SCHEDULE 14A INFORMATION
(Rule 14a-101)
Information Required in Proxy Statement
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934.

Filed by the Registrant (X)

Filed by a Party other than the Registrant ( )

Check the appropriate box:

( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

APPLIED DIGITAL SOLUTIONS, INC.
(Name of Registrant as Specified in Its Charter)

(Name of Person Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

(X) No fee required

( ) Fee computed on table below per Exchange Act Rules 14a-6 (i) (1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies;
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined);
(4) Proposed maximum aggregate value of transaction;
(5) Total Fee Paid.

( ) Fee paid previously with previous materials.

( ) Check box if any of the fee is offset as provided by Exchange Act Rule
0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid;
(2) Form, Schedule or Registration Statement No.;
(3) Filing Party;
(4) Date Filed.

[Applied Digital Solutions Letterhead]

MICHAEL E. KRAWITZ
Executive Vice President, General Counsel and Secretary
June 10, 2003
Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders
which will be held on July 25, 2003, at 8:00 a.m. Eastern Daylight Time, at
the West Palm Beach Marriott Hotel, 630 Clearwater Park Road, West Palm Beach,
Florida 33401.

The enclosed notice of meeting identifies each business item for your
action. These items and the vote the Board of Directors recommends are:

RECOMMENDED
ITEM VOTE
---- ----

1. Election of one director to hold office until the 2006 Annual FOR
Meeting of Shareholders, ratification of the appointment of
one director to hold office until the 2004 Annual Meeting of
Shareholders, and ratification of the appointment of one director
to hold office until the 2005 Annual Meeting of Shareholders;
2. Ratification of Eisner LLP as independent auditors of the Company
for the year ended December 31, 2003; FOR
3. Approval of a proposal to change the Company's state of
incorporation from Missouri to Florida through the merger of
the Company into a newly-formed, wholly-owned Florida subsidiary; FOR
4. Approval and adoption of the Company's 2003 Flexible Stock Plan; FOR
5. Ratification of options granted in 2002 under certain of the
Company's stock plans; FOR
6. Approval of the issuance of the Company's common stock and FOR
ratification of the re-pricing of stock options under the severance
agreement entered into with Richard J. Sullivan;
7. Approval of the issuance of the Company's common stock and FOR
ratification of the re-pricing of stock options under the
severance agreement entered into with Jerome C. Artigliere;
8. Approval of the issuance of the Company's common stock under FOR
agreements entered into with Garrett Sullivan (no relation to
Richard J. Sullivan);
9. Approval of amendment to the Third Restated Articles of
Incorporation, as amended, to increase the number of authorized
shares of the Company's common stock from 435,000,000 to
560,000,000 shares; and FOR
10. To transact such other business as may properly come before the
Meeting or any adjournment thereof. FOR

The Company has also included a Proxy Statement that contains more
information about these items and the meeting.

If you plan to attend the meeting, please mark the appropriate box on
your proxy card to help the Company plan for the meeting. You will need an
admission card to attend the meeting, which you can obtain as follows:

o If your shares are registered in your name, you are a shareholder
of record. Your admission card is attached to your proxy card, and
you will need to bring it with you to the meeting.

o If your shares are in the name of your broker or bank, your shares
are held in street name. Ask your broker or bank for an admission
card in the form of a legal proxy to bring with you to the
meeting. If you do not receive the legal proxy in time, bring your
brokerage statement with you to the meeting so that the Company
can verify your ownership of the Company's stock on the record
date and admit you to the meeting. However, you will not be able
to vote your shares at the meeting without a legal proxy.

Your vote is important regardless of the number of shares you own. The
Company encourages you to vote by proxy so that your shares will be
represented and voted at the meeting even if you cannot attend. All
shareholders can vote by written proxy card. Many shareholders also can vote
by proxy via touch-tone telephone from the U.S. and Canada, using the
toll-free number on your proxy card, or via the Internet using the
instructions on your proxy card. In addition, shareholders may vote in
person at the meeting, as described above.

EACH SHAREHOLDER IS URGED TO VOTE PROMPTLY BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD, USING THE TELEPHONE VOTING SYSTEM, OR ACCESSING THE
WORLD WIDE WEB SITE INDICATED ON YOUR PROXY CARD TO VOTE VIA THE INTERNET.
IF A SHAREHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE MAY REVOKE THE
PROXY AND VOTE THE SHARES IN PERSON.

Sincerely,

/s/ Michael E. Krawitz

MICHAEL E. KRAWITZ
Executive Vice President,
General Counsel and Secretary

[Applied Digital Solutions Letterhead]

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF
APPLIED DIGITAL SOLUTIONS, INC.:

The 2003 Annual Meeting of Shareholders of Applied Digital Solutions,
Inc., a Missouri corporation (the "Company"), will be held at the West Palm
Beach Marriott Hotel, 630 Clearwater Park Road, West Palm Beach, Florida
33401, on July 25, 2003, at 8:00 a.m. Eastern Daylight Time, for the following
purposes:

1. To elect one director to hold office until the 2006 Annual
Meeting of Shareholders, to ratify the appointment of one
director to hold office until the 2004 Annual Meeting of
Shareholders, and to ratify the appointment of one director to
hold office until the 2005 Annual Meeting of Shareholders, and
until their respective successors have been elected or
appointed;

2. To ratify the appointment of Eisner LLP as the Company's
independent auditors for the year ended December 31, 2003;

3. To approve a proposal to change the Company's state of
incorporation from Missouri to Florida through the merger of the
Company into a newly-formed, wholly-owned Florida subsidiary;

4. To approve and adopt the Company's 2003 Flexible Stock Plan;

5. To ratify options granted during 2002 under certain of the
Company's stock plans;

6. To approve the issuance of the Company's common stock and to
ratify the re-pricing of stock options under the severance
agreement entered into with Richard J. Sullivan;

7. To approve the issuance of the Company's common stock and to
ratify the re-pricing of stock options under the severance
agreement entered into with Jerome C. Artigliere;

8. To approve the issuance of the Company's common stock under
agreements entered into with Garrett Sullivan (no relation
to Richard J. Sullivan);

9. To approve an amendment to the Third Restated Articles of
Incorporation, as amended, to increase the number of authorized
shares of the Company's common stock from 435,000,000 to
560,000,000 shares; and

10. To transact such other business as may properly come before the
Meeting and at any adjournment thereof.

The Board of Directors set June 2, 2003 as the record date for the
meeting. This means that owners of the Company's common stock at the close
of business on that date are entitled to (1) receive notice of the meeting
and (2) vote, or exercise voting rights through a voting trust, as the case
may be, at the meeting and any adjournments or postponements of the meeting.
The Company will make available a list of holders of record of the Company's
common stock as of the close of business on June 2, 2003, for inspection
during normal business hours at the offices of the Company, 400 Royal Palm
Way, Suite 410, Palm Beach, Florida 33480 for ten business days prior to the
meeting. This list will also be available at the meeting.

By Order of the Board of Directors

/s/ Michael E. Krawitz

MICHAEL E. KRAWITZ
Executive Vice President,
General Counsel and Secretary
Palm Beach Florida
June 10, 2003

[Applied Digital Solutions Letterhead]

400 ROYAL PALM WAY, SUITE 410
PALM BEACH, FLORIDA 33480

June 10, 2003
PROXY STATEMENT
FOR THE 2003 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 25, 2003

The Board of Directors of Applied Digital Solutions, Inc., a Missouri
corporation (the "Company"), furnishes you with this Proxy Statement to
solicit proxies on its behalf to be voted at the 2003 Annual Meeting of
Shareholders of the Company. The meeting will be held at the West Palm Beach
Marriott Hotel, 630 Clearwater Park Road, West Palm Beach, Florida 33401, on
July 25, 2003, at 8:00 a.m. Eastern Daylight Time, subject to adjournment or
postponement thereof (the "Meeting"). The proxies also may be voted at any
adjournments or postponements of the Meeting. This Proxy Statement and the
accompanying form of Proxy are first being mailed to the shareholders of the
Company on or about June 10, 2003.

Voting and Revocability of Proxies

All properly executed written proxies and all properly completed
proxies voted by telephone or via the Internet and delivered pursuant to
this solicitation (and not revoked later) will be voted at the Meeting in
accordance with the instructions of the shareholder. Below is a list of the
different votes shareholders may cast at the Meeting pursuant to this
solicitation.

o In voting on the election of the one director to serve until the
2006 Annual Meeting of Shareholders, the ratification of the
appointment of one director to serve until the 2004 Annual Meeting
of Shareholders, and the ratification of the appointment of one
director to serve until the 2005 Annual Meeting of Shareholders,
shareholders may vote in one of the three following ways:

1. in favor of the nominee and the appointees,

2. withhold votes as to the nominee and the appointees, or

3. withhold votes as to the nominee or a specific appointee.

o In voting on the ratification of Eisner LLP as independent
auditors of the Company for the year ending December 31, 2003;
the approval of a proposal to change the Company's state of
incorporation from Missouri to Florida through the merger of the
Company into a newly-formed, wholly-owned Florida subsidiary;
the approval and adoption of the Company's 2003 Flexible Stock
Option Plan; the ratification of options granted under certain
of the Company's stock plans; the approval of the issuance of
the Company's common stock and ratification of the re-pricing of
stock options under the severance agreement entered into with
Richard J. Sullivan; the approval of the issuance of the
Company's common stock and ratification of the re-pricing of
stock options under the severance agreement entered into with
Jerome C. Artigliere; the approval of the issuance of the
Company's common stock under agreements entered into with Garrett
Sullivan; and the approval of an amendment to the Company's
Third Restated Articles of Incorporation, as amended, to
increase the number of authorized shares of common stock from
435,000,000 to 560,000,000 shares; shareholders may vote in one
of the three following ways:

1. in favor of the item,

2. against the item, or

3. abstain from voting on the item.

Shareholders should specify their choice for each matter on the
enclosed form of Proxy. If no specific instructions are given, proxies which
are signed and returned will be voted FOR the election of the directors as
set

forth herein, FOR the ratification of Eisner LLP as independent auditors of
the Company for the year ending December 31, 2003, FOR the approval of a
proposal to change the Company's state of incorporation from Missouri to
Florida through the merger of the Company into an newly-formed, wholly-owned
Florida subsidiary, FOR the approval and adoption of the Company's 2003
Flexible Stock Option Plan, FOR the ratification of options granted under
certain of the Company's stock plans, FOR the approval of the issuance of
the Company's common stock and ratification of the re-pricing of stock
options under the severance agreement entered into with Richard J. Sullivan,
FOR the approval of the issuance of the Company's common stock and
ratification of the re-pricing of stock options under the severance
agreement entered into with Jerome C. Artigliere, FOR the approval of the
issuance of the Company's common stock under agreements entered into with
Garrett Sullivan, and FOR the approval of an amendment to the Company's
Third Restated Articles of Incorporation, as amended, to increase the number
of authorized shares of common stock from 435,000,000 to 560,000,000 shares.

In addition, if other matters come before the Meeting, the persons
named in the accompanying form of Proxy will vote in accordance with their
best judgment with respect to such matters. A shareholder submitting a proxy
has the power to revoke it at any time prior to its exercise by voting in
person at the Meeting, by giving written notice to the Company's Secretary
bearing a later date than the proxy or by giving a later dated proxy. Any
written notice revoking a proxy should be sent to: ADP Investor
Communication Services, Inc., 51 Mercedes Way, Edgewood, NY 11717. Proxies
signed by brokers with no further statements indicated on the proxy and
shares as to which proxy authority has been withheld with respect to any
matter will be counted for quorum and for purposes of determining the number
of shares entitled to vote on a matter. Broker non-votes (proxies where the
broker has added statements such as "non-vote," "no vote" or "do not vote")
are not counted for quorum or for purposes of determining the number of
shares entitled to vote on a matter. The presence in person or by proxy of
the holders of the shares representing a majority of all outstanding shares
will constitute a quorum. Approval of all of the items will require the
affirmative vote of a majority of the shares entitled to vote that are
present in person or represented by proxy at the Meeting, except for Item 3
which will require the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote at the Meeting, and except for Item 9
which will require the affirmative vote of a majority of the outstanding
shares entitled to vote at the Meeting.

The telephone and Internet voting procedures are designed to
authenticate shareholders' identities, to allow shareholders to vote their
shares and to confirm their instructions have been properly recorded.
Specific instructions to be followed by shareholders interested in voting
via the telephone or the Internet are set forth on the proxy card. If the
proxy card does not contain these instructions, these options are not
available.

Record Date and Share Ownership

Owners of record of shares of the Company's common stock at the close
of business on June 2, 2003, (the "Record Date"), will be entitled to vote at
the Meeting or adjournments or postponements thereof. Each owner of record
of the Company's common stock on the Record Date is entitled to one vote for
each share of common stock so held.

As of the close of business on June 2, 2003, there were 328,929,905
shares of common stock outstanding entitled to vote at the Annual Meeting
(all such shares being referred to herein as the "shares" and all holders
thereof being referred to as the "shareholders" of the Company). A majority
of the shares must be present, in person or by proxy, to conduct business at
the Meeting.

TABLE OF CONTENTS

Page
----

1. Election and Ratification of Appointment of Directors........................................................1
Board of Directors.......................................................................................1
Board Committees and Meetings............................................................................3
Section 16(a) Beneficial Ownership Reporting Compliance..................................................3
Ownership Of Equity Securities in the Company............................................................4
Compensation Committee Report on Executive Compensation..................................................4
Executive Officers.......................................................................................7
Executive Compensation...................................................................................8
Incentive Plans.........................................................................................10
Certain Relationships and Related Transactions..........................................................12
Performance Graph.......................................................................................14
Report of the Audit Committee...........................................................................15

2. Ratification of Eisner LLP as independent auditors of the Company for the year ending December 31, 2003.....16

3. Approval of a proposal to change the Company's state of incorporation from Missouri to Florida through the
merger of the Company into a newly-formed, wholly-owned Florida subsidiary..................................17

4. Approval and adoption of the Company's 2003 Flexible Stock Plan.............................................21

5. Ratification of options granted in 2002 under certain of the Company's stock plans..........................28

6. Approval of the issuance of the Company's common stock and ratification of the re-pricing of stock
options under the severance agreement entered into with Richard J. Sullivan.................................28

7. Approval of the issuance of the Company's common stock and ratification of the re-pricing of stock
options under the severance agreement entered into with Jerome C. Artigliere................................32

8. Approval of the issuance of the Company's common stock under agreements entered into with Garrett Sullivan..34

9. Approval of amendment to the Third Restated Articles of Incorporation, as amended, to increase the number
of authorized shares of common stock from 435,000,000 to 560,000,000 shares.................................36

ELECTION AND RATIFICATION OF APPOINTMENT OF DIRECTORS

(ITEM 1)

BOARD OF DIRECTORS

Our Board of Directors is divided into three classes. A class of
directors is elected each year to serve for a three-year term, which has
been the practice of the Company since 1998. The class to which each
Director has been assigned is designated as Group A, Group B or Group C. The
shareholders elect approximately one-third of the members of the Board of
Directors annually. Directors may only be removed for cause. The term of
Constance K. Weaver will expire at the 2003 Annual Meeting, and Constance K.
Weaver has been nominated to stand for reelection at the Meeting to hold
office until the 2006 Annual Meeting of Shareholders and until her successor
is elected and qualified. In addition, Michael S. Zarriello has been
appointed by the Board of Directors to fill the vacancy created upon Richard
J. Sullivan's retirement and to hold office until the 2004 Annual Meeting of
Shareholders and until his successor is elected or qualified, and Dennis G.
Rawan has been appointed by the Board of Directors to fill the vacancy
created upon Angela M. Sullivan's resignation and to hold office until the
2005 Annual Meeting of Shareholders and until his successor is elected or
qualified. As of June 10, 2003, the Company had three vacancies on the Board
of Directors resulting from the resignations of Arthur F. Noterman on June
4, 2003, of Richard S. Friedland during 2002, and of Mercedes Walton during
2001, which have not yet been filled. Proxies may not be voted for a greater
number of persons than the nominees identified below.

Cumulative voting does not apply in the election of Directors. Unless
otherwise indicated, the shares represented by this proxy will be voted for
each nominee named below. Should any one or more of these nominees become
unable to serve for any reason, or for good cause will not serve, which is
not anticipated, the Board of Directors may, unless the Board of Directors
by resolution provides for a lesser number of Directors, designate
substitute nominees, in which event the persons named in the enclosed proxy
will vote proxies that would otherwise be voted for all named nominees for
the election of such substitute nominee or nominees.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of the majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR approval of the Election and
Ratification of Directors.

RECOMMENDATION OF THE BOARD OF DIRECTORS CONCERNING THE ELECTION OF DIRECTORS

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR CONSTANCE
K. WEAVER TO HOLD OFFICE UNTIL THE 2006 ANNUAL MEETING OF SHAREHOLDERS AND
FOR MICHAEL S. ZARRIELLO TO HOLD OFFICE UNTIL THE 2004 ANNUAL MEETING OF
SHAREHOLDERS AND FOR DENNIS G. RAWAN TO HOLD OFFICE UNTIL THE 2005 ANNUAL
MEETING OF SHAREHOLDERS, AND UNTIL THEIR SUCCESSORS ARE ELECTED AND
QUALIFIED.

NOMINEE FOR ELECTION TO TERM EXPIRING 2006

Constance K. Weaver: Ms. Weaver, age 50, was elected to the Board of
Directors in July 1998 and serves on the Compensation Committee of the Board
of Directors. Ms. Weaver is Executive Vice President, Public Relations,
Marketing Communications and Brand Management for AT&T Corporation (AT&T)
(NYSE:T). From 1996 to October 2002, Ms. Weaver was Vice President, Investor
Relations and Financial Communications for AT&T. From 1995 through 1996, she
was Senior Director, Investor Relations and Financial Communications for
Microsoft Corporation. From 1993 to 1995, she was Vice President, Investor
Relations, and, from 1991 to 1993, she was director of Investor Relations
for MCI Communications, Inc. She earned a Bachelor of Science degree from
the University of Maryland in 1975 and has completed post-graduate financial
management, marketing and strategic planning courses at The Wharton School
of the University of Pennsylvania, Stanford University, Columbia University
and Imede (Switzerland).

APPOINTEE TO TERM EXPIRING 2004

Michael S. Zarriello: Mr. Zarriello, age 53, was appointed a director
effective May 9, 2003. Mr. Zarriello was a Senior Managing Director of Jesup
& Lamont Securities Corporation and President of Jesup & Lamont Merchant
Partners LLC from 1998 to 2003. From 1989 to 1997, Mr. Zarriello was a
Managing Director-Principal of Bear Stearns & Co., Inc. and from 1989 to
1991 he served as Chief Financial Officer of the Principal Activities Group
that invested the Bear Stearns' capital in middle market companies. Prior to
that time, he has held positions as Chief Financial Officer of United States
Leather Holdings, Inc., Chief Financial Officer of Avon Products, Inc.
Healthcare Division and Assistant Corporate Controller for Avon. He graduated
with a Bachelors of Science degree from the State University of New York at
Albany; he holds a Masters in Business Administration from Fairleigh Dickinson
University and an Advanced Professional Certificate from New York University.
Mr. Zarriello holds several licenses from the National Association of
Securities Dealers.

APPOINTEE TO TERM EXPIRING 2005

Dennis G. Rawan: Mr. Rawan, age 59, was appointed a director effective
December 10, 2002, and serves as Chairman of the Audit Committee of the Board
of Directors. Mr. Rawan was Chief Financial Officer of Expo International,
Inc. (Expo) from 1996 until his retirement in 2000. Expo provides
information technology products and services to the event industry. For over
20 years prior to joining Expo, Mr. Rawan was a certified public accountant
(CPA) providing audit, review, tax and financial statement preparation
services for a variety of clients. From 1970 to 1988, while working as a
CPA, Mr. Rawan taught graduate level accounting courses at Babson College.
Mr. Rawan earned a Bachelor of Arts degree and a Master of Business
Administration degree from Northeastern University.

INCUMBENT DIRECTOR - TERM EXPIRING 2004

Scott R. Silverman: Mr. Silverman, age 39, had served since August 2001
as a special advisor to the Board of Directors. In March 2002, he was
appointed to the Board of Directors and named President. In March 2003, he
was appointed Chairman of the Board and Chief Executive Officer. From
September 1999 to March 2002, Mr. Silverman operated his own private
investment-banking firm and prior to that time, from October 1996 to
September 1999, he served in various capacities for us including positions
related to business development, corporate development and legal affairs.
From July 1995 to September 1996, he served as President of ATI
Communications, Inc., one of our subsidiaries. He began his career as an
attorney specializing in commercial litigation and communications law at the
law firm of Cooper Perskie in Atlantic City, New Jersey, and Philadelphia,
Pennsylvania. Mr. Silverman is a graduate of the University of Pennsylvania
and Villanova University School of Law.

INCUMBENT DIRECTOR - TERM EXPIRING 2005

Daniel E. Penni: Mr. Penni, age 55, has served as a director since
March 1995, and is Chairman of the Compensation Committee and serves on the
Audit Committee of the Board of Directors. Since March 1998, he has been an
Area Executive Vice President for Arthur J. Gallagher & Co. (NYSE:AJG). He
has worked in many sales and administrative roles in the insurance business
since 1969. He is the managing member of the Norsman Group Northeast, LLC, a
private sales and marketing company focused on Internet-based education and
marketing and serves as Treasurer and Chairman of the Finance Committee of
the Board of Trustees of the Massachusetts College of Pharmacy and Health
Sciences. Mr. Penni graduated with a bachelor of science degree in 1969 from
the School of Management at Boston College.

BOARD COMMITTEES AND MEETINGS

The Company has standing Audit and Compensation Committees of the Board
of Directors. The members of the committees are identified in the
above-referenced descriptions.

The Audit Committee is comprised of three members of the Board of
Directors. Currently, the Audit Committee members are Dennis G. Rawan and
Daniel E. Penni, and until his recent resignation on June 4, 2003, Arthur
F. Noterman. The Company is currently in the process of selecting a
replacement for Mr. Noterman. This process consists of evaluating the
eligibility of the Company's current independent Board members, as well as,
considering the appointment of a new member to the Company's Board who
would qualify for appointment to the Audit Committee. The Company's Board
of Directors anticipates that the selection process will be completed and
the position will be filled on or before June 15, 2003. Mr. Rawan is the
Chairman of the Audit Committee. The Audit Committee recommends for approval
by the Board of Directors a firm of certified public accountants whose duty
it is to audit the Company's consolidated financial statements for the fiscal
year in which they are appointed, and monitors the effectiveness of the audit
effort, the internal and financial accounting organization and controls and
financial reporting. The Audit Committee held five meetings during 2002.
The duties of the Audit Committee are also to oversee and evaluate the
Company's independent certified public accountants, to meet with the Company's
independent certified public accountants to review the scope and results of
the audit, to approve non-audit services provided to the Company by its
independent certified public accountants, and to consider various accounting
and auditing matters related to the Company's system of internal controls,
financial management practices and other matters. The Audit Committee complies
with the provisions of the Sarbanes-Oxley Act of 2002. The Audit Committee
members are independent as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers listing standards, as applicable and as
may be modified or supplemented and as defined by the Sarbanes-Oxley Act
of 2002.

The Compensation Committee consists of Daniel E. Penni and Constance K.
Weaver. Mr. Penni is Chairman of the Compensation Committee. The
Compensation Committee administers the Company's 1996 Non-Qualified Stock
Option Plan, the 1999 Flexible Stock Plan, the 2003 Flexible Stock Plan and
the 1999 Employees Stock Purchase Plan, including the review and grant of
stock options to officers and other employees under such plans, and
recommends the adoption of new plans. The Compensation Committee also
reviews and approves various other compensation policies and matters and
reviews and approves salaries and other matters relating to the Company's
executive officers. The Compensation Committee reviews all senior corporate
employees after the end of each fiscal year to determine compensation for
the subsequent year. Particular attention is paid to each employee's
contributions to our current and future success along with their salary
level as compared to the market value of personnel with similar skills and
responsibilities. The Compensation Committee also looks at accomplishments,
which are above and beyond management's normal expectations for their
positions. The Compensation Committee met two times and acted by written
consent eight times during 2002.

The Board of Directors held eight meetings during 2002 and acted by
written consent 32 times. During the year, all Directors attended 75% or
more of the meetings of the Board of Directors and Committees to which they
were assigned.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our officers and directors
and persons who own more than 10% of our common stock to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission and to furnish copies of all such reports to us. We believe,
based on our stock transfer records and other information available to us,
that all reports required under Section 16(a) were timely filed during 2002
except as follows: 1) A Form 4 for Mr. Richard Sullivan, our former Chairman
and Chief Executive Officer, was filed approximately two weeks late; 2) A
Form 5 for Mrs. Angela Sullivan, a former director, was filed two weeks
late; 3) Form 4s for the month of February 2002 for the following directors
were filed several months late: Mrs. Angela Sullivan, Mr. Daniel Penni, Ms.
Constance Weaver and Mr. Arthur Noterman (a former director).

OWNERSHIP OF EQUITY SECURITIES IN THE COMPANY

The following table sets forth information regarding beneficial
ownership of the Company's common stock by each director and by each
executive officer named in the Summary Compensation Table and by all the
directors and executive officers as a group as of June 2, 2003 (the
Company's record date):

------------------------------------- ----------------------- ----------------
Name Aggregate Number of Percent of
Shares Beneficially Outstanding
Owned (1) Shares

Scott R. Silverman 1,925,000 *%
Arthur F. Noterman(2) 1,485,000 *
Daniel E. Penni 1,949,065 *
Dennis G. Rawan -- *
Constance K. Weaver 1,223,000 *
Michael S. Zarriello -- *
Kevin H. McLaughlin 402,333 *
Michael E. Krawitz 1,559,567 *
Evan C. McKeown 234,327 *
Peter Zhou 352,526 *
All Directors and Executive
Officers as a Group (11 Persons) 9,532,989 2.8%

-----------------------
<FN>
* Represents less than 1% of the issued and outstanding shares of
common stock of the Company.

(1) This table includes presently exercisable stock options, which may
be acquired within 60 days. The following directors and executive
officers hold the number of exercisable options or options which
may be acquired within 60 days set forth following their
respective names: Scott R. Silverman -- 1,925,000; Arthur F.
Noterman -- 1,164,000; Daniel E. Penni -- 1,164,000; Constance K.
Weaver -- 989,000; Kevin H. McLaughlin -- 391,333; Michael E.
Krawitz -- 1,504,000; Evan C. McKeown -- 233,334; Peter Zhou --
329,000; and all directors and officers as a group -- 8,073,667.

(2) Effective June 4, 2003, Mr. Noterman resigned to pursue other
interests.

The Company has made previous filings under the Securities Act of 1933,
as amended, or the Exchange Act, that incorporate future filings, including
this Proxy Statement, in whole or in part. However, the following
"Compensation Committee Report on Executive Compensation" shall not be
incorporated by reference into any such filings.

COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE OF THE BOARD

The Compensation Committee is composed of two members of the Board of
Directors. It is the Compensation Committee's responsibility to review,
recommend and approve changes to the Company's compensation policies and
programs. It is also the Committee's responsibility to review and approve
all compensation actions for the Company's executive officers and various
other compensation policies and matters and administer the Company's 1996
Non-Qualified Stock Option Plan, the 1999 Flexible Stock Plan, and the 1999
Employee Stock Purchase Plan, including the review and approval of stock
option grants to the Company's executive officers. If approved, the
Compensation Committee will also administer the Company's 2003 Flexible
Stock Plan.

GENERAL COMPENSATION PHILOSOPHY

The Company's executive compensation programs are designed to enable it
to attract, retain and motivate the Company's executives and those of its
subsidiaries. The Company's general compensation philosophy is that total
cash compensation should vary with the Company's performance in attaining
financial and non-financial objectives and that any long-term incentive
compensation should be closely aligned with the interests of shareholders.
Total cash compensation for the majority of the Company's employees,
including the Company's executive officers, includes a base salary and a
cash bonus based on the Company's profitability and the profitability of its
individual subsidiaries. Long-term incentive compensation is realized
through the granting of stock options to most employees, at the discretion
of the presidents of the Company's divisions, as well as eligible executive
officers.

SETTING EXECUTIVE COMPENSATION

In setting the base salary and individual bonuses (hereafter together
referred to as "BSB") for executives, the Compensation Committee reviews
information relating to executive compensation of U.S. based companies that
are of the same size as the Company. While there is no specific formula that
is used to set compensation in relation to

this market data, executive officer BSB is generally set at or below the
median salaries for comparable jobs in the market place. However, when
specific financial and non-financial goals are met, additional compensation
in the form of either cash compensation or long-term incentive compensation
may be paid to the Company's executive officers.

BASE SALARY

The Compensation Committee reviews the history and proposals for the
compensation package of each of the executive officers, including base
salary. Increases in base salary are governed by three factors: merit (an
individual's performance); market parity (to adjust salaries based on the
competitive market); and promotions (to reflect increases in
responsibility). In assessing market parity, the Company relies on market
surveys of similarly sized publicly traded companies and generally pays
below the median of these companies. The guidelines are set each year and
vary from year to year to reflect the competitive environment and to control
the overall cost of salary growth. Individual merit increases are based on
performance and can range from 0% to 100%.

The salary guidelines for all presidents of the Company's subsidiaries
are generally based upon individually negotiated employment agreements.
Merit increases are submitted by the Company's President to the Compensation
Committee for approval based upon individual performance and the performance
of the subsidiary. Merit increases for non-executive employees are at the
discretion of the presidents of the Company's divisions.

CASH AND STOCK INCENTIVE COMPENSATION PROGRAMS

To reward performance, the Company provides its executive officers and
its divisional executive officers with additional compensation in the form
of a cash bonus and/or stock awards. No fixed formula or weighting is
applied by the Compensation Committee to corporate performance versus
individual performance in determining these awards. The amounts of such
awards are determined by the Compensation Committee acting in its
discretion. Such determination, except in the case of the award for the
Chairman, is made after considering the recommendations of the Chairman and
President and such other matters as the Compensation Committee deems
relevant. The Compensation Committee, acting in its discretion, may
determine to pay a lesser award than the maximum specified. The amount of
the total incentive is divided between cash and stock at the discretion of
the Compensation Committee.

STOCK OPTIONS AND OTHER AWARDS GRANTED UNDER THE 1996 NON-QUALIFIED STOCK
OPTION PLAN, THE 1999 FLEXIBLE STOCK PLAN AND THE 2003 FLEXIBLE STOCK
PLAN

The 1996 Non-Qualified Stock Option Plan, the 1999 Flexible Stock Plan,
and the 2003 Flexible Stock Plan, which the Board of Directors authorized
and recommended that it be submitted to shareholders for approval on May 14,
2003, are long-term plans designed to link rewards with shareholder value
over time. Stock options are granted to aid in the retention of employees
and to align the interests of employees with shareholders. The value of the
stock options to an employee increases as the price of the Company's stock
increases above the fair market value on the grant date, and the employee
must remain in the Company's employ for the period required for the stock
option to be exercisable, thus providing an incentive to remain in the
Company's employ.

These Plans allow grants of stock options to all of the Company's
employees, including executive officers. Grants to the Company's executive
officers and to officers of the Company's subsidiaries are made at the
discretion of the Compensation Committee. The Compensation Committee may
also make available a pool of options to each subsidiary to be granted at
the discretion of such subsidiary's president. In 2002, stock options for
the executive officers were granted upon the recommendation of management
and approval of the Compensation Committee based on their subjective
evaluation of the appropriate amount for the level and amount of
responsibility for each executive officer.

The 2003 Flexible Stock Plan is also intended to encourage ownership of
the Company's common stock by executives and other employees, directors
and other individuals, and to promote and further the best interests of
the Company by granting cash and other stock awards. The Company also
intends to grant awards of its common stock in lieu of payments of cash
compensation pursuant to the mutual agreement of the participant and the
Company.

STOCK OPTIONS GRANTED UNDER THE 1999 EMPLOYEE STOCK PURCHASE PLAN

The 1999 Employee Stock Purchase Plan, which is intended to qualify as
an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code, provides eligible employees with an opportunity to accumulate, through
payroll deductions, funds to be used toward the purchase of the Company's
stock pursuant to options granted under the Plan. Options granted in
connection with an offering under the plan, permit the option holder to
purchase the Company's stock at a price per share equal to 85% of the fair
market value of the stock on (i) the date on which the option is granted
(i.e., the first business day of the offering) and (ii) the date on which
the option is exercised (i.e., the last business day of the offering),
whichever is less. Section 423 of the Internal Revenue Code

also provides certain favorable tax consequences to the option holder,
provided that the stock acquired under the plan is held for a specified
minimum period of time.

Other than as otherwise disclosed herein, the Company has no plans
pursuant to which cash or non-cash compensation was paid or distributed
during the last fiscal year, except for plans provided by certain of the
Company's subsidiaries.

DECISIONS ON 2002 COMPENSATION

The Company's compensation program is leveraged towards the achievement
of corporate and business objectives. This pay-for-performance program is
most clearly exemplified in the compensation of the Company's former Chief
Executive Officer, Richard J. Sullivan. Mr. Sullivan's compensation awards
were made based upon the Compensation Committee's assessment of the
Company's financial and non-financial performance. The results were
evaluated based on the overall judgment of the Compensation Committee.
During 2002, the Company paid Mr. Sullivan a base salary of $450,000. Under
the terms of the Company's employment agreement with Mr. Sullivan, the
Company agreed to pay Mr. Sullivan a minimum annual bonus of $140,000.
During 2002, Mr. Sullivan was also granted 3,200,000 stock options at
exercise prices ranging from $0.28 to $0.32 per share.

The Compensation Committee is pleased to submit this report with regard
to the above matters.

Daniel E. Penni, Chairman
Constance K. Weaver

EXECUTIVE OFFICERS

The executive officers of the Company are:

- ---------------------------------------------------------------------------------------------------------------------
Name Age Position Position Held Since

Scott R. Silverman 39 Chairman of the Board and Chief Executive (March 2003
Officer Chairman and CEO)

Kevin McLaughlin 61 President and Chief Operating Officer (March 2003 Chief
Operating Officer)
(May 2003 President)

Michael E. Krawitz 33 Executive Vice President, General Counsel and (April 1999
Secretary General Counsel)
(March 2003 Secretary)
(April 2003 Executive
Vice President)

Evan C. McKeown 44 Senior Vice President, Chief Financial Officer (March 2002 Chief
Financial Officer)
(March 2003 Senior
Vice President)

Peter Zhou 63 Vice President, Chief Scientist January 2000

Following is a summary of the background and business experience of the
Company's executive officers other than Scott R. Silverman (whose background
and business experience is described elsewhere in this proxy statement in
connection with his status as a director of the Company):

Kevin H. McLaughlin: Mr. McLaughlin, age 61, was appointed the
Company's President in May 2003 and its Chief Operating Officer in March
2003. From April 12, 2002, Mr. McLaughlin served as a director and Chief
Executive Officer of InfoTech USA, Inc., formerly SysComm International
Corporation, the Company's 52.5% owned subsidiary. Prior to that time, he
served as Chief Executive Officer of Computer Equity Corporation, the
Company's wholly-owned subsidiary. Mr. McLaughlin joined the Company as Vice
President of Sales and Marketing in June 2000. From June 1995 to May 2000,
he served as Senior Vice President of Sales for SCB Computer Technology,
Inc.

Michael E. Krawitz: Mr. Krawitz, age 33, joined the Company as
Assistant Vice President and General Counsel in April 1999, and was
appointed Vice President and Assistant Secretary in December 1999, Senior
Vice President in December 2000, Secretary in March 2003 and Executive Vice
President in April 2003. From 1994 to April 1999, Mr. Krawitz was an
attorney with Fried, Frank, Harris, Shriver & Jacobson in New York. Mr.
Krawitz earned a Bachelor of Arts degree from Cornell University in 1991 and
a juris doctorate from Harvard Law School in 1994.

Evan C. McKeown: Mr. McKeown, age 44, joined the Company as Vice
President, Chief Accounting Officer and Corporate Controller in March 2001.
He was appointed Vice President, Chief Financial Officer in March 2002 and
Senior Vice President in March 2003. Prior to joining the Company, Mr.
McKeown served as Corporate Controller at Orius Corporation in West Palm
Beach, Florida. From 1992 to 1999, he served as Controller and then Chief
Financial Officer of Zajac, Inc., in Portland, Maine. Mr. McKeown has more
that 20 years experience in accounting and financial reporting, including
serving as a Tax Manager for Ernst & Young and as a public accountant with
Coopers & Lybrand. He is a graduate of the University of Maine and is a
certified public accountant.

Peter Zhou: Dr. Zhou, age 63, joined the Company as Vice President and
Chief Scientist in January 2000. From 1988 to 1999, Dr. Zhou served as Vice
President, Technology for Sentry Technology Corp., and from 1985 to 1988, he
served as Research Investigator for the University of Pennsylvania's
Department of Science & Engineering. Prior to that, he was a research
scientist for Max-Planck Institute, Metallforschung in Stuttgart, Germany
and a post-doctoral research fellow at the University of Pennsylvania. Dr.
Zhou has a PhD in materials science/solid state physics from the University
of Pennsylvania and a Master of Sciences degree in physics from the Beijing
University of Sciences and Technology.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning
the total remuneration paid in 2002 and the two prior fiscal years to our
Chief Executive Officer and our four other most highly compensated executive
officers (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

---------------------------------------
Long-Term Compensation
---------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Options / LTIP All Other
Name and Principal Year Salary Bonus Compensation Stock SAR's(#) Payouts Compensation
Position (1) ($) ($)(2) ($)(3) Awards ($) (4) (#) ($)

Richard J. Sullivan (5) 2002 $450,000 $140,000 $326,841 $-- 3,200,000 $-- $--
Former Chairman, CEO 2001 450,000 448,801 57,424 -- 10,675,000(9) -- --
and Secretary 2000 450,000 180,000 936,672 -- 4,000,000 -- --

Scott R. Silverman (6) 2002 165,577 22,030 2,563 -- 1,600,000 -- --
Chairman and CEO 2001 N/A N/A N/A N/A N/A N/A N/A
2000 N/A N/A N/A N/A N/A N/A N/A

Jerome C. Artigliere (7) 2002 178,365 22,030 31,588 -- 1,300,000 -- --
Former Senior Vice 2001 175,000 14,174 87,688 -- 1,129,000(9) -- --
President, COO and 2000 134,616 35,000 -- -- 100,000 -- --
Assistant Treasurer

Michael E. Krawitz (8) 2002 170,769 22,030 -- -- 1,000,000 -- --
Executive Vice President, 2001 160,000 14,174 -- -- 504,000(9) -- --
General Counsel 2000 151,853 35,000 -- -- 100,000 -- --
and Secretary

Peter Zhou 2002 216,058 7,500 200,000 -- --
Vice President, Chief 2001 212,839 -- -- -- 229,000(9) -- --
Scientist 2000 151,456 25,000 -- -- 150,000 -- --

<FN>
- --------------------------

(1) See "Related Party Transactions."
(2) The amounts in the Bonus column were discretionary awards granted by
the Compensation Committee in consideration of the contributions of
the respective named executive officers.
(3) Other annual compensation includes: (a) in 2002, for Richard J.
Sullivan $296,190 related to the difference between the price used to
determine the number of shares of common stock issued to Mr. Sullivan
in lieu of cash compensation and the market price of stock at the
time of issuance, an auto allowance and other discretionary payments,
for Mr. Silverman, an auto allowance, and for Mr. Artigliere an
auto/expense allowance; (b) in 2001, for Richard J. Sullivan, an auto
allowance and other discretionary payments, and for Jerome C.
Artigliere, $50,000 in moving expenses, an auto allowance and other
discretionary payments; and (c) in 2000, for Richard J. Sullivan,
$936,672 of other compensation representing the fair value of
property distributed to Richard J. Sullivan, including the associated
payment of taxes on his behalf, pursuant to his employment agreement.
(4) Indicates number of securities underlying options.
(5) Mr. Sullivan retired in March 2003. See Item 6 for additional
discussion.
(6) Mr. Silverman joined us as a Director and President in March 2002. He
assumed the positions of Chairman of the Board of Directors and Chief
Executive Officer in March 2003.
(7) Mr. Artigliere resigned in March 2003. See Item 7 for additional
discussion.
(8) Mr. Krawitz assumed the position of Secretary in March 2003.
(9) Includes options granted in prior years that were re-priced during
2001 as follows: (a) for Richard J. Sullivan, 7,675,000; (b) for
Jerome C. Artigliere, 254,000; (c) for Michael E. Krawitz, 154,000;
and (d) for Peter Zhou, 129,000.

The following table contains information concerning the grant of
stock options under our 1999 Flexible Stock Plan to the Named Executive
Officers during 2002:

- -------------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN 2002
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------- --------------------------------------

Potential Realizable Value At Assumed
Rates of Stock Appreciation for Option
Term
- ------------------- ---------------- ---------------------------- ---------------- ------------------- ------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Granted Employees in Price
Name (#)(1)(2) 2002 ($/Share) Expiration Date 5% ($) 10% ($)

Richard J. Sullivan 1,200,000 11.9% $0.32 February-08 $130,666 $296,457
2,000,000 19.8 0.28 July-08 190,654 432,592
Scott R. Silverman 1,000,000 9.9 0.32 February-08 108,888 247,048
600,000 5.9 0.28 July-08 57,196 129,778
Jerome C. Artigliere 850,000 8.4 0.32 February-08 92,555 209,990
450,000 4.4 0.28 July-08 42,897 97,333
Michael E. Krawitz 600,000 5.9 0.32 February-08 65,333 148,229
400,000 4.0 0.28 July-08 38,131 86,518
Peter Zhou 150,000 1.5 0.32 February-08 16,333 37,057
50,000 0.5 0.28 July-08 4,766 10,815
<FN>
- --------------------

(1) These options were granted at an exercise price equal to the fair
market value of our common stock on the date of grant.

(2) Table excludes options granted to the Named Executive Officers by our
subsidiaries. The table also excludes 23,669 options that were
granted to Mr. Artigliere and 12,657 options that were granted to
Mr. Krawitz. These options were granted under the 1999 Employees
Stock Purchase Plan at a price per share equal to 85% of the fair
market value of our common stock on (i) the date on which the
option was granted (i.e., the first business day of the offering)
and (ii) the date on which the option was exercised (i.e., the last
business day of the offering), whichever is less.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 2002 and
unexercised options held on December 31, 2002:

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

------------------------------------------------------------------ -----------------------------------

Number of Securities Underlying
Exercised in 2002 Unexercised Options at Year End Value of Unexercised In-The-Money
2002 (#) Options at Year End 2002 ($) (2)
- ----------------------------------------------------------------- ------------------- -----------------------------------
Shares Value
Name Acquired Upon Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Exercise (#) (1)

Richard J. Sullivan(3) 646,297 $171,837 8,285,000 3,300,000 $2,154,100 $377,000

Scott R. Silverman -- -- 325,000 1,600,000 84,500 168,000

Jerome C. Artigliere 104,577 4,049 1,020,000 1,300,000 267,540 135,000

Michael E. Krawitz 13,178 828 504,000 1,000,000 131,040 106,000

Peter Zhou 100,000 58,000 112,333 216,667 26,787 24,333

<FN>
- -------------------

(1) The values realized represents the aggregate market value of the shares
covered by the option on the date of exercise less the aggregate
exercise price paid by the executive officer, but do not include
deduction for taxes or other expenses associated with the exercise of
the option or the sale of the underlying shares. Amounts do not include
value realized upon the exercise of stock options issued by our
subsidiaries.

(2) The value of the unexercised in-the-money options at December 31, 2002,
assumes a fair market value of $0.41, the closing price of our common
stock as reported on The Nasdaq SmallCap Market on December 31, 2002.
The values shown are net of the option exercise price, but do not
include deduction for taxes or other expenses associated with the
exercise of the option or the sale of the underlying shares.

(3) Includes 600,000 exercisable and 100,000 unexercisable options, which
are owned by Mr. Sullivan's wife.

INCENTIVE PLANS

Cash and Stock Incentive Compensation Programs. To reward performance,
the Company provides its executive officers and its divisional executive
officers with additional compensation in the form of a cash bonus and/or
stock awards. No fixed formula or weighting is applied by the Compensation
Committee to corporate performance versus individual performance in
determining these awards. The amounts of such awards are determined by the
Compensation Committee acting in its discretion. Such determination, except
in the case of the award for the Chairman, is made after considering the
recommendations of the Chairman and President and such other matters as the
Compensation Committee deems relevant. The Compensation Committee, acting in
its discretion, may determine to pay a lesser award than the maximum
specified. The amount of the total incentive is divided between cash and
stock at the discretion of the Compensation Committee.

Stock Options and Other Awards Granted under the 1996 Non-Qualified
-------------------------------------------------------------------
Stock Option Plan, the 1999 Flexible Stock Plan and the 2003 Flexible Stock
- ---------------------------------------------------------------------------
Plan. The 1996 Non-Qualified Stock Option Plan, the 1999 Flexible Stock Plan
- ----
and the 2003 Flexible Stock Plan, which is subject to shareholder approval,
are long-term plans designed to link rewards with shareholder value over
time. Stock options are granted to aid in the retention of employees and to
align the interests of employees with shareholders. The value of the stock
options to an employee increases as the price of the Company's stock
increases above the fair market value on the grant date, and the employee
must remain in the Company's employ for the period required for the stock
option to be exercisable, thus providing an incentive to remain in the
Company's employ.

The 2003 Flexible Stock Plan is also designed to encourage ownership of
the Company's common Stock by employees, directors and other individuals,
and to promote and further the best interests of the Company by granting
cash and other stock awards. The Company also intends to grant awards of its
common stock in lieu of payments of cash compensation pursuant to the mutual
agreement of the participant and the Company.

Stock Options Granted under the 1999 Employees Stock Purchase Plan. The
------------------------------------------------------------------
1999 Employees Stock Purchase Plan, which is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue
Code, provides eligible employees with an opportunity to accumulate, through
payroll deductions, funds to be used toward the purchase of the Company's
stock pursuant to options granted under the Plan. Options granted in
connection with an offering under the plan, permit the option holder to
purchase the Company's stock at a price per share equal to 85% of the fair
market value of the stock on (i) the date on which the option is granted
(i.e., the first business day of the offering) and (ii) the date on which
the option is exercised (i.e., the last business day of the offering),
whichever is less. Section 423 of the Internal Revenue Code also provides
certain favorable tax consequences to the option holder, provided that the
stock acquired under the plan is held for a specified minimum period of
time.

Other than as otherwise disclosed herein, the Company has no plans
pursuant to which cash or non-cash compensation was paid or distributed
during the last fiscal year, or is proposed to be paid or distributed in the
future, to the individuals described above, except for plans provided by
certain of the Company's subsidiaries.

COMPENSATION OF DIRECTORS

Our non-employee directors receive a fixed quarterly fee in the amount
of $5,000. In addition, non-employee directors receive a quarterly fee in
the amount of $1,000 for each committee of which they are a member.
Reasonable travel expenses are reimbursed when incurred. During 2002, Mr.
Penni and Ms. Weaver each received $28,000 in additional non-cash
compensation in the form of the Company's common stock. Individuals who
become directors are automatically granted an initial option to purchase
25,000 shares of common stock on the date they become directors. Each of
such options is granted pursuant to our 1996 Non-Qualified Stock Option Plan
or the 1999 Flexible Stock Plan on terms and conditions determined by the
Board of Directors. During 2002, Messrs. Penni and Rawan and Ms. Weaver were
granted 200,000, 25,000 and 200,000 options to purchase shares of common
stock, respectively. Directors who are not also executive officers are not
eligible to participate in any of our other benefit plans.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

The Company, or its subsidiary, has entered into an employment
agreement with the following Named Executive Officer:

- ------------------------------------- -------------- ------------------------- ---------------------
Name Length Commencing Base Salary

Michael E. Krawitz 5 Years April 12, 1999 185,000 (1)

<FN>
- -------------------------------------

(1) Effective April 2003.

The Company has not entered into an employment contract with any of its
other executive officers.

In March 1999, the Company entered into an employment agreement with
Michael Krawitz, Executive Vice President, General Counsel, and Secretary.
The agreement was amended in June 1999 and in April 2000. The agreement
provides that in the event Mr. Krawitz's employment is terminated either by
the Company other than for "cause" or by Mr. Krawitz for "good reason," Mr.
Krawitz will continue to receive his base compensation for the remainder of
the employment term under the agreement as if such termination had not
occurred. Upon any such termination, the payment of any other benefits will
be determined by the Board of Directors in accordance with the Company's
plans, policies and practices.

On March 21, 2003, Richard J. Sullivan, the Company's then Chairman of
the Board of Directors and Chief Executive Officer, retired from such
positions. The Company's Board of Directors negotiated a severance agreement
with Richard Sullivan under which he is to receive a one-time payment of
56.0 million shares of the Company's common stock. In addition, stock
options held by him exercisable for approximately 10.9 million shares of the
Company's common stock were re-priced. See the Item 6 proposal included in
this Proxy Statement for more detailed information. Richard Sullivan's
severance agreement provides that the payment of shares and re-pricing of
options provided for under that agreement is in lieu of all future
compensation and other benefits that would have been owed to him under his
employment agreement. His employment agreement required the Company to make
payments of approximately $17.0 million to him, a portion of such payments
of which could be made in either cash or stock, at the Company's option.

On March 21, 2003, Jerome C. Artigliere, the Company's then Senior Vice
President and Chief Operating Officer, resigned from such positions. Under
the terms of his severance agreement, Mr. Artigliere is to receive 4.8
million shares of the Company's common stock. In addition, stock options
held by him exercisable for approximately 2.3 million shares of the
Company's common stock were re-priced. See Item 7 proposal included in the
Proxy Statement for more detailed information. Mr. Artigliere's severance
agreement provides that the payment of shares and re-pricing of options
provided under that agreement is in lieu of all future compensation and
other benefits that would have been owed to him under his employment
agreement. His employment agreement required the Company to make payments of
approximately $1.5 million to Mr. Artigliere.

As a result of the termination of Richard Sullivan's employment with
the Company, a "triggering event" provision in the severance agreement the
Company entered into with Garrett Sullivan, the Company's former Vice
Chairman of the Board (who is not related to Richard Sullivan), at the time
of his ceasing to serve in such capacity in December 2001, has been
triggered. The Company recently negotiated a settlement of its obligations
under Garrett Sullivan's severance agreement that requires the Company to
issue to him 7.5 million shares of the Company's common stock on or before
August 31, 2003. See Item 8 proposal included in the Proxy Statement for
more detailed information.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

INDEBTEDNESS OF MANAGEMENT

Daniel E. Penni, a member of the Company's Board of Directors, has
executed a revolving line of credit promissory note in favor of Applied
Digital Solutions Financial Corp., the Company's subsidiary, in the amount
of $450,000. The promissory note is payable on demand, with interest payable
monthly on the unpaid principal balance at the rate equal to one percentage
point above the base rate announced by State Street Bank and Trust Company
(which interest rate shall fluctuate contemporaneously with changes in such
base rate). The largest principal amount outstanding under the promissory
note during 2002 was $420,000, and as of May 12, 2003, $420,000 had been
advanced under this note.

Mr. Richard Sullivan, our former Chairman of the Board, Chief Executive
Officer and Secretary, executed a promissory note in our favor in the amount
of $59,711. The promissory note was payable on demand and interest accrued
at a rate of 7.0% per annum. The largest amount outstanding under the
promissory note during 2002 was $59,711, plus accrued interest, and on March
21, 2003, this note was paid in full.

On September 27, 2000, the following named executive officers and
directors exercised options granted to them under the Company's 1999
Flexible Stock Plan to purchase shares of the Company's common stock. Under
the terms of the grant, the named executive officers each executed and
delivered a non-recourse, interest bearing promissory note and stock pledge
agreement to the Company in consideration for the purchase of the shares
(the officers and directors received no cash proceeds from these loans) as
follows:

Named Executive Officer Amount Interest Rate Due Date
- ----------------------- ------ ------------- --------

Richard J. Sullivan $1,375,000 6.0% September 27, 2003
Kevin H. McLaughlin $30,250 6.0 September 27, 2003
Jerry C. Artigliere 57,750 6.0 September 27, 2003
Michael E. Krawitz 57,750 6.0 September 27, 2003
Peter Zhou 57,750 6.0 September 27, 2003

Directors Amount Interest Rate Due Date
- --------- ------ ------------- --------

Daniel E. Penni $236,500 6.0 September 27, 2003
Constance K. Weaver 236,500 6.0 September 27, 2003

In September 2000, when the loans were originated, the Company notified
these officers and directors that we intended to pay their annual interest
as part of their compensation expense/directors remuneration and to provide
a gross-up for the associated income taxes. Annual interest payments were
due on September 27, 2001 and September 27, 2002. The Company has chosen not
to pay the interest and related tax gross-up. The Company, therefore,
considers such notes to be in default and is in the process of foreclosing
on the underlying collateral (all of the stock) in satisfaction of the
notes. The Company's decision to take this action relates in part to the
passage of the recent corporate reform legislation under the Sarbanes-Oxley
Act of 2002, which, among other things, prohibits further extension of
credit to officers and directors.

Marc Sherman, the former Chief Executive Officer of Intellesale,
Inc. and brother-in-law of Constance Weaver, a member of the Company's Board
of Directors, has executed six promissory notes in the aggregate amount of
$595,000. The promissory notes are due on demand and bear interest at the
rate of 6% per annum. Mr. Sherman was also indebted to the Company under a
mortgage note with a principal balance of $825,000. During 2001, the highest
balance outstanding on the note was $345,119. The note, which had an
interest rate equal to the prime rate published by the Wall Street Journal
plus 1%, was paid in full in May 2001. In addition, Mr. Sherman is indebted
to the Company under a non-interest bearing promissory note in the amount of
$200,000, the proceeds of which were

used by Mr. Sherman to acquire 100,000 shares of the Company's common stock.
This note is due upon the sale of the Company's common stock by Mr. Sherman.

CHANGE IN CONTROL

Except as disclosed in the Company's Annual Report on Form 10-K with
respect to our arrangements with IBM Credit LLC, there are no arrangements
known to the Company, including any pledge by any person of securities of
the Company, the operation of which may at a subsequent date result in a
change in control of the Company.

Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this Proxy Statement in whole or in part, the
following Performance Graph and Audit Committee Report shall not be
incorporated by reference into any such filings.

PERFORMANCE GRAPH

The following performance graph compares the changes, from December 31,
1997 through December 31, 2002, in the cumulative total value of $100
hypothetically invested in each of (a) the Company's common stock, (b) the
Russell 2000 Stock Index, (c) the Nasdaq Stock Market(R)- U.S. and (d) the
AMEX- U.S.

CUMULATIVE TOTAL RETURN
BASED ON INVESTMENT OF $100
DECEMBER 31, 1997 - DECEMBER 31, 2002

[GRAPH]

-----------------------------------------------------------
Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
- -----------------------------------------------------------------------------------

The Company $100.00 $79.18 $166.67 $15.29 $9.62 $9.11
- -----------------------------------------------------------------------------------
Russell 2000 Index $100.00 $96.55 $115.50 $110.64 $111.78 $87.66
- -----------------------------------------------------------------------------------
Nasdaq US $100.00 $140.99 $261.48 $157.42 $124.89 $86.34
- -----------------------------------------------------------------------------------
Amex - US $100.00 $107.35 $141.64 $131.37 $122.26 $99.97
- -----------------------------------------------------------------------------------

REPORT OF THE AUDIT COMMITTEE

The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. The Committee is comprised of three
Directors and operates under a written charter adopted by the Board of
Directors and amended in May 2003, a copy of which is attached hereto as
Appendix A. All of the audit committee members are independent within the
meaning of Rule 4200(a)(14) of the NASD listing standards, and are
"independent," as that term is defined in Section 10A of the Securities Act
of 1934, as amended. Management has the primary responsibility for the
financial statements and the reporting process, including the Company's
systems of internal controls. In fulfilling its responsibilities, the
Committee reviewed the audited financial statements in the Annual Report
on Form 10-K, as amended, with management, including a discussion of the
quality and acceptability of the Company's financial reporting and controls.

The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting standards, their
judgments as to the quality and acceptability of the Company's financial
reporting and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards, including the matters
required to be discussed by SAS 61 (Communication with Audit Committees). In
addition, the Committee has discussed with the independent auditors the
auditors' independence from management and the Company, including the
matters in the auditors' written disclosures required by Independent
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). Furthermore, the Audit Committee has considered whether the
provision of non-audit services by the independent auditors for the fiscal
year ended December 31, 2002, is compatible with maintaining their
independence.

The Committee also discussed with the Company's independent auditors
the overall scope and plans for its audit. The Committee meets periodically
with the independent auditors, with or without management present, to
discuss the results of its examination, its evaluation of the Company's
internal controls and the overall quality of the Company's financial
reporting.

In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 2002, for filing with the
Securities and Exchange Commission. The Audit Committee has appointed Eisner
LLP to serve as the Company's principal independent public accountants for
the year ending December 31, 2003.

Management is responsible for the Company's financial reporting process
including its system of internal control, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's independent auditors are responsible
for auditing those financial statements. Our responsibility is to monitor
and review these processes. It is not the Committee's duty or responsibility
to conduct auditing or accounting reviews or procedures. The members of the
Committee may not be, and do not represent themselves to be or to serve as,
accountants or auditors by profession or experts in the fields of accounting
or auditing. Therefore, the Committee has relied, without independent
verification, on management's representation that the financial statements
have been prepared with integrity and objectivity and in conformity with
accounting principles generally accepted in the United States of America and
on the independent auditors' report on the Company's financial statements.
The Committee's oversight does not provide it with an independent basis to
determine that management has maintained appropriate accounting and
financial reporting principles or policies, or appropriate internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Committee's considerations
and discussions with management and the independent auditors do not assure
that the Company's financial statements are presented in accordance with
generally accepted accounting principles, that the audit of the Company's
financial statements has been carried out in accordance with generally
accepted auditing standards or that the Company's independent accountants
are in fact "independent."

The Audit Committee is pleased to submit this report to the
shareholders with regard to the above matters.

Dennis G. Rawan, Chairman
Daniel E. Penni
Arthur F. Noterman, (resigned on June 4, 2003)

RATIFICATION OF EISNER LLP AS INDEPENDENT AUDITORS

(ITEM 2)

The Audit Committee has appointed Eisner LLP to serve as independent
auditors of the Company for the year ending December 31, 2003, subject to
ratification by the shareholders of the Company. Eisner LLP has audited the
Company's consolidated financial statements since the year ended December
31, 2002. Audit services of Eisner LLP in 2002 included the examination of
the consolidated financial statements of the Company, review services
relating to the Company's consolidated quarterly reports, as well as certain
services relating to filings with the Securities and Exchange Commission.
Eisner LLP also performed other services for the Company during 2002.

A representative of Eisner LLP is expected to be present at the Meeting
and will have an opportunity to make a statement if he or she so desires.
The Eisner LLP representative will also be available to respond to
appropriate questions from shareholders.

AUDIT AND NON-AUDIT FEES

For the fiscal year ended December 31, 2002, fees for services provided
by Eisner LLP were as follows:

A. Audit Fees $1,137,859

B. Financial Information Systems Design and
Implementation --

C. All Other Fees (review of registration statements
and other services) 473,958
----------
Total Fees $1,611,817
==========

COMPATIBILITY OF FEES

The Audit Committee of the Board of Directors has considered whether
the provision of the services covered in All Other Fees is compatible with
maintaining the principal accountant's independence and has concluded that
the services did not interfere with the principal accountant's independence.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR ratification of the appointment of
Eisner LLP as the Company's independent auditors for the year ending December
31, 2003.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends a vote FOR ratification of the
appointment of Eisner LLP as the Company's independent auditors for the year
ending December 31, 2003.

APPROVAL OF A PROPOSAL TO CHANGE THE COMPANY'S STATE OF INCORPORATION FROM
MISSOURI TO FLORIDA THROUGH THE MERGER OF THE COMPANY INTO A NEWLY-FORMED,
WHOLLY-OWNED FLORIDA SUBSIDIARY

(ITEM 3)

For the reasons set forth below, the Board of Directors believes that
it is in the best interests of the Company and its shareholders to change
the Company's state of incorporation from Missouri to Florida. The Board of
Directors has approved the reincorporation, which would be accomplished by
merging the Company with and into a wholly-owned Florida subsidiary to be
formed upon shareholder approval. In connection with the consummation of the
reincorporation, the subsidiary will change its name to "Applied Digital
Solutions, Inc." The shareholders are being asked to approve the
reincorporation at the Meeting. The reincorporation will have the effect of
changing the Company's state of incorporation from Missouri to Florida. The
reincorporation would not result in any change in the Company's business,
assets or liabilities and would not result in any relocation of management
or other employees.

REASONS FOR THE REINCORPORATION

The Company is seeking to change its state of incorporation to Florida
for a number of reasons. First, the Company's principal executive offices
and operations are in Florida and the Company conducts its Board of Director
and shareholder meetings in Florida. The Company has no offices, employees
or assets in Missouri. In addition, reincorporating the Company in Florida
will simplify corporate administration and eliminate the Company's
obligation to file certain reports and other documents with the State of
Missouri. Accordingly, the Company's Board of Directors believes that it is
more appropriate for Florida law to govern the rights and interests of the
Company and its shareholders rather than Missouri law.

PLAN OF MERGER

The Company will be merged with and into a newly-formed, wholly-owned
Florida subsidiary to be formed upon shareholder approval pursuant to the
terms of the proposed Agreement and Plan of Merger ("Merger Agreement"), a
copy of which is attached as Exhibit A to Appendix B to this Proxy Statement.
Upon the completion of the merger, the owner of each outstanding share of the
Company's common stock will automatically own one share of the subsidiary's
common stock, (i.e. the surviving corporation's common stock). Each
outstanding certificate representing a share or shares of the Company's
common stock will continue to represent the same number of shares in the
subsidiary (i.e., a certificate representing one share of the Company's
common stock will then equal one share of the subsidiary's common stock). IT
WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE COMPANY TO EXCHANGE THEIR
EXISTING STOCK CERTIFICATES. Subject to compliance with Nasdaq Rules, the
Company's common stock will continue to be traded on the Nasdaq SmallCap
Market ("SmallCap") under the symbol "ADSX" subsequent to the merger.

The subsidiary's articles of incorporation and bylaws will be the
articles of incorporation and bylaws of the surviving corporation. The form
of the subsidiary's proposed articles of incorporation are attached hereto
as Appendix C. The discussion contained in this Proxy Statement is qualified
in its entirety by reference to Appendix C and D.

EFFECT OF REINCORPORATION AND MERGER

The reincorporation and the merger will effect a change in the legal
domicile of the Company and other changes of a legal nature, the most
significant of which are described in this Proxy Statement. The
reincorporation and merger will not result in any change in the business,
management, location of the Company's principal executive offices, assets,
liabilities, net worth or accounting practices. Moreover, as noted above,
the shares of common stock will continue to be publicly traded and reported
on the SmallCap, subject to the Company's compliance with Nasdaq Rules. The
merger will not give rise to any appraisal or dissenters' rights.

PRINCIPAL DIFFERENCES IN CORPORATE CHARTERS

The subsidiary's proposed articles of incorporation differ from the
Company's Articles of Incorporation in certain technical aspects. Specific
articles have been included so as to minimize differences in corporate
governance before and after the reincorporation. Although the subsidiary's
proposed articles of incorporation and the Company's Articles of
Incorporation contain similar language to the effect that a director will
not be liable for monetary damages for conduct as a director to the full
extent that each entity's respective state's law permits, the Missouri
General Business and Corporation Law ("MGBCL") and the Florida Business
Corporation Act ("FBCA") have different director and officer indemnification
and director liability provisions. Various differences also exist between
the subsidiary's proposed bylaws and the Company's Bylaws, but none of these
provisions is expected to have a material effect on the Company's
governance. The proposed subsidiary's articles of incorporation are attached
to this Proxy Statement as Appendix C, and the proposed subsidiary's bylaws
are attached as Appendix D.

CERTAIN DIFFERENCES IN CORPORATE LAWS

The MGBCL currently governs the rights of the Company's shareholders.
After the merger, the rights of shareholders will be governed by the FBCA.
The following discussion summarizes certain significant differences between
the provisions of the MGBCL and the FBCA, as applicable to a public company.
Although it is not practical to compare all of the differences between the
laws of Missouri and Florida and the Company's existing organizational
documents and those of the surviving corporation, the following is a summary
of differences the Company believes may significantly affect the rights of
its shareholders. This summary is not intended to be relied upon as an
exhaustive list or complete description of all differences.

Amendment of Articles of Incorporation. Under the MGBCL, the board of
directors may adopt a resolution setting forth the proposed amendment and
directing that it be submitted to a vote at a meeting of shareholders,
except that the proposed amendment need not be adopted by the board of
directors and may be directly submitted to any annual or special meeting of
shareholders. Under the MGBCL, a proposed amendment must be approved by a
majority of the outstanding shares entitled to vote on the amendment unless
any class of shares is entitled to vote separately as a class, in which case
the proposed amendment must also be approved by a majority of the
outstanding shares of such class of shares.

All amendments to a corporation's articles of incorporation must be
approved by shareholders holding a majority of the voting power of the
corporation subject to certain exceptions enumerated in Fl. Stat. 607.1002
and 607.10025. Under the FBCA, an amendment to a corporation's articles of
incorporation must be proposed by the board of directors to the shareholders
and recommended for adoption unless the board determines that, because of a
conflict of interest or other special circumstances, it should make no
recommendation and communicates its basis for its determination to the
shareholders with the amendment. The shareholders entitled to vote on
the amendment must approve it by a majority of the votes entitled to be cast
on the amendment (i) by any voting group with respect to which the amendment
would create dissenters' rights, and (ii) by a majority of the votes of
every other voting group entitled to vote on the amendment. The articles of
incorporation or the board of directors may provide for a greater voting
requirement.

Fl. Stat. 607.1002 of the FBCA provides that a corporation may amend
its articles of incorporation by board approval without shareholder action
(i) to extend the duration of the corporation if it was incorporated at a
time when limited duration was required by law, (ii) to delete the names and
addresses of the initial directors, (iii) to delete any other information
contained in the articles of incorporation that is solely of historical
interest, (iv) to delete the authorization for a class or series of shares
authorized pursuant to Fl. Stat. 607.0602, if no shares of such class or
series are issued, (v) to change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.,"
"Inc.," or "Co.," for a similar word or abbreviation in the name, or by
adding, deleting, or changing a geographical attribution for the name, (vi)
to change the par value for a class or series of shares, (vii) to provide
that if the corporation acquires its own shares, such shares belong to the
corporation and constitute treasury shares until disposed of or canceled by
the corporation; or (viii) to make any other change expressly permitted by
this act to be made without shareholder action.

Although MGBCL Stat. 351.090 requires shareholder approval to
effectuate a forward or reverse stock split, Fl. Stat. 607.10025 of the FBCA
provides that in certain circumstances and unless the articles of
incorporation provide otherwise, a corporation may effect a division or
combination of its shares (i.e. effectuate a forward or reverse stock split)
solely by the action of the board of directors. In effecting a share
combination or division, the board shall have authority to amend the
articles to (i) increase or decrease the par value of shares, (ii) increase
or decrease the number of authorized shares, (iii) make any other changes
necessary or appropriate to assure that the rights or preferences of each
holder of outstanding shares of all classes and series will not be adversely
affected by the combination or division.

The Company believes that a reverse stock split in the future may be
desirable because the increased market price of the Company's common stock
expected as a result of implementing a reverse stock split may encourage
investor interest and improve the marketability of the Company's common
stock. The Company has no present plans to effectuate a reverse stock split.
The Company of course cannot predict whether, if ever effectuated, a reverse
split would achieve the desired results as the price per share of its common
stock is also a function of the Company's financial performance and
furthermore, the liquidity of the Company's common stock may be adversely
affected by a reverse stock split given the reduced number of shares that
would be outstanding after the reverse stock split.

Provisions Affecting Acquisitions and Business Combinations. The MGBCL
provides for two anti-takeover provisions, in the form of a "fair price"
provision and a "control share acquisition" provision. The "fair price"
statute restricts certain business combinations (e.g., mergers and
dispositions of assets of a corporation or any subsidiary having an
aggregate market value of 10% or more of the total market value of the
corporation's outstanding stock) between a corporation and an interested
shareholder (e.g., a beneficial owner of 20% or more of the voting power of
the outstanding shares of a corporation). The fair price statute generally
precludes a corporation from engaging in any business combination with an
interested shareholder within five years after the acquisition pursuant to
which the shareholder became an interested shareholder, unless either (i)
the business combination or the acquisition pursuant to which the interested
shareholder became interested was approved by the board of directors before
the acquisition, (ii) the business combination is approved by the
affirmative vote of the holders of a majority of the outstanding
shares not beneficially owned by the interested stockholder or his
affiliates or associates at a meeting called for that purpose at least five
years after the acquisition pursuant to which the interested shareholder
became interested, or (iii) certain minimum price criteria are satisfied.

The "control share acquisition" statute precludes any person who
acquires voting shares in a corporation in excess of specified thresholds of
voting power in the corporation (i.e., 20%, 33 1/3%, and over 50%) from
voting the shares held in excess of the applicable threshold, except to the
extent voting rights for such shares are granted by resolution approved by
the corporation's shareholders. The resolution must be approved by (i) each
voting group entitled to vote separately, (ii) a majority of all votes
entitled to be cast by that group, and (iii) a majority of all votes
entitled to be cast by that group excluding all interested shares.
Interested shares include those over which the acquiring person, any officer
of the corporation, and any employee of the corporation who is also a
director may exercise or direct the power to vote.

The FBCA also provides for a "fair price" provision and a "control
share acquisition" provision. The "fair price" statute restricts certain
business combinations (e.g., mergers and dispositions of assets of a
corporation or any subsidiary having an aggregate market value of 5% or more
of the total market value of the corporation's outstanding stock, total
assets or net income) between a corporation and an interested shareholder
(e.g., a beneficial owner of 10% or more of the voting power of the
outstanding shares of a corporation). The fair price statute generally
precludes a corporation from engaging in any business combination with an
interested shareholder within five years after the acquisition pursuant to
which the shareholder became an interested shareholder, unless either (i)
the business combination or the acquisition pursuant to which the interested
shareholder became interested was approved by the board of directors before
the acquisition, (ii) the business combination is approved by the
affirmative vote of the holders of two-thirds of the outstanding shares not
beneficially owned by the interested stockholder or his affiliates or
associates, or (iii) certain minimum price criteria are satisfied.

The "control share acquisition" statute precludes any person who
acquires voting shares in a corporation in excess of specified thresholds of
voting power in the corporation (i.e., 20%, 33 1/3%, and over 50%) from
voting the shares held in excess of the applicable threshold, except to the
extent voting rights for such shares are granted by resolution approved by
the corporation's shareholders. The resolution must be approved by (i) each
voting group entitled to vote separately by a majority of all votes entitled
to be cast by that group, and (ii) a majority of all votes entitled to be
cast by that group excluding all interested shares. Interested shares
include those over which the acquiring person, any officer of the
corporation, and any employee of the corporation who is also a director may
exercise or direct the power to vote.

Mergers, Acquisitions and Other Transactions. Under the MGBCL, a
merger, consolidation, sale of all or substantially all of a corporation's
assets other than in the regular course of business, or dissolution of a
public corporation must be approved by the affirmative vote of a majority of
directors when a quorum is present, and by two-thirds of all votes entitled
to be cast by each voting group entitled to vote as a separate group, unless
another proportion is specified in the articles of incorporation. Under the
FBCA, a merger, consolidation, sale of all or substantially all of a
corporation's assets other than in the regular course of business or
dissolution of a corporation requires the affirmative vote of a majority of
all shares entitled to vote by each voting group entitled to vote as a
separate group, unless another proportion is specified in the articles of
incorporation.

Action Without a Meeting. Under the MGBCL, shareholder action may be
taken without a meeting if written consents setting forth such action are
signed by all holders of outstanding shares entitled to vote thereon. The
FBCA also authorizes shareholder action without a meeting if consents are
received from holders of the requisite number of votes entitled to vote
thereon.

Class Voting. Under the MGBCL, the articles of incorporation may
authorize one or more classes of shares that have special, conditional or
limited voting rights, including the right to vote on certain matters as a
group. The articles of incorporation may not limit the rights of holders of
a class to vote as a group with respect to certain amendments to the
articles of incorporation and certain mergers that adversely affect the
rights of holders of that

class. The FBCA requires voting by separate classes only with respect to
amendments to the certificate of incorporation that adversely affect the
holders of those classes or that increase or decrease the aggregate number
of authorized shares or the par value of the shares of any of those classes.

Appraisal or Dissenters' Rights. Under the MGBCL a shareholder is
entitled to dissent from and, upon perfection of his or her appraisal right,
to obtain fair value of his or her shares in the event of certain corporate
actions, including certain mergers, consolidations, share exchanges, sales
of substantially all assets of the corporation, and amendments to the
corporation's articles of incorporation that materially and adversely affect
shareholder rights.

Under Florida law, shareholders have the right to dissent from a merger
or sale of substantially all of the assets of the corporation, except when a
shareholder vote is not required or the corporation's shares are listed on a
national securities exchange, [traded on the NASDAQ National Market System,]
or held of record by not fewer than 2,000 shareholders. This exception is
not available if the corporation's articles of incorporation provide
otherwise; the subsidiary's proposed articles do not provide otherwise.
Shareholders also have dissenters' rights with respect to amendments to the
corporation's articles of incorporation that may adversely affect the rights
or preferences of shareholders.

Indemnification of Directors and Officers. Under the MGBCL, a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative,
against expenses, including attorneys' fees, judgments, fine and amounts
paid in settlement incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. No
indemnification may be given under the MGBCL if the person is judged liable
for negligence or misconduct in the performance of his or her duty to the
corporation unless the court determines the person is fairly and reasonably
entitled to indemnity. The subsidiary's proposed articles of incorporation
provide that it shall indemnify its directors and officers to the fullest
extent not prohibited by law, including indemnification for payments in
settlement of actions brought against a director or officer in the name of
the corporation, commonly referred to as a derivative action.

Under the FBCA, indemnification of directors and officers is authorized
to cover judgments, amounts paid in settlement, and expenses arising out of
non-derivative actions where the director or officer acted in good faith and
in a manner he or she believed to be in or not opposed to the best interests
of the corporation and, with respect to a criminal action, if he or she had
no reasonable cause to believe that his or her conduct was unlawful.
Indemnification is required to the extent of a director's or officer's
successful defense. Additionally, under the FBCA, a corporation may
reimburse directors and officers for expenses incurred in a derivative
action.

The Company has included undertakings in various registration
statements filed with the Securities and Exchange Commission that in the
event a claim for indemnification is asserted by a director or officer
relating to liabilities under the Securities Act of 1933, as amended, the
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification would be against public
policy and will be governed by any final adjudication of such issue.

ACCOUNTING TREATMENT/FEDERAL TAX CONSEQUENCES

Applying generally accepted accounting principles, the Company will not
recognize any gain or loss as a result of the reincorporation. In addition,
the consolidated financial statements of the subsidiary immediately after the
reincorporation will be identical to those of the Company immediately prior
to the reincorporation.

The Company has been advised by its legal counsel that, for federal
income tax purposes, the reincorporation will constitute a reorganization
under Section 368 of the Code. Under Section 368 of the Code, the Company's
shareholders will recognize no gain or loss as a result of the
reincorporation and, in determining the federal tax basis and holding period
of their new shares, will retain the tax basis and include the holding
period that applied to their old shares. In addition, under Section 368 of
the Code, neither the Company nor the subsidiary will recognize any gain or
loss as a result of the reincorporation, and the subsidiary will succeed
without adjustment to the tax attributes of the Company.

Although the state and local income tax consequences of the
reincorporation are expected to be the same as the federal income tax
consequences described above, the Company's shareholders should consult
their own tax advisors about the possible state, local, or foreign income
tax consequences that may result from the reincorporation.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of the holders
of two-thirds of the outstanding shares of the Company's common stock must
be received in favor of this proposal. Unless a contrary choice is
specified, proxies solicited by the Board of Directors will be voted FOR the
reincorporation proposal.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF A PROPOSAL TO
CHANGE THE COMPANY'S STATE OF INCORPORATION FROM MISSOURI TO FLORIDA THROUGH
THE MERGER OF THE COMPANY INTO A WHOLLY-OWNED FLORIDA SUBSIDIARY TO BE
FORMED UPON SHAREHOLDER APPROVAL.

APPROVAL AND ADOPTION OF THE COMPANY'S 2003 FLEXIBLE STOCK PLAN
(ITEM 4)

INTRODUCTION

On May 14, 2003, the Board of Directors adopted, subject to shareholder
approval, the Applied Digital Solutions, Inc. 2003 Flexible Stock Plan
("Plan"). The Plan is intended to attract, retain, motivate and reward
employees, directors and other individuals and to encourage ownership by
employees, directors and other individuals of the Company's common stock.
The Plan is also intended to allow the Company to grant awards of its common
stock in lieu of payments of cash compensation pursuant to the mutual
agreement of a participant and the Company. An employee is an individual
employed by the Company or a subsidiary. The Plan provides for benefits
(collectively "Benefits") to be awarded in the form of Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights (as
described below and referred to hereafter as "SARs"), Restricted Stock,
Performance Shares, Cash Awards, and Other Stock Awards, each of which is
defined below. This Plan is intended to be "Broadly Based" (as such term is
used for purposes of rules promulgated by The National Association of
Securities Dealers).

Set forth below is a description of the essential features of the Plan.
This description is subject to and qualified in its entirety by the full text of
the Plan, which is attached to this Proxy Statement as Appendix E.

DESCRIPTION OF THE PLAN

NUMBER OF SHARES

The number of shares of common stock which may be issued in connection with
Benefits shall be 14,000,000 shares. Furthermore, the maximum number of shares
available for Incentive Stock Option awards is 7,000,000 shares. Such shares may
be authorized but unissued shares, shares held in the Company's treasury, or
both. If an option or SAR expires or is terminated, surrendered or canceled,
without having been fully exercised, if Restricted Stock or Performance Shares
are forfeited, or if any other grant results in shares of common stock not being
issued, the shares covered by such option or SAR, grant of shares of Restricted
Stock, Performance Shares or other grant, as the case may be, shall again be
available for use under the Plan.

If there is any change in the common stock of the Company by reason of any
stock dividend, spin-off, split-up, spin-out, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares, the number of
SARs and number and class of shares available for options and grants of
Restricted Stock, Performance Shares and Other Stock Based Awards and the number
of shares subject to any outstanding options, SARs, grants of Restricted Stock
Performance Shares which are not yet vested, and Other Stock Based Awards, and
the price thereof, as applicable, will be appropriately adjusted.

ADMINISTRATION

The Plan is administered by a committee ("Committee"). The Committee shall
consist of the Board of Directors, unless the Board of Directors appoints a
Committee of two or more but less than all of the Board of Directors. If the
Committee does not include the entire Board, it shall serve at the pleasure of
the Board of Directors, which may from time to time appoint members in
substitution for members previously appointed and fill vacancies, however
caused, in the Committee.

Subject to the express provisions of the Plan, the Committee has complete
authority to:

o determine when and to whom Benefits are granted and the type
and amounts of Benefits;

o determine the terms, conditions and provisions of, and
restrictions relating to, each Benefit granted;

o interpret and construe the Plan and any agreement ("Agreement")
evidencing and describing a Benefit;

o prescribe, amend and rescind rules and regulations relating to
the Plan;

o determine the form and contents of all Agreements;

o determine all questions relating to Benefits under the Plan; and

o take any other action which it considers necessary or appropriate
for the administration of the Plan and to carry out the purposes
of the Plan.

Except as required by Rule 16b-3 with respect to Benefits granted to
persons who are subject to Section 16 of the Exchange Act (consisting of
directors and officers), the Committee may delegate its authority to any
employee, employees or committee.

AMENDMENT, TERMINATION AND CHANGE IN CONTROL

The Board of Directors may amend the Plan at any time. However, the Board
of Directors may not amend the Plan without shareholder approval if such
amendment:

o would cause options, which are intended to qualify as Incentive
Stock Options to fail to qualify as such;

o would cause the Plan to fail to meet the requirements of
Rule 16b-3; or

o would violate applicable law.

The Plan has no fixed termination date and shall continue in effect until
terminated by the Board of Directors.

The amendment or termination of the Plan will not adversely affect any
Benefit granted prior to such amendment or termination. However, any Benefit may
be modified or canceled by the Compensation Committee if and to the extent
permitted by the Plan or Agreement or with the consent of the participant to
whom such Benefit was granted.

In the event of a Change in Control, as defined below, all Incentive Stock
Options and Non-Qualified Stock Options shall become fully exercisable, all
Stock Appreciation Rights shall become immediately payable, all Restricted Stock
shall become vested, all Performance Shares shall be deemed fully earned, and
all Cash Awards, Other Stock Based Awards, and other Benefits shall become fully
vested, exercisable or payable. In addition, the Compensation Committee may, to
the extent not inconsistent with the above, provide such protection as it deems
necessary to maintain a participant's rights, including, without limitation:

o providing for purchase of a benefit for an amount in cash equal to
the amount which could have been attained upon the exercise or
realization of such benefit;

o making such adjustment to the outstanding benefits as the
Compensation Committee deems appropriate; and/or

o causing the outstanding benefits to be assumed, or new benefits
substituted therefor, by the surviving corporation. "Change in
Control" means:

o the acquisition by any person or group, other than the Company
and certain related entities, of more than 20% of the
outstanding shares of common stock;

o a change in the majority of the members of the Board of
Directors during any two year period which is not approved by
at least two-thirds of the members of the Board of Directors
who were members at the beginning of the two year period;

o a merger or consolidation involving the Company in which the
shareholders of the Company prior to the effective date of the
transaction do not have more than 50% of the voting power of
the surviving entity immediately following the transaction; or

o the liquidation or dissolution of the Company, or

o a sale or other disposition of all or substantially all of its
assets.

ELIGIBILITY FOR BENEFITS

Benefits may be awarded to individuals selected by the Committee.
Benefits may be awarded only to employees, members of the Board of
Directors, (including former employees and former members of the Board of
Directors if in connection with their separation from the Company),
employees and owners of entities which are not affiliates but which have a
direct or indirect ownership interest in an employer, individuals who, and
employees and owners of entities which, are customers or suppliers of an
employer, individuals who, and employees and owners of entities which,
render services to an employer, and individuals who, and employees and
owners of entities which, have ownership or business affiliations with any
individual or entity previously described. Incentive Stock Options may be
granted only to employees.

TYPES OF BENEFITS

Under the Plan, the Committee may grant a number of different types of
Benefits. A summary of the principal characteristics of various types of
Benefits which may be granted is set forth below.

Stock Options. Two types of stock options may be granted under the Plan.
Stock options intended to qualify for special tax treatment under Section 422 of
the Code are referred to as "Incentive Stock Options," and options not intended
to so qualify are referred to as "Non-Qualified Stock Options." In the case of
Non-Qualified Stock Options, the option price shall be determined by the
Compensation Committee but shall be no less than 85% of the fair market value of
the shares of common stock on the date the option is granted, and, in the case
of Incentive Stock Options, the price shall be determined by the Compensation
Committee but shall be no less than the fair market value of the shares of
common stock on the date the option is granted.

The other terms of options shall be determined by the Committee. However,
in the case of options intended to qualify as Incentive Stock Options, such
terms must meet all requirements of Section 422 of the Code. Currently, such
requirements are:

o the option must be granted within 10 years from the adoption of
the Plan,

o the option may not have a term longer than 10 years,

o the option must be not transferable other than by will or the
laws of descent and distribution and may be exercised only by
the optionee during his/her lifetime,

o the maximum aggregate fair market value of common stock with
respect to which such options are first exercisable by an
optionee in any calendar year may not exceed $100,000; and

o the option must be granted to an employee.

In addition, if the optionee owns more than 10% of the Company's common
stock or more than 10% of the total combined voting power of all classes of
stock of any subsidiary, the option price must be at least 110% of fair market
value of the shares of common stock on the date the option is granted, and the
option may not have a term longer than five years.

SARs. A SAR is the right to receive an amount equal to the appreciation in
value of one share of common stock from the time the SAR is granted until the
time the grantee elects to receive payment. Participants who elect to receive
payment of SARs shall receive payment in cash, in common stock or in any
combination of cash and common stock, as determined by the Committee. When SARs
are granted in tandem with an Incentive Stock Option, the SARs must contain such
terms and conditions as are necessary for the related option to qualify as an
Incentive Stock Option. In addition, if SARs are granted in tandem with a stock
option: the exercise of the option shall cause a correlative reduction in the
SARs; and the payment of SARs shall cause a correlative reduction in the shares
under the option.

Restricted Stock. Restricted Stock is common stock which is subject to
forfeiture until a period of time has elapsed or certain conditions have been
fulfilled. Unless the Committee determines otherwise, shares of Restricted Stock
shall be granted at a cost equal to par value (presently $.001 per share).
Certificates representing shares of Restricted Stock shall bear a legend
referring to the Plan, noting the risk of forfeiture of the shares and stating
that such shares are non-transferable until all restrictions have been satisfied
and the legend has been removed. At the discretion of the Committee, the grantee
may or may not be entitled to full voting and dividend rights with respect to
all shares of Restricted stock from the date of grant.

Performance Shares. Performance Shares are the right to receive common
stock or cash equal to the fair market value of the common stock at a future
date in accordance with the terms of the grant. Generally, such right shall be
based upon the attainment of targeted profit and/or other performance
objectives.

Cash Awards. A Cash Award is a Benefit payable in cash. The maximum
cash award that an individual who is subject to Section 16 of the Exchange Act
may receive in any calendar year in the aggregate is the greater of $100,000 or
100% of his/her compensation (excluding any Cash Award) for such year.

Other Stock Based Awards. An Other Stock Based Award is an award that is
valued in whole or in part by reference to, or is otherwise based on, common
stock. The Committee shall have the right to grant shares in lieu of the payment
of cash compensation pursuant to the mutual agreement of the participant and the
Company.

GENERAL PROVISIONS APPLICABLE TO BENEFITS

Under the Plan, the following provisions are applicable to one or more
types of Benefits.

Agreement and Terms of Benefits. The grant of any Benefit may be evidenced
by an Agreement which describes the specific Benefit granted and the terms,
conditions and provisions of, and restrictions relating to, such Benefit. Any
Agreement shall contain such provisions as the Committee shall determine to be
necessary, desirable and appropriate.

Transferability. Unless otherwise specified in an agreement or permitted by
the Committee, each Benefit shall be non-transferable other than by will or the
laws of descent and distribution and shall be exercisable during a participant's
lifetime only by him/her.

Tandem Awards. Awards may be granted by the Committee in tandem. However,
no Benefit may be granted in tandem with an Incentive Stock Option except SARs.

Payment. Upon the exercise of an option or in the case of any other Benefit
that requires a payment to the Company, payment may be made either:

o in cash, including a so-called "cashless exercise," or

o with the consent of the Committee,

o by the tender of shares of common stock having an aggregate
fair market value equal to the amount due the Company,

o in other property,

o by the surrender of all or part of a Benefit
(including the Benefit being exercised or acquired),
or by any combination of the foregoing.

Dividend Equivalents. Grants of Benefits in common stock or common stock
equivalents may include dividend equivalent payments or dividend credit right.

Deferral. The right to receive a Benefit may, upon the request of the
request of the recipient, be deferred for such period and upon such conditions
as the Committee may determine.

Withholding. At the time any Benefit is distributed under the Plan, the
Company may withhold, in cash or in shares of common stock, from such
distribution any amount necessary to satisfy income withholding requirements
applicable to such distribution.

Limitation on Benefits. The number of shares covered by options where the
purchase price is no less than fair market value on the date of grant plus SARs
which may be granted to any one individual in any calendar year shall not exceed
5,000,000.

RESTRICTIONS ON SHARES

The Committee may require each person purchasing common stock pursuant to
an option or receiving common stock pursuant to any other form of Benefit under
the Plan to represent to and agree with the Company in writing that such person
is acquiring the shares for investment and without a view to distribution or
resale. In addition, shares issued under the Plan may be subject to restrictive
agreements between the Company or a subsidiary and the participant. The
Committee may require that a legend reflecting any restriction described above
be placed on any certificate for shares.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

The following is a summary of the U.S. federal income tax consequences of
the Plan, based on current income tax laws, regulations and rulings.

INCENTIVE STOCK OPTIONS

Subject to the effect of the Alternative Minimum Tax, discussed below, an
optionee does not recognize income on the grant of an Incentive Stock Option. If
an optionee exercises an Incentive Stock Option in accordance with the terms of
the option and does not dispose of the shares acquired within two years from the
date of the grant of the option nor within one year from the date of exercise,
the optionee will not realize any income by reason of the exercise, and the
Company will be allowed no deduction by reason of the grant or exercise. The
optionee's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, his/her gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his/her gain or loss will be the difference between the amount
realized on the disposition of the shares and his/her basis in the shares.

If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise ("Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of

o the amount realized on the Early Disposition, or

o the fair market value of the shares on the date of exercise,
over the optionee's basis in the shares.

The Company will be entitled to a deduction in an amount equal to such income.
The excess, if any, of the amount realized on the Early Disposition of such
shares over the fair market value of the shares on the date of exercise will be
long-term or short-term capital gain, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at the time of
Early Disposition. If an optionee disposes of such shares for less than his/her
basis in the shares, the difference between the amount realized and his/her
basis will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of disposition.

The excess of the fair market value of the shares at the time the Incentive
Stock Option is exercised over the exercise price for the shares is an item of
tax preference ("Stock Option Preference") which is discussed below.

NON-QUALIFIED STOCK OPTIONS

Non-Qualified Stock Options do not qualify for the special tax treatment
accorded to Incentive Stock Options under the Code. Although an optionee does
not recognize income at the time of the grant of the option, he recognizes
ordinary income upon the exercise of a Non-Qualified Option in an amount equal
to the difference between the fair market value of the stock on the date of
exercise of the option and the amount of cash paid for the stock.

As a result of the optionee's exercise of a Non-Qualified Stock Option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will be taken
in the Company's taxable year in which the option is exercised.

The excess of the fair market value of the stock on the date of exercise of
a Non-Qualified Stock Option over the exercise price is not a Stock Option
Preference.

SARS

Recipients of SARs do not recognize income upon the grant of such rights.
When a participant elects to receive payment of an SAR, he recognizes ordinary
income in an amount equal to the cash and fair market value of shares of common
stock received, and the Company is entitled to a deduction equal to such amount.

RESTRICTED STOCK; PERFORMANCE SHARES

Grantees of Restricted Stock and Performance Shares do not recognize income
at the time of the grant of such stock. However, when shares of Restricted Stock
become free from any restrictions or when Performance Shares are paid, grantees
recognize ordinary income in an amount equal to the fair market value of the
stock on the date all restrictions are satisfied, less, in the case of
Restricted Stock, the amount paid for the Stock. Alternatively, the grantee of
Restricted Stock may elect to recognize income upon the grant of the stock and
not at the time the restrictions lapse, in which case the amount of income
recognized will be the fair market value of the stock on the date of grant. The
Company will be entitled to deduct as compensation the amount includible in the
grantee's income in its taxable year in which the grantee recognizes the income.

CASH AWARDS

Cash Awards are taxable as ordinary income when received or constructively
received by a participant. The Company is entitled to deduct the amount of a
Cash Award when the award is taxable to the recipient.

TAXATION OF PREFERENCE ITEMS

Section 55 of the Code imposes an Alternative Minimum Tax equal to the
excess, if any, of (i) 26% of the optionee's "alternative minimum taxable
income" up to $175,000 plus 28% of such income over $175,000 over (ii) his/her
"regular" U.S. federal income tax. Alternative minimum taxable income is
determined by adding the optionee's Stock Option Preference and any other items
of tax preference to the optionee's adjusted gross income and then subtracting
certain allowable deductions and an exemption amount. The exemption amount is
$35,750 for single taxpayers, $49,000 for married taxpayers filing jointly and
$24,500 for married taxpayers filing separately. However, these exemption
amounts are phased out beginning at certain levels of alternative minimum
taxable income.

CHANGE OF CONTROL

If there is an acceleration of the vesting or payment of Benefits and/or an
acceleration of the exercisability of stock options upon a Change of Control,
all or a portion of the accelerated benefits may constitute "Excess Parachute
Payments" under Section 280G of the Code to certain officers, shareholders, or
highly-compensated individuals. The individual receiving an Excess Parachute
Payment incurs an excise tax of 20% of the amount of the payment in excess of
the individual's average annual compensation over the five calendar years
preceding the year of the Change of Control, and the Company is not entitled to
a deduction for such payment.

LIMITATION ON DEDUCTION

Section 162(m) of the Code provides that no deduction will be allowed for
certain remuneration with respect to a covered employee to the extent such
remuneration exceeds $1,000,000. Under the regulations interpreting Code Section
162(m), an employee is a covered employee if his/her compensation is required to
be reported under the SEC's disclosure rules and he is employed as of the last
day of the taxable year. Code Section 162(m) does not apply to: (a) compensation
payable solely on account of the attainment of one or more performance goals if
(i) the goals are determined by a committee of two or more outside directors,
(ii) the material terms under which the remuneration will be paid, including the
goals, is disclosed to shareholders and approved by a majority of the
shareholders, and (iii) except in the case of SARs and certain stock options (as
described below), the committee certifies that the goals have been met; and (b)
compensation payable under a binding contract in effect on February 17, 1993
which is not thereafter modified in any material respect. Compensation arising
from SARs and stock options where the price from which appreciation is
calculated or exercise price, as the case may be, is no less than fair market
value on the date of grant constitute compensation on amount of attainment of a
performance goal as long as the committee described above grants the SARs or
options and the shareholders approve the maximum number of shares per
participant over a specific time period. The $1,000,000 limitation is reduced by
any remuneration subject to such limitation for which a deduction is disallowed
under the Change of Control provisions set forth above.

SUMMARY ONLY

The foregoing statement is only a summary of the U.S. federal income tax
consequences of the Plan and is based on the Company's understanding of present
U.S. federal tax laws and regulations.

NEW PLAN BENEFITS

During 2002, the Company granted 10,126,000 options under its 1999
Flexible Stock Plan and 1996 Non-Qualified Stock Option Plan. As of December
31, 2002, the following shares of the Company's common stock were authorized
for issuance under the Company's equity compensation plans:

EQUITY COMPENSATION PLAN INFORMATION

(a) (b) (c)
Plan Category (1) Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price remaining available for
of outstanding options, per share of future issuance under
warrants and rights outstanding equity compensation
options, warrants plans (excluding
and rights securities reflected in
column (a))

Equity compensation plans
approved by security holders 34,039,000 $0.71 7,183,000(2)(3)

Equity compensation plans not
approved by security holders -- -- --
------------------------------------------------------------------------
Total 34,039,000 $0.71 7,183,000
=========================================================================

<FN>
(1) A narrative description of the material terms of the Company's
equity compensation plans is set forth in Note 13 to the Company's
consolidated financial statements, which are set forth in the Company's
Annual Report on Form 10-K/A filed with the Securities and Exchange
Commission on April 4, 2003.

(2) In addition to the shares available for future issuance reflected
in the above table, the shares available for future issuance under the 2003
Flexible Stock Plan, if approved, would be 14,000,000.

(3) Includes 6,900,000 shares available for future issuance under the
Company's 1999 Employees Stock Purchase Plan.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR approval and adoption of the Company's
2003 Flexible Stock Plan.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
COMPANY'S 2003 FLEXIBLE STOCK PLAN.

RATIFICATION OF OPTIONS GRANTED UNDER THE COMPANY'S 1999 FLEXIBLE
STOCK PLAN, THE 1996 NON-QUALIFIED STOCK OPTION
PLAN, AND THE 1999 EMPLOYEES STOCK PURCHASE PLAN

(ITEM 5)

Under the 1999 Flexible Stock Plan approved by the shareholders, options to
acquire a total of 9,916,000 shares of common stock have been granted in 2002 by
the committee designated for such purpose. No further shareholder approval is
required for the issuance of such options. However, shareholder ratification of
such options at the Annual Meeting will allow the holders of these options to
have the benefit of Rule 16b-3 under the Exchange Act, which, among other
things, exempts certain grants of options to officers and directors of the
Company from the provisions of Section 16(b) of such Exchange Act.

Under the 1996 Non-Qualified Stock Option Plan approved by the
shareholders, options to acquire a total of 210,000 shares of common stock have
been granted in 2002 by the committee designated for such purpose. No further
shareholder approval is required for the issuance of such options. However,
shareholder ratification of such options at the Annual Meeting will allow the
holders of these options to have the benefit of Rule 16b-3 under the Exchange
Act, which, among other things, exempts certain grants of options to officers
and directors of the Company from the provisions of Section 16(b) of such
Exchange Act.

Under the 1999 Employees Stock Purchase Plan approved by the shareholders,
options to acquire a total of 1,152,011 shares of common stock have been granted
in 2002 by the committee designated for such purpose. No further shareholder
approval is required for the issuance of such options. However, shareholder
ratification of such options at the Annual Meeting will allow the holders of
these options to have the benefit of Rule 16b-3 under the Exchange Act, which,
among other things, exempts certain grants of options to officers and directors
of the Company from the provisions of Section 16(b) of such Exchange Act.

VOTE REQUIRED

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF OPTIONS
GRANTED UNDER THE COMPANY'S 1999 FLEXIBLE STOCK PLAN, THE 1996 NON-QUALIFIED
STOCK OPTION PLAN, AND THE 1999 EMPLOYEES STOCK PURCHASE PLAN.

APPROVAL OF THE ISSUANCE OF THE COMPANY'S COMMON STOCK AND
RATIFICATION OF THE RE-PRICING OF STOCK OPTIONS UNDER THE SEVERANCE
AGREEMENT ENTERED INTO WITH RICHARD J. SULLIVAN

(ITEM 6)

On March 21, 2003, the Board of Directors authorized the Company's entering
into a severance agreement with Richard J. Sullivan, the Company's then Chairman
of the Board of Directors and Chief Executive Officer, providing for:

o the Company's issuance to him of 56,000,000 shares of the
Company's common stock (to be issued following the Company's
registration of the shares for resale with the Securities and
Exchange Commission); and

o the re-pricing of stock options held by him exercisable for an
aggregate of 10,885,000 shares of the Company's common stock
in full satisfaction of all compensation and benefits owed to
Richard Sullivan under his employment agreement. As explained
more fully below, the share issuance and re-pricing of options
require shareholder approval;

in full satisfaction of all compensation and benefits owed to Richard
Sullivan under his employment agreement. As explained more fully below, the
share issuance and re-pricing of options require shareholder approval.

BACKGROUND INFORMATION

As the Company has previously reported, in early March of this year,
IBM Credit LLC (IBM Credit) notified the Company that the Company was in
default under the terms of the credit agreement among the IBM Credit, as
lender, and the Digital Angel Share Trust (which holds the shares of common
stock of the Company's majority-owned subsidiary, Digital Angel Corporation,
beneficially owned by the Company) and the Company, as borrowers. The
default was triggered by the Company's failure to pay an aggregate amount of
roughly $46.2 million on February 28, 2003, the due date for such payment.
IBM Credit also advised the Company that IBM Credit intended to exercise its
rights and remedies under the credit agreement immediately. IBM Credit
promptly enforced its security interests in the Company's deposit accounts
at various banking institutions. As a result, the Company faced the prospect
of a cessation of its operations and liquidation of its assets.

Over the next several weeks the Company's management engaged in
discussions with IBM Credit representatives that led to the Company's
entering into a forbearance agreement with IBM Credit in early April. The
Forbearance Agreement provides, among other things, that:

o IBM Credit will forbear from the further exercise of any and all rights
and remedies under the credit agreement, subject to the terms and
conditions of the forbearance agreement, for a forbearance period. The
forbearance period began on April 1, 2003, the date when certain
conditions precedent were satisfied, and is to continue until the
earlier to occur of (i) the repayment in full of the outstanding loans
and other obligations in the time and manner specified, or (ii) the
occurrence of a "Termination Event."

o The outstanding indebtedness and all other obligations to IBM Credit
(which amounted to approximately $92.1 million as of March 31, 2003)
can be "purchased" by or on behalf of the Company as follows:

- for $30 million in cash on or before June 30, 2003;

- for $50 million in cash on or before September 30, 2003;

o Within 30 days of the commencement of the forbearance period, the
Digital Angel Share Trust is to engage an investment bank for purposes
of effecting the sale of the shares of common stock of Digital Angel
held by the Trust.

o The Company must be cash flow positive on a consolidated
operational basis (excluding the operations of two of its
subsidiaries, Digital Angel Corporation and InfoTech USA, Inc.
(formerly SysComm International Corporation) at all times from and
after May 1, 2003. The Company is obligated to provide IBM Credit,
on a weekly basis, with a detailed budget in respect of each
operating subsidiary of the Company on a rolling 13-week basis,
itemizing all revenues projected to be received and all expenses
proposed to be made in the ordinary course of business. Further,
the Company must transfer all revenues from operations into deposit
accounts under the control of IBM Credit, to be made available to
the Company to pay expenditures in accordance with the submitted
budget for the applicable week.

In the course of the discussions with IBM Credit, the Board of
Directors determined that entering into an arrangement with IBM Credit that
would forestall IBM Credit's exercise of its rights and remedies under the
credit agreement and give the Company an opportunity to continue in business
would not be feasible if Richard Sullivan and Jerome C. Artigliere, the
Company's then Chief Operating Officer, remained with the Company. As a
result, the Company reviewed the terms of the employment agreements with
Messrs. Richard Sullivan and Jerome Artigliere (see Item 7 below), and the
employment agreement and severance agreement previously entered into with
Garrett Sullivan (see Item 8 below), to ascertain the Company's obligations
to each of them under such agreements. In Richard Sullivan's case, his
employment agreement provides for:

o an annual salary of not less than $450,000 and an annual bonus of
not less than $140,000 for the term of his employment agreement
(which was due to expire March 1, 2008, roughly five years later);

o supplemental compensation of $2,250,000 (to be paid in 60 equal monthly
payments of $37,500 each), in the event of a termination of his
employment for any reason other than a termination due to his material
default under the agreement; and

o a lump sum payment of $12,105,000, upon the occurrence of a
"Triggering Event," defined under the employment agreement to
include a change of control of the Company or his ceasing to serve
as the Company's Chairman of the Board or Chief Executive Officer
for any reason other than due to his material default, with the
Company having the option to pay this amount in cash or the
Company's common stock or any combination of the two, provided that
there must be sufficient cash to pay Richard Sullivan's tax
liability. In the event the Company opted to make any portion of
the payment in

common stock, the agreement stipulated that the common stock is to be
valued at the average closing price of the stock on the Nasdaq
National Market (the Company's stock was, at the time the agreement
was entered into, listed on the Nasdaq National Market but has since
been transferred to the Nasdaq SmallCap Market) over the last five
business days prior to the date of the Triggering Event.

In total, the employment agreement obligated the Company to pay Richard
Sullivan roughly $17,300,000 under or in connection with the termination of
his employment agreement.

In view of the Company's cash constraints and its need to dedicate
essentially all of its cash resources to satisfying its obligations to IBM
Credit, the Company commenced negotiations with Richard Sullivan (and parallel
negotiations with Jerome Artigliere) that led to proposed terms of severance
agreements with each of them. The proposed terms of Richard Sullivan's severance
agreement, which are reflected in the final, executed agreement, contemplate:

(1) the issuance to Richard Sullivan of 56,000,000 shares of the
Company's common stock, valued at $0.196 per share in
accordance with the terms of his employment agreement
(representing an aggregate value of $10,976,000); and

(2) the re-pricing of stock options exercisable for 10,885,000
shares of the Company's common stock. The options had stated
exercise prices ranging from $0.15 to $0.32 per share and were
to be replaced with options exercisable for $0.01 per share.
The value of the repriced options, using the Black-Scholes
valuation model, was $2,093,000. The re-priced options were
granted under either the Company's 1996 Non-Qualified Stock
Option Plan or the 1999 Flexible Stock Plan, both of which
permit the modification of any option by the Board of
Directors.

Accordingly, the total value of the consideration to be paid to Richard
Sullivan under the proposed severance agreement is $13,069,000, over $4
million less than what he was entitled to under his employment agreement and
no part is required to be paid in cash. This arrangement complied with an
obligation under the forbearance agreement that the Company satisfy any
obligations under the employment agreement with Company stock with a current
market value that did not exceed the amount of such obligations.

The Company's Board of Directors met on March 21, 2003, to discuss its
options, the proposed terms of the forbearance agreement (then memorialized in a
term sheet), the terms of the draft severance agreements to be entered into with
Messrs. Richard Sullivan and Jerome Artigliere, and other related matters.
During the course of the meeting, the independent members of the Board
(constituting all the members of the audit committee) met separately to discuss
the Company's options, as well as the proposed terms of the severance packages.
Following such deliberations, the audit committee members voted unanimously to
authorize the Company's entering into the draft severance agreements, deeming
such actions to be in the best interests of the Company's shareholders. The
other members of the Board in attendance at the meeting abstained from the
voting on these matters. Richard Sullivan then tendered his resignation,
effective immediately, which the continuing members of the Board accepted.

In determining to authorize the Company's entering into the severance
agreement with Richard Sullivan, the Board of Directors considered, among other
things:

o the Company's limted cash resources;

o the absence of any immediate prospects to raise capital
sufficient to pay off or otherwise refinance the Company's
indebtedness to IBM Credit;

o IBM Credit's refusal to consider any further amendment of the
credit agreement;

o the prospect of an imminent exercise by IBM Credit of its the
rights and remedies under the credit agreement should the Company
not proceed expeditiously with entering into the forbearance
agreement;

o the terms of the severance agreement itself, including the
satisfaction of the Company's obligations in the form of equity,
the future value of which was uncertain in light of the
Company's circumstances;

o the opportunity the Company would have, upon satisfying its
obligations to Richard Sullivan (and

Jerome Artigliere) in this manner, to focus its energies on
taking the necessary steps to comply with and raise the
funds necessary to purchase the IBM indebtedness, which would,
in turn, greatly strengthen the Company's financial position
and give it the chance to implement its business plan; and

o the potential loss of shareholders' entire investment in the
Company should the Company not take this course of action.

NEED FOR SHAREHOLDER APPROVAL

At the time the Board authorized the Company's entering into the
severance agreements, the Board was aware that the share issuances and
option re-pricings provided for under such agreements might require
shareholder approval under applicable Nasdaq Marketplace Rules. For that
reason, a provision was included in each of the agreements that required the
Company to include in the proxy statement proposals relating to the
transactions contemplated by the terms of the severance agreements in the
Company's proxy statement if it was determined that shareholder approval was
required. Shortly thereafter, the Company and the Company's Nasdaq listing
analyst initiated discussions as to the need to obtain shareholder approval
of the transactions contemplated by the severance agreements. After
providing the Nasdaq listing analyst with lengthy written correspondence as
to the Company's analysis of the issues, the Company was advised that
shareholder approval of the transactions was required. In Richard Sullivan's
case, Nasdaq's position was premised on the share issuance and re-pricing of
options:

(i) being compensatory in nature (notwithstanding that the
Company's obligations to Richard Sullivan under his
employment agreement exceeded the value of the share
issuance and repriced options); and

(ii) resulting in a change of control.

In the latter regard, Nasdaq's position was based on the possibility of Richard
Sullivan holding in excess of 20% of the Company's outstanding shares of common
stock, inclusive of the shares previously held by him and assuming the exercise
of all of his options (but exclusive of any other known or contemplated
issuances of shares, such as in connection with the Company's then pending
public offering of up to 50 million shares). Under existing Nasdaq rules, the
20% level is a benchmark for a presumption of the occurrence of a change in
control.

CONSEQUENCES OF SHAREHOLDERS NOT APPROVING THE TERMS OF THE SEVERANCE
AGREEMENT WITH RICHARD SULLIVAN

The severance agreement entered into with Richard Sullivan provides for
the issuance of the 56 million shares of the Company's common stock
immediately following the Company's registration of the shares for resale
with the Securities and Exchange Commission. That is to occur no later than
December 31, 2003, subject to the proviso in the agreement that the time
requirements for any obligations of either the Company or Richard Sullivan
are to be extended by the amount of time required to seek shareholder
approval of the terms of the agreement. However, the surrender of the
options held by Richard Sullivan in exchange for the re-priced options has
already occurred and Mr. Sullivan has exercised these options. Without
shareholder approval, the Company would need to unwind the transaction or
otherwise risk having its common stock delisted by Nasdaq. If the
transaction were to be unwound or if, in the course of seeking to
renegotiate the terms of the severance agreement, Richard Sullivan were to
insist on a cash payment for any portion of the obligations due him under
his employment agreement, the Company would risk violating the terms of the
forbearance agreement which, as noted above, requires the Company to be cash
flow positive on a consolidated operational basis at all times from and
after May 1, 2003. In addition, the application of the proceeds of the
Company's public offering of its shares might become subject to dispute,
which would jeopardize the Company's ability to purchase the IBM Credit
indebtedness in accordance with the forbearance agreement. In such event,
the Company would face the possibility of a cessation of business operations
in the normal course. Under such circumstances, and in light of the
aggregate amount of the indebtedness to IBM Credit under the credit
agreement (roughly $92.1 million as of March 31, 2003), shareholders would
likely face the complete loss of their investment in the Company. Regardless
of the outcome of the shareholder vote, Mr. Sullivan's employment with the
Company will not be reinstated.

ACCOUNTING TREATMENT OF THE TRANSACTION

During the three-months ended March 31, 2003, the Company recorded
severance expense of approximately $17,000,000 under the terms of the existing
employment agreement with Mr. Sullivan.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. In accordance with Nasdaq rules, votes cast by Richard
Sullivan on his own behalf with respect to shares of common stock awarded (or
underlying common stock received upon option exercises under his severance
agreement) will not be counted with respect to the vote on this proposal.

Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted FOR approval of the issuance of the Company's common
stock and the re-pricing of stock options under the terms of the severance
agreement with Richard J. Sullivan.

RECOMMENDATION OF THE BOARD OF DIRECTORS

IN VIEW OF THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE OF THE COMPANY'S COMMON
STOCK AND RE-PRICING OF STOCK OPTIONS UNDER THE TERMS OF THE SEVERANCE
AGREEMENT WITH RICHARD J. SULLIVAN.

APPROVAL OF THE ISSUANCE OF THE COMPANY'S COMMON STOCK AND RATIFICATION
OF THE RE-PRICING OF STOCK OPTIONS UNDER THE SEVERANCE AGREEMENT
ENTERED INTO WITH JEROME C. ARTIGLIERE

(ITEM 7)

On March 21, 2003, the Board of Directors authorized the Company's entering
into a severance agreement with Jerome C. Artigliere, the Company's then Chief
Operating Officer, providing for:

o the Company's issuance to him of 4,750,000 shares of the
Company's common stock (to be issued following the Company's
registration of the shares for resale with the Securities and
Exchange Commission); and

o the re-pricing of stock options held by him exercisable for an
aggregate of 2,329,000 shares of the Company's common stock;

in full satisfaction of all compensation and benefits owed to Mr. Artigliere
under his employment agreement or otherwise. As explained more fully below,
the share issuance and re-pricing of options require shareholder approval.

BACKGROUND INFORMATION

Much of the background factual information of relevance to an
assessment of this proposal, and the factors the Board considered in
determining to authorize the Company's execution of the severance
agreement with Jerome Artigliere, can be found in the "Background
Information" discussion with respect to Item 6. The following focuses on
matters of relevance to shareholders' consideration of the terms of the
severance agreement with Jerome Artigliere not found in that discussion.

Upon examining Mr. Artigliere's employment agreement, the Company
ascertained that its obligations to Mr. Artigliere included the following:

o payment of an annual salary of not less than $175,000 for the
term of his employment agreement (roughly $802,000 in the
aggregate over the remaining term of the agreement, which was
at the time of his termination due to expire November 21, 2007,
4 years and eight months later);

o monthly payments of $2,500 as a flexible perquisite allowance
(which over the remaining term of his employment would aggregate
to $137,500);

o additional compensation associated with the planned
appointment of Mr. Artigliere as the chief executive officer
of InfoTech USA, Inc., a wholly-owned subsidiary of the
Company; and

o bonuses, incentive compensation and other compensation, if any,
as the Board of Directors or any designated Board committee
determined to award Mr. Artigliere.

In total, the Company determined that its obligations to Mr. Artigliere
under his employment agreement or otherwise amounted to roughly $1,500,000.

The terms of Mr. Artigliere's severance agreement contemplate:

(1) the issuance to Mr. Artigliere of 4,750,000 shares of the
Company's common stock, valued at $0.196 per share, the per
share valuation applicable to the shares issued to Richard
Sullivan (representing an aggregate value of $931,000); and

(2) the re-pricing of stock options exercisable for 2,329,000
shares of the Company's common stock. The options had stated
exercise prices ranging from $0.15 to $0.32 per share and
have been replaced with options exercisable for $0.01 per
share. The value of the repriced options, using the Black-
Scholes valuation model, is $447,871. The options were
originally granted under either the Company's 1996 Non-
Qualified Stock Option Plan or the 1999 Flexible Stock
Plan, both of which permit the modification of any option
by the Board of Directors.

Accordingly, the total value of the consideration to be paid to Mr.
Artigliere under the severance agreement is $1,378,871, less than what the
Company calculated he was entitled to under his employment agreement or
otherwise and no part is required to be paid in cash.

NEED FOR SHAREHOLDER APPROVAL

In Jerome Artigliere's case, Nasdaq's position that shareholder approval of
the share issuance and re-pricing of options provided for under his severance
agreement is premised upon the view that such arrangements are compensatory in
nature.

CONSEQUENCES OF SHAREHOLDERS NOT APPROVING THE TERMS OF THE SEVERANCE AGREEMENT
WITH JEROME ARTIGLIERE

The severance agreement entered into with Jerome Artigliere provides
for the issuance of the 4,750,000 shares of the Company's common stock
immediately following the Company's registration of the shares for resale
with the Securities and Exchange Commission. That is to occur no later than
December 31, 2003, subject to the proviso in the agreement that the time
requirements for any obligations of either the Company or Mr. Artigliere are
to be extended by the amount of time required to seek shareholder approval
of the terms of the agreement). However, the surrender of the options held
by Mr. Artigliere in exchange for the re-priced options has already occurred
and Mr. Artigliere has exercised these options. Without shareholder
approval, the Company would need to unwind the transaction or otherwise risk
having its common stock delisted by Nasdaq. If the transaction were to be
unwound or if, in the course of seeking to renegotiate the terms of the
severance agreement, Mr. Artigliere were to insist on a cash payment of any
portion of the obligations due him under his employment agreement, the
Company would risk violating the terms of the forbearance agreement which,
as noted above, require the Company to be cash flow positive on a
consolidated operational basis at all times from and after May 1, 2003. In
addition, the application of the proceeds of the Company's public offering
of its shares might become subject to dispute, which would jeopardize the
Company's ability to purchase the IBM Credit indebtedness in accordance with
the forbearance agreement. In such event, the Company would face the
possibility of a cessation of business operations in the normal course.
Under such circumstances, and in light of the aggregate amount of the
indebtedness to IBM Credit under the credit agreement (approximately $92.1
million as of March 31, 2003), shareholders would likely face the complete
loss of their investment in the Company. Regardless of the outcome of the
shareholder vote, Mr. Artigliere's employment with the Company will not be
reinstated.

ACCOUNTING TREATMENT OF THE TRANSACTION

During the three-months ended March 31, 2003, the Company recorded
severance expense of approximately $1,500,000 under the terms of the existing
employment agreement with Mr. Artigliere.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. In accordance with Nasdaq rules, votes cast by Mr. Artigliere
on his own behalf with respect to shares of common stock awarded (or underlying
common stock received upon option exercises under his severance agreement) will
not be counted with respect to the vote on this proposal.

Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted FOR approval of the issuance of the Company's common
stock and re-pricing of stock options under the terms of the severance agreement
with Jerome C. Artigliere.

RECOMMENDATION OF THE BOARD OF DIRECTORS

APPROVAL OF THE ISSUANCE OF THE COMPANY'S COMMON STOCK UNDER AGREEMENTS
ENTERED INTO WITH GARRETT SULLIVAN

(ITEM 8)

On March 25, 2003, the Board of Directors authorized the Company's
entering into a letter agreement with Garrett Sullivan (who is not related
to Richard J. Sullivan) providing for the Company's issuance to him of
7,500,000 shares of the Company's common stock in full satisfaction of all
compensation and benefits owed to him under the terms of his employment
agreement with the Company, as modified by a letter agreement entered into
at the time of his ceasing to serve as an officer and director of the
Company, effective December 31, 2001.

BACKGROUND INFORMATION

Garrett Sullivan (who is not related to Richard J. Sullivan) served
as the Company's President and Chief Operating Officer since March 1995
and as member of the Board of Directors from August 1995 until he ceased
to serve as an officer as of the year ended 2000 and ceased to serve as
Vice Chairman of the Board of Directors as of the year ended 2001. At the
time of the termination of his service with the Company, the Company
entered into a letter agreement, dated December 31, 2001, providing, among
other things, that:

o the Company would have no obligation to make any payments
provided under his employment agreement (including payments
of his annual salary of not less than $165,000 for the
remainder of the term of the agreement, which was then
scheduled to expire on February 28, 2007 - roughly $852,500
in the aggregate), other than as provided in the letter
agreement;

o the Company would issue to him 2,500,000 shares of the
Company's common stock, subject to adjustment if the gross
sales proceeds from the resale of such shares was less than
a target amount of $1,250,192; and

o a provision of his employment agreement relating to the
consequence of a "Triggering Event" (defined to include
Richard J. Sullivan ceasing to serve as the Company's
Chairman of the Board and Chief Financial Officer for any
reason other than his material default under the terms of
Richard Sullivan's employment agreement) would remain in
effect.

The termination of Richard Sullivan's service with the Company
triggered the occurrence of a "Triggering Event" under Garrett Sullivan's
employment agreement, resulting in the Company's becoming obligated to pay
Garrett Sullivan $3,525,000. The employment agreement provides the Company with
the option to pay that amount

in cash or in shares of the Company's common stock, with the shares valued
based on the average closing price of the stock on the Nasdaq National
Market during the five business days prior to the date of the Triggering
Event. In view of the Company's cash constraints and its need to dedicate
essentially all of its cash resources to satisfying its obligations to IBM
Credit, the Company commenced negotiations with Garrett Sullivan that led to
the Company's entering into a letter agreement, dated April 1, 2003,
providing for the issuance of 7,500,000 shares of the Company's common stock
in full satisfaction of all amounts owed to him under his employment
agreement, the December 31, 2001 letter agreement or otherwise. The average
closing price of the Company's common stock during the five business days
immediately preceding the date of the April 1, 2003, letter agreement was
$0.364. Using that figure as the per share value of the 7,500,000 shares
provided for in the letter agreement, the total value of the shares would be
$2,730,000, representing roughly $800,000 less than the amount due Garrett
Sullivan under the provision of his employment agreement triggered by
Richard Sullivan's termination of service with the Company.

On March 25, 2003, the Company's Board of Directors approved the then draft
April 1, 2003 letter agreement. In determining to authorize the Company's
entering into the letter agreement, the Board of Directors considered, among
other things:

o the Company's limited cash resources;

o the absence of any immediate prospects to raise capital
sufficient to pay off or otherwise refinance the Company's
indebtedness to IBM Credit;

o IBM Credit's refusal to consider any further amendment of
the credit agreement;

o the prospect of an imminent exercise by IBM Credit of its
the rights and remedies under the credit agreement should
the Company not proceed expeditiously with entering into
the forbearance agreement;

o the terms of the April 1, 2003 letter agreement itself,
including the satisfaction of the Company's obligations in
the form of equity, the future value of which was uncertain
in light of the Company's circumstances;

o the opportunity the Company would have, upon satisfying its
obligations to Garrett Sullivan (and Richard Sullivan and
Jerome Artigliere) in this manner, to focus its energies on
taking the necessary steps to comply with and raise the
funds necessary to purchase the IBM indebtedness, which
would, in turn, greatly strengthen the Company's financial
position and give it the chance to implement its business
plan; and

o the potential loss of shareholders' entire investment in
the Company should the Company not take this course of
action.

NEED FOR SHAREHOLDER APPROVAL

Although the Company's written correspondence to the Nasdaq listing analyst
in April 2003 did not address the share issuances contemplated by the April 1,
2003 letter agreement (or the earlier issuance of shares under the December 31,
2001 letter agreement), and although Garrett Sullivan has not been an officer or
director of the Company for over 16 months, it is possible that Nasdaq would
take the position that the share issuance provided for under the April 1, 2003
letter agreement relates to obligations arising out of his employment agreement
and the earlier December 31, 2001 letter agreement, entered into with an officer
or director, and is compensatory in nature, and, as such, shareholder approval
is required.

The Company did not seek shareholder approval of the issuance of
2,500,000 shares under the December 31, 2001 letter agreement based on the
belief that the issuance was in accordance with an agreement entered into
with other than an officer or director - since it followed Garrett
Sullivan's termination - and, in any event, was not compensatory in nature.
The recent discussions with the Company's Nasdaq listing analyst suggest
that NASDAQ may have taken a different view in 2001 and required shareholder
approval of this earlier share issuance; accordingly, shareholder approval
is being sought as part of this proposal.

CONSEQUENCES OF SHAREHOLDERS NOT APPROVING THE TERMS OF THE SEVERANCE AGREEMENT
WITH GARRETT SULLIVAN

The April 1, 2003 letter agreement entered into with Garrett Sullivan
provides for the issuance of 7,500,000 shares of the Company's common stock
within five months of the date of the agreement. The December 31, 2001
letter agreement provided for the issuance of 2,500,000 shares to Garrett
Sullivan. If shareholder approval is not obtained with respect to these
share issuances, the Company would need to unwind the earlier transaction
and seek to re-negotiate the April 1, 2003 letter agreement, or otherwise
risk having its common stock delisted by Nasdaq. If the earlier transaction
were to be unwound or if, in the course of seeking to renegotiate the terms
of the April 1, 2004 letter agreement, Garrett Sullivan were to insist on a
cash payment for any portion of the obligations due him under his employment
agreement or the December 31, 2001 letter agreement, the Company would risk
violating the terms of the forbearance agreement which, as noted above,
require the Company to be cash flow positive on a consolidated operational
basis at all times from and after May 1, 2003. In addition, the application
of the proceeds of the Company's public offering of its shares might become
subject to dispute, which would jeopardize the Company's ability to purchase
the IBM Credit indebtedness in accordance with the forbearance agreement. In
such event, the Company would face the possibility of a cessation of
business operations in the normal course. Under such circumstances, and in
light of the aggregate amount of the indebtedness to IBM Credit under the
credit agreement (roughly $92.1 million as of March 31, 2003), shareholders
would likely face the complete loss of their investment in the Company.

ACCOUNTING TREATMENT OF THE TRANSACTION

During the three-months ended March 31, 2003, the Company recorded
severance expense of approximately $3,525,000 in connection with Garrett
Sullivan's agreements.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, must be received in favor
of this proposal. In accordance with Nasdaq rules, votes cast by Garrett
Sullivan on his own behalf with respect to shares issued under the December 31,
2001 letter agreement will not be counted with respect to the vote on this
proposal.

Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted FOR approval of the share issuances to Garrett Sullivan
under the terms of the December 31, 2001 and April 1, 2003 letter agreements.

RECOMMENDATION OF THE BOARD OF DIRECTORS

IN VIEW OF THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE SHARE ISSUANCES TO GARRETT SULLIVAN
UNDER THE TERMS OF THE DECEMBER 31, 2001 AND APRIL 1, 2003 LETTER
AGREEMENTS.

APPROVAL OF AMENDMENT TO THE THIRD RESTATED ARTICLES OF INCORPORATION
AS AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 435,000,000 TO 560,000,000 SHARES

(ITEM 9)

The Company's shareholders are asked to act upon a proposal to amend the
Company's Third Restated Articles of Incorporation, as amended, to increase the
number of authorized shares of common stock from 435,000,000 shares to
560,000,000 shares. The first sentence of Article Three of the Company's Third
Restated Articles of Incorporation, as amended, is proposed to be amended in its
entirety to read as follows:

The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is Five Hundred Sixty-Five Million
(565,000,000) shares, of which Five Million (5,000,000) shares shall be
preferred stock ("Preferred Stock") having a par value of $10.00 per share and
Five Hundred Sixty Million (560,000,000) shares shall be common stock having a
par value of $.001 per share.

The Company's Third Restated Articles of Incorporation, as amended,
currently authorizes the Company to issue up to 435,000,000 shares of common
stock and 5,000,000 shares of preferred stock. As of June 2, 2003, the
Company had outstanding 328,929,905 shares of common stock. The Board of
Directors believes the proposed increase in the authorized number of shares
of common stock is necessary to provide the Company with the flexibility to
meet business needs as they arise, to take advantage of favorable
opportunities and to respond to a changing environment.

The additional shares of common stock would be available for issuance
from time to time and for such purposes as the Board of Directors may deem
advisable without further action by the shareholders, except as may be
required by applicable laws or regulations. These purposes may include
acquisitions of property and securities, additional stock dividends, stock
splits, retirement of indebtedness, employee benefit programs, corporate
business combinations or other corporate purposes. The Board of Directors
also plans to use a portion of these shares in connection with the issuances
of the Company's common stock in connection with severance agreements
between the Company and its former directors and officers, subject to
shareholder approval. Shareholder approval of the issuances of these shares
is requested in Items 6, 7 and 8 of this proxy. In addition, the Board of
Directors believes that an increase in the number of authorized shares would
provide the Company with the ability to issue such additional new shares of
common stock should the opportunity be presented in the future.

Each additional share of common stock authorized by the amendment to the
Article Three of the Amended Articles of Incorporation described in this
proposal would have the same rights and privileges under the Amended Articles of
Incorporation as each share of common stock currently authorized. Shareholders
have no preemptive rights with respect to common stock and the issuance of
common stock, other than on a pro-rata basis, would result in dilution of a
shareholder's interest.

VOTE REQUIRED

In order to approve this proposal, the affirmative vote of a majority
of the outstanding shares of the Company's common stock must be received in
favor of this proposal. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted FOR approval of the
amendment to the Amended Articles of Incorporation to increase the number of
authorized shares of common stock.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
TO THE AMENDED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 435,000,000 SHARES TO 560,000,000 SHARES.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL

The Company's authorized capital stock consists of 435,000,000 shares of
common stock, $.001 par value, and 5,000,000 shares of preferred stock, $10.00
par value. Holders of the Company's common stock have no preemptive or other
subscription rights.

COMMON STOCK

As of June 2, 2003, there were 328,929,905 shares of the Company's common
stock outstanding and approximately 2,445 holders of record of the Company's
common stock.

The holders of the Company's common stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders. Holders of the
Company's common stock do not have cumulative voting rights. Therefore,
holders of more than 50% of the shares of the Company's common stock are able to
elect all directors eligible for election each year. The holders of common stock
are entitled to dividends and other distributions out of assets legally
available if and when declared by the Company's Board of Directors. Upon the
Company's liquidation, dissolution or winding up, the holders of the Company's
common stock are entitled to share pro rata in the distribution of all of the
Company's assets remaining available for distribution after satisfaction of all
liabilities, including any prior rights of any preferred stock which may be
outstanding. There are no redemption or sinking fund provisions applicable to
the Company's common stock.

The transfer agent and registrar for the common stock is The Registrar and
Transfer Co.

PREFERRED STOCK

Series C Convertible Preferred Stock.

As of June 2, 2003, there were no shares of preferred stock
outstanding. Preferred stock may be created and issued from time to time by
the Company's Board of Directors, with such rights and preferences as it may
determine. Because of its broad discretion with respect to the creation and
issuance of any series of preferred stock without shareholder approval, the
Company's board of directors could adversely affect the voting power of the
Company's common stock. The issuance of preferred stock may also have the
effect of delaying, deferring or preventing a change in control of the
Company.

OPTIONS AND WARRANTS

As of June 2, 2003, there were:

o issued and outstanding warrants to purchase 6,039,428 shares of
the Company's common stock at a weighted average exercise price
of $0.51 per share;

o warrants issued during 2000 in connection with the sale of
Series C preferred stock to purchase up to 823,587 shares of
the Company's common stock at $4.59 per share, subject to
adjustment; and

o options held by the Company's employees and others to
purchase 19,651,400 shares of the Company's common stock
at a weighted average exercise price of $1.15 per share.

All of the warrants are currently exercisable. Of the outstanding
options, 17,269,103 options are now exercisable at a weighted average
exercise price of $1.20 per share, and the rest become exercisable at
various times over the next three years.

The exercise price of the warrants issued in connection with the Series
C preferred stock is $4.59 per share, subject to adjustment upon:

o the issuance of shares of common stock, or options or other
rights to acquire common stock, at an issuance price lower
than the exercise price under the warrants;

o the declaration or payment of a dividend or other distribution
on the Company's common stock;

o issuance of any other of the Company's securities on a basis
which would otherwise dilute the purchase rights granted by the
warrants.

The exercise price may be paid in cash, in shares of common stock or by
surrendering other warrants.

SHAREHOLDER PROPOSALS

Pursuant to the applicable rules under the Exchange Act, some
shareholder proposals may be eligible for inclusion in the Company's 2004
Proxy Statement. Proposals by shareholders intended to be included in the
Company's 2004 Proxy Statement must be submitted in writing to the Secretary
of the Company no later than February 11, 2004, or a reasonable time before
the Company begins to print and mail its proxy material. Shareholders
interested in submitting such a proposal are advised to contact
knowledgeable counsel with regard to the detailed requirements of such
securities rules. Proposals by shareholders to be presented at the Company's
2004 Annual Meeting (but not intended to be included in the Company's 2004
Proxy Statement) must be submitted in writing to the Secretary of the
Company no earlier than April 27, 2004, but no later than May 27, 2004, in
accordance with the Company's bylaws. Otherwise, the proxies named by the
Company's Board of Directors may exercise discretionary voting authority
with respect to the shareholder proposal, without any discussion of the
proposal in the Company's proxy material.

OTHER MATTERS

Financial Statements. The Company's consolidated financial statements for
the year ended December 31, 2002 are included in the Company's 2002 Annual
Report to Shareholders. Copies of the Annual Report are being sent to the
Company's shareholders concurrently with the mailing of this Proxy Statement.
The Annual Report does not form any part of the material for the solicitation of
proxies.

Other Matters. At the date hereof, there are no other matters which the
Board of Directors intends to present or has reason to believe others will
present at the Meeting. If other matters come before the Meeting, the persons
named in the accompanying form of proxy will vote in accordance with their best
judgment with respect to such matters.

Expenses of Solicitation. The expense of solicitation of proxies will
be borne by the Company. As of June 10, 2003, the Company has not retained a
proxy solicitor to solicit proxies, however, the Company may choose to do so
prior to the Meeting. Proxies may also be solicited by certain of the
Company's directors, officers and other employees, without additional
compensation, personally or by written communication, telephone or other
electronic means. The Company is required to request brokers and nominees
who hold stock in their name to furnish the Company's proxy material to
beneficial owners of the stock and will reimburse such brokers and nominees
for their reasonable out-of-pocket expenses in so doing.

The form of Proxy and this Proxy Statement have been approved by the Board
of Directors and are being mailed and delivered to shareholders by its
authority.

/s/ MICHAEL E. KRAWITZ

MICHAEL E. KRAWITZ
Executive Vice President,
General Counsel and Secretary
Palm Beach, Florida
June 10, 2003

APPENDIX A

APPLIED DIGITAL SOLUTIONS, INC.
AUDIT COMMITTEE CHARTER

AUTHORITY and ORGANIZATION

The Audit Committee is an integral part of the corporate structure. Applied
Digital Solutions, Inc.'s control environment is influenced significantly by
its Board of Directors ("the Board") and Audit Committee.

Primary responsibility for the Company's financial reporting and internal
operating controls is vested in senior operating management, as overseen by
the Board. The Audit Committee is a standing committee of the Board,
established to assist it in fulfilling its fiduciary responsibilities.

The Audit Committee shall have unrestricted access to Company personnel
documents, and independent public accountants, and will be given the
resources necessary to discharge its responsibilities. The Audit Committee
will meet on a regular basis and call special meetings, as required.

The Audit Committee shall consist of Directors appointed by the Board, all of
whom shall be independent of management and free from any relationship that,
in the opinion of the Board, would interfere with the exercise of
independent judgment as an Audit Committee member. At least one of the audit
committee members will be a skilled financial person.

RESPONSIBILITIES

The Audit Committee's responsibility in the area of financial reporting is
to provide reasonable assurance that financial disclosures made by
management present fairly the company's financial condition, results of
operations, plans and long-term commitments.

The Audit Committee's responsibility in the area of internal controls is to
ensure that internal controls are designed to provide reasonable assurance
that assets are safeguarded and transactions are authorized and properly
recorded. Such controls permit the preparation of fairly presented financial
reports and help fulfill the responsibility for stewardship of corporate
assets.

The Audit Committee's responsibility in the area of corporate governance is
to provide reasonable assurance that the Company is in substantial
compliance with pertinent laws and regulations, is conducting its affairs
ethically, and is maintaining effective controls against employee conflicts
of interest and fraud.

APPLIED DIGITAL SOLUTIONS, INC.
AUDIT COMMITTEE CHARTER, CONTINUED

To accomplish these responsibilities, the Audit Committee will:

o Review significant accounting policies, policy decisions and
changes, along with significant accounting, reporting or
operational issues.

o Review different aspects of the company on a regular basis, to
ensure an understanding of the Company's operations,
lines-of-business and significant products.

o Review corporate policies and significant instances of the lack of
compliance with laws and regulations, ethics, conflict of interest
and the investigation of misconduct or fraud.

o Be directly responsible for the appointment, compensation and
oversight of the work of the independent public accountants
employed by the company for the purpose of preparing or issuing an
audit report or related work. The independent public accounting
firm will report directly to the Audit Committee.

o Be responsible for resolution of any disagreement between
management and the auditor regarding financial reporting.

o Review the annual audit plan and the report of the independent public
accountants.

o Approve of all audit and non-audit services. Any Audit Committee
approval of non-audit services will be disclosed to the investors
in the required periodic reports.

o Review the annual internal audit plan and the reports of the Internal
Audit function.

o Meet privately with and have unrestricted access to the Vice President
of Internal Audit and the outside auditors.

o Establish procedures to 1) Receive, retain and treat complaints and
2) handle whistle-blower information regarding questionable
accounting or auditing matters.

o Be responsible for ensuring receipt from the outside auditors of
formal communications required by ISB Standard No. 1. They are also
responsible for discussing with the auditor any disclosure
relationships or services that may impact objectivity and
independence and taking, or recommending the full board taking
appropriate action, if necessary, to ensure independence of the
outside auditors.

o Prepare an annual letter that will be included in the annual report
and the Form 10-K stating that management has reviewed the audited
financial statements with the Audit Committee and the outside
auditors have discussed with them their judgments of the financial
statements. The letter will also disclose that the Audit Committee
has discussed the above among themselves, without others present.
As a result of these discussions, the Audit Committee, in reliance
on review with management and discussions with the outside
auditors, believes the financials are fairly stated in accordance
with GAAP.

The outside auditors are responsible for communicating the quality, not just
the acceptability, and clarity of the Company's accounting procedures and
their disclosures. This will include the degree of aggressiveness or
conservatism of accounting principles and underlining estimates and other
significant financial reporting decisions made by management and reviewed by
the outside auditors.

The outside auditors will review each quarterly report and report their
opinions to the Audit Committee via a telephone conference call, prior to
the Company filing each quarterly Form 10-Q.

APPENDIX B
----------

ARTICLES OF MERGER

The following articles of merger are submitted in accordance with the
Florida Business Corporation Act, pursuant to Section 607.1105, F.S.

FIRST: The name and jurisdiction of the surviving corporation are:
Applied Digital Solutions, Inc., a Florida corporation. (No Document
number has been issued)

SECOND: The name and jurisdiction of the merging corporation are:
Applied Digital Solutions, Inc., a Missouri corporation, Document Number
00380703.

THIRD: The Plan of Merger is attached as Exhibit A.

FOURTH: The merger shall become effective on the date the Articles of
Merger are filed with the Florida Department of State.

FIFTH: The Plan of Merger was adopted by the shareholder of the
surviving corporation on July , 2003.

SIXTH: The Plan of Merger was adopted by the shareholders of the
merging corporation on July , 2003.

SURVIVING CORPORATION:
APPLIED DIGITAL SOLUTIONS, INC.,
a Florida corporation

Dated: July , 2003 By:
-----------------------------------
Scott R. Silverman, Chairman and
Chief Executive Officer

MERGING CORPORATION:
APPLIED DIGITAL SOLUTIONS, INC.,
a Missouri corporation

Dated: July , 2003 By:
-----------------------------------
Scott R. Silverman, Chairman and
Chief Executive Officer

EXHIBIT A
---------

PLAN OF MERGER

The following Plan of Merger is submitted in compliance with the
Florida Business Corporation Act, pursuant to Section 607.1101, F.S. and
in accordance with the laws of the State of Missouri.

FIRST: The name and jurisdiction of the surviving corporation are:
Applied Digital Solutions, Inc., a Florida corporation ("ADS Florida").

SECOND: The name and jurisdiction of the merging corporation are:
Applied Digital Solutions, Inc., a Missouri corporation, Document Number
00380703 ("ADS Missouri").

THIRD: The terms and conditions of the merger are as follows:

ADS Missouri is a public company and has numerous shareholders. All of the
assets and liabilities of ADS Missouri will be assumed in full by ADS Florida.

Upon the approval of the merger by the Florida Secretary of State, the
shareholders, as of the record date, of ADS Missouri, shall receive 1 share of
stock in ADS Florida for each share of stock owned by each such shareholder in
ADS Missouri. ADS Missouri shall cease to exist, and ADS Florida shall be the
surviving corporation.

The shareholder of ADS Florida and the shareholders of ADS Missouri have
approved the above terms and conditions and have authorized the respective
Presidents or other authorized officers, to execute and file the Articles of
Merger with the Florida Department of State.

FOURTH: The manner and basis of converting the shares of each
corporation into shares, obligations or other securities of the surviving
corporation or any other corporation or, in whole or in part, into cash or
other property and the manner and basis of converting rights to acquire
shares of each corporation into rights to acquire shares, obligations or
other securities of the surviving or any other corporation or, in whole or
in part, into cash or other property are as follows:

The shareholders, as of the record date, of ADS Missouri shall receive
in exchange for their shares in ADS Missouri one share of stock in ADS
Florida. The number of shares shall be in proportion to their shares
and classification of stock each shareholder holds in ADS Missouri as
of the record date. The surviving corporation shall authorize a total
of four hundred forty million (440,000,000) shares, of which five
million (5,000,000) shares shall be preferred stock having a par value
of $10.00 per share and four hundred thirty-five million (435,000,000)
shares shall be common stock having a par value of $0.001 per share.

APPENDIX C
----------

ARTICLES OF INCORPORATION

APPLIED DIGITAL SOLUTIONS, INC.

ARTICLE I - NAME

The name of the corporation is Applied Digital Solutions, Inc.
(hereinafter called the "Corporation").

ARTICLE II - PURPOSE

The Corporation is organized for the purpose of transacting any or
all lawful business for corporations organized under the Florida Business
Corporation Act of the State of Florida.

ARTICLE III - CAPITAL STOCK

The aggregate number of all classes of stock which the Corporation
shall have the authority to issue is Four Hundred Forty Million
(440,000,000) shares, of which Five Million (5,000,000) shares shall be
preferred stock ("Preferred Stock") having a par value of $10.00 per share
and Four Hundred Thirty-Five Million (435,000,000) shares shall be common
stock ("Common Stock") having a par value of $.001 per share. A statement of
the preferences, qualification, limitations, restrictions and the special or
relative rights, including convertible rights, in respect of the shares of
each class is as follows:

A. Preferred Stock.

Subject to the requirements of the laws of the State of Florida,
authority is hereby vested in the Board of Directors from time to time to
issue 5,000,000 shares of Preferred Stock in one or more series and by
resolution or resolutions as to each series:

(a) to fix the distinctive serial designation of the shares of such
series;

(b) to fix the rate per annum at which the holders of the shares of
such series shall be entitled to receive dividends, the dates on which said
dividends shall be payable, and, if the directors determine that the
dividends with respect to said series shall be cumulative, the date or dates
from which such dividends shall be cumulative;

(c) to determine whether the shares of such series shall have
voting power, and, if so, the extent and definition of such voting power;

(d) to fix the price or prices at which the shares of such series
may be redeemed, and to determine whether the shares of such series may be
redeemed in whole or in part or only as a whole;

(e) to fix the amounts payable on the shares of such series in the
event of liquidation, dissolution, or winding up of the Corporation;

(f) to determine whether or not the shares of any such series shall
be made convertible into or exchangeable for shares of any other class or
classes of stock of the Corporation or of any other series of Preferred
Stock and the conversion price or prices, or the rate or rates of exchange
at which such conversion or exchange may be made;

(g) to determine the amount of the sinking fund, purchase fund, or
any analogous fund, if any, to be provided with respect to each such series;
and

(h) to fix preferences and relative, participating, optional, or
other special rights, and qualifications, limitations or restrictions
thereof, applicable to each such series.

B. Common Stock.

Each share of Common Stock shall be identical with each other share
of Common Stock, except as the holders thereof shall otherwise expressly
agree in writing. Subject to the prior rights of the Preferred Stock from
time to time issued and outstanding, as hereinbefore set forth, the holders
of Common Stock shall be entitled to receive such sums as the Board of
Directors may from time to time declare as dividends thereon, or authorize
as distributions thereon, out of any sums available to be distributed as
dividends and to receive any balance remaining in case of the dissolution,
liquidation or winding up of the Corporation after satisfying the prior
rights of the Preferred Stock, if any be then outstanding. Each share of
Common Stock shall have one vote for all corporate purposes.

ARTICLE IV - PRINCIPAL OFFICE

The street address of the Corporation's principal office and the
Corporation's mailing address is 400 Royal Palm Way, Suite 410, Palm Beach,
Florida 33480.

ARTICLE V - REGISTERED OFFICE AND AGENT

The street address of the initial registered office of the
Corporation is 400 Royal Palm Way, Suite 410, Palm Beach, Florida 33480. The
initial registered agent of the Corporation is Michael E. Krawitz.

ARTICLE VI - INITIAL BOARD OF DIRECTORS

This Corporation shall initially have five directors. The names and
addresses of the initial directors of the Corporation are:

[to be determined]

ARTICLE VII - INCORPORATOR

The name and address of the person signing these Articles of
Incorporation is:

Michael E. Krawitz
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480

ARTICLE VIII - DIRECTOR LIABILITY

A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from liability
or limitation thereof is not permitted under the Florida Business
Corporation Act as currently in effect or as the same may hereafter be
amended. No amendment, modification or repeal of this Article VIII
(including any amendment or repeal of this Article VIII made by virtue of
any change in the Florida Business Corporation Act after the date hereof)
shall adversely affect any right or protection of a director that exists at
the time of

such amendment, modification or repeal on account of any action taken or any
failure to act by such director prior to such time.

IN WITNESS WHEREOF, the undersigned Incorporator has executed these
Articles of Incorporation this day of , 2003.
--- ----------

By
------------------------------
Michael E. Krawitz, Incorporator

APPENDIX D
----------

BYLAWS

APPLIED DIGITAL SOLUTIONS, INC.

ARTICLE I. MEETINGS OF SHAREHOLDERS

SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
-------------------------
of the Corporation for the election of directors and the transaction of
other business shall be held on the date and at the time and place that the
board of directors determines. If any annual meeting is not held, by
oversight or otherwise, a special meeting shall be held as soon as
practical, and any business transacted or election held at that meeting
shall be as valid as if transacted or held at the annual meeting.

SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
---------------------------
for any purpose shall be held when called by the chairman of the board, the
president or the board of directors, or when demanded in writing by the
holders of not less than ten percent (unless a greater percentage not to
exceed fifty percent is required by the articles of incorporation) of all
the shares entitled to vote at the meeting. Such demand must be delivered to
the Corporation's secretary. A meeting demanded by shareholders shall be
called for a date not less than ten nor more than sixty days after the
request is made, unless the shareholders requesting the meeting designate a
later date. The secretary shall issue the call for the meeting, unless the
chairman of the board, the president, the board of directors, or
shareholders requesting the meeting designate another person to do so. The
shareholders at a special meeting may transact only business that is related
to the purposes stated in the notice of the special meeting.

SECTION 3. PLACE. Meetings of shareholders may be held either
----------------
within or outside the State of Florida.

SECTION 4. NOTICE. A written notice of each meeting of
-----------------
shareholders, stating the place, day, and time of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered to each shareholder of record entitled to vote at
the meeting, not less than ten nor more than sixty days before the date set
for the meeting, either personally or by first-class mail, by or at the
direction of the president, the secretary, or the officer or other persons
calling the meeting. If mailed, the notice shall be considered delivered
when it is deposited in the United States mail, postage prepaid, addressed
to the shareholder at his address as it appears on the records of the
Corporation.

SECTION 5. WAIVERS OF NOTICE. Whenever any notice is required to be
----------------------------
given to any shareholder of the Corporation under these bylaws, the articles
of incorporation, or the Florida Business Corporation Act, a written waiver
of notice, signed anytime by the person entitled to notice shall be
equivalent to giving notice. Attendance by a shareholder entitled to vote at
a meeting, in person or by proxy, shall constitute a waiver of (a) notice of
the meeting, except when the shareholder attends a meeting solely for the
purpose, expressed at the beginning of the meeting, of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, and (b) an objection to consideration of a particular matter at
the meeting that is not within the purpose of the meeting unless the
shareholder objects to considering the matter when it is presented.

SECTION 6. RECORD DATE. For the purpose of determining the
----------------------
shareholders for any purpose, the board of directors may either require the
stock transfer books to be closed for up to seventy days or fix a record
date, which shall be not more than seventy days before the date on which the
action requiring the determination is to be taken. However, a record date
shall not precede the date upon which the resolution fixing the record date
is adopted. If the transfer books are not closed and no record date is set
by the board of directors, the record date shall be determined as follows:
For determining shareholders entitled to demand a special meeting, the
record date is the date the first such demand is delivered to the
Corporation; For determining shareholders entitled to a share dividend, the
record date is the date the board of directors authorizes the dividend; If
no prior action is required by the board of directors pursuant to the
Florida Business Corporation Act, the record date for determining
shareholders entitled to take action without a meeting is the date the first
signed written consent is delivered to the Corporation; If prior action is
required by the board of directors pursuant to the Florida Business
Corporation Act, the record date for determining shareholders entitled to
take action without a meeting is at the close of business on the day that
the board of directors adopts a resolution taking such prior action; and For
determining shareholders entitled to notice of and to vote at an annual or
special shareholders meeting the record date is as of the close of business
on the day before the first notice is delivered to the shareholders. When a
determination of the shareholders entitled to vote at any meeting has been
made, that determination shall apply to any adjournment of the meeting,
unless the board of directors fixes a new record date. The board of
directors shall fix a new record date if the meeting is adjourned to a date
more than 120 days after the date fixed for the original meeting.

SECTION 7. SHAREHOLDER'S LIST FOR MEETING. A complete alphabetical
-----------------------------------------
list of the names of the shareholders entitled to receive notice of and to
vote at the meeting shall be prepared by the secretary or other authorized
agent having charge of the stock transfer book. The list shall be arranged
by voting group and include each shareholder's address, and the number,
series, and class of shares held. The list must be made available at least
ten days before and throughout each

meeting of shareholders, or such shorter time as exists between the record
date and the meeting. The list must be made available at the Corporation's
principal office, registered agent's office, transfer agent's office or at a
place identified in the meeting notice in the city where the meeting will be
held. Any shareholder, his agent or attorney, upon written demand and at his
own expense may inspect the list during regular business hours. The list
shall be available at the meeting and any shareholder, his agent or attorney
is entitled to inspect the list at any time during the meeting or its
adjournment.

If the requirements of this section have not been substantially
complied with, the meeting, on the demand of any shareholder in person or by
proxy, shall be adjourned until the requirements of this section are met. If
no demand for adjournment is made, failure to comply with the requirements
of this section does not affect the validity of any action taken at the
meeting.

SECTION 8. SHAREHOLDER QUORUM AND VOTING. A majority of the shares
----------------------------------------
entitled to vote, represented in person (whether by video conferencing or
telephone) or by proxy, constitutes a quorum at a meeting of shareholders.
If a quorum is present, the affirmative vote of a majority of the shares
entitled to vote on the matter is the act of the shareholders unless
otherwise provided by law. A shareholder may vote either in person or by
proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. After a quorum has been established at a shareholders'
meeting, a withdrawal of shareholders that reduces the number of
shareholders entitled to vote at the meeting below the number required for a
quorum does not affect the validity of an adjournment of the meeting or an
action taken at the meeting prior to the shareholders' withdrawal. Presence
at a meeting for the purposes of determining a quorum and voting may be in
person (which shall include presence by electronic means such as video
conferencing, telephone or any other electronic media wherein all
shareholders participating may simultaneously hear each other) or by proxy.

Authorized but unissued shares including those redeemed or
otherwise reacquired by the Corporation, and shares of stock of the
Corporation owned by another corporation or other entity the majority of the
voting stock or interests of which is owned or controlled by the
Corporation, directly or indirectly, at any meeting shall not be counted in
determining the total number of outstanding shares at any time. The chairman
of the board, the president, any vice president, the secretary, and the
treasurer of a corporate shareholder are presumed to possess, in that order,
authority to vote shares standing in the name of a corporate shareholder,
absent a bylaw or other instrument of the corporate shareholder designating
some other officer, agent, or proxy to vote the shares. Shares held by an
administrator, executor, guardian, or conservator may be voted by him
without a transfer of the shares into his name. A trustee may vote shares
standing in his name, but no trustee may vote shares that are not
transferred into his name. If he

is authorized to do so by an appropriate order of the court, by which he was
appointed, a receiver may vote shares standing in his name or held by or
under his control, without transferring the shares into his name. A
shareholder whose shares are pledged may vote the shares until the shares
have been transferred into the name of the pledgee, and thereafter the
pledgee or his nominee shall be entitled to vote the shares unless the
instrument creating the pledge provides otherwise.

SECTION 9. SHAREHOLDER ACTION WITHOUT MEETINGS. Any action required
----------------------------------------------
or permitted by the Florida Business Corporation Act to be taken at any
annual or special meeting of shareholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of outstanding
stock having, not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those shareholders who have not consented in writing
within 10 days, or such other period of time as may be required by the
Florida Business Corporation Act. Action taken pursuant to this paragraph
shall be subject to the provisions of the Florida Business Corporation Act.

SECTION 10. ADVANCE NOTICE OF NOMINATIONS AND SHAREHOLDER
---------------------------------------------------------
PROPOSALS. All nominations of individuals for election to the board of
- ---------
directors and proposals of business to be considered at any meeting of the
shareholders shall be made as set forth in this Section 10 of Article I,
unless otherwise governed by applicable federal or state law, and in the
event of conflict between these provisions and other applicable law, such
federal or state law provisions shall prevail.

(a) Nominations of individuals for election to the board of
directors and the proposal of other business to be considered by the
shareholders may be made at an annual meeting of shareholders (i) pursuant
to the Corporation's notice of meeting, (ii) by or at the direction of the
directors or (iii) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of notice provided for in this
Section 10 of Article I, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 10 of Article I.

(b) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (iii) of paragraph (b)
of this Section 10 of Article I, the shareholder must have given timely
notice thereof in writing to the Secretary. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive
offices of the Corporation not less than sixty (60) days nor more than
ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty (30) days or delayed by more
than sixty (60) days from such anniversary date, notice by the shareholder
to be timely must be so delivered not earlier than the 90th day prior to
such annual meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the tenth day following the day
on which public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth: (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a director,
(a) the name, age, business and residential addresses, and principal
occupation or employment of each proposed nominee, (b) the class and number

of shares of capital stock that are beneficially owned by such nominee on
the date of such notice, (c) a description of all arrangements or
understandings between the shareholder and each nominee and the name of any
other person or persons pursuant to which the nomination or nominations are
to be made by the shareholder, (d) all other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, and
(e) the written consent of each proposed nominee to being named as a nominee
in the proxy statement and to serve as a director of the Corporation if so
elected; (ii) as to any other business that the shareholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and
of the beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made, (x) the name and
address of such shareholder, as they appear on the Corporation's books, and
of such beneficial owner, (y) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by such shareholder
and such beneficial owner, and (z) a representation that the shareholder
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice or to propose such other business.
The Corporation may require any proposed nominee to furnish any information,
in addition to that furnished pursuant to clause (i) above, it may
reasonably require to determine the eligibility of the proposed nominee to
serve as a director of the Corporation.

(c) Notwithstanding anything in the second sentence of paragraph
(b) of this Section 10 of Article I to the contrary, in the event that the
number of directors to be elected to the board of directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased board of directors made by the
Corporation at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this
Section 10 of Article I shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.

ARTICLE II. DIRECTORS

SECTION 1. FUNCTION. The business of the Corporation shall be
-------------------
managed and its corporate powers exercised by the board of directors.

SECTION 2. NUMBER. The Corporation shall have at least one
-----------------
director. The number of directors may be increased or diminished from time
to time by action of the board of directors or shareholders, but no decrease
shall have the effect of shortening the term of any incumbent director,
unless the shareholders remove the director.

SECTION 3. QUALIFICATION. Each member of the board of directors
------------------------
must be a natural person who is eighteen years of age or older. A director
need not be a resident of Florida or a shareholder of the Corporation.

SECTION 4. ELECTION AND TERM; CLASSES OF DIRECTORS. Each director
--------------------------------------------------
shall hold office for the term for which he is elected and until his
successor is elected and qualifies or until his earlier resignation, removal
from office, or death. The board of directors may be divided into one, two,
or three classes with the number of directors in each class being as nearly
equal as possible; the term of office of those of the first class to expire
at the annual meeting next ensuing; of the second class 1 year thereafter;
of the third class 2 years thereafter; and at each annual election held
after such classification and election, directors shall be chosen for a full
term, as the case may be, to succeed those whose terms expire. If the
directors have staggered terms, then any increase or decrease in the number
of directors shall be so apportioned among the classes as to make all
classes as nearly equal in number as possible.

SECTION 5. COMPENSATION. The board of directors has authority to
-----------------------
fix the compensation of the directors, as directors and, as applicable, as
officers.

SECTION 6. DUTIES OF DIRECTORS. A director shall perform his duties
------------------------------
as a director, including his duties as a member of any committee of the
board upon which he serves, in good faith, in a manner he reasonably
believes to be in the best interests of the Corporation.

SECTION 7. PRESUMPTION OF ASSENT. A director of the Corporation who
--------------------------------
is present at a meeting of the board of directors or a committee of the
board of directors when corporate action is taken is presumed to have
assented to the action unless he votes against it or expressly abstains from
voting on the action taken, or he objects at the beginning of the meeting to
the holding of the meeting or transacting specific business at the meeting.

SECTION 8. VACANCIES. Unless filled by the shareholders, any
--------------------
vacancy occurring in the board of directors, including any vacancy created
because of an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors, even if the
number of remaining directors does not constitute a quorum of the board of
directors. A director elected to fill a vacancy shall hold office only until
the next election of directors by the shareholders.

SECTION 9. REMOVAL OR RESIGNATION OF DIRECTORS. At a meeting of
----------------------------------------------
shareholders called for that purpose, the shareholders, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors, may remove any director, or the entire board of directors, with
or without cause, and fill any vacancy or vacancies created by the removal.

A director may resign at any time by delivering written notice to
the board of directors or the Corporation. A resignation is effective when
the notice is delivered unless the notice specifies a later effective date.
If a resignation is made effective at a later date, the board of directors
may fill the pending vacancy before

the effective date if the board of directors provided that the successor
does not take office until the effective date.

SECTION 10. QUORUM AND VOTING. A majority of the board of directors
-----------------------------
constitutes a quorum for the transaction of business. The act of the
majority of the directors at a meeting at which a quorum is present (whether
by telephone or conference) is the act of the board of directors. Presence
at a meeting for the purposes of determining a quorum and voting shall be in
person (which shall include presence by electronic means such as video
conferencing, telephone or any other electronic media wherein all directors
participating may simultaneously hear each other).

SECTION 11. PLACE OF MEETINGS. Regular and special meetings by the
-----------------------------
board of directors may be held within or outside the State of Florida.

SECTION 12. REGULAR MEETINGS. A regular meeting of the board of
----------------------------
directors shall be held without notice, other than this bylaw, immediately
after and at the same place as the annual meeting of shareholders. The board
of directors may provide, by resolution, the time and place for the holding
of additional regular meetings without notice other than the resolution.

SECTION 13. SPECIAL MEETINGS. Special meetings of the board of
----------------------------
directors may be called by or at the request of the chairman of the board,
the president or any director.

SECTION 14. NOTICE OF MEETINGS. Written notice of the time and
------------------------------
place of special meetings of the board of directors shall be given to each
director by either personal delivery or by first class United States mail,
telegram, or cablegram at least two days before the meeting. Notice of a
meeting of the board of directors need not be given to any director who
signs a waiver of notice either before or after the meeting. Attendance of a
director at a meeting constitutes a waiver of notice of the meeting and all
objections to the time and place of the meeting, or the manner in which it
has been called or convened, except when the director states, at the
beginning of the meeting, or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of the meeting.

A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time
and place. Notice of any adjourned meeting shall be given to the directors
who were not present at the time of the adjournment and, unless the time and
place of the adjourned meeting are announced at the time of the adjournment,
to the other directors.

SECTION 15. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
-------------------------------------------------
restricted by the Articles of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors,
or of any committee thereof, may be taken without a meeting if all members
of the Board of Directors or of such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes
of proceedings of the Board of Directors or committee.

ARTICLE III. OFFICERS

SECTION 1. OFFICERS. The officers of the Corporation shall consist
-------------------
of a president and may include a chairman of the board, a secretary, and a
treasurer, one or more vice presidents, one or more assistant secretaries,
and one or more assistant treasurers. The officers shall be elected
initially by the board of directors at the organizational meeting of board
of directors and thereafter at the first meeting of the board following the
annual meeting of the shareholders in each year. The board from time to time
may elect or appoint other officers, assistant officers, and agents, who
shall have the authority and perform the duties prescribed by the board. An
elected or duly appointed officer may, in turn, appoint one or more officers
or assistant officers, unless the board of directors disapproves or rejects
the appointment. All officers shall hold office until their successors have
been appointed and have qualified or until their earlier resignation,
removal from office, or death. One person may simultaneously hold any two or
more offices. The failure to elect a president, secretary, treasurer of any
other particular officer shall not affect the existence of the Corporation.

SECTION 2. PRESIDENT. The president, subject to the directions of
--------------------
the board of directors, is responsible for the general and active management
of the business and affairs of the Corporation, has the power to sign
certificates of stock, bonds, deeds, and contracts for the Corporation, and
shall preside at all meetings of the shareholders.

SECTION 3. VICE PRESIDENTS. Each vice president has the power to
--------------------------
sign bonds, deeds, and contracts for the Corporation and shall have the
other powers and perform the other duties prescribed by the board of
directors or the president. Unless the board otherwise provides, if the
president is absent or unable to act, the vice president who has served in
that capacity for the longest time and who is present and able to act shall
perform all the duties and may exercise any of the powers of the president.
Any vice president may sign, with the secretary or assistant secretary,
certificates for stock of the Corporation.

SECTION 4. SECRETARY. The secretary shall have the power to sign
--------------------
contracts and other instruments for the Corporation and shall (a) keep the
minutes of the proceedings of the shareholders and the board of directors in
one or more

books provided for that purpose, (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law, (c)
maintain custody of the corporate records and the corporate seal, attest the
signatures of officers who execute documents on behalf of the Corporation,
authenticate records of the Corporation, and assure that the seal is affixed
to all documents of which execution on behalf of the Corporation under its
seal is duly authorized, (d) keep a register of the post office address of
each shareholder that shall be furnished to the secretary by the
shareholder, (e) sign with the president, or a vice president, certificates
for shares of stock of the Corporation, the issuance of which have been
authorized by resolution of the board of directors, (f) have general charge
of the stock transfer books of the Corporation, and (g) in general perform
all duties incident to the office of secretary and other duties as from time
to time may be prescribed by the president or the board of directors.

SECTION 5. TREASURER. The treasurer shall (a) have charge and
--------------------
custody of and be responsible for all funds and securities of the
Corporation, (b) receive and give receipts for monies due and payable to the
Corporation from any source whatsoever, and deposit monies in the name of
the Corporation in the banks, trust companies, or other depositaries as
shall be selected by the board of directors, and (c) in general perform all
the duties incident to the office of treasurer and other duties as from time
to time may be assigned to him by the president or the board of directors.
If required by the board of directors, the treasurer shall give a bond for
the faithful discharge of his duties in the sum and with the surety or
sureties that the board of directors determines.

SECTION 6. CHAIRMAN OF THE BOARD. The chairman of the board, if one
--------------------------------
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or the shareholders. He shall advise and counsel with the
president, and in his absence with other executives of the Corporation, and
shall perform such other duties as may from time to time be assigned to him
by the board of directors.

SECTION 7. REMOVAL OF OFFICERS. An officer or agent elected or
------------------------------
appointed by the board of directors or appointed by another officer may be
removed by the board whenever in its judgment the removal of the officer or
agent will serve the best interests of the Corporation. Any officer or
assistant officer, if appointed by another officer, may likewise be removed
by such officer. Removal shall be without prejudice to any contract rights
of the person removed. The appointment of any person as an officer, agent,
or employee of the Corporation does not create any contract rights. The
board of directors may fill a vacancy, however occurring, in any office.

An officer may resign at any time by delivering notice to the
Corporation. A resignation is effective when the notice is delivered unless
the

notice specifies a later effective date. If a resignation is made effective
at a later date, the board of directors may fill the pending vacancy before
the effective date if the board of directors provides that the successor
does not take office until the effective date.

SECTION 8. SALARIES. The board of directors from time to time shall
-------------------
fix the salaries of the officers, and no officer shall be prevented from
receiving his salary merely because he is also a director of the
Corporation.

ARTICLE IV. INDEMNIFICATION

The Corporation shall indemnify every person who was or is a party
or is or was threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative by
reason of the fact he is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, (except
in such cases involving gross negligence or willful misconduct) in the
performance of their duties to the full extent permitted by applicable law.
Such indemnification may, in the discretion of the Board of Directors,
include advances of his expenses in advance or final disposition subject to
the provisions of applicable law. Such right of indemnification shall not be
exclusive of any right to which any director or officer may be entitled as a
matter of law.

ARTICLE V. STOCK CERTIFICATES

SECTION 1. ISSUANCE. Shares may, but need not be, represented by
-------------------
certificates. The board of directors may authorize the issuance of some or
all of the shares of the Corporation of any or all of its classes or series
without certificates. If certificates are to be issued, the shares must
first be fully paid.

SECTION 2. FORM. Certificates evidencing shares in the Corporation
---------------
shall be signed by the president or a vice president and the secretary,
assistant secretary or any other officer authorized by the board of
directors, and may be sealed with the seal of the Corporation or a facsimile
of the seal. Unless the Corporation's stock is registered pursuant to every
applicable securities law, each certificate shall bear an appropriate legend
restricting the transfer of the shares evidenced by that certificate.

SECTION 3. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Corporation
--------------------------------------------------
may issue a new certificate in the place of any certificate previously
issued if the shareholder of record (a) makes proof in affidavit form that
the certificate has been lost, destroyed, or wrongfully taken, (b) requests
the issue of a

new certificate before the Corporation has notice that the certificate has
been acquired by the purchaser for value in good faith and without notice of
any adverse claim, (c) if requested by the Corporation, gives bond in the
form that the Corporation directs, to indemnify the Corporation, the
transfer agent, and the registrar against any claim that may be made
concerning the alleged loss, destruction, or theft of a certificate, and (d)
satisfies any other reasonable requirements imposed by the Corporation.

SECTION 4. RESTRICTIVE LEGEND. Every certificate evidencing shares
-----------------------------
that are restricted as to sale, disposition, or other transfer shall bear a
legend summarizing the restriction or stating that the Corporation will
furnish to any shareholder, upon request and without charge, a full
statement of the restriction.

ARTICLE VI. DIVIDENDS

The board of directors from time to time may declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law.

ARTICLE VII. SEAL

The corporate seal shall have the name of the Corporation and the
word "seal" inscribed on it, and may be a facsimile, engraved, printed, or
impression seal.

ARTICLE VIII. AMENDMENT

These bylaws may be repealed or amended, and additional bylaws may
be adopted, by either a vote of a majority of the full board of directors or
by vote of the holders of a majority of the issued and outstanding shares
entitled to vote, but the board of directors may not amend or repeal any
bylaw adopted by the shareholders if the shareholders specifically provide
that the bylaw is not subject to amendment or repeal by the directors.

APPENDIX E
----------

APPLIED DIGITAL SOLUTIONS, INC.

2003 FLEXIBLE STOCK PLAN

APPLIED DIGITAL SOLUTIONS, INC.
2003 FLEXIBLE STOCK PLAN
TABLE OF CONTENTS
Page
----

1. NAME AND PURPOSE
1.1. Name..................................................................1
1.2. Purpose...............................................................1

2. DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION
2.1. General Definitions.
2.1.1. Affiliate........................................................1
2.1.2. Agreement........................................................1
2.1.3. Benefit..........................................................1
2.1.4. Board............................................................1
2.1.5. Cash Award.......................................................1
2.1.6. Change of Control................................................1
2.1.7. Code.............................................................2
2.1.8. Company..........................................................2
2.1.9. Committee........................................................2
2.1.10. Common Stock....................................................2
2.1.11. Effective Date..................................................2
2.1.12. Employee........................................................3
2.1.13. Employer........................................................3
2.1.14. Exchange Act....................................................3
2.1.15. Fair Market Value...............................................3
2.1.16. Fiscal Year.....................................................3
2.1.17. ISO.............................................................3
2.1.18. NQSO............................................................3
2.1.19. Option..........................................................3
2.1.20. Other Stock Based Award.........................................3
2.1.21. Parent..........................................................3
2.1.22. Participant.....................................................3
2.1.23. Performance Based Compensation..................................3
2.1.24. Performance Share...............................................3
2.1.25. Plan............................................................3
2.1.26. Reload Option...................................................3
2.1.27. Restricted Stock................................................3
2.1.28. Rule 16b-3......................................................4
2.1.29. SEC.............................................................4
2.1.30. Share...........................................................4
2.1.31. SAR.............................................................4
2.1.32. Subsidiary......................................................4
2.2. Other Definitions.....................................................4
2.3. Conflicts.............................................................4

3. COMMON STOCK
3.1. Number of Shares......................................................4
3.2. Reusage...............................................................4
3.3. Adjustments...........................................................4

4. ELIGIBILITY
4.1. Determined By Committee...............................................4

5. ADMINISTRATION
5.1. Committee.............................................................5
5.2. Authority.............................................................5
5.3. Delegation............................................................5
5.4. Determination.........................................................5

6. AMENDMENT
6.1. Power of Board........................................................6
6.2. Limitation............................................................6

7. TERM AND TERMINATION
7.1. Term..................................................................6
7.2. Termination...........................................................6

8. MODIFICATION OR TERMINATION OF BENEFITS
8.1. General...............................................................6
8.2. Committee's Right.....................................................6

9. CHANGE OF CONTROL
9.1. Vesting and Payment...................................................6
9.2. Other Action..........................................................6

10. AGREEMENTS AND CERTAIN BENEFITS
10.1. Grant Evidenced by Agreement.........................................7
10.2. Provisions of Agreement..............................................7
10.3. Transferability......................................................7

11. REPLACEMENT AND TANDEM AWARDS
11.1. Replacement..........................................................7
11.2. Tandem Awards........................................................7

12. PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
12.1. Payment..............................................................7
12.2. Dividend Equivalents.................................................8
12.3. Deferral.............................................................8
12.4. Withholding..........................................................8

13. OPTIONS
13.1. Types of Options.....................................................8
13.2. Grant of ISOs and Option Price.......................................8
13.3. Other Requirements for ISOs..........................................8
13.4. NQSOs................................................................8

13.5. Determination by Committee...........................................8

14. SARS
14.1. Grant and Payment....................................................8
14.2. Grant of Tandem Award................................................8
14.3. ISO Tandem Award.....................................................8
14.4. Payment of Award.....................................................9

15. ANNUAL LIMITATIONS
15.1. Limitation on Options and SARs.......................................9
15.2. Computations.........................................................9

16. RESTRICTED STOCK AND PERFORMANCE SHARES
16.1. Restricted Stock.....................................................9
16.2. Cost of Restricted Stock.............................................9
16.3. Non-Transferability..................................................9
16.4. Performance Shares...................................................9
16.5. Grant................................................................9

17. CASH AWARDS
17.1. Grant................................................................9
17.2. Rule 16b-3...........................................................9
17.3. Restrictions........................................................10

18. OTHER STOCK BASED AWARDS AND OTHER BENEFITS
18.1. Other Stock Based Awards............................................10
18.2. Other Benefits......................................................10

19. MISCELLANEOUS PROVISIONS B-1
19.1. Underscored References..............................................10
19.2. Number and Gender...................................................10
19.3. Unfunded Status of Plan.............................................10
19.4. Termination of Employment...........................................10
19.5. Designation of Beneficiary..........................................10
19.6. Governing Law.......................................................10
19.7. Purchase for Investment.............................................10
19.8. No Employment Contract..............................................11
19.9. No Effect on Other Benefits.........................................11

iii

APPLIED DIGITAL SOLUTIONS, INC.
2003 FLEXIBLE STOCK PLAN
NAME AND PURPOSE
----------------

NAME.
----

The name of this Plan is the "Applied Digital Solutions, Inc. 2003
Flexible Stock Plan."

PURPOSE.
-------

The Company has established this Plan to attract, retain, motivate
and reward Employees and other individuals, to encourage ownership of the
Company's common stock by Employees and other individuals, and to promote
and further the best interests of the Company by granting cash and other
awards. The Company also intends in appropriate circumstances to grant
awards of its common stock in lieu of cash compensation pursuant to the
mutual agreement of the Participant and the Company. This Plan is intended
to be "Broadly Based" (as such term is used for purposes of rules
promulgated by The National Association of Securities Dealers).

DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION
----------------------------------------------

GENERAL DEFINITIONS.
-------------------

The following words and phrases, when used in the Plan, unless
otherwise specifically defined or unless the context clearly otherwise
requires, shall have the following respective meanings:

AFFILIATE.
- ---------

A Parent or Subsidiary of the Company.

AGREEMENT.
- ---------

The document which evidences the grant of any Benefit under the
Plan and which sets forth the Benefit and the terms, conditions and
provisions of, and restrictions relating to, such Benefit.

BENEFIT.
- -------

Any benefit granted to a Participant under the Plan.

BOARD.
- -----

The Board of Directors of the Company.

CASH AWARD.
- ----------

A Benefit payable in the form of cash.

CHANGE OF CONTROL.
- -----------------

The occurrence of any of the following:

A. An acquisition of any common stock or other voting securities of the
Company entitled to vote generally for the election of directors (the
"Voting Securities") by any "Person" or "Group" (as each such term is
used for purposes of Section 13(d) or 14(d) of the Exchange Act),
immediately after which such Person or Group, as the case may be, has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than 20% of the then outstanding shares
of common stock or the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in determining
whether a Change of Control has occurred, shares of common stock or
Voting Securities that are acquired in a Non-Control Acquisition (as
defined below) shall not constitute an acquisition which would cause a
Change of Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) the Company, (ii) any Subsidiary or (ii) any
employee benefit plan maintained by the Company or any Subsidiary,
including a trust forming part of any such plan (an "Employee Benefit
Plan");

B. When, during any 2-year period, individuals who, at the beginning of
the 2-year period, constitute the Board (the "Incumbent Board"), cease
for any reason to constitute at least 50% of the members of the Board;
provided, however, that (i) if the election or nomination for election
by the Company's shareholders of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes hereof, be deemed to be a member of the Incumbent
Board; and (ii) no individual shall be deemed to be a member of the
Incumbent Board if such individual initially assumed office as a result
of either an actual or

threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person or Group other than the
Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest;

C. The consummation of:

(i) a merger, consolidation or reorganization involving the
Company or any Subsidiary, unless the merger, consolidation or
reorganization is a Non-Control Transaction. A "Non-Control
Transaction" shall mean a merger, consolidation or reorganization
of the Company or any Subsidiary where:

(a) the shareholders of the Company immediately prior to the
merger, consolidation or reorganization own, directly or
indirectly, immediately following such merger,
consolidation or reorganization, at least 50% of the
combined voting power of the outstanding voting securities
of the corporation resulting from such merger,
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the common stock or Voting Securities,
as the case may be, immediately prior to the merger,
consolidation or reorganization,

(b) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for the merger, consolidation or reorganization
constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, or a
corporation beneficially owning, directly or indirectly, a
majority of the voting securities of the Surviving
Corporation, and

(c) no Person or Group, other than (1) the Company, (2) any
Subsidiary, (3) any Employee Benefit Plan or (4) any other
Person or Group who, immediately prior to the merger,
consolidation or reorganization, had Beneficial Ownership
of not less than 20% of the then outstanding Voting
Securities or common stock, has Beneficial Ownership of
20% or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities or common
stock;

(d) A complete liquidation or dissolution of the Company; or

(e) The sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a
transfer to a Subsidiary).

Notwithstanding the foregoing, a Change of Control shall not be
deemed to have occurred solely because any Person or Group (the "Subject
Person") acquired Beneficial Ownership of more than the permitted amount of
the then outstanding Voting Securities or common stock of the Company as a
result of an acquisition of Voting Securities or common stock by the Company
which, by reducing the number of shares of Voting Securities or common stock
then outstanding, increases the proportional number of shares beneficially
owned by the Subject Person; provided, however, that if a Change of Control
would have occurred (but for the operation of this sentence) as a result of
the acquisition of Voting Securities or common stock by the Company, and
after such acquisition by the Company, the Subject Person becomes the
beneficial owner of any additional shares of Voting Securities or common
stock, which increases the percentage of the then outstanding shares of
Voting Securities or common stock beneficially owned by the Subject Person,
then a Change of Control shall be deemed to have occurred.

CODE.
- ----
The Internal Revenue Code of 1986, as amended. Any reference to the
Code includes the regulations promulgated pursuant to the Code.
COMPANY.
- -------
Applied Digital Solutions, Inc.

COMMITTEE.
- ---------
The Committee described in Section 0.

COMMON STOCK.
- ------------

The Company's common stock which presently has a par value of $.001
per Share.

EFFECTIVE DATE.
- --------------

The date that the Plan is approved by the shareholders of the
Company which must occur within one year before or after approval
by the Board. Any grants of Benefits prior to the approval by the
shareholders of the Company shall be void if such approval is not
obtained.
2

EMPLOYEE.
- --------

Any person employed by the Employer.

EMPLOYER.
- --------

The Company and all Affiliates.

EXCHANGE ACT.
- ------------

The Securities Exchange Act of 1934, as amended.

FAIR MARKET VALUE.
- -----------------

The closing price of Shares on the Nasdaq National Market on a
given date, or, in the absence of sales on a given date, the
closing price on the Nasdaq National Market on the last day on
which a sale occurred prior to such date.

FISCAL YEAR.
- -----------

The taxable year of the Company which is the calendar year.

ISO.
- ---

An Incentive Stock Option as defined in Section 422 of the Code.

NQSO.
- ----

A non-qualified stock Option, which is an Option that does not
qualify as an ISO.

OPTION.
- ------

An option to purchase Shares granted under the Plan.

OTHER STOCK BASED AWARD.
- -----------------------

An award under Section 18 that is valued in whole or in part by
reference to, or otherwise based on, common stock.

PARENT.
- ------

Any corporation (other than the Company or a Subsidiary) in an
unbroken chain of corporations ending with the Company, if, at the
time of the grant of an Option or other Benefit, each of the
corporations (other than the Company) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.

PARTICIPANT.
- -----------

An individual who is granted a Benefit under the Plan. Benefits may
be granted only to Employees, members of the Board, (including
former Employees and former members of the Board if in connection
with their separation from the Company), employees and owners of
entities which are not Affiliates but which have a direct or
indirect ownership interest in an Employer or in which an Employer
has a direct or indirect ownership interest, individuals who, and
employees and owners of entities which, are customers and suppliers
of an Employer, individuals who, and employees and owners of
entities which, render services to an Employer, and individuals
who, and employees and owners of entities, which have ownership or
business affiliations with any individual or entity previously
described.

PERFORMANCE BASED COMPENSATION.
- ------------------------------

Compensation which meets the requirements of Section 162(m)(4)(C)
of the Code.

PERFORMANCE SHARE.
- -----------------

A Share awarded to a Participant under Section 0 of the Plan.
PLAN.
- ----

The Applied Digital Solutions, Inc. 2003 Flexible Stock Plan and
all amendments and supplements to it.

RELOAD OPTION.
- -------------

An Option to purchase the number of Shares used by a Participant to
exercise an Option and to satisfy any withholding requirement
incident to the exercise of such Option.

RESTRICTED STOCK.
- ----------------

Shares issued under Section 0 of the Plan.

RULE 16b-3.
- ----------

Rule 16b-3 promulgated by the SEC, as amended, or any successor
rule in effect from time to time.

SEC.
- ---

The Securities and Exchange Commission.

SHARE.
- -----

A share of common stock.

SAR.
- ---

A stock appreciation right, which is the right to receive an amount
equal to the appreciation, if any, in the Fair Market Value of a
Share from the date of the grant of the right to the date of its
payment.

SUBSIDIARY.
- ----------

Any corporation, other than the Company, in an unbroken chain of
corporations beginning with the Company if, at the time of grant of
an Option or other Benefit, each of the corporations, other than
the last corporation in the unbroken chain, owns stock possessing
50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

OTHER DEFINITIONS.
-----------------

In addition to the above definitions, certain words and phrases
used in the Plan and any Agreement may be defined in other portions of the
Plan or in such Agreement.

CONFLICTS.
---------

In the case of any conflict in the terms of the Plan relating to a
Benefit, the provisions in the section of the Plan which specifically grants
such Benefit shall control those in a different section. In the case of any
conflict between the terms of the Plan relating to a Benefit and the terms
of an Agreement relating to a Benefit, the terms of the Plan shall control.

COMMON STOCK
------------

NUMBER OF SHARES.
----------------

The number of Shares which may be issued or sold or for which
Options, SARs or Performance Shares may be granted under the Plan shall be
14,000,000 Shares. Such Shares may be authorized but unissued Shares, Shares
held in the treasury, or both. The full number of Shares available may be
used for any type of Option or other Benefit; provided, however, that the
number of Shares that may be issued under ISOs shall not exceed 7,000,000.

REUSAGE.
-------

If an Option or SAR expires or is terminated, surrendered, or
canceled without having been fully exercised, if Restricted Shares or
Performance Shares are forfeited, or if any other grant results in any
Shares not being issued, the Shares covered by such Option or SAR, grant of
Restricted Shares, Performance Shares or other grant, as the case may be,
shall again be available for use under the Plan. Any Shares which are used
as full or partial payment to the Company upon exercise of an Option or for
any other Benefit that requires a payment to the Company shall be available
for purposes of the Plan.

ADJUSTMENTS.
-----------

If there is any change in the common stock of the Company by reason
of any stock dividend, spin-off, split-up, spin-out, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares, or
otherwise, the number of SARs and number and class of shares available for
Options and grants of Restricted Stock, Performance Shares and Other Stock
Based Awards and the number of Shares subject to outstanding Options, SARs,
grants of Restricted Stock which are not vested, grants of Performance
Shares which are not vested, and Other Stock Based Awards, and the price
thereof, as applicable, shall be appropriately adjusted by the Committee.

ELIGIBILITY
-----------

DETERMINED BY COMMITTEE.
-----------------------

The Participants and the Benefits they receive under the Plan shall
be determined solely by the Committee. In making its determinations, the
Committee shall consider past, present and expected future contributions of

Participants and potential Participants to the Employer, including, without
limitation, the performance of, or the refraining from the performance of,
services. Unless specifically provided otherwise herein, all determinations
of the Committee in connection with the Plan or an Agreement shall be made
in its sole discretion.

ADMINISTRATION
--------------

COMMITTEE.
---------

The Plan shall be administered by the Committee. The Committee
shall consist of the Board, unless the Board appoints a Committee of two or
more but less than all of the Board. If the Committee does not include the
entire Board, it shall serve at the pleasure of the Board, which may from
time to time appoint members in substitution for members previously
appointed and fill vacancies, however caused, in the Committee. The
Committee may select one of its members as its Chairman and shall hold its
meetings at such times and places as it may determine. A majority of its
members shall constitute a quorum. All determinations of the Committee made
at a meeting at which a quorum is present shall be made by a majority of its
members present at the meeting. Any decision or determination reduced to
writing and signed by a majority of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly called and held.

AUTHORITY.
---------

Subject to the terms of the Plan, the Committee shall have
discretionary authority to:

(a) determine the individuals to whom Benefits are granted, the type
and amounts of Benefits to be granted and the date of issuance and
duration of all such grants;

(b) determine the terms, conditions and provisions of, and restrictions
relating to, each Benefit granted;

(d) prescribe, amend and rescind rules and regulations relating to the
Plan;

(e) determine the content and form of all Agreements;

(f) determine all questions relating to Benefits under the Plan;

(g) maintain accounts, records and ledgers relating to Benefits;

(h) maintain records concerning its decisions and proceedings;

(i) employ agents, attorneys, accountants or other persons for such
purposes as the Committee considers necessary or desirable;

(j) take, at any time, any action described in Section 9.1 or permitted
by Section 9.2(a), irrespective of whether any Change of Control
has occurred or is imminent;

(k) determine, except to the extent otherwise provided in the Plan,
whether and the extent to which Benefits under the Plan will be
structured to conform to the requirements applicable to
Performance-Based Compensation, and to take such action, establish
such procedures, and impose such restrictions at the time such
Benefits are granted as the Committee determines to be necessary or
appropriate to conform to such requirements; and

(l) do and perform all acts which it may deem necessary or appropriate
for the administration of the Plan and carry out the purposes of
the Plan.

DELEGATION.
----------

Except as required by Rule 16b-3 with respect to grants of Options,
Stock Appreciation Awards, Performance Shares, Other Stock Based Awards, or
other Benefits to individuals who are subject to Section 0 of the Exchange
Act or as otherwise required for compliance with Rule 16b-3 or other
applicable law, the Committee may delegate all or any part of its authority
under the Plan to any Employee, Employees or committee.

DETERMINATION.
-------------

All determinations of the Committee shall be final and binding on
all persons.

AMENDMENT
---------

POWER OF BOARD.
--------------

Except as hereinafter provided, the Board shall have the sole right
and power to amend the Plan at any time and from time to time.

LIMITATION.
----------

The Board may not amend the Plan, without approval of the
shareholders of the Company:

(a) in a manner which would cause Options which are intended to qualify
as ISOs to fail to qualify;

(b) in a manner which would cause the Plan to fail to meet the
requirements of Rule 16b-3; or

TERM AND TERMINATION
--------------------

TERM.
----

The Plan shall commence as of the Effective Date and, subject to
the terms of the Plan, including those requiring approval by the
shareholders of the Company and those limiting the period over which ISOs or
any other Benefits may be granted, shall continue in full force and effect
until terminated.

TERMINATION.
-----------

The Plan may be terminated at any time by the Board.

MODIFICATION OR TERMINATION OF BENEFITS

GENERAL.

Subject to the provisions of Section 0, the amendment or
termination of the Plan shall not adversely affect a Participant's right to
any Benefit granted prior to such amendment or termination.

COMMITTEE'S RIGHT.

Any Benefit granted may be converted, modified, forfeited or
canceled, in whole or in part, by the Committee if and to the extent
permitted in the Plan or applicable Agreement or with the consent of the
Participant to whom such Benefit was granted. Except as may be provided in
an Agreement, the Committee may, in its sole discretion, in whole or in
part, waive any restrictions or conditions applicable to, or accelerate the
vesting of, any Benefit.

CHANGE OF CONTROL

VESTING AND PAYMENT.

In the event of a Change of Control:

(a) all outstanding Options shall become fully exercisable, except to
the extent that the right to exercise the Option is subject to
restrictions established in connection with an SAR that is issued
in tandem with the Option;

(b) all outstanding SARs shall become immediately payable, except to
the extent that the right to exercise the SAR is subject to
restrictions established in connection with an Option that is
issued in tandem with the SAR;

(d) all Performance Shares shall be deemed to be fully earned and shall
be paid out in such manner as determined by the Committee; and

(e) all Cash Awards, Other Stock Based Awards and other Benefits shall
become fully vested and/or earned and paid out in such manner as
determined by the Committee.

OTHER ACTION.

In the event of a Change of Control, the Committee, in its sole
discretion, may, in addition to the provisions of Section 0 above and to the
extent not inconsistent therewith:

(a) (a) provide for the purchase of any Benefit for an amount of
cash equal to the amount which could have been attained upon
the exercise or realization of such Benefit;

(b) (b) make such adjustment to the Benefits then outstanding as
the Committee deems appropriate to reflect such transaction
or change; and/or

(c) (c) cause the Benefits then outstanding to be assumed, or new
Benefits substituted therefor, by the surviving corporation
in such change.

AGREEMENTS AND CERTAIN BENEFITS

GRANT EVIDENCED BY AGREEMENT.

The grant of any Benefit under the Plan may be evidenced by an
Agreement which shall describe the specific Benefit granted and the terms
and conditions of the Benefit. The granting of any Benefit shall be subject
to, and conditioned upon, the recipient's execution of any Agreement
required by the Committee. Except as otherwise provided in an Agreement, all
capitalized terms used in the Agreement shall have the same meaning as in
the Plan, and the Agreement shall be subject to all of the terms of the
Plan.

PROVISIONS OF AGREEMENT.
-----------------------

Each Agreement shall contain such provisions that the Committee
shall determine to be necessary, desirable and appropriate for the Benefit
granted which may include, but not necessarily be limited to, the following
with respect to any Benefit: description of the type of Benefit; the
Benefit's duration; its transferability; if an Option, the exercise price,
the exercise period and the person or persons who may exercise the Option;
the effect upon such Benefit of the Participant's death, disability, changes
of duties or termination of employment; the Benefit's conditions; when, if,
and how any Benefit may be forfeited, converted into another Benefit,
modified, exchanged for another Benefit, or replaced; and the restrictions
on any Shares purchased or granted under the Plan.

TRANSFERABILITY.
---------------

Unless otherwise specified in an Agreement or permitted by the
Committee, each Benefit granted shall be not transferable other than by will
or the laws of descent and distribution and shall be exercisable during a
Participant's lifetime only by him.

REPLACEMENT AND TANDEM AWARDS
-----------------------------

REPLACEMENT.
-----------

The Committee may permit a Participant to elect to surrender a
Benefit in exchange for a new Benefit.

TANDEM AWARDS.
-------------

Awards may be granted by the Committee in tandem. However, no
Benefit may be granted in tandem with an ISO except SARs.

PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
--------------------------------------------

PAYMENT.
-------

Upon the exercise of an Option or in the case of any other Benefit
that requires a payment by a Participant to the Company, the amount due the
Company is to be paid:

(a) in cash;

(b) by the surrender of all or part of a Benefit (including the
Benefit being exercised) including by means of a so-called
"cashless exercise" of an option;

(c) by the tender to the Company of Shares owned by the optionee
and registered in his name having a Fair Market Value equal
to the amount due to the Company;

(d) in other property, rights and credits deemed acceptable by
the Committee, including the Participant's promissory note;

(e) by any combination of the payment methods specified in (a),
(b), (c) and (d) above.

Notwithstanding, the foregoing, any method of payment other than
(a) may be used only with the consent of the Committee or if and to the
extent so provided in an Agreement. The proceeds of the sale of Shares
purchased pursuant to an Option and any payment to the Company for other
Benefits shall be added to the general funds of the Company or to the Shares
held in treasury, as the case may be, and used for the corporate purposes of
the Company as the Board shall determine.

DIVIDEND EQUIVALENTS.
--------------------

Grants of Benefits in Shares or Share equivalents may include
dividend equivalent payments or dividend credit rights.

DEFERRAL.
--------

The right to receive any Benefit under the Plan may, at the request
of the Participant, be deferred for such period and upon such terms as the
Committee shall determine, which may include crediting of interest on
deferrals of cash and crediting of dividends on deferrals denominated in
Shares.

WITHHOLDING.
-----------

The Company may, at the time any distribution is made under the
Plan, whether in cash or in Shares, or at the time any Option is exercised,
withhold from such distribution or Shares issuable upon the exercise of an
Option, any amount necessary to satisfy federal, state and local income
and/or other tax withholding requirements with respect to such distribution
or exercise of such Options. The Committee or the Company may require a
participant to tender to the Company cash and/or Shares in the amount
necessary to comply with any such withholding requirements.

OPTIONS
-------

TYPES OF OPTIONS.
----------------

It is intended that both ISOs and NQSOs, which may be Reload
Options, may be granted by the Committee under the Plan.

GRANT OF ISOS AND OPTION PRICE.
------------------------------

Each ISO must be granted to an Employee and granted within ten
years from the earlier of the date of adoption by the Board or the Effective
Date. The purchase price for Shares under any ISO shall be no less than the
Fair Market Value of the Shares at the time the Option is granted.

OTHER REQUIREMENTS FOR ISOS.
---------------------------

The terms of each Option which is intended to qualify as an ISO
shall meet all requirements of Section 422 of the Code.

NQSOS.
-----

The terms of each NQSO shall provide that such Option will not be
treated as an ISO. The purchase price for Shares under any NQSO shall be no
less than 85% of the Fair Market Value of the Shares at the time the Option
is granted.

DETERMINATION BY COMMITTEE.
--------------------------

Except as otherwise provided in Section 0 through Section 0, the
terms of all Options shall be determined by the Committee.

SARS
----

GRANT AND PAYMENT.
-----------------

The Committee may grant SARs. Upon electing to receive payment of a
SAR, a Participant shall receive payment in cash, in Shares, or in any
combination of cash and Shares, as the Committee shall determine.

GRANT OF TANDEM AWARD.
---------------------

The Committee may grant SARs in tandem with an Option, in which
case: the exercise of the Option shall cause a correlative reduction in SARs
standing to a Participant's credit which were granted in tandem with the
Option; and the payment of SARs shall cause a correlative reduction of the
Shares under such Option.

ISO TANDEM AWARD.
----------------

When SARs are granted in tandem with an ISO, the SARs shall have
such terms and conditions as shall be required for the ISO to qualify as an
ISO.

PAYMENT OF AWARD.
----------------

SARs shall be paid by the Company to a Participant, to the extent
payment is elected by the Participant (and is otherwise due and payable), as
soon as practicable after the date on which such election is made.

ANNUAL LIMITATIONS
------------------

LIMITATION ON OPTIONS AND SARS.
------------------------------

The number of (a) Shares covered by Options where the purchase
price is no less than the Fair Market Value of the Shares on the date of
grant plus (b) SARs which may be granted to any Participant in any Fiscal
Year shall not exceed 5,000,000.

COMPUTATIONS.
------------

For purposes of Section 0: Shares covered by an Option that is
canceled shall count against the maximum, and, if the exercise price under
an Option is reduced, the transaction shall be treated as a cancellation of
the Option and a grant of a new Option; and SARs covered by a grant of SARs
that is canceled shall count against the maximum, and, if the Fair Market
Value of a Share on which the appreciation under a grant of SARs will be
calculated is reduced, the transaction will be treated as a cancellation of
the SARs and the grant of a new grant of SARs.

RESTRICTED STOCK AND PERFORMANCE SHARES
---------------------------------------

RESTRICTED STOCK.
----------------

The Committee may grant Benefits in Shares available under Section
0 of the Plan as Restricted Stock. Shares of Restricted Stock shall be
issued and delivered at the time of the grant or as otherwise determined by
the Committee, but shall be subject to forfeiture until provided otherwise
in the applicable Agreement or the Plan. Each certificate representing
Shares of Restricted Stock shall bear a legend referring to the Plan and the
risk of forfeiture of the Shares and stating that such Shares are
nontransferable until all restrictions have been satisfied and the legend
has been removed. At the discretion of the Committee, the grantee may or may
not be entitled to full voting and dividend rights with respect to all
shares of Restricted Stock from the date of grant.

COST OF RESTRICTED STOCK.
------------------------

Unless otherwise determined by the Committee, grants of Shares of
Restricted Stock shall be made at a per Share cost to the Participant equal
to par value.
NON-TRANSFERABILITY.
-------------------

Shares of Restricted Stock shall not be transferable until after
the removal of the legend with respect to such Shares.

PERFORMANCE SHARES.
------------------

Performance Shares are the right of an individual to whom a grant
of such Shares is made to receive Shares or cash equal to the Fair Market
Value of such Shares at a future date in accordance with the terms and
conditions of such grant. The terms and conditions shall be determined by
the Committee, in its sole discretion, but generally are expected to be
based substantially upon the attainment of targeted profit and/or
performance objectives.
GRANT.
-----

The Committee may grant an award of Performance Shares. The number
of Performance Shares and the terms and conditions of the grant shall be set
forth in the applicable Agreement.

CASH AWARDS
-----------

GRANT.
-----

The Committee may grant Cash Awards at such times and (subject to
Section 0) in such amounts as it deems appropriate.

RULE 16b-3.
----------

The amount of any Cash Award in any Fiscal Year to any Participant
who is subject to Section 0 of the Exchange Act shall not exceed the greater
of $100,000 or 100% of his cash compensation (excluding any Cash Award under
this Section 0) for such Fiscal Year.

RESTRICTIONS.
------------

Cash Awards may be subject or not subject to conditions (such as an
investment requirement), restricted or nonrestricted, vested or subject to
forfeiture and may be payable currently or in the future or both.

OTHER STOCK BASED AWARDS AND OTHER BENEFITS
-------------------------------------------

OTHER STOCK BASED AWARDS.
------------------------

The Committee shall have the right to grant Other Stock Based Awards
which may include, without limitation, the grant of Shares based on certain
conditions, the payment of cash based on the performance of the common
stock, the grant of securities convertible into Shares, and the grant of
Shares in lieu of the payment of cash compensation pursuant to the mutual
agreement of the Participant and the Company.

OTHER BENEFITS.
--------------

The Committee shall have the right to provide types of Benefits
under the Plan in addition to those specifically listed, if the Committee
believes that such Benefits would further the purposes for which the Plan
was established.

MISCELLANEOUS PROVISIONS
------------------------

UNDERSCORED REFERENCES.
----------------------

The underscored references contained in the Plan are included only
for convenience, and they shall not be construed as a part of the Plan or in
any respect affecting or modifying its provisions.

NUMBER AND GENDER.
-----------------

The masculine and neuter, wherever used in the Plan, shall refer to
either the masculine, neuter or feminine; and, unless the context otherwise
requires, the singular shall include the plural and the plural the singular.

UNFUNDED STATUS OF PLAN.
-----------------------

The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments or deliveries of
Shares not yet made to a Participant by the Company, nothing contained
herein shall give any rights that are greater than those of a general
creditor of the Company. The Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the Plan to
deliver Shares or payments hereunder consistent with the foregoing.

TERMINATION OF EMPLOYMENT.
-------------------------

If the employment of a Participant by the Company terminates for
any reason, except as otherwise provided in an Agreement, all unexercised,
deferred, and unpaid Benefits may be exercisable or paid only in accordance
with rules established by the Committee. These rules may provide, as the
Committee may deem appropriate, for the expiration, forfeiture,
continuation, or acceleration of the vesting of all or part of the Benefits.

DESIGNATION OF BENEFICIARY.
--------------------------

A Participant may file with the Committee a written designation of
a beneficiary or beneficiaries (subject to such limitations as to the
classes and number of beneficiaries and contingent beneficiaries as the
Committee may from time to time prescribe) to exercise, in the event of the
death of the Participant, an Option, or to receive, in such event, any
Benefits. The Committee reserves the right to review and approve beneficiary
designations. A Participant may from time to time revoke or change any such
designation of beneficiary and any designation of beneficiary under the Plan
shall be controlling over any other disposition, testamentary or otherwise;
provided, however, that if the Committee shall be in doubt as to the right
of any such beneficiary to exercise any Option or to receive any Benefit,
the Committee may determine to recognize only an exercise by the legal
representative of the recipient, in which case the Company, the Committee
and the members thereof shall not be under any further liability to anyone.

GOVERNING LAW.
-------------

This Plan shall be construed and administered in accordance with
the laws of the State of Missouri.

PURCHASE FOR INVESTMENT.
-----------------------

The Committee may require each person purchasing Shares pursuant to
an Option or other award under the Plan to represent to and agree with the
Company in writing that such person is acquiring the Shares for investment
and

without a view to distribution or resale. The certificates for such Shares
may include any legend which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates for Shares delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under all applicable laws, rules and
regulations, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate references to such restrictions.

NO EMPLOYMENT CONTRACT.
----------------------

Neither the adoption of the Plan nor any Benefit granted hereunder
shall confer upon any Employee any right to continued employment nor shall
the Plan or any Benefit interfere in any way with the right of the Employer
to terminate the employment of any of its Employees at any time.

NO EFFECT ON OTHER BENEFITS.
---------------------------

The receipt of Benefits under the Plan shall have no effect on any
benefits to which a Participant may be entitled from the Employer, under
another plan or otherwise, or preclude a Participant from receiving any such
benefits.

THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
APPLIED DIGITAL SOLUTIONS, INC.

Michael E. Krawitz and Evan C. McKeown, and each of them, are appointed
by the undersigned as proxies, each with power of substitution, to represent
and vote the shares of stock of Applied Digital Solutions, Inc. (the "Company")
which the undersigned would be entitled to vote at the Annual Meeting of
Shareholders of the Company to be held on July 25, 2003 at 8:00 a.m. Eastern
Daylight Time, at the West Palm Beach Marriott Hotel, 630 Clearwater Park Road,
West Palm Beach, Florida 33401, and at any postponements or adjournments
thereof (the "Annual Meeting") as if the undersigned were present and voting at
the meeting.

1. Election of Directors
NOTE: UNLESS OTHERWISE INDICATED, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR EACH NOMINEE AND APPOINTEE NAMED BELOW.
NOMINEE:
CONSTANCE K. WEAVER
FOR the nominee / /
WITHHOLD AUTHORITY TO VOTE for the nominee listed above / /
APPOINTEES:
MICHAEL S. ZARRIELLO AND DENNIS G. RAWAN
FOR all appointees (except as written on the line below) / /
WITHHOLD AUTHORITY TO VOTE for all appointees listed above / /

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL APPOINTEE WRITE
THE APPOINTEE'S NAME ON THE LINE BELOW.)

------------------------------------------------------------------------
2. Ratification of Eisner LLP as independent auditors of the Company
for the year ending December 31, 2003;

FOR / / AGAINST / / ABSTAIN / /

3. Approval of a proposal to change the Company's state of incorporation
from Missouri to Florida through the merger of the Company into a
newly-formed, wholly-owned Florida subsidiary;

FOR / / AGAINST / / ABSTAIN / /

4. Approval and adoption of the Company's 2003 Flexible Stock Plan;

FOR / / AGAINST / / ABSTAIN / /

5. Ratification of the stock options granted during 2002 under certain
of the Company's stock plans;

FOR / / AGAINST / / ABSTAIN / /

6. Approval of the issuance of the Company's common stock and
ratification of the re-pricing of stock options under the severance
agreement entered into with Richard J. Sullivan;

FOR / / AGAINST / / ABSTAIN / /

7. Approval of the issuance of the Company's common stock and
ratification of the re-pricing of stock options under the severance
agreement entered into with Jerome C. Artigliere;

FOR / / AGAINST / / ABSTAIN / /

8. Approval of the issuance of the Company's common stock under
agreements entered into with Garrett Sullivan (no relation to
Richard J. Sullivan);

FOR / / AGAINST / / ABSTAIN / /

9. Approval of an amendment to the Company's Third Restated Articles of
Incorporation, as amended, to increase the number of authorized
shares of common stock from 435,000,000 to 560,000,000 shares;

FOR / / AGAINST / / ABSTAIN / /

10. In their discretion, on any other business that may properly come
before the Meeting.

THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTIONS SET FORTH ABOVE AND, WHERE NO DIRECTIONS ARE GIVEN, SUCH SHARES WILL
BE VOTED FOR THE NOMINEE AND APPOINTEES FOR DIRECTOR NAMED ABOVE AND FOR EACH
PROPOSAL REFERRED TO ABOVE.
Dated , 2003
-----------

------------------------------
Signature

Please sign, date and return this proxy in the enclosed envelope.
Joint Owners should each sign this proxy. Attorneys-in-fact, executors,
administrators, trustees, guardians or corporation officers should give their
full title.

APPENDIX

Page 14 of the printed proxy statement contains a Performance Graph.
The information contained within the graph is presented in a tabular
format immediately following the graph.