Exhibit 10.5


 


Execution Copy


 


INTEREST
WAIVER AND WARRANT RESET AGREEMENT


 


THIS INTEREST WAIVER AND WARRANT RESET
AGREEMENT, dated as of December 29, 2005 (this “Agreement”),
is made by and among Applied Digital Solutions, Inc. (the “Company”), Satellite Strategic
Finance Partners, Ltd. (“SSFP”) and
Satellite Strategic Finance Associates, LLC (“SSFA”
and, together with SSFP, the “Purchasers”).


 


A.                                   The Company issued (i) a
Senior Unsecured Note dated June 10, 2005 to SSFA in the principal amount
of $1,986,000 (the “SSFA Note”), and (ii) a
Senior Unsecured Note dated June 10, 2005 to SSFP in the principal amount
of $3,364,000 (the “SSFP Note” and, together with
the SSFA Note, the “Notes”).


 


B.                                     The Company issued
(i) a Series E Warrant dated June 10, 2005 to SSFA for the
purchase of 436,559 shares of the Company’s common stock (the “SSFA Warrant”), and (ii) a Series E
Warrant dated June 10, 2005 to SSFP for the purchase of 739,516 shares of
the Company’s common stock (the “SSFP Warrant”
and, together with the SSFA Warrant, the “Warrants”).


 


C.                                     The Company desires
to reduce the exercise price of the Warrants with respect to an aggregate of
200,000 Warrant shares in consideration for the forgiveness and waiver by the
Purchasers of an aggregate of $37,004 of accrued interest on the Notes.


 


NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and the Purchasers hereby agree as follows:


 


1.                                       Adjustment to
the Warrant Exercise Price.


 


(a)                                  The last sentence of Section 1(a) of
the SSFA Warrant is hereby amended and restated in its entirety as follows:


 


The exercise price
for each of (i) 74,240 Warrant Shares purchased by the Holder upon the
exercise of this Warrant shall be equal to $3.75 (the “Adjusted
Exercise Price”), and (ii) the remaining 362,319 Warrant
Shares purchased by the Holder upon the exercise of this Warrant shall be equal
to $4.09 (the “Unadjusted Exercise Price”).  As used herein, the term “Exercise Price” means the Adjusted
Exercise Price or the Unadjusted Exercise Price, as applicable.  The Holder may exercise this Warrant at the
Adjusted Exercise Price or the Unadjusted Exercise Price in any order or
increment, subject to the number of Warrant Shares allocated to each such
Exercise Price.  The Exercise Price is subject
to adjustment for the events specified in Section 6 below, provided that any adjustment to the Exercise Price shall be
calculated separately for the Adjusted Exercise Price and the Unadjusted
Exercise Price.


 


(b)                                 The last sentence of Section 1(a) of
the SSFP Warrant is hereby amended and restated in its entirety as follows:


 


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The exercise
price for each of (i) 125,760 Warrant Shares purchased by the Holder upon
the exercise of this Warrant shall be equal to $3.75 (the “Adjusted
Exercise Price”), and (ii) the remaining 613,756 Warrant
Shares purchased by the Holder upon the exercise of this Warrant shall be equal
to $4.09 (the “Unadjusted Exercise Price”).  As used herein, the term “Exercise Price” means the Adjusted
Exercise Price or the Unadjusted Exercise Price, as applicable.  The Holder may exercise this Warrant at the
Adjusted Exercise Price or the Unadjusted Exercise Price in any order or
increment, subject to the number of Warrant Shares allocated to each such
Exercise Price.  The Exercise Price is
subject to adjustment for the events specified in Section 6 below, provided that any adjustment to the Exercise Price shall be
calculated separately for the Adjusted Exercise Price and the Unadjusted
Exercise Price.


 


2.                                       Waiver and Forgiveness
of Interest.


 


(a)                                  SSFA hereby waives
any right and entitlement to the payment of $13,736 in accrued interest on the SSFA
Note.  The Company and SSFA acknowledge
and agree that after giving effect to the foregoing waiver of interest, the
aggregate amount of principal and interest outstanding on the SSFA Note as of
the date hereof is $1,986,000.


 


(b)                                 SSFP hereby waives any
right and entitlement to the payment of $23,268 in accrued interest on the SSFP
Notes.  The Company and SSFP acknowledge
and agree that after giving effect to the foregoing waiver of interest, the
aggregate amount of principal and interest outstanding on the SSFP Note as of
the date hereof is $3,364,000.


 


3.                                       Representations
and Warranties.  The Company represents and
warrants to each Purchaser, and each Purchaser, severally and not jointly,
represents and warrants to the Company, that such party (a) has the
requisite corporate power and authority to execute, deliver and perform this
Agreement; and (b) this Agreement constitutes such party’s valid and
legally binding obligation, enforceable in accordance with its terms, subject
to (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general application
relating to or affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.


 


4.                                       Acknowledgement
and Waiver.  To the extent that the
transactions contemplated by this Agreement would, but for this Section 4, require an
adjustment to the exercise price or conversion price of any other warrants or
convertible securities held by the Purchasers, the Purchasers hereby waive any
such adjustment.  In addition, it is
agreed that the execution of the Note Purchase Agreement, dated as of the date
hereof, by the Company and Satellite Senior Income Fund, LLC and the other
agreements contemplated thereby, shall not constitute a violation or breach of any
of the agreements between the Company and the Purchasers, including, without
limitation, previously issued notes or other evidence of money borrowed,
warrants or common stock.


 


5.                                       Miscellaneous.  This Agreement may only be amended or
modified by a written agreement executed by the Company and the Purchasers.  This Agreement may be executed in
counterparts, each of which when taken together shall constitute an original of
this Agreement.


 


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This Agreement
shall be governed by, and construed under, the laws of the State of New York,
without regard to any conflict of laws principles.  The terms set forth in this Agreement are
part of a comprehensive agreement, each element of which is an integral aspect
of the transactions contemplated by this Agreement and, therefore, are
non-severable.


 


[Signatures on Following Page]


 


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IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the date first-above written.


 


	
  APPLIED DIGITAL SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Evan C. McKeown

  	
   

  	
   

  
	
   

  	
  Name: Evan C. McKeown

  
	
   

  	
  Title: Senior Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

  
	
   

  	
   

  
	
  By:

  	
  Satellite Asset Management, L.P., its
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Simon Raykher

  	
   

  
	
   

  	
   

  	
  Name: Simon Raykher

  
	
   

  	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
  SATELLITE STRATEGIC FINANCE PARTNERS, LTD

  
	
   

  	
   

  
	
  By:

  	
  Satellite Asset Management, L.P., its
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Simon Raykher

  	
   

  
	
   

  	
   

  	
  Name: Simon Raykher

  
	
   

  	
   

  	
  Title: General Counsel