Document:

CFA Settlement Letter

Exhibit 10.11

NHI LETTERHEAD

December 3, 2009

Care Foundation of America, Inc.

Attn: Mr. Joe Keane

611 Commerce Street, Suite 3125

Nashville, TN  37203

Robert E. Cooper, Jr.

Attorney General and Reporter

P. O. Box 20207

Nashville, TN  37202-0207

Re: Confidential Settlement Discussions Pursuant to Rule 408, Federal Rules of Evidence

Dear Sirs:

Pursuant to our conversations over the past week, National Health Investors, Inc. (“NHI”) proposes to settle all claims between it and Care Foundation of America, Inc. (“CFA”) and its subsidiaries (the LLC’s of which CFA is sole member, collectively, the “Debtors”) including those asserted in the lawsuit with CFA and the Attorney General, Care Foundation of America, Inc., et al. v. National Health Investors, Inc., Adv. Proc. No. 3:09-0002, as follows:

1.

NHI or its wholly-owned subsidiary designee will purchase the six Florida nursing homes and any furniture, fixtures, equipment or inventory owned by the Debtors, as well as all Debtors’ interests in the current leases between Debtors and the various Health Services Management, Inc. subsidiaries (the LLCs of which Health Services Management, Inc. is sole member, collectively “HSM”)(the “CFA” Assets”) for sixty-seven million dollars ($67,000,000) in cash (the “Purchase Price”), closing to occur not more than ninety (90) days from the date of this letter.  NHI will use its reasonable best efforts to close the sale in sixty (60) days.  In the event the sale does not close within sixty (60) days from the date of this letter, the interest rate on the NHI claim will be reduced from 9.5% to 4.25% per annum commencing on the sixty-first (61st) day from the date of this letter. The sale will be on an “as is, where is” basis, with no representations, covenants or warranties from Debtors of any kind; and Debtors will not be required to provide NHI with any title insurance policies, surveys, or environmental studies. Debtors shall retain all other assets existing as of the closing date, including all cash and lease payments accrued or received by Debtors prior to the closing date (the lease payments for the month in which the closing occurs to be pro-rated as of the closing date) and any other claims they may have against third parties.  Debtors shall convey and transfer fee simple title to the real estate relating to the nursing homes by special warranty deed, subject to the existing leases of HSM (the “HSM Leases”), and shall convey title to any personal property by an “as-is, no warranty” bill of sale, pursuant to a Court Order that the sale is free and clear of all liens and claims except for the HSM Leases.  NHI shall be responsible for paying all closing costs, recording fees, documentary stamp taxes or other customary fees in connection with the foregoing conveyances.  However, each party shall be responsible for its own legal fees in connection with the closing.

Joe Keane and Robert Cooper, Jr.

February 20, 2010

Page 2

2.

The terms of this Agreement are contingent upon entry of an Order by the U.S. Bankruptcy Court for the Middle District of Tennessee approving this agreement and approving the sale of the CFA Assets to NHI free and clear of all liens and claims except for the HSM Leases (the “Settlement Order”).

3.

Upon entry of the Settlement Order, the lawsuit will be dismissed with prejudice, and mutual releases releasing the parties, as well as their current and former officers, directors, employees, agents and attorneys, and all former CFA directors will be exchanged, except that (a) the claim of NHI filed in the underlying bankruptcy proceeding, In re Care Foundation of America, Inc., et al., Case No. 08-12367 (KLM) (the “Bankruptcy Cases”), will be allowed in full, without costs or attorneys fees, in the amount of $23,106,109 plus accrued and unpaid interest to the date of closing, and will be paid in full at the closing of the sale by a credit against the Purchase Price in the amount of $23,106,109 plus accrued and unpaid interest to the date of closing; (b) the indemnity obligations created by this Agreement will not be released; and (c) Debtors shall not be deemed to have released any claims Debtors may have against any third parties, including, without limitation: (i) HSM or its present or former officers, directors, or employees, or (ii) National Healthcare Corp. or its present or former officers, directors, or employees (collectively, “NHC”), except to the extent any actions or services by NHC (or its predecessor National Healthcorp) were taken on behalf of NHI; provided, however, the release provided to NHC or National Healthcorp shall not apply to any claims arising out of any transactions involving NHC or National Healthcorp and Standifer Place or any non-profit entity other than CFA.   Upon closing of the sale, NHI shall have no further claims in the Bankruptcy Cases. 

4.

The parties acknowledge that this offer to purchase the Debtors’ nursing homes and interests in the leases of those nursing homes was not solicited by Debtors, and Debtors have not taken any action to market, or even considered marketing, the nursing homes.

5.

NHI agrees to indemnify and hold harmless Debtors (and their current and former officers, directors, and employees) from any claims made by HSM (or any of its affiliated entities) (a) as a result of this compromise and settlement, (b) as a result of the transfer of ownership of real estate pursuant to this compromise and settlement, or (c) arising out of or in connection with the HSM leases, including any reasonable and necessary attorneys fees and expenses incurred by Debtors in defending such claims.  If any such claim is made, Debtors promptly will tender the defense of those claims to NHI and counsel selected by NHI whose fees and expenses NHI shall pay.  CFA will cooperate fully in the defense of any such claims.

6.

NHI further agrees to indemnify and hold harmless Debtors (and their current and former officers, directors, and employees) with respect to all other liabilities, whether asserted or not, contingent or fixed, or known or unknown, arising out of Debtors’ ownership of the CFA Assets, that have accrued against the Debtors as of the closing date, including, but not limited to, the two tort claims filed in the Bankruptcy Case that are more specifically described on Exhibit A attached hereto, but excluding any of the Debtors’ normal operating expenses, including but not limited to salaries and director fees, and administrative expense claims allowed in the 

3207126.7

Joe Keane and Robert Cooper, Jr.

February 20, 2010

Page 3

Bankruptcy Cases, and those other liabilities specifically described on Exhibit B hereto. NHI’s obligation to indemnify and hold Debtors harmless from the claims referenced in this paragraph include indemnifying Debtors for any attorneys fees and expenses incurred by Debtors in defending such claims if NHI declines to act after the defense of such claims is tendered to it.  The two tort claims will be objected to by CFA, and CFA will then tender the prosecution of those objections and the defense of any actions by the tort claimants to NHI and counsel of its choice, which objections NHI will prosecute to resolution as expeditiously as possible. NHI shall bear the expenses of the prosecution of the objections, including all of Debtors’ reasonable and necessary legal fees and expenses incurred in connection with same. CFA will cooperate fully in the prosecution of the objections and in the defense by NHI of the claims or underlying tort lawsuits.  CFA further agrees not to dismiss the Bankruptcy Case until the tort claims are resolved.

7.

NHI’s obligation to indemnify and hold Debtors harmless from the claims referenced in the paragraphs above shall survive a sale of all or substantially all of NHI’s assets, and shall also be binding on any successors of NHI.

Further, NHI's indemnity obligations under Sections 5 and 6 of this Agreement shall survive the closing of the sale, transfer and conveyance of the CFA Assets by Debtors to NHI or its wholly-owned subsidiary designee as contemplated by this Agreement.

8.

CFA agrees not to make or to agree to any amendments or modifications of the HSM leases without the express written consent of NHI.  CFA represents that the HSM leases have not been amended except for Amendments 1-5, are still in full force and effect and require no further amendment to make them assignable pursuant to this agreement.

9.

The Attorney General joins in this letter to acknowledge his approval of same and to state as follows:

a.

No further actions will be taken by the Attorney General based on NHI’s relationship with CFA; the Attorney General, however, may use any information received from NHI pursuant to the Attorney General’s investigation of NHI’s relationship with CFA in any investigation, other legal proceedings he may decide to bring, or in discharge of his official duties.

b.

The Attorney General has previously advised CFA and hereby advises NHI that he will not approve the sale of CFA Assets to any other  Tennessee nonprofit entity; and

c.

The Attorney General will require NHI to agree that it will not directly or indirectly sell the CFA Assets to another Tennessee nonprofit entity, or create another Tennessee nonprofit entity to purchase the CFA Assets.

d.

NHI will agree to notify the Attorney General of any subsequent sale of the CFA Assets.

3207126.7

Joe Keane and Robert Cooper, Jr.

February 20, 2010

Page 4

8.

NHI specifically agrees to the conditions of the Attorney General.

9.

This settlement is being made to resolve disputed claims and shall not be deemed an admission of liability or wrongdoing by NHI or any party.  The parties agree to enter into ordinary and customary documentation of transactions of this type and to use their best efforts to obtain the approval of the Court in the Bankruptcy Case.  CFA agrees neither it nor its attorneys will disclose any information about or obtained in, through discovery or otherwise, this dispute to any person unless required to by subpoena, after notice to NHI, or by law.  This letter agreement may be executed in multiple counterparts, which together when executed by all parties will constitute a single agreement.

Very truly yours,

NATIONAL HEALTH INVESTORS, INC.

/s/J. Justin Hutchens

 J. Justin Hutchens

President and Chief Operating Officer

Approved and Accepted:

CARE FOUNDATION OF AMERICA, INC.

By:

/s/ James Earle III

/s/Joe Keane

Title:

President

Treasurer

Date:

December 3, 2009

December 3, 2009

ROBERT E. COOPER, JR.

ATTORNEY GENERAL AND REPORTER

By: ___/s/Robert E. Cooper, Jr.

Title: ____________________

Date: _December 4, 2009

3207126.7

Joe Keane and Robert Cooper, Jr.

February 20, 2010

Page 5

EXHIBIT A

1.  Estate of Betty Jean Lott (Proof of Claim dated 6/17/09 and filed against Royal Oak Lessor/LLC).  Underlying case: Estate of Betty Jean Lott v. Royal Oak Nursing Center, LLC and others (6th Judicial Circuit Ct., Pasco Co., FL, No. 51-2008-CA-11035-ES).

 

2.  Carol Jeffrey as PR of Estate of Paul Haag (Proof of claim dated 6/24/09 and filed against Care Foundation of America, Inc.).  Underlying case: Carol Jeffrey as PR of Estate of Paul Haag v. Cypress Cover Care Center, LLC and others (5th Judicial Circuit Ct., Citrus Co., FL, No.  [Unknown]).

EXHIBIT B

Those pre-petition claims, other than the claims identified in Exhibit A, that are allowed in Debtors’ Bankruptcy Cases.  

Endnotes

3207126.7ex_4-1.htm

    Exhibit
4.1

    Appendix
A

    Plan
Specifications for Koninklijke Philips Electronics N.V.

    Nonqualified
Stock Purchase Plan

     

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	
               

               

              Plan
      Name

               

            	
               

               

              Koninklijke
      Philips Electronics N.V. Nonqualified Stock Purchase Plan

               

               

            
	
              Effective
      Date

               

            	
              August
      1, 2000

               

               

            
	
              Definitions

               

               

            	 
      
	
              “Affiliate”

               

            	
              Present
      or future subsidiary corporation of the Company, where the Company owns
      directly or indirectly at least 50% of the subsidiary
      corporation.

               

               

            
	
              “Board”

               

            	
              Board
      of Management of the Company

               

               

            
	
              “Closing Price”

               

            	
              Last
      trade of Common Shares on the NYSE for a Trading Date.

               

               

            
	
              “Code”

               

            	
              Internal
      Revenue Code of 1986, as amended.

               

               

            
	
              “Committee”

               

            	
              Committee
      of not less than 3, nor more than 5 members appointed by the Board or its
      designee and responsible for administration of the Plan.

               

               

            
	
              “Common Shares”

               

            	
              Common
      shares of Koninklijke Philips Electronics N.V.

               

               

            
	
              “Company”

               

            	
              Koninklijke
      Philips Electronics N.V.

               

               

            
	
              “Contribution
      Account”

               

            	
              A
      participant's accumulated payroll deductions in a Participation
      Period.

               

               

            
	
              “Disability”

               

            	
              Participant
      leaves active employment of Employer on account of a condition that would
      be treated as a total and permanent disability under Code section
      22(e)(3).  (See Appendix B for applicable definition for Philips
      Canada employees which replaces the foregoing definition).

               

            
	
              “Earnings”

               

               

            	
               

              Earnings
      include a Participant's cash compensation received during the
      Participation Period from salary and wages.

              · Salary
      and wages include overtime pay, bonuses (except as provided below),
      holiday pay, vacation pay, and short-term disability
payments.

              · Earnings
      include salary deferrals pursuant to Code sections 125 and
      401(k).

              · Earnings
      exclude bonuses exceeding 100% of a participant's annual base salary in
      effect at the time bonuses are paid.  Earnings also do not
      include expense reimbursements, deferred compensation, lump sum severance
      payments, stock options, money received for declining medical or dental
      coverage, patent and similar awards, distributions from any long-term
      incentive plan, perquisites, long-term disability payments, payments made
      from an Accident and Sickness program, or any long-term key employee
      compensation program.  (See Appendix B for applicable definition
      for Philips Canada employees which replaces the foregoing
      definition).

               

               

            

    

    

    
      
        
          
            A-1

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	
              “Eligible
Employee”

               

            	
               

              Each
      U.S. based salaried or hourly Full-time Employee other than an Excluded
      Employee who is employed by an Employer.  For purposes of this
      Plan, the term “employee” includes only persons treated as such on the
      Employer's payroll and personnel records at the time such determination is
      made.  Persons treated by the Employer as contingent workers
      (including independent contractors, third-party payroll workers, employees
      of consulting firms and temporary help agencies, even if leased employees
      within the meaning of Section 414(n)(2) of the Code) at the time of the
      determination of the person's status are specifically
      excluded.

               

              Eligibility
      status at the time of a determination of a person's employment status
      shall not be changed as a result of the retroactive re-classification of
      the person's employment status.  Therefore, notwithstanding
      anything else herein to the contrary, any person treated as a contingent
      worker on the payroll and personnel records of the Employer at the time
      the determination is made shall in no event be retroactively eligible for
      participation in the plan during the period covered by such
      determination.  (See Appendix B for applicable definition for
      Philips Canada employees which replaces the foregoing
      definition.)

               

               

            
	
              “Employer”

               

            	
              Employers
      may include the Company and each subsidiary which adopts the Plan for the
      benefit of its Eligible Employees with the approval of the
      Board.  As of December 21, 2007, the following are
      Employers:

              · U.S.
      Philips Corporation

              · Philips
      Holding USA Inc.

              · Philips
      Electronics North America Corporation

              · Philips
      Semiconductors Inc.

              · Philips
      Electronics Ltd.

               

               

            
	
              “Excluded
Employee”

               

            	
              Those
      employees of any Employer who shall, from time to time, be ineligible to
      participate in the Plan, as determined by the Committee in accordance with
      the terms and conditions of the Plan and as specified herein.

               

            
	
              “Exercise Date”

               

            	
              Last
      Trading Date of the applicable Participation Period.

               

            
	
              “Exercise Price”

               

            	
              85
      percent of the Closing Price on the Exercise Date of the applicable
      Participation Period.

               

               

            
	
              “Full-time
      Employee”

               

            	
              Any
      employee scheduled to work at least 1,000 hours per calendar
      year.  (See Appendix B for applicable definition for Philips
      Canada employees which replaces the foregoing definition.)

               

            
	
              “NYSE”

               

            	
              New
      York Stock Exchange

               

            
	
              “Participant”

               

            	
              An
      Eligible Employee who has enrolled in the Plan pursuant to procedures set
      out in the Plan.

               

               

            
	
              “Participation
      Period”

               

            	
              Each
      three-month period beginning each January 1, April 1, July 1 and October
      1, with the exception of the first Participation Period which will consist
      of the two-month period beginning August 1, 2000.

               

            

    

    

    
      
        
          
            A-2

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	
              “Philips Canada”

               

            	
              Philips
      Electronics Ltd. and Canadian Affiliates (as defined in Appendix
      B).

               

               

            
	
                         “Plan”

               

            	
              This
      Philips Electronics North America Corporation Stock Purchase
      Plan

               

               

            
	
                         “Plan
      Year”

               

            	
              Shall
      mean the 12-month period beginning each August 1.

               

               

            
	
              “Retirement”

               

            	
              Termination
      of employment on or after the first day of the month in which Participant
      commences a retirement benefit.

               

               

            
	
              “Trading Date”

               

            	
              Each
      date on which stocks in the United States are traded on the
      NYSE.

               

               

            
	
              “Share Purchase
      Right”

               

            	
               

              Right
      to apply the cash balance in each Eligible Employee's Contribution Account
      to the purchase of Common Shares in accordance with the terms of the
      Plan.

               

            
	
              Participation

               

            	 
      
	
              Eligibility

               

            	
              Each
      Eligible Employee may become a Participant as soon as administratively
      practical following full-time employment, except that Eligible Employees
      covered by a collective bargaining agreement (Union Employees) will be
      eligible upon acceptance of the plan offering by their respective union
      leadership.  (See Appendix B for applicable definition for
      Philips Canada employees which replaces the foregoing
      definition).

               

               

            
	
              Enrollment

               

            	
              Subject
      to the other terms and conditions of the Plan, each Eligible Employee may
      enroll as a Participant upon attaining eligibility.

               

               

              As
      part of enrollment, each Eligible Employee shall authorize payroll
      deduction from Earnings.

               

              Enrollment
      and payroll deduction shall remain in effect for subsequent Participation
      Periods, unless changed by the Eligible Employee or otherwise limited
      under the terms of the Plan.

               

              Payroll
      deduction percent changes may be made at any time during the Participation
      Period.  See Termination of
      Participation section below for further information on a voluntary
      discontinuance of deductions.

               

               

            
	
              Re-hire

               

            	
              A
      person who returns to active employment with an Employer as an Eligible
      Employee following termination of employment, retirement or Disability may
      re-enroll in the Plan on the first day of the month following 30 days of
      full-time employment.  An Eligible Employee who has voluntarily
      discontinued payroll deductions may re-enroll in the Plan at any
      time.

               

               

            
	
              Termination
      of Participation

               

            	 
      
	
              Voluntary
      Discontinuance

               

            	
              Participants
      may discontinue payroll deductions for a Participation Period by
      requesting a change to zero payroll deductions.  Following such
      discontinuance any balance in the Participant's Contribution Account at
      the end of the Participation Period shall be used to purchase stock.
      Following

            

    

    

    
      
        
          
            A-3

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	 
      	
               such
      discontinuance, the Participant may sell the Common Shares held in the
      Contribution Account.

               

               

            
	
              Employment Termination,
      Transfer to a Nonparticipating Affiliate, Death, or Layoff

               

            	
              A
      Participant who terminates employment with the Company and its Affiliates
      during a Participation Period will be deemed to have discontinued Plan
      participation on the first day of such Participation
      Period.  Any balance in the Participant's Contribution Account
      at that time shall be refunded without interest to the Participant by the
      15th
      day of the month following the month of termination.

               

               

               

            
	
              Retirement

               

            	
              Payroll
      deductions cease at Retirement.   The balance credited to
      the Participant's Contribution Account shall be used to purchase Common
      Shares on the Exercise Date of the Participation Period in which
      Retirement occurs.

               

               

            
	
              Disability

               

            	
              Payroll
      deductions cease at Disability. The balance credited to the Participant's
      Contribution Account shall be used to purchase Common Shares on the
      Exercise Date for the Participation Period in which Disability
      occurs.

               

               

            
	
              Unpaid Leave of
      Absence

               

            	
              Payroll
      deductions cease when the Participant begins an unpaid leave of
      absence.  The balance credited to the Participant's Contribution
      Account shall be used to purchase Common Shares on the Exercise Date for
      the Participation Period in which the unpaid leave of absence
      begins.

               

               

            
	
              Sale of Shares

               

            	
              A
      participant may sell any shares in the Plan at any time without
      restriction, other than as may be restricted by insider trading
      rules.

               

               

            
	
              Available
      Shares

               

            	 
      
	
              Authorized Shares

               

            	
              Initially,
      1,000,000 Common Shares shall be available for purchase under the
      Plan.  Such shares will be authorized and issued Common Shares
      held in the Company's treasury or acquired by the Company for the purposes
      of the Plan.  Any change in the aggregate number of shares
      offered must have shareholder approval.

               

               

            
	 
      	
              If
      the total number of Common Shares to be purchased on an Exercise Date
      exceeds the maximum number of shares available for the Participation
      Period, the balance credited to the Participant's Contribution Account
      shall be refunded without interest to the Participant by the 30th of the
      month following the end of the Participation Period in which the shortfall
      occurs.

               

               

            
	
              Changes in
      Capitalization

               

            	
              Common
      Shares available under the Plan and the Exercise Price may be adjusted by
      the Board to reflect any increase or decrease in the number of issued
      Common Shares resulting from any subdivision or consolidation of shares,
      the payment of any stock dividend, or other increases or decreases in the
      number of outstanding Common Shares effected without the receipt of
      consideration.  Adjustments shall be made in the sole discretion
      of the Board, whose decision shall be final and
  binding.

            

    

    

    
      
        
          
            A-4

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	
              Dissolution, Merger, and
      Consolidation

               

            	
              Upon
      dissolution or liquidation of the Company or upon a merger or
      consolidation of the Company or a subsidiary or division of the Company in
      which the Company or the relevant subsidiary or division is not the
      surviving corporation, each Participant who holds Share Purchase Rights
      under the Plan shall be entitled to receive at the next Exercise Date the
      same cash, securities, and/or property which a holder of Common Shares was
      entitled to upon and at the time of such transaction.  The Board
      shall take whatever action is deemed reasonably necessary to assure that
      Participants receive the benefits described here.

               

               

            
	
              Purchasing
      Shares

               

            	 
      
	
              Accounts

               

            	
              Payroll
      deductions authorized by the Participant shall be credited to the
      Participant's Contribution Account, without interest.  The
      Contribution Account will be maintained by the Plan's outside
      administrator.  Amounts credited to the Participant's
      Contribution Account as of an Exercise Date shall be used to purchase
      Common Shares for the Participant on the Exercise Date at the Exercise
      Price.

               

              The
      Company is entitled, in its sole discretion, to determine the manner in
      which any dividend on any Common Shares acquired by a Participant pursuant
      to this Plan is paid to such Participant.  Any dividend to be
      paid to such Participant in cash shall be reinvested upon their
      distribution (after withholding of applicable Dutch tax) into the
      Participant's Contribution Account and the net amount (after withholding
      tax) used to purchase additional Common Shares at the prevailing market
      price.  In the event a dividend is paid in cash, such dividend
      shall first be declared in Euros, but will be paid to participants in U.S.
      dollars converted at the rate of exchange on the Amsterdam Stock Exchange
      at the close of business on a date announced by the Company (which is
      typically the day preceding the Annual General Meeting of the Company's
      Shareholders).

               

               

            
	
              Contributions

               

            	
              Any
      whole percentage between 1 percent and 10 percent of
      Earnings.  No Eligible Employee shall be permitted to contribute
      more than a total of $20,000 ($20,000 Canadian dollars for Canadian
      employees) of payroll deductions to his Contribution Account for all
      Participation Periods during any calendar year.  This
      contribution is limited, notwithstanding the foregoing, to the extent
      necessary to comply with section 423(b)(8) of the Code, the Company may
      cause a participant’s payroll deduction to be decreased to
0%.

               

               

            
	
              Periods
      During the Calendar Year

               

            	
              The
      Committee will establish procedures for making changes in the level of
      payroll deductions.

               

               

            
	
              Share
      Certificates

               

            	
              As
      soon as reasonably practicable following each Exercise Date, Common Shares
      purchased under this Plan shall be credited to an account in the
      Participant's name with the Plan's outside administrator designated by the
      Committee. Physical delivery of stock certificates to the Participant is
      not required, but is permitted upon payment of a fee, which is subject to
      change.

               

            

    

    

    
      
        
          
            A-5

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	
              Amendment
      and Termination

               

            	 
      
	
              Amendment

               

            	
              The
      Company, the Board, or the Committee may amend the
      Plan.  However, no amendment may:

              · Increase
      the aggregate number of Common Shares which may be issued under the Plan
      without approval from the Board; or

              · Add
      new Employers without the approval of the Board or delete participation by
      an Employer without the approval of either the Board or the affected
      Employer.

               

               

            
	
              Termination

               

            	
              The
      Company, the Board, or the Committee may suspend or terminate the Plan at
      any time.  If the Plan is suspended or terminated, the Committee
      shall give notice to affected Participants, terminate all payroll
      deduction and, at its discretion, apply any balances remaining in the
      Contribution Accounts to the purchase of Common Shares or pay Participants
      any balances (without interest) remaining in their Contribution Accounts
      as soon as practicable following the termination of the Plan.

               

            
	
              General
      Provisions

               

            	 
      
	
              Administration

               

            	
              The
      Committee shall be responsible for the administration of the
      Plan.  The Committee shall have full authority to administer the
      Plan (except the power to designate an Affiliate as an Employer) including
      authority to:

              · Establish
      rules and procedures for Plan administration not inconsistent with the
      terms of the Plan document;

              · Interpret
      terms and provisions of the Plan;

              · Determine
      all questions arising under the Plan, including correction of any defect,
      omission or inconsistency of the Plan;

              · Amend
      or terminate the Plan, including amending the Plan to reflect changes in
      applicable law; and

              · Delegate
      administrative responsibilities under the Plan, including the
      responsibility to keep records of individual benefits, but not its power
      to amend or terminate the Plan.

               

               

            
	
              Rights not
      Transferable

               

            	
              Participants
      may not transfer Share Purchase Rights granted under the Plan, except by
      will or by the laws of descent and distribution.  No Share
      Purchase Right shall be subject to execution, attachment, or similar
      process.  Any attempt to assign, transfer, attach, or otherwise
      dispose of any Share Purchase Right shall be null and void and may be
      treated, at the discretion of the committee, as notice of Voluntary
      Discontinuance. Share Purchase Rights may be exercised only by the
      Participant or by the Participant's legal representative during the
      Participant's lifetime.

               

               

            
	
              Shareholder Rights

               

            	
              Participants
      do not have any rights of shareholders with respect to Common Shares
      issuable pursuant to the Share Purchase Rights granted under the Plan
      until a certificate is issued to the Participant or the transfer agent for
      the Common Shares reflects the Participant's ownership in its ledger or
      other appropriate record of stock ownership.

               

               

            
	
              No Contract of
      Employment

               

            	
              Nothing
      in the Plan shall be deemed to give any Eligible Employee the right to be
      retained in the service of the Company or any Employer, or to
      interfere

               

            

    

    

    
      
        
          
            A-6

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	
               

              Plan
      Item

               

            	
               

              Specifications

               

            
	 
      	
              in
      any way with the right of the Company or any Employer or to discharge or
      retire any Eligible Employee at any time.

               

               

            
	
              Tax Withholding

               

            	
              Taxable
      income attributable to the discount will be subject to income tax, FICA
      and other applicable withholding and such amounts will be deducted from
      the Participant's next available paycheck following the purchase of Common
      Shares.  Alternative withholding arrangements may be made in
      unusual circumstances.  (See Appendix B for applicable
      definition for Philips Canada employees which replaces the
      foregoing two sentences).

               

               

            
	
              Application of
      Funds

               

            	
              Proceeds
      received by the Company from the sale of Common Shares will be available
      and used for general corporate purposes.

               

               

            
	
              Applicable Law

               

            	
              The
      obligation to sell and deliver Common Shares shall be subject to all
      applicable laws, regulations, rules and approvals, including, but not
      limited to, effectiveness of a registration statement under the Securities
      Act of 1933, if deemed necessary or appropriate by the
      Company.  Certificates of Common Shares issued hereunder may be
      legended, as the Company deems appropriate.

               

               

            
	 
      	
              Questions
      relating to the validity, construction, and administration of the Plan
      shall be determined under the laws of the State of New York.

               

               

            
	
              Severability

               

            	
              If
      a provision of the Plan is deemed illegal or invalid, the illegality or
      invalidity shall not affect the remaining parts of the
      Plan.  The Plan shall be construed and enforced as if the
      illegal or invalid provision had not been included in the
      Plan.

               

            
	 
      	 
      

    

    

     

     

    
 

    

    
      
        
          
            A-7

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

     

    APPENDIX B – Plan Specifications for
Philips Canada Employees

    

    In
addition to the “Plan Specifications” in Appendix A, the following definitions
and specifications apply to participants employed by Philips Canada. All defined
terms used herein shall have the respective meanings set forth below under
“Definitions”, and all defined terms used herein and not defined below shall
retain the meaning assigned to them in Appendix A.

     

    Participation

    

    Full-Time Employees (except as specifically
indicated below), of Philips Electronics Ltd. and Canadian Affiliates (“Philips
Canada”) who are based in Canada are eligible to participate in the Plan beginning on the first day of the first
month immediately following a period of 90 days during which time such employee was at all times
considered a Full-Time Employee (the “90 Day Requirement”), which determination
shall be made in the sole discretion of the Committee. For purposes of
determining whether a Full-Time Employee has satisfied the 90 Day Requirement,
the Committee shall take into account all service terms of such Full-Time
Employees, which were rendered prior to the date on which Philips Electronics
Ltd. adopted the Plan (the “Adoption Date”); provided, however, that this
sentence shall only apply to individuals who are Full-Time Employees as of the
Adoption Date.

    

    Philips
Canada employees covered under a collective agreement will only be eligible to
participate in this Plan at such time as their participation has been negotiated
by Philips Canada and their bargaining unit.

    

    Excluded
Employees are not eligible to participate in the Plan.

    

    For
purposes of application of the Plan to Participants employed by Philips
Canada, the following definitions found in Appendix A of the Plan or herein
shall be read as follows:

    

     

    Definitions

    

    “Canadian
Affiliate”: Present or future affiliated corporations of the Company carrying on
business in and from Canada, registered and resident in Canada and in which the
Company owns directly or indirectly at least 50% of the affiliated
corporation.

    

    “Disability”:  A
Participant will be considered to have a disability if such Participant is
considered to have a “disability” under the applicable plan in which it
participates or under which the Participant is covered for purposes of receiving
disability coverage or benefits, whether such plan is provided by Philips Canada
or any Canadian governmental agency or body.

    

    “Earnings”:
Earnings include salary, bonus payment (the bonus payments must be made pursuant
to a formalized, written individual bonus plan) and commission. Earnings does
not include any 

     

    
      
        B-1

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    other
forms of compensation such as, overtime, group bonus plans, profit sharing or
improvement plans, vacation pay, expense reimbursements, severance payments,
payments in lieu of notice, stock options, deferred compensation, distributions
from any long term incentive plan, perquisites, long term disability payments,
payments from an accident or sickness program, whether paid by Philips Canada or
by any applicable government or regulatory organization such as workers
compensation, monetary or non monetary performance or seniority awards,
etc.

    

    “Eligibility”:
Each Eligible Employee may become a Participant on the first day of the first
month immediately following a period of 90 days during which time such employee
was at all times considered a Full-Time Employee, which determination shall be
made in the sole discretion of the Committee, except that an Eligible Employee
covered under a collective agreement will only be eligible for participation in
this Plan at such time as their participation has been negotiated by Philips
Canada and their bargaining unit.

    

    “Eligible
Employee”: Each Canadian based Full-Time Employee, whether paid on an hourly or
salaried basis.

    

    “Full-Time
Employee”: An employee of Philips Canada who is regularly scheduled to work at
least 35 hours per week, who is not a temporary or contract employee, nor a
unionized employee.
 

    “Philips
Canada”: Philips Electronics Ltd. and its Canadian Affiliates.

     

    General
Provisions

     

    Tax Withholding

    
On the
date of purchase of shares, a Participant would owe ordinary income tax on the
difference between the closing market price per share and what the Participant
actually pays for each share in the program.  Taxes are withheld from
the Participant’s next available paycheque after the purchase
date.  Both the benefit per share and the tax withheld are reflected
on that cheque and included in the year-end T-4 and Releve 1 (Quebec taxpayers
only) statement.

     

    Currency

    
As the
Company’s stock trades in U.S. dollars, payroll deductions will be converted to
U.S. dollars at the prevailing rate at the time of purchase of the shares. In
addition to changes in stock price, there is also a currency
risk.  Because the Company's shares trade in U.S. dollars, the value
of the shares will fluctuate in relation to the Canadian dollar.

     

    Certain
Canadian Federal and Provincial Income Tax Consequences

     

    The
following tax discussion is for general guidance and may change over time.
Participants are advised to consult their tax advisor for more detailed
information.

     

    
      
        B-2

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Purchasing
Shares

    

    When
shares are purchased, the 15% discount is taxable as ordinary income and is
subject to federal and provincial income taxes as well as
CPP/QPP.  Taxes will be automatically withheld from the Participants’
next available paycheque following the stock purchase in accordance with their
regular tax withholding elections.  If a Participant is not actively
receiving a paycheque he/she will receive a net zero paycheque to reflect the
taxes.  The ordinary income amount will be included in the T-4 and
Releve 1 (Quebec taxpayers only) statement for the year.

     

    Reinvested
Dividends

    

    Participants
will be subject to Canadian income tax on reinvested dividends in the year the
dividends are issued.  Non-resident tax of 15% will be withheld on
reinvested dividends in the year the dividends are issued. Participants will be
issued the appropriate tax form on or around February 28 of the following year
covering the dividend and the non-resident tax deducted.  The deducted
non-resident tax can normally be used as a credit against Canadian taxes owing
in respect of the reinvested dividends.  The tax credit may be claimed
when filing the personal income tax return in April of the following
year.

     

    Selling
Shares

    
When
Participants sell their shares, Canada Revenue Agency (CRA) requires
Participants to report these activities on their annual tax return. Any further
gain/loss after the purchase of these shares will be taxed as a capital gain or
loss.

    

    A capital
gain occurs when a Participant sells stock for a higher price than the adjusted
cost base of the stock.

    

    A capital
loss occurs when a Participant sells stock for a lower price than the adjusted
cost base of the stock.

    

    In
general, the adjusted cost base of a particular share will be the weighted
average purchase price for all the Philips Canada shares owned by a Participant,
both within the Participant’s account and outside of it (except for shares held
in any trusteed accounts like RRSPs).  For example, if the Participant
purchased 10 shares for $30.00 in one Participation Period and then
purchased 5 shares at $40.00 in the next Participation Period, the
adjusted cost base for each share following the
second Participation Period would be $33.33 (i.e. [(10 x $30.00) + (5
x $40.00)] ÷ 15.

     

    Canadian
Securities Laws

    
Participation
in the Plan is voluntary and is subject to the conditions set forth herein and
in Appendix A.  Shares acquired under the Plan by employees of Philips
Canada may only be sold through the facilities of the New York Stock
Exchange.

     

    
      
        
          
            B-3

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