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                                                                   EXHIBIT 10.7


                        REGISTRATION RIGHTS AGREEMENT

               This Registration Rights Agreement (this "Agreement") is made
                                                         ---------
and entered into as of June 30, 2003, among Applied Digital Solutions, Inc.,
a Missouri corporation (the "Company"), and the purchasers signatory hereto
                             -------
(each such purchaser is a "Purchaser" and all such purchasers are,
                           ---------
collectively, the "Purchasers").
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               This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers
(the "Purchase Agreement").
      ------------------

               The Company and the Purchasers hereby agree as follows:

        1. Definitions
           -----------

               CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT
ARE DEFINED IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH
TERMS IN THE PURCHASE AGREEMENT. As used in this Agreement, the following
terms shall have the following meanings:

                        "Effectiveness Date" means, with respect to the
                         ------------------
         initial Registration Statement required hereunder, the 90th
         calendar day (120th calendar day in the event of a "full review" by
         the Commission) following the Closing Date and, with respect to any
         additional Registration Statements which may be required pursuant
         to Section 3(c), the 60th calendar day following the date on which
         the Company first knows, or reasonably should have known, that such
         additional Registration Statement is required hereunder; provided,
                                                                  --------
         however, in the event the Company is notified by the Commission
         -------
         that one of the above Registration Statements will not be reviewed
         or is no longer subject to further review and comments, the
         Effectiveness Date as to such Registration Statement shall be the
         fifth Trading Day following the date on which the Company is so
         notified if such date precedes the dates required above.

                        "Effectiveness Period" shall have the meaning set
                         --------------------
forth in Section 2(a).

                        "Filing Date" means, with respect to the initial
                         -----------
         Registration Statement filed hereunder, the 60th day following the
         Closing Date and, with respect to any additional Registration
         Statements which may be required pursuant to Section 3(c), the 30th
         day following the date on which the Company first knows, or
         reasonably should have known that such additional Registration
         Statement is required hereunder.

                        "Holder" or "Holders" means the holder or holders,
                         ------      -------
         as the case may be, from time to time of Registrable Securities.


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                        "Indemnified Party" shall have the meaning set forth
                         -----------------
in Section 5(c) hereof.

                        "Indemnifying Party" shall have the meaning set
                         ------------------
forth in Section 5(c) hereof.

                        "Prospectus" means the prospectus included in a
                         ----------
         Registration Statement (including, without limitation, a prospectus
         that includes any information previously omitted from a prospectus
         filed as part of an effective registration statement in reliance
         upon Rule 430A promulgated under the Securities Act), as amended or
         supplemented by any prospectus supplement, with respect to the
         terms of the offering of any portion of the Registrable Securities
         covered by a Registration Statement, and all other amendments and
         supplements to the Prospectus, including post-effective amendments,
         and all material incorporated by reference or deemed to be
         incorporated by reference in such Prospectus.

                        "Registrable Securities" means all of the shares of
                         ----------------------
         Common Stock issuable upon conversion in full of the Debentures,
         assuming for such purposes that all interest payments thereon are
         made in shares of Common Stock and all of the Debentures are held
         until the 36th month anniversary of their date of issuance, and the
         lowest possible conversion price in effect during the period
         between the applicable Closing and the filing date of the
         Registration Statement (assuming the Monthly Conversion Price is
         then applicable), all of the shares of Common Stock issuable upon
         exercise in full of the Warrants, together with any securities
         issued or issuable upon any stock split, dividend or other
         distribution recapitalization or similar event with respect to the
         foregoing or in connection with any anti-dilution provisions in the
         Debentures and Warrants.

                        "Registration Statement" means the registration
                         ----------------------
         statements required to be filed hereunder and any additional
         registration statements contemplated by Section 3(c), including (in
         each case) the Prospectus, amendments and supplements to such
         registration statement or Prospectus, including pre- and
         post-effective amendments, all exhibits thereto, and all material
         incorporated by reference or deemed to be incorporated by reference
         in such registration statement.

                        "Rule 415" means Rule 415 promulgated by the
                         --------
         Commission pursuant to the Securities Act, as such Rule may be
         amended from time to time, or any similar rule or regulation
         hereafter adopted by the Commission having substantially the same
         purpose and effect as such Rule.

                        "Rule 424" means Rule 424 promulgated by the
                         --------
         Commission pursuant to the Securities Act, as such Rule may be
         amended from time to time, or any similar rule or regulation
         hereafter adopted by the Commission having substantially the same
         purpose and effect as such Rule.

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                        "Warrants" shall mean the Common Stock purchase
                         --------
         warrants issued to the Purchasers pursuant to the Purchase
         Agreement.

        2. Shelf Registration
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               (a) On or prior to each Filing Date, the Company shall
prepare and file with the Commission a "Shelf" Registration Statement
covering the resale of 150% of the Registrable Securities on such Filing
Date for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (noting that the Company is
not now eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on another appropriate form in
accordance herewith) and shall contain (unless otherwise directed by the
Holders) substantially the "Plan of Distribution" attached hereto as Annex A.
                                                                     -------
Subject to the terms of this Agreement, the Company shall use its best
efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in
any event prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until the date when all Registrable Securities covered by
such Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"). The Company shall immediately notify the Holders
 --------------------
via facsimile of the effectiveness of any Registration Statement on the day
that the Company receives notification of the effectiveness of such
Registration Statement from the Commission. The Holders covenant and agree
that any and all sales of Registrable Securities will be made in accordance
with the "Plan of Distribution" attached hereto as Annex A (or such other
"Plan of Distribution" as the Holders might direct and to which the Company
agrees).

               (b) If: (i) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files a Registration Statement without
affording the Holders the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have satisfied
clause (i)), or (ii) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five Trading Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that
a Registration Statement will not be "reviewed," or not subject to further
review, or (iii) prior to its Effectiveness Date, the Company fails to file
a pre-effective amendment and otherwise respond in writing to comments made
by the Commission in respect of such Registration Statement within 15
Trading Days after the receipt of comments by or notice from the Commission
that such amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required to be
filed hereunder is not declared effective by the Commission by its
Effectiveness Date, or (v) after the Effectiveness Date, a Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be


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effective, or the Holders are not permitted to utilize the Prospectus
therein to resell such Registrable Securities for 15 consecutive Trading
Days in any individual case or an aggregate of 20 Trading Days during any 12
month period (which need not be consecutive Trading Days) (any such failure
or breach being referred to as an "Event", and for purposes of clause (i) or
                                   -----
(iv) the date on which such Event occurs, or for purposes of clause (ii) the
date on which such five Trading Day period is exceeded, or for purposes of
clause (iii) the date which such 15 Trading Day period is exceeded, or for
purposes of clause (v) the date on which such 5 or 15 Trading Day period, as
applicable, is exceeded being referred to as "Event Date"), then, on each
                                              ----------
such Event Date and every monthly anniversary thereof until the applicable
Event is cured, the Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 2.0% per month of (i) the
Subscription Amount paid by such Holder pursuant to the Purchase Agreement
for Securities then held by such Holder, and (ii) if the Warrants are "in
the money" and then held by the Holder, the value of any outstanding
Warrants (valued at the difference between the average VWAP during the
applicable month and the Exercise Price multiplied by the number of shares
of Common Stock the Warrants are exercisable into). If the Company fails to
pay any liquidated damages pursuant to this Section in full within seven
days after the date payable, the Company will pay interest thereon at a rate
of 18% per annum (or such lesser maximum amount that is permitted to be paid
by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms
hereof shall apply on a pro-rata basis for any portion of a month prior to
the cure of an Event.

        3. Registration Procedures
           -----------------------

               In connection with the Company's registration obligations
hereunder, the Company shall:

               (a) Not less than five Trading Days prior to the filing of
each Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or
deemed incorporated therein by reference), the Company shall, (i) furnish to
each Holder copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders, and (ii) cause its
officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of Registrable
Securities shall reasonably and in good faith object, provided, the Company
is notified of such objection in writing no later than 5 Trading Days after
the Holders have been so furnished copies of such documents (it being
understood that during any such period of good faith objection by such
Holders, any timing deadlines on the Company shall be tolled). Any
prospectus supplements required to be filed less than 5 Trading Days after
the occurrence of any


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event, shall not be subject to prior approval by the Holders, but the Company
shall provide pre-filing copies to the Holders.


               (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep a
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably possible, and in any event
within 15 Trading Days, to any comments received from the Commission with
respect to a Registration Statement or any amendment thereto and as promptly
as reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to a Registration
Statement; and (iv) comply in all material respects with the provisions of
the Securities Act and the Exchange Act with respect to the disposition of
all Registrable Securities covered by a Registration Statement during the
applicable period in accordance (subject to the terms of this Agreement)
with the intended methods of disposition by the Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so
supplemented.

               (c) If during the Effectiveness Period, the number of
Registrable Securities at any time exceeds 85% of the number of shares of
Common Stock then registered in a Registration Statement, then the Company
shall file as soon as reasonably practicable but in any case prior to the
applicable Filing Date, an additional Registration Statement covering the
resale of by the Holders of not less than 150% of the number of such
Registrable Securities.

               (d) Notify the Holders of Registrable Securities to be sold
(which notice shall, pursuant to clauses (ii) through (vi) hereof shall be
accompanied by an instruction to suspend the use of the Prospectus until the
requisite changes have been made) as promptly as reasonably possible (and,
in the case of (i)(A) below, not less than five Trading Days prior to such
filing) and (if requested by any such Person) confirm such notice in writing
no later than one Trading Day following the day (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement
(the Company shall provide true and complete copies thereof and all written
responses thereto to each of the Holders); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the Commission or any other Federal
or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration


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Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any Proceeding for such purpose; (v) of the occurrence of any event or
passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement
made in a Registration Statement or Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of a Registration
Statement or the Prospectus, as the case may be, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and (vi) the occurrence or existence of any pending corporate development
with respect to the Company that the Company believes may be material and
that, in the determination of the Company, makes it not in the best
interests of the Company to allow continued availability or the Registration
Statement or Prospectus.

               (e) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably
request. Subject to the terms of this Agreement, the Company hereby consents
to the use of such Prospectus and each amendment or supplement thereto by
each of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

               (f) Use commercially reasonable efforts to register or
qualify the resale of such Registrable Securities as required under
applicable securities or Blue Sky laws of each State within the United
States as any Holder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period; provided, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so
qualified or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.

               (g) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any
such Holders may request.

               (h) Upon the occurrence of any event contemplated this
Section 3, as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither a Registration Statement

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nor such Prospectus will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. If the Company notifies the Holders in accordance
with clauses (ii) through (vi) of Section 3(d) above to suspend the use of
the use of any Prospectus until the requisite changes to such Prospectus
have been made, or the Company otherwise notifies the Holders of its
election to suspend the availability of a Registration Statement and
Prospectus pursuant to clause (vi) of Section 3(d), then the Holders shall
suspend use of such Prospectus. The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as is
practicable, except that in the case of suspension of the availability of a
Registration Statement and Prospectus pursuant to clause (vi) of Section
3(d), the Company shall not be required to take such action until such time
as it shall determine that the continued availability of the Registration
Statement and Prospectus is no longer not in the best interests of the
Company. Notwithstanding the Company's right to suspend the use of the
prospectus hereunder, the Company shall remain liable to the Holders
pursuant to Section 2(c) for any suspensions of the Registration Statement
hereunder which otherwise require payment thereunder.

           (i) Comply with all applicable rules and regulations of the
Commission.

           (j) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.

           (k) The Company may require, at any time prior to the third
Trading Day prior to the Filing Date, each Holder to furnish to the Company
a statement as to the number of shares of Common Stock beneficially owned by
such Holder and, if requested by the Commission, the controlling person
thereof, within three Trading days of the Company's request. During any
periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any
Holder fails to furnish requested information within three Trading Days of
the Company's request, any liquidated damages that are accruing at such time
shall be tolled and any Event of Default that may otherwise occur solely
because of such delay shall be suspended, until such information is
delivered to the Company.

        4. Registration Expenses. All fees and expenses incident to the
           ---------------------
performance of or compliance with this Agreement by the Company shall be
borne by the Company whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and
expenses (A) with respect to filings required to be made with the Principal
Market on which the Common Stock is then listed for trading, and (B) in
compliance with applicable state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the


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Registrable Securities for investment under the laws of such jurisdictions
as requested by the Holders )), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and
of printing prospectuses requested by the Holders), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for
the Company, and (v) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated
by this Agreement. In addition, the Company shall be responsible for all of
its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder. In no event
shall the Company be responsible for any broker or similar commissions or,
except to the extent provided for in the Transaction Documents, any legal
fees or other costs of the Holders.

        5. Indemnification
           ---------------

               (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result
of a pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls
any such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted
by applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the
extent, but only to the extent, that (1) such untrue statements or omissions
or alleged untrue statements or omissions are based upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement, such Prospectus or such form
of Prospectus or in any amendment or supplement thereto or (2) in the case
of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi),
the use by such Holder of an outdated or defective Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated
or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). The Company shall notify the Holders promptly
of the institution, threat or assertion


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of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

               (b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction
in a final judgment not subject to appeal or review) arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising out of or based upon: (i) such Holder's
failure to comply with the prospectus delivery requirements of the
Securities Act or with the plan of distribution, or (ii) any omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent,
such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for
inclusion in such Registration Statement or such Prospectus or to the extent
that (1) such untrue statements or omissions are based upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such
form of Prospectus or in any amendment or supplement thereto or (2) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

               (c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall promptly
               -----------------
notify the Person from whom indemnity is sought (the "Indemnifying Party")
in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that such failure shall have prejudiced the
Indemnifying Party.

               An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the


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Indemnifying Party has agreed in writing to pay such fees and expenses; or
(2) the Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any
such Proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a material conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense thereof and the expense of
one such counsel for each Holder shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall
not be unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.

               Subject to the terms of this Agreement, all fees and expenses
of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to
the Indemnified Party, as incurred, within ten Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses
to the extent it is finally judicially determined that such Indemnified
Party is not entitled to indemnification hereunder).

               (d) Contribution. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such


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party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

               The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d), no
Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.

               The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.

        6. Miscellaneous
           -------------

               (a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and all of the Holders of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively
to the rights of Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of all of the Registrable
Securities to which such waiver or consent relates; provided, however, that
                                                    --------  -------
the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

               (b) No Inconsistent Agreements. Neither the Company nor any
of its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities, that would have the
effect of impairing the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any
registration rights with respect to a material amount of its securities to
any Person that have not been satisfied in full (except for: (i) shares
included on a registration statement on Form S-1 filed in June 2003 and not
yet declared effective, (ii) common shares underlying employee stock
options, (iii) potential registration rights in connection with potential
earn-out payments in an amount estimated by the Company to be under
$500,000, and (iv) shares that may be issued in connection with the
severance of former officers as set forth in the Proxy).

                                     11

<PAGE>
<PAGE>

               (c) No Piggyback on Registrations. Except as and to the
extent specified in Schedule 6(c) hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other
than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to any of its
security holders. The Company shall not file any other registration
statement on Form S-1 or S-3 until the initial Registration Statement
required hereunder is declared effective by the Commission, provided that
this Section 6(c) shall not prohibit the Company from filing amendments to
registration statements already filed.

               (d) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant
to the Registration Statement.

               (e) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice
from the Company of the occurrence of any event of the kind described in
Sections 3(d)(ii), (iii) or (vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement contemplated by Section 3(h), or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph. The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition
of the Registrable Securities hereunder shall be subject to the provisions
of Section 2(b).

               (f) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine
to prepare and file with the Commission a registration statement relating to
an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable
in connection with stock option or other employee benefit plans, then the
Company shall send to each Holder written notice of such determination and,
if within fifteen days after receipt of such notice, any such Holder shall
so request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such holder
requests to be registered; provided, that, the Company shall not be required
to register any Registrable Securities pursuant to this Section 6(f) that
are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act.

               (g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be delivered
as set forth in the Purchase Agreement.

                                     12

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<PAGE>

               (h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of all of the Holders of the then-outstanding Registrable
Securities. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

               (i) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be
an original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.

               (j) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Agreement, then the prevailing
party in such Proceeding shall be reimbursed by the other party for its
attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.

               (k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.

               (l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ
an alternative


                                     13

<PAGE>
<PAGE>

means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.

               (m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

               (n) Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with
the obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Purchasers are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each Purchaser shall be entitled to protect and enforce its
rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose.

                            ********************


                                     14

<PAGE>
<PAGE>



               IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.


                             APPLIED DIGITAL SOLUTIONS, INC.


                             By: /s/ Scott Silverman
                                -----------------------------------
                                Name: Scott Silverman
                                Title: CEO

                     [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                     15


<PAGE>
<PAGE>


                     [SIGNATURE PAGE OF HOLDERS TO RRA]


ELLIOTT ASSOCIATES, L.P.

By: /s/ Paul Singer
   -----------------------------------
   Paul Singer, General Partner



ELLIOTT INTERNATIONAL, L.P.
By: Elliott International Capital Advisors Inc.,
    as Attorney-in-Fact

By: /s/ Paul Singer
   -----------------------------------
   Paul Singer, President


                                     16

<PAGE>
<PAGE>


                      [SIGNATURE PAGE OF HOLDERS TO RRA]

OMICRON MASTER TRUST
By: Omicron Capital L.P., as subadvisor
By: Omicron Capital Inc., its general partner

By: /s/ Bruce Bernstein
   -----------------------------------
   Bruce Bernstein, President


                                     17

<PAGE>
<PAGE>


                      [SIGNATURE PAGE OF HOLDERS TO RRA]



MIDSUMMER INVESTMENT, LTD.

By: /s/ Scott Kaufman
   -----------------------------------
   Scott Kaufman, Authorized Signatory




                                     18

<PAGE>
<PAGE>


                     [SIGNATURE PAGE OF HOLDERS TO RRA]



ISLANDIA, L.P.

By: /s/ Richard Berner
   -------------------------------------
   Name:  Richard Berner
   Title: President of John Lang, Inc.,
           General Partner


                                     19

<PAGE>
<PAGE>

                     [SIGNATURE PAGE OF HOLDERS TO RRA]


PORTSIDE GROWTH AND OPPORTUNITY FUND

By: /s/ Jeffrey M. Solomon
   -----------------------------------
   Name: Jeffrey M. Solomon
   Title: Authorized Signatory


                                     20

<PAGE>
<PAGE>

                            PLAN OF DISTRIBUTION
                            --------------------

         The selling shareholders or any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. The selling shareholders may use any one or
more of the following methods when selling shares:

    o    ordinary brokerage transactions and transactions in which the
         broker-dealer solicits purchasers;

    o    block trades in which the broker-dealer will attempt to sell the
         shares as agent but may position and resell a portion of the block
         as principal to facilitate the transaction;

    o    purchases by a broker-dealer as principal and resale by the
         broker-dealer for its account;

    o    an exchange distribution in accordance with the rules of the
         applicable exchange;

    o    privately negotiated transactions;

    o    settlement of short sales;

    o    broker-dealers may agree with the selling shareholders to sell a
         specified number of such shares at a stipulated price per share;

    o    a combination of any such methods of sale; and

    o    any other method permitted pursuant to applicable law.

         The selling shareholders may also sell shares that qualify for sale
pursuant to Rule 144 under the Securities Act, rather than under this
prospectus. In effecting sales, broker-dealers engaged by the selling
shareholders may arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the selling
shareholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated. The selling
shareholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved. Broker-dealers may agree to
sell a specified number of such shares at a stipulated price per share, and,
to the extent such broker-dealer is unable to do so acting as agent for us
or a selling shareholder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to
time in transactions, which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above, in the over-the-counter markets or otherwise at pries and on terms
then prevailing at the time of sale, at prices than related to


                                     21

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<PAGE>

the then-current market price or in negotiated transactions. In connection
with such resales, broker-dealers may pay to or receive from the purchasers
such shares commissions as described above.

         The selling shareholder may from time to time pledge or grant a
security interest in some or all of the Shares or common stock or Warrant
owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares
of common stock from time to time under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933 amending the list of selling
shareholders to include the pledgee, transferee or other successors in
interest as selling shareholders under this prospectus.

         The selling shareholders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or
other successors in interest will be the selling beneficial owners for
purposes of this prospectus.

         The selling shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling shareholders
have informed the Company that none of them have any agreement or
understanding, directly or indirectly, with any person to distribute the
common stock.

         The Company is required to pay all fees and expenses incurred by
the Company incident to the registration of the shares. The Company has
agreed to indemnify the selling shareholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.


                                     22