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.

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 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.