Document:

Exhibit 4.1

Exhibit 4.1

STANDBY EQUITY DISTRIBUTION AGREEMENT

THIS AGREEMENT dated as of the
 _____ 
day of July 2009 (this “Agreement”) between YA
GLOBAL MASTER SPV LTD., a Cayman Islands exempt limited partnership (the “Investor”), and
DIGITAL ANGEL CORPORATION, a corporation organized and existing under the laws of the State of
Delaware (the “Company”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to $5,000,000 of the Company’s common stock, par
value $0.01 per share (the “Common Stock”); and

WHEREAS, the offer and sale of the shares of Common Stock issuable hereunder will be
registered under the Securities Act on the Company’s registration statement on Form S-3 (File No.
333-159880), as supplemented or amended from time to time as set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

Article I. Certain Definitions

Section 1.01 “Advance” shall mean the portion of the Commitment Amount requested by the
Company in the Advance Notice.

Section 1.02 “Advance Date” shall mean the 1st Trading Day after expiration of
the applicable Pricing Period for each Advance.

Section 1.03 “Advance Notice” shall mean a written notice in the form of Exhibit A
attached hereto to the Investor executed by an officer of the Company and setting forth the Advance
amount that the Company requests from the Investor.

Section 1.04 “Advance Notice Date” shall mean each date the Company delivers (in accordance
with Section 2.01(b) of this Agreement) to the Investor an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this Agreement.

Section 1.05 “Affiliate” shall have the meaning set forth in Section 3.04.

Section 1.06 “Base Prospectus” shall mean the Company’s prospectus accompanying the
Registration Statement.

Section 1.07 “By-laws” shall have the meaning set forth in Section 4.03.

Section 1.08 “Certificate of Incorporation” shall have the meaning set forth in Section 4.03.

 

 

Section 1.09 “Commitment Amount” shall mean the aggregate amount of up to $5,000,000 which
the Investor has agreed to provide to the Company in order to purchase the Shares pursuant to the
terms and conditions of this Agreement provided that, the Company shall not effect any sales under
this Agreement and the Investor shall not have the obligation to purchase
shares of Common Stock under this Agreement to the extent that after giving effect to such purchase
and sale the aggregate number of shares of Common Stock issued under this Agreement (including any
Commitment Shares) would exceed 3,578,299 shares of Common Stock (which is less than 20% of the
17,891,495 outstanding shares of Common Stock as of the date of this Agreement) except that such
limitation shall not apply in the event that the Company (i) obtains the approval of its
stockholders as required by the applicable rules of the Principal Market for the Common Stock for
issuances of Common Stock in excess of such amount or (ii) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Investor.

Section 1.10 “Commitment Fee” shall have the meaning set forth in Section 12.04.

Section 1.11 “Commitment Period” shall mean the period commencing on the Effective Date,
and expiring upon the termination of this Agreement in accordance with Section 10.02.

Section 1.12 “Commitment Shares” shall have the meaning set forth in Section 12.04.

Section 1.13 “Common Stock” shall have the meaning set forth in the recitals of this
Agreement.

Section 1.14 “Company Indemnitees” shall have the meaning set forth in Section 5.02.

Section 1.15 “Condition Satisfaction Date” shall have the meaning set forth in Section 7.01.

Section 1.16
“Consolidation Event” shall have the meaning set forth in
Section 6.06.

Section 1.17 “Damages” shall mean any loss, claim, damage, liability, costs and expenses
(including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).

Section 1.18
“Effective Date” shall mean the date hereof.

Section 1.19 “Environmental Laws” shall have the meaning set forth in Section 4.10.

Section 1.20 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

Section 1.21 “Indemnified Liabilities” shall have the meaning set forth in Section 5.01.

Section 1.22 “Initial Disclosure” shall have the meaning set forth in Section 6.14.

Section 1.23 “Investor Indemnitees” shall have the meaning set forth in Section 5.01.

Section 1.24 “Market Price” shall mean the lowest daily VWAP of the Common Stock during the
relevant Pricing Period.

 

2

 

Section 1.25 “Material Adverse Effect” shall mean any condition, circumstance, or situation
that may result in, or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of this Agreement or the transactions contemplated herein,
(ii) a material adverse effect on the results of operations, assets, business or condition (financial or
otherwise) of the Company, taken as a whole, or (iii) a material adverse effect on the Company’s
ability to perform in any material respect on a timely basis its obligations under this Agreement,
provided that none of the following shall constitute a Material Adverse Effect for the purposes of
subsections (i) and (ii) of this definition: (a) any change in conditions in the United States,
foreign or global economy or capital or financial markets generally, including any change in
interest and exchange rates, (b) any change in conditions (including any change in general legal,
regulatory, political, economic or business conditions) in the industry in which the Company
conducts business, or (c) to the extent they do not have a materially disproportionate effect on
the Company taken as a whole, any natural disaster or calamity, or act of terrorism, sabotage,
military action or war or any escalation or worsening thereof (in each case, threatened, pending or
declared).

Section 1.26 “Maximum Advance Amount” shall be the lesser of (i) $500,000, (ii) 125% of the
average of the Daily Value Traded for each of the 10 Trading Days prior to the Advance Notice Date
where “Daily Value Traded” is the product obtained by multiplying the daily trading volume for such
day by the VWAP for such day, or such other amount as may be agreed upon by the mutual consent of
the parties.

Section 1.27 “Ownership Limitation” shall have the meaning set forth in Section 2.01(a).

Section 1.28 “Person” shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

Section 1.29 “Pricing Period” shall mean the 5 consecutive Trading Days after the Advance
Notice Date.

Section 1.30 “Principal Market” shall mean the Nasdaq Global Select Market, the Nasdaq
Global Market, the Nasdaq Capital Market, New York Stock Exchange, the NYSE Amex, or the Over the
Counter Bulletin Board, whichever is at the time the principal trading exchange or market for the
Common Stock.

Section 1.31 “Prospectus” shall mean the Base Prospectus, as supplemented by any Prospectus
Supplement.

Section 1.32 “Prospectus Supplement” shall mean any prospectus supplement to the Base
Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act, including, without
limitation, the Prospectus Supplement required pursuant to Section 6.04 hereof.

Section 1.33 “Purchase Price” shall be set at 96% of the Market Price during the Pricing
Period.

Section 1.34 “Registration Statement” shall mean the Company’s shelf-registration statement
filed by the Company with the SEC under the Securities Act on Form S-3 (Registration Number
333-159880), as amended by the Pre-Effective Amendment No. 1 on Form S-3/A, with respect to common
shares to be offered and sold by the Company, as such Registration Statement may be further amended and supplemented from time to time and including any information deemed to be a
part thereof pursuant to Rule 430B under the Securities Act.

 

3

 

Section 1.35 “SEC” shall mean the Securities Exchange Commission.

Section 1.36 “SEC Documents” shall have the meaning set forth in Section 4.05.

Section 1.37 “Securities Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

Section 1.38 “Settlement Document” shall have the meaning set forth in Section 2.02(a).

Section 1.39 “Shares” shall mean the shares of Common Stock to be issued from time to time
hereunder pursuant to Advances and the Commitment Shares.

Section 1.40 “Trading Day” shall mean any day during which the Principal Market shall be
open for business.

Section 1.41 “VWAP” means, for any date, the daily volume weighted average price of the
Common Stock for such date on the Principal Market as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)).

Article II. Advances

Section 2.01 Advances; Mechanics. Subject to the terms and conditions of this Agreement
(including, without limitation, the provisions of Article VII hereof), the Company, at its sole and
exclusive option, may issue and sell to the Investor, and the Investor shall purchase from the
Company, shares of Common Stock on the following terms:

	 	(a)	 	Advance Notice. At any time during the Commitment Period, the Company may
require the Investor to purchase shares of Common Stock by delivering an Advance Notice to
the Investor, subject to the conditions set forth in Article VII; provided, however, that
(i) the amount for each Advance as designated by the Company in the applicable Advance
Notice shall not be more than the Maximum Advance Amount, (ii) the aggregate amount of the
Advances pursuant to this Agreement shall not exceed the Commitment Amount, (iii) in no
event shall the number of shares of Common Stock issuable to the Investor pursuant to an
Advance cause the aggregate number of shares of Common Stock beneficially owned (as
calculated pursuant to Section 13(d) of the Exchange Act) by the Investor and its
affiliates to exceed 4.99% of the then outstanding Common Stock (the “Ownership
Limitation”), and (iv) the number of Shares to be sold pursuant to each Advance shall
not exceed the aggregate number of shares of Common Stock then registered and available for
sale under the Registration Statement. Notwithstanding any other provision in this
Agreement, the Company acknowledges and agrees that upon receipt of an Advance Notice, the
Investor may sell shares that it is unconditionally obligated to purchase under such
Advance Notice prior to taking possession of such shares.

 

4

 

	 	(b)	 	Date of Delivery of Advance Notice. Advance Notices shall be delivered in
accordance with the instructions set forth on the bottom of Exhibit A. An Advance Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 5:00 pm Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise after 5:00
pm Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No
Advance Notice may be deemed delivered on a day that is not a Trading Day.

	 	(c)	 	Ownership Limitation. In connection with each Advance Notice delivered by the
Company, any portion of an Advance that would cause the Investor to exceed the Ownership
Limitation shall automatically be withdrawn.

	 	(d)	 	Registration Limitation. In connection with each Advance Notice, any portion
of an Advance that would exceed the aggregate number of shares of Common Stock registered
and available for issuance under the Registration Statement shall automatically be deemed
to be withdrawn by the Company with no further action required by the Company.

	 	(e)	 	Minimum Acceptable Price. In connection with each Advance Notice, the Company
may indicate a minimum acceptable price (the “Minimum Acceptable Price”); provided,
however, that a Minimum Acceptable Price shall never be more than 90% of the last closing
price of the Common Stock on the Primary Market at the time the Company delivers an Advance
Notice. Upon the issuance by the Company of an Advance Notice with a Minimum Acceptable
Price, (i) the amount of the Advance set forth in such Advance Notice shall automatically
be reduced by 20% for each Trading Day during the Pricing Period that the VWAP of the
Common Stock is below the Minimum Acceptable Price (each such day, an “Excluded
Day”), and (ii) each Excluded Day shall be excluded from the Pricing Period for
purposes of determining the Market Price. The number of shares of Common Stock to be
delivered to the Investor at the Closing (in accordance with Section 2.02 of this
Agreement) shall correspond with the Advance Notice amount as reduced pursuant to clause
(i) above, except that the Company shall be obligated to sell, and the Investor shall be
obligated to purchase any shares of Common Stock corresponding to such Advance Notice that
have been sold by the Investor on an Excluded Day at a price equal to such Minimum
Acceptable Price.

Section 2.02 Closings. Each Closing shall take place as soon as practicable after each
Advance Date in accordance with the procedures set forth below. In connection with each Closing,
the Company and the Investor shall fulfill each of its obligations as set forth below:

	 	(a)	 	Within 1 Trading Day after each Advance Date, the Investor shall deliver to the Company
a written document (each a “Settlement Document”) setting forth the amount of the
Advance (taking into account any adjustments pursuant to Section 2.01), the Purchase Price,
the number of shares of Common Stock to be issued and subscribed for (which in no event
will be greater than the Ownership Limitation), and a report by Bloomberg, LP indicating
the VWAP for each of the Trading Days during the Pricing Period, in each case taking into
account the terms and conditions of this Agreement. The Settlement Document shall be in
the form attached hereto as Exhibit B. Upon receipt of the Settlement Document with respect to
each Advance, the Company shall promptly (and in any
event not later than 1 Trading Day after receipt) review and either approve such Settlement
Document so that it is deemed final, or provide any corrections to the Settlement Document
and return it to the Investor. Any discrepancies that cannot be promptly resolved shall be
submitted to an independent arbiter at the joint selection of the Company and the Investor
who shall resolve any discrepancies in accordance with this Agreement and whose
determination shall be binding on both parties.

 

5

 

	 	(b)	 	Upon acceptance of the Settlement Document with respect to each Advance, the Company
shall confirm that it has obtained all material permits and qualifications required for the
issuance and transfer of the shares of Common Stock applicable to such Advance, or shall
have the availability of exemptions therefrom and that the sale and issuance of such shares
of Common Stock shall be legally permitted by all laws and regulations to which the Company
is subject.

	 	(c)	 	Promptly after acceptance of the Settlement Document with respect to each Advance (and,
in any event, not later than three Trading Days after each Advance Date), the Company will,
or will cause its transfer agent to, electronically transfer such number of shares of
Common Stock registered in the name of the Investor as shall equal (x) the amount of the
Advance specified in such Advance Notice (as may be reduced according to the terms of this
Agreement), divided by (y) the Purchase Price by crediting the Investor’s account or its
designee’s account at the Depository Trust Company through its Deposit Withdrawal Agent
Commission System or by such other means of delivery as may be mutually agreed upon by the
parties hereto (which in all cases shall be freely tradable, registered shares in good
deliverable form) against payment of the Purchase Price in same day funds to an account
designated by the Company. No fractional shares shall be issued, and any fractional
amounts shall be rounded to the next higher whole number of shares. Any certificates
evidencing shares of Common Stock delivered pursuant hereto shall be free of restrictive
legends.

	 	(d)	 	On or prior to the Advance Date, each of the Company and the Investor shall deliver to
the other all documents, instruments and writings required to be delivered by either of
them pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.

Section 2.03 Hardship. In the event the Investor sells shares of the Company’s Common
Stock after receipt of an Advance Notice and the Company fails to perform its obligations as
mandated in Section 2.02, the Company agrees that in addition to and in no way limiting the rights
and obligations set forth in Article V hereto and in addition to any other remedy to which the
Investor is entitled at law or in equity, including, without limitation, specific performance, it
will hold the Investor harmless against any loss, claim, damage, or expense (including reasonable
legal fees and expenses), as incurred, arising out of or in connection with such default by the
Company and acknowledges that irreparable damage would occur in the event of any such default. It
is accordingly agreed that the Investor shall be entitled to an injunction or injunctions to
prevent such breaches of this Agreement and to specifically enforce, without the posting of a bond
or other security, the terms and provisions of this Agreement.

 

6

 

Article III. Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that the following
are true and correct as of the date hereof:

Section 3.01 Organization and Authorization. The Investor is duly organized, validly
existing and in good standing under the laws of the Cayman Islands and has all requisite power and
authority to purchase and hold the Shares. The decision to invest and the execution and delivery
of this Agreement by such Investor, the performance by such Investor of its obligations hereunder
and the consummation by such Investor of the transactions contemplated hereby have been duly
authorized and requires no other proceedings on the part of the Investor. The undersigned has the
right, power and authority to execute and deliver this Agreement and all other instruments on
behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and,
assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute
the legal, valid and binding obligations of the Investor, enforceable against the Investor in
accordance with its terms.

Section 3.02 Evaluation of Risks. The Investor has such knowledge and experience in
financial, tax and business matters as to be capable of evaluating the merits and risks of, and
bearing the economic risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its investment in the Company
involves a high degree of risk.

Section 3.03 No Legal Advice From the Company. The Investor acknowledges that it had the
opportunity to review this Agreement and the transactions contemplated by this Agreement with its
own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel
and advisors and not on any statements or representations of the Company or any of the Company’s
representatives or agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.04 Not an Affiliate. The Investor is not an officer, director or a person that
directly, or indirectly through one or more intermediaries, controls or is controlled by, or is
under common control with the Company or any “Affiliate” of the Company (as that term is
defined in Rule 405 of the Securities Act).

Section 3.05 Trading Activities. The Investor’s trading activities with respect to the
Company’s Common Stock shall be in compliance with all applicable federal and state securities
laws, rules and regulations and the rules and regulations of the Principal Market on which the
Common Stock is listed or traded. Neither the Investor nor any affiliate of the Investor has an
open short position in the Common Stock, the Investor agrees that it shall not, and that it will
cause its affiliates not to, engage in any short sales of the Common Stock provided that the
Company acknowledges and agrees that upon receipt of an Advance Notice the Investor has the right
to sell the shares to be issued to the Investor pursuant to the Advance Notice prior to receiving
such shares.

 

7

 

Article IV. Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents,
the Company hereby represents and warrants to the Investor that the following are true and correct
as of the date hereof:

Section 4.01 Organization and Qualification. The Company is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has all requisite
corporate power to own its properties and to carry on its business as now being conducted. Each of
the Company and its United States subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.

Section 4.02 Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and perform this Agreement
and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and
delivery of this Agreement and any related agreements by the Company and the consummation by it of
the transactions contemplated hereby and thereby, have been duly authorized by the Company’s Board
of Directors and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement and any related agreements have been duly
executed and delivered by the Company, (iv) this Agreement and assuming the execution and delivery
thereof and acceptance by the Investor, any related agreements, constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors’ rights and remedies.

Section 4.03 Capitalization. The authorized capital stock of the Company consists of
35,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock (“Preferred
Stock”), of which 17,891,495 shares of Common Stock and no shares of Preferred Stock are issued
and outstanding. All of such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company. Except as disclosed in the SEC Documents or as set forth on Schedule 4.03, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital stock of the Company
or any of its subsidiaries, (ii) there are no outstanding debt securities (iii) there are no
outstanding registration statements and (iv) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to this Agreement). Except as
disclosed in the SEC Documents or as set forth on Schedule 4.03, there are no securities or
instruments containing anti-dilution or similar provisions that will be triggered by this Agreement
or any related agreement or the consummation of the transactions described herein or therein. The
Company has furnished or made available to the Investor true and correct copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and as set forth on Schedule 4.03, the terms of all securities convertible into
or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

 

8

 

Section 4.04 No Conflict. Except as disclosed in the SEC Documents, the execution,
delivery and performance of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of preferred stock of the
Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Principal Market on which the Common Stock is quoted)
applicable to the Company or any of its subsidiaries or by which any material property or asset of
the Company or any of its subsidiaries is bound or affected and which would cause a Material
Adverse Effect. Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries
is in violation of any term of or in default under its Articles of Incorporation or By-laws or
their organizational charter or by-laws, respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the Company and its
subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any
governmental entity. Except as specifically contemplated by this Agreement and as required under
the Securities Act and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement in accordance with the terms hereof or thereof except as such
consent, authorization or order has been obtained prior to the date hereof. The Company and its
subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

 

9

 

Section 4.05 SEC Documents; Financial Statements. The Common Stock is registered pursuant
to Section 12(g) of the Exchange Act and the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under the Exchange Act for
the two years preceding the date hereof (or such shorter period as the Company was required by law
or regulation to file such material) (all of the foregoing filed within the two years preceding the
date hereof or amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein, being hereinafter
referred to as the “SEC Documents”) on timely basis or has received a valid extension of
such time of filing and has filed any such SEC Document prior to the expiration of any such
extension. The Company has delivered to the Investors or their representatives, or made available through the SEC’s website at http://www.sec.gov, true and
complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of the Company to the
Investor which is not included in the SEC Documents contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made and not misleading.

Section 4.06 No Default. Except as disclosed in the SEC Documents, the Company is not in
default in the performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company of its obligations
under this Agreement or any of the exhibits or attachments hereto will conflict with or result in
the breach or violation of any of the terms or provisions of, or constitute a default or result in
the creation or imposition of any lien or charge on any assets or properties of the Company under
its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company is a party or by
which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court
or governmental agency or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect.

Section 4.07 Absence of Events of Default. Except for matters described in the SEC
Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or the passage of time
or both, would become an Event of Default (as so defined), has occurred and is continuing, which
would have a Material Adverse Effect.

 

10

 

Section 4.08 Intellectual Property Rights. The Company and its subsidiaries own or possess
adequate rights or licenses to use all material trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service marks, service
mark registrations, trade secret or other similar rights of others, and, to the knowledge of the
Company, there is no claim, action or proceeding being made or brought against, or to the Company’s
knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company and its subsidiaries are
unaware of any facts or circumstances which might give rise to any of the foregoing.

Section 4.09 Employee Relations. Except as disclosed in the SEC Documents or as set forth
on Schedule 4.09, neither the Company nor any of its subsidiaries is involved in any labor dispute
nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.
Except as disclosed on Schedule 4.09, none of the Company’s or its subsidiaries’ employees is a
member of a union and the Company and its subsidiaries believe that their relations with their
employees are good.

Section 4.10 Environmental Laws. The Company and its subsidiaries are (i) in compliance
with any and all applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received
all permits, licenses or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms and conditions of
any such permit, license or approval, in each case except where such noncompliance or nonreceipt
would not, individually or in the aggregate, have a Material Adverse Effect.

Section 4.11 Title. Except as set forth in the SEC Documents, the Company has good and
marketable title to its properties and material assets owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries.

Section 4.12 Insurance. The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses in which the
Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

11

 

Section 4.13 Regulatory Permits. The Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and neither the Company
nor any such subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

Section 4.14 Internal Accounting Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any differences.

Section 4.15 No Material Adverse Breaches, etc. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse Effect on the
business, properties, operations, financial condition, results of operations or prospects of the
Company or its subsidiaries. Except as set forth in the SEC Documents, neither the Company nor any
of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects of the Company or
its subsidiaries, taken as a whole.

Section 4.16 Absence of Litigation. Except as set forth in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or affecting the Company, the Common
Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding
would have a Material Adverse Effect.

Section 4.17 Subsidiaries. Except as disclosed in the SEC Documents, the Company does not
presently own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.

Section 4.18 Tax Status. Except as disclosed in the SEC Documents or as set forth on
Schedule 4.18, the Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any jurisdiction to which it
is subject and (unless and only to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations, except those being
contested in good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such
claim.

 

12

 

Section 4.19 Certain Transactions. Except as set forth in the SEC Documents, none of the
officers, directors, or employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.

Section 4.20 The Shares. The Shares have been duly authorized and, when issued, delivered
and paid for pursuant to this Agreement, will be validly issued and fully paid and non-assessable,
free and clear of all encumbrances and will be issued in compliance with all applicable United
States federal and state securities laws; the capital stock of the Company, including the Common
Stock, will conform to the description thereof contained in the Prospectus as amended or
supplemented. Except as disclosed in the SEC Documents, neither the stockholders of the Company,
nor any other person or entity have any preemptive rights or rights of first refusal with respect
to the Shares or other rights to purchase or receive any of the Shares or any other securities or
assets of the Company, and no person has the right, contractual or otherwise, to cause the Company
to issue to it, or register pursuant to the Securities Act, any shares of capital stock or other
securities or assets of the Company upon the issuance or sale of the Shares. The Company is not
obligated to offer the Shares on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties.

Section 4.21 Dilution. The Company is aware and acknowledges that issuance of shares of
the Common Stock could cause dilution to existing shareholders and could significantly increase the
outstanding number of shares of Common Stock.

Section 4.22 Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereunder is merely incidental
to the Investor’s purchase of the Shares hereunder. The Company is aware and acknowledges that it
may not be able to request Advances under this Agreement if the Registration Statement ceases to be
effective or if any issuances of Common Stock pursuant to any Advances would violate any rules of
the Principal Market. The Company further is aware and acknowledges that any fees paid or shares
issued pursuant to Section 12.04 hereunder shall be earned on the date hereof and not refundable or
returnable under any circumstances.

Section 4.23 Registration. The Company meets the eligibility requirements under General
Instruction I.B.6. of Form S-3 in connection with the issuance of the entire Commitment Amount
hereunder. The Company has not offered any securities pursuant to General Instruction I.B.6. of
Form S-3 during the 12 calendar month period that ends on and includes the date hereof.

 

13

 

Article V. Indemnification

The Investor and the Company represent to the other the following with respect to itself:

Section 5.01 In consideration of the Investor’s execution and delivery of this Agreement, and in
addition to all of the Company’s other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners,
employees and agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and Damages, and expenses in connection therewith (irrespective of whether any
such Investor Indemnitee is a party to the action for which indemnification hereunder is sought),
and including reasonable hourly attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for the registration of the Shares as originally filed or
in any amendment thereof, or in any Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the Company by or on behalf
of the Investor specifically for inclusion therein; (b) any material misrepresentation or material
breach of any representation or warranty made by the Company in this Agreement or any other
certificate, instrument or document contemplated hereby or thereby; (c) any material breach of any
covenant, agreement or obligation of the Company contained in this Agreement or any other
certificate, instrument or document contemplated hereby or thereby; and (d) any cause of action,
suit or claim brought or made against such Investor Indemnitee not arising out of any action or
inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Investor Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

 

14

 

Section 5.02 In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Investor’s other obligations under this Agreement, the Investor shall
defend, protect, indemnify and hold harmless the Company and all of its officers, directors,
shareholders, employees and agents (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Company
Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a) any untrue
statement or alleged untrue statement of a material fact contained in the Registration Statement
for the registration of the Shares as originally filed or in any amendment thereof, or in any
related Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided, however, that
the Investor will not be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Investor by or on behalf of the Company specifically for inclusion
therein; (b) any misrepresentation or breach of any representation or warranty made by the Investor
in this Agreement or any instrument or document contemplated hereby or thereby executed by the
Investor; (c) any breach of any covenant, agreement or obligation of the Investor(s) contained in
this Agreement or any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor; or (d) any cause of action, suit or claim brought or made against such
Company Indemnitee not arising out of any action or inaction of a Company Indemnitee and arising
out of or resulting from the execution, delivery, performance or enforcement of this Agreement or
any other instrument, document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be unenforceable for
any reason, the Investor shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.

Section 5.03 Promptly after receipt by an Investor Indemnitee or Company Indemnitee under this
Article V of notice of the commencement of any action or proceeding (including any governmental
action or proceeding) involving an Indemnified Liability, such Investor Indemnitee or Company
Indemnitee shall, if an Indemnified Liability in respect thereof is to be made against any
indemnifying party under this Article V deliver to the indemnifying party a written notice of the
commencement thereof; but the failure to so notify the indemnifying party will not relieve it of
liability under this Article V unless and to the extent the indemnifying party did not otherwise
learn of such action and such failure result in the forfeiture by the indemnifying party of
substantial rights and defenses and will not, in any event, relieve the indemnifying party from any
obligations provided in this Article V. The indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Investor Indemnitee or Company Indemnitee, as the case may be;
provided, however, that an Investor Indemnitee or Company Indemnitee shall have the right to retain
its own counsel with the fees and expenses of not more than one counsel for such Investor
Indemnitee or Company Indemnitee to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by such counsel of the
Investor Indemnitee or Company Indemnitee and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Investor Indemnitee or Company Indemnitee and
any other party represented by such counsel in such proceeding. The Investor Indemnitee or Company
Indemnitee shall cooperate fully with the indemnifying party in connection with any negotiation or
defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Investor Indemnitee or Company Indemnitee which
relates to such action or claim. The indemnifying party shall keep the Investor Indemnitee or
Company Indemnitee fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the prior written consent of the Investor Indemnitee or
Company Indemnitee, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Investor Indemnitee or Company Indemnitee of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Investor Indemnitee or Company
Indemnitee with respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made.

 

15

 

Section 5.04 The indemnification required by this Article V shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and when bills are
received.

Section 5.05 The indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Investor Indemnitee or Company Indemnitee against the indemnifying
party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the
law.

Section 5.06 The obligations of the parties to indemnify or make contribution under this Article V
shall survive termination.

Article VI.

Covenants of the Company

Section 6.01 Effective Registration Statement. During the Commitment Period, the Company
shall notify the Investor promptly if (i) the Registration Statement shall cease to be effective
under the Securities Act, (ii) the Common Stock shall cease to be authorized for listing on the
Principal Market, (iii) the Common Stock ceases to be registered under Section 12(g) of the
Exchange Act or (iv) the Company fails to file in a timely manner all reports and other documents
required of it as a reporting company under the Exchange Act.

Section 6.02 Corporate Existence. The Company will take all steps necessary to preserve
and continue the corporate existence of the Company, provided however, steps taken as set forth on
Schedule 6.02 shall not be considered in violation of this provision.

 

16

 

Section 6.03 Notice of Certain Events Affecting Registration; Suspension of Right to Make an
Advance. The Company will immediately notify the Investor, and confirm in writing, upon its
becoming aware of the occurrence of any of the following events: (i) receipt of any request for
additional information by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement, the Prospectus or for any additional
information; (ii) the issuance by the SEC or any other Federal or state governmental authority of
any stop order suspending the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in the Registration Statement or Prospectus or
in any document incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in the Registration Statement, Prospectus
or documents so
that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or of the necessity to amend
the Registration Statement or supplement the Prospectus to comply with the Securities Act or any
other law (except that any future documents incorporated by reference will supersede and amend
statements made in the Registration Statement, Prospectus or documents previously incorporated
therein by reference); and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Advance Notice during the continuation of any of the
foregoing events.

Section 6.04 Prospectus Supplements. The Company agrees that on such dates as the
Securities Act shall require, the Company will file a prospectus supplement or other appropriate
form as determined by counsel with the SEC under the applicable paragraph of Rule 424(b) under the
Securities Act, which prospectus supplement will set forth, within the relevant period, the amount
of Shares sold to the Investor, the net proceeds to the Company and the discount paid by the
Investor with respect to such Shares. The Company shall provide the Investor a reasonable
opportunity, not to exceed 2 days, to comment on a draft of each such Prospectus Supplement (and
shall give due consideration to all such comments) and shall deliver or make available to the
Investor, without charge, an electronic copy of each form of Prospectus Supplement, together with
the Base Prospectus. The Company consents to the use of the Prospectus (and of any Prospectus
Supplement thereto) in accordance with the provisions of the Securities Act and with the securities
or “blue sky” laws of the jurisdictions in which the Shares may be sold by the Investor, in
connection with the offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Securities Act to be delivered in connection with sales of the
Shares. If during such period of time any event shall occur that in the judgment of the Company
and its counsel is required to be set forth in the Prospectus or should be set forth therein in
order to make the statements made therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with
the Securities Act or any other applicable law or regulation, the Company shall forthwith prepare
and file with the SEC an appropriate Prospectus Supplement to the Prospectus and shall
expeditiously furnish or make available to the Investor an electronic copy thereof.

Section 6.05 Listing of Shares. The Company will use commercially reasonable efforts to
cause the Shares to be listed on the Principal Market and to qualify the Shares for sale under the
securities laws of such jurisdictions as the Investor designates; provided that the Company shall
not be required in connection therewith to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction.

 

17

 

Section 6.06 Consolidation; Merger. If an Advance Notice has been delivered to the
Investor and the transaction contemplated in such Advance Notice has not yet been closed in
accordance with Section 2.02 hereof, then the Company shall not effect any merger or consolidation
of the Company with or into, or a transfer of all or substantially all the assets of the Company to
another entity (a “Consolidation Event”).

Section 6.07 Issuance of the Company’s Common Stock. The sale of the shares of Common
Stock hereunder shall be made in accordance with the provisions and requirements of the Securities
Act and any applicable state securities law.

Section 6.08 Review of Public Disclosures. All SEC filings (including, without limitation,
all filings required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc) and other
public disclosures made by the Company, including, without limitation, all press releases, investor
relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for
release by the Company’s attorneys or general counsel and, if containing financial information, the
Company’s independent certified public accountants.

Section 6.09 Market Activities. The Company will not, directly or indirectly, take any
action designed to cause or result in, or that constitutes or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of the Company under
applicable laws and regulations to facilitate the sale or resale of the Common Stock.

Section 6.10 Opinion of Counsel Concerning Resales. Provided that the Investor’s resale of
Common Stock received pursuant to this Agreement may be freely sold by the Investor either pursuant
to an effective Registration Statement, in accordance with Rule 144, or otherwise, the Company
shall obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may
be required by the Company’s transfer agent to issue such shares free of restrictive legends, or to
remove legends from such shares.

Section 6.11 Use of Proceeds. The Company shall use the net proceeds from this offering as
disclosed in the Prospectus.

Section 6.12 Expenses. The Company, whether or not the transactions contemplated hereunder
are consummated or this Agreement is terminated, will pay all expenses incident to the performance
of its obligations hereunder, including but not limited to (i) the preparation, printing and filing
of the Registration Statement and each amendment and supplement thereto, of each Prospectus and of
each amendment and supplement thereto; (ii) the preparation, issuance and delivery of any Shares
issued pursuant to this Agreement, (iii) all fees and disbursements of the Company’s counsel,
accountants and other advisors, (iv) the qualification of the Shares under securities laws in
accordance with the provisions of this Agreement, including filing fees in connection therewith,
(v) the printing and delivery of copies of the Prospectus and any amendments or supplements
thereto, (vi) the fees and expenses incurred in connection with the listing or qualification of the
Shares for trading on the Principal Market, or (vii) filing fees of the SEC and the Principal
Market.

Section 6.13 Sales. The Company will not, directly or indirectly, offer to sell, sell,
contract to sell, grant any option to sell or otherwise dispose of any shares of Common Stock
(other than the Shares offered pursuant to the provisions of this Agreement) or securities
convertible into or exchangeable for Common Stock, warrants or any rights to purchase or acquire,
Common Stock during the period beginning on the 5th Trading Day immediately prior to any Advance
Notice Date and ending on the 5th Trading Day immediately following the corresponding Advance Date.

 

18

 

Section 6.14 Current Report. Promptly after the date hereof (and prior to the Company
delivering an Advance Notice to the Investor hereunder), the Company shall file with the SEC a
report on Form 8-K or such other appropriate form as determined by counsel to the Company, relating
to the transactions contemplated by this Agreement and a preliminary Prospectus Supplement pursuant
to Rule 424(b) of the Securities Act disclosing all information relating to the transaction
contemplated hereby required to be disclosed therein (collectively, the “Initial
Disclosure”) and shall provide the Investor with a reasonable opportunity to review the Initial
Disclosure prior to its filing.

Section 6.15 Compliance With Laws. The Company will not, directly or indirectly, take any
action designed to cause or result in, or that constitutes or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of the Company or which
caused or resulted in, or which would in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the Company.

Article VII.

Conditions for Advance and Conditions to Closing

Section 7.01 Conditions Precedent to the Right of the Company to Deliver an Advance Notice.
The right of the Company to deliver an Advance Notice and the obligations of the Investor
hereunder with respect to an Advance is subject to the satisfaction by the Company, on each
Advance Notice Date and Advance Date (a “Condition Satisfaction Date”), of each of the
following conditions:

	 	(a)	 	Accuracy of the Company’s Representations and Warranties. The representations
and warranties of the Company shall be true and correct in all material respects as of the
Advance Notice Date and Advance Date.

	 	(b)	 	Registration of the Common Stock with the SEC. The Registration Statement is
effective and shares of Common Stock are available for issuance pursuant to the
Registration Statement. The Company is not aware of any of the events set forth in Section
6.03 hereof. The Initial Disclosure shall have been filed with the SEC, all Prospectus
Supplements shall have been filed with the SEC, as required pursuant to Section 6.04 hereof
and an electronic copy of such Prospectus Supplement together with the Base Prospectus
shall have been delivered or made available to the Investor. The Company shall have filed
with the SEC in a timely manner all reports, notices and other documents required of a
“reporting company” under the Exchange Act and applicable SEC regulations.

	 	(c)	 	Authority. The Company shall have obtained all permits and qualifications
required by any applicable state for the offer and sale of the shares of Common Stock, or
shall have the availability of exemptions therefrom. The sale and issuance of the shares
of Common Stock shall be legally permitted by all laws and regulations to which the Company
is subject.

 

19

 

	 	(d)	 	No Material Notices. None of the following events shall have occurred and be
continuing: (i) receipt by the Company of any request for additional information from the
SEC or any other federal or state governmental, administrative or self regulatory authority
during the period of effectiveness of the Registration Statement, the response to which
would require any amendments or supplements to the Registration Statement or Prospectus;
(ii) the issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification of any of
the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; (iv) the occurrence of any event that makes any statement made in the
Registration Statement or the Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that requires the
making of any changes in the Registration Statement, Prospectus or documents so that, in
the case of the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and (v) the Company’s
reasonable determination that a post-effective amendment to the Registration Statement
would be required.

	 	(e)	 	Performance by the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or prior to
each Condition Satisfaction Date.

	 	(f)	 	No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, and no proceeding shall
have been commenced that may have a Material Adverse Effect.

	 	(g)	 	No Suspension of Trading in or Delisting of Common Stock. The Common Stock is
trading on a Principal Market and all of the Shares issuable pursuant to such Advance
Notice will be listed or quoted for trading on such Principal Market and the Company
believes, in good faith, that trading of the Common Stock on a Principal Market will
continue uninterrupted for the foreseeable future. The issuance of shares of Common Stock
with respect to the applicable Advance Notice will not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received any notice
threatening the continued listing of the Common Stock on the Principal Market.

	 	(h)	 	Maximum Advance Amount. The amount of an Advance requested by the Company
shall not exceed the Maximum Advance Amount.

 

20

 

	 	(i)	 	Authorized. There shall be a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable
pursuant to such Advance Notice.

	 	(j)	 	Opinion of Counsel at Closing. Investor shall have received an opinion letter
from counsel to the Company in the form attached hereto as Exhibit C.

	 	(k)	 	Executed Advance Notice. The Investor shall have received the Advance Notice
executed by an officer of the Company and the representations contained in such Advance
Notice shall be true and correct as of each Condition Satisfaction Date.

	 	(l)	 	Consecutive Advance Notices. Except with respect to the first Advance Notice,
the Company shall have delivered all Shares relating to all prior Advances.

Article VIII.

Non-Disclosure of Non-Public Information

The Company covenants and agrees that it shall refrain from disclosing, and shall cause its
officers, directors, employees and agents to refrain from disclosing, any material non-public
information to the Investor without also disseminating such information to the public, unless prior
to disclosure of such information the Company identifies such information as being material
non-public information and provides the Investor with the opportunity to accept or refuse to accept
such material non-public information for review.

Article IX.

Choice of Law/Jurisdiction

This Agreement shall be governed by and interpreted in accordance with the laws of the State
of New Jersey without regard to the principles of conflict of laws. The parties further agree that
any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the
jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County, New Jersey
and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the
adjudication of any civil action asserted pursuant to this paragraph.

Article X. Assignment; Termination

Section 10.01 Assignment. Neither this Agreement nor any rights or obligations of either
party hereunder may be assigned to any other Person.

Section 10.02 Termination.

	 	(a)	 	Unless earlier terminated as provided hereunder, this Agreement shall terminate
automatically on the earliest of (i) the first day of the month next following the 24-month
anniversary of the date hereof, or (ii) the date on which the Investor shall have made
payment of Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount.

 

21

 

	 	(b)	 	The Company may terminate this Agreement effective upon fifteen Trading Days’ prior
written notice to the Investor; provided that (i) there are no Advances outstanding, and
(ii) the Company has paid all amounts owed to the Investor pursuant to this Agreement.
This Agreement may be terminated at any time by the mutual written consent of the parties,
effective as of the date of such mutual written consent unless otherwise provided in such
written consent. In the event of any termination of this Agreement by the Company
hereunder, so long as the Investor owns any shares of Common Stock issued hereunder, unless
all of such shares of Common Stock may be resold by the Investor without registration and
without any time, volume or manner limitations pursuant to Rule 144, the Company shall not
suspend or withdraw the Registration Statement or otherwise cause the Registration
Statement to become ineffective, or voluntarily delist the Common Stock from the Principal
Markets.

	 	(c)	 	The obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance Date that has
not yet occurred) in the event that (i) there shall occur any stop order or suspension of
the effectiveness of the Registration Statement for an aggregate of 50 Trading Days, other
than due to the acts of the Investor, during the Commitment Period, or (ii) the Company
shall at any time fail materially to comply with the requirements of Article VI and such
failure is not cured within 30 days after receipt of written notice from the Investor,
provided, however, that this termination provision shall not apply to any
period commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is declared
effective by the SEC.

	 	(d)	 	Nothing in this Section 10.02 shall be deemed to release the Company or the Investor
from any liability for any breach under this Agreement, or to impair the rights of the
Company and the Investor to compel specific performance by the other party of its
obligations under this Agreement. The indemnification provisions contained in Article V
shall survive termination hereunder.

 

22

 

Article XI. Notices

Any notices, consents, waivers, or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) 3 days after being sent by U.S.
certified mail, return receipt requested, or (iv) 1 day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications, except for Advance Notices which shall be
delivered in accordance with Section 2.01(b) hereof, shall be:

	 	 	 
	If to the Company, to:

	 	Digital Angel Corporation
	 

	 	490 Villaume Avenue
	 

	 	South Saint Paul, MN 55075
	 

	 	Attention: Chief Executive Officer
	 

	 	Telephone: (651) 455-1621
	 

	 	Facsimile:
	 
	 	 
	With a copy to:

	 	Patricia M. Petersen, Esq.
	 

	 	Digital Angel Corporation
	 

	 	490 Villaume Avenue
	 

	 	South Saint Paul, MN 55075
	 

	 	Telephone: (651) 455-1621
	 

	 	Facsimile: (651) 455-0217
	 
	 	 
	And to:

	 	Philip T. Colton, Esq.
	 

	 	Winthrop & Weinstine, P.A.
	 

	 	225 South Sixth Street, Suite 3500
	 

	 	Minneapolis, MN 55402
	 

	 	Telephone: (612) 604-6400
	 

	 	Facsimile: (612) 604-6929
	 
	 	 
	If to the Investor(s):

	 	YA Global Master SPV Ltd.
	 

	 	101 Hudson Street — Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Attention: Mark Angelo
	 

	 	                 Portfolio Manager
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266
	 
	 	 
	With a Copy to:

	 	David Gonzalez, Esq.
	 

	 	101 Hudson Street — Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266

Each party shall provide 5 days’ prior written notice to the other party of any change in address
or facsimile number.

 

23

 

Article XII. Miscellaneous

Section 12.01 Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause 4 additional original executed signature pages to be physically delivered
to the other party within 5 days of the execution and delivery hereof, though failure to deliver
such copies shall not affect the validity of this Agreement.

Section 12.02 Entire Agreement; Amendments. This Agreement, along with any exhibits or
amendments hereto, encompasses the entire agreement of the parties and supersedes all other prior
oral or written agreements between the Investor, the Company their affiliates and persons acting on
their behalf with respect to the matters discussed herein, and this Agreement contains the entire
understanding of the parties with respect to the matters covered herein. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed by the party to be
charged with enforcement.

Section 12.03 Reporting Entity for the Common Stock. The reporting entity relied upon for
the determination of the trading price or trading volume of the Common Stock on any given Trading
Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The
written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.

Section 12.04 Fees.

	 	(a)	 	Commitment Fee. On the date hereof, the Company shall pay to the Investor a
commitment fee (the “Commitment Fee”) of $125,000. The Commitment Fee may be paid
in cash, in shares of Common Stock or some combination thereof. If any portion of the
Commitment Fee is to be paid in shares of Common Stock (such shares, the “Commitment
Shares”), the Company will issue to the Investor shares of Common Stock in an amount
equal to the portion of the Commitment Fee to be paid in shares of Common Stock divided by
the average daily VWAP for the three Trading Days immediately after the date hereof
(“Determination Period”), payable by the Company within four days after the
Determination Period.

	 	(b)	 	Commitment Shares. Commitment Shares shall be deemed fully earned as of the
date they are issued regardless of the amount of Advances, if any, that the Company is able
to, or chooses to, request hereunder. The Commitment Shares shall be issued pursuant to
the Registration Statement.

	 	(c)	 	Structuring Fee. The Company shall pay a structuring fee of $25,000 to
Yorkville Advisors, LLC on or before the date of this Agreement.

Section 12.05 Brokerage. Each of the parties hereto represents that it has had no dealings
in connection with this transaction with any finder or broker who will demand payment of any fee or
commission from the other party. The Company on the one hand, and the Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.

 

24

 

Section 12.06 Confidentiality. If for any reason the transactions contemplated by this
Agreement are not consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such party’s domain
prior to the date hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other written information
without retaining copies thereof, previously furnished by it as a result of this Agreement or in
connection herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

25

 

IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Distribution Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

	 	 	 	 	 
	 	COMPANY: 
 Digital Angel Corporation 

 	 
	 	By:  	 	 
	 	 	Name:  	Joseph J. Grillo 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	INVESTOR:

YA Global Master SPV Ltd.

By: Yorkville Advisors, LLC
 Its:  Investment Manager

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

26

 

EXHIBIT A

ADVANCE NOTICE

DIGITAL ANGEL CORPORATION

The
undersigned,
                                         hereby certifies, with respect to the sale of shares
of Common Stock of DIGITAL ANGEL CORPORATION (the “Company”) issuable in connection with
this Advance Notice, delivered pursuant to the Standby Equity Distribution Agreement between the
Company and YA Global Master SPV Ltd. dated                     , 2009 (the “Agreement”), as follows:

1. The undersigned is the duly elected                                          of the Company.

2. There are no fundamental changes to the information set forth in the Registration Statement
which would require the Company to file a post effective amendment to the Registration Statement.

3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company and has complied in all material respects with all obligations and
conditions contained in the Agreement on or prior to the Advance Notice Date, and shall continue to
perform in all material respects all covenants and agreements to be performed by the Company
through the applicable Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.

4. The undersigned hereby represents, warrants and covenants that it has made all filings
(“SEC Filings”) required to be made by it pursuant to applicable securities laws
(including, without limitation, all filings required under the Securities Exchange Act of 1934,
which include Forms 10-Q, 10-K, 8-K, etc.). All SEC Filings and other public disclosures made by
the Company, including, without limitation, all press releases, analysts meetings and calls, etc.
(collectively, the “Public Disclosures”), have been reviewed and approved for release by
the Company’s attorneys or general counsel and, if containing financial information, the Company’s
independent certified public accountants. None of the Company’s Public Disclosures contain any
untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

5. The Advance requested is                                         .

6. 4.99% of the outstanding Common Stock of the Company as of the date hereof is                                         .

The undersigned has executed this Certificate this
 _____ 
day of                                         .

	 	 	 	 	 
	 	DIGITAL ANGEL CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Please deliver this Advance Notice by mail or facsimile with a follow up phone call to:

Yorkville Advisors, LLC, 101 Hudson Street, Suite 3700, Jersey City, NJ 07302 Fax: (201) 946-0851

Attention: Trading Department and Compliance Officer

Confirmation Telephone Number: (201) 985-8300 ext. 129.

 

 

 

EXHIBIT B

FORM OF SETTLEMENT DOCUMENT

VIA FACSIMILE & EMAIL

Digital Angel Corporation

Attn: [                    ], CEO

Fax:                     

Email:                                         

	 	 	 	 	 
	Below please find the settlement information with respect to
the Advance Notice Date of:
	 	 	 	 
	 
	 	 	 	 
	1. (a) Amount of Advance Notice:
	 	$	 	 
	 
	 	 	 	 
	(b) Amount of Advance Notice (after taking into account any
adjustments pursuant to Section 2.01):
	 	$	 	 
	 
	 	 	 	 
	2. Market Price:
	 	$	 	 
	 
	 	 	 	 
	3. Purchase Price (Market Price X ____%) per share:
	 	$	 	 
	 
	 	 	 	 
	4. Number of Shares due to Investor:
	 	 	 	 

Please issue the number of Shares due to the Investor to the account of the Investor as follows:

DTC/DWAC Instructions

YA Global Master SPV, Ltd

Blue Trading, DTC Participant No.: 0158 (Ridge)

Account No.: 72 118 101

  Sincerely,

YA GLOBAL MASTER SPV, LTD.

Approved By Digital Angel Corporation:

	 	 	 
	 

Name:

	 	 

 

 

 

EXHIBIT C

FORM OF OPINION

1. The Company is a corporation validly existing and in good standing under the laws of the
State of Delaware, with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Company’s public filings, including reports filed or
furnished by the Company under the Securities Exchange Act of 1934, as amended, (the “Exchange
Act”) and the rules and regulations of the Commission thereunder (the “Public Filings”)
and to enter into and perform its obligations under the Transaction Documents.

2. The Company has the requisite corporate power and authority to enter into and perform its
obligations under the Transaction Documents and to issue the Common Shares in accordance with their
terms. The execution and delivery of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated thereby have been duly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of Directors or
stockholders is required. Each of the Transaction Documents has been duly executed and delivered,
and each of the Transaction Documents constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms.

3. The Common Shares are duly authorized and, upon issuance and receipt of full payment in
accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free of any liens, encumbrances and preemptive or similar rights contained in
the Company’s Certificate of Incorporation or By-laws or, to our knowledge, in any agreement filed
by the Company as an exhibit to the Company’s Public Filings.

4. The execution, delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby (other than performance by the
Company of its obligations under the indemnification sections of such agreements, as to which no
opinion need be rendered) will not (i) result in a violation of the Company’s Certificate of
Incorporation or By-Laws; (ii) to our knowledge, conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any agreement or, indenture
filed by the Company as an exhibit to the Company’s Public Filings; or (iii) to our knowledge,
result in a violation of any federal or Delaware law, rule or regulation, order, judgment or decree
applicable to the Company or by which any property or asset of the Company is bound or affected.

5. To our knowledge and other then as set forth in the Public Filings, there are no legal or
governmental proceedings pending to which the Company is a party or of which any property or assets
of the Company is subject which is required to be disclosed in any Public Filings.exv10w01

Exhibit 10.01

FLEXTRONICS INTERNATIONAL LTD.

2001 EQUITY INCENTIVE PLAN

As Adopted August 13, 2001 and amended through July 13, 2009

     1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate
eligible persons whose present and potential contributions are important to the success of the
Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the
Company’s future performance through grants of Awards. Capitalized terms not defined in the text
are defined in Section 21.

     2. SHARES SUBJECT TO THE PLAN.

          2.1 Number of Shares Available. Subject to Sections 2.2 and 15, the total number of
Shares reserved and available for grant and issuance pursuant to this Plan will be 62,000,000
Shares, plus shares that are subject to issuance upon exercise of an Award but cease to be subject
to such Award for any reason other than exercise of such Award. In addition, any authorized shares
not issued or subject to outstanding grants under the Company’s 1993 Share Option Plan, 1997
Interim Option Plan, 1998 Interim Option Plan, 1999 Interim Option Plan, ASIC International, Inc.
Non-Qualified Stock Option Plan, Wave Optics, Inc. 1997 Share Option Plan, Wave Optics, Inc. 2000
Share Option Plan, Chatham Technologies, Inc. Stock Option Plan, Chatham Technologies, Inc. 1997
Stock Option Plan, IEC Holdings Limited 1997 Share Option Scheme, Palo Alto Products International
Private Ltd 1996 Share Option Plan, The DII Group, Inc. 1994 Stock Incentive Plan, The DII Group,
Inc. 1993 Stock Option Plan, Orbit Semiconductor, Inc. 1994 Stock Incentive Plan, Telcom Global
Solutions Holdings, Inc. 2000 Equity Incentive Plan, Telcom Global Solutions, Inc. 2000 Stock
Option Plan, KMOS Semi-Customs, Inc. 1989 Stock Option Plan, and KMOS Semi-Customs, Inc. 1990
Non-Qualified Stock Option Plan, (each a “Prior Plan” and collectively, the “Prior Plans”) and any
shares subject to outstanding grants that are forfeited and/or that are issuable upon exercise of
options granted pursuant to the Prior Plans that expire or become unexercisable for any reason
without having been exercised in full, will no longer be available for grant and issuance under the
Prior Plans, but will be available for grant and issuance under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall be required to
satisfy the requirements of all outstanding Awards granted under this Plan. No more than
30,000,000 Shares shall be issued as ISOs and no more than 20,000,000 Shares shall be issued as
Stock Bonuses.

          2.2 Adjustment of Shares. Should any change be made to the Shares issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares, spin-off or other change affecting the outstanding Shares as a class without
the Company’s receipt of consideration, then appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or
class of securities for which any Participant may be granted Awards under the terms of the Plan or
that may be granted generally under the terms of the Plan, (iii) the number and/or class of
securities and price per Share in effect under each Award outstanding under Sections 5, 7, and 20,
and (iv) the number and/or class of securities for which automatic Option grants are to be
subsequently made to newly elected or continuing Outside Directors under Section 7. Such
adjustments to the outstanding Awards are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such Awards, provided, however, that (i)
fractions of a Share will not be issued but will be replaced by a cash payment equal to the Fair
Market Value of such fraction of a Share, as determined by the Committee. The adjustments
determined by the Committee shall be final, binding and conclusive. The repricing, replacement or
regranting of any previously granted Award, through cancellation or by lowering the Exercise Price
or Purchase Price of such Award, shall be prohibited unless the shareholders of the Company first
approve such repricing, replacement or regranting.

     3. ELIGIBILITY. All Awards may be granted to employees, officers and directors of the Company
or any Parent or Subsidiary of the Company. No person will be eligible to receive more than
6,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder;
provided, however, that no Outside

 

 

Director will be eligible to receive more than 100,000 Shares, in the aggregate, in any
calendar year under this Plan pursuant to the grant of Awards hereunder. A person may be granted
more than one Award under this Plan.

     4. ADMINISTRATION.

          4.1 Committee Authority. This Plan will be administered by the Committee or by the
Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section
7 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the
direction of the Board, the Committee will have full power to implement and carry out this Plan.
Except for automatic grants to Outside Directors pursuant to Section 7 hereof, the Committee will
have the authority to:

     (a) construe and interpret this Plan, any Award Agreement and any other agreement or
document executed pursuant to this Plan;

     (b) prescribe, amend and rescind rules and regulations relating to this Plan or any
Award;

     (c) select persons to receive Awards;

     (d) determine the form and terms of Awards;

     (e) determine the number of Shares or other consideration subject to Awards;

     (f) determine whether Awards will be granted singly, in combination with, in tandem
with, in replacement of, or as alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

     (g) grant waivers of Plan or Award conditions;

     (h) determine the vesting, exercisability and payment of Awards;

     (i) correct any defect, supply any omission or reconcile any inconsistency in this
Plan, any Award or any Award Agreement;

     (j) determine whether an Award has been earned; and

     (k) make all other determinations necessary or advisable for the administration of this
Plan.

          4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant
to Section 7 hereof, any determination made by the Committee with respect to any Award will be made
in its sole discretion at the time of grant of the Award or, unless in contravention of any express
term of this Plan or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant an Award under this Plan to
Participants who are not Insiders of the Company.

     5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether
such Options will be Incentive Stock Options within the meaning of the Code (“ISOs”) or
Nonqualified Stock Options (“NQSOs”), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:

          5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an
Award Agreement which will expressly identify the Option as an ISO or an NQSO (“Stock Option
Agreement”), and, except as otherwise required by the terms of Section 7 hereof, will be in such
form and contain such provisions

2

 

(which need not be the same for each Participant) as the Committee may from time to time
approve, and which will comply with and be subject to the terms and conditions of this Plan.

          5.2 Date of Grant. The date of grant of an Option will be the date on which the
Committee makes the determination to grant such Option, unless otherwise specified by the
Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.

          5.3 Exercise Period. Options may be exercisable within the times or upon the events
determined by the Committee as set forth in the Stock Option Agreement governing such Option;
provided, however, that no Option will be exercisable after the expiration of ten (10) years from
the date the Option is granted; and provided further that (i) no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total combined voting power of
all classes of shares or stock of the Company or of any Parent or Subsidiary of the Company (“Ten
Percent Shareholder”) will be exercisable after the expiration of five (5) years from the date the
ISO is granted and (ii) no Option granted to a person who is not an employee of the Company or any
Parent or Subsidiary of the Company on the date of grant of that Option will be exercisable after
the expiration of five (5) years from the date the Option is granted. The Committee also may
provide for Options to become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Committee determines.

          5.4 Exercise Price. The Exercise Price of an Option will be determined by the
Committee when the Option is granted; provided that: (i) the Exercise Price will be not less than
100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of
any ISO granted to a Ten Percent Shareholder will not be less than 110% of the Fair Market Value of
the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with
Section 6 of this Plan.

          5.5 Method of Exercise.

     (a) Options may be exercised only by delivery to the Company (or as the Company may
direct) of a written stock option exercise agreement (the “Exercise Agreement”) (in the case
of a written Exercise Agreement, in the form approved by the Board or the Committee, which
need not be the same for each Participant), in each case stating the number of Shares being
purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement,
if any, and such representations and agreements regarding Participant’s investment intent
and access to information and other matters, if any, as may be required or desirable by the
Company to comply with applicable securities laws, together with payment in full of the
Exercise Price for the number of Shares being purchased.

     (b) A written Exercise Agreement may be communicated electronically through the use of
such security device (including, without limitation, any logon identifier, password,
personal identification number, smartcard, digital certificate, digital signature,
encryption device, electronic key, and/or other code or any access procedure incorporating
any one or more of the foregoing) as may be designated by the Board or the Committee for use
in conjunction with the Plan from time to time (“Security Device”), or via an electronic
page, site, or environment designated by the Company which is accessible only through the
use of such Security Device, and such written Exercise Agreement shall thereby be deemed to
have been sent by the designated holder of such Security Device. The Company (or its agent)
may accept and act upon any written Exercise Agreement issued and/or transmitted through the
use of the Participant’s Security Device (whether actually authorized by the Participant or
not) as his authentic and duly authorized Exercise Agreement and the Company (or its agent)
may treat such Exercise Agreement as valid and binding on the Participant notwithstanding
any error, fraud, forgery, lack of clarity or misunderstanding in the terms of such Exercise
Agreement. All written Exercise Agreements issued and/or transmitted through the use of the
Participant’s Security Device (whether actually authorized by the Participant or not) are
irrevocable and binding on the Participant upon transmission to the Company (or as the
Company may direct) and the Company (or its agent) shall be entitled to effect, perform or
process such Exercise Agreement without the Participant’s further consent and without
further reference to the Participant.

3

 

     (c) The Company’s records of the Exercise Agreements (whether delivered or communicated
electronically or in printed form), and its record of any transactions maintained by any
relevant person authorized by the Company relating to or connected with the Plan, whether
stored in audio, electronic, printed or other form, shall be binding and conclusive on the
Participant and shall be conclusive evidence of such Exercise Agreements and/or
transactions. All such records shall be admissible in evidence and, in the case of a written
Exercise Agreement which has been communicated electronically, the Participant shall not
challenge or dispute the admissibility, reliability, accuracy or the authenticity of the
contents of such records merely on the basis that such records were incorporated and/or set
out in electronic form or were produced by or are the output of a computer system, and the
Participant waives any of his rights (if any) to so object.

          5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:

     (a) If the Participant is Terminated for any reason except death or Disability, then
the Participant may exercise such Participant’s Options only to the extent that such Options
would have been exercisable upon the Termination Date no later than three (3) months after
the Termination Date (or such shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, provided, that any Option which is exercised beyond
three (3) months after the Termination Date shall be deemed to be an NQSO), but in any event
no later than the expiration date of the Options.

     (b) If the Participant is Terminated because of the Participant’s death or Disability
(or the Participant dies within three (3) months after a Termination other than for Cause or
because of the Participant’s Disability), then the Participant’s Options may be exercised
only to the extent that such Options would have been exercisable by the Participant on the
Termination Date and must be exercised by the Participant (or the Participant’s legal
representative or authorized assignee) no later than twelve (12) months after the
Termination Date (or such shorter or longer time period not exceeding five (5) years as may
be determined by the Committee, provided, that any Option which is exercised beyond twelve
(12) months after the Termination Date when the Termination is for Participant’s Disability,
shall be deemed to be an NQSO), but in any event no later than the expiration date of the
Options.

     (c) If the Participant is terminated for Cause, then the Participant’s Options shall
expire on such Participant’s Termination Date, or at such later time and on such conditions
as are determined by the Committee (but in any event, no later than the expiration date of
the Options).

          5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option, provided that such minimum number
will not prevent Participant from exercising the Option for the full number of Shares for which it
is then exercisable.

          5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of
grant) of Shares with respect to which ISO are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other incentive stock option plan of the
Company, Parent or Subsidiary of the Company) will not exceed US$100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the first time by a
Participant during any calendar year exceeds US$100,000, then the Options for the first US$100,000
worth of Shares to become exercisable in such calendar year will be ISO and the Options for the
amount in excess of US$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after the Effective Date
of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISO, such different limit will be automatically incorporated herein and will apply to
any Options granted after the effective date of such amendment.

          5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution therefor, provided that
any such action may not, without the written consent of a Participant, impair any of such
Participant’s rights under any Option

4

 

previously granted, and provided further that the exercise period of any Option may not in any
event be extended beyond the periods specified in Section 5.3. Any outstanding ISO that is
modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code.

          5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term
of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or
authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any ISO under Section
422 of the Code.

     6. PAYMENT FOR SHARE PURCHASES.

          6.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash
(by check) or, where expressly approved for the Participant by the Committee and where permitted by
law:

     (a) by cancellation of indebtedness of the Company to the Participant;

     (b) by waiver of compensation due or accrued to the Participant for services rendered;

     (c) with respect only to purchases upon exercise of an Option, and provided that a
public market for the Company’s Shares exists:

                    (i) through a “same day sale” commitment from the Participant and a broker-dealer that is a
member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant
irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares
to forward the Exercise Price directly to the Company; or

                    (ii) through a “margin” commitment from the Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the
NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company;

     (d) conversion of a convertible note issued by the Company, the terms of which provide
that it is convertible into Shares issuable pursuant to the Plan (with the principal amount
and any accrued interest being converted and credited dollar for dollar to the payment of
the Exercise Price); or

     (e) by any combination of the foregoing.

     7. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.

          7.1 Types of Options and Shares. Options granted under this Plan and subject to this
Section 7 shall be NQSOs.

          7.2 Eligibility. Options subject to this Section 7 shall be granted only to Outside
Directors. In no event, however, may any Outside Director be granted any Options under this Section
7 if such grant is (a) prohibited, or (b) restricted (either absolutely or subject to various
securities requirements, whether legal or administrative, being complied with), in the jurisdiction
in which such Outside Director is resident under the relevant securities laws of that jurisdiction.

          7.3 Initial Grant. Each Outside Director who first becomes a member of the Board
after the Effective Date will automatically be granted an Option for 25,000 Shares (an “Initial
Grant”) on the date such Outside Director first becomes a member of the Board. Each Outside
Director who became a member of the Board

5

 

on or prior to the Effective Date and who did not receive a prior option grant (under this
Plan or otherwise and from the Company or any of its corporate predecessors) will receive an
Initial Grant on the Effective Date.

          7.4 Succeeding Grant. Immediately following each Annual General Meeting of
shareholders of the Company, each Outside Director will automatically be granted an Option for
12,500 Shares (a “Succeeding Grant”), provided, that the Outside Director is a member of the Board
immediately following such Annual General Meeting.

          7.5 Vesting and Exercisability. The date an Outside Director receives an Initial
Grant or a Succeeding Grant is referred to in this Plan as the “Start Date” for such Option.

     (a) Initial Grant. Each Initial Grant will vest and be exercisable as to 25%
of the Shares on the first one year anniversary of the Start Date for such Initial Grant,
and thereafter as to 1/48 of the Shares at the end of each full
succeeding month, so long as the Outside Director continuously remains a director or a
consultant of the Company.

     (b) Succeeding Grant. Each Succeeding Grant will vest and be exercisable as to
25% of the Shares on the first one year anniversary of the Start Date for such Succeeding
Grant, and thereafter as to 1/48 of the Shares at the end of each full
succeeding month, so long as the Outside Director continuously remains a director or a
consultant of the Company. No Options granted to an Outside Director will be exercisable
after the expiration of five (5) years from the date the Option is granted to such Outside
Director. If the Outside Director is Terminated, the Outside Director may exercise such
Outside Director’s Options only to the extent that such Options would have been exercisable
upon the Termination Date for such period as set forth in Section 5.6. Notwithstanding any
provision to the contrary, in the event of a Corporate Transaction described in Section
15.1, the vesting of all Options granted to Outside Directors pursuant to this Section 7
will accelerate and such Options will become exercisable in full prior to the consummation
of such event at such times and on such conditions as the Committee determines, and must be
exercised, if at all, within three (3) months of the consummation of said event. Any Options
not exercised within such three-month period shall expire. Notwithstanding any provision to
the contrary, in the event of a Hostile Take-Over, the Outside Director shall have a
thirty-day period in which to surrender to the Company each option held by him or her under
this Plan for a period of at least six (6) months. The Outside Director shall in return be
entitled to a cash distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price of the Shares at the time subject to the surrendered Option (whether or not
the Option is otherwise at the time exercisable for those Shares) over (ii) the aggregate
Exercise Price payable for such Shares. Such cash distribution shall be paid within five (5)
days following the surrender of the Option to the Company. Neither the approval of the
Committee nor the consent of the Board shall be required in connection with such option
surrender and cash distribution. The Shares subject to each Option surrendered in connection
with the Hostile Take-Over shall NOT be available for subsequent issuance under the Plan.

          7.6 Exercise Price. The Exercise Price of an Option pursuant to an Initial Grant and
Succeeding Grant shall be the Fair Market Value of the Shares, at the time that the Option is
granted.

     8. WITHHOLDING TAXES.

          8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards
granted under this Plan, the Company may require the Participant to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such Shares. Whenever, under this Plan, payments in
satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.

          8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax
liability in connection with the exercise or vesting of any Award that is subject to tax
withholding and the Participant is obligated to pay the Company the amount required to be withheld,
the Committee may in its sole discretion, and

6

 

subject to compliance with all applicable laws and regulations, allow the Participant to
satisfy the minimum withholding tax obligation by electing to have the Company withhold from the
Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have Shares withheld for this purpose will be made in
accordance with the requirements established by the Committee and be in writing in a form
acceptable to the Committee.

     9. TRANSFERABILITY.

          9.1 Except as otherwise provided in this Section 9, Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by a Participant, and may not be made
subject to execution, attachment or similar process, otherwise than by will or by the laws of
descent and distribution or as determined by the Committee and set forth in the Award Agreement
with respect to Awards. Notwithstanding the foregoing, (i) Participants may transfer or assign
their Options to Family Members through a gift or a domestic relations order (and not in a transfer
for value), and (ii) if the terms of the applicable instrument evidencing the grant of an Option so
provide, Participants who reside outside of the United States and Singapore may assign their
Options to a financial institution outside of the United States and Singapore that has been
approved by the Committee, in accordance with the terms of the applicable instrument, subject to
Code regulations providing that any transfer of an ISO may cause such ISO to become a NQSO. The
Participant shall be solely responsible for effecting any such assignment, and for ensuring that
such assignment is valid, legal and binding under all applicable laws. The Committee shall have the
discretion to adopt such rules as it deems necessary to ensure that any assignment is in compliance
with all applicable laws.

          9.2 All Awards other than NQSO’s. All Awards other than NQSO’s shall be exercisable:
(i) during the Participant’s lifetime, only by (A) the Participant, or (B) the Participant’s
guardian or legal representative; and (ii) after Participant’s death, by the legal representative
of the Participant’s heirs or legatees. 9.3 NQSOs. Unless otherwise restricted by the Committee, an
NQSO shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, (B)
the Participant’s guardian or legal representative, (C) a Family Member of the Participant who has
acquired the NQSO by “permitted transfer;” as defined below, (ii) by a transferee that is permitted
pursuant to clause (ii) of Section 9.2, for such period as may be authorized by the terms of the
applicable instrument evidencing the grant of the applicable Option, or by the Committee, and (iii)
after Participant’s death, by the legal representative of the Participant’s heirs or legatees.
“Permitted transfer” means any transfer of an interest in such NQSO by gift or domestic relations
order effected by the Participant during the Participant’s lifetime. A permitted transfer shall not
include any transfer for value; provided that the following shall be permitted transfers and shall
not be considered to be transfers for value: (a) a transfer under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which more than fifty
percent of the voting interests are owned by Family Members or the Participant in exchange for an
interest in that entity.

     10. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights of a
shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares
are issued to the Participant, the Participant will be a shareholder and have all the rights of a
shareholder with respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares.

     11. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan
will be subject to such stock transfer orders, legends and other restrictions as the Committee may
deem necessary or advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

     12. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time and
subject to compliance with all applicable laws and regulations, authorize the Company, with the
consent of the respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time and subject to
compliance with all applicable laws and regulations buy from a Participant an Award previously
granted with payment in cash, Shares or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.

7

 

     13. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless
such Award is in compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in this Plan, the Company will have no obligation to issue or deliver certificates
for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that
the Company determines are necessary or advisable; and/or (b) completion of any registration or
other qualification of such Shares under any state or federal law or ruling of any governmental
body that the Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or failure to do so.

     14. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will
confer or be deemed to confer on any Participant any right to continue in the employ of, or to
continue any other relationship with, the Company or any Parent or Subsidiary of the Company or
limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant’s employment or other relationship at any time, with or without cause.

     15. CORPORATE TRANSACTIONS.

          15.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to
Outside Directors pursuant to Section 7 hereof, in the event of (a) a dissolution or liquidation of
the Company, (b) a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which there is no substantial change
in the shareholders of the Company or their relative share holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation, which assumption will be
binding on all Participants), (c) a merger in which the Company is the surviving corporation but
after which the shareholders of the Company immediately prior to such merger (other than any
shareholder that merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in the Company, (d) the
sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer
of more than 50% of the outstanding shares of the Company by tender offer or similar transaction
(each, a “Corporate Transaction ”), each Option which is at the time outstanding under this Plan
shall automatically accelerate so that each such Option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with respect to the total
number of Shares at the time subject to such Option and may be exercised for all or any portion of
such Shares. However, subject to the specific terms of a Participant’s Award Agreement, an
outstanding Option under this Plan shall not so accelerate if and to the extent: (i) such Option
is, in connection with the Corporate Transaction, either to be assumed by the successor corporation
or parent thereof or to be replaced with a comparable Option to purchase shares of the capital
stock of the successor corporation or parent thereof, (ii) such Option is to be replaced with a
cash incentive program of the successor corporation which preserves the Option spread existing at
the time of the Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such Option or (iii) the acceleration of such Option is subject
to other limitations imposed by the Committee at the time of the Option grant. The determination of
Option comparability under clause (i) above shall be made by the Committee, and its determination
shall be final, binding and conclusive.

          15.2 Other Treatment of Awards. Subject to any greater rights granted to Participants
under the foregoing provisions of this Section 15 or other specific terms of a Participant’s Award
Agreement, in the event of the occurrence of any Corporate Transaction described in Section 15.1,
any outstanding Awards will be treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, or sale of assets.

          15.3 Assumption of Awards by the Company. The Company, from time to time, also may
substitute or assume outstanding awards granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company’s award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed

8

 

award could be applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have been eligible to
be granted an Award under this Plan if the other company had applied the rules of this Plan to such
grant. In the event the Company assumes an award granted by another company, the terms and
conditions of such award will remain unchanged (except that the Exercise Price and the number and
nature of Shares issuable upon exercise of any such Option will be adjusted appropriately pursuant
to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than
assuming an existing Option, such new Option may be granted with a similarly adjusted Exercise
Price.

     16. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on the date on which
the Board adopts the Plan (the “Effective Date”). This Plan shall be approved by the shareholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws,
within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a)
no Option may be exercised prior to initial shareholder approval of this Plan; (b) no Option
granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board
will be exercised prior to the time such increase has been approved by the shareholders of the
Company; (c) in the event that initial shareholder approval is not obtained within the time period
provided herein, all Awards granted hereunder shall be cancelled; and (d) in the event that
shareholder approval of such increase is not obtained within the time period provided herein, all
Awards granted pursuant to such increase will be cancelled.

     17. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will
terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date
of shareholder approval. This Plan and all agreements thereunder shall be governed by and construed
in accordance with the laws of the State of California.

     18. AMENDMENT OR TERMINATION OF PLAN. The Board has complete and exclusive power and
authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and obligations with
respect to Options at the time outstanding under the Plan, unless the Participant consents to such
amendment, and (ii) the automatic grants to Outside Directors pursuant to Section 7 may not be
amended at intervals more frequently than once every six (6) months, other than to the extent
necessary to comply with applicable U.S. income tax laws and regulations. In addition, the Board
may not, without the approval of the Company’s shareholders, amend the Plan to (i) materially
increase the maximum number of Shares issuable under the Plan or the number of Shares for which
Options may be granted per newly-elected or continuing Outside Director or the maximum number of
Shares for which any one individual participating in the Plan may be granted Options, (ii)
materially modify the eligibility requirements for plan participation or (iii) materially increase
the benefits accruing to Participants. The Board may at any time terminate or amend this Plan in
any respect, including without limitation amendment of any form of Award Agreement or instrument to
be executed pursuant to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires such shareholder
approval.

     19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the
submission of this Plan to the shareholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.

     20. STOCK BONUSES.

          20.1 Stock Bonuses Generally. A Stock Bonus is a grant of Shares by the Company to an
individual who has satisfied the terms and conditions set by the Committee on the making of such
grant. The Committee will determine to whom a grant may be made, the number of Shares that may be
granted, the restrictions to the making of such grant, and all other terms and conditions of the
Stock Bonus, subject to the restrictions set forth in Section 20.2 hereof. The conditions to grant
may be based upon completion of a specified number of years of service with the Company or upon
completion of the performance goals as set out by the Committee. Grants of Stock Bonuses may vary
from Participant to Participant and between groups of Participants. Prior to the grant of a

9

 

Stock Bonus, the Commitee shall: (a) determine the nature, length and starting date of any
Performance Period that may be a condition precedent to grant of a Stock Bonus; (b) select from
among the Performance Factors to be used to measure performance goals, if any; and (c) determine
the number of Shares that may be awarded to the Participant. Prior to the grant of any Stock
Bonus, the Committee shall determine the extent to which such Stock Bonus has been earned.
Performance Periods may overlap and Participants may participate simultaneously with respect to
Stock Bonuses that are subject to different Performance Periods and having different performance
goals and other criteria.

          20.2 Restrictions on Stock Bonus Awards.

               (a) Any Stock Bonuses with vesting based on Performance Factors shall have a minimum
Performance Period of one year, and any Stock Bonuses with vesting based solely on the passage of
time and continued service to the Company shall have a minimum Performance Period of three years
(collectively, the “Stock Bonus Restriction Periods”).

               (b) The Stock Bonus Restriction Periods may not be waived except in the case of death,
Disability, Termination or a Corporate Transaction.

               (c) Stock Bonuses granted not in accordance with the Stock Bonus Restriction Periods may not
exceed five percent (5%) of the total Shares reserved and available for grant and issuance pursuant
to this Plan, including (i) shares that are subject to issuance upon exercise of an Award but cease
to be subject to such Award for any reason other than exercise of such Award; (ii) any authorized
shares not issued or subject to outstanding grants under the Prior Plans; and (iii) any shares
subject to outstanding grants that are forfeited and/or that are issuable upon exercise of options
granted pursuant to the Prior Plans that expire or become unexercisable for any reason without
having been exercised in full.

     21. DEFINITIONS. As used in this Plan, the following terms will have the following meanings:

     “Award” means any Options or shares from Stock Bonuses granted under this Plan.

     “Award Agreement” means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the Award.

     “Board” means the Board of Directors of the Company.

     “Cause” means (a) the commission of an act of theft, embezzlement, fraud, dishonesty, (b) a
breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company or (c) a failure
to materially perform the customary duties of the employee’s employment.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Committee” means the Compensation Committee of the Board.

     “Company” means Flextronics International Ltd. or any successor corporation.

     “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Exercise Price” means the price at which a holder of an Option may purchase the Shares
issuable upon exercise of the Option.

     “Fair Market Value” means, as of any date, the value of the Shares determined as follows:

10

 

     (a) if such Shares are then quoted on the Nasdaq National Market, the closing price of
such Shares on the Nasdaq National Market on the date of determination as reported in The
Wall Street Journal;

     (b) if such Shares are publicly traded and are then listed on a national securities
exchange, the closing price of such Shares on the date of determination on the principal
national securities exchange on which the Shares are listed or admitted to trading as
reported in The Wall Street Journal;

     (c) if such Shares are publicly traded but are not quoted on the Nasdaq National Market
nor listed or admitted to trading on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as reported in The Wall Street
Journal; or

     (d) if none of the foregoing is applicable, by the Committee in good faith.

     “Family Member” includes any of the following:

     (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of the Participant, including any such person with such
relationship to the Participant by adoption;

     (b) any person (other than a tenant or employee) sharing the Participant’s household;

     (c) a trust in which the persons in (a) and (b) have more than fifty percent of the
beneficial interest;

     (d) a foundation in which the persons in (a) and (b) or the Participant control the
management of assets; or

     (e) any other entity in which the persons in (a) and (b) or the Participant own more
than fifty percent of the voting interest.

     “Hostile Take-Over” means a change in ownership of the Company effected through the following
transaction:

     (a) the direct or indirect acquisition by any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) of beneficial ownership (within the meaning of Rule
13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company’s outstanding securities pursuant to a tender or
exchange offer made directly to the Company’s shareholders which the Board does not
recommend such shareholders to accept, and

     (b) the acceptance of more than fifty percent (50%) of the securities so acquired in
such tender or exchange offer from holders other than Insiders.

     “Insider” means an officer or director of the Company or any other person whose transactions
in the Company’s Shares are subject to Section 16 of the Exchange Act.

     “Option” means an award of an option to purchase Shares pursuant to Sections 5 and 7.

     “Outside Director” means a member of the Board who is not an employee of the Company or any
Parent or Subsidiary.

     “Parent” means any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of such corporations other than the Company owns stock possessing
more than 50% of the

11

 

total combined voting power of all classes of stock in one of the other corporations in such
chain.

     “Participant” means a person who receives an Award under this Plan.

     “Performance Factors” means the factors selected by the Committee from among the following
measures to determine whether the performance goals established by the Committee and applicable to
Awards have been satisfied:

     (a) Net revenue and/or net revenue growth;

     (b) Earnings before income taxes and amortization and/or earnings before income taxes
and amortization growth;

     (c) Operating income and/or operating income growth;

     (d) Net income and/or net income growth;

     (e) Earnings per share and/or earnings per share growth;

     (f) Total stockholder return and/or total stockholder return growth;

     (g) Return on equity;

     (h) Operating cash flow return on income;

     (i) Adjusted operating cash flow return on income;

     (j) Economic value added; and

     (k) Individual confidential business objectives.

     “Performance Period” means the period of service determined by the Committee, not to exceed
five years, during which years of service or performance is to be measured for Awards.

     “Plan” means this Flextronics International Ltd. 2001 Equity Incentive Plan, as amended from
time to time.

     “SEC” means the Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Shares” means ordinary shares of no par value each in the capital of the Company reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 15, and any successor security.

     “Stock Bonus” means an award of Shares pursuant to Section 20.

     “Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing more than 50% of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

     “Take-Over Price” means the greater of (a) the Fair Market Value per Share on the date the
particular Option to purchase Shares is surrendered to the Company in connection with a Hostile
Take-Over or (b) the highest reported price per Share paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered Option is an ISO, the Take-Over Price shall not
exceed the clause (a) price per Share.

12

 

     “Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant,
that the Participant has for any reason ceased to provide services as an employee, officer or
director to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any
other leave of absence approved by the Committee, provided, that such leave is for a period of not
more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract
or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated to employees in writing. In the case of any employee on an
approved leave of absence, the Committee may make such provisions respecting suspension of vesting
of the Award while on leave from the employ of the Company or a Subsidiary as it may deem
appropriate, except that in no event may an Option be exercised after the expiration of the term
set forth in the Stock Option Agreement. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the “Termination Date”).

     22. OPTION EXCHANGE PROGRAM.

          Notwithstanding any other provision of this Plan to the contrary, upon approval of this
amendment by the Company’s shareholders, the Board, the Committee or any designee of the Board or
the Committee may provide for, and the Company may implement, a one-time Option exchange offer,
pursuant to which certain outstanding Options would, at the election of the holder of such Option,
be surrendered to the Company for cancellation, whereupon the surrendered Options shall terminate
and have no legal effect whatsoever, in exchange for the grant of a lesser number of new Options,
which new Options may have reduced Exercise Prices and different vesting and expiration periods
from the surrendered Options; provided, however, that such offer shall be commenced within twelve
months of the date of such shareholder approval. For the avoidance of doubt, the surrendering and
cancellation of the Options shall not at any time, result in the Company acquiring, directly or
indirectly, a right or interest in the surrendered Options.

13

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}]]