<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number 1-12672
AVALON BAY COMMUNITIES, INC.
(Exact name of Registrant as specified in its Charter)
-------------------------
Maryland 77-0404318
(State or other juristiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2900 Eisenhower Avenue, Third Floor, Alexandria, Virginia 22314
(Address of principal executive offices, including zip code)
(703) 329-6300
(Registrant's telephone number, including area code)
Bay Apartment Communities, Inc.
4340 Stevens Creek Boulevard, #275, San Jose, California 95129
(Former name, former address and former fiscal year,
if changed since last report)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days:
Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
63,574,010 shares outstanding as of August 3, 1998
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AVALON BAY COMMUNITIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997........... 2
Consolidated Statements of Operations for the three months and six months
ended June 30, 1998 and 1997.................................................... 3
Consolidated Statements of Cash Flows for the six months ended June 30, 1998
and 1997........................................................................ 4-5
Notes to Consolidated Financial Statements...................................... 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 12-33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 33
Item 2. Changes in Securities........................................................... 33
Item 3. Defaults Upon Senior Securities................................................. 33
Item 4. Submission of Matters to a Vote of Security Holders............................. 33-34
Item 5. Other Information............................................................... 34
Item 6. Exhibits and Reports on Form 8-K................................................ 34
Signatures............................................................................... 35
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AVALON BAY COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
6-30-98 12-31-97
(unaudited)
------------ -------------
<S> <C> <C>
A S S E T S
Real estate:
Land $ 714,072 $ 299,885
Buildings and improvements 2,597,889 839,638
Furniture, fixtures and equipment 115,195 63,631
------------- -------------
3,427,156 1,203,154
Less accumulated depreciation (103,261) (79,031)
------------- -------------
Net operating real estate 3,323,895 1,124,123
Construction in progress (including land) 332,072 170,361
------------- -------------
Total real estate, net 3,655,967 1,294,484
Cash and cash equivalents 15,060 3,188
Cash in escrow 6,692 1,597
Resident security deposits 9,475 --
Investments in unconsolidated joint ventures 17,206 --
Deferred financing costs, net 9,097 8,174
Deferred development costs 10,311 --
Prepaid expenses and other assets 41,377 10,207
------------- -------------
TOTAL ASSETS $ 3,765,185 $ 1,317,650
============= =============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Variable rate unsecured credit facility $ 374,000 $ 224,200
Unsecured senior notes 460,000 --
Notes payable 497,059 263,284
Dividends payable 40,978 12,591
Payables for construction 32,848 3,853
Accrued expenses and other liabilities 43,674 5,598
Accrued interest payable 12,575 84
Resident security deposits 18,746 6,212
------------- -------------
TOTAL LIABILITIES 1,479,880 515,822
------------- -------------
Minority interest of unitholders in consolidated operating partnerships 32,323 9,133
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; 0 and
2,308,800 shares of Series A outstanding at June 30, 1998 and December
31, 1997, respectively; 0 and 405,022 shares of Series B outstanding at
June 30, 1998 and December 31, 1997, respectively; 2,300,000 shares of
Series C outstanding at both June 30, 1998 and December 31, 1997;
3,267,700 shares of Series D outstanding at both June 30, 1998 and
December 31, 1997; 4,455,000 and 0 shares of Series F outstanding at June
30, 1998 and December 31, 1997, respectively; and 4,300,000 and 0 shares
of Series G outstanding at June 30, 1998 and December 31, 1997,
respectively 143 83
Common stock, $.01 par value; 300,000,000 shares authorized; 63,567,985
and 26,077,518 shares outstanding at June 30, 1998 and December 31, 1997,
respectively 636 261
Additional paid-in capital 2,317,749 823,520
Deferred compensation (6,221) --
Dividends in excess of accumulated earnings (59,325) (31,169)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,252,982 792,695
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,765,185 $ 1,317,650
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 4
AVALON BAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
------------------------------ -----------------------------
6-30-98 6-30-97 6-30-98 6-30-97
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 70,399 $ 30,152 $ 116,101 $ 56,641
Management fees 115 -- 115 --
Other income 10 9 14 13
------------ ------------ ------------ ------------
Total revenue 70,524 30,161 116,230 56,654
------------ ------------ ------------ ------------
Expenses:
Operating expenses 19,220 7,797 30,705 14,692
Property taxes 5,635 2,247 9,394 4,157
Interest expense 11,152 3,800 17,363 7,117
Depreciation and amortization 14,597 6,426 24,503 12,125
General and administrative expenses 1,778 921 2,946 1,669
Provision for unrecoverable deferred
development costs 250 450 400 530
------------ ------------ ------------ ------------
Total expenses 52,632 21,641 85,311 40,290
------------ ------------ ------------ ------------
Equity in income of unconsolidated joint ventures 238 -- 238 --
Interest income 362 45 468 111
Minority interest (250) (86) (404) (224)
------------ ------------ ------------ ------------
Net income 18,242 8,479 31,221 16,251
Dividends attributable to preferred stock (4,494) (1,295) (8,523) (2,441)
============ ============ ============ ============
Net income available to common stockholders $ 13,748 $ 7,184 $ 22,698 $ 13,810
============ ============ ============ ============
Per common share:
Net income - basic $ 0.35 $ 0.33 $ 0.68 $ 0.65
============ ============ ============ ============
Net income - diluted $ 0.34 $ 0.33 $ 0.66 $ 0.65
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 5
AVALON BAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the six months ended
----------------------------------
6-30-98 6-30-97
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,221 $ 16,251
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 24,503 12,125
Equity in income of unconsolidated joint ventures 75 --
Income allocated to minority interest 404 224
Decrease in cash in escrow, net (988) (307)
Increase (decrease) in prepaid expenses and other assets 7,149 (2,974)
Increase in accrued expenses, other liabilities and accrued
interest payable 10,716 2,686
------------- -------------
Total adjustments 41,859 11,754
------------- -------------
Net cash provided by operating activities 73,080 28,005
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 104 --
Increase in construction payables 14,833 246
Purchase and development of real estate (288,113) (163,847)
------------- -------------
Net cash used in investing activities (273,176) (163,601)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net 55,151 163,921
Dividends paid (30,990) (18,479)
Proceeds from sale of unsecured senior notes 150,000 --
Payment of deferred financing costs (1,484) --
Repayments of notes payable (1,035) (370)
Borrowings under unsecured facilities 281,126 151,500
Repayments of unsecured facilities (240,326) (159,700)
Distribution to minority partners (474) (350)
------------- -------------
Net cash provided by financing activities 211,968 136,522
------------- -------------
Net increase in cash 11,872 926
Cash and cash equivalents, beginning of period 3,188 920
------------- -------------
Cash and cash equivalents, end of period $ 15,060 $ 1,846
============= =============
Cash paid during period for interest, net of amount capitalized $ 10,218 $ 6,678
============= =============
</TABLE>
4
<PAGE> 6
AVALON BAY COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental disclosures of non-cash investing and financing activities:
In connection with the merger of Avalon Properties, Inc. with and into the
Company (the "Merger") in June 1998, the Company issued Common and Preferred
Shares valued at $1,433,513 in exchange for the net real estate assets of Avalon
Properties, Inc. The Company also assumed $643,410 in debt, $6,221 in deferred
compensation expense, $25,866 in net other assets, $1,013 in cash and cash
equivalents and minority interest of $19,409.
The Company assumed debt in connection with acquisitions totaling $10,400 and
$12,870 during the six months ended June 30, 1998 and 1997, respectively. The
Company issued $3,851 in operating partnership units for acquisitions during
1998.
During the six months ended June 30, 1998, 2,308,800 shares of Series A
Preferred Stock and 405,022 shares of Series B Preferred Stock totaling $28
were converted into an aggregate of 2,713,822 shares of common stock.
Dividends declared but not paid as of June 30, 1998 and 1997 totaled $40,978 and
$10,428, respectively.
5
<PAGE> 7
AVALON BAY COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
1. Organization and Significant Accounting Policies:
Organization and Recent Developments
Avalon Bay Communities, Inc. (in conjunction with its wholly-owned partnerships
and subsidiaries referred to as the "Company"), is a real estate investment
trust ("REIT") that is focused exclusively on the ownership of
institutional-quality apartment communities in high barrier-to-entry markets of
the United States. These markets include Northern and Southern California and
selected states in the Mid-Atlantic, Northeast, Midwest and Pacific Northwest
regions of the country. The Company is the surviving corporation from the merger
(the "Merger") of Avalon Properties, Inc. ("Avalon") with and into the Company
(sometimes hereinafter referred to as "Bay" before the Merger) on June 4, 1998.
The Merger was accounted for as a purchase of Avalon by Bay. Concurrently with
the Merger, the Company changed its name from Bay Apartment Communities, Inc. to
Avalon Bay Communities, Inc.
At June 30, 1998, the Company owned or held an ownership interest in 130
stabilized apartment communities containing 37,768 apartment homes in sixteen
states and the District of Columbia. The Company also owned 15 communities with
4,332 apartment homes under construction and rights to develop an additional 23
communities that will contain an estimated 6,707 apartment homes. Of the
stabilized apartment communities, there were 12 communities containing 3,954
apartment homes under reconstruction.
During the second quarter of 1998, Avalon, Bay or the Company purchased four
communities with a total of 1,362 apartment homes for a total purchase price of
approximately $107,200. One community is located in the Minneapolis area, one
community is located in the St. Louis area and two communities are located in
the Seattle metropolitan area. The community acquired in the St. Louis area and
one of the communities acquired in the Seattle metropolitan area were purchased
pursuant to presale agreements. Also, the Company has acquired a parcel of land
on which the Company intends to begin development, by the end of 1999 of a 288
apartment home community located in California. The total budgeted construction
cost for this community is approximately $53,800.
The interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements required by GAAP have been condensed or
omitted pursuant to such rules and regulations. These unaudited financial
statements should be read in conjunction with the financial statements and
notes included in the Company's and Avalon's Annual Report on Form 10-K for the
year ended December 31, 1997. The results of operations for the three and six
months ended June 30, 1998 are not necessarily indicative of the operating
results for the full year. Management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments and eliminations, consisting only of normal,
recurring adjustments necessary for a fair presentation of the financial
statements for the interim periods have been included.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned partnerships and subsidiaries and the operating
partnerships structured as DownREITs. All significant intercompany balances and
transactions have been eliminated in consolidation.
6
<PAGE> 8
Real Estate
Significant expenditures, which improve or extend the life of the asset are
capitalized. The operating real estate assets are stated at cost and consist of
land, buildings and improvements, furniture, fixtures and equipment, and other
costs incurred during development or redevelopment and construction or
reconstruction and acquisition. Expenditures for maintenance and repairs are
charged to operations as incurred.
The capitalization of costs during the development and construction of assets
(including interest and related loan fees, property taxes and other direct and
indirect costs) begins when active development commences and ends when the
asset is delivered and a final certificate of occupancy is issued. Cost
capitalization during redevelopment and reconstruction of assets (including
interest and related loan fees, property taxes and other direct and indirect
costs) begins when an apartment home is taken out-of-service for reconstruction
and ends when the apartment home reconstruction is completed and the apartment
home is placed-in-service. The accompanying consolidated financial statements
include a charge to expense for unrecoverable deferred development costs
related to pre-development communities that may not proceed to development.
Depreciation is calculated on buildings and improvements using the
straight-line method over their estimated useful lives, which range from ten to
thirty years. Furniture, fixtures and equipment are generally depreciated using
the straight-line method over their estimated useful lives, which range from
three to seven years.
Lease terms for apartment homes are generally for one year or less. Rental
income and operating costs incurred during the initial lease-up or
post-reconstruction lease-up period are fully recognized as they accrue.
Income Taxes
The Company elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), for the year ended December 31, 1994 and has not
revoked such election. A corporate REIT is a legal entity which holds real
estate interests and, if certain conditions are met (including but not limited
to the payment of a minimum level of dividends to shareholders), the payment of
federal and state income taxes at the corporate level is avoided or reduced.
Management estimates that all such conditions for the avoidance of taxes have
been met for the periods presented. Accordingly, no provision for federal and
state income taxes has been made.
Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain debt
financings and are amortized on a straight-line basis over the shorter of the
term of the loan or the related credit enhancement facility, if applicable.
Unamortized financing costs are written-off when debt is retired before the
maturity date.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and liquid investments with an
original maturity of three months or less from the date acquired. The majority
of the Company's cash, cash equivalents, and cash in escrows is held at major
commercial banks.
Earnings per Common Share
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share". In accordance with the provisions of SFAS No.
128, basic earnings per share for the three and six months ended June 30, 1998
and 1997 is computed by dividing earnings available to common shares (net
income less preferred stock dividends) by the weighted average number of shares
outstanding during the period. Additionally, other potentially dilutive common
shares are considered when calculating earnings per
7
<PAGE> 9
share on a diluted basis. The Company's basic and diluted weighted average
shares outstanding for three and six months ended June 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
6-30-98 6-30-97 6-30-98 6-30-97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding - basic 39,628,200 21,824,601 34,190,165 20,916,499
Shares issuable from assumed conversion of:
Preferred stock -- 2,713,822 -- 2,713,822
Common stock options 474,666 295,378 496,961 294,542
Unvested restricted stock grants 243,117 -- 243,117 --
---------- --------- ---------- ----------
Weighted average common shares
outstanding - diluted 40,345,983 24,833,801 34,930,243 23,924,863
========== ========== ========== ==========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to amounts in prior years' financial
statements to conform with current year presentations.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and No. 131 "Disclosure of Segment
Information." SFAS No. 130 establishes the disclosure requirements for
reporting comprehensive income in an entity's annual and interim financial
statements and becomes effective for the Company for the fiscal year ending
December 31, 1998. Comprehensive income includes unrealized gains and losses on
securities currently reported by the Company as a component of stockholders'
equity which the Company would be required to include in a financial statement
and display the accumulated balance of other comprehensive income separately in
the equity section of the consolidated balance sheet. At June 30, 1998 this
pronouncement has no material effect on the Company's results of operations.
SFAS No. 131 establishes standards for determining an entity's operating
segments and the type and level of financial information to be disclosed. SFAS
No. 131 becomes effective for the Company for the fiscal year ending December
31, 1998. The Company does not believe this pronouncement will have a
significant impact on the Company's consolidated financial statements.
In March 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued Ruling 97-11 entitled "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions," which requires that internal
costs of identifying and acquiring operating property be expensed as incurred.
Costs associated with the acquisition of non-operating property may still be
capitalized. The ruling is effective for acquisitions completed subsequent to
March 19, 1998. The Company estimates that this ruling will not have a material
effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 is
8
<PAGE> 10
effective for fiscal years beginning after June 15, 1999 and cannot be applied
retroactively. The Statement establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company currently plans
to adopt Statement 133 effective January 1, 2000, and will determine both the
method and impact of adoption prior to that date.
2. Merger between Bay and Avalon
In June 1998, the Company completed its merger with Avalon. The Merger and
related transactions were accounted for using the purchase method of accounting
in accordance with GAAP. Accordingly, the assets and liabilities of Avalon were
adjusted to fair value for financial accounting purposes and the results of
operations of Avalon are included in the results of operations of the Company
beginning June 4, 1998.
In connection with the Merger, the following related transactions occurred:
The Company issued .7683 of a share of common stock for each outstanding
share of Avalon common stock;
The Company issued one share of Series F and G Preferred Stock for each
outstanding share of Avalon Series A and B Preferred Stock;
The following unaudited pro forma information has been prepared as if the
Merger and related transactions had occurred on January 1, 1997. The pro forma
financial information is presented for informational purposes only and is not
necessarily indicative of what actual results would have been if the Merger had
been consummated on January 1, 1997 nor does it purport to represent the
results of operations for future periods (in thousands, except per share data).
<TABLE>
<CAPTION>
For the six months ended
---------------------------
6-30-98 6-30-97
------------ ------------
<S> <C> <C>
Pro forma total revenue $ 212,104 $ 134,952
============ ============
Pro forma income available to common stockholders
before extraordinary items $ 39,481 $ 27,367
============ ============
Pro forma net income available to common
stockholders $ 39,481 $ 26,184
============ ============
Per common share:
Pro forma income before extraordinary items-basic $ 0.63 $ 0.57
============ ============
Pro forma income before extraordinary items-diluted $ 0.62 $ 0.56
============ ============
Pro forma net income-basic $ 0.63 $ 0.54
============ ============
Pro forma net income-diluted $ 0.62 $ 0.53
============ ============
</TABLE>
3. Interest Capitalized
Capitalized interest associated with projects under development and
construction or redevelopment and reconstruction totaled $3,561 and $1,396
for the three months ended June 30, 1998 and 1997, respectively, and $6,525 and
$2,421 for the six months ended June 30, 1998 and 1997, respectively.
9
<PAGE> 11
4. Notes Payable, Unsecured Senior Notes and Credit Facility
The Company's notes payable, unsecured senior notes and credit facility are
summarized as follows:
<TABLE>
<CAPTION>
6-30-98 12-31-97
----------- -----------
<S> <C> <C>
Fixed rate notes payable (conventional and tax-exempt) $ 433,407 $ 263,284
Variable rate notes payable (tax-exempt) 63,652 --
Fixed rate unsecured senior notes 460,000 --
Variable rate unsecured credit facility 374,000 224,200
----------- -----------
$ 1,331,059 $ 487,484
=========== ===========
</TABLE>
Notes payable are collateralized by certain apartment communities and mature at
various dates from July 1999 through December 2036. The weighted average
interest rate of variable rate notes (tax-exempt) was 4.8% at June 30, 1998. The
weighted average interest rate of fixed rate notes (conventional and tax-exempt)
was 6.6% and 6.4% at June 30, 1998 and December 31, 1997, respectively.
The Company has a $600,000 variable rate unsecured credit facility (the
"Unsecured Facility") with Morgan Guaranty Trust Company of New York, Union Bank
of Switzerland and Fleet National Bank, serving as co-agents for a syndicate of
commercial banks. The Unsecured Facility bears interest at the London Interbank
Offered Rate ("LIBOR") based on rating levels achieved on the Company's senior
unsecured notes and on a maturity selected by the Company. The current pricing
is LIBOR plus 0.60% per annum. The Unsecured Facility, which was put into place
during June 1998, replaced three separate credit facilities previously available
to the separate companies prior to the merger. The terms of the retired
facilities were similar to the Unsecured Facility. In addition, the Unsecured
Facility includes a competitive bid option for up to $400,000. The interest rate
for borrowings under the Unsecured Facility as of June 30, 1998 was 6.4%. The
Company, among other things, is subject to certain customary covenants under the
credit facility including maintaining certain maximum leverage ratios, minimum
fixed charge coverage ratio, minimum unencumbered assets and equity levels and
restrictions on paying dividends in amounts that exceed 95% of the Company's
Funds from Operations("FFO"), as defined. The Unsecured Facility matures in
June 2001 and has two, one-year extension options.
The Company's unsecured senior notes are in the form of $100,000 of 7.375%
notes due in 2002, $50,000 of 6.25% notes due in 2003, $100,000 of 6.625% notes
due in 2005, $50,000 of 6.5% notes due in 2005, $110,000 of 6.875% notes due in
2007, and $50,000 of 6.625% notes due in 2008. The Company's unsecured senior
notes contain a number of financial and other covenants with which the Company
must comply, including but not limited to: limits on the aggregate amount of
total and secured indebtedness the Company may have on a consolidated basis;
and, limits on the Company's required debt service payments.
5. Stockholders' Equity
The following summarizes the changes in stockholders' equity for the six months
ended June 30, 1998:
<TABLE>
<CAPTION>
Dividends
Additional in excess of
Preferred Common paid-in Deferred accumulated
Stock Stock capital compensation earnings Total
---------- --------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, December 31, 1997 $ 83 $ 261 $ 823,520 $ -- $ (31,169) $ 792,695
Dividends declared -- -- -- -- (59,377) (59,377)
Issuance of common stock -- 16 55,135 -- -- 55,151
Merger of Avalon and the Company 88 331 1,439,094 (6,221) -- 1,433,292
Conversion of Preferred Stock to
common stock (28) 28 -- -- -- --
Net income -- -- -- -- 31,221 31,221
========== ========= ============= =========== ============= =============
Stockholders' equity, June 30, 1998 $ 143 $ 636 $ 2,317,749 $ (6,221) $ (59,325) $ 2,252,982
========== ========= ============= =========== ============= =============
</TABLE>
10
<PAGE> 12
6. Investments in Unconsolidated Joint Ventures
At June 30, 1998, investments in unconsolidated joint ventures consist of a 50%
general partnership interest in Falkland Partners, a 49% equity interest in
Avalon Run and a 50% general partnership interest in Avalon Grove. The
unconsolidated joint venture interests were obtained in connection with the
Merger. The following is a combined summary of the financial position of these
joint ventures for the periods presented:
<TABLE>
<CAPTION>
6-30-98 12-31-97
------------ ------------
<S> <C> <C>
Assets:
Real estate, net $ 97,093 $ 97,964
Other assets 4,509 10,790
------------ ------------
Total assets $ 101,602 $ 108,754
============ ============
Liabilities and partners' equity:
Mortgage notes payable $ 26,000 $ 26,000
Other liabilities 4,409 4,164
Partners' equity 71,193 78,590
------------ ------------
Total liabilities and partners' equity $ 101,602 $ 108,754
============ ============
</TABLE>
The following is a combined summary of the operating results of these joint
ventures for the periods presented:
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- ---------------------------
6-30-98 6-30-97 6-30-98 6-30-97
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Rental income $ 4,936 $ 3,916 $ 9,700 $ 7,289
Other income 5 12 12 24
Operating expenses (1,367) (1,280) (2,656) (2,408)
Mortgage interest expense (226) (243) (423) (439)
Depreciation and amortization (762) (685) (1,515) (1,256)
---------- --------- ---------- ---------
Net income $ 2,586 $ 1,720 $ 5,118 $ 3,210
========== ========= ========== =========
</TABLE>
7. Subsequent Events
On July 7, 1998, the Company issued $250,000 of senior unsecured notes of which
$100,000 of the notes will bear interest at 6.5% and will mature in July 2003
and $150,000 of the notes will bear interest at 6.8% and will mature in July
2006. The net proceeds of $247,600 to the Company were used to reduce
borrowings under the Company's Unsecured Facility.
In July 1998, the Company acquired the Prudential Center Apartments, a 781
apartment home community located in downtown Boston, Massachusetts. This
community, comprising the residential portion of the Prudential Center and
related underground parking, was purchased from the Prudential Insurance
Company of America for approximately $130,000.
The Company disposed of two communities, Village Park of Troy and Aspen Meadows,
in suburban Detroit, Michigan, in connection with an agreement which provided
for the buyout of certain limited partners in DownREIT V Limited Partnership.
Proceeds from the sale of the two communities, containing 758 apartment homes
combined, were approximately $44,000. The proceeds were re-invested in a
participating mortgage note for $24,000 and an expected yield of 10.1% in the
first stabilized year secured by Fairlane Woods, a 288 apartment home community
located in Dearborn, Michigan, with the balance used to repay amounts
outstanding under the Unsecured Facility. Management is pursuing the purchase of
a 100% equity interest in the community secured by the participating mortgage
note, but no assurance can be provided that such an equity interest can be
acquired.
The Company exercised it's option to acquire a 3.2 acre site in Stamford,
Connecticut for approximately $6,200. The Company plans to develop an apartment
home community on the Stamford, Connecticut site with up to 195 apartment homes.
11
<PAGE> 13
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements in this Form 10-Q constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The words "believe," "expect," "anticipate," "intend,"
"estimate," "assume" and other similar expressions which are predictions of or
indicate future events and trends and which do not relate to historical matters
identify forward-looking statements. In addition, information concerning
construction, occupancy and completion of Development Communities and
Development Rights (as hereinafter defined) and related cost and EBITDA
estimates, are forward-looking statements. Reliance should not be placed on
forward-looking statements as they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Company and may cause the actual results, performance or achievements of
the Company to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements.
Certain factors that might cause such differences include, but are not limited
to, the following: the Company may not be successful in managing its current
growth in the number of apartment communities and the related growth of its
business operations; the Company's expansion into new geographic market areas
may not produce financial results that are consistent with its historical
performance; acquisitions of portfolios of apartment communities may result in
the Company acquiring communities that are more expensive to manage and
portfolio acquisitions may not be successfully completed, resulting in charges
to earnings; the Company may fail to secure or may abandon development
opportunities; construction costs of a community may exceed original estimates;
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs and reduced rental
revenues; occupancy rates and market rents may be adversely affected by local
economic and market conditions which are beyond management's control; financing
may not be available on favorable terms; the Company's cash flow may be
insufficient to meet required payments of principal and interest; and existing
indebtedness may not be able to be refinanced or the terms of such refinancing
may not be as favorable as the terms of existing indebtedness.
The following discussion should be read in conjunction with the consolidated
financial statements and notes included in this report.
General
The Company is a real estate investment trust ("REIT") that is focused
exclusively on the ownership of institutional-quality apartment communities in
high barrier-to-entry markets of the United States. These markets include
Northern and Southern California and selected states in the Mid-Atlantic,
Northeast, Midwest and Pacific Northwest regions of the country. The Company is
the surviving corporation from the merger (the "Merger") of Avalon Properties,
Inc. ("Avalon") with and into the Company (sometimes hereinafter referred to as
"Bay" before the Merger) on June 4, 1998. The Merger was accounted for as a
purchase of Avalon by Bay. Concurrently with the Merger, the Company changed
its name from Bay Apartment Communities, Inc. to Avalon Bay Communities, Inc.
The Company is a fully-integrated real estate organization with in-house
acquisition, development, redevelopment, construction, reconstruction,
financing, marketing, leasing and management expertise. With its experience and
in-house capabilities, the Company believes it is well-positioned to continue
to pursue opportunities to develop and acquire upscale apartment homes in its
target markets.
12
<PAGE> 14
The Company's real estate holdings as of August 10, 1998 consist exclusively of
apartment communities in various stages of the development cycle and can be
divided into three categories:
<TABLE>
<CAPTION>
Number of Number of
Communities Apartment Homes
----------- ---------------
<S> <C> <C>
Current Communities 129 37,791
Development Communities 16 4,527 (*)
Development Rights 22 6,512 (*)
</TABLE>
(*) Represents an estimate
"Current Communities" are apartment communities where construction is
complete and the community has either reached stabilized occupancy or
is in the initial lease-up process. A "Stabilized Community" is a
Current Community that has completed its initial lease-up and has
attained a physical occupancy level of at least 95% or has been
completed for one year, whichever occurs earlier. An "Established
Community" is a Current Community that has been a Stabilized Community
with stabilized operating costs during the current and the beginning
of the previous calendar year such that its year-to-date operating
results are comparable between periods. Included in the Current
Communities are "Redevelopment Communities", which are communities for
which substantial redevelopment has either begun or is scheduled to
begin. Redevelopment is considered substantial when additional capital
invested during the reconstruction effort exceeds the lesser of $5
million or 10% of the community's acquisition cost. There are currently
12 Redevelopment Communities containing 3,954 apartment homes.
"Development Communities" are communities that are under construction
and may be partially complete and operating and for which a final
certificate of occupancy has not been received.
"Development Rights" are development opportunities in the very
earliest phase of the development process for which the Company has an
option to acquire land or owns land to develop a new community and
where related pre-development costs have been incurred and capitalized
in pursuit of these new developments.
Of the Current Communities, the Company held a fee simple ownership interest in
113 operating communities (one of which is on land subject to a 149 year land
lease), a general partnership interest in four other operating communities, a
general partner interest in partnerships structured as DownREITs, which own 11
communities, and a 100% interest in a senior participating mortgage note
secured by another operating community. The Company holds a fee simple
ownership interest in each of the Development Communities except for two
communities for which the Company holds a general partnership interest. The
existing DownREITs have been structured so that substantially all of the
economic interests of these partnerships accrue to the benefit of the Company.
The Company believes that it is unlikely that the limited partners in these
partnerships will receive any financial return on their limited partnership
interests other than the stated distributions on their units of the operating
partnerships ("Units") or as a result of the possible future conversion of
their Units into shares of common stock. The DownREIT partnerships are
consolidated for financial reporting purposes.
Management believes that apartment communities present an attractive investment
opportunity compared to other real estate investments because a broad potential
resident base results in relatively stable demand during all phases of a real
estate cycle. The Company intends to pursue appropriate new investments (both
acquisitions of new communities and new developments) where constraints to new
supply exist and where new household formations have out-paced multifamily
permit activity in recent years.
13
<PAGE> 15
At June 30, 1998, the Company's management ("Management") had positioned the
Company's portfolio of Stabilized Communities, excluding communities owned by
joint ventures, to a physical occupancy level of 97.5% and achieved an average
economic occupancy of 96.7% and 96.6% for the three and six months ended June
30, 1998, respectively. Average economic occupancy for the portfolio for the
three and six months ended June 30, 1997 was 95.4% and 95.5%. This continued
high occupancy was achieved through aggressive marketing efforts combined with
limited and targeted pricing adjustments. This positioning has resulted in
overall growth in rental revenue from Established Communities between periods.
It is Management's strategy to maximize total rental revenue through management
of rental rates and occupancy levels. If market and economic conditions change,
Management's strategy of maximizing rental rates could lead to lower occupancy
levels. Given the currently high occupancy level of the portfolio, Management
anticipates that, for the foreseeable future, any rental revenue and net income
gains from currently owned and Established Communities would be achieved
primarily through higher rental rates and enhanced operating cost leverage
provided by high occupancy, rather than through continued occupancy gains.
The Company elected to be taxed as a REIT for federal income tax purposes for
the year ended December 31, 1994 and has not revoked that election. The Company
was incorporated under the laws of the State of California in 1978 and was
reincorporated in the State of Maryland in July 1995. Its principal executive
offices are located at 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia
22314, and its telephone number at that location is (703) 329-6300. The Company
also maintains super-regional offices in San Jose, California and Wilton,
Connecticut and acquisition, development, redevelopment, construction,
reconstruction or administrative offices in Boston, Massachusetts; Chicago,
Illinois; Minneapolis, Minnesota; Newport Beach, California; New York, New
York; Princeton, New Jersey; Richmond, Virginia; and Seattle, Washington.
Recent Developments
Merger of Bay and Avalon. On June 4, 1998, the stockholders of Bay Apartment
Communities, Inc. and Avalon Properties, Inc. approved the merger of Avalon
with and into Bay. Bay Apartment Communities, Inc., the surviving corporation,
was renamed Avalon Bay Communities, Inc.
Pursuant to the merger agreement between Avalon and Bay, each Avalon common
stockholder received .7683 of a share of common stock of Avalon Bay. In
addition, the Company assumed outstanding liabilities of Avalon of approximately
$646 million. Avalon's preferred stockholders received one share of the Company
preferred stock for each share of Avalon preferred stock, with the same rights,
preferences and privileges provided by the Avalon preferred stock. The
liquidation value of the preferred stock issued in connection with the Merger is
approximately $219 million. The Merger was accounted for as a purchase of Avalon
by Bay.
14
<PAGE> 16
Acquisitions of Existing Communities. Since March 31, 1998, Avalon, Bay or the
Company has acquired the following communities and development rights (dollars
in millions):
<TABLE>
<CAPTION>
Purchase Apartment
Current Communities Location Period Acquired Price Homes
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Pinnacle at Oxford Hill Creve Coeur, MO 2Q98 $ 29.8 480 (a)
2. Avalon Ridge Renton, WA 2Q98 $ 25.1 420 (b)
3. Gates of Edinburgh Brooklyn Park, MN 2Q98 $ 18.0 198 (a)
4. The Verandas at Bear Creek Redmond, WA 2Q98 $ 34.3 264 (c)
5. Avalon at Prudential Center Boston, MA 3Q98 $130.0 781 (c)
</TABLE>
<TABLE>
<CAPTION>
Budgeted Apartment
Development Communities Location Period Acquired Cost Homes
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Avalon Corners Stamford, CT 3Q98 $32.5 195 (c)
</TABLE>
(a) Acquired by Avalon.
(b) Acquired by Bay. Community consists of Avalon Ridge (356 apartment
homes, purchase price of $21.3 million) and Sunpointe (64 apartment
homes, purchase price of $3.8 million).
(c) Acquired by Avalon Bay.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the cost of improvements
to bring an acquired community up to standards established for the market
position intended for that community will prove inaccurate, as well as general
investment risks associated with any new real estate investment. Although the
Company undertakes an evaluation of the physical condition of each new
community before it is acquired, certain defects or necessary repairs may not
be detected until after the community is acquired, which could significantly
increase the Company's total acquisition costs and decrease the Company's
percentage return on that investment.
Historically, construction costs and the costs to reposition communities that
have been acquired have, in some cases, exceeded management's original
estimates. Management believes that it may experience similar increases in the
future. There can be no assurance that the Company will be able to charge rents
upon completing either the development or redevelopment of the communities that
will be sufficient to offset the effects of increases in construction costs in
order to achieve the original projected yield on the investment.
Sale of Existing Communities and Re-investment of Proceeds. In connection with
an agreement executed by Avalon in March 1998 which provided for the buyout of
certain limited partners in DownREIT V Limited Partnership, the Company sold
two communities, Village Park of Troy and Aspen Meadows, in suburban Detroit,
Michigan in July 1998. Gross proceeds from the sale of the two communities,
containing an aggregate of 758 apartment homes, were approximately $44 million
and were re-invested in the participating mortgage note secured by the Fairlane
Woods community in Dearborn, Michigan, with the balance used to repay amounts
outstanding under the variable rate unsecured credit facility ("Unsecured
Facility").
15
<PAGE> 17
Results of Operations
The changes in operating results from period-to-period are primarily the result
of increases in the number of apartment homes owned due to the Merger as well
as the development and acquisition of additional communities. Where
appropriate, comparisons are made on a weighted average basis for the number of
occupied apartment homes in order to adjust for such changes in the number of
apartment homes. For Stabilized Communities (excluding communities owned by
joint ventures), all occupied apartment homes are included in the calculation
of weighted average occupied apartment homes for each reporting period. For
communities in the initial lease-up phase, only apartment homes of communities
that are completed and occupied are included in the weighted average number of
occupied apartment homes calculation for each reporting period.
The analysis that follows compares the operating results of the Company for the
three and six months ended June 30, 1998 and 1997.
Net income increased $9,763,000 (115.1%) to $18,242,000 for the three months
ended June 30, 1998 compared to $8,479,000 for the comparable period of the
preceding year. Net income increased $14,970,000 (92.1%) to $31,221,000 for the
six months ended June 30, 1998 compared to $16,251,000 for the comparable
period of the preceding year. The primary reasons for this increase are
additional operating income from the former Avalon communities, communities
developed or acquired during 1998 and 1997, as well as growth in operating
income from Established Communities.
Rental income increased $40,247,000 (133.5%) to $70,399,000 for the three
months ended June 30, 1998 compared to $30,152,000 for the comparable period of
the preceding year. Rental income increased $59,460,000 (105.0%) to
$116,101,000 for the six months ended June 30, 1998 compared to $56,641,000 for
the comparable period of the preceding year. Of the increase for the six month
period, $3,011,000 relates to rental revenue increases from Established
Communities, $20,880,000 relates to rental revenue attributable to the former
Avalon communities, and $35,569,000 is attributable to the addition of newly
completed or acquired apartment homes.
Overall Portfolio - The $59,460,000 increase in rental income for the six
month period is primarily due to increases in the weighted average number
of occupied apartment homes as well as an increase in the weighted average
monthly rental income per occupied apartment home. The weighted average
number of occupied apartment homes increased from 9,182 apartment homes
for the six months ended June 30, 1997 to 18,433 apartment homes for the
six months ended June 30, 1998 as a result of additional apartment homes
from the former Avalon communities, and the development and acquisition of
new communities. For the three months ended June 30, 1998, the weighted
average monthly revenue per occupied apartment home increased $63 (6.0%)
to $1,110 compared to $1,047 for the comparable period of the preceding
year. For the six months ended June 30, 1998, the weighted average monthly
revenue per occupied apartment home increased $21 (2.0%) to $1,048
compared to $1,027 for the comparable period of the preceding year.
Established Communities - Rental revenue increased $1,403,000 and
$3,011,000 for the three and six months ended June 30, 1998, respectively,
compared to the comparable periods of the preceding year due to
strengthening market conditions and the resulting impact on rents and
occupancy. For the three months ended June 30, 1998, weighted average
monthly revenue per occupied apartment home increased $73 (7.0%) to $1,110
compared to $1,037 for the comparable period of the preceding year. The
average economic occupancy increased .3% from 97.6% for the three months
ended June 30, 1997 to 97.9% for the three months ended June 30, 1998. For
the six months ended June 30, 1998, weighted average monthly revenue per
occupied apartment home increased $76 (7.4%) to $1,100 compared to $1,024
for the comparable period of the preceding year. The average economic
occupancy increased .5% from 97.3% for the six months ended June 30, 1997
to 97.8% for the six months ended June 30, 1998.
16
<PAGE> 18
Management fees totaling $115,000 for both the three and six months ended
June 30, 1998, represents revenue from certain third-party contracts
obtained from the merger with Avalon.
Operating expenses increased $11,423,000 (146.5%) to $19,220,000 for the three
months ended June 30, 1998 compared to $7,797,000 for the comparable period of
the preceding year. These expenses increased $16,013,000 (109.0%) to
$30,705,000 for the six months ended June 30, 1998 compared to $14,692,000 for
the comparable period of the preceding year.
Overall Portfolio - The increases for the three and six months ended June
30, 1998 are primarily due to additional expense from the former Avalon
communities, the acquisition of new communities as well as the completion
of Development Communities whereby maintenance, insurance and other costs
are expensed as communities move from the initial construction and
lease-up phase to the stabilized operating phase.
Established Communities - Operating expenses increased $22,000 (0.5%) to
$4,362,000 for the three months ended June 30, 1998 compared to $4,340,000
for the comparable period of the preceding year. These expenses decreased
$109,000 (1.3%) to $8,520,000 for the six months ended June 30, 1998
compared to $8,629,000 for the comparable period of the preceding year.
Property taxes increased $3,388,000 (150.8%) to $5,635,000 for the three months
ended June 30, 1998 compared to $2,247,000 for the comparable period of the
preceding year. Property taxes increased $5,237,000 (126.0%) to $9,394,000 for
the six months ended June 30, 1998 compared to $4,157,000 for the comparable
period of the preceding year.
Overall Portfolio - The increases for the three and six months ended June
30, 1998 are primarily due to additional expense from the former Avalon
communities, the acquisition of new communities as well as the completion
of Development Communities whereby property taxes are expensed as
communities move from the initial construction and lease-up phase to the
stabilized operating phase.
Established Communities - Property taxes increased $9,000 (0.7%) to
$1,358,000 for the three months ended June 30, 1998 compared to $1,349,000
for the comparable period of the preceding year. Property taxes increased
$120,000 (4.6%) to $2,737,000 for the six months ended June 30, 1998
compared to $2,617,000 for the comparable period of the preceding year.
Interest expense increased $7,352,000 (193.5%) to $11,152,000 for the three
months ended June 30, 1998 compared to $3,800,000 for the comparable period of
the preceding year. Interest expense increased $10,246,000 (144.0%) to
$17,363,000 for the six months ended June 30, 1998 compared to $7,117,000 for
the comparable period of the preceding year. These increases are primarily
attributable to $643,410,000 debt assumed in connection with the Merger as well
as increased borrowings under the variable rate unsecured credit facility
("Unsecured Facility") offset in part by higher capitalization of interest from
increased development, redevelopment, construction and reconstruction activity.
Depreciation and amortization increased $8,171,000 (127.2%) to $14,597,000 for
the three months ended June 30, 1998 compared to $6,426,000 for the comparable
period of the preceding year. Depreciation and amortization increased
$12,378,000 (102.1%) to $24,503,000 for the six months ended June 30, 1998
compared to $12,125,000 for the comparable period of the preceding year. These
increases reflect additional expense from the former Avalon communities, as
well as acquisitions and development of communities in 1998 and 1997.
General and administrative expenses increased $857,000 (93.1%) to $1,778,000
for the three months ended June 30, 1998 compared to $921,000 for the
comparable period of the preceding year. General
17
<PAGE> 19
and administrative expenses increased $1,277,000 (76.5%) to $2,946,000 for the
six months ended June 30, 1998 compared to $1,669,000 for the comparable period
of the preceding year. These increases are primarily due to the Merger and
staff additions related to the growth of the Company's portfolio.
Provision for unrecoverable deferred development costs decreased $200,000
(44.4%) to $250,000 for the three months ended June 30, 1998 compared to
$450,000 for the comparable period of the preceding year. Abandoned project
costs decreased $130,000 (24.5%) to $400,000 for the six months ended June 30,
1998 compared to $530,000 for the comparable period of the preceding year.
These decreases are primarily due to the absence in 1998 of a one time charge
present in 1997 related to the abandoned pursuit of a large west coast
portfolio acquisition.
Equity in income of unconsolidated joint ventures of $238,000 for both the
three and six months ended June 30, 1998 represents the Company's share of
income of certain joint ventures that were acquired in conjunction with the
Merger.
Interest income increased $317,000 (704.4%) to $362,000 for the three months
ended June 30, 1998 compared to $45,000 for the comparable period of the
preceding year. Interest income increased $357,000 (321.6%) to $468,000 for the
six months ended June 30, 1998 compared to $111,000 for the comparable period
of the preceding year. These increases are primarily due to the interest earned
on the Avalon Arbor note that was obtained from the Merger.
Management generally considers Funds from Operations ("FFO") to be an
appropriate measure of the operating performance of the Company because it
provides investors an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. The Company believes that in
order to facilitate a clear understanding of the operating results of the
Company, FFO should be examined in conjunction with the net income as presented
in the consolidated financial statements included elsewhere in this report. FFO
is determined in accordance with a resolution adopted by the Board of Governors
of the National Association of Real Estate Investment Trusts(R), and is defined
as net income (loss) (computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation of real estate assets and after
adjustments for unconsolidated partnerships and joint ventures). FFO does not
represent cash generated from operating activities in accordance with GAAP and
therefore should not be considered an alternative to net income as an
indication of the Company's performance or to net cash flows from operating
activities as determined by GAAP as a measure of liquidity and is not
necessarily indicative of cash available to fund cash needs. Further, FFO as
calculated by other REITs may not be comparable to the Company's calculation of
FFO.
For the three months ended June 30, 1998, FFO increased to $28,314,000 from
$14,591,000 for the comparable period in the preceding year. This increase is
primarily due to the delivery of high yielding new development and redevelopment
communities (11%+) from the Merger with Avalon as well as the Company's existing
redevelopment programs. Growth in earnings from Established Communities also
contributed to the increase. Acquisition activity in 1998 and 1997 was also an
important component of FFO growth between years.
18
<PAGE> 20
FFO for the three months ended June 30, 1998, March 31, 1998, December 31,
1997, September 30, 1997, and June 30, 1997 are summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
For the three months ended
----------------------------------------------------------------
6-30-98 3-31-98 12-31-97 9-30-97 6-30-97
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income $ 18,242 $ 12,979 $ 12,039 $ 10,653 $ 8,479
Preferred dividends (4,494) (2,856) (1,469) (1,222) (149)
Depreciation - real estate assets 14,164 9,523 7,669 6,659 6,173
Joint venture adjustments 62 -- -- -- --
Minority interest expense 250 -- -- -- --
Non-recurring adjustments to net income:
Amortization of non-recurring costs,
primarily legal, from the issuance of
tax-exempt bonds (1) 90 90 90 88 88
----------- --------- --------- --------- ---------
Funds from Operations $ 28,314 $ 19,736 $ 18,329 $ 16,178 $ 14,591
=========== ========= ========= ========= =========
</TABLE>
(1) Represents the amortization of pre-1986 bond issuance costs carried
forward to the Company, under the pooling of interest method of
accounting, and costs associated with the reissuance of tax-exempt bonds
incurred prior to the initial public offering of Bay in March 1994 (the
"Initial Offering") in order to preserve the tax-exempt status of the
bonds at the Initial Offering.
Capitalization of Fixed Assets and Community Improvements
The Company maintains a policy with respect to capital expenditures that
generally provides that only non-recurring expenditures are capitalized.
Improvements and upgrades are capitalized only if the item exceeds $15,000,
extends the useful life of the asset and is not related to making an apartment
home ready for the next resident. Under this policy, virtually all capitalized
costs are non-recurring, as recurring make ready costs are expensed as
incurred, including costs of carpet and appliance replacements, floor
coverings, interior painting and other redecorating costs. Purchases of
personal property (such as computers and furniture) are capitalized only if the
item is a new addition (i.e., not a replacement) and only if the item exceeds
$2,500. The application of these policies for the six months ended June 30,
1998 resulted in non-revenue generating capitalized expenditures for Stabilized
Communities of approximately $2,457,000 or $70 per apartment home on a pro
forma basis. For the six months ended June 30, 1998, the Company charged to
maintenance expense, including carpet and appliance replacements, a total of
approximately $13,725,000 for Stabilized Communities or $363 per apartment home
on a pro forma basis. Management anticipates that capitalized costs per
apartment home will gradually rise as the Company's portfolio of communities
matures.
Liquidity and Capital Resources
Liquidity. A primary source of liquidity to the Company is cash flows from
operations. Operating cash flows have historically been determined by the
number of apartment homes, rental rates, occupancy levels and the Company's
expenses with respect to such apartment homes. The cash flows used in investing
activities and provided by financing activities have historically been
dependent on the number of apartment homes under active development and
construction or that were acquired during any given period.
Cash and cash equivalents increased from $1,846,000 at June 30, 1997 to
$15,060,000 at June 30, 1998 due to the excess of cash provided by financing
and operating activities over cash flow used in investing activities.
Net cash provided by operating activities increased by $45,075,000 from
$28,005,000 for the six months ended June 30, 1997 to $73,080,000 for the
six months ended June 30, 1998 primarily
19
<PAGE> 21
due to an increase in operating income from newly developed and acquired
communities and Established Communities.
Cash used in investing activities increased by $109,575,000 from
$163,601,000 for the six months ended June 30, 1997 to $273,176,000. This
increase reflects the expenditures for the 1998 and 1997 communities
acquired, and the amounts used to acquire, develop, and construct the
Development and Redevelopment Communities.
Net cash provided by financing activities increased by $75,446,000 from
$136,522,000 for the six months ended June 30, 1997 to $211,968,000 for
the six months ended June 30, 1998 primarily due to the proceeds from the
sale of unsecured senior notes, a net increase in borrowings under the
unsecured facilities compared to the comparable period in the prior year,
and a reduction in proceeds raised through the sale of common stock.
The Company regularly reviews its short-term liquidity needs and the adequacy
of Funds from Operations and other expected liquidity sources to meet these
needs. The Company believes that its principal short-term liquidity needs are
to fund normal recurring operating expenses, debt service payments and the
minimum dividend payment required to maintain the Company's REIT qualification
under the Code. Management anticipates that these needs will be fully funded
from cash flows provided by operating activities. Any short-term liquidity
needs not provided by current operating cash flows would be funded from the
Company's Unsecured Facility.
Management anticipates that no significant portion of the principal of any
indebtedness will be repaid prior to maturity and if the Company does not have
funds on hand sufficient to repay such indebtedness, it will be necessary for
the Company to refinance this debt. Such refinancing could be accomplished
through additional debt financing, which may be collateralized by mortgages on
individual communities or groups of communities, by uncollateralized private or
public debt offerings or by additional equity offerings. There can be no
assurance that such additional debt financing or debt offerings will be
available on terms satisfactory to the Company.
Capital Resources. To sustain the Company's active development and acquisitions
program, continuous access to the capital markets is required. Management
intends to match the long-term nature of its real estate assets with long-term
cost effective capital. Management follows a focused strategy to help
facilitate uninterrupted access to capital. This strategy includes:
1. Hire, train and retain associates with a strong resident service focus,
which should lead to higher rents, lower turnover and reduced operating
costs;
2. Manage, acquire and develop institutional quality communities with in-fill
locations that should provide consistent, sustained earnings growth;
3. Operate in markets with growing demand (as measured by household formation
and job growth) and high barriers-to-entry. These characteristics combine to
provide a favorable demand-supply balance, which the Company believes will
create a favorable environment for future rental rate growth while
protecting existing and new communities from new supply. This strategy is
expected to result in a high level of quality to the revenue stream;
4. Maintain a conservative capital structure largely comprised of equity and
with modest, cost-effective leverage. Secured debt will generally be
avoided and used primarily to obtain low cost, tax-exempt debt. Such a
structure should promote an environment for ratings upgrades that can lead
to a lower cost of capital and increased financial flexibility;
5. Accounting practices that provide a high level of quality to reported
earnings; and
6. Timely, accurate and detailed disclosures to the investment community.
20
<PAGE> 22
Management believes that these strategies provide a disciplined approach to
capital access that is expected to ensure that capital resources are available
to fund portfolio growth.
The following is a discussion of specific capital transactions, arrangements
and agreements that are important to the capital resources of the Company.
Unsecured Facility
The Company's Unsecured Facility is provided by a consortium of banks that
provides for $600,000,000 in short-term credit and is subject to an annual
facility fee of $900,000. The Unsecured Facility bears interest at the London
Interbank Offered Rate ("LIBOR") based on rating levels achieved on the
Company's senior unsecured notes and on a maturity selected by the Company. The
current pricing is LIBOR plus 0.60% per annum and matures in June 2001. The
Unsecured Facility, which was put into place during June 1998, replaced three
separate credit facilities previously available to the separate companies prior
to the Merger, with terms similar to the Unsecured Facility. A competitive bid
option is available for up to $400,000,000 which may result in lower pricing if
market conditions allow. Pricing under the competitive bid option resulted in
average pricing of LIBOR + .42% for balances most recently placed under the
competitive bid option. At June 30, 1998, $374,000,000 was outstanding,
$15,567,245 was used to provide letters of credit and $210,432,755 was
available for borrowing under the Unsecured Facility. The Company will use
borrowings under the Unsecured Facility for capital expenditures, acquisitions
of developed or undeveloped communities, construction, development and
renovation costs, credit enhancement for tax-exempt bonds and for working
capital purposes.
Interest Rate Protection Agreements
The Company is not a party to any long-term interest rate agreements, other
than interest rate protection and swap agreements on certain tax-exempt
indebtedness. The Company intends, however, to evaluate the need for long-term
interest rate protection agreements as interest rate market conditions dictate
and has engaged a consultant to assist in managing the Company's interest rate
risks and exposure.
Financing Commitments/Transactions Completed
Sale of Common Stock. On April 29, 1998, Bay sold 1,244,147 shares of common
stock for aggregate net proceeds of approximately $44 million. Bay used the
net proceeds from the offering to reduce its borrowings under its then-existing
unsecured revolving credit facility.
Sale of senior unsecured notes. On July 7, 1998, the Company issued $250
million of senior unsecured notes, of which $100 million of the notes will bear
interest at 6.5% and will mature in July 2003 and $150 million of the notes
will bear interest at 6.8% and will mature in July 2006. The net proceeds of
$247.6 million to the Company were used to reduce borrowings under the
Company's Unsecured Facility.
Future Financing Needs
Substantially all of the capital expenditures to complete the communities
currently under construction and reconstruction will be funded from the
Unsecured Facility and/or issuance of debt or equity securities. Management
expects to continue to fund deferred development costs related to future
developments from Funds from Operations and advances under the Unsecured
Facility. The Company believes that these sources of capital are adequate to
take each of the proposed communities to the point in the development cycle
where construction can commence.
Management anticipates that available borrowing capacity under the Unsecured
Facility and Funds from Operations will be adequate to meet future expenditures
required to commence construction of each of the Development Rights. In
addition, the Company currently anticipates funding construction of some (but
not all) of the Development Rights under the expected remaining capacity of the
Unsecured Facility. However, before the construction of a Development Right
commences, the Company intends, if
21
<PAGE> 23
necessary, to issue additional equity or debt securities, arrange additional
capacity under the Unsecured Facility or future credit facilities or obtain
additional construction loan commitments not currently in place to ensure that
adequate liquidity sources are in place to fund the construction of a
Development Right, although no assurance can be given in this regard.
The table on the following page summarizes debt maturities for the next five
years (excluding the Unsecured Facility):
22
<PAGE> 24
AVALON BAY COMMUNITIES, INC.
DEBT MATURITY SCHEDULE
(Dollars in thousands)
<TABLE>
<CAPTION>
ALL-IN PRINCIPAL BALANCE OUTSTANDING
INTEREST MATURITY --------------------------
COMMUNITY RATE DATE 12-31-97 6-30-98
- ----------------------------------------------------------------------------- ------------- ----------
<S> <C> <C> <C> <C>
TAX-EXEMPT BONDS:
FIXED RATE
Canyon Creek 6.48% Jun-25 $ 38,534 $ 38,297
Waterford 5.88% Aug-14 33,100 33,100
City Heights 5.80% Jun-25 20,714 20,607
CountryBrook 7.87% Mar-12 19,850 19,712
Villa Mariposa 5.88% Mar-17 18,300 18,300
Sea Ridge 6.48% Jun-25 17,479 17,372
Foxchase 5.88% Nov-07 26,400 26,400
Governor's Square 7.65% Aug-04 14,184 14,120
Barrington Hills 6.48% Jun-25 13,185 13,103
The Arbors 7.25% May-04 12,870 12,870
Gallery Place 7.31% May-01 11,685 11,588
Rivershore 6.48% Nov-22 10,309 10,237
Fairway Glen 5.88% Nov-07 9,580 9,580
Crossbrook 6.48% Jun-25 8,484 8,434
Larkspur Canyon 5.50% Jun-25 7,610 7,571
Avalon Ridge 5.69% Jun-26 -- 26,815
Avalon View 7.55% Aug-24 -- 19,215
Avalon Lea 5.71% Jun-26 -- 16,835
Avalon at Lexington 6.56% Feb-25 -- 14,958
Avalon Knoll 6.95% Jun-26 -- 13,837
Avalon at Dulles 7.04% Jul-24 -- 12,360
Avalon Fields 7.57% May-27 -- 11,956
Avalon at Hampton II 7.04% Jul-24 -- 11,550
Avalon at Symphony Glen 7.06% Jul-24 -- 9,780
Avalon West 7.73% Dec-36 -- 8,705
Avalon Landing 6.85% Jun-26 -- 6,851
--------- ---------
262,284 414,153
VARIABLE RATE
Avalon Devonshire Dec-25 -- 27,305
Avalon at Fairway Hills I Jun-26 -- 11,500
Laguna Brisas Mar-09 -- 10,400
Avalon at Hampton I Jun-26 -- 8,060
Avalon Pointe Jun-26 -- 6,387
--------- ---------
-- 63,652
CONVENTIONAL LOANS:
FIXED RATE
$100 Million Senior Unsecured Notes 7.375% Sep-02 -- 100,000
$100 Million Senior Unsecured Notes 6.625% Jan-05 -- 100,000
$110 Million Senior Unsecured Notes 6.875% Dec-07 -- 110,000
$50 Million Senior Unsecured Notes 6.25% Jan-03 -- 50,000
$50 Million Senior Unsecured Notes 6.50% Jan-05 -- 50,000
$50 Million Senior Unsecured Notes 6.625% Jan-08 -- 50,000
Cedar Ridge 6.50% Jul-99 1,000 1,000
Avalon Walk II 8.93% Nov-04 -- 12,864
Avalon Pines 8.00% Dec-03 -- 5,390
--------- ---------
1,000 479,254
VARIABLE RATE-NONE -- --
--------- ---------
TOTAL INDEBTEDNESS - EXCLUDING CREDIT FACILITY $ 263,284 $ 957,059
========= =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL MATURITIES
--------- -------------------------------------------------------------------
COMMUNITY 1998 1999 2000 2001 2002 THEREAFTER
- --------------------------------------------- --------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT BONDS:
FIXED RATE
Canyon Creek $ 245 $ 517 $ 554 $ 594 $ 637 $ 35,750
Waterford -- -- -- -- -- 33,100
City Heights 111 233 250 268 288 19,457
CountryBrook 144 305 330 357 386 18,190
Villa Mariposa -- -- -- -- -- 18,300
Sea Ridge 111 235 251 270 289 16,216
Foxchase -- -- -- -- -- 26,400
Governor's Square 67 142 153 165 178 13,415
Barrington Hills 84 177 190 203 218 12,231
The Arbors -- -- -- -- -- 12,870
Gallery Place 102 214 230 11,042 -- --
Rivershore 75 158 171 184 198 9,451
Fairway Glen -- -- -- -- -- 9,580
Crossbrook 52 109 117 126 136 7,894
Larkspur Canyon 40 85 91 98 105 7,152
Avalon Ridge -- -- -- -- -- 26,815
Avalon View 180 290 330 350 373 17,692
Avalon Lea -- -- -- -- -- 16,835
Avalon at Lexington 170 240 255 271 288 13,734
Avalon Knoll 124 175 187 200 214 12,937
Avalon at Dulles -- -- -- -- -- 12,360
Avalon Fields 96 137 147 157 169 11,250
Avalon at Hampton II -- -- -- -- -- 11,550
Avalon at Symphony Glen -- -- -- -- -- 9,780
Avalon West 31 50 53 57 61 8,453
Avalon Landing 63 89 95 101 108 6,395
1,695 3,156 3,404 14,443 3,648 387,807
VARIABLE RATE
Avalon Devonshire -- -- -- -- -- 27,305
Avalon at Fairway Hills I -- -- -- -- -- 11,500
Laguna Brisas -- -- -- -- -- 10,400
Avalon at Hampton I -- -- -- -- -- 8,060
Avalon Pointe -- -- -- -- -- 6,387
--------- ---------- ----------- ----------- ------------ -----------
-- -- -- -- -- 63,652
CONVENTIONAL LOANS:
FIXED RATE
$100 Million Senior Unsecured Notes -- -- -- -- 100,000 --
$100 Million Senior Unsecured Notes -- -- -- -- -- 100,000
$110 Million Senior Unsecured Notes -- -- -- -- -- 110,000
$50 Million Senior Unsecured Notes -- -- -- -- -- 50,000
$50 Million Senior Unsecured Notes -- -- -- -- -- 50,000
$50 Million Senior Unsecured Notes -- -- -- -- -- 50,000
Cedar Ridge -- 1,000 -- -- -- --
Avalon Walk II 149 221 241 264 288 11,701
Avalon Pines 86 112 121 131 142 4,798
--------- ---------- ----------- ----------- ------------ -----------
235 1,333 362 395 100,430 376,499
VARIABLE RATE-NONE -- -- -- -- -- --
--------- ---------- ----------- ----------- ------------ -----------
TOTAL INDEBTEDNESS - EXCLUDING CREDIT FACILITY $ 1,930 $ 4,489 $ 3,766 $ 14,838 $ 104,078 $ 827,958
========= ========== =========== =========== ============ ===========
</TABLE>
23
<PAGE> 25
Inflation
Substantially all of the leases at the Current Communities are for a
term of one year or less, which may enable the Company to realize increased
rents upon renewal of existing leases or commencement of new leases. Such
short-term leases generally minimize the risk to the Company of the adverse
effects of inflation, although as a general rule these leases permit residents
to leave at the end of the lease term without penalty. Short-term leases
combined with relatively consistent demand allow rents, and therefore cash flow
from the Company's portfolio of apartments, to provide an attractive inflation
hedge.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computer systems to
accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The Year
2000 issue affects virtually all companies and organizations.
The Company has been taking the necessary steps to understand the nature and
extent of the work required to make its core information computer systems and
non-information embedded systems Year 2000 compliant. The Company has
established a Year 2000 project team which has completed the assessment phase
for computerized management information systems. The assessment determined that
it will be necessary to modify, update or replace limited portions of the
Company's computer hardware and software applications.
The Company anticipates that replacing and upgrading its existing management
information systems (both hardware and software) in the normal course of
business will result in Year 2000 compliance by the end of the second quarter of
1999. The vendor that provides the Company's existing general ledger software
expects to release a compliant version of its product by the end of 1998. Growth
in the Company's operations is expected to require a general ledger system with
scope and functionality that is not present in the current, non-compliant system
in use, and the scope and functionality required by the Company is not expected
to be provided by the Year 2000 compliant version of that system. Accordingly,
the Company expects to replace the current general ledger system with an
enhanced system that, in addition to increased functionality, is Year 2000
compliant. The cost of the new general ledger system, after considering
anticipated efficiencies provided by the new system, is not currently expected
to have a material effect (either beneficial or adverse) on the Company's
financial condition or results of operations. The new general ledger system is
expected to be selected by the end of the third quarter of 1998 and implemented
by the second quarter of 1999. The Company believes its computerized information
systems will be Year 2000 compliant by the beginning of the third quarter of
1999.
The Company is also reviewing each community for embedded systems (e.g.,
security, HVAC, fire and elevator systems) that may not be Year 2000 compliant.
The Company is currently conducting an assessment of these systems to identify
and evaluate the changes and modifications necessary to make these systems
compliant for Year 2000 processing and this assessment is expected to be
completed by December 31, 1998. The Company continues to evaluate the estimated
costs associated with these compliance efforts and, therefore, the total cost of
bringing all embedded systems into Year 2000 compliance has not been quantified.
Based on available information, the Company believes that these costs will not
have a material adverse effect on its business, financial condition or results
of operations. However, no assurance can be given that the Company's embedded
systems will be Year 2000 compliant by December 31, 1999 or that the Company
will not incur significant costs pursuing Year 2000 compliance.
24
<PAGE> 26
Upon completion of each of the above described upgrades and replacements of the
Company's information computer systems and non-information embedded systems, the
Company will commence testing to ensure Year 2000 compliance. The Company
currently expects its testing to be completed in the third quarter of 1999.
While the Company anticipates that such tests will be successful in all material
respects, the Company's Year 2000 project team intends to closely monitor the
Company's Year 2000 compliance and will develop contingency plans if necessary.
The Company is communicating with third-party service providers and vendors
with which it does business to determine the efforts being made on their part
for compliance. The Company is attempting to receive compliance certificates
from all third parties that have a material impact on the Company's operations,
but no assurance can be given with respect to the cost or timing of such
efforts or the potential effects of any failure to comply.
Natural Disasters
Many of the Company's West Coast communities are located in the general
vicinity of active earthquake faults. In July 1998, the Company obtained a
seismic risk analysis from an engineering firm which estimated the probable
maximum damage ("PMD") for each of the 60 communities that the Company owned at
that time and for each of the five communities under development, individually
and for all of those communities combined. To establish a PMD, the engineers
first define a severe earthquake event for the applicable geographic area,
which is an earthquake that has only a 10% likelihood of occurring over a
50-year period. The PMD is determined as the structural and architectural
damage and business interruption loss that has a 10% probability of being
exceeded in the event of such an earthquake. Because a significant number of
the Company's communities are located in the San Francisco Bay Area, the
engineers' analysis defined an earthquake on the Hayward Fault with a Richter
Scale magnitude of 7.1 as a severe earthquake with a 10% probability of
occurring within a 50-year period. The engineers then established an aggregate
PMD at that time of $113 million for the 60 west coast communities that the
Company owned at that time and the five communities under development. The $113
million PMD for those communities was a PMD level that the engineers expected
to be exceeded only 10% of the time in the event of such a severe earthquake.
The actual aggregate PMD could be higher or lower as a result of variations in
soil classifications and structural vulnerabilities. For each community, the
engineers' analysis calculated an individual PMD as a percentage of the
community's replacement cost and projected revenues. No assurance can be given
that an earthquake would not cause damage or losses greater than the PMD
assessments indicate, that future PMD levels will not be higher than the
current PMD levels for the Company's communities located on the West Coast, or
that future acquisitions or developments will not have PMD assessments
indicating the possibility of greater damage or losses than currently
indicated.
In August 1998, the Company renewed its earthquake insurance, both for physical
damage and lost revenue, with respect to all communities it owned at that time
and all of the communities under development. For any single occurrence, the
Company self-insures the first $25 million of loss, and has in place $75
million of coverage above this amount. In addition, the Company's general
liability and property casualty insurance provides coverage for personal
liability and fire damage. In the event that an uninsured disaster or a loss in
excess of insured limits were to occur, the Company could lose its capital
invested in the affected community, as well as anticipated future revenue from
that community, and would continue to be obligated to repay any mortgage
indebtedness or other obligations related to the community. Any such loss could
materially and adversely affect the business of the Company and its financial
condition and results of operations.
Development Communities
Currently sixteen Development Communities are under construction. The total
capitalized cost of these Development Communities, when completed, is expected
to be approximately $685.5 million. There can be no assurance that the Company
will complete the Development Communities, that the Company's
25
<PAGE> 27
budgeted costs, leasing, start dates, completion dates, occupancy or estimates
of "EBITDA as % of Total Budgeted Cost" will be realized or that future
developments will realize comparable returns.
The following page presents a summary of Development Communities:
26
<PAGE> 28
AVALON BAY COMMUNITIES, INC.
DEVELOPMENT COMMUNITIES SUMMARY
<TABLE>
<CAPTION>
EBITDA as
Number of Budgeted Estimated Estimated % of Total
Apartment Cost (1) Construction Initial Completion Stabilization Budgeted
Homes ($ millions) Start Occupancy Date Date (2) Cost (3)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Avalon Gardens
Nanuet, NY 504 $53.8 Q3 1996 Q2 1997 Q3 1998 Q4 1998 11.5%
2. Avalon at Cameron Court
Alexandria, VA 460 $44.7 Q2 1997 Q1 1998 Q4 1998 Q1 1999 11.3%
3. Toscana
Sunnyvale, CA 710 $116.5 Q3 1996 Q3 1997 Q4 1998 Q2 1999 11.1%
4. Avalon Fields II
Gaithersburg, MD 96 $9.2 Q3 1997 Q2 1998 Q3 1998 Q4 1998 10.7%
5. CentreMark
San Jose, CA 311 $47.5 Q1 1997 Q3 1998 Q1 1999 Q2 1999 10.5%
6. Avalon Willow
Mamaroneck, NY 227 $41.8 Q2 1997 Q4 1998 Q1 1999 Q2 1999 9.2%
7. Rosewalk II
San Jose, CA 156 $20.3 Q4 1997 Q4 1998 Q1 1999 Q2 1999 11.1%
8. Paseo Alameda
San Jose, CA 305 $52.7 Q3 1997 Q4 1998 Q2 1999 Q3 1999 10.1%
9. Avalon Cove South
Jersey City, NJ 269 $51.8 Q1 1998 Q2 1999 Q3 1999 Q4 1999 10.0%
10. The Avalon
Bronxville, NY 110 $26.4 Q1 1998 Q2 1999 Q3 1999 Q4 1999 9.7%
11. Avalon Valley
Danbury, CT 268 $26.1 Q1 1998 Q1 1999 Q3 1999 Q1 2000 10.1% (4)
12. Avalon Lake
Danbury, CT 135 $17.0 Q2 1998 Q2 1999 Q3 1999 Q1 2000 10.1% (4)
13. Avalon Oaks (5)
Wilmington, MA 204 $21.9 Q2 1998 Q1 1999 Q3 1999 Q1 2000 10.3%
14. Avalon Crest
Fort Lee, NJ 351 $57.4 Q4 1997 Q2 1999 Q4 1999 Q1 2000 10.1%
15. Bay Towers
San Francisco, CA 226 $65.9 Q4 1997 Q3 1999 Q4 1999 Q1 2000 9.6%
16. Avalon Corners
Stamford, CT 195 $32.5 Q3 1998 Q2 1999 Q2 2000 Q3 2000 10.4%
------------------------ ---------
Total/average 4,527 $685.5 10.4%
======================== =========
</TABLE>
(1) Total budgeted cost includes all capitalized costs projected to be
incurred to develop the respective Development Community, including land
acquisition costs, construction costs, real estate taxes, capitalized
interest and loan fees, permits, professional fees, allocated
development overhead and other regulatory fees determined in accordance
with GAAP.
(2) Stabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of construction.
(3) Projected EBITDA represents gross potential earnings projected to be
achieved at completion of construction before interest, income taxes,
depreciation, amortization and extraordinary items, minus (a) projected
economic vacancy and (b) projected stabilized operating expenses.
(4) Represents a combined yield for Avalon Valley and Avalon Lake.
(5) Financed with tax-exempt bonds.
27
<PAGE> 29
Redevelopment Communities
There are currently twelve Redevelopment Communities. The total capitalized
cost of these Redevelopment Communities, when completed, is expected to be
approximately $379.7 million. There can be no assurance that the Company will
complete the Redevelopment Communities, that the Company's budgeted costs,
leasing, start dates, completion dates, occupancy or estimates of "EBITDA as %
of Total Budgeted Cost" will be realized or that future redevelopments will
realize comparable returns.
In accordance with GAAP, cost capitalization during redevelopment and
reconstruction of assets (including interest and related loan fees, property
taxes and other direct and indirect costs) begins when an apartment home is
taken out-of-service for reconstruction and ends when the apartment home
reconstruction is completed and the apartment home is placed-in-service.
The following page presents a summary of Redevelopment Communities:
28
<PAGE> 30
AVALON BAY COMMUNITIES, INC.
REDEVELOPMENT COMMUNITIES SUMMARY (1)
<TABLE>
<CAPTION>
EBITDA as
Number of Budgted Estimated % of Total
Apartment Cost (2) Reconstruction Reconstruction Restabilized Budgeted
Homes ($ millions) Start Completion Operations (3) Cost (4)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Sunset Towers
San Francisco, CA 243 $27.6 Q4 1997 Q3 1998 Q4 1998 9.3%
2. TimberWood
West Covina, CA 209 $14.9 Q3 1997 Q3 1998 Q1 1999 10.5%
3. SunScape
Huntington Beach, CA 400 $36.6 Q3 1997 Q3 1998 Q1 1999 9.9%
4. The Arbors
Campbell, CA 252 $30.0 Q4 1997 Q4 1998 Q1 1999 8.9%
5. Mission Woods
San Diego, CA 200 $20.8 Q3 1997 Q3 1998 Q4 1998 8.0%
6. Cedar Ridge
Daly City, CA 195 $24.8 Q3 1997 Q4 1998 Q1 1999 9.0%
7. The Park
Hacienda Heights, CA 351 $28.7 Q2 1998 Q3 1999 Q1 2000 9.4%
8. Lakeside
Burbank, CA 750 $67.1 Q2 1998 Q2 2000 Q4 2000 9.2%
9. Gallery Place
Redmond, WA 222 $24.9 Q1 1998 Q1 1999 Q2 1999 8.6%
10. Viewpointe
Woodland Hills, CA 663 $72.6 Q2 1998 Q1 1999 Q3 1999 9.7%
11. Landing West
Seattle, WA 190 $12.3 Q1 1998 Q4 1998 Q1 1999 9.4%
12. Waterhouse Place
Beaverton, OR 279 $19.4 Q2 1998 Q2 1999 Q3 1999 9.3%
----------------------- -----------
Subtotal/Weighted Average 3,954 $379.7 9.3%
======================= ===========
</TABLE>
(1) Redevelopment Communities are communities acquired for which redevelopment
costs are expected to exceed the lesser of 10% of the original acquisition
cost or $5,000,000.
(2) Total budgeted cost includes all capitalized costs projected to be
incurred to redevelop the respective Redevelopment Community, including
costs to acquire the community, reconstruction costs, real estate taxes,
capitalized interest and loan fees, permits, professional fees, allocated
redevelopment overhead and other regulatory fees determined in accordance
with GAAP.
(3) Restabilized operations is defined as the first full quarter of 95% or
greater occupancy after completion of redevelopment.
(4) Projected EBITDA represents gross potential earnings projected to be
achieved at completion of redevelopment before interest, income taxes,
depreciation, amortization and extraordinary items, minus (a) projected
economic vacancy and (b) projected stabilized operating expenses.
29
<PAGE> 31
Development Rights
The Company is considering the development of 22 new apartment communities. The
status of these Development Rights range from land owned or under contract for
which design and architectural planning has just commenced to land under
contract or owned by the Company with completed site plans and drawings where
construction can commence almost immediately. There can be no assurance that the
Company will succeed in obtaining zoning and other necessary governmental
approvals or the financing required to develop these communities, or that the
Company will decide to develop any particular community. Further, there can be
no assurance that construction of any particular community will be undertaken
or, if undertaken, will begin at the expected times assumed in the financial
projections or be completed at the total budgeted cost. Although there can be no
assurance that all or any of these communities will proceed to development,
management estimates that the successful completion of all of these communities
would ultimately add approximately 6,512 institutional-quality apartment homes
to the Company's portfolio. At June 30, 1998, the cumulative capitalized costs
incurred in pursuit of the 22 Development Rights was approximately $32.7
million. Many of these apartment homes will offer features like those offered by
the communities currently owned by the Company. The 22 Development Rights that
the Company is currently pursuing are summarized on the following table.
30
<PAGE> 32
AVALON BAY COMMUNITIES, INC.
DEVELOPMENT RIGHTS SUMMARY
<TABLE>
<CAPTION>
Total
Estimated Budgeted
Number Cost
Location of Homes ($ millions)
---------------------------------------- -------------------------------------------
<S> <C> <C> <C>
1. Peabody, MA 434 $35.9
2. Bellevue, WA 200 29.1
3. Mountain View, CA (1) 200 50.0
4. San Jose, CA (1) 288 53.8
5. Hull, MA 162 17.0
6. New Rochelle, NY 408 63.1
7. Freehold, NJ 452 38.4
8. Herndon, VA 165 19.6
9. Melville - II, NY 340 40.3
10. Orange, CT 168 15.4
11. New Canaan, CT (1) (2) 104 23.8
12. Darien, CT 172 26.1
13. Yonkers, NY 256 33.7
14. Greenburgh - II, NY 500 74.5
15. Greenburgh - III, NY 266 39.6
16. Arlington, VA 635 68.9
17. Florham Park, NJ 270 37.5
18. Edgewater, NJ 404 68.6
19. Hopewell, NJ 280 29.8
20. Naperville, IL 200 20.4
21. Westbury, NY 361 49.8
22. Providence, RI 247 30.4
---------------- -----------------
Totals 6,512 $865.7
================ =================
</TABLE>
(1) Company owns land, but construction has not yet begun.
(2) Currently anticipated that the land seller will retain a minority limited
partner interest.
31
<PAGE> 33
Risks of Development and Redevelopment
The Company intends to continue to pursue the development and construction of
apartment home communities in accordance with the Company's development and
underwriting policies. Risks associated with the Company's development and
construction activities may include: the abandonment of development and
acquisition opportunities explored by the Company; construction costs of a
community may exceed original estimates due to increased materials, labor or
other expenses, which could make completion of the community uneconomical;
occupancy rates and rents at a newly completed community are dependent on a
number of factors, including market and general economic conditions, and may
not be sufficient to make the community profitable; financing may not be
available on favorable terms for the development of a community; and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations. The occurrence of any of the
events described above could adversely affect the Company's ability to achieve
its projected yields on communities under development or reconstruction and
could prevent the Company from paying distributions to its stockholders.
For each new development community, the Company establishes a target for
projected EBITDA as a percentage of total budgeted cost. Projected EBITDA as a
percentage of total budgeted cost represents gross potential earnings projected
to be achieved at completion of development or redevelopment before interest,
income taxes, depreciation, amortization and extraordinary items, minus (a)
projected economic vacancy and (b) projected stabilized operating expenses.
Total budgeted cost includes all capitalized costs projected to be incurred to
develop the respective Development or Redevelopment Community, including land,
acquisition costs, construction costs, real estate taxes, capitalized interest
and loan fees, permits, professional fees, allocated development overhead and
other regulatory fees determined in accordance with GAAP. Gross potential
earnings and construction costs reflect those prevailing in the community's
market at the time the Company's development budgets are prepared taking into
consideration certain changes to those market conditions anticipated by the
Company at the time. Although the Company attempts to anticipate changes in
market conditions, the Company cannot predict with certainty what those changes
will be. Construction costs have been increasing and, for certain of the
Company's development communities, the total construction costs have been or
are expected to be higher than the original budget. Nonetheless, because of
increases in prevailing market rents management believes that, in the
aggregate, the Company will still achieve its targeted projected EBITDA as a
percentage of total budgeted cost for those communities experiencing costs in
excess of the original budget. Management believes that it could experience
similar increases in construction costs and market rents with respect to other
development communities resulting in total construction costs that exceed
original budgets. Likewise, costs to redevelop communities that have been
acquired have, in some cases, exceeded management's original estimates and
similar increases in costs may be experienced in the future. There can be no
assurances that market rents in effect at the time new development communities
or repositioned communities complete lease-up will be sufficient to fully
offset the effects of any increased construction costs.
Capitalized Interest
In accordance with GAAP, the Company capitalizes interest expense during
construction until each building obtains a final certificate of occupancy.
Thereafter, interest for each completed building is expensed. Capitalized
interest for all communities under construction or reconstruction the three
months ended June 30, 1998 and 1997 totaled $3,561,000 and $1,396,000,
respectively and for the six months ended June 30, 1998 and 1997 totaled
$6,525,000 and $2,421,000, respectively.
32
<PAGE> 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June
4, 1998. The stockholders voted to elect Gilbert M. Meyer,
Bruce A. Choate, John J. Healy, Jr., Brenda J. Mixson, Thomas
H. Nielsen and Lance R. Primis to serve as directors of the
Company until the 1999 Annual Meeting of Stockholders and
until their successors are duly elected and qualified.
22,295,769 votes were cast for, and 2,134,974 votes were
withheld from the election of Mr. Meyer.
22,295,989 votes were cast for, and 2,134,755 votes were
withheld from the election of Mr. Choate.
22,295,989 votes were cast for, and 2,134,755 votes were
withheld from the election of Mr. Healy.
22,295,989 votes were cast for, and 2,134,755 votes were
withheld from the election of Ms. Mixson.
22,295,989 votes were cast for, and 2,134,755 votes were
withheld from the election of Mr. Nielsen.
22,295,989 votes were cast for, and 2,134,755 votes were
withheld from the election of Mr. Primis.
The stockholders voted to ratify certain amendments to the
Company's charter relating to the rights, preferences and
privileges of the Series A Preferred Stock. Of the shares of
common stock voted on this proposal, 19,692,750 votes were
cast in favor of this proposal, 688,092 were cast against,
71,560 votes abstained and 3,978,342 broker non-votes were
recorded. Of the shares of Series A Preferred Stock voted on
this proposal, 2,308,800 votes were cast in favor of this
proposal.
The stockholders voted to ratify the 1994 Stock Incentive
Plan, as amended and restated. Of the shares of common stock
voted on this proposal, 18,304,106 votes were cast in favor
of this proposal, 2,304,946 were cast against, 113,345 votes
abstained and 3,978,347 broker non-votes were recorded.
The stockholders voted to approve the Agreement and Plan of
Merger, dated as of March 9, 1998 (the "Merger Agreement"),
by and between Bay and Avalon, the merger of Avalon with and
into the Company (the "Merger"), with the Company as the
surviving corporation (the "Surviving Corporation"), and all
of the matters and transactions contemplated by the Merger
Agreement, including the amendment and restatement of the
charter of the Company. Of the shares of common stock voted
on this proposal,
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<PAGE> 35
19,126,147 votes were cast in favor of this proposal,
1,288,540 votes were cast against, 37,719 votes abstained and
3,978,388 broker non-votes were recorded.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(i).1 Articles of Amendment and Restatement of Articles of
Incorporation of the Company, dated as of June 4, 1998.
3(ii).1 Bylaws of the Company, as amended and restated on July 24,
1998.
10.1 Employment Agreement, dated as of March 9, 1998, between the
Company and Richard L. Michaux.
10.2 Employment Agreement, dated as of March 9, 1998, between the
Company and Charles H. Berman.
10.3 Employment Agreement, dated as of March 9, 1998, between the
Company and Robert H. Slater.
10.4 Employment Agreement, dated as of March 9, 1998, between the
Company and Thomas J. Sargeant.
10.5 Employment Agreement, dated as of March 9, 1998, between the
Company and Bryce Blair.
10.6 Revolving Loan Agreement, dated as of June 23, 1998, between
the Company and Fleet National bank, Morgan Guaranty Trust
Company of New York and Union Bank of Switzerland, each as
co-agents.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
1. Form 8-K of the Company, filed April 16, 1998, relating to the filing
of unaudited pro forma condensed financial statements giving effect to the
Merger of the Company and Avalon Properties, Inc.
2. Form 8-K of the Company, filed April 22, 1998, relating to the
announcement of the Company's results of operations for fiscal quarter ended
March 31, 1998.
3. Form 8-K of the Company, filed June 19, 1998, announcing the completion
of the Merger by and between the Company and Avalon Properties, Inc., in which
the Company was the surviving corporation. This Form 8-K contains unaudited pro
forma condensed financial statements.
4. Form 8-K/A of the Company, filed June 26, 1998, incorporating by
reference certain agreements related to Avalon Properties, Inc.
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AVALON BAY COMMUNITIES, INC.
Date: August 14, 1998 /s/ Richard L. Michaux
-------------------------------------
Richard L. Michaux
Chief Executive Officer and Director
Date: August 14, 1998 /s/ Thomas J. Sargeant
-------------------------------------
Thomas J. Sargeant
Chief Financial Officer and Treasurer
35
<PAGE> 1
EXHIBIT 3(I).1
ARTICLES OF
AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
BAY APARTMENT COMMUNITIES, INC.
Dated: June 4, 1998
<PAGE> 2
ARTICLES OF
AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
BAY APARTMENT COMMUNITIES, INC.
ARTICLE I
PREAMBLE
Bay Apartment Communities, Inc., a corporation organized and existing
under the laws of the State of Maryland (the "Corporation"), hereby certifies
as follows:
1.1 The name of the Corporation is Bay Apartment Communities, Inc.
The date of the filing of its Articles of Incorporation with the State
Department of Assessments and Taxation of the State of Maryland (the
"Department") was March 13, 1995 (as thereafter amended from time to time prior
to the date hereof, the "Original Charter").
1.2 The total number of shares of stock which the Corporation has
authority to issue (the "Stock") prior to the date of this Amendment and
Restatement is eighty-five million (85,000,000) shares, consisting of (i)
twenty-five million (25,000,000) shares of preferred stock, par value $.01 per
share ("Preferred Stock"); (ii) forty million (40,000,000) shares of common
stock, par value $.01 per share ("Common Stock"); and (iii) twenty million
(20,000,000) shares of excess common stock, par value $.01 per share. The
aggregate par value of all of the shares of all classes of Stock prior to the
date of this Amendment and Restatement is $850,000.
1.3 The total number of shares of Stock which the Corporation has
authority to issue immediately following this Amendment and Restatement is
three hundred seventy million (370,000,000) shares, initially consisting of (i)
fifty million (50,000,000) shares of Preferred Stock; (ii) three hundred
million (300,000,000) shares of Common Stock; and (iii) twenty million
(20,000,000) shares of excess stock, par value $.01 per share ("Excess Stock").
The aggregate par value of all the shares of all classes of Stock immediately
following this Amendment and Restatement is $3,700,000.
1.4 These Articles of Amendment and Restatement of Articles of
Incorporation (the "Articles"), which amend, restate and integrate the
provisions of the Original Charter were deemed advisable and approved by a
majority of the Board of Directors of the Corporation and were approved by the
stockholders of the Corporation in accordance with the Maryland General
Corporation Law (the "MGCL").
1.5 The Corporation desires to amend and restate the Original
Charter as currently in effect, and upon acceptance for record by the
Department the provisions set forth in these
1
<PAGE> 3
Articles shall be all of the provisions of the charter of the Corporation.
ARTICLE II
NAME
The name of the Corporation is:
"Avalon Bay Communities, Inc."
ARTICLE III
PURPOSES
Purpose and Powers. The purposes for which the Corporation is formed
are to engage in business as a real estate investment trust (a "REIT") (as that
phrase is defined under Section 856 of the Internal Revenue Code of 1986, as
amended (the "Code")) and to engage in any other lawful act or activity for
which corporations may be organized under the Maryland General Corporation Law.
The foregoing purposes shall be in no way limited or restricted by reference
to, or inference from, the terms of any other clause of these Articles, as
amended from time to time, and each shall be regarded as independent. The
foregoing purposes are also to be construed as powers of the Corporation, and
shall be in addition to and not in limitation of the general powers of
corporations under the laws of the State of Maryland.
ARTICLE IV
PRINCIPAL OFFICE ADDRESS
The address of the principal office of the Corporation in Maryland is
c/o The Corporation Trust Incorporated, 300 East Lombard Street, Suite 1400,
Baltimore, Maryland 21202.
ARTICLE V
THE RESIDENT AGENT
The resident agent of the Corporation in Maryland is The Corporation
Trust Incorporated, whose address is 300 East Lombard Street, Suite 1400,
Baltimore, Maryland 21202.
ARTICLE VI
BOARD OF DIRECTORS
2
<PAGE> 4
6.1 General Powers; Action by Committee. The business and affairs
of the Corporation shall be managed under the direction of the Board of
Directors and, except as otherwise expressly provided by law, these Articles or
the bylaws, as amended from time to time (the "Bylaws"), of the Corporation,
all of the powers of the Corporation shall be vested in such Board. Any action
which the Board of Directors is empowered to take may be taken on behalf of the
Board of Directors by a duly authorized committee thereof except (i) to the
extent limited by Maryland law, these Articles or the Bylaws and (ii) for any
action which requires the affirmative vote or approval of a majority of all
Directors then in office (unless, in such case, these Articles or the Bylaws
specifically provide that a duly authorized committee can take such action on
behalf of the Board of Directors). A majority of the Board of Directors shall
constitute a quorum and, except as otherwise specifically provided in these
Articles, the affirmative vote of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors.
6.2 Number. The number of Directors of the Corporation shall be
fixed from time to time by a resolution duly adopted by the Board of Directors;
provided, however, that the total number of Directors shall be not fewer than
three (3). No reduction in the number of Directors shall cause the removal of
any Director from office prior to the expiration of his or her term.
Immediately following the effectiveness of this Amendment and Restatement the
Corporation shall have twelve (12) Directors, whose names shall be as follows:
Gilbert M. Meyer
Charles H. Berman
Bruce A. Choate
Michael A. Futterman
John J. Healy, Jr.
Christopher B. Leinberger
Richard L. Michaux
Richard W. Miller
Brenda J. Mixson
Thomas H. Nielsen
Lance R. Primis
Allan D. Schuster
6.3 Term; Election. The term of office of each Director shall
expire at the next succeeding annual meeting of stockholders. The Directors
elected at each annual meeting of stockholders shall hold office until their
successors are duly elected and qualified or until their earlier resignation or
removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article VII or Article XIV of these Articles, the holders of any one or more
series of Stock shall have the right, voting separately as a series or together
with holders of other such series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
3
<PAGE> 5
Articles and any articles supplementary applicable thereto.
During any period when the holders of any series of Stock have the
right to elect additional Directors as provided for or fixed pursuant to the
provisions of Article VII or Article XIV of these Articles, then upon
commencement and for the duration of the period during which such right
continues: (a) the then otherwise total authorized number of Directors of the
Corporation shall automatically be increased by such specified number of
Directors, and the holders of such Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions and
(b) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board of Directors
in the resolution or resolutions establishing such series, whenever the holders
of any series of Stock having such right to elect additional Directors are
divested of such right pursuant to the provisions of such Stock, the terms of
office of all such additional Directors elected by the holders of such Stock,
or elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional Directors, shall forthwith
terminate and the total authorized number of Directors of the Corporation shall
be reduced accordingly.
6.4 Resignation or Removal of Directors. Any Director may resign
from the Board of Directors or any committee thereof at any time by written
notice to the Board of Directors, effective upon execution and delivery to the
Corporation of such notice or upon any future date specified in the notice.
Subject to the rights, if any, of the holders of any series of Stock to elect
Directors and to remove any Director whom such holders have the right to elect,
any Director (including persons elected by Directors to fill vacancies in the
Board of Directors) may be removed from office (a) only with cause and (b) only
by the affirmative vote of the holders of at least 75% of the shares then
entitled to vote at a meeting of the stockholders called for that purpose. At
least 30 days prior to any meeting of stockholders at which it is proposed that
any Director be removed from office, written notice of such proposed removal
shall be sent to the Director whose removal will be considered at the meeting.
For purposes of these Articles, "cause," with respect to the removal of any
Director, shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of a court, (iii) gross dereliction of duty, (iv)
commission of any act involving moral turpitude or (v) commission of an act
that constitutes intentional misconduct or a knowing violation of law if such
action in either event results both in an improper substantial personal benefit
to such Director and a material injury to the Corporation.
6.5 Vacancies. Subject to the rights, if any, of the holders of
any class or series of Stock to elect Directors and to fill vacancies on the
Board of Directors relating thereto, any vacancy on the Board of Directors
which results from the removal of a Director for cause shall be filled by the
affirmative vote of a majority of votes cast by the stockholders normally
entitled to vote in the election of Directors at a meeting of stockholders.
Any vacancy occurring on the Board of Directors for any other reason, except as
a result of an increase in the number of Directors, may be filled by a majority
vote of the remaining Directors,
4
<PAGE> 6
notwithstanding that such majority is less than a quorum; provided, however,
that any Director appointed to fill the vacancy for an Independent Director (as
hereinafter defined) shall also require the vote affirmative vote of a majority
of the remaining Independent Directors. Any vacancy occurring on the Board of
Directors as a result of an increase in the number of Directors may be filled
by a majority vote of the entire Board of Directors. A Director elected by the
Board of Directors or the stockholders to fill a vacancy shall hold office
until the next annual meeting of stockholders and until his or her successor is
elected and qualified. In the event of a vacancy in the Board of Directors,
the remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until such vacancy is filled.
6.6 Independent Directors. Notwithstanding anything herein to the
contrary, at all times (except during a period not to exceed sixty (60) days
following the death, resignation, incapacity, or removal from office of a
Director prior to the expiration of the Director's term of office), a majority
of the Board of Directors shall be comprised of persons ("Independent
Directors") who are not officers or employees of the Corporation or any
affiliate thereof and who do not have a material business or professional
relationship with the Corporation or any affiliate thereof.
6.7 Powers. Subject to the express limitations herein or in the
Bylaws, the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors. These Articles, as amended or
supplemented from time to time, shall be construed with a presumption in favor
of the grant of power and authority to the Directors. The determination as to
any of the following matters, made in good faith by or pursuant to the
direction of the Board of Directors consistent with these Articles and in the
absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Corporation and every holder of shares
of its Stock: the amount of the net income of the Corporation for any period
and the amount of assets at any time legally available for the payment of
dividends, redemption of its Stock or the payment of other distributions on its
Stock; the amount of paid-in surplus, net assets, other surplus, annual or
other net profit, net assets in excess of capital, undivided profits or excess
of profits over losses on sales of assets; the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or discharged); the fair value, or any sale, bid or asked price to be applied
in determining the fair value, of any asset owned or held by the Corporation;
any matter relating to the acquisition, holding and disposition of any assets
by the Corporation; or any other matter relating to the business and affairs of
the Corporation.
ARTICLE VII
STOCK
7.1 Authorized Stock. The total number of shares of Stock which
the Corporation has authority to issue is three hundred seventy million
(370,000,000) shares, initially
5
<PAGE> 7
consisting of (i) fifty million (50,000,000) shares of Preferred Stock, par
value $.01 per share; (ii) three hundred million (300,000,000) shares of Common
Stock, par value $.01 per share; and (iii) twenty million (20,000,000) shares
of Excess Stock, par value $.01 per share. The aggregate par value of all the
shares of all classes of Stock is $3,700,000. If shares of one class of Stock
are classified or reclassified into shares of another class of Stock pursuant
to this Article VII, the number of authorized shares of the former class shall
be automatically decreased and the number of shares of the latter class shall
be automatically increased, in each case by the number of shares so classified
or reclassified, so that the aggregate number of shares of Stock of all classes
that the Corporation has authority to issue shall not be more than the total
number of shares of Stock set forth in the first sentence of this paragraph.
7.2 Preferred Stock. Subject to any limitations prescribed by
law, the Board of Directors is expressly authorized to classify any unissued
shares of Preferred Stock and reclassify any previously classified but unissued
shares of Preferred Stock of any series from time to time, in one or more
classes or series of such Stock and, by filing articles supplementary with the
Department, to establish or change from time to time the number of shares to be
included in each such class or series, and to fix the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications and terms and conditions of redemption of
each class or series. Any action by the Board of Directors under this Section
7.2 of Article VII shall require the affirmative vote of a majority of the
Directors then in office; provided, however, that by the affirmative vote of a
majority of the Directors then in office, the Board of Directors may appoint a
committee to act on behalf of the Board of Directors under this Section 7.2,
and in such event the affirmative vote of a majority of the members of such
committee then in office shall be required for any action under this Section
7.2.
At the time of acceptance for record of these Articles, the Board of
Directors had duly divided and classified 18,238,800 shares of Preferred Stock
into seven series of Preferred Stock. The rights, preferences and privileges
of these series are set forth herein in Article XIV.
7.3 Common Stock. Subject to all of the rights, powers and
preferences of the Preferred Stock and except as provided by law or in this
Article VII or Article XIV (or in any articles supplementary regarding any
class or series of Preferred Stock):
7.3.1 Voting Rights. The holders of shares of Common Stock
shall be entitled to vote for the election of Directors and on all
other matters requiring stockholder action, and each holder of shares
of Common Stock shall be entitled to one vote for each share of Common
Stock held by such stockholder.
7.3.2 Dividend Rights. Holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash,
Stock or property of the Corporation as may be authorized and declared
by the Board of Directors upon the Common Stock and, if any Excess
Stock resulting from the conversion of Common Stock is then
outstanding, such Excess Stock out of any assets or funds of the
Corporation legally available therefor, but only when and as
authorized by the Board of Directors or any
6
<PAGE> 8
authorized committee thereof from time to time, and shall share
ratably with the holders of such Excess Stock resulting from the
conversion of Common Stock in any such dividend or distribution.
Before payment of any dividends or other distributions, there
may be set aside out of any assets of the Corporation available for
dividends or other distributions such sum or sums as the Board of
Directors may from to time, in its absolute discretion, think proper
as a reserve fund for contingencies, for equalizing dividends or other
distributions, for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors shall
determine to be in the best interest of the Corporation, and the Board
of Directors may modify or abolish any such reserve in the manner in
which it was created.
7.3.3 Rights Upon Liquidation. Upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
subject to the rights of holders of any shares of Preferred Stock and
Excess Stock resulting from the conversion of Preferred Stock, the net
assets of the Corporation available for distribution to the holders of
Common Stock, and, if any Excess Stock resulting from the conversion
of Common Stock is then outstanding, such Excess Stock, shall be
distributed pro rata to such holders in proportion to the number of
shares of Common Stock and such Excess Stock held by each.
7.4 Excess Stock. For the purposes of this Section 7.4, terms not
otherwise defined shall have the meanings set forth in Article IX.
7.4.1 Conversion into Excess Stock.
(a) If, notwithstanding the other provisions
contained in these Articles, prior to the Restriction
Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than a
Look-Through Entity) would Beneficially Own shares of Equity
Stock in excess of the Ownership Limit, or such that any
Person that is a Look-Through Entity would Beneficially Own
shares of Equity Stock in excess of the Look-Through Limit,
then, (i) except as otherwise provided in Section 9.4 of
Article IX, the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or,
in the case of a Non-Transfer Event, the Person holding record
title to the shares of Equity Stock Beneficially Owned by such
Beneficial Owner shall cease to own any right or interest) in
such number of shares of Equity Stock which would cause such
Beneficial Owner to Beneficially Own shares of Equity Stock in
excess of the Ownership Limit or the Look-Through Limit, as
the case may be, (ii) such number of shares of Equity Stock in
excess of the Ownership Limit or the Look-Through Limit, as
the case may be (rounded up to the nearest whole share), shall
be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust in accordance with
Section 7.4.4 of this Article VII and (iii) the Prohibited
Owner shall submit the
7
<PAGE> 9
certificates representing such number of shares of Equity
Stock to the Corporation, accompanied by all requisite and
duly executed assignments of transfer thereof, for
registration in the name of the Trustee of the Trust. If the
shares of Equity Stock that are converted into Excess Stock
are not shares of Common Stock, then the Excess Stock into
which they are converted shall be deemed to be a separate
series of Excess Stock with a designation and title
corresponding to the designation and title of the shares that
have been converted into the Excess Stock. Such conversion
into Excess Stock and transfer to a Trust shall be effective
as of the close of trading on the Trading Day prior to the
date of the purported Transfer or Non-Transfer Event, as the
case may be, even though the certificates representing the
shares of Equity Stock so converted may be submitted to the
Corporation at a later date.
(b) If, notwithstanding the other provisions
contained in these Articles, prior to the Restriction
Termination Date there is a purported Transfer or Non-Transfer
Event that, if effective, would (i) result in the Corporation
being "closely held" within the meaning of Section 856(h) of
the Code, (ii) cause the Corporation to Constructively Own 10%
or more of the ownership interest in a tenant of the
Corporation's or a Subsidiary's real property within the
meaning of Section 856(d)(2)(B) of the Code or (iii) result in
the shares of Equity Stock being beneficially owned by fewer
than 100 persons within the meaning of Section 856(a)(5) of
the Code, then (x) the purported transferee shall be deemed to
be a Prohibited Owner and shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding
record title of the shares of Equity Stock with respect to
which such Non-Transfer Event occurred shall cease to own any
right or interest) in such number of shares of Equity Stock,
the ownership of which by such purported transferee or record
holder would (A) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code, (B)
cause the Corporation to Constructively Own 10% or more of the
ownership interests in a tenant of the Corporation's or a
Subsidiary's real property within the meaning of Section
856(d)(2)(B) of the Code or (c) result in the shares of Equity
Stock being beneficially owned by fewer than 100 persons
within the meaning of Section 856(a)(5) of the Code, (y) such
number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal
number of shares of Excess Stock and transferred to a Trust in
accordance with Section 7.4.4 of this Article VII and (z) the
Prohibited Owner shall submit such number of shares of Equity
Stock to the Corporation, accompanied by all requisite and
duly executed assignments of transfer thereof, for
registration in the name of the Trustee of the Trust. If the
shares of Equity Stock that are converted into Excess Stock
are not shares of Common Stock, then the Excess Stock into
which they are converted shall be deemed to be a separate
series of Excess Stock with a designation and title
corresponding to the designation and title of the shares that
have been converted into the Excess Stock. Such conversion
into Excess Stock and transfer to a Trust shall be effective
as of the close of trading on the Trading
8
<PAGE> 10
Day prior to the date of the purported Transfer or
Non-Transfer Event, as the case may be, even though the
certificates representing the shares of Equity Stock so
converted may be submitted to the Corporation at a later date.
(c) Upon the occurrence of such a conversion of
shares of Equity Stock into an equal number of shares of
Excess Stock, such shares of Equity Stock shall be
automatically retired and canceled, without any action
required by the Board of Directors of the Corporation, and
shall thereupon be restored to the status of authorized but
unissued shares of the particular class or series of Equity
Stock from which such Excess Stock was converted and may be
reissued by the Corporation as that particular class or series
of Equity Stock.
7.4.2 Remedies for Breach. If the Corporation, or its
designees, shall at any time determine in good faith that a Transfer
has taken place in violation of Section 9.2 of Article IX or that a
Person intends to acquire or has attempted to acquire Beneficial
Ownership or Constructive Ownership of any shares of Equity Stock in
violation of Section 9.2 of Article IX, the Corporation shall take
such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or acquisition, including, but not limited to,
refusing to give effect to such Transfer on the stock transfer books
of the Corporation or instituting proceedings to enjoin such Transfer
or acquisition, but the failure to take any such action shall not
affect the automatic conversion of shares of Equity Stock into Excess
Stock and their transfer to a Trust in accordance with Section 7.4.4.
7.4.3 Notice of Restricted Transfer. Any Person who
acquires or attempts to acquire shares of Equity Stock in violation of
Section 9.2 of Article IX, or any Person who owns shares of Equity
Stock that were converted into shares of Excess Stock and transferred
to a Trust pursuant to Sections 7.4.1 and 7.4.4 of this Article VII,
shall immediately give written notice to the Corporation of such event
and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of
such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's status as a REIT.
7.4.4 Ownership in Trust. Upon any purported Transfer or
Non-Transfer Event that results in Excess Stock pursuant to Section
7.4.1 of this Article VII, (i) the Corporation shall create, or cause
to be created, a Trust, and shall designate a Trustee and name a
Beneficiary thereof and (ii) such Excess Stock shall be automatically
transferred to such Trust to be held for the exclusive benefit of the
Beneficiary. Any conversion of shares of Equity Stock into shares of
Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the purported
Transfer or Non-Transfer Event that results in the conversion. Shares
of Excess Stock so held in trust shall remain issued and outstanding
shares of Stock of the Corporation.
7.4.5 Dividend Rights. Each share of Excess Stock shall be
entitled to the
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same dividends and distributions (as to both timing and amount) as may
be authorized by the Board of Directors with respect to shares of the
same class and series as the shares of Equity Stock that were
converted into such Excess Stock. The Trustee, as record holder of
the shares of Excess Stock, shall be entitled to receive all dividends
and distributions and shall hold all such dividends or distributions
in trust for the benefit of the Beneficiary. The Prohibited Owner
with respect to such shares of Excess Stock shall repay to the Trust
the amount of any dividends or distributions received by it that are
(i) attributable to any shares of Equity Stock that have been
converted into shares of Excess Stock and (ii) dividends or
distributions which were distributed by the Corporation to
stockholders of record on a record date which was on or after the date
that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines reasonably
necessary to recover the amount of any such dividend or distribution
paid to a Prohibited Owner, including, if necessary, withholding any
portion of future dividends or distributions payable on shares of
Equity Stock Beneficially Owned by the Person who, but for the
provisions of Articles VII and IX, would Constructively Own or
Beneficially Own the shares of Equity Stock that were converted into
shares of Excess Stock; and, as soon as reasonably practicable
following the Corporation's receipt or withholding thereof, shall pay
over to the Trust for the benefit of the Beneficiary the dividends so
received or withheld, as the case may be.
7.4.6 Rights upon Liquidation. In the event of any
voluntary or involuntary liquidation of, or winding up of, or any
distribution of the assets of, the Corporation, each holder of shares
of Excess Stock shall be entitled to receive, ratably with each other
holder of shares of Equity Stock of the same class and series as the
shares which were converted into such Excess Stock and other holders
of such Excess Stock, that portion of the assets of the Corporation
that is available for distribution to the holders of shares of such
class and series of Equity Stock and such Excess Stock. The Trust
shall distribute to the Prohibited Owner the amounts received upon
such liquidation, dissolution, or winding up, or distribution;
provided, however, that the Prohibited Owner shall not be entitled to
receive amounts in excess of, in the case of a purported Transfer in
which the Prohibited Owner gave value for shares of Equity Stock and
which Transfer resulted in the conversion of the shares into shares of
Excess Stock, the product of (x) the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock and (y) the
number of shares of Equity Stock which were so converted into Excess
Stock, and, in the case of a Non-Transfer Event or purported Transfer
in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or purported Transfer, as the case may be, resulted
in the conversion of the shares into shares of Excess Stock, the
product of (x) the price per share equal to the Market Price on the
date of such Non-Transfer Event or purported Transfer and (y) the
number of shares of Equity Stock which were so converted into Excess
Stock. Any remaining amount in such Trust shall be distributed to the
Beneficiary.
7.4.7 Voting Rights. Each share of Excess Stock shall
entitle the holder to no
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voting rights other than those voting rights which must accompany a
class of Stock under Maryland law. The Trustee, as record holder of
the Excess Stock, shall be entitled to vote all shares of Excess Stock
in the event voting rights are mandated by Maryland law. Any vote by
a Prohibited Owner as a purported holder of shares of Equity Stock
prior to the discovery by the Corporation that such shares of Equity
Stock have been converted into shares of Excess Stock shall, subject
to applicable law, (i) be rescinded and shall be void ab initio with
respect to such shares of Excess Stock and (ii) be recast in
accordance with the desires of the Trustee acting for the benefit of
the Beneficiary; provided, however, that if the Corporation has
already taken irreversible corporate action, then the Trustee shall
not have the authority to rescind and recast such vote.
7.4.8 Designation of Permitted Transferee.
(a) As soon as practicable after the Trustee acquires
Excess Stock, but in an orderly fashion so as not to materially adversely
affect the trading price of Common Stock, the Trustee shall designate one or
more Persons as Permitted Transferees and sell to such Permitted Transferees
any shares of Excess Stock held by the Trustee; provided, however, that (i) any
Permitted Transferee so designated purchases for valuable consideration
(whether in a public or private sale) the shares of Excess Stock and (ii) any
Permitted Transferee so designated may acquire such shares of Excess Stock
without violating any of the restrictions set forth in Section 9.2 of Article
IX and without such acquisition resulting in the conversion of the shares of
Equity Stock so acquired into shares of Excess Stock and the transfer of such
shares to a Trust pursuant to Sections 7.4.1 and 7.4.4 of this Article VII.
The Trustee shall have the exclusive and absolute right to designate Permitted
Transferees of any and all shares of Excess Stock. Prior to any transfer by
the Trustee of shares of Excess Stock to a Permitted Transferee, the Trustee
shall give not less than five Trading Days' prior written notice to the
Corporation of such intended transfer and the Corporation must have waived in
writing its purchase rights, if any, under Section 7.4.10 of this Article VII.
(b) Subject to Section 7.4.8, upon the designation by the
Trustee of a Permitted Transferee in accordance with the provisions of this
Section 7.4.8, the Trustee shall cause to be transferred to the Permitted
Transferee shares of Excess Stock acquired by the Trustee pursuant to Section
7.4.4 of this Article VII. Upon such transfer of shares of Excess Stock to the
Permitted Transferee, such shares of Excess Stock shall be automatically
converted into an equal number of shares of Equity Stock of the same class and
series which was converted into such Excess Stock. Upon the occurrence of such
a conversion of shares of Excess Stock into an equal number of shares of Equity
Stock, such shares of Excess Stock shall be automatically retired and canceled,
without any action required by the Board of Directors of the Corporation, and
shall thereupon be restored to the status of authorized but unissued shares of
Excess Stock and may be reissued by the Corporation as Excess Stock. The
Trustee shall (i) cause to be recorded on the stock transfer books of the
Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to such shares of Excess Stock after making
payment to the Prohibited Owner pursuant to Section 7.4.9 of this Article VII.
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(c) If the Transfer of shares of Excess Stock to a
purported Permitted Transferee would or does violate any of the transfer
restrictions set forth in Section 9.2 of Article IX, such Transfer shall be
void ab initio as to that number of shares of Excess Stock that cause the
violation of any such restriction when such shares are converted into shares of
Equity Stock (as described in clause (b) above) and the purported Permitted
Transferee shall be deemed to be a Prohibited Owner and shall acquire no rights
in such shares of Excess Stock or Equity Stock. Such shares of Equity Stock
shall be automatically re-converted into Excess Stock and transferred to the
Trust from which they were originally Transferred. Such conversion and
transfer to the Trust shall be effective as of the close of trading on the
Trading Day prior to the date of the Transfer to the purported Permitted
Transferee and the provisions of this Article VII shall apply to such shares,
including, without limitation, the provisions of Sections 7.4.8 through 7.4.10
with respect to any future Transfer of such shares by the Trust.
7.4.9 Compensation to Record Holder of Shares of Equity
Stock That Are Converted into Shares of Excess Stock. Any Prohibited
Owner shall be entitled (following acquisition of the shares of Excess
Stock and subsequent designation of and sale of Excess Stock to a
Permitted Transferee in accordance with Section 7.4.8 of this Article
VII or following the purchase of such shares in accordance with
Section 7.4.10 of this Article VII) to receive from the Trustee
following the sale or other disposition of such shares of Excess Stock
the lesser of (i) (a) in the case of a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which
Transfer resulted in the conversion of such shares into shares of
Excess Stock, the product of (x) the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock and (y) the
number of shares of Equity Stock which were so converted into Excess
Stock and (b) in the case of a Non-Transfer Event or purported
Transfer in which the Prohibited Owner did not give value for such
shares (e.g., if the shares were received through a gift or devise)
and which Non-Transfer Event or purported Transfer, as the case may
be, resulted in the conversion of such shares into shares of Excess
Stock, the product of (x) the price per share equal to the Market
Price on the date of such Non-Transfer Event or purported Transfer and
(y) the number of shares of Equity Stock which were so converted into
Excess Stock or (ii) the proceeds received by the Trustee from the
sale or other disposition of such shares of Excess Stock in accordance
with Section 7.4.8 or Section 7.4.10 of this Article VII. Any amounts
received by the Trustee in respect of such shares of Excess Stock and
in excess of such amounts to be paid to the Prohibited Owner pursuant
to this Section 7.4.9 shall be distributed to the Beneficiary in
accordance with the provisions of Section 7.4.8 of this Article VII.
Each Beneficiary and Prohibited Owner shall be deemed to have waived
any and all claims that it may have against the Trustee and the Trust
arising out of the disposition of shares of Excess Stock, except for
claims arising out of the gross negligence or willful misconduct of,
or any failure to make payments in accordance with this Section 7.4 of
this Article VII, by such Trustee.
7.4.10 Purchase Right in Excess Stock. Except for shares
of Excess Stock which may result from the conversion of shares of
Series A Preferred Stock and Series
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B Preferred Stock which are outstanding as of the acceptance for
record of these Articles, which shares shall not be subject to this
Section 7.4.10, shares of Excess Stock shall be deemed to have been
offered for sale to the Corporation or its designee, at a price per
share equal to the lesser of (i) the price per share in the
transaction that created such shares of Excess Stock (or, in the case
of a Non-Transfer Event or Transfer in which the Prohibited Owner did
not give value for the shares (e.g., if the shares were received
through a gift or devise), the Market Price on the date of such
Non-Transfer Event or Transfer in which the Prohibited Owner did not
give value for the shares) or (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer for a period of 90 days
following the later of (a) the date of the Non-Transfer Event or
purported Transfer which results in such shares of Excess Stock or (b)
the date the Board of Directors first determines that a Transfer or
Non-Transfer Event resulting in shares of Excess Stock has occurred,
if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section 7.4.3 of this Article VII.
7.5 Classification of Stock. The Board of Directors may classify
or reclassify any unissued shares of Stock from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications, and terms and conditions of redemption for each class or
series, including, but not limited to, the reclassification of unissued shares
of Common Stock to shares of Preferred Stock or unissued shares of Preferred
Stock to shares of Common Stock or the issuance of any rights plan or similar
plan.
7.6 Issuance of Stock. The Board of Directors may authorize the
issuance from time to time of shares of Stock of any class or series, whether
now or hereafter authorized, or securities or rights convertible into shares of
Stock, for such consideration as the Board of Directors may deem advisable (or
without consideration in the case of a share split or dividend), subject to
such restrictions or limitations, if any, as may be set forth in these Articles
or the Bylaws of the Corporation.
7.7 Dividends or Distributions. The Directors may from time to
time authorize and declare and pay to stockholders such dividends or
distributions in cash, property or other assets of the Corporation or in
securities of the Corporation or from any other source as the Directors in
their discretion shall determine.
7.8 Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Article VII, the Board of Directors shall have
the power to determine the application of the provisions of this Article VII
with respect to any situation based on the facts known to it.
7.9 Legend. Except as otherwise determined by the Board of
Directors, each certificate for shares of Equity Stock shall bear substantially
the following legend:
"The shares of Avalon Bay Communities, Inc. (the
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"Corporation") represented by this certificate are subject to
restrictions set forth in the Corporation's charter, as the
same may be amended from time to time, which prohibit in
general (a) any Person (other than a Look-Through Entity) from
Beneficially Owning shares of Equity Stock in excess of the
Ownership Limit, (b) any Look-Through Entity from Beneficially
Owning shares of Equity Stock in excess of the Look-Through
Ownership Limit and (c) any Person from acquiring or
maintaining any ownership interest in the stock of the
Corporation that is inconsistent with (i) the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to
real estate investment trusts or (ii) the charter of the
Corporation, and the holder of this certificate by his, her or
its acceptance hereof consents to be bound by such
restrictions. Capitalized terms used in this paragraph and
not defined herein are defined in the Corporation's charter,
as the same may be amended from time to time.
The Corporation will furnish without charge, to each
stockholder who so requests, a copy of the relevant provisions
of the charter and the bylaws, each as amended, of the
Corporation, a copy of the provisions setting forth the
designations, preferences, privileges and rights of each class
of stock or series thereof that the Corporation is authorized
to issue and the qualifications, limitations and restrictions
of such preferences and/or rights. Any such request may be
addressed to the Secretary of the Corporation or to the
transfer agent named on the face hereof."
7.10 Severability. Each provision of this Article VII shall be
severable and an adverse determination as to any such provision shall in no way
affect the validity of any other provision.
7.11 Articles and Bylaws. All persons who shall acquire Stock in
the Corporation shall acquire the same subject to the provisions of these
Articles and the Bylaws.
ARTICLE VIII
LIMITATION ON PREEMPTIVE RIGHTS
No holder of any Stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have any preferential or preemptive
rights to subscribe for or purchase any Stock or any other securities of the
Corporation other than such rights, if any, as the Board of Directors, in its
sole discretion, may fix by articles supplementary, by contract or otherwise;
and any Stock or other securities which the Board of Directors may determine to
offer for subscription may, within the Board of Directors' sole discretion, be
offered to the holders of any class, series or type of Stock or other
securities at the time outstanding to the
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exclusion of holders of any or all other classes, series or types of Stock or
other securities at the time outstanding.
ARTICLE IX
LIMITATIONS ON TRANSFER AND OWNERSHIP OF EQUITY STOCK
9.1 Definitions. For purposes of this Article IX, the following
terms shall have the meanings set forth below:
"Beneficial Ownership," when used with respect to ownership of
shares of Equity Stock by any Person, shall mean all shares of Equity Stock
which are (i) directly owned by such Person, (ii) indirectly owned by such
Person (if such Person is an "individual" as defined in Section 542(a)(2) of
the Code) taking into account the constructive ownership rules of Section 544
of the Code, as modified by Section 856(h)(1)(B) of the Code, or (iii)
beneficially owned by such Person pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended; provided, however, that in determining the
number of shares Beneficially Owned by a Person or group, no share shall be
counted more than once although applicable to two or more of clauses (i), (ii)
and (iii) of this definition or (in the case of a group) although Beneficially
Owned by more than one Person in such group. (If a Person Beneficially Owns
shares of Equity Stock that are not actually outstanding (e.g., shares issuable
upon the exercise of an option or convertible security) ("Option Shares"),
then, whenever these Articles require a determination of the percentage of
outstanding shares of a class of Equity Stock Beneficially Owned by that
Person, the Option Shares Beneficially Owned by that Person shall also be
deemed to be outstanding.)
"Beneficiary" shall mean, with respect to any Trust, one or
more organizations described in each of Section 170(b)(1)(A) (other than
clauses (vii) and (viii) thereof) and Section 170(c)(2) of the Code that are
named by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section 7.4.4 of Article VII.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Constructive Ownership" shall mean ownership of shares of
Equity Stock by a Person who is or would be treated as a direct or indirect
owner of such shares of Equity Stock through the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively Owned" shall
have correlative meanings.
"Equity Stock" shall mean a particular class (other than
Excess Stock) or series of stock of the Corporation. The use of the term
"Equity Stock" or any term defined by reference to the term "Equity Stock"
shall refer to the particular class or series of stock which is appropriate
under the context.
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"Look-Through Entity" shall mean a Person that is either (i) a
trust described in Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code as modified by Section 856(h)(3) of the Code or (ii)
registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a
class or series of Equity Stock, 15% of the number of outstanding shares of
such Equity Stock.
"Market Price" of Equity Stock on any date shall mean the
average of the Closing Price for shares of such Equity Stock for the five
consecutive Trading Days ending on such date. The "Closing Price" on any date
shall mean (A) where there exists a public market for the Corporation's Equity
Stock, 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 shares of Equity Stock 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 shares of Equity Stock
are listed or admitted to trading or, if the shares of Equity Stock 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 the Nasdaq Stock Market,
Inc. or, if such system is no longer in use, the principal other automated
quotation system that may then be in use or (B) if no public market for the
Equity Stock exists, the Closing Price will be determined by a single,
independent appraiser selected by a committee composed of Independent Directors
which appraiser shall appraise the Market Price for such Equity Stock within
such guidelines as shall be determined by the committee of Independent
Directors.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause (a) any Person (other than a Look-Through
Entity) to Beneficially Own shares of Equity Stock in excess of the Ownership
Limit or (b) any Look-Through Entity to Beneficially Own shares of Equity Stock
in excess of the Look-Through Ownership Limit. Non-Transfer Events include but
are not limited to (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of shares (or of
Beneficial Ownership of shares) of Equity Stock or (ii) the sale, transfer,
assignment or other disposition of interests in any Person or of any securities
or rights convertible into or exchangeable for shares of Equity Stock or for
interests in any Person that results in changes in Beneficial Ownership of
shares of Equity Stock.
"Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 9.8% of the number of outstanding shares of such Equity
Stock.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 7.4.8 of
Article VII.
"Person" shall mean (a) an individual or any corporation,
partnership, estate,
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trust, association, private foundation, joint stock company or any other entity
and (b) a "group" as that term is used for purposes of Section 13(d)(3) of the
Exchange Act; but shall not include an underwriter that participates in a
public offering of Equity Stock for a period of 90 days following purchase by
such underwriter of such Equity Stock.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who is prevented from becoming or
remaining the owner of record title to shares of Equity Stock by the provisions
of Section 7.4.1 of Article VII.
"Restriction Termination Date" shall mean the first day on
which the Board of Directors, in accordance with Article VI hereof, determines
that it is no longer in the best interests of the Corporation to attempt to, or
continue to, qualify under the Code as a REIT.
"Trading Day" shall mean a day on which the principal national
securities exchange on which any of the shares of Equity Stock are listed or
admitted to trading is open for the transaction of business or, if none of the
shares of Equity Stock are listed or admitted to trading on any national
securities exchange, any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of shares (or of Beneficial Ownership
of shares) of Equity Stock, whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise. "Transfer" (as a verb) shall have the correlative meaning.
"Trust" shall mean any separate trust created and administered
in accordance with the terms of Section 7.4 of Article VII, for the exclusive
benefit of any Beneficiary.
"Trustee" shall mean any Person or entity, unaffiliated with
both the Corporation and any Prohibited Owner (and, if different than the
Prohibited Owner, the Person who would have had Beneficial Ownership of the
Shares that would have been owned of record by the Prohibited Owner),
designated by the Corporation to act as trustee of any Trust, or any successor
trustee thereof.
9.2 Restriction on Ownership and Transfer.
(a) (I) Except as provided in Section 9.4 of this Article
IX, until the Restriction Termination Date, (i) no Person (other than a
Look-Through Entity) shall Beneficially Own shares of Equity Stock in excess of
the Ownership Limit and (ii) no Look-Through Entity shall Beneficially Own
shares of Equity Stock in excess of the Look-Through Ownership Limit.
(II) Except as provided in Section 9.4 of this Article IX,
until the Restriction Termination Date, any purported Transfer (whether or not
the result of a transaction entered into through the facilities of the New York
Stock Exchange or any other national securities
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exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would result in any Person (other than a
Look-Through Entity) Beneficially Owning shares of Equity Stock in excess of
the Ownership Limit shall be void ab initio as to the Transfer of that number
of shares of Equity Stock which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit, and the intended transferee shall
acquire no rights in such shares of Equity Stock.
(III) Except as provided in Section 9.4 of this Article IX,
until the Restriction Termination Date, any purported Transfer (whether or not
the result of a transaction entered into through the facilities of the New York
Stock Exchange or any other national securities exchange or the Nasdaq Stock
Market, Inc. or any other automated quotation system) that, if effective, would
result in any Look-Through Entity Beneficially Owning shares of Equity Stock in
excess of the Look-Through Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would be otherwise
Beneficially Owned by such Look-Through Ownership Entity in excess of the
Look-Through Ownership Limit, and the intended transferee Look-Through Entity
shall acquire no rights in such shares of Equity Stock.
(b) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the New York Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) of shares of Equity Stock that, if effective, would result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code shall be void ab initio as to the Transfer of that number of shares of
Equity Stock that would cause the Corporation to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee shall
acquire no rights in such shares of Equity Stock.
(c) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the New York Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) of shares of Equity Stock that, if effective, would cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of the Corporation or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of the Corporation (a "Subsidiary"), within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of
that number of shares of Equity Stock that would cause the Corporation to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of the Corporation or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
(d) Until the Restriction Termination Date, any purported
Transfer (whether or not the result of a transaction entered into through the
facilities of the New York Stock Exchange or any other national securities
exchange or the Nasdaq Stock Market, Inc. or any other automated quotation
system) that, if effective, would result in shares of Equity Stock being
beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of
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the Code shall be void ab initio and the intended transferee shall acquire no
rights in such shares of Equity Stock.
9.3 Owners Required to Provide Information. Until the Restriction
Termination Date:
(a) Every Beneficial Owner of more than 5%, or such lower
percentages as are then required pursuant to regulations under the Code, of the
outstanding shares of any class or series of Equity Stock of the Corporation as
of any dividend record date on the Corporation's Equity Stock shall, within 30
days after January 1 of each year, provide to the Corporation a written
statement or affidavit stating the name and address of such Beneficial Owner,
the number of shares of Equity Stock Beneficially Owned by such Beneficial
Owner as of each such dividend record date, and a description of how such
shares are held. Each such Beneficial Owner shall provide to the Corporation
such additional information as the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership on the Corporation's
status as a REIT and to ensure compliance with the Ownership Limit.
(b) Each Person who is a Beneficial Owner of shares of
Equity Stock and each Person (including the stockholder of record) who is
holding shares of Equity Stock for a Beneficial Owner shall provide to the
Corporation a written statement or affidavit stating such information as the
Corporation may request in order to determine the Corporation's status as a
REIT and to ensure compliance with the Ownership Limit.
9.4. Exception. The Board of Directors, upon receipt of a ruling
from the Internal Revenue Service or an opinion of counsel or other evidence or
undertakings acceptable to it, may, in its sole discretion, waive the
application of the Ownership Limit or the Look-Through Ownership Limit to a
Person subject, as the case may be, to any such limit, provided that (A) the
Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain that such Person's Beneficial
Ownership or Constructive Ownership of shares of Equity Stock will now and in
the future (i) not result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code, (ii) not cause the Corporation to
Constructively Own 10% or more of the ownership interests of a tenant of the
Corporation or a Subsidiary within the meaning of Section 856(d)(2)(B) of the
Code and to violate the 95% gross income test of Section 856(c)(2) of the Code,
and (iii) not result in the shares of Equity Stock of the Corporation being
beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, and (B) such Person agrees in writing that any violation
or attempted violation of (x) such other limitation as the Board of Directors
may establish at the time of such waiver with respect to such Person or (y)
such other restrictions and conditions as the Board of Directors may in its
sole discretion impose at the time of such waiver with respect to such Person,
will result, as of the time of such violation even if discovered after such
violation, in the conversion of such shares in excess of the original limit
applicable to such Person into shares of Excess Stock pursuant to Section 7.4.1
of Article VII.
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9.5 New York Stock Exchange Transactions. Notwithstanding any
provision contained herein to the contrary, nothing in these Articles shall
preclude the settlement of any transaction entered into through the facilities
of the New York Stock Exchange or any other national securities exchange or the
Nasdaq Stock Market, Inc. or any other automated quotation system. In no event
shall the existence or application of the preceding sentence have the effect of
deterring or preventing the conversion of Equity Stock into Excess Stock as
contemplated herein.
9.6 Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Article IX, including any definition contained in
Section 9.1 of this Article IX, the Board of Directors shall have the power to
determine the application of the provisions of this Article IX with respect to
any situation based on the facts known to it.
9.7 Remedies Not Limited. Except as set forth in Section 9.5 of
this Article IX, nothing contained in this Article IX or Article VII shall
limit the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT and to
ensure compliance with the Ownership Limit or the Look-Through Ownership Limit.
ARTICLE X
RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS
In carrying on its business, or for the purpose of attaining or
furthering any of its objects, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by statute, the powers of the Corporation
and of the Directors and stockholders shall include the following:
10.1 Conflicts of Interest. Any Director or officer individually,
or any firm of which any Director or officer may be a member, or any
corporation or association of which any Director or officer may be a director
or officer or in which any Director or officer may be interested as the holder
of any amount of its Stock or otherwise, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
Corporation, and, in the absence of fraud, no contract or other transaction
shall be thereby affected or invalidated; provided, however, that (a) such fact
shall have been disclosed or shall have been known to the Board of Directors or
the committee thereof that approved such contract or transaction and such
contract or transaction shall have been approved or ratified by the affirmative
vote of a majority of the disinterested Directors, or (b) such fact shall have
been disclosed or shall have been known to the stockholders entitled to vote,
and such contract or transaction shall have been approved or ratified by a
majority of the votes cast by the stockholders entitled to vote, other than the
votes of shares owned of record or beneficially by the interested Director or
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corporation, firm or other entity, or (c) the contract or transaction is fair
and reasonable to the Corporation. Any Director of the Corporation who is also
a director or officer of or interested in such other corporation or
association, or who, or the firm of which he is a member, is so interested, may
be counted in determining the existence of a quorum at any meeting of the Board
of Directors of the Corporation which shall authorize any such contract or
transaction, with like force and effect as if he were not such director or
officer of such other corporation or association or were not so interested or
were not a member of a firm so interested.
10.2 Amendment of Articles. The Corporation reserves the right,
from time to time, to make any amendment of its Articles, now or hereafter
authorized by law, including any amendment which alters the contract rights, as
expressly set forth in its Articles, of any outstanding Stock.
No amendment or repeal of these Articles shall be made unless the same
is first approved by the Board of Directors pursuant to a resolution adopted by
the Board of Directors in accordance with the MGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders.
Whenever any vote of the holders of voting stock is required to amend
or repeal any provision of these Articles, then in addition to any other vote
of the holders of voting stock that is required by these Articles, the
affirmative vote of the holders of a majority of the outstanding shares of
Stock of the Corporation entitled to vote on such amendment or repeal, voting
together as a single class, and the affirmative vote of the holders of a
majority of the outstanding shares of each class entitled to vote thereon as a
class, shall be required to amend or repeal any provision of these Articles;
provided, however, that the affirmative vote of the holders of not less than
two-thirds of the outstanding shares entitled to vote on such amendment or
repeal, voting together as a single class, and the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of each class
entitled to vote thereon as a class, shall be required to amend or repeal any
of the provisions of Sections 6.4, 6.5 or 6.6 of Article VI, Article X or
Article XII of these Articles.
ARTICLE XI
INDEMNIFICATION
The Corporation (which for the purpose of this Article XI shall
include predecessor entities of the Corporation as set forth in Section 2-418
of the MGCL) shall have the power to the maximum extent permitted by Maryland
law in effect from time to time, to obligate itself to indemnify, and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former Director or officer of the
Corporation or (b) any individual who, while a Director of the Corporation and
at the request of the Corporation, serves or has served as a director, officer,
partner or trustee of another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his status as a
present or former
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Director or officer of the Corporation. The Corporation shall have the power,
with the approval of the Board of Directors, to provide such indemnification
and advancement of expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to any
employee or agent of the Corporation or a predecessor of the Corporation.
ARTICLE XII
LIMITATION OF LIABILITY
To the fullest extent permitted under the MGCL as in effect on the
date of filing these Articles or as the MGCL is thereafter amended from time to
time, no Director or officer shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment or the repeal of this
Article, nor the adoption of any other provision in the Corporation's Articles
inconsistent with this Article, shall eliminate or reduce the protection
afforded by this Article to a Director or officer of the Corporation with
respect to any matter which occurred, or any cause of action, suit or claim
which but for this Article would have accrued or arisen, prior to such
amendment, repeal or adoption.
ARTICLE XIII
MISCELLANEOUS
13.1 Provisions in Conflict with Law or Regulations.
(a) The provisions of these Articles are severable, and
if the Directors shall determine that any one or more of such provisions are in
conflict with the REIT provisions of the Code, or other applicable federal or
state laws, the conflicting provisions shall be deemed never to have
constituted a part of these Articles, even without any amendment of these
Articles pursuant to Section 10.2 hereof; provided, however, that such
determination by the Directors shall not affect or impair any of the remaining
provisions of these Articles or render invalid or improper any action taken or
omitted prior to such determination. No Director shall be liable for making or
failing to make such a determination.
(b) If any provision of these Articles or any application
of such provision shall be held invalid or unenforceable by any federal or
state court having jurisdiction, such holding shall not in any manner affect or
render invalid or unenforceable such provision in any other jurisdiction, and
the validity of the remaining provisions of these Articles shall not be
affected. Other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
ARTICLE XIV
DESIGNATED SERIES OF PREFERRED STOCK
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14.1 Series A Preferred Stock. The Board of Directors has duly
divided and classified 2,308,800 shares of the Preferred Stock of the
Corporation into a series designated Series A Preferred Stock and has provided
for the issuance of such series. Subject in all cases to the provisions of
Section 7.4 of Article VII and Article IX of the Articles with respect to
Excess Stock, the following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Series A Preferred
Stock of the Corporation:
14.1.1 Designation and Amount. The designation of the
Preferred Stock described in Section 14.1 hereof shall
be "Series A Preferred Stock (par value $.01 per share)"
(hereinafter "Series A Preferred Stock"). The number of
authorized shares of Series A Preferred Stock is 2,308,800.
The Series A Preferred Stock shall rank (a) senior to the
Corporation's Series E Preferred Stock (as defined in Section
14.5 hereof) and Common Stock, (b) on a pari passu basis with
the Corporation's Series B Preferred Stock (as defined in
Section 14.2 hereof), and (c) junior to the Corporation's
Series C Preferred Stock (as defined in Section 14.3 hereof),
Series D Preferred Stock (as defined in Section 14.4 hereof),
Series F Preferred Stock (as defined in Section 14.6 hereof)
and Series G Preferred Stock (as defined in Section 14.7
hereof), with respect to the payment of dividends.
14.1.2 Dividend Rights.
(a) The holders of record of outstanding shares of Series
A Preferred Stock shall be entitled to receive, when and as authorized by the
Board of Directors, out of funds legally available therefor, cash dividends
which are (i) cumulative, (ii) preferential to the dividends paid on the
Corporation's Series E Preferred Stock and Common Stock, on a pari passu basis
to the dividends paid on the Corporation's Series B Preferred Stock, and junior
to the dividends paid on the Corporation's Series C Preferred Stock, Series D
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, and
(iii) payable at an annual rate equal to the Series A Dividend Amount, and no
more, on the fifteenth day of each February, May, August and November following
the date of original issuance of the Series A Preferred Stock (the "Series A
Original Issue Date"). Each calendar quarter immediately preceding the
fifteenth day of February, May, August and November (or if the Series A
Original Issue Date is not on the first day of a calendar quarter, the period
beginning on the date of issuance and ending on the last day of the calendar
quarter of issuance) is referred to hereinafter as a "Series A Dividend
Period." The initial per share Series A Dividend Amount per annum shall be
equal to $1.6068. The amount of dividends payable for each full Series A
Dividend Period for the Series A Preferred Stock shall be computed by dividing
the Series A Dividend Amount by four. The amount of dividends on the Series A
Preferred Stock payable for the initial Series A Dividend Period, or any other
period shorter or longer than a full Series A Dividend Period, shall be
computed ratably on the basis of the actual number of days in such Series A
Dividend Period. In the event of any change in the quarterly cash dividend per
share applicable to the Common Stock, the quarterly cash dividend per share on
the Series A Preferred Stock shall be adjusted for the same dividend period by
an amount computed by multiplying the amount of the change in the Common Stock
dividend times the Series A Conversion Ratio (as defined in Section 14.1.4(a)).
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(b) In the event the Corporation shall declare a
distribution payable in (i) securities of other persons, (ii) evidences of
indebtedness issued by the Corporation or other persons, (iii) assets
(excluding cash dividends) or (iv) options or rights to purchase capital stock
or evidences of indebtedness in the Corporation or other persons, then, in each
such case for the purpose of this Section 14.1.2(b), the holders of the Series
A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock
are or would be convertible (assuming such shares of Series A Preferred Stock
were then convertible).
(c) The Corporation shall not (i) declare or pay or set
apart for payment any dividends or distributions on any Stock ranking as to
dividends junior to the Series A Preferred Stock (other than dividends paid in
shares of such junior Stock) or (ii) make any purchase or redemption of, or any
sinking fund payment for the purchase or redemption of, any Stock ranking as to
dividends junior to the Series A Preferred Stock (other than a purchase or
redemption made by issue or delivery of such junior Stock) unless all dividends
payable on all outstanding shares of Series A Preferred Stock for all past
Series A Dividend Periods shall have been paid in full or declared and a
sufficient sum set apart for payment thereof, provided, however, that any
moneys theretofore deposited in any sinking fund with respect to any Preferred
Stock of the Corporation in compliance with the provisions of such sinking fund
may thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund.
(d) All dividends declared on shares of Series A
Preferred Stock and any other class of Preferred Stock or series thereof
ranking on a parity as to dividends with the Series A Preferred Stock shall be
declared pro rata, so that the amounts of dividends declared per share on the
Series A Preferred Stock for the Series A Dividend Period of the Series A
Preferred Stock ending either on the same day or within the dividend period of
such other Stock shall, in all cases, bear to each other the same ratio that
accrued dividends per share on the shares of Series A Preferred Stock and such
other Stock bear to each other.
14.1.3 Liquidation Rights.
(a) Subject to the prior rights of the Corporation's
Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock and any class or series of Stock the terms of which
specifically provide that such Stock ranks senior to the Series A Preferred
Stock, in the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, on a pari passu basis with the holders of
the Corporation's Series B Preferred Stock and prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock by reason of their ownership of such Stock, an amount
equal to all accrued but unpaid dividends for each share of Series A Preferred
Stock then held by them. If
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upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full amounts to which they are entitled under
the preceding sentence, then, subject to any prior rights of any classes or
series of Stock, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably to the holders of the
Series A Preferred Stock and the holders of any other shares of Stock on a
parity for liquidation purposes with the Series A Preferred Stock in proportion
to the aggregate amounts owed to each such holder.
(b) Subject to any prior rights of any other class or
series of Stock, after the payment or setting apart of payment to the holders
of Series A Preferred Stock of the full preferential amounts to which they
shall be entitled pursuant to Section 14.1.3(a) above, the holders of the
Series A Preferred Stock shall be treated pari passu with the holders of the
record of Common Stock, with each holder of record of Series A Preferred Stock
being entitled to receive in addition to the amounts payable pursuant to
Section 14.1.3(a) above, that amount which such holder would be entitled to
receive if such holder had converted all its Series A Preferred Stock into
Common Stock immediately prior to the liquidating distribution in question.
14.1.4 Conversion.
(a) Right to Convert. Beginning on the third anniversary
of the Series A Original Issue Date, the holders of shares of Series A
Preferred Stock shall have the right, at their option, to convert each such
share, at any time and from time to time, into one (the "Series A Conversion
Ratio," which shall be subject to adjustment as hereinafter provided) fully
paid and nonassessable share of Common Stock; provided, however, that no holder
of Series A Preferred Stock shall be entitled to convert shares of such Series
A Preferred Stock into Common Stock pursuant to the foregoing provision, if, as
a result of such conversion, such person would become the Beneficial Owner of
more than 4.9% of the Corporation's outstanding Common Stock (the "4.9%
Limitation"). As used in Section 14.1 and 14.2 hereof, Beneficial Owner shall
have the meaning set forth in Rule 13d-3 under the Securities Exchange Act of
1934 (or any successor provision thereto). Notwithstanding the foregoing, such
conversion right may be exercised at any time after the Series A Original Issue
Date and irrespective of the 4.9% Limitation (and no such limit shall apply) if
any of the following circumstances occurs:
(i) For any two consecutive fiscal quarters, the
aggregate amount outstanding as of the end of the quarter under (1)
all mortgage indebtedness of the Corporation and its consolidated
entities and (2) unsecured indebtedness of the Corporation and its
consolidated entities exceeds sixty-five percent (65%) of the amount
arrived at by (A) taking the Corporation's consolidated gross revenues
less property-related expenses, including real estate taxes,
insurance, maintenance and utilities, but excluding depreciation,
amortization, interest and corporate general and administrative
expenses, for the quarter in question and the immediately preceding
quarter, (B) multiplying the amount in clause (A) by two (2), and (C)
dividing the resulting product in clause (B) by nine percent (9%) (all
as such items of indebtedness, revenues and expenses are reported in
consolidated financial statements contained in the Corporation's Forms
10-K and Forms 10-Q as filed with the Securities and Exchange
Commission); or
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(ii) Gilbert M. Meyer has ceased to be an executive
officer of the Corporation, unless the holders of a majority of the
shares of the Series A Preferred Stock then outstanding have voted on
and approved a replacement for Mr. Meyer and the replacement remains
an executive officer of the Corporation; or
(iii) If (A) the Corporation shall be party to, or shall
have entered into an agreement for, any transaction (including,
without limitation, a merger, consolidation, statutory share exchange
or sale of all or substantially all of its assets (each of the
foregoing a "Series A Transaction")), in each case as a result of
which shares of Common Stock shall have been or will be converted into
the right to receive stock, securities or other property (including
cash or any combination thereof) or which has resulted or will result
in the holders of Common Stock immediately prior to the Series A
Transaction owning less than 50% of the Common Stock after the Series
A Transaction, or (B) a "change of control" as defined in the next
sentence occurs with respect to the Corporation. A change of control
shall mean the acquisition (including by virtue of a merger, share
exchange or other business combination) by one stockholder or a group
of stockholders acting in concert of the power to elect a majority of
the Corporation's Board of Directors. The Corporation shall notify
the holders of Series A Preferred Stock promptly if any of the events
listed in this Section 14.1.4(a)(iii) shall occur. Calculations set
forth in Section 14.1.4(a)(i) shall be made without regard to
unconsolidated indebtedness incurred as a joint venture partner, and
the effect of any unconsolidated joint venture, including any income
from such unconsolidated joint venture, shall be excluded for purposes
of the calculation set forth in Section 14.1.4(a)(i).
(b) Mandatory Conversion. On the tenth anniversary of
the Series A Original Issue Date (the "Series A Mandatory Conversion Date"),
each issued and outstanding share of Series A Preferred Stock which has not
been converted to Common Stock shall mandatorily convert to that number of
fully paid and nonassessable shares of Common Stock equal to the Series A
Conversion Ratio, as adjusted, regardless of the 4.9% Limitation. From and
after the Series A Mandatory Conversion Date, certificates representing shares
of Series A Preferred Stock shall be deemed to represent the shares of Common
Stock into which they have been converted. Following the Series A Mandatory
Conversion Date, the holder of certificates for Series A Preferred Stock may
surrender those certificates at the office of any transfer agent for the Common
Stock, or if there is no such transfer agent, at the principal offices of the
Corporation, or at such other office as may be designated by the Corporation,
accompanied by instructions from the holder as to the name(s) and address(es)
in which such holder wishes the certificate(s) for the shares of Common Stock
issuable upon such conversion to be issued. Promptly following surrender of
certificates for Series A Preferred Stock after the Series A Mandatory
Conversion Date, the Corporation shall issue and deliver at such office a
certificate or certificates for the number of whole shares of Common Stock
issuable upon mandatory conversion of the Series A Preferred Stock to the
person(s) entitled to receive the same. For purposes of Sections 14.1.4(d) and
14.1.4(e) below, the Series A Mandatory Conversion Date shall constitute the
Series A Conversion Date.
(c) Procedure for Conversion. In order to exercise its
right to convert shares
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of Series A Preferred Stock into Common Stock, the holder of shares of Series A
Preferred Stock shall surrender the certificate(s) therefor, duly endorsed if
the Corporation shall so require, or accompanied by appropriate instruments of
transfer satisfactory to the Corporation, at the office of any transfer agent
for the Series A Preferred Stock, or if there is no such transfer agent, at the
principal offices of the Corporation, or at such other office as may be
designated by the Corporation, together with written notice that such holder
elects to convert such shares. Such notice shall also state the name(s) and
address(es) in which such holder wishes the certificate(s) for the shares of
Common Stock issuable upon conversion to be issued. As soon as practicable
after a conversion, the Corporation shall issue and deliver at said office a
certificate or certificates for the number of whole shares of Common Stock
issuable upon conversion of the shares of Series A Preferred Stock duly
surrendered for conversion, to the person(s) entitled to receive the same.
Shares of Series A Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the date on which the
certificates therefor and notice of intention to convert the same are duly
received by the Corporation in accordance with the foregoing provisions, and
the person(s) entitled to receive the Common Stock issuable upon such
conversion shall be deemed for all purposes as record holder(s) of such Common
Stock as of the close of business on such date (hereinafter, the "Series A
Conversion Date").
(d) Fractional Shares. No fractional shares shall be
issued upon conversion of the Series A Preferred Stock into Common Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. As to any final fraction of a share which the holder of
one or more shares of Series A Preferred Stock would be entitled to receive
upon exercise of his conversion right the Corporation shall pay a cash
adjustment in an amount equal to the same fraction of the last sale price (or
bid price if there were no sales) per share of Common Stock on the New York
Stock Exchange on the business day which next precedes the Series A Conversion
Date or, if such Common Stock is not then listed on the New York Stock
Exchange, of the market price per share (as determined in a manner prescribed
by the Board of Directors of the Corporation) at the close of business on the
business day which next precedes the Series A Conversion Date.
(e) Payment of Adjusted Accrued Dividends Upon
Conversion. On the next dividend payment date (or such later date as is
permitted in this Section 14.1.4(e)) following any Series A Conversion Date
hereunder, the Corporation shall pay in cash Series A Adjusted Accrued
Dividends (as defined below) on shares of Series A Preferred Stock so
converted. The holder shall be entitled to receive accrued and unpaid
dividends accrued to and including the Series A Conversion Date on the shares
of Series A Preferred Stock converted (assuming that such dividends accrue
ratably each day that such shares are outstanding), less an amount equal to the
pre-conversion portion of the dividends paid on the shares of Common Stock
issued upon such conversion (the "Series A Conversion Stock"). (The record
date for the Series A Conversion Stock which occurs after the Series A
Conversion Date is hereinafter referred to as the "Series A Subsequent Record
Date.") The pre-conversion portion of such Series A Conversion Stock dividend
means that portion of such dividend as is attributable to the period that (i)
begins on the day after the last Series A Conversion Stock dividend record date
occurring before such Series A Subsequent Record Date and (ii) ends on such
Series A Conversion Date, assuming that such dividends accrue ratably during
the period. The term "Series A Adjusted
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Accrued Dividends" means the amount arrived at through the application of the
foregoing formula. Series A Adjusted Accrued Dividends shall not be less than
zero. The formula for Series A Adjusted Accrued Dividends shall be applied to
effectuate the Corporation's intent that the holder converting shares of Series
A Preferred Stock to Series A Conversion Stock shall be entitled to receive
dividends on such shares of Series A Preferred Stock up to and including the
Series A Conversion Date and shall be entitled to the dividends on the shares
of Series A Conversion Stock issued upon such conversion which are deemed to
accrue beginning on the first day after the Series A Conversion Date, but shall
not be entitled to dividends attributable to the same period for both the
shares of Series A Preferred Stock converted and the shares of Series A
Conversion Stock issued upon such conversion. The Corporation shall be
entitled to withhold (to the extent consistent with the intent to avoid double
dividends for overlapping portions of Series A Preferred and Series A
Conversion Stock dividend periods) the payment of Series A Adjusted Accrued
Dividends until the applicable Series A Subsequent Record Date, even though
such date occurs after the applicable dividend payment date with respect to the
Series A Preferred Stock, in which event the Corporation shall mail to each
holder who converted Series A Preferred Stock a check for the Series A Adjusted
Accrued Dividends thereon within five (5) business days after such Series A
Subsequent Record Date. Series A Adjusted Accrued Dividends shall be
accompanied by an explanation of how such Series A Adjusted Accrued Dividends
have been calculated. Series A Adjusted Accrued Dividends shall not bear
interest.
(f) Adjustments.
(i) In the event the Corporation shall at any time (i)
pay a dividend or make a distribution to holders of Common Stock in
shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a larger number of shares, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares,
the Series A Conversion Ratio shall be adjusted on the effective date
of the dividend, distribution, subdivision or combination by
multiplying the Series A Conversion Ratio by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding
immediately prior to such dividend, distribution, subdivision or
combination and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such dividend,
distribution, subdivision or combination.
(ii) Whenever the Series A Conversion Ratio shall be
adjusted as herein provided, the Corporation shall cause to be mailed
by first class mail, postage prepaid, as soon as practicable to each
holder of record of shares of Series A Preferred Stock a notice
stating that the Series A Conversion Ratio has been adjusted and
setting forth the adjusted Series A Conversion Ratio, together with an
explanation of the calculation of the same.
(iii) If the Corporation shall be party to any Series A
Transaction in each case
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as a result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property (including
cash or any combination thereof), the holder of each share of Series A
Preferred Stock shall have the right in connection with such Series A
Transaction to convert such share, pursuant to the optional conversion
provisions hereof, into the number and kind of shares of stock or
other securities and the amount and kind of property receivable upon
such Series A Transaction by a holder of the number of shares of
Common Stock issuable upon conversion of such share of Series A
Preferred Stock immediately prior to such Series A Transaction. The
Corporation shall not be party to any Series A Transaction unless the
terms of such Series A Transaction are consistent with the provisions
of this Section 14.1.4(f)(iii), and it shall not consent to or agree
to the occurrence of any Series A Transaction until the Corporation
has entered into an agreement with the successor or purchasing entity,
as the case may be, for the benefit of the holders of the Series A
Preferred Stock, thereby enabling the holders of the Series A
Preferred Stock to receive the benefits of this Section 14.1.4(f)(iii)
and the other provisions of the Articles. Without limiting the
generality of the foregoing, provision shall be made for adjustments
in the Series A Conversion Ratio which shall be as nearly equivalent
as may be practicable to the adjustments provided for in Section
14.1.4(f)(iii). The provisions of this Section 14.1.4(f)(iii) shall
similarly apply to successive Series A Transactions.
(iv) In the event that the Corporation shall propose to
effect any Series A Transaction which would result in an adjustment
under Section 14.1.4(f)(iii), the Corporation shall cause to be mailed
to the holders of record of Series A Preferred Stock at least 20 days
prior to the record date for such Series A Transaction a notice
stating the date on which such Series A Transaction is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
Series A Transaction. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of such Series A
Transaction.
(g) Other.
(i) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the maximum
number of shares of Common Stock issuable upon the conversion of all
shares of Series A Preferred Stock then outstanding, and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Series
A Preferred Stock, the Corporation shall take such corporate action as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(ii) The Corporation shall pay any taxes that may be
payable in respect of the issuance of shares of Common Stock upon
conversion of shares of Series A Preferred
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Stock, but the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer of shares of Series A
Preferred Stock or any transfer involved in the issuance of shares of
Common Stock in a name other than that in which the shares of Series A
Preferred Stock so converted are registered, and the Corporation shall
not be required to transfer any such shares of Series A Preferred
Stock or to issue or deliver any such shares of Common Stock unless
and until the person(s) requesting such transfer or issuance shall
have paid to the Corporation the amount of any such taxes, or shall
have established to the satisfaction of the Corporation that such
taxes have been paid.
(iii) The Corporation will not, by amendment of the
Articles or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in carrying out of all the provisions of the Articles and
in the taking of all such action as may be necessary or appropriate to
protect the conversion rights of the holders of the Series A Preferred
Stock against impairment.
(iv) Holders of Series A Preferred Stock shall be entitled
to receive copies of all communications by the Corporation to its
holders of Common Stock, concurrently with the distribution to such
shareholders.
14.1.5 Voting Rights. Except as indicated in this
Section 14.1.5, or except as otherwise from time to time
required by applicable law, the holders of shares of Series A
Preferred Stock shall not be entitled to vote on any matter on
which the holders of shares of Common Stock are entitled to
vote, except that the holders of a majority of the outstanding
shares of Series A Preferred Stock, voting as a separate
class, shall be required to vote on and approve any material
adverse change in the rights, preferences or privileges of the
Series A Preferred Stock. For purposes of the foregoing, the
creation of a new class of Stock having rights, preferences or
privileges senior to, in parity with or junior to the rights,
preferences or privileges of the Series A Preferred Stock
shall not be treated as a material adverse change in the
rights, preferences or privileges of the Series A Preferred
Stock, and the holders of Series A Preferred Stock shall not
have any right to vote on the creation of such new class of
Stock. Except as provided above and as required by law, the
holders of Series A Preferred Stock are not entitled to vote
on any merger or consolidation involving the Corporation, on
any share exchange or on a sale of all or substantially all of
the assets of the Corporation.
14.1.6 Reacquired Shares. Shares of Series A Preferred
Stock converted, redeemed or otherwise purchased or acquired
by the Corporation shall be restored to the status of authorized but
unissued shares of Preferred Stock without designation as to series.
14.2 Series B Preferred Stock. The Board of Directors has duly
divided and classified 425,000 shares of the Preferred Stock of the Corporation
into a series designated Series B Preferred Stock and has provided for the
issuance of such series. Subject in all cases to the
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provisions of Section 7.4 of Article VII and Article IX of the Articles with
respect to Excess Stock, the following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the Series
B Preferred Stock of the Corporation:
14.2.1 Designation and Amount. The designation of the
Preferred Stock described in Section 14.2 hereof shall be
"Series B Preferred Stock (par value $.01 per share)" (hereinafter,
the "Series B Preferred Stock"). The number of shares of the Series B
Preferred Stock is 425,000. The Series B Preferred Stock shall rank
(a) senior to the Corporation's Series E Preferred Stock and Common
Stock, (b) on a pari passu basis with the Corporation's Series A
Preferred Stock, and (c) junior to the Corporation's Series C
Preferred Stock, Series D Preferred Stock, Series F Preferred Stock
and Series G Preferred Stock, with respect to the payment of
dividends. The Series B Preferred Stock shall have identical
preferences, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption, conversion and
other rights as the Series A Preferred Stock.
14.2.2 Dividend Rights.
(a) The holders of record of outstanding shares of Series
B Preferred Stock shall be entitled to receive, when, as and if authorized by
the Board of Directors, out of funds legally available therefor, cash dividends
which are (1) cumulative (2) preferential to the dividends paid on the
Corporation's Series E Preferred Stock and Common Stock, on a pari passu basis
with the dividends paid on the Corporation's Series A Preferred Stock, and
junior to the dividends paid on the Corporation's Series C Preferred Stock,
Series D Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, and (3) payable at an annual rate equal to the Series B Dividend Amount
(as defined below) and no more, on the fifteenth day of each February, May,
August and November following the date of original issuance of the Series B
Preferred Stock (the "Series B Original Issue Date"). Each calendar quarter
immediately preceding the fifteenth day of February, May, August and November
(or if the Series B Original Issue Date is not on the first day of a calendar
quarter, the period beginning on the date of issuance and ending on the last
day of the calendar quarter of issuance) is referred to hereinafter as a
"Series B Dividend Period." The initial per share Series B Dividend Amount per
annum shall be equal to $1.648. The amount of dividends payable for each full
Series B Dividend Period for each share of the Series B Preferred Stock shall
be computed by dividing the per share Series B Dividend Amount by four. The
amount of dividends on the Series B Preferred Stock payable for the initial
Series B Dividend Period, or any other period shorter or longer than a full
Series B Dividend Period, shall be computed ratably on the basis of the actual
number of days in such Series B Dividend Period. In the event of any change in
the quarterly cash dividend per share declared on the Common Stock, the
quarterly cash dividend per share on the Series B Preferred Stock shall be
adjusted for the same Series B Dividend Period by an amount computed by
multiplying the amount of the change in the Common Stock dividend times the
Series B Conversion Ratio (as defined in Section 14.2.4(a)).
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(b) In the event the Corporation shall declare a
distribution payable in (i) securities of other persons, (ii) evidences of
indebtedness issued by the Corporation or other persons, (iii) assets
(excluding cash dividends) or (iv) options or rights to purchase capital stock
or evidences of indebtedness in the Corporation or other persons, then, in each
such case for the purpose of this Section 14.2.2(b), the holders of the Series
B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series B Preferred Stock
are or would be convertible (assuming such shares of Series B Preferred Stock
were then convertible).
(c) The Corporation shall not (i) declare or pay or set
apart for payment any dividends or distributions on any Stock ranking as to
dividends junior to the Series B Preferred Stock (other than dividends paid in
shares of such junior Stock) or (ii) make any purchase or redemption of, or any
sinking fund payment for the purchase or redemption of, any Stock ranking as to
dividends junior to the Series B Preferred Stock (other than a purchase or
redemption made by issue or delivery of such junior Stock) unless all dividends
payable on all outstanding shares of Series B Preferred Stock for all past
Series B Dividend Periods shall have been paid in full or declared and a
sufficient sum set apart for payment thereof, provided, however, that any
moneys theretofore deposited in any sinking fund with respect to any Preferred
Stock of the Corporation in compliance with the provisions of such sinking fund
may thereafter be applied to the purchase or redemption of such Preferred Stock
in accordance with the terms of such sinking fund.
(d) All dividends declared on shares of Series B
Preferred Stock and any other class of Preferred Stock or series thereof
ranking on a parity as to dividends with the Series B Preferred Stock and the
Series A Preferred Stock shall be declared pro rata, so that the amounts of
dividends declared per share on the Series B Preferred Stock and Series A
Preferred Stock for the Series B Dividend Period of the Series B Preferred
Stock and Series A Preferred Stock ending either on the same day or within the
dividend period of such other Stock, shall, in all cases, bear to each other
the same ratio that accrued dividends per share on the shares of Series B
Preferred Stock, Series A Preferred Stock and such other Stock bear to each
other.
14.2.3 Liquidation Rights.
(a) Subject to any prior rights of any class or series of
Stock, in the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to receive, on a pari passu basis with the holders of
the Corporation's Series A Preferred Stock and prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock by reason of their ownership of such Stock, an amount
equal to all accrued but unpaid dividends for each share of Series B Preferred
Stock then held by them. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series B Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
amounts to which they are entitled, then, subject to any prior rights of any
classes or series of Stock, the
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entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably to the holders of the Series A Preferred Stock and
Series B Preferred Stock, and any other shares of Stock on a parity for
liquidation purposes in proportion to the aggregate amounts owed to each such
holder.
(b) Subject to any prior rights of any other class or
series of Stock, after the payment or setting apart of payment to the holders
of Series B Preferred Stock of the full preferential amounts to which they
shall be entitled pursuant to Section 14.2.3(a) above, the holders of record of
the Series B Preferred Stock shall be treated pari passu with the holders of
record of Series A Preferred Stock and Common Stock, with each holder of record
of Series B Preferred Stock being entitled to receive, in addition to the
amounts payable pursuant to Section 14.2.3(a) above, that amount which such
holder would be entitled to receive if such holder had converted all its Series
B Preferred Stock into Common Stock immediately prior to the liquidating
distribution in question.
14.2.4 Conversion.
(a) Right to Convert. Beginning on October 2, 1998, the
holders of shares of Series B Preferred Stock shall have the right, at their
option, to convert each such share, at any time and from time to time, into one
(the "Series B Conversion Ratio," which shall be subject to adjustment as
hereinafter provided) fully paid and nonassessable share of Common Stock;
provided, however, that no holder of Series B Preferred Stock shall be entitled
to convert shares of such Series B Preferred Stock into Common Stock pursuant
to the foregoing provision, if, immediately after such conversion, such person
would be the Beneficial Owner of the Corporation's outstanding Common Stock in
an amount exceeding the 4.9% Limitation. Notwithstanding the foregoing, such
conversion right may be exercised at any time after the Series B Original Issue
Date and irrespective of the 4.9% Limitation (and no such limit shall apply) if
any of the following circumstances occurs:
(i) For any two consecutive fiscal quarters, the
aggregate amount outstanding as of the end of the quarter under (1)
all mortgage indebtedness of the Corporation and its consolidated
entities and (2) unsecured indebtedness of the Corporation and its
consolidated entities exceeds sixty-five percent (65%) of the amount
arrived at by (A) taking the Corporation's consolidated gross revenues
less property-related expenses, including real estate taxes,
insurance, maintenance and utilities, but excluding depreciation,
amortization, interest and corporate general and administrative
expenses, for the quarter in question and the immediately preceding
quarter, (B) multiplying the amount in clause (A) by two (2), and (C)
dividing the resulting product in clause B by nine percent (9%) (all
as such items of indebtedness, revenues and expenses are reported in
consolidated financial statements contained in the Corporation's Forms
10-K and Forms 10-Q as filed with the Securities and Exchange
Commission); or
(ii) Gilbert M. Meyer has ceased to be an executive
officer of the Corporation, unless the holders of a majority of the
shares of the Series B Preferred Stock then outstanding have voted on
and approved a replacement for Mr. Meyer and the
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replacement remains an executive officer of the Corporation; or
(iii) If (A) the Corporation shall be party to, or shall
have entered into an agreement for, any transaction (including,
without limitation, a merger, consolidation, statutory share exchange
or sale of all or substantially all of its assets (each of the
foregoing a "Series B Transaction")), in each case as a result of
which shares of Common Stock shall have been or will be converted into
the right to receive stock, securities or other property (including
cash or any combination thereof) or which has resulted or will result
in the holders of Common Stock immediately prior to the Series B
Transaction owning less than 50% of the Common Stock after the Series
B Transaction, or (B) a "change of control" as defined in the next
sentence occurs with respect to the Corporation. A change of control
shall mean the acquisition (including by virtue of a merger, share
exchange or other business combination) by one stockholder or a group
of stockholders acting in concert of the power to elect a majority of
the Corporation's Board of Directors. The Corporation shall notify
the holders of Series B Preferred Stock promptly if any of the events
listed in this Section 14.2.4(a)(iii) shall occur.
Calculations set forth in Section 14.2.4(a)(i) shall be made without
regard to unconsolidated indebtedness incurred as a joint venture partner, and
the effect of any unconsolidated joint venture, including any income from such
unconsolidated joint venture, shall be excluded for purposes of the calculation
set forth in Section 14.2.4(a)(i).
(b) Mandatory Conversion. On October 2, 2005 (the
"Series B Mandatory Conversion Date"), each issued and outstanding share of
Series B Preferred Stock which has not been converted to Common Stock shall
mandatorily convert to that number of fully paid and nonassessable shares of
Common Stock equal to the Series B Conversion Ratio, as adjusted, regardless of
the 4.9% Limitation. From and after the Series B Mandatory Conversion Date,
certificates representing shares of Series B Preferred Stock shall be deemed to
represent the shares of Common Stock into which they have been converted.
Following the Series B Mandatory Conversion Date, the holder of certificates
for Series B Preferred Stock may surrender those certificates at the office of
any transfer agent for the Common Stock, or if there is no such transfer agent,
at the principal offices of the Corporation, or at such other office as may be
designated by the Corporation, accompanied by instructions from the holder as
to the name(s) and address(es) in which such holder wishes the certificate(s)
for the shares of Common Stock issuable upon such conversion to be issued.
Promptly following surrender of certificates for Series B Preferred Stock after
the Series B Mandatory Conversion Date, the Corporation shall issue and deliver
at such office a certificate or certificates for the number of whole shares of
Common Stock issuable upon mandatory conversion of the Series B Preferred Stock
to the person(s) entitled to receive the same. For purposes of Sections
14.2.4(d) and 14.2.4(e) below, the Series B Mandatory Conversion Date shall
constitute the Series B Conversion Date.
(c) Procedure for Conversion. In order to exercise its
right to convert shares of Series B Preferred Stock into Common Stock, the
holder of shares of Series B Preferred Stock shall surrender the certificate(s)
therefor, duly endorsed if the Corporation shall so require, or accompanied by
appropriate instruments of transfer satisfactory to the Corporation, at the
office
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of any transfer agent for the Series B Preferred Stock or if there is no such
transfer agent, at the principal offices of the Corporation, or at such other
office as may be designated by the Corporation, together with written notice
that such holder elects to convert such shares. Such notice shall also state
the name(s) and address(es) in which such holder wishes the certificate(s) for
the shares of Common Stock issuable upon conversion to be issued. As soon as
practicable after a conversion, the Corporation shall issue and deliver at said
office a certificate or certificates for the number of whole shares of Common
Stock issuable upon conversion of the shares of Series B Preferred Stock duly
surrendered for conversion, to the person(s) entitled to receive the same.
Shares of Series B Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the date on which the
certificates therefor and notice of intention to convert the same are duly
received by the Corporation in accordance with the foregoing provisions, and
the person(s) entitled to receive the Common Stock issuable upon such
conversion shall be deemed for all purposes as record holder(s) of such Common
Stock as of the close of business on such date (hereinafter, the "Series B
Conversion Date").
(d) No Fractional Shares. No fractional shares shall be
issued upon conversion of the Series B Preferred Stock into Common Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. As to any final fraction of a share which the holder of
one or more shares of Series B Preferred Stock would be entitled to receive
upon exercise of his conversion right, the Corporation shall pay a cash
adjustment in an amount equal to the same fraction of the last sale price (or
bid price if there were no sales) per share of Common Stock on the New York
Stock Exchange on the business day which next precedes the Series B Conversion
Date or, if such Common Stock is not then listed on the New York Stock
Exchange, of the market price per share (as determined in a manner prescribed
by the Board of Directors of the Corporation) at the close of business on the
business day which next precedes the Series B Conversion Date.
(e) Payment of Adjusted Accrued Dividends Upon
Conversion. On the next dividend payment date (or such later date as is
permitted in this Section 14.2.4(e)) following any Series B Conversion Date
hereunder, the Corporation shall pay in cash Series B Adjusted Accrued
Dividends (as defined below) on shares of Series B Preferred Stock so
converted. The holder shall be entitled to receive accrued and unpaid
dividends, if any, accrued to and including the Series B Conversion Date on the
shares of Series B Preferred Stock converted (assuming that such dividends
accrue ratably each day that such shares are outstanding based on the Series B
Dividend Amount for such quarter), less an amount equal to the pre-conversion
portion of the dividends paid on the shares of Common Stock issued upon such
conversion (the "Series B Conversion Stock"). (The record date for the Series
B Conversion Stock which occurs after the Series B Conversion Date is
hereinafter referred to as the "Series B Subsequent Record Date.") The
pre-conversion portion of such Series B Conversion Stock dividend means that
portion of such dividend as is attributable to the period that (i) begins on
the day after the last Series B Conversion Stock dividend record date occurring
before such Subsequent Record Date and (ii) ends on such Series B Conversion
Date, assuming that such dividends accrue ratably during the period. The term
"Series B Adjusted Accrued Dividends" means the amount arrived at through the
application of the foregoing formula. Series B Adjusted Accrued Dividends
shall not be less than zero. The formula for Series B Adjusted Accrued
Dividends shall be applied to effectuate
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the Corporation's intent that the holder converting shares of Series B
Preferred Stock to Series B Conversion Stock shall be entitled to receive
dividends on such shares of Series B Preferred Stock up to and including the
Series B Conversion Date and shall be entitled to the dividends on the shares
of Series B Conversion Stock issued upon such conversion which are deemed to
accrue beginning on the first day after the Series B Conversion Date, but shall
not be entitled to dividends attributable to the same period for both the
shares of Series B Preferred Stock converted and the shares of Series B
Conversion Stock issued upon such conversion. The Corporation shall be
entitled to withhold (to the extent consistent with the intent to avoid double
dividends for overlapping portions of Series B Preferred Stock and the Series B
Conversion Stock dividend periods) the payment of Series B Adjusted Accrued
Dividends until the applicable Subsequent Record Date, even though such date
occurs after the applicable dividend payment date with respect to the Series B
Preferred Stock, in which event the Corporation shall mail to each holder who
converted Series B Preferred Stock a check for the Series B Adjusted Accrued
Dividends thereon within five (5) business days after such Series B Subsequent
Record Date. Series B Adjusted Accrued Dividends shall be accompanied by an
explanation of how such Series B Adjusted Accrued Dividends have been
calculated. Series B Adjusted Accrued Dividends shall not bear interest.
(f) Adjustments.
(i) In the event the Corporation shall at any time (i)
pay a dividend or make a distribution to holders of Common Stock in
shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a larger number of shares, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares,
the Series B Conversion Ratio shall be adjusted on the effective date
of the dividend, distribution, subdivision or combination by
multiplying the Series B Conversion Ratio by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding
immediately after such dividend, distribution, subdivision or
combination and the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such dividend,
distribution, subdivision or combination.
(ii) Whenever the Series B Conversion Ratio shall be
adjusted as herein provided, the Corporation shall cause to be mailed
by first class mail, postage prepaid, as soon as practicable to each
holder of record of shares of Series B Preferred Stock a notice
stating that the Series B Conversion Ratio has been adjusted and
setting forth the adjusted Series B Conversion Ratio, together with an
explanation of the calculation of the same.
(iii) If the Corporation shall be party to any Series B
Transaction in each case as a result of which shares of Common Stock
shall be converted into the right to receive stock, securities or
other property (including cash or any combination thereof), the holder
of each share of Series B Preferred Stock shall have the right in
connection with such Series B Transaction to convert such share,
pursuant to the optional conversion provisions hereof, into the number
and kind of shares of stock or other securities and the amount and
kind of property receivable upon such Series B Transaction by a holder
of the number of shares of Common Stock issuable upon conversion of
such share of Series B
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Preferred Stock immediately prior to such Series B Transaction. The
Corporation shall not be party to any Series B Transaction unless the
terms of such Series B Transaction are consistent with the provisions
of this Section 14.2.4(f)(iii), and it shall not consent to or agree
to the occurrence of any Series B Transaction until the Corporation
has entered into an agreement with the successor or purchasing entity,
as the case may be, for the benefit of the holders of the Series B
Preferred Stock, thereby enabling the holders of the Series B
Preferred Stock to receive the benefits of this Section 14.2.4(f)(iii)
and the other provisions of the Articles. Without limiting the
generality of the foregoing, provision shall be made for adjustments
in the Conversion Ratio which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 14.2.4(f)(i).
The provisions of this Section 14.2.4(f)(iii) shall similarly apply to
successive Series B Transactions.
(iv) In the event that the Corporation shall propose to
effect any Series B Transaction which would result in an adjustment
under Section 14.2.4(f)(iii), the Corporation shall cause to be mailed
to the holders of record of Series B Preferred Stock at least 20 days
prior to the record date for such Series B Transaction a notice
stating the date on which such Series B Transaction is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
Series B Transaction. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of such Series B
Transaction.
(g) Other.
(i) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the maximum
number of shares of Common Stock issuable upon the conversion of all
shares of Series B Preferred Stock then outstanding, and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, in addition to
such other remedies as shall be available to the holders of such
Series B Preferred Stock, the Corporation shall take such corporate
action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(ii) The Corporation shall pay any taxes that may be
payable in respect of the issuance of shares of Common Stock upon
conversion of shares of Series B Preferred Stock, but the Corporation
shall not be required to pay any taxes which may be payable in respect
of any transfer of shares of Series B Preferred Stock or any transfer
involved in the issuance of shares of Common Stock in a name other
than that in which the shares of Series B Preferred Stock so converted
are registered, and the Corporation shall not be required to transfer
any such shares of Series B Preferred Stock or to issue or deliver any
such shares of Common Stock unless and until the person(s) requesting
such transfer or issuance shall have paid to the Corporation the
amount of any such taxes, or shall have
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established to the satisfaction of the Corporation that such taxes
have been paid.
(iii) The Corporation will not, by amendment of the
Articles or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in carrying out of all the provisions of the Articles and
in the taking of all such action as may be necessary or appropriate to
protect the conversion rights of the holders of the Series B Preferred
Stock against impairment.
(iv) Holders of Series B Preferred Stock shall be entitled
to receive copies of all communications by the Corporation to its
holders of Common Stock, concurrently with the distribution to such
shareholders.
14.2.5 Voting Rights.
(a) Except as indicated in this Section 14.2.5, or except
as otherwise from time to time required by applicable law, the holders of
shares of Series B Preferred Stock will have no voting rights.
(b) If six quarterly dividends (whether or not
consecutive) payable on shares of Series B Preferred Stock or on any series of
Preferred Stock which ranks pari passu with the Series B Preferred Stock as to
dividends (the "Series B Parity Stock") are in arrears, the number of Directors
then constituting the Board of Directors of the Corporation will be increased
by two, and the holders of the shares of Series B Preferred Stock, voting
together as a class with the holders of shares of any other series of Series B
Parity Stock entitled to such voting rights (any such other series, the "Series
B Voting Preferred Stock"), will have the right to elect two additional
Directors to serve on the Corporation's Board of Directors at any annual
meeting of stockholders or a properly called special meeting of the holders of
Series B Preferred Stock and such other Series B Voting Preferred Stock until
all such dividends have been declared and paid or set aside for payment. The
term of office of all Directors so elected will terminate with the termination
of such voting rights.
(c) The approval of holders of two-thirds of the
outstanding Series B Preferred Stock and all other series of Series B Voting
Preferred Stock similarly affected, voting as a single class, is required in
order to amend the Articles to affect materially and adversely the rights,
preferences or voting power of the holder of shares of Series B Preferred Stock
or the Series B Voting Preferred Stock. For purposes of the foregoing, the
creation of a new class of Stock having rights, preferences or privileges
senior to, on a parity with or junior to the rights, preferences or privileges
of the Series B Preferred Stock shall not be treated as a material adverse
change in the rights, preferences or privileges of the Series B Preferred
Stock, and the holders of Series B Preferred Stock shall not have any right to
vote on the creation of such new class of Stock.
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(d) Except as provided above and as required by law, the holders
of Series B Preferred Stock are not entitled to vote on any merger or
consolidation involving the Corporation, on any share exchange or on a
sale of all or substantially all of the assets of the Corporation.
14.2.6 Reacquired Shares. Shares of Series B Preferred
Stock converted, redeemed or otherwise purchased or acquired
by the Corporation shall be restored to the status of authorized but
unissued shares of Preferred Stock without designation as to series.
14.3 8.50% Series C Cumulative Redeemable Preferred Stock. The
Board of Directors has, by resolution, duly divided and classified 2,300,000
shares of the Preferred Stock of the Corporation into a series designated 8.50%
Series C Cumulative Redeemable Preferred Stock and has provided for the
issuance of such series. Subject in all cases to the provisions of the
Articles, including without limitation, Section 7.4 of Article VII and Article
IX with respect to limitations on the transfer and ownership of Stock, the
following is a description of the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the 8.50% Series C Cumulative Redeemable
Preferred Stock of the Corporation:
14.3.1 Designation and Number. A series of Preferred
Stock, designated the "8.50% Series C Cumulative Redeemable
Preferred Stock" (the "Series C Preferred Stock"), has been
established. The number of authorized shares of the Series C
Preferred Stock is 2,300,000.
14.3.2 Rank. The Series C Preferred Stock shall, with
respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Corporation, rank (a) senior to the
Corporation's Series A Preferred Stock, Series B Preferred Stock,
Series E Preferred Stock and all classes or series of Common Stock of
the Corporation, and to all equity securities issued by the
Corporation ranking junior to such Series C Preferred Stock; (b) on a
parity with the Corporation's Series D Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock and all other equity
securities issued by the Corporation the terms of which specifically
provide that such equity securities rank on a parity with the Series C
Preferred Stock; and (c) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity
securities rank senior to the Series C Preferred Stock. The term
"equity securities" shall not include convertible debt securities.
14.3.3 Dividends.
(a) Holders of the then outstanding shares of Series C
Preferred Stock shall be entitled to receive, when and as authorized by the
Board of Directors, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends at the rate of
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8.50% of the $25.00 liquidation preference per annum (equivalent to a fixed
annual amount of $2.125 per share). Such dividends shall be cumulative from
the first date on which any Series C Preferred Stock is issued and shall be
payable quarterly in arrears on or before March 15, June 15, September 15 and
December 15 of each year or, if not a business day, the next succeeding
business day (each, a "Series C Dividend Payment Date"). The first dividend,
which will be paid on September 15, 1997, will be for less than a full quarter.
Such dividend and any dividend payable on the Series C Preferred Stock for any
partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as they appear in the stock records of the Corporation at the close of
business on the applicable record date, which shall be the first day of the
calendar month in which the applicable Series C Dividend Payment Date falls or
on such other date designated by the Board of Directors of the Corporation as
the record date for the payment of dividends on the Series C Preferred Stock
that is not more than 30 nor less than 10 days prior to such Series C Dividend
Payment Date (each, a "Series C Dividend Record Date").
(b) No dividends on shares of Series C Preferred Stock
shall be authorized by the Board of Directors of the Corporation or paid or set
apart for payment by the Corporation at such time as the terms and provisions
of any agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
authorization or payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the
Series C Preferred Stock shall accrue whether or not the terms and provisions
set forth in Section 14.3.3(b) hereof at any time prohibit the current payment
of dividends, whether or not the Corporation has earnings, whether or not there
are funds legally available for the payment of such dividends and whether or
not such dividends are declared. Accrued but unpaid dividends on the Series C
Preferred Stock will accumulate as of the Series C Dividend Payment Date on
which they first become payable.
(d) Except as provided in Section 14.3.3(e) below, no
dividends will be declared or paid or set apart for payment on any Stock of the
Corporation or any other series of Preferred Stock ranking, as to dividends, on
a parity with or junior to the Series C Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of Stock
ranking junior to the Series C Preferred Stock as to dividends and upon
liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series C Preferred
Stock for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (and a sum
sufficient for such full payment is not so set apart) upon the Series C
Preferred Stock and the shares of any other series of Preferred Stock ranking
on a parity as to dividends with the Series C Preferred Stock, all dividends
declared upon the Series C Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series C Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share
of Series C Preferred Stock and such other series
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of Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Series C Preferred Stock and such other
series of Preferred Stock (which shall not include any accrual in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend) bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Series C Preferred Stock which may be in arrears.
(f) Except as provided in the immediately preceding
paragraph, unless full cumulative dividends on the Series C Preferred Stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in shares of Common Stock or other shares of Stock ranking junior to the Series
C Preferred Stock as to dividends and upon liquidation) shall be declared or
paid or set aside for payment, nor shall any other distribution be declared or
made, upon the Common Stock or any other Stock of the Corporation ranking
junior to or on a parity with the Series C Preferred Stock as to dividends or
upon liquidation, nor shall any shares of Common Stock, or any other shares of
Stock of the Corporation ranking junior to or on a parity with the Series C
Preferred Stock as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation (except by conversion into or exchange for other Stock of the
Corporation ranking junior to the Series C Preferred Stock as to dividends and
upon liquidation).
(g) Any dividend payment made on shares of the Series C
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable. Holders of the
Series C Preferred Stock shall not be entitled to any dividend, whether payable
in cash, property or stock in excess of full cumulative dividends on the Series
C Preferred Stock as described above.
14.3.4 Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series C Preferred Stock then outstanding are entitled to be paid out
of the assets of the Corporation legally available for distribution to its
stockholders a liquidation preference of $25.00 per share, plus an amount equal
to any accrued and unpaid dividends to the date of payment, before any
distribution of assets is made to holders of Common Stock or any other class or
series of Stock of the Corporation that ranks junior to the Series C Preferred
Stock as to liquidation rights.
(b) In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Corporation are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of Series C Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of Stock of the
Corporation ranking on a parity with the Series C Preferred Stock in the
distribution of assets, then the holders of the Series C Preferred Stock and
all other such classes or series of Stock shall
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share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
(c) After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series C Preferred
Stock will have no right or claim to any of the remaining assets of the
Corporation.
(d) Written notice of any such liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage pre-paid, not
less than 30 nor more than 60 days prior to the payment date stated therein, to
each record holder of the Series C Preferred Stock at the respective addresses
of such holders as the same shall appear on the stock transfer records of the
Corporation.
(e) The consolidation or merger of the Corporation with
or into any other corporation, trust or entity or of any other corporation with
or into the Corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
14.3.5 Redemption.
(a) Right of Optional Redemption. The Series C Preferred
Stock is not redeemable prior to June 20, 2002. However, in order to ensure
that the Corporation remains qualified as a REIT for federal income tax
purposes, shares of Series C Preferred Stock which have been converted into
Excess Stock shall be subject to repurchase by the Corporation in accordance
with Section 7.4.10 of Article VII. On and after June 20, 2002, the
Corporation, at its option and upon not less than 30 nor more than 60 days'
written notice, may redeem shares of the Series C Preferred Stock, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends thereon to the date
fixed for redemption (except as provided in Section 14.3.5(c) below), without
interest. If less than all of the outstanding Series C Preferred Stock is to be
redeemed, the Series C Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by
any other equitable method determined by the Corporation.
(b) Limitations on Redemption.
(i) The redemption price of the Series C Preferred Stock
(other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale proceeds of other capital
stock of the Corporation, which may include other series of Preferred
Stock, and from no other source. For purposes of the preceding
sentence, "capital stock" means any equity securities (including
Common Stock and Preferred Stock), shares, interest, participation or
other ownership interests (however designated) and any rights (other
than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
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(ii) Unless full cumulative dividends on all shares of
Series C Preferred Stock shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past dividend periods and the
then current dividend period, no shares of Series C Preferred Stock
shall be redeemed unless all outstanding shares of Series C Preferred
Stock are simultaneously redeemed, and the Corporation shall not
purchase or otherwise acquire directly or indirectly any shares of
Series C Preferred Stock (except by exchange for Stock of the
Corporation ranking junior to the Series C Preferred Stock as to
dividends and upon liquidation); provided, however, that the foregoing
shall not prevent the purchase by the Corporation of shares of Excess
Stock in order to ensure that the Corporation remains qualified as a
REIT for federal income tax purposes or the purchase or acquisition of
shares of Series C Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of
Series C Preferred Stock.
(c) Immediately prior to any redemption of Series C
Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid
dividends through the redemption date, unless a redemption date falls after a
Series C Dividend Record Date and prior to the corresponding Series C Dividend
Payment Date, in which case each holder of Series C Preferred Stock at the
close of business on such Series C Dividend Record Date shall be entitled to
the dividend payable on such shares on the corresponding Series C Dividend
Payment Date notwithstanding the redemption of such shares before such Series C
Dividend Payment Date. Except as provided above, the Corporation will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
C Preferred Stock which is redeemed.
(d) Procedures for Redemption.
(i) Notice of redemption will be (A) given by publication
in a newspaper of general circulation in the City of New York, such
publication to be made once a week for two successive weeks commencing
not less than 30 nor more than 60 days prior to the redemption date,
and (B) mailed by the Corporation, postage prepaid, not less than 30
nor more than 60 days prior to the redemption date, addressed to the
respective holders of record of the Series C Preferred Stock to be
redeemed at their respective addresses as they appear on the stock
transfer records of the Corporation. No failure to give such notice
or any defect thereto or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Series
C Preferred Stock except as to the holder to whom notice was defective
or not given.
(ii) In addition to any information required by law or by
the applicable rules of any exchange upon which Series C Preferred
Stock may be listed or admitted to trading, such notice shall state:
(A) the redemption date; (B) the redemption price; (C) the number of
shares of Series C Preferred Stock to be redeemed; (D) the place or
places where the Series C Preferred Stock is to be surrendered for
payment of the redemption price; and (E) that dividends on the shares
to be redeemed will cease to accrue on such redemption date. If less
than all of the Series C Preferred Stock held by any holder is to be
redeemed, the notice mailed to such holder shall also specify the
number of shares of
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Series C Preferred Stock held by such holder to be redeemed.
(iii) If notice of redemption of any shares of Series C
Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Corporation in trust for the
benefit of the holders of any shares of Series C Preferred Stock so
called for redemption, then from and after the redemption date
dividends will cease to accrue on such shares of Series C Preferred
Stock, such shares of Series C Preferred Stock shall no longer be
deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. Holders
of Series C Preferred Stock to be redeemed shall surrender such Series
C Preferred Stock at the place designated in such notice and, upon
surrender in accordance with said notice of the certificates for
shares of Series C Preferred Stock so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and the
notice shall so state), such shares of Series C Preferred Stock shall
be redeemed by the Corporation at the redemption price plus any
accrued and unpaid dividends payable upon such redemption. In case
less than all the shares of Series C Preferred Stock represented by
any such certificate are redeemed, a new certificate or certificates
shall be issued representing the unredeemed shares of Series C
Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust corporation
for the purpose of redeeming Series C Preferred Stock shall be
irrevocable except that:
(A) the Corporation shall be entitled to receive
from such bank or trust corporation the interest or other
earnings, if any, earned on any money so deposited in trust,
and the holders of any shares redeemed shall have no claim to
such interest or other earnings; and
(B) any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series C
Preferred Stock entitled thereto at the expiration of two
years from the applicable redemption dates shall be repaid,
together with any interest or other earnings thereon, to the
Corporation, and after any such repayment, the holders of the
shares entitled to the funds so repaid to the Corporation
shall look only to the Corporation for payment without
interest or other earnings.
(e) The shares of Series C Preferred Stock are subject to
the provisions of Section 7.4 of Article VII and Article IX of the Articles
relating to Excess Stock. Excess Stock issued upon exchange of shares of
Series C Preferred Stock pursuant to such provisions may be redeemed, in whole
or in part, at any time when outstanding shares of Series C Preferred Stock are
being redeemed, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series C Preferred Stock, which
were exchanged for such Excess Stock, through the date of such exchange,
without interest. If the Corporation elects to redeem Excess Stock pursuant to
the redemption right set forth in the preceding sentence, such Excess Stock
shall be redeemed in such proportion and in accordance with such procedures as
shares of Series C Preferred Stock are being redeemed.
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(f) Any shares of Series C Preferred Stock that shall at
any time have been redeemed shall, after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to series until
such shares are thereafter designated as part of a particular series by the
Board of Directors.
14.3.6 Voting Rights.
(a) Holders of the Series C Preferred Stock will not have
any voting rights, except as set forth below or as otherwise from time to time
required by law.
(b) Whenever dividends on any shares of Series C
Preferred Stock shall be in arrears for six or more quarterly periods (a
"Series C Preferred Dividend Default"), the Board of Directors shall take such
action as may be necessary to increase the number of Directors of the
Corporation by two and the holders of such shares of Series C Preferred Stock
(voting separately as a class with the holders of all other series of Preferred
Stock ranking on a parity with the Series C Preferred Stock as to dividends or
upon liquidation ("Series C Parity Preferred") upon which like voting rights
have been conferred and are exercisable) will be entitled to vote for the
election of a total of two Directors of the Corporation (the "Series C
Preferred Stock Directors") at a special meeting called by the holders of
record of at least 20% of the Series C Preferred Stock or the holders of any
other series of Series C Parity Preferred so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of stockholders) or at the next annual meeting of stockholders, and at
each subsequent annual meeting until all dividends accumulated on such shares
of Series C Preferred Stock for the past dividend periods and the dividend for
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment.
(c) If and when all accumulated dividends and the
dividend for the then current dividend period on the Series C Preferred Stock
shall have been paid in full or set aside for payment in full, the holders of
shares of Series C Preferred Stock shall be divested of the voting rights set
forth in Section 14.3.6(b) hereof (subject to revesting in the event of each
and every Series C Preferred Dividend Default) and, if all accumulated
dividends and the dividend for the current dividend period have been paid in
full or set aside for payment in full on all other series of Series C Parity
Preferred upon which like voting rights have been conferred and are
exercisable, the term of office of each Series C Preferred Stock Director so
elected shall terminate and the Board of Directors shall take such action as
may be necessary to reduce the number of Directors by two. Any Series C
Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding shares of the Series C
Preferred Stock when they have the voting rights set forth in Section 14.3.6(b)
(voting separately as a class with all other series of Series C Parity
Preferred upon which like voting rights have been conferred and are
exercisable). So long as a Series C Preferred Dividend Default shall continue,
any vacancy in the office of a Series C Preferred Stock Director may be filled
by written consent of the Series C Preferred Stock Director remaining in
office, or if none remains in office, by a vote of the holders of record of a
majority of the outstanding shares of Series C Preferred Stock when
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they have the voting rights set forth in Section 14.3.6(b) (voting separately
as a class with all other series of Series C Parity Preferred upon which like
voting rights have been conferred and are exercisable). The Series C Preferred
Stock Directors shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series C Preferred Stock
remain outstanding, the Corporation shall not, without the affirmative vote of
the holders of at least two-thirds of the shares of the Series C Preferred
Stock outstanding at the time, given in person or by proxy, either in writing
or at a meeting (voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of Stock
ranking senior to the Series C Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized Stock of the Corporation into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares or (ii) amend, alter
or repeal the provisions of the Articles, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series C Preferred Stock or the holders
thereof; provided, however, that with respect to the occurrence of any event
set forth in (ii) above, so long as the Series C Preferred Stock remains
outstanding with the terms thereof materially unchanged or, if the Corporation
is not the surviving entity in such transaction, is exchanged for a security of
the surviving entity with terms that are materially the same as the Series C
Preferred Stock, the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of the holders of the Series C Preferred Stock; and, provided further,
that any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or any increase in
the amount of authorized shares of such series, in each case ranking on a
parity with or junior to the Series C Preferred Stock with respect to payment
of dividends or the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
(e) The foregoing voting provisions will not apply if, at
or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series C
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
14.3.7 Conversion. The Series C Preferred Stock is not
convertible into or exchangeable for any other property or
securities of the Corporation, except that the shares of Series C
Preferred Stock will automatically be converted by the Corporation
into shares of Excess Stock and transferred to a Trust in accordance
with Section 7.4 of Article VII and Article IX of the Articles in the
same manner that Common Stock is converted into Excess Stock and
transferred to a Trust pursuant thereto, in order to ensure that the
Company remains qualified as a REIT for federal income tax purposes.
14.4 8.00% Series D Cumulative Redeemable Preferred Stock. The
Board of Directors has, by resolution, duly divided and classified 3,450,000
shares of the Preferred Stock
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of the Corporation into a series designated 8.00% Series D Cumulative
Redeemable Preferred Stock and has provided for the issuance of such series.
Subject in all cases to the provisions of the Articles, including without
limitation, Section 7.4 of Article VII and Article IX with respect to
limitations on the transfer and ownership of Stock, the following is a
description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the 8.00% Series D Cumulative Redeemable Preferred
Stock of the Corporation:
14.4.1 Designation and Number. A series of Preferred
Stock, designated the "8.00% Series D Cumulative Redeemable
Preferred Stock" (the "Series D Preferred Stock"), has been
established. The number of authorized shares of the Series D
Preferred Stock is 3,450,000.
14.4.2 Rank. The Series D Preferred Stock shall, with
respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Corporation, rank (a) senior to the
Corporation's Series A Preferred Stock, Series B Preferred Stock,
Series E Preferred Stock, all classes or series of Common Stock of the
Corporation, and to all equity securities issued by the Corporation
ranking junior to such Series D Preferred Stock; (b) on a parity with
the Corporation's Series C Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock and all other equity securities issued by the
Corporation the terms of which specifically provide that such equity
securities rank on a parity with the Series D Preferred Stock; and (c)
junior to all equity securities issued by the Corporation the terms of
which specifically provide that such equity securities rank senior to
the Series D Preferred Stock. The term "equity securities" shall not
include convertible debt securities.
14.4.3 Dividends.
(a) Holders of the then outstanding shares of Series D
Preferred Stock shall be entitled to receive, when and as authorized by the
Board of Directors, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends at the rate of 8.00% of the
$25.00 liquidation preference per annum (equivalent to a fixed annual amount of
$2.00 per share). Such dividends shall be cumulative from the first date on
which any Series D Preferred Stock is issued and shall be payable quarterly in
arrears on or before March 15, June 15, September 15 and December 15 of each
year or, if not a business day, the next succeeding business day (each, a
"Series D Dividend Payment Date"). The first dividend, which will be paid on
March 15, 1998, will be for less than a full quarter. Such dividend and any
dividend payable on the Series D Preferred Stock for any partial dividend
period will be computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as they appear
in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the first day of the calendar month in
which the applicable Series D Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation as the record date for
the payment of dividends on the Series D Preferred Stock that is not more than
30 nor less than 10 days prior to such Series D Dividend Payment Date (each, a
"Series D Dividend Record Date").
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(b) No dividends on shares of Series D Preferred Stock
shall be authorized by the Board of Directors of the Corporation or paid or set
apart for payment by the Corporation at such time as the terms and provisions
of any agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
authorization or payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the
Series D Preferred Stock shall accrue whether or not the terms and provisions
set forth in Section 14.4.3(b) hereof at any time prohibit the current payment
of dividends, whether or not the Corporation has earnings, whether or not there
are funds legally available for the payment of such dividends and whether or
not such dividends are declared. Accrued but unpaid dividends on the Series D
Preferred Stock will accumulate as of the Series D Dividend Payment Date on
which they first become payable.
(d) Except as provided in Section 14.4.3(e) below, no
dividends will be declared or paid or set apart for payment on any Stock of the
Corporation or any other series of Preferred Stock ranking, as to dividends, on
a parity with or junior to the Series D Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of Stock
ranking junior to the Series D Preferred Stock as to dividends and upon
liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series D Preferred
Stock for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (and a sum
sufficient for such full payment is not so set apart) upon the Series D
Preferred Stock and the shares of any other series of Preferred Stock ranking
on a parity as to dividends with the Series D Preferred Stock, all dividends
declared upon the Series D Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series D Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share
of Series D Preferred Stock and such other series of Preferred Stock shall in
all cases bear to each other the same ratio that accrued dividends per share on
the Series D Preferred Stock and such other series of Preferred Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on Series D Preferred Stock
which may be in arrears.
(f) Except as provided in the immediately preceding
paragraph, unless full cumulative dividends on the Series D Preferred Stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in shares of Common Stock or other shares of Stock ranking junior to the Series
D Preferred Stock as to
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dividends and upon liquidation) shall be declared or paid or set aside for
payment, nor shall any other distribution be declared or made, upon the Common
Stock or any other Stock of the Corporation ranking junior to or on a parity
with the Series D Preferred Stock as to dividends or upon liquidation, nor
shall any shares of Common Stock, or any other shares of Stock of the
Corporation ranking junior to or on a parity with the Series D Preferred Stock
as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any monies be paid to or made available for
a sinking fund for the redemption of any such shares) by the Corporation
(except by conversion into or exchange for other Stock of the Corporation
ranking junior to the Series D Preferred Stock as to dividends and upon
liquidation).
(g) Any dividend payment made on shares of the Series D
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable. Holders of the
Series D Preferred Stock shall not be entitled to any dividend, whether payable
in cash, property or stock in excess of full cumulative dividends on the Series
D Preferred Stock as described above.
14.4.4 Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series D Preferred Stock then outstanding are entitled to be paid out
of the assets of the Corporation legally available for distribution to its
stockholders a liquidation preference of $25.00 per share, plus an amount equal
to any accrued and unpaid dividends to the date of payment, before any
distribution of assets is made to holders of Common Stock or any other class or
series of Stock of the Corporation that ranks junior to the Series D Preferred
Stock as to liquidation rights.
(b) In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Corporation are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of Series D Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of Stock of the
Corporation ranking on a parity with the Series D Preferred Stock in the
distribution of assets, then the holders of the Series D Preferred Stock and
all other such classes or series of Stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series D Preferred
Stock will have no right or claim to any of the remaining assets of the
Corporation.
(d) Written notice of any such liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage pre-paid, not
less than 30 nor more than 60 days prior to the payment date stated therein, to
each record holder of the Series D Preferred Stock at the respective addresses
of such holders as the same shall appear on the stock transfer records of the
Corporation.
(e) The consolidation or merger of the Corporation with
or into any other
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corporation, trust or entity or of any other corporation with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of
the property or business of the Corporation, shall not be deemed to constitute
a liquidation, dissolution or winding up of the Corporation.
14.4.5 Redemption.
(a) Right of Optional Redemption. The Series D Preferred
Stock is not redeemable prior to December 15, 2002. However, in order to
ensure that the Corporation remains qualified as a REIT for federal income tax
purposes, shares of Series D Preferred Stock which have been converted into
Excess Stock shall be subject to repurchase by the Corporation in accordance
with Section 7.4.10 of Article VII. On and after December 15, 2002, the
Corporation, at its option and upon not less than 30 nor more than 60 days'
written notice, may redeem shares of the Series D Preferred Stock, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends thereon to the date
fixed for redemption (except as provided in Section 14.4.5(c) below), without
interest. If less than all of the outstanding Series D Preferred Stock is to be
redeemed, the Series D Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by
any other equitable method determined by the Corporation.
(b) Limitations on Redemption.
(i) The redemption price of the Series D Preferred Stock
(other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale proceeds of other capital
stock of the Corporation, which may include other series of Preferred
Stock, and from no other source. For purposes of the preceding
sentence, "capital stock" means any equity securities (including
Common Stock and Preferred Stock), shares, interest, participation or
other ownership interests (however designated) and any rights (other
than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
(ii) Unless full cumulative dividends on all shares of
Series D Preferred Stock shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past dividend periods and the
then current dividend period, no shares of Series D Preferred Stock
shall be redeemed unless all outstanding shares of Series D Preferred
Stock are simultaneously redeemed, and the Corporation shall not
purchase or otherwise acquire directly or indirectly any shares of
Series D Preferred Stock, (except by exchange for Stock of the
Corporation ranking junior to the Series D Preferred Stock as to
dividends and upon liquidation); provided, however, that the foregoing
shall not prevent the purchase by the Corporation of shares of Excess
Stock in order to ensure that the Corporation remains qualified as a
REIT for federal income tax purposes or the purchase or acquisition of
shares of Series D Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of
Series D Preferred Stock.
(c) Immediately prior to any redemption of Series D
Preferred Stock, the
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Corporation shall pay, in cash, any accumulated and unpaid dividends
through the redemption date, unless a redemption date falls after a
Series D Dividend Record Date and prior to the corresponding Series D
Dividend Payment Date, in which case each holder of Series D Preferred
Stock at the close of business on such Series D Dividend Record Date
shall be entitled to the dividend payable on such shares on the
corresponding Series D Dividend Payment Date notwithstanding the
redemption of such shares before such Series D Dividend Payment Date.
Except as provided above, the Corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series D
Preferred Stock which is redeemed.
(d) Procedures for Redemption.
(i) Notice of redemption will be (A) given by publication
in a newspaper of general circulation in the City of New York, such
publication to be made once a week for two successive weeks commencing
not less than 30 nor more than 60 days prior to the redemption date,
and (B) mailed by the Corporation, postage prepaid, not less than 30
nor more than 60 days prior to the redemption date, addressed to the
respective holders of record of the Series D Preferred Stock to be
redeemed at their respective addresses as they appear on the stock
transfer records of the Corporation. No failure to give such notice
or any defect thereto or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Series
D Preferred Stock except as to the holder to whom notice was defective
or not given.
(ii) In addition to any information required by law or by
the applicable rules of any exchange upon which Series D Preferred
Stock may be listed or admitted to trading, such notice shall state:
(A) the redemption date; (B) the redemption price; (C) the number of
shares of Series D Preferred Stock to be redeemed; (D) the place or
places where the Series D Preferred Stock is to be surrendered for
payment of the redemption price; and (E) that dividends on the shares
to be redeemed will cease to accrue on such redemption date. If less
than all of the Series D Preferred Stock held by any holder is to be
redeemed, the notice mailed to such holder shall also specify the
number of shares of Series D Preferred Stock held by such holder to be
redeemed.
(iii) If notice of redemption of any shares of Series D
Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Corporation in trust for the
benefit of the holders of any shares of Series D Preferred Stock so
called for redemption, then from and after the redemption date
dividends will cease to accrue on such shares of Series D Preferred
Stock, such shares of Series D Preferred Stock shall no longer be
deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. Holders
of Series D Preferred Stock to be redeemed shall surrender such Series
D Preferred Stock at the place designated in such notice and, upon
surrender in accordance with said notice of the certificates for
shares of Series D Preferred Stock so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and the
notice shall so state), such shares of Series D Preferred Stock shall
be redeemed by the Corporation at the redemption price plus any
accrued and unpaid dividends payable upon such redemption.
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In case less than all the shares of Series D Preferred Stock
represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares of
Series D Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust corporation
for the purpose of redeeming Series D Preferred Stock shall be
irrevocable except that:
(A) the Corporation shall be entitled to receive
from such bank or trust corporation the interest or other
earnings, if any, earned on any money so deposited in trust,
and the holders of any shares redeemed shall have no claim to
such interest or other earnings; and
(B) any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series D
Preferred Stock entitled thereto at the expiration of two
years from the applicable redemption dates shall be
repaid,together with any interest or other earnings thereon,
to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for payment
without interest or other earnings.
(e) The shares of Series D Preferred Stock are subject to
the provisions of Section 7.4 of Article VII and Article IX of the Articles
relating to Excess Stock. Excess Stock issued upon exchange of shares of
Series D Preferred Stock pursuant to such provisions may be redeemed, in whole
or in part, at any time when outstanding shares of Series D Preferred Stock are
being redeemed, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series D Preferred, which were
exchanged for such Excess Stock, through the date of such exchange, without
interest. If the Corporation elects to redeem Excess Stock pursuant to the
redemption right set forth in the preceding sentence, such Excess Stock shall
be redeemed in such proportion and in accordance with such procedures as shares
of Series D Preferred Stock are being redeemed.
(f) Any shares of Series D Preferred Stock that shall at
any time have been redeemed shall, after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to series until
such shares are thereafter designated as part of a particular series by the
Board of Directors.
14.4.6 Voting Rights.
(a) Holders of the Series D Preferred Stock will not have
any voting rights, except as set forth below or as otherwise from time to time
required by law.
(b) Whenever dividends on any shares of Series D
Preferred Stock shall be in arrears for six or more quarterly periods (a
"Series D Preferred Dividend Default"), the Board of Directors shall take such
action as may be necessary to increase the number of Directors of the
Corporation by two and the holders of such shares of Series D Preferred Stock
(voting separately
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as a class with the holders of all other series of Preferred Stock ranking on a
parity with the Series D Preferred Stock as to dividends or upon liquidation
("Series D Parity Preferred") upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of a total of
two Directors of the Corporation (the "Series D Preferred Stock Directors") at
a special meeting called by the holders of record of at least 20% of the Series
D Preferred Stock or the holders of any other series of Parity Preferred so in
arrears (unless such request is received less than 90 days before the date
fixed for the next annual or special meeting of stockholders) or at the next
annual meeting of stockholders, and at each subsequent annual meeting until all
dividends accumulated on such shares of Series D Preferred Stock for the past
dividend periods and the dividend for the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment.
(c) If and when all accumulated dividends and the
dividend for the then current dividend period on the Series D Preferred Stock
shall have been paid in full or set aside for payment in full, the holders of
shares of Series D Preferred Stock shall be divested of the voting rights set
forth in Section 14.4.6(b) hereof (subject to revesting in the event of each
and every Series D Preferred Dividend Default) and, if all accumulated
dividends and the dividend for the current dividend period have been paid in
full or set aside for payment in full on all other series of Series D Parity
Preferred upon which like voting rights have been conferred and are
exercisable, the term of office of each Series D Preferred Stock Director so
elected shall terminate and the Board of Directors shall take such action as
may be necessary to reduce the number of Directors by two. Any Series D
Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding shares of the Series D
Preferred Stock when they have the voting rights set forth in Section 14.4.6(b)
(voting separately as a class with all other series of Series D Parity
Preferred upon which like voting rights have been conferred and are
exercisable). So long as a Series D Preferred Dividend Default shall continue,
any vacancy in the office of a Series D Preferred Stock Director may be filled
by written consent of the Series D Preferred Stock Director remaining in
office, or if none remains in office, by a vote of the holders of record of a
majority of the outstanding shares of Series D Preferred Stock when they have
the voting rights set forth in Section 14.4.6(b) (voting separately as a class
with all other series of Series D Parity Preferred upon which like voting
rights have been conferred and are exercisable). The Series D Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series D Preferred Stock
remain outstanding, the Corporation shall not, without the affirmative vote of
the holders of at least two-thirds of the shares of the Series D Preferred
Stock outstanding at the time, given in person or by proxy, either in writing
or at a meeting (voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of Stock
ranking senior to the Series D Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized Stock of the Corporation into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares or (ii) amend, alter
or repeal the provisions of the Articles, whether by merger, consolidation or
otherwise, so as to materially and adversely
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affect any right, preference, privilege or voting power of the Series D
Preferred Stock or the holders thereof; provided, however, that with respect to
the occurrence of any event set forth in (ii) above, so long as the Series D
Preferred Stock remains outstanding with the terms thereof materially unchanged
or, if the Corporation is not the surviving entity in such transaction, is
exchanged for a security of the surviving entity with terms that are materially
the same as the Series D Preferred Stock, the occurrence of any such event
shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers of the holders of the Series D
Preferred Stock; and, provided further, that any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or any increase in the amount of authorized shares of such
series, in each case ranking on a parity with or junior to the Series D
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
(e) The foregoing voting provisions will not apply if, at
or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series D
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
14.4.7 Conversion. The Series D Preferred Stock is not
convertible into or exchangeable for any other property or
securities of the Corporation, except that the shares of Series D
Preferred Stock will automatically be converted by the Corporation
into shares of Excess Stock and transferred to a Trust in accordance
with Section 7.4 of Article VII and Article IX of the Articles in the
same manner that Common Stock is converted into Excess Stock and
transferred to a Trust pursuant thereto, in order to ensure that the
Company remains qualified as a REIT for federal income tax purposes.
14.5 Series E Junior Participating Cumulative Preferred Stock. The
Board of Directors has duly divided and classified 1,000,000 shares of the
Preferred Stock of the Corporation into a series designated Series E Junior
Participating Cumulative Preferred Stock and has provided for the issuance of
such series. Subject in all cases to the provisions of Section 7.4 of Article
VII and Article IX of the Articles with respect to Excess Stock, the following
is a description of the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Series E Junior Cumulative Preferred Stock of
the Corporation:
14.5.1 Designation and Amount. The designation of the
Preferred Stock described in Section 14.5 hereof shall be
"Series E Junior Participating Cumulative Preferred Stock," par value
$.01 per share (hereinafter called "Series E Preferred Stock"), and
the number of shares constituting such series 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 of amendment pursuant
to the provisions of the MGCL stating that such increase or reduction
has been so authorized; provided, however, that no decrease shall
reduce the number of shares of Series E Preferred
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Stock to a number less than that of the shares then outstanding plus
the number of shares of Series E Preferred Stock issuable upon
exercise of outstanding rights, options or warrants or upon conversion
of outstanding securities issued by the Corporation.
14.5.2 Dividends and Distributions.
(a) (i) 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 E Preferred Stock with
respect to dividends, the holders of shares of Series E Preferred
Stock, in preference to the holders of shares of Common Stock 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 "Series E Quarterly Dividend Payment
Date"), commencing on the first Series E Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Series E Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (x) $1.00 or (y) subject to the
provisions for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 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 shares of
Common Stock since the immediately preceding Series E Quarterly
Dividend Payment Date, or, with respect to the first Series E
Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series E Preferred Stock. The multiple of
cash and non-cash dividends declared on the Common Stock to which
holders of the Series E Preferred Stock are entitled, which shall be
1,000 initially but which shall be adjusted from time to time as
hereinafter provided, is hereinafter referred to as the "Series E
Dividend Multiple." In the event the Corporation shall at any time
after March 9, 1998 (the "Series E Rights Declaration Date") (i)
declare or pay any dividend on the shares of Common Stock payable in
shares of Common Stock, or (ii) 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 Series E Dividend Multiple
thereafter applicable to the determination of the amount of dividends
which holders of shares of Series E Preferred Stock shall be entitled
to receive shall be the Series E Dividend Multiple applicable
immediately prior to such event multiplied 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.
(ii) Notwithstanding anything else contained in this
paragraph (a), the Corporation shall, out of funds legally
available for that purpose, declare a dividend or distribution
on the Series E Preferred Stock as provided in this paragraph
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(a) immediately after it declares a dividend or distribution on the
shares of 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 shares of Common Stock during the
period between any Series E Quarterly Dividend Payment Date and the
next subsequent Series E Quarterly Dividend Payment Date, a dividend
of $1.00 per share on the Series E Preferred Stock shall nevertheless
be payable on such subsequent Series E Quarterly Dividend Payment
Date.
(b) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series E Preferred Stock from the Series E Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
E Preferred Stock, unless the date of issue of such shares is prior to the
record date for the first Series E 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 Series E Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series E Preferred Stock entitled to receive a quarterly
dividend and before such Series E Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Series E Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series E 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
in accordance with applicable law a record date for the determination of
holders of shares of Series E Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than such number of days prior to the date fixed for the payment thereof as may
be allowed by applicable law.
14.5.3 Voting Rights. In addition to any other voting
rights required by law, the holders of shares of Series E
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter
set forth, each share of Series E Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the stockholders
of the Corporation. The number of votes which a holder of a share of Series E
Preferred Stock is entitled to cast, which shall initially be 1,000 but which
may be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Vote Multiple." In the event the Corporation shall at any
time after the Series E Rights Declaration Date (i) declare or pay any dividend
on shares of Common Stock payable in shares of Common Stock, or (ii) 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 Vote Multiple thereafter applicable to the
determination of the number of votes per share to which holders of shares of
Series E Preferred Stock shall be entitled shall be the Vote Multiple
immediately prior to such event multiplied by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after
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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 or by law, the
holders of shares of Series E Preferred Stock and the holders of shares of
Common Stock and the holders of shares of any other Stock of this Corporation
having general voting rights, shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(c) (i) Whenever, at any time or times, dividends payable
on any shares of Series E Preferred Stock shall be in arrears in an
amount equal to at least two full quarter dividends (whether or not
declared and whether or not consecutive), the holders of record of the
outstanding shares of Series E Preferred Stock shall have the
exclusive right, voting separately as a single class, to elect two
Directors of the Corporation at a special meeting of stockholders of
the Corporation or at the Corporation's next annual meeting of
stockholders, and at each subsequent annual meeting of shareholders,
as provided below. At elections for such Directors, each Series E
Preferred Share shall entitle the holder thereof to 1,000 votes in
such elections.
(ii) Upon the vesting of such right of the holders
of shares of Series E Preferred Stock, the maximum authorized number
of members of the Board of Directors shall automatically be increased
by two and the two vacancies so created shall be filled by vote of the
holders of the outstanding shares of Series E Preferred Stock as
hereinafter set forth. A special meeting of the stockholders of the
Corporation then entitled to vote shall be called by the Chairman of
the Board of Directors or the President or the Secretary of the
Corporation, if requested in writing by the holders of record of not
less than 10% of the shares of Series E Preferred Stock then
outstanding. At such special meeting, or, if no such special meeting
shall have been called, then at the next annual meeting of
stockholders of the Corporation, the holders of the shares of Series E
Preferred Stock shall elect, voting as above provided, two Directors
of the Corporation to fill the aforesaid vacancies created by the
automatic increase in the number of members of the Board of Directors.
At any and all such meetings for such election, the holders of a
majority of the outstanding shares of Series E Preferred Stock shall
be necessary to constitute a quorum for such election, whether present
in person or proxy, and such two Directors shall be elected by the
vote of at least a majority of the shares of Series E Preferred Stock
held by such stockholders present or represented at the meeting. Any
director elected by holders of shares of Series E Preferred Stock
pursuant to this Section may be removed at any annual or special
meeting, by vote of a majority of the shareholders voting as a class
who elected such Director, with or without cause. In case any vacancy
shall occur among the Directors elected by the holders of shares of
Series E Preferred Stock pursuant to this Section, such vacancy may be
filled by the remaining director so elected, or his successor then in
office, and the director so elected to fill such vacancy shall serve
until the next meeting of shareholders for the election of Directors.
After the holders of shares of Series E Preferred Stock shall have
exercised their right to elect Directors in any default period and
during the continuance of such period, the number of Directors shall
not be further increased or decreased except by vote of the holders of
shares of Series E Preferred
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Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series E Preferred
Stock.
(iii) The right of the holders of shares of Series
E Preferred Stock, voting separately as a class, to elect two members
of the Board of Directors of the Corporation as aforesaid shall
continue until, and only until, such time as all arrears in dividends
(whether or not declared) on the Series E Preferred Stock shall have
been paid or declared and set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided
subject to revesting in the event of each and every subsequent default
of the character above-mentioned. Upon any termination of the right
of the holders of the Series E Preferred Stock as a class to vote for
Directors as herein provided, the term of office of all Directors then
in office elected by the holders of shares of Series E Preferred Stock
pursuant to this Section shall terminate immediately. Whenever the
term of office of the Directors elected by the holders of shares of
Series E Preferred Stock pursuant to this Section shall terminate and
the special voting powers vested in the holders of the Series E
Preferred Stock pursuant to this Section shall have expired, the
maximum number of members of this Board of Directors of the
Corporation shall be such number as may be provided for in the By-laws
of the Corporation, irrespective of any increase made pursuant to the
provisions of this Section.
(d) Except as otherwise required by applicable law or as
set forth herein, holders of Series E 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 shares of Common Stock as set forth
herein) for taking any corporate action.
14.5.4 Certain Restrictions.
(a) Whenever dividends or distributions payable on the
Series E Preferred Stock as provided in Section 14.5.2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series E Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of Stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series E Preferred Stock;
(ii) declare or pay dividends on 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 E Preferred Stock, except dividends paid ratably on the Series
E 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;
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(iii) except as permitted in subsection
14.5.4(a)(iv) below, redeem, purchase or otherwise acquire for
consideration shares of any Stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series E Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
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 E Preferred Stock; or
(iv)purchase or otherwise acquire for consideration
any shares of Series E Preferred Stock, or any shares of any Stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series E 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 and classes, shall determine in
good 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 subsection (a)
of this Section 14.5.4, purchase or otherwise acquire such shares at such time
and in such manner.
14.5.5 Reacquired Shares. Any shares of Series E
Preferred Stock purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
14.5.6 Liquidation, Dissolution or Winding Up. Upon any
liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made (x) to the
holders of shares of Stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series E Preferred
Stock unless, prior thereto, the holders of Series E Preferred Stock
shall have received an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per
share or (2) an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of shares of
Common Stock, or (y) to the holders of Stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding
up) with the Series E Preferred Stock, except distributions made
ratably on the Series E Preferred Stock and all other such parity
Stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation,
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dissolution or winding up. In the event the Corporation shall at any
time after the Series E Rights Declaration Date (i) declare or pay any
dividend on shares of Common Stock payable in shares of Common Stock,
or (ii) 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 per share to which holders of shares of
Series E Preferred Stock were entitled immediately prior to such event
under clause (x) 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.
Neither the consolidation of nor merging of the Corporation
with or into any other corporation or corporations, nor the
sale or other transfer of all or substantially all of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section
14.5.6.
14.5.7 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 other property, then in any such case the shares of Series
E Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 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, plus accrued and unpaid
dividends, if any, payable with respect to the Series E Preferred
Stock. In the event the Corporation shall at any time after the
Series E Rights Declaration Date (i) declare or pay any dividend on
shares of Common Stock payable in shares of Common Stock, or (ii)
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 E 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.
14.5.8 Redemption. The shares of Series E Preferred
Stock shall not be redeemable; provided, however, that the
foregoing shall not limit the ability of the Corporation to purchase
or otherwise deal in such shares to the extent otherwise permitted
hereby and by law.
14.5.9 Ranking. Unless otherwise expressly provided in
the Articles or
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Articles Supplementary relating to any other series of
Preferred Stock of the Corporation, the Series E Preferred Stock shall
rank junior to every other series of the Corporation's Preferred Stock
previously or hereafter authorized, as to the payment of dividends and
the distribution of assets on liquidation, dissolution or winding up
and shall rank senior to the Common Stock.
14.5.10 Amendment. The Articles may not be amended in any
manner which would materially alter or change the powers,
preferences or special rights of the Series E Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series E Preferred
Stock, voting separately as a class.
14.5.11 Fractional Shares. Shares of Series E Preferred
Stock may be issued in whole shares or in any fraction of a
share that is one ten-thousandth (1/1,000th) of a share or any
integral multiple of such fraction, which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of shares of Series E
Preferred Stock. In lieu of fractional shares, the Corporation may
elect to make a cash payment as provided in the Rights Agreement for
fractions of a share other than one ten-thousandth (1/1,000th) of a
share or any integral multiple thereof.
14.6 9.00% Series F Cumulative Redeemable Preferred Stock. The
Board of Directors has, by resolution, duly divided and classified 4,455,000
shares of the Preferred Stock of the Corporation into a series designated 9.00%
Series F Cumulative Redeemable Preferred Stock and has provided for the
issuance of such series. Subject in all cases to the provisions of the
Articles, including, without limitation, Section 7.4 of Article VII and Article
IX with respect to limitations on the transfer and ownership of Stock, the
following is a description of the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the 9.00% Series F Cumulative Redeemable
Preferred Stock of the Corporation:
14.6.1 Designation and Number. A series of Preferred
Stock, designated the "9.00% Series F Cumulative Redeemable Preferred
Stock" (the "Series F Preferred Stock"), has been established. The
number of authorized shares of the Series F Preferred Stock shall be
4,455,000.
14.6.2 Rank. The Series F Preferred Stock shall, with
respect to dividend rights and rights upon liquidation, dissolution or
winding up of the Corporation, rank (a) senior to the Corporation's
Series A Preferred Stock, Series B Preferred Stock, Series E Preferred
Stock, and all classes or series of Common Stock of the Corporation,
and to all equity securities issued by the Corporation ranking junior
to such Series F Preferred Stock; (b) on a parity with the
Corporation's Series C Preferred Stock, Series D Preferred Stock,
Series G Preferred Stock and all equity securities
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issued by the Corporation the terms of which specifically provide that
such equity securities rank on a parity with the Series F Preferred
Stock; and (c) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity
securities rank senior to the Series F Preferred Stock. The term
"equity securities" shall not include convertible debt securities.
14.6.3 Dividends.
(a) Holders of the then outstanding shares of Series F
Preferred Stock shall be entitled to receive, when and as authorized by the
Board of Directors, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends at the rate of 9.00% of the
$25.00 liquidation preference per annum (equivalent to a fixed annual amount of
$2.25 per share). Such dividends shall be cumulative from the first date on
which any Series F Preferred Stock is issued and shall be payable quarterly in
arrears on or before the fifteenth day of February, May, August and November
or, if not a business day, the next succeeding business day (each, a "Series F
Dividend Payment Date"). Any dividend payable on the Series F Preferred Stock
for any partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as they appear in the stock records of the Corporation at the close of
business on the applicable record date, which shall be the first day of the
calendar month in which the applicable Series F Dividend Payment Date falls or
on such other date designated by the Board of Directors of the Corporation as
the record date for the payment of dividends on the Series F Preferred Stock
that is not more than 30 nor less than 10 days prior to such Series F Dividend
Payment Date (each, a "Series F Dividend Record Date").
(b) No dividends on shares of Series F Preferred Stock
shall be authorized by the Board of Directors of the Corporation or paid or set
apart for payment by the Corporation at such time as the terms and provisions
of any agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
authorization or payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the
Series F Preferred Stock shall accrue whether or not the terms and provisions
set forth in Section 14.6.3(b) hereof at any time prohibit the current payment
of dividends, whether or not the Corporation has earnings, whether or not there
are funds legally available for the payment of such dividends and whether or
not such dividends are declared. Accrued but unpaid dividends on the Series F
Preferred Stock will accumulate as of the Series F Dividend Payment Date on
which they first become payable.
(d) Except as provided in Section 14.6.3(e) below, no
dividends will be declared or paid or set apart for payment on any Stock of the
Corporation or any other series of Preferred Stock ranking, as to dividends, on
a parity with or junior to the Series F Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of Stock
ranking junior to the Series F Preferred Stock as to dividends and upon
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liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series F Preferred
Stock for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (and a sum
sufficient for such full payment is not so set apart) upon the Series F
Preferred Stock and the shares of any other series of Preferred Stock ranking
on a parity as to dividends with the Series F Preferred Stock, all dividends
declared upon the Series F Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series F Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share
of Series F Preferred Stock and such other series of Preferred Stock shall in
all cases bear to each other the same ratio that accrued dividends per share on
the Series F Preferred Stock and such other series of Preferred Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on Series F Preferred Stock
which may be in arrears.
(f) Except as provided in the immediately preceding
paragraph, unless full cumulative dividends on the Series F Preferred Stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in shares of Common Stock or other shares of Stock ranking junior to the Series
F Preferred Stock as to dividends and upon liquidation) shall be declared or
paid or set aside for payment nor shall any other distribution be declared or
made upon the Common Stock, or any other Stock of the Corporation ranking
junior to or on a parity with the Series F Preferred Stock as to dividends or
upon liquidation, nor shall any shares of Common Stock, or any other shares of
Stock of the Corporation ranking junior to or on a parity with the Series F
Preferred Stock as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any monies be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation (except by conversion into or exchange for other Stock of the
Corporation ranking junior to the Series F Preferred Stock as to dividends and
upon liquidation).
(g) Any dividend payment made on shares of the Series F
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable. Holders of the
Series F Preferred Stock shall not be entitled to any dividend, whether payable
in cash, property or Stock in excess of full cumulative dividends on the Series
F Preferred Stock as described above.
14.6.4 Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series F Preferred Stock then outstanding are entitled to be paid out
of the assets of the Corporation legally available for
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distribution to its stockholders a liquidation preference of $25.00 per share,
plus an amount equal to any accrued and unpaid dividends to the date of
payment, before any distribution of assets is made to holders of Common Stock
or any other class or series of Stock of the Corporation that ranks junior to
the Series F Preferred Stock as to liquidation rights.
(b) In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Corporation are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of Series F Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of Stock of the
Corporation ranking on a parity with the Series F Preferred Stock in the
distribution of assets, then the holders of the Series F Preferred Stock and
all other such classes or series of Stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series F Preferred
Stock will have no right or claim to any of the remaining assets of the
Corporation.
(d) Written notice of any such liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage pre-paid, not
less than 30 nor more than 60 days prior to the payment date stated therein, to
each record holder of the Series F Preferred Stock at the respective addresses
of such holders as the same shall appear on the stock transfer records of the
Corporation.
(e) The consolidation or merger of the Corporation with
or into any other corporation, trust or entity or of any other corporation with
or into the Corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
14.6.5 Redemption.
(a) Right of Optional Redemption. The Series F Preferred
Stock is not redeemable prior to February 15, 2001. However, in order to
ensure that the Corporation remains qualified as a REIT for federal income tax
purposes, shares of Series F Preferred Stock which have been converted into
Excess Stock shall be subject to repurchase by the Corporation in accordance
with Section 7.4.10 of Article VII. On and after February 15, 2001, the
Corporation, at its option and upon not less than 30 nor more than 60 days'
written notice, may redeem shares of the Series F Preferred Stock, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends thereon to the date
fixed for redemption (except as provided in Section 14.6.5(c) below), without
interest. If less than all of the outstanding Series F Preferred Stock is to
be redeemed, the Series F Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by
any other equitable method
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determined by the Corporation.
(b) Limitations on Redemption.
(i) The redemption price of the Series F
Preferred Stock (other than the portion thereof consisting of accrued
and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Corporation, which may include other series
of Preferred Stock, and from no other source. For purposes of the
preceding sentence, "capital stock" means any equity securities
(including Common Stock and Preferred Stock), shares, interest,
participation or other ownership interests (however designated) and
any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the
foregoing.
(ii) Unless full cumulative dividends on all
shares of Series F Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no shares of
Series F Preferred Stock shall be redeemed unless all outstanding
shares of Series F Preferred Stock are simultaneously redeemed, and
the Corporation shall not purchase or otherwise acquire directly or
indirectly any shares of Series F Preferred Stock (except by exchange
for Stock of the Corporation ranking junior to the Series F Preferred
Stock as to dividends and upon liquidation); provided, however, that
the foregoing shall not prevent the purchase by the Corporation of
shares of Excess Stock in order to ensure that the Corporation remains
qualified as a REIT for federal income tax purposes or the purchase or
acquisition of shares of Series F Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of Series F Preferred Stock.
(c) Rights to Dividends on Shares Called for Redemption.
Immediately prior to any redemption of Series F Preferred Stock, the
Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date, unless a redemption date falls after a Series F Dividend
Record Date and prior to the corresponding Series F Dividend Payment Date, in
which case each holder of Series F Preferred Stock at the close of business on
such Series F Dividend Record Date shall be entitled to the dividend payable on
such shares on the corresponding Series F Dividend Payment Date notwithstanding
the redemption of such shares before such Series F Dividend Payment Date.
Except as provided above, the Corporation will make no payment or allowance for
unpaid dividends, whether or not in arrears, on Series F Preferred Stock which
is redeemed.
(d) Procedures for Redemption.
(i) Notice of redemption will be (A) given by
publication in a newspaper of general circulation in the City of New
York, such publication to be made once a week for two successive weeks
commencing not less than 30 nor more than 60 days prior to the
redemption date, and (B) mailed by the Corporation, postage prepaid,
not
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less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series F
Preferred Stock to be redeemed at their respective addresses as they
appear on the stock transfer records of the Corporation. No failure
to give such notice or any defect thereto or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any
shares of Series F Preferred Stock except as to the holder to whom
notice was defective or not given.
(ii) In addition to any information required by
law or by the applicable rules of any exchange upon which Series F
Preferred may be listed or admitted to trading, such notice shall
state: (A) the redemption date; (B) the redemption price; (C) the
number of shares of Series F Preferred Stock to be redeemed; (D) the
place or places where the Series F Preferred Stock is to be
surrendered for payment of the redemption price; and (E) that
dividends on the shares to be redeemed will cease to accrue on such
redemption date. If less than all of the Series F Preferred Stock
held by any holder is to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series F Preferred Stock
held by such holder to be redeemed.
(iii) If notice of redemption of any shares of
Series F Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by the Corporation in trust for
the benefit of the holders of any shares of Series F Preferred Stock
so called for redemption, then from and after the redemption date
dividends will cease to accrue on such shares of Series F Preferred
Stock, such shares of Series F Preferred Stock shall no longer be
deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. Holders
of Series F Preferred Stock to be redeemed shall surrender such Series
F Preferred Stock at the place designated in such notice and, upon
surrender in accordance with said notice of the certificates for
shares of Series F Preferred Stock so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and the
notice shall so state), such shares of Series F Preferred Stock shall
be redeemed by the Corporation at the redemption price plus any
accrued and unpaid dividends payable upon such redemption. In case
less than all the shares of Series F Preferred Stock represented by
any such certificate are redeemed, a new certificate or certificates
shall be issued representing the unredeemed shares of Series F
Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust
corporation for the purpose of redeeming Series F Preferred Stock
shall be irrevocable except that:
(A) the Corporation shall be entitled to
receive from such bank or trust corporation the interest or
other earnings, if any, earned on any money so deposited in
trust, and the holders of any shares redeemed shall have no
claim to such interest or other earnings; and
(B) any balance of monies so deposited by
the Corporation
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and unclaimed by the holders of the Series F Preferred Stock
entitled thereto at the expiration of two years from the
applicable redemption dates shall be repaid, together with any
interest or other earnings thereon, to the Corporation, and
after any such repayment, the holders of the shares entitled
to the funds so repaid to the Corporation shall look only to
the Corporation for payment without interest or other
earnings.
(e) The shares of Series F Preferred Stock are subject to
the provisions of Section 7.4 of Article VII and Article IX of the Articles
relating to Excess Stock. Excess Stock issued upon exchange of shares of
Series F Preferred Stock pursuant to such provisions may be redeemed, in whole
or in part, at any time when outstanding shares of Series F Preferred Stock are
being redeemed, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series F Preferred Stock, which
are exchanged for such Excess Stock, through the date of such exchange, without
interest. If the Corporation elects to redeem Excess Stock pursuant to the
redemption right set forth in the preceding sentence, such Excess Stock shall
be redeemed in such proportion and in accordance with such procedures as shares
of Series F Preferred Stock are being redeemed.
(f) Any shares of Series F Preferred Stock that shall at
any time have been redeemed shall, after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to series until
such shares are thereafter designated as part of a particular series by the
Board of Directors.
14.6.6 Voting Rights.
(a) Holders of the Series F Preferred Stock will not have
any voting rights, except as set forth below or as otherwise from time to time
required by law.
(b) Whenever dividends on any shares of Series F
Preferred Stock shall be in arrears for six or more quarterly periods (a
"Series F Preferred Dividend Default"), the Board of Directors shall take such
action as may be necessary to increase the number of Directors of the
Corporation by two and the holders of such shares of Series F Preferred Stock
(voting separately as a class with the holders of all other series of Preferred
Stock ranking on a parity with the Series F Preferred Stock as to dividends or
upon liquidation ("Series F Parity Preferred") upon which like voting rights
have been conferred and are exercisable) will be entitled to vote for the
election of a total of two Directors of the Corporation (the "Series F
Preferred Stock Directors") at a special meeting called by the holders of
record of at least 10% of the Series F Parity Preferred or the holders of any
other series of Series F Parity Preferred so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the stockholders) or at the next annual meeting of stockholders, and
at each subsequent annual meeting until all dividends accumulated on such
shares of Series F Preferred Stock for the past dividend periods and the
dividends for the then current dividend period shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment.
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(c) If and when all accumulated dividends and the
dividend for the then current dividend period on the Series F Preferred Stock
shall have been paid in full or set aside for payment in full, the holders of
shares of Series F Preferred Stock shall be divested of the voting rights set
forth in Section 14.6.6(b) hereof (subject to revesting in the event of each
and every Series F Preferred Dividend Default) and the term of office of each
Series F Preferred Stock Director so elected shall terminate and the Board of
Directors shall take such action as may be necessary to reduce the number of
Directors by two. Any Series F Preferred Stock Director may be removed at any
time with or without cause by the vote of, and shall not be removed otherwise
than by the vote of, the holders of record of a majority of the outstanding
shares of the Series F Preferred Stock when they have the voting rights set
forth in Section 14.6.6(b) (voting separately as a class with all other series
of Series F Parity Preferred upon which like voting rights have been conferred
and are exercisable). So long as a Series F Preferred Dividend Default shall
continue, any vacancy in the office of a Series F Preferred Stock Director may
be filled by written consent of the Series F Preferred Stock Director remaining
in office, or if none remains in office, by a vote of the holders of record of
a majority of the outstanding shares of Series F Preferred Stock when they have
voting rights as set forth in Section 14.6.6(b) (voting separately as a class
with all other series of Series F Parity Preferred upon which like voting
rights have been conferred and are exercisable). The Series F Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series F Preferred Stock
remain outstanding, the Corporation shall not, without the affirmative vote of
the holders of at least two thirds of the shares of the Series F Preferred
Stock outstanding at the time given in person or by proxy, either in writing or
at a meeting (voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of Stock
ranking senior to the Series F Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized Stock of the Corporation into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares, or (ii) amend, alter
or repeal the provisions of the Articles, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series F Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
Preferred Stock or the creation or issuance of any other series of Preferred
Stock, or any increase in the amount of authorized shares of such series, in
each case ranking on a parity with or junior to the Series F Preferred Stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
(e) The foregoing voting provisions will not apply if, at
or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series F
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
14.6.7 Conversion. The Series F Preferred Stock is not
convertible into or
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exchangeable for any other property or securities of the
Corporation, except that the shares of Series F Preferred Stock will
automatically be converted by the Corporation into shares of Excess
Stock and transferred to a Trust in accordance with Section 7.4 of
Article VII and Article IX of the Articles in the same manner that
Common Stock is converted into Excess Stock and transferred to a Trust
pursuant thereto, in order to ensure that the Corporation remains
qualified as a REIT for federal income tax purposes.
14.7 8.96% Series G Cumulative Redeemable Preferred Stock. The
Board of Directors has, by resolution, duly divided and classified 4,300,000
shares of the Preferred Stock of the Corporation into a series designated 8.96%
Series G Cumulative Redeemable Preferred Stock and has provided for the
issuance of such series. Subject in all cases to the provisions of the
Articles, including, without limitation, Section 7.4 of Article VII and Article
IX with respect to limitations on the transfer and ownership of Stock, the
following is a description of the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the 8.96% Series G Cumulative Redeemable
Preferred Stock of the Corporation:
14.7.1 Designation and Number. A series of Preferred
Stock, designated the "8.96% Series G Cumulative Redeemable Preferred
Stock" (the "Series G Preferred Stock"), has been established. The
number of authorized shares of the Series G Preferred Stock shall be
4,300,000.
14.7.2 Rank. The Series G Preferred Stock shall, with
respect to dividend rights and rights upon liquidation, dissolution or
winding up of the Corporation, rank (a) senior to the Corporation's
Series A Preferred Stock, Series B Preferred Stock, Series E Preferred
Stock, and all classes or series of Common Stock of the Corporation,
and to all equity securities issued by the Corporation ranking junior
to such Series G Preferred Stock; (b) on a parity with the
Corporation's Series C Preferred Stock, Series D Preferred Stock,
Series F Preferred Stock and all equity securities issued by the
Corporation the terms of which specifically provide that such equity
securities rank on a parity with the Series G Preferred Stock; and (c)
junior to all equity securities issued by the Corporation the terms of
which specifically provide that such equity securities rank senior to
the Series G Preferred Stock. The term "equity securities" shall not
include convertible debt securities.
14.7.3 Dividends.
(a) Holders of the then outstanding shares of Series G
Preferred Stock shall be entitled to receive, when and as authorized by the
Board of Directors, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends at the rate of 8.96% of the
$25.00 liquidation preference per annum (equivalent to a fixed annual amount of
$2.24 per share). Such dividends shall be cumulative from the first date on
which any Series G Preferred Stock is issued and shall be payable quarterly in
arrears on or before the fifteenth day of February, May, August and November
or, if not a business day, the next
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succeeding business day (each, a "Series G Dividend Payment Date"). Any
dividend payable on the Series G Preferred Stock for any partial dividend
period will be computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as they appear
in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the first day of the calendar month in
which the applicable Series G Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation as the record date for
the payment of dividends on the Series G Preferred Stock that is not more than
30 nor less than 10 days prior to such Series G Dividend Payment Date (each, a
"Series G Dividend Record Date").
(b) No dividends on shares of Series G Preferred Stock
shall be authorized by the Board of Directors of the Corporation or paid or set
apart for payment by the Corporation at such time as the terms and provisions
of any agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
authorization or payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the
Series G Preferred Stock shall accrue whether or not the terms and provisions
set forth in Section 14.7.3(b) hereof at any time prohibit the current payment
of dividends, whether or not the Corporation has earnings, whether or not there
are funds legally available for the payment of such dividends and whether or
not such dividends are declared. Accrued but unpaid dividends on the Series G
Preferred Stock will accumulate as of the Series G Dividend Payment Date on
which they first become payable.
(d) Except as provided in Section 14.7.3(e) below, no
dividends will be declared or paid or set apart for payment on any Stock of the
Corporation or any other series of Preferred Stock ranking, as to dividends, on
a parity with or junior to the Series G Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of Stock
ranking junior to the Series G Preferred Stock as to dividends and upon
liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series G Preferred
Stock for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (and a sum
sufficient for such full payment is not so set apart) upon the Series G
Preferred Stock and the shares of any other series of Preferred Stock ranking
on a parity as to dividends with the Series G Preferred Stock, all dividends
declared upon the Series G Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series G Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share
of Series G Preferred Stock and such other series of Preferred Stock shall in
all cases bear to each other the same ratio that accrued dividends per share on
the Series G Preferred Stock and such other series of Preferred Stock (which
shall not include any accrual in respect of unpaid dividends for prior dividend
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periods if such Preferred Stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on Series G Preferred Stock
which may be in arrears.
(f) Except as provided in the immediately preceding
paragraph, unless full cumulative dividends on the Series G Preferred Stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in shares of Common Stock or other shares of Stock ranking junior to the Series
G Preferred Stock as to dividends and upon liquidation) shall be declared or
paid or set aside for payment nor shall any other distribution be declared or
made upon the Common Stock, or any other Stock of the Corporation ranking
junior to or on a parity with the Series G Preferred Stock as to dividends or
upon liquidation, nor shall any shares of Common Stock, or any other shares of
Stock of the Corporation ranking junior to or on a parity with the Series G
Preferred Stock as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any monies be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation (except by conversion into or exchange for other Stock of the
Corporation ranking junior to the Series G Preferred Stock as to dividends and
upon liquidation).
(g) Any dividend payment made on shares of the Series G
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable. Holders of the
Series G Preferred Stock shall not be entitled to any dividend, whether payable
in cash, property or Stock, in excess of full cumulative dividends on the
Series G Preferred Stock as described above.
14.7.4 Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series G Preferred Stock then outstanding are entitled to be paid out
of the assets of the Corporation legally available for distribution to its
stockholders a liquidation preference of $25.00 per share, plus an amount equal
to any accrued and unpaid dividends to the date of payment, before any
distribution of assets is made to holders of Common Stock or any other class or
series of Stock of the Corporation that ranks junior to the Series G Preferred
Stock as to liquidation rights.
(b) In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Corporation are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of Series G Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of Stock of the
Corporation ranking on a parity with the Series G Preferred Stock in the
distribution of assets, then the holders of the Series G Preferred Stock and
all other such classes or series of Stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating distributions to
which
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they are entitled, the holders of Series G Preferred Stock will have no right
or claim to any of the remaining assets of the Corporation.
(d) Written notice of any such liquidation, dissolution
or winding up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage pre-paid, not
less than 30 nor more than 60 days prior to the payment date stated therein, to
each record holder of the Series G Preferred Stock at the respective addresses
of such holders as the same shall appear on the stock transfer records of the
Corporation.
(e) The consolidation or merger of the Corporation with
or into any other corporation, trust or entity or of any other corporation with
or into the Corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Corporation, shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
14.7.5 Redemption.
(a) Right of Optional Redemption. The Series G Preferred
Stock is not redeemable prior to October 15, 2001. However, in order to ensure
that the Corporation remains qualified as a REIT for federal income tax
purposes, shares of Series G Preferred Stock which have been converted into
Excess Stock shall be subject to repurchase by the Corporation in accordance
with Section 7.4.10 of Article VII. On and after October 15, 2001, the
Corporation, at its option and upon not less than 30 nor more than 60 days'
written notice, may redeem shares of the Series G Preferred Stock, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends thereon to the date
fixed for redemption (except as provided in Section 14.7.5(c) below), without
interest. If less than all of the outstanding Series G Preferred Stock is to
be redeemed, the Series G Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by
any other equitable method determined by the Corporation.
(b) Limitations on Redemption.
(i)The redemption price of the Series G Preferred
Stock (other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale proceeds of other capital
stock of the Corporation, which may include other series of Preferred
Stock, and from no other source. For purposes of the preceding
sentence, "capital stock" means any equity securities (including
Common Stock and Preferred Stock), shares, interest, participation or
other ownership interests (however designated) and any rights (other
than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
(ii) Unless full cumulative dividends on all
shares of Series G Preferred Stock shall have been or
contemporaneously are declared and paid or
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<PAGE> 74
declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend
period, no shares of Series G Preferred Stock shall be redeemed unless
all outstanding shares of Series G Preferred Stock are simultaneously
redeemed, and the Corporation shall not purchase or otherwise acquire
directly or indirectly any shares of Series G Preferred Stock (except
by exchange for Stock of the Corporation ranking junior to the Series
G Preferred Stock as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase by the
Corporation of shares of Excess Stock in order to ensure that the
Corporation remains qualified as a REIT for federal income tax
purposes or the purchase or acquisition of shares of Series G
Preferred Stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Series G Preferred
Stock.
(c) Rights to Dividends on Shares Called for Redemption.
Immediately prior to any redemption of Series G Preferred Stock, the
Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date, unless a redemption date falls after a Series G Dividend
Record Date and prior to the corresponding Series G Dividend Payment Date, in
which case each holder of Series G Preferred Stock at the close of business on
such Series G Dividend Record Date shall be entitled to the dividend payable on
such shares on the corresponding Series G Dividend Payment Date notwithstanding
the redemption of such shares before such Series G Dividend Payment Date.
Except as provided above, the Corporation will make no payment or allowance for
unpaid dividends, whether or not in arrears, on Series G Preferred Stock which
is redeemed.
(d) Procedures for Redemption.
(i) Notice of redemption will be (A) given by
publication in a newspaper of general circulation in the City of New
York, such publication to be made once a week for two successive weeks
commencing not less than 30 nor more than 60 days prior to the
redemption date, and (B) mailed by the Corporation, postage prepaid,
not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series G
Preferred Stock to be redeemed at their respective addresses as they
appear on the stock transfer records of the Corporation. No failure
to give such notice or any defect thereto or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any
shares of Series G Preferred Stock except as to the holder to whom
notice was defective or not given.
(ii) In addition to any information required by
law or by the applicable rules of any exchange upon which Series G
Preferred may be listed or admitted to trading, such notice shall
state: (A) the redemption date; (B) the redemption price; (C) the
number of shares of Series G Preferred Stock to be redeemed; (D) the
place or places where the Series G Preferred Stock is to be
surrendered for payment of the redemption price; and (E) that
dividends on the shares to be redeemed will cease to accrue on such
redemption date. If less than all of the Series G Preferred Stock
held by any holder is to be redeemed, the notice mailed to
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such holder shall also specify the number of shares of Series G
Preferred Stock held by such holder to be redeemed.
(iii) If notice of redemption of any shares of
Series G Preferred Stock has been given and if the funds necessary for
such redemption have been set aside by the Corporation in trust for
the benefit of the holders of any shares of Series G Preferred Stock
so called for redemption, then from and after the redemption date
dividends will cease to accrue on such shares of Series G Preferred
Stock, such shares of Series G Preferred Stock shall no longer be
deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. Holders
of Series G Preferred Stock to be redeemed shall surrender such Series
G Preferred Stock at the place designated in such notice and, upon
surrender in accordance with said notice of the certificates for
shares of Series G Preferred Stock so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and the
notice shall so state), such shares of Series G Preferred Stock shall
be redeemed by the Corporation at the redemption price plus any
accrued and unpaid dividends payable upon such redemption. In case
less than all the shares of Series G Preferred Stock represented by
any such certificate are redeemed, a new certificate or certificates
shall be issued representing the unredeemed shares of Series G
Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust
corporation for the purpose of redeeming Series G Preferred Stock
shall be irrevocable except that:
(A) the Corporation shall be entitled to
receive from such bank or trust corporation the interest or
other earnings, if any, earned on any money so deposited in
trust, and the holders of any shares redeemed shall have no
claim to such interest or other earnings; and
(B) any balance of monies so deposited
by the Corporation and unclaimed by the holders of the Series
G Preferred Stock entitled thereto at the expiration of two
years from the applicable redemption dates shall be repaid,
together with any interest or other earnings thereon, to the
Corporation, and after any such repayment, the holders of the
shares entitled to the funds so repaid to the Corporation
shall look only to the Corporation for payment without
interest or other earnings.
(e) The shares of Series G Preferred Stock are subject to
the provisions of Section 7.4 of Article VII and Article IX of the Articles
relating to Excess Stock. Excess Stock issued upon exchange of shares of
Series G Preferred Stock pursuant to such provisions may be redeemed, in whole
or in part, at any time when outstanding shares of Series G Preferred Stock are
being redeemed, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series G Preferred Stock, which
are exchanged for such Excess Stock, through the date of such exchange, without
interest. If the Corporation elects to redeem Excess Stock pursuant to the
redemption right set forth in the
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preceding sentence, such Excess Stock shall be redeemed in such proportion and
in accordance with such procedures as shares of Series G Preferred Stock are
being redeemed.
(f) Any shares of Series G Preferred Stock that shall at
any time have been redeemed shall, after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to series until
such shares are thereafter designated as part of a particular series by the
Board of Directors.
14.7.6 Voting Rights.
(a) Holders of the Series G Preferred Stock will not have
any voting rights, except as set forth below or as otherwise from time to time
required by law.
(b) Whenever dividends on any shares of Series G
Preferred Stock shall be in arrears for six or more quarterly periods (a
"Series G Preferred Dividend Default"), the Board of Directors shall take such
action as may be necessary to increase the number of Directors of the
Corporation by two and the holders of such shares of Series G Preferred Stock
(voting separately as a class with the holders of all other series of Preferred
Stock ranking on a parity with the Series G Preferred Stock as to dividends or
upon liquidation ("Series G Parity Preferred") upon which like voting rights
have been conferred and are exercisable) will be entitled to vote for the
election of a total of two Directors of the Corporation (the "Series G
Preferred Stock Directors") at a special meeting called by the holders of
record of at least 10% of the Series G Parity Preferred or the holders of any
other series of Series G Parity Preferred so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the stockholders) or at the next annual meeting of stockholders, and
at each subsequent annual meeting until all dividends accumulated on such
shares of Series G Preferred Stock for the past dividend periods and the
dividends for the then current dividend period shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment.
(c) If and when all accumulated dividends and the
dividend for the then current dividend period on the Series G Preferred Stock
shall have been paid in full or set aside for payment in full, the holders of
shares of Series G Preferred Stock shall be divested of the voting rights set
forth in Section 14.7.6(b) hereof (subject to revesting in the event of each
and every Series G Preferred Dividend Default) and the term of office of each
Series G Preferred Stock Director so elected shall terminate and the Board of
Directors shall take such action as may be necessary to reduce the number of
Directors by two. Any Series G Preferred Stock Director may be removed at any
time with or without cause by the vote of, and shall not be removed otherwise
than by the vote of, the holders of record of a majority of the outstanding
shares of the Series G Preferred Stock when they have the voting rights set
forth in Section 14.7.6(b) (voting separately as a class with all other series
of Series G Parity Preferred upon which like voting rights have been conferred
and are exercisable). So long as a Series G Preferred Dividend Default shall
continue, any vacancy in the office of a Series G Preferred Stock Director may
be filled by written consent of the Series G Preferred Stock Director remaining
in office, or if none remains in office, by a vote of the holders of record of
a
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majority of the outstanding shares of Series G Preferred Stock when they have
voting rights as set forth in Section 14.7.6(b) (voting separately as a class
with all other series of Series G Parity Preferred upon which like voting
rights have been conferred and are exercisable). The Series G Preferred Stock
Directors shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series G Preferred Stock
remain outstanding, the Corporation shall not, without the affirmative vote of
the holders of at least two thirds of the shares of the Series G Preferred
Stock outstanding at the time given in person or by proxy, either in writing or
at a meeting (voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of Stock
ranking senior to the Series G Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized Stock of the Corporation into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares, or (ii) amend, alter
or repeal the provisions of the Articles, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series G Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
Preferred Stock or the creation or issuance of any other series of Preferred
Stock, or any increase in the amount of authorized shares of such series, in
each case ranking on a parity with or junior to the Series G Preferred Stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
(e) The foregoing voting provisions will not apply if, at
or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of Series G
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
14.7.7 Conversion. The Series G Preferred Stock is not
convertible into or exchangeable for any other property or securities
of the Corporation, except that the shares of Series G Preferred Stock
will automatically be converted by the Corporation into shares of
Excess Stock and transferred to a Trust in accordance with Section 7.4
of Article VII and Article IX of the Articles in the same manner that
Common Stock is converted into Excess Stock and transferred to a Trust
pursuant thereto, in order to ensure that the Corporation remains
qualified as a REIT for federal income tax purposes.
76
<PAGE> 1
EXHIBIT 3(ii).1
BYLAWS
OF
AVALON BAY COMMUNITIES, INC.
July 24, 1998
<PAGE> 2
BYLAWS
OF
AVALON BAY COMMUNITIES, INC.
TABLE OF CONTENTS
Page
ARTICLE I MEETINGS OF STOCKHOLDERS...........................................1
1.01 PLACE.............................................................1
1.02 ANNUAL MEETING....................................................1
1.03 MATTERS TO BE CONSIDERED AT ANNUAL MEETING........................1
1.04 SPECIAL MEETINGS..................................................3
1.05 NOTICE............................................................3
1.06 SCOPE OF NOTICE...................................................3
1.07 QUORUM............................................................3
1.08 VOTING............................................................4
1.09 PROXIES...........................................................4
1.10 CONDUCT OF MEETINGS...............................................4
1.11 TABULATION OF VOTES...............................................5
1.12 INFORMAL ACTION BY STOCKHOLDERS...................................6
1.13 VOTING BY BALLOT..................................................6
ARTICLE II DIRECTORS.........................................................6
2.01 GENERAL POWERS....................................................6
2.02 OUTSIDE ACTIVITIES................................................6
2.03 NUMBER, TENURE AND QUALIFICATION..................................7
2.04 NOMINATION OF DIRECTORS...........................................7
2.05 ANNUAL AND REGULAR MEETINGS.......................................9
2.06 SPECIAL MEETINGS..................................................9
2.07 NOTICE AND CALL OF MEETINGS.......................................9
2.08 QUORUM............................................................9
2.09 VOTING............................................................9
2.10 CONDUCT OF MEETINGS..............................................10
2.11 RESIGNATIONS.....................................................10
2.12 REMOVAL OF DIRECTORS.............................................10
2.13 VACANCIES........................................................10
2.14 INFORMAL ACTION BY DIRECTORS.....................................10
2.15 COMPENSATION.....................................................10
(i)
<PAGE> 3
Page
ARTICLE III COMMITTEES......................................................10
3.01 NUMBER, TENURE AND QUALIFICATION................................10
3.02 DELEGATION OF POWER.............................................11
3.03 QUORUM AND VOTING...............................................12
3.04 CONDUCT OF MEETINGS.............................................12
3.05 INFORMAL ACTION BY COMMITTEES...................................12
ARTICLE IV OFFICERS.........................................................12
4.01 TITLES AND ELECTION..............................................12
4.02 REMOVAL AND RESIGNATION..........................................13
4.03 OUTSIDE ACTIVITIES...............................................13
4.04 VACANCIES........................................................13
4.05 EXECUTIVE CHAIRMAN OF THE BOARD..................................13
4.06 CHIEF EXECUTIVE OFFICER..........................................13
4.07 PRESIDENT........................................................14
4.08 VICE PRESIDENTS..................................................14
4.09 SECRETARY........................................................14
4.10 TREASURER AND CHIEF FINANCIAL OFFICER............................14
4.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS...................15
4.12 SUBORDINATE OFFICERS.............................................15
4.13 COMPENSATION.....................................................15
ARTICLE V SHARES OF STOCK...................................................15
5.01 FORM OF CERTIFICATES..............................................15
5.02 TRANSFER OF SHARES................................................16
5.03 STOCK LEDGER......................................................16
5.04 RECORDING TRANSFERS OF STOCK......................................16
5.05 LOST CERTIFICATE..................................................16
5.06 EMPLOYEE STOCK PURCHASE PLAN......................................17
5.07 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE................17
ARTICLE VI DIVIDENDS AND DISTRIBUTIONS......................................18
6.01 DECLARATION......................................................18
6.02 CONTINGENCIES....................................................18
ARTICLE VII INDEMNIFICATION.................................................18
7.01 INDEMNIFICATION TO THE EXTENT PERMITTED BY LAW..................18
7.02 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION......19
7.03 INSURANCE.......................................................19
7.04 NON-EXCLUSIVE RIGHTS TO INDEMNITY; HEIRS AND PERSONAL
REPRESENTATIVES.................................................19
7.05 NO LIMITATION...................................................19
(ii)
<PAGE> 4
Page
7.06 AMENDMENT, REPEAL OR MODIFICATION................................19
7.07 RIGHT OF CLAIMANT TO BRING SUIT..................................20
ARTICLE VIII NOTICES........................................................20
8.01 NOTICES..........................................................20
8.02 SECRETARY TO GIVE NOTICE.........................................20
8.03 WAIVER OF NOTICE.................................................21
ARTICLE IX MISCELLANEOUS....................................................21
9.01 EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE.................21
9.02 OFFICES OF THE CORPORATION.......................................21
9.03 BOOKS AND RECORDS................................................21
9.04 INSPECTION OF BYLAWS AND CORPORATE RECORDS.......................21
9.05 CONTRACTS........................................................22
9.06 CHECKS, DRAFTS, ETC..............................................22
9.07 LOANS............................................................22
9.08 FISCAL YEAR......................................................22
9.09 ANNUAL REPORT....................................................23
9.10 INTERIM REPORTS..................................................23
9.11 OTHER REPORTS....................................................23
9.12 BYLAWS SEVERABLE.................................................23
ARTICLE X AMENDMENT OF BYLAWS..............................................23
10.01 BY DIRECTORS.....................................................23
10.02 BY STOCKHOLDERS..................................................23
(iii)
<PAGE> 5
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.01 PLACE. All meetings of the holders (the "Stockholders") of the
issued and outstanding common stock and preferred stock of Avalon Bay
Communities, Inc. (the "Corporation") shall be held at the principal executive
office of the Corporation or such other place within the United States as shall
be stated in the notice of the meeting.
1.02 ANNUAL MEETINGS. An annual meeting of the Stockholders for the
election of directors of the Corporation ("Directors") and the transaction of
such other business as may be properly brought before the meeting shall be held
on the first Monday of June of each year, or on such other date determined by
the Board of Directors which is not more than fifteen days prior to or after
such first Monday of June, and at such time as shall be fixed by the Board of
Directors. If the date fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business day. If no annual
meeting is held on the date designated, a special meeting in lieu thereof may be
held, and such special meeting shall have, for purposes of these Bylaws or
otherwise, all the force and effect of an annual meeting. Any and all references
hereafter in these Bylaws to an annual meeting or to annual meetings shall be
deemed to refer also to any special meeting(s) in lieu thereof. Failure to hold
an annual meeting shall not invalidate the Corporation's existence or affect any
otherwise valid acts of the Corporation.
1.03 MATTERS TO BE CONSIDERED AT ANNUAL MEETING.
(a) At an annual meeting of Stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been properly brought before the annual meeting (i) by, or at the direction of,
a majority of the Board of Directors, or (ii) by any holder of record (both as
of the time notice of such proposal is given by the Stockholder as set forth
below and as of the record date for the annual meeting in question) of any
shares of the Corporation's capital stock entitled to vote at such annual
meeting who complies with the procedures set forth in this Section 1.03. For a
proposal to be properly brought before an annual meeting by a Stockholder, the
Stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation, and such Stockholder or his representative must be present in
person at the annual meeting. For each annual meeting, a Stockholder's notice
shall be timely if delivered to, or mailed and received at, the principal
executive offices of the Corporation (A) not less than seventy-five (75) days
nor more than one hundred eighty (180) days prior to the anniversary date of the
immediately preceding annual meeting of Stockholders or special meeting in lieu
thereof (the "Anniversary Date") or (B) in the event that the annual meeting of
Stockholders is called for a date more than seven (7) calendar days prior to the
Anniversary Date, not later than the close of business on (1) the twentieth
(20th) calendar day (or if that day is not a business day for the Corporation,
on the next succeeding business day) following the earlier of (x) the date on
which notice of the date of such meeting was mailed to Stockholders, or (y) the
date on which the date of such meeting
1
<PAGE> 6
was publicly disclosed, or (2) if such date of notice or public disclosure
occurs more than seventy-five (75) calendar days prior to the scheduled date of
such meeting, then the later of (x) the twentieth (20th) calendar day (or if
that day is not a business day for the Corporation, on the next succeeding
business day) following the date of the first to occur of such notice or public
disclosure or (y) the seventy-fifth (75th) calendar day prior to such scheduled
date of such meeting (or if that day is not a business day for the Corporation,
on the next succeeding business day).
For purposes of these Bylaws, "publicly disclosed" and "public
disclosure" shall mean disclosure in a (i) press release reported by the Dow
Jones News Service, Associated Press or comparable national news service, (ii)
report or other document filed publicly with the Securities and Exchange
Commission (including, without limitation, a Form 8-K), or (iii) letter or
report sent to Stockholders of record of the Corporation.
(b) A Stockholder's notice to the Secretary shall set forth as
to each matter the Stockholder proposes to bring before the annual meeting (i) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's stock transfer books,
of the Stockholder proposing such business and of the beneficial owners (if any)
of the stock registered in such Stockholder's name and the name and address of
other Stockholders known by such Stockholder to be supporting such proposal on
the date of such Stockholder's notice, (iii) the class and number of shares of
the Corporation's capital stock which are beneficially owned by the Stockholder
and such beneficial owners (if any) on the date of such Stockholder's notice and
by any other Stockholders known by such Stockholder to be supporting such
proposal on the date of such Stockholder's notice, and (iv) any financial
interest of the Stockholder or of any such beneficial owner in such proposal.
(c) If the Board of Directors, or a designated committee
thereof, determines that any Stockholder proposal was not timely made in
accordance with the terms of this Section 1.03, such proposal shall not be
presented for action at the annual meeting in question. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a Stockholder's notice does not satisfy the informational
requirements of this Section in any material respect, the Secretary of the
Corporation shall promptly notify such Stockholder of the deficiency in the
notice. Such Stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within the period of time,
not to exceed five (5) days from the date such deficiency notice is given to
the Stockholder, determined by the Board of Directors or such committee. If
the deficiency is not cured within such period, or if the Board of Directors
or such committee determines that the additional information provided by the
Stockholder, together with the information previously provided, does not
satisfy the requirements of this Section 1.03 in any material respect, then
such proposal shall not be presented for action at the annual meeting in
question.
(d) Notwithstanding the procedure set forth in the preceding
paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of
2
<PAGE> 7
any Stockholder proposal as set forth above, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the
Stockholder proposal was made in accordance with the terms of this Section 1.03.
If the presiding officer determines that a Stockholder proposal was made in
accordance with the terms of this Section 1.03, the presiding officer shall so
declare at the annual meeting. If the presiding officer determines that a
Stockholder proposal was not made in accordance with the provisions of this
Section 1.03, the presiding officer shall so declare at the annual meeting and
such proposal shall not be acted upon at the annual meeting.
(e) This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, Directors
and committees of the Board of Directors, but in connection with such reports,
no new business shall be acted upon at such annual meeting except in accordance
with the provisions of this Section 1.03.
1.04 SPECIAL MEETINGS. The Executive Chairman of the Board of
Directors (the "Executive Chairman"), the Chief Executive Officer, the President
or a majority of the Board of Directors may call special meetings of the
Stockholders. In addition, the Secretary of the Corporation shall call a special
meeting of the Stockholders on the written request of Stockholders entitled to
cast a majority of all the votes entitled to be cast at the meeting. Such
request shall state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat. The date, time, place and record date for any
special meeting, including a special meeting called at the request of
Stockholders, shall be established by the Board of Directors or officer calling
the same.
1.05 NOTICE. Not fewer than ten (10) nor more than ninety (90) days
before the date of every meeting of Stockholders, written notice of such meeting
shall be given, in accordance with Article VIII, to each Stockholder entitled to
vote at the meeting or entitled to notice of the meeting by statute, stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose or purposes for which the
meeting is called.
1.06 SCOPE OF NOTICE. No business shall be transacted at a special
meeting of Stockholders except that specifically designated in the notice of the
meeting. Subject to the provisions of Section 1.03, any business of the
Corporation may be transacted at the annual meeting without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice.
1.07 QUORUM. At any meeting of Stockholders, the presence in person
or by proxy of Stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting shall constitute a quorum; but this Section
1.07 shall not affect any requirement under any statute or the charter of the
Corporation, as amended from time to time (the "Charter"), for the vote
necessary for the adoption of any measure. If, however, a quorum is not present
at any meeting of Stockholders, the Stockholders present in person or by proxy
or the presiding officer shall have the power to adjourn the meeting from time
to time without notice
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other than announcement at the meeting until a quorum is present and the meeting
so adjourned may be reconvened without further notice, except that if
adjournment is for more than forty-five (45) days or if after the adjournment a
new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote thereat.
At any meeting called to resume an adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally notified. The Stockholders present at a meeting which has
been duly called and convened and at which a quorum is present at the time
counted may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
1.08 VOTING. A majority of the votes cast at a meeting of
Stockholders duly called and at which a quorum is present shall be sufficient to
take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of the votes cast is specifically required
by statute, the Charter or these Bylaws. Unless otherwise provided by statute or
the Charter, each outstanding share (a "Share") of stock of the Corporation (the
"Stock"), regardless of class, shall be entitled to one vote upon each matter
submitted to a vote at a meeting of Stockholders. Any holder of shares entitled
to vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
other than elections to office, but, if the Stockholder fails to specify the
number of shares such Stockholder is voting affirmatively, it shall be
conclusively presumed that the Stockholder's approving vote is with respect to
all shares said Stockholder is entitled to vote. Shares of its own Stock
directly or indirectly owned by the Corporation shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
Shares entitled to vote at any given time, but Shares of its own voting Stock
held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding Shares at any given time.
Notwithstanding anything else contained in these Bylaws, the rights of any class
of "Excess Stock" (as such term is defined in the Charter) and the rights of
holders of any class of Excess Stock shall be limited to the rights with respect
thereto provided in the Charter. Notwithstanding the foregoing, a plurality of
the votes cast at a meeting of Stockholders duly called and at which a quorum is
present shall be sufficient to elect a Director.
1.09 PROXIES. A Stockholder may vote the Shares owned of record by
him or her, either in person or by proxy executed in writing by the Stockholder
or by his or her duly authorized agent. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy.
1.10 CONDUCT OF MEETINGS.
(a) The Executive Chairman or, in the absence of the
Executive Chairman, the Chief Executive Officer or, in the absence of both the
Executive Chairman and the Chief
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Executive Officer, the President, or, in the absence of all of the foregoing
officers, a presiding officer appointed by the Board of Directors, shall preside
over meetings of the Stockholders. The Secretary of the Corporation, or, in the
absence of the Secretary and Assistant Secretaries, the person appointed by the
presiding officer (the "Presiding Officer") of the meeting shall act as
secretary of such meeting. Unless otherwise approved by the Presiding Officer,
attendance at a meeting of Stockholders is restricted to Stockholders of record,
persons authorized in accordance with Section 1.09 to act by proxy, and officers
of the Corporation.
(b) The Presiding Officer shall call the meeting to order,
establish the agenda, and conduct the business of the meeting in accordance
therewith, or at the Presiding Officer's discretion, it may be conducted
otherwise in accordance with the wishes of the Stockholders in attendance. The
Presiding Officer shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Presiding Officer may
impose reasonable limits on the amount of time taken up at the meeting on
discussion in general or on remarks by any one Stockholder. Should any person in
attendance become unruly or obstruct the meeting proceedings, the Presiding
Officer shall have the power to have such person removed from participation.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
considered at a meeting except in accordance with the procedures set forth in
this Section 1.10 and Section 1.03 above. The Presiding Officer of a meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this Section 1.10 and Section 1.03 above, and if the Presiding
Officer should so determine, he or she shall so declare to the meeting, and such
business shall not be transacted.
1.11 TABULATION OF VOTES. At any annual or special meeting of
Stockholders, the presiding officer shall be authorized to appoint one or more
persons as tellers for such meeting (the "Teller" or "Tellers"). The Teller may,
but need not, be an officer or employee of the Corporation. The Teller shall be
responsible for tabulating or causing to be tabulated shares voted at the
meeting and reviewing or causing to be reviewed all proxies. In tabulating
votes, the Teller shall be entitled to rely in whole or in part on tabulations
and analyses made by personnel of the Corporation, its counsel, its transfer
agent, its registrar or such other organizations that are customarily employed
to provide such services. The Teller may be authorized by the Presiding Officer
to determine on a preliminary basis the legality and sufficiency of all votes
cast and proxies delivered under the Corporation's Charter, Bylaws and
applicable law. The Presiding Officer may review all preliminary determinations
made by the Teller hereunder, and in doing so, the Presiding Officer shall be
entitled to exercise his or her sole judgment and discretion and he or she shall
not be bound by any preliminary determinations made by the Teller. Each report
of the Teller shall be in writing and signed by him or her or by a majority of
them if there is more than one. The report of the majority shall be the report
of the Tellers.
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1.12 INFORMAL ACTION BY STOCKHOLDERS. An action required or
permitted to be taken at a meeting of Stockholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by all the
Stockholders entitled to vote on the subject matter thereof and any other
Stockholders entitled to notice of a meeting of Stockholders (but not to vote
thereat) have waived in writing any rights which they may have to dissent from
such action, and such consents and waivers are filed with the records of
Stockholders meetings. Such consents and waivers may be signed by different
Stockholders on separate counterparts.
1.13 VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any Stockholder at
voting be by ballot.
ARTICLE II
DIRECTORS
2.01 GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors. All powers of
the Corporation may be exercised by or under the authority of the Board of
Directors, except as conferred on or reserved to the Stockholders by statute,
the Charter or these Bylaws.
2.02 OUTSIDE ACTIVITIES. The Board of Directors and its members are
required to spend only such time managing the business and affairs of the
Corporation as is necessary to carry out their duties in accordance with Section
2-405.1 the Maryland General Corporation Law, as amended from time to time (the
"MGCL"). Except as set forth in the Charter or by separate agreement, the Board
of Directors, each Director, and the agents, officers and employees of the
Corporation or of the Board of Directors or of any Director may engage with or
for others in business activities of the types conducted by the Corporation.
Except as set forth in the Charter or by separate agreement, none of such
individuals has an obligation to notify or present to the Corporation or each
other any investment opportunity that may come to such person's attention even
though such investment might be within the scope of the Corporation's purposes
or various investment objectives. Any interest that a Director has in any
investment opportunity presented to the Corporation must be disclosed by such
Director to the Board of Directors (and, if voting thereon, to the Stockholders
or to any committee of the Board of Directors) within ten (10) days after the
later of the date upon which such Director becomes aware of such interest or the
date upon which such Director becomes aware that the Corporation is considering
such investment opportunity. If such interest comes to the interested Director's
attention after a vote to take such investment opportunity, the voting body
shall be notified of such interest and shall reconsider such investment
opportunity if not already consummated or implemented.
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2.03 NUMBER, TENURE AND QUALIFICATION. The number of Directors of
the Corporation shall be that number set forth in the Charter or such other
number as may be designated from time to time by resolution of a majority of the
entire Board of Directors; provided, however, that the number of Directors shall
be not less than five (5) nor greater than fifteen (15) and further provided
that the tenure of office of a Director shall not be affected by any decrease in
the number of Directors. The minimum or maximum number of Directors provided in
this Section 2.03 may be changed only by amendment to these Bylaws or by
amendment to the Corporation's Charter, provided that any such amendment shall
be both duly adopted by the affirmative vote of a majority of the outstanding
shares entitled to vote and deemed advisable or approved by the Board of
Directors. Each Director shall serve for the term set forth in the Charter and
until his or her successor is elected and qualified.
2.04 NOMINATION OF DIRECTORS.
(a) Nominations of candidates for election as Directors of the
Corporation at any annual meeting of Stockholders may be made (i) by, or at the
direction of, a majority of the Board of Directors or (ii) by any holder of
record (both as of the time notice of such nomination is given by the
Stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of the Corporation's capital stock entitled to vote
at such meeting who complies with the procedures set forth in this Section 2.04.
Any Stockholder who seeks to make such a nomination, or his representative, must
be present in person at the annual meeting. Only persons nominated in accordance
with the procedures set forth in this Section 2.04 shall be eligible for
election as Directors at an annual meeting of Stockholders.
(b) Nominations, other than those made by, or at the direction
of, the Board of Directors, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation as set forth in this Section 2.04. For each
annual meeting of the Corporation, a Stockholder's notice shall be timely if
delivered to, or mailed and received at, the principal executive offices of the
Corporation (i) not fewer than seventy-five (75) days nor more than one hundred
eighty (180) days prior to the Anniversary Date or (ii) in the event that the
annual meeting of Stockholders is called for a date more than seven (7) calendar
days prior to the Anniversary Date, not later than the close of business on (A)
the twentieth (20th) calendar day (or if that day is not a business day for the
Corporation, on the next succeeding business day) following the earlier of (1)
the date on which notice of the date of such meeting was mailed to Stockholders,
or (2) the date on which the date of such meeting was publicly disclosed, or (B)
if such date of notice or public disclosure occurs more than seventy-five (75)
calendar days prior to the scheduled date of such meeting, then the later of (1)
the twentieth (20th) calendar day (or if that day is not a business day for the
Corporation, on the next succeeding business day) following the date of the
first to occur of such notice or public disclosure or (2) the seventy-fifth
(75th) calendar day prior to such scheduled date of such meeting (or if that day
is not a business day for the Corporation, on the next succeeding business day).
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(c) A Stockholder's notice of nomination shall set forth as to
each person the Stockholder proposes to nominate for election as a Director (i)
the name, age, business address and residence address of such person; (ii) the
principal occupation or employment of such person for the past five (5) years;
(iii) the class and number of shares of the Corporation's capital stock which
are beneficially owned by such person on the date of such notice; (iv) such
nominee's written consent to be named in the proxy statement as a nominee and to
serve as a Director if elected; and (v) any other information relating to such
person that is required to be disclosed in solicitations of proxies with respect
to nominees for election under the Securities Exchange Act of 1934, as amended,
and the Rules and Regulations promulgated thereunder, and as may otherwise be
deemed necessary or desirable by the Corporation's counsel, in the exercise of
his or her discretion. Notice by a Stockholder shall, in addition to the
above-referenced information, set forth as to the Stockholder giving the notice
(A) the name and address, as they appear on the Corporation's stock transfer
books, of such Stockholder and of the beneficial owners (if any) of the stock
registered in such Stockholder's name; (B) the name and address of other
Stockholders known by such Stockholder to be supporting such nominees on the
date of such Stockholder's notice; (C) the class and number of shares of the
Corporation's capital stock which are beneficially owned by such Stockholder and
such beneficial owners (if any) on the date of such Stockholder notice; and (D)
the class and number of shares of the Corporation's capital stock which are
beneficially owned by any other Stockholders known by such Stockholder to be
supporting such nominees on the date of such Stockholder notice. At the request
of the Board of Directors, any person nominated by or at the direction of the
Board of Directors for election as a Director at an annual meeting shall furnish
to the Secretary of the Corporation that information which would be required to
be set forth in a Stockholder's notice of nomination of such nominee.
(d) No person shall be elected by the Stockholders as a
Director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 2.04. If the Board of Directors, or a designated
committee thereof, determines that a nomination made by any Stockholder was not
timely made in accordance with the terms of this Section, such nomination shall
not be considered at the annual meeting in question. If the Board of Directors,
or a designated committee thereof, determines that the information provided in a
Stockholder's notice does not satisfy the informational requirements of this
Section 2.04 in any material respect, the Secretary of the Corporation shall
promptly notify such Stockholder of the deficiency in the notice. Such
Stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within the period of time, not to exceed
five (5) days from the date such deficiency notice is given to such Stockholder,
determined by the Board of Directors or such committee. If the deficiency is not
cured within such period, or if the Board of Directors or such committee
determines that the additional information provided by such Stockholder,
together with the information previously provided, does not satisfy the
requirements of this Section 2.04 in any material respect, such nomination shall
not be considered at the annual meeting in question.
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(e) Notwithstanding the procedures set forth in the preceding
paragraph, if neither the Board of Directors nor a designated committee thereof
makes a determination as to the validity of any nominations by any Stockholder
as set forth above, the presiding officer of the Stockholders' meeting shall
determine and declare at the Stockholders' meeting whether a nomination was made
in accordance with the terms of this Section 2.04. If the presiding officer
determines that a nomination was not made in accordance with the terms of this
Section 2.04, such nomination shall be disregarded and the Board of Directors
shall make all Director nominations on behalf of the Corporation.
2.05 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors may be held immediately after and at the same place as the annual
meeting of Stockholders, or at such other time and place, either within or
without the State of Maryland, as is selected by resolution of the Board of
Directors, and no notice other than this Bylaw or such resolution shall be
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice than such
resolutions.
2.06 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Executive Chairman, the Chief
Executive Officer or a majority of the Directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.
2.07 NOTICE AND CALL OF MEETINGS. Notice of any special meeting to
be provided herein shall be given, in accordance with ARTICLE VIII, by written
notice delivered personally, telegraphed or telecopied to each Director at his
or her business or residence at least twenty-four (24) hours, or by mail at
least five (5) days, prior to the meeting. Neither the business to be transacted
at, nor the purpose of, any annual, regular or special meeting of the Board of
Directors need be specified in the notice, unless specifically required by
statute, the Charter or these Bylaws.
2.08 QUORUM. A majority of the Board of Directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors; provided, however, that a quorum for the transaction of
business with respect to any matter in which any Director (or affiliate of such
Director) who is not an independent Director has any interest shall consist of a
majority of the Directors that includes a majority of the independent Directors
then in office. If less than a majority of the Board of Directors is present at
said meeting, a majority of the Directors present may adjourn the meeting from
time to time without further notice.
2.09 VOTING. The action of a majority of the Directors present at a
meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute, the
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Charter or these Bylaws; provided, however, that no act relating to any matter
in which a Director (or affiliate of such Director) who is not an independent
Director has any interest shall be the act of the Board of Directors unless such
act has been approved by a majority of the Board of Directors that includes a
majority of the independent Directors.
2.10 CONDUCT OF MEETINGS. All meetings of the Board of Directors
shall be called to order and presided over by the Executive Chairman, or in the
absence of the Executive Chairman, by the Chief Executive Officer (if a member
of the Board of Directors) or, in the absence of the Executive Chairman and the
Chief Executive Officer, by a member of the Board of Directors selected by the
members present. The Secretary of the Corporation, or in the absence of the
Secretary, any Assistant Secretary, shall act as secretary at all meetings of
the Board of Directors, and in the absence of the Secretary and Assistant
Secretaries, the presiding officer of the meeting shall designate any person to
act as secretary of the meeting. Members of the Board of Directors may
participate in meetings of the Board of Directors by conference telephone or
similar communications equipment by means of which all Directors participating
in the meeting can hear each other at the same time, and participation in a
meeting in accordance herewith shall constitute presence in person at such
meeting for all purposes of these Bylaws.
2.11 RESIGNATIONS. Any Director may resign from the Board of
Directors or any committee thereof in the manner provided in the Charter.
2.12 REMOVAL OF DIRECTORS. Any Director may be removed in the manner
provided in the Charter.
2.13 VACANCIES. Vacancies on the Board of Directors shall be filled
in the manner provided in the Charter.
2.14 INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if a consent in writing to such action is signed by all of the Directors
and such written consent is filed with the minutes of the Board of Directors.
Consents may be signed by different Directors on separate counterparts.
2.15 COMPENSATION. An annual fee for services and payment for
expenses of attendance at each meeting of the Board of Directors, or of any
committee thereof, may be allowed to any Director by resolution of the Board of
Directors.
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ARTICLE III
COMMITTEES
3.01 NUMBER, TENURE AND QUALIFICATION. The Board of Directors may
appoint from among its members certain committees as described below. The term
of office of any committee member shall be as provided in the resolution of the
Board of Directors designating such member but shall not exceed such member's
term as Director. Any member of a committee may be removed at any time by
resolution adopted by a majority of the Directors. If any committee may take or
authorize any act as to any matter in which any Director (or affiliate of such
Director) who is not an independent Director has or may have any interest, a
majority of the members of such committee shall be independent Directors, except
that any such committee consisting of only two Directors may have one
independent Director and one Director who is not an independent Director.
(a) Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the Directors, appoint an Executive
Committee, consisting of one or more Directors. The Board may designate one or
more Directors as an alternate member of the Executive Committee, who may
replace any absent member at any meeting of the Executive Committee.
(b) Audit Committee. The Board of Directors shall, by resolution
adopted by a majority of the Directors, appoint an Audit Committee consisting of
two or more Directors whose membership on the Audit Committee shall meet the
requirements set forth in the applicable rules, if any, of the New York Stock
Exchange, as amended from time to time. The Board may designate one or more
Directors as an alternate member of the Audit Committee, who may replace any
absent member at any meeting of the Audit Committee.
(c) Compensation Committee. The Board of Directors shall, by
resolution adopted by a majority of the authorized number of Directors, appoint
a Compensation Committee, consisting of two or more Directors, each of whom is
not an employee, officer or former officer of the Corporation or a subsidiary or
division thereof, or a relative of a principal executive officer, or an
individual member of an organization acting as an advisor, consultant, or legal
counsel, receiving compensation on a continuing basis from the Corporation in
addition to the compensation pursuant to Section 2.15 hereof. The Board may
designate one or more Directors as an alternate member of the Compensation
Committee, who may replace any absent member at any meeting of the Compensation
Committee.
(d) Other Committees. The Board of Directors may, by resolution
adopted by a majority of the authorized number of Directors, designate such
other standing or special committees, each consisting of one or more Directors,
as it may from time to time deem advisable to perform such general or special
duties as may from time to time be delegated to any such committee by the Board
of Directors, subject to the limitations contained in the MGCL or imposed by the
Charter or these Bylaws. The Board may designate one or more
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Directors as an alternate member of any committee designated pursuant to this
Section 3.01(d), who may replace any absent member at any meeting of the such
committee.
3.02 DELEGATION OF POWER. The Board of Directors may delegate to
these committees in the intervals between meetings of the Board of Directors any
of the powers of the Board of Directors to manage the business and affairs of
the Corporation, except those powers which the Board of Directors is
specifically prohibited from delegating pursuant to Section 2-411 of the MGCL.
3.03 QUORUM AND VOTING. A majority of the members of any committee
shall constitute a quorum for the transaction of business by such committee, and
the act of a majority of the quorum shall constitute the act of the committee,
except that no act relating to any matter in which any Director (or affiliate of
such Director) who is not an independent Director has any interest shall be the
act of any committee unless a majority of the independent Directors on the
committee vote for such act.
3.04 CONDUCT OF MEETINGS. Each committee shall designate a presiding
officer of such committee, and if not present at a particular meeting, the
committee shall select a presiding officer for such meeting. Each committee
shall adopt its own rules governing the time and place of holding and the method
of calling its meetings and the conduct of its proceedings shall be as provided
by such rules, and it shall also meet at the call of any member of the
committee. Members of any committee may participate in meetings of such
committee by conference telephone or similar communications equipment by means
of which all Directors participating in the meeting can hear each other at the
same time, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for all purposes of these Bylaws.
Each committee shall keep minutes of its meetings, and report the results of any
proceedings at the next succeeding annual or regular meeting of the Board of
Directors.
3.05 INFORMAL ACTION BY COMMITTEES. Any action required or permitted
to be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of
proceedings of such committee. Consents may be signed by different members on
separate counterparts.
ARTICLE IV
OFFICERS
4.01 TITLES AND ELECTION. The Corporation shall have an Executive
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (including Executive Vice Presidents or Senior Vice Presidents), a
Secretary, a Treasurer (who shall also be the Chief Financial Officer of the
Corporation) and such Assistant Secretaries and Assistant Treasurers and such
other officers as the Board of Directors, or any committee or
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officer appointed by the Board of Directors for such purpose, may from time to
time elect. The officers of the Corporation elected by the Board of Directors
shall be elected annually at the first meeting of the Board of Directors
following each annual meeting of Stockholders. If the election of such officers
shall not take place at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until the first
meeting of the Board of Directors following the next annual meeting of
Stockholders and until his successor is duly elected and qualified or until his
death, resignation or removal in the manner hereinafter provided. Any two or
more offices, except President and Vice President, may be held by the same
person. Election or appointment of an officer or agent shall not of itself
create contract rights between the Corporation and such officer or agent. No
officer need be a Stockholder or a Director of the Corporation.
4.02 REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by a majority of the Directors at the time in office, at
any regular or special meeting of the Board of Directors, or, except in the case
of an officer chosen by the Board of Directors, by a committee or an officer
upon whom such power of removal may be conferred by the Board of Directors. Any
officer may resign at any time by giving written notice to the Corporation. Any
such resignation shall take effect at the date of the receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
4.03 OUTSIDE ACTIVITIES. The officers and agents of the Corporation
are required to spend only such time managing the business and affairs of the
Corporation as is necessary to carry out their duties in accordance with the law
and these Bylaws. The officers and agents of the Corporation may engage with or
for others in business activities of the types conducted by the Corporation.
Except as set forth in the Charter or by separate agreement, the officers and
agents of the Corporation (other than those serving who are also Directors) do
not have an obligation to notify or present to the Corporation or each other any
investment opportunity that may come to such person's attention even though such
investment might be within the scope of the Corporation's purposes or various
investment objectives. Any interest that an officer or an agent has in any
investment opportunity presented to the Corporation must be disclosed by such
officer or agent to the Board of Directors (and, if voting thereon, to the
Stockholders or to any committee of the Board of Directors) within ten (10) days
after the later of the date upon which such officer or agent becomes aware of
such interest or that the Corporation is considering such investment
opportunity. If such interest comes to the attention of the interested officer
or agent after a vote to take such investment opportunity, the voting body shall
reconsider such investment opportunity if not already consummated or
implemented.
4.04 VACANCIES. A vacancy in any office may be filled by the Board
of Directors for the unexpired portion of the term.
4.05 EXECUTIVE CHAIRMAN OF THE BOARD. The Executive Chairman of the
Board shall, if present, preside at all meetings of the Stockholders and the
Board of Directors,
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and shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Board of Directors or prescribed by these Bylaws.
4.06 CHIEF EXECUTIVE OFFICER. Unless otherwise determined by the
Board of Directors and subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Executive Chairman, the Chief Executive
Officer shall, subject to the control of the Board of Directors, have general
supervision, direction, and control of the business of the Corporation and shall
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these Bylaws. If the
Executive Chairman is absent, the Chief Executive Officer shall preside, when
present, at all meetings of the Stockholders and the Board of Directors.
4.07 PRESIDENT. Unless otherwise determined by the Board of
Directors, the President shall exercise and perform such duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
Bylaws.
4.08 VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as may be
from time to time assigned to them by the Board of Directors or prescribed by
these Bylaws.
4.09 SECRETARY.
(a) The Secretary shall keep, or cause to be kept, a book of
minutes in written form of the proceedings of the Board of Directors, committees
of the Board of Directors, and Stockholders. Such minutes shall include all
waivers of notice, consents to the holding of meetings, or approvals of the
minutes of meetings executed pursuant to these Bylaws or the MGCL. The Secretary
shall keep, or cause to be kept at the principal executive office or at the
office of the Corporation's transfer agent or registrar, a record of its
Stockholders, giving the names and addresses of all Stockholders and the number
and class of shares held by each.
(b) The Secretary shall give, or cause to be given, notice of
all meetings of the Stockholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws.
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4.10 TREASURER AND CHIEF FINANCIAL OFFICER.
(a) The Treasurer and Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of account in written form or any other form capable of being
converted into written form.
(b) The Treasurer and Chief Financial Officer shall deposit all
monies and other valuables in the name and to the credit of the Corporation with
such depositaries as may be designated by the Board of Directors. He shall
disburse all funds of the Corporation as may be ordered by the Board of
Directors, shall render to the Executive Chairman, Chief Executive Officer,
President and Directors, whenever any of them requests it, an account of all of
his transactions as Treasurer and Chief Financial Officer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be from time to time assigned to him by the Board of
Directors or prescribed by these Bylaws.
4.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Board of
Directors, or any committee or officer appointed by the Board of Directors for
such purpose, may appoint one or more Assistant Secretaries or Assistant
Treasurers. The Assistant Secretaries and Assistant Treasurers (i) shall have
the power to perform and shall perform all the duties of the Secretary and the
Treasurer, respectively, in such respective officer's absence and (ii) shall
perform such duties as shall be assigned to him by the Secretary or Treasurer,
respectively, or by the Executive Chairman, Chief Executive Officer, President
or the Board of Directors, or any such designated committee or officer.
4.12 SUBORDINATE OFFICERS. The Corporation shall have such
subordinate officers as the Board of Directors, or any committee or officer
appointed by the Board of Directors for such purpose, may from time to time
elect. Each such officer shall hold office for such period and perform such
duties as the Board of Directors, Executive Chairman, Chief Executive Officer,
President or any designated committee or officer may prescribe.
4.13 COMPENSATION. The salaries and other compensation and
remuneration, of any kind, if any, of the officers shall be fixed from time to
time by the Board of Directors or a committee thereof. No officer shall be
prevented from receiving such compensation, if any, by reason of the fact that
he is also a Director of the Corporation. The Board of Directors may authorize
any committee or officer, upon whom the power of appointing assistant and
subordinate officers may have been conferred, to fix the compensation and
remuneration of such assistant and subordinate officers.
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ARTICLE V
SHARES OF STOCK
5.01 FORM OF CERTIFICATES. Certificates for shares of stock of the
Corporation shall be in such form and design as the Board of Directors shall
determine and shall be signed in the name of the Corporation by the Executive
Chairman of the Board or the President or Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or any Assistant Secretary. Each
certificate shall state the certificate number, the date of issuance, the
number, class or series, the name of the record holder of the shares represented
thereby, and the name of the Corporation. Each certificate representing shares
of Stock which are restricted as to their transferability or voting powers,
which are preferred or limited as to their allocable portion of the assets upon
liquidation or which are redeemable at the option of the Corporation, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. In lieu of such
statement or summary, the Corporation may set forth on the face or back of the
certificate a statement that the Corporation will furnish to any Stockholder,
upon request and without charge, a full statement of such information.
5.02 TRANSFER OF SHARES. Shares of Stock may only be transferred in
accordance with all restrictions on transfer set forth in the Charter. Before
any transfer of stock is entered upon the books of the Corporation, or any new
certificate is issued therefor, the older certificate, properly endorsed, shall
be surrendered and canceled, except when a certificate has been lost, stolen or
destroyed.
5.03 STOCK LEDGER. The Corporation shall maintain at its principal
executive office or at the office of its counsel, accountants or transfer agent
or at such other place designated by the Board of Directors an original or
duplicate stock ledger containing the names and addresses of all the
Stockholders and the number of shares of each class of Stock held by each
Stockholder. The stock ledger shall be maintained pursuant to a system that the
Corporation shall adopt allowing for the issuance, recordation and transfer of
its Stock by electronic or other means that can be readily converted into
written form for visual inspection and not involving any issuance of
certificates. Such system shall include provisions for notice to acquirers of
Stock (whether upon issuance or transfer of Stock) in accordance with Sections
2-210 and 2-211 of the MGCL, and Section 8-204 of the Commercial Law Article of
the State of Maryland. The Corporation shall be entitled to treat the holder of
record of any Share or Shares as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Share on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Maryland. Until a transfer is duly effected on the stock ledger, the
Corporation shall not be affected by any notice of such transfer, either actual
or constructive. Nothing herein shall impose upon the Corporation, the Board of
Directors or officers or their agents and representatives a duty or limit their
rights to inquire as to the actual ownership of Shares.
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5.04 RECORDING TRANSFERS OF STOCK. If transferred in accordance with
any restrictions on transfer contained in the Charter, these Bylaws or
otherwise, Shares shall be recorded as transferred in the stock ledger upon
provision to the Corporation or the transfer agent of the Corporation of an
executed stock power duly guaranteed and any other documents reasonably
requested by the Corporation, and the surrender of the certificate or
certificates, if any, representing such Shares. Upon receipt of such documents,
the Corporation shall issue the statements required by Sections 2-210 and 2-211
of the MGCL and Section 8-204 of the Commercial Law Article of the State of
Maryland, issue as needed a new certificate or certificates (if the transferred
Shares were certificated) to the persons entitled thereto, cancel any old
certificates and record the transaction upon its books.
5.05 LOST CERTIFICATE . The Board of Directors may direct a new
certificate to be issued in the place of any certificate theretofore issued by
the Corporation alleged to have been stolen, lost or destroyed upon the making
of an affidavit of that fact by the person claiming the certificate of Stock to
be stolen, lost or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such stolen, lost or destroyed
certificate or his legal representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to indemnify the
Corporation against any loss or claim which may arise by reason of the issuance
of a new certificate.
5.06 EMPLOYEE STOCK PURCHASE PLANS. The Board of Directors shall
have the authority, in its discretion, to adopt one or more employee stock
purchase plans or agreements, containing such terms and conditions as the Board
may prescribe, for the issue and sale of unissued shares of the Corporation, or
of its issued shares acquired or to be acquired, to the employees of the
Corporation or to the employees of its subsidiary corporations or to a trustee
on their behalf, and for the payment of such shares in installments or at one
time, and for such consideration as may be fixed by the Board or any committee
thereof, and may provide for aiding any such employees in paying for such shares
by compensation for services rendered, promissory notes or otherwise. The Board
of Directors, or any committee thereof, may carry out and administer any such
plan or delegate part or all of the administration of any such plan to any other
entity or person.
5.07 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
(a) The Board of Directors may fix, in advance, a date as the
record date for the purpose of determining Stockholders entitled to notice of,
or to vote at, any meeting of Stockholders, or Stockholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than ninety (90) days, and in case of a meeting of
Stockholders not less than ten (10) days, prior to the date on which the meeting
or particular action requiring such determination of Stockholders is to be held
or taken.
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(b) In lieu of fixing a record date, the stock transfer books
may be closed by the Board of Directors in accordance with Section 2-511 of the
MGCL for the purpose of determining Stockholders entitled to notice of or to
vote at a meeting of Stockholders.
(c) If no record date is fixed and the stock transfer books are
not closed for the determination of Stockholders, (i) the record date for the
determination of Stockholders entitled to notice of, or to vote at, a meeting of
Stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the thirtieth (30th) day before the meeting, whichever is
the closer date to the meeting; and (ii) the record date for the determination
of Stockholders entitled to receive payment of a dividend or an allotment of any
rights shall be at the close of business on the day on which the resolution of
the Board of Directors declaring the dividend or allotment of rights is adopted.
(d) When a determination of Stockholders entitled to vote at any
meeting of Stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except where the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
6.01 DECLARATION. Dividends and other distributions upon the Stock
may be declared by the Board of Directors as set forth in the applicable
provisions of the Charter and any applicable law, at any meeting, limited only
to the extent of Section 2-311 of the MGCL. Dividends and other distributions
upon the Stock may be paid in cash, property or Stock of the Corporation,
subject to the provisions of law and of the Charter.
6.02 CONTINGENCIES. Before payment of any dividends or other
distributions upon the Stock, there may be set aside (but there is no duty to
set aside) out of any funds of the Corporation available for dividends or other
distributions such sum or sums as the Board of Directors may from time to time,
in its absolute discretion, think proper as a reserve fund to meet
contingencies, for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors shall determine to be in the
best interests of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
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ARTICLE VII
INDEMNIFICATION
7.01 INDEMNIFICATION TO THE EXTENT PERMITTED BY LAW. The Corporation
shall indemnify, to the full extent authorized or permitted by Maryland
statutory or decisional law or any other applicable law, any person made, or
threatened to be made, a party to any action or proceeding (whether civil or
criminal or otherwise) by reason of the fact he, his testator or intestate is or
was a Director or officer of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director or officer of, or in any other
capacity with respect to, any other corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise (an "Indemnified Person"),
including the advancement of expenses under procedures provided under such law;
provided, however, that no indemnification shall be provided for expenses
relating to any willful or grossly negligent failure to make disclosures
required by the next to last sentence of Sections 2.02 or 4.03 hereof as applied
to Directors and officers respectively. The Corporation shall indemnify any
Indemnified Person's spouse (whether by statute or at common law and without
regard to the location of the governing jurisdiction) and children to the same
extent and subject to the same limitations applicable to any Indemnified Person
hereunder for claims arising out of the status of such person as a spouse or
child of such Indemnified Person, including claims seeking damages from marital
property (including community property) or property held by such Indemnified
Person and such spouse or property transferred to such spouse or child, but such
indemnity shall not otherwise extend to protect the spouse or child against
liabilities caused by the spouse's or child's own acts. The provisions of this
Section 7.01 shall constitute a contract with each Indemnified Person who serves
at any time while these provisions are in effect and may be modified adversely
only with the consent of affected Indemnified Persons and each such Indemnified
Person shall be deemed to be serving as such in reliance on these provisions.
7.02 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification of and
advancement of expenses to Directors and officers of the Corporation.
7.03 INSURANCE. The Corporation shall have the power to purchase and
maintain insurance to protect itself and any Indemnified Person, employee or
agent of the Corporation against any liability, whether or not the Corporation
would have the power to indemnify him or her against such liability.
7.04 NON-EXCLUSIVE RIGHTS TO INDEMNITY; HEIRS AND PERSONAL
REPRESENTATIVES. The rights to indemnification set forth in this Article VII
are in addition to all rights which any Indemnified Person may be entitled as a
matter of law or by
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contract, and shall inure to the benefit of the heirs and personal
representatives of each Indemnified Person.
7.05 NO LIMITATION. In addition to any indemnification permitted by
these Bylaws, the Board of Directors shall, in its sole discretion, have the
power to grant such indemnification to such persons as it deems in the interest
of the Corporation to the full extent permitted by law. This Article shall not
limit the Corporation's power to indemnify against liabilities other than those
arising from a person's serving the Corporation as a Director or officer.
7.06 AMENDMENT, REPEAL OR MODIFICATION. Any amendment, repeal or
modification of any provision of this Article VII by the Stockholders or the
Directors of the Corporation is effective on a prospective basis only and
neither repeal nor modification of such provisions shall adversely affect any
right or protection of a Director or officer of the Corporation under this
Article VII existing at the time of such amendment, repeal or modification.
7.07 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 7.01
of this Article VII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the MGCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its Stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the MGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its Stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
ARTICLE VIII
NOTICES
8.01 NOTICES. Whenever notice is required to be given pursuant to
these Bylaws, it shall be construed to mean either written notice personally
delivered against written receipt, or notice in writing transmitted by mail, by
depositing the same in a post office or letter box,
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in a post-paid sealed wrapper, addressed, if to the Corporation, to 2900
Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314 (or any subsequent
address selected by the Board of Directors), attention Chief Executive Officer,
or if to a Stockholder, Director or officer, at the address of such person as it
appears on the records of the Corporation. In addition, whenever notice is
required to be given to a Stockholder, such requirement shall be satisfied when
written notice is left at such Stockholder's residence or usual place of
business. Unless otherwise specified, notice sent by mail shall be deemed to be
given at the time mailed.
8.02 SECRETARY TO GIVE NOTICE. All notices required by law or these
Bylaws to be given by the Corporation shall be given by the Secretary or any
other officer of the Corporation designated by the Executive Chairman or the
Chief Executive Officer. If the Secretary and Assistant Secretary are absent or
refuse or neglect to act, the notice may be given by any person directed to do
so by the Executive Chairman or the Chief Executive Officer or, with respect to
any meeting called pursuant to these Bylaws upon the request of any Stockholders
or Directors, by any person directed to do so by the Stockholders or Directors
upon whose request the meeting is called.
8.03 WAIVER OF NOTICE. Whenever any notice is required to be given
pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein for which notice is given, shall
be deemed equivalent to the giving of such notice. A written waiver of notice of
a Stockholders meeting shall be filed with the records of such meeting. Neither
the business to be transacted at nor the purpose of any meeting need be set
forth in the waiver of notice, unless specifically required by statute. The
attendance of any person at any meeting shall constitute a waiver of notice of
such meeting, except where such person attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
ARTICLE IX
MISCELLANEOUS
9.01 EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. The provisions
of Sections 3-701 to 3-709 of the MGCL, as amended from time to time, shall not
apply to any Share of Stock of the Corporation now or hereafter held by any
current or future Stockholders. All shares of Stock currently outstanding or
issued in the future are exempted from such Sections of the MGCL to the fullest
extent permitted by Maryland law.
9.02 OFFICES OF THE CORPORATION. The principal executive office for
the transaction of the business of the Corporation is hereby fixed and located
at 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314. The Board of
Directors is hereby granted full power and authority to change said principal
office from one location to another. Branch and
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subordinated offices may at any time be established by the Board of Directors at
any place or places where the Corporation is qualified to do business.
9.03 BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its Stockholders and Board of Directors meetings and of its
executive or other committees when exercising any of the powers or authority of
the Board of Directors. The books and records of the Corporation may be in
written form or in any other form that can be converted within a reasonable time
into written form for visual inspection. Minutes shall be recorded in written
form but may be maintained in the form of a reproduction.
9.04 INSPECTION OF BYLAWS AND CORPORATE RECORDS. These Bylaws, the
accounting books and records of the Corporation, the minutes of proceedings of
the Stockholders, annual statements of affairs and any voting trust agreements
on record shall be open to inspection upon written demand delivered to the
Corporation by any Stockholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related to
such holder's interests as a Stockholder or as the holder of such voting trust
certificate, in each case as set forth in the MGCL. Other documents, such as
Stockholder lists, shall be made available for inspection by any Stockholder or
holder of a voting trust certificate as set forth in the MGCL.
9.05 CONTRACTS. The Board of Directors may authorize any officer(s)
or agent(s) to enter into any contract or to execute and deliver any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances.
9.06 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officers or agents of the
Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
9.07 LOANS.
(a) Such officers or agents of the Corporation as from time to
time have been designated by the Board of Directors shall have authority (i) to
effect loans, advances, or other forms of credit at any time or times for the
Corporation, from such banks, trust companies, institutions, corporations,
firms, or persons, in such amounts and subject to such terms and conditions, as
the Board of Directors from time to time has designated; (ii) as security for
the repayment of any loans, advances, or other forms of credit so authorized, to
assign, transfer, endorse, and deliver, either originally or in addition or
substitution, any or all personal property, real property, stocks, bonds,
deposits, accounts, documents, bills, accounts receivable, and other commercial
paper and evidences of debt or other securities, or any rights or interests at
any time held by the Corporation; (iii) in connection with any loans, advances,
or other forms of credit so authorized, to make, execute, and deliver one or
more notes, mortgages, deeds of trust, financing statements, security
agreements, acceptances, or written
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obligations of the Corporation, on such terms and with such provisions as to the
security or sale or disposition of them as those officers or agents deem proper;
and (iv) to sell to, or discount or rediscount with, the banks, trust companies,
institutions, corporations, firms or persons making those loans, advances, or
other forms of credit, any and all commercial paper, bills, accounts receivable,
acceptances, and other instruments and evidences of debt at any time held by the
Corporation, and, to that end, to endorse, transfer, and deliver the same.
(b) From time to time the Corporation shall certify to each
bank, trust company, institution, corporation, firm or person so designated, the
signatures of the officers or agents so authorized. Each bank, trust company,
institution, corporation, firm or person so designated is authorized to rely
upon such certification until it has received written notice that the Board of
Directors has revoked the authority of those officers or agents.
9.08 FISCAL YEAR. The Board of Directors shall have the power, from
time to time, to fix the fiscal year of the Corporation by a duly adopted
resolution, and, in the absence of such resolution, the fiscal year shall be the
year ending December 31.
9.09 ANNUAL REPORT. Not later than one hundred twenty (120) days
after the close of each fiscal year, the Board of Directors of the Corporation
shall cause to be sent to the Stockholders an Annual Report in such form as may
be deemed appropriate by the Board of Directors. The Annual Report shall include
audited financial statements and shall be accompanied by the report thereon of
an independent certified public accountant.
9.10 INTERIM REPORTS. The Corporation may send interim reports to
the Stockholders having such form and content as the Board of Directors deem
proper.
9.11 OTHER REPORTS. Any distributions to Stockholders of income or
capital assets shall be accompanied by a written statement disclosing the source
of the funds distributed unless at the time of distribution they are accompanied
by a written explanation of the relevant circumstances. The statement as to such
source shall be sent to the Stockholders not later than sixty (60) days after
the close of the fiscal year in which the distributions were made.
9.12 BYLAWS SEVERABLE. The provisions of these Bylaws are severable,
and if any provision shall be held invalid or unenforceable, that invalidity or
unenforceability shall attach only to that provision and shall not in any
manner affect or render invalid or unenforceable any other provision of these
Bylaws, and these Bylaws shall be carried out as if the invalid or
unenforceable provision were not contained herein.
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ARTICLE X
AMENDMENT OF BYLAWS
10.01 BY DIRECTORS. The Board of Directors shall have the power, at
any annual or regular meeting, or at any special meeting if notice thereof is
included in the notice of such special meeting, to alter or repeal any Bylaws of
the Corporation and to make new Bylaws, except that the Board of Directors shall
not alter or repeal (i) Section 2.03 to change the minimum or maximum number of
Directors without the vote of the Stockholders required therein, (ii) Section
7.01 without a vote of the Stockholders and the consent of any Indemnified
Persons whose rights to indemnification, based on conduct prior to such
amendment, would be adversely affected by such proposed alteration or repeal;
(iii) this Section 10.01; or (iv) Section 10.02.
10.02 BY STOCKHOLDERS. With the approval of the Board of Directors,
the Stockholders shall have the power, by affirmative vote of a majority of the
outstanding shares of common stock of the Corporation, at any annual meeting
(subject to the requirements of Section 1.03), or at any special meeting if
notice thereof is included in the notice of such special meeting, to alter or
repeal any Bylaws of the Corporation and to make new Bylaws, except that the
Stockholders shall not alter or repeal Section 7.01 without the consent of any
Indemnified Persons adversely affected by such proposed alteration or repeal,
and except that a vote of two-thirds of the outstanding shares of common stock
of the Corporation is required to amend Sections 1.03, 2.04 and 2.13.
The foregoing are certified as the Bylaws of the Corporation as in
effect at the close of business on July 24, 1998.
/S/ JEFFREY B. VAN HORN
-------------------------------
Jeffrey B. Van Horn
Secretary
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of
March, 1998 by and between Richard L. Michaux ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have
previously entered into an Employment Agreement, dated as of July 15, 1997 (the
"Prior Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between
the Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"),
Avalon will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new
employment agreement, effective as of the consummation of the merger
contemplated by the Merger Agreement (the "Effective Date"), to replace the
Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by
the Merger Agreement, the Company hereby agrees to employ Executive,
and Executive hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement for the period
commencing on the Effective Date and terminating on the third
anniversary of the Effective Date (the "Original Term"), unless
earlier terminated as provided in Section 7. The Original Term shall
be extended automatically for additional 1 year periods (each a
"Renewal Term"), unless notice that this Agreement will not be
extended is given by either party to the other 6 months prior to the
expiration of the Original Term or any Renewal Term. Notwithstanding
the foregoing, upon a Change in Control, the Employment Period shall
be extended automatically to 3 years from the date of such Change in
Control. (The period of Executive's employment hereunder within the
Original Term and any Renewal Terms is herein referred to as the
"Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in
the business of the Company and its affiliates. Executive
shall serve as a corporate officer of the Company with the
title of Chief Executive Officer. In the performance of his
duties, Executive shall be subject to the direction of the
Board of Directors of the Company (the "Board of Directors")
and shall not be required to take direction from or report to
any other person. Executive shall be appointed to the Board of
Directors of the Company effective as of the Effective Date.
Executive's duties and authority under this Agreement are set
forth on Exhibit 1 to this Agreement.
<PAGE> 2
b. Executive agrees to his employment as described in this
Section 2 and agrees to devote substantially all of his
working time and efforts to the performance of his duties
under this Agreement; provided that nothing herein shall be
interpreted to preclude Executive from (i) participating with
the prior written consent of the Board of Directors as an
officer or director of, or advisor to, any other entity or
organization that is not a customer or material service
provider to the Company or a Competing Enterprise, as defined
in Section 8, so long as such participation does not interfere
with the performance of Executive's duties hereunder, whether
or not such entity or organization is engaged in religious,
charitable or other community or non-profit activities, (ii)
investing in any entity or organization which is not a
customer or material service provider to the Company or a
Competing Enterprise, so long as such investment does not
interfere with the performance of Executive's duties
hereunder, or (iii) delivering lectures or fulfilling speaking
engagements so long as such lectures or engagements do not
interfere with the performance of Executive's duties
hereunder. The Company consents to Executive's status as a
"former partner" with a current financial interest in certain
Midwest projects of Trammell Crow Residential ("TCR"), and
such activity shall not be treated as a Competing Enterprise.
c. In performing his duties hereunder, Executive shall be
available for reasonable travel as the needs of the business
require. Executive shall be based in Alexandria, Virginia, or
otherwise in the greater Washington, D.C. metropolitan area.
d. Breach by either party of any of its respective obligations
under this Section 2 shall be deemed a material breach of that
party's obligations hereunder.
3. Compensation/Benefits. In consideration of Executive's services
hereunder, the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall
receive an annual rate of base salary ("Base Salary") in an
amount not less than $350,000. Executive's Base Salary will be
reviewed by the Company as of the first anniversary of the
Effective Date, and may be adjusted upward (but not downward)
at such time to reflect any inequities in compensation.
Commencing as of January 1, 2000, Executive's Base Salary
shall be reviewed no less frequently than annually by the
Company and may be adjusted upward (but not downward) by the
Company. Upon such annual review during the Renewal Term, if
any, Executive's Base Salary shall be increased to the
greatest of (i) an amount equal to Base Salary for the prior
year plus 5%, (ii) a factor measured by the increase, if any,
in the Consumer Price Index for Wage Earners and Clerical
Workers (CPI-W) (City Average for Washington, D.C.-MD-Va
1982-84=100), as published by the Bureau of Labor Statistics,
for the prior calendar year (the "CPI Adjustment") or (iii)
such greater amount as may be agreed by Executive and the
Company. Base
<PAGE> 3
Salary shall be payable in accordance with the Company's
normal business practices, but in no event less frequently
than monthly.
b. Bonuses. Commencing at the close of each fiscal year during
the Employment Period, the Company shall review the
performance of the Company and of Executive during the prior
fiscal year, and the Company may provide Executive with
additional compensation as a bonus if the Board, or any
compensation committee hereof, in its discretion, determines
that Executive's contribution to the Company warrants such
additional payment and the Company's anticipated financial
performance of the present period permits such payment. The
bonuses hereunder shall be paid as a lump sum not later than
60 days after the end of the Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate
family a comprehensive policy of health insurance. During the
Employment Period, Executive shall be entitled to a
comprehensive annual physical performed, at the expense of the
Company by the physician or medical group of Executive's
choosing.
d. Life Insurance/Disability Insurance. During the Employment
Period, the Company shall keep in force and pay the premiums
on the split-dollar life insurance policy referenced in the
Split Dollar Insurance Agreement between Avalon and Executive,
subject to reimbursement by Executive as provided in such
Split Dollar Insurance Agreement. The Company shall reimburse
Executive for the cost of the comprehensive disability
insurance policy, which is in effect on January 1, 1997, and
shall also be responsible for any increases in premiums which
become effective during the Employment Period as may be
necessary to maintain the same level of insurance as in effect
on January 1, 1997. Executive agrees to submit to such medical
examinations as may be required in order to maintain such
policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid
vacations during the Employment Period in accordance with the
then regular procedures of the Company governing executives,
not to exceed 6 weeks per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period, Executive
shall be entitled to secretarial services and a private office
commensurate with his title and duties.
g. Club Membership. The Company will pay, or at Executive's
election reimburse, during the Employment Period (i) the
membership dues and special assessments (exclusive of
initiation or admittance costs) for country club memberships
of Executive's choice in an aggregate amount not to exceed
$10,000 per year,
<PAGE> 4
increased but not decreased for each succeeding twelve month
period during the Employment Period by the CPI Adjustment
plus (ii) other costs and fees of use of such country
club(s) reasonably related to the Company's business,
subject to substantiation thereof in accordance with the
Company's policies in effect from time to time for executive
employees of the Company.
h. Automobile. The Company shall provide Executive with a monthly
car allowance during the Employment Period of not less than
$950 per month (adjusted annually for inflation by the CPI
Adjustment); provided that, at Executive's election, the
Company may instead purchase or lease, and maintain insurance
for, an automobile of comparable value for use by Executive,
who shall be responsible for maintaining such automobile, at
his own expense, with the same standard of care Executive
applies to his own property and as may be required under any
applicable lease agreement.
i. Other Benefits. During the Employment Period, the Company
shall provide to Executive such other benefits, excluding
severance benefits, but including the right to participate in
such retirement or pension plans, as are made generally
available to executives of the Company from time to time, and
shall be given credit for purposes of eligibility and vesting
of employee benefits and benefit accrual for service with
Avalon, its affiliates and TCR prior to the Effective Date
under each benefit plan of the Company and its subsidiaries to
the extent such service had been credited under employee
benefit plans of Avalon and its subsidiaries, provided that no
such crediting of service results in duplication of benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse
Executive for the reasonable business expenses incurred by
Executive in the course of performing his duties for the
Company hereunder, upon submission of invoices, vouchers or
other appropriate documentation, as may be required in
accordance with the policies in effect from time to time for
executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall
indemnify Executive with respect to any actions commenced
against Executive in his capacity as an officer or director or
former officer or director of the Company, or any affiliate
thereof for which he may render service in such capacity,
whether by or on behalf of the Company, its shareholders or
third parties, and the Company shall advance to Executive on a
timely basis an amount equal to the reasonable fees and
expenses incurred in defending such actions, after receipt of
an itemized request for such advance, and an undertaking from
Executive to repay the amount of such advance, with interest
at a reasonable rate from the date of the request, as
determined by the Company, if it shall ultimately be
determined that he is not entitled to be
<PAGE> 5
indemnified against such expenses. The Company agrees to use
its best efforts to secure and maintain officers and
directors' liability insurance with respect to Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules
and regulations of the Company as adopted by its Board
respecting the performance of his duties and to carry out and
perform orders, directions and policies communicated to him
from time to time by the Board.
b. Ethics Policies. Executive agrees to comply with and be bound
by the Ethics Policies of the Company, as reflected in the
attachment at Annex A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar
documents obtained, reviewed or compiled by Executive in the
course of the performance by him of services for the Company,
whether or not confidential information or trade secrets,
shall be the exclusive property of the Company. Executive
shall have no rights in such documents upon any termination of
this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's
rights under Section 6(a), Executive agrees to abide by and be
bound by the Nondisclosure Agreement of the Company executed
by Executive and the Company as reflected in the attachment at
Annex B and made a part hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at
will" and, therefore, may be terminated at any time, with or
without Cause, at the option of the Company, subject only to
the severance obligations under this Section 7. Upon any
termination hereunder, the Employment Period shall expire.
b. Definitions. For purposes of this Section 7, the following
terms shall have the indicated definitions:
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of
nolo contendere to an act which is defined as a
felony under any federal, state or local law,
not based upon a traffic violation, which
conviction or plea has or
<PAGE> 6
can be expected to have, in the good faith
opinion of the Board of Directors, a material
adverse impact on the business or reputation of
the Company;
(2) any one or more acts of theft, larceny,
embezzlement, fraud or material intentional
misappropriation from or with respect to the
Company;
(3) a breach by Executive of his fiduciary duties
under Maryland law as an officer;
(4) Executive's commission of any one or more acts of
gross negligence or willful misconduct which in
the good faith opinion of the Board of Directors
has resulted in material harm to the business or
reputation of the Company; or
(5) default by Executive in the performance of his
material duties under this Agreement, without
correction of such action within 15 days of
written notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment
by the Company shall be treated as for Cause or be effective until and unless
all of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or event
(or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors duly
called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive within
20 days of such Board meeting.
The Company may suspend Executive with pay at any time during the
period commencing with the giving of notice to Executive under clause (i) above
until final Notice of Termination is given under clause (iii) above. Upon the
giving of notice as provided in clause (iii) above, no further payments shall be
due Executive.
ii. Change in Control. A "Change in Control" shall mean the
occurrence of
<PAGE> 7
any one or more of the following events following the
Effective Date:
(1) Any individual, entity or group (a "Person")
within the meaning of Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Act")
(other than the Company, any corporation,
partnership, trust or other entity controlled by
the Company (a "Subsidiary"), or any trustee,
fiduciary or other person or entity holding
securities under any employee benefit plan or
trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates"
(as such terms are defined in Rule 12b-2 under
the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in
Rule 13d-3 under the Act) of securities of the
Company representing 30% or more of the combined
voting power of the Company's then outstanding
securities having the right to vote generally in
an election of the Company's Board of Directors
("Voting Securities"), other than as a result of
(A) an acquisition of securities directly from
the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to a
reorganization, consolidation or merger if,
following such reorganization, consolidation or
merger the conditions described in clauses (A),
(B) and (C) of subparagraph (iii) of this
Section 7(b)(2) are satisfied; or
(2) Individuals who, as of the Effective Date,
constitute the Company's Board of Directors
(the "Incumbent Directors") cease for any reason
to constitute at least a majority of the Board,
provided, however, that any individual becoming a
director of the Company subsequent to the date
hereof (excluding, for this purpose, (A) any such
individual whose initial assumption of office is
in connection with an actual or threatened
election contest relating to the election of
members of the Board of Directors or other actual
or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board
of Directors, including by reason of agreement
intended to avoid or settle any such actual or
threatened contest or solicitation, and (B) any
individual whose initial assumption of office is
in connection with a reorganization, merger or
consolidation, involving an unrelated entity and
occurring during the Employment Period), whose
election or nomination for election by the
Company's shareholders was approved by a vote of
at least a majority of the persons then comprising
Incumbent Directors shall for purposes of this
Agreement be considered an Incumbent Director; or
(3) Consummation of a reorganization, merger or
consolidation of the
<PAGE> 8
Company, unless, following such reorganization,
merger or consolidation, (A) more than 50% of,
respectively, the then outstanding shares of
common stock of the corporation resulting from
such reorganization, merger or consolidation and
the combined voting power of the then outstanding
voting securities of such corporation entitled to
vote generally in the election of directors is
then beneficially owned, directly or indirectly,
by all or substantially all of the individuals
and entities who were the beneficial owners,
respectively, of the outstanding Voting
Securities immediately prior to such
reorganization, merger or consolidation, (B) no
Person (excluding the Company, any employee
benefit plan (or related trust) of the Company,
a Subsidiary or the corporation resulting from
such reorganization, merger or consolidation or
any subsidiary thereof, and any Person
beneficially owning, immediately prior to such
reorganization, merger or consolidation,
directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially
owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting from
such reorganization, merger or consolidation or
the combined voting power of the then outstanding
voting securities of such corporation entitled to
vote generally in the election of directors, and
(C) at least a majority of the members of the
board of directors of the corporation resulting
from such reorganization, merger or consolidation
were members of the Incumbent Board at the time
of the execution of the initial agreement
providing for such reorganization, merger or
consolidation;
(4) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company; or
(5) The sale, lease, exchange or other disposition of
all or substantially all of the assets of the
Company, other than to a corporation, with
respect to which following such sale, lease,
exchange or other disposition (A) more than 50%
of, respectively, the then outstanding shares of
common stock of such corporation and the combined
voting power of the then outstanding voting
securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by
all or substantially all of the individuals and
entities who were the beneficial owners of the
outstanding Voting Securities immediately prior
to such sale, lease, exchange or other
disposition, (B) no Person (excluding the
Company and any employee benefit plan (or
<PAGE> 9
related trust) of the Company or a Subsidiary or
such corporation or a subsidiary thereof and any
Person beneficially owning, immediately prior to
such sale, lease, exchange or other disposition,
directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially
owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of
common stock of such corporation and the combined
voting power of the then outstanding voting
securities of such corporation entitled to vote
generally in the election of directors and (C) at
least a majority of the members of the board of
directors of such corporation were members of the
Incumbent Board at the time of the execution of
the initial agreement or action of the Board of
Directors providing for such sale, lease,
exchange or other disposition of assets of the
Company.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of this Agreement solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate voting
power represented by the Voting Securities beneficially owned by any Person to
30% or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any Person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Stock
or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change in Control" shall be deemed to
have occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in
Control" shall mean that a Change in Control has
occurred, after modifying the definition of "Change in
Control" by deleting clause (i) from Section 7(b)(2) of
this Agreement.
iv. Constructive Termination Without Cause. "Constructive
Termination Without Cause" shall mean a termination of
Executive's employment initiated by Executive not later
than 12 months following the occurrence (not including
any time during which an arbitration proceeding
referenced below is pending), without Executive's prior
written consent, of one or more of the following events
(or the latest to occur in a series of events), and
effected after giving the Company not less than 10
working days' written notice of the specific act or acts
relied upon and right to cure:
(1) a material adverse change in the functions,
duties or responsibilities of Executive's
position which would reduce the level,
importance or scope of such position; or any
removal of Executive from or failure to
reappoint or reelect Executive to any position
set forth in
<PAGE> 10
this Agreement, except in connection with the
termination of Executive's employment for
Disability, Cause, as a result of Executive's
death or by Executive other than for a
Constructive Termination Without Cause;
(2) any material breach by the Company of this
Agreement;
(3) any purported termination of Executive's
employment for Cause by the Company which does not
comply with the terms of Section 7(b)(1) of this
Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor
or assign of the Company, to assume and agree to
perform this Agreement, as contemplated in
Section 10 of this Agreement;
(5) the failure by the Company to continue in effect
any compensation plan in which Executive
participates immediately prior to a Change in
Control which is material to Executive's total
compensation, unless comparable alternative
arrangements (embodied in ongoing substitute or
alternative plans) have been implemented with
respect to such plans, or the failure by the
Company to continue Executive's participation
therein (or in such substitute or alternative
plans) on a basis not materially less favorable,
in terms of the amount of benefits provided and
the level of Executive's participation relative
to other participants, as existed during the
last completed fiscal year of the Company prior
to the Change in Control;
(6) the relocation of the Company's Alexandria office
to a new location more than fifty (50) miles from
Alexandria, or the failure to locate Executive's
own office at the Alexandria office (or at the
office to which such office is relocated which is
within 50 miles of Alexandria) or, following a
Change in Control, the failure to locate
Executive's office at the Company's principal
executive office or the relocation of Company's
principal executive office to a location more than
50 miles from Alexandria; or
(7) any termination of employment by the Executive
for any reason during the 12-month period
immediately following a Complete Change in
Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as
<PAGE> 11
having occurred unless Executive has given a final Notice of Termination
delivered after expiration of the Company's cure period. Executive or the
Company may, at any time after the expiration of the Company's cure period and
either prior to or up until three months after giving a final Notice of
Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party and
Executive's and the Company's rights and obligations under this Agreement shall
continue unaffected unless and until the arbitrator has determined such question
in the affirmative, or, if earlier, the date on which Executive or the Company
has delivered a Notice of Termination in accordance with the provisions of this
Agreement.
v. Covered Average Compensation. "Covered Average
Compensation" shall mean the sum of Executive's Covered
Compensation as calculated for the calendar year in
which the Date of Termination occurs and for each of
the two preceding calendar years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any
calendar year, shall mean an amount equal to the sum of
(i) Executive's Base Salary for the calendar year
(disregarding any decreases made effective during the
Employment Period), (ii) the cash bonus actually earned
by Executive with respect to such calendar year, and
(iii) the value of all stock and other equity-based
compensation awards made to Executive during such
calendar year.
Covered Compensation shall be calculated according to the
following rules:
(a) In valuing awards for purposes of clause (iii)
above, all such awards shall be treated as if
fully vested when granted, stock grants shall be
valued by reference to the fair market value on
the date of grant of the Company's common
stock, par value $.01 per share (or of the
common stock of Avalon, as the case may be) and
other equity-based compensation awards shall
be valued at the value established by the
Compensation Committee of the Board of
Directors on the date of grant.
(b) In determining the cash bonus actually paid
with respect to a calendar year, if no cash
bonus has been paid with respect to the
calendar year in which the Date of Termination
occurs, the cash bonus paid with respect to
the immediately
<PAGE> 12
preceding calendar year shall be assumed to have
been paid in each of the current and immediately
preceding calendar years, and if no cash bonus
has been paid by the Date of Termination with
respect to the immediately preceding calendar
year, the cash bonus paid with respect to the
second preceding calendar year shall be assumed
to have been paid in all three of the calendar
years taken into account in determining Covered
Average Compensation.
(c) If any cash bonus paid with respect to the
current or immediately preceding calendar year
was paid within three months of Executive's
Date of Termination, and is lower than the
last cash bonus paid more than three months
from the Date of Termination, any such cash
bonus paid within three months of the Date of
Termination shall be disregarded and the last
cash bonus paid more than three months from
the Date of Termination shall be substituted
for each cash bonus so disregarded.
(d) In determining the amount of stock and other
equity-based compensation awards made during a
calendar year during the averaging period, rules
similar to those set forth in subparagraphs (B)
and (C) of this Section 7(b)(6) shall be
followed, except that all awards made in
connection with the Company's initial public
offering shall be disregarded.
vii. Disability. "Disability" shall mean Executive has been
determined to be disabled and to qualify for long-term
disability benefits under the long-term disability
insurance policy obtained pursuant to Section 3(d) of
this Agreement.
c. Rights Upon Termination.
(1) Payment of Benefits Earned Through Date of
Termination. Upon any termination of Executive's
employment during the Employment Period,
Executive, or his estate, shall in all events be
paid all accrued but unpaid Base Salary and all
earned but unpaid cash incentive compensation
earned through his Date of Termination. Executive
shall also retain all such rights with respect to
vested equity-based awards as are provided under
the circumstances under the applicable grant or
award agreement, and shall be entitled to all
other benefits which are provided under the
circumstances in accordance with the provisions of
the Company's generally
<PAGE> 13
applicable employee benefit plans, practices and
policies, other than severance plans.
(2) Death. In the event of Executive's death during the
Employment Period, the Company shall, in addition
to paying the amounts set forth in Section
7(c)(i), take whatever action is necessary to
cause all of Executive's unvested equity-based
awards to become fully vested as of the date of
death and, in the case of equity-based awards
which have an exercise schedule, to become fully
exercisable and continue to be exercisable for
such period as is provided in the case of vested
and exercisable awards in the event of death
under the terms of the applicable award
agreements.
(3) Disability. In the event the Company elects to
terminate Executive's employment during the
Employment Period on account of Disability, the
Company shall, in addition to paying the amounts
set forth in Section 7(c)(i), pay to Executive, in
one lump sum, no later than 31 days following the
Date of Termination, an amount equal to two times
Covered Average Compensation. The Company shall
also, commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits
comparable to the medical and disability
benefits provided to Executive immediately
prior to the Date of Termination under
Section 3(c) and Section 3(d) for a period of
24 months following the Date of Termination or
until such earlier date as Executive obtains
comparable benefits through other employment;
(b) Continue to pay, or reimburse Executive, for
all premiums then due or thereafter payable
on the whole-life portion of the split-dollar
insurance policy referenced under Section
3(d) for so long as such payments are due;
and
(c) Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based
awards and be entitled to exercise and
continue to exercise all stock options and all
other equity-based awards having an exercise
schedule and to retain such grants and awards
to the same extent as if they were vested
upon termination of employment in accordance
with their terms.
<PAGE> 14
(4) Non-Renewal. In the event the Company gives
Executive a notice of non-renewal pursuant to
Section 1 above, the Company shall, in addition to
paying the amounts set forth in Section 7(c)(i),
commencing upon the Date of Termination:
(a) Pay to Executive, for 12 consecutive months,
commencing with the first day of the month
immediately following the Date of
Termination, a monthly amount equal to the
result obtained by dividing Covered Average
Compensation by twelve;
(b) Continue, without cost to Executive, benefits
comparable to the medical and disability
benefits provided to Executive immediately
prior to the Date of Termination under
Section 3(c) and Section 3(d) for a period
of 24 months following the Date of
Termination or until such earlier date as
Executive obtains comparable benefits
through other employment; and
(c) Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based
awards and be entitled to exercise and
continue to exercise all stock options and all
other equity-based awards having an exercise
schedule and to retain such grants and awards
to the same extent as if they were vested
upon termination of employment in accordance
with their terms; and
(d) Continue to pay, or reimburse Executive for,
all premiums then due or thereafter payable
on the whole-life portion of the split-
dollar insurance policy referenced under
Section 3(d) for so long as such payments
are due.
(5) Termination Without Cause; Constructive
Termination Without Cause. In the event the
Company or any successor to the Company
terminates Executive's employment without Cause,
or if Executive terminates his employment in a
Constructive Termination without Cause, the
Company shall, in addition to paying the amounts
provided under Section 7(c)(i), pay to Executive,
in one lump sum no later than 31 days following
the Date of Termination, an amount equal to three
times Covered Average Compensation. The Company
shall also, commencing upon the Date of
Termination:
<PAGE> 15
(a) Continue, without cost to Executive, benefits
comparable to the medical and disability
benefits provided to Executive immediately
prior to the Date of Termination under
Section 3(c) and Section 3(d) for a period
of 36 months following the Date of
Termination or until such earlier date as
Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for
so long as such payments are due, all premiums
then due or payable on the whole-life portion
of the split-dollar insurance policy
referenced under Section 3(d); and
(c) Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based
awards and be entitled to exercise and
continue to exercise all stock options and
all other equity-based awards having an
exercise schedule and to retain such grants
and awards to the same extent as if they
were vested upon termination of employment
in accordance with their terms.
(6) Termination for Cause; Voluntary Resignation. In
the event Executive's employment terminates during
the Employment Period other than in connection
with a termination meeting the conditions of
subparagraphs (ii), (iii), (iv), or (v) of this
Section 7(c), Executive shall receive the amounts
set forth in Section 7(c)(i) in full satisfaction
of all of his entitlements from the Company. All
equity-based awards not vested as of the Date of
Termination shall terminate (unless otherwise
provided in the applicable award agreement) and
Executive shall have no further entitlements with
respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be
determined that any payment or distribution by the
Company to or for the benefit of Executive, whether
paid or payable or distributed or distributable
(1) pursuant to the terms of Section 7 of this
Agreement, (2) pursuant to or in connection with
any compensatory or employee benefit plan,
agreement or arrangement, including but not
limited to any stock options, restricted or
unrestricted stock grants issued to or for the
benefit of
<PAGE> 16
Executive and forgiveness of any loans by the
Company to Executive or (3) otherwise
(collectively, "Severance Payments"), would be
subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended
(the "Code"), and any interest or penalties are
incurred by Executive with respect to such excise
tax (such excise tax, together with any such
interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an
additional payment (a "Partial Gross-Up Payment"),
such that the net amount retained by Executive,
before accrual or payment of any Federal, state or
local income tax or employment tax, but after
accrual or payment of the Excise Tax attributable
to the Partial Gross-Up Payment, is equal to the
Excise Tax on the Severance Payments.
(2) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this
Section 7, including whether a Partial Gross-Up
Payment is required and the amount of such Partial
Gross-Up Payment, shall be made by Coopers &
Lybrand LLP or such other nationally recognized
accounting firm as may at that time be the
Company's independent public accountants
immediately prior to the Change in Control (the
"Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and
Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier
time as is reasonably requested by the Company or
Executive. The initial Partial Gross-Up Payment,
if any, as determined pursuant to this Section 7(d)
(ii), shall be paid to Executive within five days
of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines
that no Excise Tax is payable by Executive, the
Company shall furnish Executive with an opinion of
counsel that failure to report the Excise Tax on
Executive's applicable federal income tax return
would not result in the imposition of a negligence
or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company
and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the
time of the initial determination by the
Accounting Firm hereunder, it is possible that
Partial Gross-Up Payments which will not have been
made by the Company should have been made (an
"Underpayment"). In the event that the Company
exhausts its remedies pursuant to Section 7(d)
(iii) and Executive thereafter is required to make
a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment
that has occurred, consistent with the
calculations required to be made
<PAGE> 17
hereunder, and any such Underpayment, and any
interest and penalties imposed on the Underpayment
and required to be paid by Executive in connection
with the proceedings described in Section 7(d)
(iii), and any related legal and accounting
expenses, shall be promptly paid by the Company to
or for the benefit of Executive.
(3) Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if
successful, would require the payment by the
Company of the Partial Gross-Up Payment. Such
notification shall be given as soon as practicable
but no later than 10 business days after Executive
knows of such claim and shall apprise the Company
of the nature of such claim and the date on which
such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration
of the 30-day period following the date on which
he gives such notice to the Company (or such
shorter period ending on the date that any payment
of taxes with respect to such claim is due). If
the Company notifies Executive in writing prior
to the expiration of such period that it desires
to contest such claim, Executive shall:
(a) give the Company any information reasonably
requested by the Company relating to such
claim,
(b) take such action in connection with contesting
such claim as the Company shall reasonably
request in writing from time to time,
including, without limitation, accepting legal
representation with respect to such claim by
an attorney selected by the Company,
(c) cooperate with the Company in good faith in
order effectively to contest such claim, and
(d) permit the Company to participate in any
proceedings relating to such claim; provided,
however that the Company shall bear and pay
directly all costs and expenses attributable
to the failure to pay the Excise Tax
(including related additional interest and
penalties) incurred in connection with such
contest and shall indemnify and hold
Executive harmless, for any Excise Tax
up to an amount not exceeding the Partial
Gross-Up Payment, including interest and
penalties with respect thereto, imposed as a
result of such representation, and payment of
related legal and accounting costs and
expenses (the "Indemnification Limit").
Without
<PAGE> 18
limitation on the foregoing provisions of this
Section 7(d)(iii), the Company shall control
all proceedings taken in connection with such
contest and, at its sole option may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the
taxing authority in respect of such claim and
may, at its sole option, either direct
Executive to pay the tax claimed and sue for
a refund or contest the claim in any
permissible manner, and Executive agrees to
prosecute such contest to a determination
before any administrative tribunal, in a
court of initial jurisdiction and in one or
more appellate courts, as the Company shall
determine; provided, however, that if the
Company directs Executive to pay such claim
and sue for a refund, the Company shall
advance so much of the amount of such payment
as does not exceed the Excise Tax, and
related interest and penalties, to Executive
on an interest-free basis and shall
indemnify and hold Executive harmless, from
any related legal and accounting costs and
expenses, and from any Excise Tax, including
related interest or penalties imposed with
respect to such advance or with respect to
any imputed income with respect to such
advance up to an amount not exceeding the
Indemnification Limit; and further provided
that any extension of the statute of
limitations relating to payment of taxes for
the taxable year of Executive with respect to
which such contested amount is claimed to be
due is limited solely to such contested
amount. Furthermore, the Company's control
of the contest shall be limited to issues
with respect to which a Partial Gross-Up
Payment would be payable hereunder and
Executive shall be entitled to settle or
contest, as the case may be, any other issues
raised by the Internal Revenue Service or any
other taxing authority.
(4) If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 7(d)
(iii), Executive becomes entitled to receive any
refund with respect to such claim, Executive shall
(subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to
the Company so much of such refund (together with
any interest paid or credited thereon after taxes
applicable thereto) (the "Refund") as is equal to
(A) if the Company advanced or paid the entire
amount required to be so advanced or paid pursuant
to Section 7(d)(iii) hereof (the "Required Section
7(d) Advance"), the aggregate amount advanced
<PAGE> 19
or paid by the Company pursuant to this Section
7(d) less the portion of such amount advanced to
Executive to reimburse him for related legal and
accounting costs, or (B) if the Company advanced or
paid less than the Required Section 7(d) Advance,
so much of the aggregate amount so advanced or
paid by the Company pursuant to this Section 7(d)
as is equal to the difference, if any, between (C)
the amount refunded to Executive with respect to
such claim and (D) the sum of the portion of the
Required Section 7(d) Advance that was paid by
Executive and not paid or advanced by the Company
plus Executive's related legal and accounting fees,
as applicable. If, after the receipt by Executive
of an amount advanced by the Company pursuant to
Section 7(d)(iii), a determination is made that
Executive shall not be entitled to any refund with
respect to such claim and the Company does not
notify Executive in writing of its intent to
contest such denial of refund prior to the
expiration of 30 days after such determination,
then such advance shall be forgiven and shall not
be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the
amount of Partial Gross-Up Payment required to be
paid.
e. Notice of Termination. Notice of non-renewal of this Agreement
pursuant to Section 1 hereof or of any termination of
Executive's employment (other than by reason of death) shall be
communicated by written notice (a "Notice of Termination") from
one party hereto to the other party hereto in accordance with
this Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with respect to any
termination of Executive's employment during the Employment
Period, shall mean (i) if Executive's employment is terminated
for Disability, 30 days after Notice of Termination is given
(provided that Executive shall not have returned to the
full-time performance of Executive's duties during such 30 day
period), (ii) if Executive's employment is terminated for
Cause, the date on which a Notice of Termination is given which
complies with the requirements of Section 7(b)(1) hereof, and
(iii) if Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination. In the
case of a termination by the Company other than for Cause, the
Date of Termination shall not be less than 30 days after the
Notice of Termination is given. In the case of a termination by
Executive, the Date of Termination shall not be less than 15
days from the date such Notice of Termination is given.
Notwithstanding the foregoing, in the event that Executive
gives a Notice of Termination to the Company, the Company may
unilaterally accelerate the Date of Termination and such
acceleration shall not result in the termination being treated
as a Termination without Cause. Upon any
<PAGE> 20
termination of his employment, Executive will concurrently
resign his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if Executive's
employment by the Company is terminated during the term of
this Agreement, Executive is not required to seek other
employment, or to attempt in any way to reduce any amounts
payable to Executive by the Company pursuant to Section
7(d)(i) hereof. Further, the amount of any payment provided
for in this Agreement shall not be reduced by any compensation
earned by Executive as the result of employment by another
employer, by retirement benefits, or, except for amounts then
due and payable in accordance with the terms of any promissory
notes given by Executive in favor of the Company, by offset
against any amount claimed to be owed by Executive to the
Company or otherwise.
h. Nature of Payments. The amounts due under this Section 7 are
in the nature of severance payments considered to be
reasonable by the Company and are not in the nature of a
penalty. Such amounts are in full satisfaction of all claims
Executive may have in respect of his employment by the Company
or its affiliates and are provided as the sole and exclusive
benefits to be provided to Executive, his estate, or his
beneficiaries in respect of his termination of employment from
the Company or its affiliates.
8. Non-Competition; Non-Solicitation; Specific Enforcement.
a. Non-Competition. Because Executive's services to the Company
are special and because Executive has access to the Company's
confidential information, Executive covenants and agrees that,
during the Employment Period and, for a period of one year
following the Date of Termination by the Company for Cause or
a termination by Executive (other than a Constructive
Termination Without Cause) prior to a Change in Control,
Executive shall not, without the prior written consent of the
Board of Directors, become associated with, or engage in any
"Restricted Activities" with respect to any "Competing
Enterprise," as such terms are hereinafter defined, whether as
an officer, employee, principal, partner, agent, consultant,
independent contractor or shareholder. "Competing Enterprise,"
for purposes of this Agreement, shall mean any person,
corporation, partnership, venture or other entity which (a) is
a publicly traded real estate investment trust, or (b) is
engaged in the business of managing, owning, leasing or joint
venturing residential real estate within 30 miles of
residential real estate owned or under management by the
Company or its affiliates. "Restricted Activities," for
purposes of this Agreement, shall mean executive, managerial,
directorial, administrative, strategic, business development
or supervisory responsibilities and activities relating to all
aspects of residential real estate ownership, management,
residential real estate franchising, and residential real
estate joint-venturing.
<PAGE> 21
b. Non-Solicitation. During the Employment Period, and for a
period of one year following the Date of Termination,
Executive shall not, without the prior written consent of the
Company, except in the course of carrying out his duties
hereunder, solicit or attempt to solicit for employment with
or on behalf of any corporation, partnership, venture or other
business entity, any employee of the Company or any of its
affiliates or any person who was formerly employed by the
Company or any of its affiliates within the preceding six
months, unless such person's employment was terminated by the
Company or any of such affiliates.
c. Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this
Section 8 are reasonable, fair and equitable in scope, terms,
and duration, are necessary to protect the legitimate business
interests of the Company and are a material inducement to the
Company to enter into this Agreement. Should a decision be
made by a court of competent jurisdiction that the character,
duration or geographical scope of the provisions of this
Section_8 is unreasonable, the parties intend and agree that
this Agreement shall be construed by the court in such a
manner as to impose all of those restrictions on Executive's
conduct that are reasonable in light of the circumstances and
as are necessary to assure to the Company the benefits of this
Agreement. The Company and Executive further agree that the
services to be rendered under this Agreement by Executive are
special, unique and of extraordinary character, and that in
the event of the breach by Executive of the terms and
conditions of this Agreement or if Executive, without the
prior consent of the Board of Directors, shall take any action
in violation of this Section 8, the Company will suffer
irreparable harm for which there is no adequate remedy at law.
Accordingly, Executive hereby consents to the entry of a
temporary restraining order or ex parte injunction, in
addition to any other remedies available at law or in equity,
to enforce the provisions hereof. Any proceeding or action
seeking equitable relief for violation of this Section 8 must
be commenced in the federal or state courts, in either case in
Virginia. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and
agree to take any and all future action necessary to submit to
the jurisdiction of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing
and shall be deemed sufficient when given by hand or by nationally
recognized overnight courier or by Express, registered or certified
mail, postage prepaid, return receipt requested, and addressed, if to
the Company at 5904 Richmond Avenue, Alexandria, VA 22303, and if to
Executive at the address set forth in the Company's records (or to
such other address as may be provided by notice).
10. Miscellaneous. This Agreement, together with Exhibit 1, Annex A and
Annex B and the Split Dollar Insurance Agreement, constitutes the
entire agreement between the parties
<PAGE> 22
concerning the subjects hereof and supersedes any and all prior
agreements or understandings, including, without limitation, any plan
or agreementproviding benefits in the nature of severance, but
excluding benefits provided under other Company plans or agreements,
except to the extent this Agreement provides greater rights than are
provided under such other plans or agreements. As of the Effective
Date, this Agreement supersedes the Prior Agreement which will have no
further force or effect. Executive hereby waives, to the extent
applicable, the effect of the transactions contemplated by the Merger
Agreement (or shareholder approval of such transaction) on any change
in control provisions in any Avalon employee benefit plan or agreement.
This Agreement shall terminate upon termination of the Merger Agreement
and abandonment of the merger contemplated by the Merger Agreement.
This Agreement may not be assigned by Executive without the prior
written consent of the Company, and may be assigned by the Company and
shall be binding upon, and inure to the benefit of, the Company's
successors and assigns. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law, or otherwise.
Headings herein are for convenience of reference only and shall not
define, limit or interpret the contents hereof.
11. Amendment. This Agreement may be amended, modified or supplemented
by the mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either
party of any breach by the other party of any condition or provision
contained in this Agreement to be performed by such other party shall
be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time. Any waiver must be in writing
and signed by Executive or an authorized officer of the Company, as the
case may be.
12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any
controversy or claim seeking equitable relief pursuant to
Section 8 of this Agreement, all controversies and claims
arising under or in connection with this Agreement or relating
to the interpretation, breach or enforcement thereof and all
other disputes between the parties, shall be resolved by
expedited, binding arbitration, to be held in Virginia in
accordance with the National Rules of the American Arbitration
Association
<PAGE> 23
governing employment disputes (the "National Rules"). In any
proceeding relating to the amount owed to Executive in
connection with his termination of employment, it is the
contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to
the termination payments, if any, required to be provided under
the applicable provisions of Section 7(c) and, if applicable,
Section 7(d) hereof, to the extent not previously paid, plus
the costs of arbitration and Executive's reasonable attorneys
fees and expenses as provided below. Any award made by such
arbitrator shall be final, binding and conclusive on the
parties for all purposes, and judgment upon the award rendered
by the arbitrator may be entered in any court having
jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as
otherwise provided in this paragraph, each party
shall pay the cost of his or its own legal fees
and expenses incurred in connection with an
arbitration proceeding. Provided an award is made
in favor of Executive in such proceeding, all of
his reasonable attorneys fees and expenses
incurred in pursuing or defending such proceeding
shall be promptly reimbursed to Executive by the
Company within five days of the entry of the
award.
(2) Reimbursement in Actions to Stay, Enjoin or
Collect. In any case where the Company or any
other person seeks to stay or enjoin the
commencement or continuation of an arbitration
proceeding, whether before or after an award has
been made, or where Executive seeks recovery of
amounts due after an award has been made, or
where the Company brings any proceeding
challenging or contesting the award, all of
Executive's reasonable attorneys fees and
expenses incurred in connection therewith shall be
promptly reimbursed by the Company to Executive,
within five days of presentation of an itemized
request for reimbursement, regardless of whether
Executive prevails, regardless of the forum in
which such proceeding is brought, and regardless
of whether a Change in Control has occurred.
(3) Reimbursement After a Change in Control. Without
limitation on the foregoing, solely in a
proceeding commenced by the Company or by
Executive after a Change in Control has occurred,
the Company shall advance to Executive, within
five days of presentation of an itemized request
for reimbursement, all of Executive's legal fees
and expenses incurred in connection
<PAGE> 24
therewith, regardless of the forum in which such
proceeding was commenced, subject to delivery of
an undertaking by Executive to reimburse the
Company for such advance if he does not prevail
in such proceeding (unless such fees are to be
reimbursed regardless of whether Executive
prevails as provided in clause (ii) above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of
Executive's employment to the extent necessary to the intended
preservation of each party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is
required to be taken by the Board of Directors, such action shall be
taken by the vote of not less than a majority of the members then in
office and authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state
and local tax withholding requirements.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument. The
execution of this Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in
all respects under the laws of the State of Maryland.
<PAGE> 25
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
Bay Apartment Communities, Inc.
By: /S/ GILBERT M. MEYER
Its: Chairman of the Board
/S/
Richard L. Michaux
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of March,
1998 by and between Charles H. Berman ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have previously
entered into an Employment Agreement, dated as of July 16, 1997 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between the
Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"), Avalon
will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new employment
agreement, effective as of the consummation of the merger contemplated by the
Merger Agreement (the "Effective Date"), to replace the Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the Merger
Agreement, the Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement for the period commencing on the
Effective Date and terminating on the third anniversary of the Effective
Date (the "Original Term"), unless earlier terminated as provided in
Section 7. The Original Term shall be extended automatically for
additional 1 year periods (each a "Renewal Term"), unless notice that this
Agreement will not be extended is given by either party to the other 6
months prior to the expiration of the Original Term or any Renewal Term.
Notwithstanding the foregoing, upon a Change in Control, the Employment
Period shall be extended automatically to 3 years from the date of such
Change in Control. (The period of Executive's employment hereunder within
the Original Term and any Renewal Terms is herein referred to as the
"Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in the
business of the Company and its affiliates. Executive shall serve as
a corporate officer of the Company with the title of President and
Chief Operating Officer. In the performance of his duties, Executive
shall be subject to the direction of the Board of Directors of the
Company (the "Board of Directors") and shall not be required to take
direction from or report to any other person. Executive shall be
appointed to the Board of Directors of the Company effective as of
the Effective Date. Executive's duties and authority under this
Agreement are set forth on Exhibit 1 to
<PAGE> 2
this Agreement.
b. Executive agrees to his employment as described in this Section 2
and agrees to devote substantially all of his working time and
efforts to the performance of his duties under this Agreement;
provided that nothing herein shall be interpreted to preclude
Executive from (i) participating with the prior written consent of
the Board of Directors as an officer or director of, or advisor to,
any other entity or organization that is not a customer or material
service provider to the Company or a Competing Enterprise, as
defined in Section 8, so long as such participation does not
interfere with the performance of Executive's duties hereunder,
whether or not such entity or organization is engaged in religious,
charitable or other community or non-profit activities, (ii)
investing in any entity or organization which is not a customer or
material service provider to the Company or a Competing Enterprise,
so long as such investment does not interfere with the performance
of Executive's duties hereunder, or (iii) delivering lectures or
fulfilling speaking engagements so long as such lectures or
engagements do not interfere with the performance of Executive's
duties hereunder. The Company consents to Executive's status as a
"former partner" with a current financial interest in certain
Midwest projects of Trammell Crow Residential ("TCR"), and such
activity shall not be treated as a Competing Enterprise.
c. In performing his duties hereunder, Executive shall be available for
reasonable travel as the needs of the business require. Executive
shall be based in San Jose, California (or otherwise in the greater
San Francisco Bay area), as soon as practicable following the
Effective Date, provided, that following the second anniversary of
the Effective Date, Executive may cause his employment to be located
in Wilton, Connecticut (or otherwise in the Company's regional
office in the greater Fairfield County area). Additional terms of
Executive's employment in San Jose are set forth on Exhibit 2 to
this Agreement.
d. Breach by either party of any of its respective obligations under
this Section 2 shall be deemed a material breach of that party's
obligations hereunder.
3. Compensation/Benefits. In consideration of Executive's services hereunder,
the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall
receive an annual rate of base salary ("Base Salary") in an amount
not less than $350,000. Executive's Base Salary will be reviewed by
the Company as of the first anniversary of the Effective Date, and
may be adjusted upward (but not downward) at such time to reflect
any inequities in compensation. Commencing as of January 1, 2000,
Executive's Base Salary shall be reviewed no less frequently than
annually by the Company and may be adjusted upward (but not
downward)
<PAGE> 3
by the Company. Upon such annual review during the Renewal Term, if
any, Executive's Base Salary shall be increased to the greatest of
(i) an amount equal to Base Salary for the prior year plus 5%, (ii)
a factor measured by the increase, if any, in the Consumer Price
Index for Wage Earners and Clerical Workers (CPI-W) (City Average
for New York - Northern New Jersey - Long Island 1982-84=100), as
published by the Bureau of Labor Statistics, for the prior calendar
year (the "CPI Adjustment") or (iii) such greater amount as may be
agreed by Executive and the Company. Base Salary shall be payable in
accordance with the Company's normal business practices, but in no
event less frequently than monthly.
b. Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the
Company may provide Executive with additional compensation as a
bonus if the Board, or any compensation committee hereof, in its
discretion, determines that Executive's contribution to the Company
warrants such additional payment and the Company's anticipated
financial performance of the present period permits such payment.
The bonuses hereunder shall be paid as a lump sum not later than 60
days after the end of the Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate family
a comprehensive policy of health insurance. During the Employment
Period, Executive shall be entitled to a comprehensive annual
physical performed, at the expense of the Company by the physician
or medical group of Executive's choosing.
d. Life Insurance/Disability Insurance. During the Employment Period,
the Company shall keep in force and pay the premiums on the
split-dollar life insurance policy referenced in the Split Dollar
Insurance Agreement between Avalon and Executive, subject to
reimbursement by Executive as provided in such Split Dollar
Insurance Agreement. The Company shall reimburse Executive for the
cost of the comprehensive disability insurance policy, which is in
effect on January 1, 1997, and shall also be responsible for any
increases in premiums which become effective during the Employment
Period as may be necessary to maintain the same level of insurance
as in effect on January 1, 1997. Executive agrees to submit to such
medical examinations as may be required in order to maintain such
policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed 6
weeks per annum, in the aggregate.
<PAGE> 4
f. Office/Secretary, etc. During the Employment Period, Executive shall
be entitled to secretarial services and a private office
commensurate with his title and duties.
g. Avalon Stock Option. The Company acknowledges that, notwithstanding
the consummation of the Merger, Avalon granted to Executive on March
8, 1998, a non-qualfied employee stock option to purchase 162,697
shares of common stock of Avalon, par value $.01 per share (the
"Avalon Stock Option"). The Avalon Stock Option was granted at an
exercise price equal to $28.8125. Upon termination of Executive's
employment, vesting and exercisability of the Avalon Stock Option
shall be governed by the terms of the stock option agreement and
this Agreement, as applicable. During the Employment Period,
Executive shall be eligible for future employee stock option grants
on the same basis as other senior management of the Company.
h. Club Membership. The Company will pay, or at Executive's election
reimburse, during the Employment Period (i) the membership dues and
special assessments (exclusive of initiation or admittance costs)
for country club memberships of Executive's choice in an aggregate
amount not to exceed $10,000 per year, increased but not decreased
for each succeeding twelve month period during the Employment Period
by the CPI Adjustment plus (ii) other costs and fees of use of such
country club(s) reasonably related to the Company's business,
subject to substantiation thereof in accordance with the Company's
policies in effect from time to time for executive employees of the
Company.
i. Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period of not less than $950 per
month (adjusted annually for inflation by the CPI Adjustment);
provided that, at Executive's election, the Company may instead
purchase or lease, and maintain insurance for, an automobile of
comparable value for use by Executive, who shall be responsible for
maintaining such automobile, at his own expense, with the same
standard of care Executive applies to his own property and as may be
required under any applicable lease agreement.
j. Other Benefits. During the Employment Period, the Company shall
provide to Executive such other benefits, excluding severance
benefits, but including the right to participate in such retirement
or pension plans, as are made generally available to executives of
the Company from time to time, and shall be given credit for
purposes of eligibility and vesting of employee benefits and benefit
accrual for service with Avalon, its affiliates and TCR prior to the
Effective Date under each benefit plan of the Company and its
subsidiaries to the extent such service had been credited under
employee benefit plans of Avalon and its subsidiaries, provided that
no such crediting of service results in duplication of benefits.
<PAGE> 5
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse Executive
for the reasonable business expenses incurred by Executive in the
course of performing his duties for the Company hereunder, upon
submission of invoices, vouchers or other appropriate documentation,
as may be required in accordance with the policies in effect from
time to time for executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall indemnify
Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director
of the Company, or any affiliate thereof for which he may render
service in such capacity, whether by or on behalf of the Company,
its shareholders or third parties, and the Company shall advance to
Executive on a timely basis an amount equal to the reasonable fees
and expenses incurred in defending such actions, after receipt of an
itemized request for such advance, and an undertaking from Executive
to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as determined by the Company, if
it shall ultimately be determined that he is not entitled to be
indemnified against such expenses. The Company agrees to use its
best efforts to secure and maintain officers and directors'
liability insurance with respect to Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the
Board.
b. Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at
Annex A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar documents
obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not
confidential information or trade secrets, shall be the exclusive
property of the Company. Executive shall have no rights in such
documents upon any termination of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's rights
under Section 6(a), Executive agrees to abide by and be bound by the
Nondisclosure
<PAGE> 6
Agreement of the Company executed by Executive and the Company as
reflected in the attachment at Annex B and made a part hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at will"
and, therefore, may be terminated at any time, with or without
Cause, at the option of the Company, subject only to the severance
obligations under this Section 7. Upon any termination hereunder,
the Employment Period shall expire.
b. Definitions. For purposes of this Section 7, the following terms
shall have the indicated definitions:
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of nolo
contendere to an act which is defined as a felony
under any federal, state or local law, not based upon
a traffic violation, which conviction or plea has or
can be expected to have, in the good faith opinion of
the Board of Directors, a material adverse impact on
the business or reputation of the Company;
(2) any one or more acts of theft, larceny, embezzlement,
fraud or material intentional misappropriation from or
with respect to the Company;
(3) a breach by Executive of his fiduciary duties under
Maryland law as an officer;
(4) Executive's commission of any one or more acts of
gross negligence or willful misconduct which in the
good faith opinion of the Board of Directors has
resulted in material harm to the business or
reputation of the Company; or
(5) default by Executive in the performance of his
material duties under this Agreement, without
correction of such action within 15 days of written
notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment by
the Company shall be treated as for Cause or be effective until and unless all
of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after
<PAGE> 7
the Board of Directors learns of the act, failure or event
(or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors duly
called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive within
20 days of such Board meeting.
The Company may suspend Executive with pay at any time during the period
commencing with the giving of notice to Executive under clause (i) above until
final Notice of Termination is given under clause (iii) above. Upon the giving
of notice as provided in clause (iii) above, no further payments shall be due
Executive.
ii. Change in Control. A "Change in Control" shall mean the
occurrence of any one or more of the following events
following the Effective Date:
(1) Any individual, entity or group (a "Person") within
the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Act") (other than
the Company, any corporation, partnership, trust or
other entity controlled by the Company (a "Subsidiary"),
or any trustee, fiduciary or other person or entity
holding securities under any employee benefit plan or
trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such
Person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act) of
securities of the Company representing 30% or more of
the combined voting power of the Company's then
outstanding securities having the right to vote
generally in an election of the Company's Board of
Directors ("Voting Securities"), other than as a result
of (A) an acquisition of securities directly from the
Company or any Subsidiary or (B) an acquisition by any
corporation pursuant to a reorganization, consolidation
or merger if, following such reorganization,
consolidation or merger the conditions described in
clauses (A), (B) and (C) of subparagraph (iii) of this
Section 7(b)(2) are satisfied; or
(2) Individuals who, as of the Effective Date, constitute
the Company's Board of Directors (the "Incumbent
Directors") cease for any reason to constitute at least
a majority of the Board, provided,
<PAGE> 8
however, that any individual becoming a director of the
Company subsequent to the date hereof (excluding, for
this purpose, (A) any such individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of
members of the Board of Directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors,
including by reason of agreement intended to avoid or
settle any such actual or threatened contest or
solicitation, and (B) any individual whose initial
assumption of office is in connection with a
reorganization, merger or consolidation, involving an
unrelated entity and occurring during the Employment
Period), whose election or nomination for election by
the Company's shareholders was approved by a vote of at
least a majority of the persons then comprising
Incumbent Directors shall for purposes of this Agreement
be considered an Incumbent Director; or
(3) Consummation of a reorganization, merger or
consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than
50% of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial
owners, respectively, of the outstanding Voting
Securities immediately prior to such reorganization,
merger or consolidation, (B) no Person (excluding the
Company, any employee benefit plan (or related trust) of
the Company, a Subsidiary or the corporation resulting
from such reorganization, merger or consolidation or any
subsidiary thereof, and any Person beneficially owning,
immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 30% or more of
the outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more of, respectively,
the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger
or consolidation or the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of directors,
and (C) at least a majority of the members of the board
of directors of the corporation resulting from such
reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the
initial
<PAGE> 9
agreement providing for such reorganization, merger or
consolidation;
(4) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(5) The sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, other
than to a corporation, with respect to which following
such sale, lease, exchange or other disposition (A) more
than 50% of, respectively, the then outstanding shares
of common stock of such corporation and the combined
voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial
owners of the outstanding Voting Securities immediately
prior to such sale, lease, exchange or other
disposition, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the
Company or a Subsidiary or such corporation or a
subsidiary thereof and any Person beneficially owning,
immediately prior to such sale, lease, exchange or other
disposition, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board
of directors of such corporation were members of the
Incumbent Board at the time of the execution of the
initial agreement or action of the Board of Directors
providing for such sale, lease, exchange or other
disposition of assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed
to have occurred for purposes of this Agreement solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Voting Securities outstanding, increases the proportionate voting power
represented by the Voting Securities beneficially owned by any Person to 30% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any Person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Stock or
other Voting Securities (other than pursuant to a stock split, stock dividend,
or similar transaction), then a "Change in Control" shall be deemed to have
occurred for purposes of this Agreement.
<PAGE> 10
iii. Complete Change in Control. A "Complete Change in Control"
shall mean that a Change in Control has occurred, after
modifying the definition of "Change in Control" by deleting
clause (i) from Section 7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause. "Constructive
Termination Without Cause" shall mean a termination of
Executive's employment initiated by Executive not later than
12 months following the occurrence (not including any time
during which an arbitration proceeding referenced below is
pending), without Executive's prior written consent, of one
or more of the following events (or the latest to occur in a
series of events), and effected after giving the Company not
less than 10 working days' written notice of the specific act
or acts relied upon and right to cure:
(1) a material adverse change in the functions, duties or
responsibilities of Executive's position which would
reduce the level, importance or scope of such position;
or any removal of Executive from or failure to reappoint
or reelect Executive to any position set forth in this
Agreement, except in connection with the termination of
Executive's employment for Disability, Cause, as a
result of Executive's death or by Executive other than
for a Constructive Termination Without Cause;
(2) any material breach by the Company of this Agreement;
(3) any purported termination of Executive's employment for
Cause by the Company which does not comply with the
terms of Section 7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or
assign of the Company, to assume and agree to perform
this Agreement, as contemplated in Section 10 of this
Agreement;
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates
immediately prior to a Change in Control which is
material to Executive's total compensation, unless
comparable alternative arrangements (embodied in ongoing
substitute or alternative plans) have been implemented
with respect to such plans, or the failure by the
Company to continue Executive's participation therein
(or in such substitute or alternative plans) on a basis
not materially less favorable, in terms of the amount of
benefits provided and the level of Executive's
<PAGE> 11
participation relative to other participants, as existed
during the last completed fiscal year of the Company
prior to the Change in Control;
(6) the relocation of the Company's San Jose offices (or the
office to which Executive relocates pursuant to Exhibit
2, as the case may be) to a new location more than 50
miles from San Jose (or such office) or the failure to
locate Executive's own office at the San Jose office (or
such other office location) (or at the office to which
such office is relocated which is within 50 miles of San
Jose (or such other office location)); or
(7) any termination of employment by the Executive for any
reason during the 12-month period immediately following
a Complete Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party and
Executive's and the Company's rights and obligations under this Agreement shall
continue unaffected unless and until the arbitrator has determined such question
in the affirmative, or, if earlier, the date on which Executive or the Company
has delivered a Notice of Termination in accordance with the provisions of this
Agreement.
v. Covered Average Compensation. "Covered Average Compensation"
shall mean the sum of Executive's Covered Compensation as
calculated for the calendar year in which the Date of
Termination occurs and for each of the two preceding calendar
years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any
calendar year, shall mean an amount equal to the sum of (i)
Executive's Base Salary for the calendar year (disregarding
any decreases made effective during the Employment Period),
(ii) the cash bonus actually earned by Executive with respect
to such calendar year, and (iii) the value of all stock and
other equity-based compensation awards made to Executive
during such calendar year.
<PAGE> 12
Covered Compensation shall be calculated according to the following rules:
(a) In valuing awards for purposes of clause (iii) above,
all such awards shall be treated as if fully vested when
granted, stock grants shall be valued by reference to
the fair market value on the date of grant of the
Company's common stock, par value $.01 per share (or of
the common stock of Avalon, as the case may be) and
other equity-based compensation awards shall be valued
at the value established by the Compensation Committee
of the Board of Directors on the date of grant.
(b) In determining the cash bonus actually paid with respect
to a calendar year, if no cash bonus has been paid with
respect to the calendar year in which the Date of
Termination occurs, the cash bonus paid with respect to
the immediately preceding calendar year shall be assumed
to have been paid in each of the current and immediately
preceding calendar years, and if no cash bonus has been
paid by the Date of Termination with respect to the
immediately preceding calendar year, the cash bonus paid
with respect to the second preceding calendar year shall
be assumed to have been paid in all three of the
calendar years taken into account in determining Covered
Average Compensation.
(c) If any cash bonus paid with respect to the current or
immediately preceding calendar year was paid within
three months of Executive's Date of Termination, and is
lower than the last cash bonus paid more than three
months from the Date of Termination, any such cash bonus
paid within three months of the Date of Termination
shall be disregarded and the last cash bonus paid more
than three months from the Date of Termination shall be
substituted for each cash bonus so disregarded.
(d) In determining the amount of stock and other
equity-based compensation awards made during a calendar
year during the averaging period, rules similar to those
set forth in subparagraphs (B) and (C) of this Section
7(b)(6) shall be followed, except that all awards made
in connection with the Company's initial public offering
shall be disregarded.
vii. Disability. "Disability" shall mean Executive has been determined
to be
<PAGE> 13
disabled and to qualify for long-term disability benefits
under the long-term disability insurance policy obtained
pursuant to Section 3(d) of this Agreement.
c. Rights Upon Termination.
(1) Payment of Benefits Earned Through Date of
Termination. Upon any termination of Executive's
employment during the Employment Period, Executive, or
his estate, shall in all events be paid all accrued
but unpaid Base Salary and all earned but unpaid cash
incentive compensation earned through his Date of
Termination. Executive shall also retain all such
rights with respect to vested equity-based awards as
are provided under the circumstances under the
applicable grant or award agreement, and shall be
entitled to all other benefits which are provided
under the circumstances in accordance with the
provisions of the Company's generally applicable
employee benefit plans, practices and policies, other
than severance plans.
(2) Death. In the event of Executive's death during the
Employment Period, the Company shall, in addition to
paying the amounts set forth in Section 7(c)(i), take
whatever action is necessary to cause all of
Executive's unvested equity-based awards to become
fully vested as of the date of death and, in the case
of equity-based awards which have an exercise
schedule, to become fully exercisable and continue to
be exercisable for such period as is provided in the
case of vested and exercisable awards in the event of
death under the terms of the applicable award
agreements.
(3) Disability. In the event the Company elects to
terminate Executive's employment during the Employment
Period on account of Disability, the Company shall, in
addition to paying the amounts set forth in Section
7(c)(i), pay to Executive, in one lump sum, no later
than 31 days following the Date of Termination, an
amount equal to two times Covered Average
Compensation. The Company shall also, commencing upon
the Date of Termination:
(a) Continue, without cost to Executive, benefits
comparable to the medical and disability benefits
provided to Executive immediately prior to the
Date of Termination under Section 3(c) and
Section 3(d) for a period of 24 months following
the Date of Termination or until such earlier
date as Executive obtains comparable benefits
through other
<PAGE> 14
employment;
(b) Continue to pay, or reimburse Executive, for all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance
policy referenced under Section 3(d) for so long
as such payments are due; and
(c) Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based awards
and be entitled to exercise and continue to
exercise all stock options and all other
equity-based awards having an exercise schedule
and to retain such grants and awards to the same
extent as if they were vested upon termination of
employment in accordance with their terms.
(4) Non-Renewal. In the event the Company gives Executive a
notice of non-renewal pursuant to Section 1 above, the
Company shall, in addition to paying the amounts set forth in
Section 7(c)(i), commencing upon the Date of Termination:
(a) Pay to Executive, for 12 consecutive months, commencing
with the first day of the month immediately following
the Date of Termination, a monthly amount equal to the
result obtained by dividing Covered Average Compensation
by twelve;
(b) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 24
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment; and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms; and
<PAGE> 15
(d) Continue to pay, or reimburse Executive for, all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section 3(d) for so long as such
payments are due.
(5) Termination Without Cause; Constructive Termination Without
Cause. In the event the Company or any successor to the
Company terminates Executive's employment without Cause, or
if Executive terminates his employment in a Constructive
Termination without Cause, the Company shall, in addition to
paying the amounts provided under Section 7(c)(i), pay to
Executive, in one lump sum no later than 31 days following
the Date of Termination, an amount equal to three times
Covered Average Compensation. The Company shall also,
commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 36
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for so long as
such payments are due, all premiums then due or payable
on the whole-life portion of the split-dollar insurance
policy referenced under Section 3(d); and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms.
(6) Termination for Cause; Voluntary Resignation. In the event
Executive's employment terminates during the Employment
Period other than in connection with a termination meeting
the conditions of subparagraphs (ii), (iii), (iv), or (v) of
this Section 7(c), Executive shall receive the amounts set
forth in Section 7(c)(i) in full satisfaction of all of his
entitlements from the Company. All
<PAGE> 16
equity-based awards not vested as of the Date of Termination
shall terminate (unless otherwise provided in the applicable
award agreement) and Executive shall have no further
entitlements with respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable (1) pursuant to the terms of Section 7 of this
Agreement, (2) pursuant to or in connection with any
compensatory or employee benefit plan, agreement or
arrangement, including but not limited to any stock options,
restricted or unrestricted stock grants issued to or for the
benefit of Executive and forgiveness of any loans by the
Company to Executive or (3) otherwise (collectively,
"Severance Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), and any interest or penalties are
incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an
additional payment (a "Partial Gross-Up Payment"), such that
the net amount retained by Executive, before accrual or
payment of any Federal, state or local income tax or
employment tax, but after accrual or payment of the Excise
Tax attributable to the Partial Gross-Up Payment, is equal to
the Excise Tax on the Severance Payments.
(2) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7,
including whether a Partial Gross-Up Payment is required and
the amount of such Partial Gross-Up Payment, shall be made by
Coopers & Lybrand LLP or such other nationally recognized
accounting firm as may at that time be the Company's
independent public accountants immediately prior to the
Change in Control (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company
and Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier time as is
reasonably requested by the Company or Executive. The initial
Partial Gross-Up Payment, if any, as determined pursuant to
this Section 7(d)(ii), shall be paid to Executive within five
days of the receipt of the Accounting Firm's determination.
If the Accounting Firm
<PAGE> 17
determines that no Excise Tax is payable by Executive, the
Company shall furnish Executive with an opinion of counsel
that failure to report the Excise Tax on Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon
the Company and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder,
it is possible that Partial Gross-Up Payments which will not
have been made by the Company should have been made (an
"Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 7(d)(iii) and Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred, consistent with the
calculations required to be made hereunder, and any such
Underpayment, and any interest and penalties imposed on the
Underpayment and required to be paid by Executive in
connection with the proceedings described in Section
7(d)(iii), and any related legal and accounting expenses,
shall be promptly paid by the Company to or for the benefit
of Executive.
(3) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would
require the payment by the Company of the Partial Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after
Executive knows of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim
is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney selected by the Company,
<PAGE> 18
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim; provided, however that the
Company shall bear and pay directly all costs and
expenses attributable to the failure to pay the Excise
Tax (including related additional interest and
penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, for any
Excise Tax up to an amount not exceeding the Partial
Gross-Up Payment, including interest and penalties with
respect thereto, imposed as a result of such
representation, and payment of related legal and
accounting costs and expenses (the "Indemnification
Limit"). Without limitation on the foregoing provisions
of this Section 7(d)(iii), the Company shall control all
proceedings taken in connection with such contest and,
at its sole option may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine;
provided, however, that if the Company directs Executive
to pay such claim and sue for a refund, the Company
shall advance so much of the amount of such payment as
does not exceed the Excise Tax, and related interest and
penalties, to Executive on an interest-free basis and
shall indemnify and hold Executive harmless, from any
related legal and accounting costs and expenses, and
from any Excise Tax, including related interest or
penalties imposed with respect to such advance or with
respect to any imputed income with respect to such
advance up to an amount not exceeding the
Indemnification Limit; and further provided that any
extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be
due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Partial
Gross-Up Payment would be payable hereunder and
<PAGE> 19
Executive shall be entitled to settle or contest, as the
case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.
(4) If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to the
Company so much of such refund (together with any interest
paid or credited thereon after taxes applicable thereto) (the
"Refund") as is equal to (A) if the Company advanced or paid
the entire amount required to be so advanced or paid pursuant
to Section 7(d)(iii) hereof (the "Required Section 7(d)
Advance"), the aggregate amount advanced or paid by the
Company pursuant to this Section 7(d) less the portion of
such amount advanced to Executive to reimburse him for
related legal and accounting costs, or (B) if the Company
advanced or paid less than the Required Section 7(d) Advance,
so much of the aggregate amount so advanced or paid by the
Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to
Executive with respect to such claim and (D) the sum of the
portion of the Required Section 7(d) Advance that was paid by
Executive and not paid or advanced by the Company plus
Executive's related legal and accounting fees, as applicable.
If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), a determination is
made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial
Gross-Up Payment required to be paid.
e. Notice of Termination. Notice of non-renewal of this Agreement pursuant
to Section 1 hereof or of any termination of Executive's employment
(other than by reason of death) shall be communicated by written notice
(a "Notice of Termination") from one party hereto to the other party
hereto in accordance with this Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with respect to any
termination of Executive's employment during the Employment Period, shall
mean (i) if
<PAGE> 20
Executive's employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that Executive shall not
have returned to the full-time performance of Executive's duties
during such 30 day period), (ii) if Executive's employment is
terminated for Cause, the date on which a Notice of Termination is
given which complies with the requirements of Section 7(b)(1)
hereof, and (iii) if Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination. In
the case of a termination by the Company other than for Cause, the
Date of Termination shall not be less than 30 days after the Notice
of Termination is given. In the case of a termination by Executive,
the Date of Termination shall not be less than 15 days from the date
such Notice of Termination is given. Notwithstanding the foregoing,
in the event that Executive gives a Notice of Termination to the
Company, the Company may unilaterally accelerate the Date of
Termination and such acceleration shall not result in the
termination being treated as a Termination without Cause. Upon any
termination of his employment, Executive will concurrently resign
his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if Executive's employment by
the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment, or to attempt in
any way to reduce any amounts payable to Executive by the Company
pursuant to Section 7(d)(i) hereof. Further, the amount of any
payment provided for in this Agreement shall not be reduced by any
compensation earned by Executive as the result of employment by
another employer, by retirement benefits, or, except for amounts
then due and payable in accordance with the terms of any promissory
notes given by Executive in favor of the Company, by offset against
any amount claimed to be owed by Executive to the Company or
otherwise.
h. Nature of Payments. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty. Such amounts are in
full satisfaction of all claims Executive may have in respect of his
employment by the Company or its affiliates and are provided as the
sole and exclusive benefits to be provided to Executive, his estate,
or his beneficiaries in respect of his termination of employment
from the Company or its affiliates.
8. Non-Competition; Non-Solicitation; Specific Enforcement.
a. Non-Competition. Because Executive's services to the Company are
special and because Executive has access to the Company's
confidential information, Executive covenants and agrees that,
during the Employment Period and, for a period of one year following
the Date of Termination by the Company for Cause or a termination by
Executive (other than a Constructive Termination Without
<PAGE> 21
Cause) prior to a Change in Control, Executive shall not, without
the prior written consent of the Board of Directors, become
associated with, or engage in any "Restricted Activities" with
respect to any "Competing Enterprise," as such terms are hereinafter
defined, whether as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder. "Competing
Enterprise," for purposes of this Agreement, shall mean any person,
corporation, partnership, venture or other entity which (a) is a
publicly traded real estate investment trust, or (b) is engaged in
the business of managing, owning, leasing or joint venturing
residential real estate within 30 miles of residential real estate
owned or under management by the Company or its affiliates.
"Restricted Activities," for purposes of this Agreement, shall mean
executive, managerial, directorial, administrative, strategic,
business development or supervisory responsibilities and activities
relating to all aspects of residential real estate ownership,
management, residential real estate franchising, and residential
real estate joint-venturing.
b. Non-Solicitation. During the Employment Period, and for a period of
one year following the Date of Termination, Executive shall not,
without the prior written consent of the Company, except in the
course of carrying out his duties hereunder, solicit or attempt to
solicit for employment with or on behalf of any corporation,
partnership, venture or other business entity, any employee of the
Company or any of its affiliates or any person who was formerly
employed by the Company or any of its affiliates within the
preceding six months, unless such person's employment was terminated
by the Company or any of such affiliates.
c. Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8
are reasonable, fair and equitable in scope, terms, and duration,
are necessary to protect the legitimate business interests of the
Company and are a material inducement to the Company to enter into
this Agreement. Should a decision be made by a court of competent
jurisdiction that the character, duration or geographical scope of
the provisions of this Section_8 is unreasonable, the parties intend
and agree that this Agreement shall be construed by the court in
such a manner as to impose all of those restrictions on Executive's
conduct that are reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of this Agreement.
The Company and Executive further agree that the services to be
rendered under this Agreement by Executive are special, unique and
of extraordinary character, and that in the event of the breach by
Executive of the terms and conditions of this Agreement or if
Executive, without the prior consent of the Board of Directors,
shall take any action in violation of this Section 8, the Company
will suffer irreparable harm for which there is no adequate remedy
at law. Accordingly, Executive hereby consents to the entry of a
temporary restraining order or ex parte injunction, in addition to
any other remedies available at law or in equity, to enforce the
provisions hereof. Any proceeding or action
<PAGE> 22
seeking equitable relief for violation of this Section 8 must be
commenced in the federal or state courts, in either case in
California. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and agree
to take any and all future action necessary to submit to the
jurisdiction of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing and
shall be deemed sufficient when given by hand or by nationally recognized
overnight courier or by Express, registered or certified mail, postage
prepaid, return receipt requested, and addressed, if to the Company at
5904 Richmond Avenue, Alexandria, VA 22303, and if to Executive at the
address set forth in the Company's records (or to such other address as
may be provided by notice).
10. Miscellaneous. This Agreement, together with Exhibits 1 and 2, Annex A and
Annex B and the Split Dollar Insurance Agreement, constitutes the entire
agreement between the parties concerning the subjects hereof and
supersedes any and all prior agreements or understandings, including,
without limitation, any plan or agreement providing benefits in the nature
of severance, but excluding benefits provided under other Company plans or
agreements, except to the extent this Agreement provides greater rights
than are provided under such other plans or agreements. As of the
Effective Date, this Agreement supersedes the Prior Agreement which will
have no further force or effect. Executive hereby waives, to the extent
applicable, the effect of the transactions contemplated by the Merger
Agreement (or shareholder approval of such transaction) on any change in
control provisions in any Avalon employee benefit plan or agreement. This
Agreement shall terminate upon termination of the Merger Agreement and
abandonment of the merger contemplated by the Merger Agreement. This
Agreement may not be assigned by Executive without the prior written
consent of the Company, and may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company's successors and
assigns. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. Headings herein are for
convenience of reference only and shall not define, limit or interpret the
contents hereof.
11. Amendment. This Agreement may be amended, modified or supplemented by the
mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either party
of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or
any prior
<PAGE> 23
or subsequent time. Any waiver must be in writing and signed by Executive
or an authorized officer of the Company, as the case may be.
12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this
Agreement, all controversies and claims arising under or in
connection with this Agreement or relating to the interpretation,
breach or enforcement thereof and all other disputes between the
parties, shall be resolved by expedited, binding arbitration, to be
held in California in accordance with the National Rules of the
American Arbitration Association governing employment disputes (the
"National Rules"). In any proceeding relating to the amount owed to
Executive in connection with his termination of employment, it is
the contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to the
termination payments, if any, required to be provided under the
applicable provisions of Section 7(c) and, if applicable, Section
7(d) hereof, to the extent not previously paid, plus the costs of
arbitration and Executive's reasonable attorneys fees and expenses
as provided below. Any award made by such arbitrator shall be final,
binding and conclusive on the parties for all purposes, and judgment
upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as
otherwise provided in this paragraph, each party shall
pay the cost of his or its own legal fees and expenses
incurred in connection with an arbitration proceeding.
Provided an award is made in favor of Executive in such
proceeding, all of his reasonable attorneys fees and
expenses incurred in pursuing or defending such
proceeding shall be promptly reimbursed to Executive by
the Company within five days of the entry of the award.
(2) Reimbursement in Actions to Stay, Enjoin or Collect. In
any case where the Company or any other person seeks to
stay or enjoin the commencement or continuation of an
arbitration proceeding, whether before or after an award
has been made, or where Executive seeks recovery of
amounts due after an award has been
<PAGE> 24
made, or where the Company brings any proceeding
challenging or contesting the award, all of Executive's
reasonable attorneys fees and expenses incurred in
connection therewith shall be promptly reimbursed by the
Company to Executive, within five days of presentation
of an itemized request for reimbursement, regardless of
whether Executive prevails, regardless of the forum in
which such proceeding is brought, and regardless of
whether a Change in Control has occurred.
(3) Reimbursement After a Change in Control. Without
limitation on the foregoing, solely in a proceeding
commenced by the Company or by Executive after a Change
in Control has occurred, the Company shall advance to
Executive, within five days of presentation of an
itemized request for reimbursement, all of Executive's
legal fees and expenses incurred in connection
therewith, regardless of the forum in which such
proceeding was commenced, subject to delivery of an
undertaking by Executive to reimburse the Company for
such advance if he does not prevail in such proceeding
(unless such fees are to be reimbursed regardless of
whether Executive prevails as provided in clause (ii)
above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of Executive's
employment to the extent necessary to the intended preservation of each
party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is required
to be taken by the Board of Directors, such action shall be taken by the
vote of not less than a majority of the members then in office and
authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state and
local tax withholding requirements.
17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.
<PAGE> 25
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
Bay Apartment Communities, Inc.
By: /S/ GILBERT M. MEYER
Its: Chairman of the Board
/S/ CHARLES H. BERMAN
Charles H. Berman
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of March,
1998 by and between Robert H. Slater ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have previously
entered into an Employment Agreement, dated as of July 17, 1997 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between the
Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"), Avalon
will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new employment
agreement, effective as of the consummation of the merger contemplated by the
Merger Agreement (the "Effective Date"), to replace the Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the Merger
Agreement, the Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement for the period commencing on the
Effective Date and terminating on the third anniversary of the Effective
Date (the "Original Term"), unless earlier terminated as provided in
Section 7. The Original Term shall be extended automatically for
additional 1 year periods (each a "Renewal Term"), unless notice that this
Agreement will not be extended is given by either party to the other 6
months prior to the expiration of the Original Term or any Renewal Term.
Notwithstanding the foregoing, upon a Change in Control, the Employment
Period shall be extended automatically to 3 years from the date of such
Change in Control. (The period of Executive's employment hereunder within
the Original Term and any Renewal Terms is herein referred to as the
"Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in the
business of the Company and its affiliates. Executive shall serve as
a corporate officer of the Company with the title of Senior Vice
President-Property Operations. Executive's duties and authority
shall be commensurate with his title and position with the Company,
and shall not be materially diminished from, or materially
inconsistent with, his primary duties and authority with Avalon
immediately prior to the date of this Agreement.
<PAGE> 2
Executive agrees to his employment as described in this Section 2 and
agrees to devote substantially all of his working time and efforts to the
performance of his duties under this Agreement; provided that nothing herein
shall be interpreted to preclude Executive from (i) participating with the prior
written consent of the Board of Directors as an officer or director of, or
advisor to, any other entity or organization that is not a customer or material
service provider to the Company or a Competing Enterprise, as defined in Section
8, so long as such participation does not interfere with the performance of
Executive's duties hereunder, whether or not such entity or organization is
engaged in religious, charitable or other community or non-profit activities,
(ii) investing in any entity or organization which is not a customer or material
service provider to the Company or a Competing Enterprise, so long as such
investment does not interfere with the performance of Executive's duties
hereunder, or (iii) delivering lectures or fulfilling speaking engagements so
long as such lectures or engagements do not interfere with the performance of
Executive's duties hereunder. The Company consents to Executive's status as a
"former partner" with a current financial interest in certain Midwest projects
of Trammell Crow Residential ("TCR"), and such activity shall not be treated as
a Competing Enterprise.
b. In performing his duties hereunder, Executive shall be available for
reasonable travel as the needs of the business require. Executive
shall be based in Alexandria, VA or otherwise in the greater
Washington, D.C. metropolitan area.
c. Breach by either party of any of its respective obligations under
this Section 2 shall be deemed a material breach of that party's
obligations hereunder.
3. Compensation/Benefits. In consideration of Executive's services hereunder,
the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall
receive an annual rate of base salary ("Base Salary") in an amount
not less than $300,000. Executive's Base Salary will be reviewed by
the Company as of the first anniversary of the Effective Date, and
may be adjusted upward (but not downward) at such time to reflect
any inequities in compensation. Commencing as of January 1, 2000,
Executive's Base Salary shall be reviewed no less frequently than
annually by the Company and may be adjusted upward (but not
downward) by the Company. Upon such annual review during the Renewal
Term, if any, Executive's Base Salary shall be increased to the
greatest of (i) an amount equal to Base Salary for the prior year
plus 5%, (ii) a factor measured by the increase, if any, in the
Consumer Price Index for Wage Earners and Clerical Workers (CPI-W)
(City Average for Washington, D.C.-MD-VA 1982-84=100), as published
by the Bureau of Labor Statistics, for the prior calendar year (the
"CPI Adjustment") or (iii) such greater amount as may be agreed by
Executive and the Company. Base Salary shall be payable in
accordance with the Company's normal business practices, but in no
event less frequently than monthly.
<PAGE> 3
b. Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the
Company may provide Executive with additional compensation as a
bonus if the Board, or any compensation committee hereof, in its
discretion, determines that Executive's contribution to the Company
warrants such additional payment and the Company's anticipated
financial performance of the present period permits such payment.
The bonuses hereunder shall be paid as a lump sum not later than 60
days after the end of the Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate family
a comprehensive policy of health insurance. During the Employment
Period, Executive shall be entitled to a comprehensive annual
physical performed, at the expense of the Company by the physician
or medical group of Executive's choosing.
d. Life Insurance/Disability Insurance. During the Employment Period,
the Company shall keep in force and pay the premiums on the
split-dollar life insurance policy referenced in the Split Dollar
Insurance Agreement between Avalon and Executive, subject to
reimbursement by Executive as provided in such Split Dollar
Insurance Agreement. The Company shall reimburse Executive for the
cost of the comprehensive disability insurance policy, which is in
effect on January 1, 1997, and shall also be responsible for any
increases in premiums which become effective during the Employment
Period as may be necessary to maintain the same level of insurance
as in effect on January 1, 1997. Executive agrees to submit to such
medical examinations as may be required in order to maintain such
policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed 6
weeks per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period, Executive shall
be entitled to secretarial services and a private office
commensurate with his title and duties.
g. Avalon Stock Option. The Company acknowledges that, notwithstanding
the consummation of the Merger, Avalon granted to Executive on March
8, 1998, a non-qualified employee stock option to purchase 104,126
shares of common stock of Avalon, par value $.01 per share (the
"Avalon Stock Option"). The Avalon Stock Option was granted at an
exercise price equal to $28.8125. Upon termination of Executive's
employment, vesting and exercisability of the Avalon
<PAGE> 4
Stock Option shall be governed by the terms of the stock option
agreement and this Agreement, as applicable. During the Employment
Period, Executive shall be eligible for future employee stock option
grants on the same basis as other senior management of the Company.
h. Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period of not less than $750 per
month (adjusted annually for inflation by the CPI Adjustment);
provided that, at Executive's election, the Company may instead
purchase or lease, and maintain insurance for, an automobile of
comparable value for use by Executive, who shall be responsible for
maintaining such automobile, at his own expense, with the same
standard of care Executive applies to his own property and as may be
required under any applicable lease agreement.
i. Other Benefits. During the Employment Period, the Company shall
provide to Executive such other benefits, excluding severance
benefits, but including the right to participate in such retirement
or pension plans, as are made generally available to executives of
the Company from time to time, and shall be given credit for
purposes of eligibility and vesting of employee benefits and benefit
accrual for service with Avalon, its affiliates and TCR prior to the
Effective Date under each benefit plan of the Company and its
subsidiaries to the extent such service had been credited under
employee benefit plans of Avalon and its subsidiaries, provided that
no such crediting of service results in duplication of benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse Executive
for the reasonable business expenses incurred by Executive in the
course of performing his duties for the Company hereunder, upon
submission of invoices, vouchers or other appropriate documentation,
as may be required in accordance with the policies in effect from
time to time for executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall indemnify
Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director
of the Company, or any affiliate thereof for which he may render
service in such capacity, whether by or on behalf of the Company,
its shareholders or third parties, and the Company shall advance to
Executive on a timely basis an amount equal to the reasonable fees
and expenses incurred in defending such actions, after receipt of an
itemized request for such advance, and an undertaking from Executive
to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as
<PAGE> 5
determined by the Company, if it shall ultimately be determined that
he is not entitled to be indemnified against such expenses. The
Company agrees to use its best efforts to secure and maintain
officers and directors' liability insurance with respect to
Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the
Board.
b. Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at
Annex A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar documents
obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not
confidential information or trade secrets, shall be the exclusive
property of the Company. Executive shall have no rights in such
documents upon any termination of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's rights
under Section 6(a), Executive agrees to abide by and be bound by the
Nondisclosure Agreement of the Company executed by Executive and the
Company as reflected in the attachment at Annex B and made a part
hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at will"
and, therefore, may be terminated at any time, with or without
Cause, at the option of the Company, subject only to the severance
obligations under this Section 7. Upon any termination hereunder,
the Employment Period shall expire.
b. Definitions. For purposes of this Section 7, the following terms
shall have the indicated definitions:
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of nolo
contendere to an
<PAGE> 6
act which is defined as a felony under any federal,
state or local law, not based upon a traffic violation,
which conviction or plea has or can be expected to have,
in the good faith opinion of the Board of Directors, a
material adverse impact on the business or reputation of
the Company;
(2) any one or more acts of theft, larceny, embezzlement,
fraud or material intentional misappropriation from or
with respect to the Company;
(3) a breach by Executive of his fiduciary duties under
Maryland law as an officer;
(4) Executive's commission of any one or more acts of gross
negligence or willful misconduct which in the good faith
opinion of the Board of Directors has resulted in
material harm to the business or reputation of the
Company; or
(5) default by Executive in the performance of his material
duties under this Agreement, without correction of such
action within 15 days of written notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment by
the Company shall be treated as for Cause or be effective until and unless all
of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or event
(or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors duly
called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive within
20 days of such Board meeting.
The Company may suspend Executive with pay at any time during the period
commencing with the giving of notice to Executive under clause (i) above until
final Notice of Termination is given under clause (iii) above. Upon the giving
of notice as provided in clause
<PAGE> 7
(iii) above, no further payments shall be due Executive.
ii. Change in Control. A "Change in Control" shall mean the
occurrence of any one or more of the following events
following the Effective Date:
(1) Any individual, entity or group (a "Person") within
the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Act") (other than
the Company, any corporation, partnership, trust or
other entity controlled by the Company (a
"Subsidiary"), or any trustee, fiduciary or other
person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2
under the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in Rule
13d-3 under the Act) of securities of the Company
representing 30% or more of the combined voting power
of the Company's then outstanding securities having the
right to vote generally in an election of the Company's
Board of Directors ("Voting Securities"), other than as
a result of (A) an acquisition of securities directly
from the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to a
reorganization, consolidation or merger if, following
such reorganization, consolidation or merger the
conditions described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2) are
satisfied; or
(2) Individuals who, as of the Effective Date, constitute
the Company's Board of Directors (the "Incumbent
Directors") cease for any reason to constitute at least
a majority of the Board, provided, however, that any
individual becoming a director of the Company
subsequent to the date hereof (excluding, for this
purpose, (A) any such individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of
members of the Board of Directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors,
including by reason of agreement intended to avoid or
settle any such actual or threatened contest or
solicitation, and (B) any individual whose initial
assumption of office is in connection with a
reorganization, merger or consolidation, involving an
unrelated entity and occurring during the Employment
Period), whose election or nomination for election by
the Company's shareholders was
<PAGE> 8
approved by a vote of at least a majority of the persons
then comprising Incumbent Directors shall for purposes
of this Agreement be considered an Incumbent Director;
or
(3) Consummation of a reorganization, merger or
consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than
50% of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
reorganization, merger or consolidation and the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, (B) no Person
(excluding the Company, any employee benefit plan (or
related trust) of the Company, a Subsidiary or the
corporation resulting from such reorganization, merger
or consolidation or any subsidiary thereof, and any
Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly,
30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or
the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors, and (C) at
least a majority of the members of the board of
directors of the corporation resulting from such
reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization,
merger or consolidation;
(4) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(5) The sale, lease, exchange or other disposition of all
or substantially all of the assets of the Company,
other than to a corporation, with respect to which
following such sale, lease, exchange or other
disposition (A) more than 50% of, respectively, the
then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of
<PAGE> 9
such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial
owners of the outstanding Voting Securities immediately
prior to such sale, lease, exchange or other
disposition, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the
Company or a Subsidiary or such corporation or a
subsidiary thereof and any Person beneficially owning,
immediately prior to such sale, lease, exchange or
other disposition, directly or indirectly, 30% or more
of the outstanding Voting Securities), beneficially
owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common
stock of such corporation and the combined voting power
of the then outstanding voting securities of such
corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members
of the board of directors of such corporation were
members of the Incumbent Board at the time of the
execution of the initial agreement or action of the
Board of Directors providing for such sale, lease,
exchange or other disposition of assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed
to have occurred for purposes of this Agreement solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Voting Securities outstanding, increases the proportionate voting power
represented by the Voting Securities beneficially owned by any Person to 30% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any Person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Stock or
other Voting Securities (other than pursuant to a stock split, stock dividend,
or similar transaction), then a "Change in Control" shall be deemed to have
occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in Control" shall
mean that a Change in Control has occurred, after modifying the
definition of "Change in Control" by deleting clause (i) from
Section 7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause. "Constructive Termination
Without Cause" shall mean a termination of Executive's employment
initiated by Executive not later than 12 months following the
occurrence (not including any time during which an arbitration
proceeding referenced below is pending), without Executive's prior
written consent, of one or more of the following events (or the
latest to occur in a series of events),
<PAGE> 10
and effected after giving the Company not less than 10 working days'
written notice of the specific act or acts relied upon and right to
cure:
(1) a material adverse change in the functions, duties or
responsibilities of Executive's position which would reduce
the level, importance or scope of such position; or any
removal of Executive from or failure to reappoint or reelect
Executive to any position set forth in this Agreement, except
in connection with the termination of Executive's employment
for Disability, Cause, as a result of Executive's death or by
Executive other than for a Constructive Termination Without
Cause;
(2) any material breach by the Company of this Agreement;
(3) any purported termination of Executive's employment for Cause
by the Company which does not comply with the terms of
Section 7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign
of the Company, to assume and agree to perform this
Agreement, as contemplated in Section 10 of this Agreement;
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately
prior to a Change in Control which is material to Executive's
total compensation, unless comparable alternative
arrangements (embodied in ongoing substitute or alternative
plans) have been implemented with respect to such plans, or
the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative
plans) on a basis not materially less favorable, in terms of
the amount of benefits provided and the level of Executive's
participation relative to other participants, as existed
during the last completed fiscal year of the Company prior to
the Change in Control;
(6) the relocation of the Company's Alexandria offices to a new
location more than fifty (50) miles from Alexandria or the
failure to locate Executive's own office at the Alexandria
office (or at the office to which such office is relocated
which is within 50 miles of Alexandria) or, following a
Change in Control, the failure to locate Executive's office
at the Company's principal executive office or the
<PAGE> 11
relocation of the Company's principal executive office to a
location more than 50 miles from Alexandria; or
(7) any termination of employment by the Executive for any reason
during the 12-month period immediately following a Complete
Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party and
Executive's and the Company's rights and obligations under this Agreement shall
continue unaffected unless and until the arbitrator has determined such question
in the affirmative, or, if earlier, the date on which Executive or the Company
has delivered a Notice of Termination in accordance with the provisions of this
Agreement.
v. Covered Average Compensation. "Covered Average Compensation" shall
mean the sum of Executive's Covered Compensation as calculated for
the calendar year in which the Date of Termination occurs and for
each of the two preceding calendar years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any calendar year,
shall mean an amount equal to the sum of (i) Executive's Base Salary
for the calendar year (disregarding any decreases made effective
during the Employment Period), (ii) the cash bonus actually earned
by Executive with respect to such calendar year, and (iii) the value
of all stock and other equity-based compensation awards made to
Executive during such calendar year.
Covered Compensation shall be calculated according to the following rules:
(a) In valuing awards for purposes of clause (iii) above,
all such awards shall be treated as if fully vested when
granted, stock grants shall be valued by reference to
the fair market value on the date of grant of the
Company's common stock, par value $.01 per share (or of
the common stock of
<PAGE> 12
Avalon, as the case may be) and other equity-based
compensation awards shall be valued at the value
established by the Compensation Committee of the Board
of Directors on the date of grant.
(b) In determining the cash bonus actually paid with respect
to a calendar year, if no cash bonus has been paid with
respect to the calendar year in which the Date of
Termination occurs, the cash bonus paid with respect to
the immediately preceding calendar year shall be assumed
to have been paid in each of the current and immediately
preceding calendar years, and if no cash bonus has been
paid by the Date of Termination with respect to the
immediately preceding calendar year, the cash bonus paid
with respect to the second preceding calendar year shall
be assumed to have been paid in all three of the
calendar years taken into account in determining Covered
Average Compensation.
(c) If any cash bonus paid with respect to the current or
immediately preceding calendar year was paid within
three months of Executive's Date of Termination, and is
lower than the last cash bonus paid more than three
months from the Date of Termination, any such cash bonus
paid within three months of the Date of Termination
shall be disregarded and the last cash bonus paid more
than three months from the Date of Termination shall be
substituted for each cash bonus so disregarded.
(d) In determining the amount of stock and other
equity-based compensation awards made during a calendar
year during the averaging period, rules similar to those
set forth in subparagraphs (B) and (C) of this Section
7(b)(6) shall be followed, except that all awards made
in connection with the Company's initial public offering
shall be disregarded.
vii. Disability. "Disability" shall mean Executive has been determined to
be disabled and to qualify for long-term disability benefits under
the long-term disability insurance policy obtained pursuant to
Section 3(d) of this Agreement.
c. Rights Upon Termination.
<PAGE> 13
(1) Payment of Benefits Earned Through Date of Termination. Upon
any termination of Executive's employment during the
Employment Period, Executive, or his estate, shall in all
events be paid all accrued but unpaid Base Salary and all
earned but unpaid cash incentive compensation earned through
his Date of Termination. Executive shall also retain all such
rights with respect to vested equity-based awards as are
provided under the circumstances under the applicable grant
or award agreement, and shall be entitled to all other
benefits which are provided under the circumstances in
accordance with the provisions of the Company's generally
applicable employee benefit plans, practices and policies,
other than severance plans.
(2) Death. In the event of Executive's death during the
Employment Period, the Company shall, in addition to paying
the amounts set forth in Section 7(c)(i), take whatever
action is necessary to cause all of Executive's unvested
equity-based awards to become fully vested as of the date of
death and, in the case of equity-based awards which have an
exercise schedule, to become fully exercisable and continue
to be exercisable for such period as is provided in the case
of vested and exercisable awards in the event of death under
the terms of the applicable award agreements.
(3) Disability. In the event the Company elects to terminate
Executive's employment during the Employment Period on
account of Disability, the Company shall, in addition to
paying the amounts set forth in Section 7(c)(i), pay to
Executive, in one lump sum, no later than 31 days following
the Date of Termination, an amount equal to two times Covered
Average Compensation. The Company shall also, commencing upon
the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 24
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section
<PAGE> 14
3(d) for so long as such payments are due; and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms.
(4) Non-Renewal. In the event the Company gives Executive a
notice of non-renewal pursuant to Section 1 above, the
Company shall, in addition to paying the amounts set forth in
Section 7(c)(i), commencing upon the Date of Termination:
(a) Pay to Executive, for 12 consecutive months, commencing
with the first day of the month immediately following
the Date of Termination, a monthly amount equal to the
result obtained by dividing Covered Average Compensation
by twelve;
(b) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 24
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment; and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms; and
(d) Continue to pay, or reimburse Executive for, all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section
<PAGE> 15
3(d) for so long as such payments are due.
(5) Termination Without Cause; Constructive Termination Without
Cause. In the event the Company or any successor to the
Company terminates Executive's employment without Cause, or
if Executive terminates his employment in a Constructive
Termination without Cause, the Company shall, in addition to
paying the amounts provided under Section 7(c)(i), pay to
Executive, in one lump sum no later than 31 days following
the Date of Termination, an amount equal to three times
Covered Average Compensation. The Company shall also,
commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 36
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for so long as
such payments are due, all premiums then due or payable
on the whole-life portion of the split-dollar insurance
policy referenced under Section 3(d); and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms.
(6) Termination for Cause; Voluntary Resignation. In the event
Executive's employment terminates during the Employment
Period other than in connection with a termination meeting
the conditions of subparagraphs (ii), (iii), (iv), or (v) of
this Section 7(c), Executive shall receive the amounts set
forth in Section 7(c)(i) in full satisfaction of all of his
entitlements from the Company. All equity-based awards not
vested as of the Date of Termination shall terminate (unless
otherwise provided in the applicable award
<PAGE> 16
agreement) and Executive shall have no further entitlements
with respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable (1) pursuant to the terms of Section 7 of this
Agreement, (2) pursuant to or in connection with any
compensatory or employee benefit plan, agreement or
arrangement, including but not limited to any stock options,
restricted or unrestricted stock grants issued to or for the
benefit of Executive and forgiveness of any loans by the
Company to Executive or (3) otherwise (collectively,
"Severance Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), and any interest or penalties are
incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an
additional payment (a "Partial Gross-Up Payment"), such that
the net amount retained by Executive, before accrual or
payment of any Federal, state or local income tax or
employment tax, but after accrual or payment of the Excise
Tax attributable to the Partial Gross-Up Payment, is equal to
the Excise Tax on the Severance Payments.
(2) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7,
including whether a Partial Gross-Up Payment is required and
the amount of such Partial Gross-Up Payment, shall be made by
Coopers & Lybrand LLP or such other nationally recognized
accounting firm as may at that time be the Company's
independent public accountants immediately prior to the
Change in Control (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company
and Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier time as is
reasonably requested by the Company or Executive. The initial
Partial Gross-Up Payment, if any, as determined pursuant to
this Section 7(d)(ii), shall be paid to Executive within five
days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is
payable by Executive, the
<PAGE> 17
Company shall furnish Executive with an opinion of counsel
that failure to report the Excise Tax on Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon
the Company and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder,
it is possible that Partial Gross-Up Payments which will not
have been made by the Company should have been made (an
"Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 7(d)(iii) and Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred, consistent with the
calculations required to be made hereunder, and any such
Underpayment, and any interest and penalties imposed on the
Underpayment and required to be paid by Executive in
connection with the proceedings described in Section
7(d)(iii), and any related legal and accounting expenses,
shall be promptly paid by the Company to or for the benefit
of Executive.
(3) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would
require the payment by the Company of the Partial Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after
Executive knows of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim
is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney
<PAGE> 18
selected by the Company,
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim; provided, however that the
Company shall bear and pay directly all costs and
expenses attributable to the failure to pay the Excise
Tax (including related additional interest and
penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, for any
Excise Tax up to an amount not exceeding the Partial
Gross-Up Payment, including interest and penalties with
respect thereto, imposed as a result of such
representation, and payment of related legal and
accounting costs and expenses (the "Indemnification
Limit"). Without limitation on the foregoing provisions
of this Section 7(d)(iii), the Company shall control all
proceedings taken in connection with such contest and,
at its sole option may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine;
provided, however, that if the Company directs Executive
to pay such claim and sue for a refund, the Company
shall advance so much of the amount of such payment as
does not exceed the Excise Tax, and related interest and
penalties, to Executive on an interest-free basis and
shall indemnify and hold Executive harmless, from any
related legal and accounting costs and expenses, and
from any Excise Tax, including related interest or
penalties imposed with respect to such advance or with
respect to any imputed income with respect to such
advance up to an amount not exceeding the
Indemnification Limit; and further provided that any
extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with
respect to which such contested amount
<PAGE> 19
is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which
a Partial Gross-Up Payment would be payable hereunder
and Executive shall be entitled to settle or contest, as
the case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.
(4) If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to the
Company so much of such refund (together with any interest
paid or credited thereon after taxes applicable thereto) (the
"Refund") as is equal to (A) if the Company advanced or paid
the entire amount required to be so advanced or paid pursuant
to Section 7(d)(iii) hereof (the "Required Section 7(d)
Advance"), the aggregate amount advanced or paid by the
Company pursuant to this Section 7(d) less the portion of
such amount advanced to Executive to reimburse him for
related legal and accounting costs, or (B) if the Company
advanced or paid less than the Required Section 7(d) Advance,
so much of the aggregate amount so advanced or paid by the
Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to
Executive with respect to such claim and (D) the sum of the
portion of the Required Section 7(d) Advance that was paid by
Executive and not paid or advanced by the Company plus
Executive's related legal and accounting fees, as applicable.
If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), a determination is
made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial
Gross-Up Payment required to be paid.
e. Notice of Termination. Notice of non-renewal of this Agreement
pursuant to Section 1 hereof or of any termination of Executive's
employment (other than by reason of death) shall be communicated by
written notice (a "Notice of
<PAGE> 20
Termination") from one party hereto to the other party hereto in
accordance with this Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with respect to any
termination of Executive's employment during the Employment Period,
shall mean (i) if Executive's employment is terminated for
Disability, 30 days after Notice of Termination is given (provided
that Executive shall not have returned to the full-time performance
of Executive's duties during such 30 day period), (ii) if
Executive's employment is terminated for Cause, the date on which a
Notice of Termination is given which complies with the requirements
of Section 7(b)(1) hereof, and (iii) if Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination. In the case of a termination by the Company other than
for Cause, the Date of Termination shall not be less than 30 days
after the Notice of Termination is given. In the case of a
termination by Executive, the Date of Termination shall not be less
than 15 days from the date such Notice of Termination is given.
Notwithstanding the foregoing, in the event that Executive gives a
Notice of Termination to the Company, the Company may unilaterally
accelerate the Date of Termination and such acceleration shall not
result in the termination being treated as a Termination without
Cause. Upon any termination of his employment, Executive will
concurrently resign his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if Executive's employment by
the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment, or to attempt in
any way to reduce any amounts payable to Executive by the Company
pursuant to Section 7(d)(i) hereof. Further, the amount of any
payment provided for in this Agreement shall not be reduced by any
compensation earned by Executive as the result of employment by
another employer, by retirement benefits, or, except for amounts
then due and payable in accordance with the terms of any promissory
notes given by Executive in favor of the Company, by offset against
any amount claimed to be owed by Executive to the Company or
otherwise.
h. Nature of Payments. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty. Such amounts are in
full satisfaction of all claims Executive may have in respect of his
employment by the Company or its affiliates and are provided as the
sole and exclusive benefits to be provided to Executive, his estate,
or his beneficiaries in respect of his termination of employment
from the Company or its affiliates.
8. Non-Competition; Non-Solicitation; Specific Enforcement.
<PAGE> 21
a. Non-Competition. Because Executive's services to the Company are
special and because Executive has access to the Company's
confidential information, Executive covenants and agrees that,
during the Employment Period and, for a period of one year following
the Date of Termination by the Company for Cause or a termination by
Executive (other than a Constructive Termination Without Cause)
prior to a Change in Control, Executive shall not, without the prior
written consent of the Board of Directors, become associated with,
or engage in any "Restricted Activities" with respect to any
"Competing Enterprise," as such terms are hereinafter defined,
whether as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder. "Competing
Enterprise," for purposes of this Agreement, shall mean any person,
corporation, partnership, venture or other entity which (a) is a
publicly traded real estate investment trust, or (b) is engaged in
the business of managing, owning, leasing or joint venturing
residential real estate within 30 miles of residential real estate
owned or under management by the Company or its affiliates.
"Restricted Activities," for purposes of this Agreement, shall mean
executive, managerial, directorial, administrative, strategic,
business development or supervisory responsibilities and activities
relating to all aspects of residential real estate ownership,
management, residential real estate franchising, and residential
real estate joint-venturing.
b. Non-Solicitation. During the Employment Period, and for a period of
one year following the Date of Termination, Executive shall not,
without the prior written consent of the Company, except in the
course of carrying out his duties hereunder, solicit or attempt to
solicit for employment with or on behalf of any corporation,
partnership, venture or other business entity, any employee of the
Company or any of its affiliates or any person who was formerly
employed by the Company or any of its affiliates within the
preceding six months, unless such person's employment was terminated
by the Company or any of such affiliates.
c. Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8
are reasonable, fair and equitable in scope, terms, and duration,
are necessary to protect the legitimate business interests of the
Company and are a material inducement to the Company to enter into
this Agreement. Should a decision be made by a court of competent
jurisdiction that the character, duration or geographical scope of
the provisions of this Section_8 is unreasonable, the parties intend
and agree that this Agreement shall be construed by the court in
such a manner as to impose all of those restrictions on Executive's
conduct that are reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of this Agreement.
The Company and Executive further agree that the services to be
rendered under this Agreement by Executive are special, unique and
of extraordinary character, and that in the event of the breach by
Executive of the
<PAGE> 22
terms and conditions of this Agreement or if Executive, without the
prior consent of the Board of Directors, shall take any action in
violation of this Section 8, the Company will suffer irreparable
harm for which there is no adequate remedy at law. Accordingly,
Executive hereby consents to the entry of a temporary restraining
order or ex parte injunction, in addition to any other remedies
available at law or in equity, to enforce the provisions hereof. Any
proceeding or action seeking equitable relief for violation of this
Section 8 must be commenced in the federal or state courts, in
either case in Virginia. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and agree
to take any and all future action necessary to submit to the
jurisdiction of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing and
shall be deemed sufficient when given by hand or by nationally recognized
overnight courier or by Express, registered or certified mail, postage
prepaid, return receipt requested, and addressed, if to the Company at
5904 Richmond Avenue, Alexandria, VA 22303, and if to Executive at the
address set forth in the Company's records (or to such other address as
may be provided by notice).
10. Miscellaneous. This Agreement, together with Annex A and Annex B and the
Split Dollar Insurance Agreement, constitutes the entire agreement between
the parties concerning the subjects hereof and supersedes any and all
prior agreements or understandings, including, without limitation, any
plan or agreement providing benefits in the nature of severance, but
excluding benefits provided under other Company plans or agreements,
except to the extent this Agreement provides greater rights than are
provided under such other plans or agreements. As of the Effective Date,
this Agreement supersedes the Prior Agreement which will have no further
force or effect. Executive hereby waives, to the extent applicable, the
effect of the transactions contemplated by the Merger Agreement (or
shareholder approval of such transaction) on any change in control
provisions in any Avalon employee benefit plan or agreement. This
Agreement shall terminate upon termination of the Merger Agreement and
abandonment of the merger contemplated by the Merger Agreement. This
Agreement may not be assigned by Executive without the prior written
consent of the Company, and may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company's successors and
assigns. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. Headings herein are for
convenience of reference only
<PAGE> 23
and shall not define, limit or interpret the contents hereof.
11. Amendment. This Agreement may be amended, modified or supplemented by the
mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either party
of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or
any prior or subsequent time. Any waiver must be in writing and signed by
Executive or an authorized officer of the Company, as the case may be.
12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this
Agreement, all controversies and claims arising under or in
connection with this Agreement or relating to the interpretation,
breach or enforcement thereof and all other disputes between the
parties, shall be resolved by expedited, binding arbitration, to be
held in Virginia in accordance with the National Rules of the
American Arbitration Association governing employment disputes (the
"National Rules"). In any proceeding relating to the amount owed to
Executive in connection with his termination of employment, it is
the contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to the
termination payments, if any, required to be provided under the
applicable provisions of Section 7(c) and, if applicable, Section
7(d) hereof, to the extent not previously paid, plus the costs of
arbitration and Executive's reasonable attorneys fees and expenses
as provided below. Any award made by such arbitrator shall be final,
binding and conclusive on the parties for all purposes, and judgment
upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as
otherwise provided in this paragraph, each party shall
pay the cost of his or its own legal fees and expenses
incurred in connection with an arbitration proceeding.
Provided an award is made in favor of Executive in such
proceeding, all of his reasonable attorneys fees and
expenses incurred in pursuing or defending such
proceeding
<PAGE> 24
shall be promptly reimbursed to Executive by the Company
within five days of the entry of the award.
(2) Reimbursement in Actions to Stay, Enjoin or Collect. In
any case where the Company or any other person seeks to
stay or enjoin the commencement or continuation of an
arbitration proceeding, whether before or after an award
has been made, or where Executive seeks recovery of
amounts due after an award has been made, or where the
Company brings any proceeding challenging or contesting
the award, all of Executive's reasonable attorneys fees
and expenses incurred in connection therewith shall be
promptly reimbursed by the Company to Executive, within
five days of presentation of an itemized request for
reimbursement, regardless of whether Executive prevails,
regardless of the forum in which such proceeding is
brought, and regardless of whether a Change in Control
has occurred.
(3) Reimbursement After a Change in Control. Without
limitation on the foregoing, solely in a proceeding
commenced by the Company or by Executive after a Change
in Control has occurred, the Company shall advance to
Executive, within five days of presentation of an
itemized request for reimbursement, all of Executive's
legal fees and expenses incurred in connection
therewith, regardless of the forum in which such
proceeding was commenced, subject to delivery of an
undertaking by Executive to reimburse the Company for
such advance if he does not prevail in such proceeding
(unless such fees are to be reimbursed regardless of
whether Executive prevails as provided in clause (ii)
above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of Executive's
employment to the extent necessary to the intended preservation of each
party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is required
to be taken by the Board of Directors, such action shall be taken by the
vote of not less than a majority of the members then in office and
authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state and
local tax withholding requirements.
<PAGE> 25
17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.
<PAGE> 26
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
Bay Apartment Communities, Inc.
By: /S/ GILBERT M. MEYER
Its: Chairman of the Board
/S/ ROBERT H. SLATER
Robert H. Slater
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of
March, 1998 by and between Thomas J. Sargeant ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have
previously entered into an Employment Agreement, dated as of April 4, 1997 (the
"Prior Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between
the Company and Avalon, dated as of March_9, 1998 (the "Merger Agreement"),
Avalon will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new
employment agreement, effective as of the consummation of the merger
contemplated by the Merger Agreement (the "Effective Date"), to replace the
Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the
Merger Agreement, the Company hereby agrees to employ Executive, and
Executive hereby agrees to remain in the employ of the Company subject
to the terms and conditions of this Agreement for the period
commencing on the Effective Date and terminating on the third
anniversary of the Effective Date (the "Original Term"), unless
earlier terminated as provided in Section 7. The Original Term shall
be extended automatically for additional 1 year periods (each a
"Renewal Term"), unless notice that this Agreement will not be
extended is given by either party to the other 6 months prior to the
expiration of the Original Term or any Renewal Term. Notwithstanding
the foregoing, upon a Change in Control, the Employment Period shall
be extended automatically to 3 years from the date of such Change in
Control. (The period of Executive's employment hereunder within the
Original Term and any Renewal Terms is herein referred to as the
"Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in
the business of the Company and its affiliates. Executive
shall serve as a corporate officer of the Company with the
title of Senior Vice President-Chief Financial Officer.
Executive's duties and authority shall be commensurate with
his title and position with the Company, and shall not be
materially diminished from, or materially inconsistent with,
his primary duties and authority with Avalon immediately
prior to the date of this Agreement.
<PAGE> 2
b. Executive agrees to his employment as described in this
Section 2 and agrees to devote substantially all of his
working time and efforts to the performance of his duties
under this Agreement; provided that nothing herein shall be
interpreted to preclude Executive from (i) participating with
the prior written consent of the Board of Directors as an
officer or director of, or advisor to, any other entity or
organization that is not a customer or material service
provider to the Company or a Competing Enterprise, as defined
in Section 8, so long as such participation does not
interfere with the performance of Executive's duties
hereunder, whether or not such entity or organization is
engaged in religious, charitable or other community or
non-profit activities, (ii) investing in any entity or
organization which is not a customer or material service
provider to the Company or a Competing Enterprise, so long as
such investment does not interfere with the performance of
Executive's duties hereunder, or (iii) delivering lectures or
fulfilling speaking engagements so long as such lectures or
engagements do not interfere with the performance of
Executive's duties hereunder. The Company consents to
Executive's status as a "former partner" with a current
financial interest in certain Midwest projects of Trammell
Crow Residential ("TCR"), and such activity shall not be
treated as a Competing Enterprise.
c. In performing his duties hereunder, Executive shall be
available for reasonable travel as the needs of the business
require. Executive shall be based in Alexandria, VA or
otherwise in the greater Washington, D.C. metropolitan area.
d. Breach by either party of any of its respective obligations
under this Section 2 shall be deemed a material breach of
that party's obligations hereunder.
3. Compensation/Benefits. In consideration of Executive's services
hereunder, the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive
shall receive an annual rate of base salary ("Base Salary")
in an amount not less than $270,000. Executive's Base Salary
will be reviewed by the Company as of the first anniversary
of the Effective Date, and may be adjusted upward (but not
downward) at such time to reflect any inequities in
compensation. Commencing as of January 1, 2000, Executive's
Base Salary shall be reviewed no less frequently than
annually by the Company and may be adjusted upward (but not
downward) by the Company. Upon such annual review during the
Renewal Term, if any, Executive's Base Salary shall be
increased to the greatest of (i) an amount equal to Base
Salary for the prior year plus 5%, (ii) a factor measured by
the increase, if any, in the Consumer Price Index for Wage
Earners and Clerical Workers (CPI-W) (City Average for
Washington, D.C.-MD-VA 1982-84=100), as published by the
Bureau of Labor Statistics, for the prior calendar year (the
"CPI
<PAGE> 3
Adjustment") or (iii) such greater amount as may be agreed by
Executive and the Company. Base Salary shall be payable in
accordance with the Company's normal business practices, but
in no event less frequently than monthly.
b. Bonuses. Commencing at the close of each fiscal year during
the Employment Period, the Company shall review the
performance of the Company and of Executive during the prior
fiscal year, and the Company may provide Executive with
additional compensation as a bonus if the Board, or any
compensation committee hereof, in its discretion, determines
that Executive's contribution to the Company warrants such
additional payment and the Company's anticipated financial
performance of the present period permits such payment. The
bonuses hereunder shall be paid as a lump sum not later than
60 days after the end of the Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate
family a comprehensive policy of health insurance. During the
Employment Period, Executive shall be entitled to a
comprehensive annual physical performed, at the expense of
the Company by the physician or medical group of Executive's
choosing.
d. Life Insurance/Disability Insurance. During the Employment
Period, the Company shall keep in force and pay the premiums
on the split-dollar life insurance policy referenced in the
Split Dollar Insurance Agreement between Avalon and
Executive, subject to reimbursement by Executive as provided
in such Split Dollar Insurance Agreement. The Company shall
reimburse Executive for the cost of the comprehensive
disability insurance policy, which is in effect on January 1,
1997, and shall also be responsible for any increases in
premiums which become effective during the Employment Period
as may be necessary to maintain the same level of insurance
as in effect on January 1, 1997. Executive agrees to submit
to such medical examinations as may be required in order to
maintain such policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid
vacations during the Employment Period in accordance with the
then regular procedures of the Company governing executives,
not to exceed 6 weeks per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period,
Executive shall be entitled to secretarial services and a
private office commensurate with his title and duties.
g. Avalon Stock Option. The Company acknowledges that,
notwithstanding the consummation of the Merger, Avalon
granted to Executive on March 8, 1998, a
<PAGE> 4
non-qualified employee stock option to purchase 91,110 shares
of common stock of Avalon, par value $.01 per share (the
"Avalon Stock Option"). The Avalon Stock Option was granted
at an exercise price equal to $28.8125. Upon termination of
Executive's employment, vesting and exercisability of the
Avalon Stock Option shall be governed by the terms of the
stock option agreement and this Agreement, as applicable.
During the Employment Period, Executive shall be eligible for
future employee stock option grants on the same basis as
other senior management of the Company.
h. Automobile. The Company shall provide Executive with a
monthly car allowance during the Employment Period of not
less than $750 per month (adjusted annually for inflation by
the CPI Adjustment); provided that, at Executive's election,
the Company may instead purchase or lease, and maintain
insurance for, an automobile of comparable value for use by
Executive, who shall be responsible for maintaining such
automobile, at his own expense, with the same standard of
care Executive applies to his own property and as may be
required under any applicable lease agreement.
i. Other Benefits. During the Employment Period, the Company
shall provide to Executive such other benefits, excluding
severance benefits, but including the right to participate in
such retirement or pension plans, as are made generally
available to executives of the Company from time to time, and
shall be given credit for purposes of eligibility and vesting
of employee benefits and benefit accrual for service with
Avalon, its affiliates and TCR prior to the Effective Date
under each benefit plan of the Company and its subsidiaries
to the extent such service had been credited under employee
benefit plans of Avalon and its subsidiaries, provided that
no such crediting of service results in duplication of
benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse
Executive for the reasonable business expenses incurred by
Executive in the course of performing his duties for the
Company hereunder, upon submission of invoices, vouchers or
other appropriate documentation, as may be required in
accordance with the policies in effect from time to time for
executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall
indemnify Executive with respect to any actions commenced
against Executive in his capacity as an officer or director
or former officer or director of the Company, or any
affiliate thereof for which he may render service in such
capacity, whether by or on behalf of the Company, its
shareholders or third parties, and the Company shall advance
<PAGE> 5
to Executive on a timely basis an amount equal to the
reasonable fees and expenses incurred in defending such
actions, after receipt of an itemized request for such
advance, and an undertaking from Executive to repay the
amount of such advance, with interest at a reasonable rate
from the date of the request, as determined by the Company,
if it shall ultimately be determined that he is not entitled
to be indemnified against such expenses. The Company agrees
to use its best efforts to secure and maintain officers and
directors' liability insurance with respect to Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the
rules and regulations of the Company as adopted by its Board
respecting the performance of his duties and to carry out and
perform orders, directions and policies communicated to him
from time to time by the Board.
b. Ethics Policies. Executive agrees to comply with and be bound
by the Ethics Policies of the Company, as reflected in the
attachment at Annex A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar
documents obtained, reviewed or compiled by Executive in the
course of the performance by him of services for the Company,
whether or not confidential information or trade secrets,
shall be the exclusive property of the Company. Executive
shall have no rights in such documents upon any termination
of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's
rights under Section 6(a), Executive agrees to abide by and
be bound by the Nondisclosure Agreement of the Company
executed by Executive and the Company as reflected in the
attachment at Annex B and made a part hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at
will" and, therefore, may be terminated at any time, with or
without Cause, at the option of the Company, subject only to
the severance obligations under this Section 7. Upon any
termination hereunder, the Employment Period shall expire.
b. Definitions. For purposes of this Section 7, the following
terms shall have the indicated definitions:
<PAGE> 6
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea
of nolo contendere to an act which is
defined as a felony under any federal,
state or local law, not based upon a
traffic violation, which conviction or plea
has or can be expected to have, in the good
faith opinion of the Board of Directors, a
material adverse impact on the business or
reputation of the Company;
(2) any one or more acts of theft, larceny,
embezzlement, fraud or material intentional
misappropriation from or with respect to
the Company;
(3) a breach by Executive of his fiduciary
duties under Maryland law as an officer;
(4) Executive's commission of any one or more
acts of gross negligence or willful
misconduct which in the good faith opinion
of the Board of Directors has resulted in
material harm to the business or reputation
of the Company; or
(5) default by Executive in the performance of
his material duties under this Agreement,
without correction of such action within 15
days of written notice thereof.
Notwithstanding the foregoing, no termination of Executive's
employment by the Company shall be treated as for Cause or be effective until
and unless all of the steps described in subparagraphs (i) through (iii) below
have been complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or
event (or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors
duly called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive
within 20 days of such Board meeting.
<PAGE> 7
The Company may suspend Executive with pay at any time during the
period commencing with the giving of notice to Executive under clause (i) above
until final Notice of Termination is given under clause (iii) above. Upon the
giving of notice as provided in clause (iii) above, no further payments shall
be due Executive.
ii. Change in Control. A "Change in Control" shall mean
the occurrence of any one or more of the following
events following the Effective Date:
(1) Any individual, entity or group (a
"Person") within the meaning of Sections
13(d) and 14(d) of the Securities Exchange
Act of 1934 (the "Act") (other than the
Company, any corporation, partnership,
trust or other entity controlled by the
Company (a "Subsidiary"), or any trustee,
fiduciary or other person or entity holding
securities under any employee benefit plan
or trust of the Company or any of its
Subsidiaries), together with all
"affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the
Act) of such Person, shall become the
"beneficial owner" (as such term is defined
in Rule 13d-3 under the Act) of securities
of the Company representing 30% or more of
the combined voting power of the Company's
then outstanding securities having the
right to vote generally in an election of
the Company's Board of Directors ("Voting
Securities"), other than as a result of (A)
an acquisition of securities directly from
the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to
a reorganization, consolidation or merger
if, following such reorganization,
consolidation or merger the conditions
described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2)
are satisfied; or
(2) Individuals who, as of the Effective Date,
constitute the Company's Board of Directors
(the "Incumbent Directors") cease for any
reason to constitute at least a majority of
the Board, provided, however, that any
individual becoming a director of the
Company subsequent to the date hereof
(excluding, for this purpose, (A) any such
individual whose initial assumption of
office is in connection with an actual or
threatened election contest relating to the
election of members of the Board of
Directors or other actual or threatened
solicitation of proxies or consents by or
on behalf of a Person other than the Board
of Directors, including by reason of
agreement intended to avoid or settle any
such actual or threatened contest or
solicitation, and (B) any individual whose
initial assumption of office is in
connection with a reorganization,
<PAGE> 8
merger or consolidation, involving an
unrelated entity and occurring during the
Employment Period), whose election or
nomination for election by the Company's
shareholders was approved by a vote of at
least a majority of the persons then
comprising Incumbent Directors shall for
purposes of this Agreement be considered an
Incumbent Director; or
(3) Consummation of a reorganization, merger or
consolidation of the Company, unless,
following such reorganization, merger or
consolidation, (A) more than 50% of,
respectively, the then outstanding shares
of common stock of the corporation
resulting from such reorganization, merger
or consolidation and the combined voting
power of the then outstanding voting
securities of such corporation entitled to
vote generally in the election of directors
is then beneficially owned, directly or
indirectly, by all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
outstanding Voting Securities immediately
prior to such reorganization, merger or
consolidation, (B) no Person (excluding the
Company, any employee benefit plan (or
related trust) of the Company, a Subsidiary
or the corporation resulting from such
reorganization, merger or consolidation or
any subsidiary thereof, and any Person
beneficially owning, immediately prior to
such reorganization, merger or
consolidation, directly or indirectly, 30%
or more of the outstanding Voting
Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively,
the then outstanding shares of common stock
of the corporation resulting from such
reorganization, merger or consolidation or
the combined voting power of the then
outstanding voting securities of such
corporation entitled to vote generally in
the election of directors, and (C) at least
a majority of the members of the board of
directors of the corporation resulting from
such reorganization, merger or
consolidation were members of the Incumbent
Board at the time of the execution of the
initial agreement providing for such
reorganization, merger or consolidation;
(4) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company; or
(5) The sale, lease, exchange or other
disposition of all or substantially all of
the assets of the Company, other than to a
corporation, with respect to which
following such sale, lease, exchange or
other
<PAGE> 9
disposition (A) more than 50% of,
respectively, the then outstanding shares
of common stock of such corporation and the
combined voting power of the then
outstanding voting securities of such
corporation entitled to vote generally in
the election of directors is then
beneficially owned, directly or indirectly,
by all or substantially all of the
individuals and entities who were the
beneficial owners of the outstanding Voting
Securities immediately prior to such sale,
lease, exchange or other disposition, (B)
no Person (excluding the Company and any
employee benefit plan (or related trust) of
the Company or a Subsidiary or such
corporation or a subsidiary thereof and any
Person beneficially owning, immediately
prior to such sale, lease, exchange or
other disposition, directly or indirectly,
30% or more of the outstanding Voting
Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively,
the then outstanding shares of common stock
of such corporation and the combined voting
power of the then outstanding voting
securities of such corporation entitled to
vote generally in the election of directors
and (C) at least a majority of the members
of the board of directors of such
corporation were members of the Incumbent
Board at the time of the execution of the
initial agreement or action of the Board of
Directors providing for such sale, lease,
exchange or other disposition of assets of
the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of this Agreement solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate voting
power represented by the Voting Securities beneficially owned by any Person to
30% or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any Person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Stock
or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change in Control" shall be deemed
to have occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in
Control" shall mean that a Change in Control has
occurred, after modifying the definition of "Change
in Control" by deleting clause (i) from Section
7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause.
"Constructive Termination Without Cause" shall mean
a termination of Executive's employment initiated by
Executive not later than 12 months following the
occurrence
<PAGE> 10
(not including any time during which an arbitration
proceeding referenced below is pending), without
Executive's prior written consent, of one or more of
the following events (or the latest to occur in a
series of events), and effected after giving the
Company not less than 10 working days' written
notice of the specific act or acts relied upon and
right to cure:
(1) a material adverse change in the functions,
duties or responsibilities of Executive's
position which would reduce the level,
importance or scope of such position; or
any removal of Executive from or failure to
reappoint or reelect Executive to any
position set forth in this Agreement,
except in connection with the termination
of Executive's employment for Disability,
Cause, as a result of Executive's death or
by Executive other than for a Constructive
Termination Without Cause;
(2) any material breach by the Company of this
Agreement;
(3) any purported termination of Executive's
employment for Cause by the Company which
does not comply with the terms of Section
7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an
agreement, satisfactory to the Executive,
from any successor or assign of the
Company, to assume and agree to perform
this Agreement, as contemplated in Section
10 of this Agreement;
(5) the failure by the Company to continue in
effect any compensation plan in which
Executive participates immediately prior to
a Change in Control which is material to
Executive's total compensation, unless
comparable alternative arrangements
(embodied in ongoing substitute or
alternative plans) have been implemented
with respect to such plans, or the failure
by the Company to continue Executive's
participation therein (or in such
substitute or alternative plans) on a basis
not materially less favorable, in terms of
the amount of benefits provided and the
level of Executive's participation relative
to other participants, as existed during
the last completed fiscal year of the
Company prior to the Change in Control;
(6) the relocation of the Company's Alexandria
offices to a new location more than fifty
(50) miles from Alexandria or the failure
to locate Executive's own office at the
Alexandria office (or at the
<PAGE> 11
office to which such office is relocated
which is within 50 miles of Alexandria) or,
following a Change in Control, the failure
to locate Executive's office at the
Company's principal executive office or the
relocation of the Company's principal
executive office to a location more than 50
miles from Alexandria; or
(7) any termination of employment by the
Executive for any reason during the
12-month period immediately following a
Complete Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party
and Executive's and the Company's rights and obligations under this Agreement
shall continue unaffected unless and until the arbitrator has determined such
question in the affirmative, or, if earlier, the date on which Executive or the
Company has delivered a Notice of Termination in accordance with the provisions
of this Agreement.
v. Covered Average Compensation. "Covered Average
Compensation" shall mean the sum of Executive's
Covered Compensation as calculated for the calendar
year in which the Date of Termination occurs and for
each of the two preceding calendar years, divided by
three.
vi. Covered Compensation. "Covered Compensation," for
any calendar year, shall mean an amount equal to the
sum of (i) Executive's Base Salary for the calendar
year (disregarding any decreases made effective
during the Employment Period), (ii) the cash bonus
actually earned by Executive with respect to such
calendar year, and (iii) the value of all stock and
other equity-based compensation awards made to
Executive during such calendar year.
Covered Compensation shall be calculated according to the
following rules:
(a) In valuing awards for purposes of
clause (iii) above, all such
awards shall be treated as if
fully vested when granted,
<PAGE> 12
stock grants shall be valued by
reference to the fair market value
on the date of grant of the
Company's common stock, par value
$.01 per share (or of the common
stock of Avalon, as the case may
be) and other equity-based
compensation awards shall be
valued at the value established by
the Compensation Committee of the
Board of Directors on the date of
grant.
(b) In determining the cash bonus
actually paid with respect to a
calendar year, if no cash bonus
has been paid with respect to the
calendar year in which the Date of
Termination occurs, the cash bonus
paid with respect to the
immediately preceding calendar
year shall be assumed to have been
paid in each of the current and
immediately preceding calendar
years, and if no cash bonus has
been paid by the Date of
Termination with respect to the
immediately preceding calendar
year, the cash bonus paid with
respect to the second preceding
calendar year shall be assumed to
have been paid in all three of the
calendar years taken into account
in determining Covered Average
Compensation.
(c) If any cash bonus paid with
respect to the current or
immediately preceding calendar
year was paid within three months
of Executive's Date of
Termination, and is lower than the
last cash bonus paid more than
three months from the Date of
Termination, any such cash bonus
paid within three months of the
Date of Termination shall be
disregarded and the last cash
bonus paid more than three months
from the Date of Termination shall
be substituted for each cash bonus
so disregarded.
(d) In determining the amount of stock
and other equity-based
compensation awards made during a
calendar year during the averaging
period, rules similar to those set
forth in subparagraphs (B) and (C)
of this Section 7(b)(6) shall be
followed, except that all awards
made in connection with the
Company's initial public offering
shall be disregarded.
vii. Disability. "Disability" shall mean Executive has
been determined to be disabled and to qualify for
long-term disability benefits under the long-term
disability insurance policy obtained pursuant to
Section 3(d) of this Agreement.
<PAGE> 13
c. Rights Upon Termination.
(1) Payment of Benefits Earned Through Date of
Termination. Upon any termination of
Executive's employment during the
Employment Period, Executive, or his
estate, shall in all events be paid all
accrued but unpaid Base Salary and all
earned but unpaid cash incentive
compensation earned through his Date of
Termination. Executive shall also retain
all such rights with respect to vested
equity-based awards as are provided under
the circumstances under the applicable
grant or award agreement, and shall be
entitled to all other benefits which are
provided under the circumstances in
accordance with the provisions of the
Company's generally applicable employee
benefit plans, practices and policies,
other than severance plans.
(2) Death. In the event of Executive's death
during the Employment Period, the Company
shall, in addition to paying the amounts
set forth in Section 7(c)(i), take whatever
action is necessary to cause all of
Executive's unvested equity-based awards to
become fully vested as of the date of death
and, in the case of equity-based awards
which have an exercise schedule, to become
fully exercisable and continue to be
exercisable for such period as is provided
in the case of vested and exercisable
awards in the event of death under the
terms of the applicable award agreements.
(3) Disability. In the event the Company elects
to terminate Executive's employment during
the Employment Period on account of
Disability, the Company shall, in addition
to paying the amounts set forth in Section
7(c)(i), pay to Executive, in one lump sum,
no later than 31 days following the Date of
Termination, an amount equal to two times
Covered Average Compensation. The Company
shall also, commencing upon the Date of
Termination:
(a) Continue, without cost to
Executive, benefits comparable to
the medical and disability
benefits provided to Executive
immediately prior to the Date of
Termination under Section 3(c) and
Section 3(d) for a period of 24
months following the Date of
Termination or until such earlier
date as Executive obtains
comparable benefits through other
employment;
(b) Continue to pay, or reimburse
Executive, for all premiums
<PAGE> 14
then due or thereafter payable on
the whole-life portion of the
split-dollar insurance policy
referenced under Section 3(d) for
so long as such payments are due;
and
(c) Take whatever action is necessary
to cause Executive to become
vested as of the Date of
Termination in all stock options,
restricted stock grants, and all
other equity-based awards and be
entitled to exercise and continue
to exercise all stock options and
all other equity-based awards
having an exercise schedule and to
retain such grants and awards to
the same extent as if they were
vested upon termination of
employment in accordance with
their terms.
(4) Non-Renewal. In the event the Company gives
Executive a notice of non-renewal pursuant
to Section 1 above, the Company shall, in
addition to paying the amounts set forth in
Section 7(c)(i), commencing upon the Date
of Termination:
(a) Pay to Executive, for 12
consecutive months, commencing
with the first day of the month
immediately following the Date of
Termination, a monthly amount
equal to the result obtained by
dividing Covered Average
Compensation by twelve;
(b) Continue, without cost to
Executive, benefits comparable to
the medical and disability
benefits provided to Executive
immediately prior to the Date of
Termination under Section 3(c) and
Section 3(d) for a period of 24
months following the Date of
Termination or until such earlier
date as Executive obtains
comparable benefits through other
employment; and
(c) Take whatever action is necessary
to cause Executive to become
vested as of the Date of
Termination in all stock options,
restricted stock grants, and all
other equity-based awards and be
entitled to exercise and continue
to exercise all stock options and
all other equity-based awards
having an exercise schedule and to
retain such grants and awards to
the same extent as if they were
vested upon termination of
employment in accordance with
their terms; and
(d) Continue to pay, or reimburse
Executive for, all premiums
<PAGE> 15
then due or thereafter payable on
the whole-life portion of the
split-dollar insurance policy
referenced under Section 3(d) for
so long as such payments are due.
(5) Termination Without Cause; Constructive
Termination Without Cause. In the event the
Company or any successor to the Company
terminates Executive's employment without
Cause, or if Executive terminates his
employment in a Constructive Termination
without Cause, the Company shall, in
addition to paying the amounts provided
under Section 7(c)(i), pay to Executive, in
one lump sum no later than 31 days
following the Date of Termination, an
amount equal to three times Covered Average
Compensation. The Company shall also,
commencing upon the Date of Termination:
(a) Continue, without cost to
Executive, benefits comparable to
the medical and disability
benefits provided to Executive
immediately prior to the Date of
Termination under Section 3(c) and
Section 3(d) for a period of 36
months following the Date of
Termination or until such earlier
date as Executive obtains
comparable benefits through other
employment;
(b) Continue to pay, or reimburse
Executive, for so long as such
payments are due, all premiums
then due or payable on the
whole-life portion of the
split-dollar insurance policy
referenced under Section 3(d); and
(c) Take whatever action is necessary
to cause Executive to become
vested as of the Date of
Termination in all stock options,
restricted stock grants, and all
other equity-based awards and be
entitled to exercise and continue
to exercise all stock options and
all other equity-based awards
having an exercise schedule and to
retain such grants and awards to
the same extent as if they were
vested upon termination of
employment in accordance with
their terms.
(6) Termination for Cause; Voluntary
Resignation. In the event Executive's
employment terminates during the Employment
Period other than in connection with a
termination meeting the conditions of
subparagraphs (ii), (iii), (iv), or (v) of
this Section 7(c), Executive shall receive
the amounts set forth in Section 7(c)(i) in
full satisfaction of all of his
entitlements from the Company. All
<PAGE> 16
equity-based awards not vested as of the
Date of Termination shall terminate (unless
otherwise provided in the applicable award
agreement) and Executive shall have no
further entitlements with respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be
determined that any payment or distribution
by the Company to or for the benefit of
Executive, whether paid or payable or
distributed or distributable (1) pursuant
to the terms of Section 7 of this
Agreement, (2) pursuant to or in connection
with any compensatory or employee benefit
plan, agreement or arrangement, including
but not limited to any stock options,
restricted or unrestricted stock grants
issued to or for the benefit of Executive
and forgiveness of any loans by the Company
to Executive or (3) otherwise
(collectively, "Severance Payments"), would
be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), and any
interest or penalties are incurred by
Executive with respect to such excise tax
(such excise tax, together with any such
interest and penalties, are hereinafter
collectively referred to as the "Excise
Tax"), then Executive shall be entitled to
receive an additional payment (a "Partial
Gross-Up Payment"), such that the net
amount retained by Executive, before
accrual or payment of any Federal, state or
local income tax or employment tax, but
after accrual or payment of the Excise Tax
attributable to the Partial Gross-Up
Payment, is equal to the Excise Tax on the
Severance Payments.
(2) Subject to the provisions of Section
7(d)(iii), all determinations required to
be made under this Section 7, including
whether a Partial Gross-Up Payment is
required and the amount of such Partial
Gross-Up Payment, shall be made by Coopers
& Lybrand LLP or such other nationally
recognized accounting firm as may at that
time be the Company's independent public
accountants immediately prior to the Change
in Control (the "Accounting Firm"), which
shall provide detailed supporting
calculations both to the Company and
Executive within 15 business days of the
Date of Termination, if applicable, or at
such earlier time as is reasonably
requested by the Company or Executive. The
initial Partial Gross-Up Payment, if any,
as determined pursuant to this Section
7(d)(ii), shall be paid to Executive within
five days of the
<PAGE> 17
receipt of the Accounting Firm's
determination. If the Accounting Firm
determines that no Excise Tax is payable by
Executive, the Company shall furnish
Executive with an opinion of counsel that
failure to report the Excise Tax on
Executive's applicable federal income tax
return would not result in the imposition
of a negligence or similar penalty. Any
determination by the Accounting Firm shall
be binding upon the Company and Executive.
As a result of the uncertainty in the
application of Section 4999 of the Code at
the time of the initial determination by
the Accounting Firm hereunder, it is
possible that Partial Gross-Up Payments
which will not have been made by the
Company should have been made (an
"Underpayment"). In the event that the
Company exhausts its remedies pursuant to
Section 7(d)(iii) and Executive thereafter
is required to make a payment of any Excise
Tax, the Accounting Firm shall determine
the amount of the Underpayment that has
occurred, consistent with the calculations
required to be made hereunder, and any such
Underpayment, and any interest and
penalties imposed on the Underpayment and
required to be paid by Executive in
connection with the proceedings described
in Section 7(d)(iii), and any related legal
and accounting expenses, shall be promptly
paid by the Company to or for the benefit
of Executive.
(3) Executive shall notify the Company in
writing of any claim by the Internal
Revenue Service that, if successful, would
require the payment by the Company of the
Partial Gross-Up Payment. Such notification
shall be given as soon as practicable but
no later than 10 business days after
Executive knows of such claim and shall
apprise the Company of the nature of such
claim and the date on which such claim is
requested to be paid. Executive shall not
pay such claim prior to the expiration of
the 30-day period following the date on
which he gives such notice to the Company
(or such shorter period ending on the date
that any payment of taxes with respect to
such claim is due). If the Company
notifies Executive in writing prior to the
expiration of such period that it desires
to contest such claim, Executive shall:
(a) give the Company any information
reasonably requested by the
Company relating to such claim,
(b) take such action in connection
with contesting such claim as the
Company shall reasonably request
in writing from
<PAGE> 18
time to time, including, without
limitation, accepting legal
representation with respect to
such claim by an attorney selected
by the Company,
(c) cooperate with the Company in good
faith in order effectively to
contest such claim, and
(d) permit the Company to participate
in any proceedings relating to
such claim; provided, however that
the Company shall bear and pay
directly all costs and expenses
attributable to the failure to pay
the Excise Tax (including related
additional interest and penalties)
incurred in connection with such
contest and shall indemnify and
hold Executive harmless, for any
Excise Tax up to an amount not
exceeding the Partial Gross-Up
Payment, including interest and
penalties with respect thereto,
imposed as a result of such
representation, and payment of
related legal and accounting costs
and expenses (the "Indemnification
Limit"). Without limitation on the
foregoing provisions of this
Section 7(d)(iii), the Company
shall control all proceedings
taken in connection with such
contest and, at its sole option
may pursue or forego any and all
administrative appeals,
proceedings, hearings and
conferences with the taxing
authority in respect of such claim
and may, at its sole option,
either direct Executive to pay the
tax claimed and sue for a refund
or contest the claim in any
permissible manner, and Executive
agrees to prosecute such contest
to a determination before any
administrative tribunal, in a
court of initial jurisdiction and
in one or more appellate courts,
as the Company shall determine;
provided, however, that if the
Company directs Executive to pay
such claim and sue for a refund,
the Company shall advance so much
of the amount of such payment as
does not exceed the Excise Tax,
and related interest and
penalties, to Executive on an
interest-free basis and shall
indemnify and hold Executive
harmless, from any related legal
and accounting costs and expenses,
and from any Excise Tax, including
related interest or penalties
imposed with respect to such
advance or with respect to any
imputed income with respect to
such advance up to an amount not
exceeding the Indemnification
Limit; and further provided that
any extension of the statute of
<PAGE> 19
limitations relating to payment of
taxes for the taxable year of
Executive with respect to which
such contested amount is claimed
to be due is limited solely to
such contested amount.
Furthermore, the Company's control
of the contest shall be limited to
issues with respect to which a
Partial Gross-Up Payment would be
payable hereunder and Executive
shall be entitled to settle or
contest, as the case may be, any
other issues raised by the
Internal Revenue Service or any
other taxing authority.
(4) If, after the receipt by Executive of an
amount advanced by the Company pursuant to
Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect
to such claim, Executive shall (subject to
the Company's complying with the
requirements of Section 7(d)(iii)) promptly
pay to the Company so much of such refund
(together with any interest paid or
credited thereon after taxes applicable
thereto) (the "Refund") as is equal to (A)
if the Company advanced or paid the entire
amount required to be so advanced or paid
pursuant to Section 7(d)(iii) hereof (the
"Required Section 7(d) Advance"), the
aggregate amount advanced or paid by the
Company pursuant to this Section 7(d) less
the portion of such amount advanced to
Executive to reimburse him for related
legal and accounting costs, or (B) if the
Company advanced or paid less than the
Required Section 7(d) Advance, so much of
the aggregate amount so advanced or paid by
the Company pursuant to this Section 7(d)
as is equal to the difference, if any,
between (C) the amount refunded to
Executive with respect to such claim and
(D) the sum of the portion of the Required
Section 7(d) Advance that was paid by
Executive and not paid or advanced by the
Company plus Executive's related legal and
accounting fees, as applicable. If, after
the receipt by Executive of an amount
advanced by the Company pursuant to Section
7(d)(iii), a determination is made that
Executive shall not be entitled to any
refund with respect to such claim and the
Company does not notify Executive in
writing of its intent to contest such
denial of refund prior to the expiration of
30 days after such determination, then such
advance shall be forgiven and shall not be
required to be repaid and the amount of
such advance shall offset, to the extent
thereof, the amount of Partial Gross-Up
Payment required to be paid.
e. Notice of Termination. Notice of non-renewal of this
Agreement pursuant to
<PAGE> 20
Section 1 hereof or of any termination of
Executive's employment (other than by reason of
death) shall be communicated by written notice (a
"Notice of Termination") from one party hereto to
the other party hereto in accordance with this
Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with
respect to any termination of Executive's employment
during the Employment Period, shall mean (i) if
Executive's employment is terminated for Disability,
30 days after Notice of Termination is given
(provided that Executive shall not have returned to
the full-time performance of Executive's duties
during such 30 day period), (ii) if Executive's
employment is terminated for Cause, the date on
which a Notice of Termination is given which
complies with the requirements of Section 7(b)(1)
hereof, and (iii) if Executive's employment is
terminated for any other reason, the date specified
in the Notice of Termination. In the case of a
termination by the Company other than for Cause, the
Date of Termination shall not be less than 30 days
after the Notice of Termination is given. In the
case of a termination by Executive, the Date of
Termination shall not be less than 15 days from the
date such Notice of Termination is given.
Notwithstanding the foregoing, in the event that
Executive gives a Notice of Termination to the
Company, the Company may unilaterally accelerate the
Date of Termination and such acceleration shall not
result in the termination being treated as a
Termination without Cause. Upon any termination of
his employment, Executive will concurrently resign
his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if
Executive's employment by the Company is terminated
during the term of this Agreement, Executive is not
required to seek other employment, or to attempt in
any way to reduce any amounts payable to Executive
by the Company pursuant to Section 7(d)(i) hereof.
Further, the amount of any payment provided for in
this Agreement shall not be reduced by any
compensation earned by Executive as the result of
employment by another employer, by retirement
benefits, or, except for amounts then due and
payable in accordance with the terms of any
promissory notes given by Executive in favor of the
Company, by offset against any amount claimed to be
owed by Executive to the Company or otherwise.
h. Nature of Payments. The amounts due under this
Section 7 are in the nature of severance payments
considered to be reasonable by the Company and are
not in the nature of a penalty. Such amounts are in
full satisfaction of all claims Executive may have
in respect of his employment by the Company or its
affiliates and are provided as the sole and
exclusive benefits to be provided to Executive, his
estate, or his beneficiaries in respect of his
termination of employment from the Company or its
affiliates.
<PAGE> 21
8. Non-Competition; Non-Solicitation; Specific Enforcement.
a. Non-Competition. Because Executive's services to the
Company are special and because Executive has access
to the Company's confidential information, Executive
covenants and agrees that, during the Employment
Period and, for a period of one year following the
Date of Termination by the Company for Cause or a
termination by Executive (other than a Constructive
Termination Without Cause) prior to a Change in
Control, Executive shall not, without the prior
written consent of the Board of Directors, become
associated with, or engage in any "Restricted
Activities" with respect to any "Competing
Enterprise," as such terms are hereinafter defined,
whether as an officer, employee, principal, partner,
agent, consultant, independent contractor or
shareholder. "Competing Enterprise," for purposes of
this Agreement, shall mean any person, corporation,
partnership, venture or other entity which (a) is a
publicly traded real estate investment trust, or (b)
is engaged in the business of managing, owning,
leasing or joint venturing residential real estate
within 30 miles of residential real estate owned or
under management by the Company or its affiliates.
"Restricted Activities," for purposes of this
Agreement, shall mean executive, managerial,
directorial, administrative, strategic, business
development or supervisory responsibilities and
activities relating to all aspects of residential
real estate ownership, management, residential real
estate franchising, and residential real estate
joint-venturing.
b. Non-Solicitation. During the Employment Period, and
for a period of one year following the Date of
Termination, Executive shall not, without the prior
written consent of the Company, except in the course
of carrying out his duties hereunder, solicit or
attempt to solicit for employment with or on behalf
of any corporation, partnership, venture or other
business entity, any employee of the Company or any
of its affiliates or any person who was formerly
employed by the Company or any of its affiliates
within the preceding six months, unless such
person's employment was terminated by the Company or
any of such affiliates.
c. Specific Enforcement. Executive and the Company
agree that the restrictions, prohibitions and other
provisions of this Section 8 are reasonable, fair
and equitable in scope, terms, and duration, are
necessary to protect the legitimate business
interests of the Company and are a material
inducement to the Company to enter into this
Agreement. Should a decision be made by a court of
competent jurisdiction that the character, duration
or geographical scope of the provisions of this
Section_8 is unreasonable, the parties intend and
agree that this Agreement shall be construed by the
court in such a manner as to impose all of those
restrictions on Executive's conduct that are
reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of
this Agreement. The Company and Executive further
agree that the services to be
<PAGE> 22
rendered under this Agreement by Executive are
special, unique and of extraordinary character, and
that in the event of the breach by Executive of the
terms and conditions of this Agreement or if
Executive, without the prior consent of the Board of
Directors, shall take any action in violation of
this Section 8, the Company will suffer irreparable
harm for which there is no adequate remedy at law.
Accordingly, Executive hereby consents to the entry
of a temporary restraining order or ex parte
injunction, in addition to any other remedies
available at law or in equity, to enforce the
provisions hereof. Any proceeding or action seeking
equitable relief for violation of this Section 8
must be commenced in the federal or state courts, in
either case in Virginia. Executive and the Company
irrevocably and unconditionally submit to the
jurisdiction of such courts and agree to take any
and all future action necessary to submit to the
jurisdiction of such courts.
9. Notice. Any notice required or permitted hereunder shall be
in writing and shall be deemed sufficient when given by hand
or by nationally recognized overnight courier or by Express,
registered or certified mail, postage prepaid, return receipt
requested, and addressed, if to the Company at 5904 Richmond
Avenue, Alexandria, VA 22303, and if to Executive at the
address set forth in the Company's records (or to such other
address as may be provided by notice).
10. Miscellaneous. This Agreement, together with Annex A and
Annex B and the Split Dollar Insurance Agreement, constitutes
the entire agreement between the parties concerning the
subjects hereof and supersedes any and all prior agreements
or understandings, including, without limitation, any plan or
agreement providing benefits in the nature of severance, but
excluding benefits provided under other Company plans or
agreements, except to the extent this Agreement provides
greater rights than are provided under such other plans or
agreements. As of the Effective Date, this Agreement
supersedes the Prior Agreement which will have no further
force or effect. Executive hereby waives, to the extent
applicable, the effect of the transactions contemplated by
the Merger Agreement (or shareholder approval of such
transaction) on any change in control provisions in any
Avalon employee benefit plan or agreement. This Agreement
shall terminate upon termination of the Merger Agreement and
abandonment of the merger contemplated by the Merger
Agreement. This Agreement may not be assigned by Executive
without the prior written consent of the Company, and may be
assigned by the Company and shall be binding upon, and inure
to the benefit of, the Company's successors and assigns. The
Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to
its
<PAGE> 23
business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
Headings herein are for convenience of reference only and
shall not define, limit or interpret the contents hereof.
11. Amendment. This Agreement may be amended, modified or
supplemented by the mutual consent of the parties in writing,
but no oral amendment, modification or supplement shall be
effective. No waiver by either party of any breach by the
other party of any condition or provision contained in this
Agreement to be performed by such other party shall be deemed
a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time. Any waiver must be
in writing and signed by Executive or an authorized officer
of the Company, as the case may be.
12. Severability. The provisions of this Agreement are severable.
The invalidity of any provision shall not affect the validity
of any other provision, and each provision of this Agreement
shall be valid and enforceable to the fullest extent
permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any
controversy or claim seeking equitable relief
pursuant to Section 8 of this Agreement, all
controversies and claims arising under or in
connection with this Agreement or relating to the
interpretation, breach or enforcement thereof and
all other disputes between the parties, shall be
resolved by expedited, binding arbitration, to be
held in Virginia in accordance with the National
Rules of the American Arbitration Association
governing employment disputes (the "National
Rules"). In any proceeding relating to the amount
owed to Executive in connection with his termination
of employment, it is the contemplation of the
parties that the only remedy that the arbitrator may
award in such a proceeding is an amount equal to the
termination payments, if any, required to be
provided under the applicable provisions of Section
7(c) and, if applicable, Section 7(d) hereof, to the
extent not previously paid, plus the costs of
arbitration and Executive's reasonable attorneys
fees and expenses as provided below. Any award made
by such arbitrator shall be final, binding and
conclusive on the parties for all purposes, and
judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction
thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails.
Except as otherwise provided in this
paragraph, each party shall pay the cost of
his or its own legal fees and expenses
incurred in connection with an arbitration
proceeding. Provided an award is made in
favor of
<PAGE> 24
Executive in such proceeding, all of his
reasonable attorneys fees and expenses
incurred in pursuing or defending such
proceeding shall be promptly reimbursed to
Executive by the Company within five days
of the entry of the award.
(2) Reimbursement in Actions to Stay, Enjoin or
Collect. In any case where the Company or
any other person seeks to stay or enjoin
the commencement or continuation of an
arbitration proceeding, whether before or
after an award has been made, or where
Executive seeks recovery of amounts due
after an award has been made, or where the
Company brings any proceeding challenging
or contesting the award, all of Executive's
reasonable attorneys fees and expenses
incurred in connection therewith shall be
promptly reimbursed by the Company to
Executive, within five days of presentation
of an itemized request for reimbursement,
regardless of whether Executive prevails,
regardless of the forum in which such
proceeding is brought, and regardless of
whether a Change in Control has occurred.
(3) Reimbursement After a Change in Control.
Without limitation on the foregoing, solely
in a proceeding commenced by the Company or
by Executive after a Change in Control has
occurred, the Company shall advance to
Executive, within five days of presentation
of an itemized request for reimbursement,
all of Executive's legal fees and expenses
incurred in connection therewith,
regardless of the forum in which such
proceeding was commenced, subject to
delivery of an undertaking by Executive to
reimburse the Company for such advance if
he does not prevail in such proceeding
(unless such fees are to be reimbursed
regardless of whether Executive prevails as
provided in clause (ii) above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of
Executive's employment to the extent necessary to the intended
preservation of each party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is
required to be taken by the Board of Directors, such action shall be
taken by the vote of not less than a majority of the members then in
office and authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state
and local tax withholding
<PAGE> 25
requirements.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument. The
execution of this Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.
<PAGE> 26
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
Bay Apartment Communities, Inc.
By: /S/ GILBERT M. MEYER
Its: Chairman of the Board
/S/ THOMAS J. SARGEANT
Thomas J. Sargeant
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of March,
1998 by and between Bryce Blair ("Executive") and Bay Apartment Communities,
Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have previously
entered into an Employment Agreement, dated as of April 4, 1997 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between the
Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"), Avalon
will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new employment
agreement, effective as of the consummation of the merger contemplated by the
Merger Agreement (the "Effective Date"), to replace the Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the Merger
Agreement, the Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement for the period commencing on the Effective
Date and terminating on the third anniversary of the Effective Date (the
"Original Term"), unless earlier terminated as provided in Section 7. The
Original Term shall be extended automatically for additional 1 year periods
(each a "Renewal Term"), unless notice that this Agreement will not be
extended is given by either party to the other 6 months prior to the
expiration of the Original Term or any Renewal Term. Notwithstanding the
foregoing, upon a Change in Control, the Employment Period shall be
extended automatically to 3 years from the date of such Change in Control.
(The period of Executive's employment hereunder within the Original Term
and any Renewal Terms is herein referred to as the "Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in the
business of the Company and its affiliates. Executive shall serve as a
corporate officer of the Company with the title of Senior Vice
President - Development and Acquisitions. Executive's duties and
authority shall be commensurate with his title and position with the
Company, and shall not be materially diminished from, or materially
inconsistent with, his primary duties and authority with Avalon
immediately prior to the date of this Agreement.
<PAGE> 2
Executive agrees to his employment as described in this Section 2 and
agrees to devote substantially all of his working time and efforts to the
performance of his duties under this Agreement; provided that nothing herein
shall be interpreted to preclude Executive from (i) participating with the
prior written consent of the Board of Directors as an officer or director of,
or advisor to, any other entity or organization that is not a customer or
material service provider to the Company or a Competing Enterprise, as defined
in Section 8, so long as such participation does not interfere with the
performance of Executive's duties hereunder, whether or not such entity or
organization is engaged in religious, charitable or other community or
non-profit activities, (ii) investing in any entity or organization which is
not a customer or material service provider to the Company or a Competing
Enterprise, so long as such investment does not interfere with the performance
of Executive's duties hereunder, or (iii) delivering lectures or fulfilling
speaking engagements so long as such lectures or engagements do not interfere
with the performance of Executive's duties hereunder.. The Company consents to
Executive's status as a "former partner" with a current financial interest in
certain Midwest projects of Trammell Crow Residential ("TCR"), and such
activity shall not be treated as a Competing Enterprise.
b. In performing his duties hereunder, Executive shall be available for
reasonable travel as the needs of the business require. Executive shall
be based in Braintree, MA, or otherwise in the greater Boston
metropolitan area.
c. Breach by either party of any of its respective obligations under this
Section 2 shall be deemed a material breach of that party's obligations
hereunder.
3. Compensation/Benefits. In consideration of Executive's services hereunder,
the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall receive
an annual rate of base salary ("Base Salary") in an amount not less than
$300,000. Executive's Base Salary will be reviewed by the Company as of
the first anniversary of the Effective Date, and may be adjusted upward
(but not downward) at such time to reflect any inequities in
compensation. Commencing as of January 1, 2000, Executive's Base Salary
shall be reviewed no less frequently than annually by the Company and
may be adjusted upward (but not downward) by the Company. Upon such
annual review during the Renewal Term, if any, Executive's Base Salary
shall be increased to the greatest of (i) an amount equal to Base Salary
for the prior year plus 5%, (ii) a factor measured by the increase, if
any, in the Consumer Price Index for Wage Earners and Clerical Workers
(CPI-W) (City Average for New York-Northern New Jersey-Long
Island-1982-84=100), as published by the Bureau of Labor Statistics, for
the prior calendar year (the "CPI Adjustment") or (iii) such greater
amount as may be agreed by Executive and the Company. Base Salary shall
be payable in accordance with the Company's normal business practices,
but in no event less
<PAGE> 3
frequently than monthly.
b. Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the Company
may provide Executive with additional compensation as a bonus if the
Board, or any compensation committee hereof, in its discretion,
determines that Executive's contribution to the Company warrants such
additional payment and the Company's anticipated financial performance
of the present period permits such payment. The bonuses hereunder shall
be paid as a lump sum not later than 60 days after the end of the
Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the Company
shall provide to Executive and Executive's immediate family a
comprehensive policy of health insurance. During the Employment Period,
Executive shall be entitled to a comprehensive annual physical
performed, at the expense of the Company by the physician or medical
group of Executive's choosing.
d. Life Insurance/Disability Insurance. During the Employment Period, the
Company shall keep in force and pay the premiums on the split-dollar
life insurance policy referenced in the Split Dollar Insurance Agreement
between Avalon and Executive, subject to reimbursement by Executive as
provided in such Split Dollar Insurance Agreement. The Company shall
reimburse Executive for the cost of the comprehensive disability
insurance policy, which is in effect on January 1, 1997, and shall also
be responsible for any increases in premiums which become effective
during the Employment Period as may be necessary to maintain the same
level of insurance as in effect on January 1, 1997. Executive agrees to
submit to such medical examinations as may be required in order to
maintain such policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed 6 weeks
per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period, Executive shall be
entitled to secretarial services and a private office commensurate with
his title and duties.
g. Avalon Stock Option. The Company acknowledges that, notwithstanding the
consummation of the Merger, Avalon granted to Executive on March 8,
1998, a non-qualified employee stock option to purchase 104,126 shares
of common stock of Avalon, par value $.01 per share (the "Avalon Stock
Option"). The Avalon
<PAGE> 4
Stock Option was granted at an exercise price equal to $28.8125. Upon
termination of Executive's employment, vesting and exercisability of the
Avalon Stock Option shall be governed by the terms of the stock option
agreement and this Agreement, as applicable. During the Employment
Period, Executive shall be eligible for future employee stock option
grants on the same basis as other senior management of the Company.
h. Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period of not less than $750 per month
(adjusted annually for inflation by the CPI Adjustment); provided that,
at Executive's election, the Company may instead purchase or lease, and
maintain insurance for, an automobile of comparable value for use by
Executive, who shall be responsible for maintaining such automobile, at
his own expense, with the same standard of care Executive applies to his
own property and as may be required under any applicable lease
agreement.
i. Other Benefits. During the Employment Period, the Company shall provide
to Executive such other benefits, excluding severance benefits, but
including the right to participate in such retirement or pension plans,
as are made generally available to executives of the Company from time
to time and shall be given credit for purposes of eligibility and
vesting of employee benefits and benefit accrual for service with
Avalon, its affiliates and TCR prior to the Effective Date under each
benefit plan of the Company and its subsidiaries to the extent such
service had been credited under employee benefit plans of Avalon and its
subsidiaries, provided that no such crediting of service results in
duplication of benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse Executive for
the reasonable business expenses incurred by Executive in the course of
performing his duties for the Company hereunder, upon submission of
invoices, vouchers or other appropriate documentation, as may be
required in accordance with the policies in effect from time to time for
executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall indemnify
Executive with respect to any actions commenced against Executive in his
capacity as an officer or director or former officer or director of the
Company, or any affiliate thereof for which he may render service in
such capacity, whether by or on behalf of the Company, its shareholders
or third parties, and the Company shall advance
<PAGE> 5
to Executive on a timely basis an amount equal to the reasonable fees
and expenses incurred in defending such actions, after receipt of an
itemized request for such advance, and an undertaking from Executive to
repay the amount of such advance, with interest at a reasonable rate
from the date of the request, as determined by the Company, if it shall
ultimately be determined that he is not entitled to be indemnified
against such expenses. The Company agrees to use its best efforts to
secure and maintain officers and directors' liability insurance with
respect to Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the
Board.
b. Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at Annex
A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar documents
obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not
confidential information or trade secrets, shall be the exclusive
property of the Company. Executive shall have no rights in such
documents upon any termination of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's rights
under Section 6(a), Executive agrees to abide by and be bound by the
Nondisclosure Agreement of the Company executed by Executive and the
Company as reflected in the attachment at Annex B and made a part
hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at will" and,
therefore, may be terminated at any time, with or without Cause, at the
option of the Company, subject only to the severance obligations under
this Section 7. Upon any termination hereunder, the Employment Period
shall expire.
b. Definitions. For purposes of this Section 7, the following terms shall
have the indicated definitions:
<PAGE> 6
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of nolo contendere
to an act which is defined as a felony under any federal, state
or local law, not based upon a traffic violation, which
conviction or plea has or can be expected to have, in the good
faith opinion of the Board of Directors, a material adverse
impact on the business or reputation of the Company;
(2) any one or more acts of theft, larceny, embezzlement, fraud or
material intentional misappropriation from or with respect to
the Company;
(3) a breach by Executive of his fiduciary duties under Maryland
law as an officer;
(4) Executive's commission of any one or more acts of gross
negligence or willful misconduct which in the good faith
opinion of the Board of Directors has resulted in material harm
to the business or reputation of the Company; or
(5) default by Executive in the performance of his material duties
under this Agreement, without correction of such action within
15 days of written notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment by
the Company shall be treated as for Cause or be effective until and unless all
of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or
event (or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors
duly called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive
within 20 days of such Board meeting.
<PAGE> 7
The Company may suspend Executive with pay at any time during the period
commencing with the giving of notice to Executive under clause (i) above until
final Notice of Termination is given under clause (iii) above. Upon the giving
of notice as provided in clause (iii) above, no further payments shall be due
Executive.
ii. Change in Control. A "Change in Control" shall mean the occurrence
of any one or more of the following events following the Effective
Date:
(1) Any individual, entity or group (a "Person") within the meaning
of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934 (the "Act") (other than the Company, any corporation,
partnership, trust or other entity controlled by the Company (a
"Subsidiary"), or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or
trust of the Company or any of its Subsidiaries), together with
all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under
the Act) of securities of the Company representing 30% or more
of the combined voting power of the Company's then outstanding
securities having the right to vote generally in an election of
the Company's Board of Directors ("Voting Securities"), other
than as a result of (A) an acquisition of securities directly
from the Company or any Subsidiary or (B) an acquisition by any
corporation pursuant to a reorganization, consolidation or
merger if, following such reorganization, consolidation or
merger the conditions described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2) are satisfied; or
(2) Individuals who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease
for any reason to constitute at least a majority of the Board,
provided, however, that any individual becoming a director of
the Company subsequent to the date hereof (excluding, for this
purpose, (A) any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of
Directors, including by reason of agreement intended to avoid
or settle any such actual or threatened contest or
solicitation, and (B) any individual whose initial assumption
of office is in connection with a reorganization,
<PAGE> 8
merger or consolidation, involving an unrelated entity and
occurring during the Employment Period), whose election or
nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the persons then
comprising Incumbent Directors shall for purposes of this
Agreement be considered an Incumbent Director; or
(3) Consummation of a reorganization, merger or consolidation of
the Company, unless, following such reorganization, merger or
consolidation, (A) more than 50% of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, (B) no Person
(excluding the Company, any employee benefit plan (or related
trust) of the Company, a Subsidiary or the corporation
resulting from such reorganization, merger or consolidation or
any subsidiary thereof, and any Person beneficially owning,
immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors, and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation;
(4) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company; or
(5) The sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale, lease,
exchange or other
<PAGE> 9
disposition (A) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the outstanding
Voting Securities immediately prior to such sale, lease,
exchange or other disposition, (B) no Person (excluding the
Company and any employee benefit plan (or related trust) of the
Company or a Subsidiary or such corporation or a subsidiary
thereof and any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board
of Directors providing for such sale, lease, exchange or other
disposition of assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred for purposes of this Agreement solely as the result of an
acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate voting
power represented by the Voting Securities beneficially owned by any Person to
30% or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any Person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Stock
or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change in Control" shall be deemed
to have occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in Control" shall
mean that a Change in Control has occurred, after modifying the
definition of "Change in Control" by deleting clause (i) from
Section 7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause. "Constructive Termination
Without Cause" shall mean a termination of Executive's employment
initiated by Executive not later than 12 months following the
occurrence
<PAGE> 10
(not including any time during which an arbitration proceeding
referenced below is pending), without Executive's prior written
consent, of one or more of the following events (or the latest to
occur in a series of events), and effected after giving the Company
not less than 10 working days' written notice of the specific act
or acts relied upon and right to cure:
(1) a material adverse change in the functions, duties or
responsibilities of Executive's position which would reduce
the level, importance or scope of such position; or any
removal of Executive from or failure to reappoint or reelect
Executive to any position set forth in this Agreement, except
in connection with the termination of Executive's employment
for Disability, Cause, as a result of Executive's death or by
Executive other than for a Constructive Termination Without
Cause;
(2) any material breach by the Company of this Agreement;
(3) any purported termination of Executive's employment for Cause
by the Company which does not comply with the terms of Section
7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign of
the Company, to assume and agree to perform this Agreement, as
contemplated in Section 10 of this Agreement;
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately
prior to a Change in Control which is material to Executive's
total compensation, unless comparable alternative arrangements
(embodied in ongoing substitute or alternative plans) have
been implemented with respect to such plans, or the failure by
the Company to continue Executive's participation therein (or
in such substitute or alternative plans) on a basis not
materially less favorable, in terms of the amount of benefits
provided and the level of Executive's participation relative
to other participants, as existed during the last completed
fiscal year of the Company prior to the Change in Control;
(6) the relocation of the Company's Braintree offices to a new
location more than fifty (50) miles from Braintree or the
failure to locate Executive's own office at the Braintree
office (or at the office to
<PAGE> 11
which such office is relocated which is within 50 miles of
Braintree); or
(7) any termination of employment by the Executive for any reason
during the 12-month period immediately following a Complete
Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party
and Executive's and the Company's rights and obligations under this Agreement
shall continue unaffected unless and until the arbitrator has determined such
question in the affirmative, or, if earlier, the date on which Executive or the
Company has delivered a Notice of Termination in accordance with the provisions
of this Agreement.
v. Covered Average Compensation. "Covered Average Compensation" shall
mean the sum of Executive's Covered Compensation as calculated for
the calendar year in which the Date of Termination occurs and for
each of the two preceding calendar years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any calendar
year, shall mean an amount equal to the sum of (i) Executive's Base
Salary for the calendar year (disregarding any decreases made
effective during the Employment Period), (ii) the cash bonus
actually earned by Executive with respect to such calendar year,
and (iii) the value of all stock and other equity-based
compensation awards made to Executive during such calendar year.
Covered Compensation shall be calculated according to the following
rules:
(a) In valuing awards for purposes of clause (iii) above, all
such awards shall be treated as if fully vested when
granted, stock grants shall be valued by reference to the
fair market value on the date of grant of the Company's
common stock, par value $.01 per share (or of the common
stock of
<PAGE> 12
Avalon, as the case may be) and other equity-based
compensation awards shall be valued at the value
established by the Compensation Committee of the Board of
Directors on the date of grant.
(b) In determining the cash bonus actually paid with respect to
a calendar year, if no cash bonus has been paid with
respect to the calendar year in which the Date of
Termination occurs, the cash bonus paid with respect to the
immediately preceding calendar year shall be assumed to
have been paid in each of the current and immediately
preceding calendar years, and if no cash bonus has been
paid by the Date of Termination with respect to the
immediately preceding calendar year, the cash bonus paid
with respect to the second preceding calendar year shall be
assumed to have been paid in all three of the calendar
years taken into account in determining Covered Average
Compensation.
(c) If any cash bonus paid with respect to the current or
immediately preceding calendar year was paid within three
months of Executive's Date of Termination, and is lower
than the last cash bonus paid more than three months from
the Date of Termination, any such cash bonus paid within
three months of the Date of Termination shall be
disregarded and the last cash bonus paid more than three
months from the Date of Termination shall be substituted
for each cash bonus so disregarded.
(d) In determining the amount of stock and other equity-based
compensation awards made during a calendar year during the
averaging period, rules similar to those set forth in
subparagraphs (B) and (C) of this Section 7(b)(6) shall be
followed, except that all awards made in connection with
the Company's initial public offering shall be disregarded.
vii. Disability. "Disability" shall mean Executive has been determined
to be disabled and to qualify for long-term disability benefits
under the long-term disability insurance policy obtained pursuant
to Section 3(d) of this Agreement.
c. Rights Upon Termination.
<PAGE> 13
(1) Payment of Benefits Earned Through Date of Termination. Upon any
termination of Executive's employment during the Employment Period,
Executive, or his estate, shall in all events be paid all accrued
but unpaid Base Salary and all earned but unpaid cash incentive
compensation earned through his Date of Termination. Executive
shall also retain all such rights with respect to vested
equity-based awards as are provided under the circumstances under
the applicable grant or award agreement, and shall be entitled to
all other benefits which are provided under the circumstances in
accordance with the provisions of the Company's generally
applicable employee benefit plans, practices and policies, other
than severance plans.
(2) Death. In the event of Executive's death during the Employment
Period, the Company shall, in addition to paying the amounts set
forth in Section 7(c)(i), take whatever action is necessary to
cause all of Executive's unvested equity-based awards to become
fully vested as of the date of death and, in the case of
equity-based awards which have an exercise schedule, to become
fully exercisable and continue to be exercisable for such period as
is provided in the case of vested and exercisable awards in the
event of death under the terms of the applicable award agreements.
(3) Disability. In the event the Company elects to terminate
Executive's employment during the Employment Period on account of
Disability, the Company shall, in addition to paying the amounts
set forth in Section 7(c)(i), pay to Executive, in one lump sum, no
later than 31 days following the Date of Termination, an amount
equal to two times Covered Average Compensation. The Company shall
also, commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable to
the medical and disability benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) and Section 3(d) for a period of 24 months following the
Date of Termination or until such earlier date as Executive
obtains comparable benefits through other employment;
(b) Continue to pay, or reimburse Executive, for all premiums then
due or thereafter payable on the whole-life portion of the
split-dollar insurance policy referenced under Section
<PAGE> 14
3(d) for so long as such payments are due; and
(c) Take whatever action is necessary to cause Executive to become
vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity-based awards and
be entitled to exercise and continue to exercise all stock
options and all other equity-based awards having an exercise
schedule and to retain such grants and awards to the same
extent as if they were vested upon termination of employment
in accordance with their terms.
(4) Non-Renewal. In the event the Company gives Executive a notice of
non-renewal pursuant to Section 1 above, the Company shall, in
addition to paying the amounts set forth in Section 7(c)(i),
commencing upon the Date of Termination:
(a) Pay to Executive, for 12 consecutive months, commencing with
the first day of the month immediately following the Date of
Termination, a monthly amount equal to the result obtained by
dividing Covered Average Compensation by twelve;
(b) Continue, without cost to Executive, benefits comparable to
the medical and disability benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) and Section 3(d) for a period of 24 months following the
Date of Termination or until such earlier date as Executive
obtains comparable benefits through other employment; and
(c) Take whatever action is necessary to cause Executive to become
vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity-based awards and
be entitled to exercise and continue to exercise all stock
options and all other equity-based awards having an exercise
schedule and to retain such grants and awards to the same
extent as if they were vested upon termination of employment
in accordance with their terms; and
(d) Continue to pay, or reimburse Executive for, all premiums then
due or thereafter payable on the whole-life portion of the
split-dollar insurance policy referenced under Section
<PAGE> 15
3(d) for so long as such payments are due.
(5) Termination Without Cause; Constructive Termination Without Cause.
In the event the Company or any successor to the Company terminates
Executive's employment without Cause, or if Executive terminates
his employment in a Constructive Termination without Cause, the
Company shall, in addition to paying the amounts provided under
Section 7(c)(i), pay to Executive, in one lump sum no later than 31
days following the Date of Termination, an amount equal to three
times Covered Average Compensation. The Company shall also,
commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable to
the medical and disability benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) and Section 3(d) for a period of 36 months following the
Date of Termination or until such earlier date as Executive
obtains comparable benefits through other employment;
(b) Continue to pay, or reimburse Executive, for so long as such
payments are due, all premiums then due or payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section 3(d); and
(c) Take whatever action is necessary to cause Executive to become
vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity-based awards and
be entitled to exercise and continue to exercise all stock
options and all other equity-based awards having an exercise
schedule and to retain such grants and awards to the same
extent as if they were vested upon termination of employment
in accordance with their terms.
(6) Termination for Cause; Voluntary Resignation. In the event
Executive's employment terminates during the Employment Period
other than in connection with a termination meeting the conditions
of subparagraphs (ii), (iii), (iv), or (v) of this Section 7(c),
Executive shall receive the amounts set forth in Section 7(c)(i) in
full satisfaction of all of his entitlements from the Company. All
equity-based awards not vested as of the Date of Termination shall
terminate (unless otherwise provided in the applicable award
<PAGE> 16
agreement) and Executive shall have no further entitlements with
respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution
by the Company to or for the benefit of Executive, whether paid
or payable or distributed or distributable (1) pursuant to the
terms of Section 7 of this Agreement, (2) pursuant to or in
connection with any compensatory or employee benefit plan,
agreement or arrangement, including but not limited to any stock
options, restricted or unrestricted stock grants issued to or for
the benefit of Executive and forgiveness of any loans by the
Company to Executive or (3) otherwise (collectively, "Severance
Payments"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), and any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Executive shall be
entitled to receive an additional payment (a "Partial Gross-Up
Payment"), such that the net amount retained by Executive, before
accrual or payment of any Federal, state or local income tax or
employment tax, but after accrual or payment of the Excise Tax
attributable to the Partial Gross-Up Payment, is equal to the
Excise Tax on the Severance Payments.
(2) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7,
including whether a Partial Gross-Up Payment is required and the
amount of such Partial Gross-Up Payment, shall be made by Coopers
& Lybrand LLP or such other nationally recognized accounting firm
as may at that time be the Company's independent public
accountants immediately prior to the Change in Control (the
"Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and Executive within 15 business
days of the Date of Termination, if applicable, or at such
earlier time as is reasonably requested by the Company or
Executive. The initial Partial Gross-Up Payment, if any, as
determined pursuant to this Section 7(d)(ii), shall be paid to
Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, the
<PAGE> 17
Company shall furnish Executive with an opinion of counsel that
failure to report the Excise Tax on Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive.
As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Partial Gross-Up
Payments which will not have been made by the Company should have
been made (an "Underpayment"). In the event that the Company
exhausts its remedies pursuant to Section 7(d)(iii) and Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred, consistent with the calculations required to
be made hereunder, and any such Underpayment, and any interest
and penalties imposed on the Underpayment and required to be paid
by Executive in connection with the proceedings described in
Section 7(d)(iii), and any related legal and accounting expenses,
shall be promptly paid by the Company to or for the benefit of
Executive.
(3) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Partial Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than 10 business days after Executive knows of such claim and
shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive
shall:
(a) give the company any information reasonably requested by the
Company relating to such claim,
(b) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
<PAGE> 18
selected by the Company,
(c) cooperate with the Company in good faith in order effectively
to contest such claim, and
(d) permit the Company to participate in any proceedings relating
to such claim; provided, however that the Company shall bear
and pay directly all costs and expenses attributable to the
failure to pay the Excise Tax (including related additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, for
any Excise Tax up to an amount not exceeding the Partial
Gross-Up Payment, including interest and penalties with
respect thereto, imposed as a result of such representation,
and payment of related legal and accounting costs and
expenses (the "Indemnification Limit"). Without limitation on
the foregoing provisions of this Section 7(d)(iii), the
Company shall control all proceedings taken in connection
with such contest and, at its sole option may pursue or
forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the
Company directs Executive to pay such claim and sue for a
refund, the Company shall advance so much of the amount of
such payment as does not exceed the Excise Tax, and related
interest and penalties, to Executive on an interest-free
basis and shall indemnify and hold Executive harmless, from
any related legal and accounting costs and expenses, and from
any Excise Tax, including related interest or penalties
imposed with respect to such advance or with respect to any
imputed income with respect to such advance up to an amount
not exceeding the Indemnification Limit; and further provided
that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with
respect to which such contested amount
<PAGE> 19
is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a
Partial Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as
the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to the
Company so much of such refund (together with any interest
paid or credited thereon after taxes applicable thereto) (the
"Refund") as is equal to (A) if the Company advanced or paid
the entire amount required to be so advanced or paid pursuant
to Section 7(d)(iii) hereof (the "Required Section 7(d)
Advance"), the aggregate amount advanced or paid by the
Company pursuant to this Section 7(d) less the portion of
such amount advanced to Executive to reimburse him for
related legal and accounting costs, or (B) if the Company
advanced or paid less than the Required Section 7(d) Advance,
so much of the aggregate amount so advanced or paid by the
Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to
Executive with respect to such claim and (D) the sum of the
portion of the Required Section 7(d) Advance that was paid by
Executive and not paid or advanced by the Company plus
Executive's related legal and accounting fees, as applicable.
If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), a determination is
made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial
Gross-Up Payment required to be paid.
e. Notice of Termination. Notice of non-renewal of this Agreement pursuant
to Section 1 hereof or of any termination of Executive's employment
(other than by reason of death) shall be communicated by written notice
(a "Notice of
<PAGE> 20
Termination") from one party hereto to the other party hereto in
accordance with this Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with respect to any
termination of Executive's employment during the Employment Period,
shall mean (i) if Executive's employment is terminated for Disability,
30 days after Notice of Termination is given (provided that Executive
shall not have returned to the full-time performance of Executive's
duties during such 30 day period), (ii) if Executive's employment is
terminated for Cause, the date on which a Notice of Termination is given
which complies with the requirements of Section 7(b)(1) hereof, and
(iii) if Executive's employment is terminated for any other reason, the
date specified in the Notice of Termination. In the case of a
termination by the Company other than for Cause, the Date of Termination
shall not be less than 30 days after the Notice of Termination is given.
In the case of a termination by Executive, the Date of Termination shall
not be less than 15 days from the date such Notice of Termination is
given. Notwithstanding the foregoing, in the event that Executive gives
a Notice of Termination to the Company, the Company may unilaterally
accelerate the Date of Termination and such acceleration shall not
result in the termination being treated as a Termination without Cause.
Upon any termination of his employment, Executive will concurrently
resign his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if Executive's employment by
the Company is terminated during the term of this Agreement, Executive
is not required to seek other employment, or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to
Section 7(d)(i) hereof. Further, the amount of any payment provided for
in this Agreement shall not be reduced by any compensation earned by
Executive as the result of employment by another employer, by retirement
benefits, or, except for amounts then due and payable in accordance with
the terms of any promissory notes given by Executive in favor of the
Company, by offset against any amount claimed to be owed by Executive to
the Company or otherwise.
h. Nature of Payments. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty. Such amounts are in full
satisfaction of all claims Executive may have in respect of his
employment by the Company or its affiliates and are provided as the sole
and exclusive benefits to be provided to Executive, his estate, or his
beneficiaries in respect of his termination of employment from the
Company or its affiliates.
8. Non-Competition; Non-Solicitation; Specific Enforcement.
<PAGE> 21
a. Non-Competition. Because Executive's services to the Company are
special and because Executive has access to the Company's confidential
information, Executive covenants and agrees that, during the Employment
Period and, for a period of one year following the Date of Termination
by the Company for Cause or a termination by Executive (other than a
Constructive Termination Without Cause) prior to a Change in Control,
Executive shall not, without the prior written consent of the Board of
Directors, become associated with, or engage in any "Restricted
Activities" with respect to any "Competing Enterprise," as such terms
are hereinafter defined, whether as an officer, employee, principal,
partner, agent, consultant, independent contractor or shareholder.
"Competing Enterprise," for purposes of this Agreement, shall mean any
person, corporation, partnership, venture or other entity which (a) is a
publicly traded real estate investment trust, or (b) is engaged in the
business of managing, owning, leasing or joint venturing residential
real estate within 30 miles of residential real estate owned or under
management by the Company or its affiliates. "Restricted Activities,"
for purposes of this Agreement, shall mean executive, managerial,
directorial, administrative, strategic, business development or
supervisory responsibilities and activities relating to all aspects of
residential real estate ownership, management, residential real estate
franchising, and residential real estate joint-venturing.
b. Non-Solicitation. During the Employment Period, and for a period of one
year following the Date of Termination, Executive shall not, without the
prior written consent of the Company, except in the course of carrying
out his duties hereunder, solicit or attempt to solicit for employment
with or on behalf of any corporation, partnership, venture or other
business entity, any employee of the Company or any of its affiliates or
any person who was formerly employed by the Company or any of its
affiliates within the preceding six months, unless such person's
employment was terminated by the Company or any of such affiliates.
c. Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8 are
reasonable, fair and equitable in scope, terms, and duration, are
necessary to protect the legitimate business interests of the Company
and are a material inducement to the Company to enter into this
Agreement. Should a decision be made by a court of competent
jurisdiction that the character, duration or geographical scope of the
provisions of this Section_8 is unreasonable, the parties intend and
agree that this Agreement shall be construed by the court in such a
manner as to impose all of those restrictions on Executive's conduct
that are reasonable in light of the circumstances and as are necessary
to assure to the Company the benefits of this Agreement. The Company
and Executive further agree that the services to be rendered under this
Agreement by Executive are special, unique and of extraordinary
character, and that in the event of the breach by Executive of the
<PAGE> 22
terms and conditions of this Agreement or if Executive, without the
prior consent of the Board of Directors, shall take any action in
violation of this Section 8, the Company will suffer irreparable harm
for which there is no adequate remedy at law. Accordingly, Executive
hereby consents to the entry of a temporary restraining order or ex
parte injunction, in addition to any other remedies available at law or
in equity, to enforce the provisions hereof. Any proceeding or action
seeking equitable relief for violation of this Section 8 must be
commenced in the federal or state courts, in either case in
Massachusetts. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to
take any and all future action necessary to submit to the jurisdiction
of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing and
shall be deemed sufficient when given by hand or by nationally recognized
overnight courier or by Express, registered or certified mail, postage
prepaid, return receipt requested, and addressed, if to the Company at 5904
Richmond Avenue, Alexandria, VA 22303, and if to Executive at the address
set forth in the Company's records (or to such other address as may be
provided by notice).
10. Miscellaneous. This Agreement, together with Annex A and Annex B and the
Split Dollar Insurance Agreement, constitutes the entire agreement between
the parties concerning the subjects hereof and supersedes any and all prior
agreements or understandings, including, without limitation, any plan or
agreement providing benefits in the nature of severance, but excluding
benefits provided under other Company plans or agreements, except to the
extent this Agreement provides greater rights than are provided under such
other plans or agreements. As of the Effective Date, this Agreement
supersedes the Prior Agreement which will have no further force or effect.
Executive hereby waives, to the extent applicable, the effect of the
transactions contemplated by the Merger Agreement (or shareholder approval
of such transaction) on any change in control provisions in any Avalon
employee benefit plan or agreement. This Agreement shall terminate upon
termination of the Merger Agreement and abandonment of the merger
contemplated by the Merger Agreement. This Agreement may not be assigned by
Executive without the prior written consent of the Company, and may be
assigned by the Company and shall be binding upon, and inure to the benefit
of, the Company's successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of
the Company to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
Headings herein are for convenience of reference only
<PAGE> 23
and shall not define, limit or interpret the contents hereof.
11. Amendment. This Agreement may be amended, modified or supplemented by the
mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either party of
any breach by the other party of any condition or provision contained in
this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same or any prior
or subsequent time. Any waiver must be in writing and signed by Executive
or an authorized officer of the Company, as the case may be.
12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this Agreement,
all controversies and claims arising under or in connection with this
Agreement or relating to the interpretation, breach or enforcement
thereof and all other disputes between the parties, shall be resolved
by expedited, binding arbitration, to be held in Massachusetts in
accordance with the National Rules of the American Arbitration
Association governing employment disputes (the "National Rules"). In
any proceeding relating to the amount owed to Executive in connection
with his termination of employment, it is the contemplation of the
parties that the only remedy that the arbitrator may award in such a
proceeding is an amount equal to the termination payments, if any,
required to be provided under the applicable provisions of Section 7(c)
and, if applicable, Section 7(d) hereof, to the extent not previously
paid, plus the costs of arbitration and Executive's reasonable
attorneys fees and expenses as provided below. Any award made by such
arbitrator shall be final, binding and conclusive on the parties for
all purposes, and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as otherwise
provided in this paragraph, each party shall pay the cost of
his or its own legal fees and expenses incurred in
connection with an arbitration proceeding. Provided an
award is made in favor of Executive in such proceeding, all
of his reasonable attorneys fees and expenses incurred in
pursuing or defending such proceeding
<PAGE> 24
shall be promptly reimbursed to Executive by the Company
within five days of the entry of the award.
(2) Reimbursement in Actions to Stay, Enjoin or Collect. In any
case where the Company or any other person seeks to stay or
enjoin the commencement or continuation of an arbitration
proceeding, whether before or after an award has been made,
or where Executive seeks recovery of amounts due after an
award has been made, or where the Company brings any
proceeding challenging or contesting the award, all of
Executive's reasonable attorneys fees and expenses incurred
in connection therewith shall be promptly reimbursed by the
Company to Executive, within five days of presentation of an
itemized request for reimbursement, regardless of whether
Executive prevails, regardless of the forum in which such
proceeding is brought, and regardless of whether a Change in
Control has occurred.
(3) Reimbursement After a Change in Control. Without limitation
on the foregoing, solely in a proceeding commenced by the
Company or by Executive after a Change in Control has
occurred, the Company shall advance to Executive, within
five days of presentation of an itemized request for
reimbursement, all of Executive's legal fees and expenses
incurred in connection therewith, regardless of the forum in
which such proceeding was commenced, subject to delivery of
an undertaking by Executive to reimburse the Company for
such advance if he does not prevail in such proceeding
(unless such fees are to be reimbursed regardless of whether
Executive prevails as provided in clause (ii) above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of Executive's
employment to the extent necessary to the intended preservation of each
party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is required
to be taken by the Board of Directors, such action shall be taken by the
vote of not less than a majority of the members then in office and
authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state and
local tax withholding requirements.
<PAGE> 25
17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.
<PAGE> 26
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
Bay Apartment Communities, Inc.
By: /S/ GILBERT M. MEYER
Its: Chairman of the Board
/S/ BRYCE BLAIR
Bryce Blair
<PAGE> 1
EXHIBIT 10.6
================================================================================
REVOLVING LOAN AGREEMENT
dated as of June 23, 1998
among
AVALON BAY COMMUNITIES, INC.,
as Borrower,
FLEET NATIONAL BANK,
as Co-Agent and Bank,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Co-Agent and Bank,
UNION BANK OF SWITZERLAND
(New York Branch),
as Co-Agent and Bank,
the other banks signatory hereto,
each as a Bank,
and
FLEET NATIONAL BANK,
as Administrative Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
ARTICLE I DEFINITIONS; ETC.....................................................................................1
Section 1.01 Definitions.................................................................................1
Section 1.02 Accounting Terms...........................................................................17
Section 1.03 Computation of Time Periods................................................................17
Section 1.04 Rules of Construction......................................................................17
ARTICLE II THE LOANS..........................................................................................18
Section 2.01 Ratable Loans; Bid Rate Loans; Purpose.....................................................18
Section 2.02 Bid Rate Loans.............................................................................19
Section 2.03 Advances, Generally........................................................................22
Section 2.04 Procedures for Advances....................................................................22
Section 2.05 Interest Periods; Renewals.................................................................23
Section 2.06 Interest...................................................................................23
Section 2.07 Fees.......................................................................................24
Section 2.08 Notes......................................................................................24
Section 2.09 Prepayments................................................................................25
Section 2.10 Cancellation of Commitments................................................................25
Section 2.11 Method of Payment..........................................................................26
Section 2.12 Elections, Conversions or Continuation of Loans............................................26
Section 2.13 Minimum Amounts............................................................................26
Section 2.14 Certain Notices Regarding Elections, Conversions and Continuations of Loans................26
Section 2.15 Late Payment Premium.......................................................................27
Section 2.16 Letters of Credit..........................................................................27
Section 2.17 Intentionally Omitted......................................................................29
Section 2.18 Swing Loans................................................................................29
Section 2.19 Extension Of Maturity......................................................................30
ARTICLE III YIELD PROTECTION; ILLEGALITY, ETC.................................................................31
Section 3.01 Additional Costs...........................................................................31
Section 3.02 Limitation on Types of Loans...............................................................32
Section 3.03 Illegality.................................................................................33
Section 3.04 Treatment of Affected Loans................................................................33
Section 3.05 Certain Compensation.......................................................................33
Section 3.06 Capital Adequacy...........................................................................34
Section 3.07 Substitution of Banks......................................................................34
Section 3.08 Applicability..............................................................................36
ARTICLE IV CONDITIONS PRECEDENT...............................................................................36
Section 4.01 Conditions Precedent to the Initial Advance................................................36
Section 4.02 Conditions Precedent to Advances After the Initial Advance.................................37
Section 4.03 Deemed Representations.....................................................................38
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES......................................................................38
Section 5.01 Due Organization...........................................................................38
Section 5.02 Power and Authority; No Conflicts; Compliance With Laws....................................38
Section 5.03 Legally Enforceable Agreements.............................................................39
Section 5.04 Litigation.................................................................................39
Section 5.05 Good Title to Properties...................................................................39
Section 5.06 Taxes......................................................................................39
Section 5.07 ERISA......................................................................................39
Section 5.08 No Default on Outstanding Judgments or Orders..............................................40
Section 5.09 No Defaults on Other Agreements............................................................40
Section 5.10 Government Regulation......................................................................40
Section 5.11 Environmental Protection...................................................................40
Section 5.12 Solvency...................................................................................40
Section 5.13 Financial Statements.......................................................................40
Section 5.14 Valid Existence of Affiliates..............................................................40
Section 5.15 Insurance..................................................................................41
Section 5.16 Accuracy of Information; Full Disclosure...................................................41
Section 5.17 Corporate Merger and Termination of Other Credit Facilities................................41
ARTICLE VI AFFIRMATIVE COVENANTS..............................................................................41
Section 6.01 Maintenance of Existence...................................................................41
Section 6.02 Maintenance of Records.....................................................................42
Section 6.03 Maintenance of Insurance...................................................................42
Section 6.04 Compliance with Laws; Payment of Taxes.....................................................42
Section 6.05 Right of Inspection........................................................................42
Section 6.06 Compliance With Environmental Laws.........................................................42
Section 6.07 Maintenance of Properties..................................................................42
Section 6.08 Payment of Costs...........................................................................42
Section 6.09 Reporting and Miscellaneous Document Requirements..........................................42
Section 6.10 Principal Prepayments as a Result of Reduction in Total Loan Commitment....................44
ARTICLE VII NEGATIVE COVENANTS................................................................................45
Section 7.01 Mergers Etc................................................................................45
Section 7.02 Investments................................................................................45
Section 7.03 Sale of Assets.............................................................................45
ARTICLE VIII FINANCIAL COVENANTS..............................................................................45
Section 8.01 Consolidated Tangible Net Worth............................................................45
Section 8.02 Relationship of Total Outstanding Indebtedness to Capitalization Value.....................45
Section 8.03 Relationship of Combined EBITDA to Interest Expense........................................45
Section 8.04 Relationship of Combined EBITDA to Combined Debt Service...................................46
Section 8.05 Relationship of Combined EBITDA to Total Outstanding Indebtedness..........................46
Section 8.06 Unsecured Debt Yield.......................................................................46
Section 8.07 Relationship of Unencumbered Combined EBITDA to Unsecured Interest Expense.................46
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 8.08 Relationship of Dividends to Funds From Operations.........................................46
Section 8.09 Relationship of Secured Indebtedness to Capitalization Value...............................46
ARTICLE IX EVENTS OF DEFAULT..................................................................................46
Section 9.01 Events of Default..........................................................................46
Section 9.02 Remedies...................................................................................48
ARTICLE X ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS.........................................................49
Section 10.01 Appointment, Powers and Immunities of Administrative Agent.................................49
Section 10.02 Reliance by Administrative Agent...........................................................49
Section 10.03 Defaults...................................................................................50
Section 10.04 Rights of Administrative Agent as a Bank...................................................50
Section 10.05 Indemnification of Administrative Agent....................................................50
Section 10.06 Non-Reliance on Administrative Agent and Other Banks.......................................51
Section 10.07 Failure of Administrative Agent to Act.....................................................51
Section 10.08 Resignation or Removal of Administrative Agent.............................................51
Section 10.09 Amendments Concerning Agency Function......................................................52
Section 10.10 Liability of Administrative Agent..........................................................52
Section 10.11 Transfer of Agency Function................................................................52
Section 10.12 Non-Receipt of Funds by Administrative Agent...............................................52
Section 10.13 Withholding Taxes..........................................................................53
Section 10.14 Minimum Commitment by Co-Agents............................................................53
Section 10.15 Pro Rata Treatment.........................................................................53
Section 10.16 Sharing of Payments Among Banks............................................................53
Section 10.17 Possession of Documents....................................................................54
ARTICLE XI NATURE OF OBLIGATIONS..............................................................................54
Section 11.01 Absolute and Unconditional Obligations.....................................................54
Section 11.02 Non-Recourse to Borrower's Principals......................................................54
ARTICLE XII MISCELLANEOUS.....................................................................................55
Section 12.01 Binding Effect of Request for Advance......................................................55
Section 12.02 Amendments and Waivers.....................................................................55
Section 12.03 Usury......................................................................................56
Section 12.04 Expenses; Indemnification..................................................................56
Section 12.05 Assignment; Participation..................................................................57
Section 12.06 Documentation Satisfactory.................................................................58
Section 12.07 Notices....................................................................................58
Section 12.08 Setoff.....................................................................................58
Section 12.09 Table of Contents; Headings................................................................59
Section 12.10 Severability...............................................................................59
Section 12.11 Counterparts...............................................................................59
Section 12.12 Integration................................................................................59
Section 12.13 Governing Law..............................................................................59
Section 12.14 Waivers....................................................................................59
Section 12.15 Jurisdiction; Immunities...................................................................59
Section 12.16 Designated Lender..........................................................................60
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 12.17 No Bankruptcy Proceedings..................................................................61
Section 12.18 Year 2000..................................................................................61
</TABLE>
EXHIBIT A - Authorization Letter
EXHIBIT B - Ratable Loan Note
EXHIBIT B-1 - Bid Rate Loan Note
EXHIBIT B-2 - Swing Loan Note
EXHIBIT C - Information Regarding Material Affiliates
EXHIBIT D - Solvency Certificate
EXHIBIT E - Assignment and Assumption Agreement
EXHIBIT F - Designation Agreement
EXHIBIT G-1 - Bid Rate Quote Request
EXHIBIT G-2 - Invitation for Bid Rate Quotes
EXHIBIT G-3 - Bid Rate Quote
EXHIBIT G-4 - Borrower's Acceptance of Bid Rate Quote
iv
<PAGE> 6
REVOLVING LOAN AGREEMENT dated as of June 23, 1998 among AVALON BAY
COMMUNITIES, INC., a corporation organized and existing under the laws of the
State of Maryland ("Borrower"), FLEET NATIONAL BANK (in its individual capacity
and not as Administrative Agent, "Fleet"), MORGAN GUARANTY TRUST COMPANY OF NEW
YORK ("Morgan"), UNION BANK OF SWITZERLAND (New York Branch) ("UBS"), the other
lenders signatory hereto, and FLEET NATIONAL BANK, as administrative agent for
the Banks (in such capacity, together with its successors in such capacity,
"Administrative Agent"; Fleet, Morgan, UBS, the other lenders signatory hereto,
such other lenders who from time to time become Banks pursuant to Section 3.07
or 12.05 and, if applicable, any of the foregoing lenders' Designated Lender,
each a "Bank" and collectively, the "Banks").
Borrower desires that the Banks extend credit as provided herein, and
the Banks are prepared to extend such credit. Accordingly, in consideration of
the premises and the mutual agreements, covenants and conditions hereinafter set
forth, Borrower, Administrative Agent and each of the Banks agree as follows:
ARTICLE I
DEFINITIONS; ETC.
Section 1.01 Definitions. As used in this Agreement the following
terms have the following meanings (except as otherwise provided, terms defined
in the singular to have a correlative meaning when used in the plural and vice
versa):
"Absolute Bid Rate" has the meaning specified in Section 2.02(c)(2).
"Absolute Bid Rate Loan" means a Bid Rate Loan bearing interest at
the Absolute Bid Rate.
"Absolute Rate Auction" means a solicitation of Bid Rate Quotes
setting forth Absolute Bid Rates pursuant to Section 2.02.
"Acquisition" means the acquisition by Borrower, directly or
indirectly, of an interest in multi-family real estate.
"Additional Costs" has the meaning specified in Section 3.01.
"Administrative Agent" has the meaning specified in the preamble.
"Administrative Agent's Office" means Administrative Agent's address
located at One Landmark Square, Stamford, Connecticut 06904, or such other
address in the United States as Administrative Agent may designate by written
notice to Borrower and the Banks.
"Affiliate" means, with respect to any Person (the "first Person"),
any other Person (1) which directly or indirectly controls, or is controlled by,
or is under common control with the first Person; or (2) 10% or more of the
beneficial interest in which is directly or indirectly owned or held by the
first Person. The term "control" means the possession, directly
1
<PAGE> 7
or indirectly, of the power, alone, to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Revolving Loan Agreement.
"Applicable Lending Office" means, for each Bank and for its LIBOR
Loan, Bid Rate Loan(s) or Base Rate Loan, as applicable, the lending office of
such Bank (or of an Affiliate of such Bank) designated as such on its signature
page hereof or in the applicable Assignment and Assumption Agreement, or such
other office of such Bank (or of an Affiliate of such Bank) as such Bank may
from time to time specify to Administrative Agent and Borrower as the office by
which its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan (and, in the case of
the Swing Lender, its Swing Loan), as applicable, is to be made and maintained.
"Applicable Margin" means, with respect to Base Rate Loans and LIBOR
Loans (and for purposes of determining the Banks' L/C Fee Rate under Section
2.16(f)), the respective rates per annum determined at any time, based on the
range into which Borrower's Credit Rating then falls, in accordance with the
following table (any change in Borrower's Credit Rating causing it to move to a
different range on the table shall effect an immediate change in the Applicable
Margin):
<TABLE>
<CAPTION>
Range of Borrower's Applicable Margin Applicable Margin
Credit Rating for Base Rate Loans for LIBOR Loans
(S&P/Moody's) (% per annum) (% per annum)
- ------------- ------------- -------------
<S> <C> <C>
Below BBB-/below Baa3 or unrated 0.25 1.15
BBB-/Baa3 0.00 0.95
BBB/Baa2 0.00 0.75
BBB+/Baa1 0.00 0.60
A-or higher/A3 or higher 0.00 0.55
</TABLE>
"Assignee" and "Consented Assignee" have the respective meanings
specified in Section 12.05.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement, substantially in the form of EXHIBIT E, pursuant to which
a Bank assigns and an Assignee assumes rights and obligations in accordance with
Section 12.05.
"Authorization Letter" means a letter agreement executed by Borrower
in the form of EXHIBIT A.
"Available Total Loan Commitment" has the meaning specified in
Section 2.01(b).
"Avalon" means Avalon Properties, Inc., a Maryland corporation.
2
<PAGE> 8
"Bank" and "Banks" have the respective meanings specified in the
preamble; provided, however, that the term "Bank" shall exclude each Designated
Lender when used in reference to a Ratable Loan, the Loan Commitments or terms
relating to the Ratable Loans and the Loan Commitments.
"Bank Parties" means Administrative Agent and the Banks.
"Banking Day" means (1) any day on which commercial banks are not
authorized or required to close in New York City and (2) whenever such day
relates to a LIBOR Loan, a LIBOR Bid Rate Loan, an Interest Period with respect
to a LIBOR Loan or a LIBOR Bid Rate Loan, or notice with respect to a LIBOR Loan
or a LIBOR Bid Rate Loan or a LIBOR Auction, a day on which dealings in Dollar
deposits are also carried out in the London interbank market and banks are open
for business in London.
"Base Rate" means, for any day, the higher of (1) the Federal Funds
Rate for such day plus .50%, or (2) the Prime Rate for such day.
"Base Rate Loan" means all or any portion (as the context requires)
of a Bank's Ratable Loan which shall accrue interest at a rate determined in
relation to the Base Rate.
"Bay" means Bay Apartment Communities, Inc., a Maryland corporation.
"Bid Borrowing Limit" means 66 2/3% of the Total Loan Commitment.
"Bid Rate Loan" has the meaning specified in Section 2.01(c).
"Bid Rate Loan Note" has the meaning specified in Section 2.08.
"Bid Rate Quote" means an offer by a Bank to make a Bid Rate Loan in
accordance with Section 2.02.
"Bid Rate Quote Request" has the meaning specified in Section
2.02(a).
"Borrower" has the meaning specified in the preamble.
"Borrower's Accountants" means Coopers & Lybrand, or such other
accounting firm(s) selected by Borrower and reasonably acceptable to the
Required Banks.
"Borrower's Credit Rating" means the rating assigned from time to
time to Borrower's unsecured and unsubordinated long-term indebtedness by,
respectively, S&P and/or Moody's. In connection with the foregoing, it is
understood that if more than one (1) of the rating agencies identified above
assigns a rating to Borrower's unsecured and unsubordinated long-term
indebtedness, the following shall apply: (i) "Borrower's Credit Rating" shall be
the lower of said ratings and (ii) if the aforesaid ratings are greater than one
(1) rating level apart, "Borrower's Credit Rating" shall be the average of said
ratings. Unless such indebtedness of Borrower is rated by at least one (1) of
the rating agencies identified above, "Borrower's Credit Rating" shall be
considered unrated for purposes of this Agreement.
3
<PAGE> 9
"Borrower's Principals" means the officers and directors of Borrower
at any applicable time.
"Borrower's Share of UJV Combined Outstanding Indebtedness" means the
sum of the indebtedness of each of the UJVs contributing to UJV Combined
Outstanding Indebtedness multiplied by Borrower's respective beneficial
fractional interests in each such UJV.
"Capitalization Value" means, as of the end of any calendar quarter,
the sum of (1) Combined EBITDA (less all leasing commissions and management and
development fees, net of any expenses applicable thereto, contributing to
Combined EBITDA) for such quarter annualized (i.e., multiplied by four (4)),
capitalized at a rate of 8.75% per annum (i.e., divided by 8.75%), and (2) such
leasing commissions and management and development fees for such quarter,
annualized, (i.e., multiplied by four (4)), capitalized at a rate of 25% per
annum (i.e., divided by 25%), (3) Cash and Cash Equivalents of Borrower and its
Consolidated Businesses, as of the end of such quarter, as reflected in
Borrower's Consolidated Financial Statements, and (4) the lesser of (a) the
aggregate book value (on a cost basis) of the properties of Borrower and its
Consolidated Businesses under development plus Borrower's beneficial interest in
the book value (on a cost basis) of the properties of the UJVs under development
or (b) 20% of the sum of the amounts determined pursuant to clauses (1), (2) and
(3) of this definition.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Cash and Cash Equivalents" means (1) cash, (2) direct obligations of
the United States Government, including, without limitation, treasury bills,
notes and bonds, (3) interest-bearing or discounted obligations of federal
agencies and government-sponsored entities or pools of such instruments offered
by Approved Banks and dealers, including, without limitation, Federal Home Loan
Mortgage Corporation participation sale certificates, Government National
Mortgage Association modified pass through certificates, Federal National
Mortgage Association bonds and notes, and Federal Farm Credit System securities,
(4) time deposits, domestic and eurodollar certificates of deposit, bankers'
acceptances, commercial paper rated at least A-1 by S&P and P-1 by Moody's
and/or guaranteed by an Aa rating by Moody's, an AA rating by S&P or better
rated credit, floating rate notes, other money market instruments and letters of
credit each issued by Approved Banks, (5) obligations of domestic corporations,
including, without limitation, commercial paper, bonds, debentures and loan
participations, each of which is rated at least AA by S&P and/or Aa2 by Moody's
and/or guaranteed by an Aa rating by Moody's, an AA rating by S&P or better
rated credit, (6) obligations issued by states and local governments or their
agencies, rated at least MIG-1 by Moody's and /or SP-1 by S&P and /or guaranteed
by an irrevocable letter of credit of an Approved Bank, (7) repurchase
agreements with major banks and primary government security dealers fully
secured by the United States Government or agency collateral equal to or
exceeding the principal amount on a daily basis and held in safekeeping and (8)
real estate loan pool participations, guaranteed by an AA rating given by S&P or
an Aa2 rating given by Moody's or better rated credit. For purposes of this
definition, "Approved Bank" means a financial institution which has (x) (A) a
minimum net worth of $500,000,000 and/or (B) total assets of at least
$10,000,000,000 and (y) a minimum long-term debt rating of A+ by S&P or A1 by
Moody's.
4
<PAGE> 10
"Closing Date" means the date this Agreement has been executed by all
parties.
"Co-Agent" means each of Fleet, Morgan and UBS and "Co-Agents" means
Fleet, Morgan and UBS collectively.
"Code" means the Internal Revenue Code of 1986.
"Combined Debt Service" means, for any period of time, (1) Borrower's
share of total debt service (including principal) paid or payable by Borrower
and its Consolidated Businesses during such period (other than debt service on
construction loans until completion of the relevant construction and other
capitalized interest) plus a deemed annual capital expense charge of $150 per
apartment unit owned by Borrower or its Consolidated Businesses plus (2)
Borrower's beneficial interest in (a) total debt service (including principal)
paid or payable by the UJVs during such period (other than debt service on
construction loans until completion of the relevant construction and other
capitalized interest) plus (b) a deemed annual capital expense charge of $150
per apartment unit owned by the UJVs plus (3) preferred dividends paid or
payable by Borrower and its Consolidated Businesses during such period.
"Combined EBITDA" means, for any period of time, the sum, without
duplication, of (1) Borrower's share of revenues less operating expenses,
general and administrative expenses and property taxes before Interest Expense,
income taxes, gains or losses on the sale of real estate and/or marketable
securities, depreciation and amortization and extraordinary items for Borrower
and its Consolidated Businesses, and adjusted, if material, for non-cash revenue
attributable to straight lining of rents and (2) Borrower's beneficial interest
in revenues less operating expenses, general and administrative expenses and
property taxes before Interest Expense, income taxes, gains or losses on the
sale of real estate and/or marketable securities, depreciation and amortization
and extraordinary items (after eliminating appropriate intercompany amounts)
applicable to each of the UJVs, and adjusted, if material, for non-cash revenue
attributable to straight lining of rents, in all cases as reflected in
Borrower's Consolidated Financial Statements.
"Consolidated Businesses" means, collectively, each Affiliate of
Borrower who is or should be included in Borrower's Consolidated Financial
Statements in accordance with GAAP.
"Consolidated Financial Statements" means, with respect to any
Person, the consolidated balance sheet and related consolidated statement of
operations, accumulated deficiency in assets and cash flows, and footnotes
thereto, of such Person, prepared in accordance with GAAP.
"Consolidated Outstanding Indebtedness" means, as of any time,
Borrower's share of all indebtedness and liability for borrowed money, secured
or unsecured, of Borrower and its Consolidated Businesses, including mortgage
and other notes payable but excluding any indebtedness which is margin
indebtedness on cash and cash equivalent securities, all as reflected in
Borrower's Consolidated Financial Statements.
"Consolidated Tangible Net Worth" means, at any date, Borrower's
share of the consolidated stockholders' equity of Borrower and its Consolidated
Businesses less their
5
<PAGE> 11
consolidated Intangible Assets, all determined as of such date. For purposes of
this definition, "Intangible Assets" means with respect to any such intangible
assets, the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (1) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of assets of a going concern
business made within twelve (12) months after the acquisition of such business)
subsequent to September 30, 1994 in the book value of any asset (other than real
property assets) owned by Borrower or a Consolidated Business and (2) all debt
discount and expense, deferred charges, goodwill, patents, trademarks, service
marks, trade names, anticipated future benefit of tax loss carry-forwards,
copyrights, organization or developmental expenses and other intangible assets
(in each case, not adjusted for depreciation).
"Contingent Obligations" means, without duplication, Borrower's share
of (1) any contingent obligations of Borrower or its Constituted Businesses
required to be shown on the balance sheet of Borrower and its Consolidated
Businesses in accordance with GAAP and (2) any obligation required to be
disclosed in the footnotes to Borrower's Consolidated Financial Statements,
guaranteeing partially or in whole any non-Recourse Debt, lease, dividend or
other obligation, exclusive of contractual indemnities (including, without
limitation, any indemnity or price-adjustment provision relating to the purchase
or sale of securities or other assets) and guarantees of non-monetary
obligations (other than guarantees of completion) which have not yet been called
on or quantified, of Borrower or any of its Consolidated Businesses or of any
other Person. The amount of any Contingent Obligation described in clause (2)
shall be deemed to be (a) with respect to a guaranty of interest or interest and
principal, or operating income guaranty, the net present value (using the Base
Rate as a discount rate) of the sum of all payments required to be made
thereunder (which in the case of an operating income guaranty shall be deemed to
be equal to the debt service for the note secured thereby), through (i) in the
case of an interest or interest and principal guaranty, the stated date of
maturity of the obligation (and commencing on the date interest could first be
payable thereunder) or (ii) in the case of an operating income guaranty, the
date through which such guaranty will remain in effect and (b) with respect to
all guarantees not covered by the preceding clause (a), an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
guaranty is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming Borrower and/or one or more
of its Consolidated Businesses is required to perform thereunder) as recorded on
the balance sheet and on the footnotes to the most recent Borrower's
Consolidated Financial Statements required to be delivered pursuant to this
Agreement. Notwithstanding anything contained herein to the contrary, guarantees
of completion shall not be deemed to be Contingent Obligations unless and until
a claim for payment or performance has been made thereunder, at which time any
such guaranty of completion shall be deemed to be a Contingent Obligation in an
amount equal to any such claim. Subject to the preceding sentence, (1) in the
case of a joint and several guaranty given by Borrower or one of its
Consolidated Businesses and another Person (but only to the extent such guaranty
is recourse, directly or indirectly to Borrower), the amount of the guaranty
shall be deemed to be 100% thereof unless and only to the extent that such other
Person has delivered Cash and Cash Equivalents to secure all or any part of such
Person's guaranteed obligations and (2) in the case of joint and several
guarantees given by a Person in which Borrower owns an interest (which
guarantees are non-recourse to Borrower), to the extent the guarantees, in the
aggregate, exceed 10% of Capitalization Value, the amount in excess of 10% shall
be deemed to be a Contingent Obligation of Borrower. Notwithstanding anything
contained herein to the
6
<PAGE> 12
contrary, "Contingent Obligations" shall be deemed not to include guarantees of
unadvanced funds under any indebtedness of Borrower or its Consolidated
Businesses or of construction loans to the extent the same have not been drawn.
All matters constituting "Contingent Obligations" shall be calculated without
duplication.
"Continue", "Continuation" and "Continued" refer to the continuation
pursuant to Section 2.12 of a LIBOR Loan as a LIBOR Loan from one Interest
Period to the next Interest Period.
"Convert", "Conversion" and "Converted" refer to a conversion
pursuant to Section 2.12 of a Base Rate Loan into a LIBOR Loan or a LIBOR Loan
into a Base Rate Loan, each of which may be accompanied by the transfer by a
Bank (at its sole discretion) of all or a portion of its Ratable Loan from one
Applicable Lending Office to another.
"Debt" means (1) indebtedness or liability for borrowed money, or for
the deferred purchase price of property or services (including trade
obligations); (2) obligations as lessee under Capital Leases; (3) current
liabilities in respect of unfunded vested benefits under any Plan; (4)
obligations under letters of credit issued for the account of any Person; (5)
all obligations arising under bankers' or trade acceptance facilities; (6) all
guarantees, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase any of the
items included in this definition, to provide funds for payment, to supply funds
to invest in any Person, or otherwise to assure a creditor against loss; (7) all
obligations secured by any Lien on property owned by the Person whose Debt is
being measured, whether or not the obligations have been assumed; and (8) all
obligations under any agreement providing for contingent participation or other
hedging mechanisms with respect to interest payable on any of the items
described above in this definition.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to: (1) with respect to
Base Rate Loans and Swing Loans, a variable rate 3% above the rate of interest
then in effect thereon; and (2) with respect to LIBOR Loans and Bid Rate Loans,
a fixed rate 3% above the rate(s) of interest in effect thereon (including the
Applicable Margin or the LIBOR Bid Margin, as the case may be) at the time of
Default until the end of the then current Interest Period therefor and,
thereafter, a variable rate 3% above the rate of interest for a Base Rate Loan.
"Designated Lender" means a special purpose corporation that (i)
shall have become a party to this Agreement pursuant to Section 12.16 and (ii)
is not otherwise a Bank.
"Designating Lender" has the meaning specified in Section 12.16.
"Designation Agreement" means an agreement in substantially the form
of EXHIBIT F, entered into by a Bank and a Designated Lender and accepted by
Administrative Agent.
"Disposition" means a sale (whether by assignment, transfer or
Capital Lease) of an asset.
7
<PAGE> 13
"Documentation Agent" means Union Bank of Switzerland (New York
Branch).
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Elect", "Election" and "Elected" refer to election, if any, by
Borrower pursuant to Section 2.12 to have all or a portion of an advance of the
Ratable Loans be outstanding as LIBOR Loans.
"Environmental Discharge" means any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" means any applicable Law relating to pollution or
the environment, including Laws relating to noise or to emissions, discharges,
releases or threatened releases of Hazardous Materials into the work place, the
community or the environment, or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Environmental Notice" means any written complaint, order, citation
or notice from any Person (1) affecting or relating to Borrower's compliance
with any Environmental Law in connection with any activity or operations at any
time conducted by Borrower, (2) relating to (a) the existence of any Hazardous
Materials contamination or Environmental Discharges or threatened Hazardous
Materials contamination or Environmental Discharges at any of Borrower's
locations or facilities or (b) remediation of any Environmental Discharge or
Hazardous Materials at any such location or facility or any part thereof; or (3)
any violation or alleged violation by Borrower of any relevant Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation which is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Code) as Borrower, or any trade or business which is under common control
(within the meaning of Section 414(c) of the Code) with Borrower, or any
organization which is required to be treated as a single employer with Borrower
under Section 414(m) or 414(o) of the Code.
"Event of Default" has the meaning specified in Section 9.01.
"Extension Option", "Notice to Extend" and "Request to Extend" have
the respective meanings specified in Section 2.19.
8
<PAGE> 14
"Facility Fee Rate" means the rate per annum determined, at any time,
based on Borrower's Credit Rating in accordance with the following table. Any
change in Borrower's Credit Rating which causes it to move into a different
range on the table shall effect an immediate change in the Facility Fee Rate.
<TABLE>
<CAPTION>
Borrower's Credit Rating Facility Fee Rate
(S&P/Moody's) (% per annum)
------------- -------------
<S> <C>
Below BBB-/Baa3 or unrated 0.25
BBB-/Baa3 0.20
BBB/Baa2 0.150
BBB+/Baa1 0.150
A-/A3 or higher 0.150
</TABLE>
"Federal Funds Rate" means, for any day, the rate per annum
(expressed on a 360-day basis of calculation) equal to the weighted average of
the rates on overnight federal funds transactions as published by the Federal
Reserve Bank of New York for such day provided that (1) if such day is not a
Banking Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the immediately preceding Banking Day as so published on the
next succeeding Banking Day; and (2) if no such rate is so published on such
next succeeding Banking Day, the Federal Funds Rate for such day shall be the
average of the rates quoted by three (3) Federal Funds brokers to Administrative
Agent on such day on such transactions.
"Fiscal Year" means each period from January 1 to December 31.
"Fleet" has the meaning specified in the preamble.
"Funds From Operations" means Combined EBITDA less the sum of
Interest Expense and income taxes included in Combined EBITDA.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.13 (except for changes concurred in by Borrower's Accountants).
"Good Faith Contest" means the contest of an item if: (1) the item is
diligently contested in good faith, and, if appropriate, by proceedings timely
instituted; (2) reserves that are adequate based on reasonably foreseeable
likely outcomes are established with respect to the contested item; (3) during
the period of such contest, the enforcement of any contested item is effectively
stayed, delayed or postponed; and (4) the failure to pay or comply with the
contested item during the period of the contest is not likely to result in a
Material Adverse Change.
"Governmental Approvals" means any authorization, consent, approval,
license, permit, certification, or exemption of, registration or filing with or
report or notice to, any Governmental Authority.
9
<PAGE> 15
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any relevant Environmental
Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls,
and any petroleum or hydrocarbon-based products or derivatives.
"Initial Advance" means the first advance of proceeds of the Loans.
"Interest Expense" means, for any period of time, Borrower's share of
the consolidated interest expense (without deduction of consolidated interest
income, and excluding (x) interest expense on construction loans and (y) other
capitalized interest expense in respect of either construction activity or
construction loans, in any such case under clauses (x) or (y), only until
completion of the relevant construction) of Borrower and its Consolidated
Businesses, including, without limitation or duplication (or, to the extent not
so included, with the addition of), (1) the portion of any rental obligation in
respect of any Capital Lease obligation allocable to interest expense in
accordance with GAAP; (2) the amortization of Debt discounts; (3) any payments
or fees (other than up-front fees) with respect to interest rate swap or similar
agreements; and (4) the interest expense and items listed in clauses (1) through
(3) above applicable to each of the UJVs multiplied by Borrower's respective
beneficial interests in the UJVs, in all cases as reflected in Borrower's
Consolidated Financial Statements.
"Interest Period" means, (1) with respect to any LIBOR Loan, the
period commencing on the date the same is advanced, converted from a Base Rate
Loan or Continued, as the case may be, and ending, as Borrower may select
pursuant to Section 2.05, on the numerically corresponding day in the first,
second or third calendar month thereafter, provided that each such Interest
Period which commences on the last Banking Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Banking Day of the appropriate
calendar month; (2) with respect to any LIBOR Bid Rate Loan, the period
commencing on the date the same is advanced and ending, as Borrower may select
pursuant to Section 2.02, on the numerically corresponding day in the first,
second or third calendar month thereafter, provided that each such Interest
Period which commences on the last Banking Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Banking Day of the appropriate
calendar month; and (3) with respect to any Absolute Bid Rate Loan, the period
commencing on the date the same is advanced and ending, as Borrower may select
pursuant to Section 2.02, provided, however, that each such period shall not be
less than fourteen (14) days nor more than ninety (90) days.
"Invitation for Bid Rate Quotes" has the meaning specified in Section
2.02 (b).
"Law" means any federal, state or local statute, law, rule,
regulation, ordinance, order, code, or rule of common law, now or hereafter in
effect, and in each case as amended, and any judicial or administrative order,
consent decree or judgment.
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<PAGE> 16
"Letter of Credit" has the meaning specified in Section 2.16(a).
"LIBOR Auction" means a solicitation of Bid Rate Quotes setting forth
LIBOR Bid Margins pursuant to Section 2.02.
"LIBOR Base Rate" means, with respect to any Interest Period
therefor, the rate per annum (rounded up, if necessary, to the nearest 1/100 of
1%) that appears on Dow Jones Page 3750 at approximately 11:00 a.m. (London
time) on the date (the "LIBOR Determination Date") two (2) Banking Days prior to
the first day of the applicable Interest Period, for the same period of time as
the Interest Period; or, if such rate does not appear on Dow Jones Page 3750 as
of approximately 11:00 a.m. (London time) on the LIBOR Determination Date, the
rate (rounded up, if necessary, to the nearest 1/100 of 1%) for deposits in
Dollars for a period comparable to the applicable Interest Period that appears
on the Reuters Screen LIBOR Page as of approximately 11:00 a.m. (London time) on
the LIBOR Determination Date. If such rate does not appear on either Dow Jones
Page 3750 or on the Reuters Screen LIBOR Page as of approximately 11:00 a.m.
(London time) on the LIBOR Determination Date, the LIBOR Base Rate for the
Interest Period will be determined on the basis of the offered rates for
deposits in Dollars for the same period of time as such Interest Period that are
offered by four (4) major banks in the London interbank market at approximately
11:00 a.m. (London time) on the LIBOR Determination Date. Administrative Agent
will request that the principal London office of each of the four (4) major
banks provide a quotation of its Dollar deposit offered rate. If at least two
(2) such quotations are provided, the LIBOR Base Rate will be the arithmetic
mean of the quotations. If fewer than two (2) quotations are provided as
requested, the LIBOR Base Rate will be determined on the basis of the rates
quoted for loans in Dollars to leading European banks for amounts comparable to
such amount requested by Borrower for the same period of time as such Interest
Period offered by major banks in New York City at approximately 11:00 a.m. (New
York time) on the LIBOR Determination Date. In the event that Administrative
Agent is unable to obtain any such quotation as provided above, it will be
deemed that the LIBOR Base Rate cannot be determined. For purposes of the
foregoing definition, "Dow Jones Page 3750" means the display designated as
"Page 3750" on the Dow Jones Markets Service (or such other page as may replace
Page 3750 on that service or such other service as may be nominated by the
British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for Dollar
deposits); and "Reuters Screen LIBOR Page" means the display designated as page
"LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBOR page on that service for the purpose of displaying interbank
rates from London in Dollars).
"LIBOR Bid Margin" has the meaning specified in Section 2.02(c)(2).
"LIBOR Bid Rate" means the rate per annum equal to the sum of (1) the
LIBOR Interest Rate for the LIBOR Bid Rate Loan and Interest Period in question
and (2) the LIBOR Bid Margin.
"LIBOR Bid Rate Loan" means a Bid Rate Loan bearing interest at the
LIBOR Bid Rate.
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<PAGE> 17
"LIBOR Interest Rate" means, for any LIBOR Loan or LIBOR Bid Rate
Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined by Administrative Agent to be equal to the quotient of (1) the
LIBOR Base Rate for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be,
for the Interest Period therefor divided by (2) one minus the LIBOR Reserve
Requirement for such LIBOR Loan or LIBOR Bid Rate Loan, as the case may be, for
such Interest Period.
"LIBOR Loan" means all or any portion (as the context requires) of
any Bank's Ratable Loan which shall accrue interest at rate(s) determined in
relation to LIBOR Interest Rate(s).
"LIBOR Reserve Requirement" means, for any LIBOR Loan or LIBOR Bid
Rate Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period for such LIBOR Loan or LIBOR Bid Rate Loan under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding $1,000,000,000 against "Eurocurrency liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the LIBOR
Reserve Requirement shall also reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (1)
any category of liabilities which includes deposits by reference to which the
LIBOR Base Rate is to be determined as provided in the definition of "LIBOR Base
Rate" in this Section 1.01 or (2) any category of extensions of credit or other
assets which include loans the interest rate on which is determined on the basis
of rates referred to in said definition of "LIBOR Base Rate".
"Lien" means any mortgage, deed of trust, pledge, negative pledge,
security interest, hypothecation, assignment for collateral purposes, deposit
arrangement, lien (statutory or other), or other security agreement or charge of
any kind or nature whatsoever of any third party (excluding any right of setoff
but including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable Law of any jurisdiction to evidence any of
the foregoing and carriers, warehousemen, mechanics and other similar inchoate
liens that have been insured against in a manner reasonably satisfactory to the
Required Banks).
"Loan" means, with respect to each Bank, collectively, its Ratable
Loan and Bid Rate Loan(s), and, in the case of the Swing Lender, its Swing
Loan(s).
"Loan Commitment" means, with respect to each Bank, the obligation to
make a Ratable Loan in the principal amount set forth below (subject to change
as a result of assignments by one or more of the Banks pursuant to the third
paragraph of Section 12.05) as such amount may be reduced from time to time in
accordance with the provisions of Section 2.10:
<TABLE>
<CAPTION>
Loan
Bank Commitment
---- ----------
<S> <C>
Morgan $120,000,000
</TABLE>
12
<PAGE> 18
<TABLE>
<S> <C>
Fleet 65,000,000
UBS 65,000,000
Commerzbank AG 50,000,000
Dresdner Bank AG 50,000,000
First Union National Bank 50,000,000
NationsBank, N.A. 50,000,000
PNC Bank, National Association 50,000,000
AMSOUTH Bank 30,000,000
The Long Term Credit Bank of Japan 25,000,000
Summit Bank 25,000,000
The Sumitomo Bank, Limited 20,000,000
TOTAL: $600,000,000
============
</TABLE>
"Loan Documents" means this Agreement, the Notes, the Authorization
Letter and the Solvency Certificate.
"Majority Banks" means at any time the Banks having Pro Rata Shares
aggregating at least 51%; provided, however, that during the existence of an
Event of Default, the "Majority Banks" shall be the Banks holding at least 51%
of the then aggregate unpaid principal amount of the Loans. For purposes of this
definition, a Bank's Loan shall be deemed to include its participating interest
in Swing Loans pursuant to Section 2.18(c) and the Swing Lender's Loans shall be
deemed to exclude such participating interests of other Banks.
"Material Adverse Change" means an effect resulting from any
circumstance or event or series of circumstances or events, of whatever nature,
which does or could reasonably be expected to, on more than an interim basis,
either (1) materially and adversely impair the ability of Borrower and its
Consolidated Businesses, taken as a whole, to fulfill its material obligations
or (2) cause a Default.
"Material Affiliates" means the Affiliates of Borrower described on
EXHIBIT C, together with (or excluding) any Affiliates of Borrower which are
hereafter from time to time reasonably determined by Administrative Agent to be
material (or no longer material), upon written notice to Borrower, based on the
most recent Borrower's Consolidated Financial Statements.
"Maturity Date" means July 1, 2001, subject to extension in
accordance with Section 2.19.
"Moody's" means Moody's Investors Service, Inc.
"Morgan" has the meaning specified in the preamble.
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<PAGE> 19
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by Borrower or any ERISA Affiliate
and which is covered by Title IV of ERISA.
"Note" and "Notes" have the respective meanings specified in Section
2.08.
"Obligations" means each and every obligation, covenant and agreement
of Borrower, now or hereafter existing, contained in this Agreement, and any of
the other Loan Documents, whether for principal, reimbursement obligations,
interest, fees, expenses, indemnities or otherwise, and any amendments or
supplements thereto, extensions or renewals thereof or replacements therefor,
including but not limited to all indebtedness, obligations and liabilities of
Borrower to Administrative Agent and any Bank now existing or hereafter incurred
under or arising out of or in connection with the Notes, this Agreement, the
other Loan Documents, and any documents or instruments executed in connection
therewith; in each case whether direct or indirect, joint or several, absolute
or contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, whether or not from time to time decreased or extinguished and
later increased, created or incurred, and including all indebtedness of
Borrower, under any instrument now or hereafter evidencing or securing any of
the foregoing.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" and "Participations" have the respective meanings
specified in Section 12.05.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA or to which Section 412 of
the Code applies.
"Presence", when used in connection with any Environmental Discharge
or Hazardous Materials, means and includes presence, generation, manufacture,
installation, treatment, use, storage, handling, repair, encapsulation,
disposal, transportation, spill, discharge and release.
"Prime Rate" means the variable per annum rate of interest designated
from time to time by Fleet National Bank at its principal office in Boston,
Massachusetts as its "prime Rate" (it being understood that the "prime rate" is
a reference rate and does not necessarily represent the lowest or best rate
being charged to any customer).
"Pro Rata Share" means, for purposes of this Agreement and with
respect to each Bank, a fraction, the numerator of which is the amount of such
Bank's Loan Commitment and the denominator of which is the Total Loan
Commitment.
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<PAGE> 20
"Prohibited Transaction" means any transaction proscribed by Section
406 of ERISA or Section 4975 of the Code and to which no statutory or
administrative exemption applies.
"Ratable Loan" has the meaning specified in Section 2.01(b).
"Ratable Loan Note" has the meaning specified in Section 2.08.
"Recourse Debt" means Debt, recourse for the satisfaction of which is
not limited to specified collateral.
"Refunded Swing Loans" and "Refunding Date" have the respective
meanings specified in Section 2.18.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time, or any similar Law from time to time in effect.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including such Bank of or under any United States, federal, state,
municipal or foreign laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Required Banks" means at any time the Banks having Pro Rata Shares
aggregating at least 66 2/3%; provided, however, that during the existence of an
Event of Default, the "Required Banks" shall be the Banks holding at least 66
2/3% of the then aggregate unpaid principal amount of the Loans. For purposes of
this definition, a Bank's Loan shall be deemed to include its participating
interest in Swing Loans pursuant to Section 2.18(c) and the Swing Lender's Loans
shall be deemed to exclude such participating interests of other Banks.
"Secured Indebtedness" means that portion of Total Outstanding
Indebtedness that is secured.
"Solvency Certificate" means a certificate in the form of EXHIBIT D,
to be delivered by Borrower pursuant to the terms of this Agreement.
15
<PAGE> 21
"Solvent" means, when used with respect to any Person, that the fair
value of the property of such Person, on a going concern basis, is greater than
the total amount of liabilities (including, without limitation, contingent
liabilities) of such Person.
"S&P" means Standard and Poor's Ratings Services, a division of
McGraw-Hill Companies.
"Supplemental Fee Letter" means, collectively, those certain letter
agreements, each dated on or prior to the date hereof, between Borrower and each
of Morgan, Fleet and UBS.
"Swing Lender" means Fleet in its capacity as the lender under the
Swing Loan facility described in Section 2.18, and its successors in such
capacity.
"Swing Loan" means a loan made by the Swing Lender pursuant to
Section 2.18.
"Swing Loan Commitment" means $20,000,000.
"Swing Loan Note" has the meaning specified in Section 2.08.
"Swing Loan Refund Amount" has the meaning specified in Section 2.18.
"Syndication Agent" means JP Morgan Securities, Inc.
"Total Loan Commitment" means an amount equal to the aggregate amount
of all Loan Commitments (i.e., $600,000,000).
"Total Outstanding Indebtedness" means the sum, without duplication,
of (1) Consolidated Outstanding Indebtedness; (2) Borrower's Share of UJV
Combined Outstanding Indebtedness; and (3) Contingent Obligations.
"UBS" has the meaning specified in the preamble.
"UJV Combined Outstanding Indebtedness" means, as of any time, all
indebtedness and liability for borrowed money, secured or unsecured, of the
UJV's, on a combined basis, including mortgage and other notes payable but
excluding any indebtedness which is margin indebtedness on cash and cash
equivalent securities, all as reflected in the balance sheets of each of the
UJVs, prepared in accordance with GAAP.
"UJVs" means the unconsolidated joint ventures (including general and
limited partnerships) in which Borrower owns a beneficial interest and which are
accounted for under the equity method in Borrower's Consolidated Financial
Statements.
"Unencumbered Combined EBITDA" means that portion of Combined EBITDA
attributable to Unencumbered Wholly-Owned Assets (assuming corporate overhead is
allocated proportionately to Unencumbered Wholly-Owned Assets).
"Unencumbered Wholly-Owned Assets" means income-producing assets,
reflected on Borrower's Consolidated Financial Statements, wholly owned,
directly or indirectly,
16
<PAGE> 22
by Borrower which (1) are not, and the direct or indirect interests of Borrower
therein are not, subject to any Lien to secure all or any portion of Secured
Indebtedness or any other encumbrances which, in the reasonable judgment of
Co-Agents, may diminish the value of the asset in question and (2) complies with
the occupancy requirements set forth in the immediately following sentence. In
order to qualify as an Unencumbered Wholly-Owned Asset for a particular calendar
quarter an asset must (1) have average occupancy for the twelve (12)-month
period ending with such quarter of 85% or more and (2) have average quarterly
occupancy for at least three (3) of the four (4) calendar quarters during such
twelve (12)-month period of 85% or more.
"Unsecured Debt Yield" means, for any calendar quarter, the ratio of
(1) Unencumbered Combined EBITDA for such quarter to (2) Unsecured Indebtedness
as of the end of such calendar quarter.
"Unsecured Indebtedness" means that portion of Total Outstanding
Indebtedness that is unsecured.
"Unsecured Interest Expense" means that portion of Interest Expense
relating to Unsecured Indebtedness.
Section 1.02 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP.
Section 1.03 Computation of Time Periods. Except as otherwise
provided herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".
Section 1.04 Rules of Construction. Except as provided otherwise,
when used in this Agreement (1) "or" is not exclusive; (2) a reference to a Law
includes any amendment or modification to such Law; (3) a reference to a Person
includes its permitted successors and permitted assigns; (4) all references to
the singular shall include the plural and vice versa; (5) a reference to an
agreement, instrument or document shall include such agreement, instrument or
document as the same may be amended, modified or supplemented from time to time
in accordance with its terms and as permitted by the Loan Documents; (6) all
references to Articles, Sections or Exhibits shall be to Articles, Sections and
Exhibits of this Agreement unless otherwise indicated; (7) "hereunder",
"herein", "hereof" and the like refer to this Agreement as a whole; and (8) all
Exhibits to this Agreement shall be incorporated into this Agreement.
17
<PAGE> 23
ARTICLE II
THE LOANS
Section 2.01 Ratable Loans; Bid Rate Loans; Purpose. (a) Subject to
the terms and conditions of this Agreement, the Banks agree to make loans to
Borrower as provided in this Article II.
(b) Each of the Banks severally agrees to make a loan to Borrower
(each such loan by a Bank, a "Ratable Loan") in an amount up to its Loan
Commitment pursuant to which the Bank shall from time to time advance and
re-advance to Borrower an amount equal to its Pro Rata Share of the excess (the
"Available Total Loan Commitment") of the Total Loan Commitment over the sum of
(1) all previous advances (including Bid Rate Loans and Swing Loans) made by the
Banks which remain unpaid and (2) the outstanding amount of all Letters of
Credit. Within the limits set forth herein, Borrower may borrow from time to
time under this paragraph (b) and prepay from time to time pursuant to Section
2.09 (subject, however, to the restrictions on prepayment set forth in said
Section), and thereafter re-borrow pursuant to this paragraph (b). The Ratable
Loans may be outstanding as (1) Base Rate Loans; (2) LIBOR Loans; or (3) a
combination of the foregoing, as Borrower shall elect and notify Administrative
Agent in accordance with Section 2.14. The LIBOR Loan, Bid Rate Loan and Base
Rate Loan of each Bank shall be maintained at such Bank's Applicable Lending
Office.
(c) In addition to Ratable Loans pursuant to paragraph (b) above, so
long as Borrower's Credit Rating is BBB- or better by S&P or Baa(3) or better by
Moody's, one or more Banks may, at Borrower's request and in their sole
discretion, make non-ratable loans which shall bear interest at the LIBOR Bid
Rate in accordance with Section 2.02 (such loans being referred to in this
Agreement as "Bid Rate Loans"). Borrower may borrow Bid Rate Loans from time to
time pursuant to this paragraph (c) in an amount up to the Available Total Loan
Commitment at the time of the borrowing (taking into account any repayments of
the Loans made simultaneously therewith) and shall repay such Bid Rate Loans as
required by Section 2.08, and it may thereafter re-borrow pursuant to this
paragraph (c); provided, however, that the aggregate outstanding principal
amount of Bid Rate Loans at any particular time shall not exceed the Bid
Borrowing Limit.
(d) The obligations of the Banks under this Agreement are several,
and no Bank shall be responsible for the failure of any other Bank to make any
advance of a Loan to be made by such other Bank. However, the failure of any
Bank to make any advance of the Loan to be made by it hereunder on the date
specified therefor shall not relieve any other Bank of its obligation to make
any advance of its Loan specified hereby to be made on such date.
(e) Borrower shall use the proceeds of the Loans for general capital
and working capital requirements of Borrower and its Consolidated Businesses and
UJVs (which shall include, but not be limited to, Acquisitions and/or costs
incurred in connection with the development, construction or reconstruction of
multi-family real estate properties). In no event shall proceeds of the Loans be
used in a manner that would violate Regulation U or in connection with a hostile
acquisition.
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<PAGE> 24
Section 2.02 Bid Rate Loans. (a) When Borrower wishes to request
offers from the Banks to make Bid Rate Loans, it shall transmit to
Administrative Agent by facsimile a request (a "Bid Rate Quote Request")
substantially in the form of EXHIBIT G-1 so as to be received not later than
12:00 Noon (New York time) on (x) the fifth Banking Day prior to the date for
funding of the LIBOR Bid Rate Loan(s) proposed therein in the case of a LIBOR
Auction or (y) the second Banking Day prior to the date for funding of the
Absolute Bid Rate Loan(s) proposed therein in the case of an Absolute Rate
Auction, specifying:
(1) the proposed date of funding of the Bid Rate Loan(s), which shall
be a Banking Day;
(2) the aggregate amount of the Bid Rate Loans requested, which shall
be $20,000,000 or a larger integral multiple of $500,000;
(3) the duration of the Interest Period(s) applicable thereto,
subject to the provisions of the definition of "Interest Period" in Section
1.01 and the provisions of Section 2.05; and
(4) whether the Bid Rate Quotes requested are to set forth a LIBOR
Bid Margin (to be used to compute the LIBOR Bid Rate) or an Absolute Bid
Rate.
Borrower may request offers to make Bid Rate Loans for more than one (1)
Interest Period in a single Bid Rate Quote Request. No more than two (2) Bid
Rate Quote Requests may be submitted by Borrower during any calendar month and
no more than twenty-four (24) Bid Rate Quote Requests per year may be submitted
by Borrower.
(b) Promptly (the same day, if possible) upon receipt of a Bid Rate
Quote Request, Administrative Agent shall send to the Banks by facsimile an
invitation (an "Invitation for Bid Rate Quotes") substantially in the form of
EXHIBIT G-2, which shall constitute an invitation by Borrower to the Banks to
submit Bid Rate Quotes offering to make Bid Rate Loans to which such Bid Rate
Quote Request relates in accordance with this Section.
(c) (1) Each Bank may submit a Bid Rate Quote containing an
offer or offers to make Bid Rate Loans in response to any Invitation for Bid
Rate Quotes. Each Bid Rate Quote must comply with the requirements of this
paragraph (c) and must be submitted to Administrative Agent by facsimile not
later than (x) 2:00 p.m. (New York time) on the fourth Banking Day prior to the
proposed date of the LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or
(y) 9:30 a.m. (New York time) on the Banking Day immediately preceding the
proposed date of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate
Auction; provided that Bid Rate Quotes submitted by Administrative Agent (or any
Affiliate of Administrative Agent) in its capacity as a Bank may be submitted,
and may only be submitted, if Administrative Agent or such Affiliate notifies
Borrower of the terms of the offer or offers contained therein not later than
(x) one (1) hour prior to the deadline for the other Banks in the case of a
LIBOR Auction or (y) thirty (30) minutes prior to the deadline for the other
Banks in the case of an Absolute Rate Auction. Any Bid Rate Quote so made shall
(subject to Borrower's satisfaction of the conditions precedent set forth in
this Agreement to its entitlement to an advance) be irrevocable except with the
written consent of Administrative Agent given on the
19
<PAGE> 25
instructions of Borrower. Bid Rate Loans to be funded pursuant to a Bid Rate
Quote may, as provided in Section 12.16, be funded by a Bank's Designated
Lender. A Bank making a Bid Rate Quote shall, if then known, specify in its Bid
Rate Quote whether the related Bid Rate Loans are intended to be funded by such
Bank's Designated Lender, as provided in Section 12.16, provided, however, that
whether or not the same is specified in a Bank's Bid Rate Quote, such Bank's Bid
Rate Loan(s) may be funded by its Designated Lender at the time of funding
thereof.
(2) Each Bid Rate Quote shall be in substantially the form of
EXHIBIT G-3 and shall in any case specify:
(i) the proposed date of funding of the Bid Rate Loan(s);
(ii) the principal amount of the Bid Rate Loan(s) for which each
such offer is being made, which principal amount (w) may be greater than or
less than the Loan Commitment of the quoting Bank, (x) must be in the
aggregate $20,000,000 or a larger integral multiple of $500,000, (y) may
not exceed the principal amount of Bid Rate Loans for which offers were
requested and (z) may be subject to an aggregate limitation as to the
principal amount of Bid Rate Loans for which offers being made by such
quoting Bank may be accepted;
(iii) in the case of a LIBOR Auction, the margin above or below
the applicable LIBOR Interest Rate (the "LIBOR Bid Margin") offered for
each such LIBOR Bid Rate Loan, expressed as a percentage per annum
(specified to the nearest 1/1,000th of 1%) to be added to (or subtracted
from) the applicable LIBOR Interest Rate;
(iv) in the case of an Absolute Rate Auction, the rate of
interest, expressed as a percentage per annum (specified to the nearest
1/1,000th of 1%) (the "Absolute Bid Rate"), offered for each such Absolute
Bid Rate Loan;
(v) the applicable Interest Period; and
(vi) the identity of the quoting Bank.
A Bid Rate Quote may set forth up to three (3) separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Bid Rate Quotes.
(3) Any Bid Rate Quote shall be disregarded if it:
(i) is not substantially in conformity with EXHIBIT G-3 or does
not specify all of the information required by sub-paragraph (c)(2) above;
(ii) contains qualifying, conditional or similar language
(except for an aggregate limitation as provided in sub-paragraph (c)(2)(ii)
above);
(iii) proposes terms other than or in addition to those set forth
in the applicable Invitation for Bid Rate Quotes; or
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<PAGE> 26
(iv) arrives after the time set forth in sub-paragraph (c)(1)
above.
(d) Administrative Agent shall (x) not later than 3:00 p.m. (New York
time) on the fourth Banking Day prior to the proposed date of funding of the
LIBOR Bid Rate Loan(s) in the case of a LIBOR Auction or (y) not later than
10:30 a.m. (New York time) on the Banking Day immediately preceding the proposed
date of funding of the Absolute Bid Rate Loan(s) in the case of an Absolute Rate
Auction, notify Borrower in writing of the terms of any Bid Rate Quote submitted
by a Bank that is in accordance with paragraph (c). In addition, Administrative
Agent shall, on the Banking Day of its receipt thereof, notify Borrower in
writing of any Bid Rate Quote that amends, modifies or is otherwise inconsistent
with a previous Bid Rate Quote submitted by such Bank with respect to the same
Bid Rate Quote Request. Any such subsequent Bid Rate Quote shall be disregarded
by Administrative Agent unless such subsequent Bid Rate Quote is submitted
solely to correct a manifest error in such former Bid Rate Quote. Administrative
Agent's notice to Borrower shall specify (A) the aggregate principal amount of
Bid Rate Loans for which offers have been received for each Interest Period
specified in the related Bid Rate Quote Request, (B) the respective principal
amounts, LIBOR Bid Margins and Absolute Bid Rates so offered and (C) if
applicable, limitations on the aggregate principal amount of Bid Rate Loans for
which offers in any single Bid Rate Quote may be accepted.
(e) Not later than (x) 9:30 a.m. (New York time) on the third Banking
Day prior to the proposed date of funding of the LIBOR Bid Rate Loan in the case
of a LIBOR Auction or (y) the Banking Day immediately preceding the proposed
date of funding of the Absolute Bid Rate Loan in the case of an Absolute Rate
Auction, Borrower shall notify Administrative Agent of its acceptance or
non-acceptance of the offers so notified to it pursuant to paragraph (d). A
notice of acceptance shall be substantially in the form of EXHIBIT G-4 and shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. Borrower may accept any Bid Rate Quote in whole or in part;
provided that:
(i) the principal amount of each Bid Rate Loan may not exceed
the applicable amount set forth in the related Bid Rate Quote Request or be
less than $500,000 per Bank and shall be an integral multiple of $100,000;
(ii) acceptance of offers with respect to a particular Interest
Period may only be made on the basis of ascending LIBOR Bid Margins or
Absolute Bid Rates, as the case may be, offered for such Interest Period
from the lowest effective cost; and
(iii) Borrower may not accept any offer that is described in
sub-paragraph (c)(3) or that otherwise fails to comply with the
requirements of this Agreement.
(f) If offers are made by two (2) or more Banks with the same LIBOR
Bid Margins or Absolute Bid Rates, as the case may be, for a greater aggregate
principal amount than the amount in respect of which such offers are accepted
for the related Interest Period, the principal amount of Bid Rate Loans in
respect of which such offers are accepted shall be allocated by Administrative
Agent among such Banks as nearly as possible (in multiples of $100,000, as
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Administrative Agent shall promptly (and in
any event within one (1) Banking Day after such offers are accepted) notify
Borrower and each such Bank in
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<PAGE> 27
writing of any such allocation of Bid Rate Loans. Determinations by
Administrative Agent of the allocation of Bid Rate Loans shall be conclusive in
the absence of manifest error.
(g) In the event that Borrower accepts the offer(s) contained in one
(1) or more Bid Rate Quotes in accordance with paragraph (e), the Bank(s) making
such offer(s) shall make a Bid Rate Loan in the accepted amount (as allocated,
if necessary, pursuant to paragraph (f)) on the date specified therefor, in
accordance with the procedures specified in Section 2.04, and such Bid Rate Loan
shall bear interest at the accepted LIBOR Bid Rate or Absolute Bid Rate, as the
case may be, for the applicable Interest Period.
(h) Notwithstanding anything to the contrary contained herein, each
Bank shall be required to fund its Pro Rata Share of the Available Total Loan
Commitment in accordance with Section 2.01(b) despite the fact that any Bank's
Loan Commitment may have been or may be exceeded as a result of such Bank's
making Bid Rate Loans.
(i) A Bank who is notified that it has been selected to make a Bid
Rate Loan as provided above may designate its Designated Lender (if any) to fund
such Bid Rate Loan on its behalf, as described in Section 12.16. Any Designated
Lender which funds a Bid Rate Loan shall on and after the time of such funding
become the obligee under such Bid Rate Loan and be entitled to receive payment
thereof when due. No Bank shall be relieved of its obligation to fund a Bid Rate
Loan, and no Designated Lender shall assume such obligation, prior to the time
the applicable Bid Rate Loan is funded.
(j) Administrative Agent shall promptly notify each Bank which
submitted a Bid Rate Quote of Borrower's acceptance or non-acceptance thereof.
At the request of any Bank which submitted a Bid Rate Quote, Administrative
Agent will promptly notify all Banks which submitted Bid Rate Quotes of (a) the
aggregate principal amount of, and (b) the range of Absolute Bid Rates or LIBOR
Bid Margins of, the accepted Bid Rate Loans for each requested Interest Period.
Section 2.03 Advances, Generally. The Initial Advance shall be in
the minimum amount of $500,000 and in integral multiples of $100,000 above such
amount and shall be made upon satisfaction of the conditions set forth in
Section 4.01. Subsequent advances shall be made no more frequently than weekly
thereafter, upon satisfaction of the conditions set forth in Section 4.02. The
amount of each advance subsequent to the Initial Advance shall be in the minimum
amount of $500,000 (unless less than $500,000 is available for disbursement
pursuant to the terms hereof at the time of any subsequent advance, in which
case the amount of such subsequent advance shall be equal to such remaining
availability) and in integral multiples of $100,000 above such amount.
Additional restrictions on the amounts and timing of, and conditions to the
making of, advances of Bid Rate Loans are set forth in Section 2.02.
Section 2.04 Procedures for Advances. In the case of advances of
Ratable Loans hereunder, Borrower shall submit to Administrative Agent a request
for each advance, stating the amount requested and certifying the purpose, in
general terms, for which such advance is to be used, no later than 11:00 a.m.
(New York time) on the date, in the case of advances of Base Rate Loans, which
is one (1) Banking Day, and, in the case of advances of LIBOR Loans, which is
three (3) Banking Days, prior to the date the advance is to be made. In
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<PAGE> 28
the case of advances of Swing Loans hereunder, Borrower shall submit to
Administrative Agent a request for such advance, stating the amount requested
and certifying the purpose, in general terms, for which such advance is to be
used, no later than 11:00 a.m. (New York time) on the date which is one (1)
Banking Day prior to the date the advance is to be made. In the case of advances
of Bid Rate Loans hereunder, Borrower shall submit a Bid Rate Quote Request at
the time specified in Section 2.02, accompanied by a certification of the
purpose, in general terms, for which the advance is to be used. Administrative
Agent, on the Banking Day of its receipt and approval of the request for
advance, will so notify the Banks (or, in the case of Swing Loans, the Swing
Lender) either by telephone or by facsimile. Not later than 11:00 a.m. (New York
time) on the date of each advance, each Bank (in the case of Ratable Loans) or
the applicable Bank(s) (in the case of Bid Rate Loans) or the Swing Lender (in
the case of Swing Loans) shall, through its Applicable Lending Office and
subject to the conditions of this Agreement, make the amount to be advanced by
it on such day available to Administrative Agent, at Administrative Agent's
Office and in immediately available funds for the account of Borrower. The
amount so received by Administrative Agent shall, subject to the conditions of
this Agreement, be made available to Borrower, in immediately available funds,
by Administrative Agent's crediting an account of Borrower designated by
Borrower and maintained with Administrative Agent at Administrative Agent's
Office.
Section 2.05 Interest Periods; Renewals. In the case of the LIBOR
Loans and Bid Rate Loans, Borrower shall select an Interest Period of any
duration in accordance with the definition of Interest Period in Section 1.01,
subject to the following limitations: (1) no Interest Period may extend beyond
the Maturity Date; and (2) if an Interest Period would end on a day which is not
a Banking Day, such Interest Period shall be extended to the next Banking Day,
unless such Banking Day would fall in the next calendar month, in which event
such Interest Period shall end on the immediately preceding Banking Day. Only
twelve (12) discrete segments of a Bank's Ratable Loan bearing interest at a
LIBOR Interest Rate, for a designated Interest Period, pursuant to a particular
Election, Conversion or Continuation, may be outstanding at any one time (each
such segment of each Bank's Ratable Loan corresponding to a proportionate
segment of each of the other Banks' Ratable Loans).
Upon notice to Administrative Agent as provided in Section 2.14,
Borrower may Continue any LIBOR Loan on the last day of the Interest Period of
the same or different duration in accordance with the limitations provided
above. If Borrower shall fail to give notice to Administrative Agent of such a
Continuation, such LIBOR Loan shall automatically become a LIBOR Loan with an
Interest Period of one (1) month on the last day of the current Interest Period.
Administrative Agent shall notify each of the Banks, either by telephone or by
facsimile, at least two (2) Banking Days prior to the termination of the
Interest Period in question in the event of such failure by Borrower to give
such notice of Continuation.
Section 2.06 Interest. Borrower shall pay interest to
Administrative Agent for the account of the applicable Bank on the outstanding
and unpaid principal amount of the Loans, at a rate per annum as follows: (1)
for Base Rate Loans at a rate equal to the Base Rate plus the Applicable Margin;
(2) for LIBOR Loans at a rate equal to the applicable LIBOR Interest Rate plus
the Applicable Margin; (3) for LIBOR Bid Rate Loans at a rate equal to the
applicable LIBOR Bid Rate; (4) for Absolute Bid Rate Loans at a rate equal to
the applicable Absolute Bid Rate; and (5) for Swing Loans at a three (3)-day
LIBOR rate, as determined by the Swing
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Lender. Any principal amount not paid when due (when scheduled, at acceleration
or otherwise) shall bear interest thereafter, payable on demand, at the Default
Rate.
The interest rate on Base Rate Loans shall change when the Base Rate
changes. Interest on Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing
Loans shall not exceed the maximum amount permitted under applicable law.
Interest shall be calculated for the actual number of days elapsed on the basis
of, in the case of Base Rate Loans, LIBOR Loans, Bid Rate Loans and Swing Loans,
three hundred sixty (360) days.
Accrued interest shall be due and payable in arrears upon and with
respect to any payment or prepayment of principal and, (x) in the case of Base
Rate Loans, LIBOR Loans and Swing Loans, on the first Banking Day of each
calendar month and (y) in the case of Bid Rate Loans, at the expiration of the
Interest Period applicable thereto; provided, however, that interest accruing at
the Default Rate shall be due and payable on demand.
Section 2.07 Fees. (a) Borrower agrees to pay to and for the
accounts of the parties specified therein, the fees provided for in the
Supplemental Fee Letter.
(b) Borrower shall pay to Administrative Agent for the account of
each Bank a facility fee computed on the daily Loan Commitment of such Bank
(irrespective of usage) at a rate per annum equal to the daily Facility Fee
Rate, calculated on the basis of a year of three hundred sixty (360) days for
the actual number of days elapsed. The accrued facility fee shall be due and
payable quarterly in arrears on the tenth (10th) day of October, January, April
and July of each year, commencing on the first such date after the Closing Date,
and upon the Maturity Date (as stated or by acceleration or otherwise) or
earlier termination of the Loan Commitments.
Section 2.08 Notes. The Ratable Loan made by each Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of Borrower in the form of EXHIBIT B duly completed and
executed by Borrower, in the principal amount equal to such Bank's Loan
Commitment, payable to such Bank for the account of its Applicable Lending
Office (each such note, as the same may hereafter be amended, modified,
extended, severed, assigned, renewed or restated from time to time, including
any substitute notes pursuant to Section 3.07 or 12.05, a "Ratable Loan Note").
The Bid Rate Loans of the Banks shall be evidenced by a single global promissory
note of Borrower, in the form of EXHIBIT B-1, duly completed and executed by
Borrower, in the principal amount of $400,000,000, payable to Administrative
Agent for the account of the respective Banks making Bid Rate Loans (such note,
as the same may hereafter be amended, modified, extended, severed, assigned,
substituted, renewed or restated from time to time, the "Bid Rate Loan Note").
The Swing Loan of the Swing Lender shall be evidenced by, and repaid with
interest in accordance with, a promissory note of Borrower, in the form of
EXHIBIT B-2, duly completed and executed by Borrower, payable to the Swing
Lender (such note, as the same may hereafter be amended, modified extended,
severed, assigned, substituted, renewed or restated from time to time, the
"Swing Loan Note"). A particular Bank's Ratable Loan Note, together with its
interest, if any, in the Bid Rate Loan Note, and, in the case of the Swing
Lender, the Swing Loan Note, are referred to collectively in this Agreement as
such Bank's "Note"; all such Ratable Loan Notes and interests and Swing Loan
Notes are referred to collectively in this Agreement as the "Notes". The Ratable
Loan Notes shall mature, and all outstanding principal
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<PAGE> 30
and accrued interest and other sums thereunder shall be paid in full, on the
Maturity Date, as the same may be accelerated. The outstanding principal amount
of each Bid Rate Loan evidenced by the Bid Rate Loan Note, and all accrued
interest and other sums with respect thereto, shall become due and payable to
the Bank making such Bid Rate Loan at the earlier of the expiration of the
Interest Period applicable thereto or the Maturity Date, as the same may be
accelerated. Principal amounts evidenced by the Swing Loan Notes shall become
due and payable three (3) Banking Days after said amounts are advanced.
Each Bank is hereby authorized by Borrower to endorse on the schedule
attached to the Ratable Loan Note held by it, the amount of each advance and
each payment of principal received by such Bank for the account of its
Applicable Lending Office(s) on account of its Ratable Loan, which endorsement
shall, in the absence of manifest error, be conclusive as to the outstanding
balance of the Ratable Loan made by such Bank. The Swing Lender is hereby
authorized by Borrower to endorse on the schedule attached to the Swing Loan
Note held by it, the amount of each advance and each payment of principal
received by the Swing Lender for the account of its Applicable Lending Office(s)
on account of its Swing Loan, which endorsement shall, in the absence of
manifest error, be conclusive as to the outstanding balance of the Swing Loan
made by the Swing Lender. Administrative Agent is hereby authorized by Borrower
to endorse on the schedule attached to the Bid Rate Loan Note the amount of each
LIBOR Bid Rate Loan and/or Absolute Bid Rate Loan, the name of the Bank making
the same, the date of the advance thereof, the interest rate applicable thereto
and the expiration of the Interest Period applicable thereto (i.e., the maturity
date thereof). The failure by Administrative Agent or any Bank to make such
notations with respect to the Loans or each advance or payment shall not limit
or otherwise affect the obligations of Borrower under this Agreement or the
Notes.
In case of any loss, theft, destruction or mutilation of any Bank's
Note, Borrower shall, upon its receipt of an affidavit of an officer of such
Bank as to such loss, theft, destruction or mutilation and an appropriate
indemnification, execute and deliver a replacement Note to such Bank in the same
principal amount and otherwise of like tenor as the lost, stolen, destroyed or
mutilated Note.
Section 2.09 Prepayments. Without prepayment premium or penalty but
subject to Section 3.05, Borrower may, upon at least one (1) Banking Day's
notice to Administrative Agent in the case of the Base Rate Loans and Swing
Loans, and at least three (3) Banking Days' notice to Administrative Agent in
the case of LIBOR Loans, prepay the Ratable Loans, provided that (1) any partial
prepayment under this Section shall be in integral multiples of $500,000; (2) a
LIBOR Loan or Swing Loan may be prepaid at any time, subject, however, to the
provisions of Section 3.05; and (3) each prepayment under this Section shall
include all interest accrued on the amount of principal prepaid through the date
of prepayment. Prepayment of Bid Rate Loans shall not be permitted.
Section 2.10 Cancellation of Commitments. (a) At any time, Borrower
shall have the right, without premium or penalty, to terminate any unused Loan
Commitments or unused commitment of the Swing Lender to make Swing Loans, in
whole or in part, from time to time, provided that: (1) Borrower shall give
notice of each such termination to Administrative Agent and the Swing Lender, if
applicable, no later then 10:00 a.m. (New York time) on the date which is
fifteen (15) Banking Days prior to the effectiveness of such termination; (2)
the Loan Commitments of each of the Banks, or Swing Lender, as applicable, must
be terminated ratably and simultaneously with those of the other Banks, or Swing
Lender, as applicable; and (3) each partial termination of the Loan Commitments,
or commitments to make Swing Loans, as a whole (and corresponding reduction of
the Total Loan Commitment) shall be in an integral multiple of $1,000,000.
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(b) The Loan Commitments, to the extent terminated, may not be
reinstated.
Section 2.11 Method of Payment. Borrower shall make each payment
under this Agreement and under the Notes not later than 11:00 a.m. (New York
time) on the date when due in Dollars to Administrative Agent at Administrative
Agent's Office in immediately available funds. Administrative Agent will
thereafter, on the day of its receipt of each such payment, cause to be
distributed to each Bank (1) such Bank's appropriate share (based upon the
respective outstanding principal amounts and rate(s) of interest under the Notes
of the Banks) of the payments of principal and interest in like funds for the
account of such Bank's Applicable Lending Office; and (2) fees payable to such
Bank in accordance with the terms of this Agreement. In the event Administrative
Agent fails to pay funds received from Borrower to the Banks on the date on
which Borrower is credited with payment, Administrative Agent shall pay interest
on such amounts at the Federal Funds Rate until such payment to the Banks is
made. Borrower hereby authorizes Administrative Agent and the Banks, if and to
the extent payment by Borrower is not made when due under this Agreement or
under the Notes, to charge from time to time against any account Borrower
maintains with Administrative Agent or any Bank any amount so due to
Administrative Agent and/or the Banks.
Except to the extent provided in this Agreement, whenever any payment
to be made under this Agreement or under the Notes is due on any day other than
a Banking Day, such payment shall be made on the next succeeding Banking Day,
and such extension of time shall in such case be included in the computation of
the payment of interest and other fees, as the case may be.
Section 2.12 Elections, Conversions or Continuation of Loans.
Subject to the provisions of Article III and Sections 2.05 and 2.13, Borrower
shall have the right to Elect to have all or a portion of any advance of the
Ratable Loans be LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans, to
Convert LIBOR Loans into Base Rate Loans, or to Continue LIBOR Loans as LIBOR
Loans, at any time or from time to time, provided that (1) Borrower shall give
Administrative Agent notice of each such Election, Conversion or Continuation as
provided in Section 2.14; and (2) a LIBOR Loan may be Converted or Continued
only on the last day of the applicable Interest Period for such LIBOR Loan.
Except as otherwise provided in this Agreement, each Election, Continuation and
Conversion shall be applicable to each Bank's Ratable Loan in accordance with
its Pro Rata Share.
Section 2.13 Minimum Amounts. With respect to the Ratable Loans as
a whole, each Election and each Conversion shall be in an amount at least equal
to $1,000,000 and in integral multiples of $500,000.
Section 2.14 Certain Notices Regarding Elections, Conversions and
Continuations of Loans. Notices by Borrower to Administrative Agent of
Elections, Conversions and Continuations of LIBOR Loans shall be irrevocable and
shall be effective only if received by Administrative Agent not later than 10:30
a.m. (New York time) on the number of Banking Days prior to the date of the
relevant Election, Conversion or Continuation specified below:
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<TABLE>
<CAPTION>
Number of Banking
Notice Days Prior
------ -----------------
<S> <C>
Conversions into Base Rate
Loans two (2)
Elections of, Conversions into or
Continuations as, LIBOR Loans three (3)
</TABLE>
Promptly following its receipt of any such notice, and no later than the close
of business on the Banking Day of such receipt, Administrative Agent shall so
advise the Banks either by telephone or by facsimile. Each such notice of
Election shall specify the portion of the amount of the advance that is to be
LIBOR Loans (subject to Section 2.13) and the duration of the Interest Period
applicable thereto (subject to Section 2.05); each such notice of Conversion
shall specify the LIBOR Loans or Base Rate Loans to be Converted; and each such
notice of Conversion or Continuation shall specify the date of Conversion or
Continuation (which shall be a Banking Day), the amount thereof (subject to
Section 2.13) and the duration of the Interest Period applicable thereto
(subject to Section 2.05). In the event that Borrower fails to Elect to have any
portion of an advance of the Ratable Loans be LIBOR Loans, the entire amount of
such advance shall constitute Base Rate Loans. In the event that Borrower fails
to Continue LIBOR Loans within the time period and as otherwise provided in this
Section, such LIBOR Loans will automatically become LIBOR Loans with an Interest
Period of one (1) month on the last day of the then current applicable Interest
Period for such LIBOR Loans. Administrative Agent shall notify each of the
Banks, either by telephone or by facsimile, at least two (2) Banking Days prior
to the termination of the Interest Period in question in the event of such
failure by Borrower.
Section 2.15 Late Payment Premium. Borrower shall, at
Administrative Agent's option and upon notice to Borrower, pay to Administrative
Agent for the account of the Banks a late payment premium in the amount of 4% of
any payments of interest under the Loans made more than ten (10) days after the
due date thereof, which shall be due with any such late payment.
Section 2.16 Letters of Credit. (a) Borrower, by notice to
Administrative Agent, may request, in lieu of advances of proceeds of the
Ratable Loans, that Administrative Agent issue unconditional, irrevocable
standby letters of credit (each, a "Letter of Credit") for the account of
Borrower, payable by sight drafts, for such beneficiaries and with such other
terms as Borrower shall specify. Promptly upon issuance of a Letter of Credit,
Administrative Agent shall notify each of the Banks.
(b) The amount of any Letter of Credit shall be limited to the lesser
of (x) $75,000,000 less the aggregate amount of all Letters of Credit
theretofore issued or (y) the Available Total Loan Commitment, it being
understood that the amount of each Letter of Credit issued and outstanding shall
effect a reduction, by an equal amount, of the Available Total Loan Commitment
(such reduction to be allocated to each Bank's Ratable Loan ratably in
accordance with the Banks' respective Pro Rata Shares).
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<PAGE> 33
(c) The amount of each Letter of Credit shall be further subject to
the limitations applicable to amounts of advances set forth in Section 2.03 and
the procedures for the issuance of each Letter of Credit shall be the same as
the procedures applicable to the making of advances as set forth in the first
sentence of Section 2.04. Administrative Agent's issuance of each Letter of
Credit shall be subject to Administrative Agent's determination that Borrower
has satisfied all conditions precedent to its entitlement to an advance of
proceeds of the Loans.
(d) Each Letter of Credit shall expire no later than one (1) month
prior to the Maturity Date, but may have a so-called "evergreen" clause allowing
for the extension of the expiration date thereof upon the extension of the
Maturity Date pursuant to Section 2.19.
(e) In connection with, and as a further condition to the issuance
of, each Letter of Credit, Borrower shall execute and deliver to Administrative
Agent an application for the Letter of Credit on Administrative Agent's standard
form therefor, together with such other documents, opinions and assurances as
Administrative Agent shall reasonably require.
(f) In connection with each Letter of Credit, Borrower hereby
covenants to pay to Administrative Agent the following fees: (1) a fee, payable
quarterly in arrears (on the first Banking Day of each calendar quarter
following the issuance of the Letter of Credit), for the account of the Banks,
computed daily on the amount of the Letter of Credit issued and outstanding at a
rate per annum equal to the "Banks' L/C Fee Rate" (as hereinafter defined) and
(2) the fee, for Administrative Agent's own account, required by the
Supplemental Fee Letter between Borrower and Fleet. For purposes of this
Agreement, the "Banks' L/C Fee Rate" shall mean, at any time, a rate per annum
equal to the Applicable Margin for LIBOR Loans less 0.125% per annum. It is
understood and agreed that the last installment of the fees provided for in this
paragraph (f) with respect to any particular Letter of Credit shall be due and
payable on the first day of the calendar quarter following the return, undrawn,
or cancellation of such Letter of Credit and Borrower's receipt of notice from
Administrative Agent.
(g) The parties hereto acknowledge and agree that, immediately upon
notice from Administrative Agent of any drawing under a Letter of Credit, each
Bank shall, notwithstanding the existence of a Default or Event of Default or
the non-satisfaction of any conditions precedent to the making of an advance of
the Loans, advance proceeds of its Ratable Loan, in an amount equal to its Pro
Rata Share of such drawing, which advance shall be made to Administrative Agent
to reimburse Administrative Agent, for its own account, for such drawing. Each
of the Banks further acknowledges that its obligation to fund its Pro Rata Share
of drawings under Letters of Credit as aforesaid shall survive the Banks'
termination of this Agreement or enforcement of remedies hereunder or under the
other Loan Documents.
(h) Borrower agrees, upon the occurrence of an Event of Default and
at the written request of Administrative Agent, (1) to deposit with
Administrative Agent cash collateral in the amount of all the outstanding
Letters of Credit, which cash collateral shall be held by Administrative Agent
as security for Borrower's obligations in connection with the Letters of Credit
and (2) to execute and deliver to Administrative Agent such documents as
Administrative Agent reasonably requests to confirm and perfect the assignment
of such cash collateral to Administrative Agent.
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Section 2.17 Intentionally Omitted.
Section 2.18 Swing Loans. (a) During the term of this Agreement,
the Swing Lender agrees, on the terms and conditions set forth in this
Agreement, to make advances to Borrower pursuant to this Section from time to
time in amounts such that (i) the aggregate of such advance and amount of Swing
Loans theretofore advanced and still outstanding does not at any time exceed the
Swing Loan Commitment and (ii) the amount of such advance does not exceed the
Available Total Loan Commitment. Each advance under this Section shall be in an
aggregate principal amount of $1,000,000 or a larger multiple of $100,000
(except that any such advance may be in the aggregate available amount of Swing
Loans determined in accordance with the immediately preceding sentence). With
the foregoing limits, Borrower may borrow under this Section, repay or, to the
extent permitted by Section 2.09, prepay Swing Loans and reborrow under this
Section at any time during the term of this Agreement.
(b) The Swing Lender shall, on behalf of Borrower (which hereby
irrevocably directs the Swing Lender to act on its behalf), on notice given by
the Swing Lender no later than 1:00 p.m. (New York time) on the Banking Day
immediately following the funding of any Swing Loan, request each Bank to make,
and each Bank hereby agrees to make, an advance of its Ratable Loan, in an
amount (with respect to each Bank, its "Swing Loan Refund Amount") equal to such
Bank's Pro Rata Share of the aggregate principal amount of the Swing Loans (the
"Refunded Swing Loans") outstanding on the date of such notice, to repay the
Swing Lender. Unless any of the events described in paragraph (5) of Section
9.01 with respect to Borrower shall have occurred and be continuing (in which
case the procedures of paragraph (c) of this Section shall apply), each Bank
shall make such advance of its Ratable Loan available to Administrative Agent at
Administrative Agent's Office in immediately available funds, not later than
1:00 p.m. (New York time), on the third Banking Day immediately following the
date of such notice. Administrative Agent shall pay the proceeds of such advance
of Ratable Loans to the Swing Lender, which shall immediately apply such
proceeds to repay Refunded Swing Loans. Effective on the day such advances of
Ratable Loans are made, the portion of the Swing Loans so paid shall no longer
be outstanding as Swing Loans, shall no longer be due as Swing Loans under the
Swing Loan Note held by the Swing Lender, and shall be due as Ratable Loans
under the respective Ratable Loan Notes issued to the Banks (including the Swing
Lender). Borrower authorizes the Swing Lender to charge Borrower's accounts with
Administrative Agent (up to the amount available in each such accounts) in order
to immediately pay the amount of such Refunded Swing Loans to the extent amounts
received from the Banks are not sufficient to repay in full such Refunded Swing
Loans.
(c) If, prior to the time advances of Ratable Loans would have
otherwise been made pursuant to paragraph (b) of this Section, one of the events
described in paragraph (5) of Section 9.01 with respect to the Borrower shall
have occurred and be continuing, each Bank shall, on the date such advances were
to have been made pursuant to the notice referred to in paragraph (b) of this
Section (the "Refunding Date"), purchase an undivided participating interest in
the Swing Loans in an amount equal to such Bank's Swing Loan Refund Amount. On
the Refunding Date, each Bank shall transfer to the Swing Lender, in immediately
available funds, such Bank's Swing Loan Refund Amount, and upon receipt thereof,
the Swing Lender shall deliver to such Bank a Swing Loan participation
certificate dated the date of the Swing Lender's receipt of such funds and in
the Swing Loan Refund Amount of such Bank.
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(d) Whenever, at any time after the Swing Lender has received from
any Bank such Bank's Swing Loan Refund Amount pursuant to paragraph (c) of this
Section, the Swing Lender receive any payment on account of the Swing Loans in
which the Banks have purchased participations pursuant to said paragraph (c),
the Swing Lender will promptly distribute to each such Bank its ratable share
(determined on the basis of the Swing Loan Refund Amounts of all of the Banks)
of such payment (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Bank's participating interest was
outstanding and funded); provided, however, that in the event that such payment
received by the Swing Lender is required to be returned, such Bank will return
to the Swing Lender any portion thereof previously distributed to it by the
Swing Lender.
(e) Each Bank's obligation to transfer the amount of a Loan to the
Swing Lender as provided in paragraph (b) of this Section or to purchase a
participating interest pursuant to paragraph (c) of this Section shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank, Borrower or any other Person may have
against the Swing Lender or any other Person, (ii) the occurrence or continuance
of a Default or an Event of Default, the termination or reduction of the Loan
Commitments or the non-satisfaction of any condition precedent to the making of
any advance of the Loans, (iii) any adverse change in the condition (financial
or otherwise) of Borrower or any other Person, (iv) any breach of this Agreement
by Borrower, any other Bank or any other Person or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(f) Notwithstanding anything above in this Section or elsewhere in
this Agreement to the contrary, in the event that the Swing Lender funds a Swing
Loan hereunder when it has actual knowledge that a monetary Default, or material
Event of Default (which, for the avoidance of doubt shall include any violation
of any provision of Article VII or Article VIII) has occurred and is continuing,
the Banks shall have the option to make Ratable Loans to fund their ratable
shares of such Swing Loan as contemplated in paragraph (b) of this Section or to
purchase participations as contemplated in paragraph (c) of this Section.
(g) For purposes of Article III, Swing Loans shall be deemed to be
LIBOR Loans.
Section 2.19 Extension Of Maturity. (a) Borrower shall have the
option (the "Extension Option") to extend the original Maturity Date for a
period of one (1) year. Subject to the conditions set forth below, Borrower may
exercise the Extension Option by delivering a written notice to Administrative
Agent not less than one hundred twenty (120) days prior to the original Maturity
Date (a "Notice to Extend"), stating that Borrower has elected to extend the
original Maturity Date for one (1) year. Borrower's delivery of the Notice to
Extend shall be irrevocable and Borrower's right to exercise the Extension
Option shall be subject to the following terms and conditions: (i) there shall
exist no Event of Default on both the date Borrower delivers the Notice to
Extend to Administrative Agent and on the original Maturity Date, (ii) Borrower
shall have paid to Administrative Agent for the account of each Bank an
extension fee equal to 0.10% of such Bank's Loan Commitment simultaneously with
delivery of the Notice to Extend and (iii) Borrower shall be in compliance with
the covenants contained in Articles VII and VIII.
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(b) If Borrower shall have effectively exercised the Extension Option
pursuant to paragraph (a) above, Borrower may request a one-year extension of
the Maturity Date, as so extended, by delivering a written request therefor to
Administrative Agent not more than six (6) months or less than one hundred
twenty (120) days prior to such Maturity Date (a "Request to Extend").
Administrative Agent shall notify the Banks of its receipt of the Request to
Extend and each Bank shall give notice in writing to Administrative Agent not
less than ninety (90) days prior to the Maturity Date to be extended of such
Bank's acceptance or rejection of such Request to Extend. If all the Banks shall
have notified Administrative Agent on or prior to the date which is ninety (90)
days prior to the Maturity Date to be extended that they accept such request,
the Maturity Date shall be extended for one (1) year. If any Bank shall not have
notified Administrative Agent on or prior to the date which is ninety (90) days
prior to the Maturity Date to be extended that it accepts such Request to
Extend, the Maturity Date shall not be extended. Administrative Agent shall
notify Borrower and the Banks whether the Request to Extend has been accepted by
all of the Banks. If the Request to Extend is accepted by all of the Banks, the
Maturity Date shall be extended for one (1) year. The effectiveness of the
acceptance of the Request to Extend shall be subject to the following terms and
conditions: (i) there shall exist no Event of Default on both the date Borrower
delivers the Request to Extend to Administrative Agent and on the Maturity Date
to be extended, (ii) Borrower shall pay to Administrative Agent for the account
of each Bank an extension fee equal to 0.10% of such Bank's Loan Commitment
within five (5) Banking Days after receipt of notice from Administrative Agent
that the Request to Extend has been accepted by all of the Banks and (iii)
Borrower shall be in compliance with the covenants contained in Articles VII and
VIII.
ARTICLE III
YIELD PROTECTION; ILLEGALITY, ETC.
Section 3.01 Additional Costs. Borrower shall pay directly to each
Bank from time to time on demand such amounts as such Bank may determine to be
necessary to compensate it for any increased costs which such Bank determines
are attributable to its making or maintaining a LIBOR Loan or a LIBOR Bid Rate
Loan, or its obligation to make or maintain a LIBOR Loan or a LIBOR Bid Rate
Loan, or its obligation to Convert a Base Rate Loan to a LIBOR Loan hereunder,
or any reduction in any amount receivable by such Bank hereunder in respect of
its LIBOR Loan or LIBOR Bid Rate Loan(s) or such obligations (such increases in
costs and reductions in amounts receivable being herein called "Additional
Costs"), in each case resulting from any Regulatory Change which:
(1) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or the Notes in respect of any such LIBOR Loan or
LIBOR Bid Rate Loan (other than changes in the rate of general corporate,
franchise, branch profit, net income or other income tax imposed on such
Bank or its Applicable Lending Office by the jurisdiction in which such
Bank has its principal office or such Applicable Lending Office); or
(2) (other than to the extent the LIBOR Reserve Requirement is taken
into account in determining the LIBOR Rate at the commencement of the
applicable Interest Period) imposes or modifies any reserve, special
deposit, deposit insurance or
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assessment, minimum capital, capital ratio or similar requirements relating
to any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Bank (including any LIBOR Loan or LIBOR Bid Rate
Loan or any deposits referred to in the definition of "LIBOR Interest Rate"
in Section 1.01), or any commitment of such Bank (including such Bank's
Loan Commitment hereunder); or
(3) imposes any other condition affecting this Agreement or the Notes
(or any of such extensions of credit or liabilities).
Without limiting the effect of the provisions of the first paragraph
of this Section, in the event that, by reason of any Regulatory Change, any Bank
either (1) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits of other liabilities of
such Bank which includes deposits by reference to which the LIBOR Interest Rate
is determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes loans based on the LIBOR
Interest Rate or (2) becomes subject to restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if such Bank so
elects by notice to Borrower (with a copy to Administrative Agent), the
obligation of such Bank to permit Elections of, to Continue, or to Convert Base
Rate Loans into, LIBOR Loans shall be suspended (in which case the provisions of
Section 3.04 shall be applicable) until such Regulatory Change ceases to be in
effect.
Determinations and allocations by a Bank for purposes of this Section
of the effect of any Regulatory Change pursuant to the first or second paragraph
of this Section, on its costs or rate of return of making or maintaining its
Loan or portions thereof or on amounts receivable by it in respect of its Loan
or portions thereof, and the amounts required to compensate such Bank under this
Section, shall be included in a calculation of such amounts given to Borrower
and shall be conclusive absent manifest error.
Section 3.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of the LIBOR
Interest Rate for any Interest Period:
(1) Administrative Agent reasonably determines (which determination
shall be conclusive), and provides Borrower, in writing, with reasonable
detail supporting such determination, that quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR Interest
Rate" in Section 1.01 are not being provided in the relevant amounts or for
the relevant maturities for purposes of determining rates of interest for
the LIBOR Loans or LIBOR Bid Rate Loans as provided in this Agreement; or
(2) a Bank reasonably determines (which determination shall be
conclusive), and provides Borrower, in writing, with reasonable detail
supporting such determination, and promptly notifies Administrative Agent
that the relevant rates of interest referred to in the definition of "LIBOR
Interest Rate" in Section 1.01 upon the basis of which the rate of interest
for LIBOR Loans or LIBOR Bid Rate Loans for such Interest Period is to be
determined do not adequately cover the cost to such Bank of making or
maintaining such LIBOR Loan or LIBOR Bid Rate Loan for such Interest
Period;
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then Administrative Agent shall give Borrower prompt notice thereof, and so long
as such condition remains in effect, the Banks (or, in the case of the
circumstances described in clause (2) above, the affected Bank) shall be under
no obligation to permit Elections of LIBOR Loans, to Convert Base Rate Loans
into LIBOR Loans or to Continue LIBOR Loans and Borrower shall, on the last
day(s) of the then current Interest Period(s) for the affected outstanding LIBOR
Loans or LIBOR Bid Rate Loans, either (x) prepay the affected LIBOR Loans or
LIBOR Bid Rate Loans or (y) Convert the affected LIBOR Loans into Base Rate
Loans in accordance with Section 2.12 or convert the rate of interest under the
affected LIBOR Bid Rate Loans to the rate applicable to Base Rate Loans by
following the same procedures as are applicable for Conversions into Base Rate
Loans set forth in Section 2.12.
Section 3.03 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to honor its obligation to make or maintain a LIBOR
Loan or LIBOR Bid Rate Loan hereunder, to allow Elections of a LIBOR Loan or to
Convert a Base Rate Loan into a LIBOR Loan, then such Bank shall promptly notify
Administrative Agent and Borrower thereof and such Bank's obligation to make or
maintain a LIBOR Loan or LIBOR Bid Rate Loan, or to permit Elections of, to
Continue, or to Convert its Base Rate Loan into, a LIBOR Loan shall be suspended
(in which case the provisions of Section 3.04 shall be applicable) until such
time as such Bank may again make and maintain a LIBOR Loan or a LIBOR Bid Rate
Loan.
Section 3.04 Treatment of Affected Loans. If the obligations of any
Bank to make or maintain a LIBOR Loan or a LIBOR Bid Rate Loan, or to permit an
Election of a LIBOR Loan, to Continue its LIBOR Loan, or to Convert its Base
Rate Loan into a LIBOR Loan, are suspended pursuant to Sections 3.01 or 3.03
(each LIBOR Loan or LIBOR Bid Rate Loan so affected being herein called an
"Affected Loan"), such Bank's Affected Loan shall be automatically Converted
into a Base Rate Loan (or, in the case of an Affected Loan that is a LIBOR Bid
Rate Loan, the interest rate thereon shall be converted to the rate applicable
to Base Rate Loans) on the last day of the then current Interest Period for the
Affected Loan (or, in the case of a Conversion (or conversion) required by
Sections 3.01 or 3.03, on such earlier date as such Bank may specify to
Borrower).
To the extent that such Bank's Affected Loan has been so Converted
(or the interest rate thereon so converted), all payments and prepayments of
principal which would otherwise be applied to such Bank's Affected Loan shall be
applied instead to its Base Rate Loan (or to its LIBOR Bid Rate Loan bearing
interest at the converted rate) and such Bank shall have no obligation to
Convert its Base Rate Loan into a LIBOR Loan.
Section 3.05 Certain Compensation. Other than in connection with a
Conversion of an Affected Loan, Borrower shall pay to Administrative Agent for
the account of the applicable Bank, upon the request of such Bank through
Administrative Agent which request includes a calculation of the amount(s) due,
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense which such Bank reasonably
determines is attributable to:
(1) any payment or prepayment of a LIBOR Loan or Bid Rate Loan made
by such Bank, or any Conversion or Continuation of a LIBOR Loan made by
such Bank, in any
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such case on a date other than the last day of an applicable Interest
Period, whether by reason of acceleration or otherwise; or
(2) any failure by Borrower for any reason to Convert or Continue a
LIBOR Loan to be Converted or Continued by such Bank on the date specified
there for in the relevant notice under Section 2.14; or
(3) any failure by Borrower to borrow (or to qualify for a borrowing
of) a LIBOR Loan or Bid Rate Loan which would otherwise be made hereunder
on the date specified in the relevant Election notice under Section 2.14 or
Bid Rate Quote acceptance under Section 2.02(e) given or submitted by
Borrower.
Without limiting the foregoing, such compensation shall include any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after the date of such
payment, prepayment, Conversion or Continuation (or failure to Convert, Continue
or borrow). A determination of any Bank as to the amounts payable pursuant to
this Section shall be conclusive absent manifest error.
Section 3.06 Capital Adequacy. If any Bank shall have determined
that, after the date hereof, the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within
fifteen (15) days after demand by such Bank (with a copy to Administrative
Agent), Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank (or its Parent) for such reduction. A certificate of
any Bank claiming compensation under this Section, setting forth in reasonable
detail the basis therefor, shall be conclusive absent manifest error.
Section 3.07 Substitution of Banks. If any Bank (an "Affected
Bank") (1) makes demand upon Borrower for (or if Borrower is otherwise required
to pay) Additional Costs pursuant to Section 3.01 or (2) is unable to make or
maintain a LIBOR Loan or LIBOR Bid Rate Loan as a result of a condition
described in Section 3.03 or clause (2) of Section 3.02, Borrower may, within
ninety (90) days of receipt of such demand or notice (or the occurrence of such
other event causing Borrower to be required to pay Additional Costs or causing
said Section 3.03 or clause (2) of Section 3.02 to be applicable), as the case
may be, give written notice (a "Replacement Notice") to Administrative Agent and
to each Bank of Borrower's intention either (x) to prepay in full the Affected
Bank's Note and to terminate the Affected Bank's entire Loan Commitment or (y)
to replace the Affected Bank with another financial institution (the
"Replacement Bank") designated in such Replacement Notice.
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In the event Borrower opts to give the notice provided for in clause
(x) above, and if the Affected Bank shall not agree within thirty (30) days of
its receipt thereof to waive the payment of the Additional Costs in question or
the effect of the circumstances described in Section 3.03 or clause (2) of
Section 3.02, then, so long as no Default or Event of Default shall exist,
Borrower may (notwithstanding the provisions of clause (2) of Section 2.10(a))
terminate the Affected Bank's entire Loan Commitment, provided that in
connection therewith it pays to the Affected Bank all outstanding principal and
accrued and unpaid interest under the Affected Bank's Note, together with all
other amounts, if any, due from Borrower to the Affected Bank, including all
amounts properly demanded and unreimbursed under Sections 3.01 and 3.05.
In the event Borrower opts to give the notice provided for in clause
(y) above, and if (i) Administrative Agent shall, within thirty (30) days of its
receipt of the Replacement Notice, notify Borrower and each Bank in writing that
the Replacement Bank is reasonably satisfactory to Administrative Agent and (ii)
the Affected Bank shall not, prior to the end of such thirty (30)-day period,
agree to waive the payment of the Additional Costs in question or the effect of
the circumstances described in Section 3.03 or clause (2) of Section 3.02, then
the Affected Bank shall, so long as no Default or Event of Default shall exist,
assign its Note and all of its rights and obligations under this Agreement to
the Replacement Bank, and the Replacement Bank shall assume all of the Affected
Bank's rights and obligations, pursuant to an agreement, substantially in the
form of an Assignment and Assumption Agreement, executed by the Affected Bank
and the Replacement Bank. In connection with such assignment and assumption, the
Replacement Bank shall pay to the Affected Bank an amount equal to the
outstanding principal amount under the Affected Bank's Note plus all interest
accrued thereon, plus all other amounts, if any (other than the Additional Costs
in question), then due and payable to the Affected Bank; provided, however, that
prior to or simultaneously with any such assignment and assumption, Borrower
shall have paid to such Affected Bank all amounts properly demanded and
unreimbursed under Sections 3.01 and 3.05. Upon the effective date of such
assignment and assumption, the Replacement Bank shall become a Bank Party to
this Agreement and shall have all the rights and obligations of a Bank as set
forth in such Assignment and Assumption Agreement, and the Affected Bank shall
be released from its obligations hereunder, and no further consent or action by
any party shall be required. Upon the consummation of any assignment pursuant to
this Section, a substitute Ratable Loan Note (and, if applicable, Swing Loan
Note) shall be issued to the Replacement Bank by Borrower, in exchange for the
return of the Affected Bank's Ratable Loan Note (and, if applicable, Swing Loan
Note). The obligations evidenced by such substitute note shall constitute
"Obligations" for all purposes of this Agreement and the other Loan Documents.
In connection with Borrower's execution of substitute notes as aforesaid,
Borrower shall deliver to Administrative Agent evidence, satisfactory to
Administrative Agent, of all requisite corporate action to authorize Borrower's
execution and delivery of the substitute notes and any related documents. If the
Replacement Bank is not incorporated under the laws of the United States of
America or a state thereof, it shall, prior to the first date on which interest
or fees are payable hereunder for its account, deliver to Borrower and
Administrative Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section 10.13. Each
Replacement Bank shall be deemed to have made the representations contained in,
and shall be bound by the provisions of, Section 10.13.
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Borrower, Administrative Agent and the Banks shall execute such
modifications to the Loan Documents as shall be reasonably required in
connection with and to effectuate the foregoing.
Section 3.08 Applicability. The provisions of this Article III
shall be applied to Borrower so as not to discriminate against Borrower
vis-a-vis similarly situated customers of the Banks.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 Conditions Precedent to the Initial Advance. The
obligations of the Banks hereunder and the obligation of each Bank to make the
Initial Advance are subject to the condition precedent that Co-Agents shall have
received and approved on or before the Closing Date (other than with respect to
paragraph (10) below which shall be required prior to the Initial Advance) each
of the following documents, and each of the following requirements shall have
been fulfilled:
(1) Fees and Expenses. The payment of (a) all fees and expenses
incurred by Co-Agents and Administrative Agent (including, without
limitation, the reasonable fees and expenses of legal counsel) and (b)
those fees specified in the Supplemental Fee Letter to be paid by Borrower
on or before the Closing Date;
(2) Notes. The Ratable Loan Notes for Fleet, Morgan, UBS and each of
the other Banks signatory hereto, the Bid Rate Loan Note for Fleet, as
Administrative Agent, and the Swing Note for the Swing Lender, each duly
executed by Borrower;
(3) Financial Statements. (a) Audited Consolidated Financial
Statements of Avalon and Bay as of and for the year ended December 31,
1997, (b) unaudited Consolidated Financial Statements of Avalon and Bay,
each certified by the chief financial officer thereof and as of and for the
quarter ended March 31, 1998 and (c) the most recently prepared audited
Borrower's Consolidated Financial Statements;
(4) Evidence of Formation of Borrower. Certified (as of the Closing
Date) copies of Borrower's certificate of incorporation and by-laws, with
all amendments thereto, and a certificate of the Secretary of State of the
jurisdiction of formation as to its good standing therein;
(5) Evidence of All Corporate Action. Certified (as of the Closing
Date) copies of all documents evidencing the corporate action taken by
Borrower authorizing the execution, delivery and performance of the Loan
Documents and each other document to be delivered by or on behalf of
Borrower pursuant to this Agreement;
(6) Incumbency and Signature Certificate of Borrower. A certificate
(dated as of the Closing Date) of the secretary of Borrower certifying the
names and true signatures of each person authorized to sign on behalf of
Borrower;
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(7) Solvency Certificate. A duly executed Solvency Certificate;
(8) Opinion of Counsel for Borrower. A favorable opinion, dated the
Closing Date, of Goodwin, Procter & Hoar, counsel for Borrower, as to such
matters as Administrative Agent may reasonably request;
(9) Authorization Letter. The Authorization Letter, duly executed by
Borrower;
(10) Request for Advance. A request for an advance in accordance
with Section 2.04;
(11) Certificate. The following statements shall be true and
Administrative Agent shall have received a certificate dated the Closing
Date signed by a duly authorized signatory of Borrower stating, to the best
of the certifying party's knowledge, the following:
(a) All representations and warranties contained in this Agreement and
in each of the other Loan Documents are true and correct on and as of the
Closing Date as though made on and as of such date, and
(b) No Default or Event of Default has occurred and is continuing, or
could result from the transactions contemplated by this Agreement and the
other Loan Documents;
(12) Supplemental Fee Letter. The Supplemental Fee Letter, duly
executed by Borrower;
(13) Corporate Merger and Termination of Other Credit Facilities.
Satisfactory evidence that (a) the merger of Avalon and Bay into Borrower
has been effectively completed in accordance with all applicable Laws and
(b) any and all existing credit facilities of Avalon and of Bay have been
effectively terminated;
(14) Covenant Compliance. A covenant compliance certificate of the
sort required by paragraph (3) of Section 6.09;
(15) Material Adverse Change. There shall exist no Material Adverse
Change; and
(16) Additional Materials. Such other approvals, documents,
instruments or opinions as Administrative Agent or any Co-Agent may
reasonably request.
Section 4.02 Conditions Precedent to Advances After the Initial
Advance. The obligation of each Bank to make advances of the Loans subsequent to
the Initial Advance shall be subject to satisfaction of the following conditions
precedent:
(1) All conditions of Section 4.01 shall have been and remain
satisfied as of the date of the advance;
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(2) No Default or Event of Default shall have occurred and be
continuing as of the date of the advance;
(3) Each of the representations and warranties contained in this
Agreement and in each of the other Loan Documents shall be true and correct
in all material respects as of the date of the advance; and
(4) Administrative Agent shall have received a request for an advance
in accordance with Section 2.04.
Section 4.03 Deemed Representations. Each request by Borrower for,
and acceptance by Borrower of, an advance of proceeds of the Loans shall
constitute a representation and warranty by Borrower that, as of both the date
of such request and the date of the advance (1) no Default or Event of Default
has occurred and is continuing and (2) each representation or warranty contained
in this Agreement or the other Loan Documents is true and correct in all
material respects.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and each
Bank as follows:
Section 5.01 Due Organization. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has the power and authority to own its assets and to transact the
business in which it is now engaged, and, if applicable, is duly qualified for
the conduct of business and in good standing under the laws of each other
jurisdiction in which such qualification is required and where the failure to be
so qualified would cause a Material Adverse Change.
Section 5.02 Power and Authority; No Conflicts; Compliance With
Laws. The execution, delivery and performance of the obligations required to be
performed by Borrower of the Loan Documents does not and will not (a) require
the consent or approval of its shareholders or such consent or approval has been
obtained, (b) contravene either its certificate of incorporation or by-laws, (c)
to the best of Borrower's knowledge, violate any provision of, or require any
filing, registration, consent or approval under, any Law (including, without
limitation, Regulation U), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to it, (d)
result in a breach of or constitute a default under or require any consent under
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which it may be a party or by which it or its properties may be
bound or affected except for consents which have been obtained, (e) result in,
or require, the creation or imposition of any Lien, upon or with respect to any
of its properties now owned or hereafter acquired, or (f) to the best of
Borrower's knowledge, cause it to be in default under any such Law, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument; to the best of its knowledge, Borrower is in
material compliance with all Laws applicable to it and its properties.
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Section 5.03 Legally Enforceable Agreements. Each Loan Document is
a legal, valid and binding obligation of Borrower, enforceable against Borrower
in accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally.
Section 5.04 Litigation. There are no actions, suits or proceedings
pending or, to its knowledge, threatened against Borrower or any of its
Affiliates before any court or arbitrator or any Governmental Authority which
are reasonably likely to result in a Material Adverse Change.
Section 5.05 Good Title to Properties. Borrower and each of its
Material Affiliates have good, marketable and legal title to all of the
properties and assets each of them purports to own (including, without
limitation, those reflected in the Consolidated Financial Statements referred to
in Section 5.13), only with exceptions which do not materially detract from the
value of such property or assets or the use thereof in Borrower's and such
Material Affiliate's business, and except to the extent that any such properties
and assets have been encumbered or disposed of since the date of such financial
statements without violating any of the covenants contained in Article VII or
elsewhere in this Agreement. Borrower and its Material Affiliates enjoy peaceful
and undisturbed possession of all leased property necessary in any material
respect in the conduct of their respective businesses. All such leases are valid
and subsisting and are in full force and effect.
Section 5.06 Taxes. Borrower has filed all tax returns (federal,
state and local) required to be filed and has paid all taxes, assessments and
governmental charges and levies due and payable without the imposition of a
penalty, including interest and penalties, except to the extent they are the
subject of a Good Faith Contest.
Section 5.07 ERISA. Borrower is in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred with respect to any Plan which could
result in liability of Borrower; no notice of intent to terminate a Plan has
been filed nor has any Plan been terminated within the past five (5) years; no
circumstance exists which constitutes grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any such proceedings;
Borrower and the ERISA Affiliates have not completely or partially withdrawn
under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrower and the
ERISA Affiliates have met the minimum funding requirements of Section 412 of the
Code and Section 302 of ERISA of each with respect to the Plans of each and
there is no material "Unfunded Current Liability" (as such quoted term is
defined in ERISA) with respect to any Plan established or maintained by each;
and Borrower and the ERISA Affiliates have not incurred any liability to the
PBGC under ERISA (other than for the payment of premiums under Section 4007 of
ERISA). No part of the funds to be used by Borrower in satisfaction of its
obligations under this Agreement constitute "plan assets" of any "employee
benefit plan" within the meaning of ERISA or of any "plan" within the meaning of
Section 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service
and the U.S. Department of Labor in rules, regulations, releases, bulletins or
as interpreted under applicable case law.
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Section 5.08 No Default on Outstanding Judgments or Orders.
Borrower and each of its Material Affiliates have satisfied all judgments which
are not being appealed or which are not fully covered by insurance, and are not
in default with respect to any judgment, order, writ, injunction, decree, rule
or regulation of any court, arbitrator or federal, state, municipal or other
Governmental Authority, commission, board, bureau, agency or instrumentality,
domestic or foreign.
Section 5.09 No Defaults on Other Agreements. Except as disclosed
to Co-Agents and Administrative Agent in writing, Borrower is not a party to any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any partnership, trust or other restriction which is
likely to result in a Material Adverse Change. Borrower is not in default in any
respect in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument which is likely
to result in a Material Adverse Change.
Section 5.10 Government Regulation. Borrower is not subject to
regulation under the Investment Company Act of 1940 or any statute or regulation
limiting its ability to incur indebtedness for money borrowed as contemplated
hereby.
Section 5.11 Environmental Protection. To the best of Borrower's
knowledge, none of Borrower's or its Material Affiliates' properties contains
any Hazardous Materials that, under any Environmental Law currently in effect,
(1) would impose liability on Borrower that is likely to result in a Material
Adverse Change, or (2) is likely to result in the imposition of a Lien on any
assets of Borrower or its Material Affiliates, in each case if not properly
handled in accordance with applicable Law or not covered by insurance or a bond,
in either case reasonably satisfactory to the Required Banks. To the best of
Borrower's knowledge, neither it nor any of its Material Affiliates is in
material violation of, or subject to any existing, pending or threatened
material investigation or proceeding by any Governmental Authority under any
Environmental Law.
Section 5.12 Solvency. Borrower is, and upon consummation of the
transactions contemplated by this Agreement, the other Loan Documents and any
other documents, instruments or agreements relating thereto, will be, Solvent.
Section 5.13 Financial Statements. The Consolidated Financial
Statements of Avalon, Bay and Borrower most recently delivered to the Banks
pursuant to the terms of this Agreement are in all material respects complete
and correct and fairly present the financial condition of the subjects thereof
as of the dates of and for the periods covered by such statements, all in
accordance with GAAP. There has been no Material Adverse Change since the date
of such most recently delivered Consolidated Financial Statements.
Section 5.14 Valid Existence of Affiliates. At the Closing Date,
the only Material Affiliates of Borrower are listed on EXHIBIT C. Each Material
Affiliate is a corporation duly organized and existing in good standing under
the laws of the jurisdiction of its formation. As to each Material Affiliate,
its correct name, the jurisdiction of its formation, Borrower's percentage of
beneficial interest therein, and the type of business in which it is primarily
engaged, are set forth on said EXHIBIT C. Borrower and each of its Material
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Affiliates have the power to own their respective properties and to carry on
their respective businesses now being conducted. Each Material Affiliate is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the respective businesses conducted by
it or its respective properties, owned or held under lease, make such
qualification necessary and where the failure to be so qualified would cause a
Material Adverse Change.
Section 5.15 Insurance. Borrower and each of its Material
Affiliates have in force paid insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same type of business and
similarly situated.
Section 5.16 Accuracy of Information; Full Disclosure. Neither this
Agreement nor any documents, financial statements, reports, notices, schedules,
certificates, statements or other writings furnished by or on behalf of Borrower
to Administrative Agent or any Bank in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby, or
required herein to be furnished by or on behalf of Borrower (other than
projections which are made by Borrower in good faith), contains any untrue or
misleading statement of a material fact or omits a material fact necessary to
make the statements herein or therein not misleading. To the best of Borrower's
knowledge, there is no fact which Borrower has not disclosed to Administrative
Agent and the Banks in writing which materially affects adversely nor, so far as
Borrower can now foresee, will materially affect adversely the business affairs
or financial condition of Borrower or the ability of Borrower to perform this
Agreement and the other Loan Documents.
Section 5.17 Corporate Merger and Termination of Other Credit
Facilities. The merger of Avalon and Bay into Borrower has been effectively
completed in accordance with all applicable Laws, and any and all existing
credit facilities of Avalon and Bay have been effectively terminated.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any of the Notes shall remain unpaid or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to any
Bank hereunder or under any other Loan Document, Borrower shall, and, in the
case of Sections 6.01 through 6.07, inclusive, shall cause each of its Material
Affiliates to:
Section 6.01 Maintenance of Existence. Preserve and maintain its
legal existence and good standing in the jurisdiction of its organization, and
qualify and remain qualified as a corporation in each other jurisdiction in
which such qualification is required except to the extent that failure to be so
qualified in such other jurisdictions is not likely to result in a Material
Adverse Change.
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Section 6.02 Maintenance of Records. Keep adequate records and
books of account, in which complete entries will be made reflecting all of its
financial transactions, in accordance with GAAP.
Section 6.03 Maintenance of Insurance. At all times, maintain and
keep in force insurance with financially sound and reputable insurance companies
or associations in such amounts and covering such risks as are usually carried
by companies engaged in the same type of business and similarly situated, which
insurance shall be acceptable to Administrative Agent and may provide for
reasonable deductibility from coverage thereof. In connection with the
foregoing, it is understood that Borrower's earthquake insurance coverage in
place as of the Closing Date is acceptable to Administrative Agent.
Section 6.04 Compliance with Laws; Payment of Taxes. Comply in all
material respects with all Laws applicable to it or to any of its properties or
any part thereof, such compliance to include, without limitation, paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it or upon its property, except to the extent they are the subject
of a Good Faith Contest.
Section 6.05 Right of Inspection. At any reasonable time and from
time to time upon reasonable notice, permit Administrative Agent or any Bank or
any agent or representative thereof to examine and make copies and abstracts
from its records and books of account and visit its properties and to discuss
its affairs, finances and accounts with the independent accountants of Borrower.
Section 6.06 Compliance With Environmental Laws. Comply in all
material respects with all applicable Environmental Laws and timely pay or cause
to be paid all costs and expenses incurred in connection with such compliance,
except to the extent there is a Good Faith Contest.
Section 6.07 Maintenance of Properties. Do all things reasonably
necessary to maintain, preserve, protect and keep its properties in good repair,
working order and condition except where the cost thereof is not in Borrower's
best interests and the failure to do so would not result in a Material Adverse
Change.
Section 6.08 Payment of Costs. Pay all costs and expenses required
for the satisfaction of the conditions of this Agreement.
Section 6.09 Reporting and Miscellaneous Document Requirements.
Furnish directly to Administrative Agent (who shall provide, promptly upon
receipt, to each of the Banks):
(1) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each Fiscal Year, Borrower's
Consolidated Financial Statements as of the end of and for such Fiscal Year, in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the prior Fiscal Year and audited by Borrower's
Accountants;
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(2) Quarterly Financial Statements. As soon as available and in any
event within forty-five (45) days after the end of each calendar quarter (other
than the last quarter of the Fiscal Year), the unaudited Borrower's Consolidated
Financial Statements as of the end of and for such calendar quarter, in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the prior Fiscal Year;
(3) Certificate of No Default and Financial Compliance. Within
forty-five (45) days after the end of each calendar quarter, a certificate of
Borrower's chief financial officer or treasurer (a) stating that, to the best of
his or her knowledge, no Default or Event of Default has occurred and is
continuing, or if a Default or Event of Default has occurred and is continuing,
specifying the nature thereof and the action which is proposed to be taken with
respect thereto; (b) stating that the covenants contained in Sections 7.02 and
7.03 and in Article VIII have been complied with (or specifying those that have
not been complied with) and including computations demonstrating such compliance
(or non-compliance); (c) setting forth the details of all items comprising Total
Outstanding Indebtedness, Secured Indebtedness, Unencumbered Combined EBITDA,
Interest Expense and Unsecured Indebtedness (including amount, maturity,
interest rate and amortization requirements with respect to all Indebtedness and
including an occupancy report for each Unencumbered Wholly-Owned Asset for each
of the preceding four (4) calendar quarters and for such four (4) calendar
quarter-period as a whole); and (d) only at the end of each Fiscal Year, stating
Borrower's taxable income;
(4) Certificate of Borrower's Accountants. Simultaneously with the
delivery of the annual financial statements required by paragraph (1) of this
Section, (a) a statement of Borrower's Accountants who audited such financial
statements comparing the computations set forth in the financial compliance
certificate required by paragraph (3) of this Section to the audited financial
statements required by paragraph (1) of this Section and (b) when the audited
financial statements required by paragraph (1) of this Section have a qualified
auditor's opinion, a statement of Borrower's Accountants who audited such
financial statements of whether any Default or Event of Default has occurred and
is continuing;
(5) Notice of Litigation. Promptly after the commencement and
knowledge thereof, notice of all actions, suits, and proceedings before any
court or arbitrator, affecting Borrower which, if determined adversely to
Borrower is likely to result in a Material Adverse Change;
(6) Notices of Defaults and Events of Default. As soon as possible
and in any event within ten (10) days after Borrower becomes aware of the
occurrence of a material Default or any Event of Default, a written notice
setting forth the details of such Default or Event of Default and the action
which is proposed to be taken with respect thereto;
(7) Sales or Acquisitions of Assets. Promptly after the occurrence
thereof, written notice (which may be in the form of a press release sent to
Administrative Agent) of any Disposition or acquisition (including Acquisitions)
of assets (other than acquisitions or Dispositions of investments such as
certificates of deposit, Treasury securities, money market deposits and other
similar financial instruments in the ordinary course of Borrower's cash
management) with respect to which Borrower is required to file an "8-K",
together with, in the case of any acquisition of such an asset, copies of all
material agreements governing the
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acquisition and historical financial information and Borrower's projections with
respect to the property acquired;
(8) Material Adverse Change. As soon as is practicable and in any
event within five (5) days after knowledge of the occurrence of any event or
circumstance which is likely to result in or has resulted in a Material Adverse
Change, written notice thereof;
(9) Offices. Thirty (30) days' prior written notice of any change in
the chief executive office or principal place of business of Borrower;
(10) Environmental and Other Notices. As soon as possible and in any
event within ten (10) days after receipt, copies of all Environmental Notices
received by Borrower which are not received in the ordinary course of business
and which relate to a situation which is likely to result in a Material Adverse
Change;
(11) Insurance Coverage. Promptly, such information concerning
Borrower's insurance coverage as Administrative Agent may reasonably request;
(12) Proxy Statements, Etc.. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports which
Borrower or its Material Affiliates sends to its shareholders, and copies of all
regular, periodic and special reports, and all registration statements which
Borrower or its Material Affiliates files with the Securities and Exchange
Commission or any Governmental Authority which may be substituted therefor, or
with any national securities exchange;
(13) Operating Statements. As soon as available and in any event
within forty-five (45) days after the end of each calendar quarter, an operating
statement for each property directly or indirectly owned in whole or in part by
Borrower;
(14) Capital Expenditures. As soon as available and in any event
within forty-five (45) days after the end of each Fiscal Year, a schedule of
such Fiscal Year's capital expenditures and a budget for the next Fiscal Year's
planned capital expenditures for each property directly or indirectly owned in
whole or in part by Borrower; and
(15) General Information. Promptly, such other information respecting
the condition or operations, financial or otherwise, of Borrower or any
properties of Borrower as Administrative Agent may from time to time reasonably
request.
Section 6.10 Principal Prepayments as a Result of Reduction in
Total Loan Commitment. If the outstanding principal amount under the Notes at
any time exceeds the Total Loan Commitment, Borrower shall, within ten (10) days
of Administration Agent's written demand, make a payment in the amount of such
excess in reduction of such outstanding principal balance.
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ARTICLE VII
NEGATIVE COVENANTS
So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to
Administrative Agent or any Bank hereunder or under any other Loan Document,
Borrower shall not do any or all of the following:
Section 7.01 Mergers Etc. Merge or consolidate with (except where
Borrower is the surviving entity), or sell, assign, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired).
Section 7.02 Investments. Directly or indirectly, make any loan or
advance to any Person or purchase or otherwise acquire any capital stock,
assets, obligations or other securities of, make any capital contribution to, or
otherwise invest in, or acquire any interest in, any Person (any such
transaction, an "Investment") if such Investment constitutes the acquisition of
a minority interest in a Person (a "Minority Interest") and the amount of such
Investment, together with the value of all other Minority Interests acquired
after the Closing Date, would exceed 15% of Capitalization Value, determined as
of the end of the most recent calendar quarter for which Borrower is required to
have reported financial results pursuant to Section 6.09. A 50% beneficial
interest in a Person, in connection with which the holder thereof exercises
joint control over such Person with the holder(s) of the other 50% beneficial
interest, shall not constitute a "Minority Interest" for purposes of this
Section.
Section 7.03 Sale of Assets. Effect a Disposition of any of its now
owned or hereafter acquired assets, including assets in which Borrower owns a
beneficial interest through its ownership of interests in joint ventures,
aggregating more than 25% of Capitalization Value.
ARTICLE VIII
FINANCIAL COVENANTS
So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to
Administrative Agent or any Bank under this Agreement or under any other Loan
Document, Borrower shall not permit or suffer any or all of the following:
Section 8.01 Consolidated Tangible Net Worth. At any time,
Consolidated Tangible Net Worth to be less than $2,000,000,000.
Section 8.02 Relationship of Total Outstanding Indebtedness to
Capitalization Value. At any time, Total Outstanding Indebtedness to exceed 50%
of Capitalization Value.
Section 8.03 Relationship of Combined EBITDA to Interest Expense.
For any calendar quarter, the ratio of (1) Combined EBITDA to (2) Interest
Expense (each for the twelve (12)-month period ending with such quarter), to be
less than 2.50 to 1.00.
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Section 8.04 Relationship of Combined EBITDA to Combined Debt
Service. For any calendar quarter, the ratio of (1) Combined EBITDA to (2)
Combined Debt Service (each for the twelve (12)-month period ending with such
quarter), to be less than 2.00 to 1.00.
Section 8.05 Relationship of Combined EBITDA to Total Outstanding
Indebtedness. For any calendar quarter, the ratio of (1) Combined EBITDA for the
twelve (12)-month period ending with such calendar quarter to (2) Total
Outstanding Indebtedness as of the end of such calendar quarter to be less than
15%. For purposes of this Section, Combined EBITDA shall be adjusted as follows:
in the case of properties acquired during such twelve (12)-month period, such
property's contribution to Combined EBITDA shall be annualized, and in the case
of properties disposed of during such twelve (12)-month period, such property's
contribution to Combined EBITDA shall be disregarded.
Section 8.06 Unsecured Debt Yield. For any calendar quarter,
Unsecured Debt Yield for the twelve (12)-month period ending with such calendar
quarter to be less than 13.5%. For purposes of this Section, Combined EBITDA
shall be adjusted as follows: in the case of properties acquired during such
twelve (12)-month period, such property's contribution to Combined EBITDA shall
be annualized, and in the case of properties disposed of during such twelve
(12)-month period, such property's contribution to Combined EBITDA shall be
disregarded.
Section 8.07 Relationship of Unencumbered Combined EBITDA to
Unsecured Interest Expense. For any calendar quarter, the ratio of (1)
Unencumbered Combined EBITDA to (2) Unsecured Interest Expense (each for such
calendar quarter), to be less than 1.75 to 1.00.
Section 8.08 Relationship of Dividends to Funds From Operations.
For any calendar year, dividends declared by Borrower to exceed 95% of Funds
From Operations, each for such calendar year.
Section 8.09 Relationship of Secured Indebtedness to Capitalization
Value. At any time, Secured Indebtedness to exceed 40% of Capitalization Value.
ARTICLE IX
EVENTS OF DEFAULT
Section 9.01 Events of Default. Any of the following events shall
be an "Event of Default":
(1) If Borrower shall: fail to pay the principal of any Notes as and
when due, and such failure to pay shall continue unremedied for five (5) days
after the due date of such amount; or fail to pay interest accruing on any Notes
as and when due, and such failure to pay shall continue unremedied for five (5)
days after written notice by Administrative Agent of such failure to pay; or
fail to make any payment required under Section 6.10 as and when due; or fail to
pay any fee or any other amount due under this Agreement, any other Loan
Document or the Supplemental Fee Letter as and when due and such failure to pay
shall continue unremedied for two (2) Banking Days after written notice by
Administrative Agent of such failure to pay; or
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(2) If any representation or warranty made by Borrower in this
Agreement or in any other Loan Document or which is contained in any
certificate, document, opinion, financial or other statement furnished at any
time under or in connection with a Loan Document shall prove to have been
incorrect in any material respect on or as of the date made; or
(3) If Borrower shall fail (a) to perform or observe any term,
covenant or agreement contained in Article VII or Article VIII; or (b) to
perform or observe any term, covenant or agreement contained in this Agreement
(other than obligations specifically referred to elsewhere in this Section 9.01)
or any Loan Document, or any other document executed by Borrower and delivered
to Administrative Agent or the Banks in connection with the transactions
contemplated hereby and such failure under this clause (b) shall remain
unremedied for thirty (30) consecutive calendar days after notice thereof (or
such shorter cure period as may be expressly prescribed in the applicable
document); provided, however, that if any such default under clause (b) above
cannot by its nature be cured within such thirty (30) day, or shorter, as the
case may be, grace period and so long as Borrower shall have commenced cure
within such thirty (30) day, or shorter, as the case may be, grace period and
shall, at all times thereafter, diligently prosecute the same to completion,
Borrower shall have an additional period, not to exceed sixty (60) days, to cure
such default; in no event, however, is the foregoing intended to effect an
extension of the Maturity Date; or
(4) If Borrower shall fail (a) to pay any Recourse Debt (other than
the payment obligations described in paragraph (1) of this Section) in any
amount, or any Debt (other than Recourse Debt) in an amount equal to or greater
than $50,000,000, in any such case when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) after the expiration of
any applicable grace period, or (b) to perform or observe any material term,
covenant, or condition under any agreement or instrument relating to any such
Debt, when required to be performed or observed, if the effect of such failure
to perform or observe is to accelerate, or to permit the acceleration of, after
the giving of notice or the lapse of time, or both (other than in cases where,
in the judgment of the Required Banks, meaningful discussions likely to result
in (i) a waiver or cure of the failure to perform or observe, or (ii) otherwise
averting such acceleration are in progress between Borrower and the obligee of
such Debt), the maturity of such Debt, or any such Debt shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
or otherwise required prepayment), prior to the stated maturity thereof; or
(5) If Borrower, or any Affiliate of Borrower to which $50,000,000 or
more of Capitalization Value is attributable, shall (a) generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as such
debts become due; or (b) make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (c) commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation Law of any jurisdiction, whether now or
hereafter in effect; or (d) have had any such petition or application filed or
any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed or unstayed for a period
of sixty (60) days or more; or (e) be the subject of any proceeding under which
all or a substantial part of its assets may be subject to seizure, forfeiture or
divestiture; or (f) by any act or omission indicate its consent to, approval of
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or acquiescence in any such petition, application or proceeding or order for
relief or the appointment of a custodian, receiver or trustee for all or any
substantial part of its property; or (g) suffer any such custodianship,
receivership or trusteeship for all or any substantial part of its property, to
continue undischarged for a period of sixty (60) days or more; or
(6) If one or more judgments, decrees or orders for the payment of
money in excess of $10,000,000 (excluding any such judgments, decrees or orders
which are fully covered by insurance) in the aggregate shall be rendered against
Borrower or any of its Material Affiliates, and any such judgments, decrees or
orders shall continue unsatisfied and in effect for a period of thirty (30)
consecutive days without being vacated, discharged, satisfied or stayed or
bonded pending appeal; or
(7) If any of the following events shall occur or exist with respect
to Borrower or any ERISA Affiliate: (a) any Prohibited Transaction involving any
Plan; (b) any Reportable Event with respect to any Plan; (c) the filing under
Section 4041 of ERISA of a notice of intent to terminate any Plan or the
termination of any Plan; (d) any event or circumstance which would constitute
grounds for the termination of, or for the appointment of a trustee to
administer, any Plan under Section 4042 of ERISA, or the institution by the PBGC
of proceedings for any such termination or appointment under Section 4042 of
ERISA; or (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency, or termination of
any Multiemployer Plan; and in each case above, if such event or conditions, if
any, could in the reasonable opinion of any Bank subject Borrower to any tax,
penalty, or other liability to a Plan, Multiemployer Plan, the PBGC or otherwise
(or any combination thereof) which in the aggregate exceeds or is likely to
exceed $50,000; or
(8) If at any time Borrower is not a qualified real estate investment
trust under Sections 856 through 860 of the Code or is not a publicly traded
company listed on the New York Stock Exchange; or
(9) If at any time any portion of Borrower's assets constitute plan
assets for ERISA purposes (within the meaning of C.F.R. Section 2510.3-101); or
(10) If, in the reasonable judgment of all of the Banks (and the
basis for such determination is provided to Borrower in writing in reasonable
detail), there shall occur a Material Adverse Change; or
(11) If there shall occur a change in the majority of the Board of
Directors of Borrower during any twelve (12)-month period; or
(12) If any Person (including Affiliates of such Person) shall
acquire more than 25% of the common shares of Borrower.
Section 9.02 Remedies. If any Event of Default shall occur and be
continuing, Administrative Agent shall, upon request of the Majority Banks, by
notice to Borrower, (1) declare the outstanding balance of the Notes, all
interest thereon, and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon such balance, all such interest, and all
such amounts due under this Agreement and under any other Loan Document shall
become and be forthwith due and payable, without presentment, demand, protest,
or further
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notice of any kind, all of which are hereby expressly waived by Borrower; and/or
(2) exercise any remedies provided in any of the Loan Documents or by law.
Notwithstanding the foregoing, if an Event of Default under Section 9.01(10)
shall occur and be continuing, Administrative Agent shall not be entitled to
exercise the foregoing remedies until (1) it has received a written notice from
all of the Banks (the "Unanimous Bank Notices") (i) requesting Administrative
Agent exercise such remedies and (ii) indicating each Bank's conclusion in its
reasonable judgment that a Material Adverse Change has occurred and (2)
Administrative Agent has provided notice to Borrower, together with copies of
all of the Unanimous Bank Notices.
ARTICLE X
ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS
Section 10.01 Appointment, Powers and Immunities of Administrative
Agent. Each Bank hereby irrevocably appoints and authorizes Administrative Agent
to act as its agent hereunder and under any other Loan Document with such powers
as are specifically delegated to Administrative Agent by the terms of this
Agreement and any other Loan Document, together with such other powers as are
reasonably incidental thereto. Administrative Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Loan Document or required by law, and shall not by reason of this
Agreement be a fiduciary or trustee for any Bank except to the extent that
Administrative Agent acts as an agent with respect to the receipt or payment of
funds (nor shall Administrative Agent have any fiduciary duty to Borrower nor
shall any Bank have any fiduciary duty to Borrower or to any other Bank). No
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or otherwise exist against Administrative Agent.
Neither Administrative Agent nor any of its directors, officers, employees,
attorneys-in-fact or affiliates shall be responsible to the Banks for any
recitals, statements, representations or warranties made by Borrower or any
officer, partner or official of Borrower or any other Person contained in this
Agreement or any other Loan Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any Lien
securing the Obligations or for any failure by Borrower to perform any of its
obligations hereunder or thereunder. Administrative Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
Administrative Agent nor any of its directors, officers, employees,
attorneys-in-fact, agents or affiliates shall be liable or responsible for any
action taken or omitted to be taken by it or them hereunder or under any other
Loan Document or in connection herewith or therewith, except for its or their
own gross negligence or willful misconduct. Borrower shall pay any fee agreed to
by Borrower and Administrative Agent with respect to Administrative Agent's
services hereunder.
Section 10.02 Reliance by Administrative Agent. Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements
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of legal counsel, independent accountants and other experts selected by
Administrative Agent. Administrative Agent may deem and treat each Bank as the
holder of the Loan made by it for all purposes hereof and shall not be required
to deal with any Person who has acquired a participation in any Loan or
participation from a Bank. As to any matters not expressly provided for by this
Agreement or any other Loan Document, Administrative Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions signed by the Required Banks, and such instructions of the
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks and any other holder of all or any portion of any
Loan or participation.
Section 10.03 Defaults. Administrative Agent shall not be deemed to
have knowledge of the occurrence of a Default or Event of Default unless
Administrative Agent has received notice from a Bank or Borrower specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default." In the event that Administrative Agent receives such a notice of the
occurrence of a Default or Event of Default, Administrative Agent shall give
prompt notice thereof to the Banks. Administrative Agent, following consultation
with the Banks, shall (subject to Section 10.07) take such action with respect
to such Default or Event of Default which is continuing as shall be directed by
the Majority Banks; provided that, unless and until Administrative Agent shall
have received such directions, Administrative Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that Administrative Agent shall not send a notice of Default or
acceleration to Borrower without the approval of the Majority Banks. In no event
shall Administrative Agent be required to take any such action which it
determines to be contrary to Law or to the Loan Documents. Each of the Banks
acknowledges and agrees that no individual Bank may separately enforce or
exercise any of the provisions of any of the Loan Documents, including, without
limitation, the Notes, other than through Administrative Agent.
Section 10.04 Rights of Administrative Agent as a Bank. With respect
to its Loan Commitment and the Loan provided by it, Administrative Agent in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include Administrative Agent in its capacity as a Bank.
Administrative Agent and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to (on a secured or unsecured
basis), and generally engage in any kind of banking, trust or other business
with Borrower (and any Affiliates of Borrower) as if it were not acting as
Administrative Agent.
Section 10.05 Indemnification of Administrative Agent. Each Bank
agrees to indemnify Administrative Agent (to the extent not reimbursed under
Section 12.04 or under the applicable provisions of any other Loan Document, but
without limiting the obligations of Borrower under Section 12.04 or such
provisions), for its Pro Rata Share of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against Administrative Agent in any way relating to or
arising out of this Agreement, any other Loan Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and
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expenses which Borrower is obligated to pay under Section 12.04) or under the
applicable provisions of any other Loan Document or the enforcement of any of
the terms hereof or thereof or of any such other documents or instruments;
provided that no Bank shall be liable for (1) any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the party to be
indemnified, (2) any loss of principal or interest with respect to
Administrative Agent's Loan or (3) any loss suffered by Administrative Agent in
connection with a swap or other interest rate hedging arrangement entered into
with Borrower.
Section 10.06 Non-Reliance on Administrative Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of
Borrower and the decision to enter into this Agreement and that it will,
independently and without reliance upon Administrative Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any other Loan Document. Administrative Agent
shall not be required to keep itself informed as to the performance or
observance by Borrower of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or to inspect the
properties or books of Borrower. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by
Administrative Agent hereunder, Administrative Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of Borrower (or any
Affiliate of Borrower) which may come into the possession of Administrative
Agent or any of its Affiliates. Administrative Agent shall not be required to
file this Agreement, any other Loan Document or any document or instrument
referred to herein or therein, for record or give notice of this Agreement, any
other Loan Document or any document or instrument referred to herein or therein,
to anyone.
Section 10.07 Failure of Administrative Agent to Act. Except for
action expressly required of Administrative Agent hereunder, Administrative
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
cash collateral) of the indemnification obligations of the Banks under Section
10.05 in respect of any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. If any indemnity
furnished by the Banks to Administrative Agent for any purpose shall, in the
reasonable opinion of Administrative Agent, be insufficient or become impaired,
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the action indemnified against until such additional indemnity
is furnished.
Section 10.08 Resignation or Removal of Administrative Agent.
Administrative Agent hereby agrees not to unilaterally resign except in the
event it becomes an Affected Bank and is removed or replaced as a Bank pursuant
to Section 3.07, in which event it shall have the right to resign.
Administrative Agent may be removed at any time with cause by the Required
Banks, provided that Borrower and the other Banks shall be promptly notified
thereof. Upon any such removal, the Required Banks shall have the right to
appoint a successor Administrative Agent which successor Administrative Agent,
so long as it is reasonably acceptable to the Required Banks, shall be that Bank
then having the greatest Loan Commitment. If no successor
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Administrative Agent shall have been so appointed by the Required Banks and
shall have accepted such appointment within thirty (30) days after the Required
Banks' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which shall be one of the Banks. The Required Banks or the
retiring Administrative Agent, as the case may be, shall upon the appointment of
a successor Administrative Agent promptly so notify Borrower and the other
Banks. Upon the acceptance of any appointment as Administrative Agent hereunder
by a successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's removal hereunder as Administrative Agent, the
provisions of this Article X shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as
Administrative Agent.
Section 10.09 Amendments Concerning Agency Function. Notwithstanding
anything to the contrary contained herein, Administrative Agent shall not be
bound by any waiver, amendment, supplement or modification hereof or of any
other Loan Document which affects its duties, rights, and/or function hereunder
or thereunder unless it shall have given its prior written consent thereto.
Section 10.10 Liability of Administrative Agent. Administrative
Agent shall not have any liabilities or responsibilities to Borrower on account
of the failure of any Bank to perform its obligations hereunder or to any Bank
on account of the failure of Borrower to perform its obligations hereunder or
under any other Loan Document.
Section 10.11 Transfer of Agency Function. Without the consent of
Borrower or any Bank, Administrative Agent may at any time or from time to time
transfer its functions as Administrative Agent hereunder to any of its offices
wherever located in the United States, provided that Administrative Agent shall
promptly notify Borrower and the Banks thereof.
Section 10.12 Non-Receipt of Funds by Administrative Agent. (a)
Unless Administrative Agent shall have received notice from a Bank or Borrower
(either one as appropriate being the "Payor") prior to the date on which such
Bank is to make payment hereunder to Administrative Agent of the proceeds of a
Loan or Borrower is to make payment to Administrative Agent, as the case may be
(either such payment being a "Required Payment"), which notice shall be
effective upon receipt, that the Payor will not make the Required Payment in
full to Administrative Agent, Administrative Agent may assume that the Required
Payment has been made in full to Administrative Agent on such date, and
Administrative Agent in its sole discretion may, but shall not be obligated to,
in reliance upon such assumption, make the amount thereof available to the
intended recipient on such date. If and to the extent the Payor shall not have
in fact so made the Required Payment in full to Administrative Agent, the
recipient of such payment shall repay to Administrative Agent forthwith on
demand such amount made available to it together with interest thereon, for each
day from the date such amount was so made available by Administrative Agent
until the date Administrative Agent recovers such amount, at the customary rate
set by Administrative Agent for the correction of errors among Banks for three
(3) Banking Days and thereafter at the Base Rate.
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(b) If, after Administrative Agent has paid each Bank's share of any
payment received or applied by Administrative Agent in respect of the Loan, that
payment is rescinded or must otherwise be returned or paid over by
Administrative Agent, whether pursuant to any bankruptcy or insolvency law,
sharing of payments clause of any loan agreement or otherwise, such Bank shall,
at Administrative Agent's request, promptly return its share of such payment or
application to Administrative Agent, together with such Bank's proportionate
share of any interest or other amount required to be paid by Administrative
Agent with respect to such payment or application. In addition, if a court of
competent jurisdiction shall adjudge that any amount received and distributed by
Administrative Agent is to be repaid, each Person to whom any such distribution
shall have been made shall either repay to Administrative Agent its share of the
amount so adjudged to be repaid or shall pay over to the same in such manner and
to such Persons as shall be determined by such court.
Section 10.13 Withholding Taxes. Each Bank represents that it is
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to Administrative Agent such forms,
certifications, statements and other documents as Administrative Agent may
request from time to time to evidence such Bank's exemption from the withholding
of any tax imposed by any jurisdiction or to enable Administrative Agent or
Borrower to comply with any applicable Laws or regulations relating thereto.
Without limiting the effect of the foregoing, if any Bank is not created or
organized under the laws of the United States of America or any state thereof,
such Bank will furnish to Administrative Agent a United States Internal Revenue
Service Form 4224 in respect of all payments to be made to such Bank by Borrower
or Administrative Agent under this Agreement or any other Loan Document or a
United States Internal Revenue Service Form 1001 establishing such Bank's
complete exemption from United States withholding tax in respect of payments to
be made to such Bank by Borrower or Administrative Agent under this Agreement or
any other Loan Document, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. Administrative
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of any Loan or participation or such Bank's Loan Commitment or
obligation to purchase participations until such Bank shall have furnished to
Administrative Agent the requested form, certification, statement or document.
Section 10.14 Minimum Commitment by Co-Agents. Subsequent to the
Closing Date and provided there exists no Event of Default, Fleet agrees to
maintain a Loan Commitment in an amount no less than $25,000,000. Fleet further
agrees to hold and not to participate or assign any of such amount other than an
assignment to a Federal Reserve Bank or to its Parent or a majority-owned
subsidiary. In addition, each of Morgan and UBS agrees that, in the event it
sells its individual Loan Commitment down to zero, it may be removed as a
Co-Agent and either Syndication Agent or Documentation Agent, as the case may
be, by the Required Banks.
Section 10.15 Pro Rata Treatment. Except to the extent otherwise
provided, (1) each advance of proceeds of the Ratable Loans shall be made by the
Banks; (2) each reduction of the amount of the Total Loan Commitment under
Section 2.10 shall be applied to the Loan Commitments of the Banks; and (3) each
payment of the fee accruing under paragraph (b) of Section 2.07 and clause (1)
of Section 2.16(f) shall be made for the account of the Banks, ratably according
to the amounts of their respective Loan Commitments.
Section 10.16 Sharing of Payments Among Banks. If a Bank shall
obtain payment of any principal of or interest on any Loan made by it through
the exercise of any right of setoff, banker's lien, counterclaim, or by any
other means (including direct payment), and such
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payment results in such Bank receiving a greater payment than it would have been
entitled to had such payment been paid directly to Administrative Agent for
disbursement to the Banks, then such Bank shall promptly purchase for cash from
the other Banks participations in the Loans made by the other Banks in such
amounts, and make such other adjustments from time to time as shall be equitable
to the end that all the Banks shall share ratably the benefit of such payment.
To such end the Banks shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is rescinded or
must otherwise be restored. Borrower agrees that any Bank so purchasing a
participation in the Loans made by other Banks may exercise all rights of
setoff, banker's lien, counterclaim or similar rights with respect to such
participation. Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness of
Borrower.
Section 10.17 Possession of Documents. Each Bank shall keep
possession of its own Ratable Loan Note and the Swing Lender shall keep
possession of its Swing Loan Note. Administrative Agent shall hold all the other
Loan Documents and related documents in its possession and maintain separate
records and accounts with respect thereto, and shall permit the Banks and their
representatives access at all reasonable times to inspect such Loan Documents,
related documents, records and accounts.
ARTICLE XI
NATURE OF OBLIGATIONS
Section 11.01 Absolute and Unconditional Obligations. Borrower
acknowledges and agrees that its obligations and liabilities under this
Agreement and under the other Loan Documents shall be absolute and unconditional
irrespective of (1) any lack of validity or enforceability of any of the
Obligations, any Loan Documents, or any agreement or instrument relating
thereto; (2) any change in the time, manner or place of payment of, or in any
other term in respect of, all or any of the Obligations, or any other amendment
or waiver of or consent to any departure from any Loan Documents or any other
documents or instruments executed in connection with or related to the
Obligations; (3) any exchange or release of any collateral, if any, or of any
other Person from all or any of the Obligations; or (4) any other circumstances
which might otherwise constitute a defense available to, or a discharge of,
Borrower or any other Person in respect of the Obligations.
The obligations and liabilities of Borrower under this Agreement and
other Loan Documents shall not be conditioned or contingent upon the pursuit by
any Bank or any other Person at any time of any right or remedy against Borrower
or any other Person which may be or become liable in respect of all or any part
of the Obligations or against any collateral or security or guarantee therefor
or right of setoff with respect thereto.
Section 11.02 Non-Recourse to Borrower's Principals. Notwithstanding
anything to the contrary contained herein, in any of the other Loan Documents,
or in any other instruments, certificates, documents or agreements executed in
connection with the Loans (all of the foregoing, for purposes of this Section,
hereinafter referred to, individually and collectively, as the "Relevant
Documents"), no recourse under or upon any Obligation, representation, warranty,
promise or other matter whatsoever shall be had against any of Borrower's
Principals and each Bank expressly waives and releases, on behalf of itself and
its successors and assigns,
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all right to assert any liability whatsoever under or with respect to the
Relevant Documents against, or to satisfy any claim or obligation arising
thereunder against, any of Borrower's Principals or out of any assets of
Borrower's Principals, provided, however, that nothing in this Section shall be
deemed to (1) release Borrower from any personal liability pursuant to, or from
any of its respective obligations under, the Relevant Documents, or from
personal liability for its fraudulent actions or fraudulent omissions; (2)
release any of Borrower's Principals from personal liability for its or his own
fraudulent actions or fraudulent omissions; (3) constitute a waiver of any
obligation evidenced or secured by, or contained in, the Relevant Documents or
affect in any way the validity or enforceability of the Relevant Documents; or
(4) limit the right of Administrative Agent and/or the Banks to proceed against
or realize upon any collateral hereafter given for the Loans or any and all of
the assets of Borrower (notwithstanding the fact that any or all of Borrower's
Principals have an ownership interest in Borrower and, thereby, an interest in
the assets of Borrower) or to name Borrower (or, to the extent that the same are
required by applicable law or are determined by a court to be necessary parties
in connection with an action or suit against Borrower or any collateral
hereafter given for the Loans, any of Borrower's Principals) as a party
defendant in, and to enforce against any collateral hereafter given for the
Loans and/or assets of Borrower any judgment obtained by Administrative Agent
and/or the Banks with respect to, any action or suit under the Relevant
Documents so long as no judgment shall be taken (except to the extent taking a
judgment is required by applicable law or determined by a court to be necessary
to preserve Administrative Agent's and/or Banks' rights against any collateral
hereafter given for the Loans or Borrower, but not otherwise) or shall be
enforced against Borrower's Principals or their assets.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Binding Effect of Request for Advance. Borrower agrees
that, by its acceptance of any advance of proceeds of the Loans under this
Agreement, it shall be bound in all respects by the request for advance
submitted on its behalf in connection therewith with the same force and effect
as if Borrower had itself executed and submitted the request for advance and
whether or not the request for advance is executed and/or submitted by an
authorized person.
Section 12.02 Amendments and Waivers. No amendment or any material
waiver of any provision of this Agreement or any other Loan Document nor consent
to any material departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required Banks and, solely
for purposes of its acknowledgment thereof, Administrative Agent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given, provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Banks do any of the
following: (1) reduce the principal of, or interest on, the Notes or any fees
due hereunder or any other amount due hereunder or under any Loan Document; (2)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees due hereunder or under any Loan Document; (3) change the
definition of Required Banks; (4) amend this Section or any other provision
requiring the consent of all the Banks; or (5) waive any default under paragraph
(5) of Section 9.01. Any advance of proceeds of the Loans made prior to or
without the fulfillment by Borrower of all of the conditions precedent thereto,
whether or not known to Administrative
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Agent and the Banks, shall not constitute a waiver of the requirement that all
conditions, including the non-performed conditions, shall be required with
respect to all future advances. No failure on the part of Administrative Agent
or any Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law. All communications from
Administrative Agent to the Banks requesting the Banks' determination, consent,
approval or disapproval (i) shall be given in the form of a written notice to
each Bank, (ii) shall be accompanied by a description of the matter or thing as
to which such determination, approval, consent or disapproval is requested and
(iii) shall include Administrative Agent's recommended course of action or
determination in respect thereof. Each Bank shall reply promptly, but in any
event within ten (10) Banking Days (or five (5) Banking Days with respect to any
decision to accelerate or stop acceleration of the Loan) after receipt of the
request therefor by Administrative Agent (the "Bank Reply Period"). Unless a
Bank shall give written notice to Administrative Agent that it objects to the
recommendation or determination of Administrative Agent (together with a written
explanation of the reasons behind such objection) within the Bank Reply Period,
such Bank shall be deemed to have approved or consented to such recommendation
or determination.
Section 12.03 Usury. Anything herein to the contrary
notwithstanding, the obligations of Borrower under this Agreement and the Notes
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to a Bank limiting rates of interest which may be charged or
collected by such Bank.
Section 12.04 Expenses; Indemnification. Borrower agrees to
reimburse Co-Agents and Administrative Agent on demand for all costs, expenses,
and charges (including, without limitation, all reasonable fees and charges of
engineers, appraisers and legal counsel) incurred by any of them in connection
with the Loans and to reimburse each of the Banks for reasonable legal costs,
expenses and charges incurred by each of the Banks in connection with the
performance or enforcement of this Agreement, the Notes, or any other Loan
Documents; provided, however, that Borrower is not responsible for costs,
expenses and charges incurred by the Bank Parties in connection with the
administration or syndication of the Loans (other than the fees required by the
Supplemental Fee Letter). Borrower agrees to indemnify Administrative Agent and
each Bank and their respective directors, officers, employees and agents from,
and hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of (x)
any claims by brokers due to acts or omissions by Borrower, or (y) any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any actual or
proposed use by Borrower of the proceeds of the Loans, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
The obligations of Borrower under this Section shall survive the
repayment of all amounts due under or in connection with any of the Loan
Documents and the termination of the Loans.
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Section 12.05 Assignment; Participation. This Agreement shall be
binding upon, and shall inure to the benefit of, Borrower, Administrative Agent,
the Banks and their respective successors and permitted assigns. Borrower may
not assign or transfer its rights or obligations hereunder.
Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Loan (the
"Participations"). In the event of any such grant by a Bank of a Participation
to a Participant, whether or not Borrower or Administrative Agent was given
notice, such Bank shall remain responsible for the performance of its
obligations hereunder, and Borrower and Administrative Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations hereunder. Any agreement pursuant to which any Bank may grant
such a participating interest shall provide that such Bank shall retain the sole
right and responsibility to enforce the obligations of Borrower hereunder and
under any other Loan Document including, without limitation, the right to
approve any amendment, modification or waiver of any provision of this Agreement
or any other Loan Document; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (1) through (5) of Section 12.02 without
the consent of the Participant.
Subject to the provisions of Section 10.14, any Bank may at any time
assign to any bank or other institution with the acknowledgment of
Administrative Agent and the consent of Co-Agents and, provided there exists no
Event of Default, Borrower, which consents shall not be unreasonably withheld or
delayed (such assignee, a "Consented Assignee"), or to one or more banks or
other institutions which are majority owned subsidiaries of a Bank or to the
Parent of a Bank (each Consented Assignee or subsidiary bank or institution, an
"Assignee") all, or a proportionate part of all, of its rights and obligations
under this Agreement and its Note, and such Assignee shall assume rights and
obligations, pursuant to an Assignment and Assumption Agreement executed by such
Assignee and the assigning Bank, provided that, in each case, after giving
effect to such assignment the Assignee's Loan Commitment, and, in the case of a
partial assignment, the assigning Bank's Loan Commitment, each will be equal to
or greater than $10,000,000, provided, further, however, that the assigning Bank
shall not be required to maintain a Loan Commitment in the minimum amount
aforesaid in the event it assigns all of its rights and obligations under this
Agreement and its Note. Notwithstanding the provisions of the immediately
preceding sentence, the consents of Co-Agents and Borrower shall not be required
in the case of assignments by any Bank provided that the Assignee thereunder (or
a guarantor of such Assignee's obligations under this Agreement) has a credit
rating of AA (or its equivalent) or better from a nationally recognized rating
agency, and provided, further, however, that assignments by the Co-Agents shall
remain subject to the provisions of Section 10.14. Upon (i) execution and
delivery of such instrument, (ii) payment by such Assignee to the Bank of an
amount equal to the purchase price agreed between the Bank and such Assignee and
(iii) payment by such Assignee to Administrative Agent of a fee, for
Administrative Agent's own account, in the amount of $2,500, such Assignee shall
be a Bank Party to this Agreement and shall have all the rights and obligations
of a Bank as set forth in such Assignment and Assumption Agreement, and the
assigning Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this paragraph,
substitute Ratable Loan Notes (and, if applicable, Swing Loan Notes) shall be
issued to the assigning Bank and Assignee by
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Borrower, in exchange for the return of the original Ratable Loan Note (and, if
applicable, Swing Loan Note). The obligations evidenced by such substitute notes
shall constitute "Obligations" for all purposes of this Agreement and the other
Loan Documents. In connection with Borrower's execution of substitute notes as
aforesaid, Borrower shall deliver to Administrative Agent evidence, satisfactory
to Administrative Agent, of all requisite corporate action to authorize
Borrower's execution and delivery of the substitute notes and any related
documents. If the Assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall, prior to the first date on which
interest or fees are payable hereunder for its account, deliver to Borrower and
Administrative Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section 10.13. Each
Assignee shall be deemed to have made the representations contained in, and
shall be bound by the provisions of, Section 10.13.
Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
Borrower recognizes that in connection with a Bank's selling of
Participations or making of assignments, any or all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Borrower
or the Loans may be exhibited to and retained by any such Participant or
assignee or prospective Participant or assignee. In connection with a Bank's
delivery of any financial statements and appraisals to any such Participant or
assignee or prospective Participant or assignee, such Bank shall also indicate
that the same are delivered on a confidential basis. Borrower agrees to provide
all assistance reasonably requested by a Bank to enable such Bank to sell
Participations or make assignments of its Loan as permitted by this Section.
Each Bank agrees to provide Borrower with notice of all Participations sold by
such Bank to other than its Affiliates.
Section 12.06 Documentation Satisfactory. All documentation required
from or to be submitted on behalf of Borrower in connection with this Agreement
and the documents relating hereto shall be subject to the prior approval of, and
be satisfactory in form and substance to, Administrative Agent, its counsel and,
where specifically provided herein, the Banks. In addition, the persons or
parties responsible for the execution and delivery of, and signatories to, all
of such documentation, shall be acceptable to, and subject to the approval of,
Administrative Agent and its counsel and the Banks.
Section 12.07 Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to Administrative
Agent by telephone, confirmed by writing, and to the Banks and to Borrower by
ordinary mail or overnight courier, receipt confirmed, addressed to such party
at its address on the signature page of this Agreement. Notices shall be
effective (1) if by telephone, at the time of such telephone conversation, (2)
if given by mail, three (3) days after mailing; and (3) if given by overnight
courier, upon receipt.
Section 12.08 Setoff. Borrower agrees that, in addition to (and
without limitation of) any right of setoff, bankers' lien or counterclaim a Bank
may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or
58
<PAGE> 64
final) held by it for the account of Borrower at any of such Bank's offices, in
Dollars or in any other currency, against any amount payable by Borrower to such
Bank under this Agreement or such Bank's Note, or any other Loan Document which
is not paid when due (regardless of whether such balances are then due to
Borrower), in which case it shall promptly notify Borrower and Administrative
Agent thereof; provided that such Bank's failure to give such notice shall not
affect the validity thereof. Payments by Borrower hereunder or under the other
Loan Documents shall be made without setoff or counterclaim.
Section 12.09 Table of Contents; Headings. Any table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 12.10 Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 12.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
Section 12.12 Integration. The Loan Documents and Supplemental Fee
Letter set forth the entire agreement among the parties hereto relating to the
transactions contemplated thereby and supersede any prior oral or written
statements or agreements with respect to such transactions.
Section 12.13 Governing Law. This Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of the State of New
York.
Section 12.14 Waivers. In connection with the obligations and
liabilities as aforesaid, Borrower hereby waives (1) promptness and diligence;
(2) notice of any actions taken by any Bank Party under this Agreement, any
other Loan Document or any other agreement or instrument relating thereto except
to the extent otherwise provided herein; (3) all other notices, demands and
protests, and all other formalities of every kind in connection with the
enforcement of the Obligations, the omission of or delay in which, but for the
provisions of this Section, might constitute grounds for relieving Borrower of
its obligations hereunder; (4) any requirement that any Bank Party protect,
secure, perfect or insure any Lien on any collateral or exhaust any right or
take any action against Borrower or any other Person or any collateral; (5) any
right or claim of right to cause a marshalling of the assets of Borrower; and
(6) all rights of subrogation or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code) or otherwise by reason of payment by Borrower,
either jointly or severally, pursuant to this Agreement or other Loan Documents.
Section 12.15 Jurisdiction; Immunities. Borrower, Administrative
Agent and each Bank hereby irrevocably submit to the jurisdiction of any New
York State or United States
59
<PAGE> 65
Federal court sitting in New York City over any action or proceeding arising out
of or relating to this Agreement, the Notes or any other Loan Document.
Borrower, Administrative Agent, and each Bank irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such New
York State or United States Federal court. Borrower, Administrative Agent, and
each Bank irrevocably consent to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to Borrower,
Administrative Agent or each Bank, as the case may be, at the addresses
specified herein. Borrower, Administrative Agent and each Bank agree that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Borrower, Administrative Agent and each Bank further waive any
objection to venue in the State of New York and any objection to an action or
proceeding in the State of New York on the basis of forum non conveniens.
Borrower, Administrative Agent and each Bank agree that any action or proceeding
brought against Borrower, Administrative Agent or any Bank, as the case may be,
shall be brought only in a New York State court sitting in New York City or a
United States Federal court sitting in New York City, to the extent permitted or
not expressly prohibited by applicable law.
Nothing in this Section shall affect the right of Borrower,
Administrative Agent or any Bank to serve legal process in any other manner
permitted by law.
To the extent that Borrower, Administrative Agent or any Bank have or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether from service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, Borrower, Administrative Agent and each Bank hereby irrevocably
waive such immunity in respect of its obligations under this Agreement, the
Notes and any other Loan Document.
BORROWER, ADMINISTRATIVE AGENT AND EACH BANK WAIVE ANY RIGHT EACH
SUCH PARTY MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE LOANS.
Section 12.16 Designated Lender. Any Bank (other than a Bank who is
such solely because it is a Designated Lender) (each, a "Designating Lender")
may at any time designate one (1) Designated Lender to fund Bid Rate Loans on
behalf of such Designating Lender subject to the terms of this Section and the
provisions in Section 12.05 shall not apply to such designation. No Bank may
designate more than one (1) Designated Lender. The parties to each such
designation shall execute and deliver to Administrative Agent for its acceptance
a Designation Agreement. Upon such receipt of an appropriately completed
Designation Agreement executed by a Designating Lender and a designee
representing that it is a Designated Lender, Administrative Agent will accept
such Designation Agreement and give prompt notice thereto to Borrower,
whereupon, (i) from and after the "Effective Date" specified in the Designation
Agreement, the Designated Lender shall become a party to this Agreement with a
right to make Bid Rate Loans on behalf of its Designating Lender pursuant to
Section 2.02 after Borrower has accepted the Bid Rate Quote of the Designating
Lender and (ii) the Designated Lender shall not be required to make payments
with respect to any obligations in this Agreement except to the extent of excess
cash flow of such Designated Lender which is not otherwise
60
<PAGE> 66
required to repay obligations of such Designated Lender which are then due and
payable; provided, however, that regardless of such designation and assumption
by the Designated Lender, the Designating Lender shall be and remain obligated
to Borrower, Administrative Agent and the Banks for each and every of the
obligations of the Designating Lender and its related Designated Lender with
respect to this Agreement, including, without limitation, any indemnification
obligations under Section 10.05. Each Designating Lender shall serve as the
administrative agent of its Designated Lender and shall on behalf of, and to the
exclusion of, the Designated Lender: (i) receive any and all payments made for
the benefit of the Designated Lender and (ii) give and receive all
communications and notices and take all actions hereunder, including, without
limitation, votes, approvals, waivers and consents under or relating to this
Agreement and the other Loan Documents. Any such notice, communication, vote,
approval, waiver or consent shall be signed by the Designating Lender as
administrative agent for the Designated Lender and shall not be signed by the
Designated Lender on its own behalf, but shall be binding on the Designated
Lender to the same extent as if actually signed by the Designated Lender.
Borrower, Administrative Agent and the Banks may rely thereon without any
requirement that the Designated Lender sign or acknowledge the same. No
Designated Lender may assign or transfer all or any portion of its interest
hereunder or under any other Loan Document, other than assignments to the
Designating Lender which originally designated such Designated Lender.
Section 12.17 No Bankruptcy Proceedings. Each of Borrower, the Banks
and Administrative Agent hereby agrees that it will not institute against any
Designated Lender or join any other Person in instituting against any Designated
Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under any federal or state bankruptcy or similar law, for one (1)
year and one (1) day after the payment in full of the latest maturing commercial
paper note issued by such Designated Lender.
Section 12.18 Year 2000. Borrower represents, warrants and covenants
that Borrower has taken and shall take all action reasonably necessary to assure
that its data processing and information technology systems are capable of
effectively processing data and information, including dates on and after
January 1, 2000, and shall not cease to perform, or provide, or cause any
software and/or system which is material to its operations or any interface
therewith to provide, invalid or incorrect results as a result of date
functionality and/or data, or otherwise experience any material degradation of
performance or functionality arising from, relating to or including date
functionality and/or data which represents or references different centuries or
more than one century or leap years, and that all such systems shall be
reasonably effective and accurate in managing and manipulating data derived
from, involving or relating in any way to dates (including single century
formulas and multi-century or leap year formulas), and will not cause a material
abnormally ending scenario within such systems or in any software and/or system
with which such systems interface, or generate materially incorrect values or
invalid results involving such dates. At the request of Administrative Agent,
Borrower shall provide Administrative Agent with reasonably acceptable assurance
of Borrower's year 2000 capability.
61
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
AVALON BAY COMMUNITIES, INC.
By: /S/ THOMAS J. SARGEANT [SEAL]
--------------------------
Name: Thomas J. Sargeant
Title: CFO
Address for Notices:
15 River Road
Suite 210
Wilton, CT 06897
Attention: Joanne M. Lockridge
Vice President - Finance
Telephone: (203) 761-6545
Telecopy: (203) 761-6560
UNION BANK OF SWITZERLAND
(New York Branch)
(as Co-Agent and Bank)
By: /S/ HOWARD MARGOLIS
---------------------------------
Name: Howard Margolis
Title: Vice President Real Estate Finance
By: /S/ JOSEPH M. BASSIL
---------------------------------
Name: Joseph M. Bassil
Title: Director
62
<PAGE> 68
Address for Notices and Applicable Lending Office:
Union Bank of Switzerland
299 Park Avenue
38th Floor
New York, New York 10171-0026
Attention: Xiomara Martez
Telephone: (212) 821-3872
Telecopy: (212) 821-4138
FLEET NATIONAL BANK (as Co-Agent, Bank and
Administrative Agent)
By: /S/ LISA SANDERS
---------------------------------
Name: Lisa Sanders
Title: Vice President
Address for Notices and Applicable Lending Office:
Fleet National Bank
One Landmark Square
12th Floor
P.O. Box 1454
Stamford, CT 06904
Attention: Ms. Lisa Sanders
Telephone: (203) 358-6278
Telecopy: (203) 358-2039
MORGAN GUARANTY TRUST COMPANY OF NEW YORK (as
Co-Agent and Bank)
By: /S/ TIMOTHY V. O'DONOVAN
---------------------------------
Name: Timothy V. O'Donovan
Title: Vice President
Address for Notices and Applicable Lending Office:
Morgan Guaranty Trust Company of New York
60 Wall Street, 22/F
New York, New York 10260
Attention: Timothy O'Donovan
Telephone: (212) 648-8111
Telecopy: (212) 648-5014
63
<PAGE> 69
AMSOUTH BANK
By: /S/ STEVEN R. CHESTER
---------------------------------
Name: Steven R. Chester
Title: Assistant Vice President
Applicable Lending Office and
Address for Notices:
AMSOUTH Bank
1900 5th Avenue North
P.O. Box 11007
Birmingham, AL 35203
Attention: Mr. Steven R. Chester
Telephone: (205) 326-4869
Telecopy: (205) 326-4075
64
<PAGE> 70
FIRST UNION NATIONAL BANK
By: /S/ JOHN A. SCHISSEL
---------------------------------
Name: John A. Schissel
Title: Director
Applicable Lending Office and
Address for Notices:
First Union National Bank
One First Union Center
301 South College Street
Real Estate Capital Markets - 6th Floor
Charlotte, NC 28288-0166
Attention: Mr. John Schissel
Telephone: (704) 383-1967
Telecopy: (704) 383-6205
65
<PAGE> 71
COMMERZBANK AKTIENGESELLSCHAFT
By: /S/ DOUGLAS P. TRAYNOR
---------------------------------
Name: Douglas P. Traynor
Title: Vice President
By: /S/ CHRISTINE H. FINKEL
---------------------------------
Name: Christine H. Finkel
Title: Assistant Vice President
Applicable Lending Office and :
Address for Notices:
Commerzbank Aktiengesellschaft
2 World Financial Center
New York, New York 10281
Attention: Mr. Douglas Traynor
Telephone: (212) 266-7569
Telecopy: (212) 266-7530
66
<PAGE> 72
DRESDNER BANK, AG, New York
Branch
By: /S/ JOHANNES BOECKMANN
---------------------------------
Name: Johannes Boeckman
Title: First Vice President
By: /S/ NEIL J. CRAWFORD
---------------------------------
Name: Neil J. Crawford
Title: Vice President
Applicable Lending Office and
Address for Notices:
Dresdner Bank AG, New York Branch
75 Wall Street
New York, NY 10005-2889
Attention: Mr. Neil Crawford
Telephone: (212) 429-2657
Telecopy: (212) 429-2781
67
<PAGE> 73
NATIONSBANK, N.A.
By /S/ CHERYL D. FITZGERALD
----------------------------
Name: Cheryl D. Fitzgerald
Title: Vice President
Applicable Lending Office
and Address for Notices:
NationsBank, N.A.
6610 Rockledge Drive
6/FL, MD2-600-06-14
Bethseda, MD 20817-1876
Attention: Mr. Mark Monte
Telephone: (301) 493-7188
Telecopy: (301) 493-2885
68
<PAGE> 74
THE SUMITOMO BANK, LIMITED
By /S/ YASVO MIYAZAWA
------------------------------
Name: Yasvo Miyazawa
Title: Joint General Manager
By
------------------------------
Name:
Title:
Applicable Lending Office
and Address for Notices:
The Sumitomo Bank, Limited
277 Park Avenue, 6th Floor
New York, NY 10172
Attention: Yasuo Miyazawa
Telephone: (212) 224-4016
Telecopy: (212) 224-4887
with a copy to:
The Sumitomo Bank, Limited
777 South Figueroa Street
Suite 2600
Los Angeles, CA 90017
Attention: Mickey Jannol
Telephone: (213) 955-0875
Telecopy: (213) 623-6832
69
<PAGE> 75
THE LONG TERM CREDIT BANK OF JAPAN
(LOS ANGELES AGENCY)
By /S/ BRIAN H. KELLEY
------------------------------
Name: Brian H. Kelley
Title: Deputy General Manager
Applicable Lending Office
and Address for Notices:
The Long Term Credit Bank of Japan
(Los Angeles Agency)
350 South Grande Avenue
Suite 3000
Los Angeles, CA 90071
Attention: Mr. Naoki Oshima
Telephone: (213) 629-6348
Telecopy: (213) 687-3921
70
<PAGE> 76
PNC BANK, NATIONAL ASSOCIATION
By /S/ ASHLEY J. SMITH
------------------------------
Name: Ashley J. Smith
Title: Assistant Vice President
Applicable Lending Office
and Address for Notices:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Mail Stop P1-POPP-19-2
Pittsburgh, PA 15222-2707
Attention: Real Estate Banking
Telephone: (412) 762-8519
Telecopy: (412) 768-5754
with a copy to:
PNC Bank, National Association
1401 Eye Street N.W.
Suite 200
Washington, DC 20005
Attention: Ms. Ashley Smith
Telephone: (202) 393-2752
Telecopy: (202) 393-1545
71
<PAGE> 77
SUMMIT BANK
By /S/ AMY L. BROWN
------------------------------
Name: Amy L. Brown
Title: Regional Vice President
Applicable Lending Office
and Address for Notices:
Summit Bank
1800 Chapel Avenue West
Cherry Hill, NJ 08002
Attention: Ms. Amy Brown
Telephone: (609) 486-3678
Telecopy: (609) 486-3717
72
<PAGE> 78
EXHIBIT A
---------
AUTHORIZATION LETTER
________ ___, 1998
Fleet National Bank
- ---------------------
- ---------------------
- ---------------------
Re: Revolving Loan Agreement dated as of ____________, 1998 (the
"Loan Agreement"; capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the
Loan Agreement) among us, as Borrower, the Banks named
therein, and you, as Administrative Agent for
said Banks ________
Gentlemen:
In connection with the captioned Loan Agreement, we hereby designate
any of the following persons to give to you instructions, including notices
required pursuant to the Loan Agreement, orally, by telephone or teleprocess, or
in writing:
[NAMES]
Instructions may be honored on the oral, telephonic, teleprocess or
written instructions of anyone purporting to be any one of the above designated
persons even if the instructions are for the benefit of the person delivering
them. We will furnish you with written confirmation of each such instruction
signed by any person designated above (including any telecopy which appears to
bear the signature of any person designated above) on the same day that the
instruction is provided to you, but your responsibility with respect to any
instruction shall not be affected by your failure to receive such confirmation
or by its contents.
A-1
<PAGE> 79
Without limiting the foregoing, we hereby unconditionally authorize
any one of the above-designated persons to execute and submit requests for
advances of proceeds of the Loans (including the Initial Advance) and notices of
Elections, Conversions and Continuations to you under the Loan Agreement with
the identical force and effect in all respects as if executed and submitted by
us.
You shall be fully protected in, and shall incur no liability to us
for, acting upon any instructions which you in good faith believe to have been
given by any person designated above, and in no event shall you be liable for
special, consequential or punitive damages. In addition, we agree to hold you
and your agents harmless from any and all liability, loss and expense arising
directly or indirectly out of instructions that we provide to you in connection
with the Loan Agreement except for liability, loss or expense occasioned by your
gross negligence or willful misconduct.
Upon notice to us, you may, at your option, refuse to execute any
instruction, or part thereof, without incurring any responsibility for any loss,
liability or expense arising out of such refusal if you in good faith believe
that the person delivering the instruction is not one of the persons designated
above or if the instruction is not accompanied by an authentication method that
we have agreed to in writing.
We will promptly notify you in writing of any change in the persons
designated above and, until you have actually received such written notice and
have had a reasonable opportunity to act upon it, you are authorized to act upon
instructions, even though the person delivering them may no longer be
authorized.
Very truly yours,
AVALON BAY COMMUNITIES, INC.
By
------------------------------
Name:
Title:
A-2
<PAGE> 80
EXHIBIT B
---------
RATABLE LOAN NOTE
$___________ New York, New York
__________, 199_
For value received, Avalon Bay Communities, Inc., a Maryland
corporation ("Borrower"), hereby promises to pay to the order of ___________ or
its successors or assigns (collectively, the "Bank"), at the principal office of
Fleet National Bank _______________ _______________________ ("Administrative
Agent") for the account of the Applicable Lending Office of the Bank, the
principal sum of ________ Dollars ($____________), or if less, the amount loaned
by the Bank under its Ratable Loan to Borrower pursuant to the Loan Agreement
(as defined below) and actually outstanding, in lawful money of the United
States and in immediately available funds, in accordance with the terms set
forth in the Loan Agreement. Borrower also promises to pay interest on the
unpaid principal balance hereof, for the period such balance is outstanding, in
like money, at said office for the account of said Applicable Lending Office, at
the time and at a rate per annum as provided in the Loan Agreement. Any amount
of principal hereof which is not paid when due, whether at stated maturity, by
acceleration, or otherwise, shall bear interest from the date when due until
said principal amount is paid in full, payable on demand, at the rate set forth
in the Loan Agreement.
The date and amount of each advance of the Ratable Loan made by the
Bank to Borrower under the Loan Agreement referred to below, and each payment of
said Ratable Loan, shall be recorded by the Bank on its books and, prior to any
transfer of this Note (or, at the discretion of the Bank, at any other time),
may be endorsed by the Bank on the schedule attached hereto and any continuation
thereof.
This Note is one of the Ratable Loan Notes referred to in the
Revolving Loan Agreement dated as of ________ __, 1998 (as the same may be
amended from time to time, the "Loan Agreement") among Borrower, the Banks named
therein (including the Bank) and Administrative Agent, as administrative agent
for the Banks. All of the terms, conditions and provisions of the Loan Agreement
are hereby incorporated by reference. All capitalized terms used herein and not
defined herein shall have the meanings given to them in the Loan Agreement.
The Loan Agreement contains, among other things, provisions for the
prepayment of and acceleration of this Note upon the happening of certain stated
events.
No recourse shall be had under this Note against Borrower's
Principals except as and to the extent set forth in Section 11.02 of the Loan
Agreement.
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
B-1
<PAGE> 81
This Note shall be governed by the Laws of the State of New York,
provided that, as to the maximum lawful rate of interest which may be charged or
collected, if the Laws applicable to the Bank permit it to charge or collect a
higher rate than the Laws of the State of New York, then such Law applicable to
the Bank shall apply to the Bank under this Note.
AVALON BAY COMMUNITIES, INC.
By [SEAL]
-----------------------------
Name:
Title:
B-2
<PAGE> 82
Amount Amount Balance
Date of Advance of Payment Outstanding Notation By
---- ---------- ---------- ----------- -----------
B-3
<PAGE> 83
EXHIBIT B-1
-----------
BID RATE LOAN NOTE
$400,000,000 New York, New York
__________, 199_
For value received, Avalon Bay Communities, Inc., a Maryland
corporation ("Borrower"), hereby promises to pay to the order of Fleet National
Bank ("Administrative Agent") or its successors or assigns for the account of
the respective Banks making Bid Rate Loans or their respective successors or
assigns (for the further account of their respective Applicable Lending
Offices), at the principal office of Administrative Agent located at
_____________________________________________________, the principal sum of Four
Hundred Million Dollars ($400,000,000), or if less, the amount loaned by one or
more of said Banks under their respective Bid Rate Loans to Borrower pursuant to
the Loan Agreement (as defined below) and actually outstanding, in lawful money
of the United States and in immediately available funds, in accordance with the
terms set forth in the Loan Agreement. Borrower also promises to pay interest on
the unpaid principal balance hereof, for the period such balance is outstanding,
in like money, at said office for the account of said Banks for the further
account of their respective Applicable Lending Offices, at the times and at the
rates per annum as provided in the Loan Agreement. Any amount of principal
hereof which is not paid when due, whether at stated maturity, by acceleration,
or otherwise, shall bear interest from the date when due until said principal
amount is paid in full, payable on demand, at the rate set forth in the Loan
Agreement.
The date and amount of each Bid Rate Loan to Borrower under the Loan
Agreement referred to below, the name of the Bank making the same, the interest
rate applicable thereto and the maturity date thereof (i.e., the end of the
Interest Period Applicable thereto) shall be recorded by Administrative Agent on
its records and may be endorsed by Administrative Agent on the schedule attached
hereto and any continuation thereof.
This Note is the Bid Rate Loan Note referred to in the Revolving
Loan Agreement dated as of ______________, 1998 (as the same may be amended from
time to time, the "Loan Agreement") among Borrower, the Banks named therein and
Administrative Agent, as administrative agent for the Banks. All of the terms,
conditions and provisions of the Loan Agreement are hereby incorporated by
reference. All capitalized terms used herein and not defined herein shall have
the meanings given to them in the Loan Agreement.
The Loan Agreement contains, among other things, provisions for the
prepayment of and acceleration of this Note upon the happening of certain stated
events.
No recourse shall be had under this Note against the Borrower's
Principals except as and to the extent set forth in Section 11.02 of the Loan
Agreement.
B-1-1
<PAGE> 84
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
This Note shall be governed by the laws of the State of New York,
provided that, as to the maximum lawful rate of interest which may be charged or
collected, if the laws applicable to a particular Bank permit it to charge or
collect a higher rate than the laws of the State of New York, then such law
applicable to such Bank shall apply to such Bank under this Note.
AVALON BAY COMMUNITIES, INC.
By [SEAL]
----------------------------
Name:
Title:
B-1-2
<PAGE> 85
Bid Maturity (i.e.,
Rate Date of Principal Interest Expiration of
Loan # Bank Advance Amount Rate Interest Period)
- ------ ---- ------- --------- -------- ----------------
B-1-3
<PAGE> 86
EXHIBIT B-2
-----------
SWING LOAN NOTE
New York, New York
__________, 199_
For value received, Avalon Bay Communities, Inc., a Maryland
corporation ("Borrower"), hereby promises to pay to the order of ___________ or
its successors or assigns (collectively, the "Bank"), at the principal office of
Fleet National Bank _______________ _______________________ ("Administrative
Agent") for the account of the Applicable Lending Office of the Bank, the
principal sum equal to the amount loaned by the Bank under its Swing Loan to
Borrower pursuant to the Loan Agreement (as defined below) and actually
outstanding, in lawful money of the United States and in immediately available
funds, in accordance with the terms set forth in the Loan Agreement. Borrower
also promises to pay interest on the unpaid principal balance hereof, for the
period such balance is outstanding, in like money, at said office for the
account of said Applicable Lending Office, at the time and at a rate per annum
as provided in the Loan Agreement. Any amount of principal hereof which is not
paid when due, whether at stated maturity, by acceleration, or otherwise, shall
bear interest from the date when due until said principal amount is paid in
full, payable on demand, at the rate set forth in the Loan Agreement.
The date and amount of each advance of the Swing Loan made by the
Bank to Borrower under the Loan Agreement referred to below, and each payment of
said Swing Loan, shall be recorded by the Bank on its books and, prior to any
transfer of this Note (or, at the discretion of the Bank, at any other time),
may be endorsed by the Bank on the schedule attached hereto and any continuation
thereof.
This Note is one of the Swing Loan Notes referred to in the
Revolving Loan Agreement dated as of ________ __, 1998 (as the same may be
amended from time to time, the "Loan Agreement") among Borrower, the Banks named
therein (including the Bank) and Administrative Agent, as administrative agent
for the Banks. All of the terms, conditions and provisions of the Loan Agreement
are hereby incorporated by reference. All capitalized terms used herein and not
defined herein shall have the meanings given to them in the Loan Agreement.
The Loan Agreement contains, among other things, provisions for the
prepayment of and acceleration of this Note upon the happening of certain stated
events.
No recourse shall be had under this Note against Borrower's
Principals except as and to the extent set forth in Section 11.02 of the Loan
Agreement.
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
B-2-1
<PAGE> 87
This Note shall be governed by the Laws of the State of New York,
provided that, as to the maximum lawful rate of interest which may be charged or
collected, if the Laws applicable to the Bank permit it to charge or collect a
higher rate than the Laws of the State of New York, then such Law applicable to
the Bank shall apply to the Bank under this Note.
AVALON BAY COMMUNITIES, INC.
By [SEAL]
-----------------------------
Name:
Title:
B-2-2
<PAGE> 88
Amount Amount Balance
Date of Advance of Payment Outstanding Notation By
---- ---------- ---------- ----------- -----------
B-2-3
<PAGE> 89
EXHIBIT C
---------
MATERIAL AFFILIATES
State of Borrower's % Principal
Name Formation Age Interest Business
- ---- --------- ------------ --------
C-1
<PAGE> 90
EXHIBIT D
---------
SOLVENCY CERTIFICATE
The person executing this certificate is the _______________ of
Avalon Bay Communities, Inc., a Maryland corporation ("Borrower"), and is
familiar with its properties, assets and businesses, and is duly authorized to
execute this certificate on behalf of Borrower pursuant to Section 4.01(7) of
the Revolving Loan Agreement dated the date hereof (the "Loan Agreement") among
Borrower, the banks party thereto (each a "Bank" and collectively, the "Banks")
and Fleet National Bank, as administrative agent for the Banks (in such
capacity, together with its successors in such capacity, "Administrative
Agent"). In executing this Certificate, such person is acting solely in his or
her capacity as the _________ of Borrower, and not in his or her individual
capacity. Unless otherwise defined herein, terms defined in the Loan Agreement
are used herein as therein defined.
The undersigned further certifies that he or she has carefully
reviewed the Loan Agreement and the other Loan Documents and the contents of
this Certificate and, in connection herewith, has made such investigation and
inquiries as he or she deems reasonably necessary and prudent therefor. The
undersigned further certifies that the financial information and assumptions
which underlie and form the basis for the representations made in this
Certificate were reasonable when made and were made in good faith and continue
to be reasonable as of the date hereof.
The undersigned understands that Administrative Agent, Co-Agents and
the Banks are relying on the truth and accuracy of this Certificate in
connection with the transactions contemplated by the Loan Agreement.
The undersigned certifies that Borrower is Solvent.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
________ ___, 1998.
------------------------------
Name:
D-1
<PAGE> 91
\ EXHIBIT E
---------
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of __________, 199_,
among [INSERT NAME OF ASSIGNING BANK] ("Assignor"), [INSERT NAME OF ASSIGNEE]
("Assignee"), Avalon Bay Communities, Inc., a Maryland corporation ("Borrower")
and [INSERT NAME OF ADMINISTRATIVE AGENT], as administrative agent for the Banks
referred to below (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
Preliminary Statement
---------------------
1. This Assignment and Assumption Agreement (this "Agreement")
relates to the Revolving Loan Agreement dated _____________, 1998 (as the same
may be amended from time to time, the "Loan Agreement") among Borrower, the
banks party thereto (each a "Bank" and, collectively, the "Banks") and the
Administrative Agent. All capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Loan Agreement.
2. Subject to the terms and conditions set forth in the Loan
Agreement, Assignor has made a Loan Commitment to Borrower in an aggregate
principal amount of ___________ Dollars ($____________) ("Assignor's Loan
Commitment").
3. The aggregate outstanding principal amount of Assignor's
Ratable Loan made pursuant to Assignor's Loan Commitment at commencement of
business on the date hereof is __________ Dollars ($__________). The aggregate
outstanding principal amount of Bid Rate Loans made by Assignor to Borrower at
the commencement of business on the date hereof is
______________________________ Dollars ($______________). [IF ASSIGNMENT IS BY
SWING LENDER, INDICATE AMOUNT OF SWING LOAN COMMITMENT AND OUTSTANDING
PRINCIPAL.]
4. Assignor desires to assign to Assignee (a) all of the rights
of Assignor under the Loan Agreement in respect of a portion of its (i) Ratable
Loan and Loan Commitment thereunder in an amount equal to __________ Dollars
($__________) and (ii) Bid Rate Loans in an amount equal to
______________________ Dollars ($__________________) [IF SWING LOAN IS TO BE
ASSIGNED, SO INDICATE] (collectively, the "Assigned Loan and Commitment"); and
Assignee desires to accept assignment of such rights and assume the
corresponding obligations from Assignor on such terms.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Assignment. Assignor hereby assigns and sells to Assignee
all of the rights of Assignor under the Loan Agreement in and to the Assigned
Loan and Commitment, and Assignee hereby accepts such assignment from Assignor
and assumes all of the obligations
E-1
<PAGE> 92
of Assignor under the Loan Agreement with respect to the Assigned Loan and
Commitment. Upon the execution and delivery hereof by Assignor, Assignee,
Borrower and the Administrative Agent and the payment of the amount specified in
Section 2 hereof required to be paid on the date hereof, (1) Assignee shall, as
of the commencement of business on the date hereof, succeed to the rights and
obligations of a Bank under the Loan Agreement with a Loan and a Loan Commitment
in amounts equal to the Assigned Loan and Commitment, and (2) the Loan and Loan
Commitment of Assignor shall, as of the commencement of business on the date
hereof, be reduced correspondingly and Assignor released from its obligations
under the Loan Agreement to the extent such obligations have been assumed by
Assignee. The assignment provided for herein shall be without recourse to
Assignor.
SECTION 2. Payments. As consideration for the assignment and sale
contemplated in Section 1 hereof, Assignee shall pay to Assignor on the date
hereof in immediately available funds an amount equal to __________ Dollars
($___________) [insert the amount of that portion of Assignor's Loan being
assigned]. It is understood that any fees paid to Assignor under the Loan
Agreement are for the account of Assignor. Each of Assignor and Assignee hereby
agrees that if it receives any amount under the Loan Agreement which is for the
account of the other party hereto, it shall receive the same for the account of
such other party to the extent of such other party's interest therein and shall
promptly pay the same to such other party.
SECTION 3. [Consent and Acknowledgment] Execution and Delivery of
Note. [This Agreement is conditioned upon the consent of Co-Agents and, provided
there exists no Event of Default of Borrower, and the acknowledgment by the
Administrative Agent pursuant to Section 12.05 of the Loan Agreement. The
execution of this Agreement by Co-Agents, Borrower and the Administrative Agent
is evidence of this consent and acknowledgment, respectively. ONLY NECESSARY IF
ASSIGNEE IS NOT A MAJORITY OWNED SUBSIDIARY OF A BANK OR OF THE PARENT OF A
BANK] Pursuant to Section 12.05 of the Loan Agreement, Borrower has agreed to
execute and deliver Ratable Loan Notes payable to the respective orders of
Assignee and Assignor to evidence the assignment and assumption provided for
herein.
SECTION 4. Non-Reliance on Assignor. Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of Borrower or
any other party to any Loan Document, or the validity and enforceability of the
obligations of Borrower or any other party to a Loan Document in respect of the
Loan Agreement or any other Loan Document. Assignee acknowledges that it has,
independently and without reliance on Assignor, and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of Borrower and the other parties to the Loan Documents.
SECTION 5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
E-2
<PAGE> 93
SECTION 6. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 7. Certain Representations and Agreements by Assignee.
Reference is made to Section 10.13 of the Loan Agreement. Assignee hereby
represents that it is entitled to receive any payments to be made to it under
the Loan Agreement or hereunder without the withholding of any tax and agrees to
furnish the evidence of such exemption as specified therein and otherwise to
comply with the provisions of said Section 10.13.
E-3
<PAGE> 94
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[NAME OF ASSIGNOR]
By
----------------------------
Name:
Title:
[NAME OF ASSIGNEE]
By
----------------------------
Name:
Title:
Applicable Lending Office:
Address for Notices:
[Assignee]
[Address]
Attention:
---------------
Telephone: (___) ________
Telecopy: (___) ________
AVALON BAY COMMUNITIES, INC.
By
----------------------------
Name:
Title:
FLEET NATIONAL BANK
(as Administrative Agent and Co-Agent)
By
----------------------------
Name:
Title:
E-4
<PAGE> 95
UNION BANK OF SWITZERLAND
(New York Branch)
(as Co-Agent)
By
----------------------------
Name:
Title:
By
----------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
(as Co-Agent)
By
----------------------------
Name:
Title:
E-5
<PAGE> 96
EXHIBIT F
---------
Designation Agreement
---------------------
Reference is made to that certain Revolving Loan Agreement dated as
of ____________, 1998 (as amended, supplemented or otherwise modified from time
to time, the "Loan Agreement") among Avalon Bay Communities, Inc., a Maryland
corporation, the banks parties thereto, and Fleet National Bank, as
administrative agent for said banks. Terms defined in the Loan Agreement not
otherwise defined herein are used herein with the same meaning.
[BANK] ("Designor") and ____________________, a ____________________
("Designee") agree as follows:
1. Designor hereby designates Designee, and Designee hereby
accepts such designation, to have a right to make Bid Rate Loans pursuant to
Section 2.02 of the Loan Agreement. Any assignment by Designor to Designee of
its rights to make a Bid Rate Loan pursuant to such Section shall be effective
at the time of the funding of such Bid Rate Loan and not before such time.
2. Except as set forth in Section 6 below, Designor makes no
representation or warranty and assumes no responsibility pursuant to this
Designation Agreement with respect to (a) any statements, warranties or
representations made in or in connection with any Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any other instrument and document furnished pursuant
thereto and (b) the financial condition of Borrower or the performance or
observance by Borrower of any of its obligations under any Loan Document or any
other instrument or document furnished pursuant thereto.
3. Designee (a) confirms that it has received a copy of each
Loan Document, together with copies of such financial statements and other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Designation Agreement; (b) agrees that
it will independently and without reliance upon Administrative Agent, Designor
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under any Loan Document; (c) represents that it is a
Designated Lender; (d) appoints and authorizes Administrative Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
any Loan Document as are delegated to Administrative Agent by the terms thereof,
together with such powers and discretion as are reasonably incidental thereto;
and (e) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of any Loan Document are required to be performed
by it as a Bank.
4. Designee hereby appoints Designor as Designee's agent and
attorney-in-fact, and grants to Designor an irrevocable power of attorney, to
receive payments made for the benefit of Designee under the Loan Agreement, to
deliver and receive all communications and notices under the Loan Agreement and
other Loan Documents and to exercise on Designee's behalf all rights to vote and
to grant and make approvals, waivers, consents or amendments to or under the
Loan Agreement or other Loan Documents. Any document executed by Designor on
F-1
<PAGE> 97
Designee's behalf in connection with the Loan Agreement or other Loan Documents
shall be binding on Designee. Borrower, Administrative Agent and each of the
Banks may rely on and are beneficiaries of this Designation Agreement.
5. Following the execution of this Designation Agreement by
Designor and Designee, it will be delivered to Administrative Agent for
acceptance by Administrative Agent. The effective date for this Designation
Agreement (the "Effective Date") shall be the date of acceptance hereof by
Administrative Agent.
6. Designor unconditionally agrees to pay or reimburse Designee
and save Designee harmless against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed or asserted by any of the
parties to the Loan Documents against Designee, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Designee hereunder or thereunder, provided
that Designor shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from Designee's gross negligence
or willful misconduct.
7. As of the Effective Date, Designee shall be a party to the
Loan Agreement with a right to make Bid Rate Loans as a Bank pursuant to Section
2.02 of the Loan Agreement and the rights and obligations of a Bank related
thereto; provided, however, that Designee shall not be required to make payments
with respect to such obligations except to the extent of excess cash flow of
such Designee which is not otherwise required to repay obligations of such
Designated Lender which are then due and payable. Notwithstanding the foregoing,
Designor, as administrative agent for Designee, shall be and remain obligated to
Borrower, Administrative Agent and the Banks for each and every of the
obligations of Designee and its Designor with respect to the Loan Agreement,
including, without limitation, any indemnification obligations under Section
10.05 of the Loan Agreement.
8. This Designation Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
9. This Designation Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Designor and Designee have executed and
delivered this Designation Agreement as of the date first set forth above.
[DESIGNOR]
By
--------------------------
Name:
Title:
F-2
<PAGE> 98
[DESIGNEE]
By
--------------------------
Name:
Title:
Applicable Lending Office
and Address for Notices:
---------------------------
---------------------------
---------------------------
Attention:
---------------
Telephone: (___) ________
Telecopy: (___) ________
ACCEPTED AS OF THE ___ DAY OF
___________, 199__.
[ADMINISTRATIVE AGENT], as
Administrative Agent
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
F-3
<PAGE> 99
EXHIBIT G-1
-----------
BID RATE QUOTE REQUEST
[Date]
To: [ADMINISTRATIVE AGENT], as Administrative Agent (the "Administrative
Agent")
From: [Borrower]
Re: Revolving Loan Agreement (the "Loan Agreement") dated as of
_____________, 1998 among [Borrower], the Banks parties thereto and the
Administrative Agent
We hereby give notice pursuant to Section 2.02 of the Loan Agreement
that we request Bid Rate Quotes for the following proposed Bid Rate Loans:
Date of Borrowing:
-----------------------
Principal Amount* Interest Period**
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a(n) [LIBOR Bid Margin] [Absolute
Bid Rate].
Terms used herein have the meanings assigned to them in the Loan
Agreement.
[BORROWER]
By
----------------------------------
Name:
Title:(1)
- -------------------
* Subject to the minimum amount and other requirements set forth in
Section 2.02(a) of the Loan Agreement.
** Subject to the provisions regarding "Interest Period" in the Loan
Agreement.
G-1-1
<PAGE> 100
EXHIBIT G-2
-----------
INVITATION FOR BID RATE QUOTES
To: [Bank]
Re: Invitation for Bid Rate Quotes to [Borrower] ("Borrower")
Pursuant to Section 2.02 of the Revolving Loan Agreement dated as of
_____________, 1998 among Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of Borrower to
invite you to submit Bid Rate Quotes to Borrower for the following proposed Bid
Rate Loans:
Date of Borrowing: ________________________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a(n) [LIBOR Bid Margin] [Absolute
Bid Rate].
Please respond to this invitation by no later than 2:00 P.M. (New
York time) on [date].
[ADMINISTRATIVE AGENT], as
Administrative Agent
By
------------------------------
Name:
Title:
By
------------------------------
Name:
Title:
G-2-1
<PAGE> 101
EXHIBIT G-3
-----------
BID RATE QUOTE
To: [ADMINISTRATIVE AGENT], as Administrative Agent
Re: Bid Rate Quote to [Borrower] ("Borrower") pursuant to the Revolving
Loan Agreement dated __________, 1998 among Borrower, the Banks
party thereto and Administrative Agent (the "Loan Agreement")
In response to your invitation on behalf of Borrower dated
_______________, 19__, we hereby make the following Bid Rate Quote on the
following terms:
1. Quoting Bank:
2. Person to contact at quoting Bank:
--------------------------------------------
*
3. Date of borrowing:
----------------------------
4. We hereby offer to make Bid Rate Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
<TABLE>
<CAPTION>
Principal Interest LIBOR Bid Absolute
Amount** Period*** Margin**** Bid Rate
- -------- --------- ---------- --------
<S> <C>
$
$ 1
</TABLE>
[Provided, that the aggregate principal amount of Bid Rate Loans for which
the above offers may be accepted shall not exceed $____________.]
5. LIBOR Reserve Requirement, if any: _____________________.
6. Terms used herein have the meanings assigned to them in the Loan
Agreement.
- -------------------
* As specified in the related Invitation for Bid Rate Quotes.
** Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Amounts of
bids are subject to the requirements of Section 2.02(c) of the Loan Agreement.
*** No more than three (3) bids are permitted for each Interest
Period.
**** Margin over or under the LIBOR Interest Rate determined for
the applicable Interest Period. Specify percentage (to the nearest 1/1,000
of 1%) and specify whether "PLUS" OR "MINUS".
G-3-1
<PAGE> 102
We understand and agree that the offer(s) set forth above, subject
to the satisfaction of the applicable conditions set forth in the Loan
Agreement, irrevocably obligates us to make the Bid Rate Loan(s) for which any
offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Date: By:
------------------ -----------------------
Authorized Officer
G-3-2
<PAGE> 103
EXHIBIT G-4
-----------
ACCEPTANCE OF BID RATE QUOTE
To: [ADMINISTRATIVE AGENT], as Administrative Agent (the "Administrative
Agent")
From: [Borrower]
Re: Revolving Loan Agreement (the "Loan Agreement") dated as of _______,
1998 among [Borrower], the Banks parties thereto and
the Administrative Agent
We hereby accept the offers to make Bid Rate Loan(s) set forth in
the Bid Rate Quote(s) identified below:
Date of Bid Principal Interest LIBOR Bid Absolute
Bank Rate Quote Amount Period Margin Bid Rate
- ---- ----------- --------- -------- --------- --------
Very truly yours,
[BORROWER]
By:
-----------------------
Name:
Title:
G-4-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,060
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,377
<PP&E> 3,759,228
<DEPRECIATION> 103,261
<TOTAL-ASSETS> 3,765,185
<CURRENT-LIABILITIES> 148,821
<BONDS> 1,331,059
0
143
<COMMON> 636
<OTHER-SE> 2,252,203
<TOTAL-LIABILITY-AND-EQUITY> 3,765,185
<SALES> 0
<TOTAL-REVENUES> 70,524
<CGS> 0
<TOTAL-COSTS> 28,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,152
<INCOME-PRETAX> 18,242
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,242
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
