APPLIED DIGITAL SOLUTIONS, INC. MASTER SECURITY AGREEMENT
Exhibit
10.3
APPLIED
DIGITAL SOLUTIONS, INC.
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To:
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Laurus
Master Fund, Ltd.
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c/o
M&C Corporate Services Limited
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▇.▇.
▇▇▇ ▇▇▇ ▇▇
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▇▇▇▇▇▇
House
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South
Church Street
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▇▇▇▇▇▇
Town
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Grand
Cayman, Cayman Islands
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Date:
August 24, 2006
To
Whom It May Concern:
1.
To secure the payment of all Obligations (as hereafter defined), APPLIED DIGITAL
SOLUTIONS, INC., a Missouri corporation (the “Company”), each of the other
undersigned parties (other than Laurus Master Fund, Ltd., (“Laurus”)) (if any)
and each other entity that is required to enter into this Master Security
Agreement (if any) (each an “Assignor” and, collectively, the “Assignors”)
hereby assigns and grants to Laurus a continuing security interest in all of
the
following property now owned or at any time hereafter acquired by such Assignor,
or in which such Assignor now has or at any time in the future may acquire
any
right, title or interest (the “Collateral”): all cash, cash equivalents,
accounts, accounts receivable, deposit accounts, inventory, equipment, goods,
fixtures, documents, instruments (including, without limitation, promissory
notes), contract rights, general intangibles (including, without limitation,
payment intangibles and an absolute right to license on terms no less favorable
than those current in effect among such Assignor’s affiliates), chattel paper,
supporting obligations, investment property (including, without limitation,
all
partnership interests, limited liability company membership interests and all
other equity interests owned by any Assignor except for investment property
otherwise covered in the Stock Pledge Agreement dated as of the date hereof
among the Company, Computer Equity Corporation, and Laurus and investment
property set forth on Schedule 1 hereto), letter-of-credit rights, trademarks,
trademark applications, tradestyles, patents, patent applications, copyrights,
copyright applications and other intellectual property in which such Assignor
now has or hereafter may acquire any right, title or interest, all proceeds
and
products thereof (including, without limitation, proceeds of insurance) and
all
additions, accessions and substitutions thereto or therefor. Except as otherwise
defined herein, all capitalized terms used herein shall have the meanings
provided such terms in the Securities Purchase Agreement referred to below.
All
items of Collateral which are defined in the UCC shall have the meanings set
forth in the UCC. For purposes hereof, the term “UCC” means the Uniform
Commercial Code as the same may, from time to time, be in effect in the State
of
New York; provided, that in the event that, by reason of mandatory provisions
of
law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Laurus’ security interest in any
Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
of
this Agreement relating to such attachment, perfection, priority or remedies
and
for purposes of definitions related to such provisions; provided further, that
to the extent that the UCC is used to define any term herein and such term
is
defined differently in different Articles or Divisions of the UCC, the
definition of such term contained in Article or Division 9 shall
govern.
2.
The term “Obligations” as used herein shall mean and include all debts,
liabilities and obligations owing by each Assignor to Laurus arising under,
out
of, or in connection with: (i) that certain Securities Purchase Agreement dated
as of the date hereof by and between the Company and Laurus (the “Securities
Purchase Agreement”) and (ii) the Related Agreements referred to in the
Securities Purchase Agreement (the Securities Purchase Agreement and Related
Agreements , as each may be amended, modified, restated or supplemented from
time to time, excluding the Common Stock Purchase Warrant and the Warrant Shares
as defined in the Securities Purchase Agreement, collectively, the “Documents”),
and in connection with any documents, instruments or agreements relating to
or
executed in connection with the Documents or any documents, instruments or
agreements referred to therein or otherwise, and in connection with any other
indebtedness, obligations or liabilities of each such Assignor to Laurus,
whether now existing or hereafter arising, direct or indirect, liquidated or
unliquidated, absolute or contingent, due or not due and whether under, pursuant
to or evidenced by a note, agreement, guaranty, instrument or otherwise,
including, without limitation, obligations and liabilities of each Assignor
for
post-petition interest, fees, costs and charges that accrue after the
commencement of any case by or against such Assignor under any bankruptcy,
insolvency, reorganization or like proceeding (collectively, the “Debtor Relief
Laws”) in each case, irrespective of the genuineness, validity, regularity or
enforceability of such Obligations, or of any instrument evidencing any of
the
Obligations or of any collateral therefor or of the existence or extent of
such
collateral, and irrespective of the allowability, allowance or disallowance
of
any or all of the Obligations in any case commenced by or against any Assignor
under any Debtor Relief Law. Notwithstanding anything to the contrary contained
herein, upon payment of the Obligations under the Note in full in immediately
available funds, this Agreement shall automatically terminate and be without
further force or effect.
3.
Each Assignor hereby jointly and severally represents, warrants and covenants
to
Laurus that:
(a)
it is a corporation, partnership or limited liability company, as the case
may
be, validly existing, in good standing and formed under the respective laws
of
its jurisdiction of formation set forth on Schedule A, and each Assignor will
provide Laurus thirty (30) days’ prior written notice of any change in any of
its respective jurisdiction of formation;
(b)
its legal name is as set forth in its Articles of Incorporation or other
organizational document (as applicable) as amended through the date hereof
and
as set forth on Schedule A, and it will provide Laurus thirty (30) days’ prior
written notice of any change in its legal name;
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(c)
its organizational identification number (if applicable) is as set forth on
Schedule A hereto, and it will provide Laurus thirty (30) days’ prior written
notice of any change in its organizational identification number;
(d)
it is the lawful owner of its Collateral and it has the sole right to grant
a
security interest therein and will defend the Collateral against all claims
and
demands of all persons and entities;
(e)
it will keep its Collateral free and clear of all attachments, levies, taxes,
liens, security interests and encumbrances of every kind and nature
(“Encumbrances”), except (i) Encumbrances securing the Obligations, (ii)
Encumbrances securing indebtedness of each such Assignor not to exceed $250,000
in the aggregate for all such Assignors, (iii) Encumbrances related to
intercompany liabilities, (iv) Encumbrances outstanding as of the Closing Date
and disclosed to Laurus on the Schedules attached to the Securities Purchase
Agreement, and (v) Encumbrances that are expressly subordinated to the
Obligations to the reasonable satisfaction of Laurus;
(f)
it will, at its and the other Assignors’ joint and several cost and expense keep
the Collateral in good state of repair (ordinary wear and tear excepted) and
will not waste or destroy the same or any part thereof other than ordinary
course discarding of items no longer used or useful in its or such other
Assignors’ business;
(g)
it will not, without Laurus’ prior written consent, sell, exchange, lease or
otherwise dispose of any Collateral, whether by sale, lease or otherwise (unless
the proceeds of such sale, exchange, lease or disposal shall be used to repay
then outstanding Obligations), except for (A) the payment of obligations of
the
Company in the ordinary course of business and (B) the sale of inventory in
the
ordinary course of business and for the disposition or transfer in the ordinary
course of business during any fiscal year of obsolete and worn-out equipment
or
equipment no longer necessary for its ongoing needs, having an aggregate fair
market value of not more than $250,000 and only to the extent that:
(i)
the proceeds of each such disposition are used to acquire replacement Collateral
which is subject to Laurus’ first priority perfected security interest, to repay
then outstanding Obligations, or to pay general corporate expenses;
or
(ii)
following the occurrence of an Event of Default which continues to exist the
proceeds of which are remitted to Laurus to be held as cash collateral for
the
Obligations;
(h)
it will insure or cause the Collateral to be insured in Laurus’ name (as an
additional insured and lender loss payee) against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Laurus shall
specify in amounts and under policies by insurers acceptable to Laurus and
all
premiums thereon shall be paid by such Assignor and the policies delivered
to
Laurus. If any such Assignor fails to do so,
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Laurus
may procure such insurance and the cost thereof shall be promptly reimbursed
by
the Assignors, jointly and severally, and shall constitute
Obligations;
(i)
it will expressly agree that if additional loss payees and/or lender loss
payees, other than Laurus, are named to the Collateral, Laurus will always
be
assigned to first lien position until all Laurus obligations have been
met;
(j)
it will at all reasonable times allow Laurus or Laurus’ representatives
reasonable access to and the right of inspection of the Collateral;
and
(k)
such Assignor (jointly and severally with each other Assignor) hereby
indemnifies and saves Laurus harmless from all loss, costs, damage, liability
and/or expense, including reasonable attorneys’ fees, that Laurus may sustain or
incur to enforce payment, performance or fulfillment of any of the Obligations
and/or in the enforcement of this Master Security Agreement or in the
prosecution or defense of any action or proceeding either against Laurus or
any
Assignor concerning any matter growing out of or in connection with this Master
Security Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by Laurus’ own negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final and nonappealable
decision).
4.
The occurrence of either of the following events shall constitute an event
of
default under this Master Security Agreement (each, an “Event of Default”): (a)
(i) the occurrence of an Event of Default (as defined in the Note); or (b)
any
material portion of the Collateral shall be damaged, destroyed or otherwise
lost
and such damage, destruction or loss is not covered by insurance.
5.
Remedies.
In case an Event of Default shall have occurred and is continuing, Laurus may:
(i) Transfer any or all of the Collateral into its name, or into the name of
its
nominee or nominees;(ii) exercise all corporate rights with respect to the
Collateral including, without limitation, all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any shares
of the Collateral as if it were the absolute owner thereof, including, but
without limitation, the right to exchange, at its discretion, any or all of
the
Collateral upon the merger, consolidation, reorganization, recapitalization
or
other readjustment of the Company thereof, or upon the exercise by the Company
of any right, privilege or option pertaining to any of the Collateral, and,
in
connection therewith, to deposit and deliver any and all of the Collateral
with
any committee, depository, transfer agent, registrar or other designated agent
upon such terms and conditions as it may determine, all without liability except
to account for property actually received by it; and (iii) subject to any
requirement of applicable law, sell, assign and deliver the whole or, from
time
to time, any part of the Collateral at the time held by Laurus, at any private
sale or at public auction, with or without demand, advertisement or notice
of
the time or place of sale or adjournment thereof or otherwise (all of which
are
hereby waived, except such notice as is required by applicable law and cannot
be
waived), for cash or credit or for other property for immediate or future
delivery, and for such price or prices and on such terms as Laurus in its sole
discretion may determine, or as may be required by applicable law. The Company
hereby waives and releases any and all right or equity of redemption, whether
after sale hereunder. At any such sale, unless prohibited by applicable law,
Laurus may bid for
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and
purchase the whole or any part of the Collateral so sold free from any such
right or equity of redemption. All moneys received by Laurus hereunder, whether
upon sale of the Collateral or any part thereof or otherwise, shall be held
by
Laurus and applied by it in repayment of the Obligations. No failure or delay
on
the part of Laurus in exercising any rights hereunder shall operate as a waiver
of any such rights nor shall any single or partial exercise of any such rights
preclude any other or future exercise thereof or the exercise of any other
rights hereunder. Laurus shall have no duty as to the collection or protection
of the Collateral or any income thereon nor any duty as to preservation of
any
rights pertaining thereto, except to apply the funds in accordance with the
requirements of Section 10 hereof. Laurus may exercise its rights with respect
to property held hereunder without resort to other security for or sources
of
reimbursement for the Obligations. In addition to the foregoing, Laurus shall
have all of the rights, remedies and privileges of a secured party under the
Uniform Commercial Code of New York (the “UCC”) regardless of the jurisdiction
in which enforcement hereof is sought.
6.
If any Assignor defaults in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on such Assignor’s
part to be performed or fulfilled under or pursuant to this Master Security
Agreement, Laurus may, at its option without waiving its right to enforce this
Master Security Agreement according to its terms, immediately or at any time
thereafter and without notice to any Assignor, perform or fulfill the same
or
cause the performance or fulfillment of the same for each Assignor’s joint and
several account and at each Assignor’s joint and several cost and expense, and
the cost and expense thereof (including reasonable attorneys’ fees) shall be
added to the Obligations and shall be payable on demand with interest thereon
at
the highest rate permitted by law, or, at Laurus’ option, debited by Laurus from
any other deposit accounts in the name of any Assignor and controlled by
Laurus.
7.
Upon
the occurrence and during the continuance of an Event of Default, each Assignor
hereby appoints Laurus, or any other Person whom Laurus may designate as such
Assignor’s attorney, with power to: (a)(i) execute
any security related documentation on such Assignor’s behalf and to supply any
omitted information and correct patent errors in any documents executed by
such
Assignor or on such Assignor’s behalf; (ii)
to file financing statements against such Assignor covering the Collateral
(and,
in connection with the filing of any such financing statements, describe the
Collateral as “all assets and all personal property, whether now owned and/or
hereafter acquired” (or any substantially similar variation thereof)); (iii)
sign
such Assignor’s name on any invoice or ▇▇▇▇ of lading relating to any accounts
receivable, drafts against account debtors, schedules and assignments of
accounts receivable, notices of assignment, financing statements and other
public records, verifications of accounts receivable and notices to or from
account debtors; and
(iv) to do all other things Laurus deems necessary to reasonably carry out
the
terms of Section 1 of this Master Security Agreement; and (b) upon
the occurrence and during the continuance of an Event of Default; (v) endorse
such Assignor’s name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Laurus’ possession; (vi)
sign such Assignor’s name on any invoice or ▇▇▇▇ of lading relating to any
accounts receivable, drafts against account debtors, schedules and assignments
of accounts receivable, notices of assignment, financing statements and other
public records, verifications of accounts receivable and notices to or from
account debtors; (vii) verify the validity, amount or any other matter relating
to any accounts receivable
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by
mail, telephone, telegraph or otherwise with account debtors; (viii) do all
other things necessary to carry out this Agreement, any other Related Agreement
and all other related documents; and (ix) notify the post office authorities
to
change the address for delivery of such Assignor’s mail to an address designated
by Laurus, and to receive, open and dispose of all mail addressed to such
Assignor. Each
Assignor hereby ratifies and approves all acts of the attorney and neither
Laurus nor the attorney will be liable for any acts of commission or omission,
nor for any error of judgment or mistake of fact or law other than gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final and non-appealable decision). This power being coupled
with an interest, is irrevocable so long as any Obligations remains unpaid.
8.
Proceeds
of Sale.
The proceeds of any collection, recovery, receipt, appropriation, realization
or
sale of the Collateral shall be applied by the Laurus as follows:
(a)
First, to the payment of all costs, reasonable expenses and charges of the
Laurus and to the reimbursement of the Laurus for the prior payment of such
costs, reasonable expenses and charges incurred in connection with the care
and
safekeeping of the Collateral (including, without limitation, the reasonable
expenses of any sale or any other disposition of any of the Collateral),
attorneys’ fees and reasonable expenses, court costs, any other fees or expenses
incurred or expenditures or advances made by Laurus in the protection,
enforcement or exercise of its rights, powers or remedies
hereunder;
(b)
Second, to the payment of the Obligations, in whole or in part, in such order
as
the Laurus may elect, whether or not such Obligations is then due;
(c)
Third, to such persons, firms, corporations or other entities as required by
applicable law including, without limitation, Section 9-615(a)(3) of the UCC;
and
(d)
Fourth, to the extent of any surplus, to the Assignors or as a court of
competent jurisdiction may direct.
In
the event that the proceeds of any collection, recovery, receipt, appropriation,
realization or sale are insufficient to satisfy the Obligations, the Assignors
shall be liable for the deficiency plus the costs and fees of any attorneys
employed by Laurus to collect such deficiency
9.
No delay or failure on Laurus’ part in exercising any right, privilege or option
hereunder shall operate as a waiver of such or of any other right, privilege,
remedy or option, and no waiver whatever shall be valid unless in writing,
signed by Laurus and then only to the extent therein set forth, and no waiver
by
Laurus of any default shall operate as a waiver of any other default or of
the
same default on a future occasion. Laurus’ books and records containing entries
with respect to the Obligations shall be admissible in evidence in any action
or
proceeding. Laurus shall have the right to enforce any one or more of the
remedies available to Laurus, successively, alternately or concurrently. Each
Assignor agrees to join with Laurus in executing such documents or other
instruments to the extent required by the UCC in form satisfactory to Laurus
and
in executing such other documents or instruments as may be required or deemed
necessary by Laurus for purposes of affecting or continuing Laurus’ security
interest in the Collateral.
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10.
The
Assignors shall jointly and severally pay all of Laurus’ out-of-pocket costs and
expenses, including reasonable fees and disbursements of in-house or outside
counsel and appraisers, in connection with the preparation, execution and
delivery of the Documents as set forth in the Securities Purchase Agreement,
and
in connection with the prosecution or defense of any action, contest, dispute,
suit or proceeding concerning any matter in any way arising out of, related
to
or connected with any Document. The Assignors shall also jointly and severally
pay all of Laurus’ reasonable fees, charges, out-of-pocket costs and expenses,
including fees and disbursements of counsel and appraisers, in connection with
(a) the preparation, execution and delivery of any waiver, any amendment thereto
or consent proposed or executed in connection with the transactions contemplated
by the Documents, (b) Laurus’ obtaining performance of the Obligations under the
Documents, including, but not limited to the enforcement or defense of Laurus’
security interests, assignments of rights and liens hereunder as valid perfected
security interests, (c) any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any Collateral, (d) any appraisals or
re-appraisals of any property (real or personal) pledged to Laurus by any
Assignor as Collateral for, or any other Person as security for, the Obligations
hereunder and (e) any consultations in connection with any of the foregoing.
The
Assignors shall also jointly and severally pay Laurus’ customary bank charges
for all bank services (including wire transfers) performed or caused to be
performed by Laurus for any Assignor at any Assignor’s request or in connection
with any Assignor’s loan account (if any) with Laurus. All such costs and
expenses together with all filing, recording and search fees, taxes and interest
payable by the Assignors to Laurus shall be payable on demand and shall be
secured by the Collateral. If any tax by any nation
or government, any state or other political subdivision thereof, and any agency,
department or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (each,
a
“Governmental Authority”)
is or may be imposed on or as a result of any transaction between any Assignor,
on the one hand, and Laurus on the other hand, which Laurus is or may be
required to withhold or pay, the Assignors hereby jointly and severally
indemnify and hold Laurus harmless in respect of such taxes, and the Assignors
will repay to Laurus the amount of any such taxes which shall be charged to
the
Assignors’ account; and until the Assignors shall furnish Laurus with indemnity
therefor (or supply Laurus with evidence satisfactory to it that due provision
for the payment thereof has been made), Laurus may hold without interest any
balance standing to each Assignor’s credit (if any) and Laurus shall retain its
liens in any and all Collateral
11.
THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF
LAWS. All of the rights, remedies, options, privileges and elections given
to
Laurus hereunder shall inure to the benefit of Laurus’ successors and assigns.
The term “Laurus” as herein used shall include Laurus, any parent of Laurus’,
any of Laurus’ subsidiaries and any co-subsidiaries of Laurus’ parent, whether
now existing or hereafter created or acquired, and all of the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure
to
the benefit of each of the foregoing, and shall bind the representatives,
successors and assigns of each Assignor.
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12.
Each Assignor 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 Assignor,
on
the one hand, and Laurus, on the other hand, pertaining to this Master Security
Agreement or to any matter arising out of or related to this Master Security
Agreement, provided, that Laurus and each Assignor 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
Master Security Agreement shall be deemed or operate to preclude Laurus from
bringing suit or taking other legal action in any 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 Laurus.
Each Assignor expressly submits and consents in advance to such jurisdiction
in
any action or suit commenced in any such court, and each Assignor hereby waives
any objection which it may have based upon lack of personal jurisdiction,
improper venue or forum non conveniens.
Each Assignor hereby waives personal service of the summons, complaint and
other
process issues 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 such assignor at the address set forth on the signature lines
hereto and that service so made shall be deemed completed upon the Assignor’s
actual receipt thereof.
The
parties desire that their 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 parties hereto waive all rights
to
trial by jury in any action, suite, or proceeding brought to resolve any
dispute, whether arising in contract, tort, or otherwise between Laurus, and/or
any Assignor arising out of, connected with, related or incidental to the
relationship established between them in connection with this Master Security
Agreement or the transactions related hereto.
13.
It is understood and agreed that any person or entity that desires to become
an
Assignor hereunder, or is required to execute a counterpart of this Master
Security Agreement after the date hereof pursuant to the requirements of any
Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to Laurus, (y) delivering
supplements to such exhibits and annexes to such Documents as Laurus shall
reasonably request and (z) taking all actions as specified in this Master
Security Agreement as would have been taken by such Assignor had it been an
original party to this Master Security Agreement, in each case with all
documents required above to be delivered to Laurus and with all documents and
actions required above to be taken to the reasonable satisfaction of
Laurus.
14.
All notices from Laurus to any Assignor shall be sufficiently given if mailed
or
delivered to such Assignor’s address set forth below.
15.
This
Master Security Agreement may be executed in one or more counterparts, each
of
which shall be deemed an original and all of which when taken together shall
constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature
hereto.
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Very
truly yours,
APPLIED
DIGITAL SOLUTIONS, INC.
By:
/s/ ▇▇▇▇ ▇.
▇▇▇▇▇▇▇
Name:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
SVP & CFO
Address:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇. #▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ACKNOWLEDGED:
LAURUS
MASTER FUND, LTD.
By:
/s/ ▇▇▇▇▇
Grin
Name:
▇▇▇▇▇ Grin
Title
Director
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SCHEDULE
A
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Entity
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Jurisdiction
of
Formation
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Organization
Identification Number
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Applied
Digital Solutions, Inc.
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Missouri
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00380703
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Schedule
1
1.
7.61% interest in Signature Industries Limited owned by the Company consisting
of 45,675 shares of its common stock.
2.
5,833,334 shares of VeriChip Corporation’s common stock.
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