Document:

Exhibit 10.6

    
      

    

     

    Exhibit
      10.6

     

    REGISTRATION
      RIGHTS AGREEMENT

     

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

     

    This
      Agreement is made pursuant to the Securities Purchase Agreement, dated as of
      the
      date hereof, by and among the Purchaser and the Company (as amended, modified
      or
      supplemented from time to time, the “Purchase Agreement”), and pursuant to the
      Warrants referred to therein.

     

    The
      Company and the Purchaser hereby agree as follows: 

     

    1.    Definitions.
      Capitalized terms used and not otherwise defined herein that are defined in
      the
      Purchase Agreement shall have the meanings given such terms in the Purchase
      Agreement. As used in this Agreement, the following terms shall have the
      following meanings: 

     

    “Commission”
      means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
      means
      shares of the Company’s common stock, par value $0.01 per share. 

     

    “Effectiveness
      Date”
      means,
      (i) with respect to the Registration Statement required to be filed in
      connection with the Warrants issued on the date hereof, a date no later than
      one
      hundred eighty days (180) days following such date, (ii) with respect to each
      additional Registration Statement required to be filed hereunder (if any),
      a
      date no later than forty five (45) days following the applicable Filing Date,
      and (iii) with respect to a Registration Statement that is subject to a full
      review by the Commission, a date no later than one hundred twenty (120) days
      following the applicable Filing Date. 

     

    “Effectiveness
      Period”
      has the
      meaning set forth in Section 2(a). 

     

    “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended, and any successor
      statute.

     

    “Filing
      Date”
      means,
      with respect to (1) the Registration Statement required to be filed in
      connection with the shares of Common Stock issuable to the Holder upon exercise
      of a Warrant, the date which is sixty (60) days after the issuance of such
      Warrant, and (2) the Registration Statement required to be filed in connection
      with the shares of Common Stock issuable to the Holder as a result of
      adjustments to the Exercise Price and the number of shares of Common Stock
      issuable to the Holder upon exercise made pursuant to Section 4 of the Warrant
      or otherwise, thirty (30) days after the occurrence of such event or the date
      of
      such adjustments.

     

     

    
      	 	
            	 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Holder”
      or
“Holders”
      means
      the Purchaser or any of its affiliates or transferees to the extent any of
      them
      hold Registrable Securities, other then those purchasing Registrable Securities
      in a market transaction.

     

    “Indemnified
      Party”
      has the
      meaning set forth in Section 5(c).

     

    “Indemnifying
      Party”
      has the
      meaning set forth in Section 5(c).

     

    “Proceeding”
      means an
      action, claim, suit, investigation or proceeding (including, without limitation,
      an investigation or partial proceeding, such as a deposition), whether commenced
      or to the Company's Knowledge, threatened. 

     

    “Prospectus”
      means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by such Registration Statement,
      and all other amendments and supplements to the Prospectus, including
      post-effective amendments, and all material incorporated by reference or deemed
      to be incorporated by reference in such Prospectus. 

     

    “Purchase
      Agreement”
      has the
      meaning given to such term in the Preamble hereto.

     

    “Registrable
      Securities”
      means
      the shares of Common Stock issuable upon exercise of the Warrants; provided,
      however, that "Registrable Securities" shall not include any such shares that
      have been sold to the public pursuant to the Registration Statement or Rule
      144.

     

    “Registration
      Statement”
      means
      each registration statement required to be filed hereunder, including the
      Prospectus therein, amendments and supplements to such registration statement
      or
      Prospectus, including pre- and post-effective amendments, all exhibits thereto,
      and all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement. 

     

    “Rule
      144”
      means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Rule
      415”
      means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and any successor statute.

     

    “Trading
      Market”
      means
      any of the NASD Over The Counter Bulletin Board, NASDAQ Capital Market, the
      NASDAQ National Markets System, the American Stock Exchange or the New York
      Stock Exchange.

     

    
      
         

        
          	 	
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    “Warrants”
      means
      the Common Stock purchase warrants issued in connection with the Purchase
      Agreement, whether on the date thereof or thereafter.

     

    2.    Registration.

     

    (a) On
      or
      prior to each Filing Date, the Company shall prepare and file with the
      Commission a Registration Statement covering the Registrable Securities for
      a
      selling stockholder resale offering to be made on a continuous basis pursuant
      to
      Rule 415. Each Registration Statement shall be on Form S-3 (except if the
      Company is not then eligible to register for resale the Registrable Securities
      on Form S-3, in which case such registration shall be on another appropriate
      form in accordance herewith). The Company shall cause each Registration
      Statement to become effective and remain effective as provided herein. The
      Company shall use commercially reasonable efforts to cause each Registration
      Statement to be declared effective under the Securities Act as promptly as
      possible after the filing thereof. The Company shall use commercially reasonable
      efforts to keep each Registration Statement continuously effective under the
      Securities Act until the date which is the earlier date of when (i) all
      Registrable Securities covered by such Registration Statement have been sold
      or
      (ii) all Registrable Securities covered by such Registration Statement may
      be
      sold immediately without registration under the Securities Act and without
      volume restrictions pursuant to Rule 144(k), as determined by the counsel to
      the
      Company pursuant to a written opinion letter to such effect, addressed and
      acceptable to the Company’s transfer agent and the affected Holders (each, an
“Effectiveness Period”). In no event will the Company be required (i) to pay a
      penalty for failure to cause each Registration Statement to be declared
      effective or for failure to cause each Registration Statement to remain
      effective; (ii) to pay liquidating damages in connection with the Warrants;
      and
      (iii) to make a cash payment in connection with the settlement of the
      Warrants.

     

    (b) 
      Within
      three business days of the Effectiveness Date, the Company shall cause its
      counsel to issue a blanket opinion in the form attached hereto as Exhibit A,
      to
      the transfer agent stating that the shares are subject to an effective
      registration statement and can be reissued free of restrictive legend upon
      notice of a sale by the Purchaser and confirmation by the Purchaser that it
      has
      complied with the prospectus delivery requirements, provided that the Company
      has not advised the transfer agent orally or in writing that the opinion has
      been withdrawn. Copies of the blanket opinion required by this Section 2(b)
      shall be delivered to the Purchaser within the time frame set forth above.
      

     

    3.     Registration
      Procedures.
      If and
      whenever the Company is required by the provisions hereof to effect the
      registration of any Registrable Securities under the Securities Act, the Company
      will, as expeditiously as possible: 

     

    (a) prepare
      and file with the Commission a Registration Statement with respect to such
      Registrable Securities, respond as promptly as possible to any comments received
      from the Commission, and use commercially reasonable efforts to cause such
      Registration Statement to become and remain effective for the Effectiveness
      Period with respect thereto, and promptly provide to the Purchaser copies of
      all
      filings and Commission letters of comment relating thereto;

     

    
      
         

        
          	 	
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    (b) prepare
      and file with the Commission such amendments and supplements to such
      Registration Statement and the Prospectus used in connection therewith as may
      be
      necessary to comply with the provisions of the Securities Act with respect
      to
      the disposition of all Registrable Securities covered by such Registration
      Statement and to keep such Registration Statement effective until the expiration
      of the Effectiveness Period applicable to such Registration
      Statement;

     

    (c) furnish
      to the Purchaser such number of copies of the Registration Statement and the
      Prospectus included therein (including each preliminary Prospectus) as the
      Purchaser reasonably may request to facilitate the public sale or disposition
      of
      the Registrable Securities covered by such Registration Statement;

     

    (d) use
      commercially reasonable efforts to register or qualify the Purchaser’s
      Registrable Securities covered by such Registration Statement under the
      securities or “blue sky” laws of such jurisdictions within the United States as
      the Purchaser may reasonably request, provided, however, that the Company shall
      not for any such purpose be required to qualify generally to transact business
      as a foreign corporation in any jurisdiction where it is not so qualified or
      to
      consent to general service of process in any such jurisdiction;

     

    (e) list
      the
      Registrable Securities covered by such Registration Statement with any
      securities exchange on which the Common Stock of the Company is then listed;
      

     

    (f) promptly
      notify the Purchaser at any time when a Prospectus relating thereto is required
      to be delivered under the Securities Act, of the happening of any event of
      which
      the Company has Knowledge as a result of which the Prospectus contained in
      such
      Registration Statement, as then in effect, includes an untrue statement of
      a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading in light of the
      circumstances then existing; and

     

    (g) make
      available for inspection by the Purchaser and any attorney, accountant or other
      agent retained by the Purchaser during normal business hours, all publicly
      available, non-confidential financial and other records, pertinent corporate
      documents and properties of the Company, and cause the Company’s officers,
      directors and employees to supply all publicly available, non-confidential
      information reasonably requested by the attorney, accountant or agent of the
      Purchaser.

     

    4.    Registration
      Expenses.
      All
      expenses relating to the Company’s compliance with Sections 2 and 3 hereof,
      including, without limitation, all registration and filing fees, printing
      expenses, fees and disbursements of counsel and independent public accountants
      for the Company, fees and expenses (including reasonable counsel fees) incurred
      in connection with complying with state securities or “blue sky” laws, fees of
      the NASD, transfer taxes, and fees of transfer agents and registrars are called
      “Registration Expenses.” All selling commissions applicable to the sale of
      Registrable Securities, including any fees and disbursements of any counsel
      to
      the Holders, are called “Selling Expenses.” The Company shall only be
      responsible for Registration Expenses not any Selling Expenses.

     

    
      
         

        
          	 	
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    5.    Indemnification.

     

    (a) In
      the
      event of a registration of any Registrable Securities under the Securities
      Act
      pursuant to this Agreement, the Company will indemnify and hold harmless each
      Holder, and its officers, directors and each other person, if any, who controls
      such Holder within the meaning of the Securities Act, against any losses,
      claims, damages or liabilities, joint or several, to which such Holder, or
      such
      persons may become subject under the Securities Act or otherwise, insofar as
      such losses, claims, damages or liabilities (or actions in respect thereof)
      arise out of or are based upon any untrue statement or alleged untrue statement
      of any material fact contained in any Registration Statement under which such
      Registrable Securities were registered under the Securities Act pursuant to
      this
      Agreement, any preliminary Prospectus or final Prospectus contained therein,
      or
      any amendment or supplement thereof, or arise out of or are based upon the
      omission or alleged omission to state therein a material fact required to be
      stated therein or necessary to make the statements therein not misleading,
      and
      will reimburse such Holder, and each such person for any reasonable legal or
      other expenses incurred by them in connection with investigating or defending
      any such loss, claim, damage, liability or action; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is (i) based upon an
      untrue statement or alleged untrue statement or omission or alleged omission
      so
      made in conformity with information furnished by or on behalf of the Purchaser
      or any such person specifically for use in any such document, or (ii) based
      on a
      failure of such person to deliver or cause to be delivered the final Prospectus
      contained in the Registration Statement and made available by the
      Company.

     

    (b) In
      the
      event of a registration of the Registrable Securities under the Securities
      Act
      pursuant to this Agreement, the Purchaser will indemnify and hold harmless
      the
      Company, and its officers, directors and each other person, if any, who controls
      the Company within the meaning of the Securities Act, against all losses,
      claims, damages or liabilities, joint or several, to which the Company or such
      persons may become subject under the Securities Act or otherwise, insofar as
      such losses, claims, damages or liabilities (or actions in respect thereof)
      arise out of or are based upon any untrue statement or alleged untrue statement
      of any material fact which was furnished by the Purchaser to the Company
      expressly for use in (and such information is contained in) the Registration
      Statement under which such Registrable Securities were registered under the
      Securities Act pursuant to this Agreement, any preliminary Prospectus or final
      Prospectus contained therein, or any amendment or supplement thereof, or arise
      out of or are based upon the omission or alleged omission to state therein
      a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading, and will reimburse the Company and each such person
      for
      any reasonable legal or other expenses incurred by them in connection with
      investigating or defending any such loss, claim, damage, liability or action
      provided,
      however,
      that
      the Purchaser will be liable in any such case if and only to the extent that
      any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished to the Company by or on behalf of the
      Purchaser specifically for use in any such document. Notwithstanding the
      provisions of this paragraph, the Purchaser shall not be required to indemnify
      any person or entity in excess of the amount of the aggregate net proceeds
      received by the Purchaser in respect of Registrable Securities in connection
      with any such registration under the Securities Act.

     

    (c) Promptly
      after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified Party”) of notice of the commencement of any action,
      such

     

    
      
         

        
          	 	
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    Indemnified
      Party shall, if a claim for indemnification in respect thereof is to be made
      against a party hereto obligated to indemnify such Indemnified Party (an
“Indemnifying Party”), notify the Indemnifying Party in writing thereof, but the
      omission so to notify the Indemnifying Party shall not relieve it from any
      liability which it may have to such Indemnified Party other than under this
      Section 5(c) and shall only relieve it from any liability which it may have
      to
      such Indemnified Party under this Section 5(c) if and to the extent the
      Indemnifying Party is prejudiced by such omission. In case any such action
      shall
      be brought against any Indemnified Party and it shall notify the Indemnifying
      Party of the commencement thereof, the Indemnifying Party shall be entitled
      to
      participate in and, to the extent it shall wish, to assume and undertake the
      defense thereof with counsel satisfactory to such Indemnified Party, and, after
      notice from the Indemnifying Party to such Indemnified Party of its election
      so
      to assume and undertake the defense thereof, the Indemnifying Party shall not
      be
      liable to such Indemnified Party under this Section 5(c) for any legal expenses
      subsequently incurred by such Indemnified Party in connection with the defense
      thereof; if the Indemnified Party retains its own counsel, then the Indemnified
      Party shall pay all fees, costs and expenses of such counsel, provided,
      however,
      that,
      if the defendants in any such action include both the Indemnified Party and
      the
      Indemnifying Party and the Indemnified Party shall have reasonably concluded
      that there may be reasonable defenses available to it which are different from
      or additional to those available to the Indemnifying Party or if the interests
      of the Indemnified Party reasonably may be deemed to conflict with the interests
      of the Indemnifying Party, the Indemnified Party shall have the right to select
      one separate counsel and to assume such legal defenses and otherwise to
      participate in the defense of such action, with the reasonable expenses and
      fees
      of such separate counsel and other expenses related to such participation to
      be
      reimbursed by the Indemnifying Party as incurred. 

     

    (d) In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the Securities Act in any case in which either (i) the Purchaser, or
      any
      officer, director or controlling person of the Purchaser, makes a claim for
      indemnification pursuant to this Section 5 but it is judicially determined
      (by
      the entry of a final judgment or decree by a court of competent jurisdiction
      and
      the expiration of time to appeal or the denial of the last right of appeal)
      that
      such indemnification may not be enforced in such case notwithstanding the fact
      that this Section 5 provides for indemnification in such case, or (ii)
      contribution under the Securities Act may be required on the part of the
      Purchaser or such officer, director or controlling person of the Purchaser
      in
      circumstances for which indemnification is provided under this Section 5; then,
      and in each such case, the Company and the Purchaser will contribute to the
      aggregate losses, claims, damages or liabilities to which they may be subject
      (after contribution from others) in such proportion so that the Purchaser is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the Registration Statement bears
      to
      the public offering price of all securities offered by such Registration
      Statement, provided,
      however,
      that,
      in any such case, (A) the Purchaser will not be required to contribute any
      amount in excess of the public offering price of all such securities offered
      by
      it pursuant to such Registration Statement; and (B) no person or entity guilty
      of fraudulent misrepresentation (within the meaning of Section 10(f) of the
      Act)
      will be entitled to contribution from any person or entity who was not guilty
      of
      such fraudulent misrepresentation.

     

    
      
         

        
          	 	
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    6.    Representations
      and Warranties.

     

    (a) The
      Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
      Act, and the Company has timely filed all proxy statements, reports, schedules,
      forms, statements and other documents required to be filed by it under the
      Exchange Act. The Company has filed (i) its Annual Report on Form 10-K for
      its
      fiscal year ended December 31, 2005 and (ii) its Quarterly Report on Form 10-Q
      for the fiscal quarters ended March 31, 2006, and June 30, 2006 (collectively,
      the “SEC Reports”). Each SEC Report was, at the time of its filing, in
      substantial compliance with the requirements of its respective form and none
      of
      the SEC Reports, nor the financial statements (and the notes thereto) included
      in the SEC Reports, as of their respective filing dates, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary to make the statements therein, in light of the
      circumstances under which they were made, not misleading. The financial
      statements of the Company included in the SEC Reports comply as to form in
      all
      material respects with applicable accounting requirements and the published
      rules and regulations of the Commission or other applicable rules and
      regulations with respect thereto. Such financial statements have been prepared
      in accordance with generally accepted accounting principles (“GAAP”) applied on
      a consistent basis during the periods involved (except (i) as may be otherwise
      indicated in such financial statements or the notes thereto or (ii) in the
      case
      of unaudited interim statements, to the extent they may not include footnotes
      or
      may be condensed) and fairly present in all material respects the financial
      condition, the results of operations and the cash flows of the Company and
      its
      subsidiaries, on a consolidated basis, as of, and for, the periods presented
      in
      each such SEC Report.

     

    (b) The
      Common Stock is listed or quoted, as applicable, for trading on the NASDAQ
      Capital Market and satisfies all requirements for the continuation of such
      listing or quotation, as applicable, and the Company shall do all things
      necessary for the continuation of such listing or quotation, as applicable.
      The
      Company has not received any notice that its Common Stock will be delisted
      from
      or no longer be quoted on, as applicable, the NASDAQ Capital Market (except
      for
      prior notices which have been fully remedied) or that the Common Stock does
      not
      meet all requirements for the continuation of such listing or quotation, as
      applicable.

     

    (c) To
      the
      Company's Knowledge, neither the Company, nor any of its affiliates, nor any
      person acting on its or their behalf, has directly or indirectly made any offers
      or sales of any security or solicited any offers to buy any security under
      circumstances that would cause the offering of the Securities pursuant to the
      Purchase Agreement to be integrated with prior offerings by the Company for
      purposes of the Securities Act which would prevent the Company from selling
      the
      Common Stock pursuant to Rule 506 under the Securities Act, or any applicable
      exchange-related stockholder approval provisions, nor will the Company or any
      of
      its affiliates or subsidiaries take any action or steps that would cause the
      offering of the Common Stock to be integrated with other offerings (other than
      such concurrent offering to the Purchaser).

     

    (d) The
      Warrants and the shares of Common Stock that the Purchaser may acquire pursuant
      to the Warrants are all restricted securities under the Securities Act as of
      the
      date of this Agreement. The Company will not issue any stop transfer order
      or
      other order impeding the sale and delivery of any of the Registrable Securities
      at such time as such Registrable Securities are registered for public sale
      or an
      exemption from registration is available, except as required by federal or
      state
      securities laws.

     

    
      
         

        
          	 	
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    (e) The
      Company understands the nature of the Registrable Securities issuable upon
      the
      exercise of each Warrant and recognizes that the issuance of such Registrable
      Securities may have a potential dilutive effect. The Company specifically
      acknowledges that its obligation to issue the Registrable Securities is binding
      upon the Company and enforceable regardless of the dilution such issuance may
      have on the ownership interests of other shareholders of the
      Company.

     

    (f) Except
      for agreements made in the ordinary course of business, there is no agreement
      that has not been filed with the Commission as an exhibit to a registration
      statement or to a form required to be filed by the Company under the Exchange
      Act, the breach of which could reasonably be expected to have a material and
      adverse effect on the Company and its subsidiaries, or would prohibit or
      otherwise interfere with the ability of the Company to enter into and perform
      any of its obligations under this Agreement in any material
      respect.

     

    (g) The
      Company will at all times have authorized and reserved a sufficient number
      of
      shares of Common Stock for the full exercise of the Warrants.

     

    (h) The
      Company shall provide written notice to each Holder of (i) the occurrence of
      each Discontinuation Event (as defined below) and (ii) the declaration of
      effectiveness by the SEC of each Registration Statement required to be filed
      hereunder, in each case within three (3) business days of the date of each
      such
      occurrence and/or declaration.

     

    7.    Obligations
      of Each Holder.

    

    In
      connection with the registration of Registrable Securities pursuant to a
      Registration Statement, each Holder shall: 

    

    (a)
      timely furnish to the Company in writing such information regarding itself
      and
      the intended method of disposition of such Registrable Securities as the Company
      shall reasonably request in order to effect the registration thereof;

    

    (b)
      upon
      receipt of any notice from the Company of the happening of any Discontinuation
      Event of the kind described in Section 8(d), immediately discontinue any sale
      or
      other disposition of such Registrable Securities pursuant to such Registration
      Statement until the filing of an amendment or supplement; 

    

    (c)
      to
      the extent required by applicable law, deliver a preliminary and definitive
      prospectus to the purchaser of Registrable Securities sold under the
      Registration Statement; 

    

    (d)
      notify the Company when it has sold all of the Registrable Securities held
      by
      it; and

    

    (e)
      notify the Company promptly in the event that any information supplied by such
      Holder in writing for inclusion in such Registration Statement or related
      prospectus is untrue or omits to state a material fact required to be stated
      therein or necessary to make such information not misleading in light of the
      circumstances then existing; immediately discontinue any sale or other
      disposition of such Registrable Securities pursuant to such
      Registration

     

    
      
         

        
          	 	
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    Statement
      until the filing of an amendment or supplement to such prospectus as may be
      necessary so that such prospectus does not contain an untrue statement of
      material fact or omit to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading in light of the
      circumstances then existing; and provide the Company with updates on such
      information as may be appropriate to make such amendment or supplement effective
      for such purpose.

     

    8.    Miscellaneous.

     

    (a) Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, will be entitled to
      specific performance of its rights under this Agreement. The failure of the
      Company to cause each Registration Statement to become effective and to remain
      effective as provided herein shall not convey to the Holder(s) any rights to
      the
      recovery of monetary and or liquidated damages. In the event of a breach by
      the
      Company of any of their obligations under this Agreement, the Holder(s) damages
      thereof shall not exceed the delivery of shares of the Company’s common stock
      equal to 10% of the number of shares of the Company’s common stock affected by
      the breach. 

     

    (b) 
      No Piggyback on Registrations.
      Neither
      the Company nor any of its security holders (other than the Holders in such
      capacity pursuant hereto) may include securities of the Company in any
      Registration Statement other than the Registrable Securities, and the Company
      shall not after the date hereof enter into any agreement providing any such
      right for inclusion of shares in the Registration Statement to any of its
      security holders, in each case, without the prior written consent of Laurus,
      which consent shall not be unreasonably withheld. The Company has not previously
      entered into any agreement granting any registration rights with respect to
      any
      of its securities to any person or entity that have not been fully satisfied
      except as disclosed on Schedule 4.15 to the Securities Purchase
      Agreement.

     

    (c) Compliance.
      Each
      Holder covenants and agrees that it will comply with the prospectus delivery
      requirements of the Securities Act as applicable to it in connection with sales
      of Registrable Securities pursuant to any Registration Statement. 

     

    (d) Discontinued
      Disposition.
      Each
      Holder agrees by its acquisition of such Registrable Securities that, upon
      receipt of a notice from the Company of the occurrence of a Discontinuation
      Event (as defined below), such Holder will forthwith discontinue disposition
      of
      such Registrable Securities under the applicable Registration Statement until
      such Holder’s receipt of the copies of the supplemented Prospectus and/or
      amended Registration Statement or until it is advised in writing by the Company
      that the use of the applicable Prospectus may be resumed, and, in either case,
      has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement. The Company may provide appropriate stop orders to
      enforce the provisions of this paragraph. For purposes of this Agreement, a
      “Discontinuation Event” shall mean (i) when the Commission notifies the Company
      whether there will be a “review” of such Registration Statement and whenever the
      Commission comments in writing on such Registration Statement (the Company
      shall
      provide true and complete copies thereof and all written responses thereto
      to

     

    
      
         

        
          	 	
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    each
      of
      the Holders); (ii) any request by the Commission or any other Federal or state
      governmental authority for amendments or supplements to such Registration
      Statement or Prospectus or for additional information; (iii) the issuance by
      the
      Commission of any stop order suspending the effectiveness of such Registration
      Statement covering any or all of the Registrable Securities or the initiation
      of
      any Proceedings for that purpose; (iv) the receipt by the Company of any
      notification with respect to the suspension of the qualification or exemption
      from qualification of any of the Registrable Securities for sale in any
      jurisdiction, or the initiation or threatening of any Proceeding for such
      purpose; and/or (v) the occurrence of any event or passage of time that makes
      the financial statements included in such Registration Statement ineligible
      for
      inclusion therein or any statement made in such Registration Statement or
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires any revisions to
      such
      Registration Statement, Prospectus or other documents so that, in the case
      of
      such Registration Statement or Prospectus, as the case may be, it will not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not
      misleading.

     

    (e) Piggy-Back
      Registrations.
      If at
      any time after the date hereof there is not an effective Registration Statement
      covering all of the Registrable Securities required to be covered hereunder
      and
      the Company shall determine to prepare and file with the Commission a
      registration statement relating to an offering for its own account or the
      account of others under the Securities Act of any of its equity securities,
      other than on Form S-4 or Form S-8 (each as promulgated under the
      Securities Act) or their then equivalents relating to equity securities to
      be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with stock option or other employee
      benefit plans, then the Company shall send to each Holder written notice of
      such
      determination and, if within fifteen (15) days after receipt of such notice,
      any
      such Holder shall so request in writing, the Company shall use commercially
      reasonable efforts to include in such registration statement all or any part
      of
      such Registrable Securities such Holder requests to be registered, to the extent
      the Company may do so without violating registration rights of others which
      exist as of the date of this Agreement, subject to customary underwriter
      cutbacks applicable to all holders of registration rights and subject to
      obtaining any required consent of any selling stockholder(s) to such inclusion
      under such registration statement.

     

    (f) Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and the Holders of the then outstanding Registrable
      Securities. Notwithstanding the foregoing, a waiver or consent to depart from
      the provisions hereof with respect to a matter that relates exclusively to
      the
      rights of certain Holders and that does not directly or indirectly affect the
      rights of other Holders may be given by Holders of at least a majority of the
      Registrable Securities to which such waiver or consent relates; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified, or supplemented
      except in accordance with the provisions of the immediately preceding
      sentence.

     

    (g) Notices.
      Any
      notice or request hereunder may be given to the Company or the Purchaser at
      the
      respective addresses set forth below or as may hereafter be specified in
      a

     

    
      
         

        
          	 	
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    notice
      designated as a change of address under this Section 8(g). Any notice or request
      hereunder shall be given by registered or certified mail, return receipt
      requested, hand delivery, overnight mail, Federal Express or other national
      overnight next day carrier (collectively, “Courier”) or telecopy (confirmed by
      mail). Notices and requests shall be, in the case of those by hand delivery,
      deemed to have been given when delivered to any party to whom it is addressed,
      in the case of those by mail or overnight mail, deemed to have been given three
      (3) business days after the date when deposited in the mail or with the
      overnight mail carrier, in the case of a Courier, the next business day
      following timely delivery of the package with the Courier, and, in the case
      of a
      telecopy, when confirmed. The address for such notices and communications shall
      be as follows:

     

     

    
      	 	If to the Company:	Applied Digital Solutions, Inc.	 
	 	 	1690 Congress Avenue, Suite 200	 
	 	 	Delray Beach, FL 33445	 
	 	 	Attention: Michael Krawitz	 
	 	 	
              Facsimile:
                561-805-0002

            	 
	 	 	 	 
	 	 	 	 
	 	With a copy to:	Harvey Goldman, Esq.	 
	 	 	Holland & Knight LLP	 
	 	 	701 Brickell Avenue, Suite 3000	 
	 	 	Miami, FL 33131	 
	 	 	Facsimile: 305-789-7799	 
	 	 	 	 
	 	If to a
              Purchaser:	To the address set forth under such
              Purchaser
              name on the signature pages hereto.	 
	 	 	 	 
	 	
              If
                to any other Person who is

              then
                the registered Holder:

            	
               

              To
                the address of such Holder as it

              appears
                in the stock transfer books of

              the
                Company

            

    

     

    or
      such
      other address as may be designated in writing hereafter in accordance with
      this
      Section 8(g) by such Person.

     

    (h) Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign its rights or obligations hereunder without
      the prior written consent of each Holder. Each Holder may assign their
      respective rights hereunder in the manner and to the persons and entities as
      permitted under the Purchase Agreement. 

     

    (i) Execution
      and Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid
      binding

     

    
      
         

        
          	 	
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    obligation
      of the party executing (or on whose behalf such signature is executed) the
      same
      with the same force and effect as if such facsimile signature were the original
      thereof.

     

    (j) Governing
      Law, Jurisdiction and Waiver of Jury Trial.
      THIS
      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 LAW. 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 Proceeding between the Company, on the one hand, and the
      Purchaser, on the other hand, pertaining to this Agreement or to any matter
      arising out of or related to this Agreement; provided,
      that
      the Purchaser and the Company acknowledge that any appeals from those courts
      may
      have to be heard by a court located outside of the County of New York, State
      of
      New York, and further provided,
      that
      nothing in this Agreement shall be deemed or operate to preclude the Purchaser
      from bringing a Proceeding in any other jurisdiction to enforce a judgment
      or
      other court order in favor of the Purchaser. The Company expressly submits
      and
      consents in advance to such jurisdiction in any Proceeding 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 Proceeding and agrees that service of such summons,
      complaint and other process may be made by registered or certified mail
      addressed to the Company at the address set forth in Section 8(g) and that
      service so made shall be deemed completed upon the Company’s actual receipt
      thereof. The parties hereto 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 Proceeding brought to resolve any dispute,
      whether arising in contract, tort, or otherwise between the Purchaser and/or
      the
      Company arising out of, connected with, related or incidental to the
      relationship established between then in connection with this Agreement. If
      either party hereto shall commence a Proceeding to enforce any provisions of
      this Agreement, the Purchase Agreement or any other Related Agreement, then
      the
      prevailing party in such Proceeding shall be reimbursed by the other party
      for
      its reasonable attorneys’ fees and other costs and expenses incurred in
      connection with the investigation, preparation and prosecution of such
      Proceeding. 

     

    (k) Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    (l) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their reasonable efforts to
      find and employ an alternative means to achieve the same or substantially the
      same result as that contemplated by such term, provision, covenant or
      restriction. It is hereby stipulated and declared to be the intention of the
      parties that they would have executed the remaining terms, provisions, covenants
      and restrictions without including any of such that may be hereafter declared
      invalid, illegal, void or unenforceable.

     

    
      
         

        
          	 	
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    (m) Headings.
      The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

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

    
 

    
      
         

        
          	 	
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    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

     

    APPLIED
      DIGITAL SOLUTIONS, INC.

     

    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                                               

     

    

     

    Address
      for Notices:

     

    825
      Third
      Avenue, 14th Floor

    New
      York,
      New York 10022

    Attention:
      David Grin

    Facsimile:
      212-541-4434

     

    

     

    
      
         

        
          	 	
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    EXHIBIT
      A

     

    

    ________,
      200__

    

    [Continental
      Stock Transfer

    &
      Trust Company

    Two
      Broadway

    New
      York,
      New York 10004

    Attn:
      William Seegraber]

    

    

    Re:
      Applied
      Digital Solutions, Inc. Registration Statement on Form [S-3]

    

    Ladies
      and Gentlemen:

    

    I
      am
      General Counsel of Applied Digital Solutions, Inc., a Missouri corporation
      (“ADSX”). In that capacity, I have been asked to deliver to you the opinion set
      forth below relating to _______ shares of common stock of ADSX (the “Shares”)
      that were registered with the Securities and Exchange Commission pursuant to
      the
      Securities Act of 1933, as amended (Registration Statement No. ______, declared
      effective on ______ ___, 200___). A copy of the prospectus is attached for
      your
      records. 

    

    Based
      on
      my review of this transaction and of the documents and records as I have
      considered appropriate, I am of the opinion that the Shares of common stock
      will
      not require a restrictive legend stating that such shares may be transferred
      only pursuant to a registration statement or an applicable exemption to
      registration under the Securities Act of 1933. Any shares resulting from the
      transfer of the Shares need not bear any restrictive legend.

     

    Very
      truly yours,

    

    

    [Company
      counsel]

     

     

    

    
      
         

        
          	 	
                   

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
      A to Exhibit A

    
      	
               

              Selling
                Stockholder

            	
               

              R/N/O

            	
               

              Shares

              Being
                OfferedExhibit 10.7

    
      

    

    Exhibit
      10.7

     

    FUNDS
      ESCROW AGREEMENT

     

    This
      Agreement (this “Agreement”)
      is
      dated as of the 24th day of August 2006, among APPLIED DIGITAL SOLUTIONS, INC.,
      a Missouri corporation (the “Company”),
      LAURUS MASTER FUND, LTD. (the “Purchaser”),
      and
      LOEB & LOEB LLP (the “Escrow
      Agent”):

     

    W I T N E S S E T H:

     

    WHEREAS,
      the Purchaser has advised the Escrow Agent that (a) the Company and the
      Purchaser have entered into a Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      for
      the sale by the Company to the Purchaser of a secured term note (the
“Term
      Note”),
      (b)
      the Company has issued to the Purchaser a common stock purchase warrant (the
      “Warrant”)
      in
      connection with the issuance of the Term Note, and (c) the Company and the
      Purchaser have entered into a Registration Rights Agreement covering the
      registration of the Company’s common stock underlying the Warrant (the
“Registration
      Rights Agreement”);

     

    WHEREAS,
      the Company and the Purchaser wish to deliver to the Escrow Agent copies of
      the
      Documents (as hereafter defined) and, following the satisfaction of all closing
      conditions relating to the Documents, the Purchaser to deliver the Escrowed
      Payment (as hereafter defined), in each case, to be held and released by Escrow
      Agent in accordance with the terms and conditions of this Agreement;
      and

     

    WHEREAS,
      the Escrow Agent is willing to serve as escrow agent pursuant to the terms
      and
      conditions of this Agreement;

     

    NOW
      THEREFORE, the parties agree as follows:

     

    ARTICLE
      I

     

    INTERPRETATION

     

    1.1. Definitions.
      Whenever used in this Agreement, the following terms shall have the meanings
      set
      forth below.

     

    (a) “Agreement”
means
      this Agreement, as amended, modified and/or supplemented from time to time
      by
      written agreement among the parties hereto.

     

    (b) “Disbursement
      Letter”
means
      that certain letter delivered to the Escrow Agent by the Company, acceptable
      in
      form and substance to the Purchaser, setting forth wire instructions and amounts
      to be funded at the Closing. 

     

    (c) “Documents”
means
      copies of the Disbursement Letter, the Securities Purchase Agreement, the Term
      Note, the Warrant and the Registration Rights Agreement.

     

    (d) “Escrowed
      Payment”
means
      $13,500,000.

     

    
      	 	 	 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e) “LCM
      Payment”
means
      the payment to be paid to Laurus Capital Management, LLC, the fund manager,
      as
      set forth on Schedule A hereto.

     

    1.2. Entire
      Agreement.
      This
      Agreement constitutes the entire agreement among the parties hereto with respect
      to the arrangement with the Escrow Agent and supersedes all prior agreements,
      understandings, negotiations and discussions of the parties, whether oral or
      written with respect to the arrangement with the Escrow Agent. There are no
      warranties, representations and other agreements made by the parties in
      connection with the arrangement with the Escrow Agent except as specifically
      set
      forth in this Agreement.

     

    1.3. Extended
      Meanings.
      In this
      Agreement words importing the singular number include the plural and vice versa;
      words importing the masculine gender include the feminine and neuter genders.
      The word “person”
      includes an individual, body corporate, partnership, trustee or trust or
      unincorporated association, executor, administrator or legal
      representative.

     

    1.4. Waivers
      and Amendments.
      This
      Agreement may be amended, modified, superseded, cancelled, renewed or extended,
      and the terms and conditions hereof may be waived, in each case only by a
      written instrument signed by all parties hereto, or, in the case of a waiver,
      by
      the party waiving compliance. Except as expressly stated herein, no delay on
      the
      part of any party in exercising any right, power or privilege hereunder shall
      operate as a waiver thereof, nor shall any waiver on the part of any party
      of
      any right, power or privilege hereunder preclude any other or future exercise
      of
      any other right, power or privilege hereunder.

     

    1.5. Headings.
      The
      division of this Agreement into articles, sections, subsections and paragraphs
      and the insertion of headings are for convenience of reference only and shall
      not affect the construction or interpretation of this Agreement.

     

    1.6. Law
      Governing this Agreement; Consent to Jurisdiction.
      THIS
      AGREEMENT 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. With
      respect to any suit, action or proceeding relating to this Agreement or to
      the
      transactions contemplated hereby (“Proceedings”),
      each
      party hereto irrevocably submits to the exclusive jurisdiction of the courts
      of
      the County of New York, State of New York and the United States District court
      located in the county of New York in the State of New York. Each party hereto
      hereby irrevocably and unconditionally (a) waives trial by jury in any
      Proceeding relating to this Agreement and for any related counterclaim and
      (b)
      waives any objection which it may have at any time to the laying of venue of
      any
      Proceeding brought in any such court, waives any claim that such Proceedings
      have been brought in an inconvenient forum and further waives the right to
      object, with respect to such Proceedings, that such court does not have
      jurisdiction over such party. As between the Company and the Purchaser, 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
      Agreement is determined by a court of competent jurisdiction to be invalid
      or
      unenforceable, then the remainder of this Agreement shall not be affected and
      shall remain in full force and effect.

     

    1.7. Construction.
      Each
      party acknowledges that its legal counsel participated in the preparation of
      this Agreement 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 Agreement to favor any party against the
      other.

     

    ARTICLE
      II

     

    APPOINTMENT
      OF AND DELIVERIES TO THE ESCROW AGENT

     

    2.1. Appointment.
      The
      Company and the Purchaser hereby irrevocably designate and appoint the Escrow
      Agent as their escrow agent for the purposes set forth herein, and the Escrow
      Agent by its execution and delivery of this Agreement hereby accepts such
      appointment under the terms and conditions set forth herein.

     

    2.2. Copies
      of Documents to Escrow Agent.
      On or
      about the date hereof, the Purchaser and the Company shall deliver to the Escrow
      Agent copies of the Documents executed by such parties.

     

    2.3. Delivery
      of Escrowed Payment to Escrow Agent.
      Following the satisfaction of all closing conditions relating to the Documents
      (other than the funding of the Escrowed Payment), the Purchaser shall deliver
      to
      the Escrow Agent the Escrowed Payment. At such time, the Escrow Agent shall
      hold
      the Escrowed Payment as agent for the Company, subject to the terms and
      conditions of this Agreement.

     

    2.4. Intention
      to Create Escrow Over the Escrowed Payment.
      The
      Purchaser and the Company intend that the Escrowed Payment shall be held in
      escrow by the Escrow Agent and released from escrow by the Escrow Agent only
      in
      accordance with the terms and conditions of this Agreement.

     

    ARTICLE
      III

     

    RELEASE
      OF ESCROW

     

    3.1. Release
      of Escrow.
      Subject
      to the provisions of Section 4.2, the Escrow Agent shall release the Escrowed
      Payment from escrow as follows:

     

    (a) Upon
      receipt by the Escrow Agent of (i) oral instructions from David Grin and/or
      Eugene Grin (each of whom is a director of the Purchaser) consenting to the
      release of the Escrowed Payment from escrow in accordance with the Disbursement
      Letter following the Escrow Agent’s receipt of the Escrowed Payment, (ii) the
      Disbursement Letter, and (iii) the Escrowed Payment, the Escrowed Payment shall
      promptly be disbursed in accordance with the Disbursement Letter. The
      Disbursement Letter shall include, without limitation, Escrow Agent’s
      authorization to retain from the Escrowed Payment Escrow Agent’s fee for acting
      as Escrow Agent hereunder and the LCM Payment for delivery to Laurus Capital
      Management, LLC in accordance with the Disbursement Letter.

     

    (b) Upon
      receipt by the Escrow Agent of a final and non-appealable judgment, order,
      decree or award of a court of competent jurisdiction (a “Court
      Order”)
      relating to the Escrowed Payment, the Escrow Agent shall remit the Escrowed
      Payment

     

    
      
         

        
          	 	
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    in
      accordance with the Court Order. Any Court Order shall be accompanied by an
      opinion of counsel for the party presenting the Court Order to the Escrow Agent
      (which opinion shall be satisfactory to the Escrow Agent) to the effect that
      the
      court issuing the Court Order is a court of competent jurisdiction and that
      the
      Court Order is final and non-appealable.

     

    3.2. Acknowledgement
      of Company and Purchaser; Disputes.
      The
      Company and the Purchaser acknowledge that the only terms and conditions upon
      which the Escrowed Payment are to be released from escrow are as set forth
      in
      Sections 3 and 4 of this Agreement. The Company and the Purchaser reaffirm
      their
      agreement to abide by the terms and conditions of this Agreement with respect
      to
      the release of the Escrowed Payment. Any dispute with respect to the release
      of
      the Escrowed Payment shall be resolved pursuant to Section 4.2 or by written
      agreement between the Company and Purchaser.

     

    ARTICLE
      IV

     

    CONCERNING
      THE ESCROW AGENT

     

    4.1. Duties
      and Responsibilities of the Escrow Agent.
      The
      Escrow Agent’s duties and responsibilities shall be subject to the following
      terms and conditions:

     

    (a) The
      Purchaser and the Company acknowledge and agree that the Escrow Agent (i) shall
      not be required to inquire into whether the Purchaser, the Company or any other
      party is entitled to receipt of any Document or all or any portion of the
      Escrowed Payment; (ii) shall not be called upon to construe or review any
      Document or any other document, instrument or agreement entered into in
      connection therewith; (iii) shall be obligated only for the performance of
      such
      duties as are specifically assumed by the Escrow Agent pursuant to this
      Agreement; (iv) may rely on and shall be protected in acting or refraining
      from
      acting upon any written notice, instruction, instrument, statement, request
      or
      document furnished to it hereunder and believed by the Escrow Agent in good
      faith to be genuine and to have been signed or presented by the proper person
      or
      party, without being required to determine the authenticity or correctness
      of
      any fact stated therein or the propriety or validity or the service thereof;
      (v)
      may assume that any person purporting to give notice or make any statement
      or
      execute any document in connection with the provisions hereof has been duly
      authorized to do so; (vi) shall not be responsible for the identity, authority
      or rights of any person, firm or company executing or delivering or purporting
      to execute or deliver this Agreement or any Document or any funds deposited
      hereunder or any endorsement thereon or assignment thereof; (vii) shall not
      be
      under any duty to give the property held by Escrow Agent hereunder any greater
      degree of care than Escrow Agent gives its own similar property; and (viii)
      may
      consult counsel satisfactory to Escrow Agent (including, without limitation,
      Loeb & Loeb, LLP or such other counsel of Escrow Agent’s choosing), the
      opinion of such counsel to be full and complete authorization and protection
      in
      respect of any action taken, suffered or omitted by Escrow Agent hereunder
      in
      good faith and in accordance with the opinion of such counsel.

     

    
      
         

        
          	 	
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    (b) The
      Purchaser and the Company acknowledge that the Escrow Agent is acting solely
      as
      a stakeholder at their request and that the Escrow Agent shall not be liable
      for
      any action taken by Escrow Agent in good faith and believed by Escrow Agent
      to
      be authorized or within the rights or powers conferred upon Escrow Agent by
      this
      Agreement. The Purchaser and the Company hereby, jointly and severally,
      indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s partners,
      employees, agents and representatives from and against any and all actions
      taken
      or omitted to be taken by Escrow Agent or any of them hereunder and any and
      all
      claims, losses, liabilities, costs, damages and expenses suffered and/or
      incurred by the Escrow Agent arising in any manner whatsoever out of the
      transactions contemplated by this Agreement and/or any transaction related
      in
      any way hereto, including the fees of outside counsel and other costs and
      expenses of defending itself against any claims, losses, liabilities, costs,
      damages and expenses arising in any manner whatsoever out of the transactions
      contemplated by this Agreement and/or any transaction related in any way hereto,
      except for such claims, losses, liabilities, costs, damages and expenses
      incurred by reason of the Escrow Agent’s gross negligence or willful misconduct.
      The Escrow Agent shall owe a duty only to the Purchaser and the Company under
      this Agreement and to no other person. 

     

    (c) The
      Purchaser and the Company shall jointly and severally reimburse the Escrow
      Agent
      for its reasonable out-of-pocket expenses (including counsel fees (which counsel
      may be Loeb & Loeb LLP or such other counsel of the Escrow Agent’s choosing)
      incurred in connection with the performance of its duties and responsibilities
      hereunder, which shall not (subject to Section 4.1(b)) exceed $3,000.

     

    (d) The
      Escrow Agent may at any time resign as Escrow Agent hereunder by giving ten
      (10)
      business days prior written notice of resignation to the Purchaser and the
      Company. Prior to the effective date of resignation as specified in such notice,
      the Purchaser and Company will issue to the Escrow Agent a joint instruction
      authorizing delivery of the Documents and the Escrowed Payment to a substitute
      Escrow Agent selected by the Purchaser and the Company. If no successor Escrow
      Agent is named by the Purchaser and the Company, the Escrow Agent may apply
      to a
      court of competent jurisdiction in the State of New York for appointment of
      a
      successor Escrow Agent, and deposit the Documents and the Escrowed Payment
      with
      the clerk of any such court, and/or otherwise commence an interpleader or
      similar action for a determination of where to deposit the same.

     

    (e) The
      Escrow Agent does not have and will not have any interest in the Documents
      and
      the Escrowed Payment, but is serving only as escrow agent, having only
      possession thereof. 

     

    (f) The
      Escrow Agent shall not be liable for any action taken or omitted by it in good
      faith and reasonably believed by it to be authorized hereby or within the rights
      or powers conferred upon it hereunder, nor for action taken or omitted by it
      in
      good faith, and in accordance with advice of counsel (which counsel may be
      Loeb
& Loeb, LLP or such other counsel of the Escrow Agent’s choosing), and shall
      not be liable for any

     

    
      
         

        
          	 	
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    mistake
      of fact or error of judgment or for any acts or omissions of any kind except
      to
      the extent any such liability arose from its own willful misconduct or gross
      negligence.

     

    (g) This
      Agreement sets forth exclusively the duties of the Escrow Agent with respect
      to
      any and all matters pertinent thereto and no implied duties or obligations
      shall
      be read into this Agreement.

     

    (h) The
      Escrow Agent shall be permitted to act as counsel for the Purchaser or the
      Company, as the case may be, in any dispute as to the disposition of the
      Documents and the Escrowed Payment, in any other dispute between the Purchaser
      and the Company, whether or not the Escrow Agent is then holding the Documents
      and/or the Escrowed Payment and continues to act as the Escrow Agent hereunder.
      

     

    (i) The
      provisions of this Section 4.1 shall survive the resignation of the Escrow
      Agent
      or the termination of this Agreement.

     

    4.2. Dispute
      Resolution; Judgments.
      Resolution of disputes arising under this Agreement shall be subject to the
      following terms and conditions:

     

    (a) If
      any
      dispute shall arise with respect to the delivery, ownership, right of possession
      or disposition of the Documents and/or the Escrowed Payment, or if the Escrow
      Agent shall in good faith be uncertain as to its duties or rights hereunder,
      the
      Escrow Agent shall be authorized, without liability to anyone, to (i) refrain
      from taking any action other than to continue to hold the Documents and the
      Escrowed Payment pending receipt of a joint instruction from the Purchaser
      and
      the Company, (ii) commence an interpleader or similar action, suit or proceeding
      for the resolution of any such dispute; and/or (iii) deposit the Documents
      and
      the Escrowed Payment with any court of competent jurisdiction in the State
      of
      New York, in which event the Escrow Agent shall give written notice thereof
      to
      the Purchaser and the Company and shall thereupon be relieved and discharged
      from all further obligations pursuant to this Agreement. The Escrow Agent may,
      but shall be under no duty to, institute or defend any legal proceedings which
      relate to the Documents and the Escrowed Payment. The Escrow Agent shall have
      the right to retain counsel if it becomes involved in any disagreement, dispute
      or litigation on account of this Agreement or otherwise determines that it
      is
      necessary to consult counsel which such counsel may be Loeb & Loeb LLP or
      such other counsel of the Escrow Agent’s choosing.

     

    (b) The
      Escrow Agent is hereby expressly authorized to comply with and obey any Court
      Order. In case the Escrow Agent obeys or complies with a Court Order, the Escrow
      Agent shall not be liable to the Purchaser and the Company or to any other
      person, firm, company or entity by reason of such compliance.

     

    ARTICLE
      V

     

    GENERAL
      MATTERS

     

    5.1. Termination.
      This
      escrow shall terminate upon disbursement of the Escrowed Payment in accordance
      with the terms of this Agreement or earlier upon the agreement in
      writing

     

    
      
         

        
          	 	
                  6

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    of
      the
      Purchaser and the Company or resignation of the Escrow Agent in accordance
      with
      the terms hereof.

     

    5.2. Notices.
      All
      notices, requests, demands and other communications required or permitted
      hereunder shall be in writing and shall be deemed to have been duly given one
      (1) day after being sent by telecopy (with copy delivered by overnight courier,
      regular or certified mail):

     

     

    
      	
              (a)

            	
              If
                to the Company, to:

            	Applied Digital Solutions, Inc.	 
	 	 	1690 Congress Avenue, Suite 200	 
	 	 	Delray Beach, FL 33445	 
	 	 	Attention: Michael Krawitz	 
	 	 	Facsimile: 561-805-0002	 
	 	 	 	 
	 	 	 	 
	 	
              With
                a copy to:

            	Harvey Goldman, Esq.	 
	 	 	
              Holland
                & Knight LLP

            	 
	 	 	701 Brickell Avenue, Suite 3000	 
	 	 	Miami, FL 33131	 
	 	 	Facsimile: 305-789-7799	 
	 	 	 	 
	 	 	 	 
	
               (b)

            	
              If
                to the Purchaser, to:

            	Laurus Master Fund, Ltd.	 
	 	 	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	 
	 	 	Attention: John
              Tucker, Esq.	 
	 	 	 	 
	
               (c)

            	
              If
                to the Escrow Agent, to:

            	Loeb & Loeb LLP 	 
	 	 	345 Park Avenue	 
	 	 	
              New
                York, New York 10154

            	 
	 	 	Fax: (212)
              407-4990	 
	 	 	Attention: Scott
              J. Giordano, Esq.	 

    

      

    or
      to
      such other address as any of them shall give to the others by notice made
      pursuant to this Section 5.2.

     

    5.3. Interest.
      The
      Escrowed Payment shall not be held in an interest bearing account nor will
      interest be payable in connection therewith.

     

    5.4. Assignment;
      Binding Agreement.
      Neither
      this Agreement nor any right or obligation hereunder shall be assignable by
      any
      party without the prior written consent of the other parties hereto. This
      Agreement shall inure to the benefit of and be binding upon the parties hereto
      and their respective legal representatives, successors and assigns.

     

    5.5. Invalidity.
      In the
      event that any one or more of the provisions contained herein, or the
      application thereof in any circumstance, is held invalid, illegal, or
      unenforceable in any

     

    
      
         

        
          	 	
                  7

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    respect
      for any reason, the validity, legality and enforceability of any such provision
      in every other respect and of the remaining provisions contained herein shall
      not be in any way impaired thereby, it being intended that all of the rights
      and
      privileges of the parties hereto shall be enforceable to the fullest extent
      permitted by law.

     

    5.6. Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same agreement. This Agreement may be executed by facsimile
      transmission.

     

    

     

     

    [Remainder
      of Page Intentionally Left Blank]

     

    
 

    
      
         

        
          	 	
                  8

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

    COMPANY:

    

    APPLIED
      DIGITAL SOLUTIONS, INC.

     

    By:
      /s/ Evan C.
      McKeown                                 

     
      Name: Evan C.
      McKeown                           

     
      Title: SVP &
CFO                                        

    

    PURCHASER:

    

    LAURUS
      MASTER FUND, LTD.

    

    

    
      By:
        /s/ David
        Grin                                            
 

       
        Name: David
        Grin                                      
 

       
        Title:
        Director                                            
 

    ESCROW
      AGENT:

    

    LOEB
      & LOEB LLP

    

    

    
      By:
        /s/ Scott J.
        Giordano                                  

       
        Name: Scott J.
        Giordano                          
 

       
        Title:
        Partner                                              
 

       

    

     

    

 

    
      
         

        
          	 	
                  9

                	 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      A TO FUNDS ESCROW AGREEMENT

     

    
      	
              PURCHASER

               

            	
              PRINCIPAL
                NOTE AMOUNT

               

            
	
              LAURUS
                MASTER FUND, LTD.,

              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

               

            	
              Term
                Note in an aggregate principal amount of $13,500,000.

               

            
	
              TOTAL

            	
              $13,500,000

            

    

    

     

    
      	
              FUND
                MANAGER

               

            	
              LCM
                PAYMENT

               

            
	
              LAURUS
                CAPITAL MANAGEMENT, L.L.C.

              825
                Third Avenue, 14th
                Floor

              New
                York, New York 10022

              Fax:
                212-541-4434

               

            	
              Payment
                payable in connection with investment by Laurus Master Fund,
                Ltd.

              for
                which Laurus Capital Management, L.L.C. is the Manager.

               

            
	
              TOTAL

            	
              $472,500

            

    

     

    WARRANTS

     

    
      	
              WARRANT
                RECIPIENT

               

            	
              WARRANTS
                IN CONNECTION WITH OFFERING

               

            
	
              LAURUS
                MASTER FUND, LTD.

              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

               

            	
              Warrant
                exercisable into 1,719,745 shares of common stock of the

              Company
                issuable in connection with the Term Note. 

               

            
	
              TOTAL

               

            	
              Warrants
                exercisable into 1,719,745 shares of common stock of
                the

              Company

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