Document:

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EXHIBIT 10.2

CHANGE IN CONTROL AGREEMENT

      THIS
AGREEMENT, dated as of June 7, 2005, is made by and between Janus Capital Group Inc. (the
“Company”) and David R. Martin (the “Executive”).

      WHEREAS, the Company considers it essential to the best interests of the Company to foster the
continued employment of key personnel; and

      WHEREAS, the Company recognizes that the possibility of a Change in Control always exists and
that such possibility, and the uncertainty and questions which it may raise among employees, may
result in the departure or distraction of key personnel to the detriment of the Company; and

      WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of key personnel, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Company and the Executive hereby agree as follows:

      1. Defined Terms. The definitions of capitalized terms used in this Agreement are
provided in the last Section hereof.

      2. Term of Agreement. The Term of this Agreement shall commence on the date hereof
and shall continue in effect through December 31, 2006; provided, however, that
commencing on January 1, 2006 and each January 1 thereafter, the Term shall automatically be
extended for one additional year unless, not later than September 30 of the preceding year, the
Company or the Executive shall have given notice not to extend the Term; and further
provided, however, that if a Change in Control shall have occurred during the Term,
the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change
in Control occurred. Notwithstanding anything herein to the contrary, the Term of the Agreement
shall immediately terminate if, prior to the Change in Control, the Company (or such other
Affiliate of the Parent that then employs the Executive) ceases to be an Affiliate of the Parent.

      3. Company’s Covenants Summarized. In order to induce the Executive to remain in the
employ of the Company and in consideration of the Executive’s covenants set forth in Section 4
hereof, the Company agrees, under the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall
have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed
to have been) a termination of the Executive’s employment with the Company following a Change in
Control and during the Term. This Agreement shall not be construed as creating an express or
implied contract of employment and, except as otherwise agreed in

 

 

writing between the Executive and the Company, the Executive shall not have any right to be
retained in the employ of the Company.

      4. The Executive’s Covenants. The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control during the Term, the
Executive will remain in the employ of the Company until the earliest of (i) a date which is six
(6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the termination by the Company of the
Executive’s employment for any reason.

      5. Compensation Other Than Severance Payments.

      5.1 Following a Change in Control and during the Term, during any period that the Executive
fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive’s base salary to the Executive at
the rate in effect at the commencement of any such period, together with all compensation and
benefits payable to the Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period (other than any disability plan), until
the Executive’s employment is terminated by the Company for Disability.

      5.2 If the Executive’s employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay the Executive’s base salary and incentive
compensation to the Executive through the Date of Termination as in effect immediately prior to the
Date of Termination or, if higher, as in effect immediately prior to the Change in Control,
together with all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company’s compensation and benefit plans, programs or
arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the Change in Control.

      5.3 If the Executive’s employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay to the Executive the Executive’s normal
post-termination compensation and benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in accordance with, the Company’s
retirement, insurance and other compensation or benefit plans, programs and arrangements as in
effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in
effect immediately prior to the Change in Control.

      6. Severance Payments.

      6.1 If the Executive’s employment is terminated following a Change in Control and during the
Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the
Executive without Good Reason, then, the Company shall pay the Executive the amounts, and provide
the Executive the benefits, described in

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this Section 6.1 (“Severance Payments”) and Section 6.2, in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive’s employment shall be deemed to have been terminated following a Change in
Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s
employment is terminated by the Company without Cause prior to a Change in Control (whether or not
a Change in Control ever occurs) and such termination was at the request or direction of a Person
who has entered into an agreement with the Parent the consummation of which would constitute a
Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive’s
employment is terminated by the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is otherwise in connection
with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs).

      (A) In lieu of any further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit otherwise payable to the
Executive, the Company shall pay to the Executive a lump sum severance payment, in cash,
equal to two times the sum of (1) the Executive’s cash compensation in the calendar year
prior to the Date of Termination or, if higher, earned in the calendar year immediately
prior to the Change in Control and (2) the value of the Company’s contributions made
pursuant to the Janus Capital Group Inc. 401(k), Profit Sharing and Employee Stock
Ownership Plan (or any successor plan) on behalf of the Executive in the four quarters
immediately prior to the Date of Termination or, if higher, in the four quarters
immediately prior to the Change in Control.

      (B) For the twenty-four (24) month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his dependents medical,
dental, and vision insurance benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the Date of Termination or, if more
favorable to the Executive, those provided to the Executive and his dependents immediately
prior to the Change in Control, at no greater after tax cost to the Executive than the
after tax cost to the Executive immediately prior to such date. Benefits otherwise
receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent
benefits of the same type are received by or made available to the Executive during the
twenty-four (24) month period following the Executive’s termination of employment (and any
such benefits received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
reimburse the Executive for the excess, if any, of the after tax cost of such benefits to
the Executive over such cost immediately prior to the Date of Termination or, if more
favorable to the Executive, the Change in Control. The coverage provided pursuant to this
Section 6.1(B) shall run concurrently with and shall be offset against any continuation
coverage under Part 6 of Title I of Employee Retirement Income Security Act of 1974, as
amended.

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      (C) The Company will make available to the Executive three months of outplacement
service at no cost to the Executive through a provider of such services selected by the
Company.

      6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any
payment or benefit received or to be received by the Executive (including any payment or benefit
received in connection with a Change in Control or the termination of the Executive’s employment,
whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all
such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the
“Total Payments”) will be subject (in whole or part) to the Excise Tax, then, the Company shall pay
to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into
account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up
Payment, shall be equal to the Total Payments. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the Date of Termination (or if there is no Date of Termination,
then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of
the maximum reduction in federal income tax which could be obtained from deduction of such state
and local taxes.

      (B) For purposes of determining whether any of the Total Payments will be subject to the
Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as
“parachute payments” within the meaning of section 280G(b)(2) of the Code, unless in the opinion
of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the Change in Control, the Company’s independent
auditor (the “Auditor”), such other payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all “excess
parachute payments” within the meaning of section 280G(b)(l) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually rendered, within
the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such
reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of
any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall provide the Executive with its
calculation of the amounts referred to in this Section 6.2(B) and such supporting materials as
are reasonably necessary for the Executive to evaluate the Company’s calculations. If the
Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of
Tax Counsel with respect to the matter in dispute shall prevail.

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      6.3 The payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof
shall be made not later than the fifth day following the Date of Termination (or if there is no
Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of
Section 6.2 hereof); provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Executive or, in the case of payments under Section
6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which
the Executive is clearly entitled and shall pay the remainder of such payments (together with
interest on the unpaid remainder (or on all such payments to the extent the Company fails to make
such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth (30th) day after
the Date of Termination. At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including, without limitation, any
opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be attached to the
statement).

      6.4 In the event the Executive incurs legal fees and expenses disputing in good faith any
issue hereunder relating to the termination of the Executive’s employment, seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement or in connection with any tax
audit or proceeding to the extent attributable to the application of section 4999 of the Code to
any payment or benefit provided hereunder, the Company shall reimburse the Executive for such legal
fees and expenses if the Executive prevails, in material part, in such dispute.

      7. Termination Procedures and Compensation During Dispute.

      7.1 Notice of Termination. After a Change in Control and during the Term, any
purported termination of the Executive’s employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the other party hereto in
accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall
mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of
the Board which was called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive, together with the
Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of
Cause herein, and specifying the particulars thereof in detail.

      7.2 Date of Termination. “Date of Termination,” with respect to any purported
termination of the Executive’s employment after a Change in Control and

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during the Term, shall mean (i) if the Executive’s employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of the Executive’s duties during such thirty (30) day
period), and (ii) if the Executive’s employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by the Company, shall
not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case
of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is given).

      7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Date of Termination (as determined without regard
to this Section 7.3), the party receiving such Notice of Termination notifies the other party that
a dispute exists concerning the termination, the Date of Termination shall be extended until the
earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally
resolved, either by mutual written agreement of the parties or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided, however,
that the Date of Termination shall be extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive pursues the resolution of such dispute with
reasonable diligence.

      7.4 Compensation During Dispute. If a purported termination occurs following a Change
in Control and during the Term and the Date of Termination is extended in accordance with Section
7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving rise to the dispute was given, until the
Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this
Section 7.4 are in addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.

      8. No Mitigation. The Company agrees that, if the Executive’s employment with the
Company terminates during the Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to
Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B)
hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation
earned by the Executive as the result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

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      9. Successors; Binding Agreement.

      9.1 In addition to any obligations imposed by law upon any successor to the Company, and
subject to the last sentence of Section 2, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
the Executive to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the Executive’s
employment for Good Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be deemed the Date of
Termination.

      9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive’s estate.

      10. Notices. For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the address on record at the Company and, if to the Company, to
the address set forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:

To the Company:

Janus Capital Group Inc.

151 Detroit Street

Denver, Colorado 80206

Attn.: General Counsel

      11. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and the Company, provided, however, that the Company may amend the Agreement in a manner
reasonably intended to avoid the acceleration of tax and the possible imposition of penalties under
Section 409A of the Code. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of any lack of compliance with, any condition or provision of this

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Agreement to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement
supersedes any other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party; provided,
however, that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive’s employment with the Company only in the event that the Executive’s
employment with the Company is terminated on or following a Change in Control, by the Company other
than for Cause or by the Executive for Good Reason or prior to a Change in Control pursuant to the
second sentence of Section 6.1 of this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Delaware. All
references to sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall be paid net of
any applicable withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company and the Executive
under this Agreement which by their nature may require either partial or total performance after
the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof)
shall survive such expiration.

      12. Validity. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.

      13. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.

      14. Settlement of Disputes. All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by
the Board of a claim for benefits under this Agreement shall be delivered to the Executive in
writing and shall set forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to appeal to the Board
a decision of the Board within sixty (60) days after notification by the Board that the Executive’s
claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the
Board hereunder shall be subject to a de novo review by the court.

      15. Definitions. For purposes of this Agreement, the following terms shall have the
meanings indicated below:

      (A) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act.

      (B) “Auditor” shall have the meaning set forth in Section 6.2 hereof.

      (C) “Base Amount” shall have the meaning set forth in section 280G(b)(3) of the Code.

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      (D) “Board” shall mean the Board of Directors of the Parent.

      (E) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the
willful and continued failure by the Executive to substantially perform the Executive’s duties with
the Company (other than any such failure resulting from the Executive’s incapacity due to physical
or mental illness or any such actual or anticipated failure after the issuance of a Notice of
Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been
cured within 30 days after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive’s duties; (ii) the willful
engaging by the Executive in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (iii) a willful or reckless violation by the Executive of a material
legal or regulatory requirement that is materially and demonstrably injurious to the Company. For
purposes of this definition, no act, or failure to act, on the Executive’s part shall be deemed
“willful” unless done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive’s act, or failure to act, was in the best interest of the
Company. Any act, or failure to act, based upon express written authority by the Board, Chief
Executive Officer and/or Chief Investment Officer with respect to such act or omission or based
upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the Company.

      (F) A “Change in Control” shall be deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:

      (1) An acquisition by any Person of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of the Parent (the “Outstanding Parent
Common Stock”) or (B) the combined voting power of the then outstanding voting
securities of the Parent entitled to vote generally in the election of directors
(the “Outstanding Parent Voting Securities”); excluding, however, the following:
(i) any acquisition directly from the Parent, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Parent, (ii) any acquisition by the Parent,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Parent or any entity controlled by the Parent, or (iv) any
acquisition pursuant to a transaction which complies with clauses (A), (B) and (C)
of subsection (3) of this definition; or

      (2) A change in the composition of the Board such that the individuals who, as
of the effective date of the this Agreement, constitute the Board (such Board shall
be hereinafter referred to as the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, for
purposes of this definition, that any individual who

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becomes a member of the Board subsequent to the effective date hereof, whose
election, or nomination for election by the Parent’s shareholders, was approved by
a vote of at least a majority of those individuals who are members of the Board and
who were also members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall not
be so considered as a member of the Incumbent Board; or

      (3) Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Parent or the
acquisition of the assets or stock of another entity (“Business Combination”);
excluding, however, such a Business Combination pursuant to which (A) all or
substantially all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting
Securities immediately prior to such Business Combination will beneficially own,
directly or indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Parent or
all or substantially all the Parent’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Parent Common Stock and
Outstanding Parent Voting Securities, as the case may be, (B) no Person (other than
the Parent or any employee benefit plan (or related trust) of the Parent or the
corporation resulting from such Business Combination) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Business Combination or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the extent that
such ownership existed prior to the Business Combination; and (C) individuals who
were members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting form such Business
Combination; or

      (4) The approval by the stockholders of the Parent of a complete liquidation
or dissolution of the Parent.

      (G) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

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      (H) “Company” shall mean Janus Capital Group Inc., collectively with its Affiliates, and any
successor to its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

      (I) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.

      (J) “Disability” shall be deemed the reason for the termination by the Company of the
Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of the Executive’s
duties with the Company for a period of six (6) consecutive months, the Company shall have given
the Executive a Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned to the full-time performance
of the Executive’s duties. For purposes of this Agreement, “Disability” shall be as defined under,
and the Executive must comply with, the then-current long-term disability policy of the Company.

      (K) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.

      (L) “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.

      (M) “Executive” shall mean the individual named in the first paragraph of this Agreement.

      (N) “Good Reason” for termination by the Executive of the Executive’s employment shall mean
the occurrence (without the Executive’s express written consent which specifically references this
Agreement) after any Change in Control, or prior to a Change in Control under the circumstances
described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all
references in paragraphs (1) through (4) below to a “Change in Control” as references to a
“Potential Change in Control”), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in paragraph (1), or (4)
below, such act or failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:

      (1) a substantial adverse alteration in the nature or status of the
Executive’s responsibilities from those in effect immediately prior to the Change
in Control other than any such alteration primarily attributable to the fact that
the Parent may no longer be a public company or to other changes in the identity,
nature or structure of the Parent; and provided, that a change in the
Executive’s title or reporting relationships shall not of itself constitute Good
Reason (unless such change results in a substantial adverse alteration as described
above);

11

 

      (2) a material reduction in the Executive’s aggregate target compensation as
in effect immediately prior to the Change in Control or a material adverse change
in the methodology used to determine incentive compensation; provided,
however, that changes to individual components of Executive’s compensation
comprising aggregate target compensation shall not constitute Good Reason;

      (3) the relocation of the Executive’s principal place of employment to a
location more than 40 miles from the Executive’s principal place of employment
immediately prior to the Change in Control or the Company’s requiring the Executive
to be based anywhere other than such principal place of employment (or permitted
relocation thereof) except for required travel on the Company’s business to an
extent substantially consistent with the Executive’s present business travel
obligations;

      (4) any purported termination of the Executive’s employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this Agreement, no such purported termination shall be
effective. The Executive’s right to terminate the Executive’s employment for Good
Reason shall not be affected by the Executive’s incapacity due to physical or
mental illness.

      The Executive’s continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder.

      (O) “Gross Up Payment” shall have the meaning set forth in Section 6.2 hereof.

      (P) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.

      (Q) “Parent” shall mean Janus Capital Group Inc.

      (R) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the
Company (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the
Company (iii) an underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the Company.

      (S) “Potential Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:

      (1) the Parent enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control;

12

 

      (2) the Parent or any Person publicly announces an intention to take or to
consider taking actions which, if consummated, would constitute a Change in
Control;

      (3) any Person becomes the beneficial owner, directly or indirectly, of
securities of the Parent representing 15% or more of either the then outstanding
shares of common stock of the Parent or the combined voting power of the Parent’s
then outstanding securities (not including in the securities beneficially owned by
such Person any securities acquired directly from the Parent or its Affiliates); or

      (4) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.

      (T) “Retirement” shall be deemed the reason for the termination by the Executive of the
Executive’s employment if such employment is terminated in accordance with the Company’s retirement
policy, including early retirement, generally applicable to its salaried employees.

      (U) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.

      (V) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.

      (W) “Term” shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).

      (X) “Total Payments” shall mean those payments so described in Section 6.2 hereof.

[SIGNATURE PAGE FOLLOWS]

13

 

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

	 	 	 	 	 
	 	JANUS CAPITAL GROUP INC.

 	 
	 	By:  	/s/ Gregory
A. Frost	 
	 	Name:  	Gregory
A. Frost	 
	 	Title:  	Senior Vice President	 
	 

	 	 	 	 	 
	 	 	 
	 	     /s/ David R. Martin
	 
	 	David R. Martin 	 
	 	 	 
	 

14EX-10.1 2005 STOCK INCENTIVE PLAN

 

Exhibit 10.1

PENWEST PHARMACEUTICALS CO.

2005 STOCK INCENTIVE PLAN

		
	1.	
    Purpose

     
The purpose of this 2005 Stock Incentive Plan (the
“Plan”) of Penwest Pharmaceuticals Co., a Washington
corporation (the “Company”), is to advance the
interests of the Company’s shareholders by enhancing the
Company’s ability to attract, retain and motivate persons
who are expected to make important contributions to the Company
and by providing such persons with equity ownership
opportunities and performance-based incentives that are intended
to align their interests with those of the Company’s
shareholders. Except where the context otherwise requires, the
term “Company” shall include any of the Company’s
present or future parent or subsidiary corporations as defined
in Sections 424(e) or (f) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder
(the “Code”) and any other business venture
(including, without limitation, joint venture or limited
liability company) in which the Company has a controlling
interest, as determined by the Board of Directors of the Company
(the “Board”).

		
	2.	
    Eligibility

     
All of the Company’s employees, officers, directors,
consultants and advisors are eligible to receive options, stock
appreciation rights, restricted stock, restricted stock units
and other stock-based awards (each, an “Award”) under
the Plan. Each person who receives an Award under the Plan is
deemed a “Participant”.

		
	3.	
    Administration and Delegation

     
(a) Administration by Board of Directors. The
Plan will be administered by the Board. The Board shall have
authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the
Board shall be made in the Board’s sole discretion and
shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person
acting pursuant to the authority delegated by the Board shall be
liable for any action or determination relating to or under the
Plan made in good faith.

     
(b) Appointment of Committees. To the extent
permitted by applicable law, the Board may delegate any or all
of its powers under the Plan to one or more committees or
subcommittees of the Board (a “Committee”). All
references in the Plan to the “Board” shall mean the
Board or a Committee of the Board to the extent that the
Board’s powers or authority under the Plan have been
delegated to such Committee.

		
	4. 	
    Stock Available for Awards

     
(a) Number of Shares. Subject to adjustment
under Section 9, Awards may be made under the Plan for up
to 1,650,000 shares of common stock, $0.001 par value
per share, of the Company (the “Common Stock”). If any
Award expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part
(including as the result of shares of Common Stock

1

 

subject to such Award being repurchased by the Company at the
original issuance price pursuant to a contractual repurchase
right) or results in any Common Stock not being issued, the
unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject,
however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitations under the Code. Shares issued under
the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.

     
(b) Sub-limits. Subject to adjustment under
Section 9, the following sub-limits on the number of shares
subject to Awards shall apply:

		
	 	     
    (1) Section 162(m) Per-Participant
    Limit. The maximum number of shares of Common Stock with
    respect to which Awards may be granted to any Participant under
    the Plan in any calendar year shall be 500,000 per calendar
    year. For purposes of the foregoing limit, the combination of an
    Option in tandem with an SAR (as each is hereafter defined)
    shall be treated as a single Award. The per-Participant limit
    described in this Section 4(b)(1) shall be construed and
    applied consistently with Section 162(m) of the Code or any
    successor provision thereto, and the regulations thereunder
    (“Section 162(m)”).
	 
	 	     
    (2) Limit on Awards that Vest Based Upon the Passage
    of Time Alone. The maximum number of shares of Common
    Stock with respect to which Restricted Stock Awards and Other
    Stock Unit Awards (as defined in Section 8) that either
    require no purchase by the Participant or vest on the basis of
    the passage of time alone may be granted shall be 1,000,000.

		
	5.	
    Stock Options

     
(a) General. The Board may grant options to
purchase Common Stock (each, an “Option”) and
determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each
Option, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
An Option which is not intended to be an Incentive Stock Option
(as hereinafter defined) shall be designated a
“Nonstatutory Stock Option”.

     
(b) Incentive Stock Options. An Option that
the Board intends to be an “incentive stock option” as
defined in Section 422 of the Code (an “Incentive
Stock Option”) shall only be granted to employees of
Penwest Pharmaceuticals Co., any of Penwest Pharmaceutical
Co.’s present or future parent or subsidiary corporations
as defined in Sections 424(e) or (f) of the Code, and any
other entities the employees of which are eligible to receive
Incentive Stock Options under the Code, and shall be subject to
and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or
any part thereof) that is intended to be an Incentive Stock
Option is not an Incentive Stock Option or for any action taken
by the Board pursuant to Section 10(f), including without
limitation the conversion of an Incentive Stock Option to a
Nonstatutory Stock Option.

     
(c) Exercise Price. The Board shall establish
the exercise price at the time each Option is granted and
specify such exercise price in the applicable option agreement;
provided, however, that the exercise price shall be not less
than 100% of the Fair Market Value (as defined in
Section 5(h)(3) below) at the time the Option is granted.

     
(d) Duration of Options. Each Option shall be
exercisable at such times and subject to such terms and
conditions as the Board may specify in the applicable option
agreement; provided, however, that no Option will be granted for
a term in excess of 10 years.

2

 

     
(e) Limitation on Repricing. Unless such
action is approved by the Company’s shareholders:
(1) no outstanding Option granted under the Plan may be
amended to provide an exercise price per share that is lower
than the then-current exercise price per share of such
outstanding Option (other than adjustments pursuant to
Section 9) and (2) the Board may not cancel any
outstanding Option (whether or not granted under the Plan) and
grant in substitution therefore new Awards under the Plan
covering the same or a different number of shares of Common
Stock and having an exercise price per share lower than the
then-current exercise price per share of the cancelled Option.

     
(f) No Reload Rights. No Option granted under
the Plan shall contain any provision entitling the optionee to
the automatic grant of additional Options in connection with any
exercise of the original Option.

     
(g) Exercise of Option. Options may be
exercised by delivery to the Company of a written notice of
exercise signed by the proper person or by any other form of
notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(h)
for the number of shares for which the Option is exercised.
Shares of Common Stock subject to the Option will be delivered
by the Company following exercise either as soon as practicable
or, subject to such conditions as the Board shall specify, on a
deferred basis (with the Company’s obligation to be
evidenced by an instrument providing for future delivery of the
deferred shares at the time or times specified by the Board).

     
(h) Payment Upon Exercise. Common Stock
purchased upon the exercise of an Option granted under the Plan
shall be paid for as follows:

		
	 	     
    (1) in cash, by wire transfer to the Company, by bank
    transfer to the Company or by check, payable to the order of the
    Company;
	 
	 	     
    (2) if provided by the Board in an option agreement, by
    (i) delivery of an irrevocable and unconditional
    undertaking by a creditworthy broker to deliver promptly to the
    Company sufficient funds to pay the exercise price and any
    required tax withholding or (ii) delivery by the
    Participant to the Company of a copy of irrevocable and
    unconditional instructions to a creditworthy broker to deliver
    promptly to the Company cash or a check sufficient to pay the
    exercise price and any required tax withholding;
	 
	 	     
    (3) if provided by the Board and for so long as the Common
    Stock is registered under the Securities Exchange Act of 1934
    (the “Exchange Act”), by delivery of shares of Common
    Stock owned by the Participant valued at their fair market value
    as determined by (or in a manner approved by) the Board
    (“Fair Market Value”), provided (i) such method
    of payment is then permitted under applicable law,
    (ii) such Common Stock, if acquired directly from the
    Company, was owned by the Participant for such minimum period of
    time, if any, as may be established by the Board in its
    discretion and (iii) such Common Stock is not subject to
    any repurchase, forfeiture, unfulfilled vesting or other similar
    requirements;
	 
	 	     
    (4) to the extent permitted by applicable law and by the
    Board, by (i) delivery of a promissory note of the
    Participant to the Company on terms determined by the Board, or
    (ii) payment of such other lawful consideration as the
    Board may determine; or
	 
	 	     
    (5) by any combination of the above permitted forms of
    payment.

     
(i) Substitute Options. In connection with a
merger or consolidation of an entity with the Company or the
acquisition by the Company of property or stock of an entity,
the Board may grant Options in substitution for any options or
other stock or stock-based awards granted by such entity or an
affiliate thereof. Substitute Options may be granted on such
terms as the Board deems appropriate in the

3

 

circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in
Section 2.

		
	6.	
    Stock Appreciation Rights

     
(a) General. A Stock Appreciation Right, or
SAR, is an Award entitling the holder, upon exercise, to receive
an amount in Common Stock determined by reference to
appreciation, from and after the date of grant, in the fair
market value of a share of Common Stock. The date as of which
such appreciation or other measure is determined shall be the
exercise date.

     
(b) Grants. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted
under the Plan.

		
	 	     
    (1) Tandem Awards. When Stock Appreciation
    Rights are expressly granted in tandem with Options,
    (i) the Stock Appreciation Right will be exercisable only
    at such time or times, and to the extent, that the related
    Option is exercisable (except to the extent designated by the
    Board in connection with a Reorganization Event) and will be
    exercisable in accordance with the procedure required for
    exercise of the related Option; (ii) the Stock Appreciation
    Right will terminate and no longer be exercisable upon the
    termination or exercise of the related Option, except to the
    extent designated by the Board in connection with a
    Reorganization Event and except that a Stock Appreciation Right
    granted with respect to less than the full number of shares
    covered by an Option will not be reduced until the number of
    shares as to which the related Option has been exercised or has
    terminated exceeds the number of shares not covered by the Stock
    Appreciation Right; (iii) the Option will terminate and no
    longer be exercisable upon the exercise of the related Stock
    Appreciation Right; and (iv) the Stock Appreciation Right
    will be transferable only with the related Option.
	 
	 	     
    (2) Independent SARs. A Stock Appreciation
    Right not expressly granted in tandem with an Option will become
    exercisable at such time or times, and on such conditions, as
    the Board may specify in the SAR Award.

     
(c) Exercise. Stock Appreciation Rights may
be exercised by delivery to the Company of a written notice of
exercise signed by the proper person or by any other form of
notice (including electronic notice) approved by the Board,
together with any other documents required by the Board.

		
	7.	
    Restricted Stock; Restricted Stock Units

     
(a) General. The Board may grant Awards
entitling recipients to acquire shares of Common Stock
(“Restricted Stock”), subject to the right of the
Company to repurchase all or part of such shares at their issue
price or other stated or formula price (or to require forfeiture
of such shares if issued at no cost) from the recipient in the
event that conditions specified by the Board in the applicable
Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such
Award. Instead of granting Awards for Restricted Stock, the
Board may grant Awards entitling the recipient to receive shares
of Common Stock to be delivered at the time such shares of
Common Stock vest (“Restricted Stock Units”)
(Restricted Stock and Restricted Stock Units are each referred
to herein as a “Restricted Stock Award”).

     
(b) Terms and Conditions. The Board shall
determine the terms and conditions of a Restricted Stock Award,
including the conditions for repurchase (or forfeiture) and the
issue price, if any.

     
(c) Stock Certificates. Any stock
certificates issued in respect of a Restricted Stock Award shall
be registered in the name of the Participant and, if determined
by the Board, deposited by the Participant,

4

 

together with a stock power endorsed in blank, with the Company
(or its designee). At the expiration of the applicable
restriction periods, the Company (or such designee) shall
deliver the certificates no longer subject to such restrictions
to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by
a Participant to receive amounts due or exercise rights of the
Participant in the event of the Participant’s death (the
“Designated Beneficiary”). In the absence of an
effective designation by a Participant, “Designated
Beneficiary” shall mean the Participant’s estate.

		
	8.	
    Other Stock-Based Awards

     
Other Awards of shares of Common Stock, and other Awards that
are valued in whole or in part by reference to, or are otherwise
based on, shares of Common Stock or other property, may be
granted hereunder to Participants (“Other Stock Unit
Awards”), including without limitation Awards entitling
recipients to receive shares of Common Stock to be delivered in
the future. Such Other Stock Unit Awards shall also be available
as a form of payment in the settlement of other Awards granted
under the Plan or as payment in lieu of compensation to which a
Participant is otherwise entitled. Other Stock Unit Awards may
be paid in shares of Common Stock or cash, as the Board shall
determine. Subject to the provisions of the Plan, the Board
shall determine the conditions of each Other Stock Unit Awards,
including any purchase price applicable thereto.

		
	9.	
    Adjustments for Changes in Common Stock and Certain Other
    Events

     
(a) Changes in Capitalization. In the event
of any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, reclassification of
shares, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than
an ordinary cash dividend, (i) the number and class of
securities available under this Plan, (ii) the sub-limits
set forth in Section 4(b), (iii) the number and class
of securities and exercise price per share of each outstanding
Option, (iv) the share-and per-share provisions of each
Stock Appreciation Right, (v) the repurchase price per
share subject to each outstanding Restricted Stock Award and
(vi) the share- and per-share-related provisions of each
outstanding Other Stock Unit Award, shall be appropriately
adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent determined by the Board.

     
(b) Reorganization Events.

     
(1) Definition. A “Reorganization
Event” shall mean: (a) any merger or consolidation of
the Company with or into another entity as a result of which all
of the Common Stock of the Company is converted into or
exchanged for the right to receive cash, securities or other
property or is cancelled, (b) any exchange of all of the
Common Stock of the Company for cash, securities or other
property pursuant to a share exchange transaction or
(c) any liquidation or dissolution of the Company.

     
(2) Consequences of a Reorganization Event on Awards
Other than Restricted Stock Awards. In connection with a
Reorganization Event, the Board shall take any one or more of
the following actions as to all or any outstanding Awards on
such terms as the Board determines: (i) provide that Awards
shall be assumed, or substantially equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) upon written notice to a
Participant, provide that the Participant’s unexercised
Options or other unexercised Awards shall become exercisable in
full and will terminate immediately prior to the consummation of
such Reorganization Event unless exercised by the Participant
within a specified period following the date of such notice,
(iii) provide that outstanding Awards shall become
realizable or deliverable, or restrictions applicable to an
Award shall lapse, in whole or in part prior to or upon such
Reorganization Event, (iv) in the event of a Reorganization
Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each

5

 

share surrendered in the Reorganization Event (the
“Acquisition Price”), make or provide for a cash
payment to a Participant equal to (A) the Acquisition Price
times the number of shares of Common Stock subject to the
Participant’s Options or other Awards (to the extent the
exercise price does not exceed the Acquisition Price) minus
(B) the aggregate exercise price of all such outstanding
Options or other Awards, in exchange for the termination of such
Options or other Awards, (v) provide that, in connection
with a liquidation or dissolution of the Company, Awards shall
convert into the right to receive liquidation proceeds (if
applicable, net of the exercise price thereof) and (vi) any
combination of the foregoing.

     
For purposes of clause (i) above, an Option shall be
considered assumed if, following consummation of the
Reorganization Event, the Option confers the right to purchase,
for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the
consideration (whether cash, securities or other property)
received as a result of the Reorganization Event by holders of
Common Stock for each share of Common Stock held immediately
prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if
the consideration received as a result of the Reorganization
Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the
consent of the acquiring or succeeding corporation, provide for
the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in value (as
determined by the Board) to the per share consideration received
by holders of outstanding shares of Common Stock as a result of
the Reorganization Event.

     
(3) Consequences of a Reorganization Event on
Restricted Stock Awards. Upon the occurrence of a
Reorganization Event other than a liquidation or dissolution of
the Company, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to the
benefit of the Company’s successor and shall apply to the
cash, securities or other property which the Common Stock was
converted into or exchanged for pursuant to such Reorganization
Event in the same manner and to the same extent as they applied
to the Common Stock subject to such Restricted Stock Award. Upon
the occurrence of a Reorganization Event involving the
liquidation or dissolution of the Company, except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, all restrictions and
conditions on all Restricted Stock Awards then outstanding shall
automatically be deemed terminated or satisfied.

		
	10.	
    General Provisions Applicable to Awards

     
(a) Transferability of Awards. Except as the
Board may otherwise determine or provide in an Award, Awards
shall not be sold, assigned, transferred, pledged or otherwise
encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws
of descent and distribution or, other than in the case of an
Incentive Stock Option, pursuant to a qualified domestic
relations order, and, during the life of the Participant, shall
be exercisable only by the Participant. References to a
Participant, to the extent relevant in the context, shall
include references to authorized transferees.

     
(b) Documentation. Each Award shall be
evidenced in such form (written, electronic or otherwise) as the
Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.

6

 

     
(c) Board Discretion. Except as otherwise
provided by the Plan, each Award may be made alone or in
addition or in relation to any other Award. The terms of each
Award need not be identical, and the Board need not treat
Participants uniformly.

     
(d) Termination of Status. The Board shall
determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other change in the
employment or other status of a Participant and the extent to
which, and the period during which, the Participant, or the
Participant’s legal representative, conservator, guardian
or Designated Beneficiary, may exercise rights under the Award.

     
(e) Withholding. Each Participant shall pay
to the Company, or make provision satisfactory to the Company
for payment of, any taxes required by law to be withheld in
connection with an Award to such Participant. Except as the
Board may otherwise provide in an Award, for so long as the
Common Stock is registered under the Exchange Act, Participants
may satisfy such tax obligations in whole or in part by delivery
of shares of Common Stock, including shares retained from the
Award creating the tax obligation, valued at their Fair Market
Value; provided, however, except as otherwise provided by the
Board, that the total tax withholding where stock is being used
to satisfy such tax obligations cannot exceed the Company’s
minimum statutory withholding obligations (based on minimum
statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such
supplemental taxable income). Shares surrendered to satisfy tax
withholding requirements cannot be subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
The Company may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to a
Participant.

     
(f) Amendment of Award. Except as otherwise
provided in Section 5(e), the Board may amend, modify or
terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different
type, changing the date of exercise or realization, and
converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant’s consent to such
action shall be required unless the Board determines that the
action, taking into account any related action, would not
materially and adversely affect the Participant.

     
(g) Conditions on Delivery of Stock. The
Company will not be obligated to deliver any shares of Common
Stock pursuant to the Plan or to remove restrictions from shares
previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the
Company’s counsel, all other legal matters in connection
with the issuance and delivery of such shares have been
satisfied, including any applicable securities laws and any
applicable stock exchange or stock market rules and regulations,
and (iii) the Participant has executed and delivered to the
Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any
applicable laws, rules or regulations.

     
(h) Acceleration. The Board may at any time
provide that any Award shall become immediately exercisable in
full or in part, free of some or all restrictions or conditions,
or otherwise realizable in full or in part, as the case may be.

     
(i) Performance Conditions.

     
(1) This Section 10(i) shall be administered by a
Committee approved by the Board, all of the members of which are
“outside directors” as defined by Section 162(m)
(the “Section 162(m) Committee”).

     
(2) Notwithstanding any other provision of the Plan, if the
Section 162(m) Committee determines, at the time a
Restricted Stock Award or Other Stock Unit Award is granted to a
Participant, that such Participant is, or may be as of the end
of the tax year in which the Company would claim a tax deduction

7

 

in connection with such Award, a Covered Employee (as defined in
Section 162(m)), then the Section 162(m) Committee may
provide that this Section 10(i) is applicable to such Award.

     
(3) If a Restricted Stock Award or Other Stock Unit Award
is subject to this Section 10(i), then the lapsing of
restrictions thereon and the distribution of cash or Shares
pursuant thereto, as applicable, shall be subject to the
achievement of one or more objective performance goals
established by the Section 162(m) Committee, which shall be
based on the relative or absolute attainment of specified levels
of one or any combination of the following: (a) earnings
per share, (b) return on average equity or average assets
with respect to a pre-determined peer group, (c) earnings,
(d) earnings growth, (e) revenues, (f) expenses,
(g) stock price, (h) market share, (i) return on
sales, assets, equity or investment, (j) regulatory
compliance, (k) achievement of balance sheet or income
statement objectives, (l) total shareholder return,
(m) net operating profit after tax, (n) pre-tax or
after-tax income, (o) cash flow, (p) achievement of
research, development, clinical or regulatory milestones,
(q) product sales and (r) business development
activities, and may be absolute in their terms or measured
against or in relation to other companies comparably, similarly
or otherwise situated. Such performance goals may be adjusted to
exclude any one or more of (i) extraordinary items,
(ii) gains or losses on the dispositions of discontinued
operations, (iii) the cumulative effects of changes in
accounting principles, (iv) the writedown of any asset, and
(v) charges for restructuring and rationalization programs.
Such performance goals: (x) may vary by Participant and may
be different for different Awards; (y) may be particular to
a Participant or the department, branch, line of business,
subsidiary or other unit in which the Participant works and may
cover such period as may be specified by the Section 162(m)
Committee; and (z) shall be set by the Section 162(m)
Committee within the time period prescribed by, and shall
otherwise comply with the requirements of, Section 162(m).

     
(4) Notwithstanding any provision of the Plan, with respect
to any Restricted Stock Award or Other Stock Unit Award that is
subject to this Section 10(i), the Section 162(m)
Committee may adjust downwards, but not upwards, the cash or
number of Shares payable pursuant to such Award, and the
Section 162(m) Committee may not waive the achievement of
the applicable performance goals except in the case of the death
or disability of the Participant.

     
(5) The Section 162(m) Committee shall have the power
to impose such other restrictions on Awards subject to this
Section 10(i) as it may deem necessary or appropriate to
ensure that such Awards satisfy all requirements for
“performance-based compensation” within the meaning of
Section 162(m)(4)(C) of the Code, or any successor
provision thereto.

		
	11.	
    Miscellaneous

     
(a) No Right To Employment or Other Status.
No person shall have any claim or right to be granted an Award,
and the grant of an Award shall not be construed as giving a
Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves
the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable
Award.

     
(b) No Rights As Shareholder. Subject to the
provisions of the applicable Award, no Participant or Designated
Beneficiary shall have any rights as a shareholder with respect
to any shares of Common Stock to be distributed with respect to
an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects
a split of the Common Stock by means of a stock dividend and the
exercise price of and the number of shares subject to such
Option are adjusted as of the date of the distribution of the
dividend (rather than as of the record date for such dividend),
then an optionee who exercises an Option between the record date
and the distribution date for such stock

8

 

dividend shall be entitled to receive, on the distribution date,
the stock dividend with respect to the shares of Common Stock
acquired upon such Option exercise, notwithstanding the fact
that such shares were not outstanding as of the close of
business on the record date for such stock dividend.

     
(c) Effective Date and Term of Plan. The Plan
shall become effective on the date on which it is adopted by the
Board, but no Award may be granted unless and until the Plan has
been approved by the Company’s shareholders. No Awards
shall be granted under the Plan after the completion of
10 years from the earlier of (i) the date on which the
Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company’s shareholders, but Awards
previously granted may extend beyond that date.

     
(d) Amendment of Plan. The Board may amend,
suspend or terminate the Plan or any portion thereof at any
time; provided that, to the extent determined by the Board, no
amendment requiring shareholder approval under any applicable
legal, regulatory or listing requirement shall become effective
until such shareholder approval is obtained. No Award shall be
made that is conditioned upon shareholder approval of any
amendment to the Plan.

     
(e) Provisions for Foreign Participants. The
Board may modify Awards or Options granted to Participants who
are foreign nationals or employed outside the United States or
establish subplans or procedures under the Plan to recognize
differences in laws, rules, regulations or customs of such
foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.

     
(f) Compliance With Code Section 409A.
No Award shall provide for deferral of compensation that does
not comply with Section 409A of the Code, unless the Board,
at the time of grant, specifically provides that the Award is
not intended to comply with Section 409A of the Code.

     
(g) Governing Law. The provisions of the Plan
and all Awards made hereunder shall be governed by and
interpreted in accordance with the laws of the State of
Washington excluding choice-of-law principles of the law of such
state that would require the application of the laws of a
jurisdiction other than such state.

9

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