Document:

Exhibit 10.4

    
      
        

      

       

      Exhibit
        10.4

       

       

      STOCK
        PLEDGE AGREEMENT

       

      This
        Stock Pledge Agreement (this “Agreement”),
        dated as of August 24, 2006, among Laurus Master Fund, Ltd. (the “Pledgee”),
        Applied Digital Solutions, Inc., a Missouri corporation ("ADSX")
        and Computer Equity Corporation, a Delaware corporation (each a "Pledgor"
        and collectively, the “Pledgors”). 

       

      BACKGROUND

       

      ADSX
        and the Pledgee have entered into a Securities Purchase Agreement, dated
        as of
        August 24, 2006 (as amended, modified, restated or supplemented from time
        to
        time, the “Securities
        Purchase Agreement”),
        pursuant to which the Pledgee provides or will provide certain financial
        accommodations to the Pledgors.

       

      In
        order to induce the Pledgee to provide or continue to provide the financial
        accommodations described in the Securities Purchase Agreement, the Pledgors
        have
        agreed to pledge and grant a security interest in the collateral described
        herein to the Pledgee on the terms and conditions set forth herein.

       

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

       

      1.
        Defined
        Terms.
        All capitalized terms used herein which are not defined shall have the meanings
        given to them in the Securities Purchase Agreement.

       

      2.
        Pledge
        and Grant of Security Interest.
        To secure the full and punctual payment and performance of (the following
        clauses (a) and (b), collectively, the “Obligations”)
        (a) the obligations under the Securities Purchase Agreement and the Related
        Agreements (the Securities Purchase Agreement and the Related Agreements
        , as
        each may be amended, restated, modified and/or supplemented from time to
        time,
        excluding the Common Stock Purchase Warrant and the Warrant Shares as defined
        in
        the Securities Purchase Agreement, collectively, the “Documents”)
        and (b) all other obligations and liabilities of the Pledgors to the Pledgee
        whether now existing or hereafter arising, direct or indirect, liquidated
        or
        unliquidated, absolute or contingent, due or not due and whether under, pursuant
        to or evidenced by a note, agreement, guaranty, instrument or otherwise,
        (in
        each case, irrespective of the genuineness, validity, regularity or
        enforceability of such Obligations, or of any instrument evidencing any of
        the
        Obligations or of any collateral therefor or of the existence or extent of
        such
        collateral, and irrespective of the allowability, allowance or disallowance
        of
        any or all of such in any case commenced by or against the Pledgors under
        Title
        11, United States Code, including, without limitation, obligations of the
        Pledgors for post-petition interest, fees, costs and charges that would have
        accrued or been added to the Obligations but for the commencement of such
        case),
        the Pledgors hereby pledge, assign, hypothecate, transfer and grant a security
        interest to Pledgee in all of the following (the “Collateral”):

       

       

      
        	 	
              	 

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (a)
        the shares of stock or other equity interests set forth on Schedule
        A
        annexed hereto and expressly made a part hereof (together with any additional
        shares of stock or other equity interests acquired by the Pledgors, the
“Pledged
        Stock”),
        the certificates representing the Pledged Stock and all dividends, cash,
        instruments and other property or proceeds from time to time received,
        receivable or otherwise distributed in respect of or in exchange for any
        or all
        of the Pledged Stock;

       

      (b)
        all additional shares of stock or other equity interests of any issuer (each,
        an
“Issuer”)
        of the Pledged Stock from time to time acquired by the Pledgors in any manner,
        including, without limitation, stock dividends or a distribution in connection
        with any increase or reduction of capital, reclassification, merger,
        consolidation, sale of assets, combination of shares, stock split, spin-off
        or
        split-off (which shares shall be deemed to be part of the Collateral), and
        the
        certificates representing such additional shares, and all dividends, cash,
        instruments and other property or proceeds from time to time received,
        receivable or otherwise distributed in respect of or in exchange for any
        or all
        of such shares; and

       

      (c)
        all options and rights, whether as an addition to, in substitution of or
        in
        exchange for any shares of any Pledged Stock and all dividends, cash,
        instruments and other property or proceeds from time to time received,
        receivable or otherwise distributed in respect of or in exchange for any
        or all
        such options and rights.

       

      The
        term “Collateral” shall exclude the shares of stock or other equity interests
        and participations set forth on Schedule
        B
        to this Agreement, including, without limitation, stock dividends or a
        distribution in connection with any increase or reduction of capital,
        reclassification, merger, consolidation, sale of assets, combination of shares,
        stock split, spin-off or split-off relating to such shares (the “Excluded
        Collateral”).
        Without limiting the generality of the foregoing, it is hereby specifically
        understood and agreed that the Pledgors may from time to time hereafter pledge
        and deliver additional shares of stock or other equity interests to the Pledgee
        as collateral security for the Obligations. Upon the pledge and delivery
        to the
        Pledgee, such additional shares of stock or other equity interests shall
        be
        deemed to be part of the Collateral and shall be subject to the terms of
        this
        Agreement whether or not Schedule
        A
        is amended to refer to such additional shares or interests. Notwithstanding
        anything to the contrary contained herein, upon payment of the Obligations
        under
        the Note in immediately available funds, this Agreement shall automatically
        terminate and be without further force or effect.

       

      3.
        Delivery
        of Collateral.
        (a) All certificates representing or evidencing the Pledged Stock shall be
        delivered to and held by or on behalf of Pledgee pursuant hereto and shall
        be
        accompanied by duly executed instruments of transfer or assignments in blank,
        all in form and substance satisfactory to Pledgee. The Pledgors hereby authorize
        the Issuer upon demand by the Pledgee to deliver any certificates, instruments
        or other distributions issued in connection with the Collateral directly
        to the
        Pledgee, in each case to be held by the Pledgee, subject to the terms hereof.
        Upon the occurrence and during the continuance of an Event of Default (as
        defined below), the Pledgee shall have the right, during such time in its
        discretion and without notice to the Pledgors, to transfer to or to register
        in
        the name of the Pledgee or any of its nominees any or all of the Pledged
        Stock.
        In addition, the Pledgee shall have the right at such time to exchange
        certificates or instruments representing or evidencing Pledged Stock for
        certificates or instruments of smaller or larger denominations.

      
         

        
          	 	
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      (b)
        ADSX hereby represents, warrants and covenants that the shares of Digital
        Angel
        Corporation owned by ADSX but held as the trust estate (the “Trust
        Estate”)
        in the Digital Angel Share Trust (the “Trust”)
        is and shall remain Trust Estate, except as such Trust Estate may be issued
        upon
        the exercise of the warrants held by Elliot Associates, L.P., Elliot
        International, L.P., Omicron Master Trust, Portside Growth and Opportunity
        Fund
        and Islandia, L.P. (collectively, the “Existing
        Warrant Holders”)
        as set forth on Schedule 4.3 of the Securities Purchase Agreement. In the
        event
        that the Trust is dissolved or liquidated, ADSX shall, in accordance with
        the
        terms of the pledge set forth herein immediately deliver the remaining Trust
        Estate to the Pledgee in accordance with this Agreement. ADSX shall not,
        and
        shall ensure that Wilmington Trust Company, as trustee of the Trust (the
        “Trustee”),
        shall not, deliver any portion of the Trust Estate to any person other than
        the
        Assignee; except in respect of the Excluded Collateral which may be delivered
        to
        the Existing Warrant Holders.

       

      4.
        Representations
        and Warranties of the Pledgors.
        Each Pledgor represents and warrants to the Pledgee (which representations
        and
        warranties shall be deemed to continue to be made until all of the Obligations
        have been paid in full and each Document and each agreement and instrument
        entered into in connection therewith (other than the Warrant) has been
        irrevocably terminated) that:

       

      (a)
        the execution, delivery and performance by such Pledgor of this Agreement
        and
        the pledge of the Collateral hereunder do not and will not result in any
        violation of any agreement, indenture, instrument, license, judgment, decree,
        order, law, statute, ordinance or other governmental rule or regulation
        applicable to such Pledgor;

       

      (b)
        this Agreement constitutes the legal, valid, and binding obligation of each
        Pledgor enforceable against such Pledgor in accordance with its
        terms;

       

      (c)
        (i) all Pledged Stock owned by each Pledgor is set forth on Schedule
        A
        hereto and (ii) each Pledgor is the legal and beneficial owner of the Pledged
        Stock as set forth on Schedule
        A; except for the Trust Estate in respect of which, while held in the Trust,
        the
        Trustee is the legal owner and ADSX is the beneficial owner;

       

      (d)
        all of the shares of the Pledged Stock have been duly authorized, validly
        issued
        and are fully paid and nonassessable;

       

      (e)
        no consent or approval of any person, corporation, governmental body, regulatory
        authority or other entity, is or will be necessary for (i) the execution,
        delivery and performance of this Agreement, or (ii) the exercise by the Pledgee
        of any rights with respect to the Collateral (other than Laurus’ internal
        policies and procedures and in respect of the Trust Estate while held in
        the
        Trust (ii) the pledge and assignment of, and the grant of a security interest
        in, the Collateral hereunder other than in respect of the Trust Estate while
        held in the Trust;

       

      (f)
        there are no pending or, to the best of each Pledgor’s knowledge, threatened
        actions or proceedings before any court, judicial body, administrative agency
        or
        arbitrator which may materially adversely affect the Collateral;

       

      
        
          
             

            
              	 	
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      (g)
        each Pledgor has the requisite power and authority to enter into this Agreement
        and to pledge and assign the Collateral to the Pledgee in accordance with
        the
        terms of this Agreement;

       

      (h)
        each Pledgor owns each item of the Collateral and, except for the pledge
        and
        security interest granted to Pledgee hereunder and the security interest
        granted
        by ADSX to InfoTech USA, Inc. in respect of 750,000 shares of Digital Angel
        Corporation owned by ADSX, the Collateral shall be, immediately following
        the
        closing of the transactions contemplated by the Documents, free and clear
        of any
        other security interest, mortgage, pledge, claim, lien, charge, hypothecation,
        assignment, offset or encumbrance whatsoever (collectively, “Liens”);

       

      (i)
        there are no restrictions on transfer of the Pledged Stock contained in the
        articles of incorporation or by-laws (or equivalent organizational documents)
        of
        the Issuer or otherwise which have not otherwise been enforceably and legally
        waived by the necessary parties;

       

      (j)
        none of the Pledged Stock has been issued or transferred in violation of
        the
        securities registration, securities disclosure or similar laws of any
        jurisdiction to which such issuance or transfer may be subject; and

       

      (k)
        the pledge and assignment of the Collateral and the grant of a security interest
        under this Agreement vest in the Pledgee all rights of each Pledgor in the
        Collateral as contemplated by this Agreement.

       

      (l)
        (a) ADSX has delivered to the Trustee an irrevocable instruction in respect
        of
        the Trust Estate which such notice requires the Trustee, upon release of
        any of
        the Trust Estate (other than the Excluded Collateral) for any reason, to
        deliver
        such released Trust Estate (other than the Excluded Collateral) to Assignee
        and
        no other person and (b) the Trustee has acknowledged and accepted the
        irrevocable instruction referenced in clause (a) above.

       

      5.
        Covenants.
        Each Pledgor covenants that, until the Obligations shall be indefeasibly
        satisfied in full and each Document and each agreement and instrument entered
        into in connection therewith (other than the Warrant) is irrevocably
        terminated:

       

      (a)
        Such Pledgor will not sell, assign, transfer, convey, or otherwise dispose
        of
        its rights in or to the Collateral or any interest therein; nor will such
        Pledgor create, incur or permit to exist any Lien whatsoever with respect
        to any
        of the Collateral or the proceeds thereof other than that created hereby.
        

       

      (b)
        Such Pledgor will, at its expense, defend Pledgee’s right, title and security
        interest in and to the Collateral against the claims of any other
        party.

       

      (c)
        Such Pledgor shall at any time, and from time to time, upon the written request
        of Pledgee, execute and deliver such further documents and do such further
        acts
        and things as Pledgee may reasonably request in order to effectuate the purposes
        of this Agreement including, but without limitation, delivering to Pledgee,
        upon
        the occurrence of an Event of Default, irrevocable proxies in respect of
        the
        Collateral in form satisfactory to Pledgee. Until

       

      
        
          
             

            
              	 	
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      receipt
        thereof, upon an Event of Default that has occurred and is continuing beyond
        any
        applicable grace period, this Agreement shall constitute such Pledgor’s proxy to
        Pledgee or its nominee to vote all shares of Collateral then registered in
        such
        Pledgor’s name.

       

      (d)
        Notwithstanding anything to the contrary in this Agreement, each Pledgor
        expressly acknowledges and agrees that all dividends and distributions declared
        by Issuer in respect of the Collateral and otherwise payable to such Pledgor
        shall be applied toward prepayment of the Note, and such Pledgor shall not
        receive any such dividends or distributions, except to the extent necessary
        to
        satisfy such Pledgor’s income tax obligations with respect thereto. The Pledgor
        will not consent to or approve the issuance of (i) any additional shares
        of any
        class of capital stock or other equity interests of the Issuer; or (ii) any
        securities convertible either voluntarily by the holder thereof or automatically
        upon the occurrence or nonoccurrence of any event or condition into, or any
        securities exchangeable for, any such shares, unless, in either case such
        capital stock issued or issuable to the Pledgor as a result of such transaction
        are pledged and delivered to Laurus as Collateral pursuant to this Agreement
        in
        such proportion as shall be determined by multiplying the amount of Pledged
        Stock of such issuer by a fraction, the numerator of which shall be the number
        of shares of capital stock of such issuer pledged to Laurus hereunder
        immediately prior to such event and the denominator of which shall be the
        number
        of shares of Common Stock of such issuer issued or issuable to Pledgor
        immediately after such event. The product so obtained shall thereafter be
        the
        number of additional shares of such Issuer’s capital stock that shall
        immediately be pledged and delivered to Laurus as additional Pledged Stock
        and
        Collateral pursuant to this Agreement.

       

      6.
        Voting
        Rights and Dividends. 

       

      (a)
        So long as no Event of Default occurs and remains continuing:

       

      (i)
        Each Pledgor shall be entitled to exercise any and all voting and other
        consensual rights pertaining to the Collateral, or any part thereof, for
        any
        purpose not inconsistent with the terms of this Agreement; provided,
        however,
        that such Pledgor shall not exercise, or shall refrain from exercising, any
        such
        right if it would result in an Event of Default.

       

      (ii)
        Any and all dividends or distributions declared in respect of the Collateral
        shall be applied toward payment of the Note in accordance with Section 5(d)
        hereof.

       

      (b)
        In addition to the Pledgee’s rights and remedies set forth in Section 8 hereof,
        in case an Event of Default shall have occurred and be continuing, beyond
        any
        applicable cure period, the Pledgee shall (i) be entitled to vote the
        Collateral, (ii) be entitled to give consents, waivers and ratifications
        in
        respect of the Collateral (each Pledgor hereby irrevocably constituting and
        appointing the Pledgee, with full power of substitution, the proxy and
        attorney-in-fact of such Pledgor for such purposes) and (iii) be entitled
        to
        collect and receive for its own use cash dividends paid on the Collateral.
        Each
        Pledgor shall not be permitted to exercise or refrain from exercising any
        voting
        rights or other powers if, in the reasonable judgment of the Pledgee, such
        action would have a material adverse effect on the value of the Collateral
        or
        any part thereof; and, provided,
        further,
        that such Pledgor shall give at least five (5) days’ written notice of the
        manner in which such Pledgor intends to exercise, or the reasons for refraining
        from exercising, any voting rights or other powers other than with respect
        to
        any election of directors

       

      
        
          
             

            
              	 	
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      and
        voting with respect to any incidental matters. Following the occurrence of
        an
        Event of Default, all dividends and all other distributions in respect of
        any of
        the Collateral, shall be delivered to the Pledgee to hold as Collateral and
        shall, if received by the Pledgor, be received in trust for the benefit of
        the
        Pledgee, be segregated from the other property or funds of any other pledgor,
        and be forthwith delivered to the Pledgee as Collateral in the same form
        as so
        received (with any necessary endorsement).

       

      7.
        Event
        of Default.
        An “Event of Default” under this Agreement shall occur upon the happening of any
        of the following events:

       

      (a)
        An “Event of Default” under the Documents shall have occurred and be continuing
        beyond any applicable cure period;

       

      (b)
        Any representation or warranty of the Pledgors made herein, in the Securities
        Purchase Agreement or the Note shall be false or misleading in any material
        respect; 

       

      (c)
        Any portion of the Collateral is subjected to a material post-judgment levy
        of
        execution, attachment, distraint or other judicial process or any portion
        of the
        Collateral is the subject of a claim (other than by the Pledgee) of a Lien
        or
        other right or interest in or to the Collateral and such levy or claim shall
        not
        be cured, disputed or stayed within a period of thirty (30) business days
        after
        the occurrence thereof; or

       

      (d)
        Each Pledgor shall (i) apply for, consent to, or suffer to exist the appointment
        of, or the taking of possession by, a receiver, custodian, trustee, liquidator
        or other fiduciary of itself or of all or a substantial part of its property,
        (ii) make a general assignment for the benefit of creditors, (iii) commence
        a
        voluntary case under any state or federal bankruptcy laws (as now or hereafter
        in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
        seeking to take advantage of any other law providing for the relief of debtors,
        (vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
        petition filed against it in any involuntary case under such bankruptcy laws,
        or
        (vii) take any action for the purpose of effecting any of the
        foregoing.

       

      8.
        Remedies.
        In case an Event of Default shall have occurred and is continuing, the Pledgee
        may:

       

      (a)
        Transfer any or all of the Collateral into its name, or into the name of
        its
        nominee or nominees;

       

      (b)
        Exercise all corporate rights with respect to the Collateral including, without
        limitation, all rights of conversion, exchange, subscription or any other
        rights, privileges or options pertaining to any shares of the Collateral
        as if
        it were the absolute owner thereof, including, but without limitation, the
        right
        to exchange, at its discretion, any or all of the Collateral upon the merger,
        consolidation, reorganization, recapitalization or other readjustment of
        the
        Issuer thereof, or upon the exercise by the Issuer of any right, privilege
        or
        option pertaining to any of the Collateral, and, in connection therewith,
        to
        deposit and deliver any and all of the Collateral with any committee,
        depository, transfer agent, registrar or other designated

       

      
        
          
             

            
              	 	
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      agent
        upon such terms and conditions as it may determine, all without liability
        except
        to account for property actually received by it; and

       

      (c)
        Subject to any requirement of applicable law, sell, assign and deliver the
        whole
        or, from time to time, any part of the Collateral at the time held by the
        Pledgee, at any private sale or at public auction, with or without demand,
        advertisement or notice of the time or place of sale or adjournment thereof
        or
        otherwise (all of which are hereby waived, except such notice as is required
        by
        applicable law and cannot be waived), for cash or credit or for other property
        for immediate or future delivery, and for such price or prices and on such
        terms
        as the Pledgee in its sole discretion may determine, or as may be required
        by
        applicable law.

       

      Each
        Pledgor hereby waives and releases any and all right or equity of redemption
        whether after sale hereunder. At any such sale, unless prohibited by applicable
        law, the Pledgee may bid for and purchase the whole or any part of the
        Collateral so sold free from any such right or equity of redemption. All
        moneys
        received by the Pledgee hereunder, whether upon sale of the Collateral or
        any
        part thereof or otherwise, shall be held by the Pledgee and applied by it
        as
        provided in Section 10 hereof. No failure or delay on the part of the Pledgee
        in
        exercising any rights hereunder shall operate as a waiver of any such rights
        nor
        shall any single or partial exercise of any such rights preclude any other
        or
        future exercise thereof or the exercise of any other rights hereunder. The
        Pledgee shall have no duty as to the collection or protection of the Collateral
        or any income thereon nor any duty as to preservation of any rights pertaining
        thereto, except to apply the funds in accordance with the requirements of
        Section 10 hereof. The Pledgee may exercise its rights with respect to property
        held hereunder without resort to other security for or sources of reimbursement
        for the Obligations. In addition to the foregoing, Pledgee shall have all
        of the
        rights, remedies and privileges of a secured party under the Uniform Commercial
        Code of New York (the “UCC”) regardless of the jurisdiction in which enforcement
        hereof is sought.

       

      9.
        Private
        Sale.
        Each Pledgor recognizes that the Pledgee may be unable to effect (or to do
        so
        only after delay which would adversely affect the value that might be realized
        from the Collateral) a public sale of all or part of the Collateral by reason
        of
        certain prohibitions contained in the Securities Act, and may be compelled
        to
        resort to one or more private sales to a restricted group of purchasers who
        will
        be obliged to agree, among other things, to acquire such Collateral for their
        own account, for investment and not with a view to the distribution or resale
        thereof. Each Pledgor agrees that any such private sale may be at prices
        and on
        terms less favorable to the seller than if sold at public sales and that
        such
        private sales shall be deemed to have been made in a commercially reasonable
        manner. Each Pledgor agrees that the Pledgee has no obligation to delay sale
        of
        any Collateral for the period of time necessary to permit the Issuer to register
        the Collateral for public sale under the Securities Act.

       

      10.
        Proceeds
        of Sale.
        The proceeds of any collection, recovery, receipt, appropriation, realization
        or
        sale of the Collateral shall be applied by the Pledgee as follows:

       

      (a)
        First, to the payment of all costs, reasonable expenses and charges of the
        Pledgee and to the reimbursement of the Pledgee for the prior payment of
        such
        costs, reasonable expenses and charges incurred in connection with the care
        and
        safekeeping of the Collateral (including, without limitation, the reasonable
        expenses of any sale or any other disposition of any

       

      
        
          
             

            
              	 	
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      of
        the Collateral), attorneys’ fees and reasonable expenses, court costs, any other
        fees or expenses incurred or expenditures or advances made by Pledgee in
        the
        protection, enforcement or exercise of its rights, powers or remedies
        hereunder;

       

      (b)
        Second, to the payment of the Obligations, in whole or in part, in such order
        as
        the Pledgee may elect, whether or not such Obligations is then due;

       

      (c)
        Third, to such persons, firms, corporations or other entities as required
        by
        applicable law including, without limitation, Section 9-615(a)(3) of the
        UCC;
        and

       

      (d)
        Fourth, to the extent of any surplus, to the Pledgors or as a court of competent
        jurisdiction may direct.

       

      In
        the event that the proceeds of any collection, recovery, receipt, appropriation,
        realization or sale are insufficient to satisfy the Obligations, the Pledgors
        shall be liable for the deficiency plus the costs and fees of any attorneys
        employed by Pledgee to collect such deficiency.

       

      11.
        Waiver
        of Marshaling.
        Each Pledgor hereby waives any right to compel any marshaling of any of the
        Collateral.

       

      12.
        No
        Waiver.
        Any and all of the Pledgee’s rights with respect to the Liens granted under this
        Agreement shall continue unimpaired, and each Pledgor shall be and remain
        obligated in accordance with the terms hereof, notwithstanding (a) the
        bankruptcy, insolvency or reorganization of such Pledgor, (b) the release
        or
        substitution of any item of the Collateral at any time, or of any rights
        or
        interests therein, or (c) any delay, extension of time, renewal, compromise
        or
        other indulgence granted by the Pledgee in reference to any of the Obligations.
        Each Pledgor hereby waives all notice of any such delay, extension, release,
        substitution, renewal, compromise or other indulgence, and hereby consents
        to be
        bound hereby as fully and effectively as if such Pledgor had expressly agreed
        thereto in advance. No delay or extension of time by the Pledgee in exercising
        any power of sale, option or other right or remedy hereunder, and no failure
        by
        the Pledgee to give notice or make demand, shall constitute a waiver thereof,
        or
        limit, impair or prejudice the Pledgee’s right to take any action against such
        Pledgor or to exercise any other power of sale, option or any other right
        or
        remedy.

       

      13.
        Expenses.
        The Collateral shall secure, and the Pledgors shall pay to Pledgee on demand,
        from time to time, all reasonable costs and expenses, (including but not
        limited
        to, reasonable attorneys’ fees and costs, taxes, and all transfer, recording,
        filing and other charges) of, or incidental to, the custody, care, transfer,
        administration of the Collateral or any other collateral, or in any way relating
        to the enforcement, protection or preservation of the rights or remedies
        of the
        Pledgee under this Agreement or with respect to any of the
        Obligations.

       

      14.
        The
        Pledgee Appointed Attorney-In-Fact and Performance by the
        Pledgee.
        Upon the occurrence of an Event of Default, each Pledgor hereby irrevocably
        constitutes and appoints the Pledgee as such Pledgor’s true and lawful
        attorney-in-fact, with full power of substitution, to execute, acknowledge
        and
        deliver any instruments and to do in such Pledgor’s name, place and stead, all
        such acts, things and deeds for and on behalf of and in the name of such
        Pledgor, which

       

      
        
          
             

            
              	 	
                      8

                    	 

            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      such
        Pledgor could or might do or which the Pledgee may deem necessary, desirable
        or
        convenient to accomplish the purposes of this Agreement, including, without
        limitation, to execute such instruments of assignment or transfer or orders
        and
        to register, convey or otherwise transfer title to the Collateral into the
        Pledgee’s name. Each Pledgor hereby ratifies and confirms all that said
        attorney-in-fact may so do and hereby declares this power of attorney to
        be
        coupled with an interest and irrevocable. If any Pledgor fails to perform
        any
        agreement herein contained, upon the occurrence and during the continuance
        of an
        Event of Default, the Pledgee may itself perform or cause performance thereof,
        and any costs and expenses of the Pledgee incurred in connection therewith
        shall
        be paid by the Pledgors as provided in Section 10 hereof.

       

      15.
        Recapture. Notwithstanding
        anything to the contrary in this Agreement, if the Pledgee receives any payment
        or payments on account of the Obligations, which payment or payments or any
        part
        thereof are subsequently invalidated, declared to be fraudulent or preferential,
        set aside and/or required to be repaid to a trustee, receiver, or any other
        party under the United States Bankruptcy Code, as amended, or any other federal
        or state bankruptcy, reorganization, moratorium or insolvency law relating
        to or
        affecting the enforcement of creditors’ rights generally, common law or
        equitable doctrine, then to the extent of any sum not finally retained by
        the
        Pledgee, the Pledgors' obligations to the Pledgee shall be reinstated and
        this
        Agreement shall remain in full force and effect (or be reinstated) until
        payment
        shall have been made to Pledgee, which payment shall be due on
        demand.

       

      16.
        Waivers.
        THE
        PARTIES HERETO DESIRES 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 LAURUS, AND/OR ANY
        COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
        RELATIONSHIP ESTABLISHED BETWEEN THEN IN CONNECTION WITH THIS AGREEMENT,
        ANY
        OTHER DOCUMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
         

      

      17.
        Captions.
        All captions in this Agreement are included herein for convenience of reference
        only and shall not constitute part of this Agreement for any other
        purpose.

       

      18.
        Miscellaneous.

       

      (a)
        This Agreement constitutes the entire and final agreement among the parties
        with
        respect to the subject matter hereof and may not be changed, terminated or
        otherwise varied except by a writing duly executed by the parties
        hereto.

       

      (b)
        No waiver of any term or condition of this Agreement, whether by delay, omission
        or otherwise, shall be effective unless in writing and signed by the party
        sought to be charged, and then such waiver shall be effective only in the
        specific instance and for the purpose for which given.

       

      
        
          
             

            
              	 	
                      9

                    	 

            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (c)
        In the event that any provision of this Agreement or the application thereof
        to
        any Pledgor or any circumstance in any jurisdiction governing this Agreement
        shall, to any extent, be invalid or unenforceable under any applicable statute,
        regulation, or rule of law, such provision shall be deemed inoperative to
        the
        extent that it may conflict therewith and shall be deemed modified to conform
        to
        such statute, regulation or rule of law, and the remainder of this Agreement
        and
        the application of any such invalid or unenforceable provision to parties,
        jurisdictions, or circumstances other than to whom or to which it is held
        invalid or unenforceable shall not be affected thereby, nor shall same affect
        the validity or enforceability of any other provision of this
        Agreement.

       

      (d)
        This Agreement shall be binding upon each Pledgor, and the Pledgors' successors
        and assigns, and shall inure to the benefit of the Pledgee and its successors
        and assigns.

       

      (e)
        Any notice or other communication required or permitted pursuant to this
        Agreement shall be given in accordance with the Securities Purchase
        Agreement.

       

      (f)
        THIS AGREEMENT AND THE OTHER DOCUMENTS 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 LAW.

       

      (g)
        EACH PLEDGOR 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 SUCH PLEDGOR, ON THE
        ONE
        HAND, AND THE PLEDGEE, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
        ANY OF
        THE OTHER DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
        OR ANY OF THE OTHER DOCUMENTS, PROVIDED,
        THAT EACH PLEDGOR ACKNOWLEDGES 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
        PLEDGEE FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
        JURISDICTION TO COLLECT THE INDEBTEDNESS, TO REALIZE ON THE COLLATERAL OR
        ANY
        OTHER SECURITY FOR THE INDEBTEDNESS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
        ORDER IN FAVOR OF THE PLEDGEE. EACH PLEDGOR EXPRESSLY SUBMITS AND CONSENTS
        IN
        ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
        COURT,
        AND EACH PLEDGOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON
        LACK OF
        PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
        NON CONVENIENS.
        EACH PLEDGOR 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 SUCH PLEDGOR AT THE ADDRESS SET FORTH IN THE SECURITIES
        PURCHASE

       

      
        
          
             

            
              	 	
                      10

                    	 

            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      AGREEMENT
        AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PLEDGOR'S ACTUAL
        RECEIPT THEREOF.

       

      (h)
        It is understood and agreed that any person or entity that desires to become
        a
        Pledgor hereunder, or is required to execute a counterpart of this Agreement
        after the date hereof pursuant to the requirements of any Document, shall
        become
        a Pledgor hereunder by (x) executing a Joinder Agreement in form and
        substance satisfactory to the Pledgee, (y) delivering supplements to such
        exhibits and annexes to such Documents as the Pledgee shall reasonably request
        and/or set forth in such joinder agreement and (z) taking all actions as
        specified in this Agreement as would have been taken by such Pledgor had
        it been
        an original party to this Agreement, in each case with all documents required
        above to be delivered to the Pledgee and with all documents and actions required
        above to be taken to the reasonable satisfaction of the Pledgee.

       

      (i)
        This Agreement may be executed in one or more counterparts, each of which
        shall
        be deemed an original and all of which when taken together shall constitute
        one
        and the same agreement. Any signature delivered by a party by facsimile
        transmission shall be deemed an original signature hereto.

       

      [Remainder
        of Page Intentionally Left Blank]

      
         

        
          	 	
                  11

                	 

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, the parties have duly executed this Agreement as of the
        day and
        year first written above.

       

      APPLIED
        DIGITAL SOLUTIONS, INC.

       

      By: /s/
        Evan C.
        McKeown                      
 

      Name:
        Evan C. McKeown

      Title:  
        SVP & CFO

       

      COMPUTER
        EQUITY CORPORATION

       

      By: /s/
        Evan C.
        McKeown                        

      Name:
        Evan C. McKeown

      Title:  
        SVP & CFO

       

      LAURUS
        MASTER FUND, LTD.

       

      By: /s/
        David
        Grin                                  
 

      Name:
        David Grin

      Title:  
        Director

       

      

       

      
        
          
             

            
              	 	
                      12

                    	 

            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        A to the Stock Pledge Agreement

       

      Pledged
        Stock

      
        	 	 	 	 	 	 	 
	
                Pledgor

              	
                Issuer

              	
                Class
                  of

                Stock

              	
                Stock

                Certificate

                Number

              	
                Par

                Value

              	
                Number
                  of 

                Shares

              	
                %
                  of 

                outstanding

                Shares(1)

              
	
                 

                Applied
                  Digital Solutions, Inc. 

              	
                 

                VeriChip
                  Corporation

              	
                 

                Common

              	
                 

                3

              	
                 

                $.001

              	
                 

                10,833,333

              	
                 

                65%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                InfoTech
                  USA, Inc.

              	
                 

                Common

              	
                 

                SIC
                  0203

                SIC
                  0217

              	
                 

                $.01

              	
                 

                2,570,000

              	
                 

                52.0%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Digital
                  Angel Corporation

              	
                 

                Common

              	
                 

                3470

                3510

                3536

                3538

                3585

                3587

                3605

                3681

                3700

              	
                 

                $.005

              	
                 

                9,120,282
                  

              	
                 

                20.5%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Digital
                  Angel Corporation

              	
                 

                Common

              	 	
                 

                $.005

              	
                 

                13,703,506
                  

              	
                 

                30.8%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Pacific
                  Decision Sciences Corporation

              	
                 

                Common

              	
                 

                1

              	
                 

                $.001

              	
                 

                1,000

              	
                 

                100%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Computer
                  Equity Corporation

              	
                 

                Common

              	
                 

                1

              	
                 

                $.001

              	
                 

                100

              	
                 

                100%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Thermo
                  Life Energy Corp.

              	
                 

                Common

              	
                 

                1

              	
                 

                $.001

              	
                 

                20,000,000

              	
                 

                100%

              
	
                 

                Applied
                  Digital Solutions, Inc.

              	
                 

                Perimeter
                  Acquisition Corp.

              	
                 

                Common

              	
                 

                1

              	
                 

                $.001

              	
                 

                100

              	
                 

                100%

              
	
                 

                Computer
                  Equity Corporation

              	
                 

                Government
                  Telecommunications, Inc.

              	
                 

                Common

              	
                 

                4

              	
                 

                $.02

              	
                 

                100

              	
                 

                100%

              

      

       

      

       

      (1)
        As of August 8, 2006

      
         

        
          	 	
                  13

                	 

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        B to the Stock Pledge Agreement

      

      Excluded
        Collateral 

      

      1,000,000
        shares of Digital Angel Corporation held as part of the Trust Estate in the
        Digital Angel Share Trust to the extent such shares are required to be reserved
        in respect of warrants held by the Existing Warrant Holders as of the date
        hereof.

      

      5,833,334
        shares of VeriChip Corporation

      
         

        
          	 	
                  14

                	 

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

      

      FORM
        OF CONTROL ACKNOWLEDGMENT

      

      ISSUER     MEMBERSHIP
        INTEREST OWNERS:

      

      [Issuer]     [Pledgor]

      ________________________

      

      

      Reference
        is hereby made to that certain Stock Pledge Agreement, dated as of __________
        __, 2006 (the “Pledge
        Agreement”),
        between the above-referenced members ( “Pledgors”)
        of ____________, a ___________ [limited liability company][limited partnership],
        (a “[Issuer]”)
        and Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”).
        Capitalized terms used but not otherwise defined herein shall have the meanings
        ascribed thereto in the Pledge Agreement.

      

      [Issuer]
        is hereby instructed by Pledgors that all of Pledgors' right, title and interest
        in and to all of Pledgors’ rights in connection with any
        [membership][partnership] interests in [Issuer] now and hereafter owned by
        Pledgors are subject to a pledge and security interest in favor of Laurus.
        

      

      [Issuer],
        by its written acknowledgment and acceptance hereof, hereby acknowledges
        receipt
        of a copy of the aforementioned Pledge Agreement and agrees promptly to note
        on
        its books the security interest granted under such Pledge Agreement. [Issuer]
        also waives any rights or requirements at any time hereafter to receive a
        copy
        of such Pledge Agreement in connection with the registration of any Collateral
        in the name of the Laurus or its nominee or the exercise of voting rights
        by the
        Laurus or its nominee.

      

      [Remainder
        of this page intentionally left blank]

      
         

        
          	 	
                  15

                	 

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, Pledgors have caused this Control Acknowledgment to be duly
        signed and delivered by its officer duly authorized as of this _____ day
        of
        ___________ 2006.

      

      PLEDGOR.

      

       

      By:                                                                   

      Name:                                                              

      Title:                                                                

      

      

      Acknowledged
        and accepted this

      ______
        day of __________ 2006.

      

      [ISSUER]

      

      

      

      
        By:                                                                   

        Name:                                                              

        Title:                                                                

        

      

       

      

       

      

       

       

      
        
           

          
            	 	
                    16Exhibit 10.5

    
      

    

     

    Exhibit
      10.5

     

    THIS
      WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
      STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK 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 UNDER
      SAID
      ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO APPLIED DIGITAL SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED.

     

    Right
      to Purchase up to 1,719,745 Shares of Common Stock of

    Applied
      Digital Solutions, Inc.

    (subject
      to adjustment as provided herein)

     

    COMMON
      STOCK PURCHASE WARRANT

    
      	
               

              No.
                _________________

            	
               

              Issue
                Date: August 24, 2006

            

    

     

    APPLIED
      DIGITAL SOLUTIONS, INC., a corporation organized under the laws of the State
      of
      Missouri (the “Company”), hereby certifies that, for value received, LAURUS
      MASTER FUND, LTD., or assigns (the “Holder”), is entitled, subject to the terms
      set forth below, to purchase from the Company (as defined herein) from
      and after the Issue Date of this Warrant and at any time or from time to time
      before 5:00 p.m., New York time, through the close of business on August 24,
      2013 (the “Expiration Date”),
      up to 1,719,745 fully paid and nonassessable shares of Common Stock (as
      hereinafter defined), $0.01 par value per share, at the applicable Exercise
      Price per share (as defined below). The number and character of such shares
      of
      Common Stock and the applicable Exercise Price per share are subject to
      adjustment as provided herein.

     

    As
      used herein the following terms, unless the context otherwise requires, have
      the
      following respective meanings:

     

    (a)
      The term “Company” shall include Applied Digital Solutions, Inc. and any person
      or entity which shall succeed, or assume the obligations of, Applied Digital
      Solutions, Inc. hereunder.

     

    (b)
      The term “Common Stock” includes (i) the Company’s Common Stock, par value $0.01
      per share; and (ii) any other securities into which or for which any of the
      securities described in the preceding clause (i) may be converted or exchanged
      pursuant to a plan of recapitalization, reorganization, merger, sale of assets
      or otherwise.

     

    (c)
      The term “Other Securities” refers to any stock (other than Common Stock) and
      other securities of the Company or any other person (corporate or
      otherwise)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    which
      the holder of the Warrant at any time shall be entitled to receive, or shall
      have received, on the exercise of the Warrant, in lieu of or in addition to
      Common Stock, or which at any time shall be issuable or shall have been issued
      in exchange for or in replacement of Common Stock or Other Securities pursuant
      to Section 4 or otherwise.

     

    (d)
      The “Exercise Price” applicable under this Warrant shall be $1.88 per share
      acquired hereunder.

     

    1.
      Exercise
      of Warrant.

     

    1.1.
      Number
      of Shares Issuable upon Exercise.
      From and after the date hereof through and including the Expiration Date, the
      Holder shall be entitled to receive, upon exercise of this Warrant in whole
      or
      in part, by delivery of (a) an original or fax copy of an exercise notice in
      the
      form attached hereto as Exhibit A (the “Exercise Notice”), and (b) an electronic
      copy of the Exercise Notice to warrants@adsx.com, at any time prior to 5:00
      p.m., eastern time, on the business day the Holder wishes to effect such
      exercise, 1,719,745 shares of Common Stock of the Company, subject to adjustment
      pursuant to Section 4. Notwithstanding
      anything to the contrary contained herein, the Holder hereby agrees that during
      the period on and after the Issue Date and prior to the date that is the one
      year anniversary of the Issue Date, it shall not sell any Common Stock acquired
      upon exercise of this Warrant.
      

     

    1.2.
      Fair
      Market Value.
      For purposes hereof, the “Fair Market Value” of a share of Common Stock as of a
      particular date (the “Determination Date”) shall mean:

     

    (a)
      If the Company’s Common Stock is traded on the American Stock Exchange or
      another national exchange or is quoted on the National or Capital Market of
      The
      Nasdaq Stock Market, Inc. (“Nasdaq”), then
      the
      average of the daily VWAP for such security on the Trading Day immediately
      preceding the
      Determination Date.
      “Trading
      Day” means any day on which the Common Stock is purchased and sold on the
      Principal Market. “Principal Market” means the principal exchange or market on
      which the Common Stock is listed or traded. “VWAP” on a Trading Day means the
      volume weighted average price of the Common Stock for such Trading Day on the
      Principal Market as reported by Bloomberg Financial Markets or, if Bloomberg
      Financial Markets is not then reporting such prices, by a comparable reporting
      service of national reputation selected by the Holders and reasonably
      satisfactory to the Company. If VWAP cannot be calculated for the Common Stock
      on such date on any of the foregoing bases, then the Company shall submit such
      calculation to an independent investment banking firm of national reputation,
      and shall cause such investment banking firm to perform such determination
      and
      notify the Company and each Holder of the results of determination no later
      than
      two (2) business days from the time such calculation was submitted to it by
      the
      Company. Such investment banking firm's determination shall be deemed conclusive
      absent manifest error. All such determinations shall be appropriately adjusted
      for any stock dividend, stock split or other similar transaction during such
      period. 

     

    (b)
      If
      the Company’s Common Stock is not traded on the American Stock Exchange or
      another national exchange or on the Nasdaq but is traded on the NASD
      Over

     

    
      	 	
              2

            	 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    the
      Counter Bulletin Board, then the mean of the average of the closing bid and
      asked prices reported for the last business day immediately preceding the
      Determination Date.

     

    (c)
      Except as provided in clause (d) below, if the Company’s Common Stock is not
      publicly traded, then as the Holder and the Company agree, or in the absence
      of
      agreement, by arbitration in accordance with the rules then in effect of the
      American Arbitration Association, before a single arbitrator to be chosen from
      a
      panel of persons qualified by education and training to pass on the matter
      to be
      decided.

     

    (d)
      If the Determination Date is the date of a liquidation, dissolution or winding
      up, or any event deemed to be a liquidation, dissolution or winding up pursuant
      to the Company’s charter, then all amounts to be payable per share to holders of
      the Common Stock pursuant to the charter in the event of such liquidation,
      dissolution or winding up, plus all other amounts to be payable per share in
      respect of the Common Stock in liquidation under the charter, assuming for
      the
      purposes of this clause (d) that all of the shares of Common Stock then issuable
      upon exercise of the Warrant are outstanding at the Determination
      Date.

     

    1.3.
      Company
      Acknowledgment.
      The Company will, at the time of the exercise of this Warrant, upon the request
      of the Holder hereof acknowledge in writing its continuing obligation to afford
      to such Holder any rights to which such Holder shall continue to be entitled
      after such exercise in accordance with the provisions of this Warrant. If the
      Holder shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such Holder any such
      rights.

     

    1.4.
      Trustee
      for Warrant Holders.
      In the event that a bank or trust company shall have been appointed as trustee
      for the Holders of this Warrant pursuant to Subsection 3.2, such bank or trust
      company shall have all the powers and duties of a warrant agent (as hereinafter
      described) and shall accept, in its own name for the account of the Company
      or
      such successor person as may be entitled thereto, all amounts otherwise payable
      to the Company or such successor, as the case may be, on exercise of this
      Warrant pursuant to this Section 1.

     

    2.
      Procedure for Exercise.

     

    2.1.
      Delivery
      of Stock Certificates, Etc., on Exercise.
      The Company agrees that the shares of Common Stock purchased upon exercise
      of
      this Warrant shall be deemed to be issued to the Holder as the record owner
      of
      such shares as of the close of business on the date on which this Warrant shall
      have been surrendered and payment made for such shares in accordance herewith.
      As soon as practicable after the exercise of this Warrant in full or in part,
      and in any event within three (3) business days thereafter, the Company at
      its
      expense (including the payment by it of any applicable issue taxes) will cause
      to be issued in the name of and delivered to the Holder, or as such Holder
      (upon
      payment by such Holder of any applicable transfer taxes) may direct in
      compliance with applicable securities laws, a certificate or certificates for
      the number of duly and validly issued, fully paid and nonassessable shares
      of
      Common Stock (or Other Securities) to which such Holder shall be entitled on
      such exercise, plus, in lieu of any fractional share to which such Holder would
      otherwise be entitled, cash equal to such fraction multiplied by the then Fair
      Market Value of one full share, together with any other stock or
      other

     

    
      
         

        
          	 	
                  3

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    securities
      and property (including cash, where applicable) to which such Holder is entitled
      upon such exercise pursuant to Section 1 or otherwise.

     

    2.2.
      Exercise.

     

    (a)
      Payment may be made either (i) in cash by wire transfer of immediately available
      funds or by certified or official bank check payable to the order of the Company
      equal to the applicable aggregate Exercise Price, (ii) by delivery of this
      Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise
      of this Warrant in accordance with the formula set forth in subsection (b)
      below, or (iii) by a combination of any of the foregoing methods, for the number
      of Common Shares specified in such Exercise Notice (as such exercise number
      shall be adjusted to reflect any adjustment in the total number of shares of
      Common Stock issuable to the Holder per the terms of this Warrant) and the
      Holder shall thereupon be entitled to receive the number of duly authorized,
      validly issued, fully-paid and non-assessable shares of Common Stock (or Other
      Securities) determined as provided herein.

     

    (b)
      Notwithstanding any provisions herein to the contrary, if the Fair Market Value
      of one share of Common Stock is greater than the Exercise Price (at the date
      of
      calculation as set forth below), in lieu of exercising this Warrant for cash,
      the Holder may elect to receive shares equal to the value (as determined below)
      of this Warrant (or the portion thereof being exercised) by surrender of this
      Warrant at the principal office of the Company together with the properly
      endorsed Exercise Notice in which event the Company shall issue to the Holder
      a
      number of shares of Common Stock computed using the following
      formula:

     

    

    
      	
               

              X=

            	
               

              Y
                (A-B)

            	 
	 	
              A

            	 
	
               

              Where
                X =

            	
               

              the
                number of shares of Common Stock to be issued to the
                Holder

            
	
               

              Y
                =

            	
               

              the
                number of shares of Common Stock purchasable under this Warrant or,
                if
                only a portion of this Warrant is being exercised, the portion of
                this
                Warrant being exercised (at the date of such
                calculation)

            
	
               

              A
                =

            	
               

              the
                Fair Market Value of one share of the Company’s Common Stock (at the date
                of such calculation)

            
	
               

              B
                =

            	
               

              the
                Exercise Price per share (as adjusted to the date of such
                calculation)

            
	 	 

    

     

    3.
      Reorganization,
      Consolidation, Merger, Etc.
      In case at any time or from time to time, the Company shall (a) effect a
      reorganization, (b) consolidate with or merge into any other person, or (c)
      transfer all or substantially all of its properties or assets to any other
      person under any plan or arrangement contemplating the dissolution of the
      Company, then, in each such case, as a condition to the consummation of such
      a
      transaction, proper and adequate provision shall be made by the Company whereby
      the Holder, on the exercise hereof as provided in Section 1 at any time after
      the consummation of such reorganization, consolidation or merger or the
      effective date of such dissolution, as the case may be, shall receive, in lieu
      of the Common

     

    
      
         

        
          	 	
                  4

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Stock
      (or other Securities) issuable on such exercise prior to such consummation
      or
      such effective date, the stock and other securities and property (including
      cash) to which such Holder would have been entitled upon such consummation
      or in
      connection with such dissolution, as the case may be, if such Holder had so
      exercised this Warrant, immediately prior thereto, all subject to further
      adjustment thereafter as provided in Section 4.

     

    3.1.
      Dissolution.
      In the event of any dissolution of the Company following the transfer of all
      or
      substantially all of its properties or assets, the Company, concurrently with
      any distributions made to holders of its Common Stock, shall at its expense
      deliver or cause to be delivered to the Holder the stock and other securities
      and property (including cash, where applicable) receivable by the Holder
      pursuant to Section 3.0, or, if the Holder shall so instruct the Company, to
      a
      bank or trust company specified by the Holder and having its principal office
      in
      New York, NY as trustee for the Holder (the “Trustee”).

     

    3.2.
      Continuation
      of Terms.
      Upon any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Section 3, if this Warrant shall
      continue in full force and effect, the terms hereof shall be applicable to
      the
      shares of stock and other securities and property receivable on the exercise
      of
      this Warrant after the consummation of such reorganization, consolidation or
      merger or the effective date of dissolution following any such transfer, as
      the
      case may be, and shall be binding upon the issuer of any such stock or other
      securities, including, in the case of any such transfer, the person acquiring
      all or substantially all of the properties or assets of the Company, whether
      or
      not such person shall have expressly assumed the terms of this Warrant as
      provided in Section 4. In the event this Warrant does not continue in full
      force
      and effect after the consummation of the transactions described in this Section
      3, then the Company’s securities and property (including cash, where applicable)
      receivable by the Holder will be delivered to the Holder or the Trustee as
      contemplated by Section 3.1.

     

    4.
      Extraordinary
      Events Regarding Common Stock.
      In the event that the Company shall (a) issue additional shares of the Common
      Stock as a dividend or other distribution on outstanding Common Stock or any
      preferred stock issued by the Company (b) subdivide its outstanding shares
      of
      Common Stock, or (c) combine its outstanding shares of the Common Stock
      into a smaller number of shares of the Common Stock, then, in each such event,
      the Exercise Price shall, simultaneously with the happening of such event,
      be
      adjusted by multiplying the then applicable Exercise Price by a fraction, the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately prior to such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event, and the
      product so obtained shall thereafter be the Exercise Price then in effect.
      The
      Exercise Price, as so adjusted, shall be readjusted in the same manner upon
      the
      happening of any successive event or events described herein in this Section
      4.
      The number of shares of Common Stock that the Holder shall thereafter, on the
      exercise hereof as provided in Section 1, be entitled to receive shall be
      adjusted to a number determined by multiplying the number of shares of Common
      Stock that would otherwise (but for the provisions of this Section 4) be
      issuable on such exercise by a fraction of which (a) the numerator is the
      Exercise Price that would otherwise (but for the provisions of this Section
      4)
      be in effect, and (b) the denominator is the Exercise Price in effect on the
      date of such exercise (taking into account the provisions of this Section
      4).

     

    
      
         

        
          	 	
                  5

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.
      Certificate
      as to Adjustments.
      In each case of any adjustment or readjustment in the shares of Common Stock
      (or
      Other Securities) issuable on the exercise of this Warrant, the Company at
      its
      expense will promptly cause its Chief Financial Officer or other appropriate
      designee to compute such adjustment or readjustment in accordance with the
      terms
      of this Warrant and prepare a certificate setting forth such adjustment or
      readjustment and showing in detail the facts upon which such adjustment or
      readjustment is based, including a statement of (a) the consideration received
      or receivable by the Company for any additional shares of Common Stock (or
      Other
      Securities) issued or sold or deemed to have been issued or sold, (b) the
      number of shares of Common Stock (or Other Securities) outstanding or deemed
      to
      be outstanding, and (c) the Exercise Price and the number of shares of Common
      Stock to be received upon exercise of this Warrant, in effect immediately prior
      to such adjustment or readjustment and as adjusted or readjusted as provided
      in
      this Warrant. The Company will forthwith mail a copy of each such certificate
      to
      the Holder and any Warrant agent of the Company (appointed pursuant to Section
      11 hereof).

     

    6.
      Reservation
      of Stock, Etc., Issuable on Exercise of Warrant.
      The Company will at all times reserve and keep available, solely for issuance
      and delivery on the exercise of this Warrant, shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of this
      Warrant.

     

    7.
      Assignment;
      Exchange of Warrant.
      Subject to compliance with applicable securities laws, this Warrant, and the
      rights and obligations evidenced hereby, may be transferred by any registered
      holder hereof (a “Transferor”) in whole or in part. On the surrender for
      exchange of this Warrant, with the Transferor’s endorsement in the form of
      Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with
      evidence reasonably satisfactory to the Company demonstrating compliance with
      applicable securities laws, which shall include, without limitation, the
      provision of a legal opinion from the Transferor’s counsel (at the Company’s
      expense) that such transfer is exempt from the registration requirements of
      applicable securities laws, the Company at its expense (but with payment by
      the
      Transferor of any applicable transfer taxes) will issue and deliver to or on
      the
      order of the Transferor thereof a new Warrant of like tenor, in the name of
      the
      Transferor and/or the transferee(s) specified in such Transferor Endorsement
      Form (each a “Transferee”), calling in the aggregate on the face or faces
      thereof for the number of shares of Common Stock called for on the face or
      faces
      of the Warrant so surrendered by the Transferor.

     

    8.
      Replacement
      of Warrant.
      On receipt of evidence reasonably satisfactory to the Company of the loss,
      theft, destruction or mutilation of this Warrant and, in the case of any such
      loss, theft or destruction of this Warrant, on delivery of an indemnity
      agreement or security reasonably satisfactory in form and amount to the Company
      or, in the case of any such mutilation, on surrender and cancellation of this
      Warrant, the Company at its expense will execute and deliver, in lieu thereof,
      a
      new Warrant of like tenor.

     

    9.
      Registration
      Rights.
      The Holder has been granted certain registration rights by the Company. These
      registration rights are set forth in a Registration Rights Agreement entered
      into by the Company and Holder dated as of the date hereof.

     

    
      
         

        
          	
                	
                  6

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.
      Maximum
      Exercise.
      Notwithstanding anything herein to the contrary, in no event shall the Holder
      be
      entitled to exercise any portion of this Warrant in excess of that portion
      of
      this Warrant upon exercise of which the sum of (1) the number of shares of
      Common Stock beneficially owned by the Holder and its Affiliates (other than
      shares of Common Stock which may be deemed beneficially owned through the
      ownership of the unexercised portion of the Warrant or the unexercised or
      unconverted portion of any other security of the Holder subject to a limitation
      on conversion analogous to the limitations contained herein) and (2) the number
      of shares of Common Stock issuable upon the exercise of the portion of this
      Warrant with respect to which the determination of this proviso is being made,
      would result in beneficial ownership by the Holder and its Affiliates of any
      amount greater than 4.99% of the then outstanding shares of Common Stock
      (whether or not, at the time of such exercise, the Holder and its Affiliates
      beneficially own more than 4.99% of the then outstanding shares of Common
      Stock). As used herein, the term “Affiliate” means any person or entity that,
      directly or indirectly through one or more intermediaries, controls or is
      controlled by or is under common control with a person or entity, as such terms
      are used in and construed under Rule 144 under the Securities Act.   For
      purposes of the proviso to the second preceding sentence, beneficial ownership
      shall be determined in accordance with Section 13(d) of the Securities Exchange
      Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise
      provided in clause (1) of such proviso. At no time shall the number of shares
      of
      Common Stock beneficially owned by the Holder exceed 19.99% of the outstanding
      shares of Common Stock. Notwithstanding anything contained herein to the
      contrary, the number of shares of Common Stock issuable by the Company and
      acquirable by the Holder at a price below $1.57 per share pursuant to the terms
      of this Warrant, the Purchase Agreement, any Related Agreement (as defined
      in
      the Purchase Agreement) or otherwise, shall not exceed an aggregate of
      13,567,898 shares of Common Stock (subject to appropriate adjustment for stock
      splits, stock dividends, or other similar recapitalizations affecting the Common
      Stock) (the “Maximum Common Stock Issuance”), unless the issuance of Common
      Shares hereunder in excess of the Maximum Common Stock Issuance shall first
      be
      approved by the Company’s shareholders. If at any point in time and from time to
      time the number of shares of Common Stock issued pursuant to the terms of this
      Warrant, the Purchase Agreement, any Related Agreement (as defined in the
      Purchase Agreement) or otherwise, together with the number of shares of Common
      Stock that would then be issuable by the Company to the Holder in the event
      of a
      conversion pursuant to the terms of this Warrant, the Purchase Agreement, any
      Related Agreement (as defined in the Purchase Agreement) or otherwise, would
      exceed the Maximum Common Stock Issuance but for this Section 10, the Company
      shall promptly call a shareholders meeting to solicit shareholder approval
      for
      the issuance of the shares of Common Stock hereunder in excess of the Maximum
      Common Stock Issuance.

     

    11.
      Warrant
      Agent.
      The Company may, by written notice to the each Holder of the Warrant, appoint
      an
      agent for the purpose of issuing Common Stock (or Other Securities) on the
      exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant
      to Section 7, and replacing this Warrant pursuant to Section 8, or any of the
      foregoing, and thereafter any such issuance, exchange or replacement, as the
      case may be, shall be made at such office by such agent.

     

    
      
         

        
          	
                	
                  7

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    12.
      Transfer
      on the Company’s Books.
      Until this Warrant is transferred on the books of the Company, the Company
      may
      treat the registered holder hereof as the absolute owner hereof for all
      purposes, notwithstanding any notice to the contrary.

     

    13.
      Notices,
      Etc.
      All notices and other communications from the Company to the Holder shall be
      mailed by first class registered or certified mail, postage prepaid, at such
      address as may have been furnished to the Company in writing by such Holder
      or,
      until any such Holder furnishes to the Company an address, then to, and at
      the
      address of, the last Holder who has so furnished an address to the
      Company.

     

    14.
      Miscellaneous.
      This Warrant and any term hereof may be changed, waived, discharged or
      terminated only by an instrument in writing signed by the party against which
      enforcement of such change, waiver, discharge or termination is sought. THIS
      WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
      STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION
      BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE
      BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED
      IN
      THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE
      THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The
      individuals executing this Warrant on behalf of the Company agree to submit
      to
      the jurisdiction of such courts and waive trial by jury. The prevailing party
      shall be entitled to recover from the other party its reasonable attorneys’ fees
      and costs. In the event that any provision of this Warrant is invalid or
      unenforceable under any applicable statute or rule of law, then such provision
      shall be deemed inoperative to the extent that it may conflict therewith and
      shall be deemed modified to conform with such statute or rule of law. Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of this Warrant.
      The headings in this Warrant are for purposes of reference only, and shall
      not
      limit or otherwise affect any of the terms hereof. The invalidity or
      unenforceability of any provision hereof shall in no way affect the validity
      or
      enforceability of any other provision hereof. The Company acknowledges that
      legal counsel participated in the preparation of this Warrant 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
      Warrant to favor any party against the other party.

     

    [BALANCE
      OF PAGE INTENTIONALLY LEFT BLANK;

    SIGNATURE
      PAGE FOLLOWS]

     

    
      	 	
              8

            	 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the Company has executed this Warrant as of the date first
      written above.

     

    

    
      	 	
              APPLIED
                DIGITAL SOLUTIONS, INC.

            
	 	 
	
              WITNESS:

            	 
	 	
              By: /s/
                Evan C.
                McKeown                        
                

            
	 	
              Name: Evan
                C.
                McKeown                        
                

            
	/s/
              Christopher R.
              Himes                                                             
              	
              Title: SVP
                &
                CFO                                     
                

            

    

     

    

     

    

 

    
      
         

        
          	 	
                  9

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      A

     

    FORM
      OF SUBSCRIPTION

     

    (To
      Be Signed Only On Exercise Of Warrant)

     

    TO: Applied
      Digital Solutions, Inc.

     

    Attention: Chief
      Financial Officer

     

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.____), hereby irrevocably elects to purchase (check applicable
      box):

    
      	 

              ________

            	
               

              ________
                shares of the Common Stock covered by such Warrant; or

            
	 

              ________

            	
               

              the
                maximum number of shares of Common Stock covered by such Warrant
                pursuant
                to the cashless exercise procedure set forth in Section
                2.

            

    

     

    The
      undersigned herewith makes payment of the full Exercise Price for such shares
      at
      the price per share provided for in such Warrant, which is $___________. Such
      payment takes the form of (check applicable box or boxes):

    
      	 

              ________

            	
               

              $__________
                in lawful money of the United States; and/or

            
	
               

              ________

            	
               

              the
                cancellation of such portion of the attached Warrant as is exercisable
                for
                a total of _______ shares of Common Stock (using a Fair Market Value
                of
                $_______ per share for purposes of this calculation);
                and/or

            
	 

              ________

            	
               

              the
                cancellation of such number of shares of Common Stock as is necessary,
                in
                accordance with the formula set forth in Section 2.2, to exercise
                this
                Warrant with respect to the maximum number of shares of Common Stock
                purchasable pursuant to the cashless exercise procedure set forth
                in
                Section 2.

            

    

     

    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to ____________________ whose address is
      ______________________.

     

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the “Securities Act”) or pursuant to an exemption from registration
      under the Securities Act.

    
      	
               

              Dated:                                                      
                

            	                                                                                                                                             
              
	 	
              (Signature
                must conform to name of holder as specified on the face of the
                Warrant)

            
	 	 
	 	
              Address:                                                               
                

            
	 	
                                                                             
                

            

    

    

    
      
        
          
            	
                     

                  	
                    A-1

                  	 

          

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      B

     

    FORM
      OF TRANSFEROR ENDORSEMENT

     

    (To
      Be Signed Only On Transfer Of Warrant)

     

    For
      value received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading “Transferees” the right represented by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of Applied Digital Solutions, Inc. into which the within Warrant relates
      specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
      person Attorney to transfer its respective right on the books of Applied Digital
      Solutions, Inc. with full power of substitution in the premises.

    
      	
               

              Transferees

            	
               

              Address

            	
               

              Percentage

              Transferred

            	
               

              Number

              Transferred

            
	                                                            
               	                                                                    
               	
                                      
                

            	
                                      
                

            
	                                                            
               	                                                                    
               	
                                      
                

            	
                                      
                

            
	                                                            
               	                                                                      	
                                      
                

            	
                                      
                

            
	                                                            
               	                                                                    
               	
                                      
                

            	
                                      
                

            

    

     

    

    
      	
               

              Dated:                                                                                              
                

            	 
	 	
              (Signature
                must conform to name of holder as specified on the face of the
                Warrant)

            
	 	 
	 	
              Address:                                                                        
                                             

            
	 	
                                                                        
                                                           
                

            
	 	
               

              SIGNED
                IN THE PRESENCE OF:

            
	 	
                                                                                                                                

            
	 	
              (Name)

            
	
              ACCEPTED
                AND AGREED:

            	 
	
              [TRANSFEREE]

            	 
	
                                                                                                     

            	 
	
              (Name)

            	 

    

    

     

     

    
      
         

        
          	 	
                  B-1

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