APPLIED DIGITAL SOLUTIONS, INC. MASTER SECURITY AGREEMENT
Exhibit
10.3
APPLIED DIGITAL SOLUTIONS, INC.
MASTER SECURITY AGREEMENT
MASTER SECURITY AGREEMENT
| To: | Xxxxxxx Corporation 000 Xxxxxx Xxxx Xxxxx X Xxxxx, XX 00000 |
Date: August 31, 2007
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined), APPLIED DIGITAL SOLUTIONS,
INC., a Delaware corporation (the “Company”), each of the other undersigned parties (other than
Xxxxxxx Corporation, (“Assignee”)) (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 Assignee 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 Assignee 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, Assignee’s 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 Assignee 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 Assignee (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 Assignee, 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. Except as set forth in the Assignor Disclosure Schedules to the Securities Purchase
Agreement or in the Exchange Act Filings with respect to those representations and warranties set
forth below that have parallel representations and warranties set forth in the Securities Purchase
Agreement which permit exceptions as set forth in the Assignor Disclosure Schedules and/or the
Exchange Act Filings, each Assignor hereby jointly and severally represents, warrants and covenants
to Assignee 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 Assignee 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 Assignee thirty (30) days’ prior written notice of any
change in its legal name;
2
(c) its organizational identification number (if applicable) is as set forth on
Schedule A hereto, and it will provide Assignee 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 Assignee on the Schedules attached to the Securities Purchase
Agreement, and (v) Encumbrances that are expressly subordinated to the Obligations to the
reasonable satisfaction of Assignee;
(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 Assignee’s 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 Assignee’s 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 Assignee to be held as cash collateral for the
Obligations;
(h) it will insure or cause the Collateral to be insured in Assignee’s 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 Assignee shall specify in amounts and
under policies by insurers acceptable to Assignee and all premiums thereon shall be paid by
such Assignor and the policies delivered to Assignee. If any such Assignor fails to do so,
Assignee may procure such insurance and the cost thereof shall
be promptly reimbursed by the Assignors, jointly and severally, and shall constitute
Obligations;
3
(i) it will expressly agree that if additional loss payees and/or lender loss payees,
other than Assignee, are named to the Collateral, Assignee will always be assigned to first
lien position until all Assignee obligations have been met;
(j) it will at all reasonable times allow Assignee or Assignee’s 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 Assignee harmless from all loss, costs, damage, liability and/or expense,
including reasonable attorneys’ fees, that Assignee 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 Assignee 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 Assignee’s 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,
Assignee 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 Assignee, 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 Assignee 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, Assignee may
bid for
4
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 Assignee hereunder, whether upon sale of the
Collateral or any part thereof or otherwise, shall be held by Assignee and applied by it in
repayment of the Obligations. No failure or delay on the part of Assignee 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. Assignee 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. Assignee 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, Assignee 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, Assignee 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 Assignee’s option, debited by
Assignee from any other deposit accounts in the name of any Assignor and controlled by Assignee.
7. Upon the occurrence and during the continuance of an Event of Default, each Assignor hereby
appoints Assignee, or any other Person whom Assignee 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 xxxx 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 Assignee 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 Assignee’s possession; (vi) sign
such Assignor’s name on any invoice or xxxx 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
5
receivable 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 Assignee, 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 Assignee 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 Assignee as follows:
(a) First, to the payment of all costs, reasonable expenses and charges of the Assignee
and to the reimbursement of the Assignee 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 Assignee 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 Assignee 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 Assignee to collect such deficiency
9. No delay or failure on Assignee’s 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 Assignee and then only to the extent
therein set forth, and no waiver by Assignee of any default shall operate as a waiver of any other
default or of the same default on a future occasion. Assignee’s books and records containing
entries with respect to the Obligations shall be admissible in evidence in any action or
proceeding. Assignee shall have the right to enforce any one or more of the remedies available to
Assignee, successively, alternately or concurrently. Each Assignor agrees to join with Assignee in
executing such documents or other instruments to the extent required by the UCC in form
satisfactory to Assignee and in executing such other documents or instruments as may be required or
deemed necessary by Assignee for purposes of affecting or continuing Assignee’s security interest
in the Collateral.
6
10. The Assignors shall jointly and severally pay all of Assignee’s 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 Assignee’s 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) Assignee’s obtaining performance of the
Obligations under the Documents, including, but not limited to the enforcement or defense of
Assignee’s 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 Assignee 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 Assignee’s customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by Assignee for any
Assignor at any Assignor’s request or in connection with any Assignor’s loan account (if any) with
Assignee. All such costs and expenses together with all filing, recording and search fees, taxes
and interest payable by the Assignors to Assignee 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 Assignee on the other hand, which Assignee is or may be required to
withhold or pay, the Assignors hereby jointly and severally indemnify and hold Assignee harmless in
respect of such taxes, and the Assignors will repay to Assignee the amount of any such taxes which
shall be charged to the Assignors’ account; and until the Assignors shall furnish Assignee with
indemnity therefor (or supply Assignee with evidence satisfactory to it that due provision for the
payment thereof has been made), Assignee may hold without interest any balance standing to each
Assignor’s credit (if any) and Assignee 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 Assignee hereunder shall inure to the benefit of
Assignee’s successors and assigns. The term “Assignee” as herein used shall include Assignee, any
parent of Assignee’s, any of Assignee’s subsidiaries and any co-subsidiaries of Assignee’s 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.
7
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 Assignee, 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 Assignee 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 Assignee 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 Assignee. 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
Assignee, 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 Assignee, (y) delivering
supplements to such exhibits and annexes to such Documents as Assignee 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 Assignee and with all documents and actions
required above to be taken to the reasonable satisfaction of Assignee.
14. All notices from Assignee 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.
8
| Very truly yours, | ||||
| APPLIED DIGITAL SOLUTIONS, INC. | ||||
| By: | /s/ Xxxxxxxx X. Xxxxxx | |||
| Name: | Xxxxxxxx X. Xxxxxx | |||
| Title: | SVP, ACFO | |||
| Address: | ||||
| 0000 Xxxxx Xxxxxxxx Xxx., Xxxxx 000 |
||||
| Xxxxxx Xxxxx, Xxxxxxx 00000 | ||||
| ACKNOWLEDGED: | ||||
| XXXXXXX CORPORATION | ||||
| By: | /s/ Xxxxx Grin | |||
| Name: | Xxxxx Grin | |||
| Title | Director | |||
9
