Document:

exv10w2

 

EXHIBIT 10.2

REAL ESTATE INVESTMENT ADVISORY AGREEMENT

     Kennedy Associates Real Estate Counsel, Inc. currently has a contractual
service agreement with Riggs Bank, N.A. which is in effect and expires June 30,
2006 (the “Prior Agreement”).

     This Real Estate Investment Advisory Agreement (“Agreement”) by and
between Kennedy Associates Real Estate Counsel, Inc. (“Kennedy”) and Riggs Bank
N.A. (“Riggs”) is effective July 15, 2002. This Agreement supersedes and
replaces the Prior Agreement. The Prior Agreement shall govern the
compensation and indemnification of Kennedy for periods prior to July 15, 2002.

WITNESSETH:

     WHEREAS, Riggs is the trustee of the Riggs Bank N.A. Multi-Employer
Property Trust (“Trust”) established and administered under the Amended and
Restated Declaration of Trust dated October 6, 1996 (“Trust Agreement”);

     WHEREAS, the Trust is a common trust fund for the collective investment in
real estate-related investments (“Real Estate Investments”) of assets of
retirement, pension or similar plans (“Participating Plans”); and

     WHEREAS, Riggs has determined that it is in the best interest of the Trust
to engage Kennedy to provide the services set forth in this Agreement with
respect to the acquisition, management and disposition by the Trust of
interests in real property.

 

 

     NOW THEREFORE, the parties hereto hereby agree as follows:

	 	 	 
	1.	 	
Appointment: Riggs hereby appoints Kennedy as an investment advisor to
Riggs with respect to the Trust and the Real Estate Investments.
 
	2.	 	
Services:

	 	 	 
	(a)	 	
Kennedy shall advise Riggs with respect to real estate and
real estate-related investments now in the Trust and which Riggs may
wish in the future to make on behalf of the Trust.
 
	(b)	 	
Riggs and Kennedy shall prepare, on an annual basis, a
business plan addressing Kennedy’s goals and objectives with respect
to the Trust for the coming year. The plan shall be prepared and
submitted to Riggs no later than the 15th of November of the
preceding year. In addition, Kennedy shall prepare and submit to
Riggs valuation, financial and such other information as is set
forth in Appendix III, as amended from time to time by mutual
agreement of the parties.
 
	(c)	 	
Kennedy shall, from time to time, present to Riggs for its
consideration Real Estate Investments which, based upon Kennedy’s
preliminary investigation, are determined by Kennedy in good faith
to meet the requirements of and to present an appropriate investment
opportunity for the Trust. In reviewing potential properties,
Kennedy shall consider whether (i) the potential investment would
generate any unrelated business taxable income (“UBTI”) that would
either cause any title holding corporation(s) to lose its/their
federal or state tax exempt status or would have to be recognized or
realized by the Trust itself (as sole shareholder of

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the title holding corporations(s)), and (ii) whether any other
contemplated activities might adversely affect the tax exempt
status of the title holding corporation(s).
 
	(d)	 	
On receipt of an executed Letter of Intent for a potential
Real Estate Investment, Kennedy shall prepare an Investment Brief
for presentation to the Trust Real Estate Investment Committee (or
comparable committee within the Trust Department of Riggs, which is
established by Riggs) (collective “TREIC”). The Investment Brief
shall include sufficient information (project description, market
analysis, risk/return considerations, financial analyses,
transaction structure, etc.) for TREIC’s consideration of the
investment merit. Subject to Riggs’ approval through TREIC, Kennedy
shall complete all appropriate and necessary due diligence services,
negotiations and transaction documentation to effect the
acquisition.
 
	(e)	 	
On completion of negotiations and documentation, Kennedy
shall present a recommendation to Riggs inclusive of a description
of any material changes to the transaction since submittal of the
Investment Brief. Upon Riggs’ approval of the recommendation,
Kennedy shall cause the investment transaction to be consummated.
 
	(f)	 	
Kennedy shall maintain appropriate records of the Real Estate
Investments and of Kennedy’s activities under this Agreement, which
records shall be open to inspection by Riggs or its authorized
representatives at Kennedy’s office during normal business hours.
Kennedy shall also prepare such

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periodic reports of its activities and the Real Estate Investments
as Riggs may reasonably request.
 
	(g)	 	
Kennedy shall recommend to Riggs, subject to Riggs’ approval,
appraisers, insurance agents and attorneys whose services are
necessary or appropriate to the acquisition, ownership, development,
operation and disposition of one or more of the Real Estate
Investments, and Riggs shall cause the Trust to pay such persons or
entities under the terms of the agreements entered into by Kennedy
with such persons or entities in the name of the Trust. Kennedy
shall select and employ on behalf of the Trust agents, accountants,
mortgage originators or servicers, lenders, technical advisors,
brokers, leasing agents, underwriters, escrow agents, custodians,
agents for collection, insurance agents, architects, engineers,
construction consultants and managers, construction contractors and
others whose services are necessary or appropriate to the
acquisition, ownership, development, operation and disposition of
one or more of the Real Estate Investments. Riggs shall cause the
Trust to pay, as directed by Kennedy, such persons or entities under
the terms of the agreements entered into by Kennedy with such
persons or entities in the name of the Trust.
 
	(h)	 	
With respect to the disposition of Real Estate Investments,
Kennedy shall provide such services and make such recommendations,
as Riggs shall reasonably request.
 
	(i)	 	
Kennedy shall cooperate with and support Riggs in its efforts
to market the Trust to existing and prospective Participating Plans.

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	(j)	 	
Kennedy shall provide usual and customary commercial real
estate asset management services in respect of the properties held
by the Trust as Real Estate Investments, including, among other
services, the leasing and re-negotiation of leases on the
properties, the retention of Property Management firms, and such
other usual and customary real estate asset management services as
are normally provided by Kennedy in respect of real estate
portfolios similar to the Trust. Kennedy shall provide such asset
management services in respect of all Real Estate Investments in the
Trust, including both new Real Estate Investments built or acquired
by the Trust and “stabilized” Real Estate Investments that have been
previously leased out.
 
	(k)	 	
Kennedy shall provide other similar services within its area
of expertise which Riggs may reasonably request from time to time
relating to the Trust, but this shall not include property
management services which, if provided, shall be separately
compensated.

	 	 	 
	3.	 	
Furnishing Information to Kennedy: Riggs shall keep Kennedy informed
with regard to the Real Estate Investments owned by the Trust, and the
funds available or expected to be available for investment by the Trust.
In addition, Riggs shall provide Kennedy with a current list of all
Participating Plans in the Trust. Upon request, Riggs will provide
Kennedy any additional information as necessary and appropriate for the
purpose of Kennedy performing their functions.
 
	4.	 	
Policy Board and Informational Material: Riggs shall maintain a Policy
Board for the Trust. The Policy Board shall have up to six members and
such duties and

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responsibilities as determined by Riggs. For so long as this Agreement
is in effect, two members of the Policy Board may be nominated by
Kennedy. Each of the members of the Board shall be appointed by Riggs
and shall serve until he resigns or is replaced by Riggs. Neither the
appointment nor service by the Policy Board shall diminish Riggs’
exclusive control over and authority to manage the Trust. All
informational material distributed by Riggs with respect to the Trust
shall list the members of the Policy Board and identify any members who
are employees of Kennedy to be such. In addition, all such informational
material shall clearly disclose that Kennedy is the investment advisor to
Riggs with respect to the Trust and the Real Estate Investments and that
Riggs is the Trustee.
 
	5.	 	
Custody of assets: Kennedy shall not have authority to retain possession
of any assets of the Trust or any instruments (excepting duplicate
originals thereof) evidencing the ownership of investments of the Trust.
All assets of the Trust and all instruments evidencing the ownership of
investments of the Trust and originals of all documents which are
necessary for Riggs to exercise their rights or remedies with respect to
the assets of the Trust, including, but not limited to, all notes,
mortgages, deeds, leases, certificates, title policies, assignments, legal
opinions, bills of sale and indemnities, shall be held by Riggs, which
shall be responsible for all custodial arrangements with respect thereto.
All payments, distributions, and other transactions in cash or securities,
whether with respect to the Trust or the assets thereof (including,
without limitation, any rents or mortgage payments or receipts) shall be
made directly to or from Riggs. Riggs is obligated to maintain the
records required of MEPT. Riggs represents that it is

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currently a “qualified professional asset manager” (“QPAM”) as that term
is defined in Prohibited Transaction Exemption 84-14 and that it will
notify Kennedy as soon as practicable if it ceases to qualify as a QPAM.
 
	6.	 	
Compliance with Laws, Regulations, Codes, Etcetera: Kennedy shall
perform its duties and responsibilities under this Agreement in accordance
with, and will be limited in the exercise of its rights by, the provisions
of the Employee Retirement Income Security Act of 1974 (“ERISA”) and all
other applicable federal, state and local laws, ordinances, codes or
regulations applicable to its duties and responsibilities, including
without limitation identifying the appropriate required permits,
certificates, approvals and inspections. If a charge of noncompliance
with respect to any such laws, regulations or ordinances is brought
against Kennedy, it shall promptly notify Riggs of such charge in writing.
 
	7.	 	
Confidentiality: Kennedy and Riggs each agree that any information
provided it or its employees by the other party or by persons acting for
or on behalf of the other party concerning such other party or the Trust
and which is not public information shall be treated as proprietary and
confidential by the recipient and its employees. Such information shall
not be divulged to any party except as described in the next sentence or
used for any purpose other than for the management and administration of
the Trust or the performances required by this Agreement. Each party and
its employees may, in good faith, divulge factual information of the type
described in this paragraph to regulatory authorities and the
Participating Plans.. Kennedy shall keep Riggs informed on a current
basis, of information being communicated and divulged to any Participating
Plan, without

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regard to whether such information is proprietary and confidential as
described in this subsection. The provisions of this subsection
regarding confidentiality shall survive the termination or expiration of
this Agreement.
 
	8.	 	
Solicitation of Riggs’ Removal as Trustee: During the term of this
Agreement, Kennedy shall not (a) request, encourage or solicit any
Participating Plan to vote for or support the removal of Riggs as the
Trustee of the Trust, or the replacement of Riggs by another trustee, or
(b) request, encourage or solicit any Participating Plan to withdraw from
the Trust; unless Kennedy in good faith reasonably believes that
applicable law or fiduciary obligations requires it to do so; provided,
however, that, other than a solicitation as described in items (a) or (b)
above, nothing herein shall preclude Kennedy from communicating any
information or concerns to Participating Plans or potential Participating
Plans relating to the Trust that Kennedy reasonably and in good faith
believes is required or appropriate to be disclosed to Participating Plans
or potential Participating Plans by applicable law, the terms of the
Declaration, or that is material or important information that is required
or appropriate to be disclosed to an investor in the Trust under
principles of good faith and fair dealing with investors, and no such
communications shall be deemed to violate this Section 8.
 
	9.	 	
Compensation: Riggs shall solely be responsible for establishing the
formula for calculating the fees Riggs charges to the Trust Participants
and may change those fees at any time. As of the effective date of this
Agreement, the fees established by Riggs were those shown in Appendix I to
this Agreement. The provisions for compensating Kennedy under this
Agreement are set forth in Appendix II to this

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Agreement. If Riggs, in good faith and after consultation with Kennedy,
determines that it should change the formula used for calculating the
fees it charges to the Trust Participants, Kennedy’s compensation under
this Agreement shall be changed proportionately on a prospective basis
only.
 
	10.	 	
Expenses of Kennedy: Kennedy shall bear all of its internal costs and
expenses in connection with the performance of its services hereunder,
including, but not limited to: employees’ salaries; travel; lodging while
in a travel status; office overhead (including long distance telephone
charges); insurance (other than insurance of Real Estate Investments);
taxes levied on Kennedy and its operations and income; and legal,
accounting and other professional fees associated with Kennedy internal
affairs (but not fees of such professionals incurred directly with respect
to a particular Real Estate Investment, whether or not such Real Estate
Investment is in fact acquired by the Trust). The intent of this
paragraph is that Kennedy shall be compensated solely by its fee.
 
	11.	 	
Other Business of Kennedy: Nothing in this Agreement shall be construed
to restrict the right of Kennedy or its affiliates to act and continue to
act as investment managers or advisors for other clients, nor shall this
Agreement be deemed to restrict in any way the freedom of Kennedy or its
affiliates to conduct any other business venture of any nature or to make
investments for its investment account or the investment accounts of any
other person or entity.
 
	12.	 	
Liability and Indemnification: Kennedy, its officers and its employees
will not be liable to Riggs (whether on a tort, breach of contract or
other theory) for investment advice or acts or omissions under or pursuant
to this Agreement or for

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the acts or omissions of Riggs in the management of the Trust, and Riggs
shall indemnify and save harmless Kennedy, its officers and employees
from and against any and all claims asserted against them arising from
any such investment advice, acts or omissions, including all attorney’s
fees and other expenses reasonably incurred in the defense of any such
claim unless (a) such act or omission for which exculpation or
indemnification is sought constituted a breach of this Agreement, bad
faith, willful misfeasance, negligence or reckless disregard by Kennedy
of its duties in the performance of services under this Agreement, or (b)
with respect to any such act or omission for which exculpation or
indemnification was sought, Kennedy is a fiduciary to the Trust or a
Participating Plan under ERISA and such act or omission was a violation
of the duties imposed upon Kennedy as a fiduciary under ERISA (except to
the extent that liability arises derivatively from the acts or omissions
of Riggs) or a violation of any other federal or state law applicable to
Kennedy. Kennedy shall indemnify and save harmless Riggs from and
against any and all claims, including all attorneys’ fees and other
expenses reasonably incurred in the defense of any claim, asserted
against Riggs by reason of any act or omission of Kennedy that (a)
constituted a breach of this Agreement, bad faith, willful misfeasance,
negligence or reckless disregard of its duties in the performance of
services under this Agreement; or (b) constituted a violation of the
duties imposed upon Kennedy as a fiduciary under ERISA (except to the
extent that liability arises derivatively from the acts or omissions of
Riggs) or a violation of any other federal or state law applicable to

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Kennedy. The provisions of this paragraph shall survive a termination or
expiration of this Agreement.
 
	13.	 	
Assignment: This Agreement shall not be assignable by Riggs or Kennedy
without the written consent of either party, provided that no consent
shall be necessary in the case of a merger, acquisition or reorganization.
Kennedy warrants that, in the event of an acquisition, merger or
reorganization of Kennedy, there will be no material changes to the nature
or quality of the services provided by Kennedy to Riggs and that
continuity and quality of services provided by Kennedy to the Trust will
be preserved either by retaining senior personnel in place as of the
effective date of this Agreement or replacing them with a sufficient
number of individuals with comparable skill and experience in relevant
disciplines. To the extent permitted by law, the assigning party shall
provide notice to the other not less than sixty (60) days in advance of
such assignment, or such shorter period of notice as the parties may agree
upon; except that Riggs shall provide only that notice that it is
permitted to provide under any contractual commitments relating to the
transaction resulting in the assignment.
 
	14.	 	
Acknowledgments, Representations and Warranties of Kennedy: With the
understanding that Riggs intends to rely on these representations, Kennedy
represents and agrees that:

	 	 	 
	(a)	 	
In providing the services described in this Agreement,
Kennedy shall exercise the degree of care consistent with that of
qualified professional investment advisers in relating to the same
or similar kinds of investments and shall conduct itself in a manner
consistent with the fiduciary

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responsibility requirements of ERISA, with respect to an
investment adviser who, under ERISA, is a fiduciary with respect
to the Trust.
 
	(b)	 	
Kennedy is a registered investment adviser under the
Investment Advisers Act of 1940, and will maintain its registered
status under that Act unless firms engaged in providing real estate
investment advice are no longer permitted to be a registered
investment adviser under that Act. Kennedy is in compliance in all
material respects, and will continue to be in compliance in all
material respects during the entire term of this Agreement, with the
applicable provisions of that Act. Kennedy will provide Riggs with
a current and valid copy of Part II of Kennedy’s Form ADV during the
entire term of this Agreement. Kennedy has also complied with and
will comply with during the entire term of this Agreement, all
applicable regulations, registrations, filings, approvals,
authorizations, consents or examinations required by the United
States Securities and Exchange Commission, the United States
Department of Labor or any other governmental authority having
jurisdiction over its activities or the acts contemplated by this
Agreement.
 
	(c)	 	
The personnel of Kennedy who will be responsible for carrying
out this Agreement are individuals experienced in the making of real
estate investments of the nature contemplated by this Agreement and
are also experienced in the performance of the various functions
contemplated by this Agreement.

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	(d)	 	
Kennedy shall promptly notify Riggs in the event of any
change in control of Kennedy or if Kennedy or any affiliate of
Kennedy is the subject of proceedings properly commenced under any
chapter of the Bankruptcy Act, is the subject of liquidation or
insolvency proceedings properly commenced by a regulatory agency
with jurisdiction to liquidate the business and affairs of a party;
is adjudged insolvent in any proceeding commenced in any court of
competent jurisdiction for the appointment of a receiver, liquidator
or trustee; makes a general assignment for the benefit of creditors;
or admits in writing its inability to pay its debts as they come
due.
 
	(e)	 	
Kennedy has procured and shall maintain at all times during
the term of this Agreement, if commercially available to investment
advisors, errors and omission/professional liability insurance or
fiduciary insurance which specifically includes coverage for the
Trust’s plan assets in the amount of $5,000,000 per occurrence and
$5,000,000 in the aggregate. Kennedy shall furnish to Riggs on an
annual basis certificate(s) of insurance along with a letter setting
forth (i) the amount(s) of coverage, (ii) policy number(s), (iii)
expiration date(s), (iv) retention, and (v) carrier name(s).
Furthermore, Kennedy shall extend a good faith effort in providing
prior written notice to Riggs of any termination or reduction in the
amount or scope of coverage. Kennedy shall notify Riggs immediately
of any claim made under said errors and omission/professional
liability insurance or fiduciary liability insurance and any payment
of proceeds. Maintenance

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of such insurance shall not release Kennedy from any obligations
or liabilities under this Agreement.
 
	(f)	 	
Kennedy should promptly notify Riggs in the event that any of
the foregoing acknowledgments, representations, warranties or
agreements shall no longer be true.

	 	 	 
	15.	 	
Representations of Riggs: With the understanding that Kennedy intends to
rely upon these representations, Riggs represents, warrants and agrees
that: (i) it is the Trustee of the Trust; (ii) Kennedy has been duly
appointed by Riggs to provide investment advice to Riggs in connection
with its duties as Trustee of the Trust; and (iii) Riggs has delivered a
true and correct copy of the Trust Agreement and any amendments thereto as
may be adopted from time to time to Kennedy for convenience of reference,
but the rights, powers and duties of Kennedy shall be governed solely by
the terms of this Agreement without reference to the terms of the Trust
Agreement.
 
	16.	 	
Construction:

	 	 	 
	(a)	 	
This Agreement (including the exhibits, other addenda, if
any, and documents incorporated by reference, if any) constitutes
the entire Agreement between the parties with respect to its subject
matter, and supersedes all prior agreements, proposals, negotiations
and other written or oral communications between the parties with
respect to the subject matter of this Agreement. No waiver of any
breach of this Agreement, and no course of dealing between the
parties, shall be construed as a waiver of any subsequent breach of
this Agreement. Except as expressly

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provided herein, this Agreement may be modified only if such
modifications are in writing and signed by the parties hereto.
 
	(b)	 	
If any one or more of the covenants, agreements, provisions
or terms of this Agreement shall be held contrary to any express
provision of law or contrary to the policy of express law, though
not expressly prohibited, or against public policy, or shall for any
reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other
provisions of this Agreement or the rights of the parties hereto.
Section headings are for convenience of reference only and shall not
affect the interpretation of this Agreement.
 
	(c)	 	
Any reference to a section of ERISA, the Internal Revenue
Code or other laws shall be deemed to include a reference to any
amendment thereof and any successor provisions thereto as well as
any regulations or administrative pronouncements thereunder.
 
	(d)	 	
This Agreement shall be administered, construed and enforced
in accordance with the laws of the District of Columbia as if the
Agreement were executed and performed entirely therein (without
giving effects to principles of conflicts of law) to the extent such
laws have not been preempted by ERISA or other applicable Federal
law.
 
	(e)	 	
This Agreement may be executed in any manner of separate
counterparts, each of which shall together be deemed an original,
but the several

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counterparts shall together constitute but one and the same
Agreement of the parties hereto.

	 	 	 
	17.	 	
Relationship of Parties: The relationship between the parties created by
this Agreement is that of independent contractors, and not partners, joint
venturers or agents. Nothing in this Agreement shall be construed as
obligating the Trust to receive services from Kennedy to pay the fees or
other sums due Kennedy or otherwise render performance due to Kennedy and
Kennedy confirms that it will look solely to Riggs, and not the assets of
the Trust, for the payment of sums due it under this Agreement.
 
	18.	 	
Notice: Any notice, report or other communication required or permitted
to be given hereunder shall be in writing and shall, unless some other
method of giving such notice, report or other communication is accepted by
the party to whom it is given, be given by being mailed by certified mail
to the following parties at the addresses indicated:

	 
	Riggs Bank, N.A
	808 — 17th Street, 12th Floor
	Washington, D.C. 20006
	Attention: Henry A. Dudley, Jr.
	           The Legal Department — Attn: Joe Cahill
 
	Kennedy Associates Real Estate Counsel, Inc.
	2400 Financial Center
	1215 4th Avenue
	Seattle, Washington 98161
	Attention: Jim C. Snyder

	 	 	 
	 	 	
Any party may at any time give notice to the other that it wishes to
change
its address for purposes of this paragraph.

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	19.	 	
Termination:

	 	 	 
	(a)	 	
Except as provided in section 19(b), the term of this
Agreement shall commence on July 15, 2002, and shall continue until
June 30, 2012, (the “Initial Term”) as such may be extended as
provided in this section 19(a). The term of this Agreement shall be
automatically extended on June 30, 2012 and on each two-year
anniversary of June 30, 2012 for two (2) additional years (to June
30 of the year two years after such renewal date). The Initial Term
as so extended is referred to herein as the Extended Term.
 
	(b)	 	
Prior to the expiration of this Agreement or any renewal
term:

	 	 	 
	(i)	 	
Either party may elect to terminate if the
other is the subject of proceedings properly commenced under
any chapter of the Bankruptcy Act; is the subject of
liquidation or insolvency proceedings properly commenced by a
regulatory agency with jurisdiction to liquidate the business
and affairs of a party; is adjudged insolvent in any
proceeding commenced in any court of a competent jurisdiction
for the appointment of a receiver, liquidator or trustee;
makes a general assignment for the benefit of creditors; or
admits in writing its inability to pay its debts as they come
due.
 
	(ii)	 	
Either party may terminate if the other
materially breaches this Agreement or commits, or has
committed prior to the effective date of this Agreement, an
act or omission in the performances contemplated by this
Agreement (or the Prior Agreement between

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the parties) constituting bad faith, willful misfeasance,
negligence or reckless disregard of duties or
responsibilities and such breach or act or omission is not
cured within that period of thirty (30) days next following
the date on which written notice specifying such breach or
act or omission is delivered to the breaching party.
Material breaches for purposes of this section 19 shall
include, but not be limited to, material violations by
Kennedy of Section 8 hereof and material failure by Kennedy
to comply with Section 2 hereof.
 
	(iii)	 	
This Agreement shall terminate (A) on
liquidation of MEPT if the Trust is terminated pursuant to
Section 8.3 of the Trust Agreement, or (B) on Riggs’ removal,
resignation or otherwise ceasing to act as the trustee of the
Trust but this Agreement shall not terminate if (x) Riggs
ceases to be a Trustee because it is acquired and the
acquirer becomes Trustee of the Trust, or (y) a successor
Trustee is appointed which is or will become an affiliate of
Riggs or any successor to Riggs becomes the Trustee of the
Trust by merger, acquisition or reorganization of Riggs or by
sale of Riggs’ trust business in whole or in part.
 
	(iv)	 	
Either party may terminate if the Trust is the
subject of any action by any regulatory authority (including
without limitation the Office of Comptroller of Currency, the
Internal Revenue Service and the

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Department of Labor) which results in conditions under
which the operation of the Trust is not feasible.
 
	(v)	 	
Riggs may terminate this Agreement without
cause in the event that Participating Plans representing 60%
of the Units of the Trust notify within a 30-day period Riggs
and Kennedy in writing, referencing this Section 19(b)(v),
that they wish to terminate Kennedy’s services under this
Agreement.

	 	 	 
	(c)	 	
A party electing to terminate this Agreement pursuant to
subsection (b) of this paragraph shall exercise such election by
written notice given in the manner described in Section 18.
 
	(d)	 	
Upon termination or expiration, Kennedy will promptly honor
all instructions received from Riggs. Kennedy shall provide to
Riggs a final overall report and shall deliver to Riggs any and all
original documents pertaining to Real Estate Investments then in its
possession and, as requested by Riggs, copies of other books and
records relating to the Trust and the Real Estate Investments that
are not already in the possession of Riggs.
 
	(e)	 	
Upon termination, fees of Kennedy shall be prorated to the
date of termination.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.

	 	 	 
	Attest: /s/ Patrick O. Mayberry	 	
RIGGS BANK N.A.
	 
	Dated: May 24, 2002	 	
BY: /s/ Henry A. Dudley, Jr.
	 
	 	 	
ITS: Executive Vice President
	 
	Attest: /s/ Kimberly Addy	 	
KENNEDY ASSOCIATES REAL
ESTATE COUNSEL, INC.
	 
	Dated: 5/24/02	 	
BY: /s/ Jim C. Snyder
	 
	 	 	
ITS: Presidentexv10w1

 

EXHIBIT 10.1

SUNRISE ASSISTED LIVING, INC.

2002 STOCK OPTION AND RESTRICTED STOCK PLAN

               SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the “Corporation”),
sets forth herein the terms of this 2002 Stock Option and Restricted Stock Plan
(the “Plan”) as follows:

1. PURPOSE

               The Plan is intended to advance the interests of the Corporation and any
subsidiary thereof within the meaning of Rule 405 of Regulation C under the
Securities Act of 1933, as amended (the “Securities Act”), with the term
“person” as used in such Rule 405 being defined as in Section 2(2) of the
Securities Act (a “Subsidiary”), by providing eligible individuals (as
designated pursuant to section 4 below) with incentives to improve business
results, by providing an opportunity to acquire or increase a proprietary
interest in the Corporation, which thereby will create a stronger incentive to
expend maximum effort for the growth and success of the Corporation and its
Subsidiaries, and will encourage such eligible individuals to continue to serve
the Corporation and its Subsidiaries, whether as an employee, as a director, as
a consultant or advisor or in some other capacity. To this end, the Plan
provides for the grant of stock options (each of which is an “Option”) and
restricted stock (“Restricted Stock”, and together with Options, “Awards”), as
set out herein. Each Award shall be evidenced by a written agreement between
the Corporation and the recipient individual (the “Award Agreement”) that sets
out the terms and conditions of the Award. A person who is granted an Award
under the Plan is referred to herein as a Grantee.

     An Option may be an incentive stock option (an “ISO”) intended to satisfy
the applicable requirements under Section 422 of the Internal Revenue Code of
1986, as amended from time to time, or the corresponding provision of any
subsequently-enacted tax statute (the “Code”), or a nonqualified stock option
(an “NSO”). An Option is an NSO to the extent that the Option would exceed the
limitations set forth in section 7 below. An Option is also an NSO if either
(i) the Option is specifically designated at the time of grant as an NSO or not
being an ISO or (ii) the Option does not otherwise satisfy the requirements of
Code Section 422 at the time of grant.

2. ADMINISTRATION

     (a)  BOARD

               The Plan shall be administered by the Board of Directors of the
Corporation (the “Board”), which shall have the full power and authority to
take all actions and to make all

 

 

determinations required or provided for under
the Plan or any Award granted or Award Agreement entered into hereunder and all
such other actions and determinations not inconsistent with the specific terms
and provisions of the Plan deemed by the Board to be necessary or appropriate
to the administration of the Plan or any Award granted or Award Agreement
entered into hereunder. The interpretation and construction by the Board of
any provision of the Plan or of any Award granted or Award Agreement entered
into hereunder shall be final, binding and conclusive.

     (b)  ACTION BY COMMITTEE

               The Board from time to time may appoint a Stock Option Committee
consisting of two or more members of the Board of Directors who, in the sole
discretion of the Board, may be the same Directors who serve on the
Compensation Committee, or may appoint the Compensation Committee to serve as
the Stock Option Committee (the “Committee”). The Board, in its sole
discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made
and actions to be taken by the Board pursuant to or with respect to the Plan,
or the Board may delegate to the Committee such powers and authorities related
to the administration of the Plan, as set forth in section 2(a) above, as the
Board shall determine, consistent with the Restated Certificate of
Incorporation and By-Laws of the Corporation and applicable law. In the event
that the Plan or any Award granted or Award Agreement entered into hereunder
provides for any action to be taken by or determination to be made by the
Board, such action may be taken by or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.

     (c)  NO LIABILITY

               No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award
granted or Award Agreement entered into hereunder.

3. STOCK

               The stock that may be issued pursuant to Awards under the Plan shall be
shares of common stock, par value $.01 per share, of the Corporation (the
“Stock”), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Awards
under the Plan shall not exceed, in the aggregate, one million (1,000,000)
shares. If any Award expires or terminates, or is terminated or canceled, for
any reason prior to exercise or delivery of shares thereunder, the shares of
Stock that were subject to the unexercised, forfeited, terminated or canceled
portion of such Award shall be available immediately for future grants of
Awards under the Plan.

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4. ELIGIBILITY

     (a)  DESIGNATED RECIPIENTS

               Subject to the next sentence, Awards may be granted under the Plan to (i)
any director, officer or employee of the Corporation or any Subsidiary as the
Board shall determine and designate from time to time or (ii) any consultant or
advisor providing bona fide services to the Corporation or any Subsidiary
(provided that such services must not be in connection with the offer or sale
of securities in a capital-raising transaction) whose participation in the Plan
is determined by the Board to be in the best interests of the Corporation and
is so designated by the Board. Options granted to a full-time employee of the
Corporation or a “subsidiary corporation” thereof within the meaning of Section
424(f) of the Code shall be either ISOs or NSOs, as determined in the sole
discretion of the Board, and Options granted to any other eligible individual
shall be NSOs.

     (b)  SUCCESSIVE GRANTS

               An individual may hold more than one Award, subject to such restrictions
as are provided herein.

5. EFFECTIVE DATE AND TERM OF THE PLAN

     (a)  EFFECTIVE DATE

               The Plan shall be effective as of the date of adoption by the Board,
subject to approval of the Plan within one year of such effective date by the
vote of the Corporation’s stockholders in accordance with applicable law. Upon
approval of the Plan by the stockholders of the Corporation as set forth above,
however, all Awards granted under the Plan on or after the effective date shall
be fully effective as if the stockholders of the Corporation had approved the
Plan on the Plan’s effective date. If the stockholders fail to approve the Plan
within one year of such effective date, any Awards granted hereunder shall be
null and void and of no effect.

     (b)  TERM

               The Plan shall terminate ten years after the effective date.

6. GRANT OF OPTIONS

     (a)  GENERAL

               Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time, grant to such eligible individuals as the Board may
determine (each of the whom is an “Optionee”), Options to purchase such number
of shares of Stock on such terms and conditions as the Board may determine,
including any terms or conditions that may be necessary to qualify such Options
as ISOs under Section 422 of the Code. Such authority specifically includes the
authority, in order to effectuate the purposes of the Plan but without amending
the Plan, to modify grants to eligible individuals who are foreign nationals or
are individuals who are employed outside the United States to recognize
differences in local law, tax policy or custom.

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     (b)  LIMITATION ON GRANTS OF AWARDS

               During any time when the Corporation has a class of equity security
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the maximum number of shares that can be granted under
the Plan to any person eligible for a grant of an Award under section 4, is
250,000 shares per year subject to an Option and 250,000 shares per year
pursuant to an Award of Restricted Stock (subject to adjustment as provided in
section 18(a) hereof).

7. LIMITATIONS ON INCENTIVE STOCK OPTIONS

               An Option that is designated as being one that is intended to qualify as
an ISO shall qualify for treatment as an ISO only to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Stock with respect to which all options that are intended to constitute
“incentive stock options,” within the meaning of Code Section 422, are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee’s employer corporation and its
parent and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000. If Stock acquired by exercise of an ISO
granted under this Plan is disposed of within two years following the date of
grant of the ISO or one year following the transfer of the subject Stock to the
Optionee (a “disqualifying disposition”), the holder of the Stock shall,
immediately prior to such disqualifying disposition, notify the Corporation in
writing of the date and terms of such disposition and provide such other
information regarding the disposition as the Corporation may reasonably
require.

8. OPTION AGREEMENTS

               All Options granted pursuant to the Plan shall be evidenced by agreements
(“Option Agreements”), to be executed by the Corporation and by the Optionee,
in such form or forms as the Board shall from time to time determine. Option
Agreements covering Options granted from time to time or at the same time need
not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.

9. OPTION PRICE

               The purchase price of each share of Stock subject to an Option (the
“Option Price”) shall be fixed by the Board and stated in each Option
Agreement. The Option Price shall be not less than the greater of par value or
100 percent of the fair market value of a share of Stock on the date on which
the Option is granted (as determined in good faith by the Board); provided,
however, that in the event the Optionee would otherwise be ineligible to
receive an ISO by reason of the provisions of Sections 422(b)(6) and 424(d) of
the Code (relating to stock ownership of more than ten percent), the Option
Price of an Option that is intended to be an ISO shall not be less than the
greater of par value or 110 percent of the fair market value of a share of
Stock at the time such Option is granted. In the event that the Stock is listed
on an established national or regional stock exchange or The Nasdaq Stock
Market, is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, or is publicly traded in

A-4

 

an established securities market, in determining the fair market value of the Stock, the Board
shall use the closing price of the Stock on such exchange or system or in such
market (the highest such closing price if there is more than one such exchange
or market) on the trading date immediately before the Option is granted (or, if
there is no such closing price, then the Board shall use the mean between the
highest bid and lowest asked prices or between the high and low prices on such
date), or, if no sale of the Stock has been made on such day, on the next
preceding day on which any such sale shall have been made.

10. TERM AND EXERCISE OF OPTIONS

     (a)  TERM

               Upon the expiration of ten years from the date on which an ISO is granted
or on such date prior thereto as may be fixed by the Board and stated in the
Option Agreement relating to such Option, that ISO shall be ineligible for
treatment as an “incentive stock option,” as defined in Section 422 of the
Code, and shall be exercisable only as an NSO. In the event the Optionee
otherwise would be ineligible to receive an “incentive stock option” by reason
of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
stock ownership of more than 10 percent), such ten year restriction on
exercisability as an ISO shall be read to
impose a five year restriction on such exercisability. If an Optionee shall
terminate employment prior to the ten-year or five-year limitation described in
the immediately preceding sentences, other than due to death, any outstanding
ISO shall be ineligible for treatment as an “incentive stock option,” as
defined in Section 422 of the Code, and shall be exercisable only as an NSO,
unless exercised within three months after such termination or, in the case of
termination on account of “permanent and total disability” (within the meaning
of Section 22(e)(3) of the Code), within one year after such termination.

     (b)  OPTION PERIOD AND LIMITATIONS ON EXERCISE

               Each Option granted under the Plan shall be exercisable, in whole or in
part, at any time and from time to time, over a period commencing on or after
the date of grant and, to the extent that the Board determines and sets forth a
termination date for such Option in the Option Agreement (including any
amendment thereto), ending upon the stated expiration or termination date. The
Board in its sole discretion may specify events or circumstances, including the
giving of notice, which will cause an Option to terminate as set forth in the
Option Agreement or in this Plan. Without limiting the foregoing but subject to
the terms and conditions of the Plan, the Board may in its sole discretion
provide that an Option may not be exercised in whole or in part for any period
or periods of time during which such Option is outstanding and may condition
exercisability (or vesting) of an Option upon the attainment of performance
objectives, upon continued service, upon certain events or transactions, or a
combination of one or more of such factors, or otherwise, as set forth in the
Option Agreement. Subject to the parachute payment restrictions under section
15(b), however, the Board, in its sole discretion, may rescind, modify or waive
any such limitation or condition on the exercise of an Option contained in any
Option Agreement, so as to accelerate the time at which the Option may be
exercised or extend the period during which the Option may be exercised.
Notwithstanding any other provisions of the Plan, no Option granted to an
Optionee under the Plan shall be

A-5

 

exercisable in whole or in part prior to the
date on which the stockholders of the Corporation approve the Plan, as provided
in section 5 above.

     (c)  METHOD OF EXERCISE

               An Option that is exercisable hereunder may be exercised by delivery to
the Corporation on any business day, at the Corporation’s principal office,
addressed to the attention of the President, of written notice of exercise,
which notice shall specify the number of shares with respect to which the
Option is being exercised and shall be accompanied by payment in full of the
Option Price of the shares for which the Option is being exercised. The minimum
number of shares of Stock with respect to which an Option may be exercised, in
whole or in part, at any time shall be the lesser of (i) 100 shares or such
lesser number set forth in the
applicable Option Agreement and (ii) the maximum number of shares available for
purchase under the Option at the time of exercise. Payment of the Option Price
for the shares of Stock purchased pursuant to the exercise of an Option shall
be made (i) in cash or in cash equivalents; (ii) to the extent permitted by
applicable law and under the terms of the Option Agreement with respect to such
Option, through the tender to the Corporation of shares of Stock, which shares
shall be valued, for purposes of determining the extent to which the Option
Price has been paid thereby, at their fair market value (determined in
accordance with section 9) on the date of exercise; (iii) to the extent
permitted by applicable law and under the terms of the Option Agreement with
respect to such Option, by the delivery of a promissory note of the person
exercising the Option to the Corporation on such terms as shall be set out in
such Option Agreement; or (iv) by a combination of the methods described in
(i), (ii) and (iii). An attempt to exercise any Option granted hereunder other
than as set forth above shall be invalid and of no force and effect. Payment in
full of the Option Price need not accompany the written notice of exercise
provided the notice directs that the Stock certificate or certificates for the
shares for which the Option is exercised be delivered to a licensed broker
acceptable to the Corporation as the agent for the individual exercising the
Option and, at the time such Stock certificate or certificates are delivered,
the broker tenders to the Corporation cash (or cash equivalents acceptable to
the Corporation) equal to the Option Price. Promptly after the exercise of an
Option and the payment in full of the Option Price of the shares of Stock
covered thereby, the individual exercising the Option shall be entitled to the
issuance of a Stock certificate or Stock certificates evidencing his ownership
of such shares. A separate Stock certificate or separate Stock certificates
shall be issued for any shares purchased pursuant to the exercise of an Option
that is an ISO, which certificate or certificates shall not include any shares
that were purchased pursuant to the exercise of an Option that is an NSO.
Unless otherwise stated in the applicable Option Agreement, an individual
holding or exercising an Option shall have none of the rights of a stockholder
(for example, the right to receive cash or stock dividend payments attributable
to the subject shares or to direct the voting of the subject shares) until the
shares of Stock covered thereby are fully paid and issued to him. Except as
provided in section 18 below, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date of such issuance.

     (d)  DATE OF GRANT

               The date of grant of an Option under this Plan shall be the date as of
which the Board approves the grant or such date as is specified by the Board.

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11. TRANSFERABILITY OF OPTIONS

               During the lifetime of an Optionee, only such Optionee (or, in the event
of legal incapacity or incompetence, the guardian or legal representative of
the Optionee) may exercise the Option, except as otherwise specifically
permitted by
this section 11. No Option shall be assignable or transferable other than by
will or in accordance with the laws of descent and distribution; provided,
however, subject to the terms of the applicable Option Agreement, and to the
extent the transfer is in compliance with any applicable restrictions on
transfers, an Optionee may transfer an NSO to a family member of the Optionee
(defined as an individual who is related to the Optionee by blood, adoption, or
marriage) or to a trust established and maintained for the benefit of the
Optionee or a family member of the Optionee (as determined under applicable
state law and the Code).

12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE

               In the Board’s sole discretion, the Board may include language in an
Option Agreement providing for the termination of any unexercised Option in
whole or in part upon or at any time after the termination of employment or
other relationship of the Optionee with the Corporation or a Subsidiary
(whether as an employee, a director, a consultant or advisor providing bona
fide services to the Corporation or a Subsidiary, or otherwise). Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary for purposes of the Plan shall be determined by the
Board, which determination shall be final and conclusive.

13. RESTRICTED STOCK

     (a)  GRANT OF RESTRICTED STOCK

     The Board may from time to time grant Restricted Stock to persons eligible
to receive Awards under Section 4 hereof, subject to such restrictions,
conditions and other terms, if any, as the Board may determine. Awards of
Restricted Stock may be made for no consideration (other than par value of the
shares which is deemed paid by services already rendered).

     (b)  RESTRICTIONS

     At the time a grant of Restricted Stock is made, the Board may, in its
sole discretion, establish a period of time (a “restricted period”) applicable
to such Restricted Stock. Each Award of Restricted Stock may be subject to a
different restricted period. The Board may, in its sole discretion, at the
time a grant of Restricted Stock is made, prescribe restrictions in addition to
or other than the expiration of the restricted period, including the
satisfaction of corporate or individual performance objectives, which may be
applicable to all or any portion of the Restricted Stock in accordance with
subsection (h) below. Restricted Stock may not be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of
during the restricted period or prior to the satisfaction of any other
restrictions prescribed by the Board with respect to such Restricted Stock.

A-7

 

     (c)  RESTRICTED STOCK CERTIFICATES

     The Corporation shall issue, in the name of each Grantee to whom
Restricted Stock has been granted, stock certificates representing the total
number of shares of Restricted Stock granted to the Grantee, as soon as
reasonably practicable after the Grant Date. The Board may provide in an Award
Agreement that either (i) the Secretary of the Corporation shall hold such
certificates for the Grantee’s benefit until such time as the Restricted Stock
is forfeited to the Corporation or the restrictions lapse, or (ii) such
certificates shall be delivered to the Grantee, provided, however, that such
certificates shall bear a legend or legends that comply with the applicable
securities laws and regulations and makes appropriate reference to the
restrictions imposed under the Plan and the Award Agreement.

     (d)  RIGHTS OF HOLDERS OF RESTRICTED STOCK

     Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of shares, or other similar
transaction shall be subject to the restrictions applicable to the original
Grant.

     (e)  TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP

     Unless the Board otherwise provides in an Award Agreement or in writing
after the Award Agreement is issued, upon the termination of a Grantee’s
employment or other relationship with the Corporation or a Subsidiary, any
Restricted Stock held by such Grantee that have not vested, or with respect to
which all applicable restrictions and conditions have not lapsed, shall
immediately be deemed forfeited. Upon forfeiture of Restricted Stock, the
Grantee shall have no further rights with respect to such Award, including but
not limited to any right to vote Restricted Stock or any right to receive
dividends with respect to shares of Restricted Stock.

     (f)  PURCHASE OF RESTRICTED STOCK

     The Grantee shall be required, to the extent required by applicable law,
to purchase the Restricted Stock from the Corporation at a purchase price (the
“Purchase Price”) equal to the greater of (i) the aggregate par value of the
shares of Stock represented by such Restricted Stock or (ii) the Purchase
Price, if any,
specified in the Award Agreement relating to such Restricted Stock. The
Purchase Price shall be payable in a form determined by the Board and set forth
in the Award Agreement.

     (g)  DELIVERY OF STOCK

     Upon the expiration or termination of any restricted period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock shall lapse, and, unless otherwise
provided in the Award Agreement, a stock certificate for such shares shall be
delivered, free of all such restrictions, to the Grantee or the Grantee’s
beneficiary or estate, as the case may be.

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     (h)  PERFORMANCE CRITERIA

            To the extent that the Committee determines that an Award of Restricted
Stock shall meet the requirements of Code section 162(m) and the regulations
thereunder for qualifying as performance-based compensation, one or more of the
following business criteria for the Corporation, on a consolidated basis,
and/or specified subsidiaries or business units of the Corporation (except with
respect to the total stockholder return and earnings per share criteria), shall
be used exclusively by the Committee in establishing performance goals for
Restricted Stock Awards: (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis) of a
publicly available index such as, but not limited to, the Standard & Poor’s 500
Stock Index; (3) net income; (4) pretax earnings; (5) earnings before interest
expense, taxes, depreciation and amortization; (6) pretax operating earnings
after interest expense and before bonuses, service fees, and extraordinary or
special items; (7) operating margin; (8) earnings per share; (9) return on
equity; (10) return on capital; (11) return on investment; (12) operating
earnings; (13) working capital; (14) ratio of debt to stockholders’ equity and
(15) revenue.

14. USE OF PROCEEDS

               The proceeds received by the Corporation from the sale of Stock under the
Plan shall constitute general funds of the Corporation.

15. PARACHUTE LIMITATIONS

               Notwithstanding any other provision of this Plan or of any other
agreement, contract or understanding heretofore or hereafter entered into by
the Grantee with the Corporation, except an agreement, contract or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an “Other Agreement”), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the
Grantee is a member), whether or not such compensation is deferred, is in cash,
or is in the form of a benefit to or for the Grantee (a “Benefit Arrangement”),
if the Grantee is a “disqualified individual,” as defined in Section 280G(c) of
the Code, any Award held by that Grantee and any right to receive any payment
or other benefit under this Plan shall not become exercisable or vested (i) to
the extent that such right to exercise, vesting, payment or benefit, taking
into account all other rights, payments or benefits to or for the Grantee under
this Plan, all Other Agreements and all Benefit Arrangements, would cause any
payment or benefit to the Grantee under this Plan to be considered a “parachute
payment” within the meaning of Section 280G(b)(2) of the Code as then in effect
(a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute
Payment, the aggregate after-tax amounts received by the Grantee from the
Corporation under this Plan, all Other Agreements and all Benefit Arrangements
would be less than the maximum after-tax amount that could be received by him
without causing any such payment or benefit to be considered a Parachute
Payment. In the event that the receipt of any such right to exercise, vesting,
payment or benefit under this Plan, in conjunction with all other rights,
payments or benefits to or for the Grantee under any Other Agreement or any
Benefit Arrangement would cause the Grantee to be considered to have received a
Parachute Payment under this Plan that would have the effect of decreasing the
after-tax amount received by the

A-9

 

Grantee as described in clause (ii) of the
preceding sentence, then the Grantee shall have the right, in the Grantee’s
sole discretion, to designate those rights, payments or benefits under this
Plan, any Other Agreements and any Benefit Arrangements that should be reduced
or eliminated so as to avoid having the payment or benefit to the Grantee under
this Plan be deemed to be a Parachute Payment.

16. REQUIREMENTS OF LAW

               The Corporation shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, the individual exercising the Award or the
Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. If at any time the Corporation shall determine, in its
discretion, that the listing, registration or qualification of any shares
subject to the Award upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory or self-regulatory
body is necessary or desirable as a condition of, or in connection with, the
issuance or purchase of shares, the Award may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Corporation, and any delay caused thereby shall in no way affect the date
of termination of the Award. Specifically in connection with the Securities
Act, upon the exercise of any Award, unless a registration statement under the
Securities Act is in effect with respect to the shares of Stock covered
thereby, the Corporation shall not be required to sell or issue such shares
unless the Board has
received evidence satisfactory to it that the holder of such Award may acquire
such shares pursuant to an exemption from registration under the Securities
Act. Any determination in this connection by the Board shall be final, binding
and conclusive. The Corporation may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act. The
Corporation shall not be obligated to take any affirmative action in order to
cause the exercisability or vesting of an Award or to cause the exercise of an
Award or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Award shall not be exercisable unless
and until the shares of Stock covered by such Award are registered or are
subject to an available exemption from registration, the exercise of such Award
(under circumstances in which the laws of such jurisdiction apply) shall be
deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.

17. AMENDMENT AND TERMINATION OF THE PLAN

               The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Awards have not been
granted. The Corporation may retain the right in an Award Agreement to convert
an ISO into an NSO. The Corporation may also retain the right in an Award
Agreement to cause a forfeiture of the shares of Stock or gain realized by a
holder of an Award (a) if the holder violates any agreement covering
non-competition with the Corporation or any Subsidiary or nondisclosure of
confidential information of the Corporation or any Subsidiary, (b) if the
holder’s employment is terminated for cause or (c) if the Board determines that
the holder committed acts or omissions which would have been the basis for a
termination of holder’s employment for cause had such acts or omissions been

A-10

 

discovered prior to termination of holder’s employment. Furthermore, the
Corporation may, in the Award Agreement, retain the right to annul the grant of
an Award, if the holder of such grant was an employee of the Corporation or a
Subsidiary and the holder’s employment is terminated for cause, as defined in
the applicable Award Agreement. Except as permitted under this section 17 or
section 18 hereof, no amendment, suspension or termination of the Plan shall,
without the consent of the holder of the Award, alter or impair rights or
obligations under any Award theretofore granted under the Plan.

18. EFFECT OF CHANGES IN CAPITALIZATION

     (a)  CHANGES IN STOCK

               If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Corporation on account of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock
dividend or other distribution payable in capital stock, or other increase or
decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, the number and
kind of shares for the acquisition of which Awards may be granted under the
Plan, and the limitations on the maximum number of shares subject to Awards
that can be granted to any individual under the Plan as set forth in section
6(b) hereof, shall be adjusted proportionately and accordingly by the
Corporation. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately before such
event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares that are subject to the
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.

     (b)  REORGANIZATION IN WHICH THE CORPORATION IS THE SURVIVING
CORPORATION

               Subject to subsection (c)(iv) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger or consolidation of the
Corporation with one or more other corporations, any Award theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Award would have been
entitled immediately following such reorganization, merger or consolidation,
with, in the case of an Option, a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation. In
the event of any distribution to the Corporation’s stockholders of securities
of any other entity or other assets (other than dividends payable in cash or
stock of the Corporation) without receipt of consideration by the Corporation,
the Corporation may, in such manner as the Corporation deems appropriate,
adjust (i) the number and kind of shares subject to the outstanding Awards
and/or (ii) the exercise price of outstanding Options to reflect such
distribution.

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     (c)  DISSOLUTION, LIQUIDATION, SALE OF ASSETS, REORGANIZATION IN WHICH
THE CORPORATION IS NOT
     
     
 THE SURVIVING CORPORATION, ETC.

All Options outstanding hereunder shall terminate and all outstanding shares of
Restricted Stock shall be deemed to have vested: (i) upon the dissolution or
liquidation of the Corporation, (ii) upon a merger, consolidation or
reorganization of the Corporation with one or more other corporations in which
the Corporation is not the surviving corporation, (iii) upon a sale of
substantially all of the assets of the
Corporation to another person or entity or (iv) upon a merger, consolidation or
reorganization (or other transaction if so determined by the Board in its sole
discretion) in which the Corporation is the surviving corporation, that is
approved by the Board and that results in any person or entity (other than
persons who are holders of Stock of the Corporation at the time the Plan is
approved by the stockholders and other than an Affiliate) owning 80 percent or
more of the combined voting power of all classes of stock of the Corporation,
except to the extent provision is made in writing in connection with any such
transaction covered by clauses (i) through (iv) for the assumption of such
Awards theretofore granted, or for the substitution for such Awards of new
options or restricted stock covering the stock of a successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and exercise prices, in which event the Awards theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Options, each individual holding an Option
shall have the right (subject to the general limitations on exercise set forth
in section 10(b) above), during such period occurring before such termination
as the Board in its sole discretion shall determine and designate, and in any
event immediately before the occurrence of such termination, to exercise such
Option in whole or in part, to the extent that such Option was otherwise
exercisable at the time such termination occurs, except that, by inclusion of
appropriate language in an Option Agreement, the Board may provide that the
Option may be exercised before termination without regard to any installment
limitation or other condition on exercise imposed pursuant to section 10(b)
above. The Corporation shall send written notice of a transaction or event that
will result in such a termination to all individuals who hold Awards not later
than the time at which the Corporation gives notice thereof to its
stockholders.

     (d)  ADJUSTMENTS

               Adjustments under this section 18 related to stock or securities of the
Corporation shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares of Stock or units
of other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case
by rounding downward to the nearest whole share or unit.

     (e)  NO LIMITATIONS ON CORPORATION

               The grant of an Award pursuant to the Plan shall not affect or limit in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.

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19. DISCLAIMER OF RIGHTS

               No provision in the Plan or in any Award granted or Award Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other
relationship between any individual and the Corporation or any Subsidiary. The
obligation of the Corporation to pay any benefits pursuant to this Plan shall
be interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Corporation to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any participant or beneficiary under the terms of the
Plan.

20. NONEXCLUSIVITY OF THE PLAN

               Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.

21. CAPTIONS

               The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.

22. WITHHOLDING TAXES

               The Corporation shall have the right to deduct from payments of any kind
otherwise due to a Grantee any Federal, state or local taxes of any kind
required by law to be withheld with respect to the vesting of or other lapse of
restrictions applicable to Restricted Stock or upon the issuance of any shares
of Stock upon the exercise of an Option. At the time of such vesting, lapse,
or exercise, the Grantee shall pay to the Corporation, any amount that the
Corporation may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Corporation,
which may be withheld by the Corporation, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Corporation to
withhold shares of Stock otherwise issuable to the Grantee or (ii) by
delivering to the Corporation shares of Stock already owned by the Grantee.
The shares of Stock so delivered or withheld shall have an aggregate fair
market value equal to such withholding obligations. The fair market value of
the shares of Stock used to satisfy such withholding obligation shall be
determined by the Corporation as of the date that the amount of tax to be
withheld is to be determined. A Grantee who has made an election pursuant to
this

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Section 22 may satisfy his or her withholding obligation only with shares
of Stock that are not subject to any repurchase, forfeiture, unfulfilled
vesting, or other similar requirements.

23. OTHER PROVISIONS

               Each Award granted under the Plan may be subject to, and the Award
Agreement relating to such Award may contain, such other terms and conditions
not inconsistent with the Plan as may be determined by the Board, in its sole
discretion. Notwithstanding the foregoing, each ISO granted under the Plan
shall include those terms and conditions that are necessary to qualify the ISO
as an “incentive stock option” within the meaning of Section 422 of the Code or
the regulations thereunder and shall not include any terms or conditions that
are inconsistent therewith.

24. NUMBER AND GENDER

               With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.

25. SEVERABILITY

               If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.

26. GOVERNING LAW

               The validity and construction of this Plan and the instruments evidencing
the Awards granted hereunder shall be governed by the laws of the State of
Delaware (excluding its choice of law rules).

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