Exhibit 10.1


 


EXECUTION COPY


 


For Discussion
Purposes Only;

Not a Commitment;

Subject to IBM Credit’s Internal Credit Approval Process


 


 


APPLIED DIGITAL SOLUTIONS, INC.

DIGITAL ANGEL SHARE TRUST


 


FORBEARANCE AGREEMENT


 


Summary of Terms and Conditions


March 24, 2003


 


This Summary of Terms and
Conditions (the “Term Sheet”) sets forth the indicative terms and
conditions of the Forbearance Agreement (the “Forbearance Agreement”)
among IBM Credit LLC, Applied Digital Solutions, Inc., Digital Angel Share
Trust and the other Loan Parties party to the Third Amended and Restated Credit
Agreement, dated as of March 1, 2002 (as amended through the date hereof,
the “Credit Agreement”), among IBM Credit LLC, Applied Digital
Solutions, Inc., Digital Angel Share Trust and the other Loan Parties party
thereto.  Terms used but not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.


This Term Sheet does not constitute a
commitment of IBM Credit to lend or an agreement of IBM Credit to prepare,
negotiate, execute or deliver such a commitment.


 


 


	
  1.             Parties
  to Forbearance Agreement

  
	
   

  	
   

  	
   

  
	
  Borrowers:

  	
   

  	
  Digital Angel Share Trust, a Delaware statutory
  business trust (in such capacity, the “Trust” and in its capacity as a
  Borrower, the “Tranche A Borrower”); and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applied Digital Solutions, Inc., a Missouri
  corporation (“ADS” or the “Tranche B Borrower”).

  
	
   

  	
   

  	
   

  
	
  Guarantors:

  	
   

  	
  Each of the Tranche B Borrower and its Subsidiaries
  (other than Digital Angel Corporation), as a guarantor for the Tranche A Borrower’s
  obligations under the Tranche A Facility (as described below) (in such
  capacity, the “Tranche A Guarantors”); and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Tranche A Borrower, as a guarantor for the
  Tranche B Borrower’s obligations under the Tranche B Facility (as described
  below) (in such capacity, the “Tranche B Guarantor”; together

  



 

















 


	
   

  	
   

  	
  with the Tranche A Guarantors, the “Guarantors”).

  
	
   

  	
   

  	
   

  
	
  Lender:

  	
   

  	
  IBM Credit LLC, a Delaware limited liability company
  (“IBM Credit”).

  
	
   

  	
   

  	
   

  
	
  2.             Forbearance
  Provisions

  
	
   

  	
   

  	
   

  
	
  Forbearance:

  	
   

  	
  Notwithstanding the occurrence and continuance of
  the Specified Events of Default (as defined below), subject to the terms and
  conditions hereof and of the Forbearance Agreement, IBM Credit will agree to
  forbear, during the Forbearance Period, from the exercise of any or all
  rights and remedies under the Credit Agreement, the other applicable
  Restructuring Documents and applicable law solely in respect of the Specified
  Events of Default; it being understood that the foregoing is not and shall
  not be construed as an amendment, waiver or modification of the Credit
  Agreement except as expressly provided herein and in the Forbearance
  Agreement.

  
	
   

  	
   

  	
   

  
	
  Forbearance Period:

  	
   

  	
  The period beginning on the Effective Date (as
  defined below) and ending on the Termination Date (as defined below).

  
	
   

  	
   

  	
   

  
	
  Specified Events of Default:

  	
   

  	
  “Specified Events of Default” are: (i) the
  Events of Default occurring and continuing under Section 8.1(A) of the Credit
  Agreement as a result of the Borrowers’ failure to pay to IBM Credit in
  immediately available funds the amounts due and payable in accordance with
  Section 2.3(B) and 2.4(B), respectively, of the Credit Agreement or,
  alternatively, forty percent (40%) of the original principal amount of the
  Loans and interest and expenses ($46,228,415.89) due and payable since
  February 28, 2003, in accordance with Section 2.8 of the Credit Agreement and
  IBM Credit’s letter to the Borrowers, dated March 3, 2003 and (ii) any Events
  of Default existing on the date hereof which IBM Credit is aware of (including
  the Events of Default resulting from the failure to comply with the financial
  conditions covenants set forth in Section 7.1 of the Credit Agreement for the
  applicable period ending December 31, 2002). 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In the Notice of Default, dated March 6, 2003, IBM
  Credit notified the Borrowers and the other Loan Parties of the Specified
  Events of Default and that all Obligations are immediately due and payable in
  accordance with Section 8.2 of the Credit Agreement.

  



 


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  All the Loans and other Obligations remain
  outstanding and continue to be due and payable.

  
	
   

  	
   

  	
   

  
	
  Termination Date:

  	
   

  	
  The earlier to occur of (i) the date on which
  the Loans and other Obligations are repaid in full or otherwise satisfied
  under “Payment Provisions” or (ii) a Termination Event.

  
	
   

  	
   

  	
   

  
	
  Termination Events:

  	
   

  	
  The occurrence of any of the following events is a “Termination
  Event”: (i) failure of ADS to be cash flow positive on a
  consolidated operational basis (excluding Digital Angel) at all times on and
  after the 30-day anniversary of the Effective Date; or (ii) failure to
  deliver the Budget (as defined below) to IBM Credit within one (1) Business
  Day of the date when due in form and substance satisfactory to IBM Credit; or
  (iii) the filing of any ADS or Digital Angel shareholder lawsuit deemed
  to be material, as determined by IBM Credit in its sole and absolute
  discretion, or any lawsuit by or on behalf of ADS or Digital Angel or any
  other Loan Party against the Tranche A Borrower, IBM Credit, IBM or any
  Affiliate thereof; or (iv) the occurrence of an Event of Default other
  than a Specified Event of Default after the date hereof or an Event of
  Default existing on or prior to the date hereof and continuing after the date
  hereof which IBM Credit is not aware of; or (v) failure to repay the
  Loans when due as set forth under “Payment Provisions” below (subject to the
  exercise of purchase rights set forth under “Purchase Rights” thereunder); or
  (vi) breach of any other covenant or agreement set forth herein or in
  the Forbearance Agreement and the Restructuring Documents.

  
	
   

  	
   

  	
   

  
	
  3.             Payment
  Provisions

  
	
   

  	
   

  	
   

  
	
  Repayment:

  	
   

  	
  The Tranche A Loan must be repaid in full no
  later than September 30, 2003 provided that all but
  $3 million of the Tranche A Loan (the “Tranche A Deficiency
  Amount”) will be deemed to be paid in full on such date if less than the
  full amount of the Tranche A Loan is repaid but all of the net cash
  proceeds of the Digital Angel Share Sale (as defined below) on terms
  satisfactory to IBM Credit are applied to the repayment of the Tranche A
  Loan. The Tranche A Deficiency Amount (if any) must be repaid no later
  than March 31, 2004.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Tranche B Loan must be repaid in full no
  later than March 31, 2004.  All
  legal fees incurred by IBM Credit as set forth in “Expenses” will be
  capitalized as additional principal under the Tranche B Loan.  From and after the date of this Term 

  



 


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  Sheet, the Tranche B Loan will bear interest at
  seven percent (7%) per annum.

  
	
   

  	
   

  	
   

  
	
  Purchase Rights:

  	
   

  	
  The Loans may be purchased by or on behalf of the
  Borrowers as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.  The Loans
  and all the other Obligations may be purchased on or before June 30,
  2003 for $30 million cash.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.  The Loans
  and all the other Obligations may be purchased on or before
  September 30, 2003 for $50 million cash.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3. 
  Notwithstanding anything to the contrary stated above, the
  Tranche A Loan may be purchased on or before September 30, 2003 for
  $40 million cash with an additional $10 million cash payment in respect
  of the Tranche A Deficiency Amount and the Tranche B Loan due on or before
  December 31, 2003.  Payment of $50
  million in aggregate by the date set forth above shall constitute
  satisfaction of the Obligations.

  
	
   

  	
   

  	
   

  
	
  4.             Digital
  Angel Share Sale

  	
   

  	
  The following conditions must be satisfied in
  respect of the sale under the Trust Agreement of the Digital Angel shares
  held by the Trust (the “Digital Angel Share Sale”).  Such engagement will include provision of
  a fairness opinion, if requested by the Trust.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.  Promptly,
  and in any event within 30 days of the Effective Date, the Trust shall
  engage an investment bank (the “Investment Bank”) reasonably
  acceptable to IBM Credit to conduct the Digital Angel Share Sale.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.  The
  Investment Bank fee structure will be on customary terms and based upon the
  success of the Digital Angel Share Sale, such fees to be reasonably
  acceptable to IBM Credit.  IBM Credit
  will not be required to indemnify the Investment Bank.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.  Within
  30 days of the Effective Date, the Investment Bank will have prepared
  and delivered to IBM Credit, the Trust and ADS a report, in form and
  substance satisfactory to IBM Credit in its reasonable discretion, in respect
  of the Digital Angel Share Sale process (including, without limitation, a
  timetable to conduct such sale, the persons responsible for managing such
  process, the parameters of the expected transaction terms and the Investment
  Bank’s expected range of proceeds). 
  Any Digital Angel Share Sale must be consummated without any
  indemnification claims or 

  



 


4

















 


	
   

  	
   

  	
  contingencies against the proceeds.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.  (a)
  Unanimous written consent of the Advisory Board Members (as defined in the
  Trust Agreement) approving pursuit of the Digital Angel Share Sale on the
  terms proposed by the Investment Bank will have been delivered to IBM
  Credit.  Upon such approval, the Trust
  will diligently and expeditiously pursue the Digital Angel Share Sale consistent
  with its obligations under the Trust Agreement. 



       (b) Other required
  consents to the Digital Angel Share Sale (including any consents required
  under the Digital Angel/Wells Fargo Credit Agreement, dated as of October 30,
  2002) will have been obtained.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.  Digital
  Angel will agree to cooperate (including, without limitation, assisting and
  preparation of road show materials and making senior management of Digital
  Angel available to participate in meetings with any prospective investors in
  a road show) with the Investment Bank and the Trust to facilitate the Digital
  Angel Share Sale.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6.  All
  proceeds of the Digital Angel Share Sale will be applied to the Loans and
  other Obligations to the extent required under the “Repayment” paragraph of
  the “Payment Provisions” section above.

  
	
   

  	
   

  	
   

  
	
  5.             Cash
  Collateral

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Budget:

  	
   

  	
  On a weekly basis, IBM Credit will receive a
  detailed budget (the “Budget”) in respect of each operating company of
  ADS (including Digital Angel, SysComm and Computer Equity) on both a
  consolidated and an entity-by-entity basis. 
  The Budget will be provided to IBM Credit on a rolling 13-week basis
  itemizing all revenues projected to be received and all expenses proposed to
  be made in the ordinary course of business of such entities, such as expenses
  incurred or payable in respect of vendors, materialmen and payroll (it being
  expressly understood by the parties hereto that any legal and other
  professional fees (including, without limitation, retainers and expenses
  incurred or paid) in connection with a defense of any shareholder suit are
  not ordinary course business expenses) during such periods and other cash
  flow and financial projections, all in form and substance satisfactory to IBM
  Credit in its reasonable discretion.

  



 


5

















 


	
  Deposit Accounts:

  	
   

  	
  Collateral consisting of collected funds deposited
  (whether directly or transmitted from lockboxes) in Deposit Accounts shall
  remain subject to the control of IBM Credit in accordance with the Contingent
  Blocked Account Agreement or the other Deposit Account Control Agreements, as
  applicable (including, without limitation, any Deposit Account and related
  Deposit Account Control Agreement replacing or in substitution of the
  Contingent Blocked Account Agreement and the Deposit Accounts thereunder)
  (such Collateral, the “Cash Collateral”).

  
	
   

  	
   

  	
   

  
	
  Usage:

  	
   

  	
  IBM Credit will make available Cash Collateral from
  the Deposit Accounts to ADS to pay expenses of ADS and its Subsidiaries
  (excluding Digital Angel and SysComm) in accordance with the Budget.  The Budget (excluding the budget in
  respect of Digital Angel and SysComm) may be adjusted on a week-to-week basis
  by an amount equal to 10% of permitted expenditures in the aggregate (the “Maximum
  Adjustment Amount”) provided that no single line item for
  permitted expenditures in the Budget may be adjusted on a week-to-week basis
  by an amount in excess of 20% of the Maximum Aggregate Adjustment Amount.

  
	
   

  	
   

  	
   

  
	
  6.             Other Collateral

  	
   

  	
  Tranche A Facility:  The Borrowers and the other Loan Parties
  hereby confirm and reaffirm that the Tranche A Facility and the Obligations
  will continue to be secured by a perfected first priority security interest
  in the Digital Angel shares held by the Trust for the benefit of IBM Credit
  up to the aggregate amount of the outstanding Tranche A Loan and Tranche B
  Loan.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Tranche B Facility:  The Borrowers and the other Loan Parties
  hereby confirm and reaffirm that the Tranche B Facility and the Obligations
  will continue to be secured by a perfected, first priority security interest
  in (i) substantially all the assets of the Tranche B Borrower and its
  Subsidiaries, excluding the assets of Digital Angel or its Subsidiaries, (ii)
  all Capital Stock in Subsidiaries and other investments held by the Tranche B
  Borrower, and (iii) any notes or other securities held by the Tranche B
  Borrower in connection with the sale of assets or investments. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Borrowers and the other Loan Parties hereby
  confirm and reaffirm that they will take all necessary or reasonably
  desirable actions to maintain and preserve IBM Credit’s prior perfected
  security interest in the Collateral (including, without limitation, in
  respect of any Collateral consisting of Deposit Accounts pursuant

  



 


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  to any replacement or substitute cash management
  system or arrangement).

  
	
   

  	
   

  	
   

  
	
  7.             Certain
  Conditions

  	
   

  	
  The Forbearance
  Agreement will be effective on the date (the “Effective Date”) on
  which all of the following conditions precedent to the Forbearance Agreement
  are satisfied (such date to occur on or before March 31, 2003):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a) IBM Credit shall have received a copy
  of the Forbearance Agreement, all the material terms of which shall be
  substantially the same as the material terms set forth in this Term Sheet and
  otherwise in form and substance satisfactory to IBM Credit, duly executed by
  the parties thereto.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b) IBM Corporation (“IBM”) and IBM
  Credit shall have received releases from each of ADS (on behalf of itself and
  its officers and directors), Digital Angel, the other Loan Parties, Richard
  Sullivan (in all capacities relating to the Restructuring Documents), Jerome
  Artigliere, Garrett Sullivan and the Advisory Board Members (as defined in
  the Trust Agreement) (collectively, the “Releasing Parties”)
  satisfactory to IBM and IBM Credit forever releasing and discharging IBM and
  IBM Credit or any affiliate thereof, together with their past and present
  officers, directors, stockholders, employees, subsidiaries, affiliates,
  related companies, predecessors, successors, assigns, agents, trustees,
  attorneys, or other representatives and each of them from all actions, causes
  of action, proceedings, charges, complaints, claims, demands, damages, costs,
  liabilities, agreements, and obligations of every kind, which they have ever
  had, now have or may have in the future in respect of any matter under,
  arising out of or relating to the Restructuring Documents, this Term Sheet,
  the Forbearance Agreement and the Lawsuit (as defined below).  Such releases shall contain covenants not
  to sue IBM Credit, IBM or any affiliate thereof in respect of any matter
  under, arising out of or relating to the Restructuring Documents, this Term
  Sheet and the Forbearance Agreement and the Lawsuit.  Such releases shall be duly authorized by
  all organizational action (including Board resolutions) as applicable,
  executed and delivered by each of the Releasing Parties.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c) The Advisory Board Members (as defined in
  the Trust Agreement) will be satisfactory to IBM Credit and duly authorized
  by all applicable organizational action of the Trust (including applicable
  resolutions).

  



 


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  (d) The Advisory Board and Digital Angel shall
  have agreed in writing that IBM Credit is a third party beneficiary in
  the Digital Angel Share Sale process.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e) Each of ADS, Digital Angel, the Advisory
  Board, the Trust and the other Loan Parties shall have taken all necessary
  organizational action (including applicable applicable Board resolutions)
  authorizing the transactions contemplated by this Term Sheet and the
  Forbearance Agreement (including, without limitation, any releases and the
  Digital Angel Share Sale).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f) ADS shall have delivered to IBM Credit an
  initial Budget, satisfactory in form and substance to IBM Credit in its
  reasonable discretion.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (g) ADS shall take any actions requested by IBM
  Credit to enable IBM Credit to continue its “control” of Deposit Accounts.

  
	
   

  	
   

  	
   

  
	
  8.             Certain
  Additional Covenants

  
	
   

  	
   

  	
   

  
	
  Dismissal
  of Lawsuit:

  	
   

  	
  ADS
  will cause the lawsuit, initially filed on March 7, 2003, as Case
  No. CA 03-02512AE in the Fifteenth Judicial Circuit in and for Palm
  Beach County, Florida and removed to the Southern District of Florida, Case
  No. 03-80186-CIV-PAINE on March 12, 2003 (the “Lawsuit”), to
  be dismissed with prejudice within one (1) Business Day of execution of this
  term sheet by the parties hereto.

  
	
   

  	
   

  	
   

  
	
  Press Releases:

  	
   

  	
  ADS and the other applicable Loan Parties will
  deliver to IBM Credit prior to the issuance thereof, any press releases
  relating to the transactions contemplated hereby (including, without
  limitation, the Digital Angel Share Sale). 
  IBM Credit will review such press releases solely for accuracy of the
  transactions contemplated hereby.  The
  Borrowers will have sole liability in respect of any such press releases.

  
	
   

  	
   

  	
   

  
	
  9.             Assignments

  	
   

  	
  IBM Credit may assign its Loans and other
  Obligations to any affiliate or any other Person; provided that such
  Person agrees to be bound by the terms of the Forbearance Agreement.

  



 


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  10.          Expenses

  	
   

  	
  Each Borrower and each other Loan Party agrees to
  pay and reimburse IBM Credit for all its reasonable costs and expenses
  incurred in connection with the preparation and delivery of this Term Sheet,
  the Digital Angel Share Sale and the Forbearance Agreement, including,
  without limitation, the reasonable fees and disbursements of Jones Day,
  counsel to IBM Credit, and the reasonable fees and costs and expenses of the
  Investment Bank.  Each Borrower and
  each other Loan Party further agree to pay all reasonable costs and expenses
  incurred in connection with the Digital Angel Share Sale (including, without
  limitation, the reasonable fees and disbursements of the Investment Bank and
  Jones Day, counsel to IBM Credit) regardless of any purchase of the Loans and
  other Obligations under “Payment Provisions - Purchase Rights.”  Legal fees will be payable in accordance
  with the provisions of “Payment Provisions - Repayment.”

  
	
   

  	
   

  	
   

  
	
  11.          Indemnification

  	
   

  	
  Each Borrower and each other Loan Party hereby agree
  to indemnify and hold harmless IBM, IBM Credit and their respective officers,
  directors, consultants, advisors, agents and assigns (collectively, the “Indemnified
  Persons”) against all losses, claims, damages, liabilities or other
  expenses (including reasonable attorneys’ fees and court costs now or
  hereinafter arising from the enforcement of this Term Sheet and the
  Forbearance Agreement and the documentation relating hereto, the “Losses”)
  to which any of them may become subject insofar as such Losses arise out of
  or are based upon any event, circumstance or condition (a) occurring or
  existing on or before the date of this Term Sheet and the Forbearance
  Agreement relating to any financing arrangements IBM Credit may from
  time to time have with (i) such Borrower, (ii) any Person that shall be
  acquired by such Borrower or (iii) any Person that such Borrower may acquire
  all or substantially all of the assets of, or (b) directly or indirectly
  relating to the execution, delivery or performance of this Term Sheet and the
  Forbearance Agreement or the consummation of the transactions contemplated
  hereby or thereby or to any of the Collateral or to any act or omission of
  the Borrower in connection therewith. 
  Such indemnification will include any Losses arising out of or
  relating to any press releases as described under “Certain Additional
  Covenants - Press Releases.” 
  Notwithstanding the foregoing, a Loan Party shall not be obligated to
  indemnify IBM or IBM Credit for any Losses incurred by IBM or IBM Credit
  which are a result of IBM’s or IBM Credit’s gross negligence or willful
  misconduct.  The 

  



 


9

















 


	
   

  	
   

  	
  indemnity provided herein shall survive the
  termination of this Term Sheet and the Forbearance Agreement and shall be in
  addition to the indemnity provisions set forth in Section 9.2 of the Credit
  Agreement.

  
	
   

  	
   

  	
   

  
	
  12.          Counterparts

  	
   

  	
  This Term Sheet may be executed by one or more of
  the parties to this Term Sheet on any number of separate counterparts
  (including by telecopy), and all of said counterparts taken together shall be
  deemed to constitute one and the same instrument.  A set of the copies of this Term Sheet signed by the parties
  hereto shall be delivered to each Borrower and IBM Credit.

  
	
   

  	
   

  	
   

  
	
  13.          GOVERNING
  LAW

  	
   

  	
  THIS
  TERM SHEET AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS TERM
  SHEET SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
  THE LAW OF THE STATE OF NEW YORK INCLUDING WITHOUT LIMITATION SECTION 5-1401
  OF THE NEW YORK GENERAL OBLIGATIONS LAW.

  
	
   

  	
   

  	
   

  
	
  14.          Limitation
  of Trustee Liability

  	
   

  	
  It is expressly understood and agreed by the parties
  that (a) this document is executed and delivered by Wilmington Trust Company,
  not individually or personally, but solely as Trustee, in the exercise of the
  powers and authority conferred and vested in it, pursuant to the Trust
  Agreement, (b) each of the representations, undertakings and agreements
  herein made on the part of the Trust is made and intended not as personal
  representations, undertakings and agreements by Wilmington Trust Company but
  is made and intended for the purpose for binding only the Trust, (c) nothing
  herein contained shall be construed as creating any liability on Wilmington
  Trust Company, individually or personally, to perform any covenant either
  expressed or implied contained herein, all such liability, if any, being
  expressly waived by the parties hereto and by any person claiming by, through
  or under the parties hereto, and (d) under no circumstances shall Wilmington
  Trust Company be personally liable for the payment of any indebtedness or
  expenses of the Trust or be liable for the breach or failure of any
  obligation, representation, warranty or covenant made or undertaken by the
  Trust under this Term Sheet or any other related documents.

  



 


10

















 


	
  15.          Interpretation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Continuing Effect of the Credit Agreement:

  	
   

  	
  The Borrowers and each other Loan Party hereby
  acknowledge and agree that the Credit Agreement shall continue to be and
  shall remain unchanged and in full force and effect in accordance with its
  terms, except as expressly modified hereby and by the Forbearance Agreement.

  
	
   

  	
   

  	
   

  
	
  No Limitation on Remedies after Forbearance Period:

  	
   

  	
  The Borrowers and each Loan Party hereby acknowledge
  and agree that, at the end of the Forbearance Period, the provisions hereof
  and of the Forbearance Agreement shall become of no force and effect and
  IBM Credit shall be free, in accordance with the Credit Agreement and
  the other Restructuring Documents, to exercise and enforce, or to take steps
  to exercise and enforce, all rights, powers, privileges and remedies
  available to them under the Credit Agreement, any other Restructuring
  Document or applicable law on account of the Specified Events of Default (or
  any other Default or Event of Default) as if the Forbearance Agreement had
  not been entered into by the parties hereto.

  
	
   

  	
   

  	
   

  
	
  Reservation
  of Rights:

  	
   

  	
  Notwithstanding
  anything contained in this Term Sheet or the Forbearance Agreement to the
  contrary, the Borrowers and each other Loan Party acknowledge that
  IBM Credit does not waive, and expressly reserves, the right to
  exercise, at any time during the Forbearance Period, any and all of its
  rights and remedies under (a) the Credit Agreement, any other
  Restructuring Document and applicable law in respect of the Specified Events
  of Default against any Person other than the Borrowers or any such Loan Party
  and (b) the Credit Agreement, any other Restructuring Document and
  applicable law in respect of any Default or Event of Default other than the
  Specified Events of Default.

  
	
   

  	
   

  	
   

  
	
  16.          Consent

  	
   

  	
  Notwithstanding any provisions to the contrary in
  the Credit Agreement, IBM Credit hereby agrees to consent to the buy out by
  ADS of the respective Employment Agreements of each respective Employee with
  ADS common stock with a current market value not to exceed the required
  buyout amount under the applicable Employment Agreement.

  



 


IN WITNESS WHEREOF, each of IBM Credit, each Borrower, each
Guarantor and each other Loan Party hereto has read this entire Term Sheet, and
has caused their respective 


 


11

















 


authorized
representatives to execute this Term Sheet and has caused its corporate seal,
if any, to be affixed hereto as of the date first written above.


 


	
  IBM CREDIT CORPORATION, 

  as Lender

  	
   

  	
  APPLIED DIGITAL SOLUTIONS, INC., 

  as Tranche B Borrower and Tranche A Guarantor

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DIGITAL
  ANGEL SHARE TRUST, 

  as Tranche A Borrower and Tranche B 

  Guarantor

  	
   

  	
  ADS
  MONTEREY, INC.

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:    Wilmington
  Trust Company, not in its individual capacity but solely as Trustee

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
  Name:     Wilmington Trust Company

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:       Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ADVANCED POWER SOLUTIONS, INC.

  	
   

  	
  THE AMERICOM GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
							



 


12

















 


	
  APPLIED DIGITAL SOLUTIONS 

  FINANCIAL CORP.

  	
   

  	
  BALVA FINANCIAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPUTER EQUITY CORPORATION

  	
   

  	
  DIGITAL ANGEL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  DIGITAL ANGEL HOLDINGS, LLC

  	
   

  	
  FEDERAL CONVENTION 

  CONTRACTORS, INC.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  FEDERAL SERVICES, INC.

  	
   

  	
  GOVERNMENT 

  TELECOMMUNICATIONS, INC. 
  

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
									



 


13

















 


	
  INFORMATION TECHNOLOGY SERVICES, INC.

  	
   

  	
  INFOTECH USA, INC.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PDS ACQUISITION CORP.

  	
   

  	
  PERIMETER ACQUISITION CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PRECISION POINT CORPORATION

  	
   

  	
  SYSCOMM INTERNATIONAL 

  CORPORATION

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:  Nat
  Ebenstein

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title: 
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  U.S. ELECTRICAL PRODUCTS CORP.

  	
   

  	
  VERICHIP CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
							



 


14

















 


	
  WEBNET SERVICES, INC.

  	
   

  	
  ACT COMMUNICATIONS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACT-GFX CANADA, INC.

  	
   

  	
  ADS BAY AREA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ADSI TELECOMM SERVICES, INC.  

  	
   

  	
  ADSI TELECOMM SERVICES OF 

  MARYLAND, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  ADVANCED TELECOMM OF 

  MARYLAND, INC.

  	
   

  	
  ADVANCED TELECOMM OF 

  PITTSBURGH

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
							



 


15

















 


	
  ADVANCED TELECOMMUNICATIONS, INC.

  	
   

  	
  APPLIED DIGITAL ORACLE 

  PRACTICE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARJANG, INC.  

  	
   

  	
  BLUE STAR ELECTRONICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BOSTEK, INC.

  	
   

  	
  CYBERTECH STATION, INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ELITE COMPUTER SERVICES, INC.

  	
   

  	
  INDEPENDENT ACQUISITION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
									



 


16

















 


	
  INTELLESALE, INC.

  	
   

  	
  MICRO COMPONENTS 

  INTERNATIONAL INCORPORATED

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  NEIRBOD CORP.

  	
   

  	
  NORCOM RESOURCES 

  INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PIZARRO RE-MARKETING, INC.

  	
   

  	
  SERVICE TRANSPORT COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TELEDATA CONCEPTS, INC.

  	
   

  	
  WYR, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  



 


17

















 


Acknowledged and agreed:


 


 


	
   

  	
   

  	
   

  
	
  Richard Sullivan

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Garrett Sullivan

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Jerome Artigliere

  	
   

  	
   

  



 


18