SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
AVALON PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Date of Report (Date of earliest event reported):
March 8, 1998
AVALON PROPERTIES, INC.
(Exact name of registrant as specified in charter)
Maryland
(State or other jurisdiction of incorporation)
1-12452 06-1379111
(Commission File No.) (IRS Employer Identification No.)
15 River Road 06897
Wilton Connecticut (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code:
203-761-6500
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Item 5. OTHER EVENTS.
(a) Avalon Properties, Inc. (the "Company") and Bay Apartment
Communities, Inc. ("Bay") have entered into an agreement and plan of merger (the
"Merger Agreement"), dated as of March 9, 1998, pursuant to which Avalon and Bay
will merge (the "Merger"). A copy of the Merger Agreement is filed herewith as
Exhibit 99.1 and is hereby incorporated herein by reference. The press release
announcing the Merger Agreement is filed herewith as Exhibit 99.2 and is hereby
incorporated herein by reference.
(b) In connection with the signing of the Merger Agreement, (i) the
Company, as issuer, and Bay, as grantee, entered into a Stock Option Agreement
(the "Company Stock Option Agreement") and (ii) Bay, as issuer, and the Company,
as grantee, entered into a Stock Option Agreement (the "Bay Stock Option
Agreement"). Copies of the Company Stock Option Agreement and the Bay Stock
Option Agreement are filed herewith as Exhibits 99.3 and 99.4, respectively, and
are hereby incorporated herein by reference.
(c) In connection with the signing of the Merger Agreement, the
Company amended the Amended and Restated Bylaws of the Company. Such amendment
is filed herewith as Exhibit 4.1, and is hereby incorporated herein by
reference.
(d) On March 9, 1998, the Company and Bay held an investor and analyst
meeting relating to the Merger. Filed herewith as Exhibit 99.5, and hereby
incorporated herein by reference, are the presentation materials used at the
meeting (the "Presentation Materials").
(e) In connection with the signing of the Merger Agreement, the
Company has posted certain materials on its Website. The text of such materials
is filed herewith as Exhibit 9.6 and is incorporated herein by reference.
(f) The Board of Directors of the Company authorized a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock, par value $.01 per share, of the Company. The dividend is payable on
March 9, 1998 to the stockholders of record at the close of business on that
date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series C Junior Participating Preferred Stock, par
value $.01 per share, of the Company (the "Preferred Shares") at a price of $120
per one one-hundredth of a Preferred Share, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and First Union National Bank, as Rights
Agent.
A copy of the Rights Agreement and a summary description of the terms
of the Rights is filed herewith as Exhibit 99.7 and are hereby incorporated
herein by reference.
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(g) The descriptions of the matters described in this Current Report
on Form 8-K do not purport to be complete and are qualified in their entirety by
reference to the exhibits hereto.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(c) Exhibits.
4.1 Amendment to Amended and Restated Bylaws of Avalon Properties,
Inc.
99.1 Merger Agreement, dated as of March 9, 1998, by and between
Avalon Properties, Inc. and Bay Apartment Communities, Inc.
99.2 Text of Press Release relating to the Merger and the declaration
of the Rights dated March 9, 1998.
99.3 Stock Option Agreement, dated as of March 9, 1998, by and between
Avalon Properties, Inc., as issuer, and Bay Apartment Communities,
Inc.
99.4 Stock Option Agreement, dated as of March 9, 1998 by and between
Bay Apartment Communities, Inc., as issuer, and Avalon Properties,
Inc.
99.5 Presentation Materials used at an investor and analyst meeting
relating to the Merger.
99.6 Certain materials posted on the website of Avalon Properties, Inc.
99.7 Rights Agreement, dated as of March 9, 1998, between Avalon
Properties, Inc. and First Union National Bank, including the form
of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 10, 1998
AVALON PROPERTIES, INC.
By: /s/ Richard L. Michaux
Name: Richard L. Michaux
Title: Chief Executive Officer
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EXHIBIT LIST
No. Page
4.1 Amendment to Amended and Restated Bylaws of Avalon Properties, Inc.
99.1 Merger Agreement, dated as of March 9, 1998, by and between Avalon
Properties, Inc. and Bay Apartment Communities, Inc.
99.2 Text of Press Release relating to the Merger and the declaration of
the Rights dated March 9, 1998.
99.3 Stock Option Agreement, dated as of March 9, 1998, by and between
Avalon Properties, Inc., as issuer, and Bay Apartment Communities,
Inc.
99.4 Stock Option Agreement, dated as of March 9, 1998 by and between
Bay Apartment Communities, Inc., as issuer, and Avalon Properties,
Inc.
99.5 Presentation Materials used at an investor and analyst meeting
relating to the Merger.
99.6 Certain materials posted on the website of Avalon Properties, Inc.
99.7 Rights Agreement, dated as of March 9, 1998, between Avalon
Properties, Inc. and First Union National Bank, including the form
of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C.
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EXHIBIT 4.1
AVALON PROPERTIES, INC.
Amendments to Amended and Restated ByLaws
1. A new Section 1.14 is hereby added to Article I of the Amended and Restated
ByLaws, which reads in its entirety as follows:
1.14. Control Share Acquisition. Notwithstanding any other provision of
the charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the
Corporations and Associations Article of the Annotated Code of Maryland (or any
successor statute) shall not apply to any acquisition by any person of shares of
stock of the Corporation. Subject to the provisions of Article X of these
bylaws, this section may be repealed, in whole or in part, at any time, whether
before or after an acquisition of control shares, and upon such repeal, may, to
the extent provided by any successor bylaw, apply to any prior or subsequent
control share acquisition.
EXHIBIT 99.1
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AGREEMENT AND PLAN OF MERGER
by and between
BAY APARTMENT COMMUNITIES, INC.
and
AVALON PROPERTIES, INC.
Dated as of March 9, 1998
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS.................................. 1
Section 1.1. Certain Definitions............................ 1
ARTICLE II THE MERGER; EFFECTS OF THE MERGER.................... 7
Section 2.1. The Merger..................................... 7
Section 2.2 Charter and By-Laws............................ 7
Section 2.3 Closing........................................ 7
Section 2.4. Effectiveness and Effects of the Merger........ 7
Section 2.5. Tax Consequences............................... 8
Section 2.6. Accounting Treatment........................... 8
Section 2.7. Boards, Committees and Officers................ 8
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES............ 8
Section 3.1. Merger Consideration........................... 8
Section 3.2. Rights as Stockholders; Stock Transfers........ 9
Section 3.3. Fractional Shares.............................. 9
Section 3.4. Exchange Procedures............................ 9
Section 3.5. Anti-Dilution Provisions....................... 10
Section 3.6. Treasury Shares................................ 11
Section 3.7. Options........................................ 11
ARTICLE IV ACTIONS PENDING MERGER............................... 11
Section 4.1. Ordinary Course................................ 12
Section 4.2. Stock.......................................... 12
Section 4.3. Dividends, Etc................................. 12
Section 4.4. Compensation; Employment Agreements;
Etc............................................ 13
Section 4.5. Benefit Plans.................................. 13
Section 4.6. Acquisitions, Dispositions and Capital
Expenditures................................... 13
Section 4.7. Amendments..................................... 14
Section 4.8. Accounting Methods............................. 14
Section 4.9. Adverse Actions................................ 14
Section 4.10. Agreements..................................... 14
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ARTICLE V REPRESENTATIONS AND WARRANTIES....................... 14
Section 5.1. Disclosure Schedules........................... 14
Section 5.2. Standard....................................... 15
Section 5.3. Representations and Warranties................. 15
ARTICLE VI COVENANTS............................................ 25
Section 6.1. Best Efforts................................... 25
Section 6.2. Stockholder Approvals.......................... 25
Section 6.3. Registration Statement......................... 25
Section 6.4. Press Releases................................. 26
Section 6.5. Access; Information............................ 27
Section 6.6. Acquisition Proposals.......................... 27
Section 6.7. Affiliate Agreements........................... 28
Section 6.8. Takeover Laws.................................. 28
Section 6.9. No Rights Triggered............................ 28
Section 6.10. Shares Listed.................................. 28
Section 6.11. Filings; Consents.............................. 28
Section 6.12. Indemnification; Directors' and
Officers' Insurance............................ 29
Section 6.13. Compensation and Benefit Plans................. 31
Section 6.14. Transfer and Gains Taxes....................... 31
Section 6.15. Headquarters................................... 31
Section 6.16. Notification of Certain Matters................ 31
Section 6.17. Interim Transactions Committee................. 32
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............. 32
Section 7.1. Stockholder Vote............................... 32
Section 7.2. Governmental Approvals......................... 32
Section 7.3. Third Party Consents........................... 32
Section 7.4. No Injunction, Etc............................. 32
Section 7.5. Representations, Warranties and
Covenants of Avalon............................ 32
Section 7.6. Representations, Warranties and
Covenants of Bay............................... 33
Section 7.7. Effective Registration Statement............... 33
Section 7.8. Tax Opinion Relating to the Merger............. 33
Section 7.9. Tax Opinion Relating to REIT Status............ 34
Section 7.10. NYSE Listing................................... 34
Section 7.11. Rights Agreement............................... 34
Section 7.12. REIT Income.................................... 34
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ARTICLE VIII TERMINATION.......................................... 34
Section 8.1. Termination.................................... 34
Section 8.2. Effect of Termination and Abandonment.......... 35
Section 8.3. Break-Up Expenses.............................. 35
ARTICLE IX MISCELLANEOUS........................................ 36
Section 9.1. Survival....................................... 36
Section 9.2. Waiver; Amendment.............................. 36
Section 9.3. Counterparts................................... 36
Section 9.4. Governing Law.................................. 37
Section 9.5. Expenses....................................... 37
Section 9.6. Confidentiality................................ 37
Section 9.7. Notices........................................ 37
Section 9.8. Understanding; No Third Party
Beneficiaries.................................. 38
Section 9.9. Headings; Interpretation....................... 38
EXHIBIT A Board of Directors, Committees and Officers of the
Surviving Corporation
EXHIBIT B Form of Affiliate Letter Addressed to Bay
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 9, 1998 (this
"Agreement"), by and between Bay Apartment Communities, Inc., a Maryland
corporation ("Bay"), and Avalon Properties, Inc., a Maryland corporation
("Avalon").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Bay and Avalon have determined
that it is in the best interests of their respective companies and their
stockholders to consummate the strategic business merger transaction provided
for herein, in which Avalon will, subject to the terms and conditions set forth
herein, merge (the "Merger") with and into Bay so that Bay is the surviving
corporation in the Merger;
WHEREAS, in connection with the execution of this Agreement, Bay and
Avalon are entering into a stock option agreement, with Bay as issuer and Avalon
as grantee (the "Bay Stock Option Agreement");
WHEREAS, in connection with the execution of this Agreement, Avalon
and Bay are entering into a stock option agreement, with Avalon as issuer and
Bay as grantee (the "Avalon Stock Option Agreement" and, together with Bay Stock
Option Agreement, the "Stock Option Agreements"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in Section 6.7(a).
"Agreement" shall have the meaning set forth in the preamble to
this Agreement.
"Articles of Merger" shall have the meaning set forth in Section
2.4.
"Avalon" shall have the meaning set forth in the preamble to this
Agreement.
"Avalon Common Stock" shall have the meaning set forth in Section
3.1(a).
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"Avalon Compensation and Benefit Plans" shall mean the Compensation
and Benefit Plans of Avalon.
"Avalon Meeting" shall have the meaning set forth in Section 6.2.
"Avalon Partnership Agreement" shall mean, collectively, the
Agreement of Limited Partnership of Avalon Ballston II, L.P., dated as of
January 13, 1997 and the Second Amended and Restated Agreement of Limited
Partnership of Avalon DownREIT V, L.P., dated as of December 22, 1997.
"Avalon Preferred Stock" shall mean, collectively, Avalon Series A
Preferred Stock and Avalon Series B Preferred Stock.
"Avalon Right" shall have the meaning set forth in Section 3.1(a).
"Avalon Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Avalon Series A Preferred Stock" shall have the meaning set forth
in Section 3.1(b).
"Avalon Series B Preferred Stock" shall have the meaning set forth
in Section 3.1(b).
"Avalon Stock" shall mean Avalon Common Stock and Avalon
Preferred Stock.
"Avalon Stock Option" shall have the meaning set forth in Section
3.7(a).
"Avalon Stock Option Agreement" shall have the meaning set forth in
the recitals to this Agreement.
"Avalon Stock Option Plans" shall have the meaning set forth in
Section 3.7(a).
"Bay" shall have the meaning set forth in the preamble to this
Agreement.
"Bay Common Stock" shall have the meaning set forth in Section
3.1(a).
"Bay Meeting" shall have the meaning set forth in Section 6.2.
"Bay Partnership Agreements" shall mean, collectively, the Agreement
of Limited Partnership of Bay Countrybrook, L.P., dated as of July 12, 1996 and
Agreement of Limited Partnership of Bay Pacific Northwest, L.P., dated as of
September 12, 1997.
"Bay Preferred Holder" shall have the meaning set forth in
Section 5.3(u).
"Bay Preferred Stock" shall mean, collectively, the Bay Series A
Preferred Stock, the Bay Series B Preferred Stock, the Bay Series C Preferred
Stock and the Bay Series D Preferred Stock.
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"Bay Right" shall have the meaning set forth in Section 3.1(a).
"Bay Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Bay Series A Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series B Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series C Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series D Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Stock" shall mean Bay Common Stock and Bay Preferred Stock.
"Bay Stock Option Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Break-Up Expenses" shall have the meaning set forth in Section
8.3.
"Break-Up Expenses Tax Opinion" shall have the meaning set forth
in Section 8.3.
"Claim" shall have the meaning set forth in Section 6.12(a).
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" shall have the meaning set forth
in Section 5.3(l)(i).
"Confidentiality Agreement" shall mean the Confidentiality
Agreement, dated as of March 7, 1998, between Bay and Avalon.
"Disclosure Schedule" shall have the meaning set forth in Section
5.1.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Effective Time" shall have the meaning set forth in Section 2.4.
"Encumbrances" shall have the meaning set forth in Section
5.3(o)(ii).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
5.3(l)(iv).
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" shall have the meaning set forth in Section
3.4(a).
"Exchange Fund" shall have the meaning set forth in Section
3.4(a).
"Exchange Ratio" shall have the meaning set forth in Section
3.1(a).
"Final Company Dividend" shall have the meaning set forth in
Section 7.12.
"GAAP" shall have the meaning set forth in Section 7.12.
"Governmental Entity" shall mean any court, administrative agency,
commission or other governmental authority or instrumentality, whether local,
state, federal or foreign.
"Hazardous Materials" shall have the meaning set forth in Section
5.3(p).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Parties" shall have the meaning set forth in Section
6.12(a).
"Joint Proxy Statement" shall have the meaning set forth in
Section 6.3(a).
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" shall mean with respect to Bay or Avalon,
respectively, any effect that (i) is material and adverse to the financial
position, results of operations, assets or business of Bay and its Subsidiaries
taken as a whole, or Avalon and its Subsidiaries taken as a whole, respectively,
or (ii) would materially impair the ability of Bay or Avalon, respectively, to
perform its obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (a) changes in laws of general
applicability or interpretations thereof by courts or governmental authorities,
(b) changes in generally accepted accounting principles, (c) actions or
omissions of Bay or Avalon taken with the prior written consent of Bay or
Avalon, as applicable, in contemplation of the transactions contemplated hereby,
(d) circumstances affecting real estate investment trusts or real estate
companies generally, and (e) the effects of the Merger and compliance by either
party with the provisions of this Agreement on the financial position, results
of operations, assets or business of such party and its Subsidiaries, or the
other party and its Subsidiaries, as the case may be.
"Meeting" shall have the meaning set forth in Section 6.2.
"Merger" shall have the meaning set forth in the recitals to this
Agreement and in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in
Section 2.1.
"MGCL" shall have the meaning set forth in Section 2.4.
"Multiemployer Plans" shall have the meaning set forth in Section
5.3(l)(iii).
"New Certificates" shall have the meaning set forth in Section
3.4(a).
"NYSE" shall mean The New York Stock Exchange, Inc.
"Old Certificates" shall have the meaning set forth in Section
3.4(a).
"Payor" shall have the meaning set forth in Section 8.3.
"PCX" shall mean the Pacific Exchange, Inc.
"Pension Plan" shall have the meaning set forth in Section
5.3(l)(iii).
"Person" or "person" shall mean any individual, bank, corporation,
partnership, limited liability company, association, joint-stock company,
business trust or unincorporated organization.
"Plans" shall have the meaning set forth in Section 5.3(l)(iii).
"Previously Disclosed" by a party shall mean information set
forth in its Disclosure Schedule.
"Properties" shall have the meaning set forth in Section
5.3(o)(i).
"Property Restrictions" shall have the meaning set forth in
Section 5.3(o)(ii).
"Qualifying Income" shall have the meaning set forth in Section
8.3.
"Recipient" shall have the meaning set forth in Section 8.3.
"Registration Statement" shall have the meaning set forth in
Section 6.3(a).
"REIT" shall mean a real estate investment trust within the meaning
of Section 856 of the Code.
"REIT Requirements" shall have the meaning set forth in Section
8.3.
"Rights" shall mean, with respect to any person, securities or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire, or any options, calls or commitments relating to,
shares of stock of such person.
"SDAT" shall have the meaning set forth in Section 2.4.
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"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section
5.3(g).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
A "Significant Subsidiary" of a person shall mean a Subsidiary,
including its Subsidiaries, in which such person's total investment or
proportionate share of total assets of such subsidiary exceeds 10% of the total
assets of such person and its subsidiaries consolidated as of the end of the
most recently completed fiscal year.
"Stock Option Agreements" shall have the meaning set forth in the
recitals to this Agreement.
A "Subsidiary" of a person shall mean a person in which at least 10%
of the voting power of the voting securities is held, directly or indirectly, by
such person.
"Surviving Corporation" shall have the meaning set forth in
Section 2.1.
"Surviving Corporation Series F Preferred Stock" shall have the
meaning set forth in Section 3.1(b).
"Surviving Corporation Series G Preferred Stock" shall have the
meaning set forth in Section 3.1(b).
"Takeover Laws" shall have the meaning set forth in Section
5.3(n)(i).
"Tax Returns" shall have the meaning set forth in Section 5.3(q).
"Taxes" shall mean (i) all taxes, charges, fees, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, goods and services, capital, transfer, franchise, profits, license,
withholding, payroll, employment, employer health, excise, estimated, severance,
stamp, occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority; and (ii)
any liability for the payment of amounts with respect to payments of a type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation under
any tax sharing arrangement or tax indemnity agreement.
"Transfer and Gains Taxes" shall have the meaning set forth in
Section 6.14.
"Treasury Shares" shall have the meaning set forth in Section
3.1(a).
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ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.1. The Merger. At the Effective Time, Avalon shall merge with
and into Bay (the "Merger"), the separate corporate existence of Avalon shall
cease and Bay shall survive and continue to exist as a Maryland corporation
(Bay, as the surviving corporation in the Merger, being sometimes referred to
herein as the "Surviving Corporation"). The parties hereto may by mutual
agreement at any time change the method of effecting the combination between
Bay and Avalon (including the provisions of this Article II) if and to the
extent the parties deem such change to be desirable, including to provide for
a merger of Avalon with an affiliate of Bay in a transaction in which Bay
causes the assets of Avalon to be directed to such affiliate; provided,
however, that no such change shall (A) alter or change the amount or kind of
consideration to be issued to holders of Avalon Stock as provided for in this
Agreement (the "Merger Consideration"), (B) adversely affect the tax treatment
of Avalon's stockholders as a result of receiving the Merger Consideration or
(C) materially impede or delay consummation of the transactions contemplated
by this Agreement.
2.2. Charter and By-Laws. Unless the same already shall have been
adopted, the Articles of Merger shall provide that, at the Effective Time, (i)
the charter of the Surviving Corporation shall be the charter of Bay, as such
charter may be amended as agreed to by Bay and Avalon and set forth in the
Articles of Merger or any articles of amendment filed prior to the Effective
Time and (ii) the corporate name of the Surviving Corporation shall be Avalon
Bay Communities, Inc. The by-laws of the Surviving Corporation shall be the
by-laws of Bay at the Effective Time, which by-laws shall be agreed upon by Bay
and Avalon prior to the Effective Time.
2.3. Closing. The closing of the Merger (the "Closing") will occur
at 10:00 a.m., New York time, on the date to be specified by the parties, which
(subject to the satisfaction or waiver of the conditions as set forth in Article
VII in accordance with this Agreement) shall be no later than the third business
day to occur after the last of the conditions set forth in Sections 7.1, 7.2,
7.3, 7.7 and 7.10 shall have been satisfied or waived in accordance with the
terms of this Agreement (the "Closing Date"), at the offices of Goodwin, Procter
& Hoar LLP, 599 Lexington Avenue, New York, New York 10022, unless another date
or place is agreed to in writing by the parties.
2.4. Effectiveness and Effects of the Merger. On the Closing Date,
or at such time as may otherwise be agreed by the parties, Bay and Avalon shall
execute and file with the State Department of Assessments and Taxation of
Maryland (the "SDAT") articles of merger (the "Articles of Merger"). The Merger
shall become effective (the "Effective Time") when the Articles of Merger are
accepted for record by the SDAT or such other time, if any, as Bay and Avalon
shall specify in the Articles of Merger. The Merger shall have the effects
prescribed in Section 3-114 of the Maryland General Corporation Law ("MGCL").
The date on which the Effective Time occurs is referred to as the "Effective
Date."
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2.5. Tax Consequences. It is intended that the Merger shall
qualify as a reorganization under Section 368(a) of the Code, and that the
Agreement shall constitute a "plan of reorganization" for purposes of Section
368 of the Code.
2.6. Accounting Treatment. It is intended that the
Merger be accounted for as a purchase under generally accepted accounting
principles ("GAAP").
2.7. Boards, Committees and Officers. At the Effective Time, the
Board of Directors, committees of the Board of Directors, composition of such
committees (including chairmen thereof) and certain officers of the Surviving
Corporation (as indicated in Exhibit A) shall be as set forth on Exhibit A until
the earlier of the resignation or removal of any individual listed on or
designated in accordance with Exhibit A or until their respective successors are
duly appointed or elected and qualified, as the case may be. If any officer
listed on or appointed in accordance with Exhibit A ceases to be a full-time
employee of Bay or Avalon prior to the Effective Time, or if any director,
committee member or committee chairman listed or designated on Exhibit A is not
serving as a director at the Effective Time, the Board of Directors of Bay or
Avalon, as the case may be, after consultation with the other party, shall
designate another person to serve in such person's stead in accordance with
Exhibit A.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.1. Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or stockholder:
(a) Outstanding Avalon Common Stock. Each share (excluding (i)
shares held by Avalon or any of its Subsidiaries or by Bay or any of its
Subsidiaries, other than in a fiduciary capacity ("Treasury Shares")) of the
common stock, par value $.01 per share, of Avalon, including each attached right
(a "Avalon Right") issued pursuant to the Rights Agreement, dated as of March 9,
1998, as amended (the "Avalon Rights Agreement"), between Avalon and the Rights
Agent named therein (the "Avalon Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted into and become the
right to receive 0.7683 shares (subject to adjustment as set forth herein, the
"Exchange Ratio") of common stock, par value $.01 per share, of Bay (the "Bay
Common Stock"). One preferred share purchase right (a "Bay Right") issued
pursuant to the Rights Agreement, dated as of March 9, 1998, as amended (the
"Bay Rights Agreement") shall be issued together with and shall attach to each
share of Bay Common Stock issued pursuant to the Merger, unless the Bay Rights
have been redeemed prior to the Effective Time.
(b) Outstanding Avalon Preferred Stock. Each share of Avalon 9%
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share,
liquidation preference $25 per share (the "Avalon Series A Preferred Stock"),
excluding any Treasury Shares, issued and outstanding immediately prior to the
Effective Time shall become and be converted into the right to
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receive one share of a newly created series of preferred stock of the Surviving
Corporation (the "Surviving Corporation Series F Preferred Stock") having terms
(to be set forth in the charter of the Surviving Corporation) substantially
identical to those of the Avalon Series A Preferred Stock. Each share of Avalon
8.96% Series B Cumulative Redeemable Preferred Stock, par value $.01 per share,
liquidation preference $25 per share (the "Avalon Series B Preferred Stock,"
collectively with the Avalon Series B Preferred Stock, the "Avalon Preferred
Stock"), excluding any Treasury Shares, issued and outstanding immediately
prior to the Effective Time, shall become and be converted into the right to
receive one share of a newly created series of preferred stock of the Surviving
Corporation (the "Surviving Corporation Series G Preferred Stock") having terms
(to be set forth in the charter of the Surviving Corporation) substantially
identical to those of the Avalon Series B Preferred Stock.
(c) Outstanding Bay Common Stock. Each share of Bay Common Stock,
including each attached Bay Right (unless redeemed prior to the Effective Time),
issued and outstanding immediately prior to the Effective Time shall remain
outstanding following the Effective Time.
(d) Outstanding Bay Preferred Stock. Each share of Bay Series A
Preferred Stock (the "Bay Series A Preferred Stock"), Bay Series B Preferred
Stock (the "Bay Series B Preferred Stock"), Bay 8.50% Series C Preferred Stock
(the "Bay Series C Preferred Stock"), and Bay 8.00% Series D Preferred Stock
(the "Bay Series D Preferred Stock") issued and outstanding immediately prior to
the Effective Time shall remain outstanding following the Effective Time.
3.2. Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Avalon Stock shall cease to be, and shall have no rights as,
stockholders of Avalon, other than to receive any dividend or other distribution
with respect to such Avalon Stock with a record date occurring prior to the
Effective Time and to receive the consideration provided under this Article III.
After the Effective Time, there shall be no transfers on the stock transfer
books of Avalon of shares of Avalon Stock.
3.3. Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Bay Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Bay shall pay to each holder of Avalon Common Stock who would otherwise
be entitled to a fractional share of Bay Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash to be paid in
lieu of fractional shares (without interest) determined by multiplying such
fraction by the average of the last sale prices of Bay Common Stock, as reported
by the NYSE Composite Transactions reporting system (as reported in The Wall
Street Journal or, if not reported therein, in another authoritative source),
for the five NYSE trading days immediately preceding the Effective Date.
3.4. Exchange Procedures. (a) At or prior to the Effective Time,
Bay shall deposit, or shall cause to be deposited, with a bank or trust company
selected by Bay and reasonably acceptable to Avalon (the "Exchange Agent"), for
the benefit of the holders of certificates formerly representing shares of
Avalon Stock ("Old Certificates"), for exchange in accordance
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with this Article III, certificates representing the shares of Bay Stock ("New
Certificates") and an estimated amount of cash to be paid in lieu of fractional
shares (such cash and New Certificates, together with any dividends or
distributions with respect thereto (without any interest thereon), being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to this
Article III in exchange for outstanding shares of Avalon Stock.
(b) As promptly as practicable after the Effective Date, Bay shall
send or cause to be sent to each former holder of record of shares (other than
Treasury Shares) of Avalon Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's Old Certificates
for the consideration set forth in this Article III. Bay shall cause the New
Certificates into which shares of a stockholder's Avalon Stock are converted on
the Effective Date and/or any check in respect of any fractional share interests
or dividends or distributions which such person shall be entitled to receive to
be delivered to such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Avalon Stock (or indemnity reasonably
satisfactory to Bay and the Exchange Agent, if any of such certificates are
lost, stolen or destroyed) owned by such stockholder. No interest will be paid
on any such cash to be paid pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto or any affiliate thereof shall be liable to any former holder
of Avalon Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to Bay Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Avalon Stock
converted in the Merger into shares of such Bay Stock until the holder thereof
shall surrender such Old Certificate in accordance with this Article III. After
the surrender of an Old Certificate in accordance with this Article III, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Bay Stock represented by such Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Avalon for twelve months after the Effective Time shall be paid
to Bay. Any stockholders of Avalon who have not theretofore complied with this
Article III shall thereafter look only to Bay for payment of the shares of Bay
Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the Bay Stock deliverable in respect of each share of Avalon
Stock such stockholder holds as determined pursuant to this Agreement, in each
case, without any interest thereon.
3.5. Anti-Dilution Provisions. In the event Bay or Avalon changes
(or establishes a record date for changing) the number of, or provides for the
exchange of, shares of Bay Common Stock or Avalon Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization, reclassification, reorganization or similar
transaction with respect to the outstanding Bay Common Stock or Avalon Common
Stock and
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the record date therefor shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately and appropriately adjusted.
3.6. Treasury Shares. Each of the shares of Avalon Stock
constituting Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.7. Options. (a) At the Effective Time, all employee and director
stock options to purchase shares of Avalon Common Stock (each, a "Avalon Stock
Option"), which are then outstanding and unexercised, shall cease to represent a
right to acquire shares of Avalon Stock and shall be converted automatically
into options to purchase shares of Bay Common Stock, and Bay shall assume each
such Avalon Stock Option subject to the terms of any of the stock option plans
listed under "Stock Plans" in Section 5.3(l)(i) of Avalon's Disclosure Schedule
(collectively, the "Avalon Stock Option Plans"), and the agreements evidencing
grants thereunder; provided, however, that from and after the Effective Time,
(i) the number of shares of Bay Common Stock purchasable upon exercise of such
Avalon Stock Option shall be equal to the number of shares of Avalon Common
Stock that were purchasable under such Avalon Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounding to the nearest
whole share, and (ii) the per share exercise price under each such Avalon Stock
Option shall be adjusted by dividing the per share exercise price of each such
Avalon Stock Option by the Exchange Ratio, rounding to the nearest cent. The
terms of each Avalon Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization or other similar transaction with respect to Bay
Common Stock on or subsequent to the Effective Date. Notwithstanding the
foregoing, the number of shares and the per share exercise price of each Avalon
Stock Option which is intended to be an "incentive stock option" (as defined in
Section 422 of the Code) shall be adjusted in accordance with the requirements
of Section 424 of the Code. Accordingly, with respect to any incentive stock
options, fractional shares shall be rounded down to the nearest whole number of
shares and where necessary the per share exercise price shall be rounded up to
the nearest cent.
(b) At or prior to the Effective Time, Bay shall reserve for
issuance the number of shares of Bay Common Stock necessary to satisfy Bay's
obligations under Section 3.7(a). At the Effective Time, Bay shall file with the
SEC a registration statement on an appropriate form under the Securities Act
with respect to the shares of Bay Common Stock subject to options to acquire Bay
Common Stock issued pursuant to Section 3.7(a) hereof, and shall use its best
efforts to maintain the current status of the prospectus contained therein, as
well as comply with any applicable state securities or "blue sky" laws, for so
long as such options remain outstanding.
ARTICLE IV
ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except as set forth
in the Disclosure Schedule or expressly contemplated by this Agreement, without
the prior written consent of the
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Interim Transactions Committee, (i) Bay will not, and will cause each of its
Subsidiaries not to, and (ii) Avalon will not, and will cause each of its
Subsidiaries not to:
4.1. Ordinary Course. Conduct the business of it and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent therewith, fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees, tenants, landlords and
business associates, or take any action that would (i) adversely affect the
ability of any party to obtain any necessary approvals of any Governmental
Entities required for the transactions contemplated hereby or (ii) adversely
affect its ability to perform any of its material obligations under this
Agreement.
4.2. Stock. Other than (i) pursuant to Rights or other stock
options or stock-based awards Previously Disclosed in its Disclosure Schedule or
as otherwise set forth in the Disclosure Schedule, (ii) upon conversion of
shares of its preferred stock pursuant to the terms thereof, (iii) pursuant to
the Bay Option Agreement (in the case of Bay) or the Avalon Option Agreement (in
the case of Avalon), or (iv) pursuant to the Bay Rights Agreement (in the case
of Bay) or the Avalon Rights Agreement (in the case of Avalon), (w) issue, sell
or otherwise permit to become outstanding, or authorize the creation of, any
additional shares of stock, any securities (including units of beneficial
ownership interest in any partnership or limited liability company) convertible
into or exchangeable for any additional shares of stock, stock appreciation
rights or any Rights, any stock appreciation rights or any Rights or take any
action related to such issuance or sale, (x) enter into any agreement with
respect to the foregoing, (y) permit any additional shares of stock, any
securities (including units of beneficial ownership interest in any partnership
or limited liability company) convertible into or exchangeable for any
additional shares of stock, stock appreciation rights or any Rights, any stock
appreciation rights or any Rights to become subject to new grants of employee
stock options, stock appreciation rights, or similar stock-based employee
rights, or (z) change (or establish a record date for changing) the number of,
or provide for the exchange of, shares of its stock, any securities (including
units of beneficial ownership interest in any partnership or limited liability
company) convertible into or exchangeable for any additional shares of stock,
stock appreciation rights or any Rights, any stock appreciation rights or any
Rights issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization, reclassification, reorganization or
similar transaction with respect to its outstanding stock or any other such
securities.
4.3. Dividends, Etc. (1) Make, declare or pay any dividend other
than (i) in the case of Bay, (A) regular quarterly cash dividends on Bay Stock
in the ordinary course consistent with past practice (provided that it is
understood and agreed that Bay will, on the date of announcement of the
transactions contemplated hereby, also announce that Bay is increasing its
regular quarterly dividend by an amount equal to $0.09 per share of Bay Stock in
excess of Bay's current quarterly dividend, effective with respect to all
dividends payable from and after the Effective Time, and provided, further, that
should Bay so determine, Bay's current quarterly dividend may be so increased
prior to the Effective Time) and (B) dividends from greater than 95%-owned
Subsidiaries to Bay or another greater than 95%-owned Subsidiary of Bay, as
applicable, and (ii) in the case of Avalon, (A) regular quarterly cash dividends
on Avalon Stock in the ordi-
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nary course consistent with past practice and (B) dividends from greater than
95%-owned Subsidiaries to Avalon or another greater than 95%-owned Subsidiary
of Avalon, as applicable) on or in respect of, or declare or make any
distribution on any shares of its stock, or (2) other than (A) as Previously
Disclosed in its Disclosure Schedule or (B) in the ordinary course pursuant to
employee benefit plans, directly or indirectly combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its stock. After the date hereof,
each of Bay and Avalon shall coordinate with the other the declaration of any
dividends in respect of Bay Common Stock and Avalon Common Stock and the record
dates and payment dates relating thereto, it being the intention of the parties
hereto that holders of Bay Common Stock or Avalon Common Stock shall not
receive two dividends for any single calendar quarter with respect to their
shares of Bay Common Stock and/or Avalon Common Stock and any shares of Bay
Common Stock any such holder receives in exchange therefor in the Merger. In
addition, notwithstanding the foregoing, Avalon shall be permitted to pay the
Final Company Dividend, and if Avalon shall declare the Final Company Dividend,
Bay shall be permitted to declare a dividend per share to holders of Bay Common
Stock, the record date for which shall be the close of business on the last
business day prior to the Effective Time, in an amount per share of Bay Common
Stock equal to the quotient obtained by dividing (x) the Final Company Dividend
per share of Avalon Common Stock paid by Avalon by (y) the Exchange Ratio.
4.4. Compensation; Employment Agreements; Etc. Except as set forth
on Section 6.13 of the Bay Disclosure Schedule or on Section 6.13 of the Avalon
Disclosure Schedule, enter into or amend any written employment, severance or
similar agreements or arrangements with any of its directors, officers or
employees, or grant any salary or wage increase or increase any employee benefit
(including incentive or bonus payments), except for (i) normal individual
increases in compensation to employees in the ordinary course of business
consistent with past practice or (ii) other changes as are provided for herein
or as may be required by law or to satisfy contractual obligations listed on the
Disclosure Schedule existing as of the date hereof or additional grants of
awards to newly hired employees consistent with past practice or such changes
that, either individually or in the aggregate, would not reasonably be expected
to result in a material liability to it or its Subsidiaries.
4.5. Benefit Plans. Except as set forth on Section 6.13 of the Bay
Disclosure Schedule or on Section 6.13 of the Avalon Disclosure Schedule, enter
into or amend (except as may be required by applicable law, to satisfy
contractual obligations existing as of the date hereof or amendments which,
either individually or in the aggregate, would not reasonably be expected to
result in a material liability to it or its Subsidiaries) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or exercise
of any benefits payable thereunder.
4.6. Acquisitions, Dispositions and Capital Expenditures. Except
as Previously Disclosed in its Disclosure Schedule, (i) dispose of or
discontinue any portion of its assets, business or properties which is material
to it and its Subsidiaries taken as a whole (other than sales of
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its or any of its Subsidiaries' "for sale" housing units and condominiums sold
or developed for sale in the ordinary course of business), or acquire all or
any portion of, the business or property of any other entity which is material
to it and its Subsidiaries taken as a whole, (ii) make any acquisition, or take
any other action, which would materially and adversely affect its ability to
consummate the transactions contemplated by this Agreement or (iii) make or
agree to make any development or capital expenditures, except (A) in accordance
with capital expenditure budgets previously delivered to and agreed to by the
other party, or (B) in connection with acquisition, development,
pre-development, investigation and due diligence activities related to future
development which future development has been previously discussed with and
approved in writing by the other party.
4.7. Amendments. Amend its charter or by-laws in a manner that
would adversely affect either party's ability to consummate the Merger or the
economic benefits of the Merger to either party or amend, redeem or waive any
rights under the Bay Rights Agreement or the Avalon Rights Agreement, as the
case may be.
4.8. Accounting Methods. Implement or adopt any change
in its accounting principles, practices or methods, other than as may be
required by generally accepted accounting principles.
4.9. Adverse Actions. (1) Knowingly take any action that would, or
would be reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code or render either
party ineligible for REIT status or constitute a prohibited transaction under
the REIT rules; or (2) knowingly take any action that is intended or is
reasonably likely to result in (x) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect at any
time prior to the Effective Time, (y) any of the conditions to the Merger set
forth in Article VII not being satisfied, or (z) a material violation of any
provision of this Agreement, except, in each case, as may be required by
applicable law.
4.10. Agreements. Agree or commit to do anything prohibited by
this Article IV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Disclosure Schedules. On or prior to the date hereof, Bay
has delivered to Avalon and Avalon has delivered to Bay a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate in relation to any or
all of its representations and warranties; provided, however, that (i) no such
item is required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence is not reasonably likely to result in
the related representation or warranty being deemed untrue or incorrect under
the standards established by Section 5.2, and (ii) the mere inclusion of an item
in a Disclosure Schedule shall not be deemed an admission by a party that
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such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect. To
the extent applicable, every disclosure and statement made in either party's
Disclosure Schedule under a particular section heading of such party's
Disclosure Schedule shall be deemed a disclosure and statement under all other
section headings of such party's Disclosure Schedule.
5.2. Standard. No representation or warranty of Bay or Avalon
contained in Section 5.3 shall be deemed untrue or incorrect, and no party
hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together with all other
facts, circumstances or events inconsistent with any paragraph of Section 5.3,
has had or is reasonably expected to have a Material Adverse Effect; provided,
however, that the foregoing standard shall not apply to representations and
warranties contained in subsections (b), (e), and (u) of Section 5.3, which
shall be deemed untrue, incorrect and breached if they are not true and correct
in all material respects.
5.3. Representations and Warranties. Subject to Sections 5.1 and
5.2 and except as Previously Disclosed in its Disclosure Schedule, Bay hereby
represents and warrants to Avalon, to the extent applicable, and Avalon hereby
represents and warrants to Bay, to the extent applicable, in each case with
respect to itself and its Subsidiaries, as follows:
(a) Organization, Standing and Authority. Such party is a
corporation duly organized, validly existing and in good standing under the laws
of Maryland. Such party is duly qualified to do business and is in good standing
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified. It has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted.
(b) Capitalization. (i) As of the date hereof, the authorized stock
of Bay consists solely of 40,000,000 shares of Bay Common Stock, of which, as of
the date hereof, 26,195,515 shares were outstanding, and 25,000,000 shares of
preferred stock, of which, as of the date hereof, (A) 2,308,800 shares
designated as Bay Series A Preferred Stock were outstanding, (B) 405,022 shares
designated as Bay Series B Preferred Stock were outstanding, (C) 2,300,000
shares designated as Bay 8.50% Series C Preferred Stock were outstanding and (D)
3,267,700 shares designated as Bay 8.00% Series D Preferred Stock were
outstanding. As of the date hereof, there are partnership units presently
outstanding under the Bay Partnership Agreements which may be convertible,
exchangeable or redeemable into cash, but which Bay may, in its sole discretion,
exchange for an aggregate of 295,011 shares of Bay Common Stock (and which Bay
may exchange for the same aggregate number of shares of Bay Common Stock
immediately following the Effective Time). As of the date hereof, the authorized
stock of Avalon consists solely of 80,000,000 shares of Avalon Common Stock, of
which, as of March 5, 1998, 43,139,392.33 shares were outstanding, and
20,000,000 shares of preferred stock, of which, as of the date hereof, (A)
4,455,000 shares of
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Avalon Series A Preferred Stock were outstanding and (B) 4,300,000 shares of
Avalon Series B Preferred Stock were outstanding. As of the date hereof, there
are partnership units presently outstanding under the Avalon Partnership
Agreements which may be convertible, exchangeable or redeemable into cash, but
which Avalon may, in its sole discretion, exchange for an aggregate of 605,188
shares of Avalon Common Stock (and which Bay may exchange for shares of Bay
Common Stock immediately following the Effective Time). The outstanding shares
of such party's stock are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof, there are no shares
of such party's stock authorized and reserved for issuance, such party does not
have any Rights issued or outstanding with respect to its stock, and such party
does not have any commitment to authorize, issue or sell any such shares or
Rights, except pursuant to this Agreement, the Stock Option Agreements,
Compensation and Benefit Plans, the Bay Rights Agreement and the Avalon Rights
Agreement, as the case may be. Since September 30, 1997, neither Bay nor Avalon
has issued any shares of its stock or rights in respect thereof or reserved any
shares for such purposes except pursuant to plans or commitments Previously
Disclosed in its Disclosure Schedule.
(ii) The number of shares of Bay Common Stock which are
issuable and reserved for issuance upon exercise of any employee and director
stock options to purchase shares of Bay Common Stock as of the date hereof is
set forth in Bay's Disclosure Schedule, and the number of shares of Avalon
Common Stock which are issuable and reserved for issuance upon exercise of
Avalon Stock Options as of the date hereof is set forth in Avalon's Disclosure
Schedule.
(c) Subsidiaries. (i) (A) Such party has Previously Disclosed in
its Disclosure Schedule a list of all of its Subsidiaries together with the
jurisdiction of organization of each such Subsidiary, (B) it owns, directly or
indirectly, at least 99% of the issued and outstanding shares of each of its
Significant Subsidiaries, (C) no equity securities of any of its Significant
Subsidiaries are or may become required to be issued (other than to it or a
Subsidiary of it) by reason of any Rights, (D) there are no contracts,
commitments, understandings or arrangements by which any of such Significant
Subsidiaries is or may be bound to sell or otherwise transfer any shares of the
stock of any such Significant Subsidiaries (other than to it or a Subsidiary of
it), (E) there are no contracts, commitments, understandings, or arrangements
relating to its rights to vote or to dispose of such shares (other than to it or
a Subsidiary of it), and (F) all of the shares of stock of each such Significant
Subsidiary held by it or its Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and not subject to preemptive rights
and are owned by it or its Subsidiaries free and clear of any Liens.
(ii) Other than interests in the Subsidiaries listed on its
Disclosure Schedule, such party does not own (other than in a bona fide
fiduciary capacity) beneficially, directly or indirectly, any shares of any
equity securities or similar interests of any person, or any interest in a
partnership or joint venture of any kind.
(iii) Each of such party's Significant Subsidiaries has been
duly organized and is validly existing in good standing under the laws of the
jurisdiction of its organi-
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zation, and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified. Each of such Significant Subsidiaries
has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now conducted.
(d) Corporate Power. Such party and each of its Significant
Subsidiaries has the corporate power and authority to carry on its business as
it is now being conducted and to own all its properties and assets; and it has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreements and to
consummate the transactions contemplated hereby and thereby.
(e) Corporate Authority. This Agreement and the Stock Option
Agreements and the transactions contemplated hereby and thereby, and subject in
the case of this Agreement to approval by the holders of two-thirds of the
shares of Bay Common Stock entitled to vote thereon and, if required, the
requisite vote of the holders of Bay Preferred Stock (in the case of Bay) and by
the holders of two-thirds of the shares of Avalon Common Stock entitled to vote
thereon (in the case of Avalon), have been authorized by all necessary corporate
action of such party, and each of this Agreement and the Stock Option Agreements
is a legal, valid and binding agreement of such party, enforceable in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general principles of equity).
(f) No Defaults. Subject to the receipt of regulatory approvals
referred to in Section 7.2, if any, and the required filings under federal and
state securities laws, the execution, delivery and performance of this Agreement
and the Stock Option Agreements and the consummation of the transactions
contemplated hereby and thereby by such party do not and will not (i) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, permit, license, credit agreement, indenture, loan,
note, bond, mortgage, reciprocal easement agreement, lease, instrument,
concession, franchise or other agreement of it or of any of its Significant
Subsidiaries or to which it or any of its Significant Subsidiaries, properties
or assets is subject or bound, (ii) constitute a breach or violation of, or a
default under, its articles of incorporation or by-laws, or (iii) except as
disclosed on Section 5.3(f) of its Disclosure Schedule, require the consent or
approval of any third party or Governmental Entity under any such law, rule,
regulation, judgment, decree, order, permit, license, credit agreement,
indenture, loan, note, bond, mortgage, reciprocal easement agreement, lease,
instrument, concession, franchise or other agreement.
(g) Financial Reports and SEC Documents. It or its predecessor has
filed its Annual Report on Form 10-K for the fiscal year ended December 31,
1996, and all other reports, registration statements, definitive proxy
statements or information statements required to be filed by it or any of its
Subsidiaries subsequent to December 31, 1994 under the Securities Act, or under
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act (collectively, its "SEC
Documents"), with the SEC, and all its SEC Documents filed with the SEC, in the
form filed or to be filed, (i)
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complied or will comply in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (ii) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which such balance sheet relates
as of its date, and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly presents
and will fairly present the results of operations, changes in stockholders'
equity and changes in cash flows, as the case may be, of the entity or entities
to which such statement relates for the periods to which it relates, in each
case in accordance with GAAP consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end audit
adjustments in the case of unaudited statements. Except as set forth in its SEC
Documents, neither it nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on its consolidated balance sheet or in the
notes thereto.
(h) Litigation; Regulatory Action. (i) Other than personal injury
and other routine tort litigation arising from the ordinary course of its
operations (x) which are covered by adequate insurance or (y) for which all
material costs and liabilities arising therefrom are reimbursable pursuant to
common area maintenance or similar agreements, no litigation, claim or other
proceeding before any court or governmental agency is pending against it or any
of its Subsidiaries and, to the best of its knowledge, no such litigation, claim
or other proceeding has been threatened.
(ii) Neither it nor any of its Subsidiaries or properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with any Governmental Entity.
(iii) Neither it nor any of its Subsidiaries has been
advised by any Governmental Entity that such Governmental Entity is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding or similar arrangement.
(i) Compliance with Laws. It and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with
all applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to the
employees conducting such businesses, including laws relating to discriminatory
business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Entities that are required in order to permit them to conduct their
businesses substantially as presently conducted;
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all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1994, no notification
or communication from any Governmental Entity (A) asserting that it or any of
its Subsidiaries is not in compliance with any of the statutes, regulations, or
ordinances which such Governmental Entity enforces, (B) threatening to revoke
any license, franchise, permit, or governmental authorization or (C) failing to
approve any proposed acquisition, development or construction or stating its
intention not to approve acquisitions, developments or constructions proposed to
be effected by it within a certain time period or indefinitely.
(j) Contractual Defaults. Neither it nor any of its Subsidiaries is
in default under any contract, agreement, commitment, arrangement, lease,
insurance policy, or other instrument to which it is a party, by which its
assets, business, or operations may be bound or affected, or under which it or
its respective assets, business, or operations receives benefits, and there has
not occurred any event that, with the lapse of time or the giving of notice or
both, would constitute such a default.
(k) No Brokers. No action has been taken by it that would give rise
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement, excluding, in the case of Bay, fees to be paid to Morgan Stanley &
Co. Incorporated and, in the case of Avalon, fees to be paid to PaineWebber
Incorporated and Lazard Freres & Co. LLC, in each case pursuant to letter
agreements copies of which have been heretofore delivered to the other party.
(l) Employee Benefit Plans. (i) Such party's Disclosure Schedule
contains a complete list of all material written bonus, vacation, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock and stock option
plans, all employment or severance contracts, all medical, dental, disability,
health and life insurance plans, all other employee benefit and fringe benefit
plans, contracts or arrangements and any applicable "change of control" or
similar provisions in any plan, contract or arrangement maintained or
contributed to by it or any of its Subsidiaries for the benefit of officers,
former officers, employees, former employees, directors, former directors, or
the beneficiaries of any of the foregoing (collectively, "Compensation and
Benefit Plans").
(ii) True and complete copies of its Compensation and
Benefit Plans, including, but not limited to, any trust instruments and/or
insurance contracts, if any, forming a part thereof, and all amendments thereto
have been made available to the other party.
(iii) Each of its Compensation and Benefit Plans has been
administered in accordance with the terms thereof. All "employee benefit plans"
within the meaning of Section 3(3) of ERISA, other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering
employees or former employees of it and its Subsidiaries (its "Plans"), to the
extent subject to ERISA, are in material compliance with ERISA, the Code and
other applicable laws. Each Compensation and Benefit Plan of it or its
Subsidiaries
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which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service, and it is not aware of any circumstances
reasonably likely to result in the revocation or denial of any such favorable
determination letter. There is no pending or, to its knowledge, threatened
litigation or governmental audit, examination or investigation relating to the
Plans.
(iv) No liability under Title IV of ERISA has been or is
expected to be incurred by it or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
it under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither it nor any of its Subsidiaries presently contributes to a
Multiemployer Plan, nor has it or any of its Subsidiaries contributed to such a
plan within the past five calendar years. No notice of a "reportable event,"
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan of it or any of its Subsidiaries or by any ERISA Affiliate within the past
12 months or will be required to be filed as a result of the transactions
contemplated hereby.
(v) All contributions, premiums and payments required to be
made under the terms of any Compensation and Benefit Plan of it or any of its
Subsidiaries have been made or have been accrued on the balance sheets contained
in its SEC Documents. Neither any Pension Plan of it or any of its Subsidiaries
nor any single-employer plan of an ERISA Affiliate of it or any of its
Subsidiaries has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
it nor any of its Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(vi) Under each Pension Plan of it or any of its
Subsidiaries which is a single-employer plan, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially determined
present value of all "benefit liabilities," within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions
contained in the Plan's most recent actuarial valuation) did not exceed the then
current value of the assets of such Plan, and there has been no adverse change
in the financial condition of such Plan (with respect to either assets or
benefits) since the last day of the most recent Plan year.
(vii) Neither it nor any of its Subsidiaries has any
obligations under any Compensation and Benefit Plans to provide benefits,
including death or medical benefits, with respect to employees of it or its
Subsidiaries beyond their retirement or other termination of service other than
(i) coverage mandated by Part 6 of Title I of ERISA or Section 4980B of the
Code, (ii) retirement or death benefits under any employee pension benefit plan
(as defined under Section 3(2) of ERISA), (iii) disability benefits under any
employee welfare plan that have been fully provided for by insurance or
otherwise, (iv) benefits in the nature of severance pay or (v) benefits the full
cost of which are borne by the former employee or such employee's beneficiary.
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(viii) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any payment (including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of it or any of its
Subsidiaries under any Compensation and Benefit Plan or otherwise from it or any
of its Subsidiaries, (ii) increase any benefits otherwise payable under any
Compensation and Benefit Plan or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
(m) Labor Matters. Neither it nor any of its Subsidiaries is a
party to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
nor any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiaries has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it or such Subsidiaries
to bargain with any labor organization as to wages and conditions of employment.
(n) Takeover Laws; Rights Plans. (i) It has taken all action
required to be taken by it in order to exempt this Agreement and the Stock
Option Agreements and the transactions contemplated hereby and thereby from, and
this Agreement and the Stock Option Agreements and the transactions contemplated
hereby and thereby are exempt from, the requirements of any "moratorium,"
"control share," "fair price" or other takeover defense laws and regulations
(collectively, "Takeover Laws") of the State of Maryland, including Sections
3-601 to 3-603 of the MGCL. It has taken all action required to waive any excess
share or similar ownership limitations in its charter with regard to the other
party for the transactions contemplated by this Agreement and the Stock Option
Agreement.
(ii) In the case of Bay, it has taken all action necessary
or appropriate so that the entering into of this Agreement and the Stock Option
Agreements, and the consummation of the transactions contemplated hereby
(including the Merger) and thereby, do not and will not result in the ability of
any person to exercise any Bay Rights under the Bay Rights Agreement or enable
or require Bay Rights to separate from the shares of Bay Common Stock to which
they are attached or to be triggered or become exercisable.
(iii) In the case of Bay, there is no "Acquiring Person",
and no "Distribution Date" or "Stock Acquisition Date" (as such terms are
defined in the Bay Rights Agreement) has occurred.
(iv) In the case of Avalon, it has taken all action
necessary or appropriate (x) so that the entering into of this Agreement and the
Stock Option Agreements, and the consummation of the transactions contemplated
hereby (including the Merger) and thereby, do not and will not result in the
ability of any person to exercise any Avalon Rights under the Avalon Rights
Agreement or enable or require Avalon Rights to separate from the shares of
Avalon Common Stock to which they are attached or to be triggered or become
exercisable and (y) to ensure that the Avalon Rights will expire at the
Effective Time.
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(v) In the case of Avalon, there is no "Acquiring Person",
and no "Distribution Date" or "Shares Acquisition Date" (as such terms are
defined in the Avalon Rights Agreement) has occurred.
(o) Properties. (i) It or one of its Subsidiaries owns fee simple
title or a leasehold estate in each of the real properties listed in its SEC
Documents or has such other title or interest in such listed real properties as
is described in its SEC Documents (all such listed properties, collectively, its
"Properties").
(ii) Its Properties are not subject to any Liens, security
interests or other encumbrances on title (collectively, "Encumbrances") and are
not subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an interest
in title (collectively, "Property Restrictions"), except for Encumbrances and
Property Restrictions disclosed on existing title reports or existing surveys
which would not have a Material Adverse Effect. None of its Properties is
subject to any restriction on the sale or other disposition thereof or on the
financing or release of any financing thereon, except for due-on-sale and
due-on-encumbrance clauses contained in mortgages, deeds of trust or other
financing documents, copies of which have been delivered to the other party and
except for restrictions which may be contained in documentation relating to
tax-exempt bonds.
(iii) Valid policies of title insurance have been issued
insuring its or its applicable Subsidiary's fee simple title or leasehold
estate, as the case may be, to its Properties in amounts which are at least
equal to the purchase price thereof paid by it or its applicable Subsidiary
therefor.
(iv) To the best of its knowledge, (A) there is no necessary
certificate, permit or license from any governmental authority having
jurisdiction over any of its Properties or agreement, easement or other right
which is necessary to permit the lawful use and operation of the buildings and
improvements on any of its Properties or which is necessary to permit the lawful
use and operation of all driveways, roads and other means of egress and ingress
to and from any of its Properties which has not been obtained or is not in full
force and effect, and there is no pending threat of modification or cancellation
of any of the same, (B) there is no written notice of any violation of any
federal, state or municipal law, ordinance, order, rule, regulation or
requirement affecting any of its Properties issued by any governmental
authorities and (C) there are no structural defects relating to its Properties,
the building systems in each of its Properties is in working order and there is
no physical damage to any Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration.
(v) Neither it nor any of its Subsidiaries has received any
written or published notice to the effect that (A) any condemnation or rezoning
proceedings are pending or threatened with respect to any of its Properties or
(B) any zoning, building or similar law, code, ordinance, order or regulation is
or will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of its Properties or by the continued
maintenance, operation or use of the parking areas associated with any of its
Properties.
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(vi) All work to be performed, payments to be made and
actions to be taken by it or its Subsidiaries prior to the date hereof pursuant
to any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or similar action
relating to any of its Properties, has been performed, paid or taken, as the
case may be, and to the best of its knowledge, there is not any planned or
proposed work, payment or action that may be required after the date hereof
pursuant to any such agreement.
(vii) All properties currently under development or
construction by it or its Subsidiaries and all properties currently proposed for
acquisition, development or commencement of construction prior to the Effective
Time by it and its Subsidiaries are listed as such on its Disclosure Schedule.
All executory agreements entered into by it or any of its Subsidiaries relating
to the development or construction of multifamily residential or other real
estate properties (other than agreements for architectural, engineering,
planning, accounting, legal or other professional services, or construction
agreements for material or labor) are listed on its Disclosure Schedule. Copies
of such agreements, all of which have previously been delivered or made
available to the other party, are listed on its Disclosure Schedule and are true
and correct.
(p) Environmental Matters. (A) Neither it nor any of its
Subsidiaries or, to the best of its knowledge, any other person has caused or
permitted the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or waste materials (collectively, "Hazardous
Materials") on or under any of its Properties and (B) no unlawful spills,
releases, discharges or disposals of Hazardous Materials have occurred or are
presently occurring on, under or from its Properties as a result of any
construction on or operation and use of such Properties. In connection with the
construction on or operation and use of its Properties, it and its Subsidiaries
have not failed to comply in any material respect with all applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials.
(q) Taxes. Each of it and its Subsidiaries (A) has filed (or
there has been filed on its behalf) all material returns, declarations, reports
estimates, information returns and statements required to be filed under
federal, state, local or any foreign Tax laws ("Tax Returns"), and all such Tax
Returns are accurate and complete in all material respects, and (B) has paid (or
payment has been made on its behalf) all Taxes shown on such Tax Returns as
required to be paid by it. The most recent audited financial statements
contained in its SEC Documents reflect an adequate reserve for all material
Taxes payable by it and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements. Since September 30, 1997,
it has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of
the Code, including any Tax arising from a prohibited transaction described in
Section 857(b)(6) of the Code, and neither it nor any of its Subsidiaries has
incurred any material liability for Taxes other than in the ordinary course of
business. No event has occurred, and no condition or circumstance exists, which
presents a material risk that any material Tax described in the preceding
sentence will be imposed upon it. To the best of its knowledge, no deficiencies
for any Taxes have been proposed, asserted or assessed against it or any of its
Subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending. It (A) has been organized in conformity with the
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requirements for qualification as a REIT, (B) has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT for the current
period through the Closing Date and (C) has not taken or omitted to take any
action which would reasonably be expected to result in a challenge to or
revocation of its status as a REIT, and to the best of its knowledge, no such
challenge or revocation is pending or threatened. Each of its Subsidiaries
which is a partnership, joint venture or limited liability company (i) has been
treated since such Subsidiary's formation and continues to be treated for
federal income tax purposes as a partnership and not as a corporation or as an
association taxable as a corporation and (ii) has not since the later of such
Subsidiary's formation or the acquisition by Bay (in the case of Bay's
Subsidiaries) or Avalon (in the case of Avalon's Subsidiaries) of a direct or
indirect interest therein, owned any assets (including securities) that would
cause such party to violate Section 856(c)(5) of the Code. Each of its
Subsidiaries which is a corporation has been since its formation a qualified
REIT subsidiary under Section 856(i) of the Code. Neither it nor any of its
Subsidiaries holds any asset (x) the disposition of which would be subject to
rules similar to Section 1374 of the Code as a result of a notice under
Internal Revenue Service Notice 88-19 or (y) which is subject to a consent
filed pursuant to Section 341(f) of the Code and the regulations thereunder.
(r) Investment Company Act of 1940. Neither it nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended.
(s) HSR Act. For purposes of determining whether compliance with
the HSR Act is required, it confirms that the conduct of its business consists
solely of investing in, owning and operating real estate for the benefit of its
stockholders.
(t) Tax-Exempt Financing. Since October 31, 1997, no tax-exempt
bonds have been issued or reissued of which it is a beneficiary.
(u) Conversion of Bay Preferred Stock. In the case of Bay, Bay has
entered into agreements (true, correct and complete copies of which have
previously been provided to Avalon), which are binding and enforceable and in
full force and effect, with the sole holder of the shares of Bay Series A
Preferred Stock and Bay Series B Preferred Stock (the "Bay Preferred Holder") to
the effect that, (i) two business days after the record date for the Bay
Meeting, shares of Bay Series A Preferred Stock and Bay Series B Preferred Stock
shall be converted into a number of common shares of Bay Common Stock equaling
4.9% of the total issued and outstanding shares of Bay Common Stock as of the
date thereof, and (ii) the Bay Preferred Holder agrees to approve and agree to
certain modifications to the terms of such Bay Series A Preferred Stock, all as
more fully set forth in such agreements.
(v) No Material Adverse Effect. Since September 30, 1997, except as
disclosed in its SEC Documents filed with the SEC on or before the date hereof,
(i) it and its Subsidiaries have conducted their respective businesses in the
ordinary and usual course (excluding the incurrence of expenses related to this
Agreement and the transactions contemplated hereby) and (ii) no event has
occurred or circumstance arisen that, individually or taken together with all
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other facts, circumstances and events (described in any paragraph of Section 5.3
or otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
ARTICLE VI
COVENANTS
Bay hereby covenants to and agrees with Avalon, and Avalon hereby
covenants to and agrees with Bay, that:
6.1. Best Efforts. Subject to the terms and conditions of this
Agreement, it shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby, including
effecting all filings and obtaining (and cooperating with the other party
hereto to obtain) any permit, consent, authorization, order or approval of, or
any exemption by, any Governmental Entity and any other third party that is
required to be obtained by Bay or Avalon or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement, and using reasonable efforts to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, and
using reasonable efforts to defend any litigation seeking to enjoin, prevent or
delay the consummation of the transactions contemplated hereby or seeking
material damages, and each shall cooperate fully with the other parties hereto
to that end.
6.2. Stockholder Approvals. Each of them shall take, in accordance
with applicable law, applicable stock exchange rules and its articles of
incorporation and by-laws, all action necessary to convene, respectively, an
appropriate meeting of stockholders of Bay to consider and vote upon the
approval of this Agreement and the Merger and any other matters required to be
approved by Bay stockholders for consummation of the Merger (including any
adjournment or postponement, the "Bay Meeting"), and an appropriate meeting of
stockholders of Avalon to consider and vote upon the approval of this Agreement
and any other matters required to be approved by Avalon's stockholders for
consummation of the Merger (including any adjournment or postponement, the
"Avalon Meeting"; and each of the Bay Meeting and the Avalon Meeting, a
"Meeting"), as promptly as practicable after the date hereof. Subject to their
respective duties under Maryland law, the Board of Directors of each of Bay and
Avalon shall recommend such approval, and each of Bay and Avalon shall take all
reasonable lawful action to solicit such approval by its stockholders.
6.3. Registration Statement. (a) Bay and Avalon agree to cooperate
in the preparation of a registration statement on Form S-4 (the "Registration
Statement") to be filed by Bay with the SEC in connection with the issuance of
Bay Stock in the Merger (including the joint proxy statement and prospectus and
other proxy solicitation materials of Bay and Avalon constituting a part thereof
(the "Joint Proxy Statement") and all related documents). Bay and Avalon agree
to file a draft of the Joint Proxy Statement with the SEC as promptly as
practicable,
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but in no event later than 45 days after the date hereof. Each of
Bay and Avalon agrees to use all reasonable efforts to cause the Registration
Statement to be filed and declared effective under the Securities Act as
promptly as reasonably practicable after the SEC has cleared the Joint Proxy
Statement. Bay also agrees to use all reasonable efforts to obtain all necessary
state securities law or "blue sky" permits and approvals required to carry out
the transactions contemplated by this Agreement. Avalon agrees to promptly
furnish to Bay all information concerning Avalon, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with the
foregoing.
(b) Each of Bay and Avalon agrees, upon request, to furnish the
other party with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Registration Statement, the Joint Proxy
Statement or any filing, notice or application made by or on behalf of such
other party or any of its Subsidiaries to any Governmental Entity in connection
with the transactions contemplated hereby. Each of Bay and Avalon agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement and each
amendment or supplement thereto, if any, becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the Bay Meeting and the Avalon Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or any statement
which, in the light of the circumstances under which such statement is made,
will be false or misleading with respect to any material fact, or which will
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Each of Bay and Avalon further agrees that if it shall become aware
prior to the Effective Date of any information that would cause any of the
statements in the Joint Proxy Statement to be false or misleading with respect
to any material fact, or to omit to state any material fact necessary to make
the statements therein not false or misleading, it shall promptly inform the
other party thereof and shall take the necessary steps to correct the Joint
Proxy Statement.
(c) In the case of Bay, Bay will advise Avalon, promptly after Bay
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of the Bay Stock for offering
or sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
6.4. Press Releases. It will consult with the other party before
issuing any press release with respect to the transactions contemplated by this
Agreement and will not, without the prior approval of the other party hereto,
issue any press release or written statement for
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general circulation relating to the transaction contemplated hereby, except as
otherwise required by applicable law or regulation or the rules of the NYSE or
PCX.
6.5. Access; Information. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, it shall, and shall
cause its Subsidiaries to, afford the other party and its officers, employees,
counsel, accountants and other authorized representatives, access, during normal
business hours throughout the period prior to the Effective Date, to all of its
properties, books, contracts, commitments and records, and to its officers,
employees, accountants, counsel or other representatives, and, during such
period, it shall, and shall cause its Subsidiaries to, furnish promptly to such
other parties and representatives (i) a copy of each material report, schedule
and other document filed by it pursuant to the requirements of federal or state
securities laws (other than reports or documents that Bay or Avalon, or their
respective Subsidiaries, as the case may be, are not permitted to disclose under
applicable law), and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request. Neither Bay
nor Avalon nor any of their respective Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date hereof. The
parties hereto will make appropriate substitute disclosure arrangements under
the circumstances in which the restrictions of the preceding sentence apply.
(b) It will not use any information obtained pursuant to this
Section 6.5 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement and, if this Agreement is terminated, will hold
all information and documents obtained pursuant to this paragraph in confidence
(as provided in, and subject to the provisions of, the Confidentiality
Agreement, as if it were the Receiving Party, as defined therein). No
investigation by either party of the business and affairs of the other shall
affect or be deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
6.6. Acquisition Proposals. From the date hereof until the earlier
of the Effective Date or the termination of this Agreement, without the prior
written consent of the other party hereto, it shall not, and shall cause its
Subsidiaries and its and its Subsidiaries' officers, directors, agents, advisors
and affiliates not to, solicit or encourage inquiries or proposals with respect
to, or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any such person relating to, any
tender offer or exchange offer for, or any proposal for the acquisition of a
substantial equity interest in, or a substantial portion of the assets of, or
any merger or consolidation with, it or any of its Significant Subsidiaries;
provided, however, that it may, and may authorize and permit its officers,
directors, employees or agents to, furnish or cause to be furnished confidential
information and may participate in such discussions and negotiations if its
Board of Directors, after having consulted with and considered the advice of
outside counsel, has determined that the failure to provide such information or
participate in such negotiations and discussions could cause the members of such
Board of Directors to breach their duties under applicable laws. It shall advise
the other party of its receipt of any such
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proposal or inquiry, of the substance thereof, and of the identity of the
person making such proposal or inquiry within 24 hours of the receipt thereof.
6.7. Affiliate Agreements. (a) Not later than the 15th day prior
to the mailing of the Joint Proxy Statement, each of Bay and Avalon shall
deliver to the other, a schedule of each person that, to the best of its
knowledge, is or is reasonably likely to be, as of the date of the relevant
Meeting, deemed to be an "affiliate" of it (each, an "Affiliate") as that term
is used in SEC Accounting Series Releases 130 and 135 and, in the case of Avalon
only, in Rule 145 under the Securities Act.
(b) Avalon shall use its reasonable best efforts to cause each
person who may be deemed to be an Affiliate of Bay or Avalon, as the case may
be, to execute and deliver to Avalon on or before the date of mailing of the
Joint Proxy Statement an agreement in the form attached hereto as Exhibit B.
6.8. Takeover Laws. Neither party shall take any action that would
cause the transactions contemplated by this Agreement and the Stock Option
Agreements to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement and the
Stock Option Agreements from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect,
that purports to apply to this Agreement, the Stock Option Agreements or the
transactions contemplated hereby or thereby.
6.9. No Rights Triggered. Each of Bay and Avalon shall take all
steps necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any rights to any person (i) under its
charter or by-laws, (ii) under any material agreement to which it or any of its
Subsidiaries is a party, or (iii) to exercise or receive certificates for Bay
Rights or Avalon Rights, or acquire any property in respect of Bay Rights or
Avalon Rights, under the Bay Rights Agreement or the Avalon Rights Agreement, as
the case may be.
6.10. Shares Listed. In the case of Bay, Bay shall use its
reasonable best efforts to list, prior to the Effective Date, on the NYSE and
PCX, upon official notice of issuance, the shares of Bay Common Stock to be
issued to the holders of Avalon Common Stock in the Merger.
6.11. Filings; Consents. Each of Bay and Avalon shall have the
right to review in advance, and to the extent practicable each will consult with
the other, in each case subject to applicable laws relating to the exchange of
information, with respect to, all material written information submitted to any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees that it will consult with the other party hereto with
respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
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advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other parties apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
6.12. Indemnification; Directors' and Officers' Insurance. (a) In
the event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, in which any person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, a director, officer or employee of Avalon or any of
its Subsidiaries or of Bay or any of its Subsidiaries is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to this Agreement, the Stock Option Agreements, or any of
the transactions contemplated hereby or thereby or any actions taken by any such
person in connection herewith or therewith, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Bay shall indemnify and
hold harmless, as and to the fullest extent permitted by Maryland law, each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director or officer of Avalon or any of
its Subsidiaries (the "Indemnified Parties") against any losses, claims,
damages, liabilities, costs, expenses (including advancing reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of an undertaking from such Indemnified Party to
repay such advanced expenses if it is finally and unappealably determined that
such Indemnified Party was not entitled to indemnification hereunder),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time
and including any such threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he or she is or was a director, officer
or employee of Avalon, any of Avalon's Subsidiaries or any of their respective
predecessors or was prior to the Effective Time serving at the request of any
such party as a director, officer, employee, fiduciary or agent of another
corporation, partnership, trust or other enterprise, or (ii) this Agreement, the
Stock Option Agreements, or any of the transactions contemplated hereby or
thereby and all actions taken by an Indemnified Party in connection herewith or
therewith), and the Indemnified Parties may retain counsel after consultation
with Bay; provided, however, that (1) Bay shall have the right to assume the
defense thereof and upon such assumption Bay shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Bay elects not to assume such defense, or counsel for
the Indemnified Parties reasonably advises the Indemnified Parties that there
are or may be (whether or not any have yet actually arisen) issues which raise
conflicts of interest between Bay and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them, and Bay shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties,
(2) Bay shall be obligated pursuant to this paragraph to pay for only one firm
of counsel for all Indemnified Parties, (3) Bay shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld) and (4) Bay shall have no obligation hereunder to
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any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 6.12, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Bay thereof,
provided that the failure to so notify shall not affect the obligations of Bay
under this Section 6.12 except (and only) to the extent such failure to notify
materially prejudices Bay. Bay's obligations under this Section 6.12 shall
continue in full force and effect for a period of six (6) years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim.
(b) Without limiting any of the obligations under paragraph (a) of
this Section 6.12, Bay agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in Avalon's charter or by-laws or in the similar governing documents of
any of Avalon's Subsidiaries as in effect as of the date hereof with respect to
matters occurring on or prior to the Effective Time shall survive the Merger and
shall continue in full force and effect, without any amendment thereto, for a
period of six (6) years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Claim asserted or made within such
period shall continue until the final disposition of such Claim; provided
further, however, that nothing contained in this Section 6.12(b) shall be deemed
to preclude the liquidation, consolidation or merger of Avalon or any Avalon
Subsidiary, in which case all of such rights to indemnification and limitations
on liability shall be deemed to so survive and continue notwithstanding any such
liquidation, consolidation or merger and shall constitute rights which may be
asserted against Bay. Nothing contained in this Section 6.12(b) shall be deemed
to preclude any rights to indemnification or limitations on liability provided
in Avalon's Amended and Restated Articles of Incorporation or the similar
governing documents of any of Avalon's Subsidiaries with respect to matters
occurring subsequent to the Effective Time to the extent that the provisions
establishing such rights or limitations are not otherwise amended to the
contrary.
(c) Bay shall use its best efforts to cause the persons serving as
officers and directors of Avalon immediately prior to the Effective Time to be
covered for a period of six (6) years from the Effective Time by the directors'
and officers' liability insurance policy maintained by Avalon (provided that Bay
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous to such
directors and officers of Avalon than the terms and conditions of such existing
policy) with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity as such.
(d) In the event Bay or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Bay shall
assume the obligations set forth in this Section 6.12.
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(e) The provisions of this Section 6.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.13. Compensation and Benefit Plans. (a) It is the intention of
the parties that the Surviving Corporation shall formulate Compensation and
Benefit Plans for the Surviving Corporation and its Subsidiaries, with respect
to employees of both Bay and Avalon that provide benefits for services after the
Effective Time on a basis that does not discriminate between such employees.
Employees of Avalon and its Subsidiaries immediately prior to the Effective Time
who become employees of the Surviving Corporation or one of its Subsidiaries
immediately after the Effective Time shall be given credit for purposes of
eligibility and vesting of employee benefits and benefit accrual for service
with Avalon and its affiliates, and predecessors of Avalon and its affiliates,
prior to the Effective Time under each benefit plan of the Surviving Corporation
and its Subsidiaries to the extent such service had been credited under employee
benefit plans of Avalon or its Subsidiaries, provided that no such crediting of
service results in duplication of benefits.
(b) In the case of Avalon Compensation and Benefit Plans under
which the employees' interests are based upon Avalon Common Stock, such
interests shall be based upon Bay Common Stock in accordance with Section 3.7
with respect to Avalon Stock Options and otherwise in accordance with the terms
of the Avalon Compensation and Benefit Plans and in an equitable manner.
6.14. Transfer and Gains Taxes. Bay and Avalon shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the Transactions (together with any related
interests, penalties or additions to tax, "Transfer and Gains Taxes"). From and
after the Effective Time, the Surviving Company shall pay, without deduction or
withholding from any amounts payable to the holders of Bay Common Stock
(including former holders of Avalon Common Stock), all Transfer and Gains Taxes
(other than any such taxes that are solely the liability of the holders of Bay
Common Stock under applicable state law).
6.15. Headquarters. The Surviving Corporation's executive
headquarters shall be located in the Alexandria, Virginia area, or in such other
location where the Chief Executive Officer shall be based, and the Surviving
Corporation shall have super-regional offices in the San Jose, California area,
where the President and Chief Operating Officer shall be based, and in the
Wilton, Connecticut area.
6.16. Notification of Certain Matters. Each of Bay and Avalon
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) notwithstanding the standards set
forth in Section 5.2, would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
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6.17. Interim Transactions Committee. Bay and Avalon shall
establish an interim transactions committee (the "Interim Transactions
Committee") consisting of the individuals listed on Exhibit A. Subject to any
approvals that may be required by law or otherwise on the part of Bay or Avalon,
the Interim Transactions Committee shall approve acquisition, budget and capital
improvement activities (including activities otherwise prohibited by Article IV
of this Agreement) of each of Bay and Avalon between the date hereof and the
Effective Time.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger is
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following:
7.1. Stockholder Vote. Approval of this Agreement and the
transactions contemplated hereby by the requisite votes of the respective
stockholders of Bay and of Avalon.
7.2. Governmental Approvals. All approvals of Governmental
Entities (except any approvals or consents relating to tax-exempt bonds)
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof (including the waiting period under the HSR Act, if
applicable) shall have expired.
7.3. Third Party Consents. All necessary consents or approvals of
all persons (other than Governmental Entities, except as related to tax-exempt
bonds) required for the consummation of the Merger (including those listed on
Section 5.3(f) of each party's respective Disclosure Schedule) shall have been
obtained and shall be in full force and effect, unless the failure to obtain any
such consent or approval is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Bay or Avalon, as the case may be.
7.4. No Injunction, Etc. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect, and no law,
statute or regulation shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of any of the transactions contemplated
hereby; provided, however, that each of Bay and Avalon shall have used its
reasonable best efforts to prevent any such rule, regulation, injunction, decree
or other order, and to appeal as promptly as possible any injunction, decree or
other order that may be entered.
7.5. Representations, Warranties and Covenants of Avalon. In the
case of Bay's obligation to consummate the Merger: (i) each of the
representations and warranties contained herein of Avalon shall be true and
correct as of the date hereof and upon the Effective Date with the same effect
as though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, in any case subject to
the standard set forth in Section 5.2, (ii) each and all of the agreements and
covenants of Avalon to be performed and complied with pursuant to this Agreement
on or prior to the Effective Date shall have been duly
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performed and complied with in all material respects, and (iii) Bay shall have
received a certificate signed by the President, Chief Executive Officer or
Chief Financial Officer of Avalon, dated the Effective Date, to the effect set
forth in clauses (i) and (ii) of this Section 7.5.
7.6. Representations, Warranties and Covenants of Bay. In the case
of Avalon's obligation to consummate the Merger: (i) each of the representations
and warranties contained herein of Bay shall be true and correct as of the date
hereof and upon the Effective Date with the same effect as though all such
representations and warranties had been made on the Effective Date, except for
any such representations and warranties made as of a specified date, which shall
be true and correct as of such date, in any case subject to the standard set
forth in Section 5.2, (ii) each and all of the agreements and covenants of Bay
to be performed and complied with pursuant to this Agreement on or prior to the
Effective Date shall have been duly performed and complied with in all material
respects, and (iii) Avalon shall have received a certificate signed by the
President, Chief Executive Officer or Chief Financial Officer of Bay, dated the
Effective Date, to the effect set forth in clauses (i) and (ii) of this Section
7.6.
7.7. Effective Registration Statement. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Governmental Entity.
7.8. Tax Opinion Relating to the Merger. Bay and Avalon shall have
received an opinion from Goodwin, Procter & Hoar LLP, in the case of Bay, and
Wachtell, Lipton, Rosen & Katz, in the case of Avalon, dated in each case as of
the Closing Date, substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinions which are consistent
with the state of facts existing at the Closing Date, the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by Bay or Avalon
as a result of the Merger;
(ii) No gain or loss will be recognized by the stockholders of
Avalon who exchange all of their Avalon Common Stock solely for Bay
Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Bay Common
Stock); and
(iii) The aggregate tax basis of the Bay Common Stock received
by stockholders who exchange all of their Avalon Common Stock solely
for Bay Common Stock in the Merger will be the same as the aggregate
tax basis of Avalon Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for
which cash is received).
In rendering such opinions, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Bay, Avalon and others, reasonably satisfactory in form and
substance to such counsel.
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7.9. Tax Opinion Relating to REIT Status. Bay and Avalon shall
have received an opinion from Goodwin, Procter & Hoar LLP, dated as of the
Closing Date, substantially to the effect that the Surviving Corporation will
continue to qualify as a REIT for federal income tax purposes immediately after
the Effective Time. In rendering such opinion, Goodwin, Procter & Hoar LLP may
require and rely upon customary assumptions, representations and covenants
including those contained in certificates of officers of Bay, Avalon and others,
reasonably satisfactory in form and substance to such counsel.
7.10. NYSE Listing. The shares of Bay Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the NYSE,
subject to official notice of issuance.
7.11. Rights Agreements. In the case of Bay's obligation to
consummate the Merger, there shall exist no "Share Acquisition Date",
"Distribution Date" or "Triggering Event" (as each of such terms is defined in
the Avalon Rights Agreement) under the Avalon Rights Agreement. In the case of
Avalon's obligation to consummate the Merger, there shall exist no "Stock
Acquisition Date", "Distribution Date" or "Triggering Event" (as each of such
terms is defined in the Bay Rights Agreement) under the Bay Rights Agreement.
7.12. REIT Income. In the case of Bay's obligation to consummate
the Merger, prior to the Effective Date, to the extent necessary to satisfy the
requirements of Section 857(a)(1) of the Code for the taxable year of Avalon
ending at the Effective Time (and avoid the payment of tax with respect to
undistributed income), Avalon shall declare a dividend (the "Final Company
Dividend") to holders of Avalon Common Shares, the record date for which shall
be the close of business on the last business day prior to the Effective Time,
in an amount equal to the minimum dividend sufficient to permit Avalon to
satisfy such requirements. If Avalon determines it necessary to declare the
Final Company Dividend, it shall notify Bay at least 15 days prior to the
Effective Date.
It is specifically provided, however, that a failure to satisfy the
conditions set forth in Sections 7.5 or 7.12 shall only constitute a condition
if asserted by Bay, and a failure to satisfy the condition set forth in Section
7.6 shall only constitute a condition if asserted by Avalon.
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated, and the Merger
may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Bay and Avalon in a written instrument, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board.
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(b) Breach. At any time prior to the Effective Time, by Bay or
Avalon (provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), if
its Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standards set forth
in Section 5.2), which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach; or
(ii) a material breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach.
(c) Delay. At any time prior to the Effective Time, by Bay or
Avalon, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
November 30, 1998, except to the extent that the failure of the Merger then to
be consummated arises out of or results from the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein.
(d) No Approval. By Bay or Avalon, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement, or (ii) any stockholder
approval required by Section 7.1 herein is not obtained at the Bay Meeting or
the Avalon Meeting.
(e) Recommendation Altered. By either the Board of Directors of Bay
or the Board of Directors of Avalon, if the Board of Directors of the other
party shall have withdrawn, modified or changed in a manner adverse to the
terminating party its approval or recommendation of this Agreement and the
transactions contemplated hereby.
8.2. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Section 8.3,
(ii) as set forth in Section 9.1, and (iii) that termination will not relieve a
breaching party from liability for any willful breach of this Agreement giving
rise to such termination.
8.3. Break-Up Expenses. In addition to any other fees and expenses
payable under this Agreement, in the event of termination of this Agreement
under Section 8.1(b) or Section 8.1(e) above, or in the event that either party
terminates this Agreement pursuant to clause (ii) of Section 8.1(d) due to the
failure to obtain the approval of stockholders of the other party, such
terminating party ("Recipient") shall be entitled to receive from the other
party ("Payor") Break-Up Expenses at the time of such termination or at such
other time or times as provided for in this Section 8.3. "Break-Up Expenses"
shall be an amount equal to $10,000,000. Upon termination necessitating the
payment of Break-Up Expenses, Payor shall immediately deposit into escrow with
an escrow agent selected by Recipient an amount in cash equal to the Break-Up
Ex-
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penses. The escrow agent shall pay to Recipient an amount equal to the lesser
of (i) the Break-Up Expenses and (ii) the maximum amount that can be paid to
Recipient without causing Recipient, to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by the
independent accountants of Recipient. In the event that all or any portion of
the Break-Up Expenses remains in escrow after payment of the amount, if any,
required by the preceding sentence, the escrow agreement shall provide that the
Recipient shall not be entitled to the remainder of the Break-Up Expenses and no
amount thereof shall be released to Recipient unless and until the escrow agent
receives any one or combination of the following: (i) a letter from Recipient's
outside counsel ("Break-Up Expenses Tax Opinion") indicating that it has
received a ruling from the IRS the effect of which holds that Recipient's
receipt of the Break-Up Expenses would not jeopardize its status as a REIT
("REIT Requirements"), and that receipt by Recipient of the remaining balance of
the Break-Up Expenses following the receipt of and pursuant to such ruling would
not be deemed constructively received prior thereto (in which case the escrow
agent shall release the remainder of the Break-Up Expenses in escrow to
Recipient) or (ii) a letter (or a series of letters) from the independent
accountants of Recipient, each indicating any additional amounts that Recipient
can be entitled to and can be paid at that time without causing it to fail to
meet the REIT Requirements (in which case the escrow agent shall release such
additional amounts from escrow to Recipient). The obligation of Payor to pay any
unpaid portion of the Break-Up Expenses shall terminate three years from the
date hereof, and any unpaid portion of the Break-Up Expenses remaining in escrow
three years from the date hereof shall be released to Payor and the escrow shall
terminate at that time.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. All representations, warranties, agreements and
covenants contained in this Agreement shall not survive the Effective Time or
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, that if the Effective Time occurs, the
agreements of the parties in Sections 3.4, 3.7, 6.12, 6.13, 6.14, 6.15, 9.1,
9.4 and 9.8 shall survive the Effective Time, and if this Agreement is
terminated prior to the Effective Time, the agreements of the parties in
Sections 6.5(b), 8.2, 8.3, 9.1, 9.2, 9.4, 9.5, 9.6, 9.7 and 9.8 shall survive
such termination.
9.2. Waiver; Amendment. Subject to compliance with applicable law,
prior to the Effective Time, any provision of this Agreement may be (i) waived
by the party benefited by the provision, or (ii) amended or modified at any
time, by an agreement in writing between the parties hereto approved by their
respective Boards of Directors and executed in the same manner as this
Agreement.
9.3. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to constitute an original.
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9.4. Governing Law. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of Maryland,
without regard to the conflict of law principles thereof.
9.5. Expenses. Each party hereto will bear all expenses incurred
by it in connection with this Agreement and the transactions contemplated
hereby, except that printing expenses and SEC filing and registration fees, HSR
filing fees, if any, and NYSE and PCX listing fees shall be shared equally
between Bay and Avalon.
9.6. Confidentiality. Each of the parties hereto and their
respective agents, attorneys and accountants will maintain the confidentiality
of all information provided in connection herewith in accordance, and subject to
the limitations of, the Confidentiality Agreement.
9.7. Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Bay, to:
Bay Apartment Communities, Inc.
4340 Stevens Creek Boulevard, #275
San Jose, California 95129
Attention: Gilbert M. Meyer, Chairman and President
Telecopier: (408) 984-7060
With copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Gilbert G. Menna, P.C.
David W. Watson, P.C.
Telecopier: (617) 523-1231
If to Avalon, to:
Avalon Properties, Inc.
2900 Eisenhower Avenue, 3rd Floor
Alexandria, Virginia 22314
Attention: Richard L. Michaux, Chairman and Chief Executive Officer
Telecopier: (703) 329-4830
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With copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Robin Panovka, Esq.
Telecopier: (212) 403-2000
9.8. Understanding; No Third Party Beneficiaries. Except for the
Confidentiality Agreement, which shall remain in effect, and the Stock Option
Agreements, this Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby and
supersede any and all other oral or written agreements heretofore made. Except
for Section 6.12, nothing in this Agreement, expressed or implied, is intended
to confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.9. Headings; Interpretation. The headings contained in this
Agreement are for reference purposes only and are not part of this Agreement.
The word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless the context otherwise
requires or unless otherwise specified. Words of number may be read as singular
or plural, as required by context.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
BAY APARTMENT COMMUNITIES, INC.
By: /s/ Gilbert M. Meyer
Name: Gilbert M. Meyer
Title: President
AVALON PROPERTIES, INC.
By: /s/ Richard L. Michaux
Name: Richard L. Michaux
Title: Chief Executive Officer
EXHIBIT 99.2
BAY APARTMENT COMMUNITIES AND AVALON PROPERTIES TO MERGE
-- RESULT WILL BE PREEMINENT LUXURY APARTMENT COMPANY IN THE U.S.
WITH $3.7 BILLION TOTAL CAPITALIZATION AND SIGNIFICANT PRESENCE IN EACH
OF THE TOP-TEN U.S. APARTMENT MARKETS --
-- AVALON ALSO ANNOUNCES PRESALE ACQUISITION OF EIGHT COMMUNITIES
IN THE PACIFIC NORTHWEST --
SAN JOSE, CA, AND ALEXANDRIA, VA, MARCH 9/PRNewswire/ -- Bay Apartment
Communities, Inc. (NYSE: BYA - news) and Avalon Properties, Inc. (NYSE: AVN -
news) announced today that they have signed a definitive merger agreement. The
surviving company, to be named Avalon Bay Communities, Inc., will be the
preeminent luxury apartment company in the U.S., with an immediate total market
capitalization of $3.7 billion, approximately 63 million shares and partnership
units outstanding, $2.7 billion of combined equity, including preferred stock,
and a portfolio of 140 communities with 40,506 apartment homes in 29 markets in
15 states and the District of Columbia.
Under the terms of the agreement, Avalon will be merged into Bay Apartment
Communities, with Bay Apartment Communities being the surviving entity, through
an exchange of shares in which Avalon common shareholders will receive 0.7683
shares of Bay Apartment Communities common stock for each share of Avalon common
stock they own. Avalon's preferred shareholders will receive comparable
preferred shares of Bay as a result of the merger.
The merger, which has been unanimously approved by the boards of directors of
both companies and is expected to close in June 1998, has been structured as a
tax-free transaction and will be accounted for as a purchase of Avalon by Bay
Apartment Communities.
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It is expected that upon completion of the transaction, the new company will
have an annual dividend of $2.04, an increase of $0.36 per share (or 21%) over
Bay Apartment Communities' current annual dividend of $1.68, and essentially
equivalent to Avalon's current annual dividend.
Avalon Bay Communities, Inc., will be listed on the New York Stock Exchange and
will be headquartered in Alexandria, VA, with super-regional offices in San
Jose, CA, and Wilton, CT.
Avalon Bay will be led by a highly experienced management team that will
include:
Gilbert M. Meyer as Executive Chairman;
Richard L. Michaux as Chief Executive Officer;
Charles H. Berman as President and Chief Operating Officer;
Bryce Blair as Senior Vice President-Development/Acquisitions;
Max L. Gardner as Senior Vice President-Merger Integration;
Morton L. Newman as Senior Vice President-Construction;
Thomas J. Sargeant as Senior Vice President and Chief Financial Officer;
Debra Lynn Shotwell as Senior Vice President-Administration;
Robert H. Slater as Senior Vice President-Property and Operations; and
Jeffrey B. Van Horn as Senior Vice President-Investments.
Gilbert M. Meyer, Chairman and President of Bay Apartment Communities, said, "It
is clear that larger, national REITs enjoy significant competitive advantages
that accrue from, among other things, a lower cost of capital and enhanced
operating efficiencies. This transaction between Avalon and Bay is an ideal
merger, and we believe that the benefits that the merger with Avalon will
provide will be very substantial.
"We are impressed by the strength and depth of Avalon's management team, its
state-of-the-art and scalable information systems, its community management
abilities, and its strategic focus on select high barrier-to-entry markets that
mirrors our own strategy.
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"Beyond a similar heritage as investment developers and builders, both companies
share a focus on superior resident service, both enjoy consistent asset quality
and resident profiles, and both have similar capital structures and financing
strategies. The extensive experience of senior management and the deep bench
strength of the entire management team will give us the best of both worlds: the
size and scope of a coast-to-coast competitor and the ability to have in place
seasoned "sharpshooters" in local and regional markets. Add to that the
complementary portfolios that will give Avalon Bay a significant presence in
each of the top-ten apartment markets and we see a transaction that holds great
promise for Avalon Bay Communities' shareholders."
Richard L. Michaux, Chairman and Chief Executive Officer of Avalon Properties,
said, "Bay and Avalon represent an ideal, complementary strategic fit which will
greatly benefit the shareholders, residents, and employees of both companies.
Geographically, we will combine Avalon's established presence in select high
barrier-to-entry markets in the Northeast, Mid-Atlantic and Midwestern states
with Bay's equally strong presence in select high barrier-to-entry markets of
Northern and Southern California and the Pacific Northwest. With this
transaction, we are equaling or exceeding the majority of the goals of our Plan
2002 by the end of 1998 with much less market risk. The merger will also provide
greater diversity in Avalon Bay Communities' mix of industries and businesses
that drive local economies.
"Functionally, Avalon Bay Communities will have unparalleled breadth of
abilities and experience within the entire spectrum of multifamily acquisition,
development, construction, reconstruction, and community management. The
complementary nature of the two companies' skill sets is compelling. Bay has
unique strengths and a proven record for construction, and particularly
reconstruction, within difficult urban environments. We see tremendous
opportunities to create incremental value not currently being realized by
applying Bay's reconstruction techniques within the Midwestern, Northeastern,
and Mid-Atlantic markets of Avalon.
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"Financially, we anticipate that shareholders of Avalon Bay Communities should
benefit from improved long-term earnings growth, greater value-creation
opportunities, enhanced liquidity, strengthened credit profile, and a
diversification of assets into additional high barrier-to-entry markets."
Charles H. Berman, President and Chief Operating Officer of Avalon Properties,
who will manage daily real estate operations, said: "We anticipate this
combination will add $0.07 per share during the remainder of 1998 and $0.15 per
share in 1999.
"The ability to integrate the substantial skills and best practices of both
companies is the key to delivering the value we expect to create for
shareholders with this merger. To ensure that we achieve a seamless integration
process and realize the full potential of this merger, we have hired two expert
merger integration consulting firms and, working with them, have initiated a
comprehensive merger integration effort. Max Gardner, one of Bay's most senior
and experienced executives, is heading this effort. Max is leading multiple task
forces comprising key leaders from both companies.
"These task forces will be charged with jointly identifying the 'best practices'
of both companies that will be implemented nationwide so that Avalon Bay
functions as a cohesive company immediately after the transaction closes. Max
and these task forces will work closely with the two merger integration
consulting firms to help ensure the successful combination of the two
organizations and the creation of one common culture within Avalon Bay.
Executives from both companies are expected to relocate to assist in the
blending of a common culture at Avalon Bay Communities."
The merger is subject to the approval of the shareholders of both companies and
other customary closing conditions. In connection with the execution of the
merger agreement, Bay and Avalon each issued to the other an option to buy 19.9%
of the issuer's outstanding common stock under certain circumstances. In
addition, Bay and Avalon each adopted shareholders' rights plans.
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Avalon Bay Communities will be governed by a twelve-member Board of Directors,
six of whom will be from Bay's Board of Directors and six of whom will be from
Avalon's Board of Directors. Nine of the twelve Board members will be
independent.
Concurrent with this transaction, Avalon announced that it has entered into a
definitive agreement to acquire selected assets on a presale basis from Trammell
Crow Residential-Pacific Northwest (TCR-NW), a leading, closely-held apartment
development and management company. The presale acquisitions are expected to be
completed during the next 24 to 36 months.
The acquisitions, which will involve a total investment of approximately $280
million, include seven communities in the Seattle market and one community in
the Portland market. The acquisitions will add significant presence in this
fast-growing, high barrier-to-entry region. Together, these eight communities
provide 2,411 apartment homes with state-of-the-art features and amenities. The
initial stabilized yield on Avalon's investment is expected to be 9.4 percent.
Several of these communities are currently in the entitlement process and no
assurance can be provided that all of these communities will be developed.
Bay Apartment Communities is a fully integrated, multifamily REIT focused on the
acquisition, development, construction, reconstruction and management of high
quality apartment home communities. The company's portfolio consists of 59
communities, containing 16,597 apartment homes, including homes delivered at
Toscana, a partially developed community in Sunnyvale, California.
The company's portfolio includes 37 apartment home communities in the San
Francisco Bay Area and Northern California, 19 communities in Southern
California, and 3 communities in the Pacific Northwest. The company also owns
five land sites in the San Francisco Bay Area on which it is building five
communities which will contain an aggregate of approximately 1,360 apartment
homes, including the remaining apartment
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homes under construction in Toscana. The company owns one additional land site
in the San Francisco Bay Area for future development. More information on Bay
Apartment Communities is available on Bay's website at
http://www.bayapartmt.com.
Avalon Properties, Inc. is an equity REIT in the business of developing,
acquiring and managing multifamily communities in the high barrier-to-entry
markets of the United States. Avalon, named the NAHB Property management Company
of the Year for 1996/1997, owns or holds an ownership interest in 66 stabilized
apartment communities containing 19,724 apartment homes in twelve states and the
District of Columbia. Eleven communities with 2,825 apartment homes are
presently under construction. More information on Avalon Properties may be found
on Avalon's Web site at http://www.avalonprop.com.
This announcement contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934. The words "expect," "anticipate," "estimate" and other similar
expressions which are predictions of or indicate future events and trends and
which do not relate solely to historical matters, including information
concerning the companies' future FFO estimates, identify forward-looking
statements. Reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors which are
in some cases beyond the control of the companies and may cause the actual
results, performance or achievements of the companies to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.
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Factors that might cause such a difference include, but are not limited to, the
following: occupancy rates and market rents may be adversely affected by local
economic, interest rates and market conditions which are beyond management's
control; the companies may not be able to successfully integrate large portfolio
acquisitions in new markets with then current business operations; and
additional factors discussed in the companies' periodic reports filed with the
Securities and Exchange Commission.
Contacts:
Bay Apartment Communities Avalon Properties
Gilbert M. (Mike) Meyer Richard L. Michaux
Chairman of the Board and Chairman of the Board,
President Chief Executive Officer and Director
(408) 260-3715 (703) 317-4601
# # #
7
EXHIBIT 99.3
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of March 9, 1998, by and between
Avalon Properties, Inc., a Maryland corporation ("Issuer"), and Bay Apartment
Communities, Inc., a Maryland corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of the date hereof (as amended from time to time, the "Merger
Agreement"), which agreement has been executed by the parties hereto immediately
prior to the execution of this Stock Option Agreement (this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 8,584,000
fully paid and nonassessable shares of Issuer's Common Stock, par value $.01 per
share ("Common Stock"), at a price of $28.8125 per share (the "Option Price");
provided, however, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement), or (ii) redeemed, repurchased, retired
or otherwise cease to be outstanding after the date of this Agreement, the
number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
<PAGE>
2. (a) Holder (as hereinafter defined) may exercise the Option, in whole
or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that Holder shall have sent
to Issuer written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Triggering Event (or if, following the
occurrence of a Triggering Event, and prior to an Exercise Termination Event,
there shall have occurred an Extension Event, within 90 days following such
Extension Event). Each of the following shall be an "Exercise Termination
Event": (i) the Effective Time (as defined in the Merger Agreement) of the
Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of a
Triggering Event except a termination by Grantee pursuant to Section 8.1(b) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional); or (iii) the passage of 18 months after
termination of the Merger Agreement if such termination follows the occurrence
of a Triggering Event or is a termination by Grantee pursuant to Section 8.1(b)
of the Merger Agreement (unless the breach by Issuer giving rise to such right
of termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Triggering Event" shall mean any of the following events
or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each, an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations thereunder) other than
Grantee or any of its Subsidiaries (each a "Grantee Subsidiary"), or the
Board of Directors of Issuer shall have recommended that the stockholders
of Issuer approve or accept any Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of
Issuer, (x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets of Issuer or any Significant Subsidiary
of Issuer, (y) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10%
or more of the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall (A) the transactions
contemplated by the Merger Agreement or the entering into of the Merger
Agreement constitute an Acquisition Transaction or (B) any merger,
consolidation, purchase or similar transaction involving only the Issuer
and one or more of its Subsidiaries or involving only any two or more of
such Subsidiaries be deemed to be an Acquisition Transaction, provided such
transaction is not entered into in violation of the terms of the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed, or publicly an-
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<PAGE>
nounced its intention to authorize, recommend or propose, an Acquisition
Transaction with any person other than Grantee or a Grantee Subsidiary, or
the Board of Directors of Issuer shall have publicly withdrawn or
modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition Transaction with
any person other than Grantee or Grantee Subsidiary, or the Board of
Directors of Issuer shall have publicly announced its intention not to
recommend that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreement because of or in connection with an
actual or proposed Acquisition Transaction involving any person other than
Grantee or Grantee Subsidiary;
(iii) Any person other than Grantee or any Grantee Subsidiary
(and also excluding any person who shall have beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock as of immediately following the time the Merger
Agreement is entered into, unless and until any such person shall have
beneficial ownership or the right to acquire beneficial ownership of a
percentage of the outstanding shares of Common Stock that is 110% or more
of such person's level of beneficial ownership as of such time) shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject
of public disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by any person other than Grantee or
any Grantee Subsidiary to Issuer or its stockholders to engage in an
Acquisition Transaction, Issuer shall have breached any covenant or
obligation contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below).
(c) The term "Extension Event" shall mean either of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Triggering Event or Extension Event of which Issuer has notice, it being
understood and agreed that
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the giving of such notice by Issuer shall not be a condition to the right of
Holder to exercise the Option.
(e) In the event Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares of
Common Stock it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); provided
that if prior notification to or approval of any governmental authority is
required in connection with such purchase, Holder and Issuer shall promptly file
the required notice, form or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of the purchase
price as provided in subsection (f) of this Section 2, Issuer shall deliver to
Holder a certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall have been exercised in part
only, a new Option evidencing the rights of Holder thereof to purchase the
balance of the shares of Common Stock purchasable hereunder, and Holder shall
deliver to Issuer a copy of this Agreement. By receipt of any shares of Common
Stock issuable hereunder Holder will agree, and does hereby agree, not to offer
to sell or otherwise dispose of such shares in violation of the Securities Act
of 1933, as amended (the "1933 Act"), other applicable law or the provisions of
this Agreement.
(h) Certificates for shares of Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
(i) The reference to the resale restrictions of the 1933 Act, in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required
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<PAGE>
for purposes of the 1933 Act; (ii) the reference to the provisions to this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(j) Upon the giving by Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price under subsection (f) of this Section
2, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) that it shall promptly take all action as may from time to time be
required in order to permit Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) that it
shall promptly take all action provided herein to protect the rights of Holder
against dilution and otherwise hereunder.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not this Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
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<PAGE>
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of securities purchasable upon exercise hereof and the Option Price shall
be appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for, and the inclusion and validity of
such provision shall be a condition to, the validity and consummation of any
such transaction, such proper adjustment and the full satisfaction of the
Issuer's obligations hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 90 days of such Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a shelf registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of distribution requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for a period of 180 days from the
day such registration statement first becomes effective. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of Option Shares as provided
above, Issuer is in registration with respect to an underwritten public offering
of shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of Option Shares would interfere
with the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact
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that there shall be more than one Grantee as a result of any assignment or
division of this Agreement.
7. (a) (i) At the request of Holder or of the owner of Option Shares (the
"Owner"), delivered following the occurrence of a Triggering Event and prior to
the occurrence of a Repurchase Event (as defined below), and prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall, immediately
prior to the Repurchase Event, repurchase (x) in the case of a request from
Holder, the Option from Holder at a price (the "Option Repurchase Price") equal
to the amount by which (A) the Market/Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares then subject to the
Option, and (y) in the case of a request from the Owner, such number of Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated, and (ii) at the request of Holder or the Owner,
delivered within 90 days after such Repurchase Event (or such later period as
provided in Section 10), Issuer shall repurchase (x) in the case of a request
from Holder, the Option from Holder at the Option Repurchase Price, and (y) in
the case of a request from the Owner, such number of Option Shares from the
Owner as the Owner shall designate at the Option Share Repurchase Price. The
term "Market/Offer Price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made in
connection with such Repurchase Event or within the six-month period immediately
preceding the date Holder gives notice of the required repurchase of this Option
or the Owner gives notice of the required repurchase of Option Shares, as the
case may be, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer in connection with such Repurchase
Event, (iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, and (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by Holder or the Owner, as the case may be, and reasonably acceptable
to the Issuer, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by Holder or Owner, as the case may
be, and reasonably acceptable to the Issuer.
(b) Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder or
the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Prior to the later to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the
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<PAGE>
portion thereof, if any, that Issuer is not then prohibited under applicable law
and regulations from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering, to Holder and/or the Owner,
as appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file any
required notices, in each case as promptly as practicable in order to accomplish
such repurchase), Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to Holder, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common Stock
obtained by multiplying the number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to Holder and the denominator of
which is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a "Repurchase Event" shall be
deemed to have occurred upon either (i) the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the proviso to Section 2(b)(i), or (ii) the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, in either case before an Exercise Termination Event. Prior to the
occurrence of any Repurchase Event, the Issuer shall notify in writing the
Holder and each Owner of such Repurchase Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provi-
-8-
<PAGE>
sion so that the Option shall, upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or exchanged
for, an option (the "Substitute Option"), at the election of Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher than
the closing price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging into
Issuer or by any company which controls or is controlled by such person, as
Holder may elect.
(c) The Substitute Option shall have the same terms as the Option;
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible to those
of the Option and in no event less advantageous to Holder of the Option. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Is-
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<PAGE>
suer") shall make a cash payment to Holder equal to the excess of (i) the value
of the Substitute Option without giving effect to the limitation in this clause
(e) over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Holder or the Owner,
as the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable
out-of-pocket expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or
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<PAGE>
in full, the Substitute Option Issuer following a request for repurchase
pursuant to this Section 9 shall immediately so notify the Substitute Option
Holder and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation from delivering to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer shall use its best efforts to obtain any such required regulatory
and legal approvals, in each case as promptly as practicable, in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7 and 14 shall be extended: (i) to the extent necessary to obtain all legal and
regulatory approvals for the exercise of such rights, for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that
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<PAGE>
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all action so that the entering into of this
Agreement, the acquisition of shares of Common Stock hereunder and the other
transactions contemplated hereby do not and will not result in the grant of any
rights to any person under the Avalon Rights Agreement (as defined in the Merger
Agreement) or enable or require the Avalon Rights (as defined in the Merger
Agreement) to be exercised, distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. 13. (a) Notwithstanding anything to the contrary herein, in no event
shall Grantee's Total Profit (as hereinafter defined) exceed $75 million.
(b) Notwithstanding anything to the contrary herein, the Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as hereinafter defined) of more than $75
million; provided, that nothing in this sentence shall restrict any exercise of
the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Holder
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Owner pursuant to Issuer's
repurchase of Option Shares pursuant to Section 7, less (y) Owner's purchase
price for such Option Shares, (iii) (x) the net amounts received by Owner
pursuant to the sale or other disposition of Option Shares (or any other
securities into which such Option Shares shall be converted or exchanged) to any
unaffiliated party in connection with any Acquisition Transaction or at a time
when any Acquisition Transaction is pending or proposed or the subject of any
public announcement, less (y) Owner's purchase price of such Option Shares, (iv)
any amounts received by Holder on the transfer of the Option (or any portion
thereof) to any unaffiliated party, and (v) any equivalent amount with respect
to the Substitute Option.
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<PAGE>
(d) As used herein, the term "Notional Total Profit" with respect to
any number of shares as to which Holder may propose to exercise the Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Holder
and its affiliates as of such date, were sold for cash at the closing market
price for the Issuer Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
14. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations under this Agreement or the
Option created hereunder within 90 days following such Triggering Event (or such
later period as provided in Section 10).
15. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance.
16. Grantee hereby agrees and acknowledges that for a period of two (2)
years from the exercise of the Option, it and its affiliates (as defined in Rule
12b-2 under the 1934 Act) will not (and Grantee and they will not assist,
provide or arrange financing to or for others or encourage others to), directly
or indirectly, acting alone or in concert with others, unless specifically
requested in writing in advance by the Board of Directors of the Issuer:
(a) acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not limited to,
beneficial ownership as defined in Rule 13d-3 under the 1934 Act) of any of
the assets or businesses of the Issuer or any securities issued by the
Issuer (excluding the exercise of the Option itself), or any rights or
options to acquire such ownership (including from a third party),
(b) seek or propose to influence or control the management or the
policies of the Issuer or to obtain representation on the Issuer's Board of
Directors, or solicit, or participate in the solicitation of, any proxies
or consents with respect to any securities of the Issuer,
(c) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing,
or
(d) seek or request permission to do any of the foregoing or make
or seek permission to make any public announcement with respect to any of
the foregoing.
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<PAGE>
If at any time after a Triggering Event Grantee is approached by any
third party concerning Grantee's or any affiliates participation in a
transaction involving the assets or businesses of the Issuer or securities
issued by the Issuer, Grantee will promptly inform the Issuer of the nature of
such contact and the parties thereto.
17. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto, that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached, and
that the parties will be entitled to specific relief hereunder, including,
without limitation, an injunction or injunctions to prevent and enjoin breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy at law or in equity to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to any such remedy are hereby waived.
18. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or other governmental authority of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions and covenants and restrictions contained in this Agreement shall
remain in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or governmental authority determines
that Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) (as adjusted pursuant to Section 1(b) or 5), it is the
express intention of Issuer to allow Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
19. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
20. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
21. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
22. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
23. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect
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<PAGE>
thereof, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
25. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any waiver of any rights under
this Agreement shall only be valid if set forth in an instrument in writing
signed by the party to be charged therewith.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
AVALON PROPERTIES, INC.
By: /s/ Richard L. Michaux
Name: Richard L. Michaux
Title: Chief Executive Officer
BAY APARTMENT COMMUNITIES, INC.
By: /s/ Gilbert M. Meyer
Name: Gilbert M. Meyer
Title: President
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EXHIBIT 99.4
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of March 9, 1998, by and between Bay
Apartment Communities, Inc., a Maryland corporation ("Issuer"), and Avalon
Properties, Inc., a Maryland corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of the date hereof (as amended from time to time, the "Merger
Agreement"), which agreement has been executed by the parties hereto immediately
prior to the execution of this Stock Option Agreement (this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 5,212,000
fully paid and nonassessable shares of Issuer's Common Stock, par value $.01 per
share ("Common Stock"), at a price of $37.00 per share (the "Option Price");
provided, however, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement), or (ii) redeemed, repurchased, retired
or otherwise cease to be outstanding after the date of this Agreement, the
number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
<PAGE>
2. (a) Holder (as hereinafter defined) may exercise the Option, in whole
or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that Holder shall have sent
to Issuer written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Triggering Event (or if, following the
occurrence of a Triggering Event, and prior to an Exercise Termination Event,
there shall have occurred an Extension Event, within 90 days following such
Extension Event). Each of the following shall be an "Exercise Termination
Event": (i) the Effective Time (as defined in the Merger Agreement) of the
Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of a
Triggering Event except a termination by Grantee pursuant to Section 8.1(b) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional); or (iii) the passage of 18 months after
termination of the Merger Agreement if such termination follows the occurrence
of a Triggering Event or is a termination by Grantee pursuant to Section 8.1(b)
of the Merger Agreement (unless the breach by Issuer giving rise to such right
of termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Triggering Event" shall mean any of the following events
or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each, an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations thereunder) other than
Grantee or any of its Subsidiaries (each a "Grantee Subsidiary"), or the
Board of Directors of Issuer shall have recommended that the stockholders
of Issuer approve or accept any Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of
Issuer, (x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets of Issuer or any Significant Subsidiary
of Issuer, (y) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10%
or more of the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall (A) the transactions
contemplated by the Merger Agreement or the entering into of the Merger
Agreement constitute an Acquisition Transaction or (B) any merger,
consolidation, purchase or similar transaction involving only the Issuer
and one or more of its Subsidiaries or involving only any two or more of
such Subsidiaries be deemed to be an Acquisition Transaction, provided such
transaction is not entered into in violation of the terms of the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed, or publicly an-
-2-
<PAGE>
nounced its intention to authorize, recommend or propose, an Acquisition
Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition Transaction with
any person other than Grantee or Grantee Subsidiary, or the Board of
Directors of Issuer shall have publicly announced its intention not to
recommend that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreement because of or in connection with an
actual or proposed Acquisition Transaction involving any person other than
Grantee or Grantee Subsidiary;
(iii) Any person other than Grantee or any Grantee Subsidiary
(and also excluding any person who shall have beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock as of immediately following the time the Merger
Agreement is entered into, unless and until any such person shall have
beneficial ownership or the right to acquire beneficial ownership of a
percentage of the outstanding shares of Common Stock that is 110% or more
of such person's level of beneficial ownership as of such time) shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject
of public disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by any person other than Grantee or
any Grantee Subsidiary to Issuer or its stockholders to engage in an
Acquisition Transaction, Issuer shall have breached any covenant or
obligation contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below).
(c) The term "Extension Event" shall mean either of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Triggering Event or Extension Event of which Issuer has notice, it being
understood and agreed that
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<PAGE>
the giving of such notice by Issuer shall not be a condition to the right of
Holder to exercise the Option.
(e) In the event Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares of
Common Stock it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); provided
that if prior notification to or approval of any governmental authority is
required in connection with such purchase, Holder and Issuer shall promptly file
the required notice, form or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of the purchase
price as provided in subsection (f) of this Section 2, Issuer shall deliver to
Holder a certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall have been exercised in part
only, a new Option evidencing the rights of Holder thereof to purchase the
balance of the shares of Common Stock purchasable hereunder, and Holder shall
deliver to Issuer a copy of this Agreement. By receipt of any shares of Common
Stock issuable hereunder Holder will agree, and does hereby agree, not to offer
to sell or otherwise dispose of such shares in violation of the Securities Act
of 1933, as amended (the "1933 Act"), other applicable law or the provisions of
this Agreement.
(h) Certificates for shares of Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
(i) The reference to the resale restrictions of the 1933 Act, in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required
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<PAGE>
for purposes of the 1933 Act; (ii) the reference to the provisions to this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(j) Upon the giving by Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price under subsection (f) of this Section
2, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) that it shall promptly take all action as may from time to time be
required in order to permit Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) that it
shall promptly take all action provided herein to protect the rights of Holder
against dilution and otherwise hereunder.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not this Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
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<PAGE>
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of securities purchasable upon exercise hereof and the Option Price shall
be appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for, and the inclusion and validity of
such provision shall be a condition to, the validity and consummation of any
such transaction, such proper adjustment and the full satisfaction of the
Issuer's obligations hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 90 days of such Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a shelf registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of distribution requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for a period of 180 days from the
day such registration statement first becomes effective. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of Option Shares as provided
above, Issuer is in registration with respect to an underwritten public offering
of shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of Option Shares would interfere
with the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact
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<PAGE>
that there shall be more than one Grantee as a result of any assignment or
division of this Agreement.
7. (a) (i) At the request of Holder or of the owner of Option Shares (the
"Owner"), delivered following the occurrence of a Triggering Event and prior to
the occurrence of a Repurchase Event (as defined below), and prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall, immediately
prior to the Repurchase Event, repurchase (x) in the case of a request from
Holder, the Option from Holder at a price (the "Option Repurchase Price") equal
to the amount by which (A) the Market/Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares then subject to the
Option, and (y) in the case of a request from the Owner, such number of Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated, and (ii) at the request of Holder or the Owner,
delivered within 90 days after such Repurchase Event (or such later period as
provided in Section 10), Issuer shall repurchase (x) in the case of a request
from Holder, the Option from Holder at the Option Repurchase Price, and (y) in
the case of a request from the Owner, such number of Option Shares from the
Owner as the Owner shall designate at the Option Share Repurchase Price. The
term "Market/Offer Price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made in
connection with such Repurchase Event or within the six-month period immediately
preceding the date Holder gives notice of the required repurchase of this Option
or the Owner gives notice of the required repurchase of Option Shares, as the
case may be, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer in connection with such Repurchase
Event, (iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, and (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by Holder or the Owner, as the case may be, and reasonably acceptable
to the Issuer, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by Holder or Owner, as the case may
be, and reasonably acceptable to the Issuer.
(b) Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder or
the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Prior to the later to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the
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<PAGE>
portion thereof, if any, that Issuer is not then prohibited under applicable law
and regulations from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering, to Holder and/or the Owner,
as appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file any
required notices, in each case as promptly as practicable in order to accomplish
such repurchase), Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to Holder, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common Stock
obtained by multiplying the number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to Holder and the denominator of
which is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a "Repurchase Event" shall be
deemed to have occurred upon either (i) the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the proviso to Section 2(b)(i), or (ii) the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, in either case before an Exercise Termination Event. Prior to the
occurrence of any Repurchase Event, the Issuer shall notify in writing the
Holder and each Owner of such Repurchase Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provi-
-8-
<PAGE>
sion so that the Option shall, upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or exchanged
for, an option (the "Substitute Option"), at the election of Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher than
the closing price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging into
Issuer or by any company which controls or is controlled by such person, as
Holder may elect.
(c) The Substitute Option shall have the same terms as the Option;
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible to those
of the Option and in no event less advantageous to Holder of the Option. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Is-
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<PAGE>
suer") shall make a cash payment to Holder equal to the excess of (i) the value
of the Substitute Option without giving effect to the limitation in this clause
(e) over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Holder or the Owner,
as the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable
out-of-pocket expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or
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<PAGE>
in full, the Substitute Option Issuer following a request for repurchase
pursuant to this Section 9 shall immediately so notify the Substitute Option
Holder and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation from delivering to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer shall use its best efforts to obtain any such required regulatory
and legal approvals, in each case as promptly as practicable, in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7 and 14 shall be extended: (i) to the extent necessary to obtain all legal and
regulatory approvals for the exercise of such rights, for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that
-11-
<PAGE>
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all action so that the entering into of this
Agreement, the acquisition of shares of Common Stock hereunder and the other
transactions contemplated hereby do not and will not result in the grant of any
rights to any person under the Bay Rights Agreement (as defined in the Merger
Agreement) or enable or require the Bay Rights (as defined in the Merger
Agreement) to be exercised, distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. 13. (a) Notwithstanding anything to the contrary herein, in no event
shall Grantee's Total Profit (as hereinafter defined) exceed $75 million.
(b) Notwithstanding anything to the contrary herein, the Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as hereinafter defined) of more than $75
million; provided, that nothing in this sentence shall restrict any exercise of
the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Holder
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Owner pursuant to Issuer's
repurchase of Option Shares pursuant to Section 7, less (y) Owner's purchase
price for such Option Shares, (iii) (x) the net amounts received by Owner
pursuant to the sale or other disposition of Option Shares (or any other
securities into which such Option Shares shall be converted or exchanged) to any
unaffiliated party in connection with any Acquisition Transaction or at a time
when any Acquisition Transaction is pending or proposed or the subject of any
public announcement, less (y) Owner's purchase price of such Option Shares, (iv)
any amounts received by Holder on the transfer of the Option (or any portion
thereof) to any unaffiliated party, and (v) any equivalent amount with respect
to the Substitute Option.
-12-
<PAGE>
(d) As used herein, the term "Notional Total Profit" with respect to
any number of shares as to which Holder may propose to exercise the Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Holder
and its affiliates as of such date, were sold for cash at the closing market
price for the Issuer Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
14. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations under this Agreement or the
Option created hereunder within 90 days following such Triggering Event (or such
later period as provided in Section 10).
15. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance.
16. Grantee hereby agrees and acknowledges that for a period of two (2)
years from the exercise of the Option, it and its affiliates (as defined in Rule
12b-2 under the 1934 Act) will not (and Grantee and they will not assist,
provide or arrange financing to or for others or encourage others to), directly
or indirectly, acting alone or in concert with others, unless specifically
requested in writing in advance by the Board of Directors of the Issuer:
(a) acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not limited to,
beneficial ownership as defined in Rule 13d-3 under the 1934 Act) of any of
the assets or businesses of the Issuer or any securities issued by the
Issuer (excluding the exercise of the Option itself), or any rights or
options to acquire such ownership (including from a third party),
(b) seek or propose to influence or control the management or the
policies of the Issuer or to obtain representation on the Issuer's Board of
Directors, or solicit, or participate in the solicitation of, any proxies
or consents with respect to any securities of the Issuer,
(c) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing,
or
(d) seek or request permission to do any of the foregoing or make
or seek permission to make any public announcement with respect to any of
the foregoing.
-13-
<PAGE>
If at any time after a Triggering Event Grantee is approached by any
third party concerning Grantee's or any affiliates participation in a
transaction involving the assets or businesses of the Issuer or securities
issued by the Issuer, Grantee will promptly inform the Issuer of the nature of
such contact and the parties thereto.
17. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto, that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached, and
that the parties will be entitled to specific relief hereunder, including,
without limitation, an injunction or injunctions to prevent and enjoin breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy at law or in equity to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to any such remedy are hereby waived.
18. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or other governmental authority of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions and covenants and restrictions contained in this Agreement shall
remain in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or governmental authority determines
that Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) (as adjusted pursuant to Section 1(b) or 5), it is the
express intention of Issuer to allow Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
19. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
20. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
21. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
22. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
23. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect
-14-
<PAGE>
thereof, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
25. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any waiver of any rights under
this Agreement shall only be valid if set forth in an instrument in writing
signed by the party to be charged therewith.
-15-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
BAY APARTMENT COMMUNITIES, INC.
By: /s/ Gilbert M. Meyer
Name: Gilbert M. Meyer
Title: President
AVALON PROPERTIES, INC.
By: /s/ Richard L. Michaux
Name: Richard L. Michaux
Title: Chief Executive Officer
-16-
EXHIBIT 99.5
Avalon Bay Communities, Inc.
<PAGE>
- -------------------------------------------------------------------------------
Transaction Summary
These materials contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. The words "except," "anticipate," "estimate" and other similar
expressions which are predictions of or indicate future events and trends
and which do not relate solely to historical matters, including information
concerning the companies' future FFO estimates, identify forward-looking
statements. Reliance should not be placed on forward-looking statements
because they involve known and unknown risks, uncertainties and other
factors which are in some cases beyond the control of the companies and may
cause the actual results, performance or achievements of the companies to
differ materially from anticipated future results, performance or
achievements expressed or implied by such forward looking statements.
<PAGE>
Transaction Summary
- ------------------------------------------------------------------------------
Overview
* Preeminent Luxury Apartment Company
* National High "Barrier-to-Entry" Strategy
* Significant Presence in Top 10 Apartment Markets
* Expanded Construction and Reconstruction Capabilities
* $3.7 Billion Total Market Capitalization
* Superior Shareholder Value Creation
<PAGE>
Transaction Summary
- ------------------------------------------------------------------------------
* Company Name: Avalon Bay Communities, Inc.
* Exchange Ratio: .7683 BYA Shares Issued per AVN Share
* Accretion: $0.15 per Share Estimated in 1999
* Dividend: Increased from $1.68 to $2.04 per Share
* Accounting Treatment: Purchase Accounting
* Board Composition: 9 Independents, 3 Members of Senior Management
* Headquarters: Alexandria, VA; Super-regional Offices in
San Jose, CA and Wilton, CT
* Anticipated Closing: June 1998
<PAGE>
Transaction Summary
- -------------------------------------------------------------------------------
Office of the Executive
Executive Chairman
Gilbert M. Meyer
Chief Executive Officer
Richard L. Michaux
President & C.O.O.
Charles H. Berman
<PAGE>
Transaction Summary
- ------------------------------------------------------------------------------
Senior Management
Executive Chairman
Gilbert M. Meyer
(line to Meyer)
Chief Executive Officer
Richard L. Michaux
(line to Michaux)
President & C.O.O.
Charles H. Berman
(line to Michaux)
CFO Development/ Property Operations Investments
Thomas J. Sargeant Acquisition Robert H. Slater Jeffrey B. Van Horn
(line to Michaux) Bryce Blair (line to Berman) (line to Michaux)
(line to Berman)
Integration Construction Administration
Max L. Gardner Morton L. Newman Debra Lynn Shotwell
(line to Michaux) (line to Berman) (line to Michaux)
<PAGE>
Transaction Summary
- -------------------------------------------------------------------------------
Merger Integration
* Management and Board Committed to Integration Process
* Merger Iintegration Firms Retained
* "Best Practices" Focus
* Relocation of President & C.O.O.
* Scaleable Information Systems
* Waiving Acceleration of Options and Grants
<PAGE>
- ------------------------------------------------------------------------------
Strategic Rationale
<PAGE>
Strategic Rationale - Common Heritage
- -------------------------------------------------------------------------------
* Identical High "Barrier-to-Entry" Strategies
* Similar Backgrounds as Investments Developers/Builders
* Consistent High Quality Asset and Resident Profile
* "Superior Resident Service" Ethic
* Similar Capital Structures and Financing Strategies
<PAGE>
The Combined Company
Community Locations
- -------------------------------------------------------------------------------
[Map of the United States indicating development
community, community, pre-sale community, corporate headquarters,
regional office]
<PAGE>
Strategic Rationale - Market Strength
- -------------------------------------------------------------------------------
1998 Top Ten Apartment Markets
----------------------------------------------------------------------------
Metropolitan Area Bay Avalon Combined
----------------------------------------------------------------------------
1. San Francisco x x
2. Orange County x x
3. Boston x x
4. San Jose x x
5. New York/Nassau Suffolk x x
6. San Diego x x
7. Oakland/East Bay x x
8. Seattle x x x
9. Los Angeles x x
10. Minneapolis x x
----------------------------------------------------------------------------
------------------
Source: Jan/Feb Multi-Housing News, 1998.
<PAGE>
Strategic Rationale -
Improved Geographic Diversification
- -------------------------------------------------------------------------------
[Pie chart indicating geographic diversification]
<PAGE>
Strategic Rationale - Management
- -------------------------------------------------------------------------------
Outstanding Management
* "Local Sharpshooter" in All Markets
* Unparalleled Management Expertise
- Acquisition
- Development
- Construction
- Reconstruction
- Property Operations
* Significant Management Bench Strength
* Incentive Compensation to Encourage Employee Retention
<PAGE>
Strategic Rationale - Credit Profile
- -------------------------------------------------------------------------------
Improved Financial Flexibility
* Strong Financial Ratios
* Improved Stability of Cash Flows
* Broader Geographic Diversification
* Improved Liquidity
* Positive Response from Rating Agencies
<PAGE>
Strategic Rationale - Improved Liquidity
- -------------------------------------------------------------------------------
[Graph indicating Average Monthly Trading Volume of Bay ($46.71 million),
Avalon ($42.07 million) and Combined ($88.78 million)]
------------------------
Note: Average monthly trading volume for 1997
multiplied by the average daily price for the year.
<PAGE>
Strategic Rationale - Synergies
- ------------------------------------------------------------------------------
* Lower Cost of Capital
* Lower General and Administrative Expenses
- Corporate Governance
- Information and Accounting Systems
- Telecommunication
* Operating Efficiencies Due to Critical Mass
- Operating Expenses (Economies of Scale)
- Bulk Purchasing
- Insurance
- Alternative Revenue Sources
<PAGE>
- -------------------------------------------------------------------------------
Value Creation
<PAGE>
Value Creation - Infrastructure
------------------------------------------------------------------------------
* Coast-to-Coast Presence
* 11 Regional Offices and 1,600 Employees
* Operating History in 29 Supply-Constrained Markets
* Local Development and Acquisition Expertise
* Construction and Reconstruction Capabilities
* Proven Scaleable Systems
<PAGE>
Value Creation - Financial Strength
- --------------------------------------------------------------------------------
* Intelligent Balance Sheet
- Minimal Floating Rate Debt
- Low Leverage
- Staggered Maturities
* $60 Million FFO in Excess of Dividends in 1998
* $575 Million Existing Credit Lines
* Proven Access to Capital
<PAGE>
Value Creation - Internal
- -------------------------------------------------------------------------------
* 140 Communities; 40,506 Apartment Homes
* 8%+ "Same Store" FFO Growth
* $0.32 per Share Loss to Lease
* $0.05 per Share Loss to Reconstruction
* Greater Base for Non-Rental Revenue
<PAGE>
Value Creation - External
- -------------------------------------------------------------------------------
New Construction
($ in millions) Number of Number of Approximate Weighted Average
Communities Homes Cost Return
----------- -------- -------------- --------------
Completed 20 5,273 $554 12.0%(1)
In Construction 16 4,533 668 10.3%(2)
In Planning 19 5,200 694 N/A
----- --------- ---------- -------
Total 55 15,006 $1,916
=== ====== ======
-------------------------
(1) Current Yield.
(2) Budgeted Yield.
<PAGE>
Value Creation - External
- -------------------------------------------------------------------------------
Reconstruction
Total
($ in Total
millions) Number of Number of Purchase Reconstructed Weighted Average
Communities Homes Price Cost Return
---------- ------ -------- ----------- ------------
Completed 18 4,358 $310 $ 34910.2%(1)
In Re-
construction 24 7,455 563 7209.4%(2)
Total 42 11,813 $873 $ 1,069
==== ======= ====== ========
-------------------------
(1) Current Yield.
(2) Budgeted Yield.
<PAGE>
Value Creation - Strategy
- ------------------------------------------------------------------------------
* Focus on High Barrier-to-Entry Markets
* Reconstruction in Midwest and Eastern Regions
* Increase Construction and Reconstruction in
Pacific Northwest
* New Construction in the Midwest and Southern
California
* Urban, In-Fill Communities
* Establish Position as Buyer of Choice
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
<PAGE>
Financial Highlights - Capital Structure
- -------------------------------------------------------------------------------
[Pie chart indicating capital structure]
Preferred Equity 9%
Common Equity 63% Debt 28%
$3.7 Billion Total Market Capitalization
<PAGE>
Financial Highlights - Debt Composition
- ------------------------------------------------------------------------------
[Pie chart indicating debt composition]
Fixed Rate Fixed Rate
Secured Debt Unsecured Debt
6% 45%
Fixed Rate
Tax-Exempt Debt Unsecured
36% Variable Rate Credit Facility
Tax-Exempt Debt 7%
6%
$1.0 Billion Total Debt
<PAGE>
Financial Highlights - Debt Maturities
- -------------------------------------------------------------------------------
[Graph indicating debt maturities for the years 1999
through 2037]
<PAGE>
Financial Highlights - Financial Ratios
- -------------------------------------------------------------------------------
Pro Forma 1997 (1)
-----------------------
Fixed Charge Coverage (2) 3.5x
Debt to Total Market Cap 28%
LT Floating Rate Debt to Total Market Cap 2%
Debt & Preferred to Total Market Cap 37%
FFO Payout Ratio 69%
----------------------------
(1) Pro forma as of December 31, 1997 as adjusted for offerings by either
company. Fixed charge coverage and FFO payout ratio are for the fourth
quarter of 1997.
(2) Without capitalized interest.
<PAGE>
- -------------------------------------------------------------------------------
Summary
<PAGE>
Summary
- -------------------------------------------------------------------------------
* Preeminent Luxury Apartment Home Company in the
U.S.
* Significant Presence in Top 10 Apartment Markets
* Shareholder Value Creation
- $0.07 per Share Accretion Estimated for
Remainder of 1998
- $0.15 per Share Accretion Estimated for 1999
- $0.36 Dividend Increase
- Lower Cost of Capital and Expanded Growth
Platform
EXHIBIT 99.6
Avalon Bay Communities, Inc.
March 9, 1998
<PAGE>
Special Note: Statements in the Avalon Properties, Inc. Web site relating to
Avalon's ownership, management, development and acquisition of multifamily
apartment communities are forward-looking statements. There are a number of
important factors that could cause actual events to differ materially from those
indicated by such forward-looking statements. These factors include, among
others, local economic and market conditions which are beyond management's
control and may adversely affect occupancy rates and market rents; the
possibility that the Company may not be able to successfully integrate large
portfolio acquisitions in new markets with its current business operations; and
additional factors discussed periodically in the Company's reports filed with
the Securities and Exchange Commission.
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I. Transaction Summary
II. The Combined Company
III. Financial Highlights
IV. Conclusion
<PAGE>
- -------------------------------------------------------------------------------
Transaction Summary
<PAGE>
Transaction Summary
Overview
- -------------------------------------------------------------------------------
- - Preeminent Luxury Apartment Company
- - National High "Barrier-to-Entry" Strategy
- - Significant Presence in Top 10 Apartment Markets
- - Expanded Construction and Reconstruction Capabilities
- - $3.7 Billion Total Market Capitalization
- - Superior Shareholder Value Creation
<PAGE>
Transaction Summary
- --------------------------------------------------------------------------------
- - Company Name: Avalon Bay Communities, Inc.
- - Exchange Ratio: .7683 BYA shares issued per AVN share
- - Accretion: $0.15 estimated in 1999
- - Dividend: Increased from $1.68 to $2.04
- - Accounting Treatment: Purchase Accounting
- - Board Composition: 9 Independents, 3 Members of Senior
Management
- - Headquarters: Alexandria, VA; Super-regional Offices
in San Jose, CA and Wilton, CT
- - Anticipated Closing: June 1998
<PAGE>
Transaction Summary
Common Heritage
- ------------------------------------------------------------------------------
- Identical High "Barrier-to-Entry" Strategies
- Similar Backgrounds as Investment Developers/ Builders
- Consistent High Quality Asset and Resident Profile
- "Superior Resident Service" Ethic
- Similar Capital Structures and Financing Strategies
<PAGE>
Transaction Summary
Merger Integration
- -------------------------------------------------------------------------------
- Management and Board Committed to Integration Process
- Merger Integration Firms Retained
- "Best Practices" Focus
- Relocation of President & C.O.O.
- Scaleable Information Systems
- Waiving Acceleration of Options and Grants
<PAGE>
Transaction Summary
Post-Closing
- ------------------------------------------------------------------------------
- $2.7 Billion of Combined Equity, including Preferred Stock
- $1.0 Billion of Combined Debt
- 140 Communities (1) with 40,506 Apartment Homes
- 16 States (including D.C.), 29 Distinct Markets
------------------
(1) Includes Communities under development and in lease-up.
<PAGE>
- -------------------------------------------------------------------------------
The Combined Company
<PAGE>
The Combined Company
Office of the Executive
- ------------------------------------------------------------------------------
Executive Chairman
Gilbert M. Meyer
- Real Estate Strategy
- Construction and Reconstruction
- West and National New Business
Chief Executive Officer
Richard L. Michaux
- Corporate and Financial Management
- Integration
- Internal and External Communication
- Mid-Atlantic New Business
President & C.O.O.
Charles H. Berman
- Daily Operations
- Strategy Implementation
- Best Practices
- Northeast and National New Business
<PAGE>
The Combined Company
Senior Management
- ------------------------------------------------------------------------------
Executive Chairman
Gilbert M. Meyer
Chief Executive Officer
Richard L. Michaux
(line to Meyer)
President & C.O.O.
Charles H. Berman
(line to Michaux)
CFO Development/ Property Operations Investments
Thomas J. Sargent Acquisitions Robert H. Slater Jeffrey B. Van Horn
(line to Michaux) Bryce Blair (line to Berman) (line to Michaux)
(line to Berman)
Integration Construction Administration
Max L. Gardner Morton L. Newman Debra Lynn Shotwell
(line to Michaux) (line to Berman) (line to Michaux)
<PAGE>
The Combined Company
Organizational Model
- ------------------------------------------------------------------------------
- Office of the Executive-Executive Chairman, CEO and President
- Each Serves on Board of Directors
- New Business
- Mentorship
- Localized Acquisition, Development and Construction
- Regionalized Property Operations
- Senior Vice President--Investments
- Capital Strategies and Allocation
- Strategic Market Research and New Business
- Investment Performance Evaluation
<PAGE>
The Combined Company
Strength of Management
- -------------------------------------------------------------------------------
- "Local Sharpshooter" in All Markets
- Unparalleled Management Expertise
- Acquisition
- Development
- Construction
- Reconstruction
- Property Operations
- Significant Management Bench Strength
- Incentive Compensation to Encourage Employee Retention
<PAGE>
The Combined Company
Office Locations
- ------------------------------------------------------------------------------
[Map of the United States indicating corporate headquarters and regional
office.]
<PAGE>
The Combined Company
Offices and Development Communities
- ------------------------------------------------------------------------------
[Map of the United States indicating development community, corporate
headquarters and regional office.]
<PAGE>
The Combined Company
Community Locations
- ------------------------------------------------------------------------------
[Map of the United States indicating development community, community,
pre-sale community, corporate headquarters and regional office.]
<PAGE>
The Combined Company
Portfolio Summary
- ------------------------------------------------------------------------------
Bay Avalon Combined
---- ------ ----------
Current Communities 58 66 124
Development Communities 5 11 16
Homes(1) 17,957 22,549 40,506
States 3 13(2) 16(2)
Markets 11 18 29
Average Age(3) 8 8 8
Economic Occupancy(4) 96.6% 96.2% 96.4%
- ----------------------------
(1) Includes homes under development.
(2) Includes District of Columbia.
(3) Average age based on year constructed or reconstructed and excludes
communities under reconstruction.
(4) Reflects average economic occupancy for stabilized communities for 1997.
<PAGE>
The Combined Company
Community Locations
- ------------------------------------------------------------------------------
Number of Communities Number of Homes
--------------------- -----------------
Current Development Development Current Development Development
Communities Communities Rights Communities Communities Rights
State
California 55 5 1 15,558 1,70 200
Connecticut 7 2 5 2,778 403 883
Illinois 3 - 1 887 - 200
Indiana 2 - - 376 - -
Maryland 12 1 - 3,430 96 -
Massachusetts 5 1 3 1,172 171 800
Michigan 3 - - 983 - -
Minnesota 3 - - 904 - -
New Jersey 5 2 3 2,008 620 1,182
New York 5 3 5 968 841 1,770
Ohio 1 - - 264 - -
Oregon 1 - - 279 - -
Rhode Island 1 - - 225 - -
Virginia 18 2 1 5,421 694 165
Washington 2 - - 412 - -
Washington, 1 - - 308 - -
D.C
---- ----- ----- ----- ----- -----
Total 124 16 19 35,973 4,533 5,200
--- -- -- ------ ----- ------
<PAGE>
The Combined Company
Geographic Diversification by State
- ------------------------------------------------------------------------------
[Pie chart of Bay representing [Pie chart of Avalon representing
geographic diversification geographic diversification by
by state] state]
Note: By number of Apartment Homes. Does not include communities under
development.
<PAGE>
The Combined Company
Geographic Diversification by State
- ------------------------------------------------------------------------------
[Pie chart of Bay/Avalon combined representing geographic diversification by
state.]
-----------------------------------
Note: By number of Apartment Homes. Does not include communities under
development.
<PAGE>
The Combined Company
Geographic Diversification by Market
- ------------------------------------------------------------------------------
[Pie chart representing Bay/Avalon combined geographic diversification by
market.]
- --------------------------
Note: By number of Apartment Homes. Does not include communities under
development.
<PAGE>
The Combined Company
Strength of Markets - Top Ten Apartment Markets
- -------------------------------------------------------------------------------
----------------------------------------------------------------------------
Metropolitan Area Bay Avalon Combined
----------------------------------------------------------------------------
1. San Francisco x x
2. Orange County x x
3. Boston x x
4. San Jose x x
5. New York/Nassau Suffolk x x
6. San Diego x x
7. Oakland/East Bay x x
8. Seattle x x x
9. Los Angeles x x
10. Minneapolis x x
----------------------------------------------------------------------------
------------------
Source: Jan/Feb Multi-Housing News, 1998.
<PAGE>
- ------------------------------------------------------------------------------
Financial Highlights
<PAGE>
Financial Highlights
Combined Capital Structure
- ------------------------------------------------------------------------------
[Pie chart representing combined capital structure.]
Preferred Equity
9%
Debt
28%
Common
Equity
63%
$3.7 Billion Total Market Capitalization
<PAGE>
Financial Highlights
Combined Debt Composition
- ------------------------------------------------------------------------------
[Pie chart representing combined debt composition.]
Fixed Rate Fixed Rate
Secured Debt Unsecured Debt
6% 45%
Fixed Rate
Tax-Exempt
Debt
36%
Unsecured
Variable Rate Credit Facility
Tax-Exempt Debt 7%
6%
$1.0 Billion Total Debt
<PAGE>
Financial Highlights
Debt Summary as of 12/31/97 (1)
- ------------------------------------------------------------------------------
-------------------------------------------------------------------------
($ in millions) Weighted Average Weighted Average Principal
Interest Rate Years to Maturity Balance
-------------------------------------------------------------------------
Conventional - Fixed Rate Mortgages 7.792% 5.7 $58.2
Unsecured Debt - Fixed Rate 6.794% 7.3 $460.0
Tax - Exempt - Fixed Rate Bonds 6.581% 21.4 $376.8
Tax - Exempt - Variable Rate Bonds 4.765% 25.3 $63.7
Unsecured Credit Facility Libor + 0.90% 2.3 $75.5
------------ ---------- --------
Total/Weighted Average 6.626% 13.1 $1,034.2
========== ====== ========
- -------------------
(1) Pro Forma for $150 million notes issued by Bay on January 20, 1998 and
$100 million notes issued by Avalon on January 22, 1998. Proceeds of both
offerings were used to reduce the respective lines of credit.
<PAGE>
- -------------------------------------------------------------------------------
Conclusion
<PAGE>
Conclusion
- -------------------------------------------------------------------------------
* Preeminent Luxury Apartment Home Company in the U.S.
* Significant Presence in Top 10 Apartment Markets
* Shareholder Value Creation
* $0.07 per Share Accretion Estimated for Remainder of 1998
* $0.15 per Share Accretion Estimated for 1999
* $0.36 Dividend Increase
* Low Cost of Capital and Expanded Growth Platform
<PAGE>
Avalon Bay Communities, Inc.
EXHIBIT 99.7
==================================================
AVALON PROPERTIES, INC.
and
FIRST UNION NATIONAL BANK,
Rights Agent
============
RIGHTS AGREEMENT
============
Dated as of March 9, 1998
==================================================
<PAGE>
TABLE OF CONTENTS
Page
Number
Section 1. Definitions...................................................1
Section 2. Appointment of Rights Agent...................................8
Section 3. Issue of Right Certificates...................................8
Section 4. Form of Right Certificates...................................11
Section 5. Countersignature and Registration............................12
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates.......................................13
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights................................................14
Section 8. Cancellation and Destruction of Right Certificates...........16
Section 9. Availability of Preferred Shares.............................17
Section 10. Preferred Shares Record Date................................17
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights........................................18
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares........................................29
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power........................................30
Section 14. Fractional Rights and Fractional Shares.....................32
Section 15. Rights of Action............................................34
Section 16. Agreement of Right Holders..................................34
Section 17. Right Certificate Holder Not Deemed a Stockholder...........35
Section 18. Concerning the Rights Agent.................................36
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Section 19. Merger or Consolidation or Change of Name of Rights Agent...37
Section 20. Duties of Rights Agent......................................38
Section 21. Change of Rights Agent......................................42
Section 22. Issuance of New Right Certificates..........................43
Section 23. Redemption..................................................44
Section 24. Exchange....................................................45
Section 25. Notice of Certain Events....................................48
Section 26. Notices.....................................................49
Section 27. Supplements and Amendments..................................50
Section 28. Successors..................................................51
Section 29. Benefits of this Agreement..................................51
Section 30. Severability................................................51
Section 31. Governing Law...............................................52
Section 32. Counterparts................................................52
Section 33. Descriptive Headings........................................52
Section 34. Determinations and Actions by the Board of Directors........52
Signatures..............................................................50
Exhibit A - Form of Articles Supplementary
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
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Agreement, dated as of March 9, 1998, between Avalon Properties, Inc.,
a Maryland corporation (the "Company"), and First Union National Bank, as rights
agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding at the close of business on
March 9, 1998 (the "Record Date"), each Right representing the right to purchase
one one-hundredth of a Preferred Share (as hereinafter defined), upon the terms
and subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date, the Exchange Date, the Final Expiration Date and the
Merger Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person other than an Exempt
Person and other than Bay or any of its Affiliates or Associates solely by
reason of the Agreement and Plan of Merger, dated as of March 9, 1998, by and
between the Company and Bay (the "Merger Agreement"), the Stock Option
Agreement, dated as of March 9, 1998, by and between the Company, as issuer, and
Bay (the "Option Agreement"), or the consummation of the transactions
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contemplated by the Merger Agreement or the Option Agreement, who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 10% or more of the Common Shares of the Company then
outstanding. Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the Company which,
by reducing the number of Common Shares of the Company outstanding, increases
the proportionate number of Common Shares of the Company beneficially owned by
such Person to 10% or more of the Common Shares of the Company then outstanding;
provided, however, that, if a Person shall become the Beneficial Owner of 10% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares of the Company so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be an "Acquiring Person"
for any purposes of this Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement.
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(c) "Associate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement.
(d) "Bay" shall mean Bay Apartment Communities, Inc., a Maryland
corporation.
(e) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of Securities), or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, Securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered Securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
Security if the agree-
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ment, arrangement or understanding to vote such Security (1) arises solely
from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance
with, the applicable rules and regulations promulgated under the Exchange
Act and (2) is not also then reportable on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to Section 1(d)(ii)(B)) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(f) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in North Carolina are authorized or
obligated by law or executive order to close.
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(g) "Close of Business" on any given date shall mean 5:00 P.M.,
Charlotte, North Carolina time, on such date; provided, however, that, if such
date is not a Business Day, it shall mean 5:00 P.M., Charlotte, North Carolina
time, on the next succeeding Business Day.
(h) "closing price" shall have the meaning set forth in Section 14(a)
hereof.
(i) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(j) "Company" shall have the meaning set forth in the preamble hereof.
(k) "current per share market price" shall have the meaning set forth
in Section 11(d) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(m) "equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(o) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
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(p) "Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares of the Company for or pursuant to
the terms of any such plan.
(q) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(r) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotation System.
(s) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(t) "Preferred Shares" shall mean shares of Series C Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Articles Supplementary
attached to this Agreement as Exhibit A.
(u) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(v) "Record Date" shall have the meaning set forth in the second
paragraph hereof.
(w) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(x) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
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(y) "Relevant Director" shall mean (i) with respect to any time prior
to the date set forth in Section 8.1(c) of the Merger Agreement, a member of the
Board of Directors of the Company who is not an Acquiring Person or an Affiliate
or Associate of an Acquiring Person or a representative or nominee of an
Acquiring Person or of any such Affiliate or Associate, who is not an officer of
the Company and who either (a) was a member of the Board of Directors of the
Company prior to March 9, 1998 or (b) subsequently became a member of the Board
of Directors of the Company and whose election or nomination for election is
approved or recommended by a vote of a majority of the Board of Directors of the
Company, which majority includes a majority of the Relevant Directors then on
the Board of Directors of the Company and (ii) with respect to any other time, a
member of the Board of Directors of the Company who is not an Acquiring Person
or an Affiliate or Associate of an Acquiring Person or a representative or
nominee of an Acquiring Person or of any such Affiliate or Associate and who is
not an officer of the Company.
(z) "Right" shall have the meaning set forth in the second paragraph
hereof.
(aa) "Right Certificate" shall have the meaning set forth in
Section 3(a) hereof.
(bb) "Rights Agent" shall have the meaning set forth in the
preamble hereof.
(cc) "Security" shall have the meaning set forth in Section 11(d)
hereof.
(dd) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
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(ee) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(ff) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
(gg) "Trading Day" shall have the meaning set forth in
Section 11(d) hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall, prior to the Distribution
Date, also be the holders of the Common Shares of the Company) in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day
(or such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any Person becomes an Acquiring Person,
provided that no such action may be taken by the Board of Directors of the
Company to determine a later date unless, at the time of such action, there are
then in office not less than two Relevant Directors and such action is approved
by a majority of the Relevant Directors then in office) after the date of the
commencement by any Person other than an Exempt Person of, or of the first
public announcement of the intention of any Person other than an Exempt Person
to commence, a tender or exchange offer the consummation of which
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would result in any Person other than an Exempt Person becoming the Beneficial
Owner of Common Shares of the Company aggregating 10% or more of the then
outstanding Common Shares of the Company (including any such date which is after
the date of this Agreement and prior to the issuance of the Rights, the earlier
of such dates being herein referred to as the "Distribution Date"), (x) the
Rights will be represented (subject to the provisions of Section 3(b) hereof) by
the certificates for Common Shares of the Company registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares of the Company. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights Agent
will, if requested, send) by first-class, insured, postage-prepaid mail, to each
record holder of Common Shares of the Company as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), representing one Right for each Common Share so held. As
of the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares of the
Company as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Shares of the Company outstanding as of the Record Date, until the
Distribution Date,
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the Rights will be represented by such certificates registered in the names of
the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the earliest of the Redemption Date,
the Exchange Date, the Final Expiration Date or the Merger Date), the surrender
for transfer of any certificate for Common Shares of the Company outstanding on
the Record Date, with or without a copy of the Summary of Rights attached
thereto, shall also constitute the transfer of the Rights associated with the
Common Shares of the Company represented thereby.
(c) Certificates for Common Shares of the Company which become
outstanding (including, without limitation, reacquired Common Shares of the
Company referred to in the last sentence of this paragraph (c)) after the Record
Date but prior to the earliest of the Distribution Date, the Redemption Date,
the Exchange Date, the Final Expiration Date or the Merger Date shall have
impressed on, printed on, written on or otherwise affixed to them substantially
the following legend:
This certificate also represents and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Avalon Properties, Inc.
and First Union National Bank, as rights agent, dated as of March 9, 1998
(the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of Avalon Properties, Inc. Under certain circumstances, as set
forth in the Rights Agreement, such Rights (as defined in the Rights
Agreement) will be represented by separate certificates and will no longer
be represented by this certificate. Avalon Properties, Inc. will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to any
Person (as defined in the Rights Agreement) who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares of the
Company represented by such
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certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares of the Company represented thereby. In
the event that the Company purchases or acquires any Common Shares of the
Company after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Shares of the Company shall be deemed cancelled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares of the Company which are no longer
outstanding.
(d) Notwithstanding anything in this Agreement to the contrary, in the
event that prior to the earlier of the Distribution Date or the redemption,
expiration or termination of the Rights, any shares of Common Stock are retired
and canceled in connection with the conversion of such shares to Excess Stock
pursuant to Article IX of the Company's Charter, then the associated Rights
shall be deemed to be similarly retired and canceled.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Sections 11 and 22 hereof, the
Right Certificates shall entitle the holders thereof to purchase such number of
one one-hundredths of a Preferred Share as shall be set forth therein at the
price per
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one one-hundredth of a Preferred Share set forth therein (the "Purchase Price"),
but the number of such one one-hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual who signed such Right Certificates had not ceased to be such
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate although at the date of the execution of this Rights Agreement any
such individual was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certifi-
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cates, the number of Rights represented on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earliest of the Redemption Date, the Exchange Date, the Final Expiration Date or
the Merger Date, any Right Certificate or Right Certificates (other than Right
Certificates representing Rights that have become void pursuant to Section
11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may
be transferred, split up, combined, or exchanged for another Right Certificate
or Right Certificates entitling the registered holder to purchase a like number
of one one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of
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loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights represented thereby (except as otherwise provided herein), in whole or in
part, at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on March 9, 2008 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 23
hereof (the "Redemption Date"), (iii) the time at which the Rights are exchanged
as provided in Section 24 hereof (the "Exchange Date"), or (iv) the time
immediately prior to the Effective Time (as defined in the Merger Agreement)
(the "Merger Date").
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $120, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof, and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
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(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes any such transfer agent to comply with all
such requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent of the Preferred Shares
with such depositary agent) and the Company hereby directs such depositary agent
to comply with such request; (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof; (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder; and (iv) when appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights represented thereby, a new Right Certificate
representing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of
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such Right Certificate or to such holder's duly authorized assigns, subject to
the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and, in such
case, shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares the number of Preferred Shares that
will be sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7 hereof. The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all Preferred Shares
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
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The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate representing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose name
any certificate for Preferred Shares is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate representing such Rights was duly surrendered
and payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that, if the date of such surrender and payment is a date
upon which the Preferred Shares transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights represented thereby, the holder of a Right Certificate shall not
be entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable,
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including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of stock issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of stock which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred Shares
transfer books of the Company were open, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall
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the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of stock of the Company issuable upon exercise
of one Right.
(ii) Subject to Section 24 hereof, in the event any Person becomes an
Acquiring Person, each holder of a Right shall thereafter have a right to
receive, upon exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of the
Company as shall equal the result obtained by (A) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable and dividing that product by (B) 50% of the
then current per share market price of the Common Shares of the Company
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void, and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3
hereof that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate
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thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer to an Acquiring
Person whose Rights would be void pursuant to the preceding sentence shall be
void and cancelled without any action on the part of the Company.
(iii) In the event that there shall not be sufficient Common Shares of
the Company issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with subparagraph (ii) above, the
Company shall take all such action as may be necessary to authorize additional
Common Shares of the Company for issuance upon exercise of the Rights. In the
event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Shares of the
Company, the Company shall substitute, for each Common Share that would
otherwise be issuable upon exercise of a Right, a number of Preferred Shares or
fraction thereof such that the current per share market price of one Preferred
Share multiplied by such number or fraction is equal to the current per share
market price of one Common Share as of the date of issuance of such Preferred
Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or Securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a Security convertible into
Preferred Shares or equivalent preferred shares) less than the then current
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per share market price of the Preferred Shares on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible Securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by a majority of the
Relevant Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and, in the event that such rights, options or warrants
are not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
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(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by a
majority of the Relevant Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of
which shall be such then-current per share market price of the Preferred Shares;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
stock of the Company to be issued upon exercise of one Right. Such adjustments
shall be made successively whenever such a record date is fixed; and, in the
event that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security") on any date shall be deemed
to be the average of the daily closing prices per share of such Security for the
30 consecutive Trading Days immediately
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prior to such date; provided, however, that, in the event that the current per
share market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or Securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Security
selected by a majority of the Relevant Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of busi-
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<PAGE>
ness, or, if the Security is not listed or admitted to trading on any national
securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares of the Company as determined pursuant to Section 11(d)(i) hereof
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares of the Company nor the Preferred Shares are publicly
held or so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by a majority of the Relevant
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or Security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
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(f) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c) hereof, inclusive, and
the provisions of Sections 7, 9, 10 and 13 hereof with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i) hereof, upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (A) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
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<PAGE>
(i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates representing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates representing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed
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<PAGE>
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
in the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other stock
or securities of the Company, if any, issuable upon such exercise on the basis
of the Purchase Price in effect prior to such adjustment; provided, however,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
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<PAGE>
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to in Section 11(b) hereof, hereafter made by the Company to
holders of the Preferred Shares shall not be taxable to such stockholders.
(n) In the event that, at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares of the Company payable in Common Shares of the
Company, or (ii) effect a subdivision, combination or consolidation of the
Common Shares of the Company (by reclassification or otherwise than by payment
of dividends in Common Shares of the Company) into a greater or lesser number of
Common Shares of the Company, then, in any such case, (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had
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<PAGE>
issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein and shall not be deemed to have
knowledge of any such adjustment unless and until it shall have received such a
certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person other than an Exempt Person, (b) any Person
other than an Exempt Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the Common Shares of the Company shall be changed into or exchanged for stock or
other securities of any other Person (or the Company) or cash or any other
property, or (c) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning
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<PAGE>
power of the Company and its Subsidiaries (taken as a whole) to any other Person
other than an Exempt Person, then, and in each such case, proper provision shall
be made so that (i) each holder of a Right (except as otherwise provided herein)
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares of the Company thereafter deliverable upon
the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless, prior thereto, the Company and
such issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such
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<PAGE>
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which represent fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the "current market value" of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The "closing price" for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any
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<PAGE>
such date the Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Rights selected by a majority of the Relevant Directors of the
Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
a majority of the Relevant Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which represent fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be represented by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
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(c) The holder of a Right, by the acceptance of the Right, expressly
waives such holder's right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares of the Company); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares of the
Company), without the consent of the Rights Agent or of the holder of any other
Right Certificate (or, prior to the Distribution Date, of the Common Shares of
the Company), may, on such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise the Rights represented by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement, and will be entitled to specific performance
of the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
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(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares of the Company;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights represented thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or sub-
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scription rights, or otherwise, until the Right or Rights represented by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder, and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, and its
directors, officers, employees and agents for, and to hold each of them harmless
against, any loss, liability, or expense, incurred without gross negligence, bad
faith or willful misconduct on the part of the Rights Agent or such other
indemnified party, for anything done or omitted by the Rights Agent or such
other indemnified party in connection with the acceptance and administration of
this Agreement, or the exercise or performance of its duties hereunder,
including the costs and expenses of defending against any claim of liability in
the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement or the exercise or performance of its
duties hereunder in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
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The indemnity provided in this Section 18 shall survive the expiration
of the Rights and the termination of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and, in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and, in all such cases, such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been counter-
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signed, the Rights Agent may countersign such Right Certificates either in its
prior name or in its changed name; and, in all such cases, such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the written advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
written advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by a person reasonably believed by the
Rights Agent to be any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
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(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of any provision of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in this Agreement, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after actual notice that
such change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
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(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken or omitted by the Rights Agent under this
Agreement and the date on or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
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(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided that the Rights Agent was not grossly negligent
in the selection and continued employment thereof.
(j) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.
(k) Anything in this Agreement to the contrary notwithstanding, in no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits).
(l) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing
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that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares of the Company or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares of
the Company or Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (which holder shall, with such notice, submit such holder's Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of North Carolina
(or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of North
Carolina), in good standing, having an office in the State of North Carolina,
which is authorized under such laws to
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exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
of the Company or Preferred Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates representing Rights in such
form as may be approved by a majority of the Relevant Directors of the Company
to reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company may,
at its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appro-
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priately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); provided that,
notwithstanding anything to the contrary contained in this Section 23(a), the
Board of Directors of the Company may not take any action pursuant to this
Section 23(a) unless (i) at the time of the action of the Board of Directors of
the Company approving such redemption, there are then in office not less than
two Relevant Directors and (ii) such action is approved by a majority of the
Relevant Directors then in office. The redemption of the Rights by the Board of
Directors of the Company may be made effective at such time, on such basis and
with such conditions as the Board of Directors of the Company, in its sole
discretion, may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors of the
Company ordering the redemption of the Rights, the Company shall mail a notice
of redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the
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Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares of the Company prior to the Distribution
Date.
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares of the Company at an exchange ratio of one
Common Share of the Company per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors of the Company
shall not be empowered to effect such exchange at any time after any Person
(other than an Exempt Person), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of (i) the aggregate
voting power of the Company's voting securities or (ii) the Common Shares of the
Company then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares of the Company
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; pro-
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vided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares of the Company for Rights will
be effected, and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares of
the Company issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares of the Company for issuance upon exchange of the Rights. In the
event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Shares of the
Company, the Company shall substitute, for each Common Share of the Company that
would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share of the Company as of the date of
issuance of such Preferred Shares or fraction thereof.
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(d) The Company shall not be required to issue fractions of Common
Shares of the Company or to distribute certificates which represent fractional
Common Shares of the Company. In lieu of such fractional Common Shares of the
Company, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares of the Company
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Common Share of the Company. For the purposes of
this paragraph (d), the "current market value" of a whole Common Share of the
Company shall be the closing price of a Common Share of the Company (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24.
(e) Notwithstanding anything contained in this Section 24(a) to the
contrary, the Board of Directors of the Company may not exchange any Rights
pursuant to Section 24(a) unless (i) at the time of the action of the Board of
Directors of the Company approving such exchange or other action, there are then
in office not less than two Relevant Directors and (ii) such exchange is
approved by a majority of the Relevant Directors then in office.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
the Preferred Shares or to make any other distribution to the holders of the
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of the Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of the
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any
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consolidation or merger into or with, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to, any other
Person other than an Exempt Person, and other than pursuant to the Merger
Agreement, (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares of the
Company payable in Common Shares of the Company or to effect a subdivision,
combination or consolidation of the Common Shares of the Company (by
reclassification or otherwise than by payment of dividends in Common Shares of
the Company), then, in each such case, the Company shall give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares of the Company and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and, in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares of the Company and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall, as soon as practicable thereafter, give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall
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describe such event and the consequences of such event to holders of Rights
under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Avalon Properties, Inc.
2900 Eisenhower Avenue, 3rd Floor
Alexandria, Virginia 22314
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
First Union National Bank
230 South Tryon Street
Charlotte, North Carolina 28288
Attention: Shareholder Services
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certifi-
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cates in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that, from and after such time as any Person becomes
an Acquiring Person, this Agreement shall not be amended in any manner which
would adversely affect the interests of the holders of Rights; and provided,
further that no supplement or amendment that changes the rights or duties of the
Rights Agents under this Agreement shall be effective without the consent of the
Rights Agent. Notwithstanding anything contained in this Agreement to the
contrary, supplements or amendments shall be made only if (i) at the time of the
action of the Board of Directors of the Company approving such supplement or
amendment, there are then in office not less than two Relevant Directors and
(ii) such supplement or amendment is approved by a majority of the Relevant
Directors then in office.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares of the Company) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the regis-
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tered holders of the Right Certificates (and, prior to the Distribution Date,
the Common Shares of the Company).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Maryland and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such state.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 34. Determinations and Actions by the Board of Directors. (a)
Except as otherwise specifically provided herein and subject to paragraph (b) of
this Section, the Board of Directors of the Company shall have the exclusive
power and authority to administer this
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Agreement and to exercise all rights and powers specifically granted to the
Board of Directors or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power (i) to interpret the provisions of this Agreement, and (ii) to make all
determinations deemed necessary or advisable for the administration of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors of the Company or by
a majority of the Relevant Directors in good faith shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board of Directors of the
Company or any member thereof to any liability to the holders of the Rights.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the concurrence of a majority of the Relevant Directors then in
office shall be required to give effect to any action, calculation,
interpretation or determination made by the Board of Directors of the Company or
the Relevant Directors in the administration of this Agreement and the exercise
of the rights or powers granted to the Board of Directors of the Company, to the
Relevant Directors or to the Company pursuant to this Agreement, and no effect
shall be given to any such action, calculation, interpretation, determination or
exercise of rights or powers unless at least two Relevant Directors are then in
office.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
AVALON PROPERTIES, INC.
Attest:
By /s/ Thomas J. Sargeant By /s/ Richard L. Michaux
---------------------- ----------------------
Title: Secretary and Chief Title: Chief Executive Officer
Financial Officer
Attest: FIRST UNION NATIONAL BANK
By /s/ L.E. Rolins By /s/ Kristin Knapp
--------------- --------------------
Title: Quality/Employee Title: Assistant Vice President
Development Associate
<PAGE>
Exhibit A
AVALON PROPERTIES, INC.
FORM
of
ARTICLES SUPPLEMENTARY for
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
(Pursuant to Sections 2-105(a)(9)and 2-208(a) of the
Maryland General Corporation Law)
Avalon Properties, Inc., a corporation organized and existing under the
Maryland General Corporation Law (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Under a power contained in Section 7.2 of the charter of the
Corporation (the "Charter"), the Board of Directors of the Corporation as
required by Section 2-208(a) of the Maryland General Corporation Law at a
meeting duly called and held on March 8, 1998 classified and designated
1,000,000 shares of Preferred Stock as shares of Series C Preferred Stock, with
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption as follows, which upon any restatement of the
Charter shall be made part of Article VII of the Charter, with any necessary or
appropriate changes to the enumeration or lettering of sections or subsections
hereof:
Series C Junior Participating Preferred Stock
Section 1. Designation and Amount. There shall be a series of
Preferred Stock designated as "Series C Junior Participating Preferred Stock"
(the "Series C Preferred Stock") and the number of shares constituting the
Series C Preferred Stock shall be 1,000,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors and by the filing
of articles supplementary in accordance with the Maryland General Corporation
Law; provided, that no decrease shall reduce the number of shares of Series C
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series C Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series C Preferred Stock with respect to dividends, the holders of shares
of Series C Preferred Stock, in preference to the holders of Common Stock,
par value $.01 per share (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
authorized by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series C Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series C Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series C
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series C Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment Date
next
A-2
<PAGE>
preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series C Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series C Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
(D) In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of
shares or otherwise, is permitted under the Maryland General Corporation
Law, amounts that would be needed, if the Corporation were to be dissolved
at the time of the distribution, to satisfy the preferential rights upon
dissolution of holders of Preferred Stock whose preferential rights upon
dissolution are superior to those receiving the distribution shall not be
added to the Corporation's total liabilities.
Section 3. Voting Rights. The holders of shares of Series C
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series C Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in the terms of any other
series of Preferred Stock or any similar stock, the holders of shares of
Series C Preferred
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<PAGE>
Stock and the holders of shares of Common Stock and any other stock of the
Corporation having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, holders of Series C Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series C
Preferred Stock, except dividends paid ratably on the Series C
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series C Preferred Stock, or any shares of stock ranking
on a parity with the Series C Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective Series C classes, shall determine in good
A-4
<PAGE>
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein, in the Charter, or in any other
articles supplementary creating a series of Preferred Stock or any similar stock
or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock unless, prior thereto, the holders of shares of Series C
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series C
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series C Preferred Stock, except distributions made ratably on the Series C
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series C Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any
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<PAGE>
other property, then in any such case each share of Series C Preferred Stock
shall at the same time be similarly exchanged or changed into an amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series C Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series C Preferred Stock
shall not be redeemable.
Section 9. Rank. The Series C Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of the Corporation's Preferred Stock.
Section 10. Amendment. The Charter of the Corporation shall not be
amended in any manner which would materially alter or change the preferences,
voting powers or other rights or restrictions of the Series C Preferred Stock,
as set forth herein, so as to affect them adversely without the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Series C
Preferred Stock, voting together as a single class.
SECOND: The Shares have been classified and designated by the Board
of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Corporation acknowledges these
Articles Supplementary to be the corporate act of the Corporation and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
A-6
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
President and attested to by its Secretary on this 9th of March, 1998.
------------------------
President
Attest:
- ---------------------
Secretary
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R-
___Rights
NOT EXERCISABLE AFTER MARCH 9, 2008 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUB-
JECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
AVALON PROPERTIES, INC.
This certifies that______, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of March 9, 1998 (the "Rights Agreement"), between Avalon
Properties, Inc., a Maryland corporation (the "Company"), and First Union
National Bank (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., Charlotte, North Carolina time, on March 9, 2008 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series C
Junior Participating Preferred Stock, par value $.01 per share, of the Company
(the "Preferred Shares") at a purchase price of $120 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights represented by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of March 9, 1998, based on the Preferred Shares as constituted
at such date. As provided in the Rights Agreement, the Purchase Price and the
number of one one-hundredths of a Preferred Share which may be purchased upon
the exercise of the Rights represented by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.
B-1
<PAGE>
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
representing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
represented by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights represented hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be represented by depositary receipts), but, in lieu thereof, a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights represented by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-2
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of____, _____.
ATTEST: AVALON PROPERTIES, INC.
_________________ By_______________ (SEAL)
Countersigned:
FIRST UNION NATIONAL BANK
By ______________________
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED__________________________hereby sells, assigns and
transfers unto_______________________________________________________________
_____________________________________________________________________________
(Please print name and address of transferee)
___________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______Attorney, to transfer the
within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ____ , ____
________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
-----------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: AVALON PROPERTIES, INC.
The undersigned hereby irrevocably elects to exercise________Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
_____________________________________________________________________________
(Please print name and address)
_____________________________________________________________________________
If such number of Rights shall not be all the Rights represented by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________________________________________________________
(Please print name and address)
_____________________________________________________________________________
Dated: ________ , ___
____________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
-----------------------------------------------------------------------------
The undersigned hereby certifies that the Rights represented by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________
Signature
-----------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights represented by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On March 8, 1998, the Board of Directors of Avalon Properties, Inc.
(the "Company") authorized a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share,
of the Company (the "Common Shares"). The dividend is payable on March 9, 1998
(the "Record Date") to the stockholders of record at the close of business on
that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series C Junior Participating Preferred
Stock, par value $.01 per share, of the Company (the "Preferred Shares") at a
price of $120 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and First Union
National Bank, as Rights Agent (the "Rights Agent").
Until the earlier of (i) the tenth day following a public announcement
that a person or group of affiliated or associated persons (other than the
Company, a subsidiary thereof, an employee benefit plan of the Company or a
subsidiary thereof (any of the foregoing, an "Exempt Person") or Bay Apartment
Communities, Inc. or any of its Affiliates or Associates solely by reason of the
Agreement and Plan of Merger, dated as of March 9, 1998, by and between the
Company and Bay (the "Merger Agreement"), the Stock Option Agreement, dated as
of March 9, 1998, by and between the Company, as issuer, and Bay (the "Option
Agreement"), or the consummation of the transactions contemplated by the Merger
Agreement or the Option Agreement) (an "Acquiring Person") have acquired
beneficial ownership of 10% or more of the outstanding Common Shares or (ii) the
tenth business day (or such later date as may be determined by action of the
Board of Directors of the Company prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group (other than an Exempt Person) of 10% or more of the outstanding Common
Shares (the earlier of such dates being the "Distribution Date"), the Rights
will be represented, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by
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<PAGE>
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
representing the Rights ("Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the Distribution
Date, and such separate Right Certificates alone will represent the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on the earlier of March 9, 2008 (the "Final Expiration Date") and
the Effective Time (as defined in the Merger Agreement), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares; (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares; or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
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<PAGE>
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that the Company is acquired in a merger or other business
combination transaction by one other than an Exempt Person or 50% or more of its
consolidated assets or earning power are sold to one other than an Exempt Person
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then-current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two times the
exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may cause the
Company to exchange the Rights (other than Rights owned by such person or group
which will have become void), in whole or in part, at an exchange ratio of one
Common Share, or one one-hundredth of a Preferred Share (or of a share of a
class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment). However, the
Rights may not be so exchanged unless (i) at the time of the action by the Board
of Directors approving such exchange, there are then in office not less than two
Relevant Directors (as defined below) and (ii) such exchange is approved by a
majority of the relevant Directors then in office. "Relevant Directors" means
(1) with respect to any time prior to the date set forth in Section 8.1(c) of
the Merger Agreement, a member of the Board of Directors who is not an Acquiring
Person or an affiliate or representative thereof, who is not an officer of the
Company and who either (a) was a member of the Board of Directors prior to March
9, 1998 or (b) subsequently became a member of the Board of Directors and whose
election is approved or recommended by a majority of the Board of Directors,
including a majority of the Relevant Directors then in office and (2) with
respect to any other time, a member of the Board of Directors who is not an
Acquiring Person or an affiliate or representative thereof and who is not an
officer of the Company.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be represented by depositary
receipts) and, in lieu thereof, an adjustment in cash will be made
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<PAGE>
based on the market price of the Preferred Shares on the last trading day prior
to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated
or associated persons becoming an Acquiring Person, the Board of Directors of
the Company may cause the Company to redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). However, the Board
of Directors may not redeem the Rights unless (i) at the time of the action of
the Board of Directors approving such redemption, these are in office not less
than two Relevant Directors and (ii) such action is approved by a majority of
the Relevant Directors then in office. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that (i) from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights and (ii) amendments may only be made if (i) at the
time the Board of Directors approves such amendments, there are at least two
Relevant Directors in office and (ii) such amendment is approved by a majority
of the Relevant Directors then in office.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
March 10, 1998. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
C-4
<PAGE>
