Document:

exv10w2

 

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 2008-023, 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: Janet P. O’Hara

Telephone: (212) 361-2527

Facsimile: (212) 809-5459

With a copy to:

Citibank, N.A.

Corporate and Investment Banking

388 Greenwich Street, 14th Floor

New York, New York 10013

Attention: Jennifer H. McCourt

Telephone: (212) 816-5680

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 November 21, 2007	 	 
	 
	 	 	 	 
	By:

	 	/s/ Rick Greene	 	 
	 

	 	 	 	 
	Name: Rick Greene	 	 
	Title: Vice President	 	 
	 
	 	 	 	 
	Date:	 	The Effective Date (as defined in the Funding 

Agreement)	 	 

4EX-10.1

 

Exhibit 10.1

EXECUTION COPY

AGREEMENT

     This Agreement made as of the 10th day of April, 2008 by and between Tollgrade Communications,
Inc., a Pennsylvania corporation (the “Corporation”), and Joseph A. Ferrara, an individual residing
in the Commonwealth of Pennsylvania and an employee of the Corporation (the “Executive”).

WITNESSETH:

     WHEREAS, the Board of Directors of the Corporation has determined that it is in the best
interests of the Corporation to enter into this Agreement with the Executive; and

     WHEREAS, the Executive desires to obtain certain benefits in the event his employment is
terminated;

     NOW, THEREFORE, the parties hereto, each intending to be legally bound hereby, agree as
follows:

	1.	 	Definition of Terms. The following terms when used in this Agreement shall have the
meaning hereafter set forth:

	 	(a)	 	“Annual Salary Adjustment Percentage” shall mean the mean average percentage
increase in base salary for all members of the Executive Council of the Corporation
during the two full calendar years immediately preceding the time to which such
percentage is being applied; provided, however, that if after a Change-in-Control, as
hereinafter defined, there should be a significant change in the number of members of
the Executive Council of the Corporation or in the manner in which they are
compensated, then the foregoing definition shall be changed by substituting for the
phrase “Executive Council of the Corporation” the phrase “persons then performing the
functions formerly performed by the Executive Council of the Corporation.”
	 
	 	(b)	 	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3
of the General Rules and Regulations under the Exchange Act.
	 
	 	(c)	 	“Board” or “Board of Directors” means the Board of Directors of the
Corporation.
	 
	 	(d)	 	“Cause for Termination” shall be limited solely and exclusively to any of the
following grounds:

	 	(i)	 	Fraud, misappropriation, theft, embezzlement or other willful
and deliberate acts of similar dishonesty;

 

 

	 	(ii)	 	Conviction of, or a plea of guilty or nolo contendre to, a
felony or a crime involving moral turpitude;
	 
	 	(iii)	 	Illegal use of drugs in the workplace;
	 
	 	(iv)	 	Intentional and willful misconduct that subjects the
Corporation to criminal liability or material civil liability;
	 
	 	(v)	 	Willful and deliberate breach of the Executive’s duty of
loyalty, including, but not limited to, the diversion or usurpation of
corporate opportunities properly belonging to the Corporation;
	 
	 	(vi)	 	Willful and deliberate disregard of the Corporation’s policies
and procedures in any material respect;
	 
	 	(vii)	 	Material breach or violation of the Corporation’s Code of
Ethics for Senior Executive and Financial Officers or a material breach or
violation of the Corporation’s Code of Business Conduct and Ethics;
	 
	 	(viii)	 	Willful and deliberate breach or violation of any of the material terms of
this Agreement, including but not limited to, the covenants and restrictions,
set forth in Sections 5 and 6 of this Agreement;
	 
	 	(ix)	 	Willful and deliberate insubordination, willful and deliberate
refusal to perform, or willful gross neglect in the performance of, his duties
or responsibilities, or willful and deliberate refusal to follow the proper
instructions of the Board of Directors or the Executive Committee thereof, if
any; or
	 
	 	(x)	 	Failure of the Executive to fully cooperate as directed by the
Corporation in any action, litigation, investigation or other proceeding
brought before or by any Governmental Authority.

	 	 	 	For purposes of this definition, no act, or failure to act, on the Executive’s part
shall be considered “deliberate,” “intentional” or “willful” unless done, or omitted
to be done, by the Executive with a lack of good faith and with a lack of reasonable
belief that his action or omission was in the best interests of the Corporation.

	 	(e)	 	“Change-in-Control” shall be deemed to have occurred as of the first day any
one or more of the following conditions shall have been satisfied:

	 	(i)	 	Any Person (other than the Person in control of the Corporation
as of the date of this Agreement, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation, or a

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	 	 	 	corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of
stock of the Corporation), becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing more than 35% of
the combined voting power of the Corporation’s then outstanding securities.
	 
	 	(ii)	 	The directors, and if required, the stockholders of the
Corporation approve:

	 	(A)	 	A plan of liquidation of the Corporation;
	 
	 	(B)	 	An agreement for the sale or disposition of all
or substantially all of the Corporation’s assets; or
	 
	 	(C)	 	A merger, consolidation, or reorganization of
the Corporation with or involving any other entity, other than a
merger, consolidation, or reorganization that would result in the
voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least 65% of the combined voting power of the voting securities of the
Corporation (or such surviving entity) outstanding immediately after
such merger, consolidation, or reorganization.

	 	(iii)	 	The Incumbent Directors cease for any reason to constitute at
least a majority of the Board of Directors.

	 	 	 	“Change-in-Control” shall not include, however, a restructuring, reorganization,
merger, or other change in capitalization in which the Persons who own an interest
in the Corporation on the date hereof (the “Current Owners”) (or any individual or
entity which receives from a Current Owner an interest in the Corporation through
will or the laws of descent and distribution) maintain more than a 65% interest in
the resultant entity.
	 
	 	 	 	Furthermore, in no event shall a Change-in-Control be deemed to have occurred, with
respect to the Executive, if the Executive is part of a purchasing group which
consummates the Change-in-Control transaction. The Executive shall be deemed “part
of a purchasing group” for purposes of the preceding sentence if the Executive is an
equity participant or has agreed to become an equity participant in the purchasing
company or group (except for (A) passive ownership of less than 5% of the voting
equity securities of the purchasing company; or (B) ownership of equity
participation in the purchasing company or group which is otherwise deemed not to be
significant, as determined prior to the Change-in-Control by a majority of the
nonemployee continuing Directors of the Board of Directors).

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	 	 	 	Notwithstanding the foregoing, where payment is to be made to the Executive under
Section 4(b) of this Agreement in the case where the Executive’s Date of Termination
preceded the Change-in-Control, Change-in-Control shall have the meaning set forth
in the Treasury Regulations under Code Section 409A.

	 	(f)	 	“Code” means the United States Internal Revenue Code of 1986, as amended, and
any successors thereto.
	 
	 	(g)	 	“Confidential Information” has the meaning set forth in Section 5(a) hereof.
	 
	 	(h)	 	“Contract Payment(s)” has the meaning set forth in Section 4(e) hereof.
	 
	 	(i)	 	“Current Owners” has the meaning set forth in Section 1(e) hereof.
	 
	 	(j)	 	“Date of Termination” shall mean:

	 	(i)	 	if the Executive’s employment is terminated for Disability, the
date such employment is terminated as specified in the Notice of Termination
given to the Executive;
	 
	 	(ii)	 	if the Executive terminates due to his death or Retirement, the
date of death or Retirement, respectively;
	 
	 	(iii)	 	if the Executive decides to terminate employment upon Good
Reason for Termination, the date of such termination after the Corporation has
been notified of the Executive’s decision to terminate employment and the
expiration of any applicable cure period;
	 
	 	(iv)	 	if the Executive’s employment is terminated for any other
reason, the date on which a termination becomes effective pursuant to a Notice
of Termination; or
	 
	 	(v)	 	the date of expiration of the term of this Agreement, unless
such term has extended as provided in Section 10 of this Agreement.

	 	(k)	 	“Disability” shall mean such incapacity as causes the Executive to meet one of
the following requirements:

	 	(i)	 	the Executive is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months; or
	 
	 	(ii)	 	the Executive is, by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can he
expected to last for a continuous period of not less than 12 months,

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	 	 	 	receiving income replacement benefits for a period of not less than three
months under an accident and health plan covering employees of the
Corporation.

	 	(l)	 	“Exchange Act” means the United States Securities Exchange Act of 1934, as
amended, and any successor thereto.
	 
	 	(m)	 	“Excise Tax” has the meaning set forth in Section 4(e) hereof.
	 
	 	(n)	 	“Good Reason for Termination” shall mean the separation from service of the
Executive within two years following the initial existence of one or more of the
following conditions arising without the consent of the Executive:

	 	(i)	 	a material diminution of the Executive’s base compensation;
	 
	 	(ii)	 	a material diminution in the Executive’s authority, duties or
responsibilities;
	 
	 	(iii)	 	a material diminution in the authority, duties or
responsibilities of the supervisor to whom the Executive is required to report,
including a requirement that the Executive report to a corporate officer or
employee instead of reporting directly to the Board of Directors;
	 
	 	(iv)	 	a material diminution in the budget over which the Executive
retains authority, except that this shall not include a reduction in the
Corporation’s budget;
	 
	 	(v)	 	a material change in the geographic location at which the
Executive must perform the services; or
	 
	 	(vi)	 	any other action or inaction that constitutes a material breach
by the Corporation of this Agreement.

	 	(o)	 	“Governmental Authority” means any federal, state or local court,
administrative agency or commission, legislative body, or other governmental authority
or instrumentality.
	 
	 	(p)	 	“Gross-Up Payment” has the meaning set forth in Section 4(e) hereof.
	 
	 	(q)	 	“Incumbent Directors” shall mean the individuals who, as of the date hereof,
constitute the Board, together with any individual who becomes a director subsequent to
the date hereof whose election, or nomination for election by the Corporation’s
shareholders, was approved by a vote of at least a majority of the directors then
comprising the Incumbent Directors, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal

5

 

	 		 	of directors or other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board.
	 
	 	(r)	 	“Notice of Termination” shall mean a written statement which sets forth the
specific reason for termination and, if such is claimed to be Cause for Termination or
Good Reason for Termination, in reasonable detail the facts and circumstances which
indicate that such is Cause for Termination or Good Reason for Termination together (in
the case of Cause for Termination) with notice of the time and place of the meeting of
the Board of Directors called to consider such matter in accordance with Section 3
hereof.
	 
	 	(s)	 	“Options” shall mean any stock options issued pursuant to any present or future
stock option plan of the Corporation.
	 
	 	(t)	 	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as
defined in Section 13(d) thereof.
	 
	 	(u)	 	“Retirement” shall mean a termination of the Executive’s employment after age
65 or in accordance with any mandatory retirement arrangement with respect to an
earlier age agreed to by the Executive.
	 
	 	(v)	 	“Stock Appreciation Rights” shall mean any stock appreciation rights issued
pursuant to any stock option plan of the Corporation or any future stock appreciation
rights plan.

	2.	 	Employment.

	 	(a)	 	Subject to the terms and conditions set forth herein, the Corporation hereby
agrees to employ the Executive as of the date hereof as its Chief Executive Officer,
and the Executive hereby accepts such employment. The duties of the Executive shall be
as determined from time to time by the Board of Directors, but shall at all times be
consistent in scope and authority with those commonly associated with the position of
chief executive officer of a publicly-held company, and in all cases shall be
substantially similar to those currently performed by the Executive as of the date
hereof.
	 
	 	(b)	 	The Executive’s base salary initially shall be set at $350,000 per annum paid
in equal semi-monthly installments. The Executive shall be entitled to such increases
or decreases (subject to Section 1(n)(i) hereof) in base salary as the Compensation
Committee of the Board of Directors may determine from time to time in accordance with
its regular compensation review practices; provided that, such base salary must be
increased each year by at least the amount of the Annual Salary Adjustment Percentage.

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	 	(c)	 	The Executive shall be entitled to receive annual bonuses based upon the
achievance of performance objectives established by the Compensation Committee of the
Board of Directors pursuant to the Corporation’s Management Incentive Compensation Plan
at the level specified for the Corporation’s Chief Executive Officer.
	 
	 	(d)	 	The Executive shall be entitled to participate in all group insurance programs,
retirement income (pension) plans, and such other benefits made available by the
Corporation to its employees and executives commensurate with the Executive’s position
in the Corporation.
	 
	 	(e)	 	It is the parties’ understanding that the Executive shall be entitled to a seat
on the Corporation’s Board of Directors during the term of this Agreement.
Accordingly, the Corporation agrees to nominate Executive on its management slate of
Board candidates and recommend to the shareholders that the Executive be elected to the
Board.

	3.	 	Termination by the Corporation Due to Cause for Termination; Termination by the Executive
for Good Reason.

	 	(a)	 	Should Cause for Termination exist, the Board of Directors by resolution duly
adopted at a meeting of the Board may terminate the Executive’s employment due to Cause
for Termination by delivering a Notice of Termination. Notwithstanding the foregoing,
the Executive will have 30 days after receiving the Notice of Termination to correct
the act or acts constituting Cause for Termination, to provide to the Board of
Directors a written response explaining why his actions do not constitute Cause for
Termination, and/or to request a review of the Board’s decision. In the event the
Executive continues to engage in the conduct constituting Cause for Termination for
such period, does not provide a response, and does not request further review by the
Board of Directors, the Board may make a final determination that the Executive has
engaged in conduct constituting Cause for Termination and may terminate the Executive
at any time after the end of the 30-day period.
	 
	 	(b)	 	The Executive may terminate his employment for Good Reason for Termination by
delivering to the Board of Directors a Notice of Termination. Notwithstanding the
foregoing, the Corporation will have 30 days after receiving the Notice of Termination
to correct the conditions constituting Good Reason for Termination. If the Corporation
fails to correct such conditions within such period, then the Executive may terminate
his employment at any time after the end of the 30-day period.

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	4.	 	Payments and Terms Following Termination of Employment or a Change-in-Control.

	 	(a)	 	If during the term of this Agreement the Executive dies or incurs a Disability
or the Executive’s employment with the Corporation shall be terminated by the Executive
(other than the Executive’s having terminated for Good Reason for Termination) or the
Executive’s employment with the Corporation shall be terminated by the Corporation in
accordance with Section 3 hereof or the Executive’s employment with the Corporation
shall be terminated for Retirement, then the Corporation shall have no obligations
hereunder to the Executive other than (A) to pay in cash any unpaid portion of the
Executive’s base salary for the period from the last period for which the Executive was
paid to the Date of Termination, (B) in the case of death, Disability or Retirement, to
pay a pro rata portion, based upon the number of months of the Executive’s employment
during the year of termination, of any annual bonus program or agreement in effect for
such year based upon the then projected achievement of performance objectives for such
year (including, without limitation, the bonus program contemplated under Section 2(c)
hereof), and (C) to pay to the Executive any sums that shall be due in accordance with
any other employment agreement applicable to the Executive and the then various
policies, practices and benefit plans of the Corporation. In the event of Executive’s
death, all such payments shall be made to Executive’s spouse, should she survive him,
or if she does not, to Executive’s estate. Notwithstanding anything to the contrary
with respect to any agreement, policy, practice or benefit applicable to the payment of
any amounts under this Section 4(a) hereof, such amounts shall be paid to the Executive
on or before March 15 of the year following the Executive’s Date of Termination.
	 
	 	(b)	 	If, during the term of this Agreement or at the expiration of the term of this
Agreement due to its non-renewal as the result of the Corporation having given notice
of non-renewal to Executive under Section 10 herein, the Executive’s employment with
the Corporation shall have terminated at any time during the period commencing six
months prior to the date of a Change-in-Control and ending on the third anniversary of
the date of a Change-in-Control other than under the circumstances above described in
subsection 4(a), then the Corporation shall pay on or before the fifth day following
the Date of Termination (or if the Date of Termination preceded the date of the
Change-in-Control, on or before the fifth day following the date of the
Change-in-Control), to the Executive the following sums (less any amounts paid to the
Executive pursuant to subsection (c) of this Section 4):

	 	(i)	 	in cash any unpaid portion of the Executive’s full base salary
for the period from the last period for which the Executive was paid to the
Date of Termination, or the date of the Change-in-Control, as the case may be;
and
	 
	 	(ii)	 	an amount in cash equal to the product obtained by multiplying
by three the sum of

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	 	(A)	 	the greater of

	 	(1)	 	the Executive’s annual base
salary for the year in effect on the Date of Termination
(provided that in the case of Termination for Good Reason by the
Executive the date immediately preceding the date of the event
which gave rise to the Termination for Good Reason by the
Executive shall be used instead of the Date of Termination)
	 
	 		 	or
	 
	 	(2)	 	the Executive’s annual base
salary for the year in effect on the date of the
Change-in-Control;
	 
	 	 	 	plus

	 	(B)	 	the greater of

	 	(1)	 	the average annual cash award
received by the Executive as incentive compensation or bonus for
the two calendar years immediately preceding the Date of
Termination (provided that in the case of Termination for Good
Reason by the Executive the date immediately preceding the date
of the event which gave rise to the Termination for Good Reason
by the Executive shall be used instead of the Date of
Termination)
	 
	 		 	or
	 
	 	(2)	 	the average annual cash award
received by the Executive as incentive compensation or bonus for
the two calendar years immediately preceding the date of the
Change-in-Control.

	 	(c)	 	If, during the term of this Agreement or at the expiration of the term of this
Agreement due to its non-renewal as the result of the Corporation having given notice
of non-renewal to Executive under Section 10 herein, the Executive’s employment with
the Corporation shall have terminated other than under the circumstances above
described in subsections 4(a) or 4(b) (including, but not limited to, the Executive
having terminated his employment for Good Reason for Termination), then the Corporation
shall pay on or before the fifth day following the Date of Termination to the Executive
the following sums (provided, however, that if a Change-in-Control occurs within six
months following the Date of Termination, the Executive shall be entitled to the
amounts set forth in subsection (b) above reduced by the amounts paid to the Executive
pursuant to this subsection (c) of this Section 4):

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	 	(i)	 	in cash any unpaid portion of the Executive’s full base salary
for the period from the last period for which the Executive was paid to the
Date of Termination; and
	 
	 	(ii)	 	an amount in cash equal to the product obtained by multiplying
by two the sum of

	 	(A)	 	the Executive’s annual base salary for the year
in effect on the Date of Termination
	 
	 	 	 	plus
	 
	 	(B)	 	the average annual cash award received by the
Executive as incentive compensation or bonus for the two calendar years
immediately preceding the Date of Termination.

	 	(d)	 	If the Executive’s employment should terminate under such circumstances as
entitle the Executive to receive payments pursuant to subsection (b) or subsection (c)
of this Section 4, the Corporation shall reimburse the Executive for any reasonable
fees or other costs incurred by the Executive in retaining and continuing the services
of an executive placement agency during the period beginning on the Date of Termination
and ending on the earlier to occur of (i) the second anniversary of the Date of
Termination and (ii) the date on which the Executive becomes employed by another Person
or becomes self-employed. The Executive shall be required to substantiate these
expenses and must request reimbursement from the Corporation, and reimbursement by the
Corporation shall be made as soon as administratively possible after receiving the
request but no later than the end of the third calendar year following the Executive’s
Date of Termination.
	 
	 	(e)	 	If any payment or payments (“Contract Payment(s)”) due the Executive pursuant
to this Agreement other than this subsection 4(e) result in an excise tax being imposed
on the Executive pursuant to Section 4999 of the Code, or any successor federal taxing
provision to such Section 4999 (“Excise Tax”), then the Corporation shall pay to the
Executive at the time when each Contract Payment is made an amount (a “Gross-Up
Payment”) such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation, any
income taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Contract
Payments.
	 
	 	(f)	 	Notwithstanding any provision for similar payments and/or benefits under any
other plan, program, agreement, policy, practice, or the like of the Corporation, this
Agreement is intended to represent the Executive’s sole entitlement to

10

 

	 	 	 	severance payments and benefits in connection with the termination of his
employment.
	 
	 	(g)	 	The receipt of any severance payments pursuant to this Section 4 will be
subject to the Executive signing and not revoking for a period of seven days a
separation and mutual release of claims agreement in substantially the form attached
hereto as Attachment A (“the Mutual Release”) with the blanks appropriately completed.
Upon Executive’s delivery of the Mutual Release to the Corporation, the Corporation
shall cause such Mutual Release to be fully executed within 14 days of receipt and
shall promptly thereafter provide Executive with a copy of the fully executed Mutual
Release, but Executive’s receipt of any severance payments pursuant to this Section 4
shall not be conditioned on the Corporation’s execution of the Mutual Release.
	 
	 	(h)	 	The Executive agrees to resign from all positions that he holds with the
Corporation or its subsidiaries, including, without limitation, his position as a
member of the Board, immediately following the termination of his employment for any
reason, if the Board so requests.
	 
	 	(i)	 	This Agreement shall be construed and interpreted to the extent possible in a
manner that avoids the imposition on the Executive of the 20% penalty under Section
409A of the Code (“Section 409A”), and the Corporation and the Executive shall
cooperate diligently to amend the terms of the Agreement to the extent permissible
under Section 409A for the Executive to avoid such penalty. It is intended that the
payments to the Executive under this Agreement are either exempt from or comply with
Section 409A. The Corporation accordingly agrees not to report the payments which are
exempt from or comply with Section 409A on the Executive’s Form W-2 as being subject to
the Section 409A penalties. Notwithstanding any other provisions in this Agreement to
the contrary, if on the date of the Executive’s separation from service, within the
meaning of Section 409A (the “Separation Date”), the Executive is a “specified
employee” as defined in Section 409A, payments to the Executive will be delayed until
the earlier to occur of (i) the six-month anniversary of the Separation Date or (ii)
the date of the Executive’s date of death, only if legal counsel mutually agreed to by
the parties opines that payment may not be made under Section 409A prior to the end of
the six-month period without violating the six-month delay requirement. In the event
that the parties are unable to agree on legal counsel to render an opinion, the
Corporation shall be entitled to do any tax withholding and reporting it determines is
required by law for payments made to the Executive prior to the end of the six-month
period. For purposes of determining the timing of payments to the Executive, all
references to the Executive’s termination of employment shall mean the Separation Date.
	 
	 	(j)	 	The Corporation shall maintain in effect indemnification rights to the
fullest extent permitted by applicable law covering the Executive for the
Executive’s action taken or omissions occurring at or prior to the Date of
Termination.

11

 

	 	(k)	 	Through the sixth anniversary of the Date of Termination, the Corporation
shall maintain, if available in the directors’ and officers’ liability insurance
market, directors’ and officers’ liability insurance covering the Executive for
the Executive’s action taken or omissions occurring at or prior to the Date of
Termination on terms which in the aggregate are not less favorable than the terms
of such current insurance coverage.

	5.	 	Corporation’s Information; Nondisclosure; Related Matters.

	 	(a)	 	The Executive recognizes and acknowledges that: (i) in the course of the
Executive’s employment by the Corporation it will be necessary for the Executive to
acquire non-public information which could include, in whole or in part, such
information concerning the Corporation’s sales, sales volume, sales methods, sales
proposals, customers and prospective customers, identity of customers and prospective
customers, identity of key purchasing personnel in the employ of customers and
prospective customers, amount or kind of customer’s purchases from the Corporation, the
Corporation’s sources of supply, the Corporation’s patents, patent applications,
licenses, computer programs, system documentation, special hardware, product hardware,
related software development, the Corporation’s present or contemplated products,
manuals, formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other confidential or proprietary information belonging to the
Corporation or relating to the Corporation’s affairs (collectively referred to herein
as the “Confidential Information”); (ii) the Confidential Information is the property
of the Corporation; (iii) the use, misappropriation or disclosure of the Confidential
Information would constitute a breach of trust and could cause irreparable injury to
the Corporation; and (iv) it is essential to the protection of the Corporation’s good
will and to the maintenance of the Corporation’s competitive position that the
Confidential Information be kept secret and that the Executive not disclose the
Confidential Information to others or use the Confidential Information to the
Executive’s own advantage or the advantage of others. The Executive further
acknowledges that the Executive’s position with the Corporation and any and all
benefits and compensation paid to the Executive are conferred upon him only because and
on the condition of the Executive’s abiding by the confidentiality, non-compete,
non-solicitation and other restrictions contained herein.
	 
	 	(b)	 	The Employee further recognizes and understands that his duties at the
Corporation may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done as
“work made for hire” as defined and used in the Copyright Act of 1976, 17 USC § 1
et seq. In the event of publication of such materials, the Executive
understands that since the work is a “work made for hire,” the Corporation will solely
retain and own all rights in said materials, including right of copyright, and that the
Corporation may, at its discretion, on a case-by-case basis, grant the Employee by-line
credit on such materials as the Corporation may deem appropriate.

12

 

	 	(c)	 	The Executive agrees to hold and safeguard the Confidential Information in
trust for the Corporation, its successors and assigns and agrees that he shall not,
without the prior written consent of the Corporation, either directly or indirectly,
misappropriate or disclose or make available to anyone for use outside the
Corporation’s organization at any time, either during his employment with the
Corporation or subsequent to the termination of his employment with the Corporation for
any reason, including without limitation termination by the Corporation for Cause for
Termination or without cause, any of the Confidential Information, whether or not
developed by the Executive, except as required in the performance of the Executive’s
duties to the Corporation. The restrictions on use or disclosure of Confidential
Information contained in this Section 5 shall not apply to any data or information
which is or may be (i) through no fault of the Executive, generally known to the public
or throughout the industry in which the Corporation is engaged or (ii) received by the
Executive from a third party not in violation of any express or implied obligation
owing to the Corporation.
	 
	 	(d)	 	The Executive shall disclose promptly to the Corporation or its nominee any and
all works, inventions, discoveries and improvements authored, conceived or made by the
Executive during the period of employment relating to the business or activities of the
Corporation, and hereby assigns and agrees to assign all his interest therein to the
Corporation or its nominee. No compensation, other than the Executive’s regular wages,
shall be paid to the Executive for any such works, inventions, discoveries or
improvements. Whenever requested to do so by the Corporation, the Executive shall
execute any and all applications, assignments or other instruments which the
Corporation shall deem necessary to apply for and obtain letters patent or copyrights
of the United States or any foreign country or to otherwise protect the Corporation’s
interest therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored, conceived or
made by the Executive during the period of employment, and shall be binding upon the
Executive’s assigns, executors, administrators and other legal representatives.
	 
	 	(e)	 	Upon the termination of the Executive’s employment with the Corporation for any
reason, including without limitation, termination by the Corporation for Cause for
Termination or without cause, the Executive shall promptly deliver to the Corporation
all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports,
flow-charts, programs, proposals and any products or processes used by the Corporation
and, without limiting the foregoing, will promptly deliver to the Corporation any and
all other documents or materials containing or constituting Confidential Information.
	 
	 	(f)	 	The Executive agrees that in the event of publication by the Executive of
written or graphic materials, the Corporation will retain and own all rights in said
materials, including the right of copyright.

13

 

	 	(g)	 	The Corporation and the Executive agree that the rights conveyed by this
Agreement are of a unique and special nature. The Executive and the Corporation agree
that any violation of this Section 5 will result in immediate and irreparable harm to
the Corporation and that in the event of any actual or threatened breach or violation
of any of the provisions of this Section 5, the Corporation will be entitled as a
matter of right to seek an injunction or a decree of specific performance without bond
from any equity court of competent jurisdiction. The Executive waives the right to
assert the defense that such breach or violation can be compensated adequately in
damages in an action at law. Nothing in this Agreement will be construed as
prohibiting the Corporation from pursuing any other remedies at law or in equity
available to it for such breach or violation or threatened violation.

	6.	 	Noncompetition. The Executive covenants and agrees that during the period of the
Executive’s employment hereunder and for a period of two years thereafter and any amount of
time during such two-year period during which he is in violation of this provision he shall
not:

	 	(a)	 	in the United States of America, or in any other country of the world in which
the Corporation has done business at any time during the last two years prior to the
termination of the Executive’s employment with the Corporation, directly or indirectly,
whether as principal or as agent, officer, director, employee, consultant, shareholder,
or otherwise, alone or in association with any other person, corporation or other
entity, engage or participate in, be connected with, lend credit or money to, furnish
consultation or advice or permit his name to used in connection with, any Competing
Business. For purposes of this Agreement, the term “Competing Business” shall mean any
Person, corporation or other entity engaged in the business of selling or attempting to
sell any product or service which competes materially with (i) products or services
sold by the Corporation within the two years prior to termination of the Executive’s
employment hereunder or (ii) new products of the Corporation with respect to which the
Corporation had allocated engineering resources at the Date of Termination to develop
such new products, provided that, Executive’s employment in a non-competing division of
a Competing Business shall be deemed to not be employment by Executive in a Competing
Business;
	 
	 	(b)	 	for a Competing Business, solicit the trade of, or trade with, any customer,
prospective customer, supplier, or prospective supplier of the Corporation. The
Executive further agrees that for two years following termination of his employment
with the Corporation, including without limitation termination by the Corporation for
Cause for Termination or without cause, the Executive shall not for a Competing
Business, directly or indirectly, solicit the trade of, or trade with, any customers or
suppliers, or prospective customers or suppliers, of the Corporation; and

14

 

	 	(c)	 	for a Competing Business, directly or indirectly solicit or induce, or attempt
to solicit or induce, any employee of the Corporation to leave the Corporation for any
reason whatsoever, or hire any employee of the Corporation.

	 	 	Notwithstanding the foregoing, (i) the covenant contained in this Section 6 shall terminate
in the event that the Corporation defaults in any of its post-termination payment
obligations to the Executive, and (ii) the covenant contained in this Section 6 shall be of
no force and effect if the Corporation chooses to give notice of its intent not to renew
this Agreement and the Agreement terminates pursuant to the provisions of Section 10(b)(i)
hereof.

	7.	 	Disability, Medical Insurance, Pension or Other Benefit Plans.

	 	(a)	 	During the term of this Agreement, the Corporation shall provide coverage to
the Executive under the Corporation’s group long-term disability policy with disability
benefits in the amount of $10,000 per month during the term of the Disability. In
addition, during such period, to the extent available in the disability insurance
market and if purchased by the Executive, the Corporation shall reimburse the Executive
for the premium for an additional disability insurance policy which provides to the
Executive disability benefits in an amount of up to $10,000 per month during the term
of the Disability and which policy is “portable” and permits the Executive following
any termination of employment to maintain such policy in effect by continuing the
payments of the premiums thereunder.
	 
	 	(b)	 	If the Executive’s employment should terminate under such circumstance as
entitle the Executive to receive payments pursuant to Section 4(b) hereof, the
Executive shall be deemed for purposes of all employee medical insurance, pension and
other benefits of the Corporation, to have remained in the continuous employment of the
Corporation for the three-year period following the Date of Termination and shall be
entitled to all of the medical insurance, pension or other benefits provided by the
Corporation as though he had so remained in the employment of the Corporation.
	 
	 	(c)	 	If the Executive’s employment should terminate under such circumstance as
entitle the Executive to receive payments pursuant to Section 4(c) hereof, the
Executive shall be deemed for purposes of all employee medical insurance, pension and
other benefits of the Corporation, to have remained in the continuous employment of the
Corporation for the two-year period following the Date of Termination and shall be
entitled to all of the medical insurance, pension or other benefits provided by the
Corporation to the Executive as though he had so remained in the employment of the
Corporation.
	 
	 	(d)	 	If for any reason, whether by law or provisions of the Corporation’s employee
medical insurance, pension or other benefit plans, or otherwise any benefits which the
Executive would be entitled to under the foregoing subsections of this Section

15

 

	 		 	7 cannot be paid pursuant to such employee benefit plans, then the Corporation
hereby contractually agrees to pay to the Executive the difference between the
benefits which the Executive would have received in accordance with the foregoing
subsections of this Section 7 if the Corporation or its relevant employee medical
insurance, pension or other benefit plan could have paid such benefit and the amount
of benefits, if any, actually paid by the Corporation or such employee medical
insurance, pension or other benefit plan. The Corporation shall not be required to
pre-fund its obligation to pay the foregoing difference. Any such payments will be
made prior to March 15 of the year following the year in which the Executive becomes
entitled to the payments.
	 
	 	(e)	 	Notwithstanding any other provision of this Section 7 to the contrary, the
Corporation shall not be required to provide to the Executive any of the health
benefits to be provided to the Executive under subsections (b) through (d) unless the
Executive shall have timely elected COBRA continuation coverage following termination
of his employment.

	8.	 	Other Employment. In the event of a termination of employment under the
circumstances above described in Section 4(b) or 4(c) hereof, the Executive shall have no duty
to seek any other employment after termination of his employment with the Corporation and the
Corporation hereby waives and agrees not to raise or use any defense based on the position
that the Executive had a duty to mitigate or reduce the amounts due him hereunder by seeking
other employment whether suitable or unsuitable and should the Executive obtain other
employment, then the only effect of such on the obligations of the Corporation hereunder shall
be that the Corporation shall be entitled to credit against any payments which would otherwise
be made pursuant to Section 7 hereof, any comparable payments to which the Executive is
entitled under the employee benefit plans maintained by the Executive’s other employer or
employers in connection with services to such employer or employers after termination of his
employment with the Corporation.
	 
	9.	 	Stock Appreciation Rights and Options. If the Executive’s employment should
terminate under such circumstances as entitle the Executive to receive payments pursuant to
section 4(b) hereof then with respect to such outstanding Stock Appreciation Rights and/or
Options which did not immediately become exercisable upon the occurrence of a
Change-in-Control, such Stock Appreciation Right or Option shall be automatically vested and
remain outstanding in accordance with its terms and be exercisable thereafter until the stated
expiration date of such Stock Appreciation Right or Option.
	 
	10.	 	Term of this Agreement.

	 	(a)	 	This Agreement shall be for an initial term beginning on the date hereof and
expiring on January 31, 2011 and shall automatically be extended for successive
additional terms of three years unless termination occurs pursuant to subsection (b)
below.

16

 

	 	(b)	 	Except for the obligations of the Executive under Sections 5, 6 and 8 of this
Agreement and the obligations of the Corporation under Sections 4, 7, 8, 9 and 11(i)
(together with the allocation of costs thereunder) of this Agreement which shall
survive the termination of this Agreement as provided therein, this Agreement shall
terminate (i) at the end of the then current term of this Agreement provided that
either party has given the other party written notice of its intent not to renew at
least 60 days prior to the end of the then current term or (ii) upon the effectiveness
of the earlier termination of the Executive’s employment pursuant to the terms of this
Agreement.

	11.	 	Miscellaneous.

	 	(a)	 	This Agreement shall be construed under the laws of the Commonwealth of
Pennsylvania without regard to its conflicts of laws provisions. The parties hereto
further agree that any action brought to enforce any right or obligation under this
Agreement shall be subject to the exclusive jurisdiction of the courts of the
Commonwealth of Pennsylvania. Each party hereby consents to personal jurisdiction in
any action brought in any court, federal or state, within the Commonwealth of
Pennsylvania having subject matter jurisdiction in this matter. Each party hereby
irrevocably waives any objection, including, without limitation, any objection to the
laying of venue or based on the grounds of forum non conveniens, which it may now or
hereafter have to the bringing of any such action or proceeding in such jurisdiction.
	 
	 	(b)	 	This Agreement constitutes the entire understanding of the parties hereto with
respect to the subject matter hereof and may only be amended or modified by written
agreement signed by the parties hereto. This Agreement supersedes the severance
agreement and change in control agreement previously entered into by and between the
Corporation and the Executive.
	 
	 	(c)	 	The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this Agreement
(including but not limited to, those provisions which survive termination of this
Agreement) in the same manner required of the Corporation and to perform it as if no
such succession had taken place. Failure of the Corporation to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle the Executive to terminate employment due to Good Reason for
Termination. As used in this Agreement, “Corporation” shall mean the Corporation as
hereinbefore defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this subsection (c) or which
otherwise becomes bound by all the terms and provisions of this Agreement by operation
of law.

17

 

	 	(d)	 	This Agreement shall inure to the benefit of and be enforceable by the
Executive and the Corporation and their respective legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there be no such designee, to his estate.
	 
	 	(e)	 	Any notice or other communication provided for in this Agreement shall be in
writing and, unless otherwise expressly stated herein, shall be deemed to have been
duly given (i) on the date of delivery if delivered in person, (ii) three business days
after being mailed by United States registered mail, return receipt requested, postage
prepaid or (iii) one business day after being sent by an overnight commercial courier
of national reputation, addressed in the case of the Executive to his office at the
Corporation with a copy to his residence and in the case of the Corporation to its
principal executive offices, attention of the Chairman of the Board.
	 
	 	(f)	 	No provisions of this Agreement may be modified (except as provided in Section
4(i) hereof), waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and approved by resolution of the Board of
Directors or the Compensation Committee thereof. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement.
	 
	 	(g)	 	The invalidity or unenforceability of any provisions of this Agreement shall
not affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect. If any provision hereof shall be deemed
invalid or unenforceable, either in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision and to alter the
bounds thereof in order to render it valid and enforceable.
	 
	 	(h)	 	This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and the same
instrument.
	 
	 	(i)	 	If litigation should be brought to enforce, interpret or challenge any
provision contained herein, each party shall bear its own attorney’s fees and other
costs incurred in such litigation. If a money judgment is rendered in favor of the
Executive, to interest on any such money judgment obtained calculated at the prime rate
of interest in effect from time to time at PNC Bank, N.A. from the date

18

 

	 	 	 	that the payment should have been made or damages incurred under this Agreement.
	 
	 	(j)	 	The Executive acknowledges that he has had the opportunity to discuss this
matter with and obtain advice from his private attorney, has had sufficient time to,
and has carefully read and fully understands all the provisions of this Agreement, and
is knowingly and voluntarily entering into this Agreement.

19

 

          IN WITNESS WHEREOF, this Agreement has been executed on the date first above written.

	 	 	 	 	 	 	 
	ATTEST:

	 	 	 	TOLLGRADE COMMUNICATIONS, INC.
	 
	 
	 	 	 	 	 	 
	/s/ Jennifer M. Reinke

	 	 	By:	/s/ Sara M. Antol	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title: Secretary	 	 
	WITNESS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Christie B. Tillapaugh

	 	 	 	/s/ Joseph A. Ferrara	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Joseph A. Ferrara, Executive	 	 

20

 

ATTACHMENT A

SEPARATION AND MUTUAL RELEASE

AGREEMENT

     THIS AGREEMENT (“Agreement”) is made as of the ___day of ___, 20___, by and
between JOSEPH A. FERRARA (“Executive”) and TOLLGRADE COMMUNICATIONS, INC., a
Pennsylvania corporation (the “Corporation”) (Executive and the Corporation are referred
to sometimes hereinafter individually as “Party” and collectively as, the “Parties”).

W I T N E S S E T H:

     WHEREAS, Executive has served as its Chief Executive Officer for ___years; and

     WHEREAS, pursuant to that certain Employment Agreement dated as of ___, 2008,
as amended from time to time (the “Employment Agreement”), Executive currently is
employed by the Corporation as its Chief Executive Officer; and

     WHEREAS, the Executive’s employment with the Corporation has terminated effective
as of ___on ___, 20___(the “Date of Termination”); and

     WHEREAS, Executive is a member of the Board of Directors of the Corporation (the
“Board” or “Board of Directors”); and

     WHEREAS, the Executive will resign as a director of the Corporation effective as of
the Date of Termination as required in the Employment Agreement; and

     WHEREAS, on and subject to the terms and conditions of this Agreement, Executive
and the Corporation desire to settle fully and finally all matters between them,
including, without limitation, any matters that relate to Executive’s employment, the
termination of that employment, or Executive’s association with the Corporation
generally, whether as an employee, director, officer, shareholder or otherwise.

     NOW, THEREFORE, in consideration of the premises and the covenants and agreements
set forth herein, the Parties hereto, intending to be legally bound, agree as follows:

	1.	 	Termination/Resignation. Executive acknowledges that his employment
with the Corporation has terminated and hereby resigns his position as an officer
and director of the Corporation and any and all positions he holds with the
Corporation, its subsidiary companies, or any of its other affiliates, effective as
of the Date of Termination. From and after the Date of Termination, Executive
shall not make any statements or engage in conduct which would lead any person or
entity to believe that he is an employee, officer, director, consultant, agent or
other authorized representative of the Corporation or any of its subsidiaries.

 

 

	2.	 	Separation Pay, Employee Benefits, Corporation-Related Business
Expenses, Indemnity and D&O Coverage, and Other Obligations. The Corporation
shall pay to Executive as separation pay the payments as may be required in the
Employment Agreement. The Corporation shall provide to or on behalf of Executive
all of the benefits and coverages as may be required pursuant to the Employment
Agreement. All the provisions of the Employment Agreement which specifically
survive termination of the Employment Agreement are incorporated into this
Agreement as though fully set forth herein.
	 
	3.	 	Return of Corporation Property. Executive agrees that he will
promptly return to the Corporation all property belonging to the Corporation and
that he will otherwise comply with the Corporation’s normal employment termination
procedures. By way of example only, the Corporation’s property includes, but is
not limited to, items such as keys, vehicles, credit cards, cell phones, pagers,
computers, all originals and copies (regardless of the form or format on which such
originals and copies are maintained) of all Corporation specifications and pricing
information, all customer lists and other customer-related information, all
supplier lists and other supplier-related information, computer discs, tapes and
other documents which relate to the business of the Corporation and/or its
customers and/or its suppliers.
	 
	4.	 	Standstill Provision. Through the second anniversary of the Date of
Termination, Executive and his Representatives (as defined below) shall not,
directly or indirectly, without the prior written consent of the Board: (a)
acquire or offer or agree to acquire, directly or indirectly, by purchase or
otherwise, more than 5% of any outstanding class of voting securities or securities
convertible into voting securities of the Corporation, (b) propose to, or attempt
to induce any other individual or entity to, enter into, directly or indirectly,
any merger, consolidation, business combination, asset purchase (other than routine
purchases in the ordinary course of business of product offered for sale by the
Corporation) or other similar transaction involving the Corporation or any of its
affiliates, (c) make, or in any way participate in any solicitation of proxies to
vote, execute any consent as a Corporation shareholder, act to call a meeting of
the Corporation’s shareholders, make a proposal to be acted upon by the
Corporation’s shareholders or seek to advise or influence any person with respect
to the voting or not voting of any securities of the Corporation, (d) form, join or
in any way participate in a partnership, syndicate, joint venture or other “group”
(as defined under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the “1934 Act”)), with respect to any voting securities of the Corporation
or transfer Executive’s voting rights with respect to any securities of the
Corporation (by voting trust or otherwise), (e) otherwise act, alone or in concert
with others, to seek to control or influence the management, Board or policies of
the Corporation or seek a position on the Board, (f) disclose any intention, plan
or arrangement inconsistent with the foregoing, or (g) advise, assist or encourage
any other persons in connection with any of the foregoing. If Executive has
initiated any of the foregoing activities prior to the Date of Termination,
Executive shall cease, terminate and otherwise refrain from conducting such
activities and shall take any and all necessary steps to effect the foregoing and
any proposals made by Executive as a shareholder of the Corporation on or before
the Date of Termination, are hereby withdrawn. As used herein, the term
“Representative” shall include Executive’s employees, agents, investment

22

 

	 	 	bankers, advisors, affiliates and associates of any of the foregoing and persons
under the control of any of the foregoing (as the term “affiliate,” “associate”
and “control” are defined under the 1934 Act). Executive also agrees during such
period not to request the Corporation or its representatives, directly or
indirectly, to amend or waive any provision of this Section 5 (including this
sentence) to take any action which might require the Corporation to make a public
announcement regarding the possibility of a merger, consolidation, business
combination or other transaction of any kind with the Executive or any affiliate
of the Executive.
	 
	5.	 	Mutual General Release and Covenant Not-to-Sue.

	 	(a)	 	By Executive.

	 	(i)	 	Except as is otherwise explicitly provided
herein, Executive, for himself, his agents, attorneys,
Representatives, affiliates, heirs and assigns and all persons
claiming by, through, for or under any of them or on any of their
behalf, hereby fully and forever releases and discharges the
Corporation, its subsidiaries and other affiliates, predecessors and
successors, their respective shareholders, officers, directors,
employees, heirs and assigns (individually, a “Releasee” and
collectively, “Releasees”), from any and all Claims which Executive
may have had, may now have, or may hereafter claim or assert against
the Releasees on account of any matter whatsoever, arising out of or
relating to (A) Executive’s employment or termination of employment
or other association with the Corporation, its subsidiaries or other
affiliates (as an employee, director, officer, shareholder or
otherwise) or (B) any other act, event, failure to act or thing which
has occurred or was created at any time on or before the Date of
Termination. As used herein, “Claims” shall mean all claims,
counterclaims, cross-claims, actions, causes of action, demands,
obligations, debts, disputes, covenants, contracts, agreements,
rights, suits, rights of contribution and indemnity, liens, expenses,
assessments, penalties, charges, injuries, losses, costs (including,
without limitation, attorneys’ fees and costs of suit), damages
(including, without limitation, compensatory, consequential, bad
faith or punitive damages), and liabilities, direct or indirect, of
any and every kind, character, nature and manner whatsoever, in law
or in equity, civil or criminal, administrative or judicial, in
contract or in tort (including, without limitation, bad faith and
negligence of any kind) or otherwise, whether now known or unknown,
claimed or unclaimed, asserted or unasserted, suspected or
unsuspected, discovered or undiscovered, accrued or unaccrued,
anticipated or unanticipated, fixed or contingent, liquidated or
unliquidated, state or federal, under common law, statute or
regulation. Without limiting the generality hereof, this release (and
the defined term “Claims” as used in this Agreement) covers Claims
based upon torts (such as, for example, negligence, fraud,
defamation, wrongful discharge); express and implied contracts
(except this Agreement); federal, state or local statutes and

23

 

	 		 	ordinances; and every other source of legal rights and obligations
which may be validly waived or released.
	 
	 	(ii)	 	Executive covenants and represents that he has
not filed and will not in the future file or permit to be filed in
his name, or on his behalf, any lawsuit or other legal proceeding
asserting Claims which are within the scope of the release in Section
5(a)(i) against any of the Releasees. Further, Executive represents
and warrants that he has not suffered any on-the-job injury for which
he has not filed a claim.
	 
	 	(iii)	 	Nothing contained in this Section 5(a) shall be
deemed to waive any remedy available to Executive at law or in equity
in the event of a breach by the Corporation (or any of its
successors) of its or their obligations under this Agreement.
	 
	 	(iv)	 	Excluded from the release and covenant not to
sue set forth in Sections 5(a)(i) and 5(a)(ii), respectively, are any
Claims which cannot be waived by law and any rights that may arise
after the Date of Termination (including matters arising pursuant to
this Agreement, any benefit policy, plan or program, and the
provisions of the Employment Agreement which specifically survive
termination of the Employment Agreement) and any claims against any
Releasee for fraud, deceit, theft or misrepresentation.
	 
	 	(v)	 	Executive acknowledges and agrees that it is his
intention that the release set forth in Section 5(a)(i) be effective
as a full and final release of each and every thing released herein.

	 	(b)	 	By the Corporation.

	 	(i)	 	Except as is otherwise expressly provided
herein, the Corporation, for itself, its subsidiaries and other
affiliates, agents, attorneys, representatives, officers, directors,
shareholders, predecessors, successors and assigns and all persons
claiming by, through, for or under any of them or on any of their
behalf, hereby fully and forever releases and discharges Executive,
his affiliates, heirs and assigns (individually, an “Executive
Releasee” and collectively, “Executive Releasees”), from any and all
Claims which the Corporation may have had, may now have, or may
hereafter claim or assert against the Executive Releasees, on account
of any matter whatsoever, arising out of or relating to (A)
Executive’s employment or termination of employment, service as an
officer, director of or fiduciary acting on behalf of the
Corporation, or any other association with the Corporation, its
subsidiaries or any of its other affiliates (whether as an employee,
officer, director, shareholder or otherwise), or (B) any other act,
event, failure to act or thing which has occurred or was created at
any time on or before the Date of Termination.
	 
	 	(ii)	 	The Corporation covenants and represents that it
has not filed and will not in the future file or permit to be filed
in its name, or on its behalf, any

24

 

	 	 	 	lawsuit or other legal proceeding asserting Claims which are within
the scope of this release against any of the Executive Releasees.
	 
	 	(iii)	 	Excluded from the release and covenant not to
sue set forth in Sections 5(b)(i) and 5(b)(ii), respectively, are any
Claims which cannot be waived by law, any rights that may arise after
the Date of Termination (including matters arising pursuant to this
Agreement) and any Claims against any Executive Releasee for fraud,
deceit, theft or misrepresentation.
	 
	 	(iv)	 	The Corporation acknowledges and agrees that it
is its intention that the release set forth in Section 5(b)(i) be
effective as a full and final release of each and every thing
released herein.

	6.	 	Corporation’s Information; Nondisclosure; Related Matters.
Executive covenants and agrees to be bound by the provisions of Section 5 of the
Employment Agreement.
	 
	7.	 	Executive’s Noncompetition. Executive covenants and agrees to be
bound by the provisions of Section 6 of the Employment Agreement.
	 
	8.	 	Non-Admission of Liability. It is acknowledged and agreed that
nothing contained herein, including but not limited to the consideration paid
hereunder, constitutes or will be construed as an admission of liability or of any
wrongdoing or violation of law on the part of either Party hereto.
	 
	9.	 	Non-Disparagement.

	 	(a)	 	Executive agrees that he will not, at any time, make any
disparaging statements about the Corporation or any Releasee to any current,
former or prospective employer, any applicant referral source, any current,
former or prospective employee of the Corporation, any current, former or
prospective customer or supplier of the Corporation, the media, or to any
other person or entity.
	 
	 	(b)	 	The Corporation agrees that none of the members of the Board
or the Executive Council of the Corporation as constituted on the date
hereof, at no time, will make any disparaging statements about Executive to
any former or prospective employer of Executive, the media, or to any other
person or entity. The Corporation will instruct its employees not to make
any disparaging statements about Executive.
	 
	 	(c)	 	As used in this Section 9, the term “disparaging statement”
means any communication, oral or written, which would cause or tend to cause
the recipient of the communication to question the integrity, competence, or
good character of the person or entity to whom the communication relates.

	10.	 	Remedies for Breach. Each Party will be entitled to pursue any
remedy available at law or in equity for any breach of this Agreement by the other
Party. Each Party acknowledges that remedies at law may be inadequate to protect
against its breach of this Agreement and hereby in advance agrees, without
prejudice to any rights to judicial relief

25

 

	 	 	the other Party may otherwise have, to the granting of equitable relief,
including injunctive relief, in the other Party’s favor without proof of actual
damages.

	11.	 	Representations/Warranties by Executive. Executive represents and
warrants to the Corporation that the following statements are true and correct:

	 	(a)	 	Executive is signing this Agreement voluntarily and is legally
competent to do so.
	 
	 	(b)	 	Executive has been advised to consult, and has in fact
consulted, an attorney of his own choice before signing this Agreement.
	 
	 	(c)	 	Executive has read and fully understands each of the
provisions of this Agreement, he has been given sufficient and reasonable
time to consider each of them and fully understands his rights under all
applicable laws and the ramifications and consequences of his execution of
this Agreement.
	 
	 	(d)	 	No promises, agreements or representations have been made to
Executive to induce him to sign this Agreement, except those that are
written in this Agreement.
	 
	 	(e)	 	Executive has not, in whole or in part, sold, assigned,
transferred, conveyed or otherwise disposed of any of the Claims covered by
the release set forth in Section 5(a) (the “Executive’s Release”).
	 
	 	(f)	 	The consideration received by Executive for the Executive’s
Release constitutes lawful and adequate consideration.
	 
	 	(g)	 	Executive has not engaged in any of the activities listed in
subsections (a)-(g) of Section 4 hereof.
	 
	 	(h)	 	Executive waives any notice requirements under the
Corporation’s by-laws with respect to any of the Board’s meetings to
consider the approval of the terms and conditions of this Agreement.

	12.	 	Representations/Warranties by the Corporation. The Corporation
represents and warrants to Executive that the following statements are true and
correct:

	 	(a)	 	This Agreement has been duly authorized and executed by the
Corporation.
	 
	 	(b)	 	The Corporation has not, in whole or in part, sold, assigned,
transferred, conveyed or otherwise disposed of any of the Claims covered by
the release set forth in Section 5(b) (the “Corporation’s Release”).
	 
	 	(c)	 	The consideration received by the Corporation for the
Corporation’s Release constitutes lawful and adequate consideration.

	13.	 	Waiver of Rights. If on one or more instances either Party fails to
insist that the other Party perform any of the terms of this Agreement, such
failure shall not be construed as a waiver by such Party of any past, present, or
future right granted under this Agreement;

26

 

	 	 	and the obligations of both Parties under this Agreement shall continue in full
force and effect.

	14.	 	Severability/Applicability. If any provision, section or subsection
of this Agreement is adjudged by any court to be void or unenforceable in whole or
in part, this adjudication shall not affect the validity of the remainder of this
Agreement, including any other provision, section or subsection. Each provision,
section and subsection of this Agreement is separable from every other provision,
section and subsection, and constitutes a separate and distinct covenant.
	 
	15.	 	Successors & Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Parties and their respective successors, assigns,
executors, administrators and personal representatives.
	 
	16.	 	Notices. All notices, requests, demands, claims and other
communications under this Agreement shall be in writing. Any notice, request,
demand, claim or other communication hereunder shall be deemed duly given the next
business day (or when received if sooner) if it is sent by (a) confirmed facsimile
or (b) overnight delivery and addressed, to the respective address of such Party
specified below its or his signature below. Either Party may send any notice,
request, demand, claim or other communication hereunder to the intended recipient
at the address set forth below using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, registered or
certified mail, return receipt requested, postage prepaid, or electronic mail), but
no such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it is actually received by the intended
recipient. Either Party may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving
the other Party notice in the manner provided in this Agreement. Each Party
irrevocably consents to service of process in connection with disputes arising out
of this Agreement or otherwise in the manner provided for notices in this Section
16. Nothing in this Agreement will affect the right of any Party to service
process in any other manner permitted by law.
	 
	17.	 	Public Announcement of Termination/Resignation. The Parties agree
that the Corporation will file with the Securities and Exchange Commission (the
“SEC”) a report on Form 8-K and the Corporation will issue a press release each of
which will disclose Executive’s resignation as a Director and termination as an
executive officer of the Corporation. [Executive acknowledges and agrees that he
has received and reviewed those provisions of the press release that will be issued
that relate to the termination of employment and resignation from the Board, agrees
fully with the statements made by the Corporation therein with respect thereto, and
has not provided and will not provide to the Corporation any written correspondence
concerning the circumstances surrounding his termination or employment of
resignation as a Director.] [INSERT ONLY IF APPLICABLE: Executive acknowledges and
agrees that his resignation as a Director did not involve any disagreement with the
Corporation on any matter relating to the Corporation’s operations, policies or
practices within the meaning contemplated by Form 8-K.]

27

 

	18.	 	Sub-certification of ___Annual Report. In connection with the
preparation of the Corporation’s ___Annual Report on Form 10-K for the fiscal
year (the “Annual Report”) and prior to the filing by the Corporation of such
Annual Report with the SEC, Executive shall provide to the Corporation promptly
following the Corporation’s request (and in no event more than seven business days
after such request) a duly executed original of the Certificate attached hereto as
Exhibit A (the “Sub-certification Certificate”). The Corporation shall provide to
Executive a copy of the Annual Report and the Corporation’s Proxy Statement on
Schedule 14A at the time of requesting such Certificate. If the Corporation
requests that Executive provide the Sub-certification Certificate and Executive
provides the same to the Corporation within the foregoing time frame, the
Corporation shall indemnify, defend and hold harmless Executive, to the fullest
extent provided under applicable law, against any losses, claims, damages,
liabilities, action, suit, proceeding, cost or expense (including reasonable
attorney’s fees) (collectively, “Liabilities”) arising out of or pertaining to any
action against Executive for any material misstatement or omission in the Annual
Report; provided, however, notwithstanding the foregoing provisions of this
sentence, the Corporation shall have no obligation to indemnify, defend or hold
harmless Executive for Liabilities arising out of or pertaining to any material
misstatement or omission in the Annual Report which is actually known to Executive
(without duty of investigation) and not disclosed by him to the Corporation at the
time of his delivery to the Corporation of the Sub-certification Certificate.
	 
	19.	 	Entire Agreement. This Agreement supersedes and replaces all prior
and contemporaneous written or oral agreements relating to Executive’s employment,
compensation and employment termination, including the Employment Agreement (other
than the post-termination provisions which survive the termination of the
Employment Agreement as provided therein), but not including any and all stock
option agreements between Executive and the Corporation and any employee benefit
plans or programs.
	 
	20.	 	Interpretation; Enforcement. This Agreement will be interpreted and
enforced according to the laws of the Commonwealth of Pennsylvania, without regard
to its conflicts of laws provision. The parties hereto further agree that any
action to enforce any right or obligation under this Agreement shall be subject to
the exclusive jurisdiction of the courts of the Commonwealth of Pennsylvania. Each
Party hereby consents to personal jurisdiction in any action brought in any court,
federal or state, within the Commonwealth of Pennsylvania having subject matter
jurisdiction in this matter. Each Party hereby irrevocably waives any objection,
including, without limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the bringing
of any such action or proceeding in such jurisdiction.
	 
	21.	 	Amendment. No provision of this Agreement may be modified, amended
or revoked, except in a writing signed by Executive and an authorized official of
the Corporation.
	 
	22.	 	Acknowledgment of Waiver of Claims Under ADEA. Executive
acknowledges that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release
is knowing and

28

 

		 	voluntary. Executive and the Corporation agree that this waiver and release does
not apply to any rights that or claims that might arise under the ADEA after the
date of this Agreement. Executive acknowledges that the consideration given for
this waiver and release agreement is in addition to anything of value to which
Executive was already entitled. Executive further acknowledges that he has been
advised by this writing that (a) he has at least twenty-one (21) days within
which to consider this Agreement, (b) he has seven days following the execution
of this Agreement by the Parties to revoke the Agreement and (c) this Agreement
shall not be effective until the revocation period has expired. Any revocation
should be in writing and delivered to the Corporation by the close of business on
the seventh day from the date that Executive signs this Agreement.

[Intentionally Left Blank]

29

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.

WITNESS:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Joseph A. Ferrara	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	TOLLGRADE COMMUNICATIONS, INC.	 	 

	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Address: 493 Nixon Road

               Cheswick, PA 15024	 	 

30

 

Exhibit A

CERTIFICATE

The undersigned hereby certifies as follows:

	1.	 	I understand that this certificate will be relied upon by the Chief
Executive Officer and Chief Financial Officer of Tollgrade Communications, Inc.
(the “Corporation”) in making the certifications required of them in the
Corporation’s annual report for its 20___fiscal year on Form 10-K (the “Annual
Report”).
	 
	2.	 	I have reviewed the Annual Report (as distributed on ___, 20___). I did
not participate in the preparation of the Annual Report.
	 
	3.	 	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that the Annual
Report contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading.
	 
	4.	 	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that the
financial statements and other financial information included in the Annual Report,
do not fairly present in all material respects the financial conditions, results of
operations and cash flows of the corporation as of, and for, the year ended
December 31, 20___.
	 
	5.	 	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that there is
any material weakness or significant deficiency in the design or operation of the
Corporation’s disclosure controls and procedures or the Corporation’s internal
controls over financial reporting as they existed and were utilized as of the last
day of my employment by the Corporation, which could adversely affect the
Corporation’s ability to timely and accurately report the financial and other
information required to be disclosed by the Corporation in its periodic reports
required to be filed pursuant to the Securities Exchange Act of 1934, as amended.

Date:          
         
        
         
     , 20   
          
       

	 	 	 	 	 
	 

	 	 

Joseph A. Ferrara

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