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Exhibit 10.2
 
SECURED TERM NOTE
 
FOR VALUE RECEIVED, APPLIED DIGITAL SOLUTIONS, INC., a Missouri corporation (the
“Company”), promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or its
registered assigns or successors in interest, the sum of Thirteen Million Five
Hundred Thousand Dollars ($13,500,000), together with any accrued and unpaid
interest hereon, on August 24, 2009 (the “Maturity Date”) if not sooner
indefeasibly paid in full.
 
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Company and the Holder (as amended, modified and/or
supplemented from time to time, the “Purchase Agreement”).
 
The following terms shall apply to this Secured Term Note (this “Note”):
 
ARTICLE I
CONTRACT RATE AND AMORTIZATION
 
1.1 Contract Rate. Subject to Sections 3.2 and 4.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue
at a rate per annum equal to twelve percent (12%) (the “Contract Rate”).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on September 1, 2006, on the first
business day of each consecutive calendar month thereafter through and including
the Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
 
1.2 Contract Rate Payments. The Contract Rate shall be calculated on the last
business day of each calendar month hereafter until the Maturity Date.
 
1.3 Principal Payments. Amortizing payments of the aggregate principal amount
outstanding under this Note at any time (the “Principal Amount”) shall be made
by the Company on April 1, 2007 and on the first business day of each succeeding
month thereafter through and including the Maturity Date (each, an “Amortization
Date”). Commencing on the first Amortization Date, the Company shall make
monthly payments to the Holder on each Amortization Date in the “Amount” as is
set forth in the table below opposite the “Period” within which the applicable
Amortization Date falls, together with any accrued and unpaid interest on such
portion of the Principal Amount plus any and all other unpaid amounts which are
then owing under this Note, the Purchase Agreement and/or any other Related
Agreement (collectively, the “Monthly Amount”).
 

   
Period
Amount
April 1, 2007 - August 31, 2007
$200,000
September 1, 2007 - August 31, 2008
$250,000
September 1, 2008 - the Maturity Date
$300,000

 

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Any outstanding Principal Amount together with any accrued and unpaid interest
and any and all other unpaid amounts which are then owing by the Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement shall be due and payable on the Maturity Date.
 
  
 
ARTICLE II
REDEMPTION
 
2.1 Optional Redemption in Cash. The Company may prepay this Note at any time
(“Optional Redemption”) by paying to the Holder a sum of money equal to one
hundred two percent (102%) of the Principal Amount outstanding at such time
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any other Related Agreement (the “Redemption Amount”) outstanding
on the Redemption Payment Date (as defined below). The Company shall deliver to
the Holder a written notice of redemption (the “Notice of Redemption”)
specifying the date for such Optional Redemption (the “Redemption Payment
Date”), which date shall be seven (7) business days after the date of the Notice
of Redemption (the “Redemption Period”). On the Redemption Payment Date, the
Redemption Amount must be paid in good funds to the Holder. In the event the
Company fails to pay the Redemption Amount on the Redemption Payment Date as set
forth herein, then such Redemption Notice will be null and void.
 
 ARTICLE III
EVENTS OF DEFAULT
 
3.1 Events of Default. The occurrence of any of the following events set forth
in this Section 3.1 shall constitute an event of default (“Event of Default”)
hereunder:
 
(a) The Company fails to pay when due any installment of principal, interest or
other invoiced fees hereon in accordance herewith, or the Company fails to pay
any of the other Obligations (under and as defined in the Master Security
Agreement) when due, and, in any such case, such failure shall continue for a
period of five (5) business days following the date upon which such payment was
due. For purposes herein, "invoiced fees" shall mean fees set forth on those
regularly scheduled monthly invoices received by the Company from the Holder;
 
(b) The Company breaches any covenant or any other term or condition of this
Note in any material respect and such breach, if subject to cure, continues for
a period of twenty (20) days following the occurrence thereof;
 
(c) Any material representation or warranty made by the Company in this Note,
the Purchase Agreement or any other Related Agreement shall at any time be false
or misleading in any material respect on the date as of which made or deemed
made;
 
 

 
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(d) The occurrence of any material default (or similar term) in the observance
or performance of any other agreement relating to any indebtedness or contingent
obligation of the Company or any of its Subsidiaries beyond the period of grace
(if any) or that is not waived, the effect of which default is to cause, or
permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable;
 
(e) The Company breaches any of their material agreements (other than this Note,
the Purchase Agreement, the Related Agreements, and the agreements described in
clause (d) of this definition), and such breach could reasonably be expected to
have a Material Adverse Effect;
 
(f) The Company or any of its Subsidiaries shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, without challenge within ten (10) days of the filing thereof,
or failure to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii) take any
action for the purpose of effecting any of the foregoing;
 
(g) (i) Attachments or levies in excess of $500,000 in the aggregate are made
upon the Company or any of its Subsidiary’s assets or (ii) a judgment is
rendered against the Company’s property involving a liability of more than
$500,000 which shall not have been paid, vacated, discharged, stayed or bonded
within thirty (30) days from the entry thereof.
 
(h) The Company shall admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business;
 
(i) A Change of Control (as defined below) shall occur with respect to the
Company, unless Holder shall have expressly consented to such Change of Control
in writing. A “Change of Control” shall mean any event or circumstance as a
result of which (i) any “Person” or “group” (as such terms are defined in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date hereof),
other than the Holder, is or becomes the “beneficial owner” (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more
than 50% on a fully diluted basis of the then outstanding voting equity interest
of the Company, or (ii) the consolidation, merger or other business combination
of the Company with or into any other entity, immediately following which the
prior stockholders of the Company fail to own, directly or indirectly, at least
fifty one percent (51%) of the surviving entity; provided however, that a Change
of Control shall not be deemed to have occurred if (i) the Company enters into a
consolidation, merger, share exchange or other business combination with an
affiliate or subsidiary of the Company reasonably acceptable to Holder, (ii) the
surviving entity assumes all of the obligations of the Company under the
Purchase Agreement and the Related Agreements and (iii) after assuming all of
the obligations under the Purchase Agreement and the Related
 
 

 
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Agreements, the surviving entity is and would be Solvent until such obligations
are paid in full or otherwise discharged; and
 
(j) (i) The indictment of the Company or any of its Subsidiaries or any
executive officer of the Company for a felony under any criminal statute, (ii)
the conviction of the Company or any of its Subsidiaries or any executive
officer of the Company for a misdemeanor under any criminal statute, or (iii)
the commencement of a criminal or civil proceeding against the Company or any of
its Subsidiaries or any executive officer of the Company or any of its
Subsidiaries pursuant to which statute or proceeding penalties or remedies
reasonably available include forfeiture of a material portion of the property of
the Company or any of its Subsidiaries.
 
(k) (i) An Event of Default shall occur under and as defined in the Purchase
Agreement or any other Related Agreement, (ii) the Company or any of its
Subsidiaries shall breach any term or provision of the Purchase Agreement or any
other Related Agreement in any respect material to the Company and such breach,
if capable of cure, continues unremedied for a period of fifteen (15) days after
the occurrence thereof, (iii) any proceeding shall be brought by the Company to
challenge the validity, binding effect of the Purchase Agreement or any Related
Agreement. For purposes of this paragraph the term Related Agreement shall
exclude the Common Stock Purchase Warrant and the Warrant Shares as defined in
the Securities Purchase Agreement.
 
3.2 Default Interest. Following the occurrence and during the continuance of an
Event of Default, the Company shall pay additional interest on the outstanding
principal balance of this Note in an amount equal to one percent (1%) per month,
and all outstanding obligations under this Note, the Purchase Agreement and each
other Related Agreement, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.
 
ARTICLE IV
MISCELLANEOUS
 
4.1 Issuance of New Note. Upon any partial redemption of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Company to the Holder for the principal balance of
this Note and interest which shall not have been paid as of such date. Subject
to the provisions of Article III of this Note, the Company shall not pay any
costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
 
4.2 Cumulative Remedies. The remedies under this Note shall be cumulative.
 
4.3 Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
 

 
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4.4 Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for the Holder, with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th
Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such
other address as the Company or the Holder may designate by ten days advance
written notice to the other parties hereto.
 
4.5 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument as such successor instrument may be amended or
supplemented.
 
4.6 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
 
4.7 Cost of Collection. In case of any Event of Default under this Note, the
Company shall pay the Holder the Holder’s reasonable costs of collection,
including reasonable attorneys’ fees.
 
4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
 
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
 
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR
ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
 

 
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OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE COMPANY’S ACTUAL RECEIPT
THEREOF.
 
(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND/OR THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
 
4.9   Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
 
4.10 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum rate permitted
by such law, any payments in excess of such maximum rate shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.
 
4.11 Security Interest. The Holder has been granted a security interest (i) in
certain assets of the Company as more fully described in the Master Security
Agreement dated as of the date hereof and (ii) in the equity interests of the
Company’s Subsidiaries pursuant to the Stock Pledge Agreement dated as of the
date hereof.
 
4.12 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note and, therefore, stipulates that the rule of
construction that
 
 

 
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 ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the other.
 
4.13 Registered Obligation. This Note is intended to be a registered obligation
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the
Company (or its agent) shall register this Note (and thereafter shall maintain
such registration) as to both principal and any stated interest. Notwithstanding
any document, instrument or agreement relating to this Note to the contrary,
transfer of this Note (or the right to any payments of principal or stated
interest thereunder) may only be effected by (i) surrender of this Note and
either the reissuance by the Company of this Note to the new holder or the
issuance by the Company of a new instrument to the new holder, or (ii) transfer
through a book entry system maintained by the Company (or its agent), within the
meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
 
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IN WITNESS WHEREOF, the Company has caused this Secured Term Note to be signed
in its name effective as of this 24th day of August, 2006.
 
 
APPLIED DIGITAL SOLUTIONS, INC.
 
By: _/s/ Michael Krawitz                                   
Name: Michael Krawitz
Title:  EVP and GC
 
WITNESS:
 

 
/s/ Lauren Luciano                              

 
 
 

 
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