Document:

Exhibit 10.10

    
      
        

      

      Exhibit
        10.10

       

       

      

      REGISTRATION
        RIGHTS AGREEMENT

      

      

      REGISTRATION
        RIGHTS AGREEMENT (this “Agreement”),
        dated
        as of June 10, 2005, by and between APPLIED DIGITAL SOLUTIONS, INC., a Missouri
        corporation (the “Company”),
        and
        each of the entities whose names appear on the signature pages hereof. Such
        entities are each referred to herein as an “Investor”
        and,
        collectively, as the “Investors”.

      

      The
        Company has agreed, on the terms and subject to the conditions set forth
        in the
        Securities Purchase Agreement, dated as of June 9, 2005 (the “Securities
        Purchase Agreement”),
        to
        issue and sell to the Investor (i)
        shares (the “Preferred
        Shares”)
        of the
        Company’s Series D Preferred Stock, par value $10.00 per share (“Preferred
        Stock”),
        (ii)
        Warrants in the form attached to the Securities
        Purchase Agreement
        as
Exhibit
        B
        (the
“Warrants”)
        and
        Senior Unsecured Notes (the “Notes”)
        that
        are exchangeable into Preferred Shares.

      

      The
        shares of Common Stock into which the Preferred Shares are convertible are
        referred to herein as the “Conversion
        Shares”,
        and
        the shares of Common Stock into which the Warrants are exercisable are referred
        to herein as the “Warrant
        Shares”.

      

      In
        order
        to induce the Investor to enter into the Securities Purchase Agreement, the
        Company has agreed to provide certain registration rights under the Securities
        Act of 1933, as amended (the “Securities
        Act”),
        and
        under applicable state securities laws. Capitalized terms used herein and
        not
        otherwise defined shall have the respective meanings set forth in the Securities
        Purchase Agreement.

      

      In
        consideration of the Investor entering into the Securities Purchase Agreement,
        and other good and valuable consideration, the receipt and sufficiency of
        which
        are hereby acknowledged, the parties agree as follows:

      

      1. DEFINITIONS.

      

      For
        purposes of this Agreement, the following terms shall have the meanings
        specified: 

      

      (a) “Filing
        Deadline”
        means
        each of the Initial Filing Deadline and the Subsequent Filing
        Deadline;

      

      (b) “Holder”
        means
        any person owning or having the right to acquire, including without limitation
        through conversion of the Preferred Shares or exercise of the Warrants,
        Registrable Securities, including initially the Investor and thereafter any
        assignee permitted hereunder;

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (c) “Initial Effective
        Date”
        means
        the date on which the Registration Statement is declared effective by the
        Securities and Exchange Commission (the “Commission”);

      

      (d) “Initial Filing
        Deadline”
        means
        the thirtieth (30th) calendar day following the Closing Date;

      

      (e) “Initial Registration
        Deadline”
        means
        the earlier of (i) the ninetieth (90th)
        calendar day following the Closing Date or, if the Registration Statement
        is
        subject to a full review by the Commission, the one hundred and twentieth
        (120th)
        calendar day following the Closing Date and (ii) the fifth (5th)
        Business Day after the Company learns that no review of the Registration
        Statement will be made by the staff of the Commission or that the staff of
        the
        Commission has no further comments on the Registration Statement;

      

      (f)
         “Outstanding
        Registrable Securities”
        means,
        at any time, all Registrable Securities that at such time are either issued
        and
        outstanding or issuable upon conversion of the Preferred Shares or exercise
        of
        the Warrants (without regard to any limitation on such conversion or exercise);
        

      

      (g) “Registrable
        Securities”
        means
        the Conversion Shares and the Warrant Shares and any other shares of Common
        Stock issuable pursuant to the conversion of the Preferred Shares or exercise
        of
        the Warrants (without regard to any limitation on such conversion or exercise),
        and any shares of capital stock issued or issuable from time to time (with
        any
        adjustments) in replacement of, in exchange for or otherwise in respect of
        the
        Conversion Shares or the Warrant Shares; 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;

       

      (h) “Registration
        Deadline”
        means
        each of the Initial Registration Deadline and the Subsequent Registration
        Deadline; 

      

      (i) “Registration
        Period”
        means
        the period beginning on the Initial Registration Deadline (or such earlier
        date
        on which the Registration Statement may have been declared effective by the
        Commission) and ending on the earlier to occur of (A) the date on which all
        Registrable Securities have been sold under the Registration Statement or
        Rule
        144 and (B) the date on which any Registrable Securities (in the reasonable
        opinion of counsel to the Company or any Holder) may be sold to the public
        under
        Rule 144(k) or any successor provision by a Person that is not an Affiliate
        of
        the Company at the time of such sale or during the period of ninety (90)
        days
        prior thereto; 

       

      (j) “Registration
        Statement”
        means
        the Registration Statement(s) to be filed hereunder relating to resales of
        the
        Registrable Securities; 

      

      
        
          
          

        

        
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        (k) “Restricted
          Period”
          means
          each of (i) the period beginning on the Initial Filing Deadline and ending
          on
          the date on which the Initial Registration Statement is declared effective
          by
          the Commission and (ii) the period beginning on Subsequent Filing Deadline
          and
          ending on the date on which the Subsequent Registration Statement is declared
          effective by the Commission.

      

       

       (l) “Subsequent
        Effective Date”
        means
        the date on which the Registration Statement relating to the Subsequent
        Preferred Shares is declared effective by the Securities and Exchange Commission
        (the “Commission”);

       

      (m) “Subsequent
        Filing Deadline”
        means
        the thirtieth (30th) calendar day following the Exchange Date (as defined
        in the
        Notes); and

       

      (n) “Subsequent
        Registration Deadline”
        means
        the earlier of (i) the ninetieth (90th)
        calendar day following the Exchange Date (as defined in the Notes) or, if
        the
        Registration Statement is subject to a full review by the Commission, the
        one
        hundred and twentieth (120th)
        calendar day following the Exchange Date and (ii) the fifth (5th)
        Business Day after the Company learns that no review of the Registration
        Statement will be made by the staff of the Commission or that the staff of
        the
        Commission has no further comments on the Registration Statement;

      

      2. REGISTRATION.

      

      (a) Registration
        Statement.
        On or
        before the Initial Filing Deadline, the Company shall use reasonable best
        efforts to prepare and file with the Commission a Registration Statement
        on Form
        S-3 as a “shelf” registration statement under Rule 415 under the Securities Act
        (“Rule
        415”)
        covering the resale of a number of shares of common stock equal to the number
        of
        shares required to be reserved pursuant to the Securities Purchase Agreement
        as
        of the Closing Date. On or before the Subsequent Filing Deadline, the Company
        shall use reasonable best efforts to prepare and file with the Commission
        a
        Registration Statement on Form S-3 as a “shelf” registration statement under
        Rule 415 covering the resale of 125% of the aggregate number of shares of
        Common
        Stock issuable on conversion of the Preferred Shares for which the Notes
        are
        exchangeable (without regard to any restriction on such conversion). Each
        Registration Statement shall state, to the extent permitted by Rule 416 under
        the Securities Act, that it also covers such indeterminate number of additional
        shares of Common Stock as may become issuable upon the conversion of the
        Preferred Shares or exercise of the Warrants in order to prevent dilution
        resulting from stock splits, stock dividends or similar events. In the event
        that the Company is at any time not eligible to use Form S-3 to register
        the
        resale of Registrable Securities by the Holders, the Company shall file a
        Registration Statement on such form as may then be available to the Company,
        and
        thereafter shall use its reasonable best efforts, as soon as reasonably
        practicable following the date on which it becomes eligible to use Form S-3
        (but
        in no event later than the thirtieth (30th)
        day
        after such date), to convert such Registration Statement to a Form S-3, or
        file
        a new registration statement on such form, covering the greater of (i) the
        number of shares of Common Stock covered by such Registration Statement and
        remaining unsold thereunder and (ii) the number of Outstanding Registrable
        Securities. The Company shall not permit (x) a registration statement pertaining
        to any

       

      
        
          
          

        

        
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      securities
        other than Registrable Securities to be filed during a Restricted Period
        (other
        than a registration statement on Form S-8 with respect to stock option plans
        and
        agreements and stock plans currently in effect and disclosed in the Securities
        Purchase Agreement or the schedules thereto) or (y) any securities other
        than
        Registrable Securities to be included in any registration statement or amendment
        to any registration statement required to be filed hereunder. 

      

      (b) Effectiveness.
        The
        Company shall use its reasonable best efforts to cause each Registration
        Statement to become effective as soon as practicable following the filing
        thereof, but in no event later than the applicable Registration Deadline.
        The
        Company shall respond promptly to any and all comments made by the staff
        of the
        Commission on a Registration Statement, and shall promptly submit to the
        Commission, within two (2) Business Days after the Company learns that no
        review
        of such Registration Statement will be made by the staff of the Commission
        or
        that the staff of the Commission has no further comments on such Registration
        Statement, as the case may be, a request for acceleration of the effectiveness
        of such Registration Statement to a time and date not later than two (2)
        Business Days following the submission of such request. The Company shall
        use
        its reasonable best efforts to maintain the effectiveness of each Registration
        Statement during the Registration Period.

      

      (c) Registration
        Default.
        If (A)
        the Registration Statement is not filed in the form required hereby on or
        before
        the applicable Filing Deadline or declared effective by the Commission on
        or
        before the applicable Registration Deadline, (B) after a Registration Statement
        has been declared effective by the Commission and other than during a period
        in
        which an Allowed Delay (as hereinafter defined) is in effect, sales of
        Registrable Securities cannot be made by a Holder under a Registration Statement
        for any reason not within the exclusive control of such Holder, (C) trading
        in
        the Common Stock on the Principal Exchange is suspended or restricted, or
        (D) an
        amendment to a Registration Statement, or a new registration statement, required
        to be filed pursuant to the terms of paragraph 4(k) below is not filed on
        or
        before the date required by such paragraph, (each of (A), (B), (C) and (D)
        being
        referred to herein as a “Registration
        Default”),
        the
        Company shall make cash payments to each Holder equal to one percent (1.0%)
        of
        the Purchase Price for the Securities then held by such Holder for each thirty
        (30) day period until such Registration Default is cured (such payment to
        be
        prorated for any period in which a Registration Default continues for less
        than
        thirty days). Each such payment shall be made in immediately available funds
        within five (5) Business Days following the last day of the calendar month
        in
        which a Registration Default occurs or is continuing. Any such payment shall
        be
        in addition to any other remedies available to each Holder at law or in equity,
        whether pursuant to the terms hereof, the Securities Purchase Agreement,
        or
        otherwise. 

      

      (d) Allowed
        Delay.
        The
        Company may delay the disclosure of material non-public information, and
        suspend
        the availability of the Registration Statement, for a period not to exceed
        (i)
        five (5) consecutive Business Days at any one time (each such five Business
        Day
        period to be separated by at least ten (10) Business Days from the next such
        period) or (ii) twenty (20) calendar days in any twelve (12) month period;
        provided,
        however,
        that
        the Company may delay such disclosure only in the event of a proposed merger,
        reorganization or similar transaction involving the Company where its board
        of
        directors (A) has determined, upon the advice of counsel,

       

      
        
          
          

        

        
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      that
        such
        information would be required to be disclosed in an offering registered under
        the Securities Act and (B) reasonably deems it in the best interests of the
        Company and its shareholders not to disclose such information publicly (an
        “Allowed
        Delay”).
        The
        Company shall promptly (i) notify each Holder in writing of the existence
        of
        information giving rise to an Allowed Delay (but in no event, without the
        prior
        written consent of such Holder, shall the Company disclose to such Holder
        any
        material non-public information), (ii) advise each Holder in writing to cease
        all sales under the Registration Statement until the termination of the Allowed
        Delay and (iii) notify each Holder in writing immediately upon the termination
        or expiration of an Allowed Delay.

      

      (e) Allocation
        of Warrant Shares.
        The
        initial number of Registrable Shares included in any Registration Statement
        and
        each increase in the number thereof included therein shall be allocated
pro
        rata
        among
        the Holders based on the aggregate number of Outstanding Registrable Securities
        held by each Holder at the time the Registration Statement covering such
        initial
        number of Registrable Securities or increase thereof is declared effective
        by
        the Commission (without regard to any restriction on the ability of a Holder
        to
        exercise such Holder’s Warrants as of such date). In the event that a Holder
        sells or otherwise transfers any of such Holder’s Registrable Securities, each
        transferee shall be allocated the portion of the then remaining number of
        Registrable Securities included in such Registration Statement allocable
        to the
        transferor.
        Any
        portion of the Registrable
        Securities included in such Registration Statement and allocated
        to a Holder or other Person which no longer holds any Registrable Securities
        shall be reallocated to the remaining Holders pro
        rata
        based on
        the number of Outstanding Registrable
        Securities.

      

      3. PIGGYBACK
        REGISTRATION.

      

      If
        at any
        time prior to the expiration of the Registration Period, (i) the Company
        proposes to register shares of Common Stock under the Securities Act in
        connection with the public offering of such shares for cash (a “Proposed
        Registration”)
        other
        than a registration statement on Form S-8 or Form S-4 or any successor or
        other
        forms promulgated for similar purposes and (ii) a Registration Statement
        covering the sale of all of the Registrable Securities is not then effective
        and
        available for sales thereof by the Holders, the Company shall, at such time,
        promptly give each Holder written notice of such Proposed Registration. Each
        Holder shall have ten (10) Business Days from its receipt of such notice
        to
        deliver to the Company a written request specifying the amount of Registrable
        Securities that such Holder intends to sell and such Holder’s intended method of
        distribution. Upon receipt of such request, the Company shall use its
        commercially reasonable efforts to cause all Registrable Securities which
        the
        Company has been requested to register to be registered under the Securities
        Act
        to the extent necessary to permit their sale or other disposition in accordance
        with the intended methods of distribution specified in the request of such
        Holder; provided,
        however,
        that
        the Company shall have the right to postpone or withdraw any registration
        effected pursuant to this Section 3 without obligation to the Holder. If,
        in
        connection with any underwritten public offering for the account of the Company
        or for stockholders of the Company that have contractual rights to require
        the
        Company to register shares of Common Stock, the managing underwriter(s) thereof
        shall impose a limitation on the number of shares of Common Stock which may
        be
        included in a registration statement because, in the judgment of such
        underwriter(s), marketing or other factors dictate such limitation is necessary
        to facilitate such

       

      
        
          
          

        

        
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      offering,
        then the Company shall be obligated to include in the registration statement
        only such limited portion of the Registrable Securities with respect to which
        each Holder has requested inclusion hereunder as such underwriter(s) shall
        permit. Any exclusion of Registrable Securities shall be made pro
        rata
        among
        the Holders seeking to include Registrable Securities in a registration
        statement, in proportion to the number of Registrable Securities sought to
        be
        included by such Holders; provided, however, that the Company shall not exclude
        any Registrable Securities unless the Company has first excluded all outstanding
        securities, the holders of which are not entitled to inclusion of such
        securities in the registration statement or are not entitled to pro
        rata
        inclusion with the Registrable Securities; and provided, further, that, after
        giving effect to the immediately preceding proviso, any exclusion of Registrable
        Securities shall be made pro
        rata
        with
        holders of other securities having the right to include such securities in
        the
        registration statement. 

       

      4. OBLIGATIONS
        OF THE COMPANY.

      

      In
        addition to performing its obligations hereunder, including without limitation
        those pursuant to paragraphs 2(a), (b) and (c) above, the Company
        shall:

      

      (a) prepare
        and file with the Commission such amendments and supplements to the Registration
        Statement and the prospectus used in connection with the Registration Statement
        as may be necessary to comply with the provisions of the Securities Act or
        to
        maintain the effectiveness of the Registration Statement during the Registration
        Period (subject to any Allowed Delays), or as may be reasonably requested
        by a
        Holder in order to incorporate information concerning such Holder or such
        Holder’s intended method of distribution; 

      

      (b) 
        use
        commercially reasonable efforts to secure the listing of all Registrable
        Securities on the Principal Market, and provide each Holder with reasonable
        evidence thereof;

      

      (c) upon
        the
        effectiveness of the Registration Statement, furnish to each Holder such
        number
        of copies of the prospectus included in the Registration Statement, including
        a
        preliminary prospectus, in conformity with the requirements of the Securities
        Act, and such other documents as such Holder may reasonably request in order
        to
        facilitate the disposition of such Holder’s Registrable Securities;

      

      (d) use
        all
        commercially reasonable efforts to register or qualify the Registrable
        Securities under the securities or “blue sky” laws of such jurisdictions within
        the United States as shall be reasonably requested in writing from time to
        time
        by a Holder, and do any and all other acts or things which may be necessary
        or
        advisable to enable such Holder to consummate the public sale or other
        disposition of the Registrable Securities in such jurisdictions; provided
        that
        the Company shall not be required in connection therewith or as a condition
        thereto to qualify to do business or to file a general consent to service
        of
        process in any such jurisdiction;

      

      (e) in
        the
        event of an underwritten public offering of the Registrable Securities, enter
        into (together with all Holders proposing to distribute Registrable Securities
        through such underwriting) and perform its obligations under an underwriting
        agreement, in usual and customary

       

      
        
          
          

        

        
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      form
        reasonably acceptable to the Company, with the managing underwriter of such
        offering;

      

      (f) notify
        each Holder immediately after becoming aware of the occurrence of any event
        (but
        shall not, without the prior written consent of such Holder, disclose to
        such
        Holder any facts or circumstances constituting material non-public information)
        as a result of which the prospectus included in the Registration Statement,
        as
        then in effect, contains an untrue statement of 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 (except during an Allowed Delay) as promptly as practicable prepare,
        and
        file with the Commission and furnish to each Holder a reasonable number of
        copies of a supplement or an amendment 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; 

      

      (g) use
        all
        commercially reasonable efforts to prevent the issuance of any stop order
        or
        other order suspending the effectiveness of the Registration Statement and,
        if
        such an order is issued, to obtain the withdrawal thereof at the earliest
        possible time and to notify each Holder of the issuance of such order and
        the
        resolution thereof;

      

      (h) furnish
        to each Holder, within two (2) Business Days following the date on which
        the
        Registration Statement, or any successor registration statement, becomes
        effective, (x) a letter, dated such date, from the Company addressed to such
        Holder, confirming such effectiveness and, to the knowledge of the Company,
        the
        absence of any stop order, and (y) in the case of an underwriting, (A) a
        copy of
        an opinion, dated such date, of such outside counsel, in such form and substance
        as is required to be given to the underwriters, and (B) a copy of a letter,
        dated such date, from the Company’s independent certified public accountants, in
        such form and substance as is required to be given by the Company’s independent
        certified public accountants to such underwriters;

      

      (i) during
        the Registration Period or at any other time when a Registration Statement
        is
        effective and available to the Holders for the resale of Registrable Securities,
        provide to each Holder and its representatives, upon reasonable prior notice
        and
        execution of a reasonable non-disclosure agreement by such Holder, the
        opportunity to conduct a reasonable inquiry of the Company’s financial and other
        records during normal business hours and make available its officers for
        questions regarding information which such Holder may reasonably request
        in
        order to fulfill any due diligence obligation on its part; 

      

      (j) permit
        counsel for each Holder to review the Registration Statement and all amendments
        and supplements thereto, and any comments made by the staff of the Commission
        concerning such Holder and/or the transactions contemplated by the Transaction
        Documents and the Company’s responses thereto, within a reasonable period of
        time (but in no event less than three (3) Business Days after such Holder
        has
        received such documents) prior to the filing thereof with the Commission
        (or, in
        the case of comments made by the staff of the Commission, within a reasonable
        period of time following the receipt thereof by the Company); and 

      

      
        
          
          

        

        
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      (k) in
        the
        event that, at any time, the number of shares available under the Registration
        Statement is insufficient to cover one hundred and ten percent (110%) of
        the
        number of Outstanding Registrable Securities, the Company shall promptly
        amend
        the Registration Statement or file a new registration statement under Rule
        415,
        in any event as soon as practicable, but not later than the thirtieth (30th)
        day
        following notice from a Holder of the occurrence of such event, so that the
        Registration Statement or such new registration statement, or both, covers
        no
        less than (i) one hundred and twenty five percent (125%) of the Outstanding
        Registrable Securities. The Company shall use its best efforts to cause such
        amendment and/or new Registration Statement to become effective as soon as
        practicable following the filing thereof. Any Registration Statement filed
        pursuant to this paragraph 4(k) shall state that, to the extent permitted
        by
        Rule 416 under the Securities Act, such Registration Statement also covers
        such
        indeterminate number of additional shares of Common Stock as may become issuable
        upon exercise of the Warrants in order to prevent dilution resulting from
        stock
        splits, stock dividends or similar events. Unless and until such amendment
        or
        new Registration Statement becomes effective, each Holder shall have the
        rights
        described in Section 2(c) above.

      

      5. 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 event of the
        kind
        described in paragraphs 4(f) or 4(g), immediately discontinue any sale or
        other
        disposition of such Registrable Securities pursuant to such Registration
        Statement until the filing of an amendment or supplement as described in
        paragraph 4(f) or withdrawal of the stop order referred to in paragraph 4(g),
        and, if such Holder has agreed in writing to receive material, non-public
        information, to use commercially reasonable efforts to maintain the
        confidentiality of such notice and its contents; 

      

      (c)
        in the
        event of an underwritten offering of such Registrable Securities in which
        such
        Holder participates pursuant to Section 3 hereof, enter into a customary
        and
        reasonable underwriting agreement and execute such other documents (including
        without limitation “lock-up” and indemnity agreements) as the Company and the
        managing underwriter for such offering may reasonably request;

      

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

      

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

      

      
        
          
          

        

        
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      (f)
        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
        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; and

       

      (g)
        otherwise use commercially reasonable efforts to assist the Company and the
        underwriters, if any, in the preparation of documentation reasonably necessary
        or desirable to effectuate the resale of Registrable Securities pursuant
        to any
        Registration Statement filed in accordance herewith.

       

      6. INDEMNIFICATION.

      

      In
        the
        event that any Registrable Securities are included in a Registration Statement
        under this Agreement:

      

      (a) To
        the
        extent permitted by law, the Company shall indemnify and hold harmless each
        Holder, the officers, directors, employees, agents and representatives of
        such
        Holder, and each person, if any, who controls such Holder within the meaning
        of
        the Securities Act or the Securities Exchange Act of 1934, as amended (the
        “Exchange
        Act”),
        against any losses, claims, damages, liabilities or reasonable out-of-pocket
        expenses (whether joint or several) (collectively, including legal or other
        expenses reasonably incurred in connection with investigating or defending
        same,
“Losses”),
        insofar as any such Losses arise out of or are based upon (i) any untrue
        statement or alleged untrue statement of a material fact contained in such
        Registration Statement, including any preliminary prospectus or final prospectus
        contained therein or any amendments or supplements thereto, or (ii) the omission
        or alleged omission to state therein 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. Subject to the
        provisions of paragraph 6(c) below, the Company will reimburse such Holder,
        and
        each such officer, director, employee, agent, representative or controlling
        person, for any legal or other out-of-pocket expenses as reasonably incurred
        by
        any such entity or person in connection with investigating or defending any
        Loss; provided, however, that the foregoing indemnity shall not apply to
        amounts
        paid in settlement of any Loss if such settlement is effected without the
        consent of the Company (which consent shall not be unreasonably withheld),
        nor
        shall the Company be obligated to indemnify any person for any Loss to the
        extent that such Loss is (i) based upon and is in conformity with written
        information furnished by such person expressly for use in such Registration
        Statement 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, if such delivery is required by applicable
        law.

      

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

      (b) To
        the
        extent permitted by law, each Holder who is named in such Registration Statement
        as a selling stockholder, acting severally and not jointly, shall indemnify
        and
        hold harmless the Company, the officers, directors, employees, agents and
        representatives of the Company, and each person, if any, who controls the
        Company within the meaning of the Securities Act or the Exchange Act, against
        any Losses arising out of (i) any untrue statement or alleged untrue statement
        of a material fact contained in such Registration Statement, including any
        preliminary prospectus or final prospectus contained therein or any amendments
        or supplements thereto, or (ii) the omission or alleged omission to state
        therein 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, to the extent (and only to the extent) that any such statement
        or omission is based upon and in conformity with written information furnished
        by such Holder expressly for use in such Registration Statement. Subject
        to the
        provisions of paragraph 6(c) below, such Holder will reimburse any legal
        or
        other expenses as reasonably incurred by the Company and any such officer,
        director, employee, agent, representative, or controlling person, in connection
        with investigating or defending any such Loss; provided,
        however,
        that
        the foregoing indemnity shall not apply to amounts paid in settlement of
        any
        such Loss if such settlement is effected without the consent of such Holder
        (which consent shall not be unreasonably withheld); and provided,
        further,
        that,
        in no event shall any indemnity under this subsection 6(b) exceed the net
        proceeds resulting from the sale of the Registrable Securities sold by such
        Holder under such Registration Statement.

      

      (c) Promptly
        after receipt by an indemnified party under this Section 6 of notice of the
        commencement of any action (including any governmental action), such indemnified
        party will, if a claim in respect thereof is to be made against any indemnifying
        party under this Section 6, deliver to the indemnifying party a written
        notice of the commencement thereof and the indemnifying party shall have
        the
        right to participate in and to assume the defense thereof with counsel mutually
        satisfactory to the parties; provided, however, that an indemnified party
        shall
        have the right to retain its own counsel, with the reasonably incurred fees
        and
        expenses of one such counsel for all indemnified parties to be paid by the
        indemnifying party, if representation of such indemnified party by the counsel
        retained by the indemnifying party would be inappropriate under applicable
        standards of professional conduct due to actual or potential conflicting
        interests between such indemnified party and any other party represented
        by such
        counsel in such proceeding. The failure to deliver written notice to the
        indemnifying party within a reasonable time of the commencement of any such
        action, to the extent prejudicial to its ability to defend such action, shall
        relieve such indemnifying party of any liability to the indemnified party
        under
        this Section 6 with respect to such action, but the omission so to deliver
        written notice to the indemnifying party will not relieve it of any liability
        that it may have to any indemnified party otherwise than under this Section
        6 or
        with respect to any other action unless the indemnifying party is materially
        prejudiced as a result of not receiving such notice.

      

      (d) In
        the
        event that the indemnity provided in paragraph (a) or (b) of this Section
        6 is
        unavailable or insufficient to hold harmless an indemnified party for any
        reason, the Company and each Holder agree, severally and not jointly, to
        contribute to the aggregate Losses to which the Company or such Holder may
        be
        subject in such proportion as is appropriate to reflect the
        relative

       

      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      fault
        of
        the Company and such Holder in connection with the statements or omissions
        which
        resulted in such Losses; provided, however, that in no case shall such Holder
        be
        responsible for any amount in excess of the net proceeds resulting from the
        sale
        of the Registrable Securities sold by it under the Registration Statement.
        Relative fault shall be determined by reference to whether any alleged untrue
        statement or omission relates to information provided by the Company or by
        such
        Holder. The Company and each Holder agree that it would not be just and
        equitable if contribution were determined by pro
        rata
        allocation or any other method of allocation which does not take account
        of the
        equitable considerations referred to above. Notwithstanding the provisions
        of
        this paragraph (d), no person guilty of fraudulent misrepresentation (within
        the
        meaning of Section 11(f) of the Securities Act) shall be entitled to
        contribution from any person who is not guilty of such fraudulent
        misrepresentation. For purposes of this Section 6, each person who controls
        a
        Holder within the meaning of either the Securities Act or the Exchange Act
        and
        each officer, director, employee, agent or representative of such Holder
        shall
        have the same rights to contribution as such Holder, and each person who
        controls the Company within the meaning of either the Securities Act or the
        Exchange Act and each officer, director, employee, agent or representative
        of
        the Company shall have the same rights to contribution as the Company, subject
        in each case to the applicable terms and conditions of this paragraph
        (d).

      

      (e) Notwithstanding
        the foregoing, to the extent that the provisions on indemnification and
        contribution contained in an underwriting agreement entered into in connection
        with an underwritten public offering are in conflict with the foregoing
        provisions, the provisions in the underwriting agreement shall
        control.

      

      (f) Unless
        otherwise superceded by an underwriting agreement entered into in connection
        with an underwritten public offering, the obligations of the Company and
        each
        Holder under this Section 6 shall survive the exercise of the Warrants
        in
        full, the completion of any offering or sale of Registrable Securities pursuant
        to a Registration Statement under this Agreement, or otherwise.

      

      7. REPORTS.

      

      For
        such
        time as any Registrable Securities are outstanding, with a view to making
        available to each Holder the benefits of Rule 144 under the Securities Act
        (“Rule
        144”)
        and
        any other similar rule or regulation of the Commission that may at any time
        permit such Holder to sell securities of the Company to the public without
        registration, the Company agrees to:

      

      (a) make
        and
        keep public information available, as those terms are understood and defined
        in
        Rule 144;

      

      (b) file
        with
        the Commission in a timely manner all reports and other documents required
        of
        the Company under the Securities Act and the Exchange Act;

      

      (c) furnish
        to such Holder, so long as such Holder owns any Registrable Securities, promptly
        upon written request (i) a written statement by the Company, if true, that
        it
        has

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      complied
        with the reporting requirements to enable such Holder to rely on Rule 144(c),
        and that it has also complied with the reporting requirements of the Securities
        Act and the Exchange Act, (ii) to the extent not publicly available through
        the
        Commission’s EDGAR database, a copy of the most recent annual or quarterly
        report of the Company and such other reports and documents so filed by the
        Company, and (iii) such other information as may be reasonably requested
        by such
        Holder in connection with such Holder’s compliance with any rule or regulation
        of the Commission which permits the selling of any such securities without
        registration; and

      

      (d)
         not
        at
        any time disclose material non-public information to such Holder without
        first
        receiving such Holder’s written consent to such disclosure. 

      

      8.  MISCELLANEOUS.

      

      (a) Expenses
        of Registration.
        Except
        as otherwise provided in the Securities Purchase Agreement, all reasonable
        expenses, other than underwriting discounts and commissions and fees and
        expenses of counsel and other advisors to each Holder, incurred in connection
        with the registrations, filings or qualifications described herein, including
        (without limitation) all registration, filing and qualification fees, printers’
        and accounting fees, the fees and disbursements of counsel for the Company,
        and
        the fees and disbursements incurred in connection with the opinion and letter
        described in paragraph 4(h) hereof, shall be borne by the Company. 

       

      (b) Amendment;
        Waiver.
        Except
        as
        expressly provided herein, neither this Agreement nor any term hereof may
        be
        amended or waived except pursuant to a written instrument executed by the
        Company and the Holders of at least two-thirds (2/3) of the number of
        Outstanding Registrable
        Securities.
        Any
        amendment or waiver effected in accordance with this paragraph shall be binding
        upon each Holder, each future Holder and the Company, provided,
        however,
        that
        any such waiver or consent shall be effective only in the specific instance
        and
        for the specific purpose for which given.

      

      (c) Notices.
        Any
        notice, demand or request required or permitted to be given by the Company
        or an
        Investor pursuant to the terms of this Agreement shall be in writing and
        shall
        be deemed delivered (i) when delivered personally or by verifiable facsimile
        transmission, unless such delivery is made on a day that is not a Business
        Day,
        in which case such delivery will be deemed to be made on the next succeeding
        Business Day, (ii) on the next Business Day after timely delivery to an
        overnight courier and (iii) on
        the
        Business Day actually received if deposited
        in the U.S. mail (certified or registered mail, return receipt requested,
        postage prepaid), addressed as follows:

       

      If
        to
        the Company:

      

      Applied
        Digital Solutions Inc

      1690
        S.
        Congress Avenue, Suite 200 

      Delray
        Beach, FL 33445

      Attn:  
        Scott
        R.
        Silverman

      Tel:    
        561-805-8000

      Fax:   
        561-805-0002 

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

      with
        a copy to:

       

      Holland
        & Knight LLP

      701
        Brickell Avenue, Suite 3000

      Miami,
        Florida 33131

      Mailing
        Address: P.O. Box 015441, Florida, 33101

      Attn:  
        Harvey
        A.
        Goldman, Esq.

      Tel:    
        305-374-8500

      Fax:    305-789-7799

      

      and
        if to
        a Holder, to such address as shall be designated by such Holder in writing
        to
        the Company. 

      

      (d) Assignment.
        Upon
        the transfer of any Preferred Shares, Warrants or Registrable Securities
        by a
        Holder, the rights and obligations of such Holder hereunder with respect
        to such
        securities so transferred shall be assigned and delegated automatically to
        the
        transferee thereof, and such transferee shall thereupon be deemed to be a
        “Holder” for purposes of this Agreement, as long as: (i) the Company is, within
        a reasonable period of time following such transfer, furnished with written
        notice of the name and address of such transferee, (ii) the transferee agrees
        in
        writing with the Company to be bound by all of the provisions hereof, and
        (iii)
        such transfer is made in accordance with the applicable requirements of the
        Securities Purchase Agreement; provided,
        however,
        that
        the registration rights granted in this Agreement shall not be transferred
        to
        any person or entity that receives any Warrant or Registrable Securities
        in a
        public transaction pursuant to an effective registration statement under
        the
        Securities Act or pursuant to Rule 144.

       

      (e) Counterparts.
        This
        Agreement may be executed in counterparts, each of which shall be deemed
        an
        original, and all of which together shall be deemed one and the same instrument.
        This Agreement, once executed by a party, may be delivered to any other party
        hereto by facsimile transmission.

       

      (f) Governing
        Law.
        This
        Agreement shall be governed by and construed in accordance with the laws
        of the
        State of Delaware applicable to contracts made and to be performed entirely
        within the State of Delaware.

      

      (g) Holder
        of Record.
        A
        person is deemed to be a Holder whenever such person owns or is deemed to
        own of
        record any Warrant or Registrable Securities. 

      

      (h)
        Entire
        Agreement.
        This
        Agreement, the Securities Purchase Agreement, the Certificate of Designation,
        the Warrants, and the other Transaction Documents constitute the entire
        agreement among the parties hereto with respect to the subject matter hereof
        and
        thereof. There are no restrictions, promises, warranties or undertakings,
        other
        than those set forth or referred to herein and therein. This Agreement, the
        Securities Purchase Agreement, the Certificate of Designation, the

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      Warrants,
        and the other Transaction Documents supersede all prior agreements and
        understandings among the parties hereto with respect to the subject matter
        hereof and thereof.

       

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

       

      (j) Third
        Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        permitted successors and assigns, and is not for the benefit of, nor may
        any
        provision hereof be enforced by, any other person.

       

      [Signature
        Pages to Follow]

      

      
        
          
            

          

          
          

        

        
          -14-

          
            

          

        

        
          
          

          
          

        

      

      

      IN
        WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
        first-above written.

      APPLIED
        DIGITAL SOLUTIONS, INC.

      

      

      By:
         /s/
        Evan
        C. McKeown

             
        Name:
        Evan C. McKeown

             
        Title:
        SVP, CFO

      

      

      SATELLITE
        STRATEGIC FINANCE ASSOCIATES, LLC

      

      

      By:
         Satellite
        Asset Management, L.P., its Manager

      

      

      By: /s/
        Simon
        Raykher

                           
        Simon
        Raykher

                           
        General
        Counsel

        

      
        
          
             

          

          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      

      

      IN
        WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
        first-above written.

      

      APPLIED
        DIGITAL SOLUTIONS, INC.

      

      

      By:
         
        /s/ Evan
        C. McKeown

             
        Name:
        Evan C. McKeown

             
        Title:
        SVP, CFO

      

      

      SATELLITE
        STRATEGIC FINANCE PARTNERS, LTD.

      

      By:
         Satellite
        Asset Management, L.P., its Manager

      

      

      By: 
        /s/
        Simon Raykher

                           
        Name:
        Simon Raykher

                           
        Title:
        General Counsel

      

      
 

       

       

      -16-Agreement

This  Agreement  is  entered  into  and  effective  as  of  June  6,  2005.

BETWEEN:
(1)     LUNG  HWA  ELECTRONICS CO., LTD. (hereafter referred to as LHE) a Taiwan
Corporation  having  its  office and principal place of business at 3F, 248, Pei
Sheng  Rd.  Sec.  3,  Sheng  Keng,  Taipei  Hsien,  Taiwan,  R.  O.  C.

(2)     I/OMAGIC  CORPORATION  (hereafter  referred  to  as  IOMC),  a  Nevada
corporation,  having  its  office  and principal place of business at 4 Marconi,
Irvine,  CA  92618.

WHEREAS,  IOMC  desires  to  use  LHE  as IOMC's International Purchasing Office
(hereafter  referred  to  as  "IPO")  to  purchase  certain  computer peripheral
products  for  IOMC.

WHEREAS,  IOMC  has  the  desire  to  purchase  from LHE and LHE desires to sell
certain  computer  peripheral and digital entertainment products manufactured by
LHE  ("OEM  Sales")

NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  and  agreements
contained  herein,  the  parties  hereto  agree  as  follow:

Terms  Applicable  to  IPO  Business  Model:
--------------------------------------------

1.     IOMC  instructs  LHE  to  purchase  consumer/computer  products  from its
       designated  suppliers  for  IOMC  in  the  territory  of  the  North
       America.

2.     Price  Transparency:  LHE  shall  not  renegotiate  the  price  on IOMC's
       purchase  order  to  LHE  for  products  to  be  purchased  with  the
       designated suppliers,  unless  the  supplier and LHE offer IOMC the same
       reduction in price for such products.  LHE agrees to provide and execute
       a Tri-Party Agreement to be  negotiated  and  entered  into between IOMC,
       LHE and each supplier that IOMC instructs LHE to purchase products from.
       LHE  agrees  that  the  Tri-Party Agreement  shall  include, but not be
       limited to, LHE's agreement that LHE shall not renegotiate prices with
       the supplier.

                                     1 of 4
<PAGE>

3.     Handling  Charge  as  Being  IPO
       --------------------------------
       LHE  shall charge 5% handling charge based on the supplier's unit price.
       If IOMC reaches an average running monthly purchasing volume of $750,000
       per month under either  the  IPO and/or OEM Sales Business models
       combined, LHE shall reduce the handling charge by 2% as a volume discount
       to IOMC.  LHE shall credit any volume discounts on handling charges to
       IOMC by issuing a credit note based on the invoices.

4.     Returns
       -------
       IOMC  shall return nonconforming or defective products directly to the
       supplier. LHE  agrees  to  issue  IOMC  a  credit  for the 3% or 5%
       handling charge on the returned  products  in the event that the supplier
       issues a return credit to LHE for IOMC returned products.  Returns to
       suppliers will be negotiated and handled pursuant to a Tri-Party
       Agreement  executed  by  LHE,  IOMC,  and  supplier.

Terms  Applicable  to  IPO  and  OEM  Sales  Business  Model:
-------------------------------------------------------------
1.     Purchase  Order
       ---------------
       IOMC  shall  issue  purchase  orders  to  LHE during the term of this
       Agreement.

2.     Credit  Line
       ------------
       US  $15  million

3.     Payment:
       -------
       (a)   Net  120  days for the IPO Sales Business Model; Net 90 days for
             the OEM Sales  Business  Model
       (b)   Payment  should  be made on the 121st day for IPO Sales and the
             91st day for  OEM  Sales, beginning on the date the invoice is
             issued with funds paid via wire  transfer  to  bank  account
             specified  below  (hereinafter referred to as "Bank"):
       (c)   Bank  information
             Bank:  CHANG  HWA  COMMERCIAL  BANK,  LTD.  PEI  HSIN  BRANCH
             Account  name:  LUNG  HWA  ELECTRONICS  CO.,  LTD.
             Account  No.  5623-22-06271-500
             SWIFT  CODE:  CCBCTWTP562
        (d)  Interest shall accrue on any past due accounts at a rate of 0.5%
             per month.
                                     2 of 4
<PAGE>

4.     Early  Payment
       --------------
       Upon  effectiveness  of  this  Agreement,  the  amount  of $1,500,000
       US dollars ("Early  Payment  Funds")  shall be wired from IOMC to LHE.
       These funds will be used  to pay all IOMC invoices coming due for payment
       to LHE.  Any Early Payment Funds  remaining after the payment of all IOMC
       outstanding invoices to LHE three months  after  the date of this
       Agreement shall be refunded to IOMC immediately. Once  the  Early Payment
       Funds  have  been  used  to  pay all outstanding IOMC invoices, or three
       months from the date of this Agreement has expired, whichever is sooner,
       IOMC shall pay LHE 10% of the purchase price on any purchase orders
       issued  to  LHE,  as a down payment for products ordered, within one week
       of the date  of  IOMC's  purchase  order  to  LHE.

5.     Cancellation
       ------------
       If IOMC cancels the Purchase Order, the cancellation penalty would depend
       on the supplier's  request  stated  on  quotation  or  contract.

6.     Shipment
       --------
       IOMC shall determine the method of shipping on all Purchase Orders unless
       agreed upon  otherwise  in  writing  by  both  parties.

7.     Non-Competition
       ---------------
       During the term of, or any extension of the term of, this Agreement, LHE
       shall not  export,  market,  design,  manufacture  or sell any products
       similar to, or which  either  alone  in  conjunction with some other
       goods, perform as or which might  otherwise  compete  with  IOMC in the
       North  America.

8.     Duration
       --------
       This  Agreement shall remain valid for 1 year from the signing of this
       Agreement onwards.  In the end of the term of this Agreement if either
       party would like to terminate the Agreement the terminating party shall
       provide the other party with at  least  30 days written notice of
       termination.  Otherwise, the Agreement will be  continuously  valid
       without  signing  a  new  Agreement.

9.     Monthly  Statements
       -------------------
       LHE  shall  fax  or  e-mail  a  statement indicating all open items to
       IOMC within  15  days  after  the  end  of  each  month.

                                     3 of 4
<PAGE>

10.    Applicable  Law
       ---------------
       This  Agreement shall be subject to the laws of California and each
       party hereby submits to the exclusive jurisdiction of the courts in
       Orange County, California and irrevocably waives any rights it may have
       to bring proceedings in any other jurisdiction  (including  without
       limitation  on  the  grounds  of inconvenient forum.)

IN  WITNESS  WHEREOF,  the  parties hereto have executed this Agreement by their
duly  authorized  representatives on the date and year first above written.

I/OMAGIC  CORPORATION               LUNG  HWA  ELECTRONICS  CO.,  LTD.
/s/  Tony  Shahbaz                  /s/  Peter  Pai
By:  Tony  Shahbaz                  By:  Peter  Pai
Its: President  and  CEO            Its: CEO

                                     4 of 4

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