Document:

exv10w2

 

Exhibit 10.2

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 25, 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.

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/ James C. Fifield 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	James C. Fifield 	 	 
	 

	 	 	 	 	 	 
	 

	 	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)

4exv10wxay

 

Exhibit 10(a)

DIGI INTERNATIONAL INC.

STOCK OPTION PLAN

AS AMENDED AND RESTATED

AS OF NOVEMBER 27, 2006

1. Purpose of Plan. The purpose of this Digi International Inc. Stock Option Plan (the “Plan”), is
to promote the interests of Digi International Inc., a Delaware corporation (the “Company”), and
its stockholders by providing key personnel of the Company and its subsidiaries with an opportunity
to acquire a proprietary interest in the Company and thereby develop a stronger incentive to put
forth maximum effort for the continued success and growth of the Company and its subsidiaries. In
addition, the opportunity to acquire a proprietary interest in the Company will aid in attracting
and retaining key personnel of outstanding ability.

2. Administration of Plan. This Plan shall be administered by a committee of two or more directors
(the “Committee”) appointed by the Company’s board of directors (the “Board”). No person shall
serve as a member of the Committee unless such person shall be a “Non-Employee Director” as that
term is defined in Rule 16b-3(a)(3)(i), promulgated under the Securities Exchange Act of 1934, as
amended (the “Act”), or any successor statute or regulation comprehending the same subject matter.
A majority of the members of the Committee shall constitute a quorum for any meeting of the
Committee, and the acts of a majority of the members present at any meeting at which a quorum is
present or the acts unanimously approved in writing by all members of the Committee shall be the
acts of the Committee. Subject to the provisions of this Plan, the Committee may from time to time
adopt such rules for the administration of this Plan as it deems appropriate. The decision of the
Committee on any matter affecting this Plan or the rights and obligations arising under this Plan
or any option granted hereunder, shall be final, conclusive and binding upon all persons, including
without limitation the Company, stockholders, employees and optionees. To the full extent permitted
by law, (i) no member of the Committee or the CEO Stock Option Committee (as defined in this
paragraph 2) shall be liable for any action or determination taken or made in good faith with
respect to this Plan or any option granted hereunder and (ii) the members of the Committee and the
CEO Stock Option Committee shall be entitled to indemnification by the Company against and from any
loss incurred by such member or person by reason of any such actions and determinations. The
Committee may delegate all or any part of its authority under this Plan to a one person committee
consisting of the Chief Executive Officer of the Company as its sole member (the “CEO Stock Option
Committee”) for purposes of granting and administering awards granted to persons other than persons
who are then subject to the reporting requirements of Section 16 of the Exchange Act (“Section 16
Individuals”).

3. Shares Subject to Plan. The shares that may be made subject to options granted under this Plan
shall be authorized and unissued shares of common stock (the “Common Shares”) of the Company, $.01
par value, or Common Shares held in treasury, and they shall not

 

 

exceed 4,129,400 in the aggregate,
except that, if any option lapses or terminates for any reason before such option has been
completely exercised, the Common Shares covered by the unexercised portion of such option may again
be made subject to options granted under this Plan.

4. Eligible Participants. Options may be granted under this Plan to any key employee of the Company
or any subsidiary thereof, including any such employee who is also an officer or director of the
Company or any subsidiary thereof. Nonstatutory stock options, as defined in paragraph 5(a)
hereof, also shall be granted to directors of the Company who are not employees of the Company or
any subsidiary thereof (the “Outside Directors”) in accordance with paragraph 6 hereof and may also
be granted to other individuals or entities who are not “employees” but who provide services to the
Company or a parent or subsidiary thereof in the capacity of an Outside Director, advisor or
consultant. References herein to “employed,” “employment” and similar terms (except “employee”)
shall include the providing of services in any such capacity or as a director. The employees and
other individuals and entities to whom options may be granted pursuant to this paragraph 4 are
referred to herein as “Eligible Participants.”

5. Terms and Conditions of Employee Options.

     (a) Subject to the terms and conditions of this Plan, the Committee may, from time to time
prior to December 1, 2006, grant to such Eligible Participants as the Committee may determine
options to purchase such number of Common Shares of the Company on such terms and conditions as the
Committee may determine;
provided, however, that no Eligible Participant may be granted options with respect to more
than 250,000 Common Shares during any calendar year. In determining the Eligible Participants to
whom options shall be granted and the number of Common Shares to be covered by each option, the
Committee may take into account the nature of the services rendered by the respective Eligible
Participants, their present and potential contributions to the success of the Company, and such
other factors as the Committee in its sole discretion shall deem relevant. The date and time of
approval by the Committee of the granting of an option shall be considered the date and the time of
the grant of such option. The Committee in its sole discretion may designate whether an option
granted to an employee is to be considered an “incentive stock option” (as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or any amendment thereto (the
“Code”)) or a nonstatutory stock option (an option granted under this Plan that is not intended to
be an “incentive stock option”). The Committee may grant both incentive stock options and
nonstatutory stock options to the same employee. However, if an incentive stock option and a
nonstatutory stock option are awarded simultaneously, such options shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event shall the exercise of one
such option affect the right to exercise the other. To the extent that the aggregate Fair Market
Value (as defined in paragraph 5(c)) of Common Shares with respect to which incentive stock options
(determined without regard to this sentence) are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as nonstatutory stock options.

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     (b) The purchase price of each Common Share subject to an option granted pursuant to this
paragraph 5 shall be fixed by the Committee. For nonstatutory stock options, such purchase price
may be set at not less than 50% of the Fair Market Value (as defined below) of a Common Share on
the date of grant. For incentive stock options, such purchase price shall be no less than 100% of
the Fair Market Value of a Common Share on the date of grant, provided that if such incentive stock
option is granted to an employee who owns, or is deemed under Section 424(d) of the Code to own, at
the time such option is granted, stock of the Company (or of any parent or subsidiary of the
Company) possessing more than 10% of the total combined voting power of all classes of stock
therein (a “10% Stockholder”), such purchase price shall be no less than 110% of the Fair Market
Value of a Common Share on the date of grant.

     (c) “Fair Market Value” as of any date means, unless otherwise expressly provided in
the Plan:

     (i) the closing sale price of a Common Share on such date, or, if no sale of
Common Shares shall have occurred on that date, on the next preceding day on which a sale of
Common Shares occurred

     (A) on the composite tape for NASDAQ-listed shares, or

     (B) if the Common Shares are not quoted on the composite tape for NASDAQ-listed
shares, on the principal United States Securities Exchange registered under the
Securities Exchange Act of 1934, as amended, on which the Common Shares are listed,
or

     (ii) if clause (i) is inapplicable, the mean between the closing “bid” and the
closing “asked” quotation of a Common Share on that date, or, if no closing bid or asked
quotation is made on that date, on the next preceding day on which a closing bid and asked
quotation is made, on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or

     (iii) if clauses (i) and (ii) are inapplicable, what the Committee determines in good
faith to be 100% of the fair market value of a Common Share on that date, using such
criteria as it shall determine, in its sole discretion, to be appropriate for valuation.

     In the case of an incentive stock option, if this determination of Fair Market Value is not
consistent with the then current regulations of the Secretary of the Treasury, Fair Market Value
shall be determined in accordance with those regulations. The determination of Fair Market Value
shall be subject to adjustment as provided in Plan Section 13.

     (d) Each option agreement provided for in paragraph 14 hereof shall specify when each option
granted under this Plan shall become exercisable.

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     (e) Each option granted pursuant to this paragraph 5 and all rights to purchase shares
thereunder shall cease on the earliest of:

     (i) ten years after the date such option is granted (or in the case of an incentive
stock option granted to a 10% Stockholder, five years after the date such option is granted)
or on such date prior thereto as may be fixed by the Committee on or before the date such
option is granted;

     (ii) the expiration of the period after the termination of the optionee’s employment
within which the option is exercisable as specified in paragraph 8(b) or 8(c), whichever is
applicable; or

     (iii) the date, if any, fixed for cancellation pursuant to paragraph 9 of this Plan.

In no event shall any option be exercisable at any time after its original expiration date. When an
option is no longer exercisable, it shall be deemed to have lapsed or terminated and will no longer
be outstanding.

6. Terms and Conditions of Outside Director Options.

     (a) Subject to the terms and conditions of this Plan, the Committee shall grant options to
each Outside Director who is not on the date such option would be granted the beneficial owner (as
defined in Rule 13d-3 under the Act) of more than 5% of the outstanding Common Shares, on the terms
and conditions set forth in this paragraph 6. During the term of this Plan and provided that
sufficient Common Shares are available pursuant to paragraph 3:

     (i) each person who is elected to be an Outside Director and who was not at any time
previously a director of the Company shall be granted a nonstatutory stock option. The date
such person is elected to be an Outside Director of the Company shall be the date of grant
for such options granted pursuant to this subparagraph 6(a)(i). The number of Common Shares
covered by each such option shall be 7,500;

     (ii) each person who is an Outside Director at the conclusion of an Annual Meeting of
Stockholders shall be granted a nonstatutory stock option on the date of such Annual Meeting
of Stockholders. The date of such Annual Meeting of Stockholders shall also be the date of
grant for options granted pursuant to this subparagraph 6(a)(ii). The number of Common
Shares covered by each such option shall be 9,500;

     (iii) each person who is elected to be an Outside Director between Annual Meetings of
Stockholders shall be granted a nonstatutory stock option. The date such person is elected
to be an Outside Director of the Company by the Board shall be the date of grant for such
options granted pursuant to this subparagraph 6(a)(iii). The

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number of Common Shares covered
by each such option shall be 9,500 multiplied by a fraction, the numerator of which shall be
12 minus the number of whole 30-day months that have elapsed from the date of the most
recent Annual Meeting of Stockholders to the date such person is elected to be an Outside
Director, and the denominator of which shall be 12;

     (iv) each person who is an Outside Director at the conclusion of an Annual Meeting of
Stockholders may elect in writing to be granted a nonstatutory stock option on the date of
such Annual Meeting of Stockholders in lieu of all cash compensation to which such Outside
Director would be entitled for the Board year of the Company commencing with such Annual
Meeting of Stockholders. The date of such Annual Meeting of Stockholders shall also be the
date of grant for options granted pursuant to this subparagraph 6(a)(iv). The number of
Common Shares covered by each such option shall be 3,500. Any such election by an Outside
Director shall be subject to prior approval by the Committee; and

     (v) each person who is elected to be an Outside Director between Annual Meetings of
Stockholders may elect in writing to be granted a nonstatutory stock option in lieu of all
cash compensation to which such Outside Director would otherwise be entitled for the period
commencing with the date such
person is elected to be an Outside Director of the Company by the Board and ending on
the date of the next Annual Meeting of Stockholders. The date such person is elected to be
an Outside Director of the Company by the Board shall be the date of grant for such options
granted pursuant to this subparagraph 6(a)(v). The number of Common Shares covered by each
such option shall be 3,500 multiplied by a fraction, the numerator of which shall be 12
minus the number of whole 30-day months that have elapsed from the date of the most recent
Annual Meeting of Stockholders to the date such person is elected to be an Outside Director,
and the denominator of which shall be 12. Such election by an Outside Director shall be
subject to prior approval by the Committee.

     (b) The purchase price of each Common Share subject to an option granted to an Outside
Director pursuant to this paragraph 6 shall be the Fair Market Value of a Common Share on the date
of grant.

     (c) (i) Subject to the provisions of paragraphs 6(d) and 6(e) hereof, (x) options granted to
Outside Directors pursuant to subparagraph 6(a)(ii) and (iv) and (y) options granted to Outside
Directors pursuant to subparagraph 6(a)(i) if the date of grant of such options is the date of an
Annual Meeting of Stockholders shall vest and become exercisable in accordance with the following
schedule:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Annual Meeting	 	 	 	 	 	 	 	 	 	Cumulative Percentage
	of Stockholders 	 	 	 	 	 	 	 	 	 	Becoming Exercisable
	 
	One Year After Grant
	 	 	 	 	 	 	 	 	 	 	50	%
	Two Years After Grant
	 	 	 	 	 	 	 	 	 	 	100	%

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     (ii) Subject to the provisions of paragraph 6(d) and 6(e) hereof, (x) the options
granted to Outside Directors pursuant to subparagraphs 6(a)(iii) and (v) and (y) options
granted to Outside Directors pursuant to subparagraph 6(a)(i) if the date of grant of such
options is a date other than the date of an Annual Meeting of Stockholders shall vest and
become exercisable in accordance with the following schedule:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Anniversary of the	 	 	 	 	 	 	 	 	 	Cumulative Percentage
	Date of Grant	 	 	 	 	 	 	 	 	 	Becoming Exercisable
	 
	One Year After Grant
	 	 	 	 	 	 	 	 	 	 	50	%
	Two Years After Grant
	 	 	 	 	 	 	 	 	 	 	100	%

     (d) Notwithstanding the vesting schedules set forth in paragraph 6(c) hereof, an option held
by an Outside Director shall vest and become immediately exercisable upon the latest of (i) the
date on which such Outside Director attains 62 years of age, (ii) the date on which such Outside
Director has completed five years of Service (as hereinafter defined) and (iii) the first
anniversary of the date of grant of such option or, if applicable, the Annual Meeting of
Stockholders next succeeding the Annual Meeting at which such option was granted. Any option
granted to an Outside Director on or after the first accelerated vesting date for such Outside
Director shall automatically vest on the Annual Meeting of Stockholders next succeeding the Annual
Meeting at which such option was granted. As used herein, “Service” shall mean service to the
Company or any subsidiary thereof in the capacity of any advisor, consultant, employee, officer or
director, and Service as a director from an Annual Meeting of Stockholders to the next succeeding
Annual Meeting shall constitute a year of Service, notwithstanding that such period may actually be
more or less than one year.

     (e) Each option granted to an Outside Director pursuant to this paragraph 6 and all rights to
purchase shares thereunder shall terminate on the earliest of:

     (i) ten years after the date such option is granted;

     (ii) the expiration of the period specified in paragraph 8(b) or 8(c), whichever is
applicable, after an Outside Director ceases to be a director of the Company; or

     (iii) the date, if any, fixed for cancellation pursuant to paragraph 9 of this Plan.

     In no event shall such option be exercisable at any time after its original expiration
date. When an option is no longer exercisable, it shall be deemed to have lapsed or
terminated and will no longer be outstanding.

     (f) The provisions of this Section 6 are not intended to be exclusive; the Committee, in its
discretion, may grant additional Options to an Outside Director.

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7. Manner of Exercising Options. A person entitled to exercise an option granted under this Plan
may, subject to its terms and conditions and the terms and conditions of this Plan, exercise it in
whole at any time, or in part from time to time, by delivery to the Company at its principal
executive office, to the attention of its President, of written notice of exercise, specifying the
number of shares with respect to which the option is being exercised, accompanied by payment in
full of the purchase price of the shares to be purchased at the time. The purchase price of each
share on the exercise of any option shall be paid in full in cash (including check, bank draft or
money order) at the time of exercise or, at the discretion of the holder of the option, by delivery
to the Company of unencumbered Common Shares having an aggregate Fair Market Value on the date of
exercise equal to the purchase price, or by a combination of cash and such unencumbered Common
Shares. Provided, however, that a person exercising a stock option shall not be permitted to pay
any portion of the purchase price with stock if, in the opinion of the Committee, payment in such
manner could have adverse financial accounting consequences for the Company. No shares shall be
issued until full payment therefor has been made, and the granting of an option to an individual
shall give such individual no rights as a stockholder except as to shares issued to such
individual.

8. Transferability and Termination of Options.

     (a) During the lifetime of an optionee, only such optionee or his or her guardian or legal
representative may exercise options granted under this Plan, and no option granted under this Plan
shall be assignable or transferable by the optionee otherwise than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act (“ERISA”), or the rules thereunder; provided, however,
that any optionee may transfer a nonstatutory stock option granted under this Plan to a member or
members of his or her immediate family (i.e., his or her children, grandchildren and spouse) or to
one or more trusts for the benefit of such family members or partnerships in which such family
members are the only partners, if (i) the option agreement with respect to such options, which must
be approved by the Committee, expressly so provides either at the time of initial grant or by
amendment to an outstanding option agreement and (ii) the optionee does not receive any
consideration for the transfer. Any options held by any such transferee shall continue to be
subject to the same terms and conditions that were applicable to such options immediately prior to
their transfer and may be exercised by such transferee as and to the extent that such option has
become exercisable and has not terminated in accordance with the provisions of the Plan and the
applicable option agreement. For purposes of any provision of this Plan relating to notice to an
optionee or to vesting or termination of an option upon the death, disability or termination of
employment of an optionee, the references to “optionee” shall mean the original grantee of an
option and not any transferee.

     (b) During the lifetime of an optionee, an option may be exercised only while the optionee is
employed by the Company or a parent or subsidiary thereof, and only if such optionee has been
continuously so employed since the date the option was granted, except that:

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     (i) unless otherwise provided in a stock option agreement, an option granted to an
optionee who is not an Outside Director shall continue to be exercisable for three months
after termination of such optionee’s employment but, unless otherwise provided in a stock
option agreement, only to the extent that the option was exercisable immediately prior to
such optionee’s termination of employment, and unless otherwise provided in a stock option
agreement, an option granted to an optionee who is an Outside Director shall continue to be
exercisable after such Outside Director ceases to be a director of the Company but, unless
otherwise provided in a stock option agreement, only to the extent that the option was
exercisable immediately prior to such Outside Director’s ceasing to be a director;

     (ii) in the case of an optionee who is disabled (within the meaning of Section 22(e)(3)
of the Code) while employed, the option granted to such optionee may be exercised within one
year after termination of such optionee’s employment; and

     (iii) as to any optionee whose termination occurs following a declaration pursuant to
paragraph 9 of this Plan, the option granted to such optionee may be exercised at any time
permitted by such declaration.

     (c) An option may be exercised after the death of the optionee, but only within one year after
the death of such optionee.

     (d) In the event of the disability (within the meaning of Section 22(e)(3) of the Code) or
death of an optionee, any option granted to such optionee that was not previously exercisable shall
become immediately exercisable in full if the disabled or deceased optionee shall have been
continuously employed by the Company or a parent or subsidiary thereof between the date such option
was granted and the date of such disability, or, in the event of death, a date not more than three
months prior to such death.

9. Dissolution, Liquidation, Merger. In the event of (a) a proposed merger or consolidation of the
Company with or into any other corporation, regardless of whether the Company is the surviving
corporation, unless appropriate provision shall have been made for the protection of the
outstanding options granted under this Plan by the substitution, in lieu of such options, of
options to purchase appropriate voting common stock (the “Survivor’s Stock”) of the corporation
surviving any such merger or consolidation or, if appropriate, the parent corporation of the
Company or such surviving corporation, or, alternatively, by the delivery of a number of shares of
the Survivor’s Stock which has a Fair Market Value as of the effective date of such merger or
consolidation equal to the product of (i) the excess of (x) the Event Proceeds per Common Share (as
hereinafter defined) covered by the option as of such effective date, over (y) the option price per
Common Share, times (ii) the number of Common Shares covered by such option, or (b) the proposed
dissolution or liquidation of the Company (such merger, consolidation, dissolution or liquidation
being herein called an “Event”), the Committee shall declare, at least ten days prior to the actual
effective date of an Event, and provide written notice to each optionee of the declaration, that
each outstanding

8

 

option, whether or not then exercisable, shall be cancelled at the time of, or
immediately prior to the occurrence of, the Event (unless it shall have been exercised prior to the
occurrence of the Event) in exchange for payment to the holder of each cancelled option, within ten
days after the Event, of cash equal to the amount (if any), for each Common Share covered by the
cancelled option, by which the Event Proceeds per Common Share (as hereinafter defined) exceeds the
exercise price per Common Share covered by such option. At the time of the declaration provided for
in the immediately preceding sentence, each option shall immediately become exercisable in full and
each holder of an option shall have the right, during the period preceding the time of cancellation
of the option, to exercise his or her option as to all or any part of the Common Shares covered
thereby. Each outstanding option granted pursuant to this Plan that shall not have been exercised
prior to the Event shall be cancelled at the time of, or immediately prior to, the Event, as
provided in the declaration, and this Plan shall terminate at the time of such cancellation,
subject to the payment obligations of the Company provided in this paragraph 9. For purposes of
this paragraph, “Event Proceeds per Common Share” shall mean the cash plus the fair market value,
as determined in good faith by the Committee, of the non-cash consideration to be received per
Common Share by the stockholders of the Company upon the occurrence of the Event.

10. Substitution Options. Options may be granted under this Plan from time to time in substitution
for stock options held by employees of other corporations who are about to become employees of the
Company or a subsidiary of the Company, or whose employer is about to become a subsidiary of the
Company, as the result of a merger or consolidation of the Company or a subsidiary of the Company
with another corporation, the acquisition by the Company or a subsidiary of the Company of all or
substantially all the assets of another corporation or the acquisition by the Company or a
subsidiary of the Company of at least 50% of the issued and outstanding stock of another
corporation. The terms and conditions of the substitute options so granted may vary from the terms
and conditions set forth in this Plan to such extent as the Board at the time of the grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock options in substitution
for which they are granted, but with respect to stock options which are incentive stock options, no
such variation shall be permitted which affects the status of any such substitute option as an
incentive stock option under Section 422A of the Code.

11. Tax Withholding. Delivery of Common Shares upon exercise of any nonstatutory stock option
granted under this Plan shall be subject to any required withholding taxes. A person exercising
such an option may, as a condition precedent to receiving the Common Shares, be required to pay the
Company a cash amount equal to the
amount of any required withholdings. In lieu of all or any part of such a cash payment, the
Committee may, but shall not be required to, permit the optionee to elect to cover all or any part
of the required withholdings, and to cover any additional withholdings up to the amount needed to
cover such optionee’s full FICA and federal, state and local income tax liability with respect to
income arising from the exercise of the option, through a reduction of the number of Common Shares
delivered to the person exercising the option or through a subsequent return to the Company of
shares delivered to the person exercising the option.

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12. Termination of Employment. Neither the transfer of employment of an optionee between any
combination of the Company, a parent corporation or a subsidiary thereof, nor a leave of absence
granted to such optionee and approved by the Committee, shall be deemed a termination of employment
for purposes of this Plan. The terms “parent” or “parent corporation” and “subsidiary” as used in
this Plan shall have the meaning ascribed to “parent corporation” and “subsidiary corporation”,
respectively, in Sections 424(e) and (f) of the Code.

13. Adjustment for Changes in Capitalization. In the event of any equity restructuring (within
the meaning of Financial Accounting Standards No. 123 (revised 2004)) that causes the per Share
value of Common Shares to change, such as a stock dividend, stock split, spin off, rights offering,
or recapitalization through a large, nonrecurring cash dividend, the Committee shall cause there to
be made an equitable adjustment to (i) the number and kind of Common Shares that may be issued
under the Plan, (ii) the limitations on the number of Common Shares that may be issued to an
individual Participant as an option in any calendar year; and (iii) the number and kind of Shares
and the exercise price (if applicable) of any then outstanding awards of options, provided, in each
case, that with respect to incentive stock options, no such adjustment shall be authorized to the
extent that such adjustment would cause such options to violate Section 422(b) of the Code or any
successor provision, and provided further, with respect to all awards of such options, that no such
adjustment shall be authorized to the extent that such adjustment would cause the awards to be
subject to adverse tax consequences under Section 409A of the Code. In the event of any other
change in corporate capitalization, such as a merger, consolidation, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368 of the Code), or
any partial or complete liquidation of the Company, including an Event (subject to Plan Section 9),
such equitable adjustments described in the foregoing sentence may be made as determined to be
appropriate and equitable by the Committee to prevent dilution or enlargement of rights. In either
case, any such adjustment shall be conclusive and binding for all purposes of the Plan. Unless
otherwise determined by the Committee, the number of Common Shares subject to an option shall
always be a whole number. In no event shall an outstanding option be amended for the sole purpose
of reducing the exercise price thereof.

14. Other Terms and Conditions. The Committee shall have the power, subject to the other
limitations contained herein, to fix any other terms and conditions for the grant or exercise of
any option under this Plan. Nothing contained in this Plan, or in any option granted pursuant to
this Plan, shall confer upon any optionee any right to continued employment by the Company or any
parent or subsidiary of the Company or limit in any way the right of the Company or any such parent
or subsidiary to terminate an optionee’s employment at any time.

15. Option Agreements. All options granted under this Plan shall be evidenced by a written
agreement in such form or forms as the Committee may from time to time determine, which agreement
shall, among other things, designate whether the options being granted thereunder are nonstatutory
stock options or incentive stock options under Section 422 of the Code.

10

 

16. Amendment and Discontinuance of Plan. The Board may at any time amend, suspend or discontinue
this Plan; provided, however, that no amendment by the Board shall, without further approval of the
Stockholders of the Company, if required in order for the Plan to continue to meet the requirements
of the Code:

     (a) change the persons eligible to receive options;

     (b) except as provided in paragraph 3 hereof, increase the total number of Common Shares of
the Company which may be made subject to options granted under this Plan;

     (c) except as provided in paragraph 3 hereof, change the minimum purchase price for the
exercise of an option; or

     (d) extend the term of this Plan beyond December 1, 2006.

No amendment to this Plan shall, without the consent of the holder of the option, alter or impair
any options previously granted under this Plan.

17. Effective Date. This Plan shall be effective July 26, 1989.

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