Document:

exv10w1

 

Exhibit 10.1

EQUITY OFFICE PROPERTIES TRUST

1997 SHARE OPTION AND SHARE AWARD PLAN

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	SECTION	 	 	Page
	
	 	

	1.	 	
Purposes
	 	 	1	 
	
	
	
	

	2.	 	
Administration
	 	 	1	 
	
	
	
	

	3.	 	
Participation
	 	 	1	 
	
	
	
	

	4.	 	
Shares Subject to the Plan
	 	 	3	 
	
	
	
	

	5.	 	
Share Awards
	 	 	3	 
	
	
	
	

	6.	 	
Share Options
	 	 	5	 
	
	
	
	

	7.	 	
Share Appreciation Rights
	 	 	7	 
	
	
	
	

	8.	 	
Dividend Equivalents
	 	 	9	 
	
	
	
	

	9.	 	
Withholding
	 	 	10	 
	
	
	
	

	10.	 	
Compliance with Applicable Laws and Policies
	 	 	10	 
	
	
	
	

	11.	 	
Transferability
	 	 	11	 
	
	
	
	

	12.	 	
Service and Shareholder Status
	 	 	11	 
	
	
	
	

	13.	 	
Adjustments to Number of Shares Subject to the Plan
and to Terms of
   Options, SARs and Dividend
Equivalents
	 	 	11	 
	
	
	
	

	14.	 	
Agreement with Company
	 	 	11	 
	
	
	
	

	15.	 	
Term of Plan
	 	 	12	 
	
	
	
	

	16.	 	
Amendment and Termination of Plan
	 	 	12	 
	
	
	
	

	17.	 	
Headings, References and Construction
	 	 	12	 

 

 

EQUITY OFFICE PROPERTIES TRUST

1997 SHARE OPTION AND SHARE AWARD PLAN

     1.     PURPOSES. The Equity Office Properties Trust 1997 Share Option and
Share Award Plan (the “Plan”) was established by Equity Office Properties
Trust, a Maryland real estate investment trust (the “Company”), to secure for
the Company and its shareholders the benefits arising from capital ownership by
those key employees, officers, trustees and consultants of the Company and its
Related Companies who are and will be responsible for its future growth and
continued success. (The Plan is hereby amended and restated to further
accomplish those objectives.) The term “Related Company” means Equity Office
Properties Management Corp. and each other company determined by the Committee
(as defined below) from time to time and set forth on Exhibit A hereto, as it
may be amended.

              The Plan will provide a means whereby such individuals may receive: (a)
authorized common shares of beneficial interest of the Company (“Shares”),
subject to conditions and restrictions described herein and otherwise
determined by the Committee (“Share Awards”); (b) options to purchase Shares
(“Options”); (c) Share Appreciation Rights (“SARs”) in tandem
with or independent of Options; or (d) dividend equivalent rights with respect
to Shares (“Dividend Equivalents”).

     2.     ADMINISTRATION. (a) The authority to manage and control the
operation and administration of the Plan shall be vested in a Committee (the
“Committee”) consisting of two or more members of the Board of Trustees of the
Company (the “Board”), each of whom is a “disinterested person” as such term is
defined in Section 16b-3(c)(2)(i) of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934 (the “Act”)
(and, in addition, with respect to any grant of an Option or SAR, or the
determination of conditions and restrictions intended to make the grant or
award subject thereto constitute “performance-based compensation” within the
meaning of Section 162(m)(4)(C) of the Internal Revenue Code, as amended
(“Code”), such grant, award or determination is made by a Committee consisting
of two
or more “outside directors” as such term is defined in Treasury
Regulation Section 1.162-27(e)(3)), who shall be appointed, and may be removed,
by such Board. Any interpretation of the Plan by the Committee and any
decision made by the Committee on any other matter within its
discretion is final and binding on all persons. No member of the Committee
shall be liable for any action or determination made with respect to the Plan.

              (b) The day-to-day administration of the Plan may be carried out by an
Option Coordinator designated by the Chief Legal Counsel of the Company.

     3.     PARTICIPATION.

              (a) GENERALLY. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate from time to time the employees,
officers, trustees and consultants of the Company and its Related Companies to
whom Share Awards, Options, SARs or Dividend Equivalents are to be granted
(“Grantees” and individually, a “Grantee”), the terms of such grants and the
number of Shares subject to such grants. Notwithstanding the foregoing, the
maximum number of Shares with respect to which Options and SARs may be granted
during any calendar
year to any Grantee is 1,000,000 Shares.

              (b) BOARD OF TRUSTEES.

                 (i) Each member of the Board shall automatically receive the following
awards under the Plan:

                    (A) if he or she is a member of the Board on the tenth (10th) day after
the Company’s initial public offering of Shares, an Option to purchase 10,000
Shares at the per Share initial public offering price; and

                    (B) immediately following each annual meeting of the Company’s
shareholders thereafter, an Option to purchase 10,000 Shares shall be awarded
to each member of the Board. Effective January 1, 1998, if an individual first
becomes a member of the Board other than at an annual meeting of the Company’s
shareholders, an Option will be granted to him or her covering
a number of Shares equal to 10,000 multiplied by a fraction, the numerator of
which is the number of days such individual will serve until the next annual
meeting of the Company’s shareholders (as determined by the Committee) and the
denominator of which is 365. The exercise price of the Options described in
the preceding two sentences shall be the Fair Market Value (as defined in
paragraph 6(b)) of a Share on the date of grant.

                 (ii) Board and Committee fees paid to each Trustee shall, unless the
Committee otherwise determines, be payable in Share Awards issued under the
Plan having a Grant Value (as defined in subparagraph (d) below) as of the date
the fees are payable equal to the amount of such fees. A Trustee who is not
otherwise a Grantee shall become a Grantee on the first
date on which the Trustee is awarded an Option or a Share Award pursuant to
this subparagraph (b). Trustees may, in addition to Share Awards and Options
awarded under this subparagraph (b), also be awarded Share Awards, Options,
SARs and Dividend Equivalents under paragraph 3(a).

              (c) ANNUAL INCENTIVE BONUS PLAN. As of a date (the “Bonus Date”)
selected by the Committee that is not less than 30 days before or after the
date on which a cash distribution (a “Bonus”) is earned by an individual under
the Company’s annual incentive bonus plan (the “Bonus Plan”), the Committee
may, in its discretion, elect to pay all or a portion of such Bonus
in the form of a Share Award, Option or SAR having an aggregate Grant Value,
determined as of the Bonus Date, equal to the cash amount of the Grantee’s
Bonus being so replaced (the “Award Portion”). All awards made under this
subparagraph (c) shall be governed by paragraphs 5, 6 or 7 hereof, as
applicable. If approved by the Committee, each individual who participates in
the Bonus Plan and who receives a Share Award under this subparagraph (c) will
be given an opportunity to elect, in accordance with procedures established by
the Committee, to have all or a portion of his Bonus in excess of the Award
Portion paid in the form of a Share Award so as to increase the total Award
Portion. Such opportunity provided under this subparagraph (c) is subject to
compliance with all applicable federal and state securities laws.

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              (d) VALUE. For all purposes of the Plan:

                 (i) the “Grant Value” of grants made pursuant to paragraph 3(b) or 3(c)
shall equal (A) for a Share Award, the Fair Market Value of a Share (as defined
below) as of the date of grant, (B) for an Option or SAR (1) if the Company has
complied with the disclosure requirements described in Item 402(c) of
Regulation S-K under the Act by disclosing the present value
of options under the Black-Scholes or binomial option pricing model or another
valuation method (any of the foregoing constituting a “Valuation Method”), the
value of such Option or SAR calculated based on the Valuation Method and
assumptions contained in the most recent document used by the Company to
satisfy those requirements; or (2) if the Company has not so
disclosed the present value of Options, then “Grant Value” shall, at the
election of the Committee either be calculated using a Valuation Method and
assumptions that would satisfy such requirements, or shall equal the difference
between the Fair Market Value of a Share as of the date of grant and the
exercise or base price of the Option or SAR, times the number of Shares subject
to the Option or SAR; and

                 (ii) except as provided in paragraph 6(b), the “Fair Market Value” of a
Share shall equal the closing price paid for Shares on the New YorkStock
Exchange on the first trading day immediately preceding the date for which Fair
Market Value is being determined.

     4.     SHARES SUBJECT TO THE PLAN. Subject to the provisions of paragraph
13, the aggregate number of Shares for which Share Awards, Options and SARs may
be granted under the Plan shall not exceed 6.8% of the outstanding Shares, on a
fully diluted basis, on the date of the closing of the initial public offering
of the Shares. Shares subject to the Plan may be authorized but unissued
Shares, Shares now held in the treasury of the Company or Shares hereafter
acquired by the Company. In the event that (a) any Option granted under the
Plan expires unexercised or is terminated, surrendered or canceled (other than
in connection with the exercise of a “Tandem” (as defined in paragraph 7 below)
SAR) without being exercised, in
whole or in part, for any reason, (b) any Tandem SAR granted under the Plan
expires unexercised or is terminated, surrendered or canceled (other than in
connection with the exercise of its related Option), or (c) any “Non-Tandem”
(as defined in paragraph 7 below) SAR granted under the Plan expires
unexercised or is terminated, surrendered or canceled without being exercised,
in whole or in part, for any reason, then the number of Shares then subject to
the Option or SAR, or the unexercised, terminated, surrendered, forfeited,
canceled or reacquired portion thereof, shall be
added to the remaining number of Shares available for grant under the Plan
unless the Plan shall have terminated.

     5.     SHARE AWARDS. This paragraph 5 sets forth specific terms and
conditions applicable to Share Awards under the Plan.

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              (a) CONDITIONS AND RESTRICTIONS ON CERTAIN AWARDS. Share Awards
granted under paragraph 3(a) shall be subject to the following conditions
and/or restrictions:

                 (i) A Share Award will be forfeited to the Company upon the termination
of the Grantee’s Service (as defined below) before a date established by the
Committee that may not be earlier than six (6) months after the date of grant
of the Share Award (“Date of Grant’), and may be subject to such further
conditions and restrictions established by the Committee at the Date of Grant.
An individual’s “Service” shall continue until he or she is no longer an
employee, officer, trustee, director or consultant of the Company or an
Extended Company. The term “Extended
Company” means a Related Company or each other company designated by the
Committee that has provided that awards provided to its employees and other
persons, which are comparable to the awards provided under the Plan, will not
expire if such employees or other persons terminate their relationship with
such company and immediately become employees, officers, trustees, directors or
consultants of the Company. The Extended Companies shall be set forth in
Exhibit B, as it may be amended from time to time upon the determination of the
Committee.

                 (ii) The Committee may, but need not, establish performance goals to be
achieved within such performance periods as may be selected by it in its sole
discretion, using such measures of the performance of the Company and/or one
(1) or more of its Related Companies as it may select.

                 (iii) Notwithstanding the foregoing, the restrictions described in the
preceding subparagraphs (i) and (ii) that are contained in the terms of any
grant made pursuant to paragraph 3(a) shall immediately lapse and be of no
effect in the event of the termination of a Grantee’s
Service (A) because of the Grantee’s “Disability” (as defined below) or death,
(B) with respect to a Grantee who is an employee or officer, in connection with
his retirement at or after age 62, (C) with respect to a Grantee who is a
consultant, in connection with his retirement (as determined
by the Committee in its discretion), (D) with respect to a Grantee who is a
Trustee, in connection with his failure to be re-elected to the Board, or (E)
following a “Change in Control” of the Company (as defined below). For
purposes of this Plan, “Disability” shall mean a physical or mental condition
that entitles a Participant to benefits under the Employer-sponsored long-term
disability plan in which he or she participates, as determined by the Plan
Administrator in its sole and absolute discretion. In addition, for purposes
of this Plan, a “Change in Control” shall be deemed to occur upon: (1) the
acquisition by any entity, person, or group of more than 50% of the outstanding
Shares from the holders thereof; (2) a merger or consolidation of the Company
with one (1) or more other entities as a result of which the ultimate holders
of outstanding Shares immediately prior to such merger hold less than 50% of
the shares of beneficial ownership of the
surviving or resulting corporation; or (3) a direct or indirect transfer of
substantially all of the property of the Company other than to an entity of
which the Company directly or indirectly owns at least 50% of the shares of
beneficial ownership.

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              (b) RIGHTS OF GRANTEE. The Grantee shall be entitled to all of the
rights of a shareholder with respect to the Share Awards including the right to
vote such Shares and to receive dividends and other distributions payable with
respect to such Shares from and after the Date of Grant; provided that any
securities or other property (but not cash) received in any
such distribution with respect to a Share Award that is still subject to the
restrictions in subparagraphs (a)(i), (ii) or (iii) above, shall be subject to
all of the restrictions set forth herein with respect to such Share Award.

              (c) ISSUANCE. If certificates for the Share Award have been issued, such
certificates shall be held in escrow by the Company. Except in the case of a
Share Award under paragraph 3(b), stock powers for such Shares shall be
executed in blank by the Grantee, until all restrictions lapse or such Shares
are forfeited as provided herein. A certificate or certificates representing a
Share Award as to which restrictions have lapsed shall be delivered to the
Grantee upon such lapse.

     6.     SHARE OPTIONS. This paragraph 6 addresses specific terms and
conditions for Share Options.

              (a) ISO/NQSO. Any Option to purchase Shares granted under paragraph 3(a)
that satisfies all of the requirements of Section 422 of the Code, may be
designated by the Committee as an “Incentive Share Option.” Options that are
not so designated, or that do not satisfy the requirements of Section 422 of
the Code or that are granted under paragraph 3(b) shall not
constitute Incentive Share Options and shall be Non-Qualified Share Options.

              (b) EXERCISE PRICE. The Option price of an Incentive Share Option shall
not be less than the Fair Market Value of a Share on the date the Option is
awarded under the Plan and, with respect to an employee who owns on the Date of
Grant more than 10% of the Company’s Shares, shall not be less than 110% of its
Fair Market Value on such date. The price at which a Share
may be purchased pursuant to the exercise of any Non-Qualified Share Option
shall not be less than 100% of its Fair Market Value on the date the Option is
awarded under the Plan. Notwithstanding any provision of the Plan to the
contrary, for purposes of this paragraph (b), the “Fair Market Value” of a
Share shall equal the lesser of: (i) the average closing price of the Shares on
the New York Stock Exchange for the five (5) trading days immediately preceding
(but not including) the date on which Fair Market Value is determined, and (ii)
the closing price paid for Shares on the New York Stock Exchange on the first
trading day immediately preceding the date of grant; provided that the
Committee, in good faith, determines that such price accurately reflects the
fair market value of a Share.

              (c) EXPIRATION DATE. Subject to earlier termination as provided in
paragraph 16, the “Expiration Date” with respect to an Option or any portion
thereof granted under paragraph 3(a) means the date established by the
Committee at the Date of Grant, but in no event later than the date that is ten
(10) years after the date on which the Option is granted and, with respect to
an Incentive Share Option granted to an employee who owns on the Date of Grant,
more than 10% of the Company’s Shares, in no event later than the date that is
five (5) years from the date on which the Option is granted. If the Service of
a Grantee terminates for cause (as determined by the Committee in its
discretion), his Option shall expire immediately. The Committee may

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establish guidelines for determining whether a Grantee’s Service has terminated
for cause and communicate such guidelines in the Grantee’s award agreement. If
the Grantee’s Service terminates other than for cause and other than because of
circumstances described in the last sentence of paragraph (d)(i) below, his
Option shall not thereafter become exercisable
with respect to any additional Shares, and his Option shall expire three months
after the date on which his Service terminated, but no later than the
Expiration Date. If such Service terminates because of the Grantee’s death,
his Option shall be exercisable by the person or persons to whom that right
passes by will or by the laws of descent and distribution for a period of 12
months after the date of death (at which time it will expire), but no later
than the Expiration Date. The Expiration Date with respect to an Option or any
portion thereof granted under paragraph 3(b) means the date which is 10 years
after the date on which the Option is granted. All rights to purchase Shares
pursuant to an Option shall cease as of the Option’s Expiration Date.

              (d) EXERCISE OF OPTIONS. The following paragraphs address specific terms
that control a Grantee’s right to exercise Options:

                 (i) Each Option granted under paragraph 3(a) shall be exercisable,
either in whole or in part, at such time or times as shall be determined by the
Committee at the time the Option is granted or later, but in no event later
than the Option’s Expiration Date. The Committee may establish performance
goals to be achieved within such periods as may be selected by it in
its sole discretion, using such measures of the performance of the Company
and/or a Related Company as it may select. Notwithstanding the foregoing, an
Option granted under the Plan shall be immediately exercisable in the event of
the termination of a Grantee’s Service (A) because of the Grantee’s Disability
or death, (B) with respect to a Grantee who is an employee or officer, in
connection with his retirement at or after age 62, (C) with respect to a
Grantee
who is a consultant, in connection with his retirement (as determined by the
Committee in its discretion), (D) with respect to a Grantee who is a Trustee,
in connection with his failure to be re-elected to the Board, or (E) following
a Change in Control.

                 (ii) Each Option granted under paragraph 3(b) shall be exercisable,
either in whole or in part, (A) with respect to one-third (1/3) of the Shares
subject to such Option (rounded to the nearest whole share) at any time on or
after six months from the Date of Grant, (B) with respect to an additional
one-third (1/3) of the Shares subject to such Option (rounded to the nearest
whole share) at any time on or after the first anniversary of the Date of
Grant, and (C) with respect to the remaining Shares, at any time on or after
the second anniversary of the Date of Grant, but in each case, no later than
the Option’s Expiration Date.

                 (iii) The Fair Market Value of Shares with respect to which Incentive
Share Options are exercisable for the first time by a Grantee during any
calendar year may not exceed $100,000. Any Incentive Share Options that become
exercisable in excess of such amount shall be deemed to be Non-Qualified Share
Options to the extent of such excess.

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                 (iv) An Incentive Share Option may be exercised during the lifetime of
the Grantee only by the Grantee and, after the death of the Grantee, only by
the individuals or entities described in paragraph 6(f).

                 (v) Notwithstanding the foregoing, at any time following the grant of
an Option, the Committee, in its sole discretion, may elect to accelerate the
date as of which the Grantee may exercise the Option with respect to all or a
portion of the Shares subject thereto.

                 (vi) Subject to the foregoing, a Grantee may exercise an Option by
giving written notice thereof prior to the Option’s Expiration Date to the
Option Coordinator at the principal executive offices of the Company, or to
such other person or entity and/or at such other location, as designated by the
Chief Legal Counsel of the Company. Contemporaneously with the delivery of
notice with respect to exercise of an Option, the full purchase price of the
Shares purchased pursuant to the exercise of the Option, together with any
required state or federal withholding taxes, shall be paid in cash, by tender
of share certificates in proper form for transfer to the Company valued at the
Fair Market Value of the Shares on the preceding day, by any combination of the
foregoing, or with any other consideration reasonably acceptable to the
Committee.

              (e) SUSPENSION OF RIGHT. Notwithstanding any other provision of this
paragraph 6, the Chief Legal Counsel of the Company, in his sole and absolute
discretion, may suspend the right of any person to exercise an Option for up
to 30 days if the Grantee’s Service has been or, in the sole and absolute
judgment of the Chief Legal Counsel of the Company, may be
suspended or terminated for any reason.

              (f) PARTIES ENTITLED TO EXERCISE OPTIONS. An Option may be exercised
only by the Grantee, or by his legatee or legatees of such Option under his
last will, by his executors, personal representatives or distributees, or by a
transferee to the extent that a transfer of the Option is permitted pursuant to
paragraph 11(b).

     7.     SHARE APPRECIATION RIGHTS. The Committee may grant an SAR to a
Grantee who is awarded an Option under paragraph 3 or to any other key
employee, officer, trustee, director or consultant of the Company or a Related
Company. Each SAR shall be subject to such restrictions and conditions and
other terms as the Committee may specify when the SAR is granted.

              (a) GRANT. An SAR granted at the time an Option is granted may be
granted either in addition to the related Option (“Non-Tandem SAR”) or in
tandem with the related Option (“Tandem SAR”). An SAR granted other than at
the time an Option is granted will be subject to the provisions applicable to
Non-Tandem SARs. At the time a Non-Tandem SAR is granted, the Committee shall
specify the base price of the Shares to be used in connection with the
calculation described in subsection (b)(i) below. The base price of a
Non-Tandem SAR shall
be a percentage (as low as zero) of the Fair Market Value of a Share on the
date of grant. The number of Shares subject to a Tandem SAR shall not exceed
one for each Share subject to the related Option. No Tandem SAR may be granted
to a key employee in connection with an Incentive Share Option in a manner that
will disqualify the Incentive Share Option under Section 422 of the Code unless
the key employee consents thereto.

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              (b) VALUE. Upon exercise, an SAR shall entitle the Grantee to receive
from the Company the number of Shares having an aggregate Fair Market Value
equal to the following:

                 (i) in the case of a Non-Tandem SAR, the excess of the Fair Market
Value of one Share as of the date on which the SAR is exercised over the base
Share price specified in such SAR, multiplied by the number of Shares then
subject to the SAR, or the portion thereof being exercised.

                 (ii) in the case of a Tandem SAR, the excess of the Fair Market Value of
one Share as of the date on which the SAR is exercised over the exercise price
per Share specified in the related Option, multiplied by the number of Shares
then subject to the Option, or the portion thereof as to which the SAR is being
exercised.

              Cash shall be delivered in lieu of any fractional shares. The Committee,
in its discretion, shall be entitled to cause the Company to elect to settle
any part or all of its obligation arising out of the exercise of an SAR by the
payment of cash in lieu of all or part of the Shares it would otherwise be
obligated to deliver in an amount equal to the Fair Market Value of such
Shares on the date of exercise.

              (c) EXERCISE OF TANDEM SARs. A Tandem SAR shall be exercisable during
such time, and be subject to such restrictions and conditions and other terms,
as the Committee shall specify at the time such Tandem SAR is granted which
restrictions and conditions and other terms need not be the same for all
Grantees. Notwithstanding the preceding sentence, the Tandem SAR shall be
exercisable only at such time as the Option to which it relates
is exercisable and shall be subject to the restrictions and conditions and
other terms applicable to such Option. Upon the exercise of a Tandem SAR, the
unexercised Option, or the portion thereof to which the exercised portion of
the Tandem SAR is related, shall expire. The exercise of any Option shall
cause the expiration of the Tandem SAR related to such Option, or portion
thereof, that is exercised.

              (d) EXERCISE OF NON-TANDEM SARs.

                 (i) A Non-Tandem SAR granted under the Plan shall be exercisable during
such time, and shall be subject to such restrictions and conditions and other
terms, as the Committee shall specify at the time the Non-Tandem SAR is
granted. The Committee may establish performance goals to be achieved within
such periods as may be selected by it in its sole discretion, using such
measures of the performance of the Company and/or a Related Company as it may
select. Without limiting the generality of the foregoing, the Committee may
specify a minimum number of full Shares with respect to which any exercise of a
Non-Tandem SAR must be made.

                 (ii) Subject to earlier termination as provided in the last sentence of
this subparagraph, a Non-Tandem SAR granted under the Plan shall expire on the
date specified by the Committee, provided that such date shall not be more than
10 years after the Date of Grant. The Committee shall specify at the time each
Non-

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Tandem SAR is granted, the time during which the Non-Tandem SAR may be
exercised prior to its expiration and other provisions relevant to the SAR.
The Committee, in its discretion, shall have the power to accelerate the dates
for exercise of any or all Non-Tandem SARs or any part thereof, granted under
the Plan. Notwithstanding the foregoing, any Non-Tandem SAR shall
expire, notwithstanding any restrictions and conditions that the Committee may
impose, following a termination of the Grantee’s Service in the same manner as
an Option held by such Grantee would expire pursuant to the provisions of
paragraph 6(c).

              (e) ACCELERATION. Notwithstanding any restrictions or conditions imposed
on an SAR pursuant to subparagraphs (c) or (d)(i) above, an SAR granted under
the Plan shall be immediately exercisable in the event of the termination of
the Grantee’s Service (A) because of the Grantee’s Disability or death, (B)
with respect to a Grantee who is an employee or officer, in connection with his
retirement at or after age 62, (C) with respect to a Grantee who is a
consultant, in connection with his retirement (as determined by the Committee
in its discretion), (D) with respect to a Grantee who is a Trustee, in
connection with his failure to be re-elected to the Board, or (E) following a
Change in Control. In addition, at any time following the grant of an SAR, the
Committee, in its sole discretion, may elect to accelerate the date as of which
the Grantee may exercise the SAR.

              (f) SUSPENSION OF RIGHT. Notwithstanding any other provisions of this
paragraph 7, the Chief Legal Counsel of the Company, in his sole and absolute
discretion, may suspend the right of any person to exercise an Option for up to
30 days if the Grantee’s Service has been or, in the sole and absolute judgment
of the Chief Legal Counsel of the Company, may be suspended or
terminated for any reason.

              (g) PARTIES ENTITLED TO EXERCISE SARs. An SAR may be exercised only by
the Grantee, or by a legatee or legatees of such SAR under his last will, by
his executors, personal representatives or distributees, or by a transferee to
the extent that a transfer of the SAR is permitted pursuant to paragraph 11(b).

              (h) SETTLEMENT OF SARs. As soon as is reasonably practicable after the
exercise of an SAR, the Company shall (i) issue, in the name of the Grantee,
Shares representing the total number of full Shares to which the Grantee is
entitled pursuant to subparagraph 7(b) hereof and cash in an amount equal to
the Fair Market Value, as of the date of exercise, of any resulting fractional
Shares, and (ii) if the Committee causes the Company to elect to settle all or
part of its obligations arising out of the exercise of the SAR in cash, deliver
to the Grantee an amount in cash equal to the Fair Market Value, as of the date
of exercise, of the Shares it would otherwise be obligated to deliver.

     8.     DIVIDEND EQUIVALENTS. A Dividend Equivalent shall be related to a
number of Shares specified at the time of grant and shall entitle the holder to
cash payments that equal the cash dividend, if any, paid with respect to such
Shares provided that the Dividend Equivalent is outstanding on the record date
thereof and that it is not subject to any condition limiting the Grantee’s
right to receive such payments. A Dividend Equivalent shall be subject to such
restrictions and conditions and other terms including those relating to
expiration or forfeiture, as the Committee shall specify at the time such

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Dividend Equivalent is granted. A Dividend Equivalent granted pursuant to
subsection 3(c) shall not be subject to any restriction or condition limiting
the Grantee’s right to receive the cash payment discussed above from and after
the second anniversary of its Date of Grant. Notwithstanding the foregoing,
any restriction or condition (other than expiration or forfeiture) limiting the
Grantee’s right to receive the cash payment described above shall lapse in the
event of (A) the termination of the Grantee’s Service because of the Grantee’s
Disability or death, (B) with respect to a Grantee who is an employee or
officer, his retirement at or after age 62, (C) with respect to a Grantee who
is a consultant, his retirement (as determined by the Committee in its
discretion), (D) with respect to a Grantee who is a Trustee, his failure to be
re-elected to the Board, or (E) following a Change in Control.

     9.     WITHHOLDING. Whenever under the Plan a Grantee recognizes income
with respect to any Share Award, Option, SAR or Dividend Equivalent (the
“Award”) hereunder, the Company shall have the right to withhold from amounts
payable to such recipient in any manner, as necessary to satisfy all federal,
state and local payroll tax withholding requirements. Without limiting the
generality of the foregoing, (i) a Grantee may elect to satisfy all or part of
the foregoing withholding requirements by delivery of unrestricted Shares owned
by the Grantee
having a Fair Market Value (determined as of the date of such delivery by the
Grantee) equal to the amount to be so withheld; and (ii) the Committee may
permit any such delivery to be made by withholding Shares otherwise issuable
pursuant to the award giving rise to the tax withholding obligation (in which
event the date of delivery shall be deemed the date such award was exercised).
If Shares are being surrendered by or withheld for a Grantee who is subject to
Section 16 of the Act, the foregoing shall be accomplished in a manner
consistent with Rule 16b-3(e) thereunder.

     10.     COMPLIANCE WITH APPLICABLE LAWS AND POLICIES. Notwithstanding any
other provision in the Plan, the Company shall have no liability to issue any
Shares under the Plan unless such issuance would comply with all applicable
laws and applicable requirements of any securities exchange or similar entity.
Prior to the issuance of any Shares under the Plan, the Company may require a
written statement that the recipient is acquiring the Shares for investment and
not for the purpose of or with the intention of distributing the Shares.
Notwithstanding any other provision of the Plan, a Grantee or such other
persons as are entitled to exercise an Option or SAR (as described in paragraph
11(b)) will be prohibited from exercising the Option or SAR to the extent that
the Chief Legal Counsel of the Company has determined that purchases and sales
of Company securities should be restricted because of the existence or
potential existence of material nonpublic information concerning the Company,
whether or not such determination has been communicated to the Grantee or such
persons. If
the Chief Legal Counsel of the Company has made such a determination and the
Grantee or such persons give notice of an intent to exercise the Option or SAR
(and satisfy all other conditions to the exercise thereof), the Chief Legal
Counsel of the Company shall advise the Grantee or such persons concerning such
restrictions, and the effective time of the Grantee’s exercise shall be
postponed to the earlier of the date that the Chief Legal Counsel of the
Company determines that such restriction is no longer necessary with respect to
exercises of the Option or SAR, or the day before the date that the Option or
SAR expires.

10

 

     11.     TRANSFERABILITY. This paragraph 11 shall govern the transferability
of the various benefits under this Plan.

              (a) SHARE AWARDS. The Shares subject to Share Awards granted under
paragraph 3(a) or 3(c) shall not be sold, assigned, pledged or otherwise
transferred, voluntarily or involuntarily, by the Grantee, while they are
subject to the restrictions described in paragraph 5(a).

              (b) OPTIONS, SARs AND DIVIDEND EQUIVALENTS. Options, SARs and Dividend
Equivalents granted under the Plan are not transferable except (i) by will or
by the laws of descent and distribution or, to the extent not inconsistent with
the applicable provisions of the Code, pursuant to a qualified domestic
relations order (as that term is defined in the Code); and (ii) a Grantee may
transfer all or part of an Option that is not an Incentive Share Option, or an
SAR, to the Grantee’s spouse, child or children, grandchild or grandchildren,
or other relatives or to a trust for the benefit of any of the foregoing;
provided that the transferee thereof shall hold such Option or SAR subject to
all of the conditions and restrictions contained herein and otherwise
applicable to the Option or SAR, and that, as a condition to such transfer, the
Company may require the transferee to agree in writing (in a form acceptable to
the Company) that the transfer is subject to such conditions and restrictions.

     12.     SERVICE AND SHAREHOLDER STATUS. The Plan does not constitute a
contract of employment or continued Service, and selection as a Grantee will
not give any employee or Grantee other than individual the right to be retained
as an employee, officer, trustee, director or consultant of the Company or any
Extended Company. No person entitled to exercise any Option or SAR granted
under the Plan shall have any of the rights or privileges of a shareholder of
record with respect to any Shares issuable upon exercise of such Option or SAR
until such Shares have been issued. If the redistribution of Shares is
restricted pursuant to paragraph 13, certificates representing such Shares may
bear a legend referring to such restrictions.

     13.     ADJUSTMENTS TO NUMBER OF SHARES SUBJECT TO THE PLAN AND TO TERMS OF
OPTIONS, SARS AND DIVIDEND EQUIVALENTS. Subject to the following provisions of
this paragraph 13, in the event of any change in the outstanding Shares by
reason of any share dividend, split, recapitalization, merger, consolidation,
combination, exchange of shares or other similar corporate change, the
aggregate number and kind of Shares reserved for issuance under the Plan or
subject to Options, SARs or Dividend Equivalents outstanding or to be granted
under the Plan shall be proportionately adjusted so that the value of each such
unit shall not be changed, and the terms of any outstanding Option, SAR or
Dividend Equivalent may be adjusted by the Committee in such manner as it deems
equitable, provided that in no event shall the Option price for a Share be
adjusted below the par value of such Share, nor shall any fraction of a Share
be issued upon the exercise of an Option. Shares subject to a Share Award
shall be treated in the same manner as other outstanding Shares; provided that
any conditions and restrictions applicable to a Share Award shall continue to
apply to any Shares, other security or other consideration received in
connection with the foregoing.

     14.     AGREEMENT WITH COMPANY. At the time of a grant, the Committee may
require a Grantee to enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the Plan and
to such additional

11

 

terms and conditions, not inconsistent with the Plan, as the Committee may, in
its sole discretion, prescribe.

     15.     TERM OF PLAN. This amended and restated Plan is effective July 1,
1997. No Incentive Share Options may be granted under the Plan after July 1,
2007 or, if earlier, the date on which the Plan is terminated pursuant to
paragraph 16.

     16.     AMENDMENT AND TERMINATION OF PLAN. Subject to any approval of the
shareholders of the Company which may be required by law, the Board of
Trustees of the Company may at any time amend, suspend or terminate the Plan.
No amendment, suspension or termination of the Plan shall alter or impair any
Share Award, Option, SAR or Dividend Equivalent previously granted under the
Plan without the consent of the holder thereof. No amendment requiring
shareholder approval under Section 240.16b-3 of the Act, Treasury Regulation
Section 1.162-27 or Section 422 of the Code shall be valid unless such
shareholder approval is secured as provided therein.

     17.     HEADINGS, REFERENCES AND CONSTRUCTION. The headings to sections of
this Plan have been included for the convenience of reference only. This Plan
shall be interpreted and construed in accordance with the laws of the State of
Maryland.

12

 

APPENDIX A

RELATED COMPANIES

Equity Office Properties Management Corp.

EOP Operating Limited Partnership

EOPMC of California, Inc.

EOPMC of Florida, Inc.

APPENDIX B

EXTENDED COMPANIES

Equity Group Investments, LLC

Equity Residential Properties Trust and its affiliated companies

Manufactured Home Communities, Inc. and its affiliated companies

Rosenberg & Liebentritt, PC

13

 

AMENDMENT NO. 1 TO THE EQUITY OFFICE PROPERTIES TRUST

AMENDED AND RESTATED 1997 SHARE OPTION AND SHARE AWARD PLAN

     WHEREAS, Equity Office Properties Trust (the “Trust”) has reserved the
right to amend the Amended and Restated 1997 Share Option and Share Award Plan
(the “Plan”); and

     WHEREAS, the Trust desires to amend the Plan to increase the number of
Shares for which Share Awards, Option, SARs and Dividend Equivalents may be
granted under the Plan.

     RESOLVED, that the first sentence of Paragraph 4 of the Equity Office
Trust Amended and Restated 1997 Share Option and Share Award Plan is hereby
amended to read in its entirety as follows:

     4. SHARES SUBJECT TO THE PLAN. Subject to the provisions of paragraph
13, the maximum number of Shares for which Share Awards, Options, SARs and
Dividend Equivalents may be granted under the Plan shall equal 6.8% of the
outstanding Shares from time-to-time, calculated on a fully diluted basis,
determined annually on the first day of each calendar year.

 

 

AMENDMENT NO. 2 TO AMENDED AND RESTATED EQUITY OFFICE

PROPERTIES TRUST 1997 SHARE OPTION AND SHARE AWARD PLAN

     WHEREAS, Equity Office Properties Trust (the “Trust”) has adopted the
Amended and Restated Equity Office Properties Trust 1997 Share Option and Share
Award Plan as amended on May 15, 1998 (the “Plan”), and has reserved the right
to amend the Plan; and

     WHEREAS, EOP desires to amend the Plan to limit the number of Shares that
may be subject to Share Awards thereunder.

     NOW, THEREFORE, the Trust hereby amends the Plan, effective as of January
1, 1998, in the following respects:

     1.     The first sentence of paragraph 4 is amended to read as follows:

		
	 	“Subject to the provisions of paragraph 13, (i) the maximum number
of Shares for which Share Awards, Options, SARs and Dividend
Equivalents may be granted under the Plan shall equal 6.8% of the
outstanding Shares from time-to-time, calculated on a fully diluted
basis, determined annually on the first day of each calendar year;
and (ii) no more than half of the number of Shares described in
clause (i) may be subject to Share Awards granted under the Plan.”

 

 

Third Amendment To Equity Office Properties Trust

1997 Share Option and Share Award Plan

(As Amended and Restated Effective July 1, 1997)

     WHEREAS, Equity Office Properties Trust (the “Company”) has adopted the
Equity Office Properties Trust 1997 Share Option and Share Award Plan (As
Amended and Restated Effective July 1, 1997) (the “Plan”), and has reserved the
right to amend the Plan; and

     WHEREAS, the Company desires to amend the Plan to permit awards granted
thereunder to continue, at the discretion of the Plan Administrator (as defined
below) after a Grantee’s termination of Service;

     NOW, THEREFORE, the Company amends the Plan, effective September 18, 1998,
in the following respects:

	 	1.	 	The first sentence of Section 5(a)(iii) is deleted and
replaced with the following:
	 
	 	 	 	“Notwithstanding the foregoing, the restrictions described in the
preceding subparagraphs (i) and (ii) that are contained in the
terms of any grant made pursuant to paragraph 3(a) shall
immediately lapse and be of no effect in the event of the
termination of a Grantee’s Service (A) because of the Grantee’s
“Disability” (as defined below) or death, (B) with respect to a
Grantee who is an employee or officer, in connection with his
retirement at or after age 62, (C) with respect to a Grantee who is
a consultant, in connection with his retirement (as determined by
the Committee in its discretion), (D) with respect to a Grantee who
is a Trustee, in connection with his failure to be re-elected to
the Board, (E) following a “Change in Control” of the Company (as
defined below) or (F) under circumstances deemed to warrant such
treatment by the Plan Administrator. For purposes of the Plan,
“Plan Administrator” shall mean (X) the President and Chief
Executive Officer of the Company and any one member of the
Committee, or (Y) the full Committee. Notwithstanding the
foregoing, where the affected Grantee is a “covered employee” for
purposes of Section 162(m) of the Code, (i) any authority of the
Plan Administrator under the Plan may only be exercised if the
existence of such authority would not cause the related Share
Award, Option or SAR to fail to constitute performance based
compensation on its Date of Grant under Treasury Regulation Section
1.162-27; and (ii) “Plan Administrator” shall mean only the full
Committee if the exercise of such authority by the President and
Chief Executive Officer and any one member of the Committee would
adversely affect the grant’s status as performance based
compensation and its exercise by the full Committee would not so
affect such status.”

 

 

	 	2.	 	Section 6(c) is amended to read as follows:
	 
	 	 	 	     “(c) Expiration Date. Subject to earlier termination as
provided in paragraph 16, the “Expiration Date” with respect to an
Option or any portion thereof granted under paragraph 3(a) means
the date established by the Committee at the Date of Grant, but in
no event later than the date that is ten (10) years after the date
on which the Option is granted and, with respect to an Incentive
Share Option granted to an employee who owns, on the Date of Grant,
more than 10% of the Company’s Shares, in no event later than the
date that is five (5) years from the date on which the Option is
granted. The Expiration Date with respect to an Option or any
portion thereof granted under paragraph 3(b) means the date which
is 10 years after the date on which the Option is granted. If the
Service of a Grantee terminates for cause (as determined by the
Committee in its discretion), his Option shall expire immediately.
The Committee may establish guidelines for determining whether a
Grantee’s Service has terminated for cause and communicate such
guidelines in the Grantee’s award agreement. If the Grantee’s
Service terminates other than for cause and other than because of
circumstances described in the last sentence of paragraph (d)(i)
below, his Option shall not thereafter become exercisable with
respect to any additional Shares, and his Option shall expire three
months after the date on which his Service terminated, but no later
than the Expiration Date. If such Service terminates because of
the Grantee’s death, his Option shall be exercisable by the person
or persons to whom that right passes by will or by the laws of
descent and distribution for a period of 12 months after the date
of death (at which time it will expire), but no later than the
Expiration Date. Notwithstanding the foregoing, the Plan
Administrator may provide, at any time before the Expiration Date,
that a Grantee’s Option shall not expire prior to the date it would
otherwise expire in accordance with the preceding sentences, and
may provide in connection therewith (i) the date or event that will
cause the Option to expire (or that the Option will expire on the
Expiration Date); and/or (ii) the extent to which the Option shall
continue to become exercisable. All rights to purchase Shares
pursuant to an Option shall cease as of the Option’s Expiration
Date or its earlier expiration as provided herein or in the
Grantee’s award agreement.”
	 
	 	3.	 	Section 6(d)(v) is amended to read as follows:
	 
	 	 	 	     “(v) Notwithstanding the foregoing, at any time following the
grant of an Option, the Plan Administrator, in its sole discretion,
may elect to accelerate the date as of which the Grantee may
exercise the Option with respect to all or a portion of the Shares
subject thereto.”
	 
	 	4.	 	The last sentence of section 7(d)(ii) is amended to read as follows:

 

 

	 	 	 	“Notwithstanding the foregoing, any Non-Tandem SAR shall expire,
notwithstanding any restrictions and conditions that the Committee
may impose, following a termination of the Grantee’s Service in the
same manner as an Option held by such Grantee would expire pursuant
to the provisions of paragraph 6(c), taking into account any action
by the Plan Administrator pursuant to the penultimate sentence of
such paragraph.”
	 
	 	5.	 	The last sentence of Section 7(e) is amended to read as follows:
	 
	 	 	 	“In addition, at any time following the grant of an SAR, the Plan
Administrator, in its sole discretion, may elect to accelerate the
date as of which the Grantee may exercise the SAR.”

 

Fourth Amendment to Equity Office Properties Trust

1997 Share Option and Share Award Plan

(As Amended and Restated Effective July 1, 1997)

     WHEREAS, Equity Office Properties Trust (the “Company”) has adopted the
Equity Office Properties Trust 1997 Share Option and Share Award Plan (As
Amended and Restated Effective July 1, 1997)(the “Plan”), and has reserved the
right to amend the Plan; and

     WHEREAS, the Company desires to amend the Plan to specify the Option
Exercise Price and permit Trustees to exercise Options until the Expiration
Date following retirement;

     NOW, THEREFORE, the Company amends the Plan, effective May 22, 2002, in
the following respects:

	 	1.	 	Section 3(d) of the Plan is hereby deleted and replaced with
the following new Section 3(d):
	 
	 	 	 	"(d) Value. For all purposes of the Plan, the “Grant Value” of grants
made pursuant to paragraph 3(b) or 3(c) shall equal (A) for a Share
Award, the Fair Market Value of a Share (as defined in Section 6(b)) as
of the date of grant, (B) for an Option or SAR (1) if the Company has
complied with the disclosure requirements described in Item 402(c) of
Regulation S-K under the Act by disclosing the present value of options
under the Black-Scholes or binomial option pricing model or another
valuation method (any of the foregoing constituting a “Valuation
Method”), the value of such Option or SAR calculated based on the
Valuation Method and assumptions contained in the most recent document
used by the Company to satisfy those requirements; or (2) if the Company
has not so disclosed the present value of Options, then “Grant Value”
shall, at the election of the Committee either be calculated using a
Valuation Method and assumptions that would satisfy such requirements, or
shall equal the difference between the Fair Market Value of a Share as of
the date of grant and the exercise or base price of the Option or SAR,
times the number of Shares subject to the Option or SAR.”
	 
	 	2.	 	Section 6(b) of the Plan is hereby deleted and replaced with
the following new Section 6(b):
	 
	 	 	 	“With respect to an employee who owns on the Date of Grant more than 10%
of the Company’s Shares, the Option price of an Incentive Share Option
shall equal 110% of the Fair Market Value of a Share. For all other
Grantees, the Option price of an Incentive Share Option shall equal the
Fair Market Value of a Share. The Option price of any Non-Qualified
Share Option shall equal its Fair Market Value. Notwithstanding any
provision of the Plan to the contrary, “Fair Market Value” shall equal
the closing price paid for the Shares on the New York Stock Exchange on
the first trading day immediately preceding the Date of Grant. For
purposes of determining the Option price of an Incentive Share

 

 

	 	 	 	Option,
Fair Market Value shall not be less than the closing price paid for the
Shares on the New York Stock Exchange on the date the Option is awarded
under the Plan and with respect to an employee who owns on the Date of
Grant more than 10% of the Company’s Shares, 110% of the Fair Market
Value on the date the Option is awarded under the Plan.”
	 
	 	3.	 	Section 6(d)(i)(D) is hereby deleted and replaced with the
following new Section 6(d)(i)(D):
	 
	 	 	 	“(D) with respect to a Grantee who is a Trustee, in connection with his
failure to be re-elected to the Board or in connection with his
retirement at or after age 62,”<PAGE>

                                                                     EXHIBIT 4.1

                      Form of Securities Purchase Agreement

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (the "Agreement") is made as of
__________, by and between TeraForce Technology Corporation, a Delaware
corporation (the "Company") and __________, the "Investor").

                                    RECITALS

         WHEREAS, the Investor desires to acquire upon the terms and conditions
stated in this Agreement, an aggregate of _______ shares of the Company's Common
Stock, par value $0.01 per share, (the "Common Stock"), in exchange for $______
cash; and

         WHEREAS, the Company believes it is in the best interests of the
Company and the Stockholders to consummate the contemplated transaction; and

         WHEREAS, the Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

         NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, the Company and the Investor hereby agree to the terms and
conditions hereinafter set forth, as follows:

                                    AGREEMENT

                                    ARTICLE 1
                                  DEFINED TERMS

         As used herein, the following terms shall have the following meanings:

         (a) "1933 Act" shall have the meaning set forth in the Recitals to this
Agreement.

         (b) "1934 Act" shall have the meaning set forth in Article 3.5 of this
Agreement.

         (c) "AAA" shall have the meaning set forth in Article 8.4 of this
Agreement.

         (d) "Agreement" shall have the meaning set forth in the introduction to
this Agreement.

         (g) "Business" shall mean the business currently conducted by the
Company and its subsidiaries involving the design, development, production and
sale of computing products, optical networking equipment and other technology
related products, including providing related services.

                                       1
<PAGE>

         (h) "Business Day" shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Texas generally are authorized or required by law or other government
actions to close.

         (i) "Common Stock" shall mean the Company's common stock, par value
$0.01 per share.

         (j) "Company" shall have the meaning set forth in the introduction to
this Agreement.

         (k) "Closing Condition" shall have the meaning set forth in Article
7.1 of this Agreement.

         (l) "GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.

         (m) "Investor" shall have the meaning set forth in the introduction to
this Agreement.

         (o) "Person" or "Persons" shall mean any individual, corporation,
limited liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government or any agency, instrumentality
or political subdivision thereof, or any other form of entity.

         (p) "Registration Rights Agreement" shall mean the Registration Rights
Agreement executed an even date herewith, by and among the Company and the
Investors.

         (q) "Regulation D" shall have the meaning set forth in the Recitals to
this Agreement.

         (r) "SEC" shall mean the Securities and Exchange Commission or any
successor governmental authority.

         (s) "SEC Documents" shall have the meaning set forth in Article 3.5 of
this Agreement.

         (t) "Shares" shall have the meaning set forth in Article 2.1 of this
Agreement.

         (u) "Stockholders" shall mean the stockholders of the Common Stock of
the Company as of the date hereof.

                                    ARTICLE 2
                         PURCHASE AND SALE OF THE SHARES

         2.1 Issuance of Shares. Upon the terms and subject to the conditions
contained herein, and on the basis of the representations, warranties, covenants
and agreements set forth herein, the Company agrees to issue to the Investor,
and the Investor agrees to acquire, _________ shares of Common Stock in exchange
for $_______ in cash.

                                       2
<PAGE>

                                    ARTICLE 3
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to the Investors, as of the date
hereof, as follows:

         3.1 Authorization. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement, and the
consummation by the Company of the transaction contemplated hereby and thereby,
have been duly authorized by all necessary corporate action. This Agreement and
the Registration Rights Agreement have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
in accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (iii) to the extent that the
indemnification provisions and the choice of law provisions contained in this
Agreement and the Registration Rights Agreement may be limited by applicable
laws or deemed against public policy. The execution, delivery and performance of
the transactions contemplated by this Agreement and the Registration Rights
Agreement and compliance with their provisions by the Company will not violate
any provision of law and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, (x) the Company's Amended and Restated
Certificate of Incorporation or Restated Bylaws (each as amended to date) or (y)
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company which conflict or
breach would result in a Material Adverse Effect.

         3.2 Organization and Qualification. The Company is a corporation
organized under the laws of the state of Delaware, has power and authority to
own its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which its ownership of property or the conduct of its business
requires such qualification, except for jurisdictions in which such failure to
be so qualified or to be in good standing would not have a Material Adverse
Effect.

         3.3. Issuance by the Company. Consummation of the transactions
contemplated hereby will transfer to the Investor good, valid and marketable
title to the Shares, free and clear of any liens, claims or encumbrances, except
as set forth in the Registration Rights Agreement, to the extent applicable, or
in any legend which appears on any certificate representing any of the Shares.

         3.4 Issuance of Shares. The issuance and delivery of the shares of
Common Stock have been at or prior to the date hereof, duly authorized by all
necessary corporate action on the part of the Company. No person has any right
of first refusal or any preemptive rights in connection with the issuance and
sale of the Shares. The shares of Common Stock will be duly and validly issued,
fully paid and non-assessable, with no personal liability attaching ownership
thereof, will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Registration Rights Agreement and under applicable state and federal securities
laws.

         3.5 SEC Documents; Financial Statements. Since December 31, 2001, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial

                                       3
<PAGE>

statements and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with GAAP,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end immaterial audit adjustments).

                                    ARTICLE 4
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

         The Investor represents and warrant to the Company as of the date
hereof as follows:

         4.1 Organization. Investor has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby.

         4.2 Authority. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby by the Investor have been
duly and validly authorized by all requisite action on the part of the Investor.
This Agreement has been duly executed and delivered by Investor and constitutes
the valid and binding obligations of Investor, enforceable against the Investors
in accordance with its terms except as the same may be limited by equitable
principles and by bankruptcy, insolvency, moratorium, and other laws of general
application affecting the enforcement of creditors' rights.

         4.3 Investment Representations. The Investor is acquiring the Shares
for investment purposes only and not with a view to the resale or distribution
of all or any part thereof. The Investor acknowledges that the Shares have not
been registered under the 1933 Act, or the securities or "blue sky" laws of any
state or other domestic or foreign jurisdiction, and that none of such
securities may be sold, transferred or otherwise disposed of except pursuant to
an effective registration statement thereunder or an applicable exemption
therefrom.

         4.4 Accredited Investor. The Investor (a) has such knowledge and
experience in financial and business matters that such Investor is capable of
evaluating the merits and risks of his or her investment in the Shares and has
the financial ability to assume the monetary risk associated therewith; (b) is
able to bear the complete loss of his or her investment in the Shares; (c) has
received such documents and information from the Company as such Investor has
requested and has had the opportunity to ask questions of, and receive answers
from, the Company and the terms and conditions of the offering of the Shares and
to obtain additional information; (d) is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the 1933 Act; and (e) is not
relying upon any statements or instruments made or issued by any person other
than the Company in making a decision to invest in the Shares.

                                       4
<PAGE>

                                    ARTICLE 5
                            COVENANTS OF THE COMPANY

         5.1 Registration Rights Agreement. Upon the closing of this
transaction, the Company will enter into a Registration Rights Agreement with
the Investor in substantially the form of Exhibit A. Such Registration Rights
Agreement will provide that the Company will file a shelf registration covering
the resale of the Shares.

                                    ARTICLE 6
                                     CLOSING

         6.1 Closing, Delivery. Any time on or before ___________ the Investor
will deliver to the Company $______ in cash in exchange for which the Company
will deliver to the Investor _______ shares of Common Stock.

Closing shall occur at the Company's offices in Richardson, Texas, or such other
location as the parties may mutually agree. Payment to the Company shall be made
by wire transfer to the following account:

                  BankOne, NA,
                  ABA #111000614
                  TeraForce Technology Corporation
                  Master Concentration Account
                  Acct. No. 1571582582

                                    ARTICLE 7
                                  MISCELLANEOUS

         7.1 Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.

         7.2 Headings. The descriptive headings of this Agreement are inserted
for convenience of reference only and do not constitute a part of and shall not
affect the interpretation of this Agreement.

         7.3 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given (a) if sent by facsimile transmission, upon telephonic confirmation of
receipt, (b) if sent by registered or certified mail, upon the sooner of the
expiration of five (5) days after deposit in the post office facilities properly
addressed with postage prepaid or acknowledgement of receipt, (c) if personally
delivered, when delivered to the party to whom notice is sent, or (d) if
delivered by a recognized overnight courier, upon receipt evidencing proof of
delivery, addressed to the appropriate party or parties, at the address of such
party set forth below, (or at such other address as such party may designate by
written notice furnished to all other parties in accordance herewith):

                                       5
<PAGE>

         (a) if to the Investor:

         (b) if to the Company:

                  TeraForce Technology Corporation
                  1240 E. Campbell Road
                  Richardson, TX  75081
                  Telecopier: (469) 330-4972
                  Telephone: (469)330-4960
                  Attn: Robert P. Capps

         7.4 Dispute Resolution. All disputes and claims arising out of or
relating to this Agreement that are not resolved pursuant to an agreement of the
parties shall be arbitrated in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA"), and judgment upon any
arbitration award shall be binding and may be entered in any court or other
tribunal having jurisdiction thereof, the parties hereby consenting to the
jurisdiction of such courts for this purpose. If the parties herein cannot agree
upon an arbitrator, one shall be appointed by the AAA who shall be neutral and
experienced in the subject matter of the dispute. The arbitrator's award shall
be binding and in writing. All arbitration proceedings shall be conducted in
Dallas County, Texas.

         7.5 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of Texas, without
regard to the conflict of laws provisions thereof.

         7.6 Entire Agreement. This Agreement constitutes the entire agreement
of the parties concerning the transactions contemplated hereby, and supersede
all prior agreements and understandings, written or oral, regarding the subject
matter hereof.

         7.7 Expenses. Except as otherwise provided herein, the Company and the
Investor shall each bear their own expenses and legal fees in connection with
the consummation of this transaction.

         7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement shall become effective, as of
the date specified in the opening paragraph, upon the execution by all of the
parties of at least one counterpart hereof, and it shall not be necessary that
any single counterpart bear the signatures of all parties. Execution and
delivery of this Agreement by delivery of a facsimile copy bearing the facsimile
signature of a party shall constitute a valid and binding execution and delivery
of this Agreement by such party. Such facsimile copies shall constitute
enforceable original documents.

         7.9 Corporate Securities Law. The sale of the securities which are the
subject of this Agreement has not been qualified with any state regulatory
authority having jurisdiction thereof and the issuance of such securities or the
payment or receipt of any part of the consideration therefor prior to such
qualification or in the absence of exemption from such qualification is
unlawful. the rights of all parties to this Agreement are expressly conditioned
upon such qualification being obtained or an exemption from such qualification
being available.

                                       6
<PAGE>

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

                                       TERAFORCE TECHNOLOGY CORPORATION

                                       By:
                                          --------------------------------------
                                       Name: Robert P. Capps
                                       Title: Executive Vice President and
                                                Chief Financial Officer

                                       INVESTOR:

                                       -----------------------------------------

                                       7

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