Document:

exv10wxdy

 

Exhibit 10(d)

EMPLOYMENT AGREEMENT

(Joseph T. Dunsmore)

     This Agreement is made as of September 27, 2006 by and between DIGI INTERNATIONAL INC., a
Delaware corporation (the “Company”), and Joseph T. Dunsmore (the “Executive”).

     WHEREAS the Company desires to continue to employ Executive in accordance with the terms and
conditions stated in this Agreement;

     WHEREAS Executive desires to continue his employment pursuant to the terms and conditions of
this Agreement; and

     WHEREAS the parties wish to supersede and terminate that certain employment agreement dated as
of October 1, 1999 between the Executive and the Company;

     NOW THEREFORE, in consideration of the covenants and agreements contained herein, the parties
hereto agree as follows:

I. EMPLOYMENT

     1.1
Employment As Senior Executive. The Company hereby agrees to employ Executive, continuing until the date his employment terminates pursuant to Article III hereof,
in a senior executive capacity, presently as President and Chief Executive Officer of the Company
and Chairman of the Board.

Executive accepts such employment pursuant to the terms of this Agreement. Executive shall perform
such duties and responsibilities as may be determined from time to time by the Board of Directors
of the Company, which shall be consistent with his position as a senior officer of the Company.

     1.2 Exclusive Services. Executive agrees to devote his full time, attention and energy
to performing his duties and responsibilities to the Company under this Agreement.

II. COMPENSATION, BENEFITS AND PERQUISITES

     2.1 Base Salary.  The Company shall pay Executive a base salary at the annual rate of
$375,000, payable bi-weekly. The Board of Directors of the Company (the “Board”, which term shall
include a duly authorized committee of the Board of Directors) will review the base salary
annually, and may in its sole discretion increase it to reflect performance and other factors.
However, the Board is not obligated to provide for any increases.

 

 

     2.2 Bonuses.  Executive shall be eligible to receive a cash performance bonus targeted
at 100% of base salary paid for each fiscal year during which this Agreement is in effect, as
follows:

     (a) The Board of Directors will define a bonus plan annually, determining the
objectives for the fiscal year that must be met to earn the target bonus. Such
objectives may include, in the sole discretion of the Board, the achievement of financial
objectives set forth in the Board-approved business plan (the “Business Plan”) for a
particular fiscal year, or such other objectives as the Board, in its sole discretion,
shall determine.

     (b) The annual bonus plan definition may, at the discretion of the Compensation
Committee, include a provision for payment of a portion, if any, of the target bonus amount
in the event some or all of the annual objectives are not met and a provision for payment
above target if the Executive exceeds annual objectives.

     (c) Executive must be employed by the Company on September 30th of each
fiscal year to be eligible to receive the annual bonus under this Section 2.2 for that
fiscal year. The actual bonus for each fiscal year shall be paid to Executive as soon as
the Company determines whether the objectives for such bonus have been met for that year.
Such payment shall be made by the March 15th following the end of the fiscal
year to which the bonus relates (or such earlier or later deadline as may be required for
the bonus payment to be exempt from the requirements of Section 409A of the Internal
Revenue Code as a “short-term deferral” under the applicable regulations).

     (d) In any fiscal year in which the objectives for the cash bonus are based upon
financial objectives in the Board-approved Business Plan for such fiscal year, the Board
will consult with Executive before determining the Business Plan for each fiscal year.
However, the Board will have authority to establish the Business Plan for each year in its
sole discretion.

     (e) In any fiscal year in which the objectives for the cash bonus are based upon
financial objectives in the Board-approved Business Plan for such fiscal year, the
objectives set by the Company’s Board-approved Business Plan for such fiscal year shall not
be adjusted for the acquisition, by any means, of any businesses or business units (and
expenses related thereto) that may occur during a particular fiscal year unless such a
provision has been pre-defined in the Executive’s annual bonus plan design. The objectives
set by the Company’s Board-approved Business Plan for any such fiscal year shall be
equitably adjusted by the Board for the divestiture, by any means, of any businesses or
business units (and expenses related thereto) that may occur during a particular fiscal
year and to eliminate any reorganization, restructuring or other extraordinary charge that
may be incurred during a particular fiscal year. The final determination of any such
adjustments is at the discretion of the Compensation Committee.

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     2.3 Stock Options. The Compensation Committee will annually consider whether to make a
stock option award to Executive. On or about September 30 of each year the Compensation Committee
of the Board of the Company considers stock options to key employees of the Company and its
subsidiaries. These awards are made in the discretion of the Compensation Committee. Actual stock
option awards are made on or about November 20 of each year.

     2.4 Vacations. Executive shall be entitled to vacation in accordance with policies of
the Company.

     2.5 Employee Benefits. Executive shall be entitled to the benefits and perquisites
which the Company generally provides to its other senior executives under the applicable Company
plans and policies, and to future benefits and perquisites made generally available to senior
executives of the Company. Executive’s participation in such benefit plans shall be on the same
basis as applies to other senior executives of the Company. Executive shall pay any contributions
which are generally required of senior executives to receive any such benefits.

     2.6 Employment Taxes and Withholding. Executive recognizes that the compensation,
benefits and other amounts provided by the Company under this Agreement may be subject to federal,
state or local income taxes. It is expressly understood and agreed that all such taxes shall be the
responsibility of the Executive. To the extent that federal, state or local law requires
withholding of taxes on compensation, benefits or other amounts provided under this Agreement, the
Company shall withhold the necessary amounts from the amounts payable to Executive under this
Agreement.

     2.7 Company Responsibility for Insured Benefits. In this Article II, the Company is
agreeing to provide certain benefits which are provided in the form of payment of premiums of
insurance coverage. The Company is not itself promising to pay the benefit an insurance company is
obligated to pay under the policy the insurance company has issued. If an insurance company becomes
insolvent and cannot pay benefits it owes to Executive or his beneficiaries under the insurance
policy, neither Executive nor his personal representative or beneficiary shall have any claim for
benefits against the Company. The insurance companies presently providing such benefits are as set
forth in the Company’s benefits enrollment booklet previously delivered to Executive. In addition,
the Company presently provides $500,000 of term life insurance to senior executives and director
and officer liability coverage, with a $10 million policy limit.

     2.8 Expenses. During the term of his employment hereunder, Executive shall be entitled
to receive prompt reimbursement from the Company (in accordance with the policies and procedures in
effect for the Company’s employees) for all reasonable travel and other expenses incurred by him in
connection with his services hereunder.

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III. TERMINATION OF EXECUTIVE’S EMPLOYMENT

     3.1 Termination of Employment. Executive’s employment under this
Agreement may be terminated by the Company or by Executive at any time for any reason. The
termination shall be effective as of the date specified by the party initiating the termination in
a written notice delivered to the other party. In the case of a notice given by Executive to the
Company, the termination date shall not be earlier than 60 days following the date such notice is
delivered to the Company. Executive’s rights to pay and benefits shall cease on the date his
employment under this Agreement terminates; provided, however, that if Executive’s employment is
terminated by the Company for a reason other than for Cause, in exchange for a full release of
claims against the Company, Executive shall be entitled to receive the following payments:

     (a) Executive shall receive his base salary in effect as of the date of termination for a
period of 24 months from his date of termination. The benefit under this subsection (a) shall be
paid as follows: (i) Executive shall receive a lump sum payment equal to 12 months of base salary,
which shall be paid as soon as administratively feasible after the later of the date of termination
or the date the release of claims has become irrevocable; and (ii) commencing on the first regular
payroll date which occurs at least 12 months following the date of termination, Executive shall
receive his regular base salary per pay period until the remaining 12 months of base salary has
been paid.

     (b) In addition, Executive shall receive a pro-rata bonus based on (i) the number of months
worked in the fiscal year in which Executive’s employment is terminated by the Company for reason
other than Cause; and (ii) the Company’s actual performance against annual objectives. This
pro-rata bonus shall be paid on the later of (I) the date that is six months after the date
Executive’s employment terminates, or (II) as soon as the Company determines whether the objectives
for such bonus have been met for that fiscal year and determines the amount of the pro-rata bonus.

This Agreement shall terminate in its entirety immediately upon the death of the Executive.
Termination of Executive’s employment pursuant to this Article III shall have no effect on
Executive’s obligations under Article IV.

     3.2 Cause. For purposes of this Article III, “Cause” shall mean only the following:
(i) indictment or conviction of, or a plea of nolo contendere to, (A) any felony (other than any
felony arising out of negligence), or any misdemeanor involving moral turpitude with respect to the
Company, or (B) any crime or offense involving dishonesty with respect to the Company; (ii) theft
or embezzlement of Company property or commission of similar acts involving dishonesty or moral
turpitude; (iii) repeated material negligence in the
performance of Executive’s duties after notice; (iv) Executive’s failure to devote substantially
all of his working time and efforts during normal business hours to the Company’s business; (v)
knowing engagement in conduct which is materially injurious to the Company; (vi) knowing failure,
for Executive’s own benefit, to comply with the covenants contained in Sections 4.1 or 4.2 of this
Agreement; (vii) knowingly providing materially misleading information concerning the Company to
the Company’s Board of
Directors, any governmental body or regulatory agency or to any lender or other financing source or
proposed financing source of the Company.

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     3.3 Disability. If Executive has become disabled from substantially performing his
duties under this Agreement and the disability has continued for a period of more than ninety (90)
days, the Board may, in its discretion, determine that Executive will not return to work and
terminate his employment under this Agreement. Upon any such termination for disability, Executive
shall be entitled to such disability, medical, life insurance, and other benefits as may be
provided generally for disabled employees of the Company during the period he remains disabled.

     3.4 Resignation. Executive agrees that, upon termination of Executive’s employment
hereunder for any reason, he shall be deemed to have resigned as a director of the Company and as a
director, officer and/or employee of any parent company of the Company or any of their
subsidiaries, unless prior to termination of Executive’s employment hereunder the provisions of
this Section 3.4 shall have been waived by vote of the Board (excluding Executive).

     3.5 Compliance with Code Section 409A. This Agreement is intended to be exempt to the
extent possible from the requirements of Code Section 409A, including current and future guidance
and regulations interpreting such provisions. To the extent that any provision of this Agreement
fails to satisfy a requirement for such an exemption, the provision shall automatically be modified
in a manner that, in the good-faith opinion of the Company, brings the provisions into compliance
with such requirement while preserving as closely as possible the original intent of the provision
and this Agreement. If it is determined by the Company that any payment under this Agreement is
subject to the requirements of Code Section 409A notwithstanding the preceding sentences, then the
provisions of the Agreement shall be automatically modified in such manner as brings the Agreement
into compliance with such requirements. In particular, and without limiting the preceding sentence,
while any stock of the Company is or is treated as publicly traded and Executive is a “specified
employee” under Code Section 409A(a)(2)(B)(i), then any payment under this Agreement that is
treated as deferred compensation under Code Section 409A shall be delayed until the date which is
six months after the date of separation from service (without interest or earnings).

IV. NON-COMPETITION, CONFIDENTIALITY AND TRADE SECRETS

     4.1 Agreement Not to Compete. In consideration of the covenants and agreements
contained in this Agreement, Executive agrees that, on or before the date which is one year after
the date Executive’s employment by the Company, any parent company of the Company or any of their
subsidiaries terminates, he will not, unless he receives the prior approval of the Board of
Directors of the Company, directly or indirectly engage in any of the following actions:

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(a) Own an interest in (except as provided below), manage, operate, join, control, lend money
or render financial or other assistance to, or participate in or be connected with, as an
officer, employee, partner, stockholder, consultant or otherwise, any entity whose products
or services compete with those of the Company, any parent company of the Company, or any of
their subsidiaries. However, nothing in this subsection (a) shall preclude Executive from
holding less than one percent of the outstanding capital stock of any corporation required to
file periodic reports with the Securities and Exchange Commission under Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, the securities of which are listed on any
securities exchange, quoted on the Nasdaq National Market or Nasdaq SmallCap Market or traded
in the over-the-counter market.

(b) Intentionally solicit, endeavor to entice away from the Company, any parent company of
the Company or any of their subsidiaries, or otherwise interfere with the relationship of the
Company, any parent company of the Company or any of their subsidiaries with, any person who
is employed by or otherwise engaged to perform services for the Company, any parent company
of the Company or any of their subsidiaries (including, but not limited to, any independent
sales representatives or organizations), or any persons or entity who is, or was within the
then most recent 12-month period, a customer or client of the Company, any parent company of
the Company or any of their subsidiaries, whether for Executive’s own account or for the
account of any other individual, partnership, firm, corporation or other business
organization.

If the scope of the restrictions in this section are determined by a court of competent
jurisdiction to be too broad to permit enforcement of such restrictions to their full extent, then
such restrictions shall be construed or rewritten (blue-lined) so as to be enforceable to the
maximum extent permitted by law, and Executive hereby consents, to the extent he may lawfully do
so, to the judicial modification of the scope of such restrictions in any proceeding brought to
enforce them.

     4.2 Non-Disclosure of Information. During the period of his employment hereunder, and
at all times thereafter, Executive shall not, without the written consent of the Board of
Directors, disclose to any person, other than an employee of the Company, any parent company of the
Company or any of their subsidiaries or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Executive of his duties as an executive of the
Company, except where such disclosure may be required by law, any material confidential information
obtained by him while in the employ of the
Company, any parent company of the Company or any of their subsidiaries with respect to any
products, technology, know-how or the like, services, customers, methods or future plans of the
Company, any parent company of the Company or any of their subsidiaries, all of which Executive
acknowledges are valuable, special and unique assets, the disclosure of which Executive
acknowledges may be materially damaging.

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     4.3 Remedies. Executive acknowledges that the Company’s remedy at law for any breach
or threatened breach by Executive of Section 4.1 or Section 4.2 will be inadequate. Therefore, the
Company shall be entitled to injunctive and other equitable relief restraining Executive from
violating those requirements, in addition to any other remedies that may be available to the
Company under this Agreement or applicable law.

     4.4 Proprietary Information and Employment Limitations. Executive agrees that no trade
secret or proprietary information belonging to his previous employers will be disclosed or used by
him at the Company, and that no such information, whether in the form of documents, memoranda,
software, drawings, etc. will be retained by him or brought with him to the Company. Executive
represents and warrants to the Company that he has brought to the Company’s attention and provided
it with a copy of any agreement which may impact his future employment by the Company, including
non-disclosure, non-competition, invention assignment agreements or agreements containing future
work restrictions, and that he is subject to no restrictions under any agreement of this type that
would impact his employment by the Company.

V. MISCELLANEOUS

5.1
Amendment. This Agreement may be amended only in writing, signed by both parties and approved by the Board.

     5.2 Entire Agreement. This Agreement is intended to define the full extent of the
legally enforceable undertakings of the parties hereto, and no related promise or representation,
written or oral, which is not set forth explicitly in this Agreement is intended by either party to
be legally binding. Both parties acknowledge that in deciding to enter into this transaction they
have relied on no representations, written or oral, other than those explicitly set forth in this
Agreement. Executive has relied entirely on his own judgment and that of his advisers in entering
into this Agreement. This Agreement supersedes and terminates that certain employment agreement
dated as of October 1, 1999 between the parties hereto.

     5.3 Assignment. The Company may in its sole discretion assign this Agreement to any
entity which succeeds to some or all of the business of the Company through merger, consolidation,
a sale of some or all of the assets of the Company, or any similar transaction. Executive
acknowledges that the services to be rendered by him are unique and personal. Accordingly,
Executive may not assign any of his rights or obligations under this Agreement.

     5.4 Successors. Subject to Section 5.3, the provisions of this Agreement shall be
binding upon the parties hereto, upon any successor to or assign of the Company, and upon
Executive’s heirs and the personal representative of Executive or Executive’s estate.

     5.5 Notices. Any notice required to be given under this Agreement shall be in writing
and shall be delivered either in person or by certified or registered mail, return receipt
requested. Any notice by mail shall be addressed as follows:

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If to the Company, to:

Digi International Inc.

11001 Bren Road East

Minnetonka, MN 55343

Attention: Lead Director of the Board

With a copy to:

Faegre & Benson LLP

2200 Norwest Center

90 South Seventh Street

Minneapolis, MN 55402-3601

Attention: James E. Nicholson

If to Executive, to:

Joseph T. Dunsmore

Digi International Inc.

11001 Bren Road East

Minnetonka, MN 55343

or to such other addresses as either party may designate in writing to the other party from time to
time.

     5.6 Waiver of Breach. Any waiver by either party of compliance with any provision of
this Agreement by the other party shall not operate or be construed as a waiver of any other
provision of this Agreement, or of any subsequent breach by such party of a provision of this
Agreement. No waiver by the Company shall be valid unless in writing and signed by the Chairman of
the Board of Directors (if a person other than Executive) or Chairman of the Compensation
Committee.

     5.7 Severability. If any one or more of the provisions (or portions thereof) of this
Agreement shall for any reason be held by a final determination of a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions (or portions of the provisions) of this
Agreement, and the invalid, illegal or unenforceable provisions shall be deemed replaced by a
provision that is valid, legal and enforceable and that comes closest to expressing the intention
of the parties hereto.

     5.8 Governing Law. THIS AGREEMENT SHALL BE INTERPRETED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MINNESOTA, APPLICABLE TO CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE
STATE OF MINNESOTA WITHOUT GIVING EFFECT

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TO CONFLICT OF LAW PRINCIPLES. EXECUTIVE HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
MINNESOTA STATE OR FEDERAL COURT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND THE COMPANY AND EXECUTIVE HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH MINNESOTA STATE COURT OR SUCH
FEDERAL COURT AND IN NO OTHER COURT. EXECUTIVE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST

EXTENT HE MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
ACTION OR PROCEEDING. EACH OF THE COMPANY AND EXECUTIVE HEREBY IRREVOCABLY CONSENTS TO THE SERVICE
OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION
OR PROCEEDING BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY DELIVERING OF A COPY OF SUCH
PROCESS TO OF THE COMPANY OR EXECUTIVE, AS THE CASE MAY BE, AT THE RESPECTIVE ADDRESS SPECIFIED IN
SECTION 5.5 OR BY ANY OTHER METHOD PROVIDED BY LAW. EACH OF THE COMPANY AND EXECUTIVE AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR BY ANY OTHER MANNER PROVIDED BY LAW.

     5.9 Headings. The headings of articles and sections herein are included solely for
convenience and reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.

     5.10 Counterparts. This Agreement may be executed by either of the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
constitute a single instrument.

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     IN WITNESS WHEREOF, the parties have executed this Agreement in Minnetonka, Minnesota,
effective as of the date set forth above.

	 	 	 	 	 
	 	DIGI INTERNATIONAL INC.

 	 
	 	/s/ Ken Millard
 	 
	 	By  /s/ Ken Millard 	 
	 	Its  Lead Director of the Board 	 
	 

	 	 	 	 	 
	 	EXECUTIVE 

 	 
	 	/s/ Joseph T. Dunsmore
 	 
	 	Joseph T. Dunsmoreexv10wxey

 

Exhibit 10(e)

DIGI INTERNATIONAL INC.

EMPLOYEE STOCK PURCHASE PLAN

AS AMENDED AND RESTATED AS OF NOVEMBER 27, 2006

(effective November 27, 2006, subject to stockholder approval)

1. PURPOSE AND SCOPE OF PLAN. The purpose of this Digi International Inc. Employee Stock Purchase
Plan (the “Plan”) is to provide the employees of Digi International Inc. (the “Company”) with an
opportunity to acquire a proprietary interest in the Company through the purchase of its Common
Stock and, thus, to develop a stronger incentive to work for the continued success of the Company.
The Plan is intended to be an “employee stock purchase plan” within the meaning of Section 423(b)
of the Internal Revenue Code of 1986, as amended, and shall be interpreted and administered in a
manner consistent with such intent.

2. DEFINITIONS.

     2.1. The terms defined in this section are used (and capitalized) elsewhere in this Plan:

     (a) “Affiliate” means any corporation that is a “parent corporation” or “subsidiary
corporation” of the Company, as defined in Sections 424(e) and 424(f) of the Code or any
successor provision, and whose participation in the Plan has been approved by the Board of
Directors.

     (b) “Board of Directors” means the Board of Directors of the Company.

     (c) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     (d) “Committee” means three or more Disinterested Persons designated by the Board of
Directors to administer the Plan under Section 13.

     (e) “Common Stock” means the common stock, par value $.01 per share (as such par value
may be adjusted from time to time), of the Company.

     (f) “Company” means Digi International Inc.

     (g) “Compensation” means the gross cash compensation (including wage, salary,
commission, bonus, and overtime earnings) paid by the Company or any Affiliate to a
Participant in accordance with the terms of employment.

     (h) “Disinterested Persons” means a member of the Board of Directors who is considered
a disinterested person within the meaning of Exchange Act Rule 16b-3 or any successor
definition.

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     (i) “Eligible Employee” means any employee of the Company or an Affiliate who has been
employed for at least 90 days and whose customary employment is at least 20 hours per week;
provided, however, that “Eligible Employee” shall not include any person who would be deemed
for purposes of Section 423(b)(3) of the Code, to own stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company.

     (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to
time.

     (k) “Fair Market Value” of a share of Common Stock as of any date means, if the
Company’s Common Stock is listed on a national securities exchange or traded in the national
market system, the mean between the high and low sale prices for such Common Stock on such
exchange or market on said date, or, if no sale has been made on such exchange or market on
said date, on the last preceding day on which any sale shall have been made. If such
determination of Fair Market Value is not consistent with the then current regulations of
the Secretary of the Treasury applicable to plans intended to qualify as an “employee stock
purchase plan” within the meaning of Section 423(b) of the Code, however, Fair Market Value
shall be determined in accordance with such regulations. The determination of Fair Market
Value shall be subject to adjustment as provided in Section 14.

     (l) “Participant” means an Eligible Employee who has elected to participate in the Plan
in the manner set forth in Section 4.

     (m) “Plan” means this Digi International Inc. Employee Stock Purchase Plan, as amended
from time to time.

     (n) “Purchase Period” means each quarter of the Company’s fiscal year. The first
Purchase Period will be the quarter that starts April 1, 1996 and ends June 30, 1996.

     (o) “Recordkeeping Account” means the account maintained in the books and records of
the Company recording the amount withheld from each Participant through payroll deductions
made under the Plan.

     (p) “Share” means a share of Common Stock.

3. SCOPE OF THE PLAN. Shares of Common Stock may be sold by the Company to Eligible Employees
commencing April 1, 1996, as hereinafter provided, but not more
than 1,750,000 *shares
of Common Stock (subject to adjustment as provided in Section 14) shall be sold to Eligible
Employees pursuant to this Plan. All sales of Common Stock pursuant to this Plan shall be subject
to the same terms, conditions, rights and privileges. The shares of Common Stock delivered by the
Company pursuant to this Plan may be acquired shares having the status of any combination of
authorized but unissued shares, newly issued shares, or treasury shares.

 

			
	*	 	Includes 500,000 shares subject to
stockholder approval.

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4. ELIGIBILITY AND PARTICIPATION. To be eligible to participate in the Plan for a given Purchase
Period, an employee must be an Eligible Employee on the first day of such Purchase Period. An
Eligible Employee may elect to participate in the Plan by filing an enrollment form with the
Company before the first day of such Purchase Period that authorizes regular payroll deductions
from Compensation beginning with the first payday in such Purchase Period and continuing until the
Eligible Employee withdraws from the Plan, modifies his or her authorization, or ceases to be an
Eligible Employee, as hereinafter provided.

5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE.

     5.1. Subject to the provisions of the Plan, each Eligible Employee shall be offered the right
to purchase on the last day of the Purchase Period the number of shares of Common Stock (including
fractional shares) that can be purchased at the price specified in Section 5.2 with the entire
credit balance in the Participant’s Recordkeeping Account; provided, however, that the Fair Market
Value (determined on the first day of any Purchase Period) of shares of Common Stock that may be
purchased by a Participant during such Purchase Period shall not exceed the excess, if any, of (i)
$25,000 over (ii) the Fair Market Value (determined on the first day of the relevant Purchase
Period) of shares of Common Stock previously acquired by the Participant in any prior Purchase
Period during such calendar year. Notwithstanding the foregoing, no Eligible Employee shall be
granted an option to acquire shares of Common Stock under this Plan which permits the Eligible
Employee’s rights to purchase shares of Common Stock under this Plan and all employee stock
purchase plans of the Company and the Affiliates to accrue at a rate which exceeds $25,000 of Fair
Market Value (determined at the time such option is granted) for each calendar year in which such
option is outstanding at any time. If the purchases by all Participants would otherwise cause the
aggregate number of shares of Common Stock to be sold under the Plan to exceed the number specified
in Section 3, however, each Participant shall be allocated at a ratable portion of the maximum
number of shares of Common Stock which may be sold.

     5.2. The purchase price of each share of Common Stock sold pursuant to this Plan will be the
lesser of (a) or (b) below: (a) 85% of the Fair Market Value of such share on the first day of the
Purchase Period. (b) 85% of the Fair Market Value of such share on the last day of the Purchase
Period.

6. METHOD OF PARTICIPATION.

     6.1. The Company shall give notice to each Eligible Employee of the opportunity to purchase
shares of Common Stock pursuant to this Plan and the terms and conditions for such offering. Such
notice is subject to revision by the Company at any time prior to the date of purchase of such
shares. The Company contemplates that for tax purposes the first day of a Purchase Period will be
the date of the offering of such shares.

     6.2. Each Eligible Employee who desires to participate in the Plan for a Purchase Period shall
signify his or her election to do so by signing an election form developed by the Committee. An
Eligible Employee may elect to have any whole percent of Compensation withheld, but not exceeding
ten percent (10%) per pay period. An election to participate in the

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Plan and to authorize payroll deductions as described herein must be made before the first day
of the Purchase Period to which it relates and shall remain in effect unless and until such
Participant withdraws from this Plan, modifies his or her authorization, or terminates his or her
employment with the Company, as hereinafter provided.

     6.3. Any Eligible Employee who does not make a timely election as provided in Section 6.2,
shall be deemed to have elected not to participate in the Plan. Such election shall be irrevocable
for such Purchase Period.

7. RECORDKEEPING ACCOUNT.

     7.1. The Company shall maintain a Recordkeeping Account for each Participant. Payroll
deductions pursuant to Section 6 will be credited to such Recordkeeping Accounts on each payday.

     7.2. No interest will be credited to a Participant’s Recordkeeping Account.

     7.3. The Recordkeeping Account is established solely for accounting purposes, and all amounts
credited to the Recordkeeping Account will remain part of the general assets of the Company.

     7.4. A Participant may not make any separate cash payment into the Recordkeeping Account.

8. RIGHT TO ADJUST PARTICIPATION OR TO WITHDRAW.

     8.1. A Participant may, at any time during a Purchase Period, direct the Company to make no
further deductions from his or her Compensation or to adjust the amount of such deductions. Upon
either of such actions, future payroll deductions with respect to such Participant shall cease or
be adjusted in accordance with the Participant’s direction.

     8.2. Any Participant who stops payroll deductions may not thereafter resume payroll deductions
during such Purchase Period.

     8.3. At any time before the end of a Purchase Period, any Participant may also withdraw from
the Plan. In such event, all future payroll deductions shall cease and the entire credit balance in
the Participant’s Recordkeeping Account will be paid to the Participant, without interest, in cash
within 15 days. A Participant who withdraws from the Plan will not be eligible to reenter the Plan
until the next succeeding Purchase Period.

     8.4. Notification of a Participant’s election to adjust or terminate deductions, or to
withdraw from the Plan, shall be made by the filing of an appropriate notice to such effect with
the Company.

9. TERMINATION OF EMPLOYMENT. If the employment of a Participant is terminated for any reason,
including death, disability, or retirement, the entire balance in the Participant’s

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Recordkeeping Account will be applied to the purchase of shares as provided in Section 10.1 as of
the last day of the Purchase Period in which the Participant’s employment terminated; except that
if such Participant so requests prior to the last day of such Purchase Period, the Company shall
refund in cash within 15 days all amounts credited to his or her Recordkeeping Account.

10. PURCHASE OF SHARES.

     10.1. As of the last day of the Purchase Period, the entire credit balance in each
Participant’s Recordkeeping Account will be used to purchase shares (including fractional shares)
of Common Stock (subject to the limitations of Section 5) unless the Participant has filed an
appropriate form with the Company in advance of that date (which either elects to purchase a
specified number of shares which is less than the number described above or elects to receive the
entire credit balance in cash). Any amount in a Participant’s Recordkeeping Account that is not
used to purchase shares pursuant to this Section 10.1 will be refunded to the Participant.

     10.2. Shares of Common Stock acquired by each Participant shall be held in a general account
maintained for the benefit of all Participants.

     10.3. Certificates for the number of whole shares of Common Stock, determined as aforesaid,
purchased by each Participant shall be issued and delivered to him or her only upon request of the
Participant or his or her representative directed to the Company. No Certificates for fractional
shares will be issued. Instead, Participants will receive a cash distribution representing any
fractional shares.

     10.4. Dividends with respect to a Participant’s shares held in the general account will, at
the election of the Participant, either be paid to the Participant in cash or reinvested in
additional shares of Common Stock. If a Participant fails to make such an election, all dividends
with respect to the Participant’s shares held in the general account will automatically be
reinvested to purchase additional shares of Common Stock.

     10.5. Each Participant will be entitled to vote all shares held for the benefit of such
Participant in the general account.

11. RIGHTS AS A STOCKHOLDER. A Participant shall not be entitled to any of the rights or privileges
of a stockholder of the Company with respect to such shares, including the right to receive any
dividends which may be declared by the Company, until (i) he or she actually has paid the purchase
price for such shares and (ii) either the shares have been credited to his or her account or
certificates have been issued to him or her, both as provided in Section 10.

12. RIGHTS NOT TRANSFERABLE. A Participant’s rights under this Plan are exercisable only by the
Participant during his or her lifetime, and may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution. Any attempt to sell, pledge,
assign or transfer the same shall be null and void and without effect. The amounts credited to a
Recordkeeping Account may not be assigned, transferred, pledged or hypothecated in any way, and any
attempted assignment, transfer, pledge, hypothecation or other disposition of such amounts will be
null and void and without effect.

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13. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the Committee, which is
authorized to make such uniform rules as may be necessary to carry out its provisions. The
Committee shall determine any questions arising in the administration, interpretation and
application of this Plan, and all such determinations shall be conclusive and binding on all
parties.

14. 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 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 the number, class and purchase price of Shares that may be
purchased under the Plan. 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, 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.

15. REGISTRATION OF CERTIFICATES. Stock certificates will be registered in the name of the
Participant, or jointly in the name of the Participant and another person, as the Participant may
direct on an appropriate form.

16. AMENDMENT OF PLAN. The Board of Directors may at any time amend this Plan in any respect which
shall not adversely affect the rights of Participants pursuant to shares previously acquired under
the Plan, except that, without stockholder approval, no amendment shall be made (i) to increase the
number of shares to be reserved under this Plan, (ii) to decrease the minimum purchase price, (iii)
to withdraw the administration of this Plan from the Committee, or (iv) to change the definition of
employees eligible to participate in the Plan.

17. EFFECTIVE DATE OF PLAN. This Plan shall consist of an offering commencing April 1, 1996, and
ending June 30, 1996, and continuing on a quarterly basis thereafter. All rights of Participants in
any offering hereunder shall terminate at the earlier of (i) the day that Participants become
entitled to purchase a number of shares of Common Stock equal to or greater than the number of
shares remaining available for purchase or (ii) at any time, at the discretion of the Board of
Directors, after 30 days’ notice has been given to all Participants. Upon termination of this Plan,
shares of Common Stock shall be issued to Participants in accordance with Section 10, and cash, if
any, remaining in the Participant’s Recordkeeping Accounts shall be refunded to them, as if the
Plan were terminated at the end of a Purchase Period.

18. GOVERNMENTAL REGULATIONS AND LISTING. All rights granted or to be granted to Eligible Employees
under this Plan are expressly subject to all applicable laws and regulations and to the approval of
all governmental authorities required in connection with the authorization, issuance, sale or
transfer of the shares of Common Stock reserved for this Plan,

6

 

including, without limitation, there being a current registration statement of the Company under
the Securities Act of 1933, as amended, covering the shares of Common Stock purchasable on the last
day of the Purchase Period applicable to such shares, and if such a registration statement shall
not then be effective, the term of such Purchase Period shall be extended until the first
business day after the effective date of such a registration statement, or post-effective amendment
thereto. If applicable, all such rights hereunder are also similarly subject to effectiveness of an
appropriate listing application to a national securities exchange or a national market system,
covering the shares of Common Stock under the Plan upon official notice of issuance.

19. MISCELLANEOUS.

     19.1. This Plan shall not be deemed to constitute a contract of employment between the Company
and any Participant, nor shall it interfere with the right of the Company to terminate any
Participant and treat him or her without regard to the effect which such treatment might have upon
him or her under this Plan.

     19.2. Wherever appropriate as used herein, the masculine gender may be read as the feminine
gender, the feminine gender may be read as the masculine gender, the singular may be read as the
plural and the plural may be read as the singular.

     19.3. The Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Minnesota.

     19.4. Delivery of shares of Common Stock or of cash pursuant to this Plan shall be subject to
any required withholding taxes. A person entitled to receive shares of Common Stock may, as a
condition precedent to receiving such shares, be required to pay the Company a cash amount equal to
the amount of any required withholdings.

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