Applied Digital Solutions, maker of implantable ID microchips for humans, received a reprieve yesterday from lender IBM in the form of a forbearance agreement, giving ADS more time to pay its $95 million credit obligation.
It was also announced that CEO Richard Sullivan is retiring with a $10.6 million severance package.
Former ADS president Scott Silverman, who led discussions with IBM Credit, now takes over Sullivan’s position as chairman and CEO of the firm.
Under the new agreement, Applied Digital gains the right to buy back its existing indebtedness from IBM Credit with a one-time payment, on or before June 30, of $30 million. If this payment is made, Applied Digital would satisfy its full obligation to IBM Credit, according to the company.
As part of the debt renegotiation package, ADS also agreed to drop a lawsuit it filed against IBM and IBM Credit Corporation on March 6.
Applied Digital formerly accused IBM of using fraudulent and unfair practices in an effort to gain control of the rights to an ID chip that can be implanted under the skin.
Applied Digital had filed a lawsuit against IBM after failing to meet two deadlines to repay $46.2 million.
At that time, Silverman said, “We do have an obligation to protect the assets of the company and our shareholders from what we view as corporate piracy.”
The new agreement also requires Applied Digital to hire an investment banker to evaluate the sale of some or all of the shares of Digital Angel Corp. (Amex: DOC) held beneficially by Applied Digital through its Digital Angel Share Trust.
There also are additional limitations on permitted expenditures by Applied Digital. The company must also submit weekly budgets to IBM for all of its operations.
Sullivan’s severance agreement was negotiated by Applied Digital’s board of directors and was reduced from the previously agreed upon $17 million to a one-time payment of approximately $10.6 million – all in restricted stock.
Applied’s present financial difficulties are a stark contrast to its beginnings and the company’s own former predictions.
It was in December of 1999 that Applied Digital first announced that it had obtained the patent rights to an implantable microchip designed for human use that could be continuously tracked via GPS and which included biosensor capability.
In 1999, it boasted a five-year revenue growth of 64,012 percent and was ranked the fifth-fastest-growing technology company by Deloitte and Touche’s “Fast 500.” Early in 2000, the company won the prestigious “Technology Pioneer’s” award from the World Economic Forum in Davos, Switzerland, for contributions “to worldwide economic development and social progress through technological advancements.”
At a Digital Angel prototype unveiling in New York City in October of 2000, Sullivan welcomed attendees to “the future,” announcing that Applied’s explosive potential could be compared to the computer-based business revolutions created by IBM, Microsoft and Apple.
McKinsey & Co. produced a confidential market estimate of $70 billion in U.S. sales alone.
By contrast, losses in the tens of millions in 2000 earned Applied the 2001 “Turkey of the Year Award” from the South Florida Business Journal, for “gushing red ink faster than you can say ‘pass the gravy please.'”
The journal faulted Applied for “a five-year feeding binge that saw it gobble up a host of companies” with a number of those companies ending up in the “turkey ca-ca.”
A former consultant to Applied and Sullivan, who declined to be named for this report, commented, “Dick [Sullivan] had an almost mystical ability to enroll others in his acquisition scheme and used that ability to buy one company after another.” The consultant speculated that a combination of “overwhelming hubris” and “greed” blinded Sullivan to “important financial details.”
He added, “Had it not been for the amazing tech rally of the late 90’s, I think he would have crashed and burned long before the millennium.”
Even so, last year Sullivan predicted that in five years, the company’s chips would replace ATM cards and be implanted in the elderly, children, prisoners and government workers.
GPS-tracked chip implants are classified as an “emerging technology” by Gartner Research, a technology analyst firm. Jackie Fenn, a vice president and research fellow at Gartner Research, told WND that medical applications, such as the tracking of Alzheimer’s patients, are likely to be the most viable market for such chips.
There are currently no known commercial GPS implants in existence.
Following the Sept. 11 tragedy, Applied announced their new “VeriChip” implant, a small radio-frequency identification chip designed for security and identification uses that can be read from about four feet away. The company says the chip can store medical records and other data, and is wirelessly write-able. Potential medical uses related to the storing of medical records would require further clearance from the FDA.
Applied also engages in other technology business, including telecommunications and Internet products.
Applied Digital shares closed at 32 cents yesterday, up 52 percent on the news of the forbearance agreement. The 52-week low was 3 cents on July 15. The 52-week high was $2.40 on May 8.