Exhibit 10.11

                      EMPLOYMENT AND NON-COMPETE AGREEMENT


         AGREEMENT  made as of the  1st  day of  January  2001,  by and  between
Applied Digital  Solutions,  Inc. a Missouri  corporation (the  "Company"),  and
Mercedes Walton (the "Executive").

                                    Recitals

         WHEREAS,  the Company  wishes to employ the  Executive as President and
Chief Operating Officer of the Company;

         WHEREAS,  the Executive  wishes to accept such employment and to render
services to the Company and its subsidiaries and affiliates; and

         WHEREAS,  the  Company  desires  to  enter  into  this  Employment  and
Non-Compete  Agreement (this  "Agreement") to secure the services and employment
of the  Executive on behalf of the Company and to protect the  Company's  right,
title and  interest in its  business and other  affairs,  policies,  procedures,
methods  and  personnel   (including,   without  limitation,   the  Confidential
Information  (as  defined  below)) and the  Executive  is willing to render such
services on the terms and conditions set forth herein,  and in accordance  with,
the provisions of this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained  herein and for other good and  valuable  consideration,  the receipt,
adequacy and  sufficiency of which are hereby  acknowledged,  the parties hereby
agree as follows:


                              Terms and Conditions

1.       Term.

         The  Executive's   employment  hereunder  shall  be  for  a  term  (the
"Employment  Term"),  which shall commence on January 1st, 2001 (the "Employment
Date")  and,  subject to the  provisions  for  earlier  termination  hereinafter
provided,  shall  terminate on the third  anniversary  of the  Employment  Date,
provided that the Employment Term shall be automatically extended for successive
additional one (1) year periods ("Additional Employment Terms") unless, at least
ninety  (90)  days  prior  to the  end of the  Original  Employment  Term or the
Additional Employment Terms, the Company or the Executive has notified the other
in  writing  that the  Employment  Term shall  terminate  at the end of the then
current  term.  Notice of  nonextension  by the  Company  shall be  treated as a
Termination  without  Cause by the  Company  as of the end of the  then  current
Employment  Term.  Notice of nonextension by the Executive shall be treated as a
termination  voluntarily  other  than for Good  Reason  at any time  elected  in
writing by the Executive after the giving of such notice or by the Company after
the giving of such notice by the Executive.


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2.       Position and Duties.

         During the Employment  Term, the Executive shall serve as President and
Chief  Operating  Officer of the Company and such other  position(s) as may from
time to time be agreed upon by the Company and the Executive. The Executive will
report  to  the  Chairman  and  Chief  Executive  Officer  of the  Company  (the
"Chairman") and shall have the duties, responsibilities and authority consistent
with  such  position  and such  other  duties,  responsibilities  and  authority
commensurate  with such position as specified  from time to time by the Chairman
after consultation with the Executive.  The Executive shall devote substantially
her full business  time,  energy and efforts to the  performance of services for
the Company.  The Executive shall not, without the prior written approval of the
Chairman,  engage in any other business  activity that would  interfere with the
performance of her duties,  services and responsibilities  hereunder or which is
otherwise in violation of policies established from time to time by the Company.
Notwithstanding  the  foregoing,  the Executive  shall be entitled to manage her
personal investments.  The Executive may, with the prior written approval of the
Chairman, devote reasonable periods of time to service as a director or advisory
board member of other non-competitive  businesses;  provided, however, that such
service does not interfere with the  performance of her  obligations  hereunder.
Furthermore, the Executive may engage in such charitable or community activities
as shall not interfere with the performance of her obligations hereunder.

         During  the period  that  shall  commence  on the  Employment  Date and
terminate September 1, 2001, the Executive's principal place of employment shall
be at the Company's offices in Fairfield, New Jersey. During that portion of the
Employment  Term that shall commence  September 1, 2001, or such earlier date as
the Executive may elect, the Executive's  principal place of employment shall be
the Company's corporate  headquarters in Palm Beach, Florida. From and after the
time that the portion of the Employment Term described in the preceding sentence
commences, the Executive shall own or lease a residence or lease an apartment in
the Palm Beach,  Florida  area and, if she  continues to maintain a residence in
New Jersey, which she may do in her sole discretion,  non-business trips made to
and from such residence shall be personal commuting expenses which shall be born
by the Executive.  Notwithstanding the foregoing, the Executive may from time to
time be  required  to  travel on  Company  business  to an extent  substantially
consistent with the Executive's duties and responsibilities hereunder.

         During the  Employment  Term,  the Company shall nominate the Executive
for  election  to the  Board of  Directors  (the  "Board")  as a  member  of the
management slate at each meeting of the stockholders of the Company at which the
Executive shall come up for election.  If elected, the Executive agrees to serve
on the Board without additional compensation.

3.       Compensation and Other Remuneration.

         (a) Base  Compensation.  During the Employment  Term, the Company shall
pay to the Executive in consideration of the performance by the Executive of the
Executive's  obligations  hereunder  (including  any  services  as  an  officer,

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director,  employee,  member of any  committee  of the Company or  otherwise)  a
salary  (the  "Base  Compensation")  at an annual  rate  equal to Three  Hundred
Thousand  Dollars  ($300,000)  payable in U.S.  Dollars in  accordance  with the
Company's normal payroll practices then in effect. The Base Compensation and all
other amounts payable by the Company to the Executive under this Agreement shall
be subject to all  applicable  taxes  required  to be  withheld  by the  Company
pursuant to federal,  state and/or local law. The Executive will be eligible for
annual salary  increases  during the Employment  Term in accordance with Company
Salary increase policies. Once increased,  the Executive's base salary shall not
be decreased for any reason and thereafter shall be the Base Compensation.

         (b) Annual Bonuses. In further  consideration of the performance by the
Executive  of  her  obligations  hereunder,  during  the  Employment  Term,  the
Executive shall be eligible to receive annual bonuses, the amount and payment of
which shall be conditioned  upon achievement by the Executive and the Company of
performance  targets  set by the  Compensation  Committee  of  the  Board  after
consultation with the Executive. The target amount of annual bonus the Executive
may  earn in any  year  shall be equal  to one  hundred  percent  (100%)  of the
Executive's  Base  Compensation.  Annual  bonuses,  if any, shall be paid to the
Executive as soon as practicable following the close of the fiscal year in which
the annual bonus shall be earned.

         (c) ADS Option.  In further  consideration  of the  performance  by the
Executive of her obligations hereunder, the Executive shall be granted an option
(the "ADS  Option")  to  purchase  one  million  seven  hundred  fifty  thousand
(1,750,000)  shares of the  Company's  common  stock,  $.001 par value per share
("ADS  Common  Stock"),  at an  exercise  price per share  equal to  eighty-five
percent  (85%) of the fair  market  value of a share of ADS  Common  Stock as of
January 1, 2001,  as  determined  under the  provisions  of the  Company's  1999
Flexible Stock Plan. The ADS Option shall vest and become  exercisable  (a) with
respect to two  hundred  ninety one  thousand  six hundred  sixty six  (291,666)
shares subject thereto upon the  commencement  of the Employment  Term; (b) with
respect to an additional  two hundred  ninety one thousand six hundred sixty six
(291,666)  shares  subject  thereto on September 1, 2001; (c) with respect to an
additional  five  hundred  eighty  three  thousand  three  hundred  thirty  four
(583,334)  shares  subject  thereto on December 31, 2002 and (d) with respect to
the remaining  five hundred  eighty three  thousand  three  hundred  thirty four
(583,334)  shares subject  thereto from and after  December 31, 2003,  provided,
however,  that, except as provided below, the Executive shall be employed by the
Company on each such date.  Once  vested,  each  portion of the ADS Option shall
remain  exercisable  for ten (10) years  from the date of grant.  The ADS Option
shall  become  fully  vested  and  exercisable   upon  the  Executive's   death,
Disability,  termination  without Cause,  the  Executive's  termination for Good
Reason, or upon a Change in Control (as defined in Exhibit A hereto),  and shall
remain  exercisable  for the entire  exercise  period.  The ADS Option  shall be
subject  to such  further  terms  and  conditions  as shall  be set  forth in an
agreement  between the Company  and the  Executive,  a copy of which is attached
hereto as Exhibit B.

         (d) Digital Angel Option.  In further  consideration of the performance
by the Executive of her obligations hereunder, the Executive shall be granted an
option (the "Digital Angel Option") to purchase two hundred  thousand  (200,000)
shares of the  common  stock,  $.00005  par value per share,  of  Digital  Angel
Corporation,  at an exercise  price per share equal to the fair market  value on


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January  1, 2001 as  determined  by the  committee  which  administers  the plan
pursuant to which such option will be granted.  The Digital  Angel  Option shall
vest and become  exercisable  (a) with  respect to thirty three  thousand  three
hundred thirty three (33,333)  shares subject  thereto upon the  commencement of
the  Employment  Term;  (b) with respect to an additional  thirty three thousand
three hundred thirty three (33,333) shares subject thereto on September 1, 2001;
(c) with respect to an  additional  sixty six  thousand six hundred  sixty seven
(66,667) shares subject thereto on December 31, 2002 and (d) with respect to the
remaining  sixty six thousand six hundred sixty seven  (66,667)  shares  subject
thereto from and after December 31, 2003,  provided,  however,  that,  except as
provided  below,  the  Executive  shall be  employed by the Company on each such
date.  Once  vested,  each  portion of the Digital  Angel  Option  shall  remain
exercisable for ten (10) years from the date of grant.  The Digital Angel Option
shall  become  fully  vested  and  exercisable   upon  the  Executive's   death,
Disability,  termination  without Cause,  the  Executive's  termination for Good
Reason,  or upon a Change in  Control  (as  defined in Exhibit A hereto) or upon
Digital  Angel.net,  Inc.  ceasing to be a subsidiary of the Company  within the
meaning of Section 424 of the  Internal  Revenue  Code of 1986,  as amended (the
"Code"),  and shall  remain  exercisable  for the entire  exercise  period.  The
Digital  Angel Option shall be subject to such further  terms and  conditions as
shall be set forth in an  agreement  between the Company  and/or  Digital  Angel
Corporation and the Executive, a copy of which is attached hereto as Exhibit C.

         (e)  Relocation  Allowance.  In connection  with the  relocation of the
Executive and all members of the Executive's immediate family that reside in the
Executive's  household  and who shall be  relocating  from New Jersey to Florida
with the Executive  (collectively referred to as the "Relocating  Individuals"),
the Company shall reimburse the Executive for, or otherwise pay on behalf of the
Executive,  the reasonable and customary  expenses (the  "Relocation  Expenses")
incurred  by the  Executive  in  relocating  from  New  Jersey  to  Florida,  in
accordance  with the  Company's  relocation  policy,  but not in  excess  of One
Hundred and Fifty  Thousand  Dollars  ($150,000),  including  but not limited to
those expenses:

              (i)  incurred  by  the  Executive  in  moving   household   goods,
automobiles  and  the  personal  effects  of  Relocating  Individuals  from  the
Executive's residence in New Jersey to the Executive's new residence in Florida;

              (ii)  incurred by the  Relocating  Individuals  in traveling  (for
purposes of final  relocation)  from the Executive's  residence in New Jersey to
the Executive's new residence in Florida;

              (iii)  incurred by the  Executive  and the  Executive's  spouse in
making house-hunting trips to Florida prior to final relocation;

              (iv)  incurred  by the  Executive  in  securing  temporary  living
arrangements in Florida for the Relocating Individuals; and

              (v)  incurred by the  Executive  as closing  costs (as  reasonably
determined by the Company)  associated with the sale of the Executive's  primary
residence in New Jersey and/or the purchase of the  Executive's new residence in
Florida.

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Subject to the  provisions  of the second  paragraph  of Section 2, the  Company
acknowledges  that the Executive  may choose to retain her primary  residence in
New Jersey for a period of time and that the determination as to which residence
will be her primary residence will be a decision solely made by her.

         All   reimbursements  to  the  Executive  shall  be  made  as  soon  as
practicable following the Executive's presentation to the Company of appropriate
receipts and other relevant  documentation and shall be Grossed Up. For purposes
of this Agreement,  if a provision herein provides for a Gross Up, it shall mean
that the Company will pay such additional  compensation  as is necessary  (after
taking  into  account all  federal,  state and local  income and  payroll  taxes
payable by the  Executive as a result of the receipt of the amount being Grossed
Up and such  additional  compensation)  so as to place the Executive in the same
after-tax  position  as she  would  have  been in had no such tax  been  paid or
incurred.

         In the event that the Executive  terminates  her  employment  for other
than Good Reason or her employment is terminated by the Company for Cause within
one year of the date her  principal  place of  employment  becomes the Company's
corporate  headquarters,  as described in the second paragraph of Section 2, the
Executive  shall  promptly  repay to the  Company  the  aggregate  amount of all
Relocation Expense  reimbursements and payments theretofore paid to or on behalf
of the Executive.

         (f)  Certain  Legal  Fees.  The  Company  shall  pay  the   Executive's
reasonable legal fees and costs incurred by the Executive in connection with the
negotiation and execution of this Agreement.

         (g)  Other Benefits.  During the Employment Term, the  Executive  shall
be entitled to:

              (i) participate in or receive  benefits on the same basis as other
senior  executives  of  the  Company  under  the  Company's  benefit  plans  and
arrangements as in effect from time to time for senior management  generally and
for which the Executive has satisfied any applicable  waiting period,  including
life insurance plans,  pension and  profit-sharing  plans,  medical,  health and
other welfare benefit plans,  sick leave,  sick pay and short-term and long-term
disability benefits and holidays; and

              (ii) an  automobile  allowance  in an amount  equal to six hundred
fifty dollars ($650) per month; and

              (iii)  a  number  of  paid  vacation  days  for  each  year of the
Employment Term as shall be determined from time to time by the Company,  but in
no event less than twenty (20) days for each year of the Employment  Term, which
vacation  days shall  accrue and become  vested on the first day of each year of
the Employment Term.

              (iv)  financial  planning  and tax  preparation  assistance  up to
twenty thousand dollars ($20,000) per year.

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         (h)  Expenses.  During the  Employment  Term,  the  Executive  shall be
entitled to reimbursement  for all reasonable  business expenses incurred by her
in the  course  of her  employment  by the  Company  hereunder,  as per  Company
policies then in effect,  provided that the Executive properly accounts therefor
(including,  without limitation,  the submission of appropriate expense reports,
receipts and other appropriate documentation of such expenses).

4.       Termination.

         The Employment  Term shall  terminate  upon the Employment  Termination
Date; provided,  however,  that the Employment Term shall be terminated prior to
the  Employment  Termination  Date upon the  occurrence  of any of the following
events:

         (a) the death of the Executive ("Death");

         (b) the Disability (as defined below) of the Executive. For purposes of
this Agreement,  the term "Disability"  shall mean the Executive has been unable
due to a physical or mental  incapacity  or  impairment  to perform her material
duties and responsibilities as provided under this Agreement for a period of not
less than one hundred  eighty (180)  consecutive  days during any three  hundred
sixty-five  (365)  consecutive  day  period.  In the  event  of the  Executive's
termination by the Company under this section 4(b), the Company will provide her
with 30 days written notice thereof while she remains so incapacitated, provided
that  such  termination  shall  not be  effective  if she  returns  to full time
employment within such 30 day period;

         (c) a  termination  by the Company by notice to the Executive for Cause
(as defined below). For purposes of this Agreement,  the term "Cause" shall mean
(i) willful and material written misrepresentation by the Executive to the Board
with respect to a material  matter  concerning the Company,  a subsidiary of the
Company,  or an  affiliate of the  Company;  (ii) fraud of a material  nature or
embezzlement (other than good faith expense account disputes) on the part of the
Executive  with respect to the Company;  (iii)  conviction of, or the entry of a
plea of, nolo  contendere  by the  Executive  to a felony  (other than a traffic
infraction  or as a result  of  vicarious  liability);  (iv) any act of  willful
misconduct by the Executive  with regard to the Company which (A) is intended to
result in material  personal  enrichment  of the Executive at the expense of the
Company or any of its  subsidiaries or affiliates and (B) has a material adverse
impact on the business or reputation  of the Company or any of its  subsidiaries
or  affiliates;  (v) the  willful  failure to  attempt to perform a  substantial
portion  of  the  Executive's  duties  and  responsibilities  hereunder  or  the
abandonment by the Executive of her duties  hereunder,  which in either case, is
not remedied within thirty (30) days after request for  substantial  performance
in a writing that specifies the conduct that shall necessitate  correction shall
have been delivered to the Executive;  or (vi) any material  violation of any of
the  provisions set forth in Section 7 or 8 of this  Agreement.  For purposes of
this Agreement,  abandonment by the Executive of her duties and responsibilities
hereunder  shall be deemed to have occurred if the Executive  ceases to function
and perform her duties  hereunder  (unless due to physical or mental  illness or
disability)  and no act or failure  to act will be deemed to be  willful  unless
done or omitted to be done, not in good faith and without reasonable belief that
action or inaction was in the best interests of the Company;

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         (d) a termination by the Company by notice to the Executive  other than
for Cause;

         (e) a  termination  by the  Executive  voluntarily  for Good Reason (as
defined  below).  For purposes of this  Agreement,  the term "Good Reason" shall
mean:  (i)  an  assignment  of  duties  to the  Executive  that  are  materially
inconsistent  with  the  Executive's   position  (including  status,  title  and
reporting requirements); (ii) a reduction in the Executive's position (including
status,  title and  reporting  requirements),  or a  material  reduction  in the
Executive's  authority,  duties or  responsibilities;  (iii) failure to elect or
reelect the Executive to the Board or removal of the  Executive  from the Board;
(iv) a  material  breach  by the  Company  of the terms of this  Agreement;  (v)
relocation  of the  Executive's  principal  work site to a location more than 35
miles from (A) Fairfield,  New Jersey with respect to the period  beginning with
the first day of the  Employment  Term and ending on September 1, 2001,  and (B)
Palm  Beach,  Florida  with  respect to the  remainder  of the  Employment  Term
hereunder and all Additional  Employment  Terms; (vi) the failure of an assignee
of this Agreement to assume this Agreement in writing delivered to the Executive
in a form  reasonably  acceptable  to the  Executive;  (vii)  election  as chief
executive  officer  of the  Company  of someone  other  than the  current  Chief
Executive Officer of the Company or the Executive; or (viii) a Change in Control
as defined in Exhibit A provided that the Executive resigns on fifteen (15) days
notice  within one year  following  the Change in Control.  Notwithstanding  the
foregoing,  no  termination  by the Executive for Good Reason shall be effective
unless the Executive  shall have provided  written  notice to the Company of her
intention  to so  terminate  the  Employment  Term,  which  notice sets forth in
reasonable  detail the conduct that the  Executive  believes to be the basis for
the Good Reason  termination,  and the Company shall  thereafter  have failed to
correct such conduct (or otherwise  commence  action to correct such conduct and
diligently pursue such correction to completion)  within ten (10) days following
the Company's receipt of such notice;

         (f) a  termination  by the  Executive  voluntarily  other than for Good
Reason pursuant to a written notice provided to the Company not less than thirty
(30) days prior to the effective  date of the  termination  as set forth in such
notice.  Notwithstanding  the  foregoing,  the  Company  shall have the right to
accelerate  the effective  date of such  termination  to such earlier date as it
shall determine by notice to the Executive.

5.       Effect of Termination.

         (a) In the event that the  Employment  Term shall be terminated for any
reason,   the  Executive  shall  be  entitled  to:  (i)  all  Base  Compensation
theretofore  accrued on or prior to the date of termination  but not theretofore
paid to the Executive and (ii) all rights theretofore  accrued to the benefit of
the Executive  pursuant to, and in accordance  with the terms and conditions set
forth in, any and all Company  employee  benefit  plans,  programs and policies,
including  any accrued but unpaid  bonus for the prior year,  accrued but unused
vacation,  reimbursement for accrued  substantiated  business expenses,  and any
unreimbursed Relocation Expenses.

         (b) In  addition  to the  entitlements  that the  Executive  shall have
pursuant to the provisions of Section 5(a) of this Agreement,  in the event that
the Employment Term shall be terminated (i) by the Company other than for Cause,

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(ii) by Death or  Disability  or (iii) by the  Executive  for Good  Reason,  the
Executive shall be entitled to receive her Base  Compensation for a period equal
to the  period  (the  "Severance  Period")  that shall  commence  on the date of
termination  and shall terminate on the later of (x) the end of the then current
Employment  Term and (y) one year  following  the date of  termination  plus one
times  her  target  annual  bonus  for the  year of  termination.  Further,  the
Executive  shall be entitled to receive a pro rata  portion of the annual  bonus
for the year of  termination  based on the portion of the year during  which the
Executive was employed and the actual results for such year.  Such amounts shall
be  payable  at the times  they  would  have been  payable  had the  Executive's
employment not terminated.  In addition,  the unvested portion of ADS Option and
the Digital Angel Option shall vest and become immediately exercisable and shall
remain exercisable for the entire remainder of the exercise period.

         (c) The payments and other benefits upon  termination set forth in this
Section 5 shall  constitute  the exclusive  payments due to or in respect of the
Executive upon the termination of her employment pursuant to this Agreement, but
shall have no effect on any benefits  which may be due the  Executive  under any
plan of the Company that provides  benefits  after  termination  of  employment,
other than severance pay or salary continuation.

         (d)  Upon  any  termination  of the  Executive's  employment  with  the
Company,  unless  otherwise  agreed to by the  Company  and the  Executive,  the
Executive shall immediately  resign from any and all positions  (whether elected
or appointed) then held by the Executive within the Company or any subsidiary or
affiliate of the Company.

         (e) In the  event  of any  termination  of  employment  hereunder,  the
Executive shall be under no obligation to seek other  employment and there shall
be no offset  against any  amounts due the  Executive  under this  Agreement  on
account of any remuneration  attributable to any subsequent  employment that the
Executive  may obtain.  The amounts  payable  hereunder  shall not be subject to
setoff, counterclaim,  recoupment,  defense or other right which the Company may
have against the executive or others, except as specifically set forth herein or
upon  the  Company's  obtaining  a  final  unappealable   judgment  against  the
executive.

         (f)  Following  termination  of the  Executive's  employment  with  the
Company for any reason,  the Executive agrees to cooperate with the Company upon
the Company's legal and reasonable request and to reasonably be available to the
Company (subject to her other  commitments)  with respect to matters arising out
of the Executive's  employment  with the Company;  provided,  however,  that the
Company shall  compensate the Executive for her time and effort on a per diem or
such other  basis and in such  amount as may  reasonably  be agreed  upon by the
Executive and the Company.

         (g) In the event that the Executive becomes entitled to payments and or
benefits  which  would  constitute  "parachute  payments"  within the meaning of
Section 280G of the Code,  the provisions of Exhibit D, attached  hereto,  shall
apply.

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6.       Change in Control.

         Notwithstanding  anything  to the  contrary  herein,  in the event of a
Change in Control (as defined in Exhibit A hereto): all options granted pursuant
to this Agreement or otherwise shall immediately vest and become  exercisable in
accordance with the terms of the plan under which they are granted;  and, if the
Executive  terminates her employment as provided in Section 4(e)(viii) or if her
employment is  terminated  by the Company other than for Cause,  within the time
period set forth in Section 4 (e)(viii),  or if, in  anticipation of a Change of
Control,  she terminates  her  employment  with Good Reason or her employment is
terminated  by the  Company  without  Cause,  the  amounts  due  under the first
sentence of Section 5(b) above shall  increase to three (3) times the sum of the
Executive's Base  Compensation and target annual bonus and shall be payable in a
lump sum within thirty (30) days of the date of termination of employment.

7.       Confidential Information.

         (a)  The  Executive  acknowledges  and  agrees  that by  reason  of her
employment with the Company, the Executive will acquire Confidential Information
(as  hereinafter  defined)  concerning  the  operation  of the  Company  and the
Company's subsidiaries and affiliates the use or disclosure of which would cause
the Company and its  subsidiaries  and  affiliates  substantial  loss and damage
which  could not be readily  calculated  and for which no remedy at law would be
adequate.  Accordingly,  the  Executive  agrees that she will not  (directly  or
indirectly) at any time, whether during the Employment Term or thereafter:

              (i) knowingly use for a personal benefit or for the benefit of any
third party any Confidential Information that she may have obtained by reason of
her employment with the Company, or

              (ii) disclose any  Confidential  Information  to any individual or
entity,  except (A) as she deems advisable in the good faith  performance of her
obligations  to the Company  hereunder,  (B) as required by a court of competent
jurisdiction  or in compliance  with legal process or (C) with the prior written
consent of the Board.

         For purposes of this  Agreement,  the term  "Confidential  Information"
includes  information relating to the confidential affairs of the Company and/or
any  subsidiary  or  affiliate  of the  Company,  including  but not  limited to
technical  information,  information  with  respect to trade  secrets  and other
intellectual  property,  systems,  patents and patent applications,  procedures,
manuals,  confidential reports,  financial  information,  business and marketing
plans,  prospects  or  opportunities,  personnel  information,  customer  and/or
supplier  information,  financing  plans,  expansion  plans and  other  forms of
information  considered by the Company and/or any subsidiary or affiliate of the
Company  to be  confidential  and/or in the nature of trade  secrets;  provided,
however, that (i) such term shall not include any information that is or becomes
generally  known or available  publicly  other than as a result of disclosure by
the Executive  which is in violation of the  provisions of this Section and (ii)
the Executive may, after giving prior notice to the Company and/or the Company's
subsidiary or affiliate, as the case may be, to the extent practicable under the
circumstances,  disclose such  information to the extent  required by applicable

                                       9
<PAGE>

laws or  governmental  regulations  or  judicial  or  regulatory  process.  This
confidentiality   covenant  has  no  temporal,   geographical   or   territorial
restriction.

         (b) Executive acknowledges and agrees that all Confidential Information
is the exclusive  property of the Company and/or any subsidiary and/or affiliate
of the Company, as the case may be. Upon termination of the Employment Term, the
Executive  shall promptly  supply to the Company all business  records,  papers,
documents,  electronic materials,  property,  keys, notes, memoranda,  writings,
files,  lists,  reports,  customer lists,  correspondence,  tapes, disks, cards,
surveys, maps, logs, machines, technical data, and any other tangible product or
document  (whether  or not such  product or  document  constitutes  Confidential
Information)  that has been produced by,  received by or otherwise  submitted to
the  Executive  in the  course  or  otherwise  as a  result  of the  Executive's
employment by the Company. The Executive  acknowledges and agrees that following
termination of her employment with the Company, she shall not retain in any form
whatsoever  any  copies of any  Confidential  Information.  Notwithstanding  the
foregoing, the Executive may retain her rolodex and similar phone directories.

8.       Non-Interference and Non-Solicitation.

         (a)  By and  in  consideration  of the  Company's  entering  into  this
Agreement and the Base Compensation and other benefits provided to the Executive
hereunder,  and in further  consideration  of the  Executive's  exposure  to the
proprietary  and other  confidential  information of the Company,  the Executive
agrees  that during the  Employment  Term and for a period of twelve (12) months
following the termination of the Employment Term (the "Restricted Period"),  the
Executive  shall not  directly  or  indirectly,  for her own  account or for the
account  of any  other  individual  or entity  (excluding  the  Company  and any
subsidiary or affiliate of the Company):

              (i) solicit or contact in an effort to conduct  business  with any
individual  or entity (or any  subsidiary  or  affiliate of such  individual  or
entity)  who is at the  time of the  Executive's  termination  of  employment  a
customer  of  the  Company  or  any  subsidiary  or  affiliate  of  the  Company
("Customers"),  if the purpose or one of the  purposes of such  solicitation  or
contact is interfering with or otherwise diminishing the Company's  relationship
or business  dealings with such  individual or entity,  directly or  indirectly;
provided the foregoing  shall not apply to general  solicitations  not primarily
aimed at  known  Customers  or  solicitations  or  contacts  by the  Executive's
employer  in  which  the  Executive  is  not  directly   involved  and  has  not
specifically directed other employees with regard to the specific  solicitations
or contacts; or

              (ii)  solicit or induce any  employee of the Company or any of its
subsidiaries or affiliates to terminate their employment with the Company or any
subsidiary  or  affiliate  of the  Company or to accept  employment  with anyone
except the Company or any subsidiary or affiliate of the Company (except that it
shall  not be a  breach  of this  Agreement  for the  Executive  to  provide  an
employment reference).

         (b) Notwithstanding  anything to the contrary contained in this Section
7, it shall  not be a  violation  of the  provisions  of this  Section  8 if the
Executive  shall,  at the request of the  Company,  perform  services  for or on
behalf of any subsidiary or affiliate of the Company.

                                       10
<PAGE>

9.       Specific Performance.

         (a) The  Executive  acknowledges  that a breach of any of the covenants
contained in Sections 7 and 8 hereof may result in material,  irreparable injury
to the  Company  and its  subsidiaries  and  affiliates  for  which  there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries  precisely  and  that,  in the  event of any such  breach  or threat of
breach,  the Company and its subsidiaries and affiliates shall be entitled to an
immediate  injunction  and  restraining  order to  prevent  such  breach  and/or
threatened  breach and/or  continued  breach by the Executive and/or any and all
entities acting for and/or with the Executive,  without having to prove damages,
in addition to any other remedies to which the Company and its  subsidiaries and
affiliates may be entitled at law or in equity.  The terms of this Section shall
not  prevent the  Company  and/or any of its  subsidiaries  or  affiliates  from
pursuing  any other  available  remedies  for any  breach or  threatened  breach
hereof,  including,  but not  limited  to,  the  recovery  of  damages  from the
Executive. The Executive acknowledges and agrees that the Company would not have
entered into this  Agreement had the  Executive not agreed to the  provisions of
Section 7 and 8 hereof.

         (b)  The  Executive  acknowledges  that  she  has  carefully  read  and
considered the provisions of Sections 7 and 8 hereof and, having done so, agrees
that the restrictions set forth herein (including the Restricted  Period,  scope
of activity to be  restricted  and the  geographical,  temporal and  territorial
scope of the applicable restrictions) are fair and reasonable and are reasonably
required for the protection of the interests of the Company and its subsidiaries
and affiliates, and their respective officers, directors,  executives, creditors
and  shareholders.  The Executive and the Company agree that in the event that a
court or arbitrator  should  determine  that any of provisions of Section 7 or 8
hereof are unreasonable or unenforceable, either in period of time, geographical
or territorial scope or otherwise,  the parties hereto agree that the applicable
covenant  should be interpreted  and enforced to the maximum extent  possible in
accordance  with  law.  The  Executive  acknowledges  and  understands  that the
restrictions  contained  in  Sections  7 and 8 hereof  may limit her  ability to
engage in a business similar to the Company's business, but further acknowledges
that she will receive sufficiently high remuneration and other benefits from the
Company  hereunder to justify such  restrictions.  The  provisions  contained in
Sections 7, 8 and 9 hereof shall survive any termination of the Employment Term,
and the existence of any claim or cause of action by the  Executive  against the
Company or any subsidiary of or affiliate of the Company,  whether predicated on
this Agreement or otherwise,  shall not constitute a defense to the  enforcement
by the Company or any  subsidiary  or affiliate of the Company of the  covenants
and agreements set forth in Sections 7, 8 and 9 hereof.

10.      Successors; Binding Agreement.

         (a) The Company will require any successor (whether direct or indirect,
by purchase, merger,  consolidation or otherwise) to all or substantially all of
the  business or assets of the Company to  expressly  assume this  Agreement  in
writing in a form reasonably acceptable to the Executive and to agree to perform
this  Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place and to provide a
copy of such  writing to the  Executive.  Failure of the  Company to obtain such

                                       11
<PAGE>

assumption and agreement prior to the effectiveness of any such succession shall
be a material  breach of this  Agreement.  As used in this  Agreement,  the term
"Company"  shall mean the Company as defined in this Agreement and any successor
to its business or assets as aforesaid  which assumes and agrees to perform this
Agreement  by operation of law, or  otherwise.  Furthermore,  the only entity to
which  this  Agreement  may be  assigned  by the  Company is to a  successor  as
contemplated in this Section 10(a).

         (b) This Agreement  shall inure to the benefit of and be enforceable by
the   Executive's    personal   and/or   legal    representatives,    executors,
administrators,  successors, heirs, distributees,  devisees and legatees. If the
Executive  shall die while any amount is theretofore  accrued on or prior to the
date of her death but not theretofore  paid to the Executive,  all such amounts,
unless otherwise provided herein,  shall be paid in accordance with the terms of
this Agreement to the Executive's  spouse or, if there is no such spouse, to the
Executive's  estate.  This Agreement is personal to the Executive and may not be
assigned by her.

11.      Notice.

         For  the   purposes   of  this   Agreement,   notices   and  all  other
communications  provided for in this Agreement  shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed by United States
overnight express mail, or nationally  recognized private delivery service on an
overnight  basis,  return  receipt  requested,  postage  prepaid,  addressed  as
follows:

If to the Executive:                      Mercedes Walton
                                          [The last address and facsimile number
                                          provided  by  the   Executive  to  the
                                          Company.]

If to the Company:                        Applied Digital Solutions, Inc.
                                          400 Royal Palm Way, Suite 410
                                          Palm Beach, Florida 33480
                                          Attn:  Steven M. Berkeley
                                          Telephone: (561) 366-4800
                                          Facsimile: (561) 366-8591

                                          with a copy to:

                                          Bryan Cave LLP
                                          One Metropolitan Square, Suite 3600
                                          St. Louis, MO  63102
                                          Attn: Llewellyn Sale III, Esq.
                                          Telephone: (314) 259-2649
                                          Facsimile: (314) 259-2020

                                       12
<PAGE>

         Notices may also be sent to such other address as either party may have
furnished to the other in writing in accordance herewith,  except that notice of
change of address shall be effective only upon receipt.

12.      Disputes and Attorneys' Fees.

         Any dispute under this  Agreement  shall be resolved by  arbitration in
accordance  with the rules of the American  Arbitration  Association  ("AAA") in
Palm Beach,  Florida.  The decision of the arbitrator shall be final and binding
upon the parties and may be enforced in any court having jurisdiction.

         The costs of the AAA and the arbitrator shall be divided equally by the
parties and each party shall pay its or her own legal fees,  provided  that,  if
the  arbitrator  determines  that the Executive has  prevailed,  he or she shall
award the Executive the costs of the AAA and the arbitrator as well as her legal
fees and disbursements.

13.      Representations and Warranties.

         The Executive hereby  represents and warrants that she is free to enter
this  Agreement  and to render  services  pursuant  hereto and that  neither the
execution  and  delivery of this  Agreement  nor the  performance  of her duties
hereunder,  violates  the  provisions  of any other  agreement to which she is a
party or by which she is bound,  based on the current activities of the Company.
The  Company  acknowledges  that the  Executive  has  made it aware  that she is
subject  to  certain   nonsolicitation,   nondisparagement   and  noncompetition
arrangements  with  AT&T and the  Company  will not cause  her to  violate  such
limitations.

14.      Expenses.

         Each of the parties  hereto shall pay its own expenses  incident to the
performance or enforcement of this Agreement, including all fees and expenses of
its counsel  for all  activities  of such  counsel  undertaken  pursuant to this
Agreement, except as otherwise expressly provided herein.

15.      Indemnification.

         The Company will indemnify and hold the Executive  harmless both during
and after the Employment Term to the fullest extent permitted by law with regard
to actions or inactions  with  respect to  performance  of her  responsibilities
hereunder as a director of the Company and as a director or officer of any other
entity or a fiduciary of any benefit plan which she is serving at the request of
the Company and will  maintain  directors  and  officers  insurance  to the same
extent as the Company  maintains  for any other senior  executive or director of
the Company.

16.      Waivers and Further Agreements.

         (a) Any  waiver of any of the  terms or  conditions  of this  Agreement
shall not operate as a waiver of any other breach of such terms or conditions or

                                       13
<PAGE>

any other term or  condition,  nor shall any  failure to enforce  any  provision
hereof operate as a waiver of such provision or of any other  provision  hereof;
provided,  however,  that no such written  waiver,  unless it, by its own terms,
explicitly  provides to the contrary,  shall be construed to effect a continuing
waiver of the  provision  being waived and no such waiver in any instance  shall
constitute a waiver in any other instance or for any other purpose or impair the
right of the party against whom such waiver is claimed in all other instances or
for all other purposes to require full compliance with such provision.

         (b) Each of the  parties  hereto  agrees to  execute  all such  further
instruments and documents and to take all such further action as the other party
may  reasonably  require in order to  effectuate  the terms and purposes of this
Agreement.

17.      Amendments.

         This  Agreement  may not be  amended,  nor  shall any  waiver,  change,
modification,  consent or  discharge  be effected,  except by an  instrument  in
writing  executed by or on behalf of the party against whom  enforcement  of any
waiver, change, modification, consent or discharge is sought.

18.      Severability.

         If any  provision of this  Agreement  shall be held or deemed to be, or
shall in fact be,  invalid,  inoperative  or  unenforceable  as  applied  to any
particular case in any jurisdiction or jurisdictions, or in all jurisdictions or
in all cases,  because of the conflict of any provision with any constitution or
statute  or rule of public  policy or for any other  reason,  such  circumstance
shall not have the effect of rendering  the  provision or provisions in question
invalid,  inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance  or of rendering any other  provision or provisions  herein
contained  invalid,  inoperative or  unenforceable to the extent that such other
provisions  are not  themselves  actually  in conflict  with such  constitution,
statute or rule of public  policy,  but this  Agreement  shall be  reformed  and
construed in any such  jurisdiction  or case as if such invalid,  inoperative or
unenforceable  provision  had never been  contained  herein  and such  provision
reformed so that it would be valid,  operative  and  enforceable  to the maximum
extent permitted in such jurisdiction, or in such case.

19.      Counterparts.

         This  Agreement  may be executed in two or more  counterparts,  each of
which shall be deemed an original,  but all of which together  shall  constitute
one and the same  instrument,  and in pleading or proving any  provision of this
Agreement,  it  shall  not be  necessary  to  produce  more  than  one  of  such
counterparts.

20.      Section Headings.

         The headings  contained in this  Agreement are for  reference  purposes
only, are not part of this Agreement and shall not in any way affect the meaning
or interpretation of this Agreement.

                                       14
<PAGE>

21.      Gender.

         Whenever used herein, the singular number shall include the plural, the
plural shall include the  singular,  and the use of any gender shall include all
genders.

22.      Entire Agreement.

         Except as otherwise  expressly provided herein, this Agreement together
with any  attachments or exhibits  hereto  contains the entire  agreement of the
parties  hereto with respect to the subject matter hereof and there are no other
promises or conditions in any other agreement,  whether oral or written relating
to the subject  matter hereof.  This  Agreement  supersedes any prior written or
oral  agreements  between the parties  hereto as to the subject  matter  hereof,
including  without  limitation any prior written or oral employment  agreements,
which, if any, shall be null and void as of the date hereof.

23.      Governing Law.

         This  Agreement  shall be governed  by and  construed  and  enforced in
accordance  with the laws of the  State of  Florida,  without  reference  to the
principles of conflict of laws.


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

                                                 APPLIED DIGITAL SOLUTIONS, INC.



                                                 By:
                                                    ----------------------------
                                                 Title:



                                                 EXECUTIVE



                                                 -------------------------------
                                                 Mercedes Walton


                                       15
<PAGE>

                                    Exhibit A

                                Change in Control


                  For purposes of this  Agreement,  a Change in Control shall be
deemed to occur (a) if any person,  as such term is used in  Sections  13(d) and
14(d)(2) of the Securities  Exchange Act of 1934 ("Exchange Act"), is or becomes
the "beneficial  owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly,  of securities of the Company  representing 20% or
more  of  the  combined  voting  power  (i) of the  Company's  then  outstanding
securities or (ii) on a fully diluted basis,  (b) upon the first purchase of the
common stock of the Company pursuant to a tender or exchange offer (other than a
tender or  exchange  offer made by the  Company),  (c) upon the  approval by the
Company's  stockholders of a merger or  consolidation,  a sale or disposition of
all or  substantially  all of the Company's  assets or a plan of  liquidation or
dissolution of the Company, or (d) if, during any period of 2 consecutive years,
individuals  who at the  beginning  of  such  period  constitute  the  board  of
directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the election or  nomination  for the election by the  Company's
stockholders  of each new director was approved by a vote of at least 2/3 of the
directors  then  still in office  who were  directors  at the  beginning  of the
period.  Notwithstanding the foregoing,  a Change in Control shall not be deemed
to occur if the  Company  either  merges or  consolidates  with or into  another
company  or sells or  disposes  of all or  substantially  all of its  assets  in
another  company,  if such  merger,  consolidation,  sale or  disposition  is in
connection  with a  corporate  restructuring  wherein  the  stockholders  of the
Company immediately before such merger, consolidation,  sale or disposition own,
directly or indirectly,  immediately following such merger, consolidation,  sale
or  disposition  at least 80% of the combined  voting  power of all  outstanding
classes  of   securities   of  the  company   resulting   from  such  merger  or
consolidation,  or to which the Company  sells or  disposes  of its  assets,  in
substantially  the same  proportion  as their  ownership in Company  immediately
before such merger, consolidation, sale or disposition.



<PAGE>

                                    EXHIBIT B
               NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER THE
                         APPLIED DIGITAL SOLUTIONS, INC.
                            1999 FLEXIBLE STOCK PLAN

Name of Option Recipient:             Mercedes Walton
                          ------------------------------------------------------


         On January 1, 2001,  the Company  awarded you a stock option.  You were
granted an option to buy  1,750,000  Shares of Common Stock at a per Share price
of 85% of Fair  Market  Value on January 1, 2001 on or after the  earlier of the
date set forth in the Terms and  Conditions  (as defined below) or the dates set
forth in the following schedule:




                                                    Number of Shares for which
                       Date                         Option is First Exercisable

                  January 1, 2001                            291,666

                 September 1, 2001                           291,666

                 December 31, 2002                           583,334

                 December 31, 2003                           583,334


and on or before December 31, 2010.


         IMPORTANT:  By signing below, you agree to be bound by, and acknowledge
receipt of, the attached Terms and Conditions of this Non-Qualified Stock Option
Award ("Terms and  Conditions")  and the Applied Digital  Solutions,  Inc., 1999
Flexible Stock Plan ("Stock Option Plan").  Capitalized terms are defined in the
Terms and Conditions and/or Stock Option Plan .


                                                 APPLIED DIGITAL SOLUTIONS, INC.




                                                 By:
                                                    ----------------------------
                                                           President
Read and agreed to this
 ___ day of January, 2001.




--------------------------
Mercedes Walton


                                       1
<PAGE>

                              TERMS AND CONDITIONS
               NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER THE
            APPLIED DIGITAL SOLUTIONS, INC. 1999 FLEXIBLE STOCK PLAN
                                       TO
                                 MERCEDES WALTON

1.       Definitions

(a)        Committee                      The Committee  (or, in certain  cases,
                                          its  designees)  who  administers  the
                                          Stock Option Plan.

(b)        Company                        Applied  Digital   Solutions  Inc.,  a
                                          Missouri corporation.


(c)        Option                         The  option   granted  by  the  Option
                                          Award.


(d)        Option Award                   The  Non-Qualified  Stock Option Award
                                          to which the Terms and  Conditions are
                                          attached  together with,  except where
                                          the context requires otherwise,  these
                                          Terms and Conditions.

(e)        Employment Agreement           That    certain     employment     and
                                          non-compete   agreement  dated  as  of
                                          January 1, 2001,  by and  between  the
                                          Company   and  the   Participant,   as
                                          amended.

(f)        Participant                    Mercedes Walton,  the recipient of the
                                          Option Award.

(g)        Stock Option Plan              Applied Digital  Solutions,  Inc. 1999
                                          Flexible Stock Plan, as amended.


All capitalized  terms not otherwise defined herein (whether above or otherwise)
shall have the meanings given to such terms by the Stock Option Plan.

2.       Evidence of Option Grant and Option not an Incentive Stock Option

         The Option Award  evidences a grant to the  Participant of an Option to
purchase  that number of Shares  ("Optioned  Shares") of the par value $.001 per
share Common Stock of the Company  ("Stock") set forth on the Option Award.  The
Participant  may exercise the Option as shown on the Option Award and in Section
3 below. Once all or any part of the Option becomes exercisable, it shall remain
exercisable  until the Option  Expiration  Date. In no event shall the Option or
any part of the Option be  exercisable  after  December  31,  2010 (the  "Option
Expiration  Date").  The  Option  shall not be treated  as an  "Incentive  Stock
Option", as defined in Section 422 of the Internal Code of 1986, as amended.

                                       2
<PAGE>

3.       Acceleration of Exercise Date.

         If and to the extent the Option is not  already  exercisable,  it shall
become exercisable upon the occurrence of any of the following events:

                  (a) The Participant's death while employed by the Employer;

                  (b) the Participant's Disability (as defined in the Employment
         Agreement);

                  (c) the  Participant's  termination of her employment for Good
         Reason (as defined in the Employment Agreement);

                  (d) termination of the Participant's employment other than for
         Cause by the Employer (as defined in the Employment Agreement); or

                  (e)  a  Change  of  Control  (as  defined  in  the  Employment
         Agreement).

4.       Exercise of Option

         The Option shall be exercised by the  Participant  delivering a written
notice of exercise to the Company's  corporate  headquarters at 400 Royal, Suite
410, Palm Beach, Florida 33480. This notice shall specify the number of Optioned
Shares the Participant then desires to purchase.

5.       Payment of Option Price

         Payment for the Shares  purchased under the Option shall be made to the
Company either in cash (including  cashier's check, bank draft or money order or
a cashless exercise arrangement).  In addition, payment of the Option price may,
at the discretion of the Committee, be made in whole or in part by the tender of
Shares or in other  property,  rights and credits,  including the  Participant's
promissory note.

6.       Form of Notice of Exercise

         The  Participant's  notice as  required by Section 3 shall be signed by
the  Participant  and  shall  be  in  substantially   the  following  form  with
appropriate adjustments depending on how the Option price is paid:

                  "I   hereby    exercise  my Option to purchase ____ Shares  in
          accordance with my Option Award dated _____, 200__,  granted under the
          Company's 1999 Flexible Stock Plan, as amended.

                  The  aggregate  Option  price of  the Shares I  am  purchasing
is $________. I  hereby  tender  payment  of  such  price  (complete  applicable
item(s)):

         (a) by delivery of a  cashier's  check,  bank draft or money order made
         payable to the Company in the amount of $__________; and/or

                                       3
<PAGE>

         (b) through a cashless exercise as follows

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

         ----------------------------------------------------------------------.


7.       Stock Certificate

         Upon the exercise of the Option,  the Participant  shall be entitled to
one Stock certificate evidencing the Shares acquired upon exercise.

8.       Legends on Certificate

         The certificate to be issued under Section 6 shall be issued as soon as
practicable.  Such  certificate  shall contain thereon a legend in substantially
the following  form if the Shares  evidenced by such  certificate  have not been
registered under the Securities Act of 1933, as amended:

                  "The  shares  represented  by this  certificate  have not been
         registered  under the Securities  Act of 1933 or any  applicable  state
         law.  They may not be offered for sale,  sold,  transferred  or pledged
         without  (1)  registration  under  the  Securities  Act of 1933 and any
         applicable  state  law,  or  (2)  at  holder's   expense,   an  opinion
         (satisfactory to the Company) that registration is not required."

The  certificate  shall also contain such other legends as may be appropriate or
required by law, such as a legend  relating to any  shareholders  agreement that
may apply to the Shares.

9.       Termination of Employment; Nonassignability

         9.1 Termination.  If the Participant's employment shall terminate or be
terminated,  the Participant or her personal  representative and/or beneficiary,
as the case may be,  shall  have  the  right  (but  not  later  than the  Option
Expiration  Date) to  exercise  such  Option to the extent  that such Option was
exercisable at the date of termination of employment or become  exercisable upon
such date but was not exercised,  and the Participant's interest in such portion
of the  Option  which  was not then  exercisable  or which  did not then  become
exercisable  shall  terminate  and all rights  thereunder  shall  cease.  If the
Participant  is both a Director and an  Employee,  her  employment  shall not be
deemed to have been terminated as long as she remains a Director or an Employee,
as the case may be.

         9.2 Non-Transferability of Rights; Designation of Beneficiaries. Except
as  herein  after  provided  in  this  Section  9.2,  the  Option  shall  not be
transferable  by the  Participant  otherwise than by will or the laws of descent
and distribution,  and, during the lifetime of the Participant, the Option shall
be exercisable  only by the  Participant.  Notwithstanding  the  foregoing,  the
Participant,  during her lifetime,  may transfer for no consideration the Option
to  members  of her  immediate  family or a trust for the  benefit of her and/or

                                       4
<PAGE>

members of her immediate  family subject to all of the provisions  applicable to
the Option prior to its transfer. In addition, the Participant may file with the
Company a written designation of a beneficiary or beneficiaries to exercise,  in
the event of death of the Participant,  the Option granted hereunder, subject to
all of the provisions of this Section 9. The  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  the  Option,  the
Committee  may  determine  to  recognize   only  an  exercise  by  the  personal
representative of the estate of the Participant,  in which case the Company, the
Committee and the members  thereof  shall not be under any further  liability to
anyone.

         9.3 Deemed Termination of Employment and Transfer. If the Employer that
employs the Participant (or of which the Participant is a Director) ceases to be
an  Employer,  the  Participant's  employment  shall  be  deemed  to  have  been
terminated by such Employer without Cause as of the date that it ceases to be an
Employer. The transfer of a Participant's employment (or a Director's service as
a  Director)  from one  Employer  to  another  Employer  shall  not be  deemed a
termination of employment.

10.      Withholding

         The Company or any Affiliate  that employs the  Participant  shall have
the right to deduct any sums that federal, state or local tax law requires to be
withheld  with  respect to the  exercise  of the Option or as  otherwise  may be
required  by such laws.  The  Company  or any such  Affiliate  may  require as a
condition to issuing Stock upon the exercise of the Option that the  Participant
or other person  exercising the Option pay any sum that federal,  state or local
tax  law  requires  to be  withheld  with  respect  to  such  exercise.  In  the
alternative, the Participant or other person exercising the Option, may elect to
pay such sums to the Company or the  Affiliate by delivering  written  notice of
that election to the  Company's  corporate  headquarters  at 400 Royal Palm Way,
Suite 410, Palm Beach,  Florida 33480,  prior to or concurrently  with exercise.
There is no obligation  that the  Participant be advised of the existence of the
tax or the  amount  which  the  Employer  corporation  will  be so  required  to
withhold.


                                       5
<PAGE>

11.      Controlling Document

         In the event of any conflict between the provisions of the Stock Option
Plan and the  provisions  of the  Employment  Agreement  relating to this Option
and/or the Option Award and these Terms and  Conditions,  the  provisions of the
Employment  Agreement  and/or the Option  Award and these  Terms and  Conditions
shall control.

12.      Early Exercise; Restricted Stock

         Notwithstanding  any other provision of the Option Award or these Terms
and Conditions, the Participant may exercise all or any part of the Option which
is not yet  exercisable in accordance with the provisions of this Section 12. In
such  event,  all  Shares  purchased  upon such  exercise  shall be subject to a
repurchase right in favor of the Company at a price, payable in cash in one lump
sum,  equal to the  original  purchase  price under the Option  until the Option
which was exercised to purchase the Shares becomes  exercisable under the Option
Award and these  Terms and  Conditions  without  regard to this  Section 12. The
Company's  repurchase  right shall arise, if, at any time during the time period
described  in the  preceding  sentence,  an event  which  would cause the Option
pursuant to which such Shares were acquired to be forfeited  occurs and shall be
exercised by notice to the Participant for a period of 30 days after such event.
While any Shares issued pursuant to the early exercise of the Option provided by
this  Section 12 are  subject to the  Company's  repurchase  right,  they may be
transferred only as described in the second sentence of Section 9.2, and, in the
event of such transfer,  shall still remain subject to the Company's  repurchase
right.  While the Shares are subject to the  Company's  right of  repurchase,  a
legend to that effect shall be placed on such Shares, and the Company shall also
have the right to have custody of such certificates.

                                       6
<PAGE>

                                   EXHIBIT C
               NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER THE
                             DIGITAL ANGEL.NET INC.
                               FLEXIBLE STOCK PLAN

Name of Option Recipient:             Mercedes Walton
                          ------------------------------------------------------


         On January 1, 2001,  the Company  awarded you a stock option.  You were
granted an option to buy 200,000  Shares of Common  Stock at the per Share price
equal to Fair Market Value as of January 1, 2001 as  determined by the Committee
based on an  appraisal  by a  qualified  independent  appraiser  on or after the
earlier of the date set forth in the Terms and  Conditions (as defined below) or
the dates set forth in the following schedule:




                                                     Number of Shares for which
                           Date                      Option is First Exercisable

                      January 1, 2001                          33,333

                     September 1, 2001                         33,333

                     December 31, 2002                         66,667

                     December 31, 2003                         66,667

and on or before December 31, 2010.


         IMPORTANT:  By signing below, you agree to be bound by, and acknowledge
receipt of, the attached Terms and Conditions of this Non-Qualified Stock Option
Award ("Terms and Conditions") and the Digital  Angel.net,  Inc.  Flexible Stock
Plan  ("Stock  Option  Plan").  Capitalized  terms are  defined in the Terms and
Conditions and/or Stock Option Plan .


                                                     DIGITAL ANGEL.NET, INC.



                                                     By:
                                                        ------------------------
                                                                  President
Read and agreed to this ___ day of January, 2001.


------------------------------------------
Mercedes Walton

                                       1
<PAGE>

                              TERMS AND CONDITIONS
               NON-QUALIFIED STOCK OPTION AWARD GRANTED UNDER THE
                   DIGITAL ANGEL.NET INC. FLEXIBLE STOCK PLAN

                                       TO
                                 MERCEDES WALTON

1.       Definitions

(a)        Committee                      The Committee  (or, in certain  cases,
                                          its  designees)  who  administers  the
                                          Stock Option Plan.

(b)        Company                        Digital  Angel.net,  Inc.,  a Delaware
                                          corporation.

(c)        Option                         The  option   granted  by  the  Option
                                          Award.

(d)        Option Award                   The  Non-Qualified  Stock Option Award
                                          to which the Terms and  Conditions are
                                          attached  together with,  except where
                                          the context requires otherwise,  these
                                          Terms and Conditions.

(e)        Employment Agreement           That    certain     employment     and
                                          non-compete   agreement  dated  as  of
                                          January  1,  2001,   by  and   between
                                          Applied   Digital   Solutions,    Inc.
                                          ("ADSX")  and  the   Participant,   as
                                          amended.

(f)        Participant                    Mercedes Walton,  the recipient of the
                                          Option Award.

(g)        Stock Option Plan              Digital Angel.net, Inc. Flexible Stock
                                          Plan, as amended.

All capitalized  terms not otherwise defined herein (whether above or otherwise)
shall have the meanings given to such terms by the Stock Option Plan.

2.       Evidence of Option Grant and Option not an Incentive Stock Option

         The Option Award  evidences a grant to the  Participant of an Option to
purchase that number of Shares ("Optioned  Shares") of the par value $.00005 per
share Common Stock of the Company  ("Stock") set forth on the Option Award.  The
Participant  may exercise the Option as shown on the Option Award and in Section
3 below. Once all or any part of the Option becomes exercisable, it shall remain
exercisable  until the Option  Expiration  Date. In no event shall the Option or
any part of the Option be  exercisable  after  December  31,  2010 (the  "Option
Expiration  Date").  The  Option  shall not be treated  as an  "Incentive  Stock
Option", as defined in Section 422 of the Internal Code of 1986, as amended.

                                       2
<PAGE>

3.       Acceleration of Exercise Date.

         If and to the extent the Option is not  already  exercisable,  it shall
become exercisable upon the occurrence of any of the following events:

                  (a) The Participant's death while employed by the Employer;

                  (b) the Participant's Disability (as defined in the Employment
         Agreement);

                  (c) the  Participant's  termination of her employment for Good
         Reason (as defined in the Employment Agreement);

                  (d) termination of the Participant's employment other than for
         Cause by the Employer (as defined in the Employment Agreement);

                  (e)  a  Change  of  Control  (as  defined  in  the  Employment
         Agreement) with respect to the Company or ADSX; or

                  (f) the Company ceases to be a Subsidiary of ADSX.

4.       Exercise of Option

         The Option shall be exercised by the  Participant  delivering a written
notice of exercise to the Company's  corporate  headquarters at 400 Royal, Suite
410, Palm Beach, Florida 33480. This notice shall specify the number of Optioned
Shares the Participant then desires to purchase.

5.       Payment of Option Price

         Payment for the Shares  purchased under the Option shall be made to the
Company either in cash (including  cashier's check, bank draft or money order or
a cashless exercise arrangement).  In addition, payment of the Option price may,
at the discretion of the Committee, be made in whole or in part by the tender of
Shares or in other  property,  rights and credits,  including the  Participant's
promissory note.

6.       Form of Notice of Exercise

         The  Participant's  notice as  required by Section 3 shall be signed by
the  Participant  and  shall  be  in  substantially   the  following  form  with
appropriate adjustments depending on how the Option price is paid:

                  "I   hereby    exercise  my Option to purchase ____ Shares  in
          accordance with my Option Award dated _____, 200__,  granted under the
          Company's 1999 Flexible Stock Plan, as amended.

                  The aggregate  Option  price  of  the Shares  I  am purchasing
is $______________. I hereby tender payment of such  price (complete  applicable
item(s)):

                                       3
<PAGE>

                  (a)  by  delivery  of  a  cashier's check, bank draft or money
                       order  made   payable  to  the  Company in  the amount of
                       $__________; and/or

                  (b)  through a cashless exercise as follows

                  --------------------------------------------------------------
                  -------------------------------------------------------------.


7.       Stock Certificate

         Upon the exercise of the Option,  the Participant  shall be entitled to
one Stock certificate evidencing the Shares acquired upon exercise.

8.       Legends on Certificate

         The certificate to be issued under Section 6 shall be issued as soon as
practicable.  Such  certificate  shall contain thereon a legend in substantially
the following  form if the Shares  evidenced by such  certificate  have not been
registered under the Securities Act of 1933, as amended:

                  "The  shares  represented  by this  certificate  have not been
         registered  under the Securities  Act of 1933 or any  applicable  state
         law.  They may not be offered for sale,  sold,  transferred  or pledged
         without  (1)  registration  under  the  Securities  Act of 1933 and any
         applicable  state  law,  or  (2)  at  holder's   expense,   an  opinion
         (satisfactory to the Company) that registration is not required."

The  certificate  shall also contain such other legends as may be appropriate or
required by law, such as a legend  relating to any  shareholders  agreement that
may apply to the Shares.

9.       Termination of Employment; Nonassignability

         9.1 Termination.  If the Participant's employment shall terminate or be
terminated,  the Participant or her personal  representative and/or beneficiary,
as the case may be,  shall  have  the  right  (but  not  later  than the  Option
Expiration  Date) to  exercise  such  Option to the extent  that such Option was
exercisable at the date of termination of employment or become  exercisable upon
such date but was not exercised,  and the Participant's interest in such portion
of the  Option  which  was not then  exercisable  or which  did not then  become
exercisable  shall  terminate  and all rights  thereunder  shall  cease.  If the
Participant  is both a Director and an  Employee,  her  employment  shall not be
deemed to have been terminated as long as she remains a Director or an Employee,
as the case may be.

         9.2 Non-Transferability of Rights; Designation of Beneficiaries. Except
as  herein  after  provided  in  this  Section  9.2,  the  Option  shall  not be
transferable  by the  Participant  otherwise than by will or the laws of descent
and distribution,  and, during the lifetime of the Participant, the Option shall
be exercisable  only by the  Participant.  Notwithstanding  the  foregoing,  the

                                       4
<PAGE>

Participant,  during her lifetime,  may transfer for no consideration the Option
to  members  of her  immediate  family or a trust for the  benefit of her and/or
members of her immediate  family subject to all of the provisions  applicable to
the Option prior to its transfer. In addition, the Participant may file with the
Company a written designation of a beneficiary or beneficiaries to exercise,  in
the event of death of the Participant,  the Option granted hereunder, subject to
all of the provisions of this Section 9. The  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  the  Option,  the
Committee  may  determine  to  recognize   only  an  exercise  by  the  personal
representative of the estate of the Participant,  in which case the Company, the
Committee and the members  thereof  shall not be under any further  liability to
anyone.

         9.3 Deemed Termination of Employment and Transfer. If the Employer that
employs the Participant (or of which the Participant is a Director) ceases to be
an  Employer,  the  Participant's  employment  shall  be  deemed  to  have  been
terminated by such Employer without Cause as of the date that it ceases to be an
Employer. The transfer of a Participant's employment (or a Director's service as
a  Director)  from one  Employer  to  another  Employer  shall  not be  deemed a
termination of employment.

10.      Withholding

         The Company or any Affiliate  that employs the  Participant  shall have
the right to deduct any sums that federal, state or local tax law requires to be
withheld  with  respect to the  exercise  of the Option or as  otherwise  may be
required  by such laws.  The  Company  or any such  Affiliate  may  require as a
condition to issuing Stock upon the exercise of the Option that the  Participant
or other person  exercising the Option pay any sum that federal,  state or local
tax  law  requires  to be  withheld  with  respect  to  such  exercise.  In  the
alternative, the Participant or other person exercising the Option, may elect to
pay such sums to the Company or the  Affiliate by delivering  written  notice of
that election to the  Company's  corporate  headquarters  at 400 Royal Palm Way,
Suite 410, Palm Beach,  Florida 33480,  prior to or concurrently  with exercise.
There is no obligation  that the  Participant be advised of the existence of the
tax or the  amount  which  the  Employer  corporation  will  be so  required  to
withhold.

11.      Controlling Document

         In the event of any conflict between the provisions of the Stock Option
Plan and the  provisions  of the  Employment  Agreement  relating to this Option
and/or the Option Award and these Terms and  Conditions,  the  provisions of the
Employment  Agreement  and/or the Option  Award and these  Terms and  Conditions
shall control.

12.      Early Exercise; Restricted Stock

         Notwithstanding  any other provision of the Option Award or these Terms
and Conditions, the Participant may exercise all or any part of the Option which

                                       5
<PAGE>

is not yet  exercisable in accordance with the provisions of this Section 12. In
such  event,  all  Shares  purchased  upon such  exercise  shall be subject to a
repurchase right in favor of the Company at a price, payable in cash in one lump
sum,  equal to the  original  purchase  price under the Option  until the Option
which was exercised to purchase the Shares becomes  exercisable under the Option
Award and these  Terms and  Conditions  without  regard to this  Section 12. The
Company's  repurchase  right shall arise, if, at any time during the time period
described  in the  preceding  sentence,  an event  which  would cause the Option
pursuant to which such Shares were acquired to be forfeited  occurs and shall be
exercised by notice to the Participant for a period of 30 days after such event.
While any Shares issued pursuant to the early exercise of the Option provided by
this  Section 12 are  subject to the  Company's  repurchase  right,  they may be
transferred only as described in the second sentence of Section 9.2, and, in the
event of such transfer,  shall still remain subject to the Company's  repurchase
right.  While the Shares are subject to the  Company's  right of  repurchase,  a
legend to that effect shall be placed on such Shares, and the Company shall also
have the right to have custody of such certificates.







                                       6
<PAGE>
                                    Exhibit D
                               Parachute Gross Up


                  (a) In the event that the Executive  shall become  entitled to
payments and/or benefits  provided by this Agreement or any other amounts in the
"nature of compensation" (whether pursuant to the terms of this Agreement or any
other plan,  arrangement or agreement with the Company, any person whose actions
result  in a change  of  ownership  or  effective  control  covered  by  Section
280G(b)(2) of the Code or any person affiliated with the Company or such person)
as a result of such change in ownership or effective  control  (collectively the
"Company  Payments"),  and such Company Payments will be subject to the tax (the
"Excise  Tax") imposed by Section 4999 of the Code (and any similar tax that may
hereafter  be imposed  by any taxing  authority)  the  Company  shall pay to the
Executive at the time  specified in subsection  (d) below an  additional  amount
(the  "Gross-up  Payment")  such that the net amount  retained by the Executive,
after deduction of any Excise Tax on the Company Payments and any U.S.  federal,
state,  and for local income or payroll tax upon the Gross-up  Payment  provided
for by this paragraph (a), but before deduction for any U.S. federal, state, and
local  income or  payroll  tax on the  Company  Payments,  shall be equal to the
Company Payments.

                  (b) For  purposes  of  determining  whether any of the Company
Payments and  Gross-up  Payments  (collectively  the "Total  Payments")  will be
subject  to the  Excise Tax and the  amount of such  Excise  Tax,  (x) the Total
Payments shall be treated as "parachute  payments" within the meaning of Section
280G(b)(2)  of the Code,  and all  "parachute  payments"  in excess of the "base
amount" (as defined  under  Section  280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax,  unless and except to the extent that, in the opinion
of the Company's independent certified public accountants appointed prior to any
change in ownership  (as defined  under  Section  280G(b)(2)of  the Code) or tax
counsel selected by such accountants (the "Accountants") such Total Payments (in
whole or in part)  either  do not  constitute  "parachute  payments,"  represent
reasonable  compensation  for services  actually  rendered within the meaning of
Section  280G(b)(4)  of the Code in excess of the "base amount" or are otherwise
not subject to the Excise Tax, and (y) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.

                  (c) For  purposes of  determining  the amount of the  Gross-up
Payment,  the Executive shall be deemed to pay U.S.  federal income taxes at the
highest  marginal rate of U.S.  federal income  taxation in the calendar year in
which the Gross-up Payment is to be made and state and local income taxes at the
highest  marginal rate of taxation in the state and locality of the  Executive's
residence for the calendar year in which the Company  Payment is to be made, net
of the maximum  reduction in U.S.  federal  income taxes which could be obtained
from  deduction of such state and local taxes if paid in such year. In the event
that the Excise Tax is  subsequently  determined by the  Accountants  to be less
than the amount taken into account hereunder at the time the Gross-up Payment is
made, the Executive  shall repay to the Company,  at the time that the amount of
such  reduction  in Excise Tax is finally  determined,  the portion of the prior

                                       1
<PAGE>

Gross-up  Payment  attributable  to such  reduction  (plus  the  portion  of the
Gross-up  Payment  attributable  to the Excise Tax and U.S.  federal,  state and
local income tax imposed on the portion of the Gross-up  Payment being repaid by
the Executive if such  repayment  results in a reduction in Excise Tax or a U.S.
federal,  state and local income tax deduction),  plus interest on the amount of
such  repayment  at the rate  provided  in  Section  1274(b)(2)(B)  of the Code.
Notwithstanding the foregoing,  in the event any portion of the Gross-up Payment
to be refunded to the Company has been paid to any U.S. federal, state and local
tax  authority,  repayment  thereof (and related  amounts) shall not be required
until actual  refund or credit of such  portion has been made to the  Executive,
and interest  payable to the Company  shall not exceed the interest  received or
credited  to the  Executive  by such tax  authority  for the period it held such
portion.  The Executive and the Company shall  mutually agree upon the course of
action to be pursued (and the method of allocating  the expense  thereof) if the
Executive's claim for refund or credit is denied.

         In the event that the Excise Tax is later  determined by the Accountant
or the  Internal  Revenue  Service  to exceed  the  amount  taken  into  account
hereunder at the time the Gross-up  Payment is made  (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up  Payment),  the Company  shall make an additional  Gross-up  Payment in
respect of such excess (plus any  interest or penalties  payable with respect to
such excess) at the time that the amount of such excess is finally determined.

                  (d) The Gross-up  Payment or portion  thereof  provided for in
subsection  (c) above  shall be paid not later  than the  thirtieth  (30th)  day
following an event  occurring  which  subjects the  Executive to the Excise Tax;
provided,  however,  that if the  amount of such  Gross-up  Payment  or  portion
thereof  cannot be finally  determined  on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by the
Accountant,  of the minimum  amount of such payments and shall pay the remainder
of such  payments  (together  with  interest  at the rate  provided  in  Section
1274(b)(2)(B) of the Code),  subject to further payments  pursuant to subsection
(c) hereof,  as soon as the amount thereof can reasonably be determined,  but in
no event  later  than the  ninetieth  day  after  the  occurrence  of the  event
subjecting  the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently  determined to have been due,
such excess shall constitute a loan by the Company to the Executive,  payable on
the fifth day after demand by the Company  (together  with  interest at the rate
provided in Section 1274(b)(2)(B) of the Code).

                  (e) In the event of any controversy  with the Internal Revenue
Service (or other taxing authority) with regard to the Excise Tax, the Executive
shall  permit the  Company to control  issues  related to the Excise Tax (at its
expense),  provided  that such issues do not  potentially  materially  adversely
affect the Executive,  but the Executive shall control any other issues.  In the
event the issues are  interrelated,  the Executive and the Company shall in good
faith cooperate so as not to jeopardize  resolution of either issue,  but if the
parties  cannot  agree the  Executive  shall make the final  determination  with
regard to the issues.  In the event of any conference with any taxing  authority
as to the Excise Tax or associated  income taxes, the Executive shall permit the

                                       2
<PAGE>

representative of the Company to accompany the Executive,  and the Executive and
the  Executive's  representative  shall  cooperate  with  the  Company  and  its
representative.

                  (f)  The Company shall be responsible for all  charges of  the
Accountant.

                  (g) The Company and the Executive  shall  promptly  deliver to
each other  copies of any written  communications,  and  summaries of any verbal
communications,  with any taxing  authority  regarding the Excise Tax covered by
this Exhibit D.











                                       3