Document:

Exhibit 10.2

    
      
        

      

       

      Exhibit
        10.2

       

      SECURED
        TERM NOTE

       

      FOR
        VALUE RECEIVED, APPLIED DIGITAL SOLUTIONS, INC., a Missouri corporation (the
        “Company”),
        promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
        Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town,
        Grand
        Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”)
        or its registered assigns or successors in interest, the sum of Thirteen
        Million
        Five Hundred Thousand Dollars ($13,500,000), together with any accrued and
        unpaid interest hereon, on August 24, 2009 (the “Maturity
        Date”)
        if not sooner indefeasibly paid in full.

       

      Capitalized
        terms used herein without definition shall have the meanings ascribed to
        such
        terms in that certain Securities Purchase Agreement dated as of the date
        hereof
        between the Company and the Holder (as amended, modified and/or supplemented
        from time to time, the “Purchase
        Agreement”).

       

      The
        following terms shall apply to this Secured Term Note (this “Note”):

       

      ARTICLE
        I

      CONTRACT
        RATE AND AMORTIZATION

       

      1.1 Contract
        Rate.
        Subject to Sections 3.2 and 4.10, interest payable on the outstanding principal
        amount of this Note (the “Principal
        Amount”)
        shall accrue at a rate per annum equal to twelve percent (12%) (the
“Contract
        Rate”).
        Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
        payable monthly, in arrears, commencing on September 1, 2006, on the first
        business day of each consecutive calendar month thereafter through and including
        the Maturity Date, and on the Maturity Date, whether by acceleration or
        otherwise. 

       

      1.2
        Contract Rate Payments. The Contract Rate shall be calculated on the last
        business day of each calendar month hereafter until the Maturity
        Date.

       

      1.3
Principal
        Payments.
        Amortizing payments of the aggregate principal amount outstanding under this
        Note at any time (the “Principal
        Amount”)
        shall be made by the Company on April 1, 2007 and on the first business day
        of
        each succeeding month thereafter through and including the Maturity Date
        (each,
        an “Amortization
        Date”).
        Commencing on the first Amortization Date, the Company shall make monthly
        payments to the Holder on each Amortization Date in the “Amount” as is set forth
        in the table below opposite the “Period” within which the applicable
        Amortization Date falls, together with any accrued and unpaid interest on
        such
        portion of the Principal Amount plus any and all other unpaid amounts which
        are
        then owing under this Note, the Purchase Agreement and/or any other Related
        Agreement (collectively, the “Monthly
        Amount”).
        

       

      
        	 	 
	
                Period

              	
                Amount

              
	
                April
                  1, 2007 - August 31, 2007

              	
                $200,000

              
	
                September
                  1, 2007 - August 31, 2008

              	
                $250,000

              
	
                September
                  1, 2008 - the Maturity Date

              	
                $300,000

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Any
        outstanding Principal Amount together with any accrued and unpaid interest
        and
        any and all other unpaid amounts which are then owing by the Company to the
        Holder under this Note, the Purchase Agreement and/or any other Related
        Agreement shall be due and payable on the Maturity Date.

       

        

       

      ARTICLE
        II

      REDEMPTION

       

      2.1
        Optional Redemption in Cash. The Company may prepay this Note at any time
        (“Optional Redemption”) by paying to the Holder a sum of money
        equal to one hundred two percent (102%) of the Principal Amount outstanding
        at
        such time together with accrued but unpaid interest thereon and any and all
        other sums due, accrued or payable to the Holder arising under this Note,
        the
        Purchase Agreement or any other Related Agreement (the “Redemption
        Amount”) outstanding on the Redemption Payment Date (as defined below).
        The Company shall deliver to the Holder a written notice of redemption (the
        “Notice of Redemption”) specifying the date for such Optional
        Redemption (the “Redemption Payment Date”), which date shall be
        seven (7) business days after the date of the Notice of Redemption (the
“Redemption Period”). On the Redemption Payment Date, the
        Redemption Amount must be paid in good funds to the Holder. In the event
        the
        Company fails to pay the Redemption Amount on the Redemption Payment Date
        as set
        forth herein, then such Redemption Notice will be null and void.

       

       ARTICLE
        III

      EVENTS
        OF DEFAULT

       

      3.1
Events
        of Default.
        The occurrence of any of the following events set forth in this Section 3.1
        shall constitute an event of default (“Event
        of Default”)
        hereunder:

       

      (a)
        The
        Company fails to pay when due any installment of principal, interest or other
        invoiced fees hereon in accordance herewith, or the Company fails to pay
        any of
        the other Obligations (under and as defined in the Master Security Agreement)
        when due, and, in any such case, such failure shall continue for a period
        of
        five (5) business days following the date upon which such payment was due.
        For
        purposes herein, "invoiced fees" shall mean fees set forth on those regularly
        scheduled monthly invoices received by the Company from the Holder;

       

      (b)
        The Company breaches any covenant or any other term or condition of this
        Note in
        any material respect and such breach, if subject to cure, continues for a
        period
        of twenty (20) days following
        the occurrence thereof;

       

      (c)
        Any material representation or warranty made by the Company in this Note,
        the
        Purchase Agreement or any other Related Agreement shall at any time be false
        or
        misleading in any material respect on the date as of which made or deemed
        made;

       

       

      
        	 	
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(d)
          The occurrence of any material default (or similar term) in the observance
          or
          performance of any other agreement relating to any indebtedness or contingent
          obligation of the Company or any of its Subsidiaries beyond the period
          of grace
          (if any) or that is not waived, the effect of which default is to cause,
          or
          permit the holder or holders of such indebtedness or beneficiary or
          beneficiaries of such contingent obligation to cause, such indebtedness
          to
          become due prior to its stated maturity or such contingent obligation to
          become
          payable; 

      

       

      (e)
        The Company breaches any of their material agreements (other than this Note,
        the
        Purchase Agreement, the Related Agreements, and the agreements described
        in
        clause (d) of this definition), and such breach could reasonably be expected
        to
        have a Material Adverse Effect;

       

      (f)
        The Company or any of its Subsidiaries shall (i) apply for, consent to or
        suffer to exist the appointment of, or the taking of possession by, a receiver,
        custodian, trustee or liquidator 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 the 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, without challenge within ten (10) days of the
        filing
        thereof, or failure 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; 

       

      (g)
        (i) Attachments or levies in excess of $500,000 in the aggregate are made
        upon
        the Company or any of its Subsidiary’s assets or (ii) a judgment is rendered
        against the Company’s property involving a liability of more than $500,000 which
        shall not have been paid, vacated, discharged, stayed or bonded within thirty
        (30) days from the entry thereof.

       

      (h)
        The Company shall admit in writing its inability, or be generally unable,
        to pay
        its debts as they become due or cease operations of its present
        business;

       

      (i)
        A Change of Control (as defined below) shall occur with respect to the Company,
        unless Holder shall have expressly consented to such Change of Control in
        writing. A “Change of Control” shall mean any event or circumstance as a result
        of which (i) any “Person” or “group” (as such terms are defined in Sections
        13(d) and 14(d) of the Exchange Act, as in effect on the date hereof), other
        than the Holder, is or becomes the “beneficial owner” (as defined in Rules
        13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more
        than 50% on a fully diluted basis of the then outstanding voting equity interest
        of the Company, or (ii) the
        consolidation, merger or other business combination of the Company with or
        into
        any other entity, immediately following which the prior stockholders of the
        Company fail to own, directly or indirectly, at least fifty one percent (51%)
        of
        the surviving entity; provided however, that a Change of Control shall not
        be
        deemed to have occurred if (i) the Company enters into a consolidation, merger,
        share exchange or other business combination with an affiliate or subsidiary
        of
        the Company reasonably acceptable to Holder, (ii) the surviving entity assumes
        all of the obligations of the Company under the Purchase Agreement and the
        Related Agreements and (iii) after assuming all of the obligations under
        the
        Purchase Agreement and the Related

       

      
         

        
          	 	
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      Agreements,
        the surviving entity is and would be Solvent until such obligations are paid
        in
        full or otherwise discharged; and

       

      (j)
        (i) The indictment of the Company or any of its Subsidiaries or any executive
        officer of the Company for a felony under any criminal statute, (ii) the
        conviction of the Company or any of its Subsidiaries or any executive officer
        of
        the Company for a misdemeanor under any criminal statute, or (iii) the
        commencement of a criminal or civil proceeding against the Company or any
        of its
        Subsidiaries or any executive officer of the Company or any of its Subsidiaries
        pursuant to which statute or proceeding penalties or remedies reasonably
        available include forfeiture of a material portion of the property of the
        Company or any of its Subsidiaries.

       

      (k)
        (i) An Event of Default shall occur under and as defined in the Purchase
        Agreement or any other Related Agreement, (ii) the Company or any of its
        Subsidiaries shall breach any term or provision of the Purchase Agreement
        or any
        other Related Agreement in any respect material to the Company and such breach,
        if capable of cure, continues unremedied for a period of fifteen (15) days
        after
        the occurrence thereof, (iii) any proceeding shall be brought by the Company
        to
        challenge the validity, binding effect of the Purchase Agreement or any Related
        Agreement. For purposes of this paragraph the term Related Agreement shall
        exclude the Common Stock Purchase Warrant and the Warrant Shares as defined
        in
        the Securities Purchase Agreement.

       

      3.2 Default
        Interest.
        Following the occurrence and during the continuance of an Event of Default,
        the
        Company shall pay additional interest on the outstanding principal balance
        of
        this Note in an amount equal to one percent (1%) per month, and all outstanding
        obligations under this Note, the Purchase Agreement and each other Related
        Agreement, including unpaid interest, shall continue to accrue interest at
        such
        additional interest rate from the date of such Event of Default until the
        date
        such Event of Default is cured or waived.

       

      ARTICLE
        IV

      MISCELLANEOUS

       

      4.1 Issuance
        of New Note.
        Upon any partial redemption of this Note, a new Note containing the same
        date
        and provisions of this Note shall, at the request of the Holder, be issued
        by
        the Company to the Holder for the principal balance of this Note and interest
        which shall not have been paid as of such date. Subject to the provisions
        of
        Article III of this Note, the Company shall not pay any costs, fees or any
        other
        consideration to the Holder for the production and issuance of a new
        Note.

       

      4.2 Cumulative
        Remedies.
        The remedies under this Note shall be cumulative.

       

      4.3 Failure
        or Indulgence Not Waiver.
        No failure or delay on the part of the Holder hereof in the exercise of any
        power, right or privilege hereunder shall operate as a waiver thereof, nor
        shall
        any single or partial exercise of any such power, right or privilege preclude
        other or further exercise thereof or of any other right, power or privilege.
        All
        rights and remedies existing hereunder are cumulative to, and not exclusive
        of,
        any rights or remedies otherwise available.

      
         

        
          	 	
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      4.4 Notices.
        Any notice herein required or permitted to be given shall be in writing and
        shall be deemed effectively given: (a) upon personal delivery to the party
        notified, (b) when sent by confirmed telex or facsimile if sent during normal
        business hours of the recipient, if not, then on the next business day, (c)
        five
        days after having been sent by registered or certified mail, return receipt
        requested, postage prepaid, or (d) one day after deposit with a nationally
        recognized overnight courier, specifying next day delivery, with written
        verification of receipt. All communications shall be sent to the Company
        at the
        address provided in the Purchase Agreement executed in connection herewith,
        and
        to the Holder at the address provided in the Purchase Agreement for the Holder,
        with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th
        Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such
        other address as the Company or the Holder may designate by ten days advance
        written notice to the other parties hereto. 

       

      4.5 Amendment
        Provision.
        The term “Note” and all references thereto, as used throughout this instrument,
        shall mean this instrument as originally executed, or if later amended or
        supplemented, then as so amended or supplemented, and any successor instrument
        as such successor instrument may be amended or supplemented.

       

      4.6 Assignability.
        This Note shall be binding upon the Company and its successors and assigns,
        and
        shall inure to the benefit of the Holder and its successors and assigns,
        and may
        be assigned by the Holder in accordance with the requirements of the Purchase
        Agreement. The Company may not assign any of its obligations under this Note
        without the prior written consent of the Holder, any such purported assignment
        without such consent being null and void.

       

      4.7 Cost
        of Collection.
        In case of any Event of Default under this Note, the Company shall pay the
        Holder the Holder’s reasonable costs of collection, including reasonable
        attorneys’ fees.

       

      4.8 Governing
        Law, Jurisdiction and Waiver of Jury Trial.

       

      (a) THIS
        NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
        LAWS
        OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
        LAW.

       

      (b) THE
        COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
        IN
        THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
        TO
        HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE
        HAND,
        AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE
        OTHER
        RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE
        OR
        ANY OF THE RELATED AGREEMENTS; PROVIDED,
        THAT THE COMPANY 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 NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER
        FROM
        BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY

      
         

        
          	 	
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      OTHER
        JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR
        ANY
        OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
        ORDER IN FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS
        IN
        ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
        COURT,
        AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
        LACK OF
        PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
        NON CONVENIENS.
        THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
        OTHER
        PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
        SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
        MAIL
        ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT
        AND
        THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE COMPANY’S ACTUAL RECEIPT
        THEREOF.

       

      (c) THE
        COMPANY DESIRES THAT ITS 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 COMPANY HERETO WAIVES ALL RIGHTS
        TO
        TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
        WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND/OR
        THE
        COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
        RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
        RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

       

      4.9 
         Severability.
        In the event that any provision of this Note 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 Note.

       

      4.10 Maximum
        Payments.
        Nothing contained herein shall be deemed to establish or require the payment
        of
        a rate of interest or other charges in excess of the maximum permitted by
        applicable law. In the event that the rate of interest required to be paid
        or
        other charges hereunder exceed the maximum rate permitted by such law, any
        payments in excess of such maximum rate shall be credited against amounts
        owed
        by the Company to the Holder and thus refunded to the Company.

       

      4.11
        Security Interest.
        The Holder has been granted a security interest (i) in certain assets of
        the
        Company as more fully described in the Master Security Agreement dated as
        of the
        date hereof and (ii) in the equity interests of the Company’s Subsidiaries
        pursuant to the Stock Pledge Agreement dated as of the date hereof.

       

      4.12
        Construction.
        Each party acknowledges that its legal counsel participated in the preparation
        of this Note and, therefore, stipulates that the rule of construction
        that

       

       

      
        	 	
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       ambiguities
        are to be resolved against the drafting party shall not be applied in the
        interpretation of this Note to favor any party against the other.

       

      4.13 Registered
        Obligation.
        This Note is intended to be a registered obligation within the meaning of
        Treasury Regulation Section 1.871-14(c)(1)(i) and the Company (or its agent)
        shall register this Note (and thereafter shall maintain such registration)
        as to
        both principal and any stated interest. Notwithstanding any document, instrument
        or agreement relating to this Note to the contrary, transfer of this Note
        (or
        the right to any payments of principal or stated interest thereunder) may
        only
        be effected by (i) surrender of this Note and either the reissuance by the
        Company of this Note to the new holder or the issuance by the Company of
        a new
        instrument to the new holder, or (ii) transfer through a book entry system
        maintained by the Company (or its agent), within the meaning of Treasury
        Regulation Section 1.871-14(c)(1)(i)(B).

       

      [Balance
        of page intentionally left blank; signature page follows]

       

      
        	 	
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      IN
        WITNESS WHEREOF,
        the Company has caused this Secured Term Note to be signed in its name effective
        as of this 24th day of August, 2006.

       

       

      APPLIED
        DIGITAL SOLUTIONS, INC.

       

      By:
        _/s/ Michael
        Krawitz                      
            

      Name:
        Michael Krawitz

      Title: 
        EVP and GC

       

      WITNESS:

       

      

       

      /s/
        Lauren
        Luciano                            
  

      

       

       

      
         

        
          	 	
                  8Exhibit 10.3

    
      

    

     

    Exhibit
      10.3

     

    APPLIED
      DIGITAL SOLUTIONS, INC. 

     

    MASTER
      SECURITY AGREEMENT

     

    

    
      	
              To:

            	
              Laurus
                Master Fund, Ltd.

            
	
               

            	
              c/o
                M&C Corporate Services Limited

            
	
               

            	
              P.O.
                Box 309 GT

            
	
               

            	
              Ugland
                House

            
	
               

            	
              South
                Church Street

            
	
               

            	
              George
                Town

            
	
               

            	
              Grand
                Cayman, Cayman Islands

            

    

     

    Date:
      August 24, 2006

     

    To
      Whom It May Concern:

     

    1.
      To secure the payment of all Obligations (as hereafter defined), APPLIED DIGITAL
      SOLUTIONS, INC., a Missouri corporation (the “Company”), each of the other
      undersigned parties (other than Laurus Master Fund, Ltd., (“Laurus”)) (if any)
      and each other entity that is required to enter into this Master Security
      Agreement (if any) (each an “Assignor” and, collectively, the “Assignors”)
      hereby assigns and grants to Laurus a continuing security interest in all of
      the
      following property now owned or at any time hereafter acquired by such Assignor,
      or in which such Assignor now has or at any time in the future may acquire
      any
      right, title or interest (the “Collateral”): all cash, cash equivalents,
      accounts, accounts receivable, deposit accounts, inventory, equipment, goods,
      fixtures, documents, instruments (including, without limitation, promissory
      notes), contract rights, general intangibles (including, without limitation,
      payment intangibles and an absolute right to license on terms no less favorable
      than those current in effect among such Assignor’s affiliates), chattel paper,
      supporting obligations, investment property (including, without limitation,
      all
      partnership interests, limited liability company membership interests and all
      other equity interests owned by any Assignor except for investment property
      otherwise covered in the Stock Pledge Agreement dated as of the date hereof
      among the Company, Computer Equity Corporation, and Laurus and investment
      property set forth on Schedule 1 hereto), letter-of-credit rights, trademarks,
      trademark applications, tradestyles, patents, patent applications, copyrights,
      copyright applications and other intellectual property in which such Assignor
      now has or hereafter may acquire any right, title or interest, all proceeds
      and
      products thereof (including, without limitation, proceeds of insurance) and
      all
      additions, accessions and substitutions thereto or therefor. Except as otherwise
      defined herein, all capitalized terms used herein shall have the meanings
      provided such terms in the Securities Purchase Agreement referred to below.
      All
      items of Collateral which are defined in the UCC shall have the meanings set
      forth in the UCC.  For purposes hereof, the term “UCC” means the Uniform
      Commercial Code as the same may, from time to time, be in effect in the State
      of
      New York; provided, that in the event that, by reason of mandatory provisions
      of
      law, any or all of the attachment, perfection or priority of, or remedies with
      respect to, Laurus’ security interest in any

     

    
      
        	 	 	 

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Collateral
      is governed by the Uniform Commercial Code as in effect in a jurisdiction other
      than the State of New York, the term “UCC” shall mean the Uniform Commercial
      Code as in effect in such other jurisdiction for purposes of the provisions
      of
      this Agreement relating to such attachment, perfection, priority or remedies
      and
      for purposes of definitions related to such provisions; provided further, that
      to the extent that the UCC is used to define any term herein and such term
      is
      defined differently in different Articles or Divisions of the UCC, the
      definition of such term contained in Article or Division 9 shall
      govern.

     

    2.
      The term “Obligations” as used herein shall mean and include all debts,
      liabilities and obligations owing by each Assignor to Laurus arising under,
      out
      of, or in connection with: (i) that certain Securities Purchase Agreement dated
      as of the date hereof by and between the Company and Laurus (the “Securities
      Purchase Agreement”) and (ii) the Related Agreements referred to in the
      Securities Purchase Agreement (the Securities Purchase Agreement and Related
      Agreements , as each may be amended, modified, restated 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 in connection with any documents, instruments or agreements relating to
      or
      executed in connection with the Documents or any documents, instruments or
      agreements referred to therein or otherwise, and in connection with any other
      indebtedness, obligations or liabilities of each such Assignor to Laurus,
      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,
      including, without limitation, obligations and liabilities of each Assignor
      for
      post-petition interest, fees, costs and charges that accrue after the
      commencement of any case by or against such Assignor under any bankruptcy,
      insolvency, reorganization or like proceeding (collectively, the “Debtor Relief
      Laws”) 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 the Obligations in any case commenced by or against any Assignor
      under any Debtor Relief Law. Notwithstanding anything to the contrary contained
      herein, upon payment of the Obligations under the Note in full in immediately
      available funds, this Agreement shall automatically terminate and be without
      further force or effect.

     

    3.
      Each Assignor hereby jointly and severally represents, warrants and covenants
      to
      Laurus that:

     

    (a)
      it is a corporation, partnership or limited liability company, as the case
      may
      be, validly existing, in good standing and formed under the respective laws
      of
      its jurisdiction of formation set forth on Schedule A, and each Assignor will
      provide Laurus thirty (30) days’ prior written notice of any change in any of
      its respective jurisdiction of formation;

     

    (b)
      its legal name is as set forth in its Articles of Incorporation or other
      organizational document (as applicable) as amended through the date hereof
      and
      as set forth on Schedule A, and it will provide Laurus thirty (30) days’ prior
      written notice of any change in its legal name;

    
       

      
        
          	 	
                   2

                	 

        

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)
      its organizational identification number (if applicable) is as set forth on
      Schedule A hereto, and it will provide Laurus thirty (30) days’ prior written
      notice of any change in its organizational identification number;

     

    (d)
      it is the lawful owner of its Collateral and it has the sole right to grant
      a
      security interest therein and will defend the Collateral against all claims
      and
      demands of all persons and entities;

     

    (e)
      it will keep its Collateral free and clear of all attachments, levies, taxes,
      liens, security interests and encumbrances of every kind and nature
      (“Encumbrances”), except (i) Encumbrances securing the Obligations, (ii)
      Encumbrances securing indebtedness of each such Assignor not to exceed $250,000
      in the aggregate for all such Assignors, (iii) Encumbrances related to
      intercompany liabilities, (iv) Encumbrances outstanding as of the Closing Date
      and disclosed to Laurus on the Schedules attached to the Securities Purchase
      Agreement, and (v) Encumbrances that are expressly subordinated to the
      Obligations to the reasonable satisfaction of Laurus;

     

    (f)
      it will, at its and the other Assignors’ joint and several cost and expense keep
      the Collateral in good state of repair (ordinary wear and tear excepted) and
      will not waste or destroy the same or any part thereof other than ordinary
      course discarding of items no longer used or useful in its or such other
      Assignors’ business;

     

    (g)
      it will not, without Laurus’ prior written consent, sell, exchange, lease or
      otherwise dispose of any Collateral, whether by sale, lease or otherwise (unless
      the proceeds of such sale, exchange, lease or disposal shall be used to repay
      then outstanding Obligations), except for (A) the payment of obligations of
      the
      Company in the ordinary course of business and (B) the sale of inventory in
      the
      ordinary course of business and for the disposition or transfer in the ordinary
      course of business during any fiscal year of obsolete and worn-out equipment
      or
      equipment no longer necessary for its ongoing needs, having an aggregate fair
      market value of not more than $250,000 and only to the extent that:

     

    (i)
      the proceeds of each such disposition are used to acquire replacement Collateral
      which is subject to Laurus’ first priority perfected security interest, to repay
      then outstanding Obligations, or to pay general corporate expenses;
      or

     

    (ii)
      following the occurrence of an Event of Default which continues to exist the
      proceeds of which are remitted to Laurus to be held as cash collateral for
      the
      Obligations;

     

    (h)
      it will insure or cause the Collateral to be insured in Laurus’ name (as an
      additional insured and lender loss payee) against loss or damage by fire, theft,
      burglary, pilferage, loss in transit and such other hazards as Laurus shall
      specify in amounts and under policies by insurers acceptable to Laurus and
      all
      premiums thereon shall be paid by such Assignor and the policies delivered
      to
      Laurus. If any such Assignor fails to do so,

     

    
      
        	 	
                 3

              	 

      
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     Laurus
      may procure such insurance and the cost thereof shall be promptly reimbursed
      by
      the Assignors, jointly and severally, and shall constitute
      Obligations;

     

    (i)
      it will expressly agree that if additional loss payees and/or lender loss
      payees, other than Laurus, are named to the Collateral, Laurus will always
      be
      assigned to first lien position until all Laurus obligations have been
      met;

     

    (j)
      it will at all reasonable times allow Laurus or Laurus’ representatives
      reasonable access to and the right of inspection of the Collateral;
      and

     

    (k)
      such Assignor (jointly and severally with each other Assignor) hereby
      indemnifies and saves Laurus harmless from all loss, costs, damage, liability
      and/or expense, including reasonable attorneys’ fees, that Laurus may sustain or
      incur to enforce payment, performance or fulfillment of any of the Obligations
      and/or in the enforcement of this Master Security Agreement or in the
      prosecution or defense of any action or proceeding either against Laurus or
      any
      Assignor concerning any matter growing out of or in connection with this Master
      Security Agreement, and/or any of the Obligations and/or any of the Collateral
      except to the extent caused by Laurus’ own negligence or willful misconduct (as
      determined by a court of competent jurisdiction in a final and nonappealable
      decision).

     

    4.
      The occurrence of either of the following events shall constitute an event
      of
      default under this Master Security Agreement (each, an “Event of Default”): (a)
      (i) the occurrence of an Event of Default (as defined in the Note); or (b)
      any
      material portion of the Collateral shall be damaged, destroyed or otherwise
      lost
      and such damage, destruction or loss is not covered by insurance.

     

    5.
      Remedies.
      In case an Event of Default shall have occurred and is continuing, Laurus may:
      (i) Transfer any or all of the Collateral into its name, or into the name of
      its
      nominee or nominees;(ii) 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 Company thereof, or upon the exercise by the Company
      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 agent
      upon such terms and conditions as it may determine, all without liability except
      to account for property actually received by it; and (iii) 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 Laurus, 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 Laurus in its sole
      discretion may determine, or as may be required by applicable law. The Company
      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,
      Laurus may bid for

     

    
      
        	 	
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    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 Laurus hereunder, whether
      upon sale of the Collateral or any part thereof or otherwise, shall be held
      by
      Laurus and applied by it in repayment of the Obligations. No failure or delay
      on
      the part of Laurus 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. Laurus 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. Laurus 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, Laurus 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.

     

    6.
      If any Assignor defaults in the performance or fulfillment of any of the terms,
      conditions, promises, covenants, provisions or warranties on such Assignor’s
      part to be performed or fulfilled under or pursuant to this Master Security
      Agreement, Laurus may, at its option without waiving its right to enforce this
      Master Security Agreement according to its terms, immediately or at any time
      thereafter and without notice to any Assignor, perform or fulfill the same
      or
      cause the performance or fulfillment of the same for each Assignor’s joint and
      several account and at each Assignor’s joint and several cost and expense, and
      the cost and expense thereof (including reasonable attorneys’ fees) shall be
      added to the Obligations and shall be payable on demand with interest thereon
      at
      the highest rate permitted by law, or, at Laurus’ option, debited by Laurus from
      any other deposit accounts in the name of any Assignor and controlled by
      Laurus.

     

    7.
      Upon
      the occurrence and during the continuance of an Event of Default, each Assignor
      hereby appoints Laurus, or any other Person whom Laurus may designate as such
      Assignor’s attorney, with power to: (a)(i) execute
      any security related documentation on such Assignor’s behalf and to supply any
      omitted information and correct patent errors in any documents executed by
      such
      Assignor or on such Assignor’s behalf; (ii) 
      to file financing statements against such Assignor covering the Collateral
      (and,
      in connection with the filing of any such financing statements, describe the
      Collateral as “all assets and all personal property, whether now owned and/or
      hereafter acquired” (or any substantially similar variation thereof)); (iii)
sign
      such Assignor’s name on any invoice or bill of lading relating to any accounts
      receivable, drafts against account debtors, schedules and assignments of
      accounts receivable, notices of assignment, financing statements and other
      public records, verifications of accounts receivable and notices to or from
      account debtors; and
      (iv) to do all other things Laurus deems necessary to reasonably carry out
      the
      terms of Section 1 of this Master Security Agreement; and (b) upon
      the occurrence and during the continuance of an Event of Default; (v) endorse
      such Assignor’s name on any checks, notes, acceptances, money orders, drafts or
      other forms of payment or security that may come into Laurus’ possession; (vi)
      sign such Assignor’s name on any invoice or bill of lading relating to any
      accounts receivable, drafts against account debtors, schedules and assignments
      of accounts receivable, notices of assignment, financing statements and other
      public records, verifications of accounts receivable and notices to or from
      account debtors; (vii) verify the validity, amount or any other matter relating
      to any accounts receivable

     

    
      
        	 	
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    by
      mail, telephone, telegraph or otherwise with account debtors; (viii) do all
      other things necessary to carry out this Agreement, any other Related Agreement
      and all other related documents; and (ix) notify the post office authorities
      to
      change the address for delivery of such Assignor’s mail to an address designated
      by Laurus, and to receive, open and dispose of all mail addressed to such
      Assignor. Each
      Assignor hereby ratifies and approves all acts of the attorney and neither
      Laurus nor the attorney will be liable for any acts of commission or omission,
      nor for any error of judgment or mistake of fact or law other than gross
      negligence or willful misconduct (as determined by a court of competent
      jurisdiction in a final and non-appealable decision). This power being coupled
      with an interest, is irrevocable so long as any Obligations remains unpaid.
      

     

    8.
      Proceeds
      of Sale.
      The proceeds of any collection, recovery, receipt, appropriation, realization
      or
      sale of the Collateral shall be applied by the Laurus as follows:

     

    (a)
      First, to the payment of all costs, reasonable expenses and charges of the
      Laurus and to the reimbursement of the Laurus 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 of the Collateral),
      attorneys’ fees and reasonable expenses, court costs, any other fees or expenses
      incurred or expenditures or advances made by Laurus 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 Laurus 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 Assignors 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 Assignors
      shall be liable for the deficiency plus the costs and fees of any attorneys
      employed by Laurus to collect such deficiency

     

    9.
      No delay or failure on Laurus’ part in exercising any right, privilege or option
      hereunder shall operate as a waiver of such or of any other right, privilege,
      remedy or option, and no waiver whatever shall be valid unless in writing,
      signed by Laurus and then only to the extent therein set forth, and no waiver
      by
      Laurus of any default shall operate as a waiver of any other default or of
      the
      same default on a future occasion. Laurus’ books and records containing entries
      with respect to the Obligations shall be admissible in evidence in any action
      or
      proceeding. Laurus shall have the right to enforce any one or more of the
      remedies available to Laurus, successively, alternately or concurrently. Each
      Assignor agrees to join with Laurus in executing such documents or other
      instruments to the extent required by the UCC in form satisfactory to Laurus
      and
      in executing such other documents or instruments as may be required or deemed
      necessary by Laurus for purposes of affecting or continuing Laurus’ security
      interest in the Collateral.

     

    
      
        	 	
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    10.
      The
      Assignors shall jointly and severally pay all of Laurus’ out-of-pocket costs and
      expenses, including reasonable fees and disbursements of in-house or outside
      counsel and appraisers, in connection with the preparation, execution and
      delivery of the Documents as set forth in the Securities Purchase Agreement,
      and
      in connection with the prosecution or defense of any action, contest, dispute,
      suit or proceeding concerning any matter in any way arising out of, related
      to
      or connected with any Document. The Assignors shall also jointly and severally
      pay all of Laurus’ reasonable fees, charges, out-of-pocket costs and expenses,
      including fees and disbursements of counsel and appraisers, in connection with
      (a) the preparation, execution and delivery of any waiver, any amendment thereto
      or consent proposed or executed in connection with the transactions contemplated
      by the Documents, (b) Laurus’ obtaining performance of the Obligations under the
      Documents, including, but not limited to the enforcement or defense of Laurus’
security interests, assignments of rights and liens hereunder as valid perfected
      security interests, (c) any attempt to inspect, verify, protect, collect, sell,
      liquidate or otherwise dispose of any Collateral, (d) any appraisals or
      re-appraisals of any property (real or personal) pledged to Laurus by any
      Assignor as Collateral for, or any other Person as security for, the Obligations
      hereunder and (e) any consultations in connection with any of the foregoing.
      The
      Assignors shall also jointly and severally pay Laurus’ customary bank charges
      for all bank services (including wire transfers) performed or caused to be
      performed by Laurus for any Assignor at any Assignor’s request or in connection
      with any Assignor’s loan account (if any) with Laurus. All such costs and
      expenses together with all filing, recording and search fees, taxes and interest
      payable by the Assignors to Laurus shall be payable on demand and shall be
      secured by the Collateral. If any tax by any nation
      or government, any state or other political subdivision thereof, and any agency,
      department or other entity exercising executive, legislative, judicial,
      regulatory or administrative functions of or pertaining to government (each,
      a
“Governmental Authority”)
      is or may be imposed on or as a result of any transaction between any Assignor,
      on the one hand, and Laurus on the other hand, which Laurus is or may be
      required to withhold or pay, the Assignors hereby jointly and severally
      indemnify and hold Laurus harmless in respect of such taxes, and the Assignors
      will repay to Laurus the amount of any such taxes which shall be charged to
      the
      Assignors’ account; and until the Assignors shall furnish Laurus with indemnity
      therefor (or supply Laurus with evidence satisfactory to it that due provision
      for the payment thereof has been made), Laurus may hold without interest any
      balance standing to each Assignor’s credit (if any) and Laurus shall retain its
      liens in any and all Collateral

     

    11.
      THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
      IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
      MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
      OF
      LAWS. All of the rights, remedies, options, privileges and elections given
      to
      Laurus hereunder shall inure to the benefit of Laurus’ successors and assigns.
      The term “Laurus” as herein used shall include Laurus, any parent of Laurus’,
      any of Laurus’ subsidiaries and any co-subsidiaries of Laurus’ parent, whether
      now existing or hereafter created or acquired, and all of the terms, conditions,
      promises, covenants, provisions and warranties of this Agreement shall inure
      to
      the benefit of each of the foregoing, and shall bind the representatives,
      successors and assigns of each Assignor.

     

    
      
        	 	
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    12.
      Each Assignor 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 Assignor,
      on
      the one hand, and Laurus, on the other hand, pertaining to this Master Security
      Agreement or to any matter arising out of or related to this Master Security
      Agreement, provided, that Laurus and each Assignor 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
      Master Security Agreement shall be deemed or operate to preclude Laurus from
      bringing suit or taking other legal action in any other jurisdiction to collect,
      the Obligations, to realize on the Collateral or any other security for the
      Obligations, or to enforce a judgment or other court order in favor of Laurus.
      Each Assignor expressly submits and consents in advance to such jurisdiction
      in
      any action or suit commenced in any such court, and each Assignor hereby waives
      any objection which it may have based upon lack of personal jurisdiction,
      improper venue or forum non conveniens.
      Each Assignor hereby waives personal service of the summons, complaint and
      other
      process issues 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 assignor at the address set forth on the signature lines
      hereto and that service so made shall be deemed completed upon the Assignor’s
      actual receipt thereof.

     

    The
      parties desire that their disputes be resolved by a judge applying such
      applicable laws. Therefore, to achieve the best combination of the benefits
      of
      the judicial system and of arbitration, the parties hereto waive all rights
      to
      trial by jury in any action, suite, or proceeding brought to resolve any
      dispute, whether arising in contract, tort, or otherwise between Laurus, and/or
      any Assignor arising out of, connected with, related or incidental to the
      relationship established between them in connection with this Master Security
      Agreement or the transactions related hereto.

     

    13.
      It is understood and agreed that any person or entity that desires to become
      an
      Assignor hereunder, or is required to execute a counterpart of this Master
      Security Agreement after the date hereof pursuant to the requirements of any
      Document, shall become an Assignor hereunder by (x) executing a Joinder
      Agreement in form and substance satisfactory to Laurus, (y) delivering
      supplements to such exhibits and annexes to such Documents as Laurus shall
      reasonably request and (z) taking all actions as specified in this Master
      Security Agreement as would have been taken by such Assignor had it been an
      original party to this Master Security Agreement, in each case with all
      documents required above to be delivered to Laurus and with all documents and
      actions required above to be taken to the reasonable satisfaction of
      Laurus.

     

    14.
      All notices from Laurus to any Assignor shall be sufficiently given if mailed
      or
      delivered to such Assignor’s address set forth below.

     

    15.
      This
      Master Security 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.

     

    
      
        	 	
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    Very
      truly yours,

    APPLIED
      DIGITAL SOLUTIONS, INC.

     

    By:
      /s/ Evan C.
      McKeown                             

    Name:    
      Evan C. McKeown

    Title:      
      SVP & CFO

    Address:
      1690 S. Congress Ave. #200

                    
      Delray Beach, FL 33445

     

    ACKNOWLEDGED:

     

    LAURUS
      MASTER FUND, LTD.

     

    By:
      /s/ David
      Grin                                  

    Name: 
      David Grin

    Title    
      Director

     

    

     

    
      
        	 	
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    SCHEDULE
      A

    
      	 	 	 
	
              Entity

            	
              Jurisdiction
                of 

              Formation

            	
              Organization
                Identification Number

            
	
              Applied
                Digital Solutions, Inc.

            	
              Missouri

            	
              00380703

            
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

    

     

     

     

    
      
        	 	
                10 

              	 

      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
      1

     

    1. 
      7.61% interest in Signature Industries Limited owned by the Company consisting
      of 45,675 shares of its common stock.

     

    2. 
      5,833,334 shares of VeriChip Corporation’s common stock.

     

    
      
        	 	
                 11

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