Exhibit 10.2
Applied Digital Solutions
1690 South Congress Avenue, Suite 201
Delray Beach, FL 33445
May 15, 2008
VeriChip Corporation
1690 South Congress Avenue, Suite 200
Delray Beach, FL 33445
Gentlemen:
     This letter agreement (this “Letter Agreement”) confirms certain agreements
between Applied Digital Solutions, Inc. doing business as Digital Angel, a
Delaware corporation (“Stockholder”) and VeriChip Corporation, a Delaware
corporation (the “Company”) with respect to the matters described herein.
     The Company has informed Stockholder that, subject to certain conditions
including, but not limited to, the approval of a majority of the outstanding
common stock of the Company’s stockholders, the Company will sell to The Stanley
Works, a Connecticut corporation (the “Purchaser”), all of the outstanding
capital stock of Xmark Corporation, a corporation governed under the laws of
Canada and a wholly-owned subsidiary of the Company (the “Xmark Transaction”)
pursuant to that certain Stock Purchase Agreement, dated as of May 15, 2008,
between the Company and the Purchaser, a true and correct copy of which is
attached hereto as Exhibit A (the “Stock Purchase Agreement”).
     The consummation of the Xmark Transaction constitutes an Event of Default
(as defined in the Commercial Loan Agreement) by the Company of that certain
(i) Commercial Loan Agreement dated December 27, 2005, as amended, between the
Company and the Stockholder (the “Commercial Loan Agreement”), (ii) Security
Agreement dated December 27, 2005, as amended, between the Company and the
Stockholder, and (iii) Third Amended and Restated Revolving Line of Credit Note
dated as of February 8, 2007, as amended, from the Stockholder in favor of the
Company (collectively, the “Loan Transaction Documents”).
     In addition, the Company has informed Stockholder that, as a condition to
entering into the Stock Purchase Agreement, Purchaser has required that
Stockholder enter into a Voting Agreement, by and between the Stockholder and
the Purchaser (the “Voting Agreement”) and a Guarantee, by the Stockholder in
favor of the Purchaser (the “Guarantee”).
     In consideration of Stockholder (i) granting its consent to the Xmark
Transaction under the Loan Transaction Documents and (ii) entering into the
Voting Agreement and the Guarantee, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto do hereby agree as

 

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follows, the Stockholder and the Company (each, a “Party,” and together, the
“Parties”) acknowledge and agree as follows:
     1. Consent.
     (a) Upon satisfaction by the Company of all of the provisions hereof, the
Stockholder shall thereupon be deemed to have consented to the Xmark Transaction
and that the consummation of the Xmark Transaction shall thereupon not
constitute an Event of Default under the Loan Transaction Documents.
     (b) The Company shall have complied with paragraph numbered 4 of that
certain Letter Agreement regarding Agreement to Subordinate Loans and Repayment
of Loans dated February 29, 2008 from the Stockholder to, and acknowledged by,
the Company, a true and correct copy of which is attached hereto as Exhibit B
(the “Digital Angel Letter Agreement”), including, without limitation, paying
such portion of the Excess Amount (as defined in the Digital Angel Letter
Agreement) as required, pursuant to the Digital Angel Letter Agreement, to be
paid directly pro rata to the Laurus Note Holders to be applied against the
Laurus Indebtedness, and to the Kallina Note Holders to be applied against the
Kallina Indebtedness (as such terms are defined in the Digital Angel Letter
Agreement).
     2. Board of Directors.
     (a) From and after the date of the closing of the Xmark Transaction (the
“Xmark Closing Date”), the Stockholder shall be entitled to designate up to
three (3) members of the Company’s Board of Directors (the “Board Designees”),
all of which shall be independent with the exception of Mr. Joseph J. Grillo.
Notwithstanding the foregoing, if prior to the Xmark Closing Date, the Company,
in the reasonable judgment of Stockholder, has breached any of its obligations
under this Letter Agreement, the Stockholder shall be entitled to designate up
to three (3) Board Designees from the date of the breach. Upon any breach, the
Stockholder will provide written notice of such breach to the Company and the
Company shall have five (5) days to cure such breach from its receipt of such
notice before Stockholder may designate its Board Designees. The Stockholder
presently intends to nominate Mr. Joseph J. Grillo, the President and Chief
Executive Officer of the Stockholder, as its one designee from and after the
Xmark Closing Date, and the Company hereby agrees to have Mr. Grillo serve as
Chairman of the Board of Directors. The Stockholder does not have any current
intentions to nominate any additional Board Designees.
     (b) If any Board Designee shall be elected or appointed as a member of the
Board of Directors but shall thereafter cease to serve as a member of the Board
of Directors (whether as a result of his or her death or resignation or for any
other reason) prior to the expiration of his or her term of office, the
Stockholder shall have the right to designate another person to fill the
resulting vacancy in the Board of Directors. The Company shall use its best
efforts and take all action within its power to cause each Board Designee to be
elected or appointed to serve as a member of the Board of Directors as promptly
as practicable after the date upon which he or she has been so designated.
Without limiting the generality of the foregoing, the Company shall take

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any of the following actions if required in order to effect the election or
appointment of a Board Designee:
     (i) If there exists a vacancy on the Board of Directors, the Company shall
take all necessary action within its power to cause such vacancy to be filled
through the appointment of such Board Designee. If no such vacancy exists, the
Company shall solicit and use its best efforts to obtain the resignation of one
or more members of the Board of Directors so as to allow for the appointment of
such Board Designee.
     (ii) If the Board of Directors is authorized by law to increase the number
of members of the Board of Directors without approval of the stockholders of the
Company, the Company shall take all necessary action within its power to
increase the size of the Board of Directors and cause each newly created
directorship to be filled by the appointment of a Board Designee.
     (iii) The Company shall nominate such Board Designee for election as a
member of the Board of Directors at the next meeting of the stockholders at
which members of the Board of Directors are to be elected and, in connection
therewith, shall (w) name such Board Designee as a nominee of management in the
form of proxy sent by management to the stockholders of the Company prior to
such meeting, (x) include all required information regarding such Board Designee
in the proxy statement sent by management of the Company to the stockholders of
the Company prior to such meeting (which information shall, upon request, be
furnished to management by the Stockholder), (y) recommend to the stockholders
of the Company the election of such Board Designee and (z) vote in favor of such
Board Designee all legally effective proxies received from stockholders of the
Company that authorize or direct any officer or director of the Company, as
proxy holder, to vote in the election of directors for such Board Designee or
which grant to any officer or director of the Company the power to exercise his
or her discretion in voting in the election of directors.
     (c) The Company hereby agrees to limit the number of directors on its Board
of Directors to seven (7) directors as a maximum and shall maintain that minimum
number of directors as is necessary to prevent Stockholder’s Board Designees
from constituting a majority of directors at any time.
     3. Dividend. Promptly after the Xmark Closing Date, and in accordance with
the Second Amended and Restated Certificate of Incorporation of the Company, the
Amended and Restated By-Laws of the Company and all applicable laws, the Company
shall pay a special dividend to all of its stockholders in an aggregate amount
of not less than $15,000,000. The Company hereby confirms that after payment of
the special dividend, the Company believes it will have sufficient assets to
carry on its business and to provide for future liabilities and sufficient
surplus under applicable Delaware law with which to pay the special dividend. In
addition, promptly after the release of the Escrow Amount (as defined in the
Stock Purchase Agreement), the Company shall pay a second special dividend to
all of its stockholders, reflecting the release of the Escrow Amount and any
other amounts from the sale of the

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Company’s VeriMed business or the Company’s other assets (the date of the
payment of the second dividend, the “Second Dividend Date”).
     4. Employee Matters.
     (a) The Company has today entered into that certain Separation Agreement by
and between the Company and Scott R. Silverman (the “Silverman Separation
Agreement”), a true and correct copy of which is attached hereto as Exhibit C,
and such agreement shall continue in full force and effect and shall not be
modified, rescinded or amended without the prior written consent of the
Stockholder.
     (b) Other than as provided under the Silverman Separation Agreement and as
set forth in the letter provided by the Company to Stockholder on the date
hereto (the “Side Letter”), there are no agreements, written or oral, regarding
any special payment, bonus, incentive payment, success fee, retention payment,
consulting, management, finder, broker or similar fee or other payment
(collectively “Bonus Arrangements”) related to the Xmark Transaction, the
potential sale of the VeriMed business or the other assets of the Company or the
other transactions contemplated herein. From the date hereof until the Second
Dividend Date, the Company agrees (i) to adhere to and make no changes to the
Company’s existing employment agreements and arrangements, including those set
forth in the Side Letter, and (ii) not to enter into or adopt any Bonus
Arrangements, in each case, without the prior written consent of the
Stockholder.
     5. Access. From the date hereof until the Second Dividend Date, the Company
will permit Stockholder and its designated representatives to access such
information relating to the Company, including financial information, as
Stockholder may reasonably request. Without limiting the generality of the
foregoing, such information shall include the items set forth on Exhibit D. The
Company shall make its officers available during normal business hours to meet
with Stockholder’s designated representative to discuss such information upon
the reasonable request of Stockholder.
     6. Insurance. Prior to the Xmark Closing Date, the Company will use
commercially reasonably efforts to procure prepaid “tail” policies at no less
than current limits on (i) the Company’s existing directors’ and officers’
liability insurance policy and (ii) the Company’s existing general and products
liability insurance policy. The Stockholder will be named as an additional
insured on such coverage. The Company and the Stockholder will cooperate and
consult regarding the purchase of this coverage, including consulting on such
matters as the appropriate limits and correct insureds and such other matters as
the Parties shall mutually agree.
     7. Representations and Warranties. Each Party represents and warrants to
the other Party as follows:
          (a) It has all requisite power, legal capacity and authority to
execute, deliver and perform its obligations under this Letter Agreement.

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          (b) This Letter Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding obligation of
it, enforceable against it in accordance with its terms except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors’ rights generally.
          (c) The execution, delivery and performance of this Letter Agreement
by it does not (i) violate, conflict with, or constitute a breach of or default
under its organizational documents, if any, or any material agreement to which
it is a Party or by which it is bound or (ii) violate any law, regulation,
order, writ, judgment, injunction or decree applicable to it.
          (d) It is not a Party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with any provision of this Letter
Agreement or the rights of any Party hereunder.
          (e) The consummation by the Party of the transactions contemplated by
this Letter Agreement have been duly and validly authorized by all necessary
corporate, partnership or other action on the part of the Party.
     8. Miscellaneous.
     (a) Each Party will pay its own costs and expenses in connection with the
transactions contemplated herein, except that, upon the Xmark Closing Date, the
Company will pay to the Stockholder (i) $250,000 as consideration for the
execution of the Guarantee and (ii) the Stockholder’s actual expenses (the
“Transaction Expenses”) incurred or reasonably expected to be incurred by
Stockholder in connection with the transactions described in this Letter
Agreement, which Transaction Expenses shall not exceed $250,000 in the
aggregate.
     (b) This Letter Agreement shall be governed by the law of the State of
Florida, excluding its conflict and choice of law principles. No modification or
waiver of the terms of this Agreement shall be effective unless it appears in a
writing signed by the Parties.
     (c) This Letter Agreement shall terminate upon the Second Dividend Date;
provided, however, that if the Stock Purchase Agreement is terminated in
accordance with Section 7.1 of the Stock Purchase Agreement, this Letter
Agreement shall terminate on such earlier date of termination, and the
obligations of the Parties under this Letter Agreement shall terminate, except
for the obligations of each Party under Section 8 (provided that in Section 8(a)
the Company shall pay only the Transaction Expenses to Stockholder).
     (d) This Letter Agreement and the Side Letter constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the Parties with respect to the subject matter hereof. This
Letter Agreement is not intended to confer on any person other than the Parties
hereto any rights or remedies hereunder.
     (e) The Parties shall be entitled to enforce its rights under this Letter
Agreement specifically, to recover damages by reason of any breach of any
provision of this Letter Agreement and to exercise all other rights existing in
their favor. The Parties agree and

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acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Letter Agreement, and that either party may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Letter Agreement.
     (f) The Company agrees to notify Stockholder within one (1) business day of
its receipt of a Claim Notice (as defined in Section 8.2(a) of the Stock
Purchase Agreement) relating to a matter covered by Section 8.1(a)(iii) of the
Stock Purchase Agreement.  In the event of a Third-Party Claim (as defined in
Section 8.2(a) of the Stock Purchase Agreement) against Stanley for claims
arising under Section 8.1(a)(iii) of the Stock Purchase Agreement, the Company
agrees not to settle or compromise any such claim without Stockholder’s prior
written consent (which shall not be unreasonably withheld or delayed).  In the
event of a Third-Party Claim against Stanley for claims arising under
Section 8.1(a)(iii) of the Stock Purchase Agreement, the Company further agrees
to assume control of the defense as is provided for under Section 8.2(b) of the
Stock Purchase Agreement. The Company shall keep Stockholder fully informed on a
current basis regarding all developments in respect of any such Third-Party
Claim and shall consult with Stockholder in connection with the defense of the
claim.  Stockholder may also participate, at its own expense and through legal
counsel of its choice, in any such Proceeding (as defined in the Stock Purchase
Agreement) related to such Third-Party Claim. On or after the Cut-Off Date (as
defined in the Stock Purchase Agreement) and upon the request of Stockholder,
the Company will assign its rights under any provision of the Stock Purchase
Agreement, including under Section 8.2 of the Agreement. The Company shall pay
when due all amounts required to be paid to Purchaser under Section 8.1(a)(iii)
of the Stock Purchase Agreement. If the Company fails to pay when due any such
amounts required to be paid to Purchaser under Section 8.1(a)(iii) of the Stock
Purchase Agreement, and Stockholder pays such amounts to Purchaser, all such
amounts paid by Stockholder shall be considered a debt obligation of the Company
to Stockholder, to be paid upon demand of Stockholder.
(g) This Letter Agreement may be executed in one or more counterpartes, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument. Furthermore, signatures delivered via facsimile transmission
shall have the same force and effect as the original thereof.

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     If the foregoing correctly reflects your understanding of our agreement,
please so indicate by signing and returning a copy of this letter to us today.

                  Very truly yours,    
 
                APPLIED DIGITAL SOLUTIONS, INC.:    
 
           
 
  By:   /s/ Joseph J. Grillo     
 
  Name:  
 
Joseph J. Grillo    
 
  Title:  
 
CEO    
 
     
 
   

          AGREED AND ACCEPTED
As of the date first written above:    
 
        VERICHIP CORPORATION:    
 
       
By:
  /s/ Scott R. Silverman     
Name:
 
 
Scott R. Silverman    
Title:
 
 
Chairman and CEO