SETTLEMENT AGREEMENT AND GENERAL RELEASE

Exhibit 10.1

SETTLEMENT AGREEMENT AND GENERAL RELEASE

This Settlement Agreement and General Release (the “Agreement”) is entered into as of September 28, 2007, by and among Hark M. Vasa (“Vasa”), H&K Vasa 1999 Family Limited Partnership, and H&K Vasa 2000 Family Limited Partnership (collectively, “Plaintiffs”), on the one hand, and Applied Digital Solutions, Inc. (“ADSX”) and Pacific Decision Sciences Corporation, formerly known as PDS Acquisition Corporation (“PDSC”), on the other hand.

RECITALS

A. On or about January 21, 2004, Plaintiffs filed a lawsuit against ADSX and PDSC entitled Vasa v. Applied Digital Solutions, Inc., et al. , in the Circuit Court of the Fifteenth Judicial District in and for Palm Beach County, Florida (the “Action”).

B. The parties, through their counsel, reached a settlement of the Action on September 28, 2007 during a mandatory mediation in the Action and pursuant to a Memorandum of Settlement.

C. The parties now desire to enter into this Agreement in furtherance of their settlement.

AGREEMENT

In consideration of the recitals and mutual promises contained in this Agreement, the adequacy of which are hereby acknowledged, the parties agree to settle their disputes on the following terms.

1.                 Consideration .

a. ADSX Stock . ADSX shall cause the issuance and delivery to Engstrom, Lipscomb & Lack (the “Stock Recipients”) of duly authorized, validly issued, fully paid and non-assessable shares of ADSX common stock (the “Stock Consideration”) based upon a total value of the Stock Consideration of two million one hundred thousand dollars ($2,100,000.00). Notwithstanding anything herein to the contrary, ADSX shall not be required to issue Stock Consideration to Stock Recipients if the aggregate Stock Consideration issued hereunder would exceed 19.9% of the common stock of ADSX outstanding on any of the following dates: the date hereof, any Payment Date; or any Vesting Date. Provided, however, that in such event that ADSX is not required to issue such Stock Consideration, ADSX shall pay to Stock Recipients any Payment Amounts (as defined below) due on the Vesting Date in cash. Also, the “price” agreed upon doesn’t change but the number of shares issued in the future could change and will be adjusted to give effect to any stock splits.

b. Establishment Of New Business Venture . ADSX and Vasa shall establish a new joint venture or other business (the “New Business Venture) pursuant to the terms below.

c. Sole Consideration . The foregoing Stock Consideration and New Business Venture shall be the only payments, in cash or otherwise, now or in the future, due to Plaintiffs or their successors, heirs and assigns, from ADSX, PDSC or any other ADSX Released Parties (as defined below).

2.                  Dismissal of the Action . Within five (5) business days after the full execution of this Agreement, Plaintiffs shall file with the court a dismissal with prejudice (the “Dismissal”) of the Action.

3.                 Stock Consideration .

a. Name . The stock certificates evidencing the shares for the Stock Consideration shall be issued in the name of “Engstrom, Lipscomb & Lack.”

b. Delivery of Restricted Stock . ADSX shall cause its transfer agent to issue and deliver the number of shares of ADSX Common Stock (the “Restricted Shares”) that have a value, based on the ADSX Average Trading Price (as defined below) ending on the last trading day preceding the date of issuance.

i. As soon as practicable, but no later than thirty (30) days after the Dismissal (“Payment 1”);

ii. October 15, 2008 (“Payment 2”);

iii. October 15, 2009 (“Payment 3”);

iv. October 15, 2010 (“Payment 4”); and

v. October 15, 2011 (“Payment 5”).

c.   Restrictive Legend . The stock certificates representing the Restricted Shares will bear a legend stating that they have not been registered and that they are subject to the vesting restrictions set forth in this Agreement.

d.   Vesting Schedule . Unless vested earlier in the sole discretion of ADSX, the Restricted Shares shall vest ( i.e. be free from any restrictions on resale thereof other than such restrictions that may be applicable under state and federal securities laws) no later than the following dates (each a “Vesting Date”):

i. Payment 1: no later than one hundred eighty (180) days from the date of the Dismissal;

ii. Payment 2: April 15, 2009;

iii. Payment 3: April 15, 2010;

iv. Payment 4: April 15, 2011; and

v. Payment 5: April 15, 2012.

e.   Delivery Of Unrestricted Stock Certificates . After each delivery of Restricted Shares as described in Paragraph 3(b) above, ADSX will cause to be filed with the Securities and Exchange Commission (the “SEC”) a registration statement (each a “Registration Statement”) covering the Restricted Shares issued so as to insure that those shares are registered for resale on or before the applicable Vesting Date set forth above. In the event ADSX fails to abide by this condition, all future vesting dates are cancelled and accelerated to be the last vesting date which immediately precedes the date of breach subject to the notice default and opportunity to cure provision in paragraph 6 below. Upon vesting of any of the Restricted Shares, ADSX will authorize its transfer agent to implement legend removal on the vested Restricted Shares, provided such shares are registered pursuant to an effective Registration Statement. Stock Recipients must present certificates representing the vested Restricted Shares to ADSX’s transfer agent and follow transfer agent instructions to accomplish such legend removal.

f. Average Trading Price . As used herein, “ADSX Average Trading Price” shall mean the average closing price per share of the Common Stock as reported on The NASDAQ Capital Market (or, if the Common Stock is not then listed or quoted and traded on The NASDAQ Capital Market, then the over-the-counter or other market on which the Common Stock is traded) for the 10 consecutive trading day period preceding the applicable date.

g. Amount of Payments . ADSX shall deliver pursuant to paragraph 3(a) such number of shares that have a value, based on the ADSX Average Trading Price ending on the last trading day preceding the date of issuance, of the following amounts (the “Payment Amount”):

i. Payment 1: five hundred thousand dollars ($500,000.00)

ii. Payment 2: five hundred thousand dollars ($500,000.00)

iii. Payment 3: four hundred thousand dollars ($400,000.00)

iv. Payment 4: four hundred thousand dollars ($400,000.00)

v. Payment 5: three hundred thousand dollars ($300,000.00)

h. Difference In Value . If immediately prior to any Vesting Date the aggregate number of unvested Restricted Shares shall not have the value set forth above for the applicable Vesting Date (the “Applicable Value”), then on such applicable Vesting Date ADSX shall, at its sole option, (i) cause its transfer agent to issue in Stock Recipients’ name stock certificates representing such number of additional shares of ADSX common stock (“ Additional Shares”) that have a value, based on the ADSX Average Trading Price ending on the last trading day preceding the Vesting Date, equal to the difference between the value of the Restricted Shares which are vesting and the Applicable Value, or (ii) pay the difference between the value of the Restricted Shares

which are vesting and the Applicable Value for that Vesting Date in cash. If immediately prior to any Vesting Date the value of the Restricted Shares exceeds the Applicable Value for that Vesting Date, those shares representing the excess value (the “Excess Shares”) shall be automatically returned to ADSX for cancellation immediately following such final Vesting Date. The certificate(s) representing Excess Shares must be returned bearing Stock Recipients’ endorsement(s) with Medallion signature guarantee(s), or with stock power(s) bearing Stock Recipients’ signature with Medallion signature guarantee(s), as required by ADSX’ transfer agent to allow cancellation of the Restricted Shares. Stock Recipients will reasonably assist in paperwork required by ADSX’s transfer agent required to cancel the shares.

4.                ADSX Option To Pay Cash . In its sole and absolute discretion, ADSX shall have the option of paying the Payment Amounts, in whole or in part, through a payment by a check, wire transfer of funds or other cash equivalent (“Cash”).

5.                New Business Venture . ADSX and Vasa shall establish the New Business Venture on the following terms.

a. Name and Structure . ADSX and Vasa shall agree upon a name and structure of the New Business Venture consistent with the following parameters. Vasa shall own fifty-five percent (55%), and ADSX shall own forty-five percent (45%), of the New Business Venture. The New Business Venture shall be entitled to promote itself as an “affiliate” of ADSX. Vasa shall have a executive title with the New Business Venture, and shall be identified by that title on business cards provided by ADSX which also identify the new business venture as an ADSX affiliate.

b. Term . The initial term of the New Business Venture shall be three (3) years commencing as of October 15, 2007 (the “Initial Term”).

c. Funding Commitment .

i. Yearly Funding . ADSX shall provide to H&K Vasa Management, Inc. funding for the New Business Venture in the amount of two hundred fifty thousand dollars ($250,000.00) per year, payable monthly commencing on October 15, 2007 (the “Yearly Funding”) and continuing on the 15th day of each month thereafter for a total of 36 months.

ii. Reimbursement of Expenses . ADSX shall reimburse the reasonable business expenses of the New Business Venture as incurred by Vasa in the exercise of his sole discretion up to a maximum of fifty thousand dollars ($50,000.00) per year (the “Expense Reimbursement”). Vasa shall submit such expenses to ADSX for reimbursement in the ordinary course of ADSX’s business.

iii. Proposal For Further Funding . At his sole and absolute discretion, Vasa may submit to ADSX proposals for further funding of the New Business Venture (“Additional Funding”). ADSX shall have no obligation to agree to any Additional Funding and shall decide whether to commit to such Additional Funding in its sole and absolute discretion. Vasa shall have no obligation to submit any such proposals to ADSX.

d. Purpose of New Business Venture . The purpose of the New Business Venture is to provide Vasa with a business structure pursuant to which he can attempt to generate new business ideas for the benefit of himself and ADSX. Vasa acknowledges and understands that, in the absence of the express concurrence of ADSX (which ADSX may withhold in its sole discretion), the New Business Venture shall not be connected in any way with the resources or business of PDSC; however, ADSX shall permit the New Business Venture (through Vasa) to propose business ideas to other affiliates of ADSX in the regular course of business of ADSX and its affiliates.

e. Termination of New Business Venture . At the conclusion of the Initial Term of the New Business Venture, Vasa shall have the option of purchasing ADSX’s interests through payment to ADSX of the following: (i) all amounts paid by ADSX into the New Business Venture ( i.e. the Yearly Funding, Expense Reimbursement and any Additional Funding); and (ii) two times EBIDTA of the New Business Venture for its third year of operations. If Vasa decides not to purchase ADSX’s interest in the New Business Venture, ADSX shall be entitled to share in the proceeds from any sale of the New Business Venture and/or any profits of the New Business Venture in the percentage of ADSX’s ownership interest set forth above notwithstanding the fact that ADSX’s obligations to provide Yearly Funding or Expense Reimbursement has terminated.

f. No Further Duties . Notwithstanding any other provision in this Agreement, neither Vasa nor ADSX shall have any duty to the New Business Venture except as expressly set forth above. Notwithstanding any other provision in this Agreement, Vasa acknowledges and understands that ADSX’s entire obligation with respect to the New Business Venture is to provide the Yearly Funding and the Expense Reimbursement as set forth above.

6. Notice Of Default/Opportuni