Document:

Exhibit 4.3

NEOMAGIC CORPORATION

2003 STOCK PLAN

1.             Purposes of the Plan.  The purposes of this 2003 Stock Plan are:

•                                          to attract and retain the best available
personnel for positions of substantial responsibility,

•                                          to provide additional incentive to Employees,
Directors and Consultants, and

•                                          to promote the success of the Company’s
business.

Options granted under the
Plan may be Incentive Stock Options or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant.  Stock Purchase Rights and Stock Appreciation Rights may also be
granted under the Plan.

2.             Definitions.  As used herein, the following definitions
will apply:

(a)           “Administrator”
means the Board or any of its Committees as will be administering the Plan, in
accordance with Section 4 of the Plan.

(b)           “Applicable
Laws” means the requirements relating to the administration of stock option
plans under U.S. state corporate laws, U.S. federal and state securities laws,
the Code, any stock exchange or quotation system on which the Common Stock is
listed or quoted and the applicable laws of any foreign country or jurisdiction
where Options or Stock Purchase Rights are, or will be, granted under the Plan.

(c)           “Board”
means the Board of Directors of the Company.

(d)           “Change
in Control” means the occurrence of any of the following events:

(i)    Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company’s then
outstanding voting securities; or

(ii)   The
consummation of the sale or disposition by the Company of all or substantially
all of the Company’s assets;

(iii)  A change
in the composition of the Board occurring within a two-year period, as a result
of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” means directors who
either (A) are Directors as of the effective date of the Plan, or
(B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but will not include 

 

 

 

an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

(iv)  The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately
after such merger or consolidation.

(e)           “Code”
means the Internal Revenue Code of 1986, as amended.

(f)            “Committee”
means a committee of Directors appointed by the Board in accordance with
Section 4 of the Plan.

(g)           “Common
Stock” means the common stock of the Company.

(h)           “Company”
means NeoMagic Corporation, a Delaware corporation.

(i)            “Consultant”
means any natural person, including an advisor, engaged by the Company or a
Parent or Subsidiary to render services to such entity.

(j)            “Director”
means a member of the Board.

(k)           “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code.

(l)            “Employee”
means any person, including Officers and Directors, employed by the Company or
any Parent or Subsidiary of the Company. 
A Service Provider will not cease to be an Employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor.  For
purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.  If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
then three (3) months following the 91st day of such leave any
Incentive Stock Option held by the Optionee will cease to be treated as an
Incentive Stock Option and will be treated for tax purposes as a Non­statutory
Stock Option.  Neither service as a
Director nor payment of a director’s fee by the Company will be sufficient to
constitute “employment” by the Company.

(m)          “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

(n)           “Fair
Market Value” means, as of any date, the value of Common Stock deter­mined
as follows:

(i)    If the
Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value will be the
closing sales price 

 

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for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;

(ii)   If the
Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common Stock will
be the mean between the high bid and low asked prices for the Common Stock on
the day of deter­mination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or

(iii)  In the
absence of an established market for the Common Stock, the Fair Market Value
will be determined in good faith by the Administrator.

(o)           “Incentive
Stock Option” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations
promulgated there­under.

(p)           “Inside Director” means a Director who is an
Employee.

(q)           “Nonstatutory
Stock Option” means an Option not intended to qualify as an Incentive Stock
Option.

(r)            “Notice
of Grant” means a written or electronic notice evidencing certain terms and
conditions of an individual Option or Stock Purchase Right grant.  The Notice of Grant is part of the Option
Agreement.

(s)           “Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

(t)            “Option”
means a stock option granted pursuant to the Plan.

(u)           “Option
Agreement” means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant.  The Option Agreement is subject to the terms
and conditions of the Plan.

(v)           “Optioned
Stock” means the Common Stock subject to an Option, Stock Purchase Right or
Stock Appreciation Right.

(w)          “Optionee”
means the holder of an outstanding Option, Stock Purchase Right or Stock
Appreciation Right granted under the Plan.

(x)            “Outside Director” means a Director who is not an
Employee.

(y)           “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

(z)            “Plan”
means this 2003 Stock Plan.

 

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(aa)         “Restricted
Stock” means shares of Common Stock acquired pursuant to a grant of Stock
Purchase Rights under Section 11 of the Plan or Shares of restricted stock
issued pursuant to an Option.

(bb)         “Restricted
Stock Purchase Agreement” means a written agreement between the Company and
the Optionee evidencing the terms and restrictions applying to stock purchased
under a Stock Purchase Right.  The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.

(cc)         “Rule
16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3,
as in effect when discretion is being exercised with respect to the Plan.

(dd)         “SAR
Agreement” means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual SAR grant.  The SAR Agreement is subject to the terms
and conditions of the Plan and the Notice of Grant.

(ee)         “Stock
Appreciation Right” or “SAR” means an award that pursuant to Section
12 is designated as a SAR.

(ff)           “Section 16(b)
“ means Section 16(b) of the Exchange Act.

(gg)         “Service
Provider” means an Employee, Director or Consultant.

(hh)         “Share”
means a share of the Common Stock, as adjusted in accordance with
Section 14 of the Plan.

(ii)           “Stock
Purchase Right” means the right to purchase Common Stock pursuant to
Section  11 of the Plan, as evidenced by a Notice of Grant.

(jj)           “Subsidiary”
means a “subsidiary corporation”, whether now or hereafter existing, as defined
in Section 424(f) of the Code.

3.             Stock Subject to the Plan.  Subject to the provisions of Section 14 of the Plan, the maximum aggregate
number of Shares that may be optioned and sold under the Plan is 500,000 Shares plus (a) any
Shares which have been reserved but not issued under the Company’s Amended 1993
Stock Plan (the “1993 Plan”) as of the date the 1993 Plan is scheduled to
terminate and (b) any Shares returned to the 1993 Plan as a result of
termination of options or repurchase of Shares issued under the 1993 Plan.  The
Shares may be authorized, but unissued, or reacquired Common Stock.  Notwithstanding the foregoing, the Company
may not grant more than 20% of the total Shares reserved for issuance hereunder
pursuant to Options, Stock Purchase Rights or Stock Appreciation Rights that
have a per share exercise or purchase price that is less than Fair Market Value
on the date of grant.

If an Option, Stock Purchase Right or Stock
Appreciation Right expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto will
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been
issued under the Plan, whether upon exercise of an Option or right, will not be
returned to the Plan and will not become available for future 

 

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distribution under the Plan, except that if unvested
Shares of Restricted Stock are repurchased by the Company, such Shares will
become available for future grant under the Plan.

4.             Administration of the Plan.

(a)           Procedure.

(i)    Multiple
Administrative Bodies.  Different
Committees with respect to different groups of Service Providers may administer
the Plan.

(ii)   Section 162(m).  To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the Plan
will be administered by a Committee of two or more “outside directors” within
the meaning of Section 162(m) of the Code.

(iii)  Rule
16b-3.  To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder will be structured to satisfy the requirements for
exemption under Rule 16b-3.

(iv)  Other
Administration.  Other than as
provided above, the Plan will be administered by (A) the Board or
(B) a Committee, which committee will be constituted to satisfy Applicable
Laws.

(b)           Powers
of the Administrator.  Subject to
the provisions of the Plan, and in the case of a Committee, subject to the
specific duties delegated by the Board to such Committee, the Administrator
will have the authority, in its discretion:

(i)    to
determine the Fair Market Value;

(ii)   to select
the Service Providers to whom Options, Stock Purchase Rights and Stock
Appreciation Rights may be granted hereunder;

(iii)  to
determine the number of shares of Common Stock to be covered by each Option,
Stock Purchase Right and Stock Appreciation Right granted hereunder;

(iv)  to approve
forms of agreement for use under the Plan;

(v)   to
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any Option, Stock Purchase Right or Stock Appreciation Right granted
hereunder.  Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options, Stock Purchase Rights and Stock Appreciation Rights may be exercised
(which may be based on performance criteria), any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation regarding
any Option, Stock Purchase Right or Stock Appreciation Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, will determine;

(vi)  to construe
and interpret the terms of the Plan and awards granted pursuant to the Plan;

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(vii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of satisfying applicable foreign laws;

(viii) to modify or amend each Option, Stock Purchase
Right or Stock Appreciation Right (subject to Section 16(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;

(ix)   to allow
Optionees to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares to be issued upon exercise of an Option, Stock
Purchase Right or Stock Appreciation Right that number of Shares having a Fair
Market Value equal to the minimum amount required to be withheld.  The Fair Market Value of the Shares to be
withheld will be determined on the date that the amount of tax to be withheld
is to be determined.  All elections by
an Optionee to have Shares withheld for this purpose will be made in such form
and under such conditions as the Administrator may deem necessary or advisable;

(x)    to
authorize any person to execute on behalf of the Company any instru­ment
required to effect the grant of an Option, Stock Purchase Right or Stock
Appreciation Right previously granted by the Administrator;

(xi)   to make
all other determinations deemed necessary or advisable for administering the
Plan.

(c)           Effect
of Administrator’s Decision. 
The Administrator’s decisions, determina­tions and interpretations will
be final and binding on all Optionees and any other holders of Options, Stock
Purchase Rights or Stock Appreciation Rights.

5.             Eligibility.  Nonstatutory Stock Options, Stock Purchase
Rights and Stock Appreciation Rights may be granted to Service Providers.  Incentive Stock Options may be granted only
to Employees.

6.             Limitations.

(a)           Each
Option will be designated in the Option Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. 
However, notwithstanding such designa­tion, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options will be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a),
Incentive Stock Options will be taken into account in the order in which they
were granted.  The Fair Market Value of
the Shares will be determined as of the time the Option with respect to such
Shares is granted.

(b)           Neither
the Plan nor any Option, Stock Purchase Right or Stock Appreciation Right will
confer upon an Optionee any right with respect to continuing the Optionee’s
relationship as a Service Provider with the Company, nor will they interfere in
any way with the Optionee’s right or the Company’s right to terminate such relationship
at any time, with or without cause.

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(c)           The
following limitations will apply to grants of Options and Stock Appreciation
Rights:

(i)    No Service
Provider will be granted, in any fiscal year of the Company, Options or Stock
Appreciation Rights to purchase more than 2,000,000 Shares.

(ii)   In
connection with his or her initial service, a Service Provider may be granted
Options or Stock Appreciation Rights to purchase up to an additional 1,000,000 Shares, which will not count
against the limit set forth in subsection (i) above.

(iii)  The
foregoing limitations will be adjusted proportionately in connection with any
change in the Company’s capitalization as described in Section 14.

(iv)  If an
Option or Stock Appreciation Right is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above.  For this purpose, if the exercise price of an Option is reduced,
the transaction will be treated as a cancellation of the Option and the grant
of a new Option.

7.             Term
of Plan.  Subject to Section 20  of
the Plan, the Plan will become effective upon its adoption by the Board.  It will continue in effect for a term of ten
(10) years unless terminated earlier under Section 16  of the Plan.

8.             Term
of Option.  The term of each Option
will be stated in the Option Agreement. 
In the case of an Incentive Stock Option, the term will be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.  Moreover, in the case
of an Incentive Stock Option granted to an Optionee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Incentive Stock Option
will be five (5) years from the date of grant or such shorter term as may be
provided in the Option Agreement.

9.             Option Exercise Price and Consideration.

(a)           Exercise
Price.  The per share exercise price
for the Shares to be issued pursuant to exercise of an Option will be
determined by the Administrator, subject to the following:

(i)    In the
case of an Incentive Stock Option

(1)           granted
to an Employee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price will be no less than 110% of the Fair Market Value per Share on
the date of grant.

(2)           granted
to any Employee other than an Employee described in paragraph (A) immediately
above, the per Share exercise price will be no less than 100% of the Fair
Market Value per Share on the date of grant.

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(ii)   In the
case of a Nonstatutory Stock Option, the per Share exercise price will be
determined by the Administrator.  In the
case of a Nonstatutory Stock Option intended to qualify as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the per
Share exercise price will be no less than 100% of the Fair Market Value per
Share on the date of grant.

(iii)  Notwithstanding
the foregoing, Options may be granted with a per Share exercise price of less
than 100% of the Fair Market Value per Share on the date of grant pursuant to a
merger or other corporate transaction.

(b)           Waiting
Period and Exercise Dates.  At the
time an Option is granted, the Administrator will fix the period within which
the Option may be exercised and will determine any conditions that must be
satisfied before the Option may be exercised.

(c)           Form
of Consideration.  The Administrator
will determine the acceptable form of consideration for exercising an Option,
including the method of payment.  In the
case of an Incentive Stock Option, the Administrator will determine the
acceptable form of consideration at the time of grant.  Such consideration may consist entirely of:

(i)    cash;

(ii)   check;

(iii)  promissory
note;

(iv)  other
Shares, provided Shares acquired directly or indirectly from the Company,
(A) have been vested and owned by the Optionee for more than six (6)
months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option will be exercised;

(v)   consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;

(vi)  a reduction
in the amount of any Company liability to the Optionee, including any liability
attributable to the Optionee’s participation in any Company-sponsored deferred
compensation program or arrangement;

(vii) any
combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.

10.           Exercise of Option.

(a)           Procedure
for Exercise; Rights as a Stockholder. 
Any Option granted hereunder will be exercisable according to the terms
of the Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.  Unless the 

 

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Administrator provides otherwise, vesting of Options
granted hereunder will be suspended during any unpaid leave of absence.  An Option may not be exercised for a
fraction of a Share.

An Option will be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised.  Full payment may consist of
any consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan.  Shares issued upon exercise of an Option will be issued in the
name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse.  Until
the Shares are issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder will exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.  The Company will issue (or cause to be
issued) such Shares promptly after the Option is exercised.  No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 14  of the Plan.

Exercising an Option in
any manner will decrease the number of Shares thereafter available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.

(b)           Termination
of Relationship as a Service Provider. 
If an Optionee ceases to be a Service Provider, other than upon the
Optionee’s death or Disability, the Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement).  In the absence of a
specified time in the Option Agreement, the Option will remain exercisable for
three (3) months following the Optionee’s termination.  Unless otherwise provided by the
Administrator, if on the date of termination the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option will revert to the Plan.  If
after termination the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option will terminate, and the Shares
covered by such Option will revert to the Plan.

(c)           Disability
of Optionee.  If an Optionee ceases
to be a Service Provider as a result of the Optionee’s Disability, the Optionee
may exercise his or her Option within such period of time as is specified in
the Option Agreement to the extent the Option is vested on the date of termi­nation
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement).  In the
absence of a specified time in the Option Agreement, the Option will remain
exercisable for twelve (12) months following the Optionee’s termination.  Unless otherwise provided by the
Administrator, if on the date of termination the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option will revert to the Plan.  If
after termination the Optionee does not exercise his or her Option within the
time specified herein, the Option will terminate, and the Shares covered by
such Option will revert to the Plan.

(d)           Death
of Optionee.  If an Optionee dies
while a Service Provider, the Option may be exercised following the Optionee’s
death within such period of time as is specified in the Option Agreement to the
extent that the Option is vested on the date of death (but in no event may 

 

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the option be exercised later than the expiration of
the term of such Option as set forth in the Option Agreement), by the Optionee’s
designated beneficiary, provided such beneficiary has been designated prior to
Optionee’s death in a form acceptable to the Administrator.  If no such beneficiary has been designated
by the Optionee, then such Option may be exercised by the personal
representative of the Optionee’s estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee’s will or in accordance with the laws
of descent and distribution.  In the
absence of a specified time in the Option Agreement, the Option will remain
exercisable for twelve (12) months following Optionee’s death.  Unless otherwise provided by the
Administrator, if at the time of death Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option will
immediately revert to the Plan.  If the
Option is not so exercised within the time specified herein, the Option will
terminate, and the Shares covered by such Option will revert to the Plan.

11.           Stock Purchase Rights.

(a)           Rights
to Purchase.  Stock Purchase Rights
may be issued either alone, in addition to, or in tandem with other awards
granted under the Plan and/or cash awards made outside of the Plan.  After the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it will advise the offeree in
writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of
Shares that the offeree will be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer.  The offer will be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the
Administrator.

(b)           Repurchase
Option.  Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement will grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser’s service with the Company for any reason
(including death or Disability).  The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement will be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company.  The repurchase option will lapse at a rate determined
by the Administrator.

(c)           Other
Provisions.  The Restricted Stock
Purchase Agreement will contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion.

(d)           Rights
as a Stockholder.  Once the Stock
Purchase Right is exercised, the purchaser will have the rights equivalent to
those of a stockholder, and will be a stockholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the
Company.  No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 14 of the
Plan.

12.           Stock
Appreciation Rights.  Each SAR grant
will be evidenced by a SAR Agreement that will specify the terms of the SAR,
the conditions of exercise, the expiration date, and such other terms and
conditions as the Administrator, in its sole discretion, will determine.  Notwithstanding the foregoing, the rules of
Sections 9(c) and 10 of the Plan also will apply to SARs.  Upon exercise of a SAR, an Optionee will be
entitled to receive a payment from the Company (at the discretion of the 

 

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Administrator, in cash, in Shares of equivalent value,
or in some combination thereof) in an amount determined by multiplying (i) the
difference between the Fair Market Value of a Share on the date of exercise
over the exercise price, by (ii) the number of Shares with respect to which the
SAR is exercised.

13.           Transferability
of Options, Stock Purchase Rights and Stock Appreciation Rights.  Unless determined otherwise by the
Administrator, an Option, Stock Purchase Right or Stock Appreciation Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee.  If the Administrator makes an Option, Stock
Purchase Right or Stock Appreciation Right transferable, such Option, Stock
Purchase Right or Stock Appreciation Right will contain such additional terms
and conditions as the Administrator deems appropriate.

14.           Adjustments;
Dissolution or Liquidation; Merger or Change in Control.

(a)           Adjustments.  In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares occurs, the Administrator, in
order to prevent diminution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, may (in its sole
discretion) adjust the number and class of Shares that may be delivered under
the Plan and/or the number, class, and price of Shares covered by each
outstanding Option, Stock Purchase Right or Stock Appreciation Right, as well
as the numerical Share limits in Section 6 of the Plan.

(b)           Dissolution
or Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Administrator will
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction.  The Administrator
in its discretion may provide for an Optionee to have the right to exercise his
or her Option or Stock Appreciation Right until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares
as to which the Option or Stock Appreciation Right would not otherwise be
exercisable.  In addition, the Administrator
may provide that any Company repurchase option applicable to any Shares
purchased upon exercise of an Option or Stock Purchase Right will lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place
at the time and in the manner contemplated. 
To the extent it has not been previously exercised, an Option, Stock Purchase Right or Stock
Appreciation Right will terminate immediately prior to the consummation of such
proposed action.

(c)           Merger
or Change in Control.  In the event
of a merger of the Company with or into another corporation, or a Change in
Control, each outstanding Option, Stock Purchase Right and Stock Appreciation Right
will be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation.  In the event that the successor corporation
refuses to assume or substitute for the Option, Stock Purchase Right or Stock Appreciation Right, the
Optionee will fully vest in and have the right to exercise the Option, Stock Purchase Right or Stock
Appreciation Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be vested or exercisable.  If an Option, Stock Purchase Right or Stock 

 

11

 

Appreciation Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
Change in Control, the Administrator will notify the Optionee in writing or
electronically that the Option, Stock Purchase Right or Stock Appreciation Right will
be fully vested and exercisable for a period of fifteen (15) days from the date
of such notice, and the Option, Stock Purchase Right or Stock Appreciation Right will
terminate upon the expiration of such period.

For the purposes of this subsection (c), the Option, Stock Purchase Right or Stock
Appreciation Right will be considered assumed if, following the merger or
Change in Control, the option or right confers the right to purchase or
receive, for each Share subject to the Option, Stock Purchase Right or Stock Appreciation Right
immediately prior to the merger or Change in Control, the consideration
(whether stock, cash, or other securities or property) or, in the case of a
Stock Appreciation Right upon the exercise of which the Administrator determines
to pay cash, the fair market value of the consideration, received in the merger
or Change in Control by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or Change in Control is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, Stock Purchase Right or Stock Appreciation Right, for each Share
subject to the Option, Stock Purchase Right or Stock Appreciation Right, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger
or Change in Control.

15.           Date
of Grant.  The date of grant of an
Option, Stock
Purchase Right or Stock Appreciation Right will be, for all purposes, the date
on which the Administrator makes the determination granting such Option, Stock Purchase Right or Stock
Appreciation Right, or such other later date as is determined by the
Administrator.  Notice of the
determination will be provided to each Optionee within a reasonable time after
the date of such grant.

16.           Amendment and Termination of the
Plan.

(a)           Amendment
and Termination.  The Board may at
any time amend, alter, suspend or terminate the Plan.

(b)           Stockholder
Approval.  The Company will obtain
stockholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.

(c)           Effect
of Amendment or Termination.  No
amendment, alteration, suspension or termination of the Plan will impair the
rights of any Optionee, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the
Optionee and the Company.  Termination
of the Plan will not affect the Administrator’s ability to exercise the powers
granted to it hereunder with respect to Options, Stock Purchase Rights and Stock Appreciation Rights
granted under the Plan prior to the date of such termination.

17.           Conditions Upon Issuance of Shares.

(a)           Legal
Compliance.  Shares will not be
issued pursuant to the exercise of an Option, Stock Purchase Right or Stock Appreciation Right
unless the exercise of such Option, Stock 

 

12

 

Purchase Right or Stock Appreciation Right and the
issuance and delivery of such Shares will comply with Applicable Laws and will
be further subject to the approval of counsel for the Company with respect to
such compliance.

(b)           Investment
Representations.  As a condition to
the exercise of an Option, Stock Purchase Right or Stock Appreciation Right, the
Company may require the person exercising such Option, Stock Purchase Right or Stock
Appreciation Right to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.

18.           Inability
to Obtain Authority.  The inability
of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, will relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority will not have been obtained.

19.           Reservation
of Shares.  The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as will be sufficient to satisfy the requirements of the Plan.

20.           Stockholder
Approval.  The Plan will be subject
to approval by the stockholders of the Company within twelve (12) months after
the date the Plan is adopted.  Such
stockholder approval will be obtained in the manner and to the degree required
under Applicable Laws.

 

13<PAGE>

                                                                EXHIBIT 10.1

                                                              EXECUTION COPY

                        SECURITIES PURCHASE AGREEMENT

                  This Securities Purchase Agreement (this "AGREEMENT") is
entered into as of September 19, 2003, between Applied Digital Solutions,
Inc., a Missouri corporation (the "COMPANY"), and First Investors Holding
Co., Inc., (the "PURCHASER").

                  WHEREAS, the Company has registered with the Securities
and Exchange Commission (the "COMMISSION") the issuance of certain shares
(the "SHARES") of its common stock, $0.001 par value per share (the "COMMON
STOCK"), under a registration statement on Form S-1 (Registration No.
333-106300) (the "REGISTRATION STATEMENT").

                  WHEREAS, subject to the terms and conditions set forth in
this Agreement, the Company desires to sell to the Purchaser and the
Purchaser desires to purchase from the Company up to 11,428,571 Shares
currently available under the Registration Statement.

                  NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants contained in this Agreement and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:

                  1.      Settlement Dates.

                  (a)     Settlement Dates. The closing, if any, of the
                          ----------------
purchase and sale of the Shares under this Agreement will take place at the
offices of Proskauer Rose LLP, 1585 Broadway, New York, New York 10036, on
the settlement dates set forth below. Subject to the terms and conditions of
this Agreement, the Shares will be issued, delivered and paid for on up to
ten settlement dates (if any) as follows:

                          (1)      The first settlement date (if any) will
occur on the fourth (4th) Trading Day (as defined below) following (and
including) the Press Release Date (the "FIRST SETTLEMENT DATE"). Subject to
the terms and conditions of this Agreement, on the First Settlement Date,
the Company will issue and deliver to the Purchaser, and the Purchaser shall
purchase from the Company, 1,142,857 Shares (subject to adjustment, at the
sole option of the Purchaser, in accordance with and subject to the
provisions of Sections 1(b)(2) and (3)).

                          (2)      The second settlement date (if any) will
occur on the seventh (7th) Trading Day following (and including) the Press
Release Date (the "SECOND SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Second Settlement Date, the Company
will issue and deliver to the Purchaser, and the Purchaser shall purchase
from the Company, 2,285,714 Shares less the number of any Shares purchased
by the Purchaser on the First Settlement Date (subject to adjustment, at the
sole option of the Purchaser, in accordance with and subject to the
provisions of Sections 1(b)(2) and (3)).

<PAGE>
<PAGE>

                          (3)      The third settlement date (if any) will
occur on the tenth (10th) Trading Day following (and including) the Press
Release Date (the "THIRD SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Third Settlement Date, the Company will
issue and deliver to the Purchaser, and the Purchaser shall purchase from
the Company, 3,428,571 Shares less the aggregate number of Shares purchased
by the Purchaser on all previous Settlement Dates (as defined below)
(subject to adjustment, at the sole option of the Purchaser, in accordance
with and subject to the provisions of Sections 1(b)(2) and (3)).

                          (4)      The fourth settlement date (if any) will
occur on the thirteenth (13th) Trading Day following (and including) the
Press Release Date (the "FOURTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Fourth Settlement Date, the Company
will issue and deliver to the Purchaser, and the Purchaser shall purchase
from the Company, 4,571,428 Shares less the aggregate number of Shares
purchased by the Purchaser on all previous Settlement Dates (subject to
adjustment, at the sole option of the Purchaser, in accordance with and
subject to the provisions of Sections 1(b)(2) and (3)).

                          (5)      The fifth settlement date (if any) will
occur on the sixteenth (16th) Trading Day following (and including) the
Press Release Date (the "FIFTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Fifth Settlement Date, the Company will
issue and deliver to the Purchaser, and the Purchaser shall purchase from
the Company, 5,714,286 Shares less the aggregate number of Shares purchased
by the Purchaser on all previous Settlement Dates (subject to adjustment, at
the sole option of the Purchaser, in accordance with and subject to the
provisions of Sections 1(b)(2) and (3)).

                          (6)      The sixth settlement date (if any) will
occur on the nineteenth (19th) Trading Day following (and including) the
Press Release Date (the "SIXTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Sixth Settlement Date, the Company will
issue and deliver to the Purchaser, and the Purchaser shall purchase from
the Company, 6,857,143 Shares less the aggregate number of Shares purchased
by the Purchaser on all previous Settlement Dates (subject to adjustment, at
the sole option of the Purchaser, in accordance with and subject to the
provisions of Sections 1(b)(2) and (3)).

                          (7)      The seventh settlement date (if any) will
occur on the twenty-second (22nd) Trading Day following (and including) the
Press Release Date (the "SEVENTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Seventh Settlement Date, the Company
will issue and deliver to the Purchaser, and the Purchaser shall purchase
from the Company, 8,000,000 Shares less the aggregate number of Shares
purchased by the Purchaser on all previous Settlement Dates (subject to
adjustment, at the sole option of the Purchaser, in accordance with and
subject to the provisions of Sections 1(b)(2) and (3)).

                          (8)      The eighth settlement date (if any) will
occur on the twenty-fifth (25th) Trading Day following (and including) the
Press Release Date (the "EIGHTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Eighth Settlement Date, the Company
will issue and deliver to the Purchaser, and the Purchaser shall purchase
from the Company, 9,142,857 Shares less the aggregate number of Shares
purchased by the Purchaser on all previous Settlement Dates (subject to
adjustment, at the sole option of the Purchaser, in accordance with and
subject to the provisions of Sections 1(b)(2) and (3)).

                                     2

<PAGE>
<PAGE>

                          (9)      The ninth settlement date (if any) will
occur on the twenty-eighth (28th) Trading Day following (and including) the
Press Release Date (the "NINTH SETTLEMENT DATE"). Subject to the terms and
conditions of this Agreement, on the Ninth Settlement Date, the Company will
issue and deliver to the Purchaser, and the Purchaser shall purchase from
the Company, 10,285,714 Shares less the aggregate number of Shares purchased
by the Purchaser on all previous Settlement Dates (subject to adjustment, at
the sole option of the Purchaser, in accordance with and subject to the
provisions of Sections 1(b)(2) and (3)).

                          (10)     The tenth settlement date (if any) will
occur on the thirty-first (31st) Trading Day following (and including) the
Press Release Date (the "TENTH SETTLEMENT DATE", and together with the First
Settlement Date, Second Settlement Date, Third Settlement Date, Fourth
Settlement Date, Fifth Settlement Date, Sixth Settlement Date, Seventh
Settlement Date, Eighth Settlement Date and Ninth Settlement Date,
collectively, the "SETTLEMENT DATES", and each individually, a "SETTLEMENT
DATE"). Subject to the terms and conditions of this Agreement, on the Tenth
Settlement Date, the Company will issue and deliver to the Purchaser, and
the Purchaser shall purchase from the Company, 11,428,571 Shares less the
aggregate number of Shares purchased by the Purchaser on all previous
Settlement Dates (subject to adjustment, at the sole option of the
Purchaser, in accordance with and subject to the provisions of Sections
1(b)(2) and (3)).

                  (b)     Per Share Purchase Price; Additional Share Elections.

                          (1)      The purchase price for each Share issuable
under this Agreement on a Settlement Date (the "PER SHARE PURCHASE PRICE")
shall equal 87.00% of the average of the VWAP for the three Trading Days
immediately preceding such Settlement Date.

                          (2)      The Company is not required to sell, and
the Purchaser is not required to purchase, any Shares at a price that is
less than the Floor Price. If the Per Share Purchase Price with respect to a
particular Settlement Date is less than the Floor Price: (a) the Purchaser
shall be under no further obligation to purchase any Shares that would have
been purchased on the applicable Settlement Date, but may, at its option,
require the Company to issue and sell to it up to the maximum aggregate
amount of Shares to be sold hereunder (it being understood that not more
than an aggregate of 11,428,571 Shares will be issued and sold under this
Agreement), and (b) if Purchaser elects to acquire such Shares under (a)
above, then the per share purchase price for such Shares shall equal the
Floor Price.

                          (3)      At any time prior to 6:00 p.m. (New York
time) on the day preceding a Settlement Date, the Purchaser may elect by
written notice to the Company, to acquire (in addition to the Shares which
it may be obligated to acquire at such time) up to the maximum aggregate
amount of Shares to be sold hereunder (it being understood that not more
than an aggregate of 11,428,571 Shares will be issued and sold under this
Agreement).

                          (4)      Notwithstanding anything herein to the
contrary, if the VWAP on two consecutive Settlement Dates is less than
$0.42, then, at any time thereafter, Purchaser shall be entitled to
terminate any and all of its obligations under this Agreement by delivery of
a written notice to the Company to such effect.

                                     3

<PAGE>
<PAGE>

                          (5)      The Purchaser is not permitted to acquire
Shares hereunder to the extent that, giving effect to such proposed
acquisition, the beneficial ownership of the Common Stock by the Purchaser
(together with its affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Purchaser's for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), would exceed 9% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock potentially issuable upon such acquisition). Notwithstanding
anything herein to the contrary, the obligations of the parties hereto is
subject to the immediately preceding sentence and will be deemed
automatically modified so as to avoid any contravention thereof.

                          (6)      Notwithstanding anything herein to the
contrary, in no event shall the Purchaser or the Company have the right or
obligation to purchase or sell a number of Shares hereunder having an
aggregate purchase price of more than $3,999,999.99.

                  (c)     Deliveries on each Settlement Date.
                          ----------------------------------

                          (1)      Subject to the terms and conditions of this
Agreement, on each Settlement Date: (x) the Company will deliver to the
Purchaser, (A) via such Purchaser's DTC Account through the Depository Trust
Company DWAC system, a number of Shares equal to the applicable number of
Shares being acquired on such Settlement Date, and (B) a certificate,
executed by the President of the Company, to the effect that the Company has
complied with and is in compliance with all of the conditions set forth in
Section 2, and (y) the Purchaser will, upon receipt of such Shares in the
DWAC system, deliver to the Company, an amount in United States dollars
equal to the product of (i) such number of Shares, and (ii) the Per Share
Purchase Price applicable to such Settlement Date, via wire transfer of
immediately available funds to an account designated in writing by the
Company for such purpose.

                          (2)      In addition to any other rights available to
the Purchaser, if on a Settlement Date, the Company fails to deliver to such
Purchaser's DTC Account the number of Shares being acquired on such
Settlement Date, and if the Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by the Purchaser of the shares that the Purchaser anticipated
receiving from the Company (a "Buy-In"), then, in the Purchaser's sole
discretion, the Company shall, within three Trading Days after the
Purchaser's request, either (i) pay cash to the Purchaser in an amount equal
to the Purchaser's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the "Buy-In Price"), at
which point the Company's obligation to deliver such Shares shall terminate,
or (ii) promptly honor its obligation to deliver to the Purchaser a
certificate or certificates representing such Common Stock and pay cash to
the Purchaser in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Price on the date of the event giving rise to the Company's
obligation to deliver such certificate.

                  (d)     Certain Defined Terms. As used in this Agreement,
                          ---------------------
unless otherwise defined, the following terms shall have the respective
meanings set forth in this Section 1(d):

                                     4

<PAGE>
<PAGE>

                          (1)      "COMPANY REGISTRATION STATEMENT" means the
Registration Statement, including the Prospectus, amendments and supplements
to the Registration Statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material and
exhibits incorporated by reference or deemed to be incorporated by reference
in such registration statement.

                          (2)      "FLOOR PRICE" means $0.35, subject to
equitable adjustment for stock splits, recombinations and similar events.

                          (3)      "PERSON" means any court or other federal,
state, local or other governmental authority or other individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government
(or an agency or subdivision thereof) or other entity of any kind.

                          (4)      "PRESS RELEASE DATE" means the date on which
as of 9:20 a.m. (New York time) the press release or Form 8-K contemplated
by Section 2(d) has been filed and is available to the public through the
Commission's EDGAR system.

                          (5)      "PROSPECTUS" means the prospectus included
in the Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part
of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any
portion of the Shares covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material or exhibits incorporated by reference or deemed
to be incorporated by reference in the Prospectus.

                          (6)      "SECURITIES ACT" means the Securities Act of
1933, as amended.

                          (7)      "TRADING DAY" means (a) a day on which the
Common Stock is traded on the Nasdaq SmallCap Market, Nasdaq National
Market, New York Stock Exchange or American Stock Exchange, or (b) if the
Common Stock is not listed on any of the Nasdaq SmallCap Market, Nasdaq
National Market, New York Stock Exchange or American Stock Exchange, a day
on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices); provided, however, that in the event that the Common
Stock is not listed or quoted as set forth in (a), (b) and (c) above, then
Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.

                          (8)      "VWAP" means on any Trading Day, the volume
weighted average trading price (as reported by Bloomberg Financial L.P.
using the VAP function) of the Common Stock for such Trading Day.

                                     5

<PAGE>
<PAGE>

                  2.      CONDITIONS. The obligation of the Purchaser to
                          ----------
purchase and acquire Shares under this Agreement is subject to the
fulfillment (or waiver by the Purchaser) of each of the following
conditions:

                  (a)     The Company Registration Statement: (x) shall be
effective as to all Shares, not subject to any threatened or actual stop
order and (y) will not contain any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.

                  (b)     The Company shall have secured the listing of the
Shares on the Nasdaq SmallCap Market (subject to official notice of
issuance).

                  (c)     The representations and warranties of the Company
made in this Agreement shall be true and correct as of and on each of the
date of this Agreement and each Settlement Date, as if first made and
restated on each such date.

                  (d)     The Company shall have issued a press release or
filed a current report on Form 8-K , in each case reasonably acceptable to
the Purchaser, disclosing the existence of this Agreement and the material
terms hereof. The Purchaser may terminate its obligation to acquire Shares
under this Agreement if, by 9:20 a.m. (New York time) on September 22, 2003,
neither (i) the Company has issued such press release, nor (ii) such current
report on Form 8-K is available to the public through the Commission's EDGAR
system.

                  (e)     There shall be no litigation, investigation, inquiry
or proceeding pending or threatened in writing (including without limitation
with the Commission, the Nasdaq Stock Market, or the NASD) that challenges
or calls into the question the transactions contemplated hereby or, if
determined in a manner adverse to the Company, that could reasonably be
expected to result in a material and adverse effect on the Company, its
business or its prospects or impose liability upon the Purchaser.

                  (f)     The Company shall file with the Commission a
prospectus supplement to the Company Registration Statement (a
"Supplement"), in agreed form, within one Trading Day of the date of this
Agreement, in order to evidence and disclose the offer and sale of the
Shares issued hereunder. In addition, the Company shall file a Supplement,
in agreed form, on each Settlement Date to disclose the number Shares sold
on such Settlement Date and the corresponding Per Share Purchase Price.

                  3.      REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
                          ---------------------------------------------
Company hereby makes the following representations and warranties to the
Purchaser:

                  (a)     Organization and Qualification. The Company is a
                          ------------------------------
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Missouri with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted, except where the failure to do so would not
reasonably be expected to have a material adverse effect on the Company or
the transactions contemplated hereby. The Company is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or

                                     6

<PAGE>
<PAGE>

property owned by it makes such qualification necessary, except where the
failure to do so would not reasonably be expected to have a material adverse
effect on the Company or the transaction contemplated hereby.

                  (b)     Authorization. The Company has the requisite
                          -------------
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its
obligations thereunder. The execution and delivery of this Agreement by the
Company and the consummation of the transaction contemplated hereby have
been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company or its shareholders for the
Company to execute and consummate this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed by the Company
and, when delivered in accordance with the terms hereof, and assuming the
valid execution hereof by the Purchaser, will constitute the valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except (a) as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (b) as enforceability of any indemnification
and contribution provisions may be limited under the federal and state
securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.

                  (c)     No Conflicts. The execution, delivery and performance
                          ------------
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby does not and will not: (i) conflict with or
violate any provision of the Company's certificate of incorporation or
bylaws (each as amended through the date hereof), or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment or acceleration (with or without notice, lapse of time or both)
of, any agreement or indebtedness to which the Company is a party or by
which any property or asset of the Company is bound or affected, except
where the failure to do so would not reasonably be expected to have a
Material adverse effect on the Company or the transaction contemplated
hereby or (iii) result in a violation of any law, rule, regulation, order,
judgment, decree or other restriction of any court, governmental authority
or stock market to which the Company or the Common Stock is subject, except
where the failure to do so would not reasonably be expected to have a
Material adverse effect on the Company or the transaction contemplated
hereby. There are no notices to or approvals or consents required to be made
by the Company of the NASD, any stock market, the Commission or any other
Person that have not been made and obtained (and any so obtained are in full
force and effect), except where the failure to do so would not reasonably be
expected to have a Material adverse effect on the Company or the transaction
contemplated hereby.

                  (d)     Filings, Consents and Approvals. The Company is not
                          -------------------------------
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of
this Agreement, other than (i) the required filing of the Supplements, (ii)
applicable Blue Sky filings, and (iii) in all other cases where the failure
to obtain such consent, waiver, authorization or

                                     7

<PAGE>
<PAGE>

order, or to give such notice or make such filing or registration could not
have or result in, individually or in the aggregate, a Material adverse
effect.

                  (e)     Issuance of the Shares. The Shares are duly
                          ----------------------
authorized and, when issued and paid for in accordance with the terms
hereof, will be legally issued, fully paid and nonassessable, free and clear
of all liens and encumbrances. The Shares have been approved for issuance on
and by the Nasdaq SmallCap Market (subject to official notice of issuance).

                  (f)     Company Registration Statement. The Company
                          ------------------------------
Registration Statement is effective and the Company has not received notice
that the Commission has issued or intends to issue a stop order with respect
to the Company Registration Statement or that the Commission otherwise has
suspended or withdrawn the effectiveness of the Company Registration
Statement, either temporarily or permanently, or intends or has threatened
in writing to do so. The Company Registration Statement (including the
information or documents incorporated by reference therein and all
supplements, including the Supplements, and prospectus thereunder), at the
time it was first declared effective, on the date of this Agreement, and on
each Settlement Date, did not, do not and will not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Shares are
registered under the Securities Act by the Company Registration Statement.

                  (g)     Listing and Maintenance Requirements. None of the
                          ------------------------------------
offer, sale or issuance to the Purchaser of the maximum number of Shares
issuable under this Agreement require any approval of the shareholders of
the Company and do not violate the rules of the Nasdaq Stock Market.

                  (h)     Certain Fees. Except with respect to certain
                          ------------
arrangements between the Company and J.P. Carey Securities Inc. with respect
to the transactions contemplated by this Agreement, no fees or commissions
will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The
Purchaser will have no obligation with respect to any fees incurred by the
Company or any other Person or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this
Agreement. The Company will indemnify and hold harmless the Purchaser, its
employees, officers, directors, agents, partners, and affiliates, from and
against all claims, losses, damages, costs (including the costs of
preparation and reasonable attorney's fees) and expenses suffered in respect
of any such claimed or existing fees incurred by the Company or any other
Person, as such fees and expenses are incurred.

                  (i)     Disclosure. Neither the Company nor any other
                          ----------
Person acting on its behalf has provided the Purchaser or its agents or
counsel with any information that constitutes or may, in the Company's
opinion, constitute material non-public information.

                  (j)     SEC Reports; Financial Statements. Except with
                          ---------------------------------
respect to (i) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2002, which was not timely filed and (ii) two
statements of changes in beneficial ownership in

                                     8

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<PAGE>

Digital Angel Corporation filed on Form 4, which were not timely filed, the
Company has filed all reports required to be filed by it under the Exchange
Act, for the twelve months preceding the date hereof (collectively, "SEC
Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations
and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments.

                  (k)     Acknowledgment Regarding Purchaser's Purchase of
                          ------------------------------------------------
Shares. The Company acknowledges and agrees that the Purchaser is acting
------
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by
the Purchaser or any of its representatives or agents in connection with
this Agreement and the transactions contemplated hereby is merely incidental
to the Purchaser's purchase of the Shares. The Company further represents to
the Purchaser that the Company's decision to enter into this Agreement has
been based solely on the independent evaluation of the proposed transactions
by the Company and its representatives.

                  4.      Representations and Warranties of the Purchaser.
                          -----------------------------------------------
The Purchaser hereby represents and warrants to the Company as follows:

                  (a)     Organization; Authorization. The Purchaser is a
                          ---------------------------
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation with the requisite corporate
power and authority to own and use its properties and assets and to carry on
its business as currently conducted, except where the failure to do so would
not reasonably be expected to have a material adverse effect on the
Purchaser or the transactions contemplated hereby. The Purchaser is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to do so would not reasonably be
expected to have a material adverse effect on the Purchaser or the
transaction contemplated hereby. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated by
this Agreement and otherwise to carry out its obligations thereunder. The
execution and delivery of this Agreement by the Purchaser and the
consummation by it of the transaction contemplated hereby have been

                                     9

<PAGE>
<PAGE>

duly authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed by the Purchaser and, when delivered in
accordance with the terms hereof, and assuming the valid execution hereof by
the Company, will constitute the valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except (a) as
such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (b) as enforceability
of any indemnification and contribution provisions may be limited under the
federal and state securities laws and public policy, and (c) that the remedy
of specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.

                  (b)     Other Agreements; Status of Purchaser. The Purchaser
                          -------------------------------------
is not party to any agreement or arrangement with respect to a disposition
of Shares other than this Agreement. The Purchaser is an accredited investor
as defined in Rule 501 of the Securities Act and is not registered as a
broker-dealer under the Exchange Act.

                  (c)     Financial Capacity. The Purchaser has financial
                          ------------------
capacity to satisfy its obligations under this Agreement.

                  5.      CERTAIN DISCLOSURES. The Company will not and will
                          -------------------
cause each of its affiliates and other Persons acting on behalf of the
Company not to divulge to the Purchaser any information that it believes to
be material non-public information unless the Purchaser has agreed in
writing to receive such information prior to such divulgence. Neither the
Company nor the Purchaser will issue any press release or make any other
public announcement relating to this Agreement unless the form thereof is
mutually agreed to by the Company and the Purchaser, or if the Company is
advised in writing by its counsel that such press release or public
announcement is required by law. Except with respect to the press release to
be issued pursuant to Section 2(d), and other than with respect to: (i) the
filing of the Supplements, and (ii) the filing of a Current Report on Form
8-K to furnish an opinion of counsel as to the legality of the Shares, the
Company shall not publicly disclose the name of the Purchaser, or include
the name of the Purchaser in any filing with the Commission or any
regulatory agency or trading market, without the prior written consent of
the Purchaser, except to the extent such disclosure is required by law or
trading market regulations, in which case the Company shall provide the
Purchaser with prior notice of such disclosure.

                  6.      RESERVATION AND LISTING OF SHARES. The Company shall
                          ---------------------------------
maintain a reserve from its duly authorized shares of Common Stock for
issuance of the Shares pursuant to this Agreement in such amount as may be
required to fulfill its obligations in full under this Agreement. The
Company shall take such steps as may be required to cause and maintain the
listing of the Shares on the Trading Market and such other exchange, market
or quotation facility on which the Common Stock is traded.

                  7.      INDEMNIFICATION. The Company will indemnify the
                          ---------------
Purchaser and the officers, directors, employees and agents of the
Purchaser, and each person, if any, who controls the Purchaser within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act (a "RELATED PERSON"), as provided in Exhibit "A" attached hereto against
liability with respect to the Company Registration Statement (including,
without limitation, the

                                     10

<PAGE>
<PAGE>

prospectus supplement) relating to the Shares sold by the Company to the
Purchaser hereunder. For purposes of said Exhibit A, capitalized terms used
therein without definition shall have the same meanings therein as are
ascribed to said terms in this Agreement.

                  8.      MISCELLANEOUS.
                          -------------

                  (a)     Fees and Expenses. Each party will pay the fees and
                          -----------------
expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The
Company will pay all stamp and other taxes and duties levied in connection
with the sale of the Shares.

                  (b)     Entire Agreement; Amendments. This Agreement contains
                          ----------------------------
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have
been merged into this Agreement. This Agreement may not be modified or
amended except in a writing for such purpose signed by the Company and the
Purchaser. The waiver by either party hereto of any right hereunder or the
failure to perform or of a breach by the other party will not be deemed a
waiver of any other right hereunder or of any other breach or failure by
said other party whether of a similar nature or otherwise.

                  (c)     Notices. Any and all notices or other communications
                          -------
or deliveries required or permitted to be provided hereunder must be in
writing and will be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section, or via email,
prior to 4:30 p.m. (New York City time) on a Trading Day, (ii) the Trading
Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Agreement
later than 4:30 p.m. (New York City time) on any date and earlier than 11:59
p.m. (New York City time) on such date, (iii) the Trading Day following the
date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to
be given. The address for such notices and communications will be as follows
(or such other address as may be designated in writing hereafter, in the
same manner, by such Person):

         If to the Company:         Applied Digital Solutions, Inc.
                                    400 Royal Palm Way, Suite 410
                                    Palm Beach, FL 33480
                                    Facsimile No.: (561) 805-0002
                                    Attn: Chief Financial Officer

                                    with a copy to:

                                    Holland & Knight
                                    701 Brickell Ave.
                                    Miami, FL  33131
                                    Attention: Harvey Goldman, Esq.

                                     11

<PAGE>
<PAGE>

         If to the Purchaser:       To the address set forth under the
                                    Purchaser's name on the signature page
                                    hereto.

                  (d)     Governing Law. All questions concerning the
                          -------------
construction, validity, enforcement and interpretation of this Agreement
will be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflict of laws thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders, employees or
agents) will be exclusively commenced in the state and federal courts
sitting in the City of New York, Borough of Manhattan. Each party
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder, and irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court or that such courts
are an improper or inconvenient forum. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such
party at the address in effect for notices to it under this Agreement and
agrees that such service will constitute good and sufficient service of
process and notice thereof. Nothing contained herein will be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding will be reimbursed by the other party for its reasonable
attorneys fees and other reasonable costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

                  (e)     Remedies. In addition to being entitled to exercise
                          --------
all rights provided herein or granted by law, including recovery of damages,
the Purchaser and the Company will each be entitled to specific performance
of the others obligations under this Agreement. In furtherance thereof, the
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any such breach and hereby agrees to waive in any
action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

                  (f)     Execution. This Agreement may be executed in two or
                          ---------
more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart.

                  (g)     Assignment. Neither party shall assign this Agreement
                          ----------
without the prior written consent of the other party hereto.

                  (h)     Adjustments in Share Numbers and Prices. In the event
                          ---------------------------------------
of any stock split, subdivision, dividend or distribution payable in shares
of Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of
Common Stock), combination or other similar recapitalization or event
occurring after the date hereof, each reference in this Agreement to a
number of shares or a price per share shall be amended to appropriately
account for such event.

           *        *        *       *        *        *        *

                                     12

<PAGE>
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed as of the date first indicated above.

                                            APPLIED DIGITAL SOLUTIONS, INC.

                                            By: /s/ Scott Silverman
                                                Name: Scott Silverman
                                                Title: CEO

                                            FIRST INVESTORS HOLDING CO., INC.

                                            By: /s/ Avi Vigder
                                                Name: Avi Vigder
                                                Title: Authorized Signatory

                                            Address for Notice:

                                            FIRST INVESTORS HOLDING CO., INC.
                                                [OMITTED FOR CONFIDENTIALITY]

                                                With a copy to:

                                                Proskauer Rose LLP
                                                1585 Broadway
                                                New York, New York  10036
                                                Facsimile No.:  212.969.2900
                                                Attn:  Adam Kansler

                                                DWAC instructions for
                                                delivery of shares:
                                                [Omitted for Confidentiality]

                                     13

<PAGE>
<PAGE>

                                 EXHIBIT `A'

                          TERMS OF INDEMNIFICATION

         (a) INDEMNIFICATION BY THE COMPANY. The Company will indemnify and
             ------------------------------
hold harmless the Purchaser and any Related Persons, from and against any
losses, claims, damages, liabilities, costs and expenses (including, without
limitation, reasonable costs of defense and investigation and all attorneys'
fees and expenses) to which the Purchaser and the officers, directors,
employees and agents of the Purchaser, and each person, if any, who controls
the Purchaser may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact contained, or
incorporated by reference, in the Company Registration Statement or any
amendment or supplement to the Registration Statement, or (ii) the omission
or alleged omission to state in that Registration Statement a material fact
required to be stated therein or necessary to make the statements therein
not misleading (an "INDEMNIFIABLE MATTER"). The Company will reimburse the
Purchaser and the officers, directors, employees and agents of the Purchaser
and each such controlling person promptly upon demand for any legal or other
costs or expenses reasonably incurred by the Purchaser and the officers,
directors, employees and agents of the Purchaser or the controlling person
in investigating, defending against, or preparing to defend against any
claim relating to an Indemnifiable Matter, except that the Company will not
be liable to the extent such claim, suit or proceeding which results in a
loss, claim, damage, liability or expense arises out of, or is based upon,
an untrue statement, alleged untrue statement, omission or alleged omission,
included in the Supplement in reliance upon, and in conformity with, written
information furnished by the Purchaser to the Company for inclusion in the
Supplement.

         (b) CONTRIBUTION. If for any reason the indemnification provided
             ------------
for in this Agreement is not available to, or is not sufficient to hold
harmless, an indemnified party in respect of any loss, claim, damage,
liability, cost or expense referred to in Paragraph (a), each indemnifying
party will, in lieu of indemnifying the indemnified party, contribute to the
amount paid or payable by the indemnified party, contribute to the amount
paid or payable by the indemnified party as a result of the loss, claim,
damage, liability, cost or expense: (i) in the proportion which is
appropriate to reflect the relative benefits received by the indemnifying
party, on the one hand, and by the indemnified party, on the other hand,
from the sale of stock which is the subject of the claim, action, suit or
proceeding which resulted in the loss, claim, liability, cost or expense or
(ii) if that allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits of
the sale of stock, but also the relative fault of the indemnifying party and
the indemnified party with respect to the statements or omissions which are
the subject of the claim, action, suit or proceeding that resulted in the
loss, claim, damage, liability, cost or expense as well as any other
relevant equitable considerations.

                                    A-1

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