Document:

Prepared by R.R. Donnelley Financial -- Amended and Restated Form of Indemnification

 EXHIBIT 10.4 
  
 COST PLUS, INC. 
  
 AMENDED AND RESTATED 
  
 INDEMNIFICATION AGREEMENT 
  
 This Indemnification Agreement (“Agreement”) is made as of              by and between Cost Plus, Inc., a California corporation (the
“Company”), and              (“Indemnitee”). 
  
 WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general
reductions in the coverage of such insurance; 
  
 WHEREAS, the Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; 
  
 WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee
and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and 
  
 WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its
officers and directors so as to provide them with the maximum protection permitted by law. 
  
 NOW,
THEREFORE, the Company and Indemnitee hereby agree as follows: 
  
 1.  Indemnification.

  
 (a)  Third Party Proceedings.    The Company shall indemnify
Indemnitee if Indemnitee is or was a party to or witness or other participant in or is threatened to be made a party to or witness or other participant in any threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action
or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys’ fees, expert fees, other professional fees and court costs), judgments (including punitive and exemplary damages), penalties, fines and amounts paid in settlement (if such
settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably 

 
incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith, (ii) Indemnitee did not act in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or
(iii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful. 
  
 (b)  Proceedings By or in the Right of the Company.    The Company shall indemnify Indemnitee if Indemnitee was or is a party to or witness or other participant in
or is threatened to be made a party to or witness or other participant in any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of
the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest
extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable
to the Company in the performance of Indemnitee’s duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 
  
 2.  Expenses; Indemnification Procedure. 
  
 (a)  Advancement of Expenses.    The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action
or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately
be determined by the court (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the
Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. 
  
 (b)  Notice/Cooperation by Indemnitee.    Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in
writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought 
 

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 under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or
registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require
and as shall be within Indemnitee’s power. 
  
 (c)  Procedure.    Any indemnification provided for in Section 1 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company’s Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 14 of this Agreement, Indemnitee shall also be entitled to be paid
for the expenses (including attorneys’ fees, expert fees, other professional fees and court costs) of bringing such action irrespective of the ultimate determination as to Indemnitee’s entitlement to indemnification. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible
under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a)
unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question
of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its
shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct. 
  
 (d)  Notice to
Insurers.    If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement
of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts
payable as a result of such proceeding in accordance with the terms of such policies. 
  
 (e)  Selection of Counsel.    In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved in writing by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to 
 

 3 

 Indemnitee of written notice of its election so to do. After delivery of such notice, written approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and
expenses of Indemnitee’s counsel shall be at the expense of the Company. Neither the Company nor the Indemnitee will settle any matter the subject of this Agreement without the written consent of the other, which will not be unreasonably
withheld. 
  
 3.  Additional Indemnification Rights;
Nonexclusivity. 
  
 (a)  Scope.    Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Articles of Incorporation, the Company’s Bylaws or by statute. In the event of any change, after the date of this Agreement, in any
applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and
Company’s obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to
the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder. 
  
 (b)  Nonexclusivity.    The indemnification provided by this Agreement shall not be deemed exclusive of any rights to
which Indemnitee may be entitled under the Company’s Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to
action in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 
  
 4.  Partial Indemnification.    If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 
 

 4 

  
 5.  Contribution.    If the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for expenses, in connection with any claim relating to an indemnifiable event,
in such proportion as is deemed fair and reasonable in light of all circumstances of such action by the court before which such action was brought in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of
the event(s) and/or transaction(s) giving cause to such action; and/or (ii) the relative fault of the Company (and its other directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Indemnitee’s right to contribution under this Section 5 shall be determined in accordance with, pursuant to and in the same manner as, the provisions in Section 1 hereof relating to Indemnitee’s right to indemnification under this
Agreement. 
  
 6.  Mutual Acknowledgment.    Both
the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the
Company’s right under public policy to indemnify Indemnitee. 
  
 7.  Directors’
and Officers’ Liability Insurance.    The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors’ and officers’ liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited
by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 
  
 8.  Severability.    Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do
any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent 
 

 5 

 permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms. 
  
 9.  Exceptions.    Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: 

 
 (a)  Excluded Acts.    To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability under the California General Corporation Law; or 
  
 (b)  Claims Initiated by Indemnitee.    To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way
of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or 
  
 (c)  Lack of Good Faith.    To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any
proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous;
or 
  
 (d)  Insured Claims.    To indemnify Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of
directors’ and officers’ liability insurance maintained by the Company; or 
  
 (e)  Claims Under Section 16(b).    To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar successor statute. 
  
 10.  Effectiveness of Agreement.    To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the
indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company’s Articles of Incorporation authorize such additional rights of indemnification. In all other respects,
the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the
Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred. All of the Company’s
obligations under this Agreement will continue as long as Indemnitee is subject to any actual or possible matter which is the subject of this Agreement, notwithstanding Indemnitee’s termination of service as an officer or director of the
Company. 
 

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 11.  Construction of Certain Phrases. 
  
 (a)  For purposes of this Agreement, references to the “Company” shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued. 
  
 (b)  For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. 
  
 12.  Counterparts.    This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 
  
 13. Successors and Assigns.    This Agreement shall be binding upon the Company and its successors (whether direct or indirect, by purchase,
merger or otherwise) and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns. Any such assumption will not release the Company from its obligations under this Agreement.

  
 14.  Attorneys’ Fees.    In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs
and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines (as
to which all rights of appeal therefrom have been exhausted or lapsed) that each of Indemnitee’s material defenses to such action was made in bad faith or were frivolous. 
  
 15.  Notice.    All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or 
 

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 registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written notice. 
  
 16.  Consent to
Jurisdiction.    The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 
  
 17.  Amendments.    Neither the Company’s Articles of Incorporation nor its Bylaws will be changed to increase liability of the Company’s officers or
directors or to limit Indemnitee’s indemnification. Any repeal or modification of Company’s Articles of Incorporation or Bylaws or any repeal or modification of the relevant provisions of any applicable law will not in any way diminish any
of Indemnitee’s rights or the Company’s obligations under this Agreement. This Agreement cannot be amended except with the written consent of the Company and Indemnitee. 
  
 18.  Choice of Law.    This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of
California as applied to contracts between California residents entered into and to be performed entirely within California. 
 

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 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written. 
  
 
	 COST PLUS, INC.
 
	 
	 By:
 	 	  
 

	  	 	 Name:
 Title:
 
	 
	  	 	 Address:
 200 4th Street
 Oakland, CA 94607
 

 
  
 AGREED TO AND ACCEPTED: 
  
 INDEMNITEE: 
  
 
	 
	  
 

	 Name:
 

 
  
 
	 
	 Address:
 	 	  
 

	 
	  	 	 

 
 

 9<PAGE>

                                                                EXHIBIT 10.20

                    [IBM Credit Corporation letterhead]

August 20, 2002

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

Attention: Jerome C. Artigliere, Senior Vice President and Chief Operating
           Officer

                            Re: Credit Agreement
                                ----------------

Dear Mr. Artigliere:

     Reference is made to the Third Amended and Restated Term Credit
Agreement, dated as of March 1, 2002 (as amended, supplemented or otherwise
modified through the date hereof, the ("Credit Agreement"), by and among IBM
                                        ----------------
Credit Corporation ("IBM Credit"), as lender and Digital Angel Share Trust,
                     ----------
as Tranche A Borrower, Applied Digital Solutions, Inc. ("ADS"), as Tranche B
                                                         ---
Borrower, and certain Subsidiaries of ADS, as Loan Parties. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement.

     ADS hereby acknowledges that Defaults exist as a result of the
occurrence of each of (i) the failure of Tranche B Borrower to cause the
Caledonian Subsidiaries to become parties to the Credit Agreement in
compliance with Section 6.25 of the Credit Agreement, (ii) the proceedings
initiated by the directors of Caledonian Venture Holdings Limited to
liquidate the Caledonian Subsidiaries ((i) and (ii) collectively, the
"Caledonian Defaults") and (iii) the failure of each of Tranche B Borrower
 -------------------
and MAS to comply with Section 7.1(B)(i) and (ii), respectively, of the
Credit Agreement, for the quarter ended June 30, 2002 (such Defaults,
together with the Caledonian Defaults, the "Current Defaults").
                                            ----------------

     ADS has requested that IBM Credit consent to (i) the permanent
reduction to $4,000,000 of the outstanding principal amount of the Pledged
Note issued to ADS by C&H Pier and pledged to IBM Credit (the "C&H Pier
                                                               --------
Note"), (ii) the retention by ADS of any Net Cash Proceeds of the C&H Pier
----
Note without further application to the Tranche B Loan so long as no Default
or Event of Default exists or is continuing (which has not been waived by
IBM Credit) at the time of such payment and (iii) the retention of
$1,383,800 of a $2,767,600 payment expected to be made by SysComm (the
"SysComm Payment") in respect of the Account owing from SysComm to Tranche B
 ---------------
Borrower arising from the acquisition by SysComm of Info Tech Services, Inc.
(the "SysComm Account") so long as no Default or Event of Default exists or
      ---------------
is continuing (which

<PAGE>
<PAGE>

has not been waived by IBM Credit) at the time of such payment ((i), (ii)
and (iii), collectively, the "Repayment Transactions").
                              ---------------------

     IBM Credit hereby agrees to waive the Current Defaults and to consent
to the Repayment Transactions in consideration of (i) ADS's agreement to
waive the 15-Business Day grace period set forth in Section 8.1(B) of the
Credit Agreement in respect of the Caledonian Defaults; (ii) the immediate
application to the Tranche B Loan of $1,383,800 of the SysComm Payment upon
receipt by ADS; (iii) the issuance to IBM Credit by ADS of additional
warrants pursuant to the warrant agreement (the "Additional ADS Warrant
                                                 ----------------------
Agreement") entered into by ADS and IBM Credit on the date hereof, and (iv)
---------
the issuance to IBM Credit by VeriChip Corp. of warrants pursuant to the
warrant agreement (the "VeriChip Warrant Agreement") entered into by
                        --------------------------
VeriChip and IBM Credit on the date hereof. The Additional ADS Warrant
Agreement provides, among other things, that IBM Credit may purchase
2,894,714 shares of common stock of ADS at a purchase price of $0.15 per
share and contains substantially the same terms as the warrant agreement,
dated as of April 10, 2001, between IBM Credit and ADS, as amended. The
VeriChip Warrant Agreement provides, among other things, that IBM Credit may
purchase 1,849,000 shares of common stock of VeriChip Corp. at a purchase
price of $0.05 per share and contains substantially the same terms as the
warrant agreement, dated as of April 10, 2001, between IBM Credit and ADS,
as amended.

     Except as expressly waived or consented to hereby, all of the terms and
provisions of the Credit Agreement are and shall remain in full force and
effect. The waivers and consents provided for herein are limited to the
specific Sections of the Credit Agreement and matters specified herein and
shall not constitute an amendment or waiver of, or consent to, or an
indication of the Lender's willingness to amend, or waive or consent to, any
other provisions of the Credit Agreement or the same Sections for any other
date or time period (whether or not such other provisions or compliance with
such Sections for another date or time period are affected by the
circumstances addressed in this Letter Agreement).

     This Letter Agreement and the waiver and consent set forth herein shall
become effective as of the date hereof upon receipt by IBM Credit of a
counterpart of each of (i) this Letter Agreement, duly executed by ADS, (ii)
the Additional ADS Warrant Agreement, duly executed by ADS, and (iii) the
VeriChip Warrant Agreement, duly executed by VeriChip.

     THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.

<PAGE>
<PAGE>

     This Letter Agreement may be executed in two or more counterparts, each
of which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument.

                                    Sincerely,

                                    IBM CREDIT CORPORATION

                                    By: /s/ Bruce B. Gordon
                                       -------------------------------------
                                        Name: Bruce B. Gordon
                                        Title: Program Manager,
                                               Global Special Handling Group

ACKNOWLEDGED AND ACCEPTED:

APPLIED DIGITAL SOLUTIONS, INC.

By: /s/ Jerome C. Artigliere
   ------------------------------
   Name: Jerome C. Artigliere
   Title: Chief Operating Officer

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