Document:

exv10w4

Exhibit 10.4

May 15, 2008

William J. Caragol

c/o VeriChip Corporation

1690 South Congress Avenue, Suite 200

Delray Beach, Florida 33445

Dear Bill:

          VeriChip Corporation, a Delaware corporation (the “Company”), desires to retain your executive
services for the period following the Company’s sale of Xmark Corporation, a corporation governed
under the laws of Canada and the Company’s wholly-owned subsidiary (“Xmark”), to The Stanley Works,
a Connecticut corporation (“Stanley”) (such sale being referred to herein as the “Xmark
Transaction”). Your services will include service as the Company’s President and Chief Financial
Officer and any other responsibilities that the Company’s Board of Directors and you determine to
be reasonable in the future.

          All of the compensation-related plans (other than that certain VeriChip Corporation Executive
Management Change in Control Plan among the Company, you, Daniel A. Gunther and Michael J. Feder,
dated March 2, 2007 (the “Change in Control Plan”) currently in place between you and the Company
will remain the same, except as noted below.

	 	1.	 	Salary – Your salary will remain $203,500, paid on a bi-weekly basis, subject to
normal tax withholdings.
	 
	 	2.	 	Term – This letter agreement will continue on a month-to-month basis, and either
party may terminate this letter agreement upon 30 days’ prior written notice to the other
party.
	 
	 	3.	 	Incentive Compensation – As incentive for achieving the maximum distribution to
stockholders of the Company, you will receive a bonus of $50,000 if the total distributed
cash or equity value to such stockholders is at least $21.5 million. For all amounts over
$21.5 million, you will receive a cash bonus equal to 4% of the amount that exceeds $21.5
million. For example, if the total cash or equity value distributed to stockholders of
the Company is $25.25 million, you will receive $200,000 (i.e., $50,000 + $150,000). Your
rights and interest in the incentive plan set forth in this Section 3 will be absolute,
regardless of your employment status at the time of the final cash or equity distribution,
provided that the Company does not terminate this letter agreement for cause, with said
cause being defined as a conviction of a felony or your being prevented from providing
services under this letter agreement as a result of your violation of any law, regulation
and/or rule. Notwithstanding anything herein to the contrary, the incentive compensation
provided under this Section 3 shall not exceed US$200,000 in the aggregate.
	 
	 	4.	 	Benefits – All health benefits that are currently in place will remain in effect
throughout the term of your employment (whether full-time or part-time). In the event
that this letter agreement is terminated by the Company at any time, your health benefits
will be paid for by the Company until the earlier to occur of (a) the expiration of the
three-month period following the end of your full-time or part-time employment, (b) your
employment by a company that provides health benefits or (c) the date the escrow
arrangement in connection with the Xmark Transaction is terminated.
	 
	 	5.	 	Termination – In the event that this letter agreement is terminated by the Company at
any time, then the Company will pay three months of continuing salary as severance,
payable on or before the 30th day of the Company’s termination notice.
	 
	 	6.	 	Equipment – You will be entitled to keep the laptop, printer and monitor that you
currently use. All Company files on your laptop are the property of the Company and shall
be returned to the Company upon the termination of this letter agreement.

 

	 	7.	 	Waiver/Release – You hereby make the following promises:

	 	a.	 	Upon the signing of the stock purchase agreement in connection with
the Xmark Transaction, you agree that you hereby waive any right you have to
recover any severance payment, change of control payment, bonus or success fee, or
constructive termination payment under any other agreement or plan of the Company,
other than (i) as provided herein and (ii) as contemplated under the Change in
Control Plan. You acknowledge that this letter agreement supersedes any
entitlement you may have had to any severance or change-of-control payments, bonus
or success fees, or constructive termination payments, other than the amount due
you under the Change in Control Plan arising out of the Xmark Transaction. The
Company acknowledges the $1,131,400 liability to you under the Change in Control
Plan, resulting from the Xmark Transaction. Such payment will be made to you
under the terms of the Change in Control Plan.
	 
	 	b.	 	Simultaneous with and as a condition to the payment of the amount due
you under the Change in Control Plan, you hereby agree as follows:

(i) You, on behalf of yourself and each of your personal and legal
representatives, heirs, devisees, executors, successors and assigns, hereby
acknowledge full and complete satisfaction of, and fully and forever waive,
release, acquit, and discharge the Company and/or any of its past or present
members, officers, directors, affiliates (excluding Applied Digital Solutions,
Inc. d/b/a Digital Angel), employees, stockholders, associates, owners,
partners, accountants, representatives, lawyers, agents, parents, subsidiaries,
predecessors, successors and assigns, and each of such entities’ members,
officers, directors, affiliates, employees, stockholders, associates, owners,
partners, accountants, representatives, lawyers and agents, and their
respective parents, subsidiaries, predecessors, successors, assigns, estates,
personal representatives, beneficiaries and heirs, and all persons acting by,
through, under, or in concert with them, or any of them, whether or not they
are specifically referred to therein (hereinafter collectively referred to as
the “Released Parties”), from any and all claims, causes of action, grievances,
demands, rights, liabilities, damages of any kind, obligations, costs,
expenses, liabilities, and debts, of every kind and nature whatsoever, whether
based on statute, tort, contract, common law, equity, or other theory of
recovery, whether known or unknown, suspected or unsuspected, or fixed or
contingent, which you hold or at any time previously held against the Company
arising out of or relating to your employment with the Company prior to the
closing of the Xmark Transaction, under the terms set forth within the letter
agreement from the Company to you, as agreed to and accepted on August 2, 2006
(the “Offer Letter”), or ever had or presently have against the Released
Parties, or any of them, for any reason whatsoever during the time period
preceding the closing of the Xmark Transaction, including, but not limited to,
any claims in your capacity as an officer or stockholder of the Company, or as
a current or former employee, officer or stockholder of any of the Released
Parties, with the exception of claims challenging the validity of, or alleging
breaches of, this letter agreement. The general release contemplated within
this Section 7 specifically includes, but is not limited to, any further
obligation under the Change in Control Plan, other than the amount due you upon
the closing of the Xmark Transaction. Notwithstanding the foregoing, you
retain all rights conferred to you under this letter agreement, as well as the
restricted stock award agreements between the Company and you, dated March 2,
2007 and January 24, 2008, including any claims in connection therewith.

(ii) You hereby agree not to sue or pursue any claim or action against the
Company with respect to any cause of action released in this Section 7. You
agree that, if any such claim referenced herein is filed, pursued or otherwise
prosecuted, you waive your right to relief from such claim, including the right
to damages, attorneys’ fees, costs, and any and all other relief, whether legal
or equitable, sought in connection with such claim. You further agree that, if
you, or anyone on your behalf, file, pursue or otherwise prosecute any such
claim, you

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shall be liable for the payment of all damages and costs, including
attorneys’ fees,
incurred by the Company in connection with such claim, and the Company shall no
longer be obligated to make any severance or constructive termination payment
not already made to you, except as contemplated under this letter agreement.

(iii) You represent and warrant to the Released Parties that there has been no
assignment or other transfer of any interest in any claim by you, with respect
to any of the claims set forth in Section 7(b)(i), that you may have against
the Released Parties or any of them.

(iv) You hereby agree that the general release contained in this Section 7 is
intended to cover all matters related to your employment with the Company prior
to the closing of the Xmark Transaction, including, without limitation, any and
all payments under the Offer Letter and the Change in Control Plan, including
any severance payment, change of control payment, bonus or success fee, or
constructive termination payment under any other agreement or plan of the
Company.

(v) No reference within the general release contained in this Section 7 to any
specific claim, statute or obligation is intended to limit the scope of the
general release, and, notwithstanding any such reference, the general release
contained in this Section 7 will be effective as a full and final bar to all
claims that are released herein.

(vi) The Company expressly acknowledges that the foregoing releases do not
release the Company of any obligations to pay the amounts due to you under
either this letter agreement or the Change in Control Plan.

	 	c.	 	You acknowledge that the performance of your obligations under this
letter agreement, including, but not limited to, your agreement to the terms of
the general release contained within this Section 7, is an express condition to
the Company’s obligations to pay any amounts due to you under either (i) this
letter agreement or (ii) the Change in Control Plan.

	 	8.	 	Governing Law and Venue – The internal substantive laws of the State of Florida,
excluding its conflict and choice of law principles, shall govern all questions related to
the execution, construction, validity, interpretation and performance of this letter
agreement and to all other issues and claims arising under or related to it. Any action
to enforce the terms of this letter agreement shall be brought in a court of competent
jurisdiction located in West Palm Beach, Florida.
	 
	 	9.	 	Severability – The provisions of this letter agreement are fully severable.
Therefore, if any provision of this letter agreement is for any reason determined to be
invalid or unenforceable, such invalidity or unenforceability will not affect the validity
or enforceability of any of the remaining provisions. Furthermore, any invalid or
unenforceable provisions will be modified or restricted to the extent, and in the manner,
necessary to render the same valid and enforceable, or, if such provision cannot under any
circumstances be modified or restricted, it will be excised from the agreement without
affecting the validity or enforceability of any of the remaining provisions.
	 
	 	10.	 	Entire Agreement – This letter agreement sets forth the entire agreement between the
parties hereto, and supersedes any prior agreements between the parties hereto pertaining
to the subject matter of this letter agreement, including the Offer Letter.
	 
	 	11.	 	No Representations – The parties to this letter agreement acknowledge that, except as
set forth herein, no representations of any kind or character have been made by any other
party or the party’s agents, representatives, or attorneys to induce the execution of this
letter agreement. It is further understood and agreed that you have not relied upon any
advice 

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	 	 	 	whatsoever from the Company or the Company’s attorneys in agreeing to enter into
this letter
agreement.

	 	12.	 	No Modification and Waiver – No modification or waiver of the terms of this letter
agreement shall be effective, unless it appears in a writing signed by both parties to
this letter agreement.
	 
	 	13.	 	Interpretation of Agreement – The language of all parts in this letter agreement
shall be construed as a whole, according to fair meaning, and not strictly for or against
any party to this letter agreement notwithstanding any later-claimed ambiguities.
	 
	 	14.	 	Successors and Assigns – This letter agreement will be binding upon, and will inure
to the benefit of, you and your personal and legal representatives, heirs, devisees,
executors, successors, and assigns, and the Company and its successors and assigns.
	 
	 	15.	 	Counterparts – This letter agreement may be executed in one or more counterparts,
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 originals thereof, except that any party to this letter
agreement has the right to insist on receipt of the original signature of the other party
before complying with its own obligations under this letter agreement.
	 
	 	16.	 	Agreement May Become Null and Void – If applicable, this letter agreement shall
become null and void and have no further force or effect upon the earlier to occur of (i)
the purchase agreement in connection with the Xmark Transaction not being executed by the
parties thereto by May 23, 2008 or (ii) the closing date of the Xmark Transaction not
occurring on or prior to December 31, 2008, under either of which circumstances the
current terms of your employment shall remain in full force and effect without
modification.

[remainder of page intentionally left blank; signature page follows]

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	Sincerely,

	 	 	 	Accepted by:	 	 
	 
	 	 	 	 	 	 
	VERICHIP CORPORATION
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Scott R. Silverman

	 	 	 	/s/ William J. Caragol	 	 
	 

Scott R. Silverman

	 	 
	 	 

William J. Caragol
	 	 
	Chairman and Chief Executive Officer

	 	 	 	President and Chief Financial Officer	 	 

5exv10w1

Exhibit
10.1

EXECUTION VERSION

VOTING AGREEMENT

          This VOTING AGREEMENT, dated as of May 15, 2008 (this “Agreement”), is made by and
between Applied Digital Solutions, Inc., a Delaware Corporation (“Applied Digital”) and The
Stanley Works, a Connecticut corporation (“Purchaser”).

RECITALS

          WHEREAS, concurrently with the execution and delivery of this Agreement, VeriChip Corporation,
a Delaware corporation (“Seller”), and Purchaser are entering into a Stock Purchase
Agreement, dated as of the date hereof (as amended from time to time, the “Purchase
Agreement”), which provides, among other things, for Purchaser to acquire 100% of the
outstanding capital stock of X-Mark Corporation (the “Company”), a corporation governed
under the laws of Canada and a wholly owned subsidiary of Seller (the transactions contemplated by
the Purchase Agreement and this Agreement, the “Transactions”);

          WHEREAS, as a condition to entering into the Purchase Agreement, Purchaser has required that
Applied Digital enter into this Agreement, and Applied Digital desires to enter into this Agreement
to induce Purchaser to enter into the Purchase Agreement; and

          WHEREAS, as of the date hereof, Applied Digital is the legal, record and Beneficial Owner (as
defined below) of 5,355,556 shares of common stock, par value $0.01 per share, of Seller
(“Shares”) (together with such additional Shares as they become Beneficially Owned by
Applied Digital after the date hereof, the “Owned Shares”), which Shares are all issued and
outstanding and represent 48.6% of the outstanding Shares and voting power of the outstanding
capital stock of Seller.

          NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements
set forth herein, the parties hereto agree as follows:

     1. Certain Definitions. Capitalized terms used but not defined in this Agreement
shall have the meanings given to such terms in the Purchase Agreement. In addition, for purposes
of this Agreement:

          “Affiliate” shall have the meaning set forth in the Purchase Agreement, except that,
for purposes of this Agreement, with respect to Applied Digital, “Affiliate” shall not include
Seller or any of the Persons that are directly or indirectly controlled by Seller.

          “Agreement” shall have the meaning set forth in the opening paragraph.

          “Applied Digital” shall have the meaning set forth in the opening paragraph.

          “Beneficially Owned” or “Beneficial Ownership” shall have the meaning given to
such term in Rule 13d-3 under the Exchange Act. “Beneficial Owner” shall mean, with
respect to any securities, a Person who has Beneficial Ownership of such securities.

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          “Company” shall have the meaning set forth in the recitals.

          “Currently Owned Shares” shall have the meaning set forth in Section 7(c).

          “Owned Shares” shall have the meaning set forth in the recitals.

          “Pledge” shall mean the pledge of Company Shares by Applied Digital under (i) the
Amended and Restated Stock Pledge Agreement, dated as of December 28, 2007, among Applied Digital,
Laurus Master Fund, Ltd., Valens Offshore SPV I, Ltd., Valens U.S. SPV I, LLC, PSource Structured
Debt Limited and Computer Equity Corporation, as amended, modified, restated and/or superseded from
time to time and (ii) the Amended and Restated Stock Pledge Agreement dated as of December 28, 2007
among Applied Digital, Kallina Corporation, Valens U.S. SPV I, LLC, Valens Offshore SPV I, Ltd.,
Valens Offshore SPV II, Corp., PSource Structured Debt Limited, Computer Equity Corporation,
Digital Angel Corporation and Digital Angel Technology Corporation, as amended, modified, restated
and/or superseded from time to time.

          “Purchase Agreement” shall have the meaning set forth in the recitals.

          “Purchaser” shall have the meaning set forth in the opening paragraph.

          “Recommendation Change” means if (i) the Board of Directors of Seller has received a
Takeover Proposal that such Board determines, in good faith by resolution duly adopted, constitutes
a Superior Proposal and (ii) the Board determines (after receiving the advice of its outside
counsel) in good faith by resolution duly adopted that it is reasonably necessary to withdraw or
modify the Board Recommendation to comply with its fiduciary duties to the stockholders of Seller
under applicable Law.

          “Seller” shall have the meaning set forth in the recitals.

          “Shares” shall have the meaning set forth in the recitals.

          “Transactions” shall have the meaning set forth in the recitals.

          “Transfer” shall mean, with respect to a security, the sale, transfer, pledge,
hypothecation, encumbrance, assignment or disposition of such security, rights relating thereto or
the Beneficial Ownership of such security or rights relating thereto, the offer to make such a
sale, transfer, pledge, hypothecation, encumbrance, assignment or disposition, and each option,
agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing.
As a verb, “Transfer” shall have a correlative meaning.

     2. No Disposition or Solicitation.

          (a) Except as set forth in Section 5 of this Agreement, Applied Digital undertakes that
Applied Digital shall not, except as provided under the Pledge, (i) Transfer or agree to Transfer
any Owned Shares or (ii) grant or agree to grant any proxy or power-of-

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attorney with respect to any Owned Shares. The restrictions in this Section 5 shall remain
valid until this Agreement terminates pursuant to Section 9 hereof.

          (b) Applied Digital undertakes that, in its capacity as a stockholder of the Company and
except as contemplated by Section 10, Applied Digital shall not, and shall cause its investment
bankers, financial advisors, attorneys, accountants and other advisors, agents and representatives
not to, directly or indirectly solicit, initiate, facilitate or encourage any inquiries or
proposals from, discuss or negotiate with, or provide any non-public information to, any Person
relating to, or otherwise facilitate, any Takeover Proposal. Notwithstanding the foregoing, if the
Board of Directors of Seller determines, after consultation with outside counsel, in good faith by
resolution duly adopted that an unsolicited written Takeover Proposal received after the date
hereof other than in breach of Section 5.4 of the Purchase Agreement leads to or is reasonably
likely to lead to a Superior Proposal and the Board of Directors of Seller determines that it is
reasonably necessary to take the actions described in clauses (A) and (B) of Section 5.4(a) of the
Purchase Agreement to comply with its fiduciary duties to the stockholders of Seller under
applicable Law, Applied Digital (and its investment bankers, financial advisors, attorneys,
accountants and other advisors, agents and representatives) shall be entitled (for so long as, to
the knowledge of Applied Digital, such Takeover Proposal remains outstanding and such determination
of the Board of Directions of Seller remains applicable and has not been reversed by a subsequent
determination) to participate in discussions and negotiations with the Person making such Takeover
Proposal (and its representatives). Applied Digital shall keep Purchaser reasonably apprised on a
reasonably prompt basis as to the status of any such discussions and/or negotiations and shall
promptly (within 48 hours) provide to Purchaser copies of any material written communications
delivered or received by Applied Digital in connection with such discussions and/or negotiations.

     3. Stockholder Vote. Applied Digital undertakes that (a) unless there shall have been
a Recommendation Change, at such time as the Seller conducts a meeting of, or otherwise seeks a
vote or consent of, its stockholders for the purpose of approving the Purchase Agreement and/or any
of the Transactions contemplated thereby, Applied Digital shall vote, or provide a consent with
respect to, all then-outstanding Shares Beneficially Owned by Applied Digital in favor of the
Purchase Agreement and the Transactions and (b) Applied Digital shall (at each meeting of
stockholders and in connection with each consent solicitation) vote all then-outstanding Shares
Beneficially Owned by Applied Digital against, and not provide consents to, (i) any and all
Takeover Proposals, and (ii) any and all actions that would reasonably be expected to delay,
prevent or frustrate the Transactions or the transactions contemplated by this Agreement or the
satisfaction of any of the conditions set forth in Article VI of the Purchase Agreement. Without
limiting the foregoing and subject to Section 9 hereto, it is understood that except as and to the
extent set forth in clause (a) above, the obligations under this Section 3 shall not be affected by
any Adverse Recommendation Change or other recommendation or position of the Seller’s Board of
Directors.

     4. Reasonable Efforts to Cooperate.

          (a) Applied Digital hereby consents to the publication and disclosure in the Proxy Statement
(and, as and to the extent otherwise required by securities Laws or the SEC or

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securities authorities, any other documents or communications provided by Seller, Purchaser or
the Company to any Governmental Entity or to securityholders of the Seller) of Applied Digital’s
identity and Beneficial Ownership of the Owned Shares and the nature of Applied Digital’s
commitments, arrangements and understandings under and relating to this Agreement and, if deemed
appropriate by Seller, a copy of this Agreement. Applied Digital will promptly provide any
information reasonably requested by the Company, Seller or Purchaser for any regulatory application
or filing made or approval sought in connection with the Transactions (including filings with the
SEC).

     5. Irrevocable Proxy.

          (a) In furtherance of the agreements contained in Section 3 of this Agreement, Applied Digital
hereby irrevocably grants to, and appoints, each of Purchaser and each of the executive officers of
Purchaser, in their respective capacities as officers of Purchaser, as the case may be, and any
individual who shall hereafter succeed to any such office of Purchaser, and each of them
individually, Applied Digital’s proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of Applied Digital, to vote all Shares Beneficially Owned by
Applied Digital that are outstanding from time to time, to grant or withhold a consent or approval
in respect of such Shares and to execute and deliver a proxy to vote such Shares, in each case
solely to the extent and in the manner specified in Section 3 and subject to the exceptions set
forth in Section 3. It being understood that the proxy granted pursuant to this Section 5 shall be
solely with regard to the approval of the Purchase Agreement and the transactions contemplated
thereby and the other matters set forth in Section 3, and any other matter to be voted on by
Applied Digital as a stockholder of the Seller shall not be subject to the proxy granted herein.

          (b) Applied Digital represents and warrants to Purchaser that, except for the proxy given in
connection with the Pledge, all proxies heretofore given in respect of the Owned Shares are not
irrevocable and that all such proxies have been properly revoked or are no longer in effect as of
the date hereof.

          (c) Applied Digital hereby affirms that the irrevocable proxy set forth in this Section 5 is
given by Applied Digital in connection with, and in consideration of, the execution of the Purchase
Agreement by Purchaser, and that such irrevocable proxy is given to secure the performance of the
duties of Applied Digital under this Agreement. Applied Digital hereby further affirms that the
irrevocable proxy is coupled with an interest and, except as set forth in Section 9, may under no
circumstances be revoked. Subject to the rights of the pledgees under the Pledge, such irrevocable
proxy is executed and intended to be irrevocable in accordance with the provisions of Section 212
of the Delaware General Corporation Law.

          (d) The proxy granted in this Section 5 shall remain valid until this Agreement terminates
pursuant to Section 9 hereof.

     6. Further Action. If any further action is necessary or desirable to carry out the
purposes of this Agreement, Applied Digital shall, and shall cause its Affiliates to, take all such
action reasonably requested by Purchaser except as otherwise contemplated by Section 10.

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     7. Representations and Warranties of Applied Digital. Applied Digital represents and
warrants to Purchaser as follows:

          (a) Applied Digital has all necessary power and authority and legal capacity to execute and
deliver this Agreement and perform its obligations hereunder. The execution, delivery and
performance of this Agreement by Applied Digital and the consummation by Applied Digital of the
transactions contemplated hereby have been duly authorized by all necessary action on the part of
Applied Digital and no further proceedings or actions on the part of Applied Digital are necessary
to authorize the execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.

          (b) This Agreement has been duly and validly executed and delivered by Applied Digital and,
assuming it has been duly and validly authorized, executed and delivered by Purchaser, constitutes
the valid and binding agreement of Applied Digital, enforceable against Applied Digital in
accordance with its terms, except to the extent that enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now
or hereafter in effect relating to creditor’s rights generally and (ii) general principles of
equity.

          (c) As
of the date hereof, Applied Digital is the sole Beneficial Owner of
5,355,556 Owned Shares
(the “Currently Owned Shares”). Applied Digital has legal, good and marketable title
(which may include holding in nominee or “street” name) to all of the Currently Owned Shares, free
and clear of all liens, claims, options, proxies, voting agreements and security interests (other
than as created by this Agreement, the Pledge, the agreements listed in Schedule A and the
restrictions on Transfer under applicable securities Laws). The Currently Owned Shares constitute
all of the capital stock of Seller that is Beneficially Owned by Applied Digital as of the date
hereof.

          (d) The execution and delivery of this Agreement by Applied Digital does not and the
performance of this Agreement by Applied Digital will not (i) conflict with, result in any
violation of, require any consent under or constitute a default (whether with notice or lapse of
time or both) under any mortgage, bond, indenture, agreement, instrument or obligation to which
Applied Digital is a party or by which Applied Digital or any of its properties (including the
Owned Shares) is bound, (ii) conflict with, result in any violation of, require any consent under
or constitute a default (whether with notice or lapse of time or both) under Applied Digital’s
constituent documents, (iii) violate any judgment, order, injunction, decree or award of any court,
administrative agency or other Governmental Entity that is binding on Applied Digital or any of its
properties or (iv) constitute a violation by Applied Digital of any Law applicable to Applied
Digital, except in the case of clause (i) for any conflict with the Pledge and for any consent that
has previously been obtained and except for any violation, conflict or consent in clause (i), (iii)
and (iv) as would not reasonably be expected to materially impair the ability of Applied Digital to
perform its obligations hereunder or to consummate the transactions contemplated herein on a timely
basis.

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          (e) Applied Digital understands and acknowledges that Purchaser is entering into the Purchase
Agreement in reliance upon Applied Digital’s execution, delivery and performance of this Agreement.

     8. Representations and Warranties of Purchaser. Purchaser represents and warrants to
Applied Digital as follows:

          (a) Purchaser has all necessary power and authority and legal capacity to execute and deliver
this Agreement and to perform its obligations hereunder. The execution, delivery and performance
of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of Purchaser and no further
proceedings or actions on the part of Purchaser are necessary to authorize the execution, delivery
or performance of this Agreement or the consummation of the transactions contemplated hereby.

          (b) This Agreement has been duly and validly executed and delivered by Purchaser and, assuming
it has been duly and validly authorized, executed and delivered by Applied Digital, constitutes the
valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its
terms, except to the extent that enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditor’s rights generally and (ii) general principles of equity.

          (c) The execution and delivery of this Agreement by Purchaser does not and the performance of
this Agreement by Purchaser will not (i) conflict with, result in any violation of, require any
consent under or constitute a default (whether with notice or lapse of time or both) under any
mortgage, bond, indenture, agreement, instrument or obligation to which Purchaser is a party or by
which Purchaser or any of its properties is bound (or any of the constituent documents of
Purchaser), (ii) violate any judgment, order, injunction, decree or award of any court,
administrative agency or other Governmental Entity that is binding on Purchaser or any of its
properties or (iii) constitute a violation by Purchaser of any Law applicable to Purchaser, except
for any violation, conflict or consent in clause (i), (ii) and (iii) as would not reasonably be
expected to materially impair the ability of Purchaser to perform its obligations hereunder or to
consummate the transactions contemplated herein on a timely basis.

     9. Termination. This Agreement shall terminate upon the earliest of (a) the Closing
Date, (b) in the event that the Purchase Agreement is validly terminated pursuant to Section
7.1(b)(iii), 7.1(c)(ii), 7.1(c)(iv) or 7.1(d)(ii), the date that is seven months and fifteen days
after the date of such termination, (c) in the event that the Purchase Agreement is validly
terminated pursuant to Section 7.1(b)(i) or Section 7.1(c)(i) and after the date of the Purchase
Agreement but prior to the date of such termination a Takeover Proposal or a communication relating
to a potential Takeover Proposal shall have been made known to Seller (or any director or officer
of Seller) or shall have been made directly to Seller’s stockholders generally or any Person shall
have publicly announced an interest in making or an intention (whether or not conditional) to make
a Takeover Proposal, the date that is seven months and fifteen days after the date of such
termination, (d) in the event that the Purchase Agreement is validly terminated in accordance

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with its terms other than pursuant to those sections listed in clause (b) or (c) above,
concurrently with the termination of the Purchase Agreement and (e) the date of amendment of the
Purchase Agreement, unless such amendment has been previously agreed to in writing by Applied
Digital. Any such termination of this Agreement shall be without prejudice to liabilities arising
hereunder before such termination of this Agreement.

     10. Stockholder Capacity. Notwithstanding anything herein to the contrary, Applied
Digital has entered into this Agreement solely in Applied Digital’s capacity as the Beneficial
Owner of Shares and nothing herein shall limit or affect any actions taken or omitted to be taken
at any time by any Affiliate of Applied Digital that is an officer or director of the Seller in his
or her capacity as such and any such actions taken or omitted to be taken by such Person shall not
be deemed to constitute a breach of this Agreement.

     11. Miscellaneous.

          (a) Entire Agreement; No Third Party Beneficiaries. This Agreement, (a) constitutes
the entire agreement and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and thereof and (b) is not intended
to confer upon any Person other than the parties hereto and thereto any rights or remedies
hereunder.

          (b) Expenses. All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such expenses.

          (c) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be transferred by either party (whether by operation of law or
otherwise) without the prior written consent of the other party, provided, however, that Purchaser
may transfer any of its rights and obligations to any Affiliate of Purchaser, but no such
assignment shall relieve Purchaser of its obligations hereunder. Any transfer of any rights,
interests or obligations hereunder in violation of this Section shall be null and void.

          (d) Amendment and Modification. This Agreement may be amended, modified and
supplemented in any and all respects, but only by a written instrument signed by all of the parties
hereto expressly stating that such instrument is intended to amend, modify or supplement this
Agreement.

          (e) Extension; Waiver. At any time prior to the Closing Date, either party hereto may
extend the time for the performance of any of the obligations or other acts of the other party.
Any agreement on the part of a party to any such extension shall be valid only if set forth in an
instrument in writing signed by or on behalf of such party. The failure of either party to this
Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a
waiver of those rights.

          (f) Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if mailed, delivered personally, telecopied (which is

7

 

confirmed) or sent by an overnight courier service, such as Federal Express, to the parties at
the following addresses (or at such other address for a party as shall be specified by like
notice):

If to Applied Digital, to:

Applied Digital Solutions, Inc.

1690 South Congress Ave., #201

Delray Beach, FL 33445

Attention: Lorraine Breece

Facsimile: 561-805-8001

with a copy to:

Baker Botts L.L.P.

2001 Ross Avenue

Dallas, Texas 75225

Attention: Sarah M. Rechter

Facsimile: 214-661-4419

If to Purchaser, to:

The Stanley Works

1000 Stanley Drive

New Britain, Connecticut 06053

Attention: Corporate Secretary

Facsimile: 860-827-3911

with a copy to:

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

Attention: Ethan Klingsberg

Facsimile: 212-225-3999

          (g) Severability. Any term or provision of this Agreement that is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in
any jurisdiction shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction
or other authority declares that any term or provision hereof is invalid, void or unenforceable,
the parties agree that the court making such determination shall have the power to reduce the
scope, duration, area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision with a term or

8

 

provision that is valid and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision.

          (h) Specific Performance. In addition to any remedies available at law or otherwise,
each party shall be entitled to equitable relief, including specific performance, in the event of
any breach or threatened breach of this Agreement.

          (i) Governing Law; Jurisdiction.

          (1) This Agreement shall be governed by and construed in accordance with the laws of
the State of New York without giving effect to the principles of conflicts of law thereof.

          (2) To the fullest extent permitted by applicable Law, each party hereto (i) agrees
that any claim, action or proceeding by such party seeking any relief whatsoever arising out
of, or in connection with, this Agreement or the transactions contemplated hereby shall be
brought only in the United States District Court for the Southern District of New York or
any New York State court, in each case, located in the Borough of Manhattan and not in any
other State or Federal court in the United States of America or any court in any other
country, (ii) agrees to submit to the exclusive jurisdiction of such courts located in the
Borough of Manhattan for purposes of all legal proceedings arising out of, or in connection
with, this Agreement or the transactions contemplated hereby, (iii) waives and agrees not to
assert any objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court or any claim that any such proceeding brought in
such a court has been brought in an inconvenient forum, (iv) agrees that mailing of process
or other papers in connection with any such action or proceeding in the manner provided in
Section 11(f) (Notices) or any other manner as may be permitted by Law shall be valid and
sufficient service thereof and (v) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by applicable Law.

          (j) Descriptive Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

          (k) Counterparts. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective when two or more
counterparts have been signed by each of the parties and delivered to the other parties.

9

 

          IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed as of
the day and year first above written.

	 	 	 	 	 
	 	Applied Digital Solutions, Inc.

 	 
	 	By:  	/s/ Joseph J. Grillo 	 
	 	 	Name:  	Joseph J. Grillo 	 
	 	 	Title:  	President and CEO 	 
	 
	 	The Stanley Works

 	 
	 	By:  	/s/ John F. Lundgren 	 
	 	 	Name:  	John F. Lundgren 	 
	 	 	Title:  	Chairman and CEO 	 

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