Document:

Exhibit 10.24

 

SEPARATION
AGREEMENT AND RELEASE

 

This Separation Agreement and Release (this “Agreement”) is
entered into as of April 15, 2009, by and among Ralph Bruno (“Mr. Bruno”),
CPG International I Inc. (formerly known as Compression Polymers Holding
Corporation), a Delaware corporation (“CPG International I”), its wholly
owned subsidiary AZEK Building Products Inc. (formerly known as Vycom Corp.), a
Delaware corporation (“AZEK”)  (CPG
International I and AZEK, collectively, the “Companies”), and CPG International
Holdings LP (formerly known as Compression Polymers Holding I LP), a Delaware
limited partnership (“CPG LP”) (each of Mr. Bruno, the Companies
and CPG LP, a “Party” and, collectively, the “Parties”).  The
Parties acknowledge that the terms and conditions of this Agreement have been
voluntarily agreed to and are intended to be final and binding.

 

RECITALS

 

WHEREAS, Mr. Bruno and the Companies entered into an Employment
Agreement, dated as of May 10, 2005 (the “Employment Agreement”),
pursuant to which Mr. Bruno currently serves as President of AZEK;

 

WHEREAS, Mr. Bruno, the Companies, CPG International, Inc.
(formerly known as Compression Polymers Holding II), a Delaware corporation,
and Scranton Products, Inc. (formerly known as Compression Polymers
Corp.), a Delaware corporation, entered into a Noncompetition Agreement dated
as of May 10, 2005 (the “Noncompetition Agreement”);

 

WHEREAS, effective as of the Separation Date (defined below), Mr. Bruno
shall no longer serve as the President of AZEK and shall separate from service
in all capacities with the Companies;

 

WHEREAS, Mr. Bruno purchased an aggregate of 731 class A units of
CPG LP (the “Class A Units”), pursuant to and in accordance with
the terms of the Subscription Agreements, entered into on May 10, 2005 and
on or about January 29, 2007, by and between CPG LP and Mr. Bruno
(the “Class A Subscription Agreements”);

 

WHEREAS, on the terms and subject to the conditions
set forth in this Agreement, CPG LP shall purchase from Mr. Bruno, and Mr. Bruno shall
sell to CPG LP, the Sold Class A Units (defined below), and Mr. Bruno
shall continue to hold the Retained Class A Units (defined below);

 

WHEREAS, Mr. Bruno purchased an aggregate of 1,350 class B units
of CPG LP (the “Class B Units”), pursuant to and in accordance with
the terms of the Executive Subscription Agreements, entered into on May 10,
2005 (the “2005 Subscription Agreement”), February 15, 2006 (the “2006
Subscription Agreement”), and January 1, 2007 (the “2007
Subscription Agreement”), each by and between CPG LP and Mr. Bruno
(collectively, the “Class B Subscription Agreements”);

 

WHEREAS, on the terms and subject to the conditions
set forth in this Agreement, CPG LP shall purchase from Mr. Bruno, and Mr. Bruno shall
sell to CPG LP, the Sold Class B Units (defined below), and Mr. Bruno shall continue to
hold the Retained Class B Units (defined below); and

 

WHEREAS, as a condition precedent and a material inducement for AZEK to
pay Mr. Bruno the payments set forth in this Agreement, Mr. Bruno has
agreed to execute this Agreement and be bound by the provisions herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for the monetary and other consideration set forth below,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:

 

 

1.     Separation from Service. 
Mr. Bruno and the Companies agree that effective as of May 15,
2009 (the “Separation Date”), Mr. Bruno (i) shall cease to
serve as President of AZEK, (ii) hereby resigns from any directorship,
position or office with or in the Companies or their respective subsidiaries or
affiliates and (iii) shall no longer be authorized to incur any expenses,
obligations or liabilities on behalf of the Companies or any of their
respective subsidiaries or affiliates.

 

2.     Severance.  AZEK
shall continue to pay Mr. Bruno his base salary in effect immediately
prior to the Separation Date ($250,000) for a period of twelve (12) months (the
“Severance Payments”), commencing on the first day of the calendar month
next following the date that the release contained in Section 7 hereof
(the “Release”) has become irrevocable.

 

3.     Noncompetition Agreement. 
Mr. Bruno hereby affirms and agrees to comply with the
Noncompetition Agreement; it being agreed that the term of the Noncompetition
Agreement shall terminate on May 15, 2011; provided, however, that
notwithstanding the  Noncompetition
Agreement or any other agreement, a person, partnership, corporation or other
business organization or entity is in competition with the Companies if it is
then engaging or planning to engage within the term hereof, itself or through
any joint venture, partnership or otherwise, in the manufacturing, marketing,
sale, or distribution of any non-wood trim, decking, railing, molding, or porch
plank products.  Mr. Bruno may submit a written request to (i) AZEK
and (ii) AEA Investors LLC (“AEA”) so long as at least one of the
AEA Parties (as defined in the Agreement of Limited Partnership of CPG LP, dated as of
May 10, 2005, as amended (the “Partnership Agreement”) is a limited
partner of CPG LP, seeking a determination that prospective employment will not
trigger a violation of the terms of the Noncompetition Agreement or any other
agreement between Mr. Bruno and the Parties.  Any such request by Mr. Bruno must
provide the identity of the prospective employer and a detailed description of such employer’s business (including the
businesses of the employer’s affiliates), and Mr. Bruno’s position
and duties upon such employment.  AZEK
agrees to respond within ten (10) days following the delivery of such
information to AZEK and AEA, with a response to the request or with a request
for additional information.  If
additional information is requested from Mr. Bruno, AZEK shall respond
within ten (10) days of the delivery of such additional information to
AZEK and AEA.  Any such determination by AZEK shall be
based solely on the information and documents provided by Mr. Bruno
pursuant to this Section 3, and any change in such information or
inaccuracy of the information or documents shall render any determination by
AZEK that the prospective employment does not violate the terms of the
Noncompetition Agreement null and void.

 

4.     Class B Units. 
CPG LP and Mr. Bruno hereby agree that CPG LP will purchase from Mr. Bruno,
and Mr. Bruno will sell to CPG LP, 1,000 Class B Units (the “Sold Class B
Units”), for an aggregate purchase price of $14,921 (with 950 of the Class B
Units that were originally purchased by Mr. Bruno pursuant to the 2005
Subscription Agreement being now purchased at $15.18 per unit, their fair
market value on the date hereof, and 50 of the Class B Units that were
originally purchased by Mr. Bruno pursuant to the 2007 Subscription
Agreement being now purchased at $10 per unit, the cost of these Class B
Units to Mr. Bruno) (the “Class B Unit Purchase Price”).  CPG LP shall pay the Class B Unit
Purchase Price to Mr. Bruno  on the thirtieth (30th) day following the
execution of this Agreement, provided that the Release has become irrevocable
as of such date.  Subject to the right of
optional redemption set forth in Section 6 of this Agreement, following
the Separation Date Mr. Bruno will continue to hold 350 Class B Units
(50 Class B Units that were originally purchased by Bruno pursuant to the
2005 Subscription Agreement, 250 Class B Units that were originally
purchased by Bruno pursuant to the 2006 Subscription Agreement and 50 Class B
Units that were originally purchased by Bruno pursuant to the 2007 Subscription
Agreement) (the “Retained Class B Units”), in each case in
accordance with the terms of the Class B Subscription Agreements, other
than any right of redemption set forth therein, and the Partnership Agreement.

 

5.     Class A Units. 
CPG LP and Mr. Bruno hereby agree that CPG LP will purchase from Mr. Bruno,
and Mr. Bruno will sell to CPG LP, 293.81 Class A Units (the “Sold
Class A Units”), for a purchase price of $1,374.50 per unit, with an
aggregate purchase price of $403,842 (the “Class A Unit Purchase Price”).  CPG LP shall pay the Class A Unit
Purchase Price to Mr. Bruno  on the thirtieth (30th) day following the
execution of this Agreement, provided that the Release has become irrevocable
as of such date.  Following the
Separation Date, Mr. Bruno will continue to hold 437.19 Class A Units
in accordance with the terms of the Class A Subscription Agreements and
the Partnership Agreement (the “Retained Class A Units”).

 

2

 

6.     Conditions.  AZEK’s obligation to make the Severance
Payments, and Mr. Bruno’s right to continue to hold the Retained Class B
Units shall be conditioned upon: (i) Mr. Bruno’s continued compliance
with his obligations under the Noncompetition Agreement and (ii) the
Release becoming irrevocable.  In the
event that Mr. Bruno breaches any of the covenants set forth in the
Noncompetition Agreement, (i) AZEK will cease to have any obligation to
continue making the Severance Payments to Mr. Bruno and (ii) CPG LP
shall have an optional right of redemption with respect to the Retained Class B
Units at a redemption price of $10 per unit, the cost of the Retained Class B
Units to Mr. Bruno.

 

7.     Release of Claims by Mr. Bruno.

 

(a)   In consideration of the Companies entering
into this Agreement, the sufficiency of which Mr. Bruno acknowledges, Mr. Bruno,
with the intention of binding himself and his heirs, executors, administrators
and assigns, does hereby release, remise, acquit and forever discharge the
Companies, CPG LP and each of its or their respective subsidiaries and
affiliates (the “Company Affiliated Group”), their present and former
officers, directors, executives, shareholders, agents, attorneys, employees and
employee benefit plans (and the fiduciaries thereof) and the successors,
predecessors and assigns of each of the foregoing (collectively, the “Company
Released Parties”) of and from any and all claims, actions, causes of
action, complaints, charges, demands, rights, damages, debts, sums of money,
accounts, financial obligations, suits, expenses, attorneys’ fees and
liabilities of whatever kind or nature in law, equity or otherwise, whether
accrued, absolute, contingent, unliquidated or otherwise and whether now known
or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential
(collectively, the “Losses”), which Mr. Bruno, individually or as a
member of a class, now has, owns or holds, or has at any time heretofore had,
owned or held, arising on or prior to the date hereof, against any Company
Released Party in any capacity, including, without limitation, any and all
claims (i) in respect of the Sold Class B Units, the Retained Class B
Units, the Sold Class A Units and the Retained Class A Units, (ii) arising
out of or in any way connected with Mr. Bruno’s service to any member of
the Company Affiliated Group (or the predecessors thereof) in any capacity, or
the termination of such service in any such capacity, (iii) for severance
or vacation benefits, unpaid wages, salary or incentive payments, (iv) for
breach of contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other tort, (v) for
any violation of applicable state and local labor and employment laws
(including, without limitation, all laws concerning unlawful and unfair labor
and employment practices)  and (vi) for
employment discrimination under any applicable federal, state or local statute,
provision, order or regulation, and including, without limitation, any claim
under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Civil
Rights Act of 1988, the Fair Labor Standards Act, the Americans with
Disabilities Act (the “ADA”), the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”), the Age Discrimination in Employment
Act (the “ADEA”) and any similar or analogous state statute, excepting
only:

 

(i)            rights of Mr. Bruno under this
Agreement;

 

(ii)           the right of Mr. Bruno to
receive COBRA continuation coverage in accordance with applicable law;

 

(iii)          claims for accrued and unpaid benefits
under any health, disability, retirement or other similar employee benefit plan
(within the meaning of Section 3(3) of ERISA) of the Company
Affiliated Group; and

 

(iv)          rights to indemnification Mr. Bruno
has under the by-laws or certificate of incorporation of any member of the
Company Affiliated Group or otherwise through or from the Companies, including
under any policy of insurance providing indemnification or coverage.

 

(b)   Mr. Bruno
acknowledges and agrees that the release of claims set forth in this Section 7
is not to be construed in any way as an admission of any liability whatsoever
by any Company Released Party, any such liability being expressly denied.

 

3

 

(c)   The release
of claims set forth in this Section 7 applies to any relief no matter how
called, including, without limitation, wages, back pay, front pay, compensatory
damages, liquidated damages, punitive damages, damages for pain or suffering,
costs and attorneys’ fees and expenses, except as provided in Section 7(a)(i)-(iv) herein.

 

(d)   Mr. Bruno
specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Section 7 is, among other things, a specific
waiver of his rights, claims and causes of action under Title VII, the ADEA,
the ADA and any state or local law or regulation in respect of discrimination
of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right
or claim or cause of action which by law Mr. Bruno is not permitted to
waive.

 

(e)   As to
rights, claims and causes of action arising under the ADEA, Mr. Bruno
acknowledges that he has been given a period of twenty-one (21) days to
consider whether to execute this Agreement. 
If Mr. Bruno accepts the terms hereof and executes this Agreement
(whether or not he has utilized the full twenty-one (21) days he had to
consider it), he may thereafter, for a period of seven (7) days following
(and not including) the date of execution, revoke this Agreement as it relates
to the release of claims arising under the ADEA.  If no such revocation occurs, this Agreement
shall become irrevocable in its entirety, and binding and enforceable against Mr. Bruno,
on the day next following the day on which the foregoing seven-day period has
elapsed.  If such a revocation occurs,
this Agreement shall be of no force or effect.

 

(f)    Mr. Bruno
acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges
or lawsuits against any Company Released Party with any governmental agency,
court or tribunal.

 

(g)   Mr. Bruno
acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of
claims set forth in this Section 7 and has been given a sufficient period
within which to consider the release of claims set forth in this Section 7.

 

(h)   Mr. Bruno
acknowledges that the release of claims set forth in this Section 7
relates only to claims which exist as of the date of this Agreement.

 

(i)    Mr. Bruno
acknowledges that, except for any unpaid portion of his Base Compensation (as
defined in the Employment Agreement) payable pursuant to and in accordance with
his Employment Agreement for services rendered to the Companies and their
respective affiliates prior to the Separation Date, he is not entitled to
receive any amount pursuant to the Employment Agreement or in connection with Mr. Bruno’s
service to any member of the Company Affiliated Group (or the predecessors
thereof) in any capacity, including, without limitation, his Incentive Bonus
(as defined in the Employment Agreement) from any member of the Company
Affiliated Group (or the predecessors thereof) after the Separation Date.

 

8.     Non-Disparagement.  From and after the date hereof, Mr. Bruno
shall not make or publish any untruthful, derogatory or disparaging statements
(whether written or oral) regarding any member of the Company Affiliated Group
or any of their respective affiliates, directors, officers or executives, or
otherwise malign the business or reputation of any of them.  The Companies and CPG LP shall each advise
their respective officers and directors that they shall not make or publish any
untruthful, derogatory or disparaging statements (whether written or oral)
regarding Mr. Bruno.

 

9.     Notices.  Any notice required or desired to be
delivered hereunder shall be in writing and shall be delivered personally, by courier
service, or by certified mail, return receipt requested, and shall be effective
when actually delivered to the Party to whom such notice shall be directed and
shall be addressed as follows (or to such other address as the Party entitled
to notice shall hereafter designate in accordance with the terms hereof):

 

4

 

	
  If to the Companies and
  CPG LP:

   

  c/o AEA Investors LLC

  55 East 52nd Street

  35th Floor

  New York, NY 10055

  Attn: General Counsel

  	
   

  	
  With a copy to:

  Fried, Frank, Harris,
  Shriver & Jacobson LLP

  One New York Plaza

  New York, NY 10004

  Attn: Christopher Ewan, Esq.

  
	
   

  	
   

  	
   

  
	
  If to Mr. Bruno:

  Ralph Bruno

  106 Settlers Circle

  Winchester, VA 22602

  	
   

  	
  With a copy to:

  Ty Lawson

  Lawson and Silek, P.L.C.

  120 Exeter Drive, Suite 200

  Winchester, VA 22603

  

 

10.   Withholding.  Notwithstanding anything in this Agreement to
the contrary, AZEK shall have the right to deduct from any amount payable under
this Agreement any taxes or other amounts required by applicable law to be
withheld.

 

11.   Complete
Agreement.  This Agreement and the
Noncompetition Agreement constitute the complete agreement of the Parties with
respect to the subject matter hereof and shall supersede all agreements between
the Parties to the extent they relate in any way to the employment, termination
of employment, compensation and benefits of Mr. Bruno.  In the event of any conflict between or among
the provisions of this Agreement and the Partnership  Agreement, the
Employment Agreement, the Class A Subscription Agreements and/or Class B
Subscription Agreements or any other agreement executed by and between Mr. Bruno
and the Companies, such conflict shall be resolved in each and every instance
in favor of the provisions of this Agreement.

 

12.   Severability.  Each provision hereof and portion thereof is
severable, and if one or more provisions hereof or portions thereof are
declared invalid, the remaining provisions and portions thereof shall
nevertheless remain in full force and effect. 
If any provision of this Agreement or portion thereof is so broad, in
scope or duration or otherwise, as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.

 

13.   No
Waiver.  No delay on the part of any
of the Parties in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.  The failure
to enforce at any time any of the provisions of this Agreement or to require at
any time performance by another party of any of the provisions hereof shall in
no way be construed to be a waiver of such provisions or to affect the validity
of this Agreement, or any part hereof, or the right of any Party thereafter to
enforce each and every such provision in accordance with the terms of this
Agreement.

 

14.   Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.  The Parties represent that each signatory to
this Agreement on his, its or their behalf is authorized to make the promises
and commitments herein.

 

15.   Successors.  This Agreement shall be binding upon any and
all successors and assigns of the Parties.

 

16.   Third-Party
Beneficiary.  Each of the Company
Released Parties shall be a third-party beneficiary with respect to Section 8
and shall be entitled to enforce the provisions thereof.

 

17.   Governing
Law.  Except for issues or matters as
to which federal law is applicable, this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflicts of law principles thereof.

 

5

 

18.   Headings.  The captions and headings contained in this
Agreement are for convenience only and shall not be construed as a part of the
Agreement.

 

19.   Amendments.  This Agreement may be modified, amended or
supplemented only by written agreement executed by the Parties; provided,
that the observance of any provision of this Agreement may be waived by the
Party that will lose the benefit of such provision as a result of such waiver
in a writing expressly stating which observance is being waived.

 

20.   Specific
Performance.  In the event of any
actual or threatened default in, or breach of, any of the covenants or
agreements in this Agreement, Mr. Bruno, the Companies and CPG LP shall
have the right of specific performance and injunctive relief giving effect to
their respective rights under this Agreement without the need to post bond, in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies shall be cumulative. 
Mr. Bruno, the Companies and CPG LP agree that any such breach or
threatened breach would cause irreparable injury, that the remedies at law for
any such breach or threatened breach, including monetary damages, are
inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.

 

21.   Jurisdiction; Court Proceedings;
Waiver of Jury Trial.

 

(a)   Any litigation against any Party to
this Agreement arising out of or relating to this Agreement shall be brought in
any federal or state court located in the State of New York in the County of
New York and each of the Parties hereby submits to the exclusive jurisdiction
of such courts for the purpose of any such litigation.  A final judgment in any such litigation shall
be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.  To the extent that service of process by mail
is permitted by applicable law, each Party irrevocably consents to the service
of process in any such litigation in such courts by the mailing of such process
by registered or certified mail, return receipt requested, postage prepaid, at
its address for notices provided for herein. 
Each Party irrevocably agrees
not to assert (a) any objection which it may have to the laying of venue
of any such litigation in any federal or state court located in the State of
New York in the County of New York and (b) any claim that any such
litigation brought in any such court has been brought in an inconvenient forum.

 

(b)   EACH
PARTY WAIVES ANY RIGHT TO A TRIAL BY JURY, TO THE EXTENT LAWFUL, AND AGREES
THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS
WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY LITIGATION
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR THE CONTEMPLATED
TRANSACTIONS.

 

22.   Expenses.  Each Party shall pay all of its respective
fees, costs and expenses (including fees and disbursements of counsel and
accountants) incurred in connection with the negotiation, execution and performance
of this Agreement.

 

[Signature Page Follows]

 

6

 

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

 

 

	
   

  	
  CPG INTERNATIONAL I INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amy Bevacqua

  
	
   

  	
   

  	
  Name:

  	
  Amy Bevacqua

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AZEK BUILDING
  PRODUCTS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amy Bevacqua

  
	
   

  	
   

  	
  Name:

  	
  Amy Bevacqua

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CPG
  INTERNATIONAL HOLDINGS LP

  
	
   

  	
  By:

  	
  CPG Holding I
  LLC, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amy Bevacqua

  
	
   

  	
   

  	
  Name:

  	
  Amy Bevacqua

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Ralph Bruno

  
	
   

  	
  Ralph Bruno

  

 

7Exhibit 10.2

 

[FORM OF CEO FIVE YEAR
INSTALLMENT VESTING]

HCP, INC.

2006 PERFORMANCE INCENTIVE PLAN

PERFORMANCE RESTRICTED STOCK UNIT
AGREEMENT

 

James F. Flaherty III[                            ],
Grantee:

 

As of
the [            ] day of [              
20    ] (the “Grant
Date”), HCP, Inc., a Maryland corporation (the “Company”),
pursuant to the HCP, Inc. 2006 Performance Incentive Plan, as amended
and/or restated from time to time (the “Plan”), has granted to you, the
Grantee named above, [              ] performance restricted stock units (the “Units”)
with respect to [            ] shares of Common Stock on the terms and conditions set
forth in this Performance Restricted Stock Unit Agreement (this “Agreement”)
and the Plan.  The Units are subject to adjustment
as provided in Section 7.1 of the Plan. 
Capitalized terms not defined herein shall have the meanings assigned to
such terms in the Plan.  The Compensation
Committee (the “Committee”) of the Board of Directors of the Company
(the “Board”) is the administrator of the Plan for purposes of your
Units.

 

I.                                         Forfeiture of Units.

 

(a)                                  Forfeiture Based Upon Company Performance. 
Your Units will be paid only to the extent your Units are not forfeited
pursuant to this Section I and only to the extent such non-forfeited
Units vest pursuant to this Section I or Section II below.  Your Units are subject to forfeiture if the
Company’s Funds From Operations Per Share for the [20    ] calendar year (the “Performance Period”) is less
than [$      ].  If the Company’s Funds From Operations Per
Share for the Performance Period is less than [$      ], the aggregate
percentage of Units that you will forfeit will be determined in accordance with
Exhibit A hereto.  For
purposes of this Agreement, “Funds From Operations Per Share” means the
Company’s funds from operations per share during the Performance Period, as
prescribed by the National Association of Real Estate Investment Trusts
(“NAREIT”) as in effect on the first day of the Performance Period, and shall
be calculated on a fully diluted basis using the weighted average of diluted
shares of Common Stock outstanding during the Performance Period.  Funds From Operations Per Share shall be
subject to adjustment as expressly provided by the Committee at the time it
approves the grant of the Units.  The
determination as to whether the Company has attained the performance goals with
respect to the Performance Period shall be made by the Committee acting in good
faith.  The Committee’s determination
regarding whether the Company has attained the performance goals (the “Committee
Determination”) shall be made no later than the March 15 following the
end of the Performance Period.  Your
Units shall not be deemed vested pursuant to any other provision of this
Agreement earlier than the date that the Committee makes such determination, as
required by Section 162(m) of the Code and the regulations
promulgated thereunder.  Any Units
forfeited pursuant to this Section I(a) shall be deemed to have been
forfeited as of the last day of the Performance Period.

 

(b)                                 Forfeiture of Units Upon Termination of
Employment.  Except as provided in Section I(c), if
at any time during the Performance Period your employment with the Company is
terminated, all of your Units shall be automatically forfeited and cancelled in
full effective as of such termination of employment and this Agreement shall be
null and void and of no further force and effect.

 

1

 

(c)                                  Certain Terminations during the
Performance Period.  This Section I(c) applies in the
event your employment with the Company is terminated as a result of (i) your
death, Disability or Retirement, (ii) a Termination Other Than For Cause, (iii) a
Termination For Good Reason, or (iv) a Termination Upon a Change in
Control (including a Covered Resignation). 
In the event of any such termination during the Performance Period, your
Units will remain outstanding during the remainder of the Performance Period
and will be subject to forfeiture in the manner set forth in subsection (a) upon
completion of the Performance Period.  In
such a case, any Units not so forfeited pursuant to subsection (a) shall
fully vest as of the date of the Committee Determination.  For purposes of this Agreement, the terms “Covered
Resignation,” “Disability,” “Termination Other Than For Cause,”
“Termination For Good Reason,” and “Termination Upon a Change in
Control” shall have the meanings ascribed to such terms in your Employment
Agreement with the Company dated October 26, 2005 (the “Employment
Agreement”).  Such meanings shall
continue to apply for purposes of this Agreement notwithstanding any
termination of the “Employment Period” (as such term is defined in the
Employment Agreement) in accordance with the Employment Agreement.  For purposes of this Agreement, “Retirement”
means a termination of your employment with the Company or any of its
Subsidiaries after you have either (i) attained age 65 and completed at
least five (5) years of service as an employee of the Company or any of
its Subsidiaries or as a member of the Board or (ii) attained age 60 and
completed at least fifteen (15) years of service as an employee of the Company
or any of its Subsidiaries or as a member of the Board.

 

II.                                     Vesting.

 

(a)                                  Vesting of Non-Forfeited Units. 
You will have no further rights with respect to any Units that are
forfeited in accordance with Section I. 
Subject to the terms and conditions of this Agreement, your Units that (i) are
not forfeited in accordance with Section I and (ii) do not otherwise
vest in accordance with Section I, if any, shall vest in accordance with
the following schedule, subject to your continuous service to the Company until
the applicable vesting date.  (Vesting
amounts pursuant to the following schedule are cumulative.)

 

	
  Tranche

  	
   

  	
  Percentage of Non Forfeited

  Units that Vest

  	
   

  	
  Vesting Date

  
	
  1

  	
   

  	
  20%

  	
   

  	
  1st Anniversary
  of Grant Date

  
	
  2

  	
   

  	
  20%

  	
   

  	
  2nd Anniversary of
  Grant Date

  
	
  3

  	
   

  	
  20%

  	
   

  	
  3rd Anniversary of
  Grant Date

  
	
  4

  	
   

  	
  20%

  	
   

  	
  4th Anniversary of
  Grant Date

  
	
  5

  	
   

  	
  20%

  	
   

  	
  5th Anniversary of Grant
  Date

  

 

2

 

The vesting schedule requires continued employment
through each applicable Vesting Date as a condition to vesting of the
applicable Tranche and the corresponding rights and benefits under this Agreement.  Unless otherwise expressly provided herein
with respect to accelerated vesting of the Units under certain circumstances,
employment for only a portion of a vesting period, even if a substantial
portion, will not entitle you to any proportionate vesting or avoid or mitigate
a termination of rights and benefits upon or following a termination of
employment as provided in this Agreement.

 

(b)                                 Acceleration on Certain Terminations
Following Performance Period.  If at any
time following the completion of the Performance Period and prior to the date
your Units become fully vested in accordance with Section II(a), your
employment with the Company is terminated as a result of (i) your death,
Disability or Retirement, (ii) a Termination Other Than For Cause (iii) a
Termination For Good Reason, or (iv) a Termination Upon a Change in
Control (including a Covered Resignation), your then outstanding Units (to the
extent not previously forfeited and otherwise unvested) shall fully vest
immediately upon such termination of employment.

 

(c)                                  No Acceleration or Vesting Upon Other
Terminations.  Except as otherwise provided in the Plan, if
at any time your employment with the Company is terminated (i) by the
Company, or (ii) by you, under any circumstances (other than as a result
of your death, Disability, Retirement, a Termination Other Than For Cause, a
Termination For Good Reason, or a Termination Upon a Change in Control,
including a Covered Resignation), any of your Units that remain outstanding and
otherwise unvested at the time of such termination of employment shall be
automatically forfeited and cancelled in full, effective as of such termination
of employment.

 

(d)                                 Employment Termination Date. 
If the Employment Period is in effect, the date of your termination of
employment for purposes of this Agreement shall be no earlier than the “Date
of Termination,” as such term is defined in the Employment Agreement.  If the Employment Period is not then in
effect, the date of termination of your termination of employment for purposes
of this Agreement shall be your actual date of termination of employment.

 

III.                                 Timing and Form of Payment.

 

(a)                                  Distribution Date. 
Except as otherwise provided in Section III(b), the distribution
date (the “Distribution Date”) for your Units that become vested
pursuant to this Agreement will be the scheduled Vesting Date of such Units as
set forth in Section II(a) hereof; provided, however, that in the
event that the vesting of your Units is accelerated pursuant to Section I(c) or
II(b), the Distribution Date of such accelerated Units will be the earlier of (i) subject
to Section XIV, your Separation from Service and (ii) the scheduled
Vesting Date of such Units as set forth in Section II(a) hereof; and
provided, further, that in no event shall the Distribution Date occur earlier
than the date of the Committee Determination. 
Distribution of your vested Units will be made by the Company in shares
of Common Stock (on a one-to-one basis) on or as soon as practicable after the
Distribution Date with respect to such vested Units, but in no event later than
two and one-half (2 1⁄2) months after the Distribution Date.  You will have no right to distribution of any
of your Units that do not vest in accordance with the 

 

3

 

provisions hereof. 
Once a vested Unit has been paid pursuant to this Agreement, you will
have no further rights with respect to that Unit.  For purposes of this Agreement, “Separation
from Service” means a “separation from service” within the meaning of
Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional
alternative definitions available thereunder (i.e. generally a termination of
your employment with the Company or a Subsidiary).

 

(b)                                 Distribution Elections. 
Notwithstanding Section III(a), you may, on or before the Grant
Date and in all cases at a time that complies with the initial deferral
election requirements of Section 409A of the Code, make an election (a “Distribution
Election”) to (A) defer your Distribution Date with respect to some or
all of your vested Units and/or (B) have your vested Units distributed to
you in annual installments as provided in Section III(c), provided that
such election complies with this Section III.  You may change your Distribution Election
with respect to each Tranche (set forth in Section II(a) above) up to
three times without the approval of the Committee, provided such Distribution
Election is made in a timely manner.  Any
changes to your Distribution Election with respect to a Tranche in addition to
the three provided in the preceding sentence may only be made with the approval
of the Committee, in its sole discretion. 
In order for a change to your Distribution Election to be valid, it must
be made at least one year prior to the then-existing Distribution Date with
respect to the Units subject to such Distribution Election change, the new
Distribution Date must be at least five years after the then-existing
Distribution Date with respect to such Units, and the election must otherwise
be consistent with the “subsequent election” rules of Section 409A(a)(4)(C) of
the Code so as to prevent application of the penalty and interest provisions of
Section 409A(a)(1)(B) of the Code. 
Your Distribution Date with respect to any portion of your Units may not
be prior to the earlier of the Vesting Date for such vested Units or the date
of the Committee Determination. 
Distribution Elections may only be made by delivering a written election
to the Company care of its General Counsel in the form attached as Exhibit B
hereto.

 

(c)                                  Form of Distribution. 
Unless you elect otherwise on or before the Grant Date, distribution of
your vested Units with respect to any Tranche will be made in a lump sum
following your Distribution Date (as determined under the foregoing provisions
of this Section III).  You may,
however, elect to have vested Units with respect to any Tranche distributed in
the form of two or more annual installments over a fixed number of years,
provided that each installment payment must be for a minimum of 1,000 shares of
Common Stock.  If you elect to have some
or all of your vested Units underlying a Tranche distributed in annual
installments commencing upon your Separation from Service or death, the first
installment will be paid on or within 90 days after the Distribution Date with
respect to such Tranche and subsequent installments will be paid on or within
90 days after each of the anniversaries of the Distribution Date with respect
to such Tranche during your elected installment period, with each such payment
date during such time period within the Company’s sole discretion.  If you elect to have some or all of your
vested Units underlying a Tranche distributed in annual installments commencing
upon a selected date, the first installment will be paid on or as soon as
practicable after, but in all events within the same calendar year as, the
Distribution Date with respect to such Tranche and subsequent installments will
be paid on or as soon as practicable after, but in all events within the same
calendar year as, each of the anniversaries of the Distribution Date with
respect to such Tranche during your elected installment period with each
payment date during such time period within the Company’s sole discretion.  You may change an election you make pursuant
to this Section III(c) (or you may make an initial election in the
event that you did 

 

4

 

not elect a form of payment at the time of your award
and, accordingly, your Units were subject to the lump sum default payment rule)
by filing a new written election with the Committee; provided that you must
also elect a later Distribution Date pursuant to Section III(b) as to
any Units that are subject to such election and in no event may such an
election result in an acceleration of distributions within the meaning of Section 409A
of the Code so as to prevent application of the penalty and interest provisions
of Section 409A(a)(1)(B) of the Code. 
Distribution Elections may only be made by delivering a written election
to the Company care of its General Counsel in the form attached as Exhibit B
hereto.

 

(d)                                 Hardship Distribution. 
If you experience an Unforeseeable Emergency (as defined below) you may
elect to receive immediate distribution of some or all or your vested Units
upon such Unforeseeable Emergency. 
Distribution upon an Unforeseeable Emergency shall be made no later than
thirty (30) days following written notice to the Company care of its General
Counsel of the Unforeseeable Emergency. 
For purposes of this Agreement, an “Unforeseeable Emergency” shall mean
a severe financial hardship resulting from (i) an illness or accident of
you, your spouse, or your dependent (as defined in Section 152(a) of
the Code without regard to Sections 152(b)(1), (b)(2) and (d)(1)(B)), (ii) loss
of your property due to casualty, or (iii) any other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond your
control, all as reasonably determined by the Committee in good faith.  No distribution shall be made in respect of
an Unforeseeable Emergency unless such Unforeseeable Emergency is not otherwise
relievable by liquidation of your assets (to the extent such liquidation would
not itself cause a severe financial hardship) or through reimbursement or
compensation by insurance or otherwise. 
Any distribution of your vested Units as a result of an Unforeseeable
Emergency shall be limited to the amount reasonably necessary to relieve the Unforeseeable
Emergency (which may include amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from the
distribution).

 

(e)                                  Change in Control.  Notwithstanding the foregoing
provisions of this Section III, the Administrator may provide for payment
of your vested Units in accordance with the requirements of Treasury Regulation
1.409A-3(j)(4)(ix)(A), (B) or (C) promulgated under Section 409A
of the Code (or any similar successor provision), which regulation generally
provides that a deferred compensation arrangement may be terminated in limited
circumstances following a dissolution or change in control of the Company.

 

IV.                                 Dividend Equivalent Rights. 
During such time as each Unit remains outstanding and prior to the
distribution of such Unit in accordance with Section III, you will have
the right to receive, with respect to such Unit, an amount equal to the amount
of any cash dividend paid on a share of Common Stock (a “Dividend Equivalent
Right”); provided, however, that any Dividend Equivalent Right credited
with respect to an outstanding Unit (including, without limitation, any
dividend equivalent credited through and including the date of the Committee
Determination) that is subsequently forfeited pursuant to Section I(a) hereof
shall immediately terminate upon the forfeiture of such Unit, and you shall not
be entitled to any payment with respect thereto.  You will have a Dividend Equivalent Right
with respect to each Unit that is outstanding on the record date of such
dividend.  In the case of Dividend
Equivalent Rights credited with respect to an outstanding Unit that is subject
to the forfeiture provisions of Section I(a) hereof on the related
record date and that ultimately is not forfeited pursuant to Section I(a),
the Dividend Equivalent Rights will be paid to you in cash (without interest)
as soon as 

 

5

 

practicable after the Committee Determination (or, if
earlier, as soon as practicable after the date such Unit vests pursuant to Section II(b))
and in all events not later than March 15 of the year that follows the
Performance Period.  In the case of
Dividend Equivalent Rights credited with respect to an outstanding Unit that is
no longer subject to the forfeiture provisions of Section I(a) hereof
on the related record date, the Dividend Equivalent Rights will be paid to you
in cash (without interest) at the same time or within thirty (30) days after
the related dividend is paid to stockholders of the Company.  Dividend Equivalent Rights will not be paid
to you with respect to any Units that are forfeited pursuant to Sections I and
II, effective as of the date such Units are forfeited.  You will have no Dividend Equivalent Rights
as of the record date of any such cash dividend in respect of any Units that
have been paid in Common Stock; provided that you are the record holder of such
Common Stock on or before such record date.

 

V.                                     Transferability. 
No benefit payable under, or interest in, the Units or this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge and any such attempted action shall
be void and no such benefit or interest shall be, in any manner, liable for, or
subject to, your or your beneficiary’s debts, contracts, liabilities or torts; provided, however, nothing in this Section V shall
prevent transfer of your Units by will or by applicable laws of descent and
distribution.  You may designate a
beneficiary to receive distribution of your vested Units upon your death by
submitting a written beneficiary designation to the Committee in the form
attached hereto as Exhibit B.  You
may revoke a beneficiary designation by submitting a new beneficiary
designation.

 

VI.                                 Withholding. 
Subject to Section 8.1 of the Plan and such rules and
procedures as the Committee may impose, upon any distribution of shares of
Common Stock in respect of your Units, the Company shall automatically reduce
the number of shares to be delivered by (or otherwise reacquire) the
appropriate number of whole shares, valued at their then fair market
value (with the “fair market value” of such shares determined in accordance
with the applicable provisions of the Plan), to satisfy any withholding obligations of the Company
or its Subsidiaries with respect to such distribution of shares at the minimum
applicable withholding rates; provided, however, that the foregoing provision
shall not apply in the event that you have made other provision in advance of
the date of such distribution for the satisfaction of such withholding
obligations.  In the event that the
Company cannot legally satisfy such withholding obligations by such reduction
of shares, or in the event of a cash payment or any other withholding event in
respect of your Units, the Company (or a Subsidiary) shall be entitled to
require a cash payment by you or on your behalf and/or to deduct from other
compensation payable to you any sums required by federal, state or local tax
law to be withheld with respect to such distribution or payment.

 

VII.                             No Contract for Employment. 
This Agreement is not an employment or service contract and nothing in
this Agreement shall be deemed to create in any way whatsoever any obligation
on your part to continue in the employ or service of the Company, or of the
Company to continue your employment or service with the Company.

 

VIII.                         Notices.  Any notices
provided for in this Agreement or the Plan, including a Distribution Election,
shall be given in writing and shall be deemed effectively given upon receipt if
delivered by hand or, in the case of notices delivered by United States mail,
five (5) days after deposit in the United States mail, postage prepaid,
addressed, as applicable, to the Company or if to you, at such address as is
currently maintained in the Company’s records or at such other address as you
hereafter designate by written notice to the Company.

 

6

 

IX.                                Plan.  The
provisions of the Plan are hereby made a part of this Agreement.  In the event of any conflict between the
provisions of this Agreement and those of the Plan, the provisions of this
Agreement shall control.

 

X.                                    Entire Agreement. 
This Agreement, together with the Employment Agreement, contains the
entire understanding of the parties in respect of the Units and supersedes upon
its effectiveness all other prior agreements and understandings between the
parties with respect to the Units.  In
the event of any discrepancy between this Agreement and the Employment
Agreement, the Employment Agreement shall control, except the definition of
“Distribution Date” in this Agreement shall always control.

 

XI.                                Amendment.  This
Agreement may be amended by the Committee; provided, however that no such
amendment shall, without your prior written consent, alter, terminate, impair
or adversely affect your rights under this Agreement.

 

XII.                            Governing Law. 
This Agreement shall be construed and interpreted, and the rights of the
parties shall be determined, in accordance with the laws of the State of
Maryland, without regard to conflicts of law provisions thereof.

 

XIII.                        Tax Consequences. 
You may be subject to adverse tax consequences as a result of the
issuance, vesting and/or distribution of your Units and the payment of your
Dividend Equivalent Rights.  YOU ARE
ENCOURAGED TO CONSULT A TAX ADVISOR AS TO THE TAX CONSEQUENCES OF YOUR UNITS
AND SUBSEQUENT DISTRIBUTION OF COMMON STOCK AND THE TAX CONSEQUENCES OF YOUR
DIVIDEND EQUIVALENT RIGHTS.

 

XIV.                        Construction. 
To the extent that this Agreement is subject to Section 409A of the
Code, you and the Company agree to cooperate and work together in good faith to
timely amend this Agreement to prevent application of the penalty and interest
provisions of Section 409A(a)(1)(B) of the Code.  In the event that you and the Company do not
agree as to the necessity, timing or nature of a particular amendment intended
to prevent application of the penalty and interest provisions of Section 409A(a)(1)(B) of
the Code, reasonable deference will be given to your reasonable interpretation
of such provisions.  Notwithstanding
anything to the contrary contained in this Agreement or the Plan, in the event
that (i) the Distribution Date (as determined under Section III) of
any of your vested Units is the date of your Separation from Service and (ii) you
are at the time of such Separation from Service a “specified employee” (within
the meaning of Section 409A of the Code), the Distribution Date of such
vested Units shall be the earlier of the date that is six (6) months after
your Separation from Service or the date of your death, provided that this
sentence shall only apply if and to the extent required to avoid the imputation
of any tax, penalty or interest under Section 409A.

 

[Remainder of page intentionally
left blank]

 

7

 

Very truly yours,

 

	
   

  	
  HCP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

Accepted and Agreed,

effective as of the date first written above.

 

 

	
  By:

  	
   

  	
   

  
	
  Name: James F. Flaherty III

  	
   

  

 

S-1

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