Document:

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GUARANTEE

     FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in connection with
that certain funding agreement (the “Funding Agreement”), entered into by and between Principal
Life Insurance Company, an Iowa insurance company (“Principal Life”), and Principal Life Income
Fundings Trust 2006-86, a New York common law trust (the “Trust”), relating to the notes (the
“Notes”) issued by the Trust, Principal Financial Group, Inc., a Delaware corporation and the
indirect parent company of Principal Life (the “Guarantor”), hereby furnishes to the Trust its full
and unconditional guarantee of the Guaranteed Amounts (as hereinafter defined) as follows:

     1. Guarantee.

          (a) The Guarantor hereby fully, irrevocably, absolutely and unconditionally guarantees, as a
guarantee of payment and not merely as a guarantee of collection, immediate payment when due to the
Trust any payments required to be made by Principal Life to the Trust under the Funding Agreement
which shall become due and payable regardless of whether such payment is due at maturity, on an
interest payment date or as a result of redemption or otherwise (the “Scheduled Payments”) but
shall be unpaid by Principal Life (the “Guaranteed Amounts”). Notwithstanding anything to the
contrary contained herein, in no event shall the Guaranteed Amounts exceed the Deposit (as defined
in the Funding Agreement) of the Funding Agreement, plus accrued but unpaid interest and any other
amounts due and owing under the Funding Agreement, less any amounts paid by Principal Life to the
Trust.

          (b) In the event that Principal Life fails to make a Scheduled Payment in full when due (the
“Payment Notice Date”), then the Trust or Citibank, N.A., as indenture trustee for the benefit of
the holders of the Notes (the “Indenture Trustee”), pursuant to the indenture (the “Indenture”)
between the Trust and the Indenture Trustee, may present the Guarantor with notice (each, a
“Payment Notice”) of such failure in writing on or after the Payment Notice Date. The Payment
Notice shall identify (1) the Funding Agreement, (2) the Trust, (3) the Payment Notice Date and (4)
the amount of the Scheduled Payments not paid by Principal Life to the Trust as of the Payment
Notice Date. Upon receipt of such Payment Notice, the Guarantor will immediately pay the
Guaranteed Amounts pursuant to Section 7.

          (c) In the event that, after receipt of a Payment Notice from the Trust, the Guarantor fails
to make immediate payment to the Trust or the Indenture Trustee of the Guaranteed Amounts, then
the Trust and the Indenture Trustee may enforce the obligations of the Guarantor under this
Guarantee, including by immediately bringing suit directly against the Guarantor (without first
bringing suit against Principal Life) for the Guaranteed Amounts not paid to the Trust as of the
Payment Notice Date.

          (d) This Guarantee is an unsecured, unsubordinated and contingent obligation of the Guarantor
and ranks equally with all other unsecured and unsubordinated obligations of the Guarantor.

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     2. Termination. This Guarantee is a continuing and irrevocable guarantee of the
Guaranteed Amounts now or hereafter existing and shall terminate and be of no further force and
effect with respect to the Funding Agreement and the Notes upon the full payment of the Scheduled
Payments or upon the earlier extinguishment of the obligations of Principal Life under the Funding
Agreement.

     3. Amendments. Subject to the trust agreement relating to the Trust and the Indenture, no
provision of this Guarantee may be waived, amended, supplemented or modified, except by a written
instrument executed by the Trust and the Guarantor.

     4. Assignment; Governing Law. This Guarantee shall inure to the benefit of the Trust and its
successors, assigns and pledgees. This Guarantee shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to conflict of law principles.

     5. Notices. All notices given pursuant to this Guarantee shall be in writing, and shall
either be delivered, mailed or telecopied to the locations listed below or at such other address or
to the attention of such other persons as such party shall have designated for such purpose in a
written notice complying as to delivery with the terms of this Section 5. Each such notice shall
be effective (i) if given by telecopy, when transmitted to the applicable number so specified in
this Section 5 (such notice shall also be sent by mail, with first class postage prepaid), (ii) if
given by mail, three days after deposit in the mails with first class postage prepaid, or (iii) if
given by any other means, when actually delivered at such address.

If to the Guarantor:

Principal Financial Group, Inc.

711 High Street

Des Moines, Iowa 50392

Attention: General Counsel

Telephone: (515) 247-5111

Facsimile: (515) 248-3011

With a copy to:

Principal Life Insurance Company

711 High Street

Des Moines, Iowa 50392

Attention: Jim Fifield

Telephone: (515) 248-9196

Facsimile: (866) 496-6527

If to the Trust:

Principal Life Income Fundings Trust (followed by the number of the Trust specified in this Guarantee)

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c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, New York 10005

Attention: Thomas E. Tabor

Telephone: (212) 361-6184

Facsimile: (212) 809-5459

With a copy to:

Citibank, N.A.

Citibank Agency and Trust

388 Greenwich Street, 14th Floor

New York, New York 10013

Attention: Nancy Forte

Telephone: (212) 816-5685

Facsimile: (212) 816-5527

     6. Representations and Warranties. The Guarantor represents and warrants that: (i) it is duly
organized and in good standing under the laws of the jurisdiction of its organization and has full
capacity and right to make and perform this Guarantee, and all necessary authority has been
obtained; (ii) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights and general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law; (iii) the making and performance of this
Guarantee does not and will not violate the provisions of any applicable law, regulation or order,
and does not and will not result in the breach of, or constitute a default under, any material
agreement, instrument or document to which it is a party or by which it or any of its property may
be bound or affected, except to the extent disclosed in the registration statement registering the
issuance of this Guarantee and the Funding Agreement, as amended, supplemented or modified from
time to time (the “Registration Statement”), and to the extent that any such violation, breach or
default does not result in a material adverse effect on the Guarantor; and (iv) all consents,
approvals, licenses and authorizations of, and filings and registrations with, any governmental
authority required under applicable law and regulations for the making and performance of this
Guarantee have been obtained or made and are in full force and effect, except to the extent
disclosed in the Registration Statement and to the extent that the failure to acquire any such
consent, approval, license, authorization, filing or registration does not result in a material
adverse effect on the Guarantor.

     7. Notice of, and Consent to, Security Interest. The Trust hereby notifies the Guarantor that
it has granted to the Indenture Trustee, on behalf of the holders of the Notes, a security interest
in the Collateral (as defined in the Indenture), including, but not limited to, any and all payment
to be made by the Guarantor to the Trust under this Guarantee. The Trust hereby notifies the
Guarantor that it has collaterally assigned to the Indenture Trustee, for the benefit of the
holders of the Notes, this Guarantee. The Guarantor, by executing this Guarantee, hereby (i)
affirms that it has made or simultaneously will make changes to its books and records to reflect
such security interest and collateral assignment, (ii) consents to the security interest

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granted, and collateral assignment made, by the Trust to the Indenture Trustee of this
Guarantee, (iii) agrees to make all payments due under this Guarantee to the Collection Account (as
defined in the Indenture) or any other account designated in writing to the Guarantor by the
Indenture Trustee and (iv) agrees to comply with all orders of the Indenture Trustee with respect
to this Guarantee without any further consent from the Trust.

     8. WAIVER OF JURY TRIAL; FINAL AGREEMENT. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE
GUARANTOR WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON OR ARISING
OUT OF THIS GUARANTEE. THIS GUARANTEE REPRESENTS THE FINAL AGREEMENT BETWEEN THE GUARANTOR AND THE
TRUST AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS AMONG SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

	 	 	 
	PRINCIPAL FINANCIAL GROUP, INC.
	 
	 	 
	By:

	 	/s/ Elizabeth D. Swanson
	 

	 	 
	 
	 	 
	Name:

	 	Elizabeth D. Swanson
	 

	 	 
	 
	 	 
	Title:

	 	Counsel
	 

	 	 
	 
	 	 
	Date:

	 	The Effective Date (as defined in the Funding
	 

	 	Agreement)

Acknowledged and Agreed:

THE PRINCIPAL LIFE INCOME FUNDINGS
TRUST DESIGNATED IN THIS GUARANTEE

	 	 	 	 	 
	By:	 	U.S. Bank Trust National Association,
	 	 	not in its individual capacity, but solely in its
	 	 	capacity as trustee
	 
	 	 	 	 
	By:	 	Bankers Trust Company, N.A.,
	 	 	under Limited Power of Attorney, dated February 16, 2006
	 
	 	 	 	 
	By:

	 	/s/ Diana L. Cook
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Diana L. Cook	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Title:

	 	Vice President	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Date:

	 	The Effective Date (as defined in the Funding	 	 
	 

	 	Agreement)	 	 

 4exv10w1

 

EXHIBIT 10.1

 

LIFECORE BIOMEDICAL, INC.

1996 STOCK PLAN

(AS AMENDED THROUGH NOVEMBER 16, 2006)

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	SECTION 1.

	 	GENERAL PURPOSE OF PLAN; DEFINITIONS
	 	 	1	 
	 
	 	 	 	 	 	 
	SECTION 2.

	 	ADMINISTRATION
	 	 	3	 
	 
	 	 	 	 	 	 
	SECTION 3.

	 	STOCK SUBJECT TO PLAN
	 	 	4	 
	 
	 	 	 	 	 	 
	SECTION 4.

	 	ELIGIBILITY
	 	 	4	 
	 
	 	 	 	 	 	 
	SECTION 5.

	 	STOCK OPTIONS
	 	 	5	 
	 
	 	 	 	 	 	 
	SECTION 6.

	 	STOCK APPRECIATION RIGHTS
	 	 	8	 
	 
	 	 	 	 	 	 
	SECTION 7.

	 	RESTRICTED STOCK
	 	 	9	 
	 
	 	 	 	 	 	 
	SECTION 8.

	 	DEFERRED STOCK AWARDS
	 	 	11	 
	 
	 	 	 	 	 	 
	SECTION 9.

	 	TRANSFER, LEAVE OF ABSENCE, ETC
	 	 	12	 
	 
	 	 	 	 	 	 
	SECTION 10.

	 	AMENDMENTS AND TERMINATION
	 	 	12	 
	 
	 	 	 	 	 	 
	SECTION 11.

	 	UNFUNDED STATUS OF PLAN
	 	 	13	 
	 
	 	 	 	 	 	 
	SECTION 12.

	 	GENERAL PROVISIONS
	 	 	13	 

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LIFECORE BIOMEDICAL, INC.

1996 STOCK PLAN

     SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.

     The name of this plan is the Lifecore Biomedical, Inc. 1996 Stock Plan (the “Plan”). The
purpose of the Plan is to enable Lifecore Biomedical, Inc. (the “Company”) to retain and attract
executives and other key employees, non-employee directors and consultants who contribute to the
Company’s success by their ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving them a proprietary
interest in the Company.

     For purposes of the Plan, the following terms shall be defined as set forth below:

     a. “BOARD” means the Board of Directors of the Company as it may be comprised from time to
time.

     b. “CAUSE” means a felony conviction of a participant or the failure of a participant to
contest prosecution for a felony, willful misconduct, dishonesty or intentional violation of a
statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the
business or reputation of the Company.

     c. “CODE” means the Internal Revenue Code of 1986, as amended from time to time, or any
successor statute.

     d. “COMMITTEE” means the Committee referred to in Section 2 of the Plan. If at any time no
Committee shall be in office, then the functions of the Committee specified in the Plan shall be
exercised by the Board, unless the Plan specifically states otherwise.

     e. “CONSULTANT” means any person, including an advisor, engaged by the Company or a Parent of
the Subsidiary of the Company to render services and who is compensated for such services and who
is not an employee of the Company or any Parent Corporation or Subsidiary of the Company. A
Non-Employee Director may serve as a Consultant.

     f. “COMPANY” means Lifecore Biomedical, Inc., a corporation organized under the laws of the
State of Minnesota (or any successor corporation).

     g. “DEFERRED STOCK” means an award made pursuant to Section 8 below of the right to receive
stock at the end of a specified deferral period.

     h. “DISABILITY” means permanent and total disability as determined by the Committee.

     i. “EARLY RETIREMENT” means retirement, with consent of the Committee at the time of
retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the
Company.

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     j. “FAIR MARKET VALUE” of Stock on any given date shall be determined by the Committee as
follows: (a) if the Stock is listed for trading on one of more national securities exchanges, or
is traded on the NASDAQ Stock Market, the last reported sales price on the principal such exchange
or the NASDAQ Stock Market on the date in question, or if such Stock shall not have been traded on
such principal exchange on such date, the last reported sales price on such principal exchange or
the NASDAQ Stock Market on the first day prior thereto on which such Stock was so traded; or (b) if
the Stock is not listed for trading on a national securities exchange or the NASDAQ Stock Market,
but is traded in the over-the-counter market, including the NASDAQ Small Cap Market, the closing
bid price for such Stock on the date in question, or if there is no such bid price for such Stock
on such date, the closing bid price on the first day prior thereto on which such price existed; or
(c) if neither (a) or (b) is applicable, by any means fair and reasonable by the Committee, which
determination shall be final and binding on all parties.

     k. “INCENTIVE STOCK OPTION” means any Stock Option intended to be and designated as an
“Incentive Stock Option” within the meaning of Section 422 of the Code.

     l. “NON-EMPLOYEE DIRECTOR” means a “Non-Employee Director” within the meaning of Rule
16b-3(b)(3) under the Securities Exchange Act of 1934.

     m. “NON-QUALIFIED STOCK OPTION” means any Stock Option that is not an Incentive Stock Option,
and is intended to be and is designated as a “Non-Qualified Stock Option.”

     n. “NORMAL RETIREMENT” means retirement from active employment with the Company and any
Subsidiary or Parent Corporation of the Company on or after age 65.

     o. “OUTSIDE DIRECTOR” means a Director who: (a) is not a current employee of the Company or
any member of an affiliated group which includes the Company; (b) is not a former employee of the
Company who receives compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year; (c) has not been an officer of the Company; (d) does not
receive remuneration from the Company, either directly or indirectly, in any capacity other than as
a director, except as otherwise permitted under Code Section 162(m) and regulations thereunder.
For this purpose, remuneration includes any payment in exchange for good or services. This
definition shall be further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.

     p. “PARENT CORPORATION” means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if each of the corporations (other than the Company) owns
stock possessing 50% or more of the total combined voting power of all classes of stock in one of
the other corporations in the chain.

     q. “RESTRICTED STOCK” means an award of shares of Stock that are subject to restrictions under
Section 7 below.

     r. “RETIREMENT” means Normal Retirement or Early Retirement.

     s. “STOCK” means the Common Stock of the Company.

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     t. “STOCK APPRECIATION RIGHT” means the right pursuant to an award granted under Section 6
below to surrender to the Company all or a portion of a Stock Option in exchange for an amount
equal to the difference between (i) Fair Market Value, as of the date such Stock Option or such
portion thereof is surrendered, of the shares of Stock covered by such Stock Option or such portion
thereof, and (ii) the aggregate exercise price of such Stock Option or such portion thereof.

     u. “STOCK OPTION” means any option to purchase shares of Stock granted pursuant to Section 5
below.

     v. “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 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.

     SECTION 2. ADMINISTRATION.

     The Plan shall be administered by the Board of Directors or by a Committee appointed by the
Board of Directors of the Company consisting of at least two Directors, all of whom shall be
Outside Directors and Non-Employee Directors, who shall serve at the pleasure of the Board.

     The Committee shall have the power and authority to grant to eligible employees or
Consultants, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights,
(iii) Restricted Stock, or (iv) Deferred Stock awards.

     In particular, the Committee shall have the authority:

     (i) to select the officers and other key employees of the Company and its Subsidiaries and
other eligible persons to whom Stock Options, Stock Appreciation Rights, Restricted Stock and
Deferred Stock awards may from time to time be granted hereunder;

     (ii) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock awards, or a combination of
the foregoing, are to be granted hereunder;

     (iii) to determine the number of shares to be covered by each such award granted hereunder;

     (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of
any award granted hereunder (including, but not limited to, any restriction on any Stock Option or
other award and/or the shares of Stock relating thereto), which authority shall be exclusively
vested in the Committee (and not the Board) for purposes of establishing performance criteria used
with Restricted Stock and Deferred Stock awards; provided, however, that in the event of a merger
or asset sale, the applicable provisions of Sections 5(c) and 7(c) of the Plan shall govern the
acceleration of the vesting of any Stock Option or awards;

3

 

     (v) to determine whether, to what extent and under what circumstances Stock and other amounts
payable with respect to an award under this Plan shall be deferred either automatically or at the
election of the participant.

     The Committee shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to
interpret the terms and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of the Plan. The
Committee may delegate to executive officers of the Company the authority to exercise the powers
specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who are not either the
chief executive officer of the Company or the four highest paid officers of the Company other than
the chief executive officer.

     All decisions made by the Committee pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.

     SECTION 3. STOCK SUBJECT TO PLAN.

     The total number of shares of Stock reserved and available for distribution under the Plan
shall be 3,000,000. Such shares may consist, in whole or in part, of authorized and unissued
shares.

     Subject to paragraph (b)(iv) of Section 6 below, if any shares that have been optioned cease
to be subject to Stock Options, or if any shares subject to any Restricted Stock or Deferred Stock
award granted hereunder are forfeited or such award otherwise terminates without a payment being
made to the participant, such shares shall again be available for distribution in connection with
future awards under the Plan.

     In the event of any merger, reorganization, consolidation, recapitalization, stock dividend,
other change in corporate structure affecting the Stock, or spin-off or other distribution of
assets to shareholders, such substitution or adjustment shall be made in the aggregate number of
shares reserved for issuance under the Plan, in the number and option price of shares subject to
outstanding options granted under the Plan, and in the number of shares subject to Restricted Stock
or Deferred Stock awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to any award shall
always be a whole number. Such adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation Right associated with any
Option.

     SECTION 4. ELIGIBILITY.

     Officers, other key employees of the Company and Subsidiaries, members of the Board of
Directors, and Consultants who are responsible for or contribute to the management, growth and
profitability of the business of the Company and its Subsidiaries are eligible to be granted Stock
Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards under the Plan. The
optionees and participants under the Plan shall be selected from time to time by the Committee, in
its sole discretion, from among those eligible, and the Committee shall determine, in its sole
discretion, the number of shares covered by each award.

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     Notwithstanding the foregoing, no person shall receive grants of Stock Options and Stock
Appreciation Rights under this Plan which exceed 600,000 shares during any fiscal year of the
Company.

     SECTION 5. STOCK OPTIONS.

     Any Stock Option granted under the Plan shall be in such form as the Committee may from time
to time approve.

     The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and
(ii) Non-Qualified Stock Options. No Incentive Stock Options shall be granted under the Plan after
September 19, 2006.

     The Committee shall have the authority to grant any optionee Incentive Stock Options,
Non-Qualified Stock Options, or both types of options (in each case with or without Stock
Appreciation Rights). To the extent that any option does not qualify as an Incentive Stock Option,
it shall constitute a separate Non-Qualified Stock Option.

     Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify either the Plan or any
Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude
any modification or amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Stock Option as an Incentive Stock
Option, provided the optionee consents in writing to the modification or amendment.

     Options granted under the Plan shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable.

     (a) OPTION PRICE. The option price per share of Stock purchasable under a Stock Option shall
be determined by the Committee at the time of grant. In no event shall the option price per share
of Stock purchasable under an Incentive Stock Option be less than 100% of Fair Market Value on the
date the option is granted. If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock
Option is granted to such employee, the option price shall be no less than 110% of the Fair Market
Value of the Stock on the date the option is granted.

     (b) OPTION TERM. The term of each Stock Option shall be fixed by the Committee, but no
Incentive Stock Option shall be exercisable more than ten years after the date the option is
granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from the date of grant.

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     (c) EXERCISABILITY. Stock Options shall be exercisable at such time or times as determined by
the Committee at or after grant, subject to the restrictions stated in Section 5(b) above. If the
Committee provides, in its discretion, that any option is exercisable only in installments, the
Committee may waive such installment exercise provisions at any time. Notwithstanding anything
contained in the Plan to the contrary, the Committee may, in its discretion, extend or vary the
term of any Stock Option or any installment thereof, whether or not the optionee is then employed
by the Company, if such action is deemed to be in the best interests of the Company; provided,
however, that in the event of a merger or sale of assets, the provisions of this Section 5(c) shall
govern vesting acceleration. Notwithstanding the foregoing, unless the Stock Option provides
otherwise, any Stock Option granted under this Plan shall be exercisable in full, without regard to
any installment exercise provisions, for a period specified by the Committee, but not to exceed
sixty (60) days, prior to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation, reorganization, or
similar occurrence, where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the outstanding Stock of the
Company.

     The grant of an option pursuant to the Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.

     (d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in part at any time during
the option period by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price,
either by check, or by any other form of legal consideration deemed sufficient by the Committee and
consistent with the Plan’s purpose and applicable law, including promissory notes or a properly
executed exercise notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise
price. As determined by the Committee at the time of grant or exercise, in its sole discretion,
payment in full or in part may also be made in the form of Stock already owned by the optionee
(which in the case of Stock acquired upon exercise of an option have been owned for more than six
months on the date of surrender) or, in the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock or Deferred Stock subject to an award hereunder (based, in each case, on the Fair
Market Value of the Stock on the date the option is exercised, as determined by the Committee),
provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in
the form of already owned shares may be authorized only at the time the option is granted, and
provided further that in the event payment is made in the form of shares of Restricted Stock or a
Deferred Stock award, the optionee will receive a portion of the option shares in the form of, and
in an amount equal to, the Restricted Stock or Deferred Stock award tendered as payment by the
optionee. If the terms of an option so permit, an optionee may elect to pay all or part of the
option exercise price by having the Company withhold from the shares of Stock that would otherwise
be issued upon exercise that number of shares of Stock having a Fair Market Value equal to the
aggregate option exercise price for the shares with respect to which such election is made. No
shares of Stock shall be issued until full payment therefor has been made. An optionee shall
generally have the rights to

6

 

dividends and other rights of a shareholder with respect to shares subject to the option when
the optionee has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in paragraph (a) of Section 12.

     (e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee’s lifetime, only by the optionee.

     (f) TERMINATION BY DEATH. If an optionee’s employment by the Company and any Subsidiary or
Parent Corporation terminates by reason of death, any Incentive Stock Option may thereafter be
immediately exercised, to the extent then exercisable, by the legal representative of the estate or
by the legatee of the optionee under the will of the optionee, for a period of twelve months from
the date of such death or until the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason of death, if any Stock Option is
exercised after the expiration of the exercise periods that apply for purposes of Section 422 of
the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

     (g) TERMINATION BY REASON OF DISABILITY. If an optionee’s employment by the Company and any
Subsidiary or Parent Corporation terminates by reason of Disability, any Incentive Stock Option
held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of
termination due to Disability, but may not be exercised after twelve months from the date of such
termination of employment or the expiration of the stated term of the option, whichever period is
the shorter. In the event of termination of employment by reason of Disability, if any Stock
Option is exercised after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

     (h) TERMINATION BY REASON OF RETIREMENT. If an optionee’s employment by the Company and any
Subsidiary or Parent Corporation terminates by reason of Retirement and the terms of the Stock
Option so provide, any Incentive Stock Option held by such optionee may thereafter be exercised to
the extent it was exercisable at the time of such Retirement, but may not be exercised after twelve
months from the date of such termination of employment or the expiration of the stated term of the
option, whichever period is the shorter. In the event of termination of employment by reason of
Retirement, if any Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.

     (i) OTHER TERMINATION. If an optionee’s continuous status as an employee or Consultant
terminates (other than upon the optionee’s death, Disability or Retirement), any Incentive Stock
Option held by such optionee may thereafter be exercised to the extent it was exercisable at the
time of such termination, but may not be exercised after 90 days after such termination, or the
expiration of the stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason other than death, Disability or Retirement and if pursuant to
its terms any Stock Option is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a Non-

7

 

Qualified Stock Option. In the event an Optionee’s employment with the Company is terminated
for Cause, all unexercised Options granted to such Optionee shall immediately terminate.

     (j) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value (determined as
of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive
Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent
Corporation is exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.

     (k) DIRECTORS WHO ARE NOT EMPLOYEES. Each person who (i) is not an employee of the Company,
any Parent Corporation or any Subsidiary and (ii) is elected or re-elected as a Director by the
Board or the shareholders on or subsequent to November 17, 2005, shall automatically be granted an
Option to purchase 7,500 shares of Stock as of the date of such election or re-election, at an
option price per share equal to 100% of the Fair Market Value of a share of Stock on the date of
such election or re-election; provided that (A) any such person who received an option grant
pursuant to this Section 5(k) prior to November 17, 2005 shall not be eligible to receive an
additional grant under this section until the third calendar year following the calendar year in
which the most recent prior grant under this Section to such person was made, and (B) the number of
shares subject to any option granted upon initial election to the Board, other than an initial
election to the Board by the shareholders of the Company at an annual meeting of shareholders,
shall be equal to the product of 7,500 times the difference between one and a fraction, the
numerator of which is the number of full months between the Company’s last annual meeting of
shareholders and such grant date and the denominator of which is 12. All such Options shall be
designated as Non-Qualified Stock Options and shall be subject to the same terms and provisions as
are then in effect with respect to the grant of Non-Qualified Stock Options to officers and key
employees of the Company, except that (1) the term of each such Option shall be equal to ten years,
which term shall not expire upon the termination of service as a Director and (2) the Option shall
become exercisable as to one half of the shares eight months after the date the Option is granted
and as to the balance 20 months after the date the Option is granted. Upon termination of such
Director’s service as a Director of the Company, any unvested Option held by such Director shall
not become exercisable. Subject to the foregoing, all provisions of this Plan not inconsistent with
the foregoing shall apply to Options granted pursuant to this Section 5(k).

     SECTION 6. STOCK APPRECIATION RIGHTS.

     (a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in conjunction with all or
part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the grant of the option.

     A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock
Option shall terminate and no longer be exercisable upon the termination or exercise of the related
Stock Option, except that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by a related Stock Option shall not be reduced until the exercise or

8

 

termination of the related Stock Option exceeds the number of shares not covered by the Stock
Appreciation Right.

     A Stock Appreciation Right may be exercised by an optionee, in accordance with paragraph (b)
of this Section 6, by surrendering the applicable portion of the related Stock Option. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount determined in the
manner prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.

     (b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to
time by the Committee, including the following:

(i) Stock Appreciation Rights shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate shall be exercisable in accordance with
the provisions of Section 5 and this Section 6 of the Plan.

(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to
receive up to, but not more than, an amount in cash or shares of Stock equal in value to the
excess of the Fair Market Value of one share of Stock over the option price per share
specified in the related option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee having the right to
determine the form of payment.

(iii) Stock Appreciation Rights shall be transferable only when and to the extent that the
underlying Stock Option would be transferable under Section 5 of the Plan.

(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to
which such Stock Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Sections 3 and 4 of the Plan on the total number
of shares of Stock to be issued under the Plan and the maximum number of shares to be
awarded to any one person in a fiscal year, but only to the extent of the number of shares
issued or issuable under the Stock Appreciation Right at the time of exercise based on the
value of the Stock Appreciation Right at such time.

(v) A Stock Appreciation Right granted in connection with an Incentive Stock Option may be
exercised only if and when the market price of the Stock subject to the Incentive Stock
Option exceeds the exercise price of such Option.

     SECTION 7. RESTRICTED STOCK.

     (a) ADMINISTRATION. Shares of Restricted Stock may be issued either alone or in addition to
other awards granted under the Plan. The Committee shall determine the officers, key employees and
Consultants of the Company and Subsidiaries to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares to be awarded, the time or times within which
such awards may be subject to forfeiture, and all other conditions of the awards. The Committee
may also condition the grant of Restricted Stock upon the attainment of

9

 

specified performance goals. The provisions of Restricted Stock awards need not be the same
with respect to each recipient.

     (b) AWARDS AND CERTIFICATES. The prospective recipient of an award of shares of Restricted
Stock shall not have any rights with respect to such award, unless and until such recipient has
executed an agreement evidencing the award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the then applicable terms and conditions.

(i) Each participant shall be issued a stock certificate in respect of shares of Restricted
Stock awarded under the Plan. Such certificate shall be registered in the name of the
participant, and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby
are subject to the terms and conditions (including forfeiture) of the Lifecore
Biomedical, Inc. 1996 Stock Plan and an Agreement entered into between the
registered owner and Lifecore Biomedical, Inc. Copies of such Plan and Agreement are
on file in the offices of Lifecore Biomedical, Inc., 3515 Lyman Boulevard, Chaska,
MN 55318.”

(ii) The Committee shall require that the stock certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.

     (c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded pursuant to the Plan
shall be subject to the following restrictions and conditions:

(i) Subject to the provisions of this Plan and the award agreement, during a period set by
the Committee commencing with the date of such award (the “Restriction Period”), the
participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted
Stock awarded under the Plan. Within these limits, the Committee may provide for the lapse
of such restrictions in installments where deemed appropriate.

(ii) Except as provided in paragraph (c)(i) of this Section 7, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a shareholder of the
Company, including the right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested in additional shares of
Restricted Stock (to the extent shares are available under Section 3 and subject to
paragraph (f) of Section 12). Certificates for shares of unrestricted Stock shall be
delivered to the grantee promptly after, and only after, the period of forfeiture shall have
expired without forfeiture in respect of such shares of Restricted Stock.

(iii) Subject to the provisions of the award agreement and paragraph (c)(iv) of this Section
7, upon termination of employment for any reason during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant.

10

 

(iv) In the event of special hardship circumstances of a participant whose employment is
terminated (other than for Cause), including death, Disability or Retirement, or in the
event of an unforeseeable emergency of a participant still in service, the Committee may, in
its sole discretion, when it finds that a waiver would be in the best interest of the
Company, waive in whole or in part any or all remaining restrictions with respect to such
participant’s shares of Restricted Stock.

(v) Notwithstanding the foregoing, all restrictions with respect to any participant’s shares
of Restricted Stock shall lapse, on the date determined by the Committee, prior to, but in
no event more than sixty (60) days prior to, the occurrence of any of the following events:
(i) dissolution or liquidation of the Company, other than in conjunction with a bankruptcy
of the Company or any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the Company or
75% or more of the outstanding Stock of the Company.

     SECTION 8. DEFERRED STOCK AWARDS.

     (a) ADMINISTRATION. Deferred Stock may be awarded either alone or in addition to other awards
granted under the Plan. The Committee shall determine the officers, key employees and Consultants
of the Company and Subsidiaries to whom and the time or times at which Deferred Stock shall be
awarded, the number of Shares of Deferred Stock to be awarded to any participant or group of
participants, the duration of the period (the “Deferral Period”) during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions of the award in
addition to those contained in paragraph (b) of this Section 8. The Committee may also condition
the grant of Deferred Stock upon the attainment of specified performance goals. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.

     (b) TERMS AND CONDITIONS.

(i) Subject to the provisions of this Plan and the award agreement, Deferred Stock awards
may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or Elective Deferral Period, where
applicable), share certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred Stock award.

(ii) Amounts equal to any dividends declared during the Deferral Period with respect to the
number of shares covered by a Deferred Stock award will be paid to the participant currently
or deferred and deemed to be reinvested in additional Deferred Stock or otherwise
reinvested, all as determined at the time of the award by the Committee, in its sole
discretion.

(iii) Subject to the provisions of the award agreement and paragraph (b)(iv) of this Section
8, upon termination of employment for any reason during the Deferral Period for a given
award, the Deferred Stock in question shall be forfeited by the participant.

11

 

(iv) In the event of special hardship circumstances of a participant whose employment is
terminated (other than for Cause) including death, Disability or Retirement, or in the event
of an unforeseeable emergency of a participant still in service, the Committee may, in its
sole discretion, when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all of the remaining deferral limitations imposed hereunder
with respect to any or all of the participant’s Deferred Stock.

(v) A participant may elect to further defer receipt of the award for a specified period or
until a specified event (the “Elective Deferral Period”), subject in each case to the
Committee’s approval and to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period for a Deferred
Stock award (or for an installment of such an award).

(vi) Each award shall be confirmed by, and subject to the terms of, a Deferred Stock
agreement executed by the Company and the participant.

     SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.

     For purposes of the Plan, the following events shall not be deemed a termination of
employment:

     (a) a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from
a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another;

     (b) a leave of absence, approved in writing by the Committee, for military service or
sickness, or for any other purpose approved by the Company if the period of such leave does not
exceed ninety (90) days (or such longer period as the Committee may approve, in its sole
discretion); and

     (c) a leave of absence in excess of ninety (90) days, approved in writing by the Committee,
but only if the employee’s right to reemployment is guaranteed either by a statute or by contract,
and provided that, in the case of any leave of absence, the employee returns to work within 30 days
after the end of such leave.

     SECTION 10. AMENDMENTS AND TERMINATION.

     The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made (i) which would impair the rights of an optionee or participant under
a Stock Option, Restricted Stock or other Stock-based award theretofore granted, without the
optionee’s or participant’s consent, or (ii) which without the approval of the stockholders of the
Company would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act
of 1934, Section 422 of the Code or any other regulatory requirements.

     The Committee may amend the terms of any award or option theretofore granted, prospectively or
retroactively to the extent such amendment is consistent with the terms of this Plan, but no such
amendment shall impair the rights of any holder without his or her consent

12

 

except to the extent authorized under the Plan. The Committee may also substitute new Stock
Options for previously granted options, including previously granted options having higher option
prices.

     SECTION 11. UNFUNDED STATUS OF PLAN.

     The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation.
With respect to any payments not yet made to a participant or optionee by the Company, nothing
contained herein shall give any such participant or optionee any rights that are greater than those
of a general creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under the Plan to deliver
Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the
existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

     SECTION 12. GENERAL PROVISIONS.

     (a) The Committee may require each person purchasing shares pursuant to a Stock Option under
the Plan to represent to and agree with the Company in writing that the optionee is acquiring the
shares without a view to distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on transfer.

     All certificates for shares of Stock delivered under the Plan pursuant to any Restricted
Stock, Deferred Stock or other Stock-based awards shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate reference to such
restrictions.

     (b) Subject to paragraph (d) below, recipients of Restricted Stock, Deferred Stock and other
Stock-based awards under the Plan (other than Stock Options) are not required to make any payment
or provide consideration other than the rendering of services.

     (c) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or
additional compensation arrangements, subject to stockholder approval if such approval is required;
and such arrangements may be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right
to continued employment with the Company or a Subsidiary, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary to terminate the employment of
any of its employees at any time.

     (d) Each participant shall, no later than the date as of which any part of the value of an
award first becomes includible as compensation in the gross income of the participant for Federal
income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under the Plan shall

13

 

be conditional on such payment or arrangements and the Company and Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant. With respect to any award under the Plan, if the terms of such
award so permit, a participant may elect by written notice to the Company to satisfy part or all of
the withholding tax requirements associated with the award by (i) authorizing the Company to retain
from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of Stock already owned by the participant, that number of
shares having an aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance with, and subject
to, applicable tax and securities laws, regulations and rulings.

     (e) At the time of grant, the Committee may provide in connection with any grant made under
this Plan that the shares of Stock received as a result of such grant shall be subject to a
repurchase right in favor of the Company, pursuant to which the participant shall be required to
offer to the Company upon termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the Stock or, in the
case of a termination for Cause, an amount equal to the cash consideration paid for the Stock,
subject to such other terms and conditions as the Committee may specify at the time of grant. The
Committee may, at the time of the grant of an award under the Plan, provide the Company with the
right to repurchase, or require the forfeiture of, shares of Stock acquired pursuant to the Plan by
any participant who, at any time within two years after termination of employment with the Company,
directly or indirectly competes with, or is employed by a competitor of, the Company.

     (f) The reinvestment of dividends in additional Restricted Stock (or in Deferred Stock or
other types of Plan awards) at the time of any dividend payment shall only be permissible if the
Committee (or the Company’s chief financial officer) certifies in writing that under Section 3
sufficient shares are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).

     (g) The Plan is expressly made subject to the approval by shareholders of the Company. If the
Plan is not so approved by the shareholders on or before one year after this Plan’s adoption by the
Board of Directors, this Plan shall not come into effect. The offering of the shares hereunder
shall be also subject to the effecting by the Company of any registration or qualification of the
shares under any federal or state law or the obtaining of the consent or approval of any
governmental regulatory body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to or in connection with, the offering or the issue or
purchase of the shares covered thereby. The Company shall make every reasonable effort to effect
such registration or qualification or to obtain such consent or approval.

14

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