| Subject: Applied Digital sues IBM Credit |
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Date Posted: 05:10:58 03/08/03 Sat
Posted on Sat, Mar. 08, 2003
Applied Digital sues IBM Credit
BY BEATRICE E. GARCIA
bgarcia@herald.com
Applied Digital Solutions has sued IBM Credit Corp., alleging that the IBM unit was fraudulently trying to acquire the rights to implantable ID microchips used in humans and that it conspired to derail a financing deal.
The suit, filed Thursday in Palm Beach County Circuit Court, also alleges that IBM Credit is trying to acquire the technology and intellectual property owned by Digital Angel Corp., a company that is 75 percent owned by Applied Digital. Digital Angel holds the patents on VeriChip.
PAYMENT DEADLINE
Applied Digital was facing a payment deadline Thursday from IBM Credit for $46.2 million. Applied Digital had missed the original due date of Feb. 28.
In a filing with the Securities and Exchange Commission Friday, Applied Digital said it made no payment to IBM Credit on the Thursday deadline and it hasn't renegotiated its financing agreement with IBM.
Applied Digital officials couldn't be reached for comment on the suit or whether they made any payment to IBM Credit Friday.
Applied Digital, which is based in Palm Beach, disclosed in the suit that it was working to arrange a $20 million cash infusion from Trinity Capital, a San Francisco-based investment firm. A portion of the funds, $13 million, would have gone to IBM Credit, the suit indicates.
Applied Digital says an IBM Credit official called Trinity and indicated that he and IBM ``didn't trust [Applied Digital] management and even if Trinity funded ADS, the company would still end up bankrupt.''
Applied Digital claims that as a result of the calls from Bruce Gordon of IBM Credit to Trinity, the financing negotiations ended and the company received no funds from the investment firm.
Trinity had no comment on the allegations in the lawsuit.
The suit also alleges that IBM contacted officials of Digital Angel and told them they shouldn't be concerned about Applied Digital's ''impending demise'' and ``IBM would undertake whatever activities are necessary to insure the success of Digital Angel Corp.''
IBM Credit didn't return a call for comment on the allegations in the lawsuit.
VERICHIP ON `TODAY'
Digital Angel holds patents on the technology used in VeriChips, the implantable ID microchip for use in humans that Applied Digital began to market last spring.
Digital Angel also markets microchips that can be used to tag pets, livestock and other animals. It also produced a watch-like device that combined radio-frequency, global satellite positioning, and wireless technology to track people.
Applied Digital, which had one of the first implants of the VeriChip broadcast live on NBC's Today show in May, has an outstanding balance of $77.2 million on a credit line agreement with IBM Credit.
The payment that's now due consists of $29.8 million in principal and $16.4 million in interest and expenses. If IBM doesn't get paid, it could demand the liquidation of a trust that holds more than 19 million shares of Digital Angel to recoup some of its money.
Applied Digital's 75 percent stake in Digital Angel, 19.6 million shares, is placed in a trust that can be liquidated if the company fails to meet its obligations to IBM Credit.
In the SEC filing, Applied Digital said if IBM Credit were to enforce its rights against the collateral securing these obligations, ``there would be doubts that the company would be able to continue operations in the normal course of business.''
Digital Angel shares rose 5 cents Friday to close at $1.40. Applied Digital shares fell 9 cents to 18 cents on high volume.
Applied Digital also claims in its suit that IBM engaged in a conspiracy to commit fraud, which violated civil racketeering statutes.
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