Document:

Filed by Bowne Pure Compliance

 

Exhibit 10.26

Summary of Verbal Arrangement for Compensation for

Steve Watkins

	 	1.	 	Annual salary of $110,000, which is payable bi-monthly; and

	 	2.	 	Benefits and perquisites on the same terms and conditions as available to all employees of Immediatek,
Inc. and its subsidiaries.

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Exhibit 10.26

 

8Filed by Bowne Pure Compliance

 

Exhibit 10.1

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of December 20, 2007,
by and between CRAY INC., a Washington corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Bank”).

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that
certain Credit Agreement between Borrower and Bank dated as of December 29, 2006, as amended from
time to time (“Credit Agreement”).

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set
forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said
changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

1. Notwithstanding any provision to the contrary in the Credit Agreement or in the Line of
Credit Note, the maximum amount available for advances and Letters of Credit under the Line of
Credit shall at all times be reduced by an amount equal to the Maximum Potential Exposure (defined
below) of all outstanding foreign exchange contracts between Borrower and Bank. If at any time, the
sum of (a) the outstanding principal balance of advances under the Line of Credit, (b) the amount
available to be drawn under outstanding Letters of Credit, (c) amounts drawn under Letters of
Credit and not yet reimbursed to Bank, and (d) the amount of the Maximum Potential Exposure exceeds
$10,000,000.00, Borrower shall on demand by Bank (a) make a principal reduction of the outstanding
principal balance of the Line of Credit in the amount of such excess, or (b) if no advances are
outstanding, provide cash collateral (maintained at Bank and which may be in the securities account
which secures Borrower’s obligations to Bank hereunder) in the amount of such excess as security
for Borrower’s liability under Letters of Credit and/or foreign exchange contracts in the amount of
such excess. The foregoing cash collateral requirement is in addition to Borrower’s requirement to
maintain the Collateral Value of the Securities Account equal to at least $10,000,000.00 as set
forth in the Amended and Restated Addendum to Security Agreement dated as of the date hereof
executed by Borrower and Bank.

2. Section 1.1
(a) is hereby amended (a) by deleting “December 1, 2008” as the last day on
which Bank will make advances under the Line of Credit, and by
substituting for said date “June 1, 2009,” and (b) by deleting “Twenty Five Million Dollars ($25,000,000.00)” as the maximum
principal amount available under the Line of Credit, and by substituting for said amount “Ten
Million Dollars ($10,000,000.00),” with such changes to be effective upon the execution and
delivery to Bank of a promissory note dated as of December 20, 2007 (which promissory note shall
replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement)
and all other contracts, instruments and documents required by Bank to evidence such change.

 

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3. Section 1.1 (b) is hereby amended by deleting “Fifteen Million Dollars ($15,000,000.00)” as the maximum principal amount available under the Letter of Credit
Subfeature, and by substituting for said amount “Ten Million Dollars ($10,000,000.00).”

4. Section 1.1 (d) is hereby deleted in its entirety, and the following substituted
therefor:

"(d) Foreign Exchange Facility. Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make available to
Borrower a facility (the “Foreign Exchange Facility”) under which Bank,
from time to time up to and including June 1, 2009, will enter into
“payment versus delivery” foreign exchange contracts for the account of
Borrower for the purchase and/or sale by Borrower in United States dollars
of Japanese yen, Euros, Pound Sterling; provided however, that no such
foreign exchange contract shall be entered into if the Maximum Potential
Exposure (as defined below) at such time is, or if the contract were
entered into, would be in excess of Zero United States Dollars
(US$0.00).
No foreign exchange contract shall be executed for a term in excess of
twelve (12) months or for a term which extends beyond June 1, 2009. All
foreign exchange transactions shall be subject to the additional terms of
a Foreign Exchange Agreement dated as of January 24, 2006 (“Foreign
Exchange Agreement”), all terms of which are incorporated herein by this
reference. The term “Maximum Potential Exposure” means at any time the
amount of Borrower’s maximum potential liability to Bank under (i) all
foreign exchange contracts outstanding at such time, and (ii) as
applicable, all foreign exchange contracts requested by Borrower at such
time, as determined by Bank.”

5. Section 1.2 (b) is hereby deleted in its entirety, without substitution.

6. Section 1.2 (c) is hereby renumbered to be 1.2 (b).

7. Section 4.10 is hereby deleted in its entirety, and the following substituted
therefor:

“SECTION 4.10. LIQUIDITY. In addition to minimum balances in the
Collateral account as defined in the ADDENDUM TO SECURITIES AGREEMENT,
Borrower (a) shall maintain liquid assets (defined as cash, cash
equivalents and/or publicly traded/quoted marketable securities acceptable
to Bank in its sole discretion) with an aggregate fair market value not at
any time less than Ten Million Dollars ($10,000,000.00). Further, not
later than 30 days after the end of each quarter Borrower shall provide to
Bank copies of all Borrower’s current account statements for deposit,
brokerage and other accounts, together with such other information as Bank
may require to determine compliance with this covenant.”

 

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8. Except as specifically provided herein, all terms and conditions of the Credit
Agreement remain in full force and effect, without waiver or modification. All terms defined in the
Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the
Credit Agreement shall be read together, as one document.

9. Borrower hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the
date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the
day and year first written above.

	 	 	 	 	 	 	 
	 	 	 	 	WELLS FARGO BANK,
	CRAY INC.	 	NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	By:

	 	/s/ Brian C. Henry
	 	By:
	 	/s/ Russell Carson
	 

	 	 
	 	 	 	 
	 

	 	Brian C. Henry, Executive
	 	 	 	Russell Carson, Relationship Manager
	 

	 	Vice President, Chief Financial Officer	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Kenneth W. Johnson	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Kenneth W. Johnson, Senior V.P.,	 	 	 	 
	 

	 	General Counsel, Corporate Secretary	 	 	 	 

 

-3-Filed by Bowne Pure Compliance

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is effective as of January 1, 2008, (the “Effective Date”), between
Applied Digital Solutions, Inc. (the “Employer”) and Mr. Joseph J. Grillo, an individual (the “Employee”).

Agreement

In consideration of the mutual premises, covenants and agreements set forth below, and intending to be legally
bound hereby, it is hereby agreed as follows:

1. Definitions. Capitalized terms shall have the meanings defined in this Agreement or on Exhibits A and B
attached hereto unless the context otherwise requires. Exhibits A and B are incorporated herein by this reference.

2. Employment Term and Duties.

2.1 Employment Term. The Employer employs the Employee, and the Employee accepts employment by the
Employer, on the terms and conditions set forth in this Agreement and for the period of time set forth in Exhibit B
(the “Employment Period”), which Employment Period shall be the term of this Agreement.

2.2 Duties.

(a) The Employee will serve in the position set forth on Exhibit B. The Employee will devote his/her full
business time, attention, skill, and energy exclusively to the business of the Employer, will use his/her best efforts
to promote the success of the Employer’s business.

(b) The Employee may engage in the following activities during the Employment Period so long as such activities do
not interfere or conflict with Employee’s duties to Employer as set forth in Section 2.2(a) above: (i) serve on
corporate, civic, religious, educational, and/or charitable boards or committees; (ii) deliver lectures, fulfill
speaking engagements, or teach at educational institutions without receiving any compensation other than reimbursement
of expenses, nominal stipends, or similar forms of compensation; and (iii) manage his/her personal investments,
provided that such investments do not conflict with the Employee’s duties and responsibilities under this Agreement.
It is specifically acknowledged that the Employee’s continued service as a director of XCeedID Corporation does not
violate this Section 2.2(b). If the Employee is appointed or elected an officer or director of the Employer or any
Affiliate, the Employee will fulfill his/her duties as such officer or director without additional compensation. Upon
termination of this Agreement for any reason, the Employee automatically resigns as of such date as an officer and
director of the Employer and each Affiliate of which he/she is an officer or director, if any.

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2.3 Location. The Employee’s primary place of employment hereunder shall be as set forth in Exhibit B.

3. Compensation and Benefits. The compensation and benefits payable and provided to the Employee under this
Agreement shall constitute the full consideration to be paid to the Employee for all services to be rendered by the
Employee to the Employer and its Affiliates in all capacities.

3.1 Base Salary. During the first year of this Agreement, the Employee will be paid an annual salary as
set forth on Exhibit B (“Base Salary”), payable in periodic installments according to the Employer’s customary payroll
practices. In subsequent years, Base Salary may be increased taking into account Employee’s performance, company
operating results, and industry practices.

3.2 Annual Bonus. During the term of this Agreement, the Employee shall be eligible to participate in an
annual bonus plan. The bonus plan and any amounts payable thereunder may take into consideration personal performance
and contribution, operational and financial results, and other achievements attributable to Employee’s accomplishments
(“Bonus”). The bonus plan applicable to Employee under this Agreement is as described in Exhibit B.

3.3 Business Expenses. In accordance with the rules and policies that the Employer may establish from
time to time, the Employer shall reimburse the Employee for business expenses reasonably incurred by him/her in the
performance of his/her duties hereunder in accordance with the Employer’s documentation guidelines as may be in effect
from time to time, provided that in no event will such reimbursement be made later than the calendar year following the
calendar year in which the expenses are incurred.

3.4 Vacation. The Employee shall be entitled to the vacation period per calendar year as set forth on
Exhibit B (prorated for less than a full year). Unused vacation time not to exceed an aggregate of Two (2) weeks for
all prior years may be accumulated or carried over from year to year. The Employee shall not be entitled to any
compensation for unused vacation time except as provided in Section 4.

3.5 Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office,
furnishings, other appointments, and secretarial or other assistants as Employer shall determine are reasonably
necessary to perform the Employee’s duties and obligations as set forth herein and comparable to other similarly
situated employees of the Employer and its Affiliates.

3.6 Other. Additional compensation and benefits to be paid by Employer to the Employee are set forth on
Exhibit B.

4. Termination.

4.1 Death; Disability. This Agreement will terminate automatically upon the death or Disability of the
Employee.

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4.2 Termination Notice. Any termination of the Employee’s employment other than a termination pursuant to
Section 4.1 hereof shall be by written notice to the other party, indicating the specific termination provision in this
Agreement relied upon, if any, and setting forth in reasonable detail the facts and circumstances claimed to provide a
basis for the termination of the Employee’s employment under the provision so indicated. The date of the Employee’s
termination of employment shall be specified in such notice; provided, however, that such date may not be earlier than
any applicable cure periods as set forth herein and, if a termination is being effected by the Employee for any reason,
such date shall in any event not be less than one hundred and twenty (120) days from the date the written notice is
given to the Employer (the “Required Notice”), during which period Employee shall continue to perform in accordance
with this Agreement unless such performance or notice period is waived by the Employer by written notice to the
Employee. Failure to provide the Required Notice or to perform in accordance with in this Agreement during this period
shall be deemed a material breach of this Agreement by the Employee.

4.3 Termination Pay. Upon termination of the Employee’s employment, the Employer will be obligated to pay
or provide the Employee or the Employee’s estate, as the case may be, only such compensation and Benefits as are
provided in this Section 4.3.

(a) Termination by the Employer for Cause; Resignation of the Employee without Good Reason or Required
Notice. If (i) the Employer terminates the Employee’s employment for Cause; (ii) the Employee terminates his/her
employment for any reason other than Good Reason; or (iii) the Employee terminates his/her employment for any reason
without the Required Notice, then: the Employee shall be entitled to receive the Accrued Obligations from the Employer,
payable to Employee within thirty (30) Business Days after the date of termination. Except as specifically provided
herein, the Employee shall not be entitled to any other payments or Benefits pursuant to this Agreement.

(b) Termination due to Disability or upon Death. If the Employee’s employment is terminated due to
Disability or upon the Employee’s death, the Employee or the Employee’s estate, as the case may be, shall be entitled
to receive from the Employer the sum of the Accrued Obligations, payable to Employee or Employee’s legal representative
within thirty (30) Business Days after the date of termination.

(c) Termination by the Employee due to Good Reason or after a Change of Control or by the Employer without
Cause. If after the first annual anniversary of this Agreement, the Employee’s employment is terminated by the
Employer without Cause or by the Employee for Good Reason or by the Employee within six months immediately following a
Change of Control, the Employee shall be entitled to receive from the Employer the Termination Payment. If during the
first year of this Agreement, the Employee’s employment is terminated by the Employer without Cause or by the Employee
for Good Reason or by the Employee within six months immediately following a Change of Control, the Employer shall pay
the Employee a severance equal to 6 months of base salary.

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4.4 Payment. Any termination or severance payment to Employee pursuant to Section 4.3 shall be payable by
Employer in accordance with its usual payroll practices, less standard deductions and withholdings, all as if Employee
remained active on Employer’s payroll, except for any amounts representing bonus payments (which shall be payable over
the same period), which payment shall be payable to Employee in cash or stock at Employer’s discretion, subject to
receipt of the release and waiver required by Section 4.5 and to the provisions of Section 4.6.

4.5 Release and Waiver. Notwithstanding anything in Section 4.3 to the contrary, the Employee shall not
be entitled to any payment or Benefit pursuant to Section 4.3, except for Accrued Obligations as required by law,
unless the Employee has delivered to the Employer a general release, signed and in a form reasonably acceptable to the
Employer, that releases the Employer and its Affiliates, and all their respective officers, directors, employees, and
agents from any and all claims of any kind that the Employee may have arising out of the Employee’s relationship with
the Employer or any of its Affiliates or the termination of employment, but excluding any claims arising under this
Agreement, and such release has become irrevocable by no later than the date which is 60 days following the date of
termination.

(a) 4.6 Six-Month Waiting Period for Distributions Upon Separation From Service. To the extent required
by Section 409A of the Internal Revenue Code of 1986 (as amended) (the “Code”), amounts that would otherwise be payable
under this Section 4 during the six-month period immediately following the Employee’s termination, shall instead be
paid on the first business day after the expiration of such six-month period, plus interest thereon, at a rate equal to
the applicable Federal short-term rate (as defined in Section 1274(d) of the Code) for the month in which such date of
termination occurs from the respective dates on which such amounts would otherwise have been paid until the actual date
of payment. In no event will any severance payments be made hereunder, unless the relevant termination of employment
constitutes “separation from service” under Section 409A.

5. Non-Competition and Non-Interference.

5.1 Acknowledgements. The Employee acknowledges that (a) the services to be performed by him/her under
this Agreement are of a special, unique, unusual, extraordinary, and intellectual character and (b) the provisions of
this Section 5 are reasonable and necessary to protect the Confidential Information, goodwill, and other business
interests of the Employer and its Affiliates.

5.2 Covenants of the Employee. The Employee covenants that he/she will not, directly or indirectly, and
except as specifically provided on Exhibit B of this Agreement:

(a) during the Non-Compete Period, without the express prior written consent of the Board of Directors, as owner,
officer, director, employee, stockholder, principal, consultant, agent, lender, guarantor, cosigner, investor, or
trustee of any corporation, partnership, proprietorship, joint venture, association, or any other entity of any nature,
engage, directly or indirectly, in the Business in any state in the United States or in any country in which the
Employer or any of its Affiliates is conducting Business activities or has conducted Business activities in the twelve
(12) months prior to termination, provided however, that the Employee may purchase or otherwise acquire for passive
investment up to three percent (3%) of any class of securities of any such enterprise under Section 12(g) of the
Securities Exchange Act of 1934;

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(b) whether for the Employee’s own account or for the account of any other person at any time during his/her
employment with the Employer or its Affiliates (except for the account of the Employer and its Affiliates) and the
Non-Compete Period, solicit from any person or entity that is a customer of the Employer Business of the same or
similar type being carried on by the Employer or its Affiliates, whether or not the Employee had personal contact with
such person or entity during the Employee’s employment with the Employer;

(c) whether for the Employee’s own account or the account of any other person and at any time during his/her
employment with the Employer or its Affiliates and the Non-Compete Period, (i) solicit, employ, or otherwise engage as
an employee, independent contractor, or otherwise, any person who is an employee of the Employer or an Affiliate, or in
any manner induce, or attempt to induce, any employee of the Employer or its Affiliates to terminate his/her employment
with the Employer or its Affiliate; or (ii) interfere with the Employer’s or its Affiliate’s relationship with any
person or entity that, at any time during the Employment Period, was an employee, contractor, supplier, or customer of
the Employer or its Affiliate, provided however, that nothing herein shall prevent the Employee from offering
employment to, or employing or otherwise engaging, any person who responds to an advertisement directed to the general
public, or some segment thereof, and not specifically to such person; or

(d) at any time after the termination of his/her employment, disparage the Employer or its Affiliates or any
shareholders, directors, officers, employees, or agents of the Employer or any of its Affiliates, so long as the
Employer does not disparage the Employee; provided, however, that notwithstanding the foregoing, paragraphs (a) and (b)
of this Section 5.2 shall not apply if the Employee’s employment is terminated pursuant to Section 4.3(c) hereof. If
any covenant in this Section 5.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be
considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic
area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding, and enforceable against the Employee. The Employee hereby agrees
that this covenant is a material and substantial part of this Agreement and that: (i) the geographic limitations are
reasonable; (ii) the term of the covenant is reasonable; and (iii) the covenant is not made for the purpose of limiting
competition per se and is reasonably related to a protectable business interest of the Employer. The period of time
applicable to any covenant in this Section 5.2 will be extended by the duration of any violation by the Employee of
such covenant.

6. Non-Disclosure Covenant

6.1 Acknowledgments by the Employee. The Employee acknowledges that (a) the Employee will be afforded
access to Confidential Information; (b) public disclosure of such Confidential Information would have an adverse effect
on the Employer and its Affiliates and its business; and (c) the provisions of this Section 6 are reasonable and
necessary to prevent the improper use or disclosure of Confidential Information.

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6.2 Covenants of the Employee. The Employee covenants as follows:

(a) Confidentiality. During and after his/her employment with the Employer and its Affiliates, the
Employee will hold in confidence the Confidential Information and will not disclose such Confidential Information to
any person other than in connection with the performance of his/her duties and obligations hereunder, except with the
specific prior written consent of the Board of Directors; provided, however, that the parties agree that this Agreement
does not prohibit the disclosure of Confidential Information where applicable law requires in response to subpoenas
and/or orders of a governmental agency or court of competent jurisdiction. In the event that the Employee is requested
or becomes legally compelled under the terms of a subpoena or order issued by a court of competent jurisdiction or by a
governmental body to disclose Confidential Information, the Employee agrees that he/she will (i) immediately provide
the Employer with written notice of the existence, terms, and circumstances, surrounding such request(s) so that the
Employer may seek an appropriate protective order or other appropriate remedy, (ii) cooperate with the Employer in its
efforts to decline, resist, or narrow such requests, and (iii) if disclosure of such Confidential Information is
required in the opinion of counsel, exercise reasonable efforts to obtain an order or other reliable assurance that
confidential treatment will be accorded to such disclosed information.

(b) Trade Secrets. Any and all trade secrets of the Employer and its Affiliates will be entitled to all
the protections and benefits under the federal and state trade secret and intellectual property laws and any other
applicable law. If any information that the Employer or any of its Affiliates deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for the purposes of this Agreement, so long as it otherwise meets
the definition of Confidential Information. The Employee hereby waives any requirement that the Employer or any of its
Affiliates submit proof of the economic value of any trade secret or post a bond or other security.

(c) Removal. The Employee will not remove from the premises of the Employer or any of its Affiliates
(except to the extent such removal is for purposes of the performance of the Employee’s duties at home or while
traveling, or except otherwise specifically authorized by the Employer or the applicable Affiliate) any document,
record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any
other form belonging to the Employer or any of its Affiliates or used in the business of the Employer or of any of its
Affiliates (collectively, the “Proprietary Items”). All of the Proprietary Items, whether or not developed by the
Employee, are the exclusive property of the Employer or its applicable Affiliate. Upon termination of his/her
employment, or upon the request of the Employer during the Employment Period, the Employee will return to the Employer
all of the Proprietary Items and Confidential Information in the Employee’s possession or subject to the Employee’s
control, and the Employee shall not retain any copies, abstracts, sketches, or other physical embodiments in electronic
form or otherwise, of any such Proprietary Items or Confidential Information.

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(d) Development of Intellectual Property. Any and all writings, inventions, improvements, plans, designs,
architectural work papers, drawings, processes, procedures, and/or techniques (“Intellectual Property”) which the
Employee (i) made, conceived, discovered, or developed, either solely or jointly with any other person or persons, at
any time when the Employee was an employee of the Employer or any of its Affiliates whether pursuant to this Agreement
or otherwise, whether or not during working hours, and whether or not at the request or upon the suggestion of the
Employer or any of its Affiliates, which relate to or were useful in connection with any business now or hereafter
carried on or contemplated by the Employer or any of its Affiliates, including developments or expansions of its fields
of operations, or (ii) may make, conceive, discover, or develop, either solely or jointly with any other person or
persons, at any time when the Employee is an employee of the Employer or its Affiliates, whether or not during working
hours and whether or not at the request or upon the suggestion of the Employer or any of its Affiliates, which relate
to or are useful in connection with any business now or hereafter carried on or contemplated by the Employer or any of
its Affiliates, including developments or expansions of its present fields of operations, shall be the sole and
exclusive property of the Employer and its Affiliates. The Employee shall make full disclosure to the Employer of all
such Intellectual Property and shall do everything necessary or desirable to vest the absolute title thereto in the
Employer. The Employee shall write and prepare all specifications and procedures regarding such Intellectual Property
and otherwise aid and assist the Employer so that the Employer can prepare and present applications for copyright,
patent, or trademark protection therefor and can secure such copyright, patent, or trademark wherever possible, as well
as reissues, renewals, and extensions thereof, and can obtain the record title to such copyrights, patents, or
trademarks so that the Employer or its designated Affiliate shall be the sole and absolute owner thereof in all
countries in which it may desire to have copyright, patent, or trademark protection. The Employee shall not be
entitled to any additional or special compensation or reimbursement regarding any and all such Intellectual Property.

7. General Provisions of Sections 5 and 6.

7.1 Injunctive Relief and Additional Remedy. The Employee acknowledges that the injury that would be
suffered by the Employer and its Affiliates as a result of a breach of the provisions of Sections 5 and 6 of this
Agreement would be irreparable and that an award of monetary damages to the Employer for such a breach may be an
inadequate remedy. Consequently, the Employer will have the right, in addition to all other rights, to seek injunctive
relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this
Agreement. The Employee waives any requirement that the Employer secures or posts any bond in conjunction with any
such remedies. The Employee further agrees to and hereby does submit to in personam jurisdiction before each and every
court for that purpose. Without limiting the rights of the Employer or of any of its Affiliates under this Section 7
or any other remedies available to the Employer or its Affiliates, if the Employee breaches any other provisions of
Sections 5 and 6 and such breach is proven in a court of competent jurisdiction, the Employer will have the right to
cease making any payments or providing Benefits otherwise due to the Employee under this Agreement.

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7.2 Covenants of Sections 5 and 6 are Essential and Independent Covenants. The covenants of the Employee
in Sections 5 and 6 hereof are essential elements of this Agreement, and without the Employee’s agreement to comply
with such covenants, the Employer would not have entered into this Agreement or continued the employment of the
Employee. The Employer and the Employee have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the
business conducted by the Employer and its Affiliates. In addition, the Employee’s covenants in Sections 5 and 6 are
independent covenants and the existence of any claim by the Employee against the Employer under this Agreement or
otherwise will not excuse the Employee’s breach of any covenant in Sections 5 or 6. Notwithstanding anything in the
Agreement to the contrary, the covenants and agreements of the Employee in Sections 5 and 6 shall survive the
termination of the Agreement, except as provided below.

8. General Provisions.

8.1 Indemnification. The Employer shall indemnify and hold harmless the Employee to the fullest extent
permitted by applicable law against all costs (including reasonable attorneys’ fees and costs), judgments, penalties,
fines, amounts paid in settlements, interest, and all other liabilities incurred or paid by the Employee in connection
with the investigation, defense, prosecution, settlement, or appeal of any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative and to which the Employee was or is a
party or is threatened to be made a party by reason of the fact that the Employee is or was an officer, employee,
director or agent of the Employer or its Affiliates, including any property owner or condominium association that the
Employee has been asked to serve on by the Employer, or by reason of anything done or not done by the Employee in any
such capacity or capacities, provided that the Employee acted in good faith and in a manner the Employee reasonably
believed to be in or not opposed to the best interests of the Employer or any of its Affiliates, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his/her conduct was unlawful. The Employer also
shall pay any and all expenses (including reasonable attorney’s fees) incurred by the Employee as a result of the
Employee being called as a witness in connection with any matter involving the Employer and/or any of its officers or
directors. Nothing herein shall limit or reduce any rights of indemnification to which the Employee might be entitled
under the organizational documents of the Employer or as allowed by applicable law.

8.2 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative.
Neither the failure nor any delay by either party in exercising any right or privilege under this Agreement will
operate as a waiver of such right or privilege, and no single or partial exercise of any such right or privilege will
preclude any other or further exercise of any right or privilege. To the maximum extent permitted by applicable law,
any claim or right arising out of this Agreement may only be discharged by a waiver or renunciation of the claim or
right in writing signed by the other party.

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8.3 Successors.

(a) This Agreement is personal to the Employee and shall not be assignable by the Employee, other than economic
rights that may be assigned by will or the laws of descent and distribution. This Agreement shall inure to the benefit
of and be enforceable by the Employee’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Employer and its successors and assigns.
Any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially
all of the business and/or assets of the Employer shall perform this Agreement in the same manner and to the same
extent that the Employer would be required to perform it if no such succession had taken place. The Employer agrees to
fully disclose this Agreement and its binding effect to any successor or potential successor and will require any
successor to expressly acknowledge its assumption of this Agreement and such successor’s obligation to perform this
Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such
succession had taken place.

(c) As used in this Agreement, “Employer” shall mean the Employer as defined above and any successor to its
business and/or assets by operation of law or otherwise.

8.4 Notices. All notices, consents, waivers and other communication required under this Agreement must be
in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of delivery), provided that a copy is mailed by certified
mail, return receipt requested, the same day or the next Business Day, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers
set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other
parties):

If to the Employer:

Applied Digital Solutions, Inc.

Digital Angel

Attention: Chairman

490 Villaume Avenue

South St. Paul, MN 55075-2443

Facsimile: 651-455-0217

C.C. General Counsel

If to the Employee:

Mr. Joseph J. Grillo

670 Pequot Avenue

New London, CT  06320

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C.C. Regina Olshan

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, NY 10036

8.5 Entire Agreement; Supersedure. This Agreement, together with the Exhibits attached hereto, contains
the entire agreement between the parties with respect to the subject matter hereof, and expressly terminates, rescinds,
replaces, and supersedes all prior and contemporaneous agreements and understandings, oral or written, between the
parties with respect to the subject matter hereof.

8.6 Governing Law; Submission to Jurisdiction; Mediation.

(a) THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL COURT IN WILMINGTON,
DELAWARE, FOR THE PURPOSES OF ANY PROCEEDINGS ARISING OUT OF THIS AGREEMENT, AND HEREBY WAIVES ALL RIGHTS TO TRIAL BY
JURY AND AGREES THAT ANY PROCEEDING SHALL INSTEAD BE DECIDED BY A JUDGE SITTING WITHOUT A JURY.

(b) Prior to commencement of any legal proceeding or at any time after commencement of any legal proceeding,
Employee agrees that, upon request of Employer, and at the expense of the Employer, any dispute between Employee and
Employer shall be presented for non-binding mediation by a third party mediator. In the event that Employee fails to
comply with his/her obligation to participate in mediation as required herein, such failure shall constitute a breach
of this Agreement by Employee entitling Employer to damages.

8.7 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain in full force and effect, unless the absence
of such invalid or unenforceable provision materially alters the rights or obligations of either party hereto. Any
provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect
to the extent not held invalid or unenforceable, unless the absence of such invalid or unenforceable portion of such
provision materially alters the rights or obligations of either party hereto.

8.8 Tax Withholding and Reporting. The Employer shall withhold from all payments hereunder all applicable
taxes that it is required to withhold with respect to payments and Benefits provided under this Agreement and shall
report all such payments and withholdings to the appropriate taxing authorities as required by applicable law.

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8.9 Amendments and Waivers. This Agreement may not be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing and signed by the Employee and subject to authorization of the
Board of Directors. Any waiver by either party hereto shall be specific to the event and shall not be deemed a waiver
of any other event.

8.10 Survival. The provision of provisions of Sections 4, 5, 6, 7, and 8 shall survive the termination of
this Agreement.

8.11 Counterparts. This Agreement may be executed in any number of counterparts, by original or facsimile
signatures, each of which shall constitute an original and all of which taken together shall constitute one and the
same instrument.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective for all purposes as of the
Effective Date.

	 	 	 
	Lorraine M. Breece
 

	 	Joseph J. Grillo
 
	/s/ Lorraine M. Breece                        

	 	/s/ Joseph J. Grillo                       
	 

	 	 

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Exhibit A

Definitions

“Accrued Obligations” means, at the relevant date, the sum of the following: (i) the Employee’s earned or
accrued, but unpaid, Base Salary through the date of termination of the Employee’s employment; (ii) any Bonus earned or
accrued and vested, but unpaid; (iii) the economic value of any of the Employee’s accrued, but unused, vacation time;
and (iv) any unreimbursed business expenses incurred by the Employee.

“Affiliate” means a person or entity who or which, (i) with respect to an entity, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under common control with, such entity; or (ii)
with respect to the Employee, is a parent, spouse, or issue of the Employee, including persons in an adopted or step
relationship.

“Board of Directors” means the board of directors of Applied Digital Solutions, Inc. .

“Business” means the business in which Applied Digital Solutions, Inc. or any of its subsidiaries is engaged
in at any time during the term of this Agreement.

“Business Day” shall mean any day other than a Saturday, Sunday or bank holiday recognized in St. Paul,
Minnesota.

“Cause” means:

(a) an act of fraud, misappropriation, or personal dishonesty taken by the Employee at the expense of the Employer
or an Affiliate, including, but not limited to, the willful engaging by the Employee in illegal conduct or gross
misconduct, which act in any such case is or reasonably could be injurious to the Employer;

(b) the material violation by the Employee of a material obligation of the Employee under this Agreement,
including but not limited to, the willful or continued failure of the Employee to perform substantially the Employee’s
duties with the Employer or its Affiliates (other than such failure resulting from Disability) which violation or
failure is not remedied within ten (10) Business Days after receipt of written notice or demand for substantial
performance or corrective action is delivered to the Employee by the Board of Directors which identifies the manner in
which the Board of Directors believes that the Employee has not substantially performed the Employee’s duties or has
violated an obligation under this Agreement;

(c) the conviction, or plea of nolo contendere, of the Employee for any felony or any misdemeanor involving moral
turpitude;

(d) a material violation of any express direction of the Board of Directors or a material violation of any rule,
regulation, policy or plan established or approved by the Board of Directors from time to time regarding the conduct of
the Employer’s employees and/or its business which, in any such case, is or reasonably could be injurious to the
Employer; or

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(e) failure of the Employee to provide the Required Notice to Employer and to substantially comply with all
requirements of Section 4.2 of this Agreement.

	1.1.	 	“Change of Control” means any bona fide, third-party change of control as follows:

	 	(a)	 	any person or entity (or persons or entities acting as a group) other than one of its
Affiliates acquires stock of Employer that, together with stock then held by such person, entity or
group, results in such person, entity or group holding more than fifty percent (50%) of the total
combined voting power of all classes of the then issued and outstanding securities of the Employer; or

	 	(b)	 	the sale of all or substantially all of the properties and assets of the Employer to any
person or entity which is not a subsidiary, parent or Affiliate of the Employer.

Notwithstanding the foregoing, the merger between Applied Digital Solutions Inc. and Digital Angel Corporation is
specifically excluded from the definition of Change of Control, and the closing of the merger will not trigger any
Change of Control rights.

“Confidential Information” means any and all intellectual property of the Employer (or any of its Affiliates),
including but not limited to:

(a) trade secrets concerning the business and affairs of the Employer (or any of its Affiliates), product
specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current and planned research development, current and planned manufacturing or
distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market
studies, business plans, computer software and programs (including object code and source code), computer software and
database technologies, systems, structures, and architectures (and related formulae, compositions, processes,
improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any
other information, however documented, that is a trade secret under federal, state or other applicable law; and

(b) information concerning the business and affairs of the Employer (or any of its Affiliates) (which includes
historical financial statements, financial projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials),
however documented; and notes, analysis, compilations, studies, summaries, and other material prepared by or for the
Employer (or any of its Affiliates) containing or based, in whole or in part, on any information included in the
foregoing.

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Notwithstanding the foregoing, Confidential Information shall not include information otherwise lawfully known
generally by or readily accessible to the trade or general public other than by the improper disclosure, directly or
indirectly, by the Employee or an Affiliate of the Employee.

“Disability” means the inability of the Employee, due to the injury, illness, disease, or bodily or mental
infirmity, to engage in the performance of substantially all of the usual duties of employment with the Employer as
contemplated by Section 2.2 herein, such Disability to be determined by the Board of Directors upon receipt and in
reliance on competent medical advice from one or more individuals, selected by the Board of Directors, who are
qualified to give such professional medical advice. The Employee must submit to a reasonable number of examinations by
the medical doctor making the determination of Disability, and the Employee hereby authorizes the disclosure and
release to the Employer of such determination and all supporting medical records. If the Employee is not legally
competent, the Employee’s legal guardian or duly authorized attorney-in-fact will act in the Employee’s stead for the
purposes of submitting the Employee to the examinations, and providing the authorization of disclosure required
hereunder.

It is expressly understood that the Disability of the Employee for a period of one hundred twenty (120) calendar days
or less in the aggregate during any period of twelve (12) consecutive months, in the absence of any reasonable
expectation that his/her Disability will exist for more than such a period of time, shall not constitute a failure by
him/her to perform his/her duties hereunder and shall not be deemed a breach or default and the Employee shall receive
full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of
this Agreement.

“Employment Period” means the term of the Employee’s employment under this Agreement.

“Fiscal Year” means the fiscal year of Employer.

“Good Reason” means:

(a) that without the Employee’s prior written consent and in the absence of Cause, one or more of the following
events occurs:

(i) any material and adverse change in the Employee’s authority, duties, or responsibilities as set forth in
Section 2, including loss of the position and/or titles of President and Chief Executive Officer of the Employer or no
longer reporting directly to the Board of Directors;

(ii) failure by the Employer to comply with and satisfy Section 8.3(b) of this Agreement; or

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(iii) the material violation by the Employer of a material obligation of the Employer under this Agreement, which
violation or failure is not remedied within ten (10) Business Days (or such additional reasonable period of time if
additional time is necessary to remedy) after receipt of written notice or demand for substantial performance or
corrective action is delivered to the Employer by the Employee, delivered as required by this Agreement, which
specifically identifies the manner in which Employee believes that the Employer has not substantially performed the
Employer’s duties or violated an obligation under this Agreement; and

(b) within sixty (60) Business Days of learning of the occurrence of any such event, and in the absence of any
circumstances that constitutes Cause, the Employee terminates employment with the Employer by written notice to the
Employer in the manner required by this Agreement; the date of termination set forth in such notice shall not be less
than thirty (30) days from the date notice is given to Employer as required by Section 4.2 of this Agreement.

“Non-Compete Period” means the period beginning on the Effective Date and ending as set forth in Exhibit B.

“Termination Payment” shall mean a severance payment equal to the sum of one and one-half times (1.5 X) the
Base Salary at the time of the termination plus one and one-half (1.5 X) times ‘Target Bonus’ (as defined in Exhibit B)
at the time of the termination.

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Exhibit B

Employment Agreement Terms

	1.	 	Employment Period. The Employment Period referenced in Section 2.1 of the Agreement shall not be for a
fixed period of time and can be terminated in accordance with the provisions of Section 4.

	2.	 	Position. The Employee will serve as President and CEO of Applied Digital Solutions, Inc. and will
report to the Board of Directors of Applied Digital Solutions, Inc. or its successors. In this capacity,
Employee will have such duties and responsibilities as are reasonably consistent with such position.

	3.	 	Location. The Employee’s primary place of employment hereunder shall be at the office of South St. Paul,
Minnesota and Employer acknowledges that Employee will also work from time to time from his home office in
Connecticut. Employee shall travel to St. Paul, Minnesota, as well as other locations, as necessary to perform
his/her obligations and duties to the Employer. All Employee’s expenses of travel between his home and St. Paul,
Minnesota shall be borne by the Employer.

	4.	 	Base Salary. Employee will be paid an annual salary of three hundred and seventy-five thousand dollars
($375,000), which Base Salary will be reviewed annually during the Employment Period as set forth in Section 3.1
of the Agreement.

	5.	 	Annual Bonus. Employee is eligible to receive an annual bonus, subject to approval of the Board of
Directors or relevant Board Committee, ranging from 0% to 200% of earned base salary based on performance metrics
and goals set forth below and as may be further determined by the Board of Directors. The Employee is considered
to have a ‘Target Bonus’ of 100% of base salary for the purposes of calculating ‘Termination Pay’, severance,
total cash compensation, etc.

	6.	 	Annual Bonus Metrics. Employee’s bonus will determined upon performance in the following areas with
related metrics and goals to be approved by the Board of Directors at the beginning of each performance year:

	 	a.	 	Company and Divisional Revenues

	 	b.	 	Net Income

	 	c.	 	Cash Generation

	 	d.	 	Board Discretion

	 	e.	 	Investment Analyst Coverage

	 	f.	 	Price Per Share

	 	g.	 	Strategic Deals/Partnerships that enhance shareholder value

	 	h.	 	Such other metrics and goals as may be established by the Board of Directors

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In determining the total bonus to be earned, the weight given to the above metrics and goals shall be 50% to
(a) through (c), and 50% to (d) through (h).

	7.	 	Equity Grant. Employee will participate in the Digital Angel Stock Option Plan and will receive, upon
unanimous written consent by the Board of Directors, the issuance of a stock option grant, valid for 10 years, to
purchase 550,000 shares of Applied Digital Solutions, Inc. Stock with a strike price equal to the market value of
the stock as of the close of the date such option grant is approved by the Board. This resolution will be
presented to the Board upon the execution of this agreement. The option will vest ratably over the next five
years. Other terms of such option are set forth in the plan.

The Board of Directors will review Employee’s performance on at least an annual basis and based upon such
review will consider making the Employee additional stock option grants, which, if granted, will have a
strike price equal to the market value of the stock as of the close of the date such option is approved by
the Board. The Board of Directors may conduct an interim performance review in the third or fourth quarter
of 2008 and, in connection therewith, shall have the discretion, but not the obligation, to consider
additional stock option grants to Employee. In the event that stock options may not be available or advisable
for issuance as contemplated by this provision, Employer may grant instead restricted stock, stock
appreciation rights, or other forms of equity incentive compensation as agreed to by the Employee and Company
and having the economically equivalent value to the grant of options as contemplated herein.

All options held by Employee shall become fully vested and exercisable upon any termination of employment
described in Sections 4.3(b) and (c) of the Agreement which occurs at least six months after the Effective
Date, and shall remain exercisable for a period of three years following any such termination (subject to
earlier expiration of the original option term). All options will become vested and exercisable upon a
Change of Control. Upon any termination of employment described in Section 4.3(a) of the Agreement, and upon
any termination of employment within six months following the Effective Date, all unvested options shall
terminate and all vested options shall remain exercisable for a period of 90 days and thereafter terminate.

	8.	 	Non-Compete Exclusion. The non-competition provisions of this Agreement, Section 5.2, shall include
Employee’s activities in all areas, technologies, product lines and market segments in which the Employer is
involved at the time this agreement is terminated.

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	 	a.	 	Non-Compete Period. The non-competition provisions of this Agreement,
Section 5.2, shall specifically prohibit Employee’s activities from the Effective Date through that
date eighteen (18) months from the date this agreement is terminated.

	9.	 	Vacation. Employee shall be entitled to four (4) weeks of vacation per calendar year in accordance with
Section 3.5 of the Agreement.

	10.	 	Notices. Any notices to be given to Employee as set forth in Section 8.4 of the Agreement shall be to
the address and facsimile number set forth in Section 8.4 of the Agreement.

	Initials:	 	 /s/ JJG            Employee
/s/ LMB           Employer

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