Applied Digital Solutions, Inc. - Amend #3 to 2nd RCA - 12/31/01


Exhibit 10.9


AMENDMENT
NO. 3 TO SECOND AMENDED AND RESTATED

TERM AND REVOLVING CREDIT AGREEMENT



          This Amendment No. 4 (this "Amendment") to Second Amended and Restated Term and Revolving
Credit Agreement is dated as of December 31, 2001 by and among IBM Credit Corporation, a Delaware corporation
("IBM Credit"), IBM Financing, a division of IBM Canada Limited ("IBM Canada") (each a "Lender" and jointly the
"Lenders"), Applied Digital Solutions, Inc. (the "USA Customer") and Ground Effects Ltd. (the "Canadian Customer")
(USA Customer and Canadian Customer are each referred to herein as a "Customer" or, collectively, the
"Customers").


WITNESSETH



          WHEREAS, Customers and Lenders have entered into that certain  Second Amended and Restated Term
and Revolving Credit Agreement, dated as of October 17, 2000 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement");



          WHEREAS, Customers and Lenders have entered into the Acknowledgment, Waiver and Amendment No. 1
to Second Amended and Restated Term and Revolving Credit Agreement, dated as of March 30, 2001 (as amended,
supplemented or otherwise modified from time to time, "Amendment No. 1");



          WHEREAS, under Amendment No. 1, Customers and Lenders have agreed that (i) USA Customer would
not be obligated to pay the principal amount due under Term Loan A on July 1, 2001 until October 1, 2001 (the
"July Principal Amount") and (ii) USA Customer would pay the July Principal Amount together with the next
principal amount payment due thereafter under Term Loan A on October 1, 2001 (the "October Cumulative Amount");



          WHEREAS, USA Customer failed to pay to IBM Credit the October Cumulative Amount;



          WHEREAS, Customers and Lenders have entered into Amendment No. 2 to Second Amended and Restated
Term and  Revolving Credit Agreement, dated as of September 15, 2001 (as amended, supplemented or otherwise
modified from time to time, "Amendment No. 2") to provide inter alia, that the October Cumulative Amount not be
due and payable until January 4, 2002, along with the principal payment currently due on that date;



          WHEREAS, based on the Financial Statements provided by USA Customer for the months of September
and October 2001, certain Events of Default have occurred and are continuing as a result of Customers'
non-compliance with certain financial covenants set forth in Section 7.16 of the Credit Agreement;




          WHEREAS, USA Customer has requested that the Lenders consent to an amendment to the Credit
Agreement so as to reset certain financial covenants and postpone the payment date of the October Cumulative Amount together with the next principal payment to January 31, 2001; and






          WHEREAS, Lenders are willing to agree to the requested amendments, but only upon the terms and
conditions set forth herein and in consideration of current negotiations to restructure the credit facilities
under the Credit Agreement.



          NOW THEREFORE, in consideration of the promises contained herein, any financial accommodation
heretofore, now or hereafter made by Lenders and for other good and valuable consideration, the parties hereto
agree as follows:



I.       Defined Terms.  Capitalized terms used herein without definition shall have the meaning ascribed to such
terms in the Credit Agreement.  Unless otherwise specified, references to an article, a section, a subsection, a
schedule, an attachment or an exhibit are to the Credit Agreement.



II.      Conditions Precedent.  This Amendment shall become effective upon the receipt by IBM Credit from
Customers of this Amendment executed by each Customer and each Lender.



III.     Acknowledgment.


	 	1.   
Each Customer acknowledges that the financial covenants set forth in Attachment
A to Amendment No. 1 are applicable to the financial results of Customers for
the months ending September 30, 2001 and October 31, 2001, and
Customers were required to comply with such financial covenants at all times.
Each Customer further acknowledges that Events of Default have occurred and are
continuing under Section  7.16 of the Credit Agreement due to
noncompliance with the following financial covenants as of September 30,
2001:





	Covenant	Covenant Requirement	Covenant Actual
	(i)     Tangible Net Worth	at least (U.S.$35,000,000.00)	(U.S.$59,115,000.00)
	(ii)    Current Assets to Current Liabilities	at least 0.80:1.00	0.49:1.00
	(iii)   Minimum EBITDA with no Net Loss after Tax in more than two consecutive quarters	at least U.S.$7,000,000.00	(U.S.$101,916,000.00)





	 	2.   
Each Customer acknowledges that Events of Default have occurred and are
continuing as a result of the actual Shortfall Amount of U.S.$33,141,000.00 as
of September 30, 2001, exceeding the Maximum Permitted Shortfall of
U.S.$8,600,000.00 as of such date by U.S.$24,541,000.00.





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	 	3.   
Each Customer further acknowledges that an Event of Default has occurred and is
continuing as a result of the actual Shortfall Amount of U.S.$35,401,000.00 as
of October 31, 2001, exceeding the Maximum Permitted Shortfall of
U.S.$5,600,000.00 as of such date by U.S.$29,801,000.00.





IV.     Amendments.


	 	1.   
Section III of Attachment A to the Credit Agreement is hereby amended by
deleting subsection (i) thereof in its entirety and substituting, in lieu
thereof, the following subsection (i):





	Covenant	Covenant Requirement
	(i)     Tangible Net Worth	As of the following dates not less than:
	 	03/31/01	(U.S.$57,000,000.00)
	 	06/30/01	(U.S.$47,000,000.00)
	 	09/30/01	(U.S.$59,115,000.00)



	 	2.   
Section III of Attachment A to the Credit Agreement is hereby amended by
deleting subsection (ii) thereof in its entirety and substituting in lieu
thereof, the following subsection (ii):





	(ii)     Current Assets to Current Liabilities	As of the following dates greater than:
	 	03/31/01	1.45:1.00
	 	06/30/01	0.60:1.00
	 	09/30/01	0.49:1.00




	 	3.   
Section III of Attachment A to the Credit Agreement is hereby amended by
deleting subsection (iii) thereof in its entirety and substituting, in lieu
thereof, the following subsection (iii):




	(iii)   Minimum EBITDA (calculated on a
cumulative, annualized basis)	As of the following dates greater than:
	 	03/31/01	(U.S.$47,000,000.00)
	 	06/30/01	U.S.$5,000,000.00
	 	09/30/01	(U.S.$101,916,000.00)



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	 	4.   
Section I of the Credit Agreement is hereby amended by deleting the definition
of “Maximum Permitted Shortfall Amount” in its entirety and
substituting, in lieu thereof, the following:





             “Maximum
Permitted Shortfall Amount”: at the time of determination, any Shortfall
Amount equal to or less than (i) from the effective date of the Credit
Agreement to and including March 31, 2001, Nine Million Dollars
(U.S.$9,000,000), (ii) from April 1, 2001 to and including
April 30, 2001, Eight Million Five Hundred Thousand Dollars
(U.S.$8,500,000), (iii) from May 1, 2001 to and including May 31,
2001, Seven Million Five Hundred Thousand Dollars (U.S.$7,500,000),
(iv) from June 1, 2001 to and including June 30,2001, Six Million
Five Hundred Thousand Dollars (U.S.$6,500,000), (v) from July 1, 2001
to and including July 31, 2001, Four Million Dollars (U.S.$4,000,000),
(vi) from August 1, 2001 to and including August 31, 2001, One
Million Five Hundred Thousand Dollars (U.S.$1,500,000), (vii) from
September 1, 2001 to and including September 30, 2001, Thirty Three
Million One Hundred and Forty One Thousand Dollars (U.S.$33,141,000),
(viii) from October 1, 2001 to and including October 31, 2001,
Thirty Five Million Four Hundred and One Thousand Dollars
(U.S.$35,401,000).” 


	 	5.   
The Exhibits to the Credit Agreement are hereby amended by deleting
Exhibit 2.3. 1 in Amendment No. 2 in its entirety and substituting
in lieu thereof Exhibit 2.3.1 attached hereto.





V.     General Provisions.


	 	1.   
Representations and Warranties. On and as of the date hereof and after
giving effect to this Amendment, each Customer hereby confirms, reaffirms and
restates the representations and warranties set forth in Section 6 of the
Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific earlier date in
which case each Customer hereby confirms, reaffirms and restates such
representations and warranties as of such earlier date, provided that the
references to the Credit Agreement in such representations and warranties shall
be deemed to refer to the Credit Agreement as amended prior to the date hereof
and pursuant to this Amendment.


	 	2.   
Continuing Effect; No Other Amendments. Except as expressly amended
hereby, all of the terms and provisions of the Credit Agreement are and shall
remain in full force and effect. The amendments provided for herein are limited
to the specific subsections of the Credit Agreement specified herein and shall
not constitute an amendment or waiver of, or an indication of the Lenders’
willingness to amend or waive, any other provisions of the Credit Agreement or
the same subsections for any other date or time period (whether or not such
other provisions or compliance with such subsections for another date or time
period are affected by the circumstances addressed in this Amendment).


	 	3.   
Expenses.  USA Customer  agrees to pay and reimburse IBM Credit for all its reasonable  costs and expenses
incurred  in  connection  with  the  preparation  and  delivery  of  this  Amendment,  including,  without
limitation, the reasonable fees and disbursements of counsel to IBM Credit.



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	 	4.   
Indemnification. Each Customer hereby agrees to indemnify and hold
harmless each Lender and each of their respective officers, directors,
consultants, advisors, agents and assigns (collectively, the
“Indemnified Persons”) against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys’ fees and
court costs now or hereinafter arising from the enforcement of this Amendment,
the “Losses”) to which any of them may become subject insofar
as such Losses arise out of or are based upon any event, circumstance or
condition (a) occurring or existing on or before the date of this Amendment
relating to any financing arrangements either or both Lenders may from time to
time have with (i) such Customer, (ii) any Person that shall be
acquired by such Customer or (iii) any Person that such Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Amendment
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, a Customer shall not be obligated to
indemnify a Lender for any Losses incurred by such Lender which are a result of
such Lender’s gross negligence or willful misconduct. The indemnity
provided herein shall survive the termination of this Amendment.


	 	5.   
Notices. Except as otherwise expressly provided in the Credit Agreement,
any notice required or desired to be served, given or delivered hereunder or
under any other Loan Documents shall be in writing, and shall be served, given
or delivered in accordance with Section 10.12 of the Credit Agreement to
the following addresses or number as indicated below:




	 	
(a) If to IBM Credit at:


IBM Credit Corporation

1500 Riveredge Parkway

Atlanta, Georgia 30328

Attention:  Regional Manager

Facsimile:  (770) 644-4826


IBM Global Financing

Special Handling Group

North Castle Drive

Armonk, New York  10504

Attention:  Bruce Gordon

Facsimile:  (914) 765-6232	 	
(b) If to a Customer at:


Applied Digital Solutions, Inc.

400 Royal Palm Way, Suite 410

Palm Beach, Florida 33480

Attention:  Jerome C. Artigliere

Facsimile: (561) 805-8004




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With a copy to:


Jones, Day, Reavis & Pogue

599 Lexington Avenue

New York, New York  10022

Attention:  Corinne Ball, Esq.

Facsimile:  (212) 755-7306



(c) If to IBM Canada at:


IBM Financing, a Division of IBM Canada Limited

3600 Steeles Avenue East, f4/938

Markam, Ontario L3R 9Z7

Attention:  Manager, Commercial Financing

Facsimile:  (212) 316-6009	 	With a copy to:


Reimer & Braunstein

3 Center Plaza

6th Floor

Boston, MA  02108

Attention:  Robert Paul, Esq.

Facsimile:  (617) 880-3456





	 	6.   
Counterparts.  This  Amendment  may be  executed by one or more of the  parties to this  Amendment  on any
number of separate  counterparts  (including by telecopy),  and all of said  counterparts  taken  together
shall be deemed to constitute one and the same  instrument.  A set of the copies of this Amendment  signed
by the parties hereto shall be delivered to Customers and the Lenders.


	 	7.   
GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.





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     IN WITNESS  WHEREOF,  the  parties  hereto have caused this  Amendment  to be duly  executed  and
delivered by their respective proper and duly authorized officers as of the day and year first above written.


	 	IBM CREDIT CORPORATION



	 	By:	/s/ Steven A. Flanagan

	 	 	Name:	Steven A. Flanagan
	 	 	Title:	Manager Special Handling



	 	IBM FINANCING, A DIVISION OF IBM CANADA LIMITED



	 	By:	/s/ Ben Nikolaevsky

	 	 	Name:	Ben Nikolaevsky
	 	 	Title:	Chief Credit Officer

IBM Global Financing

IBM Canada Ltd.



	 	APPLIED DIGITAL SOLUTIONS, INC.



	 	By:	/s/ Jerome C. Artigliere

	 	 	Name:	Jerome C. Artigliere
	 	 	Title:	Senior V.P. and CFO



	 	GROUND EFFECTS LTD.



	 	By:	/s/ James Scott

	 	 	Name:	James Scott
	 	 	Title:	President






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EXHIBIT 2.3.1

Term Loan A


Term Loan A Commitment:  Twenty Five Million United States Dollars (U.S.$25,000,000)


Term Loan A Finance Charge:  as set forth in Attachment A.


Term Loan A Stated Maturity Date:  May 25, 2002.


Term Loan A Repayment
Schedule: The principal amount of Term Loan A shall be amortized over six (6)
years and shall be payable by USA Customer at the end of each calendar quarter,
provided that all unpaid principal of such Term Loan A shall be paid in full on
the Term Loan A Stated Maturity Date. Notwithstanding the foregoing, USA
Customer shall have no obligation to pay the October Cumulative Amount until
January 31, 2002. USA Customer shall pay the October Cumulative Amount
together with the next principal payment due on January 31, 2002.