Document:

Filed by Bowne Pure Compliance

 

Exhibit 10.1

CONFIDENTIAL SETTLEMENT AGREEMENT AND RELEASE 

This Settlement Agreement (the “Agreement”) is made this ninteeth (19th) day of December 2007,
being the last day on which all parties sign this Agreement (the “Effective Date”) by and among
Verizon Federal Inc, (“Verizon”); and Government Telecommunications, Inc. (“GTI”) and GTI’s parent
company, Applied Digital Solutions, Inc. (“ADS”); collectively referred to herein as the “Parties.”

WHEREAS, on June 22, 1998, GTI and Verizon (then known as Bell Atlantic Federal Integrated
Solutions, Inc.) entered into a subcontract under which Verizon agreed to perform work under a
General Services Administration’s (“GSA”) WACS program for GTI in the Northeast and Mid-Atlantic
states (the “subcontract”);

WHEREAS, on August 14, 2006, GTI filed an action against Verizon in the Fairfax County Court
of Virginia, which is pending as Civil Action No. CL -0610233 (the “Lawsuit”), alleging among other
things, breach of contract and tortious interference in connection with the District of Columbia
Public School’s determination to use the GSA WITS contract. On October 19, 2006, Verizon filed a
counterclaim against GTI for failure to pay invoices owed under the subcontract.

WHEREAS, the Parties now wish to settle and resolve the dispute without admitting liability
and wish to terminate the pending litigation.

NOW, THEREFORE, in consideration of the respective promises set forth here, and for other good
and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties
agree as follows.

	1.	 	SETTLEMENT

	1.1	 	On or before January 15, 2008, GTI shall pay to Verizon the sum of One Million dollars
($1,000,000.00) by wire transfer into account # 199-2890, ABA# 043000261, Mellon Bank West, 3
Mellon Bank Center, Pittsburgh, PA 15259, and shall simultaneously telecopy proof of that wire
transfer to Verizon as provided in Section 5.12 of the Agreement.

 

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	1.2	 	On or before January 15, 2009, GTI shall pay to Verizon the sum of One Million dollars
($1,000,000.00) by wire transfer into account # 199-2890, ABA# 043000261, Mellon Bank West, 3
Mellon Bank Center, Pittsburgh, PA 15259, and shall simultaneously telecopy proof of said wire
transfer to Verizon as provided in Section 5.12 of the Agreement.

	1.3	 	On or before January 15, 2010, GTI shall pay to Verizon the sum of One Million dollars
($1,000,000.00) by wire transfer into account # 199-2890, ABA# 043000261, Mellon Bank West, 3
Mellon Bank Center, Pittsburgh, PA 15259, and shall simultaneously telecopy proof of said wire
transfer to Verizon as provided in Section 5.12 of the Agreement.

	1.4	 	On or before January 15, 2011, GTI shall pay to Verizon the sum of One Million dollars
($1,000,000.00) by wire transfer into account # 199-2890, ABA# 043000261, Mellon Bank West, 3
Mellon Bank Center, Pittsburgh, PA 15259, and shall simultaneously telecopy proof of said wire
transfer to Verizon as provided in Section 5.12 of the Agreement.

	 
	1.5	 	ADS agrees to execute the guaranty attached as Attachment B to the Agreement.

	1.6	 	The settlement shall finally settle and resolve all claims asserted, or which could have been
asserted, by Verizon, GTI, and ADS in the Lawsuit as of the date of this Agreement, including,
but not limited to, legal expenses.

	 
	2.	 	RELEASE

	2.1	 	In consideration of the settlement and following full performance thereunder, GTI, and all of
its predecessors, successors, parents, direct subsidiaries, indirect subsidiaries, affiliates,
assigns, heirs, agents, and attorneys, release and forever discharge Verizon, and all of its
predecessors, successors, parents, direct subsidiaries, indirect subsidiaries, affiliates,
assigns, agents, directors, officers, employees, and shareholders from and against all
actions, causes of action, claims, suits, debts, damages, judgments, liabilities, demands and
controversies whatsoever, whether matured or unmatured, whether at law or in equity, whether
before a local, state, or federal court or state or federal administrative agency or
commission, and whether now known or unknown, liquidated or unliquidated, that GTI now has or
may have had, or thereafter claims to have, regarding the issues arising out of or related to
the Lawsuit, on behalf of itself, or any other person or entity, at any time prior to and
including the date of the Agreement.

 

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	2.2	 	In consideration of the settlement and following full performance thereunder, Verizon, and
all of its predecessors, successors, direct subsidiaries, indirect subsidiaries, assigns,
heirs, agents, and attorneys hereby release and forever discharge GTI and ADS, and all of its
predecessors, successors, parents, direct subsidiaries, indirect subsidiaries, affiliates,
assigns, agents, directors, officers, employees, and shareholders from and against all
actions, causes of action, claims, suits, debts, damages, judgments, liabilities, and demands
whatsoever, whether matured or unmatured, whether at law or in equity, whether before a local,
state or federal court or state or federal administrative agency or commission, and whether
now known or unknown, liquidated or unliquidated, that Verizon now has or may have had, or
thereafter claims to have, regarding the issues arising out of or related to the Lawsuit, on
behalf of itself, or any other person or entity, at any time prior to and including the date
of the Agreement.

	2.3	 	The Parties warrant and agree that (1) neither has assigned, pledged, hypothecated, or
otherwise divested itself or encumbered any part of Lawsuit being released here; (2) no other
person or entity has any interest in or ownership of the Lawsuit covered by this release; and
(3) the Parties will indemnify, defend, and hold each other harmless from and against any of
all of any part of the Lawsuit so assigned, pledged, hypothecated, divested, or encumber.

	 
	3.0	 	COMPROMISE & CONFESSED JUDGMENT

	3.1	 	It is understood and agreed between the Parties that the Agreement is a compromise and shall
never be construed as an admission of liability, wrongdoing, or responsibility on the part any
Party, or on the part of any Party’s predecessors, successors, assigns, agents, parents,
subsidiaries, affiliates, officers, directors, or employees. Rather, the Parties expressly
deny such liability, wrongdoing, or responsibility.

	3.2	 	GTI agrees to execute the Confessed Judgment attached as Attachment A to the Agreement.
Verizon will provide GTI and ADS 10-days notice under Section 5.12 before seeking to file the
confessed judgment in Fairfax County.

	 
	4.0	 	CONFIDENTIALITY

	4.1	 	The Parties agree that the Agreement and its terms are and shall be kept confidential.
Except to the extent necessary to enforce it, or to the extent that any of the Parties
reasonably believes it is legally required to disclose its terms, the terms and conditions of
the Agreement, including the
amounts of payment shall remain confidential and shall not be disclosed. To the extent
required by subpoena or other written order of a court or government body of competent
jurisdiction, the Party being compelled to provide the information will notify the other
Party within twenty (20) business days of receipt of the subpoena or written order.

 

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	5.0	 	MISCELLANEOUS TERMS AND CONDITIONS

	 
	5.1	 	The Parties agree to bear their own attorneys’ fees and costs.

	5.2	 	Each Party represents and warrants that it has the sole right and exclusive authority to
execute the Agreement, to agree to the terms and conditions set forth here.

	5.3	 	The Agreement including all matters of construction, validity, and performance shall be
governed by, and construed in accordance with, the laws of the Commonwealth of Virginia
without giving effect to the choice of law or conflicts of law provisions.

	5.4	 	The Parties agree to cooperate fully, to execute any and all supplementary documents, and to
take all additional actions that may be necessary or appropriate to give the Agreement full
force and effect.

	5.5	 	The Agreement may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.

	5.6	 	GTI and ADS acknowledge, represent, and warrant that the execution, delivery and performance
of the Agreement will not violate or conflict with their certificates of incorporation,
by-laws, or any agreement, order, judgment, decree, statute, rule or regulation applicable to
GTI, ADS, or both.

	5.7	 	Verizon acknowledges, represents, and warrants that the execution, delivery and performance
of the Agreement will not violate or conflict with their certificates of incorporation,
by-laws, or any agreement, order, judgment, decree, statute, rule or regulation applicable to
Verizon.

	5.8	 	The Parties acknowledge, represent, and warrant that each has been fully advised by its
attorney(s) concerning the execution of the Agreement, that each has fully read and
understands
the terms of the Agreement, and that each has freely and voluntarily executed the Agreement.
Each Party has participated in the creation of this Agreement. No legal principle
interpreting the Agreement against the drafter will apply.

 

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	5.9	 	This Agreement, and the attachments hereto, reflects the entire agreement and understanding
between the Parties with respect to the settlement contemplated herein, supersedes all prior
agreements, arrangements, understandings, communications, representations or warranties, both
oral and written, related to the Dispute. This Agreement may be modified only by a written
document signed by all of the Parties.

	5.10	 	No failure or delay by any Party in exercising any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege hereunder.

	5.11	 	Upon the Effective Date, this Agreement shall be binding on the Parties and their respective
successors and assigns.

	5.12	 	Any notices or other communications to be given in writing in accordance herewith shall be
delivered by (as elected by the Party giving such notice): (i) hand; (ii) postage-prepaid
first-class, registered or certified mail, return receipt requested; (iii) a prepaid,
nationally recognized, overnight courier service; or (iv) facsimile or electronic mail, but
only if subsequently confirmed by a duplicate thereof being delivered by one of the foregoing
options “(i)” through “(iii).” All notices shall be deemed to have been duly delivered on: (i)
the date of receipt (or if delivery is refused, the date of such refusal) if delivered by hand
or by courier; (ii) the date of receipt if delivered by facsimile or email and subsequently
confirmed.

Notices to each Party shall be directed to such Party’s address and contact information as
set forth as follows, provided that either Party may change its address for purposes hereof
on prior written notice to the other Party in accordance herewith:

	 	5.12.a	 	
Notices to Verizon:

Mary Coyne

Associate General Counsel

Verizon Business Communications

1133 19th Street, N.W.

Washington, D.C. 20036

 

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	 	5.13.b	 	
Notices to GTI and ADS:

	 
	 	 	 	Applied Digital

1690 South Congress Ave. #200

Delray Beach, FL 33445

Attn: CEO & General Counsel — urgent legal matter

	 
	 	 	 	GTI

4500 Southgate Place Suite 300

Chantilly, VA 20151

Attn: Steve Wood— urgent legal matter

	 
	 	 	 	John C. Person

Person & Craver LLP

1801 K Street, N.W.

Washington, D.C. 20006

 

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IN WITNESS THEREOF, the Parties have fully executed this Settlement Agreement as of the date of the
last signature below.

	 	 	 
	Government Telecommunications, Inc.
 

	 	Verizon Federal Inc.
	/s/ Lorraine M. Breece
	 	/s/ Mary L. Coyne
	 

	 	 
	Signature
 

	 	Signature
	Lorraine M. Breece
	 	Mary L. Coyne
	 

	 	 
	Printed Name
 

	 	Printed Name
	V.P. 
	 	Associate General Counsel, Verizon Business 
	 

	 	 
	Title
 

	 	Title
	December 19, 2007
	 	12/19/07
	 

	 	 
	Date

	 	Date
	 
	 	 
	Applied Digital Solutions, Inc.
 

	 	 
	/s/ Lorraine M. Breece
	 	 
	 
	 	 
	Signature
 

	 	 
	Lorraine M. Breece
	 	 
	 
	 	 
	Printed Name
 

	 	 
	SVP, ACFO
	 	 
	 
	 	 
	Title
 

	 	 
	December 19, 2007
	 	 
	 
	 	 
	Date
	 	 

 

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Attachment A

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER
OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT
AGAINST YOU WITHOUT ANY FURTHER NOTICE.

 

 

 

PROMISSORY NOTE

	 	 	 
	$4,000,000.00

	 	Fairfax, Virginia
	 

	 	As of December 19, 2007

FOR VALUE RECEIVED, the undersigned, Government Telecommunications, Inc. (“Debtor”) hereby
promise esto pay to the order of Verizon Federal Inc. or any assigns of Verizon Federal Inc.
(“Holder”), the sum of FOUR MILLION DOLLARS ($4,000,000) as hereinafter provided.

This Note is payable as follows: Debtor shall pay Holder one million dollars on or before
January 15, 2008. Debtor shall pay Holder one million dollars on or before January 15, 2009.
Debtor shall pay Holder one million dollars on or before January 15, 2010. Debtor shall pay Holder
one million dollars on or before January 15, 2011. Debtor agree that should there be default in
making any of the four payments set forth above, then the unpaid balance of the Note shall
immediately become due and payable and shall be subject to postjudgment interest rate under
Virginia law. Failure by the Holder to exercise this option shall not constitute a waiver of the
right to exercise the same in the event of any subsequent default. No failure of payment shall be
deemed to be a default unless such payment is not received by Holder within five (5) days after the
due date. Payment shall be paid to the Holder by wire transfer into account # 199-2890, ABA#
043000261, Mellon Bank West, 3 Mellon Bank Center, Pittsburgh, PA 15259, or at such other address
as Holder may direct in writing from time to time.

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER
OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT
AGAINST YOU WITHOUT ANY FURTHER NOTICE.

 

 

 

Debtor hereby irrevocably appoints Timothy B. Hyland, Jennifer S. Atkins, and William M.
Vermette, any one of whom may act individually, as their attorneys-in-fact pursuant to §§ 8.01-432
through 440 of the 1950 Code of Virginia, as amended, and as in effect on the date of this
Note. Any one of these attorneys-in-fact hereby are authorized to appear in the Office of the
Clerk of the Circuit Court of Fairfax County, Virginia, and confess judgment in favor of the
Holder, and against the Debtor in the full amount then due hereunder. Debtor hereby appoints the
Secretary of the Commonwealth of Virginia as their non-exclusive agent to accept service of
process. Such authority and power may be exercised on one or more occasions, from time to time in
the same or different jurisdictions, as often as the Holder shall deem necessary or desirable, for
all of which this Note shall be a sufficient warrant.

Any forbearance by the Holder of this Note in exercising any right or remedy hereunder or
otherwise afforded by applicable law shall not be construed as a waiver of or preclude the exercise
of such right or remedy. The rights provided in this Note are distinct and cumulative to any and
all other rights or remedies the Holder may be afforded by law or equity and may be exercised
concurrently, independently or successively. The authority and power to appear for and enter
judgment against the Debtor shall not be exhausted by one or more exercises thereof, or by any
imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto.

Debtor reserves the privilege of prepaying all or any portion of the outstanding balance of this
Note, at any time.

In the event of a default under this Note, Debtor promises to pay all costs of collection,
including Holder’s reasonable attorneys’ fees, regardless of whether suit is filed.

At the option of Holder, this Note shall become immediately due and payable in its entirety
should any one of the following events occur: (a) if Debtor fails to make any payment hereunder
within 5 days after such payment is due and payable; or (b) if Debtor fails to observe or
perform any warranty, covenant, or condition to be observed or performed by Debtor under this Note
or under the agreement between the parties settling the litigation captioned as Government
Telecommunications, Inc. v. Verizon Federal Inc., in the Circuit Court of Fairfax County, No.
06-10233.

 

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The failure of Holder to exercise any option or remedy granted to it hereunder in any one or
more instances, or the acceptance by Holder of partial payments or partial performance, shall not
constitute a waiver of any default by Debtor, and all such options and remedies shall remain
continuously in force.

Debtor and all others who may become liable for all or any part of this Note, agree hereby to
be jointly and severally bound, and jointly and severally (a) waive and renounce any and all
homestead exemption rights and the benefits of all valuation and appraisement privileges as against
this debt or any renewal or extension hereof; (b) waive presentment, demand, protest, notice of
nonpayment, notice of dishonor, and any and all lack of diligence or delays in the collection or
enforcement hereof; (c) expressly consent to the release or substitution of any of the collateral
securing this Note; (d) expressly consent to any extension of the time for payment of this Note and
any other indulgence or forbearance by Holder; and (e) agree that none of them are parties “for
accommodation” as defined in Va. Code § 8.3A-419. Any extension, release, substitution, indulgence
or forbearance may be made without notice to any party and without in any way affecting the
personal liability of any party liable hereon.

This Note shall be binding upon the Debtor and their respective successors and assigns and
shall inure to the benefit of Holder and its successors and assigns. This Note shall be governed
by and construed in accordance with the laws of the Commonwealth of Virginia.

 

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IN WITNESS WHEREOF, the undersigned GTI, with power and authority to do so, intending that
this Note shall constitute an instrument under seal, have caused these presents to be executed,
delivered, and sealed on the day and year first above written.

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	GOVERNMENT TELECOMMUNICATIONS, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

COMMONWEALTH OF VIRGINIA,

COUNTY/CITY OF                                         , to wit:

I, the undersigned, a Notary Public in and for the jurisdiction aforesaid, do hereby certify
that                                         , whose name is signed to the foregoing and annexed instrument as
                                         of DEBTOR, did appear before me this day and acknowledged before me the same
to be the act and deed of the said corporation.

GIVEN under my hand and seal this                      day of December  , 2007.

	 	 	 
	 

	 	 
	 

	 	Notary Public

My Commission Expires:                                         .

 

-5-Filed by Bowne Pure Compliance

 

Exhibit 10.2

GUARANTY

For value received, Applied Digital Solutions, Inc., a Delaware corporation (“ADSX”)
absolutely and unconditionally guarantees payment, when due, to Verizon Federal Inc., a Delaware
corporation (“Verizon”) of the amounts agreed to be paid to Verizon by Government
Telecommunications, Inc., a Virginia corporation, (“GTI”) under that Confidential Settlement
Agreement and Release, dated December 19, 2007, among ADSX, GTI and Verizon (the “Agreement”).

This Guaranty will take effect when signed by both ADSX and Verizon and will continue in full
force and effect until all amounts owed under the Agreement shall have been paid in full. Verizon
shall provide ADSX with prompt written notice in the event GTI fails to pay any amounts due under
the Agreement. ADSX shall have ten (10) days from receipt of such notice to cure GTI’s failure to
pay.

This Guaranty and the obligations arising hereunder shall be governed by, and construed in
accordance with, the laws of the state of Virginia. All disputes, controversies, or claims arising
out of or in connection with this Guaranty shall be litigated in any court of competent
jurisdiction in Fairfax County, Virginia. Each party hereby accepts jurisdiction of such state and
agrees to accept service of process as if it were personally served within such state. ADSX shall
pay upon demand all of Verizon’s costs and expenses incurred in connection with the enforcement of
this Guaranty, including without limitation reasonable attorney fees, whether or not litigation is
commenced and at trial and on appeal.

Verizon hereby subordinates to the rights of ADSX’s senior secured lenders, Laurus Master
Fund, Ltd. and its affiliates (collectively, the “Lenders”), any and all rights to payment of
amounts due hereunder except as set forth in that Subordination Agreement dated as of even date
herewith, between Verizon and the Lenders.

Verizon agrees to exhaust all remedies against GTI and its successors and assigns prior to
enforcing its rights under this Guaranty. ADSX hereby waives all legal and equitable defenses to
which ADSX might be entitled under this Guaranty. Inconsistencies between this Guaranty and the
Agreement will be governed by this Guaranty. This Guaranty may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same
instrument.

(signature page follows)

 

 

 

	 	 	 	 	 
	Applied Digital Solutions, Inc.	 	 
	 
	 	 	 	 
	By:
	 	/s/ Lorraine M. Breece	 	 
	 

	 	 	 	 
	Name:
	 	Lorraine M. Breece	 	 
	 

	 	 	 	 
	Title:
	 	SVP, ACFO	 	 
	 

	 	 	 	 
	Date:
	 	December 19, 2007	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Verizon Federal Inc.	 	 
	 
	 	 	 	 
	By:
	 	/s/ Mary L. Coyne	 	 
	 

	 	 	 	 
	Name:
	 	Mary L. Coyne	 	 
	 

	 	 	 	 
	Title:
	 	Associate General Counsel, Verizon Business	 	 
	 

	 	 	 	 
	Date:
	 	12/19/07

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