Document:

Exhibit 10.8

EXHIBIT 10.8

MORTGAGE 

        THIS
MORTGAGE, dated as of the 19th day of April, 2004, between Five Star
Quality Care-Howell, LLC, a Delaware limited liability company, and having a mailing
address c/o Five Star Quality Care Trust, 400 Centre Street, Newton, MA 02458, Mortgagor,
and Love Funding Corporation, a Virginia corporation, and having a mailing address
at 1250 Connecticut Avenue, NW, Washington, DC 20036, Mortgagee. 

        WITNESSETH:
That whereas the Mortgagor is justly indebted to the Mortgagee in the principal sum of
FIVE MILLION FIFTEEN THOUSAND AND NO/100THS DOLLARS ($5,015,000.00), evidenced by
its note dated April  19, 2004, bearing interest from date on outstanding balances at
Five and 55/100ths per centum (5.55%) per annum, said principal and interest being payable
in monthly installments as provided in said note with a final maturity of May 1, 2039,
which note is identified as being secured hereby by a certificate thereon. Said note and
all of its items are incorporated herein by reference and this conveyance shall secure any
and all extensions thereof, however evidenced. 

        NOW,
THEREFORE, the said Mortgagor, for tile better securing of the payment of the said
principal sum of money and interest and the performance of the covenants and agreements
herein contained does by these presents, MORTGAGE, AND WARRANT unto the Mortgagee,
its successors or assigns, the lands, premises and property situate, lying, and being in
Howell Township, Livingston County, Michigan, described as follows, to wit: 

See
Exhibit “A” attached hereto and made a part hereof. 

        TOGETHER
with the privileges and appurtenances to the same belonging, and all of the rents, issues,
and profits which may arise or be had there from; and 

        TOGETHER
with all buildings and improvements of every hind and description now or hereafter erected
or placed thereon, and all fixtures, including but not limited to all gas and electric
fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, steams
and hot water boilers, stoves, ranges, elevators and motors, bathtubs, sinks, water
closets, basins pipes, faucets and other plumbing and heating equipment, and all cabinets,
mantels, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking
apparatus and appurtenance, and all furniture, shades, awnings, screens, venetian blinds
and other furnishings; and 

        TOGETHER
with all building materials and equipment located on the premises and intended to be
incorporated its the buildings or other improvements; and 

        TOGETHER
with all articles of personal property now or hereafter attached to or used in and about
the building or buildings now erected or hereafter to be erected on the lands herein
described which are necessary to the complete and comfortable use and occupancy of such
building or buildings for the purposes for which they were or are to be erected including
all goods and chattels and personal property as are ever used or furnished in operating a
building or the activities conducted therein, similar to the one herein described and
referred to, and all renewals or replacements thereof or articles in substitution
therefor, whether or not the same are,  

or shall be attached to said building or buildings
in any manner. All of the foregoing shall be deemed to be, remain and form part of the
realty and are covered under this mortgage. 

        TO
HAVE AND TO HOLD the above mortgaged premises, together with the appurtenances
thereunto appertaining unto the said Mortgagee forever, provided that if the Mortgagor
shall pay the principal and all interest as provided in a certain promissory note executed
by said Mortgagor to said Mortgagee of even date herewith and shall pay all other sums
hereinafter provided for, and shall well and truly keep and perform all of the covenants
herein contained, then this mortgage and the aforesaid note shall be null and void;
otherwise to remain in full effect. 

        AND
THE MORTGAGOR HEREBY COVENANTS AS FOLLOWS: 

	1.  	  	That
the Mortgagor will pay the note at the times and in the manner provided
               therein.  

	3.  	  	That,
in order more fully to protect the security of this mortgage, the
               Mortgagor, together with and in addition to, the monthly payments of
interest or                principal and interest under the terms of the note secured
hereby, will pay the                Mortgagee on the first day of each month after date
until the indebtedness                secured hereby is fully paid, the following sums:  

	  	
(a)
                An amount sufficient to provide the Mortgagee with funds to pay the
next                mortgage insurance premium if this mortgage and the note secured
hereby are                insured, or a monthly service charge if they are held by the
Secretary of                Housing and Urban Development as follows:  

	  	
(I)
                If and so long as said note of even date and this mortgage are
insured or are                reinsured under the provisions of the National Housing Act,
an amount sufficient                to accumulate in the hands of the Mortgagee one month
prior to its due date the                annual mortgage insurance premium, in order to
provide the Mortgagee with funds                to pay such premium to the Secretary of
Housing and Urban Development pursuant                to the National Housing Act, as
amended, and applicable Regulations thereunder,                or  

	  	
(II)
                Beginning with the first day of the month following an assignment of
this                mortgage and the note secured hereby to the Secretary of Housing and
Urban                Development, a monthly service charge which shall be an amount equal
to 1/12 of                1/2% of the average outstanding principal balance due on the
note computed for                each successive year beginning with the first of the
month following such                assignment, without taking into account delinquencies
or prepayments.  

	  	
(b)
                A sum equal to the ground rents, if any, next due, plus the premiums
that will                next become due and payable on policies of fire and other
insurances covering                the premises covered hereby, plus water rates, taxes
and assessments next due on                the premises covered hereby (all as estimated
by the Mortgagee) less all sums                already paid therefor divided by the
number of months to elapse before one month                prior to the date when such
ground rents, premiums, water rates, taxes and                assessments will become
delinquent, such sums to  

	  	
be
held by, the Mortgagee in                trust to pay said ground rents, premiums, water
rates, taxes and special                assessments.  

	  	
(c)
                All payments mentioned in the two preceding subsections of this
paragraph and                all payments to be made under the note secured hereby shall
be added together                and the aggregate amount thereof shall be paid by the
Mortgagor each month in a                single payment to be applied by the Mortgagee to
the following items in the                order set forth:  

	  	
(I)
                 premium charges under the contract of insurance with the Secretary
of Housing                and Urban Development or the service charge as the case may be;  

	  	
(II)
                 ground rents, taxes, assessments, water rates, fire and other
insurance                premiums;  

	  	
(III)
                 interest on the note secured hereby; and  

	  	
(IV)
                amortization of the principal of said note.  

	  	
Any
deficiency in the amount of any such aggregate monthly payment shall, unless made good by
the Mortgagor prior to the due date of the next such payment, constitute on event of
default under this mortgage. 

	4.  	  	That
any excess funds accumulated under paragraph (b) above remaining after           payment
of the items therein mentioned, shall be credited to subsequent monthly
          payments of the same nature required thereunder; but if any such item shall
          exceed the estimate therefor, the Mortgagor shall without demand forthwith make
          good the deficiency. Failure to do so before the due date of such item shall be
          a default thereunder. In case of termination of the contract of mortgage
          insurance by prepayment of the mortgage in full, or otherwise (except as
          hereinafter provided), accumulations under paragraph (a) above not required to
          meet payments due under the Contract of Mortgage Insurance, shall be credited
to           the Mortgagor. If the property is sold under foreclosure or is otherwise
          acquired by the Mortgagee after default, any remaining balance of the
          accumulations under paragraph (b) above shall be credited to the principal of
          the mortgage as of the date of commencement of foreclosure proceedings or as of
          the date the property is otherwise acquired; and accumulations under paragraph
          (a) above shall be similarly applied unless required to pay sums due the
          Secretary under the Contract of Mortgage Insurance.  

	5.  	  	That
it will pay before the same become delinquent or subject to interest or
          penalties, all ground rents, taxes, assessments, water rates, and all other
          charges and encumbrances which now are or shall hereafter be or appear to be a
          lien upon the said premises or any part thereof, and for which provision has
not           been made by monthly payments as hereinbefore provided, and will make
payments           on account of the taxes and assessments levied or to be levied against
the           premises in the manner provided in subsection (b) of the above paragraph
and           that in default thereof the Mortgagee may, without demand or notice, pay
the           said taxes, assessments, charges, or encumbrances, and pay such sum of
money as           the Mortgagee may deem to be necessary therefor, and shall be the sole
judge 

	   	  	
of           the legality or validity thereof and of the amount necessary to be
paid in           satisfaction thereof.  

	6.  	  	That
the Mortgagor will keep the improvements now existing or hereafter erected           on
the mortgaged property insured against loss by fire and such other hazards,
          casualties, and contingencies, as may be stipulated by the Secretary of Housing
          and Urban Development, acting by and through the Federal Housing Commissioner
          upon the insurance of the Mortgage and other insurance as may be required from
          time to time by the Mortgagee, and all such insurance shall be evidenced by
          standard Fire and Extended Coverage Insurance Policy or Policies, in amounts
not           less than necessary to comply with the applicable Coinsurance Clause
percentage,           but in no event shall the amounts of coverage be less than 80% of
the Insurable           Values or not less than the unpaid balance of the insured
mortgage, whichever is           the lesser, and in default thereof the Mortgagee shall
have the right to effect           insurance. Such policies shall be endorsed with
standard Mortgagee clause with           loss payable to the Mortgagee and the Secretary
of Housing and Urban Development           as interest may appear, and shall be deposited
with the Mortgagee. That           insurance company providing such coverage shall be
selected by the Mortgagor           subject to approval by Mortgagee, which approval
shall not be unreasonably           withheld.  

	7.  	  	That
if the premises covered hereby, or any part thereof, shall be damaged by           fire
or other hazard against which insurance is held as hereinbefore provided,           the
amounts paid by any insurance company pursuant to the contract of insurance
          shall, to the extent of the indebtedness then remaining unpaid, be paid to the
          Mortgagee, and, at its option, may be applied to the debt or released for the
          repairing or rebuilding of the premises.  

	8.  	  	That
at the option of the Mortgagor the principal balance secured hereby may be
          reamortized on terms acceptable to the Secretary of Housing and Urban
          Development, acting by and through the Federal Housing Commissioner if a
partial           prepayment results from an award in condemnation in accordance with the
          provisions of Paragraph 9 herein, or from an insurance payment made in
          accordance with provisions of Paragraph 7 herein, where there is a resulting
          loss of project income.  

	9.  	  	That
all awards of compensation in connection with condemnation for public use           of or
a taking of any of that property, shall be paid to the Mortgagee to be           applied
to the amount due under the note secured hereby in (1) amounts equal to           the
next maturing installment or installments of principal and (2) with any           balance
to be credited to the next payment due under the note. That all awards           of
damages in connection with any condemnation for public use of or injury to           any
residue of that property, shall be paid to the Mortgagee to be applied to a
          fund held for and on behalf of the Mortgagor which fund shall, at the option of
          the Mortgagee, and with the prior approval of the Secretary of Housing and
Urban           Development, either be applied to the amount due under the note as
specified in           the preceding sentence, or be disbursed for the restoration or
repair of the           damaged residue. No amount applied to the reduction of the
principal amount due           in accordance with (1) shall be considered an optional
prepayment as the term is           used in this mortgage and the note secured hereby,
nor relieve the Mortgagor           from making regular monthly payments commencing on
the first day of the first           month following the date of receipt of 

	   	  	
the award.
The Mortgagee is hereby           authorized in the name of the Mortgagor to execute and
deliver valid           acquittances for such awards and to appeal from such awards.  

	10.  	  	That
it will not permit or commit any waste on said premises and will keep the
          buildings thereon and all equipment therein mortgaged in good repair, and
          promptly comply with all laws, ordinances, regulations, and requirements of any
          governmental body affecting the said mortgaged premises, and should said
          premises or any part thereof require inspection, repair, care or attention of
          any kind or nature not provided by the Mortgagor, the Mortgagee, being hereby
          made sole judge of the necessity therefor, may, after notice to the Mortgagor,
          enter or cause entry to be made upon said property, and inspect, repair,
          protect, care for or maintain said property as the Mortgagee may deem
necessary,           and may pay such sum of money as the Mortgagee may deem to be
necessary           therefor, and shall be the sole judge of the amount necessary to be
paid.  

	11.  	  	That
it will not permit or suffer the use of any of the property for any purpose
          other than that for which the same is now agreed upon to be used; nor will it
          permit to suffer any alteration of or addition to the buildings or improvements
          hereafter constructed in or upon said property without the consent of the
          Mortgagee.  

	12.  	  	That
should any default be made in the covenants of this mortgage, the Mortgagee           may
cause the abstract or abstracts of title and the tax histories of said           premises
to be certified to date, or may procure new abstracts of title and tax
          histories or title search in case none were furnished to the Mortgagee, and may
          pay therefor such sums as it may deem to be necessary to be paid therefor.  

	13.  	  	That
it will pay to the Mortgagee forthwith the amounts of all sums of money           which
the Mortgagee, shall pay or expend pursuant to the provisions, or any of           them,
including any amount required to pay mortgage insurance not provided for           by
payments made by the Mortgagor hereinbefore contained, together with           interest,
upon each of said amounts until paid from the time of the payment           thereof at
the rate of Five and fifty-five one-hundredths per centum (5.55%) per           annum,
and such payments shall be a further lien on the premises under this           mortgage.  

	14.  	  	That
so long as this mortgage and the said note secured hereby are insured under           the
provisions of the National Housing Act, or held by the Secretary of Housing           and
Urban Development, it will not execute or file for record any instrument           which
imposes a restriction upon the sale or occupancy of the mortgaged property           on
the basis of race, color, creed, or national origin.  

	15.  	  	The
Mortgagor covenants and agrees that so long as this mortgage and the note
          secured hereby are insured under the provisions of the National Housing Act, or
          held by the Secretary of Housing and Urban Development it will not rent
dwelling           accommodations in the mortgaged premises at rental rates in excess of
the rates           permitted under its Regulatory Agreement or for periods of less than
one month           or in excess of three years, nor rent the premises as an entirety.  

	16.  	  	That
should any default be made in the payment of principal or interest or of           any
sum payable under subparagraphs (a) or (b) above, which is not made good           before
the due date of the next such payment, or should default be made in the
          performance of any other covenant of this mortgage or the note secured hereby
or           any part thereof, when the same is payable or the time of performance has
          arrived, as above provided, then all the remainder of the aforesaid sum with
all           sums due hereunder shall at the option of the Mortgagee without notice
become           immediately payable thereafter, although the period above limited for
the           payment thereof may not have expired, anything hereinbefore or in said note
          contained to the contrary notwithstanding, and any failure to exercise said
          option shall not constitute a waiver of the right to exercise the same at any
          other time.  

	17.  	  	That
no sale of the premises hereby mortgaged and no forbearances on the part of           the
Mortgagee and no extension of the time for the payment of the debt hereby
          secured given by the Mortgagee shall operate to release, discharge, modify,
          change or affect the original liability of the Mortgagor herein either in whole
          or in part.  

	18.  	  	That
upon default being made in the payment of the sums of money herein agreed           to be
paid or in the performance of any of the covenants or agreements herein
          contained according to the terms hereof or of the note secured hereby the
          Mortgagee is hereby authorized and empowered to sell or cause to be sold the
          property hereby mortgaged, and to convey the same to the purchaser, pursuant to
          the statute in such case made and provided, and out of the proceeds of such
sale           to retain the moneys due under the terms of this mortgage, the costs and
charges           of such sale and also the attorney’s fee provided by statute,
rendering the           surplus moneys (if any there should be) to the said Mortgagor. In
the event of           public sale, the mortgaged premises may, at the option of the
Mortgagee, be sold           in one parcel.  

	19.  	  	That
the Regulatory Agreement of even date herewith executed by the Mortgagor
          herein, which is being recorded simultaneously herein, is incorporated in and
          made a part of this mortgage. Upon default under the Regulatory Agreement and
          upon request by the Secretary of Housing and Urban Development, acting by and
          through the Federal Housing Commissioner, the Mortgagee may declare this
          mortgage in default and may declare the whole of the indebtedness secured
hereby           to be due and payable.  

	20.  	  	That
it is hereby stipulated and agreed by and between the parties hereto, that           if
default shall be made in the payment of said principal sum or interest or any
          other sum secured hereby, or any part thereof, or in the payment of taxes,
          assessments, water rates, liens, insurance or other charges upon said premises,
          or any part thereof, at the time and in the manner herein specified for the
          payment thereof, or in the performance of any of the covenants and agreements
          herein contained, the Mortgagor in such case does hereby bargain, sell, assign
          and set over to the Mortgagee all the rents, income and profits which, whether
          before or after foreclosure of this mortgage or during the period of
redemption,           shall accrue and be owing for the use or occupation of said
premises and the           buildings thereon, or any part thereof, and does hereby
constitute and appoint           the Mortgagee, attorney in fact of the Mortgagor,
irrevocable, with full power           and authority to at once enter upon and take full
possession of said premises           and buildings, lease and control the same, and to
receive, collect and receipt           for all sums due or owing for such use or
 

	   	  	
occupation as the same accrue, and out           of the amount so collected to pay all
taxes, assessments, water rates, liens,           insurance, repairs or other charges
upon said premises, and the payments accrued           and accruing on said note or under
this mortgage, and the costs of collecting           said rents, income and profits so
far as the sums so collected by the Mortgagee           shall be sufficient for that
purpose, paying the surplus from time to time, if           any, to the Mortgagor. That
the holder of this mortgage, in any action to           foreclose, shall be entitled to
the appointment of a receiver of the mortgaged           premises as a matter of right
and without notice, with power to collect the           rents, issues and profits of said
mortgaged premises, due and becoming due,           during the pendancy of such
foreclosure suit, such rents and profits being           hereby expressly assigned and
pledged as additional security for the payment of           the indebtedness secured by
this mortgage, and with power to manage the           mortgaged premises during security
for the payment of the indebtedness secured           by this mortgage, and with power to
manage the mortgaged premises during the           pendency of such foreclosure suit. The
Mortgagor for himself and any subsequent           owner hereby waives any and all
defenses to the application for a receiver as           above and hereby specifically
consents to such appointment without notice, but           nothing herein contained is to
be construed to deprive the holder of the           mortgage of any other right, remedy,
or privilege it may now have under the law           to have a receiver appointed.  

	21.  	  	That
it will not voluntarily create or permit to be created against the property
          subject to this mortgage any lien or liens inferior or superior to the lien of
          this mortgage, and further that it will keep and maintain the same free from
the           claim of all persons supplying labor or materials which will enter into the
          construction of any and all buildings now being erected or to be erected on
said           premises, and on the failure of the Mortgagor to perform these covenants
or any           part thereof, thereupon the principal and all arrears of interest shall,
at the           option of the Mortgagee or any holder of the note secured by this
mortgage,           become due and payable, anything contained herein to the contrary
          notwithstanding.  

	22.  	  	That
the improvements about to be made upon the premises above described and all
          plans and specifications comply with all municipal ordinances and regulations
          made or promulgated by lawful authority, and that the same will upon completion
          comply with all such municipal ordinances and regulations and with the rules of
          the Board of Fire Underwriters having jurisdiction. In the event the Mortgagor
          shall at any time fail to comply with such rules, regulations and ordinances
          which are now or may hereafter become applicable to the premises above
          described, after due notice and demand by the Mortgagee, thereupon the
principal           sum and all arrears of interest and other charges provided for
herein, shall at           the option of the Mortgagee become due and payable. Whenever
used, the singular           number shall include the plural, the plural the singular,
and the use of any           gender shall be applicable to all genders.  

	24.  	  	See
Rider attached hereto and made a part hereof.  

        The
covenants herein contained shall bind, and the benefits and advantages shall inure to, the
respective successors and assigns of the parties hereto. Whenever used, the singular
number shall include the plural, the plural the singular, and the use of any gender shall
be applicable to all genders. 

        IN
WITNESS WHEREOF, the said Mortgagor has caused these presents to be signed in its name
as of the day and year first above written. 

	 	MORTGAGOR:

Five Star Quality Care-Howell, LLC,

a Delaware limited liability company

By: /s/  Rosemary Esposito, R.N.          

Name: Rosemary Esposito, R.N.

Title:   Authorized Agent

	State of Massachusetts      )

                    
                    
      ):ss

County of Middlesex           )
	 

On this 15 day of April,
2004, before me appeared Rosemary Esposito, to me personally known, who, being by me duly
sworn, did say that s/he is the Authorized Agent of Five Star Quality Care-Howell, LLC, a
limited liability company organized under the laws of the State of Delaware, and that said
instrument was signed and sealed on behalf of said limited liability company by authority
of its Board of Managers, and s/he acknowledged said instrument to be the free act and
deed of said limited liability company. 

Witness my hand and official seal. 

	[seal]	/s/ Linda Mscisz          

 Notary Public

My commission expires:
July 31, 2009 

     

(NOTE: The name of each person who
executed this instrument and of each witness thereto and the name of the notary taking the
acknowledgment shall be legibly typewritten or stamped immediately beneath the signature
of such person.) See Public Acts 1945 (Michigan), No. 212, pp. 2825, 286, with reference
to recording requirements. 

After recording return
to:
Christine Waldmann
Carmody, Esq. 
Pepper Hamilton LLP 
600 Fourteenth Street, NW 
Washington, DC 20005

	  	                    STATE OF MICHIGAN

                   LOAN NO. 044-22017

                                            

                        MORTGAGE

                                            

           Five Star Quality Care-Howell, LLC

                           TO

                Love Funding Corporation

                  Project No. 044-22017

	  
	  	REGISTER'S OFFICE   ]

                   
                       ] ss:

Livingston County        ]

 Received for Record the

                day of April A.D. 2004

at                 o'clock                 M, and

Recorded in

of Mortgages on Page

__________________________

Register

 	  

EXHIBIT A 

Land in the Township of Howell,
Livingston County, Michigan, described as follows: 

PARCEL A: 

Lots 14 and 15 of BROADACRE ESTATES,
according to the plat thereof recorded in Liber 2 of Plats, page 47, Livingston County
Records. 

PARCEL B: 

Also that part of the Southeast 1/4
of Section 28, Town 3 North, Range 4 East, Howell Township, Livingston County, Michigan,
described as: Beginning at a point on the East line of said Section 28 at the Southwest
corner of BROADACRE ESTATES, according to the plat thereof recorded in Liber 2 of Plats,
page 47, Livingston County Records, thence South 01 degrees 37 minutes East along the East
line of said Section 28, 183.06 feet; thence North 54 degrees West 500.00 feet; thence
North 38 degrees 16 minutes East 622.27 feet; thence South 51 degrees 44 minutes East
along the Southerly right-of-way line of Grand River Road (100 feet wide) 27.81 feet to
the Northwest corner of said BROADACRE ESTATES; thence South 00 degrees 45 minutes West
along the West line of said Subdivision 582.5 feet to the point of beginning. 

PARCEL C: Also that part of the
Southwest 1/4 of Section 27, Town 3 North, Range 4 East, Howell Township, Livingston
County, Michigan, described as: Beginning at the most Southerly point of Lot 14 of
BROADACRE ESTATES, according to the plat thereof recorded in Liber 2 of Plats, page 47,
Livingston County Records, thence South 38 degrees 00 minutes 18 seconds West 145.09 feet
to a point in the West line of said Section 27; thence North 01 degrees 37 minutes West
along said West line 183.06 feet to the Southwest corner of BROADACRE ESTATES; thence
South 54 degrees 00 minutes East along the Southwesterly line of Lot 14 of said
Subdivision 116.8 feet to the point of beginning. 

EXCEPT: From said above Parcels,
those portions thereof described as follows: Part of the Southeast 1/4 of Section 28, and
part of the Southwest 1/4 of Section 27, Town 3 North, Range 4 East Howell Township,
Livingston County, Michigan, more particularly described as follows: Commencing at the
East 1/4 corner of said Section 28; thence along the East-West 1/4 line of said Section,
South 89 degrees 16 minutes 58 seconds West, 564.51 feet to a point on the Southerly
right-of-way line of Grand River Avenue (100 feet wide); thence along the Southerly
right-of-way line of Grand River Avenue Southeast on an arc right, having a length of
474.85 feet; a radius of 42921.84 feet, a central angle of 00 degrees 38 minutes 02
seconds and a long chord which bears South 52 degrees 28 minutes 56 seconds East, 474.85
feet; thence continuing along the Southerly right-of-way line of Grand River Avenue, South
52 degrees 07 minutes 35 seconds East, 223.17 feet to the point of beginning of the Parcel
to be described; thence continuing along the Southerly right-of-way line of Grand River
Avenue, South 52 degrees 07 minutes 35 seconds East, 50.00 feet; thence South 36 degrees
57 minutes 01 seconds West, 100.00 feet; thence South 51 degrees 02 minutes 08 seconds
West, 205.42 feet; thence North 36 degrees 57 minutes 01 seconds East, 300.05 feet, to the
point of beginning. 

PARCEL D: Part of the Southeast 1/4
of Section 28, Town 3 North, Range 4 East, Howell Township, Livingston County, Michigan
more particularly described as follows; Commencing at the East 1/4 corner of said Section
28; thence along the East-West 1/4 line of said Section, South 89 degrees 16 minutes 58
seconds West, 564.51 feet to a point on the Southerly right-of-way line of Grand River
Avenue (100 feet wide); thence along the Southerly right-of-way line of Grand River Avenue
Southeast on arc right, having a length of 474.85 feet, a radius of 42921.84 feet, a
central angle of 00 degrees 38 minutes 02 seconds and a long chord which bears South 52
degrees 28 minutes 56 seconds East, 474.85 feet thence continuing along the Southerly
right-of-way line of Grand River Avenue, South 52 degrees 07 minutes 35 seconds East,
223.17 feet, thence South 36 degrees 57 minutes 0 1 seconds West, 622.27 feet to the point
of beginning of the Parcel to be described; thence South 55 degrees 30 minutes 13 seconds
East, 500.00 feet; thence South 36 degrees 57 minutes 01 seconds West, 50.00 feet; thence
North 55 degrees 30 minutes 13 seconds West, 500.00 feet; thence North 36 degrees 57
minutes 01 seconds East, 50.00 feet, to the point of beginning. 

Tax Item No.: 06-27-300-014-47070,
as to Parcels A and C, Tax Item No.: 06-28-400-010-47070, covers more land, as to Parcels
B and D 

                                                                                          Howell Health Care Center

                                                                                                   Howell, Michigan

                                                                                                  FHA No. 044-22017

RIDER TO MORTGAGE 

     1.    
          Notwithstanding any other provisions contained herein or ion the Mortgage Note
          (hereinafter, “Note”), it is agreed that the execution of the Note
          shall impose no personal liability upon the Mortgagor for the payment of the
          indebtedness evidenced by the Note and secured by this Mortgage, and the holder
          of the Note shall look solely to the property subject to this Mortgage and to
          the rents, issues and profits thereof in satisfaction of the indebtedness
          evidenced by the Note and secured by this Mortgage and will not seek or obtain
          any deficiency or personal judgment against the Mortgagor except such judgment
          or decree as may be necessary to foreclose or bar its interest in the property
          subject to this Mortgage and all other property granted, pledged, conveyed or
          assigned to secure payment of the Note; provided, however, that nothing in this
          condition and no action taken under this provision shall operate to impair any
          obligation of the Mortgagor under the Regulatory Agreement herein referred to
          and made a part hereof. 

        IN
WITNESS WHEREOF, the said Mortgagor has caused these presents to be signed in its name
as of the day and year first above written. 

	 	MORTGAGOR:

Five Star Quality Care-Howell, LLC,

a Delaware limited liability company

By: /s/  Rosemary Esposito, R.N.          

Name: Rosemary Esposito, R.N.

Title:   Authorized Agent

	State of Massachusetts      )

                    
                    
      ):ss

County of Middlesex           )
	 

On this 15 day of April,
2004, before me appeared Rosemary Esposito, to me personally known, who, being by me duly
sworn, did say that s/he is the Authorized Agent of Five Star Quality Care-Howell, LLC, a
limited liability company organized under the laws of the State of Delaware, and that said
instrument was signed and sealed on behalf of said limited liability company by authority
of its Board of Managers, and s/he acknowledged said instrument to be the free act and
deed of said limited liability company. 

Witness my hand and official seal. 

	[seal]	/s/ Linda Mscisz          

 Notary Public

My commission expires:
July 31, 2009exv10w1

 

EXHIBIT 10.1

Inco Limited

Non-Employee Director Share Ownership Plan

(as amended and restated effective as of February 3, 2004)

WHEREAS:

	 	A.	 	In 1995, the Board of Directors of Inco Limited (the
“Company”) adopted a share ownership plan for the Company’s
non-employee directors (the “Original Plan”) in order to align the
interests of the Company’s non-employee directors more closely with
the interests of the Company’s shareholders;
	 
	 	B.	 	In 1998, the Original Plan was superseded by the 1998
Non-Employee Director Share Ownership Plan (as amended and restated
from time to time, the “Plan”);
	 
	 	C.	 	The Plan provides that the Board has the authority to make
annual awards of Common Shares (or, at the non-employee director’s
option, deferred share units) to each of the Company’s non-employee
directors as part of their total compensation package;
	 
	 	D.	 	In addition, the Plan provides that the Company’s
non-employee directors may elect to receive, in the form of Common
Shares, deferred share units or cash, all or part of the
compensation ordinarily payable to them in cash;
	 
	 	E.	 	The Board of Directors wishes to amend and restate the Plan
in order to, among other matters, vest the Board with greater
flexibility with respect to the timing and form of the awards which
may be made under the Plan and to change the redemption features of
the deferred share units so that they shall be redeemable on up to
two redemption dates selected by the relevant non-employee director,
which redemption dates shall be during the one year period following
the date on which such non-employee director has ceased to be a
director of the Company; and
	 
	 	F.	 	The Plan, as amended and restated hereby, and as it may be
further amended and restated from time to time, shall be referred to
as the “Non-Employee Director Share Ownership Plan”.
	 
	 	 	 	NOW THEREFORE,

Section 1     Interpretation

	1.1	 	Purposes

     The purposes of the Plan are:

	 	(a)	 	to facilitate share ownership and holdings of deferred share
units by the Company’s non-employee directors and thereby align
their interests more closely with those of the Company’s
shareholders; and

 

 

	 	(b)	 	to provide a financial incentive that will help the Company
to attract and retain highly qualified individuals to serve as
non-employee directors of the Company.

	1.2	 	Definitions

     Wherever used in the Plan, unless otherwise defined, the following terms
shall have the meanings set forth below:

	 	(a)	 	“Affiliate” means an affiliate of the Company, as the term
“affiliate” is defined in paragraph 8 of the Canada Customs and
Revenue Agency’s interpretation bulletin IT-337R3, Retiring
Allowances;
	 
	 	(b)	 	“Aggregate Purchase Price” has the meaning set forth in
Section 3.3;
	 
	 	(c)	 	“Award” has the meaning set forth in Section 3.1;
	 
	 	(d)	 	“Average Cost Per Share” has the meaning set forth in Section
3.3;
	 
	 	(e)	 	“Beneficiary” has the meaning set forth in Section 2.5;
	 
	 	(f)	 	“Board” or “Board of Directors” means those individuals who
serve from time to time as the Board of Directors of the Company;
	 
	 	(g)	 	“Board Committee” means a committee of the Board of Directors
of the Company, including, without limitation, the Audit Committee,
the Corporate Governance and Nominating Committee, the Management
Resources and Compensation Committee, the Pension Committee and the
Environment, Health and Safety Committee;
	 
	 	(h)	 	“Broker” means Royal Trust Corporation of Canada, RBC Capital
Markets or such other trust company or securities dealer as may be
designated from time to time by the Committee;
	 
	 	(i)	 	“Business Day” means a day on which banks are open for
business in Toronto, Ontario and New York, New York;
	 
	 	(j)	 	“Cash Compensation” means all cash amounts payable to a
Non-Employee Director by the Company in respect of the services
provided by the Non-Employee Director to the Company in a calendar
year, including, without limitation, (i) the annual retainer fee for
serving as a Non-Employee Director, (ii) the annual retainer fee for
serving as a member of a Board Committee, (iii) the annual retainer
fee for chairing the Board or a Board Committee, and (iv) the fees
for attending meetings of the Board or a Board Committee, but, for
greater certainty, shall not include either (a) amounts received as
a reimbursement for expenses incurred in attending meetings of the
Board or a Board Committee or (b) any Award;

- 2 -

 

	 	(k)	 	“Committee” means the Corporate Governance and Nominating
Committee of the Board or any successor thereof;
	 
	 	(l)	 	“Common Share” means a Common Share of the Company;
	 
	 	(m)	 	“Company” means Inco Limited, a corporation organized under
the federal laws of Canada, including any successor to all or
substantially all of its business by merger, consolidation,
amalgamation, purchase of assets or otherwise;
	 
	 	(n)	 	“Deferred Share Unit” means a unit credited by the Company to
a Non-Employee Director by way of a bookkeeping entry in the books
of the Company, the value of which at any particular date shall be
the Fair Market Value at that date;
	 
	 	(o)	 	“DSU Account” has the meaning set forth in Section 2.2;
	 
	 	(p)	 	“Election Form” means a document substantially in the form
attached as Schedule “A” hereto, as such form may be amended or
revised from time to time;
	 
	 	(q)	 	“Fair Market Value” means, with respect to any particular
date, the mean between the high and low sales prices of the Common
Shares reported for such date on the Toronto Stock Exchange or the
New York Stock Exchange, as elected by a Non-Employee Director
pursuant to his or her then applicable Election Form, or on such
other stock exchange on which the Common Shares are then listed and
posted for trading (or, if such exchange is not open for trading on
such date, then the immediately preceding date on which such
exchange is open for trading), or, if the Common Shares are not
listed on any stock exchange, then on the over-the-counter market or
such other market in which prices are regularly quoted for the
Common Shares, or if there has been no published bid or asked
quotations with respect to the Common Shares, the value established
by the Committee in good faith;
	 
	 	(r)	 	“Non-Employee Director” means a member of the Board of
Directors who is not an employee of the Company or any Affiliate of
the Company;
	 
	 	(s)	 	“Plan” means this Non-Employee Director Share Ownership Plan,
as amended and restated from time to time;
	 
	 	(t)	 	“Quarter” means a fiscal quarter of the Company which, until
changed by the Company, shall be the three-month periods ending
March 31, June 30, September 30 and December 31 in any calendar
year;
	 
	 	(u)	 	“Redemption Amount” has the meaning set forth in Section 5.2;
	 
	 	(v)	 	“Redemption Date” has the meaning set forth in Section 5.1;
	 
	 	(w)	 	“Redemption Notice” has the meaning set forth in Section 5.1;

- 3 -

 

	 	(x)	 	“Termination Date” means, with respect to a Non-Employee
Director, the date upon which such Non-Employee Director ceases to
be a member of the Board for any reason whatsoever; and
	 
	 	(y)	 	“Termination Value” means the average of the Fair Market
Values of the Common Shares on the exchange elected by the
Non-Employee Director on his or her Election Form for the five
trading days immediately preceding the relevant Redemption Date.

	1.3	 	Effective Date and Transition

     The Plan, as amended and restated hereby, shall be effective as of
February 3, 2004, provided that, any and all outstanding Share Units (as
defined in the 1998 Non-Employee Director Share Ownership Plan) shall continue
as outstanding Deferred Share Units under the Plan, as amended and restated
hereby.

	1.4	 	Eligibility

     Each Non-Employee Director shall be eligible to participate in the Plan.

	1.5	 	Construction

     All references in the Plan to the masculine shall also include the
feminine and all references to the singular shall also include the plural and
vice versa, as the context shall require. If any provision of the Plan is
determined to be illegal or invalid for any reason, in whole or in part, such
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included. Headings wherever used herein are for reference
purposes only and do not limit or extend the meaning of the provisions
contained herein. A reference to a “Section” means a section of the Plan,
unless expressly stated otherwise.

	1.6	 	Governing Law

     The Plan shall be governed by and construed in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable therein.

Section 2     Administration of the Plan

	2.1	 	Administration

     Subject to the Company’s Articles and By-laws or any resolutions of the
Board, the Committee shall have the power to (i) construe, interpret and
administer the Plan and any agreement or instrument entered into under the
Plan, (ii) establish, amend and rescind any rules and regulations relating to
the Plan, (iii) make any other determinations that the Committee deems
necessary or desirable for the administration of the Plan, and (iv) delegate to
other persons any duties and responsibilities relating to the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency or ambiguity in the

- 4 -

 

Plan in the manner and to the extent the Committee deems, in its sole and
absolute discretion, necessary or desirable. No member of the Committee shall
be liable for any action or determination made in good faith. Any decision of
the Committee with respect to the administration and interpretation of the Plan
shall be binding and conclusive for all purposes and on all persons, including
the Company, all Non-Employee Directors and any other person claiming an
entitlement or benefit through any Non-Employee Director. All expenses of
administration of the Plan shall be borne by the Company, including any
reasonable brokerage fees relating to the purchase of Common Shares under the
Plan.

	2.2	 	DSU Accounts

     The Company shall maintain in its books and records an account for each
Non-Employee Director (a “DSU Account”) recording at all times the number of
Deferred Share Units credited to a Non-Employee Director. Upon payment in
satisfaction of Deferred Share Units credited to a Non-Employee Director in the
manner described herein, such Deferred Share Units shall be cancelled. After
the end of each Quarter, the Company shall provide each Non-Employee Director
with a written statement showing the balance in such Non-Employee Director’s
DSU Account as at the end of the applicable Quarter.

	2.3	 	Credit for Dividends on Deferred Share Units

     When cash dividends are paid on the Common Shares, a Non-Employee
Director’s DSU Account shall be credited with dividend equivalents in the form
of additional Deferred Share Units. Such dividend equivalents shall be
credited on the dividend payment date and shall be computed by dividing (a) the
amount obtained by multiplying the amount of the dividend declared and paid per
Common Share by the number of Deferred Share Units credited to the Non-Employee
Director’s DSU Account on the record date for the payment of such dividend, by
(b) the Fair Market Value of the Common Shares on the dividend payment date for
such dividend, with fractions of Deferred Share Units so credited computed to
four decimal points rounded down.

	2.4	 	Share Adjustments and Reorganizations

     If (a) there is any stock split, stock consolidation, reclassification,
recapitalization or similar event affecting the Common Shares, (b) the Common
Shares are exchanged in connection with a reorganization, including any merger,
amalgamation, statutory arrangement, consolidation of the Company or similar
event, or a sale by the Company of all or a part of its assets, for a different
number or class of shares or other securities of the Company or for shares or
other securities of any other corporation, (c) new, different or additional
shares or other securities of the Company or of another company are received by
holders of the Common Shares, or (d) any distribution is made to the holders of
the Common Shares (other than a cash dividend), then the Committee shall
recommend such adjustments to the Deferred Share Units credited to the
Non-Employee Directors under the Plan as the Committee deems appropriate in its
sole discretion, provided that, such adjustments shall not take effect until
approved by the Board of Directors. Except as provided above, the issuance by
the Company of any shares of the Company, or any rights, warrants, options or
other securities convertible into or exchangeable for

- 5 -

 

any shares of the Company, shall not affect the number of Deferred Share Units
credited pursuant to the terms of the Plan.

	2.5	 	Designation of Beneficiary

     Upon his or her election or appointment to the Board, subject to
applicable law, each Non-Employee Director shall designate an individual as his
or her beneficiary to receive any benefits that are payable under the Plan upon
the death of such Non-Employee Director (the “Beneficiary”). The Non-Employee
Director may, subject to applicable laws, change his or her Beneficiary at any
time or from time to time. Where no Beneficiary has been validly designated by
the Non-Employee Director, or the Beneficiary does not survive the Non-Employee
Director, the Non-Employee Director’s legal representative shall be his or her
Beneficiary. In the event of a Non-Employee Director’s death, the Beneficiary
shall be entitled to exercise the rights of, and receive the benefits payable
to, the Non-Employee Director under Section 5.

Section 3    Awards

	3.1	 	Awards of Common Shares or Deferred Share Units

     The Committee may from time to time make awards of Common Shares or
Deferred Share Units to the Non-Employee Directors in consideration of their
service on the Board or a Board Committee, or as chair of a Board Committee, or
as the Lead Director of the Board, or as the Chair of the Board, in such amount
or amounts as the Committee deems appropriate (collectively, the “Awards”).
Where an Award is made in respect of a Non-Employee Director’s annual service
during a fiscal year, unless otherwise provided by the Committee, the Award
shall be payable on a Quarterly basis, on the last Business Day of each Quarter
of that fiscal year, and the amount of the Award shall be pro rated to reflect
the actual number of whole months that the Non-Employee Director has served on
the Board during such period. The Committee may provide that the Award shall
be payable (a) entirely in the form of Deferred Share Units, or (b) in the form
of either Common Shares or Deferred Share Units (at the election of the
Non-Employee Director and generally in accordance with Section 3.2). In lieu
of any fractional Common Share, the Company shall pay the Fair Market Value of
such fractional Common Share. Any fractional Deferred Share Unit shall be
calculated to four decimal points rounded down. The Awards may be subject to
such conditions as may be imposed by the Committee at the time of the Award.

	3.2	 	Form of Election

     Where the Committee has provided that an Award shall be payable in the
form of either Common Shares or Deferred Share Units at the election of the
Non-Employee Director, then such Award shall be payable to the Non-Employee
Director in accordance with the elections set forth in his or her then
applicable Election Form. Each Non-Employee Director shall, within 30 days
following his or her first election or appointment to the Board in respect of
Awards payable during the remainder of such calendar year, and thereafter by
December 1st in respect of Awards payable during the next following calendar
year, complete, sign and deliver an Election Form to the Secretary of the
Company indicating his or her election for such applicable calendar

- 6 -

 

year. If no timely election has been made,
then the Non-Employee Director shall be deemed to have elected to receive his
or her Award in the form of Deferred Share Units for the applicable
period. Notwithstanding the foregoing, an election made pursuant to any predecessor
provision shall remain effective until it is changed by the completion,
signature and delivery to the Secretary of the Company of a new Election Form,
in accordance with the terms of the Plan.

	3.3	 	Purchase and Delivery of Common Shares

     Where a Non-Employee Director has elected to receive an Award in the form
of Common Shares, the Committee shall instruct the Broker to purchase the
required number of Common Shares, having regard for any applicable
withholdings, on the open market on the last Business Day of the applicable
Quarter. The Broker shall purchase such Common Shares and shall notify the
Committee of (a) the aggregate purchase price of the Common Shares (the
“Aggregate Purchase Price”), (b) the purchase price per share or, if the shares
were purchased at different prices, the average purchase price (computed on a
weighted average basis) per share (the “Average Cost Per Share”), (c) the
amount of any related brokerage commissions, and (d) the settlement date for
the purchase of the Common Shares. On the settlement date, the Company shall
pay the Broker the Aggregate Purchase Price and the related brokerage
commissions. The Common Shares shall as soon as practical after such purchase
then be delivered to the Non-Employee Director. The Non-Employee
Director shall indicate on his or her applicable Election Form (a) whether
such Common Shares shall be purchased on the Toronto Stock Exchange or the New
York Stock Exchange, and (b) the brokerage account to which such Common Shares
shall be delivered.

	3.4	 	Credit to DSU Account

     Where an Award consists of Deferred Share Units, or the Non-Employee
Director has elected to receive an Award in the form of Deferred Share Units,
the Company shall credit the relevant Non-Employee Director’s DSU Account with
the number of Deferred Share Units payable to such Non-Employee Director
pursuant to the Award, as of the last Business Day of the applicable Quarter or
such other date as may be specified by the Committee. Such Deferred Share
Units shall be fully vested upon being credited to the Non-Employee Director’s
DSU Account and the Non-Employee Director’s entitlement to the redemption of
such Deferred Share Units shall not be subject to the satisfaction of any
requirements as to any minimum period of membership on the Board.

	3.5	 	Awards for 2004

     The Committee has made the following Awards for service on the Board in
2004:

	 	(a)	 	a base Award of 1,100 Common Shares or Deferred Share Units
(at the election of the Non-Employee Director);
	 
	 	(b)	 	where the Non-Employee Director serves on more than two Board
Committees, an additional Award of 200 Common Shares or Deferred
Share Units (at the election of the Non-Employee Director);

- 7 -

 

	 	(c)	 	where the Non-Employee Director serves as Chair of a Board
Committee other than the Audit Committee, an additional Award of 200
Common Shares or Deferred Share Units (at the election of the
Non-Employee Director);
	 
	 	(d)	 	where the Non-Employee Director serves as Chair of the Audit
Committee of the Board, an additional Award of 500 Common Shares or
Deferred Share Units (at the election of the Non-Employee Director);
and
	 
	 	(e)	 	where the Non-Employee Director serves as the Lead Director
of the Board, an additional Award of Common Shares or Deferred Share
Units having a value of U.S.$15,000;

provided that, such Awards shall have been paid on the first Business Day of
2004, and provided further, that, the two Non-Employee Directors who are
scheduled to retire in April 2004 in accordance with the Board’s retirement
policy shall have received pro rated awards based on service for four months
during 2004 (i.e., January to April 2004). Such Awards shall also be made to
any Non-Employee Director who is elected or appointed to the Board in 2004,
provided that such Awards shall be pro rated to reflect the number of whole
months from the date of his or her election or appointment to the Board to the
last day of 2004.

     In addition, in lieu of the Common Share options that the Non-Employee
Directors would otherwise have received pursuant to the Company’s 2002
Non-Employee Director Share Option Plan (which has been suspended by the
Board), each of the Non-Employee Directors serving on the Board on April 22,
2004 (being the day following the Company’s 2004 Annual and Special Meeting of
Shareholders) shall receive an Award of 1,500 Deferred Share Units (the
“Replacement DSUs”). The Replacement DSUs shall vest on the earlier of (a) one
year following the date of the Award of the Replacement DSUs, or (b) the date
of the Company’s 2005 Annual Meeting of Shareholders, provided that, the
relevant Non-Employee Director is still serving on the Board of Directors at
such time. Each additional Non-Employee Director who may be appointed to the
Board prior to the Company’s 2005 Annual Meeting of Shareholders shall also
receive an Award of Replacement DSUs, as at the date of his or her appointment
to the Board, provided that, such Award shall be pro rated to reflect the
number of whole months remaining in the term of such Non-Employee Director
through such Annual Meeting, treating service during the month in which the
Annual Meeting is held as service for a whole month.

Section 4     Election Regarding Form of Payment of Cash Compensation

	4.1	 	Form of Election

     Each Non-Employee Director may elect to receive up to 100% of his or her
Cash Compensation in the form of Common Shares or Deferred Share Units, subject
to the restrictions set forth in Section 4.2 and subject to such rules,
regulations, approvals and conditions as the Committee may impose. Such
election may be made only in increments of 0%, 25%, 50% or 100% of all Cash
Compensation. Each Non-Employee Director shall, within 30 days following his
or her first election or appointment to the Board in respect of Cash
Compensation payable

- 8 -

 

during the remainder of such calendar year, and thereafter by December 1st in
respect of Cash Compensation payable during the next succeeding calendar year,
complete, sign and deliver an Election Form to the Secretary of the Company
indicating his or her election. If
no timely election has been made, then the Non-Employee Director shall be
deemed to have elected to receive all of his or her Cash Compensation in the
form of cash (subject to the restrictions set forth in
Section 4.2). Notwithstanding the foregoing, an election made pursuant to any predecessor provision shall remain effective until it is
changed by the completion, signature and delivery to the Secretary of the
Company of a new Election Form, in accordance with the terms of the Plan.

	4.2	 	Restrictions on Election Where Minimum Share Ownership Requirements Have
Not Been Met

     Until such time as a Non-Employee Director owns beneficially the greater
of (a) 7,500 Common Shares or Deferred Share Units, or (b) Common Shares and/or
Deferred Share Units having a Fair Market Value of U.S.$180,000 or the
equivalent in Canadian dollars, or such other minimum share ownership
requirements as may be established by the Board of Directors from time to time,
a Non-Employee Director shall be required to elect to receive at least 25% of
such Non-Employee Director’s Cash Compensation in the form of Common Shares or
Deferred Share Units.

	4.3	 	Time of Payment

     Subject to the terms and conditions of the Plan, a Non-Employee Director’s
Cash Compensation (including any amounts payable in cash or, pursuant to an
election made pursuant to this Plan, in Common Shares or Deferred Share Units)
shall be paid on a Quarterly basis, as of the last Business Day of each
Quarter.

	4.4	 	Purchase and Delivery of Common Shares

     Where a Non-Employee Director has elected to receive all or a portion of
his or her Cash Compensation in the form of Common Shares, the Committee shall
instruct the Broker to purchase Common Shares on the open market on the last
Business Day of the relevant Quarter having an aggregate value equal to the
aggregate amount of the Cash Compensation payable to such Non-Employee Director
(less any applicable withholdings). The Broker shall purchase such Common
Shares and shall notify the Committee of (a) the Aggregate Purchase Price, (b)
the purchase price per share or, if the shares were purchased at different
prices, the Average Cost Per Share, (c) the amount of any related brokerage
commissions, and (d) the settlement date for the purchase of the Common Shares.
On the settlement date, the Company shall pay to the Broker the Aggregate
Purchase Price and the related brokerage commissions. The Common Shares shall
be delivered to the Non-Employee Director as soon as practical after such
purchase. The Non-Employee Director
shall indicate on his or her Election Form (a) whether such Common Shares shall be purchased on the Toronto
Stock Exchange or the New York Stock Exchange, and (b) the brokerage account to
which such Common Shares shall be delivered. An amount that would otherwise
give rise to a fractional Common Share shall be paid by the Company in cash.

- 9 -

 

	4.5	 	Credit to DSU Account

     Where a Non-Employee Director has elected to receive all or a portion of
his or her Cash Compensation in the form of Deferred Share Units, the Company
shall credit such Non-Employee Director’s DSU Account in respect of such
Deferred Share Units. The number of Deferred Share Units to be credited shall
be determined by dividing the amount of the Non-Employee Director’s Cash
Compensation to be satisfied by Deferred Share Units by the Fair Market Value
on the last Business Day of the applicable Quarter. The Deferred Share Units
shall be fully vested upon being credited to the Non-Employee Director’s DSU
Account and the Non-Employee Director’s entitlement to the redemption of such
Deferred Share shall not be subject to the satisfaction of any requirements as
to any minimum period of membership on the Board. Any fractional Deferred
Share Unit shall be calculated to four decimal points rounded down.

Section 5     Redemption of DSUs

	5.1	 	Redemption of Deferred Share Units

     Except as otherwise provided in this Section 5, on or after his or her
Termination Date, a Non-Employee Director will be entitled to redeem all (or
some if such Non-Employee Director wishes to deliver more than one Redemption
Notice as provided below) of the Deferred Share Units credited to his or her
DSU Account by filing a written notice of redemption (the “Redemption Notice”)
with the Secretary of the Company, specifying a redemption date (the
“Redemption Date”) which shall be no earlier than five Business Days following
the delivery of the Redemption Notice and no later than one year following such
Termination Date. Each Non-Employee Director shall be entitled to deliver up
to two Redemption Notices, provided that, the second Redemption Notice shall
cover all of the Deferred Share Units remaining in the Non-Employee Director’s
DSU Account. If a Non-Employee Director has not filed a Redemption Notice
providing for the redemption of all of the Deferred Share Units remaining in
such Non-Employee Director’s DSU Account by the date which is one year
following such Non-Employee Director’s Termination Date, then the Redemption
Date for such remaining Deferred Share Units shall be the date which is one
year following such Non-Employee Director’s Termination Date.

	5.2	 	Redemption Amount

     In respect of any given redemption of Deferred Share Units, the Company
shall pay to the relevant Non-Employee Director on the Redemption Date the
amount (the “Redemption Amount”) which shall be obtained by multiplying (a) the
number of Deferred Share Units to be redeemed by (b) the Termination Value of
the Common Shares, by cheque, less any applicable withholding or similar taxes,
and shall be fully discharged in so doing and such Deferred Share Units shall,
as provided for in Section 2.2, be cancelled.

- 10 -

 

	5.3	 	Extended Redemption Date Where Dividends Declared

     Notwithstanding Section 5.1, in the event that the Redemption Date falls
between the record date for a dividend on the Common Shares and the related
dividend payment date, then the Redemption Date shall be the day immediately
following the date of payment of such dividend, provided, however, that in no
event will the Redemption Date for all of the Deferred Share Units be later
than the last day of the calendar year commencing immediately after the
relevant Non-Employee Director’s Termination Date.

	5.4	 	Postponed Redemption Date Where Material Non-Public Information

     Notwithstanding Section 5.1, if, in the opinion of the Committee, a
Non-Employee Director or his or her Beneficiary, as the case may be, is in
possession of material non-public information regarding the Company on the
Redemption Date selected by such Non-Employee Director, then such Redemption
Date shall be postponed until the earlier of (a) the date on which, in the
opinion of the Committee, such individual ceases to be in possession of
material non-public information regarding the Company, and (b) December 31 of
the calendar year commencing immediately after the Non-Employee Director’s
Termination Date.

Section 6     General

	6.1	 	Unfunded Plan

     Unless otherwise determined by the Committee, the Plan shall be unfunded.
To the extent any individual holds any rights by virtue of an election under
the Plan, such rights (unless otherwise determined by the Committee) shall be
no greater than the rights of an unsecured general creditor of the Company.

	6.2	 	Successors and Assigns

     The Plan shall be binding on the Company and its successors and assigns
and each Non-Employee Director and his or her heirs and legal representatives
and on any receiver or trustee in bankruptcy or representative of creditors of
the Company or Non-Employee Director, as the case may be.

	6.3	 	Amendment of the Plan

     The Board may amend the Plan as it deems necessary or appropriate, but no
such amendment shall, without the consent of the Non-Employee Director or
unless required by law, adversely affect the rights of a Non-Employee Director
with respect to Deferred Share Units to which the Non-Employee Director is then
entitled under the Plan. Notwithstanding the foregoing, any amendment of the
Plan shall be such that the Deferred Share Unit provisions of the Plan
continuously meet the requirements of paragraph 6801(d) of the regulations
under the Income Tax Act (Canada) or any successor to such regulation.

- 11 -

 

	6.4	 	Termination of the Plan

     The Board may terminate the Plan at any time, but no such termination
shall, without the consent of the Non-Employee Director or unless required by
law, adversely affect the rights of a Non-Employee Director with respect to
Deferred Share Units to which the Non-Employee Director is then entitled under
the Plan. Notwithstanding the foregoing, any termination of the Plan shall be
such that the Deferred Share Unit provisions of the Plan continuously meet the
requirements of paragraph 6801(d) of the regulations under the Income Tax Act
(Canada) or any successor to such regulation.

     If the Board terminates the Plan, no additional Common Shares or new
Deferred Share Units will be credited to the account of a Non-Employee Director
after the effective date of such termination, but previously credited Deferred
Share Units shall remain outstanding, be entitled to dividend equivalents as
provided under the Plan, and be paid in accordance with the terms and
conditions of the Plan existing at the time of termination. The Plan will
finally terminate for all purposes when the last remaining Non-Employee
Director receives payment of all Deferred Share Units which have been credited
to his or her DSU Account.

	6.5	 	Applicable Trading Policies

     The Committee and each Non-Employee Director will ensure that all actions
taken and decisions made by the Committee or the Non-Employee Director, as the
case may be, pursuant to the Plan comply with all applicable laws, including
securities and income tax laws, and all applicable policies, guidelines or
similar requirements of the Company relating to insider trading, “black out”
periods, insider disclosure, conflicts of interest, business and ethical
conduct.

	6.6	 	Limitations on Rights of Non-Employee Directors

	 	(a)	 	Except as specifically set out in the Plan, no Non-Employee
Director or any other person shall have any claim or right to any
cash or other benefit in respect of Deferred Share Units credited
pursuant to the Plan.
	 
	 	(b)	 	Any and all of the rights of the of the Non-Employee
Directors respecting Deferred Share Units or other benefits under
the Plan shall not be transferable or assignable other than by will
or the laws of descent and distribution, nor shall they be pledged,
encumbered or charged, and any attempt to do so shall be void.
	 
	 	(c)	 	Neither the Plan nor any Award thereunder shall be construed
as conferring upon a Non-Employee Director a right to be retained as
a member of the Board or a claim or right to any future Awards or
other benefits under the Plan.
	 
	 	(d)	 	Under no circumstances shall Deferred Share Units be
considered Common Shares nor shall they entitle any Non-Employee
Director or other person to exercise any voting rights or any other
rights attaching to the ownership of Common Shares, nor shall any
Non-Employee Director or other person be considered the owner of
Common Shares by virtue of this Plan until after the date

- 12 -

 

	 	 	 	of the purchase of such Common Shares on the open market pursuant
to the terms of the Plan.
	 
	 	(e)	 	Any liability of the Company to any Non-Employee Director
with respect to receipt of Common Shares, Deferred Share Units or an
Award shall be based solely upon contractual obligations created by
the Plan. Neither the Committee nor the Board shall be liable for
any actions taken in accordance with the terms of the Plan.

	6.7	 	Compliance with Law

     The obligations of the Company with respect to the making of Awards and
the delivery of Common Shares and/or Deferred Share Units pursuant to the terms
of the Plan are subject to compliance with all applicable laws and regulations
and stock exchange rules. In connection with the Plan, each Non-Employee
Director shall comply with all applicable laws and regulations and stock
exchange rules and shall furnish the Company with any and all information and
undertakings as may be required to ensure compliance therewith.

	6.8	 	Applicable Taxes and Deductions

     The Company shall be authorized to deduct from any amount paid or credited
hereunder such taxes and other amounts as may be required by applicable law or
regulation in such manner as it determines appropriate.

- 13 -

 

SCHEDULE “A”

INCO LIMITED

	 	 	 
	TO:	 	
Non-Employee Directors
	 	 	 
	RE:	 	
Annual Election Form pursuant to the Company’s Non-Employee Director Share
Ownership Plan (the “Plan”)

In accordance with the terms of the Plan, you are required to make annual
elections with respect to the manner in which you wish to receive (a) the Cash
Compensation payable to you for your service on the Board, and (b) any Awards
which are payable in the form of either Common Shares or Deferred Share Units,
at the election of the Non-Employee Director. These elections are set forth in
Items I and II below. This Election Form also provides an opportunity for you
to designate, if you have elected to receive any Common Shares under the Plan,
whether such Common Shares should be purchased on the Toronto Stock Exchange
(the “TSX”) or the New York Stock Exchange (the “NYSE”), and the brokerage
account to which such Common Shares should be delivered. Finally, the Election
Form provides you with the opportunity to designate whether the price of any
Deferred Share Units deliverable to you under the Plan should be determined
based on the trading price of the Common Shares on the TSX or the NYSE.

PLEASE RETURN THIS FORM TO STUART F. FEINER IN THE ENCLOSED ENVELOPE BY NO
LATER THAN DECEMBER 1, [2004]. IN ORDER TO PROTECT THE TAX DEFERRED STATUS OF
ANY DEFERRED SHARE UNITS TO WHICH YOU MAY BE ENTITLED UNDER THE PLAN, YOUR
ELECTION FORM MUST BE RECEIVED BY NO LATER THAN DECEMBER 1, [2004].

By signing below, you acknowledge that you have read, and agree to abide by,
the terms of the Plan. All capitalized terms not otherwise defined in this
Election Form shall have the respective meanings ascribed to them under the
Plan. The following elections and designations will apply with respect to
compensation payable to you under the Plan in fiscal [2005].

	I.	 	Election Regarding Payment of Cash Compensation.
	 
	 	 	Required Minimum Election. You are required to elect, until the total
number of Common Shares and/or Deferred Share Units you own exceeds the
greater of (a) 7,500 and (2) U.S.$180,000, or the equivalent in Canadian
dollars, based upon the then fair market value of such total number of
Common Shares and Deferred Share Units owned, to receive at least
25% of
the Cash Compensation you are to be paid as a Director in
the form of either Common Shares or Deferred Share Units. Once these Director ownership
guidelines have been met, there is no longer any mandatory minimum
election to be made for your Cash Compensation.
	 
	 	 	Percentage Election. Subject to the Required Minimum Election referred
to above, you can elect to receive 0%, 25%, 50% or 100% of your Cash
Compensation in the form of either Common Shares or Deferred Share Units, with the
balance, depending upon the election made, to be received in cash.

 

 

	 	 	Accordingly, please check one of the following seven elections:

	 	 	 	 	 	 
	 	1.	 	o	 	All in Cash (can only be selected assuming
you have already met the Director ownership guidelines
summarized above)
	 
	 	2.	 	o	 	25% in Common Shares and 75% in Cash
	 
	 	3.	 	o	 	50% in Common Shares and 50% in Cash,
	 
	 	4.	 	o	 	100% in Common Shares
	 
	 	5.	 	o	 	25% in Deferred Share Units and 75% in Cash
	 
	 	6.	 	o	 	50% in Deferred Share Units and 50% in Cash
	 
	 	7.	 	o	 	100% in Deferred Share Units

	II.	 	Election Regarding Payment of Awards Payable in the Form of Either Common
Shares or Deferred Share Units. From time to time, the Board may make
Awards which are payable in the form of either Common Shares or Deferred
Share Units, at the election of the relevant Non-Employee Director. You
are entitled to elect whether you will take these Awards either all in
Common Shares or all in Deferred Share Units. Please indicate your choice
by checking the appropriate box below.

	 	 	 	 	 	 
	 	A.
	 	o	 	All in Common Shares
	 
	 	B.
	 	o	 	All in Deferred Share Units

	III.	 	Designation of Stock Exchange and Brokerage Account Re: Delivery of
Common Shares. If you have elected to receive Common Shares pursuant to
Item 1 or II above, then please indicate by checking the appropriate box
below your choice as to the stock exchange to be used for the purchase of
any Common Shares to be delivered to you under the Plan.

	 	 	 	 	 	 
	 	A.	 	o	 	TSX
	 
	 	B.
	 	o	 	NYSE

	 	 	In addition, please designate below the financial institution and account
number to which such Common Shares shall be delivered, and the name,
address and telephone number of any relevant broker or financial adviser.

	 	 	 
	Financial Institution:	 	 

	 	 	 
	Account:	 	 

	 	 	 
	Name of Contact:	 	 

	 	 	 
	Address:	 	 

	 	 	 
	 	 	 

	 	 	 
	 	 	 

	 	 	 
	Telephone:	 	 

- 2 -

 

	IV.	 	Designation of Stock Exchange Reference Price for Deferred Share Units.
Please indicate by checking the appropriate box in below your choice of
the stock exchange to be used for the determination of the value of any
Deferred Share Units to be credited to you under the Plan.

	 	 	 	 	 	 
	 	A.	 	o	 	TSX
	 
	 	B.
	 	o	 	NYSE

	 	 	 
	 
	 
	

Name of Non-Employee Director	 	 
	 	 	 
	 
	 
	

Signature	 	

Date

- 3 -

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