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                                                                    EXHIBIT 10.5

                             SECURITY AGREEMENT

            SECURITY AGREEMENT, dated as of June 30, 2003 (this
"Agreement"), among Applied Digital Solutions, Inc., a Missouri corporation
 ---------
(the "Company") and Computer Equity Corporation, a Delaware corporation
      -------
(collectively with the Company, the "Debtor") and the signatories hereto,
                                     ------
their endorsees, transferees and assigns (collectively referred to as, the
"Secured Parties").
 ---------------

                            W I T N E S S E T H:

            WHEREAS, pursuant to the Company's 8.5% Convertible Exchangeable
Debentures, due November 1, 2005 (the "Debentures"), issued pursuant that
                                       ----------
certain Securities Purchase Agreement, dated the date of this Agreement, by
and among the Company and the Secured Parties (the "Purchase Agreement"),
                                                    ------------------
the Secured Parties have agreed to extend the loan to the Debtor evidenced
by the Debentures; and

            WHEREAS, in order to induce the Secured Parties to extend the
loan evidenced by the Debentures, the Debtor has agreed to execute and
deliver to the Secured Parties this Agreement and to grant the Secured
Parties a first priority security interest in all of the accounts receivable
of the Debtor to secure the prompt payment, performance and discharge in
full of all of the Company's obligations under the Debentures.

            NOW, THEREFORE, in consideration of the agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree
as follows:

            1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth in this Section 1. Terms used but
not otherwise defined in this Agreement that are defined in Article 9 of the
UCC (such as "general intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.

                  (a) "Collateral" means the collateral in which the Secured
                       ----------
            Parties are granted a security interest by this Agreement and which
            shall include the following, whether presently owned or existing or
            hereafter acquired or coming into existence, and all additions and
            accessions thereto and all substitutions and replacements thereof,
            and all proceeds, products and accounts thereof, including, without
            limitation, all proceeds from the sale or transfer of the
            Collateral and of insurance covering the same and of any tort
            claims in connection therewith:

                           (i) All Receivables of the Debtor including all
                  insurance proceeds, and rights to refunds or
                  indemnification whatsoever owing, together with all
                  instruments, all documents of title representing any of
                  the foregoing, all rights in any merchandising, goods,
                  equipment, motor


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                  vehicles and trucks which any of the same may represent,
                  and all right, title, security and guaranties with respect
                  to each Receivable, including any right of stoppage in
                  transit; and

                           (ii) All of the Debtor's documents, instruments
                  and chattel paper, files, records, books of account,
                  business papers, computer programs relating to and the
                  products and proceeds of all of the foregoing Collateral
                  set forth above.

                           (iii) A current schedule of all Receivables as of
                  a date close to June 30, 2003 is attached hereto as
                  Schedule X.

                  (c) "Obligations" means all of the Debtor's obligations
                       -----------
            under this Agreement, the Debentures and any other agreements or
            obligations undertaken by the Company to the Secured Parties, in
            each case, whether now or hereafter existing, voluntary or
            involuntary, direct or indirect, absolute or contingent, liquidated
            or unliquidated, whether or not jointly owed with others, and
            whether or not from time to time decreased or extinguished and
            later increased, created or incurred, and all or any portion of
            such obligations or liabilities that are paid, to the extent all or
            any part of such payment is avoided or recovered directly or
            indirectly from the Secured Parties as a preference, fraudulent
            transfer or otherwise as such obligations may be amended,
            supplemented, converted, extended or modified from time to time.

                  (d) "UCC" means the Uniform Commercial Code and or any
                       ---
            other applicable law of any jurisdiction (including, without
            limitation, the state of California) as to any Collateral located
            therein.

            2. GRANT OF SECURITY INTEREST. As an inducement for the Secured
Parties to extend the loan as evidenced by the Debentures and to secure the
complete and timely payment, performance and discharge in full, as the case
may be, of all of the Obligations, the Debtor hereby, unconditionally and
irrevocably, pledges, grants and hypothecates to the Secured Parties, a
continuing first priority security interest in, a lien upon and a right of
set-off against all of their respective right, title and interest of
whatsoever kind and nature in and to the Collateral (the "Security
                                                          --------
Interest").
--------

            3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
DEBTOR. Each Debtor represents and warrants to, and covenants and agrees
with, the Secured Parties as follows:

                  (a) The Debtor has the requisite corporate power and
            authority to enter into this Agreement and otherwise to carry out
            its obligations thereunder. The execution, delivery and performance
            by the Debtor of this Agreement and the filings contemplated
            therein have been duly authorized by all necessary action on the
            part of the Debtor and no further action is required by the Debtor.

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                  (b) The Debtor represents and warrants that they have no
            place of business or offices where their respective books of
            account and records are kept (other than temporarily at the offices
            of its attorneys or accountants) or places where Collateral is
            stored or located, except as set forth on Schedule A attached
                                                      ----------
            hereto.

                  (c) Except as set forth on Schedule B attached hereto, the
                                             ----------
            Debtor is the sole owner of the Collateral (except for
            non-exclusive licenses granted by the Debtor in the ordinary course
            of business), free and clear of any liens, security interests,
            encumbrances, rights or claims, and are fully authorized to grant
            the Security Interest in and to pledge the Collateral. There is not
            on file in any governmental or regulatory authority, agency or
            recording office an effective financing statement, security
            agreement, license or transfer or any notice of any of the
            foregoing (other than those that have been filed in favor of the
            Secured Parties pursuant to this Agreement) covering or affecting
            any of the Collateral. So long as this Agreement shall be in
            effect, Debtor shall not execute and shall not knowingly permit to
            be on file in any such office or agency any such financing
            statement or other document or instrument (except to the extent
            filed or recorded in favor of the Secured Parties pursuant to the
            terms of this Agreement).

                  (d) No part of the Collateral has been judged invalid or
            unenforceable. No written claim has been received that any
            Collateral or Debtor's use of any Collateral violates the rights of
            any third party. There has been no adverse decision to Debtor's
            claim of ownership rights in or exclusive rights to use the
            Collateral in any jurisdiction or to Debtor's right to keep and
            maintain such Collateral in full force and effect, and there is no
            proceeding involving said rights pending or, to the best knowledge
            of the Debtor, threatened before any court, judicial body,
            administrative or regulatory agency, arbitrator or other
            governmental authority.

                  (e) The Debtor shall at all times maintain their
            respective books of account and records relating to the Collateral
            at their respective principal place of business and their
            respective Collateral at the locations set forth on Schedule A
                                                                ----------
            attached hereto and may not relocate such books of account and
            records or tangible Collateral unless they deliver to the Secured
            Parties at least 30 days prior to such relocation (i) written
            notice of such relocation and the new location thereof (which must
            be within the United States) and (ii) evidence that appropriate
            financing statements under the UCC and other necessary documents
            have been filed and recorded and other steps have been taken to
            perfect the Security Interest to create in favor of the Secured
            Parties a valid, perfected and continuing liens in the Collateral.

                  (f) This Agreement creates in favor of the Secured Parties
            a valid security interest in the Collateral securing the payment
            and performance of the Obligations and, upon making the filings
            described in the immediately following sentence, a perfected
            security interest in such Collateral. Except for the filing of
            financing


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            statements pursuant to the UCC with the proper filing and
            recording agencies in the jurisdictions indicated on Schedule C,
                                                                 ----------
            attached hereto, no authorization or approval of or filing with or
            notice to any governmental authority or regulatory body is required
            either (i) for the grant by the Debtor of, or the effectiveness of,
            the Security Interest granted hereby or for the execution, delivery
            and performance of this Agreement by the Debtor or (ii) for the
            perfection of or exercise by the Secured Parties of its rights and
            remedies hereunder.

                  (g) On the date of execution of this Agreement, the Debtor
            authorizes the Representative of the Secured Parties to file one or
            more financing statements under the UCC with respect to the
            Security Interest with the proper filing and recording agencies in
            the jurisdictions indicated on Schedule C, attached hereto and in
                                           ----------
            such other jurisdictions as may be requested by the Secured
            Parties.

                  (h) The execution, delivery and performance of this
            Agreement by the Debtor does not conflict with, or constitute a
            default (or an event that with notice or lapse of time or both
            would become a default) under, or give to others any rights of
            termination, amendment, acceleration or cancellation (with or
            without notice, lapse of time or both) of, any agreement, credit
            facility, debt or other instrument (evidencing Debtor's debt or
            otherwise) or other understanding to which Debtor is a party or by
            which any property or asset of the Debtor is bound or affected. No
            consent (including, without limitation, from stockholders or
            creditors of the Debtor) is required for the Debtor to enter into
            and perform its obligations hereunder.

                  (i) The Debtor shall at all times maintain the liens and
            Security Interest provided for hereunder as valid and perfected
            liens and security interests in the Collateral in favor of the
            Secured Parties until this Agreement and the Security Interest
            hereunder shall be terminated pursuant to Section 11 hereof. The
            Debtor hereby agrees to defend the same against any and all
            persons. The Debtor shall safeguard and protect all Collateral for
            the account of the Secured Parties. At the request of the Secured
            Parties, the Debtor will sign and deliver to the Secured Parties at
            any time or from time to time one or more financing statements
            pursuant to the UCC in form reasonably satisfactory to the Secured
            Parties and will pay the cost of filing the same in all public
            offices wherever filing is, or is deemed by the Secured Parties to
            be, necessary or desirable to effect the rights and obligations
            provided for herein. Without limiting the generality of the
            foregoing, the Debtor shall pay all fees, taxes and other amounts
            necessary to maintain the Collateral and the Security Interest
            hereunder, and the Debtor shall obtain and furnish to the Secured
            Parties from time to time, upon demand, such releases and/or
            subordinations of claims and liens which may be required to
            maintain the priority of the Security Interest hereunder.

                  (j) The Debtor will not transfer, pledge, hypothecate,
            encumber, license (except for non-exclusive licenses granted by a
            Debtor in its ordinary course of


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            business and sales of inventory), sell or otherwise dispose of any
            of the Collateral without the prior written consent of a majority
            in interest of the Secured Parties.

                  (k) The Debtor shall keep and preserve its Equipment,
            Inventory and other tangible Collateral in good condition, repair
            and order and shall not operate or locate any such Collateral (or
            cause to be operated or located) in any area excluded from
            insurance coverage.

                  (l) The Debtor shall, within ten (10) days of obtaining
            knowledge thereof, advise the Secured Parties promptly, in
            sufficient detail, of any substantial change in the Collateral, and
            of the occurrence of any event which would have a material adverse
            effect on the value of the Collateral or on the Secured Parties'
            security interest therein.

                  (m) The Debtor shall promptly execute and deliver to the
            Secured Parties such further deeds, mortgages, assignments,
            security agreements, financing statements or other instruments,
            documents, certificates and assurances and take such further action
            as the Secured Parties may from time to time request and may in its
            sole discretion deem necessary to perfect, protect or enforce its
            security interest in the Collateral.

                  (n) The Debtor shall permit the Secured Parties and their
            representatives and agents to inspect the Collateral at any
            commercially reasonable time, and to make copies of records
            pertaining to the Collateral as may be requested by a Secured Party
            from time to time.

                  (o) The Debtor shall take all steps reasonably necessary
            to diligently pursue and seek to preserve, enforce and collect any
            rights, claims, causes of action and accounts receivable in respect
            of the Collateral.

                  (p) The Debtor shall promptly notify the Secured Parties
            in sufficient detail upon becoming aware of any attachment,
            garnishment, execution or other legal process levied against any
            Collateral and of any other information received by the Debtor that
            may materially affect the value of the Collateral, the Security
            Interest or the rights and remedies of the Secured Parties
            hereunder.

                  (q) All information heretofore, herein or hereafter
            supplied to the Secured Parties by or on behalf of the Debtor with
            respect to the Collateral is accurate and complete in all material
            respects as of the date furnished.

                  (r) The Debtor shall at all times preserve and keep in
            full force and effect their respective valid existence and good
            standing and any rights and franchises material to its business.

                  (s) The Debtor will not change its name, corporate
            structure, or identity, or add any new fictitious name unless it
            provides at least 30 days prior written


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            notice to the Secured Parties of such change and, at the time of
            such written notification, such Debtor provides any financing
            statements or fixture filings necessary to perfect and continue
            perfected the Security Interest granted and evidenced by this
            Agreement.

                  (t) The Debtor may not relocate its chief executive office
            to a new location without providing 30 days prior written
            notification thereof to the Secured Parties and so long as, at the
            time of such written notification, the Debtor provides any
            financing statements or fixture filings necessary to perfect and
            continue perfected the Security Interest granted and evidenced by
            this Agreement.

            4. DEFAULTS. The following events shall be "Events of Default":

                  (a) The occurrence of an Event of Default (as defined in
            the Debenture) under the Debenture;

                  (b) Any representation or warranty of a Debtor in this
            Agreement shall prove to have been incorrect in any material
            respect when made;

                  (c) The failure by a Debtor to observe or perform any of
            its obligations hereunder for five (5) business days after delivery
            to such Debtor of notice of such failure by or on behalf of a
            Secured Party; or

                  (c) If any provision of this Agreement shall at any time
            for any reason be declared to be null and void, or the validity or
            enforceability thereof shall be contested by a Debtor, or a
            proceeding shall be commenced by a Debtor, or by any governmental
            authority having jurisdiction over a Debtor, seeking to establish
            the invalidity or unenforceability thereof, or a Debtor shall deny
            that a Debtor has any liability or obligation purported to be
            created under this Agreement.

            5. Duty To Hold In Trust. Upon the occurrence of any Event of
               ---------------------
Default and at any time thereafter, the Debtor shall, upon receipt of any
revenue, income or other sums subject to the Security Interest, whether
payable pursuant to the Debenture or otherwise, or of any check, draft,
note, trade acceptance or other instrument evidencing an obligation to pay
any such sum, hold the same in trust for the Secured Parties and shall
forthwith endorse and transfer any such sums or instruments, or both, to the
Secured Parties, pro-rata in proportion to their initial purchases of
Debentures for application to the satisfaction of the Obligations.

            6. Rights and Remedies Upon Default. Upon the occurrence of any
               --------------------------------
Event of Default and at any time thereafter, the Secured Parties shall have
the right to exercise all of the remedies conferred hereunder and under the
Debentures, and the Secured Parties shall have all the rights and remedies
of a secured party under the UCC. Without limitation, the Secured Parties
shall have the following rights and powers:

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                  (a) The Secured Parties shall have the right to take
            possession of the Collateral and, for that purpose, enter, with the
            aid and assistance of any person, any premises where the
            Collateral, or any part thereof, is or may be placed and remove the
            same, and the Debtor shall assemble the Collateral and make it
            available to the Secured Parties at places which the Secured
            Parties shall reasonably select, whether at the Debtor's premises
            or elsewhere, and make available to the Secured Parties, without
            rent, all of the Debtor's respective premises and facilities for
            the purpose of the Secured Parties taking possession of, removing
            or putting the Collateral in saleable or disposable form.

                  (b) The Secured Parties shall have the right to assign,
            sell, lease or otherwise dispose of and deliver all or any part of
            the Collateral, at public or private sale or otherwise, either with
            or without special conditions or stipulations, for cash or on
            credit or for future delivery, in such parcel or parcels and at
            such time or times and at such place or places, and upon such terms
            and conditions as the Secured Parties may deem commercially
            reasonable, all without (except as shall be required by applicable
            statute and cannot be waived) advertisement or demand upon or
            notice to the Debtor or right of redemption of a Debtor, which are
            hereby expressly waived. Upon each such sale, lease, assignment or
            other transfer of Collateral, the Secured Parties may, unless
            prohibited by applicable law which cannot be waived, purchase all
            or any part of the Collateral being sold, free from and discharged
            of all trusts, claims, right of redemption and equities of the
            Debtor, which are hereby waived and released.

            7. Applications of Proceeds. The proceeds of any such sale,
               ------------------------
lease or other disposition of the Collateral hereunder shall be applied
first, to the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like (including, without limitation,
any taxes, fees and other costs incurred in connection therewith) of the
Collateral, to the reasonable attorneys' fees and expenses incurred by the
Secured Parties in enforcing its rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to
satisfaction of the Obligations pro-rata in proportion to each Secured
Party's initial purchases of Debentures, and to the payment of any other
amounts required by applicable law, after which the Secured Parties shall
pay to the applicable Debtor any surplus proceeds. If, upon the sale,
license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Parties are legally
entitled, the Debtor will be liable for the deficiency, together with
interest thereon, at the rate of 10% per annum or the lesser amount
permitted by applicable law (the "Default Rate"), and the reasonable fees of
                                  ------------
any attorneys employed by the Secured Parties to collect such deficiency. To
the extent permitted by applicable law, the Debtor waives all claims,
damages and demands against the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral, unless due to
the gross negligence or willful misconduct of the Secured Parties. Upon the
receipt of any proceeds hereunder by a Secured Party, such Secured Party
shall, upon receipt of any revenue, income or other sums subject to the
Security Interest, whether payable pursuant to the Debenture or otherwise,
or of any check, draft, Debenture, trade acceptance or other instrument
evidencing an obligation to pay any such sum, hold the


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same in trust for the other Secured Parties and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Parties in
such amounts as is required hereunder.

            8. Costs and Expenses. The Debtor agrees to pay all reasonable
               ------------------
out-of-pocket fees, costs and expenses incurred in connection with any
filing required hereunder, including without limitation, any financing
statements pursuant to the UCC, continuation statements, partial releases
and/or termination statements related thereto or any expenses of any
searches reasonably required by the Secured Parties. The Debtor shall also
pay all other claims and charges which in the reasonable opinion of the
Secured Parties might prejudice, imperil or otherwise affect the Collateral
or the Security Interest therein. The Debtor will also, upon demand, pay to
the Secured Parties the amount of any and all reasonable expenses, including
the reasonable fees and expenses of its counsel and of any experts and
agents, which the Secured Parties may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
or (iii) the exercise or enforcement of any of the rights of the Secured
Parties under the Debentures. Until so paid, any fees payable hereunder
shall be added to the principal amount of the Debentures and shall bear
interest at the Default Rate.

            9. Responsibility for Collateral. The Debtor assumes all
               -----------------------------
liabilities and responsibility in connection with all Collateral, and the
Obligations in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Collateral or its unavailability
for any reason.

            10. Security Interest Absolute. All rights of the Secured
                --------------------------
Parties and all Obligations of the Debtor hereunder, shall be absolute and
unconditional, irrespective of: (a) any lack of validity or enforceability
of this Agreement, the Debentures or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any
change in the time, manner or place of payment or performance of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Debentures or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral
for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle
and cancel in its sole discretion any insurance claims or matters made or
arising in connection with the Collateral; or (e) any other circumstance
which might otherwise constitute any legal or equitable defense available to
a Debtor, or a discharge of all or any part of the Security Interest granted
hereby. Until the Obligations shall have been paid and performed in full,
the rights of the Secured Parties shall continue even if the Obligations are
barred for any reason, including, without limitation, the running of the
statute of limitations or bankruptcy. The Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and
demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Parties hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable


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preference or fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Parties, then, in any such event, the Debtor's
obligations hereunder shall survive cancellation of this Agreement, and
shall not be discharged or satisfied by any prior payment thereof and/or
cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof.
The Debtor waives all right to require the Secured Parties to proceed
against any other person or to apply any Collateral which the Secured
Parties may hold at any time, or to marshal assets, or to pursue any other
remedy. The Debtor waives any defense arising by reason of the application
of the statute of limitations to any obligation secured hereby.

            11. Term of Agreement. The Security Interest as to a Secured
                -----------------
Party shall terminate on the earlier of (i) the date on which such Secured
Party no longer holds any principal amount of the original Debentures
purchased by such Secured Party or (ii) the date that the Purchasers'
Representative, acting on behalf of all Secured Parties as their duly
authorized agent, shall release the lien of the Secured Parties on the
Collateral in favor of a subsequent commercial lender to the Company on
terms reasonably satisfactory to the Purchaser's Representative, so long as
the Registration Statement is then effective. Upon such termination, the
Secured Parties, at the request and at the expense of the Debtor, will join
in executing any termination statement with respect to any financing
statement executed and filed pursuant to this Agreement.

            12. Power of Attorney; Further Assurances.
                -------------------------------------

                  (a) The Debtor authorizes the Secured Parties, and does
            hereby make, constitute and appoint the Secured Parties and their
            respective officers, agents, successors or assigns with full power
            of substitution, as the Debtor's true and lawful attorney-in-fact,
            with power, in the name of the Secured Parties or the Debtor, to,
            after the occurrence and during the continuance of an Event of
            Default, (i) endorse any Debentures, checks, drafts, money orders,
            or other instruments of payment (including payments payable under
            or in respect of any policy of insurance) in respect of the
            Collateral that may come into possession of the Secured Parties;
            (ii) to sign and endorse any financing statement pursuant to the
            UCC or any invoice, freight or express bill, bill of lading,
            storage or warehouse receipts, drafts against debtors, assignments,
            verifications and notices in connection with accounts, and other
            documents relating to the Collateral; (iii) to pay or discharge
            taxes, liens, security interests or other encumbrances at any time
            levied or placed on or threatened against the Collateral; (iv) to
            demand, collect, receipt for, compromise, settle and sue for monies
            due in respect of the Collateral; and (v) generally, to do, at the
            option of the Secured Parties, and at the expense of the Debtor, at
            any time, or from time to time, all acts and things which the
            Secured Parties deem necessary to protect, preserve and realize
            upon the Collateral and the Security Interest granted therein in
            order to effect the intent of this Agreement and the Debentures all
            as fully and effectually as the Debtor might or could do; and the
            Debtor hereby ratifies all that said attorney shall lawfully do or
            cause to be done by virtue hereof. This power of attorney is
            coupled with an


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            interest and shall be irrevocable for the term of this Agreement and
            thereafter as long as any of the Obligations shall be outstanding.

                  (b) On a continuing basis, the Debtor will make, execute,
            acknowledge, deliver, file and record, as the case may be, with the
            proper filing and recording agencies in any jurisdiction,
            including, without limitation, the jurisdictions indicated on
            Schedule C, attached hereto, all such instruments, and take all
            ----------
            such action as may reasonably be deemed necessary or advisable, or
            as reasonably requested by the Secured Parties, to perfect the
            Security Interest granted hereunder and otherwise to carry out the
            intent and purposes of this Agreement, or for assuring and
            confirming to the Secured Parties the grant or perfection of a
            security interest in all the Collateral under the UCC.

                  (c) The Debtor hereby irrevocably appoints the Secured
            Parties as the Debtor's attorney-in-fact, with full authority in
            the place and stead of the Debtor and in the name of the Debtor,
            from time to time in the Secured Parties' discretion, to take any
            action and to execute any instrument which the Secured Parties may
            deem necessary or advisable to accomplish the purposes of this
            Agreement, including the filing, in its sole discretion, of one or
            more financing or continuation statements and amendments thereto,
            relative to any of the Collateral without the signature of the
            Debtor where permitted by law.

            13. Notices. All notices, requests, demands and other
                -------
communications hereunder shall be subject to the notice provision of the
Purchase Agreement.

            14. Other Security. To the extent that the Obligations are now
                --------------
or hereafter secured by property other than the Collateral or by the
guarantee, endorsement or property of any other person, firm, corporation or
other entity, then the Secured Parties shall have the right, in its sole
discretion, to pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any
of the Secured Parties' rights and remedies hereunder.

            15. Miscellaneous.
                -------------

                  (a) No course of dealing between the Debtor and the
            Secured Parties, nor any failure to exercise, nor any delay in
            exercising, on the part of the Secured Parties, any right, power or
            privilege hereunder or under the Debentures shall operate as a
            waiver thereof; nor shall any single or partial exercise of any
            right, power or privilege hereunder or thereunder preclude any
            other or further exercise thereof or the exercise of any other
            right, power or privilege.

                  (b) All of the rights and remedies of the Secured Parties
            with respect to the Collateral, whether established hereby or by
            the Debentures or by any other agreements, instruments or documents
            or by law shall be cumulative and may be exercised singly or
            concurrently.

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                  (c) This Agreement constitutes the entire agreement of the
            parties with respect to the subject matter hereof and is intended
            to supersede all prior negotiations, understandings and agreements
            with respect thereto. Except as specifically set forth in this
            Agreement, no provision of this Agreement may be modified or
            amended except by a written agreement specifically referring to
            this Agreement and signed by the parties hereto.

                  (d) In the event that any provision of this Agreement is
            held to be invalid, prohibited or unenforceable in any jurisdiction
            for any reason, unless such provision is narrowed by judicial
            construction, this Agreement shall, as to such jurisdiction, be
            construed as if such invalid, prohibited or unenforceable provision
            had been more narrowly drawn so as not to be invalid, prohibited or
            unenforceable. If, notwithstanding the foregoing, any provision of
            this Agreement is held to be invalid, prohibited or unenforceable
            in any jurisdiction, such provision, as to such jurisdiction, shall
            be ineffective to the extent of such invalidity, prohibition or
            unenforceability without invalidating the remaining portion of such
            provision or the other provisions of this Agreement and without
            affecting the validity or enforceability of such provision or the
            other provisions of this Agreement in any other jurisdiction.

                  (e) No waiver of any breach or default or any right under
            this Agreement shall be considered valid unless in writing and
            signed by the party giving such waiver, and no such waiver shall be
            deemed a waiver of any subsequent breach or default or right,
            whether of the same or similar nature or otherwise.

                  (f) This Agreement shall be binding upon and inure to the
            benefit of each party hereto and its successors and assigns,
            including, without limitation, any successor to either Debtor by
            statutory merger.

                  (g) Each party shall take such further action and execute
            and deliver such further documents as may be necessary or
            appropriate in order to carry out the provisions and purposes of
            this Agreement.

                  (h) 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 agrees that all proceedings
            concerning the interpretations, enforcement and defense of the
            transactions contemplated by this Agreement and the Debenture
            (whether brought against a party hereto or its respective
            affiliates, directors, officers, shareholders, employees or agents)
            shall be commenced exclusively in the state and federal courts
            sitting in the City of New York, Borough of Manhattan. Each party
            hereto 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

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            agrees not to assert in any proceeding, any claim that it is not
            personally subject to the jurisdiction of any such court, that such
            proceeding is improper. Each party hereto hereby irrevocably waives
            personal service of process and consents to process being served in
            any such proceeding by mailing a copy thereof via registered or
            certified mail or overnight delivery (with evidence of delivery) 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
            reasonable attorneys fees and other costs and expenses incurred
            with the investigation, preparation and prosecution of such
            proceeding.

                  (i) 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.

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


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            IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

          DEBTOR:                   APPLIED DIGITAL SOLUTIONS, INC.


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

                                    COMPUTER EQUITY CORPORATION

                                    By: /s/ Kevin McLaughlin
                                       -------------------------------------
                                       Name: Kevin McLaughlin
                                       Title: SVP

SECURED PARTIES:
MIDSUMMER INVESTMENT, LTD.                     Address for Notice:
                                               ------------------
For itself and as Purchasers' Representative   C/o Midsummer Capital, LLC
Under the Purchase Agreement                   485 Madison Avenue, 23rd Floor
                                               New York, New York 10022
By: /s/ Scott Kaufman                          Tel: (212) 584-2140
   -------------------------------------       Fax: (212) 584-2142
   Scott Kaufman                               Attn: Michel A. Amsalem
   Authorized Signatory


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                                 SCHEDULE A

Principal Place of Business of Debtor:

         Applied Digital Solutions, Inc.
         400 Royal Palm Way, Suite 410
         Palm Beach, FL 33480

         Computer Equity Corporation
         4500 Southgate Place, Suite 300
         Chantilly, VA 20151

Locations Where Collateral is Located or Stored:

            Same as above.


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<PAGE>


                                 SCHEDULE B


UCC financing statements are in place in favor of IBM Credit LLC, all of
which (upon Closing) IBM Credit LLC has a contractual and legal obligation
to terminate promptly.


                                     15

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                                 SCHEDULE C

                                  Delaware

                                   Florida

                                  Missouri



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