Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Continental Minerals Corp. - Exhibit 10.7

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE DECEMBER ♦,
2006. 

WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE
AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS, THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN
CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL DECEMBER
♦, 2006. 

$11,500,000 

Issue Date: August ♦, 2006

CONTINENTAL MINERALS CORPORATION 
(incorporated under
the laws of British Columbia) 

CONVERTIBLE SECURED PROMISSORY NOTE 
DUE AUGUST
♦, 2007 (THE “NOTE”) 

1. PROMISE TO PAY 

1.1 For value received, Continental Minerals Corporation (the
“Corporation”) hereby promises to pay to Taseko Mines Limited (the “Holder”) the
principal sum of $11,500,000 on or before August ♦, 2007 (the
“Maturity Date”), or on such earlier date as the principal hereof may become
due, together with interest thereon at the rate of 16.0% per annum. The interest
shall be payable monthly in arrears on the last day of each month commencing on
September 30, 2006 (the “Interest Payment Dates”), until the Maturity Date. 

2. PAYMENT OF INTEREST 

2.1 The Holder will have the right to elect to receive the
interest payment, subject to section 2.3, in either: 

	 	(a) 	
      cash; or

	 	 	 
	 	(b) 	
      common shares of the Corporation (the
  “Shares”).

2.2 Election by the Holder of the method of payment of interest
must be made in writing and delivered to the Corporation 10 business days before
the Interest Payment Date. Interest will be paid in cash in the event that the
Holder fails to timely deliver an election notice for Shares to the Holder. 

- 2 - 

2.3 Notwithstanding anything else herein provided, the
Corporation shall withhold (in cash) and pay over to Canada Revenue Agency any
required amounts for withholding of interest payment to the Holder, if it
appears the Holder is a non-resident of Canada. 

2.4 In the event the Holder elects to receive its interest
payment in Shares, the Corporation will issue to the Holder, such number of
Shares of the Holder as is equal to the amount of the interest payment divided
by the higher of (a) the volume weighted average of the closing price of the
common shares of the Corporation for the five trading days preceding the
Interest Payment Date and (b) the volume weighted average of the closing price
of the common shares of the Corporation for the five trading days preceding the
date of this Note.

2.5 A hold period of four months plus a day shall be applicable
to any Shares issued hereunder for the interest, such hold period to run from
the date of this Note.

3. SECURITY FOR REPAYMENT 

3.1 This Note shall be secured by a pledge of the issued share
capital of N7C Resources Inc., a wholly owned subsidiary of the Corporation,
which security interest shall be subordinated to any security interest, charge
or mortgage granted by the Corporation in respect of any indebtedness of the
Corporation to any charter bank or other commercial lending institution (the
“Senior Debt”). The Holder acknowledges that the Corporation may enter into
agreements with other lenders, and that such debt may rank senior to this Note.

3.2 The Senior Debt may be secured by a first charge over all
of the assets of the Corporation and its subsidiaries. The Holder hereby
acknowledges and agrees with the Corporation and with holders of such Senior
Debt that the security interest described herein will be fully subordinated to
security interest granted to such Senior Debt if determined to be in the best
interest of the Corporation by its board of directors. 

3.3 The Holder further acknowledges and agrees that, in the
event that the Corporation has insufficient funds to pay amount owing on the
Senior Debt and on this Note, payment may first be made on all amounts due and
payable on the Senior Debt from time to time, and only then shall be paid on
amounts due and payable on this Note. 

3.4 The Holder hereby appoints the President of the Corporation
as the Holder's attorney, to execute any agreement or understanding between the
Holder and holders of such Senior Debt acknowledging the subordination of the
Holder's security interest and granting priority to the holders of such Senior
Debt in respect of all payments made by the Corporation in respect of the Senior
Debt and this Note. 

4. EVENTS OF DEFAULT 

4.1 The entire unpaid principal amount will become immediately
due and payable upon the occurrence of any of the following events (each an
“Event of Default”): 

(a) if the Corporation fails to pay the
principal amount when due hereunder, and such failure continues for five (5)
business days; 

- 3 - 

(b) if the Corporation is in material
default of material prescribed filings with applicable securities regulatory
authorities, the stock exchange or market on which its shares trade
(collectively, the “Authorities”), or is subject to any suspension in excess of
five (5) trading days or cease trade order issued by any such Authority; 

(c) if the Corporation ceases or
threatens to cease to carry on business; 

(d) if the Corporation petitions or
applies to any tribunal for the appointment of a trustee, receiver or liquidator
or commences any proceedings under any bankruptcy, insolvency, readjustment of
debt or liquidation law of any jurisdiction, whether now or hereafter in effect;
and 

(e) if any petition or application for
appointment of a trustee, receiver or liquidator is filed, or any proceedings
under any bankruptcy, insolvency, readjustment of debt or liquidation law are
commenced, against the Corporation which is not opposed by the corporation in
good faith, or an order, judgment or decree is entered appointing any such
trustee, receiver, or liquidator, or approving the petition in any such
proceeding. 

5. CONVERSION 

5.1 The Holder shall have the right (the “Conversion Right”) to
convert all or any portion, and from time to time, of the principal amount then
outstanding under this Note, multiplied by 105%, into fully paid and
non-assessable Shares, by delivering to the Corporation this originally executed
Note together with a completed conversation notice (the “Conversion Notice”) in
the form attached hereto as Schedule “A”. Upon exercise of the Conversion Right,
the Holder will receive that number of Shares, rounded to the nearest whole
number, obtained by dividing the outstanding principal amount multiplied by
105%, by the conversion price (the “Conversation Price”) of $2.05 per share for
the period from the date hereof to and including February ♦, 2007 and
thereafter until the Maturity Date at $2.25 per share. 

5.2 To exercise the Conversion Right, the Holder must surrender
this Note to the Corporation at Suite 1020 – 800 West Pender Street, Vancouver,
British Columbia, V6C 2V6, Canada, facsimile (604) 681-2741 with the Conversion
Notice executed by the Holder evidencing such Holder's intention to convert this
Note, and accompanied, if such shares are to be issued in a name other than the
Holder, by proper assignment hereof in blank. No fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded to the
nearest whole share. If the Holder is converting less than the full balance of
principal owing hereunder, the Corporation shall deliver a new Note to the
Holder for the balance owing. 

6. PARTICIPATION RIGHT 

6.1 The Holder of the Note shall have the right (the
“Participation Right”), exercisable for the ten (10) business days period after
delivery by the Corporation of a notice (“Future Financing Notice”) of the
Corporation’s first substantially arm’s-length (not less than 60%) equity
financing of not less than Cdn$5 million completed after the date of this Note
(the “Future Financing”), to participate in such financing to the extent of 105%
of the balance due hereunder (“Redemption Amount”), by giving to the Corporation
a notice (“Participation Notice”) within said 10 business days. Upon delivery to
the Corporation of the Participation 

- 4 - 

Notice, the Holder will at the time of completion of the Future
Financing be deemed to have redeemed the Note and to have received its
Redemption Amount and thereupon used them to subscribe for the maximum number of
securities offered in the Future Financing which such proceeds can purchase. The
Participation Notice will only be valid if the Future Financing completes both
within 45 days of the Future Financing Notice and on substantially the same
terms set out in the Future Financing Notice, failing which a further notice
will be sent by the Corporation. 

6.2 The Holder agrees it will not trade any of the
Corporation’s Shares (including by way of purchase, sale, short sale or hedging
transaction) from the time of receiving a Future Financing Notice and for a
period of 45 days thereafter, unless a further Future Financing Notice is
delivered to the Holder confirming that completion or the terms of the Future
Financing has been extended or amended, in which case the restriction on trading
shall be extended until the earlier of completion of the Future Financing or a
further 45 days. In no event will the Holder be restricted from trading Shares
for a period in excess of 90 days.

7. PRE-PAYMENT 

7.1 The Corporation may prepay the Note at any time, without
penalty, if 

(a) such prepayment is made after 180
calendar days from the date of this Note; and 

(b) the Corporation provides the Holder
with a 10 business days notice during which period the Conversion Right and
Participation Right shall remain in effect. Upon repayment of the Note, all the
Holder’s rights hereunder shall be extinguished. 

8. PRE-EMPTIVE RIGHT 

8.1 Upon conversion of the Notes or the exercise of the
Participation Right, the Holder shall thereupon have acquired a right of first
refusal (the “Pre-Emptive Right”) for up to five years from the date of this
Note during which period the Holder may purchase all, but not less than all, of
any equity or convertible securities which may be in future proposed to be
offered by the Corporation . The Pre-emptive Right shall require the Corporation
to offer to the Holder 50% of all New Shares and Share Rights (as defined below)
provided that the number of any New Shares and Share Rights offered to the
Holder shall be reduced so that in no event will the number of New Shares or
Share Rights offered to a Holder, when added to that Holder’s holdings of Shares
and Share Rights acquired by it in any manner whatsoever, exceed 19.9% of the
Corporation’s then outstanding issued Shares on a fully diluted basis.

8.2 The Pre-emptive Right shall be subject to the following
provisions: 

(a) “New Shares” means any Shares which
are issued after the date of this Note provided, however, that “New Shares” do
not include:

(i) Shares issuable upon conversion of
or with respect to convertible securities outstanding as of the date hereof
including any securities issuable pursuant to conversion of any Notes or in
connection with the Future Financing or 

- 5 - 

in connection with Share Rights where
the Share Rights were offered to the Holder;

(ii) Shares issued by the Corporation
pursuant to the acquisition of mining or real property interests or the
acquisition of another corporation by the Corporation by merger, purchase of
substantially all of the assets, or other reorganization or issuance of shares
pursuant to a structured deal which may be included as part of a divestiture of
a portion of the project or subsidiary companies in order to form a strategic
alliance or consortium;

(iii) Shares issued pursuant to
options granted to directors, officers or employees of, or consultants to, the
Corporation or its subsidiaries pursuant to any option or purchase plan or
director, officer, employee or consultant stock incentive program approved by
the shareholders of the Corporation;

(iv) Shares issued pursuant to any
Senior Debt or any loan arrangement, or any debt financing from a bank or
similar financial or lending institution or third party funder; or

(v) Shares issued in connection with
any stock split, stock dividend, or recapitalization by the Corporation.

(b) For purposes of calculating the
Investor’s holdings of Shares hereunder for any purpose, the Holder’s holdings
shall be deemed to include any Shares owned or controlled by all of its
affiliates.

(c) “Share Rights” means warrants,
convertible securities or other like rights to purchase New Shares.

(d) If the Corporation proposes to
undertake an issuance of New Shares and/or Share Rights, it shall give the
Holder written notice of its intention, describing the offering of New Shares
and/or Share Rights including the price and the general terms upon which the
Corporation proposes to issue New Shares and/or Share Rights (on which no
brokerage or other commission shall be payable by the Holder). The Holder shall
have ten (10) business days (as hereinafter defined) from the date of receipt of
any such notice to agree to exercise its Pre-Emptive Right to purchase New
Shares and/or Share Rights for the price and upon the general terms specified in
the notice by giving written notice to the Corporation. Failure of the Holder to
timely respond to the notice within said ten (10) business day period shall be
deemed an election to decline to exercise its Pre-Emptive Right.

(e) If the Holder elects to exercise
the Pre-Emptive Right, it shall complete such additional subscription agreement
and additional documents as may be required pursuant to the terms of the of the
financing under which the New Shares and Share Rights are issued. The completion
of the exercise of the Pre-Emptive Rights shall be completed at the time of
issue of the New Shares and Share Rights. 

- 6 - 

(f) If the Holder declines or fails to
exercise its Pre-Emptive Right to purchase the maximum number New Shares or
Share Rights offered by the Corporation pursuant to the pre-emptive Right the
Corporation shall have one hundred and twenty (120) business days from such
refusal or failure to sell the New Shares or Share Rights, including those in
respect of which the Holder’s Pre-Emptive Right was not exercised, at a price
and upon terms no more favourable to the purchasers thereof than specified in
the Corporation’s notice to the Holder. In the event the Corporation has not
sold at least one-half of the aggregate number of any New Shares or Share Rights
specified in the notice to the Holder (that is, at least the number of which the
Holder was notified of under its PreEmptive Right) within said one hundred and
twenty (120) business day period, the Holder’s Pre-Emptive Right shall thereupon
again be effective and the Corporation shall not thereafter issue or sell any
New Shares or Share Rights without first offering such New Shares or Share
Rights to the Holder in the manner provided above. Any New Shares or Share
Rights sold in compliance with the first sentence of this subparagraph (f)
subsequent to a notice declined by the Holder shall not give rise to any further
right to the Holder. 

(g) The Pre-Emptive Right is
non-assignable by the Holder except to an affiliate providing such affiliate
remains an affiliate. 

(h) The Pre-Emptive Right shall be
reduced or shall terminate, as the case may be, upon the following events: 

(i) in the event and at the point at
which the Holder’s aggregate holdings of Shares, however acquired calculated as
a percentage of the outstanding Shares of the Corporation, is equal to 19.9%,
then the Pre-Emptive Right shall thereupon be reduced to an on-going Pre-Emptive
Right to purchase up to that interest of any New Shares or Share Rights, subject
to the other terms hereof, mutatis mutandis; 

(ii) in the event of the failure by
the Holder to exercise its Pre-Emptive Right to purchase the New Shares or Share
Rights offered by the Corporation pursuant to any valid notice given pursuant to
this Note the Pre-Emptive Right shall terminate subject to the reinstatement of
the Pre-Emptive Right pursuant to subparagraph (f) above.

(iii) in the event of the sale by the
Holder of any of its Shares or Share Rights acquired on conversion hereof or on
exercise of its Participation Right hereunder or pursuant to the Pre-Emptive
Right then the Pre-Emptive Right shall terminate; and 

(iv) the Pre-Emptive Right shall in
any event terminate on the fifth anniversary of the date of this Note. 

9. GENERAL 

9.1 No transfer of this Note by the registered Holder or such
Holder’s executors, administrators, other legal representatives of the Holder,
successors, assigns or their attorney duly appointed by instrument in writing in
form and execution satisfactory to the Corporation 

- 7 - 

will be valid until compliance with such reasonable
requirements as the Corporation, acting reasonably, may prescribe. The
certificate or certificates issued in respect of an exchanged or transferred
Note shall bear such legends as may be required by applicable securities laws.

9.2 Time is of the essence hereof. 

9.3 All monetary amounts herein are in Canadian dollars. 

9.4 Neither this Note nor any provision hereof shall be
modified, changed, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought. 

9.5 The parties hereto shall execute and deliver all such
further documents and instruments and do all such acts and things as may either
before or after the execution of this Note be reasonably required to carry out
the full intent and meaning of this Note. 

9.6 This Note shall be subject to, governed by and construed in
accordance with the laws of British Columbia and the laws of Canada as
applicable therein and the Investor hereby irrevocably attorns to the
jurisdiction of the Courts situate therein. 

9.7 The invalidity or unenforceability of any particular
provision of this Note shall not affect or limit the validity or enforceability
of the remaining provisions of this Note. 

IN WITNESS WHEREOF Continental Minerals Corporation has
caused its corporate seal to be hereto affixed and this Note to be signed by its
duly authorized officers. 

	The Corporate Seal of 	) 	  
	CONTINENTAL MINERALS 	) 	  
	CORPORATION was affixed in the presence 	) 	  
	of: 	) 	  
	  	) 	C/S 
	  	) 	  
	Per:        _____________________	) 	  
	              Authorized
      Signatory 	  	  

SCHEDULE A 

CONVERSION FORM 

TO:     CONTINENTAL MINERALS
CORPORATION

The undersigned registered Holder of the within Note hereby
irrevocably elects to convert the $ ___________________ principal owing under
the Note into common shares or other securities in the capital of CONTINENTAL
MINERALS CORPORATION (the “Corporation”) and directs that the common shares
or other securities issuable and deliverable upon the conversion be issued and
delivered to the Person indicated below. (If the common shares or other
securities are to be issued in the name of a Person other than the registered
Holder of the Note, all requisite transfer taxes must be tendered by the
undersigned.) 

In the absence of instructions to the contrary, the securities
or other property will be issued in the name of or to the Holder hereof. 

Dated: _______________

_____________________
Signature of Holder 

_____________________
Name of Holder 

Instructions: 

The registered Holder may exercise its right to receive common
shares by completing this form and surrendering this conversion form and the
Note to the Corporation at Suite 1020 – 800 West Pender Street, Vancouver,
British Columbia, V6C 2V6 and such other documents as the Corporation may
reasonably require.Exhibit 10.1

    
      

    

     

    Exhibit
      10.1

     

    

     

    

     

    SECURITIES
      PURCHASE AGREEMENT

     

    LAURUS
      MASTER FUND, LTD.

     

    and

     

    APPLIED
      DIGITAL SOLUTIONS, INC.

     

     

    Dated:
      August 24, 2006

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    TABLE
      OF CONTENTS

    
Page

     

    
      	1.	
              Agreement
                to Sell and Purchase

            	
               1

            
	 	 	 
	2.
	
              Fees
                and Warrant

            	
               1

            

    

     

    
      	3.	
              Closing,
                Delivery and Payment

            	
              2

            
	
            	3.1	
              Closing

            	
              2

            
	 	3.2	
              Delivery

            	
              2

            

    

     

    
      	4.	Representations
              and Warranties of the Company	
               2

            

    

    
      	 	4.1	
              Organization,
                Good Standing and
                Qualification

            	
               2

            
	 	4.2	
              Subsidiaries

            	
               3

            
	 	4.3	
              Capitalization;
                Voting Rights

            	
               3

            
	 	4.4	
              Authorization;
                Binding Obligations

            	
               4

            
	 	4.5	
              Liabilities;
                Solvency

            	
               5

            
	 	4.6	
              Agreements;
                Action

            	
               5

            
	 	4.7	
              Obligations
                to Related Parties

            	
               7

            
	 	4.8	
              Changes

            	
               8

            
	 	4.9	
              Title
                to Properties and Assets; Liens, Etc.

            	
               9

            
	 	4.10	
              Intellectual
                Property

            	
               9

            
	 	4.11	
              Compliance
                with Other Instruments

            	
               10

            
	 	4.12	Litigation	
               10

            
	 	4.13	
              Tax
                Returns and Payments

            	
               11

            
	 	4.14	 Employees	
               11

            
	 	4.15	
              Registration
                Rights and Voting Rights

            	
               11

            
	 	4.16	
              Compliance
                with Laws; Permits

            	
               12

            
	 	4.17	
              Environmental
                and Safety Laws

            	
               12

            
	 	4.18	
              Valid
                Offering

            	
               12

            
	 	4.19	
              Full
                Disclosure

            	
               13

            
	 	4.20	
              Insurance

            	
               13

            
	 	4.21	
              SEC
                Reports

            	
               13

            
	 	4.22	
              Listing

            	
               13

            
	 	4.23	
              No
                Integrated Offering

            	
               13

            
	 	4.24	
              Stop
                Transfer

            	
               14

            
	 	4.25	
              Dilution

            	
               14

            
	 	4.26	
              Patriot
                Act

            	
               14

            
	 	4.27	
              ERISA

            	
               14

            

    

    
    

     

    
      	5.	
              Representations
                and Warranties of the
                Purchaser

            	
              15

            

    

    
    

    
      	 	5.1	
              No
                Shorting

            	
              15

            
	 	5.2	Requisite
              Power and Authority	
               15

            
	 	5.3	
              Investment
                Representations

            	
               15

            
	 	5.4	
              The
                Purchaser Bears Economic Risk

            	
               16

            
	 	5.5	
              Acquisition
                for Own Account

            	
               16

            
	 	5.6	
              The
                Purchaser Can Protect Its Interest

            	
               16

            
	 	5.7	
              Accredited
                Investor

            	
               16

            
	 	5.8	
              Legends

            	
               16

            

    

    
      
        
          
            	
                     

                  	i	 

          

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
           

           

           

        

      

    

     

    Page(s)

     

    
      
        	6.	
                Covenants
                  of the Company

              	
                 17

              

      

    

    
      
      

      
        	         	6.1        	
                Stop-Orders

              	
                 17

              
	 	6.2	
                Listing

              	
                 17

              
	 	6.3	
                Market
                  Regulations

              	
                 17

              
	 	6.4	
                Reporting
                  Requirements

              	
                 17

              
	 	6.5	
                Use
                  of Funds

              	
                 18

              
	 	6.6	
                Access
                  to Facilities

              	
                 19

              
	 	6.7	
                Taxes

              	
                 19

              
	 	6.8	
                Insurance

              	
                19

              
	 	6.9	
                Intellectual
                  Property

              	
                 20

              
	 	6.10	
                Properties

              	
                 20

              
	 	6.11	
                Confidentiality

              	
                 20

              
	 	6.12	
                Required
                  Approvals

              	
                 20

              
	 	6.13	
                Reissuance
                  of Securities

              	
                 21

              
	 	6.14	
                Opinion

              	
                 22

              
	 	6.15	
                Margin
                  Stock

              	
                 22

              
	 	6.16 	
                FIRPTA

              	
                 22

              
	 	6.17	
                Financing
                  Right of First Refusal

              	
                 23

              
	 	6.18	
                Authorization
                  and Reservation of
                  Shares

              	
                 23

              

      

    

     

    
      
        
          	 7.	
                  
                    Covenants
                      of the Purchaser

                  

                	
                   23

                

        

        
          	         	7.1        
                  	
                  
                    
                      Confidentiality

                    

                  

                	
                   23

                
	 	7.2	
                  
                    
                      Non-Public
                        Information

                    

                  

                	
                  23

                
	 	7.3	Limitation
                  on Acquisition of Common Stock of the
                  Company	
                   23

                

        

      

    

     

    
      
        	 8.	
                
                  Covenants
                    of the Company and the Purchaser Regarding
                    Indemnification

                

              	
                 23

              

      

      
        	         	8.1        
                	
                
                  
                    Company
                      Indemnification

                  

                

              	
                 23

              
	 	8.2	
                
                  
                    Purchaser’s
                      Indemnification

                  

                

              	
                 24

              

      

    

    
       

      
        
          	 9.	
                  
                    
                      Exercise
                        of the Warrant

                    

                  

                	
                   

                

        

        
          	         	9.1        
                  	
                  
                    
                      
                        Mechanics
                          of Exercise

                      

                    

                  

                	
                   

                

        

      

    

     

    
      
        
          	 10.	
                  
                    Registration
                      Rights

                  

                	
                   24

                

        

        
          	         	10.1      	
                  
                    
                      
                        Registration
                          Rights
                          Granted

                      

                    

                  

                	
                   24

                
	 	10.2	
                  
                    
                      
                        Offering
                          Restrictions

                      

                    

                  

                	
                   24

                

        

      

    

     

    
      
        
          
            	 11.	
                    
                      Miscellaneous

                    

                  	
                     24

                  

          

          
            	         
                    	11.1 	
                    
                      
                        
                          
                            Governing
                              Law, Jurisdiction and Waiver of Jury
                              Trial

                          

                        

                      

                    

                  	
                     24

                  
	 	11.2	
                    
                      
                        
                          
                            Severability

                          

                        

                      

                    

                  	
                     25

                  
	 	11.3	
                    Survival

                  	
                     26

                  
	 	11.4	
                    Successors

                  	
                     26

                  
	 	11.5	
                    Entire
                      Agreement; Maximum Interest

                  	
                     26

                  
	 	11.6	
                    Amendment
                      and Waiver

                  	
                     26

                  
	 	11.7	
                    Delays
                      or Omissions

                  	
                     27

                  
	 	11.8	
                    Notices

                  	
                     27

                  
	 	11.9	
                    Attorneys’
Fees

                  	
                     28

                  
	 	11.10	
                    Titles
                      and Subtitles

                  	
                     28

                  
	 	11.11	
                    Facsimile
                      Signatures; Counterparts

                  	
                     28

                  
	 	11.12	
                    Broker’s
                      Fees

                  	
                     28

                  
	 	11.13    	
                    Construction

                  	
                     28

                  

          

        

      

    

     

    
      
        	
                 

              	
                ii

              	 

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    LIST
      OF EXHIBITS

    
      	
               

              Form
                of Secured Term Note

            	
               

              Exhibit
                A

            
	
              Form
                of Warrant

            	
              Exhibit
                B

            
	
              Form
                of Escrow Agreement

            	
              Exhibit
                C

            

    

    

     

    

    
      
        
          
            	
                     

                  	iii	 

          

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

        

      

    

     

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
      August 24, 2006, by and between APPLIED DIGITAL SOLUTIONS, INC., a Missouri
      corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands
      company (the “Purchaser”).

     

    RECITALS

     

    WHEREAS,
      the Company has authorized the sale to the Purchaser of a Secured Term Note
      in
      the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars
      ($13,500,000) substantially in the form of Exhibit A hereto (as amended,
      modified and/or supplemented from time to time, the “Note”);

     

    WHEREAS,
      the Company wishes to issue to the Purchaser a warrant substantially in the
      form
      of Exhibit B hereto (as amended, modified and/or supplemented from time to
      time,
      the “Warrant”) to purchase up to 1,719,745 shares of the Company’s Common Stock
      (subject to adjustment as set forth therein) in connection with the Purchaser’s
      purchase of the Note;

     

    WHEREAS,
      the Purchaser desires to purchase the Note and the Warrant on the terms and
      conditions set forth herein; and

     

    WHEREAS,
      the Company desires to issue and sell the Note and Warrant to the Purchaser
      on
      the terms and conditions set forth herein.

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the foregoing recitals and the mutual promises,
      representations, warranties and covenants hereinafter set forth and for other
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    1. Agreement
      to Sell and Purchase.
      Pursuant to the terms and conditions set forth in this Agreement,
      on the Closing Date (as defined in Section 3), the Company shall sell to the
      Purchaser, and the Purchaser shall purchase from the Company, the Note. The
      sale
      of the Note on the Closing Date shall be known as the “Offering.” The Note will
      mature on the Maturity Date (as defined in the Note). Collectively, the Note
      and
      Warrant and Common Stock issuable upon exercise of the Warrant are referred
      to
      as the “Securities.”

     

    2. Fees
      and Warrant.
      On the
      Closing Date:

     

    (a) The
      Company will issue and deliver to the Purchaser the Warrant to purchase up
      to
      1,719,745 shares of Common Stock (subject to adjustment as set forth therein)
      in
      connection with the Offering, pursuant to Section 1 hereof. All the
      representations, covenants, warranties, undertakings, and indemnification,
      and
      other rights made or granted to or for the benefit of the Purchaser by the
      Company are hereby also made and granted for the benefit of the holder of the
      Warrant and shares of the

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Company’s
      Common Stock issuable upon exercise of the Warrant (the “Warrant
      Shares”).

     

    (b) Subject
      to the terms of Section 2(d) below, the Company shall pay to Laurus Capital
      Management, LLC, the investment manager of the Purchaser (“LCM”), a
      non-refundable payment in an amount equal to three and one half percent (3.50%)
      of the aggregate principal amount of the Note. The foregoing payment is referred
      to herein as the “LCM Payment.” Such payment shall be deemed fully earned on the
      Closing Date and shall not be subject to rebate or proration for any
      reason.

     

    (c) The
      Company shall pay up to $55,000 to the Purchaser in order to reimburse the
      Purchaser for its reasonable expenses (including legal fees and expenses)
      incurred in connection with the entering into of this Agreement and the Related
      Agreements (as hereinafter defined), and expenses incurred in connection with
      the Purchaser’s due diligence review of the Company and all related matters.

     

    (d) The
      LCM
      Payment and the expenses referred to in the preceding clause (c) (net of the
      $25,000 deposit previously paid by the Company) shall be paid at Closing out
      of
      funds held pursuant to the Escrow Agreement (as defined below) and a
      disbursement letter (the “Disbursement Letter”). 

     

    3. Closing,
      Delivery and Payment.

     

    3.1 Closing.
      Subject
      to the terms and conditions herein, the closing of the transactions contemplated
      hereby (the “Closing”) shall take place on the date hereof, at such time or
      place as the Company and the Purchaser may mutually agree (such date is
      hereinafter referred to as the “Closing Date”).

     

    3.2 Delivery.
      Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
      Company will deliver to the Purchaser, among other things, the Note and the
      Warrant and the Purchaser will deliver to the Company, among other things,
      the
      amounts set forth in the Disbursement Letter by certified funds or wire
      transfer.

     

    4. Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Purchaser as follows:

     

    4.1 Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Pledged Subsidiaries (as defined below) is a corporation,
      partnership or limited liability company, as the case may be, duly organized,
      validly existing and in good standing under the laws of its jurisdiction of
      organization or incorporation. Each of the Company and its Pledged Subsidiaries
      has the corporate, limited liability company or partnership, as the case may
      be,
      power and authority to own and operate its properties and assets and, insofar
      as
      it is or shall be a party thereto, to (1) execute and deliver (i) this
      Agreement, (ii) the Note and the Warrant to be issued in connection with this
      Agreement, (iii) the Master Security Agreement dated as of the date hereof
      between the Company and the Purchaser (as amended, modified and/or supplemented
      from time to time, the “Master Security Agreement”), (iv) the Registration
      Rights Agreement relating to the Securities dated as of the date hereof between
      the Company and the Purchaser (as amended, modified and/or supplemented from
      time to time, the “Registration

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Rights
      Agreement”), (v) the Stock Pledge Agreement dated as of the date hereof between
      the Company and the Purchaser (as amended, modified and/or or supplemented
      from
      time to time, the “Stock Pledge Agreement”), (vi) the Funds Escrow Agreement
      dated as of the date hereof among the Company, the Purchaser and the escrow
      agent referred to therein, substantially in the form of Exhibit C hereto (as
      amended, modified and/or supplemented from time to time, the “Escrow Agreement”)
      and (vii) all other documents, instruments and agreements entered into in
      connection with the transactions contemplated hereby and thereby (the preceding
      clauses (ii) through (vii), collectively, the “Related Agreements”); (2) issue
      and sell the Note; (3) issue and sell the Warrant and the Warrant Shares;
      and (4) carry out the provisions of this Agreement and the Related Agreements
      and to carry on its business as presently conducted. Each of the Company and
      its
      Subsidiaries is duly qualified and is authorized to do business and is in good
      standing as a foreign corporation, partnership or limited liability company,
      as
      the case may be, in all jurisdictions in which the nature or location of its
      activities and of its properties (both owned and leased) makes such
      qualification necessary, except for those jurisdictions in which failure to
      do
      so has not, or could not reasonably be expected to have, individually or in
      the
      aggregate, a Material Adverse Effect. "Material Adverse Effect" means
any
      change, effect, event or occurrence that has a material adverse effect on the
      assets, business, financial condition, or results of operations of the Company
      and its Pledged Subsidiaries taken individually and as a whole;
      provided,
      however,
      that no
      change, effect, event or occurrence to the extent arising or resulting from
      any
      of the following, either alone or in combination, shall constitute or be taken
      into account in determining whether there has been or will be, a Material
      Adverse Effect: (i) general business or economic conditions not specific or
      peculiar to the Company, (ii) acts of war or terrorism or natural disasters,
      (iii) catastrophic economic or significant regulatory or political conditions
      or
      changes, (iv) the announcement or performance of this Agreement and the
      transactions contemplated hereby, including compliance with the covenants set
      forth herein, (v) changes in any applicable accounting regulations or principles
      or the interpretations thereof, (vi) changes in laws, or (vii) changes
      in the price or trading volume of the Company’s stock.

     

    4.2 Subsidiaries.
      Each
      active Subsidiary of the Company, the direct owner of such Subsidiary and the
      direct owner's percentage ownership thereof, is set forth on Schedule 4.2.
      For
      the purpose of this Agreement, a “Subsidiary” means
      all
      or any of the following subsidiaries of the Company: Computer Equity
      Corporation, Government Telecommunications, Inc., Pacific Decision Sciences
      Corporation, Perimeter Acquisition Corp., and Thermo Life Energy Corp. The
      term
      "Pledged Subsidiary" means VeriChip Corporation, InfoTech USA, Inc., Digital
      Angel Corporation, and the Subsidiaries.

     

    4.3 Capitalization;
      Voting Rights.

     

    (a) The
      authorized capital stock of the Company, as of the date hereof consists of
      130,000,000 shares, of which 125,000,000 are shares of Common Stock, par value
      $0.01 per share, 67,973,723 shares of which are issued and 67,873,427 shares
      of
      which are outstanding, and 5,000,000 are shares of preferred stock, par value
      $10.00 per share of which no shares of preferred stock are issued and
      outstanding. The authorized, issued and outstanding capital stock of each
      Subsidiary of the Company is set forth on Schedule 4.3.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (b) Except
      as
      disclosed on Schedule 4.3, other than: (i) those reserved for issuance under
      the
      Company’s stock option plans; and (ii) those which may be granted pursuant to
      this Agreement and the Related Agreements, there are no outstanding options,
      warrants, rights (including conversion or preemptive rights and rights of first
      refusal), proxy or stockholder agreements, or arrangements or agreements of
      any
      kind for the purchase or acquisition from the Company of any of its securities.
      Except as disclosed on Schedule 4.3, neither the offer, issuance or sale of
      any
      of the Note or the Warrant nor the consummation of any transaction contemplated
      hereby will result in a change in the price or number of any securities of
      the
      Company outstanding, under anti-dilution or other similar provisions contained
      in or affecting any such securities.

     

    (c) Except
      as
      set forth on Schedule 4.3, all issued and outstanding shares of the Company’s
      Common Stock: (i) have been duly authorized and validly issued and are
      fully paid and nonassessable; and (ii) were issued in compliance with all
      applicable state and federal laws concerning the issuance of
      securities.

     

    (d) The
      rights, preferences, privileges and restrictions of the shares of the Common
      Stock are as stated in the Company’s Articles of Incorporation, as amended (the
“Charter”). The Warrant Shares have been duly and validly reserved for issuance.
      When issued in compliance with the provisions of this Agreement and the
      Company’s Charter, the Securities will be validly issued, fully paid and
      nonassessable, and will be free of any liens or encumbrances; provided, however,
      that the Securities may be subject to restrictions on transfer under state
      and/or federal securities laws as set forth herein or as otherwise required
      by
      such laws at the time a transfer is proposed.

     

    4.4 Authorization;
      Binding Obligations.
      All
      corporate, partnership or limited liability company, as the case may be, action
      on the part of the Company and each of its Subsidiaries (including their
      respective officers and directors) necessary for the authorization of this
      Agreement and the Related Agreements, the performance of all obligations of
      the
      Company and its Subsidiaries hereunder and under the Related Agreements at
      the
      Closing and, the authorization, sale, issuance and delivery of the Note and
      Warrant has been taken or will be taken prior to the Closing. This Agreement
      and
      the Related Agreements, when executed and delivered and to the extent it is
      a
      party thereto, will be valid and binding obligations of each of the Company
      and
      each of its Subsidiaries, enforceable against each such person or entity in
      accordance with their terms, except:

     

    (a) as
      limited by applicable bankruptcy, insolvency, reorganization, moratorium or
      other laws of general application affecting enforcement of creditors’ rights;
      and

     

    (b) general
      principles of equity that restrict the availability of equitable or legal
      remedies.

     

    The
      sale
      of the Note is not and will not be subject to any preemptive rights or rights
      of
      first refusal that have not been properly waived or complied with. The issuance
      of the Warrant and the subsequent exercise of the Warrant for Warrant Shares
      are
      not and will not be subject to any preemptive rights or rights of first refusal
      that have not been properly waived or complied with. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    4.5 Liabilities;
      Solvency.

     

    (a) Neither
      the Company nor any of its Subsidiaries has any liabilities, except current
      liabilities, liabilities incurred in the ordinary course of business,
      intercompany liabilities which are eliminated in consolidation of the Company
      and its Subsidiaries, and liabilities disclosed in any of the Company’s filings
      under the Securities Exchange Act of 1934 (“Exchange Act”) made prior to the
      date of this Agreement (collectively, the “Exchange Act Filings”), copies of
      which have been provided or made available to the Purchaser.

     

    (b) Beginning
      on the Closing Date and continuing until the Company's complete satisfaction
      of
      its obligations arising under this Agreement and the Related Agreements, the
      Company is, and will be, Solvent. For purposes of this Section 4.5(b), “Solvent”
means, with respect to the Company on a particular date, that on such date
      (a)
      the fair value of the property of the Company is greater than the total amount
      of liabilities, including contingent liabilities of the Company; (b) the present
      fair salable value of the assets of the Company is not less than the amount
      that
      will be required to pay the probable liability of the Company on its debts
      as
      they become absolute and matured; (c) the Company does not intend to, and does
      not believe that it will, incur debts or liabilities beyond the Company’s
      ability to pay as such debts and liabilities mature; and (d) the Company is
      not
      engaged in a business or transaction, and is not about to engage in a business
      or transaction, for which the Company's property would constitute an
      unreasonably small capital. The amount of contingent liabilities (such as
      litigation, guaranties and pension plan liabilities) at any time shall be
      computed as the amount that, in light of all the facts and circumstances
      existing at the time, represents the amount that can reasonably be expected
      to
      become an actual or matured liability.

     

    4.6 Agreements;
      Action.
      Except
      as set forth on Schedule 4.6 or as disclosed in the Exchange
      Filings:

     

    (a) There
      are
      no agreements, understandings, instruments, contracts, proposed transactions,
      judgments, orders, writs or decrees to which the Company or any of its
      Subsidiaries is a party or by which it is bound which may involve: (i)
      obligations (contingent or otherwise) of, or payments to, the Company or any
      of
      its Subsidiaries in excess of $250,000 (other than obligations of, or payments
      to, the Company or any of its Subsidiaries arising from purchase or sale
      agreements, contracts for services, marketing and advertising related
      agreements, etc. entered into in the ordinary course of business); (ii) the
      transfer or license of any patent, copyright, trade secret or other proprietary
      right to or from the Company or any of its Subsidiaries (other than licenses
      arising from the purchase of “off the shelf” or other standard products); (iii)
      provisions restricting the development, manufacture or distribution of the
      Company’s or any of its Subsidiaries' material products or services; or (iv)
      indemnification by the Company or any of its Subsidiaries with respect to
      infringements of material proprietary rights.

     

    (b) Except
      as
      set forth on Schedule 4.6, since December 31, 2005 (the “Balance Sheet Date”),
      neither the Company nor any of its Subsidiaries has: (i) declared or paid any
      dividends, or authorized or made any distribution upon or with respect to
      any

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    class
      or
      series of its capital stock; (ii) incurred any indebtedness for money borrowed
      or any other liabilities (other than ordinary course obligations and
      intercompany loans) individually in excess of $250,000 or, in the case of
      indebtedness and/or liabilities individually less than $250,000, in excess
      of
      $500,000 in the aggregate; (iii) made any loans or advances in excess of
      $500,000, in the aggregate of all such loans and advances, other than ordinary
      course advances for travel expenses; or (iv) sold, exchanged or otherwise
      disposed of any of its assets or rights, other than the sale of its inventory
      in
      the ordinary course of business. 

     

    (c) For
      the
      purposes of subsections (a) and (b) above, all indebtedness, liabilities,
      agreements, understandings, instruments, contracts and proposed transactions
      involving the same person or entity (including persons or entities the Company
      or any Subsidiary of the Company has reason to believe are affiliated therewith)
      shall be aggregated for the purpose of meeting the individual minimum dollar
      amounts of such subsections.

     

    (d) The
      Company maintains disclosure controls and procedures (“Disclosure Controls”)
      designed to ensure that information required to be disclosed by the Company
      in
      its Exchange Act Filings is recorded, processed, summarized, and reported,
      within the time periods specified by the Exchange Act, and the applicable rules
      and forms promulgated by the Securities and Exchange Commission
      (“SEC”).

     

    (e) The
      Company makes and keeps books, records, and accounts, that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the
      Company’s assets. The Company maintains internal control over financial
      reporting (“Financial Reporting Controls”) designed by, or under the supervision
      of, the Company’s principal executive and principal financial officers, and
      effected by the Company’s board of directors, management, and other personnel,
      to provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles (“GAAP”), including
      that:

     

    (i) transactions
      are executed in accordance with management’s general or specific
      authorization;

     

    (ii) unauthorized
      acquisition, use, or disposition of the Company’s assets that could have a
      material effect on the financial statements are prevented or timely
      detected;

     

    (iii) transactions
      are recorded as necessary to permit preparation of financial statements in
      accordance with GAAP, and that the Company’s receipts and expenditures are being
      made only in accordance with authorizations of the Company’s management and
      board of directors; 

     

    (iv) transactions
      are recorded as necessary to maintain accountability for assets;
      and

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (v) the
      recorded accountability for assets is compared with the existing assets at
      reasonable intervals, and appropriate action is taken with respect to any
      differences.

     

    (f) There
      is
      no weakness in any of the Company’s Disclosure Controls or Financial Reporting
      Controls that is required to be disclosed in any of the Exchange Act Filings,
      except as so disclosed.

     

    4.7 Obligations
      to Related Parties.
      Except
      as set forth on Schedule 4.7, there are no obligations of the Company or any
      of
      its Pledged Subsidiaries to officers, directors, stockholders or employees
      of
      the Company or any of its Pledged Subsidiaries other than for:

     

    (a) payment
      of salary for services rendered and for bonus payments;

     

    (b) reimbursement
      of reasonable expenses incurred on behalf of the Company and its
      Subsidiaries;

     

    (c) other
      standard employee benefits made generally available to all employees (including
      stock option agreements outstanding under any stock option plan approved by
      the
      Board of Directors of the Company and each Pledged Subsidiary of the Company,
      as
      applicable); and

     

    (d) obligations
      listed in the Company’s and each of its Pledged Subsidiary’s financial
      statements or disclosed in any of the Company’s or its Pledged Subsidiary's
      applicable Exchange Act Filings.

     

    Except
      as
      described above or as set forth on Schedule 4.7, none of the key officers,
      directors or, to the Company’s Knowledge (as defined herein), key employees or
      stockholders of the Company or any of its Subsidiaries or any members of their
      immediate families, are indebted to the Company or any of its Subsidiaries,
      individually or in the aggregate, in excess of $50,000 or have any direct or
      indirect ownership interest in any firm or corporation with which the Company
      or
      any of its Subsidiaries has a business relationship, or any firm or corporation
      which competes with the Company or any of its Subsidiaries, other than passive
      investments in publicly traded companies (representing less than five percent
      (5%) of such company) which may compete with the Company or any of its
      Subsidiaries. Except as described above, no officer, director or stockholder
      of
      the Company or any of its Subsidiaries, or any member of their immediate
      families, is, directly or indirectly, interested in any material contract with
      the Company or any of its Subsidiaries and no agreements, understandings or
      proposed transactions are contemplated between the Company or any of its
      Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
      the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
      indebtedness of any other person or entity. "Knowledge" means with respect
      to
      the Company and any of its Subsidiaries, the actual knowledge after reasonable
      inquiry of the chief executive officer, chief financial officer, and general
      counsel.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    4.8 Changes.
      Since
      the Balance Sheet Date, except as disclosed in any Exchange Act Filing or in
      any
      Schedule to this Agreement or to any of the Related Agreements, there has not
      been:

     

    (a) any
      change in the business, assets, liabilities, condition (financial or otherwise),
      properties, operations or prospects of the Company or any of its Subsidiaries,
      which individually or in the aggregate has had, or could reasonably be expected
      to have, individually or in the aggregate, a Material Adverse
      Effect;

     

    (b) any
      resignation or termination of any key officer, key employee or group of
      employees of the Company or any of its Subsidiaries; 

     

    (c) any
      material change, except in the ordinary course of business, in the contingent
      obligations of the Company or any of its Subsidiaries by way of guaranty,
      endorsement, indemnity, warranty or otherwise;

     

    (d) any
      damage, destruction or loss, whether or not covered by insurance, which has
      had,
      or could reasonably be expected to have, individually or in the aggregate,
      a
      Material Adverse Effect;

     

    (e) any
      waiver by the Company or any of its Subsidiaries of a valuable right or of
      a
      material debt owed to it;

     

    (f) any
      direct or indirect loans made by the Company or any of its Subsidiaries to
      any
      stockholder, employee, officer or director of the Company or any of its
      Subsidiaries, other than advances made in the ordinary course of
      business;

     

    (g) any
      material change in any compensation arrangement or agreement with any employee,
      officer, director or stockholder of the Company or any of its Subsidiaries;
      

     

    (h) any
      declaration or payment of any dividend or other distribution of the assets
      of
      the Company or any of its Subsidiaries;

     

    (i) any
      labor
      organization activity related to the Company or any of its
      Subsidiaries;

     

    (j) any
      debt,
      obligation or liability incurred, assumed or guaranteed by the Company or any
      of
      its Subsidiaries, except those for immaterial amounts and for current
      liabilities incurred in the ordinary course of business;

     

    (k) any
      sale,
      assignment or transfer of any material patents, trademarks, copyrights, trade
      secrets or other intangible assets owned by the Company or any of its
      Subsidiaries;

     

    (l) any
      change in any material agreement to which the Company or any of its Subsidiaries
      is a party or by which either the Company or any of its Subsidiaries is bound
      which either individually or in the aggregate has had, or could reasonably
      be
      expected to have, individually or in the aggregate, a Material Adverse
      Effect;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (m) any
      other
      event or condition of any character that, either individually or in the
      aggregate, has had, or could reasonably be expected to have, individually or
      in
      the aggregate, a Material Adverse Effect; or

     

    (n) any
      arrangement or commitment by the Company or any of its Subsidiaries to do any
      of
      the acts described in subsection (a) through (m) above.

     

    4.9 Title
      to Properties and Assets; Liens, Etc.
      Except
      as set forth on Schedule 4.9, each of the Company and its Subsidiaries has
      good and marketable title to its properties and assets, and good title to its
      leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
      encumbrance or charge, other than:

     

    (a) those
      resulting from taxes which have not yet become delinquent;

     

    (b) minor
      liens and encumbrances which do not materially detract from the value of the
      property subject thereto or materially impair the operations of the Company
      or
      any of its Subsidiaries, so long as in each such case, such liens and
      encumbrances have no effect on the lien priority of the Purchaser in such
      property; and

     

    (c) those
      that have otherwise arisen in the ordinary course of business, so long as they
      have no effect on the lien priority of the Purchaser therein.

     

    All
      facilities, machinery, equipment, fixtures, vehicles and other properties owned,
      leased or used by the Company and its Subsidiaries are in operating condition
      and repair and are reasonably fit and usable for the purposes for which they
      are
      being used, reasonable wear and tear accepted. The Company and its Subsidiaries
      are in compliance with all material terms of each lease to which it is a party
      or is otherwise bound.

     

    4.10 Intellectual
      Property.

     

    (a) Except
      as
      set forth on Schedule 4.10 hereto, each
      of
      the Company and its Pledged
      Subsidiaries either (i) owns sufficient legal rights to the patents, trademarks,
      service marks, trade names, copyrights, trade secrets, licenses, and other
      proprietary rights and processes necessary for its business as now conducted,
      or
      (ii) has a license, agreement or other permission to use the patents,
      trademarks, service marks, trade names, copyrights, trade secrets, licenses,
      and
      other proprietary rights and processes necessary for its business as now
      conducted (the “Intellectual Property”), without any known infringement of the
      rights of others. There are no outstanding options, licenses or agreements
      of
      any kind relating to the foregoing proprietary rights owned by the Company,
      nor
      is the Company or any of its Pledged Subsidiaries bound by or a party to any
      options, licenses or agreements of any kind with respect to the patents,
      trademarks, service marks, trade names, copyrights, trade secrets, licenses,
      and
      other proprietary rights and processes of any other person or entity other
      than:
      (w) such licenses or agreements arising from the license or purchase of “off the
      shelf” or standard products, (x) licenses and agreements relating to the
      manufacture, distribution, marketing, sales and maintenance of the Company’s
      products entered into in arms length transactions, (y) license grants by the
      Company to purchasers of its products or purchasers of licenses to

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    its
      products, and (z) intra-company agreements between the Company and its Pledged
      Subsidiaries.

     

    (b) Except
      as
      set forth on Schedule 4.10 hereto, neither the Company nor any of its Pledged
      Subsidiaries has received any communications alleging that the Company or any
      of
      its Pledged Subsidiaries has violated any of the patents, trademarks, service
      marks, trade names, copyrights or trade secrets or other proprietary rights
      of
      any other person or entity, nor is the Company or any of its Pledged
      Subsidiaries aware of any basis therefor.

     

    (c) The
      Company does not believe it is or will be necessary to utilize any inventions,
      trade secrets or proprietary information of any of its employees made prior
      to
      their employment by the Company or any of its Pledged Subsidiaries, except
      for
      (i) inventions, trade secrets or proprietary information that have been
      rightfully assigned to the Company or any of its Pledged Subsidiaries, and
      (ii)
      inventions, trade secrets or proprietary information for which the Company
      has
      acquired license rights from the employee’s prior employer.

     

    4.11 Compliance
      with Other Instruments.
      Neither
      the Company nor any of its Subsidiaries is in violation or default of (x) any
      term of its Charter or Bylaws, or (y) any provision of any indebtedness,
      mortgage, indenture, contract, agreement or instrument to which it is party
      or
      by which it is bound or of any judgment, decree, order or writ, which violation
      or default, in the case of this clause (y), has had, or could reasonably be
      expected to have, either individually or in the aggregate, a Material Adverse
      Effect. The execution, delivery and performance of and compliance with this
      Agreement and the Related Agreements to which it is a party, and the issuance
      and sale of the Note by the Company and the other Securities by the Company
      each
      pursuant hereto and thereto, will not, with or without the passage of time
      or
      giving of notice, result in any such material violation, or be in conflict
      with
      or constitute a default under any such term or provision, or result in the
      creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
      properties or assets of the Company or any of its Subsidiaries or the
      suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
      license, authorization or approval applicable to the Company, its business
      or
      operations or any of its assets or properties. 

     

    4.12 Litigation.
      Except
      as set forth on Schedule 4.12 hereto, there is no action, suit, proceeding
      or
      investigation pending or, to the Company’s Knowledge, currently threatened
      against the Company or any of its Subsidiaries that prevents the Company or
      any
      of its Subsidiaries from entering into this Agreement or the other Related
      Agreements, or from consummating the transactions contemplated hereby or
      thereby, or which has had, or could reasonably be expected to have, either
      individually or in the aggregate, a Material Adverse Effect or any change in
      the
      current equity ownership of the Company or any of its Subsidiaries, nor is
      the
      Company aware that there is any basis to assert any of the foregoing. Neither
      the Company nor any of its Subsidiaries is a party to or subject to the
      provisions of any order, writ, injunction, judgment or decree of any court
      or
      Governmental Authority. There is no material action, suit, proceeding or
      investigation by the Company or any of its Subsidiaries currently pending or
      which the Company or any of its Subsidiaries intends to initiate. “Governmental
      Authority” means any nation or government, any state, provincial or political
      subdivision thereof and any

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    entity
      exercising executive, legislative, judicial, regulatory or administrative
      functions of or pertaining to government, including without limitation any
      stock
      exchange, securities market or self-regulatory organization.

     

    4.13 Tax
      Returns and Payments.
      Each of
      the Company and its Pledged
      Subsidiaries has timely filed all tax returns (federal, state and local)
      required to be filed by it. All taxes shown to be due and payable on such
      returns, any assessments imposed, and all other taxes due and payable by the
      Company or any of its
      Pledged
      Subsidiaries on or before the Closing, have been paid or will be paid prior
      to
      the time they become delinquent. Neither the Company nor any of its Pledged
      Subsidiaries has been advised in writing:

     

    (a) that
      any
      of its returns, federal, state or other, have been or are being audited as
      of
      the date hereof; or

     

    (b) of
      any
      adjustment, deficiency, assessment or court decision in respect of its federal,
      state or other taxes.

     

    The
      Company has no Knowledge of any liability in excess of $100,000 for any tax
      to
      be imposed upon its properties or assets as of the date of this Agreement that
      is not adequately provided for. 

     

    4.14 Employees.
      Except
      as
      set forth on Schedule 4.14 or except as disclosed in the Exchange Act Filings,
      neither the Company nor any of its Subsidiaries has any collective bargaining
      agreements with any of its employees. There is no labor union organizing
      activity pending or, to the Company’s knowledge, threatened with respect to the
      Company or any of its Subsidiaries. Except as disclosed on Schedule 4.14 or
      except as disclosed in the Exchange Act Filings, neither the Company nor any
      of
      its Subsidiaries is a party to or bound by any currently effective employment
      contract, deferred compensation arrangement, bonus plan, incentive plan, profit
      sharing plan, retirement agreement or other employee compensation plan or
      agreement. Except as set forth on Schedule 4.14, each employment contract and
      consultant contract to which the Company or any of its Subsidiaries is a party
      is valid and binding on the Company or its Subsidiaries, as the case may be,
      and
      , to the Company's knowledge, each other party thereto and is in full force
      and
      effect. Neither the Company nor any of its Subsidiaries is aware that any of
      its
      employees is obligated under any contract (including licenses, covenants or
      commitments of any nature) that would materially interfere with their duties
      to
      the Company or any of its Subsidiaries. Except for employees who have a current
      effective employment agreement with the Company or any of its Subsidiaries
      or as
      set forth on Schedule 4.14 or except as disclosed in the Exchange Act Filings,
      no employee of the Company or any of its Subsidiaries has been granted the
      right
      to continued employment by the Company or any of its Subsidiaries or to any
      material compensation following termination of employment with the Company
      or
      any of its Subsidiaries. Except as set forth on Schedule 4.14 or except as
      disclosed in the Exchange Act Filings, the Company is not aware that any
      officer, key employee or group of employees intends to terminate his, her or
      their employment with the Company or any of its Subsidiaries, nor does the
      Company or any of its Subsidiaries have a present intention to terminate the
      employment of any officer, key employee or group of employees.

     

    4.15 Registration
      Rights and Voting Rights.
      Except
      as set forth on Schedule 4.15, neither the Company nor any of its
      Subsidiaries is presently under any obligation, 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    and
      neither the Company nor any of its Subsidiaries has granted any rights, to
      register any of the Company’s or its Subsidiaries’ presently outstanding
      securities or any of its securities that may hereafter be issued. Except as
      set
      forth on Schedule 4.15, to the Company’s Knowledge, no stockholder of the
      Company or any of its Subsidiaries has entered into any agreement with respect
      to the voting of equity securities of the Company or any of its
      Subsidiaries.

     

    4.16 Compliance
      with Laws; Permits.
      Neither
      the Company nor any of its Subsidiaries is in violation of any provision of
      the
      Sarbanes-Oxley Act of 2002 or any SEC related regulation or rule or any rule
      of
      the Principal Market (as hereafter defined) promulgated thereunder or any other
      applicable statute, rule, regulation, order or restriction of any domestic
      or
      foreign government or any instrumentality or agency thereof in respect of the
      conduct of its business or the ownership of its properties which has had, or
      could reasonably be expected to have, either individually or in the aggregate,
      a
      Material Adverse Effect. No governmental orders, permissions, consents,
      approvals or authorizations are required to be obtained and no registrations
      or
      declarations are required to be filed in connection with the execution and
      delivery of this Agreement or any other Related Agreement and the issuance
      of
      any of the Securities, except such as have been duly and validly obtained or
      filed, or with respect to any filings that must be made after the Closing,
      as
      will be filed in a timely manner. Each of the Company and its Subsidiaries
      has
      all material franchises, permits, licenses and any similar authority necessary
      for the conduct of its business as now being conducted by it, the lack of which
      could, either individually or in the aggregate, reasonably be expected to have
      a
      Material Adverse Effect.

     

    4.17 Environmental
      and Safety Laws.
      To the
      Company's Knowledge, neither the Company nor any of its Subsidiaries is in
      violation of any applicable statute, law or regulation relating to the
      environment or occupational health and safety, and no material expenditures are
      or will be required in order to comply with any such existing statute, law
      or
      regulation. To the Company's Knowledge, no Hazardous Materials (as defined
      below) are used, stored, or disposed of by the Company or any of its
      Subsidiaries or, by any other person or entity on any property owned, leased
      or
      used by the Company or any of its Subsidiaries. For the purposes of the
      preceding sentence, “Hazardous Materials” shall mean:

     

    (a) materials
      which are listed or otherwise defined as “hazardous” or “toxic” under any
      applicable local, state, federal and/or foreign laws and regulations that govern
      the existence and/or remedy of contamination on property, the protection of
      the
      environment from contamination, the control of hazardous wastes, or other
      activities involving hazardous substances, including building materials;
      or

     

    (b) any
      petroleum products or nuclear materials.

     

    4.18 Valid
      Offering.
      Assuming the accuracy of the representations and warranties of the Purchaser
      contained in this Agreement, the offer, sale and issuance of the Securities
      will
      be exempt from the registration requirements of the Securities Act of 1933,
      as
      amended (the “Securities Act”), and will have been registered or qualified (or
      are exempt from registration and qualification) under the registration, permit
      or qualification requirements of all applicable state securities
      laws. 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    4.19 Full
      Disclosure.
      Each of
      the Company and each of its Subsidiaries has provided the Purchaser with all
      information requested by the Purchaser in connection with its decision to
      purchase the Note and Warrant, including all information the Company and its
      Subsidiaries believe is reasonably necessary to make such investment decision.
      Neither this Agreement, the Related Agreements, the exhibits and schedules
      hereto and thereto contain any untrue statement of a material fact nor omit
      to
      state a material fact necessary in order to make the statements contained herein
      or therein, in light of the circumstances in which they are made, not
      misleading. Any financial projections and other estimates provided to the
      Purchaser by the Company or any of its Subsidiaries were based on the Company’s
      and its Subsidiaries’ experience in the industry and on assumptions of fact and
      opinion as to future events which the Company or any of its Subsidiaries, at
      the
      date of the issuance of such projections or estimates, believed to be
      reasonable..
      

     

    4.20 Insurance.
      Each of
      the Company and each of its Pledged
      Subsidiaries has general commercial, product liability, fire and casualty
      insurance policies with coverages which the Company believes are customary
      for
      companies similarly situated to the Company and its Pledged
      Subsidiaries in the same or similar business.

     

    4.21 SEC
      Reports.
      The
      Company has filed all proxy statements, reports and other documents required
      to
      be filed by it under the Exchange Act since January 1, 2004. Copies of the
      following documents are publicly available via EDGAR on the SEC's website:
      (i)
      the Company's Annual Report on Form 10-K for its fiscal year ended December
      31,
      2005; and (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal
      quarters ended March 31, 2006 and June 30, 2006, and the Form 8-K filings which
      it has made or amended during the fiscal year 2006 to date (collectively, the
      “SEC Reports”). Each SEC Report was, at the time of its filing, in substantial
      compliance with the requirements of its respective form and none of the SEC
      Reports, nor the financial statements (and the notes thereto) included in the
      SEC Reports, as of their respective filing dates, contained any untrue statement
      of a material fact or omitted 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.

     

    4.22 Listing.
      The
      Company’s Common Stock is listed or quoted, as applicable, on a Principal Market
      (as hereafter defined) and satisfies and, at all times until the Company's
      complete satisfaction of its obligations under this Agreement and the Related
      Agreements, will satisfy, all requirements for the continuation of such listing
      or quotation, as applicable. The Company has not received any notice that its
      Common Stock will be delisted from, or no longer quoted on, as applicable,
      the
      Principal Market or that its Common Stock does not meet all requirements for
      such listing or quotation, as applicable. For purposes hereof, the term
“Principal Market” means the NASD Over The Counter Bulletin Board, NASDAQ
      Capital Market, NASDAQ National Markets System, American Stock Exchange or
      New
      York Stock Exchange (whichever of the foregoing is at the time the principal
      trading exchange or market for the Common Stock).

     

    4.23 No
      Integrated Offering.
      To the
      Company's Knowledge, neither the Company, nor any of its Subsidiaries, nor
      any
      person acting on its or their behalf, has directly or indirectly made any offers
      or sales of any security or solicited any offers to buy any security under
      circumstances that would cause the offering of the Securities pursuant to this
      Agreement

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    or
      any of
      the Related Agreements to be integrated with prior offerings by the Company
      for
      purposes of the Securities Act which would prevent the Company from selling
      the
      Securities pursuant to Rule 506 under the Securities Act, or any applicable
      exchange-related stockholder approval provisions, nor will the Company or any
      of
      its affiliates or Subsidiaries take any action or steps that would cause the
      offering of the Securities to be integrated with other offerings.

     

    4.24 Stop
      Transfer.
      The
      Securities are restricted securities as of the date of this Agreement. Neither
      the Company nor any of its Subsidiaries will issue any stop transfer order
      or
      other order impeding the sale and delivery of any of the Securities at such
      time
      as the Securities are registered for public sale or an exemption from
      registration is available, except as required by state and federal securities
      laws.

     

    4.25 Dilution.
      The
      Company specifically acknowledges that its obligation to issue the shares of
      Common Stock upon exercise of the Warrant is binding upon the Company and
      enforceable regardless of the dilution such issuance may have on the ownership
      interests of other stockholders of the Company. 

     

    4.26
Patriot
      Act.
      The
      Company certifies that, to the Company’s Knowledge, neither the Company nor any
      of its Subsidiaries has been designated, nor is or shall be owned or controlled,
      by a “suspected terrorist” as defined in Executive Order 13224. The Company
      hereby acknowledges that the Purchaser seeks to comply with all applicable
      laws
      concerning money laundering and related activities. In furtherance of those
      efforts, the Company hereby represents, warrants and covenants that: (i) none
      of
      the cash or property that the Company or any of its Subsidiaries will pay or
      will contribute to the Purchaser has been or shall be derived from, or related
      to, any activity that is deemed criminal under United States law; and (ii)
      no
      contribution or payment by the Company or any of its Subsidiaries to the
      Purchaser, to the extent that they are within the Company’s and/or its
      Subsidiaries’ control shall cause the Purchaser to be in violation of the United
      States Bank Secrecy Act, the United States International Money Laundering
      Control Act of 1986 or the United States International Money Laundering
      Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
      notify the Purchaser if any of these representations, warranties or covenants
      ceases to be true and accurate regarding the Company or any of its Subsidiaries.
      The Company shall provide the Purchaser all additional information regarding
      the
      Company or any of its Subsidiaries that the Purchaser deems necessary or
      convenient to ensure compliance with all applicable laws concerning money
      laundering and similar activities. The Company understands and agrees that
      if at
      any time it is discovered that any of the foregoing representations, warranties
      or covenants are incorrect, or if otherwise required by applicable law or
      regulation related to money laundering or similar activities, the Purchaser
      may
      undertake appropriate actions to ensure compliance with applicable law or
      regulation, including but not limited to segregation and/or redemption of the
      Purchaser’s investment in the Company. The Company further understands that
      solely to the extent required by applicable law, the Purchaser may release
      confidential information about the Company and its Subsidiaries and, if
      applicable, any underlying beneficial owners, to proper authorities if the
      Purchaser, in its sole discretion, determines that it is in the best interests
      of the Purchaser in light of relevant rules and regulations under the laws
      set
      forth in subsection (ii) above. 

     

    4.27
ERISA.
      Based
      upon the Employee Retirement Income Security Act of 1974 (“ERISA”),
      and
      the regulations and published interpretations thereunder: (i) neither
      the

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Company
      nor any of its Subsidiaries has engaged in any non-exempt Prohibited
      Transactions (as defined in Section 406 of ERISA and Section 4975 of
      the Internal
      Revenue Code of 1986, as amended (the “Code”));
      (ii)
      each of the Company and its Subsidiaries has met all applicable minimum funding
      requirements under Section 302 of ERISA in respect of its ERISA-governed plans;
      (iii) neither the Company nor any of its Subsidiaries has any Knowledge of
      any
      event or occurrence which would cause the Pension Benefit Guaranty Corporation
      to institute proceedings under Title IV of ERISA to terminate any employee
      benefit plan(s); (iv) neither the Company nor any of its Subsidiaries has any
      fiduciary responsibility for investments with respect to any plan existing
      for
      the benefit of persons other than the Company’s or such Subsidiary’s employees
      and their beneficiaries; and (v) neither the Company nor any of its Subsidiaries
      has withdrawn, completely or partially, from any multi-employer pension plan
      so
      as to incur liability under the Multiemployer Pension Plan Amendments Act of
      1980.

     

    5. Representations
      and Warranties of the Purchaser.
      The
      Purchaser hereby represents and warrants to the Company as follows:

     

    5.1 Organization,
      Good Standing and Qualification.
      The
      Purchaser is a corporation duly organized, validly existing and in good standing
      under the laws of its jurisdiction of incorporation. The Purchaser is duly
      qualified and is authorized to do business and is in good standing as a foreign
      corporation in all jurisdictions in which the nature or location of its
      activities and of its properties (both owned and leased) makes such
      qualification necessary, except for those jurisdictions in which failure to
      do
      so has not, or could not reasonably be expected to have, individually or in
      the
      aggregate, a Material Adverse Effect. 

     

    5.2 No
      Shorting.
      The
      Purchaser or any of its affiliates and investment partners has not, will not
      and
      will not cause any person or entity, to directly engage in “short sales” of the
      Company’s Common Stock as long as the Note shall be outstanding.

     

    5.3 Requisite
      Power and Authority.
      The
      Purchaser has all necessary power and authority under all applicable provisions
      of law to execute and deliver this Agreement and the Related Agreements and
      to
      carry out their provisions. All corporate action on the Purchaser’s part
      required for the lawful execution and delivery of this Agreement and the Related
      Agreements has been taken or will be taken prior to the Closing. Upon their
      execution and delivery, this Agreement and the Related Agreements will be valid
      and binding obligations of the Purchaser, enforceable in accordance with their
      terms, except:

     

    (a) as
      limited by applicable bankruptcy, insolvency, reorganization, moratorium or
      other laws of general application affecting enforcement of creditors’ rights;
      and

     

    (b) as
      limited by general principles of equity that restrict the availability of
      equitable and legal remedies.

     

    5.4 Investment
      Representations.
      The
      Purchaser understands that the Securities are being offered and sold pursuant
      to
      an exemption from registration contained in the Securities Act based in part
      upon the Purchaser’s representations contained in this Agreement, including,
      without limitation, that the Purchaser is an “accredited investor” within the
      meaning

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    of
      Regulation D under the Securities Act. The Purchaser confirms that it has
      received or has had full access to all the information it considers necessary
      or
      appropriate to make an informed investment decision with respect to the Note
      and
      the Warrant to be purchased by it under this Agreement and the Warrant Shares
      acquired by it upon the exercise of the Warrant, respectively. The Purchaser
      further confirms that it has had an opportunity to ask questions and receive
      answers from the Company regarding the Company’s and its Pledged
      Subsidiaries’ business, management and financial affairs and the terms and
      conditions of the Offering, the Note, the Warrant and the Securities and to
      obtain additional information (to the extent the Company possessed such
      information or could acquire it without unreasonable effort or expense)
      necessary to verify any information furnished to the Purchaser or to which
      the
      Purchaser had access.

     

    5.5 The
      Purchaser Bears Economic Risk.
      The
      Purchaser has substantial experience in evaluating and investing in private
      placement transactions of securities in companies similar to the Company so
      that
      it is capable of evaluating the merits and risks of its investment in the
      Company and has the capacity to protect its own interests. The Purchaser must
      bear the economic risk of this investment until the Securities are sold pursuant
      to: (i) an effective registration statement under the Securities Act; or (ii)
      an
      exemption from registration is available with respect to such sale.

     

    5.6 Acquisition
      for Own Account.
      The
      Purchaser is acquiring the Note and Warrant and the Warrant Shares for the
      Purchaser’s own account for investment only, and not as a nominee or agent and
      not with a view towards or for resale in connection with their
      distribution.

     

    5.7 The
      Purchaser Can Protect Its Interest.
      The
      Purchaser represents that by reason of its, or of its management’s, business and
      financial experience, the Purchaser has the capacity to evaluate the merits
      and
      risks of its investment in the Note, the Warrant and the Securities and to
      protect its own interests in connection with the transactions contemplated
      in
      this Agreement and the Related Agreements. Further, the Purchaser is aware
      of no
      publication of any advertisement in connection with the transactions
      contemplated in the Agreement or the Related Agreements.

     

    5.8 Intentionally
      Omitted.

     

    5.9 Legends.

     

    (a) The
      Warrant Shares, if not issued by DWAC system (as hereinafter defined), shall
      bear a legend which shall be in substantially the following form until such
      shares are covered by an effective registration statement filed with the
      SEC:

     

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
      THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
      THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
      APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
      APPLIED

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    DIGITAL
      SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    (b) The
      Warrant shall bear substantially the following legend:

     

    “THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
      STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
      OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
      UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
      LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO APPLIED DIGITAL
      SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    6. Covenants
      of the Company.
      The
      Company covenants and agrees with the Purchaser as follows:

     

    6.1 Stop-Orders.
      The
      Company will advise the Purchaser, promptly after it receives notice of issuance
      by the SEC, any state securities commission or any other regulatory authority
      of
      any stop order or of any order preventing or suspending any offering of any
      securities of the Company, or of the suspension of the qualification of the
      Common Stock of the Company for offering or sale in any jurisdiction, or the
      initiation of any proceeding for any such purpose.

     

    6.2 Listing.
      The
      Company shall promptly secure the listing or quotation, as applicable, of the
      Warrant Shares on the Principal Market upon which shares of Common Stock are
      listed or quoted for trading, as applicable (subject to official notice of
      issuance), and shall maintain such listing or quotation, as applicable, of
      the
      Warrant Shares so long as any other shares of Common Stock shall be so listed
      or
      quoted, as applicable. Until its complete satisfaction of its obligations under
      this Agreement and the Related Agreements, the Company will maintain the listing
      or quotation, as applicable, of its Common Stock on the Principal Market, and
      will comply in all material respects with the Company’s reporting, filing and
      other obligations under the bylaws or rules of the National Association of
      Securities Dealers (“NASD”) and such exchanges, as applicable. 

     

    6.3 Market
      Regulations.
      The
      Company shall notify the SEC, NASD and applicable state authorities, in
      accordance with their requirements, of the transactions contemplated by this
      Agreement, and shall take all other necessary action and proceedings as may
      be
      required and permitted by applicable law, rule and regulation, for the legal
      and
      valid issuance of the Securities to the Purchaser and promptly provide copies
      thereof to the Purchaser.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    6.4 Reporting
      Requirements.
      The
Company
      will deliver, or cause to be delivered, to the Purchaser each of the following,
      which shall be in form and detail acceptable to the Purchaser:

     

    (a) As
      soon
      as available, and in any event within ninety (90) days after the end of each
      fiscal year of the Company, each of the Company’s and each of its Subsidiaries’
audited financial statements with a report of independent certified public
      accountants of recognized standing selected by the Company and reasonably
      acceptable to the Purchaser (the “Accountants”),
      which
      annual financial statements shall be without qualification and shall include
      each of the Company’s and each of its Subsidiaries’ balance sheet as at the end
      of such fiscal year and the related statements of each of the Company’s and each
      of its Subsidiaries’ income, retained earnings and cash flows for the fiscal
      year then ended, prepared on a consolidating and consolidated basis to include
      the Company, each Subsidiary of the Company and each of their respective
      affiliates, all prepared in accordance with GAAP, together with (i) if and
      when
      available, copies of any management letters prepared by the Accountants; and
      (ii) a certificate of the Company’s President, Chief Executive Officer or Chief
      Financial Officer stating that such financial statements have been prepared
      in
      accordance with GAAP and whether or not such officer has knowledge of the
      occurrence of any Event of Default (as defined in the Note) and, if so, stating
      in reasonable detail the facts with respect thereto;

     

    (b) As
      soon
      as available and in any event within forty five (45) days after the end of
      each
      fiscal quarter of the Company, an unaudited/internal balance sheet and
      statements of income, retained earnings and cash flows of the Company and each
      of its Subsidiaries as at the end of and for such quarter and for the year
      to
      date period then ended, prepared on a consolidating and consolidated basis
      to
      include all the Company, each Subsidiary of the Company and each of their
      respective affiliates, all prepared in accordance with GAAP, subject to year-end
      adjustments and accompanied by a certificate of the Company’s President, Chief
      Executive Officer or Chief Financial Officer, stating (i) that such financial
      statements have been prepared in accordance with GAAP, subject to year-end
      audit
      adjustments, and (ii) whether or not such officer has knowledge of the
      occurrence of any Event of Default (as defined in the Note) not theretofore
      reported and remedied and, if so, stating in reasonable detail the facts with
      respect thereto; 

     

    (c) As
      soon
      as available and in any event within thirty (30) days after the end of each
      calendar month, an unaudited/internal balance sheet and statements of income,
      of
      each of the Company and its Subsidiaries as at the end of and for such month
      and
      for the year to date period then ended, prepared on a consolidating and
      consolidated basis to include the Company, each Subsidiary of the Company and
      each of their respective affiliates, all prepared in accordance with GAAP,
      subject to year-end adjustments and accompanied by a certificate of the
      Company’s President, Chief Executive Officer or Chief Financial Officer, stating
      (i) that such financial statements have been prepared in accordance with GAAP,
      subject to year-end audit adjustments, and (ii) whether or not such officer
      has
      knowledge of the occurrence of any Event of Default (as defined in the Note)
      not
      theretofore reported and remedied and, if so, stating in reasonable detail
      the
      facts with respect thereto;

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (d) The
      Company shall timely file with the SEC all reports required to be filed pursuant
      to the Exchange Act and refrain from terminating its status as an issuer
      required by the Exchange Act to file reports thereunder even if the Exchange
      Act
      or the rules or regulations thereunder would permit such termination.
Promptly
      after (i) the filing thereof, copies of the Company’s most recent registration
      statements and annual, quarterly, monthly or other regular reports which the
      Company files with the Securities and Exchange Commission (the “SEC”),
      and
      (ii) the issuance thereof, copies of such financial statements, reports and
      proxy statements as the Company shall send to its stockholders; and

     

    (e) The
      Company shall timely deliver such other information as the Purchaser shall
      reasonably request.
      

     

    6.5 Use
      of
      Funds.
      The
      Company shall use the proceeds of the sale of the Note and the Warrant for
      general working capital purposes only and to repay in full the Company’s
      existing senior secured debt with Satellite Senior Income Fund,
      LLC.

     

    6.6 Access
      to Facilities.
      The
      Company will permit any representatives designated by the Purchaser (or any
      successor of the Purchaser), upon reasonable notice and during normal business
      hours, at Purchaser's expense and accompanied by a representative of the Company
      (provided that no such prior notice shall be required to be given and no such
      representative of the Company shall be required to accompany the Purchaser
      in
      the event the Purchaser believes such access is necessary to preserve or protect
      the Collateral (as defined in the Master Security Agreement) or following the
      occurrence and during the continuance of an Event of Default (as defined in
      the
      Note)) to:

     

    (a) visit
      and
      inspect any of the properties of the Company;

     

    (b) examine
      the corporate and financial records of the Company (unless such examination
      is
      not permitted by federal, state or local law or by contract) and make copies
      thereof or extracts therefrom; and

     

    (c) discuss
      the affairs, finances and accounts of the Company with the directors, officers
      and independent accountants of the Company.

     

    Notwithstanding
      the foregoing, neither the Company nor any of its Subsidiaries will provide
      any
      material, non-public information to the Purchaser unless the Purchaser signs
      a
      confidentiality agreement and otherwise complies with Regulation FD, under
      the
      federal securities laws.

     

    6.7 Taxes.
      Each of
      the Company and its Subsidiaries will promptly pay and discharge, or cause
      to be
      paid and discharged, when due and payable, all taxes, assessments and
      governmental charges or levies imposed upon the income, profits, property or
      business of the Company and its Subsidiaries; provided, however, that any such
      tax, assessment, charge or levy need not be paid currently if (i) the validity
      thereof shall currently and diligently be contested in good faith by appropriate
      proceedings, (ii) such tax, assessment, charge or levy shall have no effect
      on
      the lien priority of the Purchaser in any property of the Company or any of
      its
      Subsidiaries and (iii) if the Company and/or such Subsidiary shall have set
      aside on its books adequate reserves with respect thereto in accordance with
      GAAP; and provided, further, that the

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    Company
      and its Subsidiaries will pay all such taxes, assessments, charges or levies
      forthwith upon the commencement of proceedings to foreclose any lien which
      may
      have attached as security therefor.

     

    6.8 Insurance.
      (i) The
      Company shall bear the full risk of loss from any loss of any nature whatsoever
      with respect to the Collateral (as defined in each of the Master Security
      Agreement, the Stock Pledge Agreement and each other security agreement entered
      into by the Company for the benefit of the Purchaser) and the Company will
      bear
      the full risk of loss from any loss of any nature whatsoever with respect to
      the
      assets pledged to the Purchaser as security for the Obligations (as defined
      in
      the Master Security Agreement). Furthermore, the Company will insure or cause
      the Collateral to be insured, against loss or damage by fire, flood, sprinkler
      leakage, theft, burglary, pilferage, loss in transit and other risks customarily
      insured against by companies in similar business similarly situated as the
      Company including, but not limited to, workers compensation, public and product
      liability and business interruption, and such other hazards in amounts and
      under
      insurance policies and bonds by insurers consistent with current practice and
      reasonably acceptable to the Purchaser. All premiums thereon shall be paid
      by
      the Company, the policies delivered to the Purchaser, and each such policy
      shall
      be endorsed in the Purchaser’s name as an additional insured and lender loss
      payee, with an appropriate loss payable endorsement by the Company in form
      and
      substance satisfactory to the Purchaser. If the Company fails to obtain the
      insurance and in such amounts of coverage as otherwise required pursuant to
      this
      Section 6.8, the Purchaser may procure such insurance and the cost thereof
      shall
      be promptly reimbursed by the Company and shall constitute
      Obligations.

     

    (ii) The
      Company’s insurance coverage shall not be impaired or invalidated by any act or
      neglect of the Company or any of its Subsidiaries and the insurer will provide
      the Purchaser with no less than thirty (30) days notice prior of
      cancellation.

     

    (iii) The
      Purchaser, in connection with its status as a lender loss payee, will be
      assigned at all times to a first lien position until such time as all the
      Purchaser’s Obligations have been indefeasibly satisfied in full.  

     

    6.9 Intellectual
      Property.
      Each of
      the Company and its Subsidiaries shall maintain in full force and effect its
      existence, rights and franchises and all licenses and other rights to use
      Intellectual Property owned or possessed by it and reasonably deemed to be
      necessary to the conduct of its business.

     

    6.10 Properties.
      Each of
      the Company and its Subsidiaries will keep its properties in good repair,
      working order and condition, reasonable wear and tear excepted, and from time
      to
      time make all needful and proper repairs, renewals, replacements, additions
      and
      improvements thereto; and each of the Company and each of its Subsidiaries
      will
      at all times comply with each provision of all leases to which it is a party
      or
      under which it occupies property if the breach of such provision could, either
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    6.11 Confidentiality.
      The
      Company will not, and will not permit any of its Subsidiaries to, disclose,
      and
      will not include in any public announcement, the name of the

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    Purchaser,
      unless expressly agreed to by the Purchaser or unless and until such disclosure
      is required by law or applicable regulation, and then only to the extent of
      such
      requirement. Notwithstanding the foregoing, the Company may disclose the
      Purchaser’s identity and the terms of this Agreement to its current and
      prospective debt and equity financing sources.

     

    6.12 Required
      Approvals.
      For so
      long as twenty-five percent (25%) of the principal amount of the Note is
      outstanding, the Company, without the prior written consent of the Purchaser,
      shall not:

     

    (a) (i)
      directly or indirectly declare or pay any dividends, (ii) issue any
      preferred stock that is manditorily redeemable prior to the one year anniversary
      of the Maturity Date (as defined in the Note) or (iii) redeem any of its
      preferred stock or other equity interests;

     

    (b) liquidate,
      dissolve or effect a material reorganization (it being understood that in no
      event shall the Company dissolve, liquidate or merge with any other person
      or
      entity  without
      the prior written consent of Laurus, which shall not unreasonably be withheld;
      

     

    (c) become
      subject to (including, without limitation, by way of amendment to or
      modification of) any agreement or instrument which by its terms would (under
      any
      circumstances) restrict the Company’s right to perform the provisions of this
      Agreement, any Related Agreement or any of the agreements contemplated hereby
      or
      thereby; 

     

    (d) materially
      alter or change the scope of the business of the Company and its Pledged
      Subsidiaries (to the extent the Company shall have control over such alteration
      or change as a result of owning a controlling interest in the voting stock
      of
      such Pledged Subsidiary) taken as a whole; or

     

    (e) (i)
      create, incur, assume or suffer to exist any indebtedness (exclusive of trade
      debt and debt incurred to finance the purchase of equipment (not in excess
      of
      five percent (5%) of the fair market value of the Company’s assets)) whether
      secured or unsecured other than (A) the Company’s obligations owed to the
      Purchaser, (B) intercompany indebtedness incurred in the ordinary course of
      business between or among the Company and its Pledged Subsidiaries, (C)
      indebtedness set forth on Schedule 6.12(e) attached hereto and made a part
      hereof and any extensions, refinancings or replacements thereof on terms no
      less
      favorable to the Purchaser than the indebtedness being extended, refinanced
      or
      replaced, (D) any indebtedness incurred in connection with the purchase of
      assets (other than equipment) in the ordinary course of business, or any
      extensions, refinancings or replacements thereof on terms no less favorable
      to
      the Purchaser than the indebtedness being refinanced or replaced, so long as
      any
      lien relating thereto shall only encumber the fixed assets so purchased and
      no
      other assets of the Company or any of its Subsidiaries, (E) debt expressly
      subordinated to the Obligations (as defined in the Master Security Agreement)
      incurred by the Company that, individually or in the aggregate, does not exceed
      $2 million in principal or face amount and is reasonably acceptable to Laurus;
      and (F) debt
      assumed or incurred in connection with the acquisition by the Company or its
      Subsidiaries of all or substantially all of the capital stock or other equity
      interests in, or

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    all
      or
      substantially all of the assets of, any entity; provided the total debt assumed
      or incurred in connection with any such acquisition shall (i) be subordinated
      to
      Purchaser on terms acceptable to Laurus and (ii) not exceed the product of
      (x)
      two (2) times (y) the amount of the acquired entity's or business unit's total
      earnings before interest, taxes, depreciation, and amortization (as determined
      in accordance with GAAP) for the twelve (12) calendar months immediately prior
      to such acquisition; (ii)
      cancel any indebtedness owing to it in excess of $100,000 in the aggregate
      during any 12 month period, except intercompany debt between the Company and
      its
      Subsidiaries without the prior written consent of Purchaser, which consent
      shall
      not be unreasonably withheld; or (iii) assume, guarantee, endorse or otherwise
      become directly or contingently liable in connection with any obligations of
      any
      other person or entity, except the endorsement of negotiable instruments by
      the
      Company thereof for deposit or collection or similar transactions in the
      ordinary course of business or guarantees of indebtedness otherwise permitted
      to
      be outstanding pursuant to this clause (e).

     

    6.13 Reissuance
      of Securities.
      The
      Company agrees to reissue certificates representing the Securities without
      the
      legends set forth in Section 5.8 above at such time as:

     

    (a) the
      holder thereof is permitted to dispose of such Securities pursuant to Rule
      144(k) under the Securities Act; or

     

    (b) upon
      resale subject to an effective registration statement after such Securities
      are
      registered under the Securities Act.

     

    The
      Company agrees to cooperate with the Purchaser in connection with all resales
      pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary
      to
      allow such resales provided the Company and its counsel receive reasonably
      requested representations from the Purchaser and broker, if any.

     

    6.14 Opinion.
      On the
      Closing Date, the Company will deliver to the Purchaser an opinion, subject
      to
      the Purchaser's reasonable acceptance, from the Company’s in-house or external
      legal counsel. The Company will provide, at the Company’s expense, such other
      legal opinions in the future as are deemed reasonably necessary by the Purchaser
      (and acceptable to the Purchaser) in connection with the exercise of the
      Warrant.

     

    6.15 Margin
      Stock. The
      Company will not permit any of the proceeds of the Note or the Warrant to be
      used directly or indirectly to “purchase” or “carry” “margin stock” or to repay
      indebtedness incurred to “purchase” or “carry” “margin stock” within the
      respective meanings of each of the quoted terms under Regulation U of the Board
      of Governors of the Federal Reserve System as now and from time to time
      hereafter in effect.

     

    6.16 FIRPTA.
      Neither
      the Company, nor any of its Subsidiaries, is a “United States real property
      holding corporation” as such term is defined in Section 897(c)(2) of the Code
      and Treasury Regulation Section 1.897-2 promulgated thereunder and neither
      the
      Company nor any of its Subsidiaries shall at any time take any action or
      otherwise acquire any interest in any asset or property to the extent the effect
      of which shall cause the Company and/or such Subsidiary, as the case may be,
      to
      be a “United States real property holding corporation” as such

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    term
      is
      defined in Section 897(c)(2) of the Code and Treasury Regulation Section 1.897-2
      promulgated thereunder.

     

    6.17 Intentionally
      Omitted.

     

    6.18 Authorization
      and Reservation of Shares.
      The
      Company shall at all times have authorized and reserved a sufficient number
      of
      shares of Common Stock to provide for the exercise of the Warrants.

     

    7. Covenants
      of the Purchaser.
      The
      Purchaser covenants and agrees with the Company as follows:

     

    7.1 Confidentiality.
      The
      Purchaser will not disclose, and will not include in any public announcement,
      the name of the Company, unless expressly agreed to by the Company or unless
      and
      until such disclosure is required by law or applicable regulation, and then
      only
      to the extent of such requirement.

     

    7.2 Non-Public
      Information.
      The
      Purchaser and its officers, directors, employees, affiliates, agents,
      shareholders, and control persons, will not effect any sales in the shares
      of
      the Company’s Common Stock while in possession of material, non-public
      information regarding the Company if such sales would violate applicable
      securities law.

     

    7.3 Limitation
      on Acquisition of Common Stock of the Company.
      Notwithstanding anything to the contrary contained in this Agreement, any
      Related Agreement or any document, instrument or agreement entered into in
      connection with any other transactions between the Purchaser and the Company,
      the Purchaser may not acquire stock in the Company (including, without
      limitation, pursuant to a contract to purchase, by exercising an option or
      warrant, including the Warrant, by converting any other security or instrument,
      by acquiring or exercising any other right to acquire, shares of stock or other
      security convertible into shares of stock in the Company, or otherwise, and
      such
      contracts, options, warrants, conversion or other rights shall not be
      enforceable or exercisable) to the extent such stock acquisition would cause
      any
      interest (including any original issue discount) payable by the Company to
      the
      Purchaser not to qualify as “portfolio interest” within the meaning of Section
      881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking
      into account the constructive ownership rules under Section 871(h)(3)(C) of
      the
      Code (the “Stock Acquisition Limitation”). The Stock Acquisition Limitation
      shall automatically become null and void without any notice to the Company
      upon
      the earlier to occur of either (a) the Company’s delivery to the Purchaser of a
      Notice of Redemption (as defined in the Note) or (b) the existence of an Event
      of Default (as defined in the Note) at a time when the average closing price
      of
      the Company’s common stock as reported by Bloomberg, L.P. on the Principal
      Market for the immediately preceding five trading days is greater than or equal
      to 150% of the Exercise Price (as defined in the Warrant).

     

    8. Covenants
      of the Company and the Purchaser Regarding Indemnification.

     

    8.1 Company
      Indemnification.
      The
      Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser,
      each of the Purchaser’s officers, directors, agents, affiliates, control
      persons, and principal shareholders, against all claims, costs, expenses,
      liabilities, obligations, losses or damages (including reasonable legal fees)
      of
      any nature,

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    incurred
      by or imposed upon the Purchaser which result, arise out of or are based upon:
      (i) any misrepresentation by the Company or any of its Subsidiaries or breach
      of
      any warranty by the Company or any of its Subsidiaries in this Agreement, any
      other Related Agreement or in any exhibits or schedules attached hereto or
      thereto; or (ii) any breach or default in performance by Company or any of
      its
      Subsidiaries of any covenant or undertaking to be performed by Company or any
      of
      its Subsidiaries hereunder, under any other Related Agreement or any other
      agreement entered into by the Company and/or any of its Subsidiaries and the
      Purchaser relating hereto or thereto.

     

    8.2 Purchaser’s
      Indemnification.
      The
      Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
      and each of the Company’s officers, directors, agents, affiliates, control
      persons and principal shareholders, at all times against any claims, costs,
      expenses, liabilities, obligations, losses or damages (including reasonable
      legal fees) of any nature, incurred by or imposed upon the Company which result,
      arise out of or are based upon: (i) any misrepresentation by the Purchaser
      or
      breach of any warranty by the Purchaser in this Agreement or in any exhibits
      or
      schedules attached hereto or any Related Agreement; or (ii) any breach or
      default in performance by the Purchaser of any covenant or undertaking to be
      performed by the Purchaser hereunder, under any other Related Agreement, or
      any
      other agreement entered into by the Company and the Purchaser relating hereto
      or
      thereto.

     

    9. Intentionally
      Omitted.

     

    10. Registration
      Rights.

     

    10.1 Registration
      Rights Granted.
      The
      Company hereby grants registration rights to the Purchaser pursuant to the
      Registration Rights Agreement. 

     

    10.2 Offering
      Restrictions.
      Except
      for stock or stock options granted to employees, directors or consultants of
      the
      Company and its Pledged Subsidiaries (these exceptions hereinafter referred
      to
      as the “Excepted Issuances”), neither the Company nor any of its Subsidiaries
      will, prior to the full repayment of the Note (together with all accrued and
      unpaid interest and fees related thereto), (x) enter into any equity line of
      credit agreement or similar agreement or (y) issue, or enter into any agreement
      to issue, any securities with a variable/floating conversion and/or pricing
      feature which are or could be (by conversion or registration)(commonly known
      as
“floorless convertible instruments”) free-trading securities (i.e. common stock
      subject to a registration statement). 

     

    11. Miscellaneous.

     

    11.1 Governing
      Law, Jurisdiction and Waiver of Jury Trial.

     

    (a) THIS
      AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
      AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
      TO
      CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
      CONFLICTS OF LAWS.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (b) THE
      COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
      IN
      THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
      TO
      HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND,
      AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF
      THE
      RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
      OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED,
      THAT
      THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
      MAY
      HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE
      OF
      NEW YORK; AND FURTHER PROVIDED,
      THAT,
      NOTHING
      IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM
      BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
      THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY
      AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER
      SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR
      OF
      THE PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
      JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY
      HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL
      JURISDICTION, IMPROPER VENUE OR FORUM
      NON CONVENIENS.
      THE
      COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
      PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
      SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
      MAIL
      ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 12.8 AND THAT
      SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE COMPANY’S ACTUAL RECEIPT
      THEREOF.

     

    (c) THE
      PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
      APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
      OF
      THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS
      TO
      TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
      WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR
      THE
      COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
      RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
      OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
      THERETO.

     

    11.2 Severability.
      Wherever possible each provision of this Agreement and the Related Agreements
      shall be interpreted in such manner as to be effective and valid under
      applicable law, but if any provision of this Agreement or any Related Agreement
      shall be prohibited by or invalid or illegal under applicable law such provision
      shall be ineffective to the

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    extent
      of
      such prohibition or invalidity or illegality, without invalidating the remainder
      of such provision or the remaining provisions thereof which shall not in any
      way
      be affected or impaired thereby.

     

    11.3 Survival.
      The
      representations, warranties, covenants and agreements made herein shall survive
      any investigation made by the Purchaser and the Closing of the transactions
      contemplated hereby to the extent provided therein for a period of twelve (12)
      months following the repayment of the obligations under the Note. All statements
      as to factual matters contained in any certificate or other instrument delivered
      by or on behalf of the Company pursuant hereto in connection with the
      transactions contemplated hereby shall be deemed to be representations and
      warranties by the Company hereunder solely as of the date of such certificate
      or
      instrument. All indemnities set forth herein shall survive the execution,
      delivery and termination of this Agreement and the Note and the making and
      repayment of the obligations arising hereunder, under the Note and under the
      other Related Agreements for a period of twelve (12) months following the
      repayment of the obligations under the Note.

     

    11.4 Successors.
      Except
      as otherwise expressly provided herein, the provisions hereof shall inure to
      the
      benefit of, and be binding upon, the successors, heirs, executors and
      administrators of the parties hereto and shall inure to the benefit of and
      be
      enforceable by each person or entity which shall be a holder of the Securities
      from time to time, other than the holders of Common Stock which has been sold
      by
      the Purchaser pursuant to Rule 144 or an effective registration statement.
      The
      Purchaser shall not be permitted to assign its rights hereunder or under any
      Related Agreement to (a) a competitor of the Company unless an Event of Default
      (as defined in the Note) has occurred and is continuing
      or (b)
      an entity or person affiliated, directly or indirectly, with any former
      executive officer of the Company.

     

    11.5 Entire
      Agreement; Maximum Interest.
      This
      Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
      and the other documents delivered pursuant hereto constitute the full and entire
      understanding and agreement between the parties with regard to the subjects
      hereof and no party shall be liable or bound to any other in any manner by
      any
      representations, warranties, covenants and agreements except as specifically
      set
      forth herein and therein. Nothing contained in this Agreement, any Related
      Agreement or in any document referred to herein or delivered in connection
      herewith shall be deemed to establish or require the payment of a rate of
      interest or other charges in excess of the maximum rate permitted by applicable
      law. In the event that the rate of interest or dividends required to be paid
      or
      other charges hereunder exceed the maximum rate permitted by such law, any
      payments in excess of such maximum shall be credited against amounts owed by
      the
      Company to the Purchaser and thus refunded to the Company.

     

    11.6 Amendment
      and Waiver.

     

    (a) This
      Agreement may be amended or modified only upon the written consent of the
      Company and the Purchaser.

     

    (b) The
      obligations of the Company and the rights of the Purchaser under this Agreement
      may be waived only with the written consent of the Purchaser. 

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    (c) The
      obligations of the Purchaser and the rights of the Company under this Agreement
      may be waived only with the written consent of the Company.

     

    11.7 Delays
      or Omissions.
      It is
      agreed that no delay or omission to exercise any right, power or remedy accruing
      to any party, upon any breach, default or noncompliance by another party under
      this Agreement or the Related Agreements, shall impair any such right, power
      or
      remedy, nor shall it be construed to be a waiver of any such breach, default
      or
      noncompliance, or any acquiescence therein, or of or in any similar breach,
      default or noncompliance thereafter occurring. All remedies, either under this
      Agreement or the Related Agreements, by law or otherwise afforded to any party,
      shall be cumulative and not alternative.

     

    11.8 Notices.
      All
      notices required or permitted hereunder shall be in writing and shall be deemed
      effectively given:

     

    (a) upon
      personal delivery to the party to be notified;

     

    (b) when
      sent
      by confirmed facsimile if sent during normal business hours of the recipient,
      if
      not, then on the next business day;

     

    (c) three
      (3)
      business days after having been sent by registered or certified mail, return
      receipt requested, postage prepaid; or

     

    (d) one
      (1)
      day after deposit with a nationally recognized overnight courier, specifying
      next day delivery, with written verification of receipt.

     

    All
      communications shall be sent as follows:

     

    
      	
               

              If
                to the Company, to:

               

            	
               

              Applied
                Digital Solutions, Inc.

              1690
                Congress Avenue, Suite 200

              Delray
                Beach, FL 33445

              Attention:
                Michael Krawitz

              Facsimile:
                561-805-0002 

               

            
	 	
              with
                a copy to: 

            
	 	
               

              Harvey
                Goldman, Esq.

              Holland
                & Knight LLP

              701
                Brickell Avenue, Suite 3000

              Miami,
                FL 33131

              Facsimile:
                305-789-7799

            

    

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    
      	
               

              If
                to the Purchaser, to:

               

            	
               

              Laurus
                Master Fund, Ltd.

              c/o
                M&C Corporate Services Limited

              P.O.
                Box 309 GT

              Ugland
                House 

              George
                Town

              South
                Church Street

              Grand
                Cayman, Cayman Islands

              Facsimile: 345-949-8080

               

            
	 	
              with
                a copy to:

            
	 	
               

              Portfolio
                Services

              825
                Third Avenue 14th Floor

              New
                York, NY 10022

              Facsimile: 212-541-4434

               

            

    

     

    or
      at
      such other address as the Company or the Purchaser may designate by written
      notice to the other parties hereto given in accordance herewith.

     

    11.9 Attorneys’
      Fees.
      In the
      event that any suit or action is instituted to enforce any provision in this
      Agreement or any Related Agreement, the prevailing party in such dispute shall
      be entitled to recover from the losing party all fees, costs and expenses of
      enforcing any right of such prevailing party under or with respect to this
      Agreement and/or such Related Agreement, including, without limitation, such
      reasonable fees and expenses of attorneys and accountants, which shall include,
      without limitation, all fees, costs and expenses of appeals.

     

    11.10 Titles
      and Subtitles.
      The
      titles of the sections and subsections of this Agreement are for convenience
      of
      reference only and are not to be considered in construing this
      Agreement.

     

    11.11 Facsimile
      Signatures; Counterparts.
      This
      Agreement may be executed by facsimile signatures and in any number of
      counterparts, each of which shall be an original, but all of which together
      shall constitute one agreement.

     

    11.12 Broker’s
      Fees.
      Except
      as set forth on Schedule 12.12 hereof, each party hereto represents and warrants
      that no agent, broker, investment banker, person or firm acting on behalf of
      or
      under the authority of such party hereto is or will be entitled to any broker’s
      or finder’s fee or any other commission directly or indirectly in connection
      with the transactions contemplated herein. Each party hereto further agrees
      to
      indemnify each other party for any claims, losses or expenses incurred by such
      other party as a result of the representation in this Section 12.12 being
      untrue.

     

    11.13 Construction.
      Each
      party acknowledges that its legal counsel participated in the preparation of
      this Agreement and the Related Agreements and, therefore, stipulates that the
      rule of construction that ambiguities are to be resolved against the drafting
      party shall not be applied in the interpretation of this Agreement or any
      Related Agreement to favor any party against the other.

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
      AGREEMENT as of the date set forth in the first paragraph hereof.

     

    
      	
               

              COMPANY:

               

            	
               

              PURCHASER:

               

            
	
               

              APPLIED
                DIGITAL SOLUTIONS, INC.

               

            	
               

              LAURUS
                MASTER FUND, LTD.

               

            
	
               

              By:
                /s/ Evan C.
                McKeown                                   
                

            	
               

              By: /s/
                David
                Grin                                                    

               

            
	
               

              Name:
                Evan C.
                McKeown                                   
                

               

            	
               

              Name: David
                Grin                                                     
                

               

            
	
               

              Title:
                SVP &
                CFO                                                
                

               

            	
               

              Title:  Director                                                         

               

            

    

     

    

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    FORM
      OF SECURED TERM NOTE

     

     

    
 

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

     

    FORM
      OF WARRANT

     

    
 

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

       

      EXHIBIT
        C

    

     

    FORM
      OF ESCROW AGREEMENT

     

    

     

    
      
        
        

      

      
        C-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}]]