Document:

exhibit 10.2

    
      

    

    Exhibit
      10.2

    

    DIGITAL
      ANGEL CORPORATION

    ANNUAL
      INCENTIVE PLAN

    

    

                  
      I.              
PURPOSES OF THE PLAN 

    

                                   
      1.01                        
The Digital Angel Corporation (“Company”) Annual Incentive Plan (“Plan”) is
      established to promote the interests of the Company and to enhance shareholder
      value of the Company by creating an annual incentive program to (i) attract
      and
      retain employees who will strive for excellence, and (ii) motivate those
      individuals to set and achieve above-average objectives by providing them with
      rewards for contributions to the financial performance of the Company.

    

                
      II.              
ADMINISTRATION OF THE PLAN 

    

                                   
      2.01                        
The Plan is hereby adopted by the Company’s Board of Directors, which hereby
      delegates the administration of the Plan to the Compensation Committee pursuant
      to the powers provided to the Committee by the Board of Directors of the
      Company. 

    

                                   
      2.02                        
The interpretation and construction of the Plan and the adoption of rules and
      regulations for administering the Plan shall be made by the Committee. 
Decisions of the Committee shall be final and binding on all parties who have
      an
      interest in the Plan. 

    

               
      III.              
DETERMINATION OF PARTICIPANTS 

    

                                   
      3.01                        
The Committee shall, within ninety (90) days of the start of each fiscal year
      (a
“Performance Period”), determine which employees are entitled to participate in
      the Plan for such Performance Period. An individual shall be eligible to receive
      distributions pursuant to the Plan for a Performance Period if such individual
      is employed by the Company or any of its participating subsidiaries on the
      earlier of March 1 of the succeeding fiscal year or the date on which bonuses
      under this Plan are distributed, whichever is earlier.  If an individual is
      not employed by the Company or a participating subsidiary on such date, such
      employee will not eligible to receive a bonus under the Plan.  However, an
      individual who is on a leave of absence or whose employment terminates and
      is
      then re-hired in the same fiscal year may remain eligible at the discretion
      of
      the Committee, and the Committee may provide a pro rata bonus.  In the
      event of termination of an individual’s employment as a result of death or
      disability, the Committee shall provide the individual or the individual’s
      estate with a pro rata bonus. 

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      
                                       
          3.02                        
For purposes of the Plan: 

      

                                                                   
      A.            An
      individual shall be considered an employee for so long as such individual
      remains employed by the Company or one or more subsidiary corporations.

    

                                                                   
      B.            Each
      corporation (other than the Company) in an unbroken chain of corporations
      beginning with the Company shall be considered to be a subsidiary of the
      Company, provided each such corporation (other than the last corporation in
      the
      unbroken chain) owns, at the time of determination, stock possessing more than
      fifty percent of the total combined voting power of all classes of stock in
      one
      of the other corporations in such chain. 

    

               
      IV.              
BONUS AWARDS 

    

                                   
      4.01                        
No eligible employee shall earn any portion of a bonus award made hereunder
      for
      any Performance Period until December 31 of the applicable Plan year.

    

                                   
      4.02                        
The individual bonus awards payable to the participants in the Plan for any
      Performance Period shall be based upon the Company’s success in achieving
      specified financial and operational targets determined by the Committee for
      that
      Performance Period (“Annual Targets”), which Annual Targets shall be set forth
      in an Exhibit to this Plan and provided to all participants in the Plan. In
      determining whether the Company has achieved the Annual Targets, the measurement
      of each Annual Target will be finally determined by the Committee consistent
      with the Company’s historical methodology for calculating such amounts for
      financial reporting purposes; provided,
      however,
      the
      Committee shall have the right, in its discretion, to make adjustments to
      exclude the effect of one time or special items which, in the Committee’s
      judgment, unfairly affect the applicable Annual Target.   In the event the
      Company acquires, sells or engages in transactions with other companies or
      businesses during any applicable fiscal year that would affect the computation
      of the Annual Targets, the Committee shall use its discretion to determine
      the
      impact, if any, such transactions should have on the Annual Targets.  While
      the bonuses shall be granted if the Company achieves the Annual Targets, the
      Committee may use its discretion to award bonuses based on curves, matrices
      or
      other criteria or measurement for prorating the amount of the payout if the
      Committee determines it to be appropriate based on executive performance and
      other facts and circumstances, with the goal being to reward performance based
      upon the Company’s objectives. 

     

                                   
      4.03                        
The
      bonuses of an individual participant shall be based on a percentage of each
      individual’s base salary as of the last day of the applicable Performance
      Period, which percentage may be increased or decreased based on the extent
      to
      which the Company meets or exceeds the Annual Targets.  The percentage of
      base salary applicable to each participant shall be as established by the
      Committee, taking into account the provisions of any applicable employment
      agreements.  In the event the Company achieves Annual Targets that are in
      between specified Annual Targets, the Committee may use its discretion to
      provide or not provide an individual an additional

    
      
        
        

      

      
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    bonus,
      pro rata or otherwise, based on the Company’s achievement. 

    

                                   
      4.04                        
Following completion of the bonus calculation referenced above, the Committee
      shall issue a written report containing the final calculation. 

    

                                   
      4.05                        
Following the end of each Performance Period, the Committee may determine to
      grant to any Participant a bonus, which may not exceed the maximum amount
      specified in sections 4.02 and 4.03 above for such Participant. The Committee
      may reduce or eliminate the bonus granted to any Participant based on factors
      determined by the Committee, including but not limited to, performance against
      budgeted financial goals and the Participant’s personal
      performance.

     

                
      V.              
PAYMENT OF BONUS AWARDS 

    

                                   
      5.01                        
Bonuses shall be paid no later than March 1 of the calendar year following
      the
      applicable Performance Period.  All payments under the Plan shall be
      subject to the Company’s collection of all applicable federal, state and local
      income and employment withholding taxes. 

     

               
      VI.              
GENERAL PROVISIONS 

     

                                   
      6.01                        
The Plan shall become effective when adopted by the Compensation
      Committee.  The Committee may at any time amend, suspend or terminate the
      Plan, provided such action is effected by written resolution and does not
      adversely affect rights and interests of Plan participants. 

    

                                   
      6.02                        
No amounts awarded or accrued under this Plan shall actually be funded, set
      aside or otherwise segregated prior to payment.  The obligation to pay the
      bonuses awarded hereunder shall at all times be an unfunded and unsecured
      obligation of the Company.  Plan participants shall have the status of
      general creditors and shall look solely to the general assets of the Company
      for
      the payment of their bonus awards. 

     

                                   
      6.03                        
No Plan participant shall have the right to alienate, pledge or encumber his/her
      interest in this Plan, and such interest shall not (to the extent permitted
      by
      law) be subject in any way to the claims of the employee’s creditors or to
      attachment, execution or other process of law.

     

                                   
      6.04                        
Neither the action of the Company in establishing the Plan, nor any action
      taken
      under the Plan by the Committee, nor any provision of the Plan, shall be
      construed so as to grant any person the right to a onus or to remain in the
      employ of the Company or its subsidiaries for any period of specific
      duration.  Rather,

    

    
      
        
        

      

      
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    each
      employee will be employed “at-will,” which means that either such employee or
      the Company may terminate the employment relationship at any time for any
      reason, with or without cause, subject in each case to any employment agreement
      between such person and the Company. 

    
       

      6.05  This
        is
        the full and complete agreement between the eligible employees and the Company
        with respect to incentive bonus compensation. This Plan does not supersede,
        but
        is supplemental to, any provisions of any employment agreement to which any
        of
        the employees eligible under this Plan may be party.  

    

     

    6.06  
      This
      plan shall be interpreted in accordance with the laws of the State of
      Minnesota.

    

    6.07  
      This
      plan may be amended or terminated by the decision of the Board of Directors
      of
      the Company; provided, however, that amendment or termination shall not affect
      any incentive compensation that was earned prior to the date of such amendment
      or termination.

     

     

    
      
        
        

      

      
        4exhibit 10.3

    
      

    

     

    Exhibit
      10.3

    
 

    EXECUTION
      COPY

    

    FOURTH
      AMENDMENT AND WAIVER,
      dated as
      of May 5, 2006 (“Amendment”), to CREDIT
      AND SECURITY AGREEMENT,
      dated as
      of June 29, 2004 (as amended from time to time, the “Credit Agreement”),
      among INFOTECH
      USA, INC.,
      a
      New Jersey corporation, as borrower (the “Borrower”), INFOTECH
      USA, INC.,
      a
      Delaware corporation, and INFORMATION
      TECHNOLOGY SERVICES, INC.,
      a New
      York corporation, as guarantors (together with the Borrower, the “Obligors”),
      and WELLS
      FARGO BANK, NATIONAL ASSOCIATION,
      acting
      through its Wells Fargo Business Credit operating division (the “Lender”). Terms
      which are capitalized in this Amendment and not otherwise defined shall have
      the
      meanings ascribed to such terms in the Credit Agreement.

     

    WHEREAS,
      the
      Obligors have requested that the Lender waive as an Event of Default a violation
      of one of the financial covenants contained in the Credit Agreement, and modify
      certain terms of the Credit Agreement, and the Lender has agreed to the
      foregoing request, on the terms and conditions set forth herein;

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual promises contained herein, and for other good and
      valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Obligors and the Lender hereby agree as follows:

     

    Section
      One.
      Amendments.
      Effective
      as of the date hereof, upon satisfaction of the conditions precedent set forth
      in Section Five hereof, the Credit Agreement is hereby amended as
      follows:

     

    (a) Section
      6.2(b) Minimum
      Book Net Worth.
      Section
      6.2(b) of the Credit Agreement is deleted in its entirety and the following
      substituted in lieu thereof:

     

    “(b) Minimum
      Book Net Worth.
      The
      Obligors will have a Book Net Worth of not less than: (a) $3,100,000, as of
      the end of the fiscal quarter ending in December 2004; (b) $3,200,000, as
      of the end of each subsequent fiscal quarter in fiscal years 2005 and 2006;
      and
      (c) the Adjusted Book Net Worth Amount, as of the end of each fiscal
      quarter ending after September 30, 2006.”

     

    (b) Section
      6.2(c) Minimum
      Net Income.
      As of
      the end of each period set forth below, the Obligors will have achieved Net
      Income, on a cumulative quarterly basis, of not less than the amount set forth
      below opposite such period:

     

    
      	 	
              “Period

            	 	
              Minimum
                Net

              Income

            
	
              A.

               

            	
              fiscal
                quarter ending in December 2005

               

            	 	
              $(200,000) 
                

               

            
	
              B.

               

            	
              two
                (2) fiscal quarters ending in March 2006

               

            	 	
              $(554,000) 
                

               

            
	
              C.

               

            	
              three
                (3) fiscal quarters ending in June 2006

               

            	 	
              $(828,000) 
                

            
	
              D

               

            	
              Four
                (4) fiscal quarters ending in September 2006

               

            	 	
              $(1,045,000) 

               

            

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    As
      of the
      end of each fiscal quarter ending after September 30, 2006, the Obligors
      will have Net Income on a cumulative quarterly basis of not less than eighty
      percent (80%) of the projected cumulative Net Income (or worse than one hundred
      percent (100%) of the projected cumulative Net Loss) of the Obligors for such
      period, as set forth in the projections for such period delivered to the Lender.
      The Obligors’ failure to deliver projections to the Lender pursuant to Section
      6.1(d) that are acceptable to the Lender, in its sole discretion, shall
      constitute an Event of Default.”

     

    Section
      Two. Waivers.
      The
      Obligors have notified the Lender that the Obligors’ cumulative Net Income for
      the two fiscal quarters ended in March 2006, is expected to be worse than
      $(292,000). The failure of the Obligors to have cumulative Net Income for the
      two fiscal quarters ended in March 2006 in an amount equal to at least
      $(292,000), in violation of Section 6.2(c) of the Credit Agreement, constitutes
      an Event of Default under Section 7.1(b) of the Credit Agreement. The Event
      of
      Default expressly referred to in this paragraph is herein referred to as the
      “Designated Default.”

     

    Effective
      as of the date hereof, upon the satisfaction of the conditions precedent set
      forth in Section Five hereof, the Lender hereby waives the Designated Default
      as
      an Event of Default. Nothing herein shall constitute a waiver by the Lender
      of
      any other Default or Event of Default, whether or not the Lender has any
      knowledge thereof, nor shall anything herein be deemed a waiver by the Lender
      of
      any Default or Event of Default which may occur after the date of this
      Amendment.

     

    Section
      Three.
      Amendment
      and Waiver Fee.
      In
      consideration for the amendments and waiver provided herein, the Borrower shall
      pay to the Lender a non-refundable fee in the amount of $5,000 (the “Amendment
      Fee”), which fee shall be fully earned and payable on the date
      hereof.

     

    Section
      Four.
      Representations
      and Warranties.
      To
      induce the Lender to enter into this Amendment, each Obligor warrants and
      represents to the Lender as follows:

     

    (a) all
      of
      the representations and warranties contained in the Credit Agreement and each
      other Loan Document continue to be true and correct in all material respects
      as
      of the date hereof, as if repeated as of the date hereof, except for such
      representations and warranties which, by their terms, are only made as of a
      previous date;

     

    (b) the
      execution, delivery and performance of this Amendment by each Obligor is within
      its corporate powers, has been duly authorized by all necessary corporate action
      on its part, and each Obligor has received all necessary consents and approvals
      (if any shall be required) for the execution and delivery of this
      Amendment;

     

    (c) upon
      its
      execution, this Amendment shall constitute the legal, valid and binding
      obligation of each Obligor, enforceable against each Obligor in accordance
      with
      its terms, except as such enforceability may be limited by (i) bankruptcy,
      insolvency or similar laws affecting creditors’ rights generally and
      (ii) general principles of equity;

     

    (d) no
      Obligor is in default under any indenture, mortgage, deed of trust, or other
      material agreement or material instrument to which it is a party or by which
      it
      may be bound. Neither the execution and delivery of this Amendment, nor the
      consummation of the transactions herein contemplated, nor compliance with the
      provisions hereof will (i) violate any law or regulation

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    applicable
      to any Obligor, (ii) cause a violation by any Obligor of any order or
      decree of any court or government instrumentality applicable to it,
      (iii) conflict with, or result in the breach of, or constitute a default
      under, any indenture, mortgage, deed of trust, or other material agreement
      or
      material instrument to which any Obligor is a party or by which it may be bound,
      (iv) result in the creation or imposition of any lien, charge, or
      encumbrance upon any property of any Obligor, except in favor of the Lender,
      to
      secure the Obligations, or (v) violate any provision of the Constituent
      Documents of any Obligor;

     

    (e) no
      Default or Event of default has occurred and is continuing, except for the
      Designated Default which has been waived pursuant to Section Two hereof;
      and

     

    (f) since
      September 30, 2005, no change or event has occurred which has had or is
      reasonably likely to have a Material Adverse Effect.

     

    Section
      Five.
      Conditions
      Precedent.
      This
      Amendment shall become effective upon the date on which all of the following
      events shall have occurred; provided,
      however,
      that in
      the event that all of the following events shall not have occurred on or before
      May 10, 2006, then this Amendment shall thereafter be null and void and
      cease to be of any force and effect:

     

    (a) the
      Lender shall have received this Amendment, duly executed by each
      Obligor;

     

    (b) the
      Lender shall have received the Amendment Fee;

     

    (c) the
      Lender shall have received payment of all fees and disbursements incurred by
      the
      Lender in connection with the preparation, negotiation and closing of this
      Amendment and the transactions contemplated to occur hereunder; and

     

    (d) except
      for the Designated Default which has been waived pursuant to Section Two hereof,
      no Default or Event of Default shall have occurred and be continuing, and no
      event or development which has had or is reasonably likely to have a Material
      Adverse Effect shall have occurred, in each case since the date of the financial
      statements referred to above.

     

    Section
      Six.
      General
      Provisions.

     

    (a) Except
      as
      herein expressly amended, the Credit Agreement and all of the other Loan
      Documents are ratified and confirmed in all respects and shall remain in full
      force and effect in accordance with their respective terms.

     

    (b) All
      references to the Credit Agreement in the Loan Documents shall mean the Credit
      Agreement as amended as of the effective date hereof, and as amended hereby
      and
      as hereafter amended, supplemented and modified from time to time.

     

    (c) This
      Amendment embodies the entire agreement between the parties hereto with respect
      to the subject matter hereof and supercedes all prior agreements, commitments,
      arrangements, negotiations or understandings, whether written or oral, of the
      parties with respect thereto.

     

    
      
        
        

      

      
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    (d) This
      Amendment shall be governed by and construed in accordance with the internal
      laws of the State of New York, without regard to the conflict of laws principles
      thereof.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
 

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      Obligors and the Lender have signed below to indicate their agreement with
      the
      foregoing and their intent to be bound thereby.

     

    
      	
               

            	
              INFOTECH
                USA, INC.,
                a
                New Jersey corporation

            
	 	 
	 	 
	
               

            	
              By:
                /s/ J. Robert Patterson

            
	
               

            	
              Name:
                J. Robert Patterson

            
	
               

            	
              Title:
                Secretary and Treasurer

            
	 	 
	 	 
	
               

            	
              INFOTECH
                USA, INC.,
                a
                Delaware corporation

            
	 	 
	 	 
	
               

            	
              By:
                /s/ J. Robert Patterson

            
	
               

            	
              Name:
                J. Robert Patterson

            
	
               

            	
              Title:
                Chief Financial Officer, Vice President and Treasurer

            
	 	 
	 	 
	
               

            	
              INFORMATION
                TECHNOLOGY SERVICES, INC.

            
	 	 
	 	 
	
               

            	
              By:
                /s/ J. Robert Patterson

            
	
               

            	
              Name:
                J. Robert Patterson

            
	
               

            	
              Title:
                Chief Financial Officer, Vice President and Treasurer

            
	 	 
	 	 
	
               

            	
              WELLS
                FARGO BANK, NATIONAL ASSOCIATION, 

            
	
               

            	
              acting
                through its Wells Fargo Business Credit operation
                division

            
	 	 
	 	 
	
               

            	
              By:
                /s/ Sal Mutone

            
	
               

            	
              Name:
                Sal Mutone

            
	
               

            	
              Title:
                Vice President

            

    

    

    
      
        
        

      

      
        5

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