculated in Danish Krone (DKK), at
the conversion rate then current on the date the Purchase Price Calculation is
determined as provided in paragraph 1.3.2.

 

For purposes of this
calculation, “EBITDA” shall mean an amount equal to the net income or loss of
the Company, the net income or loss determined in accordance with generally
accepted accounting principles in the United States of America (“U.S. GAAP”)
consistently applied, before interest, income taxes, depreciation and
amortization.  “Indebtedness” shall mean
(a) any indebtedness for borrowed money or the deferred purchase price of
property as evidenced by a note, bond, or other instruments; (b) any
obligations as lessee under capital leases; (c) obligations secured by any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
existing on any asset owned or held by the Company or any of its Subsidiaries
whether or not the Company or any of its Subsidiaries has assumed or become liable
for the obligations secured thereby; (d) any obligation under any interest rate
swap agreement; (e) any obligations under direct or indirect guarantees of
(including obligations, contingent or otherwise, to assure a creditor against
loss in respect of) indebtedness or obligations of the kinds referred to in

 

3

 

clauses (a), (b), (c) and
(d) above, excluding bank guarantees for performance under tender orders given
in the normal course of business; (f) any advances or other obligations owed to
Buyer or any of its affiliates; and (g) any similar obligation of the Company
or any of its Subsidiaries. Indebtedness shall not include accounts or trade
payables due in the ordinary course of the Company’s business.

 

(ii)           For
purposes of this paragraph 1.3.1 and the calculations to be made pursuant
to this paragraph 1.3.1 and the Triggering Events defined below, the term “Company”
shall mean the Company on a consolidated basis with its Subsidiaries in its
present form (i.e., as of the Closing Date) and shall not include any
subsequently-added or acquired businesses or Subsidiary unless consented to in
writing by Buyer.

 

(iii)          Payment
of the Purchase Price will be made pursuant to paragraph 1.4.1, Initial Stock
Payment, with the balance, if any, pursuant to paragraph 1.4.3, Payment of
Balance of Purchase Price. The parties hereto hereby acknowledge and agree that
the Purchase Price shall in no event be less than the amount of the Initial
Stock Payment due to the Shareholders under paragraph 1.4.1.

 

(iv)          The
Shareholders specifically acknowledge, understand and agree that: (a) the Buyer
will exercise its good faith in managing the Company subsequent to Closing;
(b) Buyer, as sole shareholder, will have ultimate control over the
business direction and decisions of the Company subsequent to Closing, and
there is always business risk that some decisions may result in losses or are
otherwise sub-optimal; and (c) Buyer will be fair in not usurping business
opportunities, but as both Buyer and the Company are in the same business,
there is a possibility that some new business may be attributed to or preserved
by Buyer and not the Company.

 

(v)           During
the course of Buyer’s management of the Company from the date of Closing to December
31, 2007, if the Buyer takes an action (“Triggering Event”) that the
Shareholder Representative believes materially negatively affects the Purchase
Price Calculation, as defined below, the Shareholder Representative shall
notify Buyer in writing if the Shareholder Representative objects to such
Triggering Event within the thirty (30) day period following such Triggering
Event, stating in such objection specific reasons for the objection along with
financial projections of the affect of not permitting such Triggering Event.
The Shareholder Representative and the Buyer hereby agree to negotiate in good
faith a mutually agreeable resolution if there is an objection to the
Triggering Event. If the parties cannot agree to a resolution within fourteen
(14) days of the Buyer’s receipt of the objection notice, the parties shall
submit the matter for resolution to an internationally recognized arbitrator
located in England (“Arbitrator”), not affiliated with either party. The costs
of the Arbitrator are to be paid by the party whose position is not upheld by
the Arbitrator. However, if neither party’s position is upheld by the
Arbitrator, the costs of the Arbitrator shall be shared equally by the parties.
Examples of possible Triggering Events include, but are not limited to, the
following:

 

(a)           a
significant change in the Company’s, or in one of its Subsidiaries’, current
structure, business strategy or activities, including, but not limited to,
discontinuation of the production and sale of ear tags or liquidation of the 

 

4

 

Company or one of
its Subsidiaries unless the activities are transferred to the Company or one of
the Company’s Subsidiaries;

 

(b)           a
significant change in the Company’s accounting principles, other than the
changes to the Company’s accounting principles after the Closing Date so that
they are in accordance with U.S. GAAP;

 

(c)           the
Buyer, or any of its affiliates, performs any business activities in Europe
that the Company and its Subsidiaries presently perform;

 

(d)           a
significant change in the Company’s or one of the Company’s Subsidiaries’
current financing which would result in the Company or the Company’s Subsidiary
not having sufficient financing for the Company’s or the Company’s Subsidiary’s
current activities;

 

(e)           an
extraordinary and non-standard cost is incurred by the Company or one of the
Company’s Subsidiaries as compared with the current and normal costs and
activities of the Company or the Company’s Subsidiary, including, but not limited
to, a significant increase in investments, significant price reduction,
significant management fees to the Buyer, significant fees to members of the
boards of directors of the Company and the Company’s Subsidiaries;

 

(f)            the
Company or one of the Company’s Subsidiaries provides business or financial
assistance to the Buyer or one of the Buyer’s affiliated businesses and is not
fairly compensated in accordance with arm’s length principles; or

 

(g)           payment
of a dividend or any equivalent to the Buyer.

 

(vi)          For
purposes of this Agreement, the term “Shareholder Representative” shall mean a
Shareholder whom the Shareholders agree by a majority vote will represent their
interests as Shareholders and has the authority to act on the Shareholders’
behalf as specified in this Agreement. The Management Shareholders will notify
the Buyer of the identity of the Shareholder Representative and any subsequent
changes to the identity of the Shareholder Representative. The initial
Shareholder Representative shall be Lasse Nordfjeld (“Initial Shareholder
Representative”).

 

(vii)         The
Shareholders specifically acknowledge, consent and approve the appointment of
the Initial Shareholder Representative, and any subsequently appointed
Shareholder Representative, as the attorney-in-fact for the Shareholders and to
take such actions and to make any decisions required or permitted in this
Agreement on behalf of the Shareholders.

 

(viii)        The
Shareholders also specifically acknowledge, understand and agree that any cash
generated by the Company and its Subsidiaries will be used first to pay capital
expenditures and to fund any increases determined by Buyer to be necessary in
the Company’s working capital, then to pay down Indebtedness, all as determined
by Buyer in its sole discretion.

 

5

 

1.3.2       Final Purchase Price Calculation.

 

(a)           On
or prior to March 31, 2008, Buyer shall prepare and promptly thereafter deliver
to the Shareholders a statement setting forth the Purchase Price required to be
calculated pursuant to paragraph 1.3.1 above less the payment made prior to the
date thereof pursuant to paragraph 1.4 (the “Purchase Price Calculation”). The
Purchase Price Calculation shall be prepared by the Company’s in-house
accountants and verified by the Company’s independent certified public
accountants. In connection with the preparation of such Purchase Price
Calculation, Buyer and its authorized representatives shall have full access to
the relevant books and records of the Company and each of its Subsidiaries and
their respective authorized representatives and employees to the extent
necessary to complete such Purchase Price Calculation.

 

(b)           If
Shareholders owning at least seventy percent (70%) of the Shares object to the
Purchase Price Calculation, the Shareholder Representative shall notify Buyer
in writing of such objection within the thirty (30) day period following the
delivery thereof, stating in such written objection the reasons therefore and
setting forth the Shareholders’ calculation of amounts set forth in the
Purchase Price Calculation.  Upon receipt
by Buyer of such written objection, the parties shall attempt to resolve the
disagreement concerning the Purchase Price Calculation through negotiation. If
Buyer and the Shareholders cannot resolve such disagreement concerning the
Purchase Price Calculation within thirty (30) days following the end of the
foregoing 30-day period, the parties shall submit the matter for resolution to
an internationally recognized firm of independent certified public accountants
in England (the “Accountants”), not affiliated with either party, with the
costs thereof to be shared equally by the parties.  The Accountants shall deliver a statement
setting forth its own calculation of the matters set forth in the Final
Adjustment Statement to the parties within thirty (30) days of the
submission of the matter to such Accountants.

 

(c)           The
“Purchase Price Calculation” for purposes of paragraph 1.3.2 shall be either:
(1) if the Shareholders do not object, the Purchase Price Calculation
initially submitted by the Buyer to the Shareholders; (2) if the
Shareholders and Buyer agree, the Purchase Price Calculation as so agreed; or
(3) if the Shareholders object and the parties fail to agree, the Purchase
Price Calculation as prepared by the Accountants.

 

1.3.3       Buyout Purchase Price. Notwithstanding
anything to the contrary, at any time between the Closing Date and December 31,
2006, the Buyer may pay a buyout purchase price equal to the higher of (a)
$2,000,000 (“Set Amount”) or (b) the Purchase Price as determined pursuant to
paragraph 1.3.1 for the period from January 1, 2005 to the date of the Buyout
less the payment made prior pursuant to paragraph 1.4.1 (“EBITDA Amount”)
(collectively, the Set Amount and the EBITDA Amount shall be referred to as the
“Buyout Purchase Price”).  In addition,
if L. Nordfjeld’s employment is terminated pursuant to Section 9(a)(iv) of L.
Nordfjeld’s Employment Agreement, attached as Exhibit 5.2.6-1, the
Shareholders shall have the right to demand that the Buyer pay the

 

6

 

Buyout Purchase
Price. The Shareholder Representative shall notify the Buyer in writing within
thirty (30) days of the termination date of L. Nordfjeld’s employment if the Shareholders
desire to exercise such buyout option. The Shareholder Representative and the
Buyer hereby agree to each provide to the other party their good faith
determination of the EBITDA Amount (“Determinations”) within seven (7) days of
the date the Buyer notifies the Shareholder Representative of its intent to
exercise its rights under this paragraph and pay the Buyout Purchase Price. If
the parties do not agree on the EBITDA Amount, the Shareholder Representative
and the Buyer agree to negotiate in good faith a mutually agreeable resolution.
If the parties cannot agree on a resolution within seven (7) days after receipt
of the Determinations, the parties shall submit the matter for resolution to an
internationally recognized arbitrator located in England (“Arbitrator”) not
affiliated with either party, with resolution by the Arbitrator to be made
within fourteen (14) days after the matter is submitted to the Arbitrator. The
costs of the Arbitrator are to be paid by the party whose position is not
upheld by the Arbitrator. However, if neither party’s position is upheld by the
Arbitrator, the costs of the Arbitrator shall be shared equally by the parties.
Such Buyout Purchase Price shall be payable in accordance with the terms of
paragraph 1.4.3.  Any Buyout Purchase
Price paid under this paragraph shall be the final payment or amount due to the
Shareholders, and nothing in this paragraph shall be construed to require the
Shareholders to return or repay any of the Initial Stock Payment made under
paragraph 1.4.1.

 

1.4          Terms
of Payment.  The
Purchase Price shall be paid as follows:

 

1.4.1       Initial
Stock Payment.  An
initial stock payment of US $3,500,000 worth of Applied Digital, Inc. (“ADSX”)
Class A common stock, $0.01 par value, shall be delivered at Closing by
the Buyer to the Shareholders (“Initial Stock Payment”). The Shareholders
acknowledge, understand and agree that the Initial Stock Payment shall be
applied towards the repayment of any Bonds not converted into shares of the
Company’s common stock (“1st Repayment”) and towards the repayment
of that certain loan with Mezzanin Kapital A/S dated August 15, 2000 (the “Mezzanin
Loan”), including any expenses and fees associated with the repayment of the
Mezzanin Loan, as negotiated by the Management Shareholders with Mezzanin
Kapital A/S, whereby no further obligations under the Mezzanin Loan exist and
the Mezzanin Loan is cancelled (“2nd Repayment”) to the extent any such amounts
are not paid with the proceeds of the Loan referred to in paragraph 7.6.  To the extent any stock remains available
after payment of such items, the Initial Stock Payment shall be distributed
among the Shareholders, pro rata based on the number of Shares owned. The
Shareholders further acknowledge, understand and agree that the 1st
Repayment and 2nd Repayment shall be handled by the Company and that
the distribution of the remaining Initial Stock Payment between the
Shareholders shall be handled by the Management Shareholders. The Management
Shareholders understand and agree that to the extent required pay the 1st
Repayment and 2nd Repayment, they shall distribute the necessary
amounts from the Initial Stock Payment to the Company so that the Company may
make such repayments. The Shareholders further acknowledge, understand and
agree that any disputes arising from the distribution of the Initial Stock
Payment shall be handled by and between the Shareholders, and that Buyer shall
have no liability in any dispute or claim related to such repayments,
allocations and distributions.

 

7

 

The Shareholders
acknowledge and agree that the ADSX shares to be delivered pursuant hereto (the
“ADSX Shares”) will be unregistered shares and shall be valued based on the 10-day
“VWAP” (Volume Weighted Average Price) of ADSX Class A common stock for
the ten (10) trading days on the NASDAQ Stock Market prior to Closing. The
Shareholders further acknowledge and agree that the ADSX shares will be valued
at the fixed conversion rate of 5.75 Danish Krones per US $1.00 for purposes of
determining the Purchase Price under paragraph 1.3.1.

 

1.4.2       Additional Covenants Regarding ADSX Stock
Delivered.  ADSX,
parent corporation of Buyer, agrees to take commercially reasonable best
efforts to file a registration statement (“Registration Statement”) with the
United States Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended, to register the ADSX Shares delivered to
the Shareholders at Closing within thirty (30) days after the Closing Date and
to cause such registration to become effective as soon as practicable. If the
ADSX Shares are not registered with the SEC within seven (7) months after the
filing of the Registration Statement, unless the Registration Statement is
still in the review process with the SEC, the Shareholders shall have the right
to repurchase from the Buyer all, but not less than all, of the issued and
outstanding Shares of the Company by returning 100% of the ADSX Shares paid as
the Initial Stock Payment pursuant to paragraph 1.4.1 to the Buyer (the “Buy
Back Option”).  Notwithstanding the foregoing, before the Shareholders may
exercise the Buy Back Option, the Buyer shall have the right to pay the
Shareholders a cash payment of $3,500,000, whereby the Shareholders shall return
100% of the ADSX Shares paid as the Initial Stock Payment pursuant to paragraph
1.4.1 to the Buyer and the Buy Back Option will become void.

 

1.4.3       Payment
of Balance of Purchase Price or Buyout Purchase Price.  The balance of the
Purchase Price, if any, or the Buyout Purchase Price shall be payable within
fifteen (15) days of the date the Purchase Price Calculation is finally
determined under paragraph 1.3.2(c) or the date of Buyout under paragraph
1.3.3, as applicable, to the Shareholders, pro rata based on the number of
Shares held. The balance of the Purchase Price or the Buyout Purchase Price
shall be paid from the Escrow Amount, as described under paragraph 1.4.4., with
the balance, if any, in cash or unregistered shares of Buyer’s Common Stock, $.005
par value, or a combination thereof, as determined in the sole discretion of
Buyer, but in no event will the amount of Buyer’s Common Stock exceed fifty
(50%) of said amount.  The value of the
Buyer’s common stock shall be based on the VWAP for the 10 trading days prior
to payment and the conversion rate of US dollars into Danish Krone then current
on the date of the Purchase Price Calculation. The Shareholders acknowledge,
understand and agree that the distribution of the balance of the Purchase Price
or the Buyout Purchase Price shall be handled by the Management Shareholders,
and any disputes arising from the distribution of the balance of the Purchase
Price or the Buyout Purchase Price shall be handled by and between the
Shareholders, and Buyer shall have no liability in any dispute or claim related
to such allocations and distributions. The Shareholders acknowledge and agree
that under no circumstances will the Buyer’s Common Stock applied towards the
payment of the balance of the Purchase Price or the Buyout Purchase Price
exceed nineteen and ninety-nine one hundredths (19.99%) percent of the
outstanding Common Stock of the Buyer.

 

8

 

1.4.4       Escrow
of Balance of Purchase Price. The
Buyer agrees that the balance of the Purchase Price, as determined pursuant to
paragraph 1.3 but for the period from the Closing Date to December 31st
of the applicable year (the “Escrow Amount”), shall be placed in escrow to
secure the Buyer’s obligation to pay the balance of the Purchase Price pursuant
to paragraph 1.4.3. The calculation of the Escrow Amount shall be made each
year on or prior to March 31 of the following year (the “Escrow Calculation”),
with the first Escrow Calculation made on or prior to March 31, 2006 for the
period from January 1, 2005 to December 31, 2005 (“First Escrow Year”). The
Escrow Amount shall be adjusted up or down each year based on the current
Escrow Calculation. The Escrow Amount may consist of cash or unregistered
shares of Buyer’s Common Stock, $.005 par value, or a combination thereof, as
determined in the sole discretion of Buyer, but in no event will the amount of
Buyer’s Common Stock exceed fifty (50%) of said amount.

 

1.4.5       Non-Payment of Balance of Purchase Price.
If Buyer does not pay the balance of the Purchase Price pursuant to
paragraph 1.4.3 by June 30, 2008 for any reason other than due to a dispute in
the Purchase Price Calculation and which dispute is in the process of being
resolved pursuant to paragraph 1.3.2., the Shareholders shall have the right to
either (a) repurchase from the Buyer all, but not less than all, of the issued
and outstanding Shares of the Company for 100% of the Purchase Price previously
received by the Shareholders (the “Buy Back Option”) or (b) receive the Escrow
Amount. If the Board of Directors of the Buyer has knowledge that the Buyer
will not be able to pay the balance of the Purchase Price pursuant to paragraph
1.4.3, the Buyer shall notify the Shareholder Representative as soon as
practical and the Shareholders shall have the right to either (a) exercise the
Buy Back Option or (b) receive the Escrow Amount.

 

ARTICLE 2.

 

REPRESENTATIONS,
WARRANTIES AND COVENANTS

OF THE MANAGEMENT SHAREHOLDERS

 

In connection with and as
an inducement to Buyer to enter into and be bound by the terms of this
Agreement, the Management Shareholders each hereby, jointly and severally,
represent, warrant and covenant to Buyer (except for paragraph 2.1 whereby all
Shareholders listed on Exhibit 1.1, as amended, including those Warrant
Holders and Bond Holders that choose to exercise their rights to acquire shares
of the Company after the effective date of this Agreement, hereby, jointly and
severally, represent, warrant and covenant to Buyer) as follows. For purposes
of this Agreement, all representations and warranties made “to the best of the
Management Shareholders’ knowledge” shall be made based on the knowledge which
a reasonably prudent person would have that occupied a similar position and had
a similar ownership interest in the Company as the Shareholders, assuming such
investigation as a reasonably prudent person would undertake in order to make
such representations and warranties.

 

2.1          Ownership
of Shares.  The
Shareholders, as listed on Exhibit 1.1, are the lawful owners of all of
the issued and outstanding stock of the Company free and clear of all liens,
encumbrances, restrictions and claims of every kind and that the Subsidiary
shares are free from any charge and encumbrance and are owned by the Company.  The delivery to Buyer of the Shares pursuant
to the provisions of this Agreement will transfer to Buyer ownership of all of
the

 

9

 

issued and
outstanding shares of stock of the Company, together with valid legal title thereto,
free and clear of all liens, encumbrances, restrictions and claims of every
kind.

 

2.2          Organization,
Standing and Power.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the country of Denmark and has all requisite corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as is now being conducted. 
The Company owns capital stock of each of the subsidiaries listed on Exhibit
2.2 (hereinafter referred to separately as a “Subsidiary” or collectively
as the “Subsidiaries”), in the amounts and percentages described therein.  To the Best Knowledge of the Managing
Shareholders, each of the Subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of their respective
formation.  To the Best Knowledge of the
Managing Shareholders, each of the Company and its Subsidiaries is duly
qualified or licensed as a foreign corporation and is in good standing to do
business in each jurisdiction in which property is owned, leased or purchased
by it, or the nature of the business conducted by it, make such qualification
or licensing and good standing necessary, each such jurisdiction being listed
on attached Exhibit 2.2.  The
Management Shareholders have delivered to Buyer complete and correct certified
copies of the Articles of Incorporation and the Bylaws of the Company and each
Subsidiary as currently in effect.  The
Company has no ownership interest in any other entity.  Neither the Company nor the Subsidiaries have
issued any dividend-yielding debt instruments or otherwise given any third
party the right to a share of the profit from the operations of the Company or
any Subsidiary.  The Company has no
subsidiaries other than the subsidiaries shown in Exhibit 2.2 (the “Group
Overview”), and no Subsidiary has set up branch outside of its home country.

 

2.3          Structure.  The Company’s share
capital is DKK 5,548,500, the nominal value of DKK 50 per share, and owned by
all the Shareholders.  The share capital
of each Subsidiary and the holders of all outstanding shares are set forth on
attached Exhibit 2.3.  Other
than the Warrants and Bonds described in this Agreement, the Company and each
Subsidiary has no outstanding subscriptions, warrants, options, calls or
commitments relating to its stock; no obligations or securities convertible
into or exchangeable for its stock; no plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of stock
other than as contemplated by this Agreement; and no legend or other reference to any purported encumbrance appears upon
any certificate representing stock of the Company or any Subsidiary.  No third party has any purchase options or
pre-emptive rights with respect to the Shares or the Subsidiary Shares.  The Register of Shareholders of the Company,
and the Register of the Shareholders of each Subsidiary are correct, updated
and in accordance with the Group Overview. 
All outstanding shares of the Company’s stock are validly issued, fully
paid and nonassessable and are owned by the Shareholders.  All outstanding shares of each Subsidiary are
validly issued, fully paid and nonassessable and are owned by the person(s) or
entity listed on attached Exhibit 2.3.  To the Best Knowledge of the Managing
Shareholders, none of the outstanding
stock or other securities of the Company or any Subsidiary was issued in
violation of applicable securities laws or any applicable administrative order,
law, ordinance, regulation, statute or treaty; and neither the Company nor any
Subsidiary owns, or has any contract to acquire, any stock or other securities
of any person or entity or any direct or indirect equity or ownership interest
in any other business.

 

10

 

2.4          Authority.  The execution and delivery of this Agreement
by the Shareholders and the consummation by the Shareholders and the Company of
the transactions contemplated by this Agreement have been duly and validly authorized
by all necessary corporate action on the part of the Company. This Agreement
constitutes the legal, valid and binding obligation of the Shareholders,
enforceable against each of the Shareholders in accordance with its terms and
conditions.

 

2.5          No
Violation.  Other
than as disclosed herein, neither the execution and delivery by the
Shareholders of this Agreement, consummation of the transactions contemplated
hereby nor compliance by the Shareholders and the Company with any of the
provisions hereof will:

 

2.5.1       Violate
or conflict with any provision of the Articles of Incorporation or Bylaws of
the Company or any Subsidiary;

 

2.5.2       Violate
or constitute a default under or give rise to any right of termination,
cancellation or acceleration under the terms, conditions or provisions of any
agreement or instrument to which the Shareholders or the Company or any
Subsidiary is a party or by which any of them or any of their properties or
assets is bound except as has been duly and validly waived, consented to or
approved of by the other parties to such agreement or instrument;

 

2.5.3       Result
in the creation or imposition of any security interest, lien or other
encumbrance upon any of the assets of the Company or any Subsidiary or the
Shares under any agreement or commitment to which the Shareholders or the
Company or any Subsidiary is a party or by which the Shareholders or the
Company or any Subsidiary is bound or to which the Shareholders or any assets
of the Company or any Subsidiary are subject; or

 

2.5.4       Violate
any statute or law or any judgment, order, decree, regulation or rule of any
court or governmental authority applicable to the Shares or the Shareholders,
the Company or any Subsidiary or any of their assets.

 

2.5.5       Except as set forth on Exhibit 2.5,
all consents and approvals of third parties and governmental authorities
required in connection with the execution and delivery by the Shareholders of
this Agreement and the consummation by the Shareholders of the transactions
contemplated by this Agreement have been obtained.

 

2.6          Financial
Documents.  As of the date of this Agreement, the Management
Shareholders have furnished to Buyer the financial statements and other
financial documents of the Company indicated on attached Exhibit 2.6
(the “Initial Financial Documents”). Such financial statements have been
prepared in English and U.S. Dollars and include acceptable auditor’s consents
so that such Initial Financial Documents can be filed by Buyer with (and
accepted by) the SEC on the date of Closing, if necessary. In addition, as a
condition precedent to Closing, the Management Shareholders shall furnish to
Buyer the additional financial statements of the Company required pursuant to
paragraph 5.2.15. (“Additional Financial Documents”)(the Initial Financial
Documents and the Additional Financial Documents shall be collectively referred
to as the “Financial Documents”). To the Best Knowledge of the Managing
Shareholders, the Financial

 

11

 

Documents are true and
correct and fairly and accurately represent the financial matters stated
therein.  To the Best Knowledge of the
Managing Shareholders, all financial statements included as part of the
Additional Financial Documents have been prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the period specified therein, and all
financial statements included as part of the Financial Documents present the
financial condition of the Company and the Subsidiaries as of the date
specified therein and the results of their operations and cash flows for the
periods specified therein.  To the Best
Knowledge of the Managing Shareholders, the Financial Documents do not include
any material assets or omit to state any material liability, absolute or contingent,
or other facts, the inclusion or omission of which would render the Financial
Documents, in light of the circumstances in which they are made, misleading.

 

The Cash Forecast
prepared by L. Nordfjeld and discussed in detail with Buyer’s representatives,
attached as Exhibit 2.6(A), has been prepared in good faith, is a fair
representation of the information provided and reflects the Management
Shareholders’ current views based on historical facts and future events.

 

2.7          Assets.  To
the Best Knowledge of the Managing Shareholders, the Company and each of its
Subsidiaries has, and on the Closing Date will have, good and marketable title
to all of its assets, free and clear of all mortgages, pledges, liens,
conditional sales agreements or other encumbrances of any kind or nature
whatsoever, and the Company and each of its Subsidiaries own all of the assets
used in the operation of the Company’s and the Subsidiaries’ businesses, except
as disclosed on attached Exhibit 2.7.  To the Best Knowledge of the Managing
Shareholders, all of the Company’s and its Subsidiaries’ assets are, and on the
Closing Date will be, in reasonably good operating condition, normal wear and
tear excepted, and each is fit and suitable for the purpose and use for which
they were intended.

 

2.8          Books,
Records and Accounts.  To the Best Knowledge of the Managing
Shareholders, all accounts, books, ledgers and official and other records of
whatsoever kind material to the business of the Company and its Subsidiaries
have been fully, properly and accurately kept and completed in all material
respects, there are no material inaccuracies or material discrepancies of any
kind contained or reflected therein, and collectively they fairly present the
financial position of the Company and its Subsidiaries.  To the Best Knowledge of the Managing
Shareholders, the minute books of the Company and its Subsidiaries, as made
available to Buyer and its representatives, contain complete and accurate
records of all meetings and corporate actions or written consents by the
stockholders and board of directors of the Company and its Subsidiaries.  The
Company and the Subsidiaries have taken all steps required by company law,
including that records have been kept, general meetings have been held and
financial statements and other notifications and information have been filed
with the Danish Commerce and Companies Agency (“Erhvervs- og Selskabsstyrelsen”)
and corresponding foreign authorities, and that no resolutions subject to the
notification requirement have been passed other than those registered with the
Danish Commerce and Companies Agency or a corresponding foreign authority. No
Subsidiary has held or convened any general meeting or Directors’ meeting since
April 27, 2004 [new date?] except
as disclosed on attached Exhibit 2.8.  To the Best Knowledge
of the Managing Shareholders, the Company and its Subsidiaries keep their
records and books of account in conformity with accounting principles
consistently applied.

 

12

 

2.9          Judgments.  To the Best Knowledge
of the Managing Shareholders, there are no unsatisfied judgments of record
against the Company or any of its Subsidiaries.

 

2.10        Undisclosed
Liabilities.  Except
with respect to liabilities disclosed on attached Exhibit 2.10 and
other than liabilities incurred by the Company or any Subsidiary in the
ordinary course of business since December 31, 2004, to the Best Knowledge
of the Managing Shareholders, there are no liabilities of any kind or character
outstanding for which the Company or any Subsidiary is or may be liable
(whether absolute, accrued, contingent or otherwise, and including, without
limitation, liabilities as a guarantor or otherwise with respect to the
obligations of others) which are not
reflected in the December 31, 2004, financial statements of the Company or
its Subsidiaries.

 

2.11        No
Adverse Change.  Except
as indicated on attached Exhibit 2.11, to the Best Knowledge of the
Managing Shareholders, since December 31, 2004, there has not been any material
adverse change in the condition, assets, liabilities, revenues, income or
business of the Company or any Subsidiary or in its relationships with
suppliers, dealers, customers or employees, including, but not limited to:

 

2.11.1     Any
increase in the wages, salaries, compensation, pension or other benefits
payable or to become payable by the Company or any of its Subsidiaries to any
of its directors, employees, agents or contractors;

 

2.11.2     The
declaration, authorization, payment or distribution of any stock, cash or other
dividend or distribution to any Shareholder;

 

2.11.3     Any
incurrence by the Company or any of its Subsidiaries of any obligations or
liabilities, whether absolute, accrued, contingent or otherwise (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities incurred in the
ordinary course of business;

 

2.11.4     Any
discharge or satisfaction of any lien or encumbrance or payment of any
obligation or liability by either the Company or any of its Subsidiaries other
than current liabilities shown or reflected on the December 31, 2004
consolidated financial statements of the Company or liabilities incurred since
December 31, 2004 in the ordinary course of business or the Repayments
described under paragraph 1.4.1;

 

2.11.5     Any
issuance or agreement to issue any stock, bonds, options, warrants or other
securities of the Company or any of its Subsidiaries;

 

2.11.6     The
mortgage, pledge or subjection to lien, security interest or any other
encumbrance of any of the Company’s or any Subsidiary’s assets, real or
personal, tangible or intangible, other than in the ordinary course of
business;

 

2.11.7     The
sale or transfer of any of the Company’s or any Subsidiary’s tangible assets,
or the cancellation or release of any debts or claims, except, in each case, in
the ordinary course of business;

 

13

 

2.11.8     The
sale, assignment, transfer or encumbrance by the Company or any Subsidiary of
any trademarks, trade names or other intangible assets;

 

2.11.9     Any
extraordinary losses incurred by the Company or any Subsidiary;

 

2.11.10  The
failure by the Company or any Subsidiary to take or make any charges,
write-offs, increases in bad debt reserves or other adjustments in the Company’s
or any Subsidiary’s accounts receivable by reason of failure or inability to
collect or diminished prospects for collection of the Company’s or any
Subsidiary’s accounts receivable;

 

2.11.11  Any
change in any method of accounting or practice previously adopted or reflected
in any of the Financial Documents;

 

2.11.12  Except
as otherwise disclosed in this Agreement, the occurrence of any event or
condition of any character materially and adversely affecting the Company’s or
any Subsidiary’s business or tax liabilities or any change in the condition of
the Company’s or any Subsidiary’s assets, liabilities or business, except
changes in the ordinary course of business;

 

2.11.13  Any
entry by the Company or any Subsidiary into or termination of any other
transaction other than in the ordinary course of business;

 

2.11.14  Any
change in the indebtedness of the Company or any of its Subsidiaries not in the
ordinary course of business other than as shown on the December 31, 2004
consolidated financial statements of the Company or the Repayments described
under paragraph 1.4.1;

 

2.11.15  Any
failure by the Company or any Subsidiary to pay any creditors in the course of
said companies business in accordance with past practices; or

 

2.11.16  Any
modification of the terms or conditions of any lease applicable to the Company
or any of its Subsidiaries.

 

2.12        Leases.  The schedule of
leases attached hereto as Exhibit 2.12 sets forth a complete and
correct description of all leases of real and personal property to which the
Company or any Subsidiary is a party. 
The Management Shareholders have delivered to Buyer copies of all lease
agreements described in said Exhibit 2.12.  To the best of the Management Shareholders’
knowledge, each such lease agreement is in full force and effect and neither
the Company, any Subsidiary nor any other party to any such lease is in default
thereof and neither the Company, any Subsidiary nor any other party to any such
lease have committed any act which, if not remedied, would result under any
such lease in a default thereunder after notice, lapse of time or both.  None
of the leases with any Subsidiary as the lessee has been terminated with or
without notice or breached, and that no notice has been given of rent increases
or other changes.  To the best of
the Management Shareholders’ knowledge, the execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not
cause or give rise to any event of default under any of the lease agreements.

 

14

 

2.13        Insurance.  A complete list and
summary description of all insurance policies maintained by the Company and
each of its Subsidiaries with respect to their properties and businesses
against loss or damage of any kind is set forth on Exhibit 2.13.  The policies listed on Exhibit 2.13
are in full force and effect; such policies are with financially sound and
reputable insurers; all premiums due thereon have been paid; the Shareholders,
the Company and each of its Subsidiaries have complied in all material respects
with all provisions of such policies; the Company, its Subsidiaries and the
Management Shareholders have not received any notice of cancellation,
termination or non-renewal of such policies; and the dollar amount of coverage
has not been reduced for any such policy except as set forth in Exhibit 2.13.  If requested by Buyer, the Management
Shareholders agree to take all action reasonably necessary to enable Buyer to
continue all such policies of insurance with respect to the Company’s and its
Subsidiaries’ operations.

 

2.14        Litigation.  Except as described
on Exhibit 2.14 hereto, to the best of the Management Shareholders’
knowledge, the Shareholders, the Company and each of its Subsidiaries, and
their respective assets, properties and businesses, are not subject to any
pending or threatened litigation, action, suit or proceeding by or before any
court, arbitrator or federal, state or other governmental commission, board or
other agency, or by any private party.

 

2.15        Contracts.  Except as disclosed on Exhibit 2.15,
and to the best of the Management Shareholders’ knowledge:

 

(a)           The Company and each of its Subsidiaries have
fulfilled all of their obligations required under the Materials Contracts (as
defined below) to have been performed by Company and/or its Subsidiaries on or
prior to the Closing Date;

 

(b)           There has not occurred any default under any
of the Material Contracts on the part of Company, any of its Subsidiaries or
any other party thereto, nor has any event occurred which, with the giving of
notice or the lapse of time, or both, would constitute a default under any of
the Material Contracts on the part of Company, any of its Subsidiaries or any
other party thereto; and

 

(c)           No consent of any party to any of the
Material Contracts is required for (i) the execution, delivery or
performance of this Agreement or (ii) the consummation of the transactions
contemplated hereby.

 

(d)           Exhibit 2.15 contains a complete and accurate list, and
Management Shareholders have delivered to Buyer true and complete copies, of
(collectively, the “Material Contracts”):

 

(i)            each contract that involves performance of
services or delivery of goods or materials by the Company or any of its
Subsidiaries in excess of $25,000;

 

(ii)           each contract that was not entered into in
the ordinary course of business;

 

15

 

(iii)          each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property
leases and installment and conditional sales agreements having a value per item
or aggregate payments of less than $25,000 and with terms of less than one
year);

 

(iv)          each licensing agreement or other contract
with respect to patents, trademarks, copyrights or other intellectual property,
including agreements with current or former employees, consultants or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property;

 

(v)           each joint venture, partnership and other
contract (however named) involving a sharing of profits, losses, costs or
liabilities by the Company or any of its Subsidiaries with any other person or
entity;

 

(vi)          each contract containing covenants that in
any material way purport to restrict the business activity of the Company or
any of its Subsidiaries or limit the freedom of the Company or any of its
Subsidiaries to engage in any line of business or to compete with any person or
entity;

 

(vii)         each contract providing for payments to or by
any person or entity based on sales, purchases or profits other than direct
payments for goods;

 

(viii)        each contract entered into other than in the
ordinary course of business that contains or provides for an express
undertaking by the Company or any of its Subsidiaries to be responsible for
consequential damages;

 

(ix)           each contract for capital expenditures in
excess of $25,000 individually, or in the aggregate;

 

(x)            each written warranty, guaranty or other
similar undertaking with respect to contractual performance extended by the
Company or any of its Subsidiaries other than in the ordinary course of
business;

 

(xi)           each amendment, supplement and modification
(whether oral or written) in respect of any of the foregoing; and

 

(xii)          each debt agreement (including any amendment
thereto) applicable to the Company or any Subsidiary.

 

(e)           Except as set forth in Exhibit 2.15,
no Shareholder (and no person related to a Shareholder) has or may acquire any
rights under, and no Shareholder has or may become subject to any obligation or
liability under, any Material Contract that relates to the business of, or any
of the assets owned or used by, the Company or any of its Subsidiaries.

 

16

 

(f)            Except as set forth on Exhibit 2.15,
each Material Contract identified or required to be identified herein is in
full force and effect and is valid and enforceable in accordance with its
terms.

 

(g)           Except as set forth on Exhibit 2.15:

 

(i)            The Company and each of its Subsidiaries is,
and at all times has been, in full compliance in all material respects with all
applicable terms and requirements of each Material Contract under which the
Company and each of its Subsidiaries have or had any obligation or liability or
by which the Company and each of its Subsidiaries or any of the assets owned or
used by the Company and each of its Subsidiaries is or was bound;

 

(ii)           Each other person or entity that has any
obligation or liability under any Material Contract under which the Company or
any of its Subsidiaries have any rights is in material compliance with all applicable
terms and requirements of each such Material Contract;

 

(iii)          As to acts and omissions of the Company or
any of its Subsidiaries or of other persons or entities, no event has occurred
or circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give the
Company or any of its Subsidiaries or other person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any Material Contract; and

 

(iv)          The Company and its Subsidiaries have not
given to or received from any other person, at any time in the two (2) previous
calendar years, any notice or other communication (whether oral or written)
regarding any actual or alleged violation or breach of, or default under, any
Material Contract.

 

(h)           There are no renegotiations of or attempts to
renegotiate any material amounts paid or payable to the Company or any of its
Subsidiaries under current or completed Material Contracts with any person or
entities and no such person or entity has made written demand for such
renegotiation.

 

(i)            The Material Contracts relating to the sale,
design, manufacture or provision of products or services by the Company and its
Subsidiaries have been entered into in the ordinary course of business and have
been entered into without the commission of any act alone or in concert with
any other person or entity, or any consideration having been paid or promised,
that is or would be in violation of any law.

 

(j)            Except as set forth on Exhibit 2.15,
the Company and its Subsidiaries have not been notified (orally or in writing)
that any customer desires to return any product ordered or has failed to pay
(or indicated an intent not to pay) for any products or services ordered.

 

17

 

2.16        Taxes.

 

2.16.1     Definition.  ”Tax” shall mean any
tax or liability imposed or collected by any governmental entity, including
specifically, but without limiting the generality of the foregoing, federal,
state, county, local and foreign income, profits, franchise, gross receipts,
payroll, sales, use, employment, excise, value-added, withholding, real estate
and other taxes, duties or assessments, together with any related interest,
penalties and similar additions and any secondary or indirect tax liability.

 

2.16.2     Returns.  The Company and each
of its Subsidiaries have duly and accurately prepared and filed any and all Tax
returns and reports required by federal, state, local and foreign taxing
authorities and all Taxes reflected thereon have been paid.  The Company and each of its Subsidiaries have
paid any and all Taxes, license fees and other charges levied, assessed or
imposed upon the business or any of the property of the Company and each of its
Subsidiaries, except those which are not yet due and payable.  The Company and each of its Subsidiaries have
maintained adequate accruals and reserves for any and all projected or deferred
Taxes and such amounts have been appropriately accrued for in the Financial
Documents.  The intercompany pricing within the Company and its Subsidiaries cannot
be disputed by the Danish or any foreign tax authorities under the rules on
transfer pricing.  To the best of
the Management Shareholders’ knowledge, there are no other Taxes of any kind or
character for which the Company or any of its Subsidiaries is or may be liable
which are now past due or delinquent or which are unpaid and unaccrued for on
the Financial Documents (for the periods specified therein).

 

2.16.3     Examinations.  To the best of the
Management Shareholders’ knowledge, there is no current, pending or threatened
audit, examination, investigation, demand or assessment with respect to the
Company or any of its Subsidiaries or any Tax for which the Company or any of
its Subsidiaries is or may be liable or has filed a return.  To the best of the Management Shareholders’
knowledge, no assets of the Company or any of its Subsidiaries are subject to
any encumbrance arising from any Tax, other than any liens provided under
applicable law prior to the time that the related Tax is due and payable.  To the best of the Management Shareholders’
knowledge, the Company and its Subsidiaries have not entered any agreement, settlement,
extension of statute of limitations or compromise of any Tax matter.  To the best of the Management Shareholders’
knowledge, the Company and each of its Subsidiaries have not granted any person
a power of attorney with respect to any Tax matter.

 

2.16.4     Employees.  To the best of the
Management Shareholders’ knowledge, the Company and each of its Subsidiaries
have withheld and paid all applicable income, payroll, employment,
unemployment, social security and other taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, agent,
creditor, independent contractor, stockholder or third party, and has properly
reported such amounts.

 

2.17        Guarantees.  Except as described in Exhibit 2.17,
the Company has no liability to any person as a guarantor, surety, co-signer,
endorser, co-maker, indemnitor or obligor, and no

 

18

 

Shareholder or any
other person or entity has guaranteed or provided collateral for any obligation
of the Company or any Subsidiary.

 

2.18        Employees
and Employee Benefit Plans.

 

2.18.1     Employees. Attached hereto as Exhibit 2.18.1
is a list of all the Company’s and its Subsidiaries’ employees (the “Employees”),
each Employees’ current rate of pay, original date of hire and severance pay,
whether absolute or contingent.  To the best
of the Management Shareholders’ knowledge,
Exhibit 2.18.1 also indicates which Employees are represented by any
labor organization and are a party to any collective bargaining agreement.  To the best of the Management
Shareholders’ knowledge, there are no
existing or threatened labor disputes relating to the Company or any of its
Subsidiaries or the business of the Company and its Subsidiaries.

 

2.18.2     Employee Agreements. Except as disclosed on Exhibit 2.18.2,
to the best of the Management Shareholders’ knowledge, no Employee or director of the Company or
any of its Subsidiaries is a party to, or is otherwise bound by, any agreement
or arrangement, including any confidentiality, noncompetition or proprietary
rights agreement, between such Employee or director and any other person that
in any way materially and adversely affects or will affect (i) the performance
of his duties as an Employee or director of the Company or any of its
Subsidiaries, or (ii) the ability of the Company or any of its Subsidiaries to
conduct the business, including any proprietary rights agreement with the
Shareholders by any such Employee or director.

 

2.18.3     Employee Benefit Plans. To the best of the Management Shareholders’ knowledge, Exhibit 2.18.3 contains
a complete and accurate list of all welfare benefit plans and employee benefit
plans including pension, profit sharing, retirement, bonus or deferred
compensation plans or similar obligations applicable to the Company’s and its
Subsidiaries’ Employees (“Plans”), and indicates whether the Company or any of
its Subsidiaries makes or is required to make any contributions to the Plans.
The Management Shareholders have delivered to Buyer true and complete copies of
all the Plans listed on Exhibit 2.18.3. To the best of the Management
Shareholders’ knowledge, the Company and its Subsidiaries and the Plans have
complied at all times since the Plans’ inceptions, both as to form and
operation, with all applicable laws, regulations, orders, judgments, decrees,
rules and guidance regarding such Plans. No
present Employees or former employees are entitled to a pension or the like
from the Company or its Subsidiaries other than as stated in Exhibit 2.18.3.
No resigned employee or employee under notice is or claims to be entitled to
any compensation or damages from the Company and its Subsidiaries as a result
of termination of employment.

 

2.18.4     Compliance. To the best of the Management
Shareholders’ knowledge, the Company
and its Subsidiaries are and have been in compliance in all material respects
with all laws, rules and regulations involving wages or hours of employees; and
all accrued obligations of the Company and its Subsidiaries relating to the
Employees and all former employees of the Company and its Subsidiaries, whether
arising by operation of law, by contract or by past service, including, but not
limited to all vacation benefits, unemployment compensation benefits, profit
sharing or retirement benefits, health and

 

19

 

other welfare benefits, or social security benefits, have been
satisfied, or will be satisfied by Company and its Subsidiaries prior to the
Closing Date or are reflected as accruals on the Company’s financial statements
as of December 31, 2004.

 

2.19        Employment,
Agency and Independent Contractor Agreements.  To
the best of the Management Shareholders’ knowledge, Exhibit 2.19 contains a
complete and accurate list of all written employment, collective bargaining and
other labor contracts (or oral employment contracts other than those terminable
at will) of the Company and its Subsidiaries as well as all confidentiality or
non-disclosure agreements, non-solicitation commitments, covenants not to
compete, guaranties of compensation or other agreements which the Company or
any of its Subsidiaries has entered into or otherwise become bound or subject
to (including oral agreements) with respect to its employees, agents and/or
independent contractors. The Management Shareholders have delivered to Buyer
true and complete copies of all the agreements listed on Exhibit 2.19.

 

2.20        Real
Estate.  Except
as disclosed on attached Exhibit 2.20, the Company and its
Subsidiaries own no other real estate and have or own no other interest in any
real estate.

 

2.21        Compliance With Laws.  To the best of the
Management Shareholders’ knowledge, the
Company and its Subsidiaries have complied and comply in all material respects
with all statutes, regulations and other legislation relating to its operations
- including legislation on labor market, equal rights, environment, working
environment, planning, building, fire, marketing, personal data, competition,
companies, taxation and book-keeping and EU legislation in force - and all
terms and conditions laid down by the authorities pursuant to such legislation.
No applicable statutes, regulations and other legislation, and no terms and
conditions laid down by the authorities prescribe any duty for the Company and
its Subsidiaries to change existing conditions which will cause any material
expenses or inconvenience.  There are no
pending cases in which authorities have disputed the Company and its
Subsidiaries’ compliance in any material respect with statutes, regulations or
other legislation, including EU legislation. The Company and its Subsidiaries
have duly filed all reports with public authorities, including the customs and
tax authorities, required by the current rules, and that such reports have been
free from errors and omissions other than negligible errors and omissions. The
Company and its Subsidiaries have not failed to make any notification under
competition legislation or EU legislation, and no such notification have been
filed. Furthermore, the Company has not been notified of any third party claims
that the Company and its Subsidiaries have violated any rules of law,
regulations or other legislation, including EU legislation.

 

2.22        Investments.  Except as disclosed
on attached Exhibit 2.22 or with respect to Company Plan
investments, to the best of the Management Shareholders’ knowledge, the Company
does not own any other stock or other equity, ownership or proprietary interest
in any corporation, partnership, association, trust, joint venture or other
entity; and the Company and its Subsidiaries do not have an agreement or right
to acquire, directly or indirectly, any equity interest or investment in any
third party and are not subject to any obligation or requirement to provide
funds to or make an investment in any third party.

 

2.23        Intellectual
Property.  The term “Intellectual Property” includes all
intellectual property and technology owned, utilized or licensed by the Company
or any of its Subsidiaries, including,

 

20

 

but not limited to, computer software and programs, software in
progress, computer operating systems and applications, know-how, patents,
patent applications, trade names, registered and unregistered trademarks and
service marks and any applications therefor, copyrights, whether registered or
unregistered, copyright registrations and applications for any of the
foregoing, trade secrets or other confidential proprietary information.  To the best of the Management
Shareholders’ knowledge, Exhibit 2.23
contains an accurate and complete list of (i) all Intellectual Property, and
(ii) all licenses or similar agreements or arrangements to which the Company or
any of its Subsidiaries is a party as licensee of the Intellectual Property,
including without limitation any licenses, sublicenses and other agreements
pursuant to which Company or any of its Subsidiaries is authorized to use any
third party software (“Third Party Intellectual Property”).  The Management Shareholders shall cause the
Company to take all actions reasonably necessary to ensure that Buyer is
granted the rights to use any Third Party Intellectual Property on the same
terms and conditions available to Company or any of its Subsidiaries on or
before the Closing Date.  To the best
of the Management Shareholders’ knowledge,
except as specifically disclosed on Exhibit 2.23:

 

(a)           Company and the Subsidiaries own or are
licensed or otherwise possess legally enforceable rights to use the
Intellectual Property free and clear of any Encumbrances (excluding license
obligations and lease obligations).  All charges and fees concerning applications
for or registered Intellectual Property Rights of the Company and its
Subsidiaries, cf. Exhibit 2.23, have been duly paid.

 

(b)           No claim or action with respect to the
Intellectual Property or Third-Party Intellectual Property (to the extent
arising out of any use, reproduction or distribution of such Third-Party
Intellectual Property by or through Company or any of its Subsidiaries) has
been asserted or is pending or threatened by any person or entity, nor are
there any valid grounds for any claims (i) to the effect that the sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by Company or any of its Subsidiaries infringes on any
right of any third party;  (ii) regarding
infringement, or misappropriation or misuse with regards to any Intellectual
Property; (iii) against the use by Company or any of its Subsidiaries of any
Intellectual Property; (iv) challenging the ownership, validity or
effectiveness of Intellectual Property; or (v) challenging Company’s or any
Subsidiary’s license or legally enforceable right to use in any manner
whatsoever any Third-Party Intellectual Property.  The Company and each of its Subsidiaries will
not be, as a result of the execution and delivery of this Agreement by the
Shareholders or the performance of Shareholders’ obligations hereunder, in
material violation of any Intellectual Property license, sublicense or
agreement.

 

(c)           There is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property by any employee
of or consultant to or former employee of or consultant to Company or any of
its Subsidiaries or by any third party.

 

(d)           The Intellectual Property, other than any
Third-Party Intellectual Property, was developed entirely by the employees or
consultants to Company or its

 

21

 

Subsidiaries during the time they were employed by Company or its Subsidiaries
and such Intellectual Property does not include any invention or other
intellectual property of such employees or consultants made prior to the time
such employees or consultants were employed by Company or its Subsidiaries, nor
any intellectual property of any previous employer of such employees or
consultants nor the intellectual property of any other person or entity.

 

(e)           The
Company and each of its Subsidiaries have
taken all reasonable precautions up through the Closing Date to preserve and defend
the Intellectual Property. Every employee of and consultant to the Company and each of its Subsidiaries involved
in product development for the Company and
each of its Subsidiaries have executed an invention and proprietary
rights assignment agreement in favor of the Company or its Subsidiaries.

 

2.24        Restrictive
Documents.  To the best of the Management
Shareholders’ knowledge, neither
the Company, any of its Subsidiaries, nor any Shareholder is subject to, or a
party to, any charter, bylaw, mortgage, lien, lease, license, permit,
agreement, contract, instrument, order, judgment or decree, or any law, rule,
ordinance or regulation, or any other restriction of any other kind or
character which (i) adversely affects the business or practices, operations or
conditions of the Company or any of its Subsidiaries or any of their assets or
property, (ii) prevents consummation of the transactions contemplated by
this Agreement, compliance by the Shareholders with the terms, conditions and
provisions hereof or the continued operation of the Company’s and its
Subsidiaries’ business after the Closing Date on substantially the same basis
as previously operated, or (iii) restricts the ability of the Company or
any of its Subsidiaries to acquire any property or conduct any business in any
area.

 

2.25        Resignation.  For purposes hereof, “Key Employee” shall
mean any Company or Subsidiary employee whose total compensation during the
prior year exceeds $75,000.  No Key
Employee of the Company or any Subsidiary has resigned since January 1, 2005
and, to the best of the Management Shareholders’ knowledge, no Key Employee plans to retire or resign
during the twelve-month period following the Closing Date or otherwise be
unavailable as an employee of the Company or any Subsidiary at compensation
substantially similar to such employee’s present rate of compensation.

 

2.26        Bank
Accounts and Powers of Attorney. 
Exhibit 2.26 is an accurate and complete list showing (i)
the name and address of each bank or similar organization in which the Company
or any of its Subsidiaries has an account or safe deposit box, the number of
such account or any such box, and the name of persons authorized to draw
thereon or to have access thereto; and (ii) the names of all persons, if any,
holding power of attorney from the Company and a summary statement of the terms
thereof.

 

2.27        Accounts Receivable.  To the best of the Management
Shareholders’ knowledge, all accounts
receivable of the Company that are reflected on the Financial Documents (the “Accounts
Receivable”) represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business.

 

22

 

2.28        Licenses,
Permits and Authorizations.  To the best of the Management Shareholders’ knowledge, Exhibit 2.28 contains a
complete and accurate list of all licenses, franchises, permits and other
governmental authorizations held by the Company and its Subsidiaries (the “Licenses”).  To
the best of the Management Shareholders’ knowledge, the Licenses are valid, and the
Company and its Subsidiaries have not received any written notice that any
License is to be cancelled, terminated or not renewed.  To
the best of the Management Shareholders’ knowledge, the Licenses are all of the
licenses, permits and authorizations that are required by law for the operation
of the business of the Company and its Subsidiaries.  To
the best of the Management Shareholders’ knowledge, except as disclosed on Exhibit 2.28,
all Licenses will continue to be in full force and effect immediately after
consummation of the transactions contemplated by this Agreement.

 

2.29        Related
Party Transactions.  To the best of the Management
Shareholders’ knowledge, other
than as specified on Exhibit 2.29, as of the Closing Date, there
will be no contracts between or loans to or from the Company or any of its
Subsidiaries and (i) any Shareholder, (ii) any of the Company’s or
its Subsidiaries’ officers or directors, or (iii) any of their affiliates.

 

2.30        Inventory.  To the best
of the Management Shareholders’ knowledge,
except as disclosed on Exhibit 2.30, the inventory of the
Company consists of items of a quality and quantity usable or salable in the
normal course of business and, if salable, are salable in the ordinary course
at a price not less than the book value amounts therefor.  Any inventory which is obsolete or which is
below standard quality has been written down to reliable market value or
aggregate reserves have been provided therefor.

 

2.31        Environmental Compliance and Hazardous Waste.

 

2.31.1     Definitions.  The following terms shall have the following
meanings:

 

(a)           Environmental Laws.  ”Environmental Laws”
shall mean and include any applicable EU, Danish, any other nationality
applicable to the Company’s Subsidiaries or local statute, regulation or
ordinance related to human health or the environment including, without
limitation, any law, regulation or ordinance concerning the protection and
preservation of natural resources, air, water, noise or soil pollution or
contamination, or “Hazardous Materials” use, generation, storage or disposal.

 

(b)           Hazardous Materials.  ”Hazardous Materials”
shall mean and include asbestos, urea formaldehyde, polychlorinated biphenyls,
nuclear fuel or materials, chemical waste, radioactive materials, explosives,
known carcinogens, petroleum products or other pollutants, contaminants,
chemicals, materials or substances defined as “hazardous waste,” “hazardous
substance,” “hazardous constituent,” “solid waste,” or “toxic substance” or
otherwise as hazardous or as a pollutant or contaminant in, or the release or
disposal of which is regulated by, any Environmental Law.

 

23

 

(c)           Real Property.  ”Real Property” shall
mean all real property owned or leased by the Company or any of its
Subsidiaries, including the real property leased by the Company or any of its
Subsidiaries as listed on Exhibit 2.12.

 

2.31.2     Specific Representations.  To the best of the Management
Shareholders’ knowledge, except
as provided on attached Exhibit 2.31 hereto:

 

(a)           No
Hazardous Materials are located on, in, about or under any of the Real Property
and none of the Real Property has ever been utilized for the storage,
manufacture, disposal, handling, transportation or use of any Hazardous
Materials.

 

(b)           All
permits, licenses and similar authorizations and approvals necessary or
required under all Environmental Laws, including those for any Hazardous
Materials stored, used or manufactured within or on any of the Real Property,
have been obtained, are being complied with and are in full force and effect,
and the Company, its Subsidiaries and the Shareholders have complied with all
other reporting, filing and other requirements under the Environmental Laws.

 

(c)           There
are no existing and no proposed, threatened or pending investigations,
administrative proceedings, litigation, regulatory hearings or other actions
concerning any of the Real Property alleging noncompliance with or violation of
any Environmental Law or relating to any required environmental permits or
licenses.

 

(d)           None
of the Real Property is listed or registered as a hazardous waste site or
listed in any other list, schedule, log, inventory or record of hazardous waste
sites maintained by any applicable EU, Danish, any other nationality applicable
to the Company’s Subsidiaries or local agency.

 

(e)           All
reports and investigations commissioned or otherwise received by the Company,
its Subsidiaries or any Shareholder concerning any of the Real Property and
relating to Hazardous Materials have been disclosed to Buyer.

 

(f)            There
are not now, nor have there ever been, any aboveground or underground storage
tanks located on, in or under any of the Real Property.

 

(g)           There
are not now, nor have there ever been, any wells located on any of the Real
Property.

 

(h)           There
are no other existing or potential liabilities or claims of any kind or
character, whether known or unknown, whether definite, contingent or otherwise,
for which the Company, its Subsidiaries, any Shareholder or any owner or
occupant of any of the Real Property is or may be liable or responsible arising
from the violation of any Environmental Law.

 

2.32        Product Liability.  To the best of the Management
Shareholders’ knowledge, except as
disclosed on Exhibit 2.32 attached hereto, no defect or deficiency
exists in any of the products or

 

24

 

services which have been sold or licensed by Company or any of its
Subsidiaries which could give rise to any material liabilities or claims for
product liability.

 

2.33        Customers and Suppliers.  To the best of the Management
Shareholders’ knowledge, no customers
or suppliers of the Company or its Subsidiaries intend to cease purchasing
from, selling to or dealing with Company or any of its Subsidiaries, nor has
any information been brought to the attention of the Management Shareholders
which might reasonably lead the Management Shareholders to believe that any of
Company’s or its Subsidiaries’ customers or suppliers intend to alter in any
material respect their purchases from, sales to or dealings with the Company or
any of its Subsidiaries or would alter in any material respect their purchases
from, sales to or dealings with the Buyer in the event of the consummation of
the transactions contemplated hereby.

 

2.34        Insolvency.  To the best of the Management
Shareholders’ knowledge, no insolvency
proceeding of any character, including without limitation, bankruptcy,
receivership, reorganization, composition or arrangement with creditors,
voluntary or involuntary, affecting Company or any of its Subsidiaries or the
Shares is pending or threatened.  To the best
of the Management Shareholders’ knowledge,
the Company and its Subsidiaries have adequate liquidity to fund their
respective cash requirements for the foreseeable future without incurring
additional Indebtedness except in the ordinary course of business consistent
with past practices or require support from Buyer.

 

2.35        Warranty. 
Except as set forth on attached Exhibit 2.35, to the best
of the Management Shareholders’ knowledge,
the Company and its Subsidiaries have not made or given any express warranty or
guaranty with respect to any products or services manufactured, sold or
provided by the Company or any of its Subsidiaries, and the Company and its
Subsidiaries have made adequate reserve to cover all warranty cost or expense
on the Company’s financial statements as of December 31, 2004.

 

2.36        Distribution of the Loan and
Purchase Price, Cancellation of the Warrants and Bonds and Repayment of
Mezzanin Loan as of Closing Date. As
of the Closing Date, the proceeds from the Loan referenced in paragraph 7.6 and
the Initial Stock Payment received by the Shareholders on the Closing Date
shall simultaneously be distributed as required under paragraphs 7.6 and 1.4.1,
and all the Warrants and Bonds will be either exercised or converted into
shares of the Company’s common stock, repaid in full and/or cancelled and the
Mezzanin Loan, including any expenses and fees associated with the Mezzanin
Loan, will be repaid in full and cancelled. No Warrants or Bonds will be
outstanding and no further obligations under the Mezzanin Loan will exist as of
the Closing Date as discussed above.

 

2.37        DSD Holding A/S. In connection with the Division
as defined under paragraph 1.1.1, the Management Shareholders represent that
the Division is a separate transaction from, and does not negatively affect,
the transactions contemplated by this Agreement other than as described under Exhibit
2.11. Further, the Management Shareholders represent that either no Claims
have been filed in connection with the Division or, if Claims have been filed,
all Claims that have been filed have been paid in full and settled; and the
Management Shareholders represent that they do not expect any Claims, or if
Claims have been filed, that any additional Claims, will be filed.

 

25

 

2.38        Exhibits, etc.  The Exhibits attached hereto are integral
parts of this Agreement and constitute representations and warranties of the
Management Shareholders to Buyer. Such Exhibits have been prepared in English
and in U.S. Dollars. The Managing Shareholders shall have the obligation to
amend the Exhibits as necessary to reflect current and accurate
information as of the Closing Date as such Exhibits shall be deemed to have
been repeated and reaffirmed, as amended, at the Closing. The Exhibits, as amended,
shall survive consummation of the purchase and sale contemplated by this
Agreement. Each representation and
warranty of the Management Shareholders in this Agreement shall have
independent force and effect, and shall not be affected by any other representation
or warranty in this Agreement except by specific reference; provided, however,
that a disclosure of a given item on one Exhibit shall be deemed made for
purposes of all Exhibits, and it shall not be necessary to repeat the
disclosure of a given item on multiple Exhibits.

 

2.39        Broker or Finder.  No
person or persons assisted in or brought about the negotiation of this
Agreement in the capacity of broker or agent or finder on behalf of the
Shareholders.

 

2.40        Disclosure.  No
representation or warranty of the Management Shareholders in this Agreement and
no statement contained in this Agreement or in any document delivered or to be
delivered pursuant hereto contains or will contain an untrue statement of
material fact or omits or will omit to state any material fact necessary to
make the statements herein or therein contained, in light of the circumstances
under which made, not misleading; it being understood that as used in this
subparagraph “material” means material to any individual statement or omission
and in the aggregate as to all statements and omissions.  It is understood and acknowledged that Buyer
has been afforded the opportunity to and has inspected the books and records of
the Company; provided, however, this does not restrict the scope or effect of
any representation, warranty or covenant of the Management Shareholders
hereunder.

 

2.41        Reliance.  The foregoing
representations, warranties and covenants are made jointly and severally by the
Management Shareholders with the knowledge and expectation that Buyer is
relying thereon.  The foregoing
representations, warranties and covenants, together with any and all other
representations, warranties and covenants contained in this Agreement, shall be
deemed to have been repeated and reaffirmed at and as of the Closing Date and
shall survive consummation of the purchase and sale contemplated by this
Agreement.

 

ARTICLE
3.

 

REPRESENTATIONS,
WARRANTIES AND COVENANTS OF BUYER

 

In connection with and as
an inducement to the Shareholders to enter into and be bound by the terms of
this Agreement, Buyer hereby represents, warrants and covenants to the
Shareholders as follows:

 

3.1          Organization.  Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.

 

3.2          Authority.  Buyer has full
power and authority to enter into, execute and deliver this Agreement and to
consummate the transactions contemplated hereby and any instruments or

 

26

 

agreements required
herein.  This Agreement has been duly and
validly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer according to its terms, enforceable against Buyer in
accordance with its terms.  The execution
of this Agreement by Buyer has been duly authorized by the Board of Directors
of Buyer.

 

3.3          No Violation.  Neither the
execution and delivery by Buyer of this Agreement, the consummation of the
transactions contemplated hereby, nor compliance by Buyer with any of the provisions
hereof will:

 

3.3.1       Violate or conflict
with any provision of the Certificate of Incorporation or Bylaws of Buyer;

 

3.3.2       Violate or constitute a
default under or give rise to any right of termination, cancellation or
acceleration under the terms, conditions or provisions of any agreement or
instrument to which Buyer is a party or by which Buyer or any of its properties
or assets are bound except as has been duly and validly waived, consented to or
approved of by the other parties to such agreement or instrument; or

 

3.3.3       Violate any statute or
law or any judgment, order, decree, regulation or rule of any court or
governmental authority applicable to Buyer.

 

3.4          Acquisition of Shares.  Buyer is
acquiring the Shares for its own account and not to offer or sell the Shares as
part of a public distribution, and Buyer is not participating, directly or
indirectly, in an underwriting of any such public distribution.  Buyer is aware that state and federal
securities laws impose restrictions on transferability of the Shares and Buyer
agrees to comply with such restrictions.

 

3.5          ADSX Shares.  Upon issuance to the Shareholders pursuant to
paragraph 1.4.1 of this Agreement, the ADSX Shares delivered to the
Shareholders at Closing shall have been duly authorized, duly and validly
issued and fully paid and nonassessable.

 

3.6          Broker or Finder.  No
person or persons assisted in or brought about the negotiation of this
Agreement in the capacity of broker or agent or finder on behalf of Buyer.

 

3.7          Disclosure.  No representation
or warranty by Buyer in this Agreement and no statement contained in this
Agreement or in any other document delivered or to be delivered pursuant hereto
contains or will contain an untrue statement of material fact or omits or will
omit to state any material fact necessary to make the statements herein or
therein contained, in light of the circumstances under which made, not
misleading; it being understood that as used in this subparagraph “material”
means material to any individual statement or omission and in the aggregate as
to all statements and omissions.

 

3.8          Reliance.  The
foregoing representations, warranties and covenants are made by Buyer with the
knowledge and expectation that the Shareholders are relying thereon. The
foregoing representations, warranties and covenants, together with any and all
other representations, warranties and covenants contained in this Agreement,
shall be deemed to have been repeated and reaffirmed at and as of the Closing
Date and shall survive consummation of the purchase and sale contemplated by
this Agreement.

 

27

 

ARTICLE
4.

 

OPERATIONS
PENDING CLOSING

 

The Management Shareholders hereby represent, warrant and covenant to
and agree with Buyer that, from the date hereof to the Closing Date or the
termination of this Agreement, the Management Shareholders shall not cause or
allow the Company or any of its Subsidiaries to:

 

4.1          Fail
to carry on its business in substantially the same manner as now being
conducted;

 

4.2          Fail
to pay all liabilities in the ordinary course of business as due;

 

4.3          Except
in the ordinary course of business, sell, transfer, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Company’s or its Subsidiaries’
assets or cancel any of the Company’s or its Subsidiaries’ claims, unless prior
written approval is given by the Buyer;

 

4.4          Fail
to maintain and preserve the Company’s and its Subsidiaries’ business,
organization and goodwill and its existing relationships with its respective
customers and others having business relationships with them;

 

4.5          Incur
any obligation or liability or enter into any transaction except in the
ordinary course of the Company’s and its Subsidiaries’ business, unless prior
written approval is given by the Buyer;

 

4.6          Fail
to maintain in full force and effect the Company’s and its Subsidiaries’
corporate existence, rights, licenses and franchises;

 

4.7          Pay
or commit to pay any salary, fee or other compensation at a rate in excess of
that prevailing on December 31, 2004;

 

4.8          Fail
to maintain all existing policies of insurance with respect to the Company or
any of its Subsidiaries in their present form and with their present coverage;

 

4.9          Enter
into any employment, agency or other contract or agreement with respect to the
performance of personal services which is not terminable by the Company or its
Subsidiaries without liability, on thirty (30) days or less notice, unless
prior written approval is given by the Buyer;

 

4.10        Utilize
any employment agency, placement service or similar service for the purpose of
employing any personnel where the Company or any of its Subsidiaries will be
obligated to pay any fee or commission for such service, unless prior written
approval is given by the Buyer;

 

4.11        Fail
to comply with any law, rule, regulation or final order applicable to the
Company or any of its Subsidiaries;

 

4.12        Pay
or commit to pay any bonus or other incentive compensation to any of the
Company’s or any of the Subsidiary’s officers, directors or employees;

 

28

 

4.13        Settle,
dismiss or otherwise compromise in any manner any action, proceeding or suit
listed on Exhibit 2.14; or

 

4.14        Make
any capital expenditure or commitment for capital expenditures in excess of
$25,000, unless prior written approval is given by the Buyer.

 

The Management Shareholders will promptly notify Buyer of any material
change in the business, operations or financial condition of the Company or any
of its Subsidiaries.

 

ARTICLE 5.

 

CONDITIONS
PRECEDENT TO CLOSING

 

5.1          Conditions Precedent to Obligations of the
Shareholders.  All
of the agreements and obligations of the Shareholders under this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions precedent, any or all of which may be waived, in whole or in part,
in writing by the Shareholders:

 

5.1.1       Performance
and Compliance.  Buyer
shall have performed and complied with all of the agreements, covenants and
conditions required by this Agreement to be performed or complied with by Buyer
on or prior to the Closing Date, and all of the representations and warranties
of Buyer under this Agreement shall be true and correct in all material
respects as of the Closing Date.

 

5.1.2       No Termination.  No party to
this Agreement shall have terminated this Agreement as permitted herein.

 

Satisfaction or
waiver of any or all of the above conditions precedent shall not in any manner
reduce the scope of the representations, warranties and covenants made by Buyer
elsewhere in this Agreement or the right and ability of the Shareholders to be
indemnified for any misrepresentation, inaccurate warranty or unfulfilled
covenant.

 

5.2          Conditions Precedent to Obligations of Buyer.  All of the
agreements and obligations of Buyer under this Agreement are subject to the
fulfillment, on or prior to the Closing Date, of the following conditions
precedent, any or all of which may be waived, in whole or in part, in writing
by Buyer:

 

5.2.1       Performance
and Compliance.  The
Shareholders shall have performed and complied with all of the agreements,
covenants and conditions required by this Agreement to be performed or complied
with by the Shareholders on or prior to the Closing Date, and all of the
representations and warranties of the Shareholders under this Agreement shall
be true and correct in all material respects as of the Closing Date.

 

5.2.2       No
Termination.  No
party to this Agreement shall have terminated this Agreement as permitted
herein.

 

29

 

5.2.3       Opinion of the Shareholders’ Counsel.  Buyer
and its counsel shall have been furnished with an opinion of legal counsel
substantially in the form provided on attached Exhibit 5.2.3 (“Opinion
of the Shareholders’ Counsel”).

 

5.2.4       Employment
Agreements.  The Company and the Key Employees shall each
have executed and delivered to Buyer their respective employment agreement
substantially in the form attached hereto as Exhibit 5.2.5-1 or Exhibit
5.2.5-2 (the “Employment Agreements”).

 

5.2.5       Lease
Agreement.  Buyer and L. Nordfjeld shall have entered
into a mutually acceptable lease agreement for the Company’s leased premises
that shall replace the existing lease with respect to these premises. (the “Lease
Agreement”).

 

5.2.6       Personal
Guarantees.  Buyer shall have been furnished evidence in
form and content satisfactory to Buyer, in its sole and absolute discretion, of
the release of all personal guarantees executed by the Shareholders in
connection with the financing provided to the Company or any of its
Subsidiaries and that the Company and its Subsidiaries have not guaranteed any
obligation of any of the Shareholders (the “Guarantee Releases”).

 

5.2.7       Consents
and Approvals.  Buyer shall have been furnished all third party consents and approvals in
form and content satisfactory to Buyer, in its sole and absolute discretion,
required by the Company to consummate the transactions contemplated hereby (the
“Consents”).

 

5.2.8       No Claim regarding Share
Ownership.  There
must not have been made or threatened by any Person any credible claim
asserting that such person (a) is the holder or beneficial owner of, or has the
right to acquire or obtain beneficial ownership of, any stock or other equity
or ownership interest in the Company; or (b) is entitled to any portion of the
Purchase Price payable for the Shares.

 

5.2.9       Receipt
of ADSX Shares.  Buyer shall have received from ADSX the ADSX
Shares to be delivered to Shareholders pursuant to this Agreement.

 

5.2.10     No Adverse Changes.  There shall have been no material adverse
change since the date of the most recent Balance Sheet included within the
Financial Statements in the business or the assets, except changes
contemplated, permitted or required by this Agreement.

 

5.2.11     No Legal Restraints.  No statute, rule, regulation or order of any
court or administrative agency or claim of any third party shall be in effect
which restrains, prohibits or otherwise interferes with any of the Shareholders
consummating the transactions contemplated hereby.

 

5.2.12     Outstanding
Bank Loans. The
lenders of certain bank loans to the Company identified on Exhibit 5.2.12
(“Bank Loans”) have either agreed to extend the terms of such Bank Loans for a
period of three years from the Closing date or agreed to permit the

 

30

 

Company to reborrow any amounts repaid under the Bank
Loans during the EBITDA Period on the same terms as the applicable Bank Loans.

 

5.2.13     Limitation on
Number of ADSX Shares Issued.  The number of ADSX Shares to be issued shall
not exceed nineteen and ninety-nine one hundredths percent (19.99%) of the
outstanding Class A common stock of ADSX.

 

5.2.14     Distribution of the Loan and
Purchase Price, Cancellation of the Warrants and Bonds and Repayment of
Mezzanin Loan as of the Closing Date. As
of the Closing Date, the proceeds from the Loan and the Initial Stock Payment
received by the Shareholders on the Closing Date shall simultaneously be
distributed as required under paragraphs 7.6 and 1.4.1 and all the Warrants and
Bonds will be either exercised or converted into shares of the Company’s common
stock, repaid in full and/or cancelled and the Mezzanin Loan, including any
expenses and fees associated with the Mezzanin Loan, will be repaid in full and
cancelled. No Warrants or Bonds will be outstanding and no further obligations
under the Mezzanin Loan will exist as of the Closing Date as discussed above.

 

5.2.15     Receipt of Additional Financial
Statements. The Buyer shall have received the Additional
Financial Statements of the Company as listed on Exhibit 5.2.15, prepared in
English, in U.S. Dollars, in a form reconciled to U.S. GAAP and in accordance
with SEC rules and regulations together with acceptable auditor’s consents so
that such Additional Financial Statements can be filed by Buyer with (and
accepted by) the SEC on the date of Closing.

 

5.2.16     No Claims in Connection with the
Division.  No Claims have been filed in connection with
the Division, or, if Claims have been filed, that all the Claims have been paid
in full and have been settled. 

 

Satisfaction or
waiver of any or all of the above conditions precedent shall not in any manner
reduce the scope of the representations, warranties and covenants made by the
Shareholders elsewhere in this Agreement or the right and ability of Buyer to
be indemnified for any misrepresentation, inaccurate warranty or unfulfilled
covenant.

 

ARTICLE
6.

 

DELIVERY
OF DOCUMENTS

 

On the Closing Date,
Buyer, as one party, and the Shareholders, as another party, shall execute and
deliver to each other the following documents, instruments and agreements,
together with such other documents, instruments and agreements as the other
party may reasonably request to consummate the purchase and sale contemplated
hereby:

 

6.1          By Buyer to the Shareholders.  Buyer shall
deliver the following to the Shareholders:

 

6.1.1       Initial Stock Payment.  Delivery
of Initial Stock Payment to the Shareholders as required in
paragraph 1.4.1.

 

31

 

6.1.2       Employment Agreements.  The Employment
Agreements, duly executed by the Company.

 

6.1.3       The Lease Agreement.  The Lease Agreement, duly executed by Buyer.

 

6.1.4       Authorizing Resolutions.  A copy,
certified by the Chief Executive Officer or Chief Financial Officer of Buyer,
of the duly adopted resolutions of the Board of Directors of Buyer approving
this Agreement and authorizing the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.

 

6.1.5       Closing Certificate.  A certificate
executed by the Chief Executive Officer or Chief Financial Officer of Buyer,
dated as of the Closing Date, to the effect that the representations and
warranties made by Buyer in this Agreement are accurate in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on or given as of the Closing
Date and that Buyer has performed and complied with all of its covenants and
obligations under this Agreement.

 

6.2          By the Shareholders to Buyer.  The
Shareholders shall deliver the following to Buyer:

 

6.2.1       Signature Pages for Additional Shareholders. The Shareholders shall
deliver to Buyer the Signature Pages of this Agreement executed by those
Shareholders who were Warrant Holders and Bond Holders that choose to exercise
their rights to acquire shares of the Company after the effective date of this
Agreement, so that all Shareholders hereafter listed on Exhibit 1.1 to
this Agreement have become party to this Agreement.

 

6.2.2       Evidence of Stock Transfer.  The
Shareholders shall deliver to Buyer proof that the Shares have been registered
in the name of the Buyer on the stock register of the Company, so as to
evidence the transfer to Buyer all rights, title and interest in and to all the
shares of the issued and outstanding stock of the Company (the Shares), free
and clear of all liens, encumbrances, proxies or other interests.

 

6.2.3       Employment Agreements.  The Employment
Agreements, duly executed by each of the Key Employees.

 

6.2.4       The Lease Agreement.  The Lease Agreement, duly executed by L. Nordfjeld and the Company.

 

6.2.5       Opinion of the Shareholders’ Counsel.  Buyer and its counsel shall be furnished with
the Opinion of the Shareholders’ Counsel in substantially the form provided on
attached Exhibit 5.2.3.

 

6.2.6       Resignations.  Resignations
from all officers and directors of the Company, and each of its Subsidiaries
personally signed by such individuals.

 

6.2.7       Personal Guarantees.  Buyer
shall be furnished with the Guarantee Releases.

 

6.2.8       Consents and Approvals.  Buyer
shall be furnished with the Consents.

 

32

 

6.2.9       Authorizing Resolutions.  A copy,
certified by the Chief Executive Officer or Chief Financial Officer of the
Company, of the duly adopted resolutions of the Board of Directors of the
Company approving this Agreement and authorizing the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.

 

6.2.10     Closing Certificate.  A certificate
executed by the Shareholders, dated as of the Closing Date, to the effect that
the representations and warranties made by Shareholders in this Agreement are
substantially accurate in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
had been made on or given as of the Closing Date and that Shareholders have
performed and complied with all of their covenants and obligations under this
Agreement.

 

ARTICLE
7.

 

ADDITIONAL
COVENANTS OF THE PARTIES

 

7.1          Employees.  From and after the Closing Date, the
Management Shareholders shall use their best efforts to ensure that the Company
and all of its Subsidiaries retain all of their employees as of the Closing
Date and for the six (6) month period thereafter.

 

7.2          Allocation
of Responsibility.  The
Management Shareholders shall jointly and severally bear all responsibility
for, and indemnify and hold harmless Buyer from and against, any liabilities,
obligations or claims resulting or arising from facts and circumstances or
other occurrences related to the Company’s and its Subsidiaries’ business and
operations on or prior to the Closing Date.

 

7.3          Public
Announcements.  Prior
to the Closing Date, Buyer and the Shareholders must mutually agree and will
cooperate on any press release or other public announcement (including any
announcement to employees) relating to the subject matter of this Agreement.

 

7.4          Mutual
Cooperation.  Subsequent
to the Closing Date, Buyer and the Shareholders, at the request of the other,
shall each execute, deliver and acknowledge all such further instruments and
documents and do and perform all such other acts and deeds as may be reasonably
required to consummate the transactions contemplated by this Agreement and to
carry out the purpose and intent of this Agreement.

 

7.5          Board Position. From and after the
Closing Date and until the date the Buyer pays the balance of the Purchase
Price or Buyout Purchase Price pursuant to paragraph 1.4.3 or the Shareholders
elect to exercise a Buy Back Option pursuant to paragraph 1.4.2 or elect to
receive the Escrow Amount pursuant to paragraph 1.4.5, the Shareholders shall
have the right to nominate one (1) person reasonably acceptable to the Buyer to
be elected as a Director of the Company’s Board of Directors (“Shareholder
Director Designee”). The Buyer will from time to time vote or cause to be
voted, at any special meeting or annual meeting of the shareholders or in
connection with a solicitation of proxies or execution of written consents, all
Shares of the Company’s voting stock now or hereafter beneficially owned by the
Buyer or over which the

 

33

 

Buyer now or hereafter exercises voting control, and will take or cause
to be taken all other necessary or desirable actions within the Buyer’s direct
or indirect control, to elect the Shareholder Director Designee, remove any
such Shareholder Director Designee or fill any vacancies created by the
resignation or removal of any such Shareholder Director Designee, all as
directed by the Shareholder Representative. 
The Shareholders consent to and approve the initial nomination of L.
Nordfjeld as the Shareholder Director Designee.

 

7.6          Loan.  At Closing,
Buyer shall provide to the Company up to $1,000,000 in the form of a loan (the “Loan”).
The Loan shall be due and payable on the date that is the three year and three
month anniversary date of Closing and shall bear interest at the rate of the
Prime Rate or Reference Rate published by Wells Fargo Bank, N.A. plus one (1%)
percent or the equivalent LIBOR based amount. 
Interest on such loan shall be paid quarterly. The Loan shall be
subordinate to the Bank Loans identified on Exhibit 5.2.12.

 

The Shareholders acknowledge, understand and agree and
shall cause the Company to use the proceeds of the Loan to repay all debt
obligations of the Company to SFK Technology Holding A/S resulting from the
Division as defined under paragraph 1.1.1; secondly for satisfying the 1st
Repayment and the 2nd Repayment, as described in paragraph 1.4.1 and
lastly, if any amounts remain, for additional working capital and general
corporate purposes. If the Loan is not repaid in full by the Company when the
Purchase Price Calculation is determined pursuant to paragraph 1.3.2, the Loan,
to the extent that the Loan has not been repaid, shall be classified as
Indebtedness for the purpose of the Purchase Price Calculation.

 

ARTICLE
8.

 

INDEMNIFICATION

 

8.1          Indemnification by the Management Shareholders.  The Management Shareholders, (including any
entity which holds the Shares on behalf of the Management Shareholders,
specifically including LANO Holding ApS for L. Nordfjeld and LATO ApS
for T. Jordfjeld) jointly and severally, shall indemnify and hold harmless Buyer, its affiliates
and their respective officers, directors, employees, agents, successors and
assigns against any and all liabilities, losses, damages, claims, costs,
expenses, interest, awards, judgments and penalties, including, without
limitation, related attorney and consultant fees and expenses (hereinafter
collectively a “Loss”), actually suffered or incurred by them, arising out of,
relating to or resulting from (a) the breach of any representation or warranty
made by the Management Shareholders
in this Agreement, other than the representation under paragraph 2.1, Ownership
of Shares, (b) the breach by the Management
Shareholders of any of their covenants or agreements in this Agreement,
(c) the misrepresentation in or omission from any certificate, exhibit,
schedule, statement or other information furnished to Buyer, (d) any
aspect of the operation of the Company or any of its Subsidiaries prior to the
Closing Date or (e) the distributions of the Purchase Price pursuant to paragraph
1.4.1 and the final payment under paragraph 1.4.3 (all such Losses being
referred to herein collectively as the “Buyer Losses”).

 

8.2          Indemnification by the Shareholders.  The Shareholders, including the Management
Shareholders, jointly and severally, shall
indemnify and hold harmless Buyer, its affiliates and their respective
officers, directors, employees, agents, successors and assigns against any and
all Buyer Losses actually suffered or incurred by them arising out of or
resulting from the breach of

 

34

 

the representation under
paragraph 2.1, Ownership of Shares, made by the Shareholders in this Agreement.

 

8.3          Indemnification
by Buyer.  Buyer shall indemnify and hold
harmless the Shareholders, their affiliates and their respective officers,
directors, employees, agents, successors and assigns against any and all Losses
actually suffered or incurred by them arising out of or resulting from (a) the
breach of any representation or warranty made by Buyer in this Agreement, (b)
the breach by Buyer of any of its covenants or agreements in this Agreement or
(c) any liability arising out of the operation of the Company by Buyer on or
after the Closing Date.

 

8.4          Notice
and Opportunity to Defend.  For purposes of
this Section 8.4, a party seeking indemnification shall be considered the “Indemnified
Party” and the party from whom indemnification is sought shall be considered
the “Indemnifying Party.”  Each party
shall promptly, and in all events within one hundred and twenty (120) days of
the Management Shareholders, if the Management Shareholders are the Indemnified
Party, or the Chief Executive Officer or Chief Financial Officer of the Buyer,
if the Buyer is the Indemnified Party, obtaining actual knowledge thereof,
notify the Indemnifying Party of the existence of any claim, demand or other
matter requiring a defense to which the Indemnifying Party’s obligations under
this Article would apply. The Indemnified Party shall give the Indemnifying
Party a reasonable opportunity to defend the claim, demand or matter at the
Indemnifying Party’s own expense and with counsel selected by the Indemnifying
Party and satisfactory to the Indemnified Party; provided that the Indemnified
Party shall at all times also have the right to fully participate in the
defense at its own expense.  Any such
claim, demand or other matter shall not be settled or compromised without the
consent of the Indemnified Party; provided, however, if the Indemnified Party
does not consent to such settlement or compromise, such claim, demand or other
matter shall not be settled or compromised, but the Indemnifying Party’s
obligation to indemnify with respect hereto shall be limited to the amount for
which such claim, demand or other matter could have been settled or
compromised, together with the cost of defense through the date such matter
could have been settled or compromised. 
If the Indemnifying Party shall, within a reasonable time after receipt
of notice, fail to defend, the Indemnified Party shall have the right, but not
the obligation, to undertake the defense, and to compromise or settle,
exercising reasonable business judgment, the claim, demand or other matter on
behalf, for the account and at the risk of the Indemnifying Party.  If the claim is one that cannot by its nature
be defended solely by the Indemnifying Party (including, without limitation,
any federal or state tax proceeding), the Indemnified Party shall make
available, or cause to be made available, all information and assistance that the
Indemnifying Party may reasonably request.

 

8.5          Set-Off.  Without
limiting any of the other rights Buyer may have at law or in equity to recover
from the Shareholders in respect of any Buyer Loss, Buyer may set off an amount
equal to the Buyer’s reasonable estimate of such Buyer Loss against any payment
or payments coming due or deliveries required by this Agreement including,
without limitation, any delivery of additional securities or any cash payments;
provided, however, to the extent that the Buyer exercises its right of set-off
with respect to amounts that are ultimately determined (through litigation,
arbitration, settlement or otherwise) to be due to the Shareholders, Buyer
shall promptly pay to Seller such amounts, together with interest thereon at
the rate of six percent (6.0%) per annum from their original due date.

 

35

 

8.6          Survival
of Representations and Warranties.  The representations and
warranties set forth in paragraph 1.1.1, Article 2 and Article 3 shall survive
the Closing for a period of three (3) years from the Closing Date (the “1st
Expiration Date”).  In addition, the
rights and obligations of the Management Shareholders to appropriately
distribute the Buyout Purchase Price or the balance of the Purchase Price
payment set forth in paragraphs 1.3.3 and 1.4.5 shall survive for a period of
three (3) years from the date of payment of the Buyout Purchase Price or the
end of the EBITDA Period, as the case may be (the “2nd Expiration Date”) (The 1st
Expiration Date and the 2nd Expiration Date shall be collectively referred to
herein as the “Expiration Date.”) Notwithstanding anything in this Article 8 to
the contrary, an Indemnifying Party’s indemnification obligations under Article
8 shall not terminate as of the Expiration Date with respect to any claims for
indemnification to which the Expiration Date would otherwise be applicable
which are asserted in writing prior to the Expiration Date and have not been
finally resolved prior to the Expiration Date.

 

8.7          Limitation
of Liability.  Any indemnification right resulting under
this Article 8, except those indemnification rights resulting from Claims
described under paragraph 1.1.1 and the second sentence under paragraph 2.37,
shall be subject to reaching a minimum aggregate obligation (the “Threshold”)
of One Hundred Thousand Dollars ($100,000) in claims, with each claim subject
to a minimum obligation of Twenty Thousand ($20,000) (“Claim Threshold”),
whereupon the entire aggregate amount of all obligations and liabilities in
excess of One Hundred Thousand Dollars ($100,000) shall be immediately due and
payable.  If more than one claim exists
regarding the same event in which an indemnification obligation arises, all
such claims shall be aggregated to meet the Claim Threshold. By way of example,
if the following claims exist (i) one claim for $85,000 in connection with a
breach of the representation listed under paragraph 2.1, (ii) four claims for
$5,000 each in connection with a breach of the representation listed under
paragraph 2.3, (iii) one claim for $19,000 in connection with a breach of the
representation listed under paragraph 2.11.1 and (iv) one claim for $5,000 in
connection with a breach of the representation under paragraph 2.11.8, the claims
under (i) and (ii) have each met the Claim Threshold while the claims under
(iii) and (iv) have not; however, the Threshold has been met by aggregating the
claims under (i) and (ii). Further, the maximum aggregate amount required to be
paid to the Buyer as the Indemnified Party by the Management Shareholders as
the Indemnifying Party under this Article 8, specifically pursuant to paragraph
8.1, shall not exceed 75% of that portion of the Purchase Price received by the
Management Shareholders (the “Management Shareholders’ Indemnification Ceiling”).
Notwithstanding the foregoing, the Threshold and the Management Shareholders’
Indemnification Ceiling shall not apply to any claim related to a breach of
representation, warranty or covenant where the Indemnifying Party had actual
knowledge of such breach at Closing and intentionally and willfully failed to
disclose such breach. The maximum amount required to be paid to the Buyer as
the Indemnified Party by a Shareholder, including a Management Shareholder, as the
Indemnifying Party under this Article 8, specifically pursuant paragraph 8.2,
shall not exceed 100% of that portion of the Purchase Price received by that
Shareholder.

 

36

 

ARTICLE
9.

 

TERMINATION

 

This Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing Date:

 

9.1          By
mutual written consent of the Shareholders and Buyer; or

 

9.2          By
the Shareholders (as one party) or by Buyer (as another party) upon written
notice thereof to the other party if:

 

9.2.1       The purchase and sale contemplated hereby
has not been consummated by a date sixty (60) days after the date of this
Agreement, unless such purchase and sale has not been so consummated because
of, or as a result of, any actions or failure to act on the part of the party
seeking to terminate this Agreement pursuant to this Section 9.2.1; or

 

9.2.2       There has been a failure by the other party
to perform or comply with any material agreement, covenant or condition herein
required to be performed or complied with by such other party within the time
required and such failure has continued for thirty days following written
notice thereof to such other party, provided, however, such cure period shall
not extend beyond the expiration of the sixty (60) day period referenced in
Section 9.2.1 above.

 

In the event of termination of this Agreement by either party pursuant
to this Article 9, this Agreement shall be of no further force or effect and
neither party shall have any liability to the other as a result of such
termination except where such termination results from a willful and material
breach of this Agreement.

 

ARTICLE
10.

 

MISCELLANEOUS
PROVISIONS

 

10.1        Notices.  All
notices, offers, requests or other communications from either of the parties
hereto to the other shall be in writing and shall be considered to have been
duly delivered or served on the date of meeting if sent by first class
certified mail, return receipt requested, postage prepaid, to the party at its
address as set forth below or to such other address as such party may hereafter
designate by written notice to the other party:

 

	
  If to Buyer, to:

  
	
   

  
	
  Digital Angel
  Corporation

  
	
  490 Villaume Avenue

  
	
  South Saint Paul,
  Minnesota 55075

  
	
  Attn: Kevin N. McGrath,
  CEO

  

 

37

 

	
  With a copy to:

  
	
   

  
	
  Winthrop &
  Weinstine, P.A.

  
	
  Suite 3500

  
	
  225 South Sixth Street

  
	
  Minneapolis, MN 55402

  
	
  Attn: Philip T. Colton

  
	
   

  
	
  If to the Shareholders,
  to:

  
	
   

  
	
  Lasse Nordfjeld

  
	
  28 Gronnegangen

  
	
  DK-3070 Snekkersten

  
	
   

  
	
  With a copy to:

  
	
   

  
	
  Lassen Ricard

  
	
  31Amaliegade

  
	
  DK-1256 Copenhagen K

  
	
  Attn: Peter Lambert

  

 

10.2        Governing Law.  Provisions of this Agreement specifically
dealing with the Purchase Price and the issuance and registration of ADSX
Shares, specifically paragraphs 1.3 (except 1.3.1(v)) and 1.4 (collectively,
the “Buyer’s Provisions”), shall be deemed to be a contract made under the laws
of the State of Minnesota, United States and for all purposes such Buyer’s
Provisions shall be construed in accordance with and governed by the laws of
such state, excluding any choice of laws provisions or conflict of laws
principles which would required reference to the laws of any other
jurisdiction. As to all other provisions of this agreement, specifically
paragraph 1.3.1(v) and Articles 2, 3 and 4 (the Company’s Provisions”), such
Company’s Provisions shall be deemed to be a contract made under the laws of
Denmark and for all purposes the Company’s Provisions shall be construed in
accordance with and governed by the laws of such country, excluding any choice
of laws provisions or conflict of laws principles which would required
reference to the laws of any other jurisdiction.

 

10.3        Jurisdiction; Service of Process.  Any action or proceeding seeking to enforce
any of the Buyer’s Provisions under, or based on any right arising out of, this
Agreement shall be brought against any of the parties in the Courts of the
State of Minnesota, United States, Ramsey County, or the United States District
Court for the District of Minnesota (collectively, the “US Courts”), and each
of the parties hereto consents to the jurisdiction of such US Courts (and the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Any action or proceeding seeking to enforce
any of the Company’s Provisions under, or based on any right arising out of,
this Agreement shall be brought against any of the parties in the Maritime and
Commercial Court (“Denmark Court”), and each of the parties hereto consents to
the jurisdiction of such Denmark Court (and the appropriate appellate courts)
in any such action or proceeding and waives any objection to venue laid
therein. If a party seeks to enforce any of the Buyer’s Provisions in a US
Court, then such party may also seek, in good faith, enforcement of any
additional Company’s Provisions in the same US Court at such time

 

38

 

with
Danish law applied to such Company’s Provisions as provided under paragraph
10.2. In the alternative, if a party seeks to enforce any of the Company’s
Provisions in a Denmark Court, then such party may also seek, in good faith,
enforcement of any additional Buyer’s Provisions in the same Denmark Court at
such time with Minnesota law applied to such Buyer’s Provisions as provided
under paragraph 10.2. Process in any action or proceeding referred to in the
preceding sentences may be served on any party hereto anywhere in the world.

 

10.4        Assignment.  No party to this Agreement may assign or
transfer this Agreement, either directly or indirectly, without the prior
written consent of the other party to this Agreement, except that Buyer may
assign all or part or Buyer’s interest in this Agreement to an entity
controlling, controlled by or under common control with Buyer so long as Buyer
retains responsibility and liability for performing its obligations under this
Agreement.  Unless otherwise agreed by
the other party to this Agreement, any assignment of this Agreement shall not
release the assignor from the duty to perform the assignor’s obligations under
this Agreement.  This Agreement shall be
binding upon, inure to the benefit of and may be enforced by and against the
respective successors and permitted assigns of each of the parties to this
Agreement.

 

10.5        Specific Performance.  The Shareholders agree that breach of this
Agreement by the Shareholders will cause Buyer irreparable harm for which there
is no adequate remedy of law and, without limiting whatever other rights and
remedies Buyer may have under this Agreement, Buyer is entitled to the remedy
of specific performance to enforce this Agreement and the Shareholders consent
to the issuance of an order by a court of competent jurisdiction requiring the
specific performance of this Agreement by the Shareholders.

 

10.6        Entire Agreement.  This Agreement expresses the whole
agreement between the parties with respect to the purchase and sale
contemplated hereby, there being no representations, warranties or other
agreements (oral or written) not expressly set forth or provided for herein.

 

10.7        Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

10.8        Changes.  Any
and all agreements by the parties hereto to amend, change, extend, revise or
discharge this Agreement, in whole or in part, shall be binding upon the
parties to such agreement, even though such agreements may lack legal
consideration, provided such agreements are in writing and executed by the
party against whom enforcement is sought.

 

10.9        Construction.  Wherever possible, each provision of this
Agreement and each related document shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or any related document shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement or such related documents.

 

10.10      Waiver.  No
failure on the part of either party to exercise, and no delay in exercising any
right or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial

 

39

 

exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy granted hereby or by any related document or by
law.

 

10.11      Severability.  In the event any part of this Agreement is
found to be void, the remaining provisions of this Agreement shall nevertheless
be binding with the same effect as though the void parts were deleted.

 

10.12      Titles and Sub-Titles.  The titles of the paragraphs and
subparagraphs are placed herein for convenient reference only and shall not to
any extent have the effect of modifying, amending or changing the expressed
terms and provisions of this Agreement.

 

10.13      No Third Party Beneficiaries.  This Agreement
is a contract solely among Buyer and the Shareholders.  No third party beneficiaries (including,
without limitation, employees and customers of the Company) are intended and
none shall be inferred, and no party other than Buyer and the Shareholders may
assert any right, make any claim or otherwise attempt to enforce any provision
of or under this Agreement.

 

10.14      U.S. Dollar
Amounts.  Unless otherwise specified, all dollar
figures contained herein refer to U.S. dollar amounts and amounts payable
hereunder shall be paid in Danish Krones.

 

10.15      Fees and
Expenses. Each
party shall be responsible to pay
their own transactional expenses incurred in connection with this Agreement,
except that the Shareholder’s legal fees in connection with this Agreement (and
not in connection with any transaction contemplated prior to the Division as
defined under paragraph 1.1.1 shall be paid by the Company.

 

IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the date and year first
above written.

 

	
  SHAREHOLDERS:

  	
  BUYER:

  
	
   

  	
   

  
	
  LANO Holding ApS

  	
   

  	
  DIGITAL ANGEL
  CORPORATION

  
	
   

  	
   

  
	
  By:

  	
  /s/ L. Nordfjeld

  	
   

  	
  By:

  	
  /s/ James P. Santelli

  	
   

  
	
   

  	
  Its:

  	
  CEO

  	
   

  	
   

  	
  Its:

  	
  Vice President and CFO

  	
   

  
	
  Parfait ApS

  	
   

  
	
   

  	
   

  	
  As to Paragraph 1.4.2 and 3.5:

  
	
   

  	
   

  
	
  By:

  	
  Bjarne Lehmann Weng

  	
   

  	
  APPLIED DIGITAL, INC.

  
	
   

  	
  Its:

  	
  President and CEO

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott Silverman

  	
   

  
	
   

  	
   

  	
  Its:

  	
  CEO

  	
   

  
	
  Torsten Nordfjeld

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Torsten Nordfjeld

  	
   

  	
   

  
	
   

  	
  Its:

  	
  CEO

  	
   

  	
   

  
										

 

40

 

	
  By:

  	
   

  
	
   

  	
  Its: Vækstfonden

  

 

Reservation: The Representations and Warranties in paragraph 2.1 and
the indemnification in paragraph 8.2 shall be limited to Vaekstfonden's own
shares and thus Vækstfonden shall not be jointly and severally liable as set
out in said clauses. Further, Vækstfonden shall not be liable if the
Representation that "the Subsidiary shares are free from any charge and
encumbrance and are owned by the Company" is breached.

 

41

 

LIST OF
EXHIBITS

 

	
  Exhibit 1.1

  	
   

  	
  Outstanding Shares

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.2

  	
   

  	
  List of Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.3

  	
   

  	
  Capital Structure of
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.5

  	
   

  	
  Consents and Approvals

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.6

  	
   

  	
  Financial Documents

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.6(A)

  	
   

  	
  Cash Forecast

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.7

  	
   

  	
  Assets

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.8

  	
   

  	
  Subsidiary Meetings

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.10

  	
   

  	
  Undisclosed Liabilities

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.11

  	
   

  	
  Adverse Changes

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.12

  	
   

  	
  Leases

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.13

  	
   

  	
  Insurance

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.14

  	
   

  	
  Litigation

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.15

  	
   

  	
  Material Contracts

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.17

  	
   

  	
  Guarantees

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.18.1

  	
   

  	
  Employees

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.18.2

  	
   

  	
  Employee Agreements

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.18.3

  	
   

  	
  Employee Benefit Plans

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.19

  	
   

  	
  Employment, Agency and
  Independent Contractor Agreements

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.20

  	
   

  	
  Real Estate

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.22

  	
   

  	
  Investments

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.23

  	
   

  	
  Intellectual Property

  

 

 

	
  Exhibit 2.26

  	
   

  	
  Bank Accounts and
  Powers of Attorney

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.28

  	
   

  	
  Licenses, Permits and
  Authorizations

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.29

  	
   

  	
  Related Party
  Transactions

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.30

  	
   

  	
  Inventory

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.31

  	
   

  	
  Environmental
  Compliance and Hazardous Waste

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.32

  	
   

  	
  Defects or Deficiencies

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.35

  	
   

  	
  Warranties

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.2.3

  	
   

  	
  Opinion of
  Shareholders’ Counsel

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.2.6-1

  	
   

  	
  Form of Employment
  Agreement for Lasse Nordfjeld

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.2.6-2

  	
   

  	
  Form of Employment
  Agreement for Torsten Nordfjeld

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.2.12

  	
   

  	
  Bank Loans

  
	
   

  	
   

  	
   

  
	
  Exhibit 5.2.15

  	
   

  	
  Additional Financial
  Statements

  

 

2Exhibit 10.2

 

STOCK
PURCHASE AGREEMENT

 

BETWEEN

 

APPLIED
DIGITAL SOLUTIONS, INC.

 

AND

 

DIGITAL
ANGEL CORPORATION

 

 

February
25, 2005

 

 

STOCK
PURCHASE AGREEMENT

 

This Stock Purchase Agreement is entered into as of
February 25, 2005 (the “Closing Date”), by Applied Digital Solutions,
Inc., a Missouri corporation (the “Purchaser” or “ADSX”), and its
majority-owned subsidiary, Digital Angel Corporation, a Delaware corporation (“Seller”
or “DOC”).

 

Preliminary
Statements

 

For strategic investment purposes, ADSX wishes to
purchase from DOC and DOC wishes to sell to ADSX, in a transaction exempt from
the registration requirements of the Securities Act of 1933, as amended,
newly-issued shares of the common stock of DOC in consideration for newly
issued shares of the common stock of ADSX (which ADSX will seek to register for
resale pursuant to the provisions of the Securities Act of 1933, as amended),
on the terms and subject to the conditions set forth in this Agreement.  ADSX currently owns approximately 54% of the
outstanding DOC Common Stock (as defined hereunder) and has consented to the
transactions contemplated herein.

 

Agreement

 

In consideration of the preliminary statements and
the respective mutual covenants, representations and warranties herein
contained, the parties hereto agree as set forth below.

 

ARTICLE
I

 

Definitions

 

In addition to terms defined elsewhere in this
Agreement, the following terms when used in this Agreement shall have the
meanings indicated below:

 

“ADSX Common Stock” shall mean the common
stock of ADSX, par value $.01 per share.

 

“ADSX VWAP” means, for any date, the daily
volume weighted average price of the ADSX Common Stock for such date as
reported by Bloomberg Financial, L.P. (based on a Trading Day from 9:30 a.m. ET
to 4:02 p.m. Eastern Time) using the VAP (volume average price) function.

 

“Agreement” shall mean this Stock Purchase
Agreement together with all exhibits and schedules referred to herein.

 

“Agreement Effective Date” shall mean the
date of execution of this Agreement.

 

 “Commission”
shall mean the Securities and Exchange Commission.

 

“DOC Common Stock” shall mean the common
stock of DOC, par value $.005 per share.

 

2

 

“DOC VWAP” means, for any date, the daily
volume weighted average price of the DOC Common Stock for such date as reported
by Bloomberg Financial, L.P. (based on a Trading Day from 9:30 a.m. ET to 4:02
p.m. Eastern Time) using the VAP (volume average price) function.

 

“Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

 

 “Person”
shall mean any natural person, corporation, unincorporated organization,
partnership, association, joint stock company, joint venture, trust or
government, or any agency or political subdivision of any government or any
other entity.

 

 “SEC
Reports” means all reports required to be filed by ADSX and DOC under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the one
year preceding the date hereof.

 

“Securities Act” shall mean the Securities
Act of 1933, as amended.

 

“Trading Day” 
means a day on which the DOC Common Stock is traded on the American
Stock Exchange and a day on which the ADSX Common Stock is traded on the Nasdaq
SmallCap Market, or if the ADSX Common Stock is not listed on the Nasdaq
SmallCap Market, a day on which the ADSX Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board or is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated.

 

ARTICLE
II

 

Purchase
of Securities; Consideration

 

2.1  Securities
to be Purchased.  On and subject to
the terms and conditions set forth herein, on the Closing Date, DOC shall sell
to ADSX, and ADSX shall purchase from DOC, all of DOC’s right, title and
interest in and to an aggregate of $3,500,000 worth of shares of DOC Common
Stock at a purchase price equaling the average of the VWAPs of the DOC Common
Stock for the ten Trading Days immediately preceding (and not including) the
Closing Date (“Per Share Purchase Price”) (the “DOC Shares”).

 

2.2  Consideration.  The purchase price for the DOC Shares shall
be $3,500,000 (“Purchase Price”), payable by ADSX on the Closing date
(as defined hereunder) by delivery, in the aggregate, of the number of shares
of ADSX Common Stock equal in value to $3,500,000 (the “ADSX Exchange Shares”).

 

2.3  Place
of Closing; Closing Date.  The
closing of the purchase and sale of the DOC Shares under this Agreement will
take place at the offices of the Purchaser or other location as may be mutually
agreed by Purchaser and Seller, and shall occur on the date hereof (the “Closing
Date”).

 

2.4  Closing
Price.  The per share exchange price
for the ADSX Exchange Shares issuable under this Agreement on the Closing Date
shall equal the average of the ADSX VWAP for the ten (10) Trading Days
immediately preceding (and not including) the Closing Date.

 

3

 

2.5  Deliveries
of DOC Shares and ADSX Exchange Shares on the Closing Date.  Subject to the terms and conditions of this
Agreement and including but not limited to the closing requirements of Section
7.1, on the Closing Date: (i) DOC will deliver to ADSX that number of
restricted DOC Shares being purchased as calculated in Section 2.1, and (ii)
ADSX will, upon receipt of the DOC Shares, deliver to DOC, that number of
restricted ADSX Exchange Shares being exchanged in consideration for the DOC
Shares as calculated in Section 2.2.

 

2.6 Fractional Shares. DOC and ADSX shall
receive a whole number of shares of DOC Shares and ADSX Exchange Shares,
respectively, and no fractional shares of DOC Shares and ADSX Exchange Shares
shall be issued.  In lieu of fractional
shares, DOC and ADSX shall deliver to the other respective party, cash or a
company check in the amount of the fractional shares(s) otherwise issuable to
ADSX or DOC by the other party based on the Closing Price or Fixed Price
respectively.  The parties hereto hereby
direct their transfer agents to issue and deliver to the other party the shares
in certificate form and agree to provide any and all legal opinions and
supporting documentation as may be required by their transfer agent to
effectuate such immediate issuance and delivery of the Shares.

 

ARTICLE
III

 

Representations
and Warranties of DOC

 

In order to induce ADSX to enter into this Agreement
and to consummate the transactions contemplated hereby, DOC makes the
representations and warranties set forth below to ADSX.

 

3.1  Organization;
Standing and Power.  DOC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted.

 

3.2  Authorization;
Enforceability.  The execution,
delivery and performance of this Agreement by DOC and the consummation by DOC
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action.  This
Agreement has been duly executed and delivered by DOC, and constitutes the
legal, valid and binding obligation of DOC, enforceable in accordance with its
terms, except to the extent that its enforcement is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the enforcement
of creditors’ rights generally and by general principles of equity.

 

3.3  No
Violation or Conflict.  The
execution, delivery and performance of this Agreement by DOC and the
consummation by DOC of the transactions contemplated hereby: (a) do not and will
not violate or conflict with any provision of law or regulation, or any writ,
order, judgment or decree of any court or governmental or regulatory authority,
or any provision of DOC’s Certificate of Incorporation or Bylaws; and (b) do
not and will not, with or without the passage of time or the giving of notice,
result in the breach of, or constitute a default, cause the acceleration of
performance, or require any consent under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of DOC pursuant to any
material instrument or agreement to which DOC is a party or by which DOC or its
properties may be bound or

 

4

 

affected, other than instruments or agreements as to which consent
shall have been obtained at or prior to the Closing Date.

 

3.4  Consent
of Governmental Authorities.  Other
than in connection with the Securities Act, the Exchange Act and the rules of
the American Stock Exchange, no consent, approval or authorization of, or
registration, qualification or filing with any federal, state or local
governmental or regulatory authority is required to be made by DOC in
connection with the execution, delivery or performance by DOC of this Agreement
or the consummation by DOC of the transactions contemplated hereby.

 

3.5  Validity
of Securities.  When issued in
accordance with this Agreement, the DOC Shares shall be duly and validly
authorized, legally issued and outstanding, fully paid and non-assessable,
shall not have been issued in violation of the preemptive rights of any Person,
and free and clear of all liens and encumbrances.

 

3.6  Absence
of Material Adverse Changes;  Disclosure
of Material Non-Public Information; SEC Reports.  Since the filing by DOC of its Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 and all current reports
filed on Form 8-K since such date, with the Commission, there have been no
material adverse changes to the assets, liabilities, business or condition
(financial or otherwise) of DOC, and all disclosures of material non-public
information required pursuant to the Securities Act and the Exchange Act have
been made accordingly.  As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

 

ARTICLE
IV

 

Representations
and Warranties of ADSX

 

In order to induce DOC to enter into this Agreement
and to consummate the transaction contemplated hereby, ADSX makes the
representations and warranties set forth below to DOC.

 

4.1  Organization;
Standing and Power.  ADSX is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Missouri with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted.

 

4.2  Authorization;
Enforceability.  The execution,
delivery and performance of this Agreement by ADSX and the consummation by ADSX
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action.  This
Agreement has been duly executed and delivered by ADSX, and constitutes the
legal, valid and binding obligation of ADSX, enforceable in accordance with its
terms, except to the extent that its enforcement is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors’ rights generally and by general principles of equity.

 

5

 

4.3  No
Violation or Conflict.  The
execution, delivery and performance of this Agreement by ADSX and the
consummation by ADSX of the transactions contemplated hereby: (a) do not and
will not violate or conflict with any provision of law or regulation, or any
writ, order, judgment or decree of any court or governmental or regulatory
authority, or any provision of ADSX’s Articles of Incorporation or Bylaws; and
(b) do not and will not, with or without the passage of time or the giving of
notice, result in the breach of, or constitute a default, cause the
acceleration of performance, or require any consent under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of ADSX
pursuant to any material instrument or agreement to which ADSX is a party or by
which ADSX or its properties may be bound or affected, other than instruments
or agreements as to which consent shall have been obtained at or prior to the
Closing Date.

 

4.4  Consent of Governmental Authorities.  Other than in connection with the Securities
Act, the Exchange Act and the rules of the Nasdaq Stock Market, no consent,
approval or authorization of, or registration, qualification or filing with any
federal, state or local governmental or regulatory authority is required to be
made by ADSX in connection with the execution, delivery or performance by ADSX
of this Agreement or the consummation by ADSX of the transactions contemplated
hereby.

 

4.5  Validity
of Securities.  When issued in
accordance with this Agreement, the ADSX Exchange Shares shall be duly and
validly authorized, legally issued and outstanding, fully paid and
non-assessable, shall not have been issued in violation of the preemptive
rights of any Person, and free and clear of all liens and encumbrances.

 

4.6  Absence
of Material Adverse Changes;  Disclosure
of Material Non-Public Information; SEC Reports.  Since the filing by ADSX of its Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004, and all current
reports on Form 8-K filed since such date, with the Commission, there have been
no material adverse changes to the assets, liabilities, business or condition
(financial or otherwise) of ADSX, and all disclosures of material non-public
information required pursuant to the Securities Act and the Exchange Act have
been made accordingly. As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

ARTICLE
V

 

Covenants

 

5.1  Use of Proceeds.  DOC covenants and agrees that the ADSX
Exchange Shares shall be utilized to complete the proposed transaction with
DSD/Daploma on February    , 2005.  It is expressly understood that the covenants
of DOC contained in this Section 5.1 shall survive the Closing.

 

6

 

5.2  Confidentiality.  Except as otherwise required in the
performance of obligations under this Agreement and except as otherwise
required by law, any nonpublic information received by a party or its advisors
from the other party shall be kept confidential and shall not be used or
disclosed for any purpose other than in furtherance of the transactions
contemplated by this Agreement.  The
obligation of confidentiality shall not extend to information (a) which is or
shall become generally available to the public other than as a result of an
unauthorized disclosure by a party to this Agreement or a person to whom a
party has provided such information, (b) which is or becomes known by or
available to a party to this Agreement on a nonconfidential basis prior to its
disclosure by one party to the other pursuant to this Agreement, or (c) which
is or becomes available to a party on a nonconfidential basis from a source
other than a party to this Agreement. 
Upon termination of this Agreement, each party shall promptly return any
confidential information received from the other party and, upon request, shall
destroy any copies of such information in its possession.  The covenants of the parties contained in
this Section 5.2 shall survive any termination of this Agreement.

 

5.3  Notification.  Each party to this Agreement shall promptly
notify the other parties in writing of the occurrence, or pending or threatened
occurrence, of any event that would constitute a breach or violation of this
Agreement by any party or that would cause any representation or warranty made
by the notifying party in this Agreement to be false or misleading in any
respect.  Any such notification shall not
limit or alter any of the representations, warranties or covenants of the
parties set forth in this Agreement nor any rights or remedies a party may have
with respect to a breach of any representation, warranty or covenant.

 

5.4  Further Assurances.  The parties hereto shall deliver any and all
other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement including, without limitation, all necessary stock powers and
such other instruments of transfer as may be necessary or desirable to transfer
ownership of the DOC Shares or the ADSX Exchange Shares and to consummate the
transactions contemplated by this Agreement.

 

ARTICLE
VI

 

Additional
Agreements

 

6.1  Survival
of the Representations and Warranties. 
The representations and warranties of ADSX and of DOC set forth in this
Agreement shall terminate immediately following the Closing Date (or any
alternative closing date).

 

6.2  Investigation.  The representations, warranties, covenants
and agreements set forth in this Agreement shall not be affected or diminished
in any way by any investigation (or failure to investigate) at any time by or
on behalf of the party for whose benefit such representations, warranties,
covenants and agreements were made.  All
statements contained herein or in any schedule, certificate, exhibit, list or
other document delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties for
purposes of this Agreement.

 

7

 

6.3  Arbitration.  Any and all claims, disputes or matters in
controversy arising under this Agreement which the parties are unable to settle
by mutual agreement shall be resolved by binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association as in
force at the time (“AAA”).

 

(a)           A party which desires to submit a claim,
dispute or controversy to binding arbitration under this Section 6.3 shall so
notify the other parties, and if after 30 days from the date of such notice the
claim, dispute or controversy remains unsettled, any party may petition the AAA
for arbitration of the claim, dispute or controversy.  Matters submitted to arbitration shall be
resolved in accordance with the decision of a panel of three arbitrators
selected by the AAA.  The arbitrators
shall be experienced in the resolution of commercial disputes arising in the
context of negotiated acquisitions of businesses, and the place of arbitration
shall be either West Palm Beach or Delray Beach, Florida.

 

(b)           The three arbitrators shall investigate the
facts and shall hold hearings at which the parties to this Agreement may
present evidence and arguments, be represented by counsel and conduct cross-examination.  In determining any question, matter or
dispute before them, the arbitrators shall apply the provisions of this
Agreement and shall not have the power to add to, modify or change any of the
provisions of this Agreement.  The three
arbitrators shall render a written decision upon the matter presented to them
by a majority vote within 90 days after the date on which the hearings and
presentation of evidence are concluded, unless a longer period is provided
under the rules of the AAA.  The decision
rendered by the arbitrators shall be final and binding on, and unappealable by,
the parties.  Judgment upon the decision
rendered in such arbitration may be entered by any court having jurisdiction
thereof.  No party to an arbitration
proceeding shall be considered in default hereunder during the pendency of
arbitration proceedings relating to a disputed default.  If the three arbitrators fail to render a
timely decision, then, to the extent permitted by law, any party shall have the
right to institute an action or proceeding in such court as shall be
appropriate in the circumstances, and, upon the institution of such action, the
arbitration proceeding shall be terminated and shall be of no further force and
effect.  The arbitrators shall determine
in what proportion the parties shall bear the fees and expenses of the arbitrators,
and each party shall otherwise bear its own fees and expenses, including
expenses of legal counsel and other advisors or consultants.  It is the intention of the parties that
arbitration as described above be the sole and exclusive means available to them
for the resolution of claims, disputes or matters in controversy arising under
this Agreement, other than claims, disputes and matters arising under those
provisions referred to in the first sentence of this Section 6.3, and only in
the event that the arbitrators fail to render a decision in accordance with the
foregoing provisions shall a party have the right to institute legal action
with respect to such claim, dispute or matter. 
Accordingly, it shall be a complete defense to any action instituted by
a party with respect to a claim, dispute or matter in controversy under this
Agreement that such claim, dispute or matter has not first been submitted to
arbitration in accordance with the foregoing provisions.

 

8

 

ARTICLE
VII

 

Closing;
Conditions Precedent

 

7.1  Closing.  All proceedings to be taken and all documents
to be executed on the Closing Date shall be deemed to have been taken,
delivered and executed simultaneously, and no proceeding shall be deemed taken
nor documents deemed executed or delivered until all have been taken, delivered
and executed.  On the Closing Date, DOC
shall deliver to ADSX (i) the DOC Shares in accordance with the procedure
described in Section 2.4, free and clear of any and all claims, liens, charges,
security interests, pledges or encumbrances of any nature whatsoever and
together with all accrued benefits and rights attaching thereto; (ii)
certificate of the Secretary of State of Delaware as of a recent date as to the
good standing of DOC and its Certificate of Incorporation; (iii) such other
documents as may be specified, or required to satisfy the conditions set forth,
in Sections 7.2 and 7.3; and (iv) such other documents and instruments as ADSX
may reasonably request.  On the Closing
Date, ADSX shall deliver to DOC (i) the ADSX Exchange Shares in accordance with
the procedure described in Section 2.6, free and clear of any and all claims,
liens, charges, security interests, pledges or encumbrances of any nature
whatsoever and together with all accrued benefits and rights attaching thereto;
(ii) certificate of the Secretary of State of Missouri as of a recent date as
to the good standing of ADSX and its Articles of Incorporation, as amended;
(ii) such other documents as may be specified, or required to satisfy the conditions
set forth, in Sections 7.2 and 7.3; and (iii) such other documents and
instruments as DOC may reasonably request.

 

7.2  Conditions
Precedent to the Obligations of ADSX. 
All of the obligations of ADSX under this Agreement are subject to the
satisfaction at or prior to the Closing Date (or any alternative closing date)
of each and every one of the following conditions.

 

(a)           Representations and Warranties True.  Each
of the representations and warranties of DOC contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transaction contemplated hereby shall be true and correct
in all material respects (except for representations and warranties which are
by their terms qualified by materiality, which shall be true and correct in all
respects) as of the Closing Date with the same force and effect as though made
on and as of such date.

 

(b)           Performance.  DOC shall have performed and
complied in all material respects with all of the agreements, covenants and
obligations required under this Agreement to be performed or complied with by
them on or prior to the Closing Date.

 

(c)           Consents.  DOC shall have obtained all
material authorizations, consents, waivers and approvals as may be required to
consummate the transaction contemplated by this Agreement.

 

(d)           DOC Audit Committee and Board Approval.  The
Audit Committee and the Board of Directors of DOC shall have approved the
execution, delivery and performance of this Agreement by DOC.

 

(e)           Seller’s Certificate.  DOC
shall have delivered to ADSX a certificate executed by DOC, dated the Closing
Date, certifying in such detail as ADSX may reasonably request, that the
conditions specified in Sections 7.2(a), (b), (c) and (d) above have been
fulfilled and as to such other matters as ADSX may reasonably request.

 

9

 

7.3  Conditions
Precedent to the Obligations of DOC. 
All of the obligations of DOC under this Agreement are subject to the
satisfaction at or prior to the Closing Date (or any alternative closing date)
of each and every one of the following conditions.

 

(a)           Representations and Warranties True.  Each
of the representations and warranties of ADSX contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transaction contemplated hereby shall be true and correct
in all material respects (except for representations and warranties which are
by their terms qualified by materiality, which shall be true and correct in all
respects) as of the Closing Date with the same force and effect as though made
on and as of such date.

 

(b)           Performance.  ADSX shall have performed and
complied in all material respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by it on or
prior to the Closing Date.

 

(c)           Consents.  ADSX shall have obtained all
material authorizations, consents, waivers and approvals as may be required to
consummate the transaction contemplated by this Agreement.

 

(d)           ADSX Audit Committee and Board Approval.  The
Audit Committee and the Board of Directors of ADSX shall have approved the
execution, delivery and performance of this Agreement by ADSX.

 

(e)           Purchaser’s Certificate.  ADSX
shall have delivered to DOC a certificate executed by ADSX, dated the Closing
Date, certifying in such detail as DOC may reasonably request, that the
conditions specified in Sections 7.3(a), (b), (c) and (d) above have been
fulfilled and as to such other matters as DOC may reasonably request.

 

10

 

ARTICLE VIII

 

Registration

 

8.1  Registration
of ADSX Exchange Shares.  As soon as
practicable after DOC has delivered the ADSX Exchange Shares to the DSD/Daploma
shareholders, ADSX shall prepare and file with the Commission the Registration
Statement covering the resale of the ADSX Exchange Shares for an offering to be
made under the Securities Act.  The
Registration Statement shall be on Form S-1 (or Form S-3 if ADSX is then
eligible to register for resale the Securities on Form S-3).  ADSX shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, and shall use its best efforts
to keep such Registration Statement continuously effective under the Securities
Act until the date when all ADSX Exchange Shares covered by the Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by counsel to ADSX pursuant to a written opinion
letter to such effect, addressed and acceptable to ADSX’s transfer agent.  ADSX shall notify DOC via facsimile or
e-mail, followed by regular U.S. Mail, of the effectiveness of the Registration
Statement immediately after ADSX receives notification of the effectiveness of
such Registration Statement from the Commission;

 

 

8.2  DOC Registrable Shares’ Registration
Rights;  Piggyback
Registration; Demand Registration.

 

(a) At any time and
from time to time after the date of this Agreement, whenever DOC proposes to
file a registration statement, DOC shall no less than fifteen (15) days prior
to such filing give written notice to ADSX of its intention to do so and, upon
the written request of ADSX given within ten (10) days after DOC provides such
notice, shall use its good faith efforts to cause all DOC Registrable Shares
which DOC has been requested by ADSX to register to be registered under the
Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified
in the request of ADSX.

 

(b) At any time and from time to time after the date
of this Agreement, upon receipt of a written request from ADSX specifying the
number of DOC Registrable Shares that ADSX desires to register for public sale,
DOC promptly shall prepare and file with the Commission within 120 days of the
written request a registration statement under the Securities Act covering a
public offering of the DOC Registrable Shares and shall use all reasonable
efforts to cause the registration statement to become effective as soon as is
practicable.  If permitted by the
Securities Act, DOC shall use a Form S-3 registration statement (or any
successor form) to register the DOC Registrable Shares pursuant to this Section
8.2(b).  If it is ineligible to use a
Form S-3 registration statement, DOC may use any other form of SEC registration
statement that it considers appropriate, as long as DOC is eligible to use the
form and the form does not impair in any way ADSX’s ability to publicly offer
and sell any DOC Registrable Shares compared to such ability if DOC were
eligible to use Form S-3.

 

11

 

ARTICLE IX

 

Termination

 

9.1  Termination.  This Agreement may be terminated as
follows:  (i) by mutual written consent
of the parties at any time prior to an alternative closing date (in lieu of the
Closing Date); and (ii) ADSX or DOC may terminate this Agreement by giving
written notice to the other party at any time prior to an alternative closing
date (in lieu of the Closing Date) if either ADSX or DOC has breached any
representation, warranty or covenant contained in this Agreement in any
material respect.

 

9.2  Effect
of Termination.  If ADSX or DOC
terminates this Agreement pursuant to Section 9.1(ii), all rights and
obligations of the parties hereunder shall terminate without any liability of
any party to the other party.

 

ARTICLE
X

 

Miscellaneous

 

10.1  Notices.  Any notice, demand, claim or other
communication under this Agreement shall be in writing and shall be delivered
personally or sent by certified mail, return receipt requested, postage
prepaid, or sent by facsimile or prepaid overnight courier to the parties at
the addresses set forth below their names on the signature pages of this
Agreement (or at such other addresses as shall be specified by the parties by
like notice).  Such notices, demands,
claims and other communications shall be deemed given when actually received
or, (a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery, (b) in the case of
certified U.S. mail, five days after deposit in the U.S. mail, or (c) in the
case of facsimile, the date upon which the transmitting party received
confirmation of receipt by facsimile, telephone or otherwise.

 

10.2  Entire
Agreement.  This Agreement contains
every obligation and understanding between the parties relating to the subject
matter hereof and merges all prior discussions, negotiations and agreements, if
any, between them, and none of the parties shall be bound by any conditions,
definitions, understandings, warranties or representations other than as
expressly provided or referred to herein.

 

10.3  Binding
Effect.  This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, heirs, personal representatives, legal representatives,
and permitted assigns.

 

10.4  Assignment.
 This Agreement may not be assigned by
any party without the written consent of the other party.

 

10.5  Waiver
and Amendment.  Any representation,
warranty, covenant, term or condition of this Agreement which may legally be
waived, may be waived, or the time of performance thereof extended, at any time
by the party hereto entitled to the benefit thereof, and any term, condition or
covenant hereof (including, without limitation, the period during which any
condition is to be satisfied or any obligation performed) may be amended by the
parties hereto at

 

12

 

any time.  Any such waiver,
extension or amendment shall be evidenced by an instrument in writing executed
on behalf of the appropriate party by its Chairman, President or any Vice
President or other person, who has been authorized by its Board of Directors to
execute waivers, extensions or amendments on its behalf.  No waiver by any party hereto, whether
express or implied, of its rights under any provision of this Agreement shall
constitute a waiver of such party’s rights under such provisions at any other
time or a waiver of such party’s rights under any other provision of this
Agreement.  No failure by any party
hereto to take any action against any breach of this Agreement or default by
another party shall constitute a waiver of the former party’s right to enforce
any provision of this Agreement or to take action against such breach or
default or any subsequent breach or default by such other party.

 

10.6  Severability.  In the event that any one or more of the
provisions contained in this Agreement shall be declared invalid, void or
unenforceable, the remainder of the provisions of this Agreement shall remain
in full force and effect, and such invalid, void or unenforceable provision
shall be interpreted as closely as possible to the manner in which it was
written.

 

10.7  Expenses.  Each party agrees to pay, without right of
reimbursement from the other party, the costs incurred by it incident to the
performance of its obligations under this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, costs incident
to the preparation of this Agreement, and the fees and disbursements of
counsel, accountants and consultants employed by such party in connection
herewith.

 

10.8  Headings.  The section and other headings contained in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of any provisions of this Agreement.

 

10.9  Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

10.10  Time
of Essence.  Wherever time is
specified for the doing or performance of any act hereunder, time shall be
considered of the essence.

 

10.11  Litigation;
Prevailing Party.  If,
notwithstanding the provisions of Section 6.3 regarding arbitration hereunder,
any litigation is instituted with regard to this Agreement, the prevailing
party shall be entitled to receive from the non-prevailing party and the non-prevailing
party shall pay all reasonable fees and expenses of counsel for the prevailing
party.

 

10.12  Injunctive
Relief.  It is possible that remedies
at law may be inadequate and, therefore, the parties hereto shall be entitled
to equitable relief including, without limitation, injunctive relief, specific
performance or other equitable remedies in addition to all other remedies
provided hereunder or available to the parties hereto at law or in equity.

 

10.13  Remedies
Cumulative.  No remedy made available
by any of the provisions of this Agreement is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity.

 

13

 

10.14  Governing
Law.  This Agreement has been entered
into and shall be construed and enforced in accordance with the laws of the
State of Florida without reference to the choice of law principles thereof.

 

10.15  Jurisdiction
and Venue.  If, notwithstanding the
provisions of Section 6.3 regarding arbitration hereunder, any litigation is
instituted with regard to this Agreement, this Agreement shall be subject to
the exclusive jurisdiction of the courts of Palm Beach County, Florida.  The parties to this Agreement agree that any
breach of any term or condition of this Agreement shall be deemed to be a
breach occurring in the State of Florida by virtue of a failure to perform an
act required to be performed in the State of Florida and irrevocably and
expressly agree to submit to the jurisdiction of the courts of the State of
Florida for the purpose of resolving any disputes among the parties relating to
this Agreement or the transactions contemplated hereby.  The parties irrevocably waive, to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in Palm Beach County, Florida, and further irrevocably waive any
claim that any suit, action or proceeding brought in Palm Beach County, Florida
has been brought in an inconvenient forum.

 

10.16  Participation
of Parties.  The parties hereto
acknowledge that this Agreement and all matters contemplated herein, have been
negotiated among all parties hereto and their respective legal counsel and that
all such parties have participated in the drafting and preparation of this
Agreement from the commencement of negotiations at all times through the
execution hereof.  In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.

 

10.17  Preliminary
Statements.  The parties hereto
acknowledge that the preliminary statements contained herein shall be deemed
part of this Agreement and shall be binding upon the parties.

 

[signatures on following page]

 

14

 

IN WITNESS WHEREOF, the parties hereto have each
executed and delivered this Agreement as of the day and year first above
written.

 

	
   

  	
  APPLIED DIGITAL SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
  By:
  /s/ Scott R. Silverman

  
	
   

  	
  Name:
  Scott R. Silverman

  
	
   

  	
  Title:
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Address
  for Notice:

  
	 
	1690 South Congress Avenue, Suite 200

	 
	Delray Beach, Florida 33445

	 
	Attn: Scott R. Silverman, CEO

	 
	Tel: (561) 805-8056

	 
	Fax: (561) 805-8001

	 
	 

	
  With
  a copy to:

  	
  Holland
  & Knight LLP

  	
  and

  	
  Applied
  Digital Solutions, Inc.

  
	
   

  	
  701
  Brickell Avenue

  	
  1690
  South Congress Avenue

  
	
   

  	
  Suite
  3000

  	
  Suite
  200

  
	
   

  	
  Miami,
  FL 33131

  	
  Delray
  Beach, Florida 33445

  
	
   

  	
  Attn:
  Harvey Goldman, Esq.

  	
  Attn:
  Michael Krawitz, Esq.

  
	
   

  	
  Tel:
  (305)789-7506

  	
  Tel:
  (561) 805-8005

  
	
   

  	
  Fax:
  (305)789-7799

  	
  Fax:
  (561) 805-8001

  
	
   

  	
   

  	
   

  
	
   

  	
  DIGITAL
  ANGEL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:/s/
  Kevin N. Mc Grath

  
	
   

  	
  Name:
  Kevin N. McGrath

  
	
   

  	
  Title:
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Address
  for Notice:

  
	 
	490 Villaume Corporation

	 
	South St. Paul, MN 55075

	 
	Attn: Kevin N. McGrath

	 
	Tel: (651) 455-1621

	 
	Fax: (651) 455-0413

	 
	 

	
  With
  a copy to:

  	
  Winthrop
  & Weinstine

  
	
   

  	
  Suite
  3500

  
	
   

  	
  225
  South Sixth Street

  
	
   

  	
  Minneapolis,
  MN 55402

  
	
   

  	
  Attn:
  Philip Colton, Esq.

  
	
   

  	
  Tel:
  (612) 604-6400

  
	
   

  	
  Fax:
  (612) 604-6800

  

 

15

 

Schedules

 

(as necessary)

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