Document:

Filed by Bowne Pure Compliance

 

Exhibit 10.1

OMNIBUS AMENDMENT AND WAIVER

This OMNIBUS
AMENDMENT AND WAIVER (this “Amendment”), dated as of
October 31, 2007, is entered into by and among APPLIED DIGITAL SOLUTIONS,
INC., a Delaware corporation (the “Company”), VERICHIP
CORPORATION, a Delaware corporation (“VeriChip”), LAURUS MASTER
FUND, LTD. (“Laurus”), KALLINA CORPORATION, a Delaware
corporation (“Kallina”), VALENS U.S. SPV I, LLC, a Delaware
corporation (“Valens U.S.”), VALENS OFFSHORE SPV II, CORP.,
a Delaware corporation (“Valens Offshore”), and PSOURCE
STRUCTURED DEBT LIMITED, a Guernsey limited liability closed-ended company
(“PSource”, and together with Kallina, Valens U.S. and
Valens Offshore, the “Lenders”), for the purpose of amending
and restating and waiving certain terms of (a) that certain Secured Term
Note, dated as of August 24, 2006 (as amended, modified or supplemented
from time to time, the “2006 Note”); (b) that certain
Securities Purchase Agreement, dated as of August 24, 2006 (as amended,
modified or supplemented from time to time, the “2006 Purchase
Agreement”); (c) the other Related Agreements, as such term is
defined in the 2006 Purchase Agreement (together with the 2006 Note, the
“2006 Related Agreements”); (d) that certain Secured
Term Note, dated as of August 31, 2007 (as amended, modified or
supplemented from time to time, the “2007 Note”);
(e) that certain Securities Purchase Agreement, dated as of
August 31, 2007 (as amended, modified or supplemented from time to time,
the “2007 Purchase Agreement”); and (f) the other
Related Agreements, as such term is defined in the 2007 Purchase Agreement
(together with the 2007 Note, the “2007 Related
Agreements”). Capitalized terms used herein without definition shall
have the meanings ascribed to such terms in the applicable 2006 Purchase
Agreement, 2006 Related Agreements, 2007 Purchase Agreement or 2007 Related
Agreements (collectively, the “Transaction Documents”).

WHEREAS, the
Company and the Lenders have agreed to make certain changes to the Transaction
Documents as set forth herein.

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

AMENDMENTS

1. The Lenders
and the Company hereby agree that, effective November 1, 2007, the
aggregate of the Monthly Amount (as such term is defined in the 2006 Note) and
the Monthly Amount (as such term is defined in the 2007 Note) shall be reduced
by a total of $50,000 per month.

2. The
Maturity Date (as such term is defined in the 2006 Note) shall hereby be
amended to February 1, 2010. Additionally, the Maturity Date (as such term
is defined in the 2007 Note) shall hereby be amended to February 1, 2010.

3. The Lenders
hereby agree in principle that Perimeter Acquisition Corp, a Delaware
corporation, shall be permitted to sell that certain division of Perimeter
Acquisition Corp relating to its Contact Center Value Added Reseller business
(the “VAR Sale”), provided that the Lenders shall
have reviewed and approved the terms and sale documentation for the VAR Sale
prior to consummation of such transaction. The proceeds of the VAR Sale shall
be in cash of which up to $300,000 may be kept by the Company.

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4. The Company
is issuing warrants to the Lenders herewith (divided between the Lenders in
such amounts as the Lenders may require) for 2,976,198 shares of the
Company’s Common Stock, at a price of $1.00 which warrants shall be
exercisable as of the date hereof (such warrants, the “New
Warrants”), and shall be exercisable for seven (7) years thereafter.

5. The Company
currently has a loan of $12,536,572 outstanding including accrued interest to
VeriChip Corporation (the “VeriChip Loan”). The Lenders hereby
agree that the VeriChip Loan may be satisfied VeriChip for no less than
$10,000,000, plus accrued interest on the VeriChip Loan (the “Settlement
Event”); provided that (i) the payment of such
settlement is made on or prior to November 1, 2008; and (ii) $6,000,000 of
such settlement amount is paid to the Lenders in satisfaction of the 2006 Note
and the 2007 Note.

6. The Lenders
hereby agree that the prepayment penalties pursuant to Section 2.1 of the
2006 Note and Section 2.1 of the 2007 Note shall no longer be applicable.

7. The Lenders
hereby agree that the definition of “Filing Date” in that certain
Registration Rights Agreement dated August 31, 2007, between Kallina and
VeriChip (as such agreement has been amended, modified or supplemented to date)
is hereby amended in its entirety and shall be replaced with the following:

“Filing
Date” means, with respect to the Registration Statement required to
be filed in connection with the Grant Shares, April 30, 2008.

8. To the
extent the Company may do so without violating registration rights of others
which exist as of the date of this Amendment, the Company hereby agrees that
all of the shares for which the New Warrants are or shall be exercisable (the
“Registrable Securities”) shall be registered on the
Company’s next new registration statement filed after December 31,
2007. The Company shall use commercially reasonable efforts to cause each
registration statement to be declared effective under the Securities Act of
1933, as amended (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.
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 New Warrants; and (iii) to make
a cash payment in connection with the settlement of the New Warrants.

9. The Lenders
and the Company hereby agree that after the Settlement Event, the aggregate of
the Monthly Amount (as such term is defined in the 2006 Note) and the Monthly
Amount (as such term is defined in the 2007 Note) shall be reduced by an
additional $50,000 per month.

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MISCELLANEOUS

10. Laurus
understands that the Company has an affirmative obligation to make prompt
public disclosure of material agreements and material amendments to such
agreements. The Company hereby covenants to report the terms and provisions of
this Amendment on a current report on Form 8-K within five (5) business
days of the date executed by all parties.

11. Each
amendment and waiver set forth herein shall be effective as of the date first
above written (the “Amendment Effective Date”) on the date when
each of the Company and Laurus shall have executed and the Company shall have
delivered to Laurus its respective counterpart to this Amendment.

12. Except as
specifically set forth in this Amendment, there are no other amendments,
modifications or waivers to the Transaction Documents, and all of the other
forms, terms and provisions of the Transaction Documents remain in full force
and effect.

13. The
Company hereby represents and warrants to Lenders that as of the date hereof,
there is no Event of Default under the Transaction Documents.

14. From and
after the Amendment Effective Date, any references to any Transaction Document
shall be deemed to be references to such Transaction Document as modified
hereby.

15. This
Amendment shall be binding upon the parties hereto and their respective
successors and permitted assigns and shall inure to the benefit of and be
enforceable by each of the parties hereto and their respective successors and
permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which shall constitute one instrument.

[THE REMAINDER OF THIS PAGE IS
INTENTIONALLY LEFT BLANK]

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IN WITNESS
WHEREOF, each of the parties hereto has caused this Amendment to be signed
in its name effective as of this 31st day of October 2007.

APPLIED DIGITAL
SOLUTIONS, INC.

By: /s/
Lorraine M.
Breece                                    

Name:
Lorraine M. Breece

Title: SVP, ACFO

VERICHIP
CORPORATION

By: /s/
Michael
Feder                                            

Name:
Michael Feder

Title: SVP of Operations and Strategic Initiatives

4

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KALLINA
CORPORATION

By: LAURUS CAPITAL
MANAGEMENT, LLC 

Its: Investment Manager

By: /s/
Scott
Bluestein                                         

Name:
Scott Bluestein

Title: Senior Managing Director

VALENS U.S. SPV
I, LLC

By: VALENS CAPITAL
MANAGEMENT, LLC 

Its: Investment Manager

By: /s/
Scott
Bluestein                                      

Name:
Scott Bluestein

Title: Senior Managing Director

VALENS OFFSHORE
SPV II, CORP.

By: VALENS CAPITAL
MANAGEMENT, LLC

Its:
Investment Manager

By: /s/
Scott
Bluestein                                        

Name:
Scott Bluestein

Title: Senior Managing Director

5

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PSOURCE
STRUCTURED DEBT LIMITED

By: LAURUS CAPITAL
MANAGEMENT, LLC 

Its: Investment Manager

By: /s/
Scott
Bluestein                                           

Name:
Scott Bluestein

Title: Senior Managing Director

LAURUS MASTER
FUND, LTD

By: LAURUS CAPITAL
MANAGEMENT, LLC

Its:
Investment Manager

By: /s/
Scott
Bluestein                                         

Name:
Scott Bluestein

Title: Senior Managing Director

6

6Filed by Bowne Pure Compliance

 

Exhibit 10.2

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO APPLIED DIGITAL SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.

Right to Purchase up to 1,063,167 Shares of Common Stock of

Applied Digital Solutions, Inc.

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

			
	 	 	 
	No.                     
	 	Issue Date: October 31, 2007

APPLIED DIGITAL SOLUTIONS, INC., a corporation organized under the laws of the State of
Delaware (the “Company”), hereby certifies that, for value received, PSOURCE STRUCTURED DEBT
LIMITED, or assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase
from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time
or from time to time before 5:00 p.m., New York time, through the close of business on October 31,
2014 (the “Expiration Date”), up to 1,063,167 fully paid and nonassessable shares of Common Stock
(as hereinafter defined), $0.01 par value per share, at the applicable Exercise Price per share (as
defined below). The number and character of such shares of Common Stock and the applicable
Exercise Price per share are subject to adjustment as provided herein.

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

(a) The “Exercise Price” applicable under this Warrant shall be $1.00 per share
acquired hereunder.

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

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

 

 

 

(d) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of Common
Stock or Other Securities pursuant to Section 4 or otherwise.

1. Exercise of Warrant.

1.1. Number of Shares Issuable upon Exercise. From and after the date hereof, through
and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this
Warrant in whole or in part, by delivery of (a) an original or fax copy of an exercise notice in
the form attached hereto as Exhibit A (the “Exercise Notice”), and (b) an electronic copy of the
Exercise Notice to warrants@adsx.com, at any time prior to 5:00 p.m., eastern time, on the business
day the Holder wishes to effect such exercise, 1,063,167 shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4. Notwithstanding anything to the contrary contained
herein, the Holder hereby agrees that during the period on and after the Issue Date and prior to
the date that is the one year anniversary of the Issue Date, it shall not sell any Common Stock
acquired upon exercise of this Warrant.

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

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

(b) If the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD Over the Counter
Bulletin Board, then the mean of the average of the closing bid and asked prices reported
for the last business day immediately preceding the Determination Date.

 

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

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

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

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

2. Procedure for Exercise.

2.1. Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly
issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such
Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1
or otherwise.

 

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2.2. Exercise.

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

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

			
	X=	Y	 (A-B) 
A

	 	 	 
	Where X =
	 	the number of shares of Common Stock to be issued to the Holder

	 	 	 

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

	 	 	 

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

	 	 	 

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

Notwithstanding anything to the contrary contained herein, the Holder hereby agrees that it may not
utilize this cashless exercise provision during the period on and after the Issue Date and prior to
the date that is the six month anniversary of the Issue Date.

 

4

 

3. Reorganization, Consolidation, Merger, Etc.

3.1. Reorganization, Consolidation, Merger, Etc. If there occurs (i) any capital
reorganization or any reclassification of the Common Stock of the Company; (ii) any consolidation
or merger of the Company with or into another person (A) where the Company is not the continuing
entity; (B) which results in any reorganization or reclassification of its outstanding Common
Stock; or (C) which results in the Common Stock of the Company being
changed into or exchanged for common stock or other securities of any other entity or cash or
any other assets, or (iii) the sale or conveyance of all or substantially all of the assets of the
Company to another person, then, as a condition precedent to any such reorganization,
reclassification, consolidation, merger, sale or conveyance, proper and adequate provision shall be
made by the Company whereby the Holder will be entitled to receive upon surrender of the Warrant to
the Company (x) to the extent there are cash proceeds resulting from the consummation of such
reorganization, reclassification, consolidation, merger, sale or conveyance, in exchange for such
Warrant, cash in an amount equal to the cash proceeds that would have been payable to the Holder
had the Holder exercised such Warrant immediately prior to the consummation of such reorganization,
reclassification, consolidation, merger, sale or conveyance, less the aggregate Exercise Price
payable upon exercise of the Warrant, and (y) to the extent that the Holder would be entitled to
receive Common Stock (or Other Securities) (in addition to or in lieu of cash in connection with
any such reorganization, reclassification, consolidation, merger, sale or conveyance), the same
kind and amounts of securities or other assets, or both, that are issuable or distributable to the
holders of outstanding Common Stock (or Other Securities) of the Company with respect to their
Common Stock (or Other Securities) upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, as would have been deliverable to the Holder had the Holder exercised
such Warrant immediately prior to the consummation of such reorganization, reclassification,
consolidation, merger, sale or conveyance less an amount of such securities having a value equal to
the aggregate Exercise Price payable upon exercise of the Warrant. The Company shall provide the
Holder notice of its intent to affect such reorganization, reclassification, consolidation, merger,
sale or conveyance promptly after such notice is mailed or otherwise provided to the holders of the
Common Stock, but in no event less than fifteen (15) days prior to the consummation of such
transaction. If Holder elects to exercise this Warrant in connection with the consummation of
such transaction, Holder shall promptly notify the Company, provided, however, that such
notification shall in no case be provided less than five (5) days prior to the scheduled
consummation or effective date, as the case may be, of the transaction. If the Holder does not
choose to exercise this Warrant at the time such reorganization, reclassification, consolidation,
merger, sale or conveyance, then this Warrant shall continue in full force pursuant to Section 3.3
below. Notwithstanding anything herein to the contrary, the provisions in this Section 3.1 shall
not be triggered as a result of the transactions contemplated by that Agreement and Plan of
Reorganization dated August 8, 2007, among the Company, Digital Angel Corporation, and Digital
Angel Acquisition Corp.

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

 

5

 

3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this Section 3, so long as a
portion of this Warrant remains unexercised, this Warrant shall continue in full force and effect
and the terms hereof shall be applicable to the shares of stock and other securities and property
receivable on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such transfer, as
the case may be, and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have expressly assumed the
terms of this Warrant as provided in Section 4. The Holder of this Warrant, on exercise hereof at
any time after the consummation or effective date of any reorganization, consolidation, merger or
transfer, shall receive, in lieu of the Common Stock issuable on such exercise prior to the date of
such reorganization, the stock and other securities and property (including cash) to which such
holder would have been entitled upon the date of such transaction if such holder had exercised this
Warrant immediately prior thereto less an amount of cash and/or securities having a value equal to
the aggregate Exercise Price payable upon exercise of the Warrant. In the event this Warrant does
not continue in full force and effect after the consummation of the transactions described in this
Section 3, then the Company’s securities and property (including cash, where applicable) receivable
by the Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

4. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of
Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the then applicable Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such event, and the product so obtained shall thereafter
be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the Holder shall thereafter, on the exercise
hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for the provisions of
this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the
Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and
(b) the denominator is the Exercise Price in effect on the date of such exercise (taking into
account the provisions of this Section 4). Notwithstanding the foregoing, in no event shall the
Exercise Price be less than the par value of the Common Stock.

 

6

 

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

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

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

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

9. Registration Rights. The Holder has been granted certain registration rights by
the Company.

 

7

 

10. Maximum Exercise. Notwithstanding anything herein to the contrary, in no event
shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of
this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unexercised portion of this Warrant or the
unexercised or unconverted portion of any other security of the Holder subject to a limitation on
conversion analogous to the limitations contained herein) and (2) the number of shares of Common
Stock issuable upon the exercise of the portion of this Warrant with respect to which the
determination of this proviso is being made, would result in beneficial ownership by the Holder and
its Affiliates of any amount greater than 9.99% of the then outstanding shares of Common Stock
(whether or not, at the time of such exercise, the Holder and its Affiliates beneficially own more
than 9.99% of the then outstanding shares of Common Stock). As used
herein, the term “Affiliate” means any person or entity that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common control with a person
or entity, as such terms are used in and construed under Rule 144 under the Securities Act. For
purposes of the second preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such sentence. For any reason at any
time, upon written or oral request of the Holder, the Company shall within three (3) business days
confirm orally and in writing to the Holder the number of shares of Common Stock outstanding as of
any given date. The limitations set forth herein (x) may be waived by the Holder upon provision of
no less than sixty-one (61) days prior written notice to the Company and (y) shall automatically
become null and void following notice to the Company upon the occurrence and during the continuance
of an Event of Default (as defined in the Security Agreement), except that at no time shall the
Company be obligated to issue any shares of Common Stock pursuant to the terms of this Warrant, the
Purchase Agreement, any Related Agreement (as defined in the Purchase Agreement) if the issuance of
such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the
Company may issue pursuant to the terms of this Warrant, the Purchase Agreement or any Related
Agreement without violating the rules or regulations of the Principal Market (the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company obtains the approval of
its stockholders as required by the applicable rules or regulations of the Principal Market for
issuances of Common Stock in excess of such amount. Notwithstanding anything contained herein to
the contrary, the number of shares of Common Stock issuable by the Company and acquirable by the
Holder pursuant to the terms of this Warrant, the Purchase Agreement, any Related Agreement (as
defined in the Purchase Agreement) or otherwise, shall not exceed an aggregate of 13,567,898 shares
of Common Stock (subject to appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock).”

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

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

 

8

 

13. Rights of Shareholders. No Holder shall be entitled to vote or receive dividends
or be deemed the holder of the shares of Common Stock or any other securities of the Company which
may at any time be issuable upon exercise of this Warrant for any purpose (the “Warrant Shares”),
nor shall anything contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of directors or upon
any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon the recapitalization, issuance of shares, reclassification of
shares, change of nominal value, consolidation, merger, conveyance or otherwise) or to receive
notice of meetings, or to receive dividends or subscription rights or
otherwise, in each case, until the earlier to occur of (x) the date of actual delivery to
Holder (or its designee) of the Warrant Shares issuable upon the exercise hereof or (y) the third
business day following the date such Warrant Shares first become deliverable to Holder, as provided
herein.

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

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

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

 

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

	 	 	 	 	 
	 	 	APPLIED DIGITAL SOLUTIONS, INC.
	 
	 	 	 	 
	WITNESS:
	 	 	 	 
	 

	 	By:
	 	/s/ Lorraine M. Breece
	 

	 	 	 	 
	 

	 	Name:
	 	Lorraine M. Breece
	 

	 	 	 	 
	/s/ Alicia M. Harris

	 	Title:
	 	SVP, ACFO
	 

	 	 	 	 

 

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