Exhibit 10.2


 


Execution
Copy


 


THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO OR AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN
CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE DOES NOT REQUIRE PHYSICAL
SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT OR REDEMPTION
HEREOF.  ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN
BELOW.  NOTWITHSTANDING THE FOREGOING BUT
SUBJECT TO COMPLIANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, THIS NOTE (I) MAY BE PLEDGED OR
HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THIS NOTE AND (II) MAY BE TRANSFERRED OR ASSIGNED TO AN AFFILIATE
OF THE HOLDER HEREOF.


 


APPLIED DIGITAL
SOLUTIONS, INC.


 


SENIOR SECURED NOTE


 


	
  New York, New York

  	
   

  	
  $12,000,000.00

  
	
  Issue Date:  December 29, 2005

  	
   

  	
   

  



 


FOR VALUE RECEIVED, APPLIED
DIGITAL SOLUTIONS, INC., a Missouri
corporation (the “Company”), hereby promises to
pay to the order of SATELLITE SENIOR INCOME FUND, LLC or its permitted
successors or assigns (the “Holder”)
the sum of TWELVE MILLION AND 00/100 DOLLARS ($12,000,000.00) in same day
funds, on or before June 28, 2007 (the “Maturity
Date”), in accordance with the terms and conditions of this
Senior Secured Note (this “Note”).


 


The Company has issued this Note pursuant to a Note
Purchase Agreement, dated as of December 28, 2005 (the “Note Purchase Agreement”).  The notes issued by the Company pursuant to
the Note Purchase Agreement, including this Note, are collectively referred to
herein as the “Notes”.


 


The Company’s obligations under the Notes, including
without limitation its obligation to make payments of principal thereof and
interest thereon, are secured pursuant to the terms of a Security Agreement,
dated as of December 28, 2005 (the “Security Agreement”),
and a Pledge Agreement, dated as of December 28, 2005 (the “Pledge Agreement” and, together with
the Security Agreement, the “Security Documents”).


 





















 


1.                                       DEFINITIONS.


 


The following terms shall apply to this Note:


 


“Asset Sale”
means a sale, transfer or exchange, in one or more related transactions, by the
Company or any of its Subsidiaries of any of their assets or properties that
have, in the aggregate, a Fair Market Value after taxes of $500,000 or more.


 


“Applicable Interest Rate”
means the following annual rates:


 


	
  From the Issue Date
  through and including August 28, 2006

  	
   

  	
  12.00

  	
  %

  
	
  August 29, 2006 through and including September 28,
  2006

  	
   

  	
  13.00

  	
  %

  
	
  September 29, 2006 through and including October 28,
  2006

  	
   

  	
  14.00

  	
  %

  
	
  October 29, 2006 through and including November 28,
  2006

  	
   

  	
  15.00

  	
  %

  
	
  November 29, 2006 through and including December 28,
  2006

  	
   

  	
  16.00

  	
  %

  
	
  December 29, 2006 through and including January 28,
  2007

  	
   

  	
  17.00

  	
  %

  
	
  January 29, 2007 through and including February 28,
  2007

  	
   

  	
  18.00

  	
  %

  
	
  March 1, 2007 through and including March 28,
  2007

  	
   

  	
  19.00

  	
  %

  
	
  March 29, 2007 through and including April 28,
  2007

  	
   

  	
  20.00

  	
  %

  
	
  April 29, 2007 through and including May 28,
  2007

  	
   

  	
  21.00

  	
  %

  
	
  May 29, 2007 through and including June 28,
  2007

  	
   

  	
  22.00

  	
  %

  



 


The foregoing annual interest rates rate shall, in each case, be
computed on the basis of a 360-day year and calculated using the actual number
of days elapsed since the Issue Date or the date on which Interest was most
recently paid, as the case may be, and compounded monthly.


 


“Change of Control”
means, with respect to a Person, the existence or occurrence of any of the
following: (i) the effectuation of a transaction or series of transactions
in which more than fifty percent (50%) of the voting power of such Person is
disposed of; (ii) the consolidation, merger or other business combination
of such Person with or into any other entity, immediately following which the
prior stockholders of such Person fail to own, directly or indirectly, at least
fifty percent (50%) of the surviving entity; (iii) a transaction or series
of transactions in which any Person or group acquires more than fifty percent
(50%) of the voting equity of such Person; (iv) in the case of the
Company, the Continuing Directors do not at any time constitute at least a
majority of the Board of Directors, (v) in the case of any Person other
than the Company, the directors, managers, general partners or similar governing
parties of such Person as of the date hereof cease to constitute a majority of
the directors, managers, general partners or similar governing parties of such
Person, or (vi) such Person entering into one or more definitive
agreements which contemplate transactions that, if consummated, would result in
the occurrence of any of the events described in the foregoing clauses (i) – (v).


 





















 


“Continuing Director” means at
any date a member of the Board of Directors (i) who was a member of such
board on the date of the Note Purchase Agreement or (ii) who was nominated
or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Board of Directors was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or such lesser number comprising a majority of a nominating committee
if authority for such nominations or elections has been delegated to a nominating
committee whose authority and composition have been approved by at least a
majority of the directors who were Continuing Directors at the time such
committee was formed.


 


“Default Interest Rate”
means the lower of (i) the Applicable Interest Rate then in effect plus
five percent (5.0%) and (ii) the maximum rate permitted by applicable law
or by the applicable rules or regulations of any Governmental Authority.


 


“Excluded Securities”
means
(A) shares of Common Stock (or the common stock of any of the Subsidiaries)
issuable or issued to (x) employees or directors of the Company or any of the
Subsidiaries from time to time either directly or upon the exercise of options,
in such case granted or to be granted in the discretion of the Company’s or
such Subsidiary’s board of directors (or similar governing body) as an
inducement to join the Company or such Subsidiary or pursuant to one or more
stock option plans, restricted stock plans or stock purchase plans in effect as
of the Execution Date or adopted after the Execution Date by the Company’s or
such Subsidiary’s board of directors (or similar governing body) or by the
Company’s or such Subsidiary’s shareholders, (y) vendors, service providers or
consultants, either directly or pursuant to options or warrants to purchase
Common Stock that are outstanding on the Execution Date or issued thereafter,
provided such issuances are approved by the Company’s or such Subsidiary’s
board of directors (or similar governing body) or by the Company’s or such
Subsidiary’s shareholders, or (z) third parties, either directly or pursuant to
options or warrants to purchase Common Stock, in connection with the settlement
of a bona fide litigation or dispute approved by the Company’s or such
Subsidiary’s board of directors (or similar governing body); (B) shares of
Common Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company or any of the Subsidiaries; (C) shares of
Common Stock issued as consideration for the acquisition by the Company or any
of the Subsidiaries of any corporation or other entity occurring after the
Execution Date; (D) shares of Common Stock issued under any convertible
securities or other obligations of the Company that are outstanding on the
Execution Date and disclosed on Schedule 3.5
to the Note Purchase Agreement; (E) shares issued to Persons with whom the
Company or any of its Subsidiaries is entering into a joint venture, strategic
alliance or other commercial relationship in connection with the operation of
the Company’s or such Subsidiary’s business and not in connection with a
transaction the primary purpose of which is to raise equity capital; and (F) shares
issued to a subsidiary of the Company pursuant to a share exchange, provided that the Company shall, at its
sole cost and expense, (i) pledge all of the shares received in such
exchange to the Collateral Agent (as defined in the Pledge Agreement) pursuant
to the Pledge Agreement, and (ii) if such subsidiary is not a Pledged
Subsidiary, then prior to such issuance, the Company shall pledge all of its
current and future equity interests in such subsidiary to the Collateral Agent
pursuant to the Pledge Agreement.


 





















 


“Fair
Market Value” means, with respect to any Asset Sale, the price
that would be negotiated in an arm’s-length transaction for cash between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction, as such price is determined in good
faith by the independent members of the board of directors or other similar
governing body of the selling Person.


 


“Issue Date”
has the meaning set forth on the cover page of this Note.


 


“Liquidation Event”
means (x) the institution of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or any Pledged Subsidiary or to
its or their creditors, as such, or to its or their assets, or (y) the
dissolution or other winding up of the Company or any Pledged Subsidiary,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy proceedings, or (z) any assignment for the benefit of creditors or
any marshalling of the material assets or material liabilities of the Company
or any Pledged Subsidiary.


 


“Mandatory Redemption Event”
means each of the following:


 


(i)                                     the
Company defaults in the payment when due of any principal of, or premium, if
any, on this Note or the Company defaults in the payment when due of any
interest on this Note and such default continues for a period three (3) Business
Days after written notice thereof from the Holder;


 


(ii)                                  the
Company breaches or provides notice of its intent to breach, any covenant or
other term or condition of this Note or any other Transaction Document, and
such breach continues for a period of ten (10) Business Days following
written notice thereof from the Holder;


 


(iii)                               any
material representation or warranty made by the Company  in this Note or any other Transaction
Document was inaccurate or misleading in any material respect as of the date
such representation or warranty was made.


 


(iv)                              the
occurrence of a VeriChip Event or, prior to the occurrence of a VeriChip Event,
VeriChip Corporation consummates an unregistered offering of its debt or equity
securities (such offering, a “VeriChip Private Placement”);


 


(v)                                 the consummation of a Subsequent Placement;


 


(vi)                              the consummation of an Asset Sale;


 


(vii)                           the occurrence of a Change of Control of the Company;


 


(viii)                        a default under any mortgage, guarantee, indenture or
instrument of the Company or any of the Pledged Subsidiaries under which there
may be issued or by which there may be secured or evidenced any indebtedness
for money borrowed by the Company or any of the Pledged Subsidiaries (or the
payment of which is guaranteed


 





















 


by the Company or any of the Pledged Subsidiaries) (in
each case, other than this Note and the other Transaction Documents) and such
default could reasonably be expected to have a Material Adverse Effect, provided that such default (A) is not cured within any
applicable grace periods or (B) results in the acceleration of the
maturity of any Indebtedness;


 


(ix)                                the
Company or any of the Pledged Subsidiaries breaches or provides notice of its
intent to breach, any of their material agreements (other than this Note, the
other Transaction Documents, and the agreements described in clause (viii) of this
definition), and such breach could reasonably be expected to have a Material
Adverse Effect; or


 


(x)                                   a Liquidation Event occurs or is publicly announced.


 


“Mandatory Redemption Price”
has the meaning given to it in Section 3(a) of
this Note.


 


“Maturity Date”
has the meaning set forth in the preamble to this Agreement.


 


“Scheduled Interest Payment
Date” means the first Business Day of January, April, July and
October of each year this Note remains outstanding.  The first Scheduled Interest Payment Date
shall be April 3, 2006.


 


“Subsequent
Placement” means the issuance, sale or exchange by the Company
or any of the Subsidiaries of (1) any shares of common stock of the
Company or any of the Subsidiaries, (2) any other equity security of the
Company or any of the Subsidiaries, including, without limitation, shares of
preferred stock, (3) any other security of the Company or any of the
Subsidiaries which by its terms is convertible into or exchangeable or
exercisable for any equity security of the Company or any of the Subsidiaries,
or (4) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any such security described in the foregoing clauses (1) through
(3); provided, however, that the term “Subsequent Placement”
shall not include the issuance, sale or exchange by the Company or any of the
Subsidiaries of any Excluded Security.


 


All definitions contained in this Note are equally
applicable to the singular and plural forms of the terms defined.  The words “hereof”, “herein” and “hereunder”
and words of similar import referring to this Note refer to this Note as a
whole and not to any particular provision of this Note. Any capitalized term
used but not defined herein has the meaning specified in the Note Purchase
Agreement.


 


2.                                       PAYMENT OF PRINCIPAL AND INTEREST.


 


(a)                                  Principal.  The Company shall pay the unpaid principal
amount of this Note as and when required under this Note, provided that
the remaining unpaid principal amount of this Note shall be due and payable in
full on the Maturity Date.  Any principal
(or premium thereon) that is not paid when due shall bear interest until paid
at the Default Interest Rate.


 





















 


(b)                                 Interest.
This Note shall bear interest on the unpaid principal amount hereof (“Interest”) at the Applicable
Interest Rate. The Company shall pay all accrued and unpaid Interest (i) on
each Scheduled Interest Payment Date, (ii) on the Maturity Date and (iii) on
any date on which the any principal amount of this Note is paid (each of (i), (ii) and
(iii) being referred to herein as an “Interest Payment Date”).  Any Interest that is not paid within three (3) Business
Days of the applicable Interest Payment Date shall bear interest until paid at
the Default Interest Rate.


 


(c)                                  Payment
Method.  The Company shall make all
payments of principal and Interest in cash by wire transfer of immediately
available funds to the Holder’s account pursuant to the Holder’s written wiring
instructions.


 


(d)                                 Cancellation
of Note upon Repayment.  In the event
that the Company repays the entire unpaid principal amount of this Note, and
pays to the Holder all Interest accrued thereon and all other amounts due in
connection therewith, the Holder shall return this Note to the Company for
cancellation.


 


3.                                       REDEMPTIONS.


 


(a)                                  Mandatory
Redemption.  In the event that a
Mandatory Redemption Event occurs, the Holder shall have the right, upon
written notice to the Company (a “Mandatory Redemption
Notice”), to have all or any portion of the unpaid principal
amount of this Note, plus all accrued and unpaid Interest thereon, redeemed by
the Company at the Mandatory Redemption Price (as hereinafter defined).  The Mandatory Redemption Notice shall specify
the amount of principal and Interest to be redeemed.  The term “Mandatory
Redemption Price” means, with respect to a redemption being effected pursuant to this Section 3(a),
an amount equal to the sum of (a) 104% of the principal being redeemed
plus (b) all accrued and unpaid Interest thereon.  The Company shall pay the Mandatory
Redemption Price to the Holder on or prior to the date that is two (2) Business
Days after the date on which the Mandatory Redemption Notice is delivered to
the Company.  Notwithstanding the
foregoing, the aggregate amount that may be redeemed under this Section 3(a) by the Holder
and the other holders of the Notes in connection with (i) a VeriChip Event
shall not exceed the greater of (x) the net proceeds payable to the Company in
connection with such VeriChip Event and (y) $6,845,000, (ii) a VeriChip
Private Placement shall not exceed the net proceeds payable to the Company in
connection with such offering, (iii) an Asset Sale shall not exceed the
net proceeds payable to the Company in connection with such sale, and (iv) a
Subsequent Placement shall not exceed the net proceeds payable to the Company
in connection with such offering; provided that
all such redemptions shall be made ratably to the holders of the Notes
requesting redemption in proportion to the amounts then outstanding under their
respective Notes or in such other manner as such holders may agree.  


 


(b)                                 Optional
Redemption.  The Company shall have
the right, upon written notice to the Holder (an “Optional
Redemption Notice”), to redeem all or any portion of the unpaid
principal amount of this Note, plus all accrued and unpaid Interest thereon, at
the Optional Redemption Price (as hereinafter defined); provided
that the Company shall also redeem the same percentage of all of the other
outstanding Notes in accordance with the optional redemption provisions
thereof.  The Optional Redemption Notice
shall specify the amount of principal and Interest to be redeemed by the
Company.  The term “Optional
Redemption Price” means, with respect to a


 





















 


redemption being effected
pursuant to this Section 3(b), an amount
equal to the sum of (a) 104% of the principal being redeemed plus (b) all
accrued and unpaid Interest thereon.  The
Company shall pay the Optional Redemption Price to the Holder on or prior to
the date that is two (2) Business Days after the date on which the
Optional Redemption Notice is delivered to the Company.  Except as specifically
provided by the terms of this Section 3(b),
the Company shall not have the right to prepay any principal of this Note.


 


4.                                       MISCELLANEOUS.


 


(a)                                  Failure
to Exercise Rights not Waiver.  No
failure or delay on the part of the Holder 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 any other or
further exercise thereof.  All rights and
remedies of the Holder hereunder are cumulative and not exclusive of any rights
or remedies otherwise available.


 


(b)                                 Notices.  Any notice, demand or request required or
permitted to be given by the Company or the Holder pursuant to the terms of
this Note shall be in writing and shall be deemed delivered (i) when
delivered personally or by verifiable facsimile transmission, unless such
delivery is made on a day that is not a Business Day, in which case such
delivery will be deemed to be made on the next succeeding Business Day and (ii) on
the next Business Day after timely delivery to an overnight courier, addressed
as follows:


 


Applied Digital Solutions, Inc.

1690 S. Congress Avenue, Suite 200

Delray, FL 33445

Attn:      Scott R.
Silverman


Tel:              561-805-8000


Fax:             561-805-0002


 


with a copy to:


 


Holland & Knight LLP


701 Brickell Avenue, Suite 3000


Miami, Florida 33131


Attn:      Harvey A. Goldman, Esq.


Tel:              305-374-8500


Fax:             305-789-7799


 


and if to the Holder, at such
address as the Holder shall have furnished the Company in writing.


 


(c)                                  Amendments.  No amendment, modification or other change
to, or waiver of any provision of, this Note may be made unless such amendment,
modification or change is set forth in writing and is signed by the Company and
the Holder.


 


(d)                                 Transfer
of Note.  The Holder may sell,
transfer or otherwise dispose of all or any part of this Note (including
without limitation pursuant to a pledge) to any person or entity as


 





















 


long as such sale, transfer or
disposition is in accordance with the provisions of the Note Purchase
Agreement.  From and after the date of
any such sale, transfer or disposition, the transferee hereof shall be deemed
to be the holder of a Note in the principal amount acquired by such transferee,
and the Company shall, as promptly as practicable, issue and deliver to such
transferee a new Note identical in all respects to this Note, in the name of
such transferee and, if such transferee acquires less than the entire principal
amount of this Note, the Company shall contemporaneously issue to the Holder a
new Note identical in all respects to this Note, representing the outstanding balance
of this Note.  The Company shall be
entitled to treat the original Holder as the holder of this entire Note unless
and until it receives written notice of the sale, transfer or disposition
hereof.


 


(e)                                  Lost
or Stolen Note.  Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of this Note,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Note, if mutilated, the Company shall execute and deliver to the Holder a
new Note identical in all respects to this Note.


 


(f)                                    Governing
Law.  This Note shall be governed by
and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed entirely within the State of New York.


 


(g)                                 Successors
and Assigns.  The terms and
conditions of this Note shall inure to the benefit of and be binding upon the
respective successors (whether by merger or otherwise) and permitted assigns of
the Company and the Holder. The Company may not assign its rights or
obligations under this Note except as specifically required or permitted
pursuant to the terms hereof.


 


(h)                                 Usury.  This Note is subject to the express condition
that at no time shall the Company be obligated or required to pay interest
hereunder at a rate which could subject the Holder to either civil or criminal
liability as a result of being in excess of the maximum interest rate which the
Company is permitted by applicable law to contract or agree to pay.  If by
the terms of this Note, the Company is at any time required or obligated to pay
interest hereunder at a rate in excess of such maximum rate, the rate of
interest under this Note shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate
and all prior interest payments in excess of such maximum rate shall be applied
and shall be deemed to have been payments in reduction of the principal balance
of this Note.


 


(i)                                     Note
Purchase Agreement.  The terms of
this Note include those stated in the Note Purchase Agreement.  To the extent any provision of this Note
conflicts with the express provisions of the Note Purchase Agreement, the
provisions of the Note Purchase Agreement shall govern and be controlling.


 


[Signature Page to Follow]


 





















 


IN WITNESS WHEREOF, the Company has caused this Note
to be signed in its name by its duly authorized officer on the date first above
written.


 


APPLIED DIGITAL SOLUTIONS, INC.


 


 


	
  By:

  	
  /s/ Michael Krawitz

  	
   

  
	
   

  	
  Name: Michael Krawitz

  
	
   

  	
  Title: Executive Vice President and General Counsel