COMMERCIAL LOAN AGREEMENT

Exhibit 10.2

COMMERCIAL LOAN AGREEMENT

ANNUAL REVIEW.

THIS COMMERCIAL LOAN AGREEMENT (the “Agreement”) is made as of the date set forth above, between the above-named Borrower (the “Borrower”) and Applied Digital Solutions, Inc., a Missouri corporation located at 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Lender”). The Lender has agreed to extend to Borrower, at the Borrower’s request, the loan(s) described above (individually a “Loan” and collectively the “Loans”). All of the Loans are, together with all other interest, fees, or other obligations associated with the Loans now existing or hereafter arising, hereinafter sometimes referred to as the “Obligations”. Each Loan is or shall be evidenced by a commercial promissory note (individually a “Note” and collectively the “Notes”) and each Loan and all of the other obligations are secured pursuant to a Security Agreement between Borrower and the Lender (the “Security Agreement”). In connection with the Loans, the Borrower may execute certain other documents, certificates and agreements, all of which are, together with this Agreement, the Notes and the Security Agreement, sometimes collectively referred to herein as the “Loan Documents”. Each Loan, whether now existing or hereafter arising, is made upon and subject to the terms and conditions set forth in the Note evidencing such Loan, the Security Agreement, the other Loan Documents and this Agreement. The terms, conditions, representations, warranties and covenants set forth in this Agreement are in addition to, and not in limitation of, the terms, conditions, representations, warranties and covenants set forth in all other Loan Documents.

IN CONSIDERATION OF the Loans made or to be made by Lender to the Borrower, and of all other Obligations of the Borrower to the Lender, Borrower and Lender hereby agree as follows:

I. WORKING CAPITAL REVOLVING LINE OF CREDIT. The Working Capital Revolving Line of Credit Loan (the “Revolving Line”) made available by the Lender to the Borrower shall be upon and subject to the terms and conditions set forth in the Revolving Line of Credit Note evidencing such Loan (hereafter, the “Revolving Line of Credit Note”), the other Loan Documents and this Agreement.

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A. Maximum Available Amount . The maximum amount available to the Borrower under the Revolving Line shall be the amount set forth in the Revolving Line of Credit Note evidencing the Revolving Line.

B. Advances and Repayment . The Revolving Line shall be disbursed, advanced, readvanced and repaid as provided in the applicable Revolving Line of Credit Note and this Agreement. Borrower may make a Request for Advance (as defined below) from time to time in an amount such that the aggregate amounts outstanding under the Revolving Line does not exceed the maximum available amount as determined under Paragraph A of this Section I above. Lender reserves the right to determine in its sole discretion whether to make any particular advance or readvance requested by Borrower. At the time of each advance and readvance under the Revolving Line the Borrower shall immediately become indebted to the Lender for the amount thereof. Each such advance or readvance may be credited by the Lender to any deposit account of Borrower with the Lender, be paid to the Borrower or applied to any Obligation, as the Lender may in each instance reasonably elect. Borrower authorizes the Lender to charge any account that the Borrower maintains with the Lender for any payments that the Borrower may or must make, or customarily makes, to the Lender from time to time.

C. Review . The Revolving Line shall be subject to review and, at the sole option of the Lender, renewal on the Review Date set forth on the first page of this Agreement (the “Review Date”) and, if renewed, upon each subsequent anniversary of the Review Date. IF SAID REVOLVING LINE OF CREDIT LOAN IS NOT RENEWED BY THE LENDER AS AFORESAID ON ANY SUCH DATE, THE ENTIRE AMOUNT OF PRINCIPAL AND ACCRUED INTEREST OUTSTANDING THEREUNDER SHALL BE DUE AND PAYABLE BY BORROWER ON SUCH DATE. Any other revolving line of credit loan outstanding shall be subject to review by the Lender and be renewed or repaid as aforesaid on the Review Date and each annual anniversary thereof, unless another date is reasonably specified by the Lender.

D. Revolving Line of Credit Management . Set forth on Schedule A are additional terms and conditions relating to the management of the Revolving Line.

II. PURPOSEFULLY LEFT BLANK.

III. FEES. In addition to such other fees as are provided in this Agreement and in the other Loan Documents, Borrower agrees to pay the Lender the periodic fees set forth on Schedule A with respect to the maintenance of the Working Capital Revolving Line of Credit Loan.  

IV. PAYMENTS. All payments made by the Borrower of principal and interest on the Loans, and other sums and charges payable under the Loan Documents, shall be made to the Lender in accordance with the terms of the respective Loan Documents in immediately available, lawful United States of America currency at its office set forth above or by the debiting by the Lender of the Cash Management System account with Citibank overseen by Lender in the name of the Borrower, or in writing to the Borrower, and in any event shall be made in immediately available funds. The Borrower authorizes the Lender to automatically debit the Borrower’s demand deposit account as described above. Upon payment in full by Borrower of the Obligations, the Loan Documents shall automatically terminate and all liens, pledges, charges, security interests and other encumbrances created in favor of the Lender pursuant to the Loan Documents shall automatically terminate and be released. In connection therewith, the Lender

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hereby (i) agrees to cause to be assigned, transferred and delivered to the Borrower collateral under the Loan Documents held by the Lender under the Loan Documents, (ii) agrees to execute and deliver to the Borrower such instruments of satisfaction and other documents as shall be reasonably requested by the Borrower to terminate of record such liens, pledges, charges, security interests or other encumbrances and (iii) authorizes the Borrower to file any applicable UCC termination statements or release statements to terminate of record such liens, pledges, charges, security interests or other encumbrances.

V. SECURITY. Each of the Loans and all other Obligations of the Borrower to the Lender, whether now existing or hereafter arising, shall, at all times, be secured by first priority perfected security interests, as required by this Agreement and the Security Agreement, in the Collateral (as hereinafter defined), which security interests shall continue until payment in full of all amounts outstanding under said Loans and the other Obligations. If this Agreement is executed below by a guarantor or guarantors (collectively the “Guarantors”), then the full and punctual payment and performance of the Loans and all other Obligations of Borrower shall be guaranteed by the Guarantors pursuant to one or more guaranty agreements (collectively the “Guaranty”). The term “Collateral” as used herein shall be deemed to include all property and assets of the Borrower and Guarantors secured, mortgaged, pledged, assigned or otherwise encumbered or covered by any of the Loan Documents, including, but not limited to, the Security Agreement. The Borrower and the Guarantor covenant and agree to take such further actions and to execute such additional documents as may be reasonably necessary from time to time to enable the Lender to obtain and maintain the security interests and liens arising under the Loan Documents. If the Collateral includes accounts and account receivables of Borrower, then, in addition to such other rights and remedies as are provided the Lender under the Loan Documents, the Borrower agrees that Lender may communicate with account debtors in order to verify the existence, amount and terms of any such accounts and account receivables. Lender may notify account debtors of the Lender’s security interest and require that payments on accounts and account receivables be made directly to Lender, and upon the request of Lender, Borrower shall notify account debtors and indicate on all billings that payments and returns are to be made directly to Lender. In furtherance of the foregoing, Borrower hereby irrevocably appoints Lender as attorney with full power to collect, compromise, endorse, sell or otherwise deal with the Borrower’s accounts and account receivables or proceeds thereof and to perform the terms of any contract in order to create accounts and account receivables in Lender’s name or in the name of Borrower.

VI. SUBORDINATION AND STANDBY OF DEBT. The Borrower and Guarantors covenant and agree that all existing debt of Borrower to Guarantors and all future debt, if permitted hereunder from Borrower to Guarantors, shall be and hereby is, without need for further writing, made subject and subordinate to the prior payment and performance of all the Loans and other Obligations of Borrower. The Guarantors further covenant and agree that any claims against the Borrower (or against each other or any other guarantor of the Loans), individually or jointly, to which the Guarantors may become entitled (including, without limitation, claims by subrogation or otherwise by reason of any payment or performance by the Guarantors, individually or jointly, in satisfaction and discharge, in whole or in part, of his or their obligations under the Guaranty) shall be and hereby are, without need for further writing, subject and subordinate to the payment and performance in full of all of the Loans and other Obligations due the Lender. In furtherance of the foregoing, the Borrower and Guarantors shall provide such subordinations, certificates and other documents and shall mark its corporate books, records, stock certificates and ledgers as the Lender may reasonably request from time to time, in form and substance satisfactory to Lender and Lender’s counsel, evidencing the subordination of all debt of Borrower to Guarantors, whether now existing or hereafter arising, in accordance with the covenants of Borrower and Guarantors hereunder.

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VII. CONTINUING REPRESENTATIONS AND WARRANTIES. The Borrower and the Guarantors, as the case may be, jointly and severally warrant and represent to the Lender that so long as any of the Obligations are outstanding:

A. Good Standing . Borrower, if other than a natural person, is duly organized, validly existing and in good standing under the laws of the State of Delaware. Borrower has the power to own its properties and to carry on its business as now being conducted.

B. Authority . Borrower and Guarantors have full power and authority to enter into this Agreement and to borrow under the Loan Documents, to execute and deliver the Loan Documents and to incur the obligations provided for herein and in the Loan Documents, all of which have been duly authorized by all proper and necessary corporate or other action. The persons executing the Loan Documents on behalf of the Borrower and the Guarantors have been duly authorized to do so.

C. Binding Agreement . This Agreement and the Loan Documents constitute the valid and legally binding obligations of the Borrower and Guarantors, enforceable in accordance with their terms.

D. Litigation . There are no suits or proceedings of any kind or nature pending or, to the knowledge of the Borrower and Guarantors, threatened against or affecting the Borrower or the Guarantors or their assets which, if adversely determined, would have a material adverse effect on the financial condition or business of the Borrower or the Guarantors and which have not been disclosed in writing to the Lender.

E. Conflicting Agreements; Consents . There is no charter, bylaw or preference stock of the Borrower or the Guarantors and no provision(s) of any existing mortgage, indenture, contract or agreement binding on the Borrower or the Guarantors or affecting their property, which would conflict with, have a material adverse effect upon, or in any way prevent the execution, delivery or performance of the terms of this Agreement or the Loan Documents. Neither the Borrower nor the Guarantors is required to obtain any order, consent, approval, authorization of any person, entity or governmental authority in connection with or as a condition to the execution, delivery and performance of this Agreement or the Loan Documents or the granting of the security interests and liens in the Collateral.

F. Financial Condition . The financial statements delivered to the Lender by the Borrower and the Guarantors have been and shall be prepared in accordance with generally accepted accounting principles, consistently applied, are and will be complete and correct, and fairly present the financial condition and results of the Borrower and the Guarantors. Other than those liabilities disclosed in writing to the Lender, there are no liabilities, direct or indirect, fixed or contingent, of the Borrower or the Guarantors which are not reflected in the financial statements or in the notes thereto which would be required to be disclosed therein and there has been no material adverse change in the financial condition or operations of the Borrower or the Guarantors since the date of such financial statements.

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G. Taxes . Borrower and Guarantors have filed all federal, state and local tax returns required to be filed by them and have paid all taxes shown by such returns to be due and payable on or before the due dates thereof.

H. Solvency . The present fair saleable value of the Borrower’s assets is greater than the amount required to pay its total liabilities; the amount of the Borrower’s capital is adequate in view of the type of business in which it is engaged.

I. Full Disclosure . None of the information with respect to the Borrower or the Guarantors which has been furnished to the Lender in connection with the transactions contemplated hereby is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not misleading.

J. Employee Benefit Plans . The Borrower has not incurred any material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), has not incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto) in connection with any profit sharing, group insurance, bonus, deferred compensation, percentage compensation, stock option, severance pay, insurance, pension or retirement plan or other oral or written agreement or commitment relating to employment or fringe benefits or prerequisites for employees, officers or directors of the Borrower (an “Employee Benefit Plan”), and no Employee Benefit Plan which is subject to ERISA had, as of its latest valuation date, accrued benefits (whether or not vested) the present value of which exceeded the value of the assets of such Employee Benefit Plan, based upon actuarial assumptions utilized for such Plan.

K. Location of Records . All of the books and records are true and complete copies thereof relating to the accounts and contracts of the Borrower shall be kept at Borrower’s principal place of business located at the address first set forth above (the “Premises”).

L. Compliance with Laws . The Borrower and the Guarantors, to the best of their knowledge and belief, are in compliance in all material respects with all laws and governmental rules and regulations applicable to the Collateral and to their businesses, properties and assets.

M. Hazardous Waste . No Hazardous Waste (as hereinafter defined) has been generated, stored or treated on the Premises except in compliance with all applicable laws. To the Borrower’s knowledge, no Hazardous Waste has been, is being, is intended to be or is threatened to be spilled, released, discharged, disposed, placed or otherwise caused to be found in the soil or water in, under or upon the Premises. The Borrower and the Guarantors agree to indemnify and hold the Lender harmless from and against any claims, damages, liabilities (whether joint or several), losses and expenses (including, without limitation, reasonable attorneys’ fees) incurred by the Lender as a result of the breach of these representations. For the purpose of this Agreement, the term “Hazardous Waste” means “hazardous waste”, “hazardous material”, “hazardous substance” and “oil” as presently defined in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Material Transportation Act, th